On Wednesday (09/02), the Brazilian Supreme Federal Court (STF) began discussing whether companies engaged in the purchase, sale, or leasing of real estate must pay the Real Estate Transfer Tax (ITBI) when transferring assets and rights to incorporate them into their capital stock. During the session, arguments were heard from one of the parties and from third parties admitted to the case (amici curiae).
The controversy over the scope of the ITBI immunity had its general repercussion (“Repercussão Geral”) recognized under Theme 1.348. This means that the thesis to be established by the Plenary must be applied to similar cases at all court levels. According to the President of the STF, Justice Edson Fachin (case rapporteur), there are more than 300 stayed cases dealing with this matter.
Below are the main points of attention regarding the controversy.
1. What is discussed? Article 156, Paragraph 2, Item I of the Federal Constitution provides that ITBI does not apply to the transfer of assets incorporated into a company’s equity as paid-in capital, nor to the transfer of assets or rights arising from the merger, consolidation, spin-off, or dissolution of a company — unless, in these cases, the company’s predominant activity is the purchase and sale of such assets, the leasing of real estate, or financial leasing. Thus, the question under discussion is whether ITBI should be charged on capital contributions made with real estate when the company’s activity is the management of such assets, or whether, in these cases, the tax immunity applies.
2. Which companies will be impacted? This decision will impact companies that manage real estate assets, such as real estate agencies and asset-holding companies.
3. What is the impact of this Theme? 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 asset-holding companies. Considering that ITBI can range from 2% to 3% of the property’s assessed value (valor venal), the non-application of this tax represents a direct reduction in initial cash outlay and an improvement in the tax burden of estate and asset planning structures.
During the trial, Professor Misabel Derzi, who represents the Federation of Commerce of Goods, Services, and Tourism of the State of Minas Gerais (Fecomércio MG) and the Union of Companies for the Purchase, Sale, Leasing, and Management of Residential and Commercial Real Estate of the State of São Paulo (Secovi-SP), stated that, for the sake of equality and legal certainty, ITBI immunity on capital contributions should apply to all companies, including those in the real estate sector. The argument is that excluding real estate companies would be discriminatory and contrary to the socioeconomic project of the 1988 Constitution, which aims to encourage entrepreneurship, the social function of property, and full employment.
The attorney also noted that the tax exemption on the contribution of assets to form capital aligns Brazil with practices adopted in Europe and North America as a way to foster economic development. Representatives of the Federation of Agriculture and Livestock of the State of Mato Grosso do Sul (Famasul) and the Brazilian Association of Shopping Centers (Abrasce) expressed similar views.
The judgment has not yet been concluded, and it is important for the affected companies to be prepared for its developments!
