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November 9, 2020

Brazilian Supreme Court holds software sales will not be subject to state value-added tax

The STF decision offers certainty to taxpayers and tax authorities on the treatment of the licensing of, or right to use, software. Taxpayers may want to consider the effect the decision has on their operations.

On November 4, 2020, the Brazilian Supreme Court (STF) held that the state value-added tax (VAT or ICMS) does not apply to the licensing of, or right to use, software. The STF found, however, that the municipal service tax (ISS) applies to the licensing of, or right to use, software because they are services.


The STF's holding was based on the ISS national guidelines (Supplementary Law 116/2003), which require software license agreements, as well as the right to use software, to be considered as the rendering of services. According to the decision, this treatment applies regardless of whether the transfer of use is via download or through cloud access.

The STF also found that licensing or the right to use software should be considered a service subject to ISS because:

  • The development of software is a service resulting from human effort and intellectual creation, even for the mass standardized production and sale of software.
  • Legal certainty is preserved by following the guidelines in Supplementary Law 116/2003 on software-sale transactions.
  • Ownership is not transferred on the licensing of, or right to use, software.           


Generally, transactions involving the rendering of services and sales of goods have caused disputes between taxpayers and the tax authorities. The digital economy is bringing these disputes to the spotlight, primarily because Brazil's tax legislation has not been updated to account for this new environment. Because different jurisdictions within Brazil impose the ISS and ICMS (municipalities and states, respectively), the municipal and state authorities have argued over which tax is triggered by a software sale. For this reason, the STF decision will offer some certainty for Brazilian taxpayers and tax authorities.

Although a majority of the STF agreed to this holding, the decision is not final. The decision, including a determination of whether it will apply retroactively or prospectively, still has to be published.

Technology companies with a presence in Brazil may want to consider reassessing their tax position in relation to software sales, reviewing how the decision affects the overall tax burden on their distribution chain, and revisiting pricing.


Contact Information
For additional information concerning this Alert, please contact:
Ernst & Young Assessoria Empresarial Ltda, São Paulo
   • Gustavo Carmona Sanches (
   • Audrei Okada (
   • Erica Perin (
   • Waine Peron (
   • Rodrigo Munhoz (
Ernst & Young LLP (United States), Latin American Business Center, New York
   • Tiago Aguiar (
   • Fernanda Salzedas (
   • Pablo Wejcman (