6/30/2021
In March, the Brazilian Supreme Federal Court (STF) decided that it is not constitutional the levy of Estate and Gift Tax (ITCMD) on donations and inheritances from abroad, because there is no complementary law regulating this subject.
In this regard, the National Congress has submitted a complementary law bill (PLP n. 37/2021), which gives the Brazilian states the law-making power to tax such inheritances and donations from abroad. This bill was mentioned in a past Newsletter dated of 03/2021.
The bill establishes the following hypotheses of tax incidence: (i) when the donor or the deceased person is domiciled abroad; (ii) when the inherited assets are abroad; and (iii) when the probate was done outside Brazil.
Despite the new complementary law bill, the Estate and Gift Tax has been charged for long years by the states. In the State of Rio Grande do Sul there is a legal provision for such charge since 1989. For this reason, STF decided that the effects of the decision shall be applied only to future events. Therefore, past facts already embraced by the current state laws were not affected by STF decision, except if the charge of the ITCMD in these situations are under discussion in existing lawsuits.
The main question to analyze is if the current state laws are compatible with the terms of the PLP n. 37; or if, on the other hand, it is necessary to change and revise the state laws mechanisms to harmonize them to the PLP.
In fact, we verify that some problems and incompatibilities between state laws and the complementary law will continue to persist, even with the PLP approval following the STF’s decision. This scenario may result in new lawsuits and judicial discussions.
In the States of Sao Paulo, Paraná and Santa Catarina, for example, the ITCMD is requested when the transfer or liquidation of the intangible asset occurs in the state. This would imply that if the probate is processed abroad, and there is an heir in Minas Gerais and a transfer of equity interest is filed in Sao Paulo, the taxpayer may be required to pay the tax to Sao Paulo and Minas Gerais at the same time.
Under Sao Paulo’s law (Law n. 10,705/2000), the ITCMD would be due to the State of Sao Paulo; under PLP 37/2021, the tax could only be due to the State of Minas Gerais, whose legislation provides for the collection of the tax in this case.
Similarly, Rio de Janeiro State Law n. 7,174/2015 determines that the tax is due if the deceased was domiciled in the state. Once again, there is a potential conflict between state laws if the probate is done abroad or if the heirs are domiciled in another Brazilian state.
To sum up, there is no possibility to request the ITCMD beyond the complementary law terms. Thus, once the PLP n. 37 is approved (or any other bill) it is very important to analyze all its mechanisms and to verify the compatibility with state laws. If there is any incompatibility, the state laws shall be appropriately adjusted or restricted in their scope.
Our Private Client and Tax team are available to provide further information and guidance on these and other topics.
Coauthor: Augusto Périco, Marcelo Trussardi Paolini and João Victor Guedes
