The STF (Brazil’s Federal Supreme Court) has held that the ITBI (municipal tax on inter vivos transfers of immovable property) exemption on the payment-in of capital does not depend on the company’s business activity.
The Federal Supreme Court established Theme 1,348 of general repercussion and recognised the ITBI immunity on the payment-in of capital with real property. In practice, the benefit applies even to companies whose main activity is real estate, save in cases of simulation or fraud against the law.
The current position on ITBI immunity for those contributing real property to a company
Previously, many municipalities levied the tax where the company had revenues connected with the purchase, sale or leasing of real property. The Constitution carves out such predominant activity. Municipalities relied on that carve-out to tax the transfer of the asset into the company’s capital.
The STF took a different view. For the majority, the immunity provided for in the Federal Constitution applies unconditionally, and the company’s activity does not displace it. Accordingly, the assessment of the predominance of revenues is no longer required. Moreover, the tax authorities may no longer demand the tax retroactively on that ground.
What limits the decision preserves
The immunity is not a blank cheque. It covers only the amount of the subscribed capital. If the property is contributed at a higher value, the portion exceeding the capital remains subject to the tax.
The carve-out for simulation and fraud also remains. For example, a company created solely to disguise a purchase and sale may lose the benefit. However, the municipality must prove the defect in proceedings allowing the production of evidence, and may not presume it.
Real estate investment funds receive different treatment, and the analysis must be carried out on a case-by-case basis.
What holding companies and shareholders should do now
For asset-holding companies and family businesses, the decision reduces the cost of reorganising assets. Those who have already paid the tax or who are facing a tax assessment should gather documents and await the published judgment. Motions for clarification (embargos de declaração) may still clarify its scope over time, including with regard to refund claims.
It is our understanding that each transaction deserves a documentary review before any claim is filed or any new contribution is made. In this way, the taxpayer can verify whether the amount paid in and the corporate purpose support the immunity. The open point is the final wording of the binding thesis.
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