Tax reform and advocacy – Current context

The consequences of changes in this legislation in the legal profession are discussed, in order to address the main aspects of the current context

Discussions about Tax Reform and its impacts on different sectors of the economy have recently returned to national headlines. Thus, the consequences of the changes in this legislation in the legal activity are discussed, in order to address the main aspects of the current context (ISS, social contribution to INSS, IRPF and IRPJ), together with the elements that support the proposals contained in Proposed Amendment to Constitution No. 110/2019 and 45/2019.

The Tax on Services of Any Nature, under the jurisdiction of the municipalities (article 156, III, CF / 1988), with minimum rates of 2% and maximum of 5% (articles 8, II and 8-A, caput, Complementary Law 116 / 2003), focuses on the price of the service (article 7, caput, Complementary Law 116/2003), specifically item 17.14 “Advocacy”, of the list of services attached to the governing legislation. The fixed or variable rates are established by municipal legislation, being calculated for law firms in relation to each qualified professional who provides services on behalf of the company (article 9, §§ 1 and 3, Decree Law No. 406/1968).

The social contribution to the INSS, under the competence of the Federal Government (article 195, CF / 1988), is payable by the independent lawyers as individual taxpayers at the rate of 20% (article 21, caput, Law No. 8,212 / 1991), while for the lawyers at a rate of 20% is levied on the remuneration paid to employees and individual taxpayers, in addition to the fees paid to the partners.

The Income Tax, under the competence of the Union (article 153, III, CF / 1988), for independent lawyers has a rate that varies from 0.0% to 27.5% (article 1, IX, Law 11.482 / 2007 ). For law firms, which fall under the real, presumed or arbitrated profit modalities, the rate is 15% with an additional 10% on the profit that exceeds the monthly average of R $ 20 thousand in the calculation period (Article 3 , caput and § 1º, Law nº 9.249 / 1995). These periods are quarterly and end on March 31, June 30, September 30, and December 31 of each calendar year (article 217, caput, RIR / 2018).

The presumed profit based taxation regime is an option for law firms with total gross revenue equal to or less than R $ 78 million (article 13, caput, Law No. 9.718 / 1998), applying a calculation basis of 32 % of gross revenue earned from the provision of legal services (article 33, IV, “a”, IN / RFB nº 1,700 / 2017). In this regime, law firms also need to pay Social Contribution on Net Profit (CSLL) at a rate of 9% (article 30, III, “e”, IN / RFB nº 1,700 / 2017), Contribution to the Financing of Security (Cofins) and the PIS Contribution, respectively with rates of 3.0% and 0.65%.

The taxation regime based on taxable income is an obligation for law firms with total revenue exceeding R $ 78 million (article 14, I, Law No. 9.718 / 1998). Refers to the net income for the calculation period adjusted by the additions, exclusions or compensations prescribed or authorized by the RIR (article 258, caput, RIR / 2018). Under this regime, CSLL is required at a rate of 9.0%, PIS equivalent to 1.65% and Cofins of 7.6%.

It should be added that in these regimes, the distribution of profits in the law firm is not subject to the income tax, nor is it part of the calculation basis of the income tax of the beneficiary lawyer (article 10, Law No. 9,249 / 1995).

Finally, another option for law firms is adherence to Simples Nacional, a single collection system, provided that it falls within the limitation of gross revenue equal to or less than R $ 4.8 million (Article 3, II, Complementary Law No. 123 / 2006). Thus, the taxation provided for in Annex IV applies with rates between 4.50% and 33.00% (article 18, § 5º-C, VII, Complementary Law 123/2006).

By: Wilson Sales Belchior