ISS (Services Tax) is not levied on amounts in copyright assignment agreements

By Juliana Bussade Monteiro de Barros, Partner, Lawyer at Dannemann Siemsen

This article was originally published on Consultor Jurídico on September 2023. 

ISS (Services Tax) is not levied on copyright assignment, since this hypothesis is not included in the list attached to Complementary Law (LC) 116/2003. Thus, judge Fernanda Pereira de Almeida Martins, of the 9th District Court for Tax in São Paulo, rejected ISS being levied on amounts received by a company due to a copyright license agreement. The ruling also guarantees that tax already paid will be refunded.

The company executed an agreement with a Japanese company for the use and exploitation of characters in stationery items, school supplies, jewellery, clothing, accessories, games, toys, decorations for children's parties, magazines, stickers, household utensils and personal hygiene products.

The São Paulo Municipal Tax Department began collecting ISS on revenue arising from the agreement. It justified this using item 3.02 of the list attached to LC 116/2003, which authorises the taxation of the assignment of the right to use trademarks and advertising signs. The company went to court and alleged that the collection of the tax was mistaken.

Fernanda Martins explained that copyright licensing agreements are a consequence of personal rights, related to Civil Law and regulated by the Copyright Law. That is, they are different from rights relating to industrial property, related to Business Law and regulated by the Industrial Property Law.

For the judge, the list of services set forth in the annex to LC 116/2003 cannot be extended, by analogy, "which does not set forth that the granting of a license for authors’ economic rights is taxable”. This would violate Article 110 of the National Tax Code.

The judge also recalled that the case law of the Superior Court of Justice has already rejected ISS being levied on the assignment of copyright.

A partner at the firm Dannemann Siemsen — specialised in Intellectual Property (IP) —, lawyer Juliana Bussade Monteiro de Barros, who worked on the case, indicates that copyright and trademark licensing are different things: “It is entirely possible to enjoy protection by way of copyright and trademark law, without this protection being confused”.

Although they can also be exploited as figurative marks, character designs, analysed in this specific case, “are undeniably subject to copyright protection”, according to her.

Juliana also recalls that, in accordance with legislation, collecting ISS requires actual service provision. In copyright, the licensor only reproduces the success of an “intangible asset”, which is not linked to the provision of services.

Licensees cannot use such rights after the end of the agreement. “If copyright agreements represented the provision of services strictly speaking on the part licensors, all activities and assets used in their performance would belong to the licensees and would not be eligible for cessation of use or return after payment of the due remuneration”, says the lawyer.