The Brazilian Supreme Federal Court (STF) consolidated a highly relevant understanding for municipal tax litigation by unanimously deciding, under the general repercussion regime, that municipalities may not apply monetary correction indexes and late-payment interest that exceed the Selic rate, which is adopted by the Federal Government to update its own tax credits.
The decision was issued in RE No. 1,346,152, involving the Municipality of São Paulo and the company Pro Manager Tecnologia e Segurança, and extends to municipalities the guideline previously established for states and the Federal District (Theme 1062).
The Case at Issue
In the tax enforcement proceeding filed to collect ISS (Service Tax) for the fiscal year 2017, the Municipality of São Paulo applied monetary correction based on the IPCA, combined with late-payment interest of 1% per month, in addition to penalties and other charges.
The defendant company argued that the municipal system resulted in a financial burden exceeding the Selic rate, which is the index used by the Federal Government, and therefore violated the constitutional standard of uniformity.
The reporting justice, Justice Cármen Lúcia, accepted the taxpayer’s argument and stated that although subnational entities have supplementary legislative authority, such authority must respect the limits established by federal legislation when financial matters have already been regulated by the Union.
Constitutional Grounds
The STF reaffirmed three interpretative pillars:
- Limited supplementary competence
States, the Federal District, and municipalities may regulate the updating of their tax credits, but they cannot establish a more burdensome regime than that adopted by the Federal Government for the same purpose.
- Unification of the Selic rate in the federal tax environment
Since Law No. 9,250/1995, the Federal Government has adopted the Selic rate as the exclusive index for monetary correction and interest, prohibiting its accumulation with other indices.
- Recent constitutional reinforcement
Constitutional Amendment No. 136/2025 consolidated the guideline that if the rate applied by a federative entity exceeds the Selic rate, the Selic must prevail.
In essence, the Court considered the adoption of different and higher indices than Selic unjustifiable, particularly when combined with late-payment interest of 1% per month.
General Repercussion and Practical Effects
Because the case was decided under the general repercussion regime, the ruling is binding on lower courts, directly impacting ongoing municipal tax enforcement proceedings.
According to data presented by Abrasf (Brazilian Association of Municipal Finance Secretariats), 19 of Brazil’s 27 state capitals apply late-payment interest of 1% per month combined with inflation indices (such as IPCA or INPC).
Immediate application of the ruling could generate significant financial effects, with estimates exceeding R$ 13 billion in only part of the analyzed capitals.
There are indications that requests for modulation of effects may be filed, given the need for legislative and operational adjustments in municipal systems and the risk of a multiplication of refund claims or requests for revision of tax debts.
Legal Certainty and Predictability
From a systemic perspective, the decision strengthens federal uniformity in the regulation of tax charges.
The consolidation of the Selic rate as a single reference parameter reduces asymmetries, increases predictability, and allows taxpayers to better assess tax risk exposure.
For companies with significant municipal tax liabilities, the precedent requires immediate strategic review, including:
- analysis of ongoing tax enforcement proceedings;
- reassessment of charges applied by municipalities;
- potential claims for refund or revision of excessive payments;
- monitoring of possible temporal modulation of the ruling.
Therefore, the decision represents a precedent that goes beyond the specific case, redefining the standard for updating municipal tax credits, with relevant implications both for public revenue collection and for tax planning and contingency management in the private sector.