On March 4th, 2010, the São Paulo Mayor's Office ratified SF Normative Opinion 01/09, confirming its understanding that investment club managers should withhold a 5% ISS (service tax), differently from managers of investment funds, which incur a levy of 2.5%.

The difference in treatment was justified by a literal interpretation of article 16, subparagraph II of Municipal Law 13,701 of 12/24/2003, as amended by Law 14,256 of 12/29/2006. Said legislation prescribes a 2.5% levy on "fund management services of any nature", without any explicit mention of investment clubs.

However, investment clubs are nothing more than a type of investment fund, in the broad sense of the concept, but subject to specific rules. The distinctions between the two are essentially based on the rules applicable for their organization and operation. Unlike investment funds, for example, clubs must limit their number of shareholders (to a maximum of 150), which are usually joined by a common interest. They usually also incur lower costs for organization, maintenance and management.

The points in common between them are much more expressive, however: both are organized as a pooling of resources, in a condominium format, are unincorporated, and target a diverse range of financial investments. Therefore, one cannot affirm – simply based on the words "fund" or "club" in their respective nomenclature – that one type would incur a 2.5% levy while the other should withhold 5%.

In truth, this unfair difference in taxation would not be justifiable even through a literal interpretation of the laws applicable to these vehicles of collective investment.

The municipal law that defines the 2.5% levy does not mention "investment funds", but rather "any" funds, in a very broad sense. The many types of funds include investment clubs and other vehicles of investment.

Under the pretext of interpreting the legal provisions, the Normative Opinion ended up restricting its applicability by ultimately prescribing a different ISS rate than is set forth in the law on investment clubs. This is not admissible.

Finally, this unfair, illegal and unconstitutional "interpretation" imposes higher costs on investment clubs, which were initially designed as an alternative for small investors, involving lower costs than investment funds. This distinction not only finds no purchase in the law, but is also not supported by the principle of isonomy, for no valid criterion exists to support the intended discrimination.

It is up to the Judiciary to perform a quick and rigorous intervention regarding the demands that may be brought by investment club managers, aiming to assure them that the 2.5% levy is applicable under the exact terms of article 16, II of Law 13,701/03, a legal provision which was already interpreted accordingly by the municipality in at least two previous consultations.