The real estate market will have to wait longer for a ruling from the Federal Supreme Court – STF on the applicability of ITBI to transactions involving the contribution of real estate to a company’s capital stock by firms whose primary business is real estate.
The STF had begun deliberations on the application of ITBI immunity in this scenario (Case 1.348) and already had four votes in favor. The ruling was expected in March. However, following a motion for reconsideration by Justice Flávio Dino, the deliberations were restarted, bringing the debate back to square one and increasing uncertainty regarding the outcome.
Below, we highlight 3 key points regarding this issue:
1. What is under discussion: The Federal Constitution (Art. 156, § 2, I) expressly provides for two distinct cases of exemption from ITBI. The first applies to the payment of capital contributions, with no restrictions on its application set forth in the constitutional text. The second refers to the transfer of assets resulting from transactions such as mergers, acquisitions, spin-offs, or the dissolution of a legal entity. In such cases, the exemption is conditional and does not apply when the acquirer’s primary business activity is the purchase and sale of such assets or rights, the leasing of real estate, or commercial leasing.
However, municipalities have been adopting the understanding that this restriction also applies to the transfer of real property for the purpose of paying in capital, in order to levy the ITBI tax when real property is used to pay in capital in companies whose primary activity is real estate.
Faced with this divergence of interpretations, taxpayers have taken the matter to court. Due to the high number of cases, the Federal Supreme Court referred the matter to the general repercussion system (Theme 1.348) to determine whether the ITBI exemption for the contribution of real estate as capital also applies to companies whose primary business activity is real estate.
The decision to be rendered will have binding effect and must be observed by the entire judiciary and the public administration, which will bring uniformity to the application of the issue and directly impact how municipalities levy ITBI on these transactions.
2. Status of the Proceeding before the STF: To date, there were four Justices’ votes in favor of the taxpayer, proposing the following argument: “The ITBI tax exemption, provided for in Art. 156, § 2, I, of the Federal Constitution, regarding the payment of capital stock through the contribution of assets and securities, is unconditional; therefore, the company’s predominant real estate activity is irrelevant.”
During the virtual session scheduled to conclude on March 20, Justice Flávio Dino filed a motion for reconsideration. As a result, the case was removed from the virtual plenary session of the Federal Supreme Court and will be restarted in an in-person session.
With the request for a separate hearing, the votes previously cast cease to have effect, so that the trial restarts in its entirety, allowing the Justices to: (i) resubmit or amend their votes, (ii) file requests for review, and (iii) engage in oral debate on the matter.
3. Risk of Municipal Tax Assessments and Operational Audits: The collection of ITBI on capital contributions significantly increases the initial cost of incorporating companies, corporate reorganizations, and the structuring of real estate ventures, such as special purpose entities (SPEs) and real estate development holding companies. Considering that ITBI can range from 2% to 3% of the property’s assessed value, the non-levy of this tax represents a direct reduction in initial outlays and a significant improvement in project cash flow.
The lack of uniform interpretation by the courts, combined with intensified oversight of holding companies and capital contributions by municipalities, has heightened legal uncertainty. In this context, many companies are adopting defensive postures, either by paying the ITBI even in legally debatable situations or by facing assessments and administrative litigation, which leads to increased costs, time expenditure, and the weakening of compliance routines.
Given this scenario, the adoption of advance planning and the potential use of preventive legal measures prove to be relevant strategies for mitigating risks, ensuring operational predictability, and safeguarding rights, especially in larger-scale or recurring transactions.
The judiciary’s ruling on this matter goes far beyond a mere tax dispute or tax savings; it constitutes a structural determination regarding the real estate business environment in Brazil, creating a predictable environment for corporate planning and asset protection, and fostering new ventures, in line with the constitutional principles of free enterprise and tax neutrality.
