This week, the Senate’s Constitution and Justice Committee approved PLP 108/2024, a bill originating in the House of Representatives, which addresses the second stage of the regulation of the tax reform on consumption.
Among the issues addressed, we highlight the general rules established for the Tax on Transfers by Reason of Death and Donations (ITCMD).
Significant changes have been introduced, which, if maintained, will impact the succession process, resulting in an increased tax burden.
We highlight 5 key points regarding the proposed changes:
1. Progressivity of tax rates: States will be required to adopt progressive rates for the ITCMD, according to the value of the assets or rights transferred. Thus, the higher the amount of wealth transferred, the higher the applicable tax rate, making taxation more proportional. The goal is to enhance tax justice and adjust tax collection to the economic capacity of the heir or donee, directly impacting family succession planning;
2. Cap on tax rates set by the Senate: States will continue to define their own ITCMD rates, but these will be subject to a national maximum limit set by the Senate. This cap will prevent excessive differences in taxation among States and will increase legal certainty regarding the maximum amount that can be collected, promoting greater balance and transparency in the system;
3. Stricter criteria regarding fiscal domicile: Changes will be made to determine which State is competent to levy the ITCMD in cases of transfers upon death or by donation, especially when assets are located in more than one State or in international situations;
4. Calculation basis determined by market value: The ITCMD will now be mandatorily calculated based on the market value of the transferred asset or right, replacing nominal or book values. This will result in tax assessment more closely aligned with the actual value of the assets, increasing revenue collection and requiring updated valuations and documentation;
5. Expansion of scenarios for ITCMD incidence: The scope of the tax will include transfers via trusts, contributions to pension plans, and other previously untaxed situations, thereby strengthening the coverage of the tax on inheritances and donations.
The presented changes increase tax predictability and, to some extent, tax equity, but they also reduce the taxpayer’s flexibility in succession management and may raise the tax burden, especially for family holdings and inheritances distributed across multiple States.
With the expanded reach of the tax and the real appreciation of assets, succession plans previously based on undervaluation or parceling of donations will have to be reviewed. In summary, although the new framework aims to strengthen tax justice, it requires greater care and strategic review from taxpayers to minimize financial impacts and preserve property rights. PLP 108/2024 will proceed to a Senate Plenary vote under urgent procedure, and is scheduled on the agenda for September 24, 2025.
