Possible adjustment raises concerns among taxpayers and reinforces the urgency of evaluating legal actions.
The Federal Supreme Court (STF) formed a majority in favor of recognizing immunity from the Real Estate Transfer Tax (ITBI) in the case of capital contributions made in the form of real estate, even if the receiving company is primarily engaged in real estate activities.
With Justice Alexandre de Moraes’s opinion—made available after the request for further review was returned— the vote stood at 6 to 2 in favor of the taxpayers. The trial will continue in a virtual session scheduled for October 9–19, when it may be formally concluded.
This definition may have significant implications for holding companies, companies that manage their own assets, real estate developers, companies formed for estate planning purposes, and other structures in which real estate has been or may be used to contribute to the company’s capital stock.
What’s Under Discussion
The Federal Constitution provides that the ITBI is not levied on the transfer of assets or rights incorporated into the assets of a legal entity for the purpose of capital formation. The controversy stems from the interpretation of the constitutional exception regarding the primary activity of buying and selling, leasing, or leasing under a commercial lease of real estate. Several municipalities interpret this exception as also precluding tax exemption for capital contributions, requiring the payment of ITBI when the receiving corporation engages in real estate activities.
In the ruling on Extraordinary Appeal No. 1,495,108/SP, which is the subject of Theme 1,348 of the general repercussion, the reporting justice, Justice Edson Fachin, concluded that the immunity applicable to capital contributions is unconditional and cannot be set aside solely on the basis of the company’s primary business activity. This opinion was joined by Justices Cristiano Zanin, André Mendonça, Nunes Marques, Luiz Fux, and Alexandre de Moraes, forming a majority of six votes. Justices Gilmar Mendes and Flávio Dino dissented.
Although a majority has already been reached, the ruling has not yet been formally finalized. Until the session adjourns, there may still be changes in voting, motions to highlight specific points, or debates regarding the wording of the ruling and any potential adjustment of its effects.
Which transactions are eligible for benefits?
If the prevailing majority opinion prevails, immunity may be recognized for capital contributions made with real estate, even when the receiving company’s primary business activity is:
- the buying and selling of real estate;
- leasing out one’s own real estate;
- real estate leasing;
- real estate asset management; or
- other activities primarily related to real estate.
The discussion does not, however, call into question the limits established by the STF in General Repercussion Case No. 796. According to this precedent, the exemption applies to the value of the real property intended for the actual payment of capital stock, but not necessarily to any excess amount allocated, for example, to the capital reserve. Transactions in which there is evidence of sham, fraud, or other defects capable of undermining the nature of the capital contribution also remain subject to taxation.
Who should evaluate whether to file a legal action?
With the trial nearing its conclusion, companies should conduct an immediate analysis if they:
- have collected ITBI, over the past five years, on properties used to contribute to share capital;
- have been charged or had their immunity denied due to their real estate activities;
- whether they are disputing the tax assessment through administrative channels;
- intend to make new capital contributions using real estate; or
- whether you are structuring asset holding companies, corporate reorganizations, or succession planning that involves the transfer of real estate.
In cases where the tax has already been paid, it may be advisable to file a lawsuit seeking recognition of tax exemption and a refund of amounts unduly paid, subject, as a general rule, to a five-year statute of limitations beginning on the date of each payment.
For future transactions or outstanding payments, the strategy may involve a preventive measure designed to ensure full payment without the collection of ITBI. The appropriate course of action will depend on the stage of the transaction, the laws of the relevant municipality, and the available documentation.
Filing a lawsuit before the conclusion of the trial may be relevant
In addition to the statute of limitations on amounts collected some time ago, consideration should be given to the possibility that the STF might adjust the effects of its decision.
It is not yet possible to say whether there will be any adjustment or what timeframe might be adopted. In tax cases, however, the STF may limit the retroactive effects of the decision and establish specific provisions for cases already filed.
The filing of the motion before the conclusion of the trial does not, in and of itself, ensure that the company will be protected against possible adjustment. Nevertheless, it may be a relevant factor if the Court decides to preserve the pending lawsuits, in addition to safeguarding the discussion regarding payments that are nearing the statute of limitations.
For this reason, companies that may be affected should immediately review their tax payments, corporate documents, and future transactions, without necessarily waiting for the final resolution of Topic 1.348.
The tax team at Araújo e Policastro Advogados is available to assist you in analyzing this important Supreme Federal Court (STF) precedent and in taking the appropriate legal measures with the speed that the situation demands.
Authors
Fernanda Botinha Nascimento – fnascimento@araujopolicastro.com.br
Vanessa Cuachio Lourenço – vlourenco@araujopolicastro.com.br
Maria Clara Murray – mmurray@araujopolicastro.com.br