Exclusion of the ISS from the PIS/COFINS base.
The “offspring thesis” of the Century — RE 592.616 / Theme 118.

The “offspring thesis” of Theme 69

In Theme 69 (RE 574.706), the STF held that the ICMS does not form part of the PIS/COFINS calculation base, because it is an amount that merely passes through the company’s cash and does not constitute revenue — the “Thesis of the Century”.

The exclusion of the ISS from PIS/COFINS (RE 592.616 / Theme 118) applies the same reasoning to an analogous tax: the ISS, like the ICMS, would be an amount that does not represent the service provider’s own revenue. That is why it is called an “offspring thesis”. The decisive difference: Theme 69 is decided and modulated; Theme 118 is not yet.

At the core lies the concept of revenue: for the favorable view, revenue is an inflow that is permanently added to equity — and the ISS, shown in the price and passed on to the municipality, would not have that nature, being a mere accounting pass-through. The discussion is not new: it matured from RE 240.785 (the STF’s first favorable precedent for the ICMS, still without binding effect) to the settling of Theme 69 under general repercussion. Theme 118 is the natural extension of that reasoning to the municipal tax — hence the strength of the thesis, and also the resistance of those who see in the ISS a distinct materiality.

Why the ISS should not be in the base — and what the Treasury answers

The thesis rests on two constitutional pillars. The first is the concept of revenue or turnover (Federal Constitution, art. 195, I, "b"): PIS and COFINS are levied on the taxpayer’s revenue, and the ISS shown on the invoice would be merely an amount that passes through the cash of the provider on its way to the municipality — it is not added to equity and therefore would not be its own revenue. It is the same ratio the STF adopted in Theme 69 for the ICMS.

The second pillar is the ability to pay (Federal Constitution, art. 145, §1): including one tax in the calculation base of another artificially inflates that base and makes the contribution reach an amount that does not represent the taxpayer’s own wealth.

The National Treasury argues the opposite, and these are arguments that weigh on the divided tally: the ISS is part of the price of the service and therefore would compose gross revenue; there is no express legal provision for the exclusion; the ISS is a municipal tax with its own regime and materiality, which would prevent the automatic application of the ICMS precedent; and there is the budgetary impact of extending the thesis. The outcome depends on which reading of “revenue” prevails — which is why the thesis is promising, but not settled.

There is also a layer of competence that explains why the case runs at the Supreme Court. Because the dispute is about the constitutional concept of revenue (CF, art. 195), the final word lies with the STF, under general repercussion — not the STJ, which would handle a mere infra-constitutional definition of the base. And it is precisely in the distinction between the ICMS (state, non-cumulative) and the ISS (municipal, with its own materiality) that the side for keeping it relies on to argue that the parent thesis does not extend automatically to the offspring — which helps explain the balance of the tally.

The tally: a 5-5 tie

Theme 118 is tied 5-5. Voting for the exclusion of the ISS (favorable to the taxpayer) were Justices Lewandowski, Cármen Lúcia, Celso de Mello, Rosa Weber and André Mendonça; for keeping the ISS in the base, Justices Toffoli, Fachin, Alexandre de Moraes, Barroso and Gilmar Mendes. The decisive vote of Justice Luiz Fux is missing — who, in Theme 69, voted in favor of taxpayers (this is a forecast, not a guarantee).

The case was removed from the docket of February 25, 2026 and, so far, there is no new date. There is no res judicata or modulation of effects.

The timeline of the ruling

The STF recognized the general repercussion of the question — whether the ISS composes the PIS/COFINS base — and the case proceeded as Theme 118. The votes were cast over time, in the Virtual Plenary, until the 5-5 tie formed.

There is a procedural detail that increases the uncertainty: part of the votes for the exclusion were cast by Justices now retired (Lewandowski, Celso de Mello, Rosa Weber and Barroso). A possible highlight request (destaque) — which takes the case to the physical plenary — may restart the judgment and require a new collection of votes, so the current 5-5 is not necessarily the final tally.

On February 25, 2026, the judgment was removed from the docket by decision of the STF president (Justice Edson Fachin), with no new date set. Today, the case awaits the tie-breaking vote of Justice Luiz Fux, without modulation or res judicata.

Who benefits most

The thesis is of interest, above all, to service companies with a relevant ISS in their revenue: law firms, engineering and architecture, IT and software, advertising and private healthcare and education providers with a significant ISS burden. The larger the share of ISS embedded in revenue, the greater the amount in dispute — the concrete effect depends on each company’s profile.

The effect tends to be more sensitive for those under the cumulative regime (Law 9.718) — common among service companies under deemed-profit taxation —, where there are no credits to offset and PIS/COFINS is levied on the full gross revenue, ISS included. Labor-intensive, low-material-input activities such as law, consulting, architecture and technology tend to carry the ISS as a significant share of the price — and therefore of the base. Providers under the non-cumulative regime must assess the net effect considering the credit system.

The usual caveat applies: the benefit only materializes if the STF decides for the exclusion — which has not yet happened. The sizing serves precisely to prioritize who has more to safeguard and in what order to act, without assuming the outcome of the judgment.

How to size the exposure

Before any action, the TaxUp team measures the size of the exposure — how much of the PIS/COFINS paid falls on the ISS portion. Today the ISS is shown within the service price and composes the gross revenue on which PIS and COFINS are calculated; excluding it reduces the base, and the amount in dispute is the difference between what was paid and what would be due without the ISS in the count.

Two factors define the size. The ISS rate of the municipality — generally 2% to 5% (LC 116/2003) — and the company’s PIS/COFINS regime: cumulative (Law 9.718/1998, 3.65% in total) or non-cumulative (Laws 10.637/2002 and 10.833/2003, 9.25%). The higher the embedded ISS and the service revenue, the greater the portion at stake.

There is no single “savings” percentage: the base has not yet been defined by the STF and the ISS varies from municipality to municipality. That is why the work is case-by-case sizing — measuring, month by month, the ISS actually embedded in the taxed revenue and projecting the effect under each outcome scenario, without promising a figure.

The strategy: a prospective writ of mandamus

While the STF has not decided, the technical route is not to “recover”, but to safeguard. The preventive/prospective writ of mandamus allows requesting the suspension of the enforceability of the portion of PIS/COFINS levied on the ISS — by preliminary injunction and/or judicial deposit of the disputed amount (which removes default interest) — and having a suit filed before any decision.

Thus: if the thesis prevails, the company already holds a title to recover the overpayment for the covered period; if it loses, it withdraws the deposit or pays without a penalty. It is risk management, not guaranteed recovery.

Injunction, deposit and timing: the instruments

The central instrument is the preventive writ of mandamus, available given the well-founded fear of assessment for not paying PIS/COFINS on the ISS. Within it, two paths suspend the enforceability of the tax (CTN, art. 151):

The injunction (art. 151, IV and V) suspends the charge immediately, relying on the ratio of Theme 69 and on the imminent assessment — but it is discretionary and may be denied or revoked. The full judicial deposit (art. 151, II) suspends enforceability regardless of an injunction and freezes interest and penalty: if the thesis prevails, the taxpayer withdraws the amount; if it loses, it converts into payment, without default. It is the more predictable route when the injunction is uncertain — at the cost of tying up cash.

The timing also matters: the refund claim prescribes in five years (LC 118/2005), so each passing month prescribes a month of potential credit at the oldest end. And, with general repercussion recognized, cases on the matter may be stayed until the judgment (CPC, art. 1.035, §5) — which does not prevent filing to fix one’s position and date from the outset.

For sectors with many taxpayers in the same situation — law, engineering, IT —, the collective writ of mandamus, filed by a class entity, may complement the individual route. The choice between injunction, deposit and collective action is risk management, defined case by case.

Modulation scenarios: what may happen at the outcome

If and when the STF decides for the exclusion, the decisive question for the past arises: from when does it apply? That is the modulation of effects. For Theme 118 it does not yet exist — there is no decision — so everything here is a forecast, read by analogy to Theme 69, and not a guarantee.

The real anchor is Theme 69: at the merits judgment (03.15.2017) the STF set the thesis and, in the motions for clarification (05.13.2021), modulated the effects from 03.15.2017, except for suits filed by that date. The cut-off was the judgment date, not the res judicata: those already litigating preserved the retroactive amount; those who entered later, as a rule, only the prospective.

Hence the preventive logic: the point is not to guess the cut-off, but to be positioned before it, whatever it is. And the worst scenario is real — an unfavorable outcome, with five votes for keeping the ISS: then there is no credit, and whoever did not protect themselves through a deposit is exposed to the charge with surcharges.

Risk and window: the lesson of Theme 69

Theme 69 taught the cost of waiting: when judging the “Thesis of the Century”, the STF modulated the effects and limited the refund of the past, as a rule, to those who already had a suit filed by 03.15.2017 — those who entered later lost part of the retroactive amount. If Theme 118 is judged favorably and modulated in the same way, the cut-off date tends to separate those who acted from those who waited. That is why the window matters.

There is also the real risk of the tally turning (5-5, pending vote) — the thesis may not prevail. Hence the strategy relies on deposit/suspension, which protects without assuming the result.