Two Opposing Signals in the Same Month on the ISS Tax Base
The transition of the Consumption Tax Reform gained, in the first week of November, a chapter of legal uncertainty that directly concerns the tax and IT teams of service-providing companies: the dispute over whether or not the IBS and CBS should be included in the ISS tax base starting in 2027.
In a decision issued on November 3, 2026, the 9th Public Treasury Court of the São Paulo District granted a preliminary injunction in the records of Preventive Writ of Mandamus No. 1161497-36.2026.8.26.0053, ensuring a taxpayer the right to calculate and pay the Tax on Services of Any Kind (ISS) without including the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS) in its tax base, starting January 1, 2027, and for as long as the coexistence between the taxes lasts. The lawsuit was filed by the tax technology company ROIT against the São Paulo Municipal Finance Department.
One day later, in the opposite direction, came the city's response. The São Paulo Municipal Finance Department published, on November 4, 2026, new formulas for determining the tax bases used in the Electronic Service Invoice (NFS-e), effective as of January 1, 2027. Under the new rule, the ISS tax base becomes (vFinalCobrado – ISS Deduction) multiplied by (1 + pAliqEfetUF + pAliqEfetMun + pAliqEfetCBS) — meaning the effective rates of state IBS, municipal IBS, and CBS now directly factor into the calculation of the municipal tax.
What underpins each side
The City's argument, presented in the lawsuit itself, is straightforward: the ISS tax base is the total price of the service, from which taxes cannot be deducted without authorization under a complementary law, and the Tax Reform did not provide for the exclusion of IBS and CBS from this base. On the other hand, Complementary Law No. 214/2025 excluded ISS from the IBS and CBS tax base during the transition period, but did not address the reverse situation — it is exactly this gap that is being explored in the lawsuits.
The November 3 decision is not an isolated case. The decision also referenced a ruling in Writ of Mandamus No. 1138866-98.2026.8.26.0053, which rejected the inclusion of IBS and CBS in the ICMS tax base, decided in September by the 16th Public Treasury Court of São Paulo. The judge responsible for the ISS case also relied on a Supreme Federal Court (STF) precedent: she considered the STF's understanding that ISS should not be included in the PIS and Cofins tax base, but noted that this precedent does not directly resolve the controversy over the inclusion of IBS and CBS in the ISS tax base.
Why this matters for tax and IT teams now
Three practical points deserve attention from teams responsible for tax parameterization and document issuance:
1) The injunction only applies to the party that filed the lawsuit. The injunction was granted after the City of São Paulo's response in the case and ensures the right for a specific taxpayer — it is not a decision with general effect. Companies seeking the same benefit would, in theory, need to file their own lawsuit, with the risks and costs that entails.
2) The São Paulo NFS-e layout is changing again. The 2027 formula also removes PIS and Cofins from the IBS/CBS calculation, since these taxes will be phased out. This means reviewing parameterization in the invoicing system, in the deduction fields, and in the tax reporting as soon as the rules take effect.
3) The matter is not settled. The City maintains its official guidance even after losing in court in a specific case, indicating a willingness to appeal and to continue assessing companies that do not have a favorable ruling of their own. This is a classic scenario of tax litigation in the making, which is likely to spread to other municipalities as 2027 approaches.
For those managing ERP systems and tax document issuance, the practical takeaway is: monitor the technical manuals for the São Paulo Electronic Invoice, test the new formula in a staging environment as soon as it becomes available, and keep the legal team informed about the progress of these lawsuits, since future rulings — including those from higher courts — could quickly change the landscape.
This content is for informational purposes only and does not replace guidance from your accounting or legal team, who should assess your company's specific situation in light of these decisions.
Want to keep your tax operations prepared for any outcome of this dispute? Talk to Edoo and see how our team tracks these changes alongside you.
ISS x IBS/CBS: Court Injunction in São Paulo Contradicts Formula Just Published by City Hall for 2027