On Tuesday, the Brazilian Federal Supreme Court (Supremo Tribunal Federal – STF) concluded the judgment of Topic 1,348 of General Repercussion (Extraordinary Appeal No. 1,495,108/SP) and, by a vote of 8 to 2, established the understanding that transfers of real property for the payment of share capital (integralização de capital social) are immune from the Real Estate Transfer Tax (Imposto sobre Transmissão de Bens Imóveis – ITBI), even where the legal entity receiving the property engages predominantly in real estate activities.
Article 156, § 2, I, of the Federal Constitution provides that ITBI “shall not apply to the transfer of assets or rights incorporated into the net worth of a legal entity as payment of capital, nor to the transfer of assets or rights resulting from merger, absorption, spin-off, or dissolution of a legal entity.”
The tax authorities argued that the final part of this provision carved out, from the ITBI immunity, capital contributions made to companies engaged in real estate activities.
Following a textual, historical, and teleological interpretation of the provision, however, the opinion of Justice Rapporteur Edson Fachin prevailed, holding that this limitation does not apply to transfers made as payment of share capital.
The Court held that the constitutional exception relating to the predominant activity of purchase and sale, lease, or financial leasing of real property is restricted to mergers, corporate absorptions, spin-offs, and dissolutions of legal entities. Justice Alexandre de Moraes emphasized that the immunity does not preclude the tax authorities from auditing specific situations involving fraud or simulation.
The Rapporteur proposed the following binding thesis: “The ITBI tax immunity provided for in Article 156, § 2, I, upon payment of share capital through the contribution of assets and values, is unconditional and, therefore, unaffected by the predominantly real estate nature of the entity’s activity.”
The publication of the judgment (acórdão) is now awaited so that the decision may be applied to the thousands of pending cases across the country.
Although this is an important precedent, it does not, by itself, eliminate the risk that municipal governments will continue to demand the tax in practice. It is therefore advisable to remain attentive to the possible need to bring the matter before the courts in order to secure compliance with the ruling.
