On August 20th, 2019, the Economic Affairs Committee of the Brazilian Senate approved a draft version of Bill No. 432/2017 (“Bill No. 432/17”), which provides for the jurisdiction of Brazilian States to enact and collect the Estate/Gift Tax (“ITCM-D”) in cases in which a donor or decedent (a) transmits assets located abroad; or (b) is/was domiciled abroad, as well as in cases in which probate proceedings take place abroad.
In Brazil, the collection of ITCM-D is currently subject to laws of 27 states and, more than 30 years after Brazilian Federal Constitution (“Constitution”) came into force, notwithstanding the requirement of Article 155, item III of the Constitution, the Supplementary Law that shall provide for the jurisdiction of the States in the cases of donation or sucession with a foreign connection element, has not yet been enacted.
The purpose of Bill No. 432/17 is to fill in this legislative gap. It sets forth that the state where a donee is domiciled in Brazil is entitled to collect ITCM-D, even if the asset is located in another state, unless the asset is a real estate, in which case, the collection of ITCM-D shall be done by the state where the estate is located, according to the criterion locus rei sitae.
Likewise, for succession cases, Bill No. 432/17 provides that the collection of ITCM-D shall be done by the Brazilian state where an heir is domiciled, even if the asset is located in another state. When it comes to real estates, the collection will be done by the state where the estate is located.
Despite the fact that no Supplementary Law has been enacted so far, Brazilian states have been disregarding the Constitution requirement and have been independently providing for the collection of ITCM-D, by means of state laws. It is important to mention that jurisprudence have predominantly been issued on favor of the Constitution and against state law provisions.
Currently, the levying of ITCM-D in the cases provided for by Article 155, item III, subitems a and b, of the Constitution, is awaiting final judgment by the Federal Supreme Court. In any event, once and if Bill No. 432/17 is eventually approved by the House of Representatives and by the Senate and sanctioned by the President, it will provide for the required legal regulation and it will enable the ITCM-D to be unquestionably levied, regardless of the existence of a foreign connection element.
