Tax burden on offshore service companies: the ISS in offshore service provision

Abstract

With the growing expansion of the oil and natural gas extraction and production market and the consequent manifestation of tax potential, several currents of thought have emerged regarding the taxation of such activity, with regard to the power of Municipalities to tax services of any nature provided in their offshore projections. The meaning of the term offshore will be demonstrated, as well as a brief history of the ISS, and a comparison will be made with what the Brazilian Constitution deals with. Article 12 of Decree Law 406/68 will also be reviewed, the discipline of which was maintained in Complementary Law No. 116/2003, which defines the service provider establishment as the place of provision of the service, with exceptions in the case of civil construction. This divergence results in a tax dispute between municipalities, some demanding the tax because the service provider is located in their territory, as interpreted by art. 12 of DL 406/68, others because the service provided is actually being provided in their maritime projections, applying the understanding of the STJ (Place of effective provision of the service). In view of the explanation, one must ask: is it possible to charge ISS on offshore service provision by a municipality? Given that the territorial sea is an exclusive asset of the Federal Union? By concluding that services performed in maritime waters, that is, offshore services, cannot constitute a case for levying ISS, since maritime waters do not comprise the territory of the municipality, where it is the exclusive jurisdiction of the Union, which in turn does not have tax jurisdiction to be the active subject of a tax case to which the material criterion is already used to demand another tax.