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Brazil’s Supreme Federal Court declares inheritance and gifts from abroad not subject to ITCMD
Non-taxation by inheritance tax is effective for future events and previously filed suits – exclusively for gifts and inheritances received from abroad.
Subjects
On March 1st, Brazil’s Supreme Federal Court (STF) ruled on Extraordinary Appeal No. 851.108 (7 to 4) against ITCMD (Inheritance and Gift Tax) levy on inheritance and gifts/donations received from abroad. The matter was previously recognized as general repercussion, which means the ruling should be applied by all Brazilian authorities.
The unconstitutionality of ITCMD collection is restricted to cases presenting an element of connection with a foreign country, being the following situations considered:
- when the donor or deceased person is domiciled outside Brazil;
- when the inherited assets are located abroad, or
- when the probate procedure itself is held outside Brazil.
Brazilian courts have frequently discussed the collection of ITCMD in cases the inheritance/gift is received from abroad. This is exactly why STF had already acknowledged the general repercussion of this matter in 2015. Ever since, multiple suits are waiting for this decision and, now, all courts are bound by it.
As advocated by Justice Dias Toffoli, the appeals’ rapporteur, this judgment is based on the fact that Brazilian Federal Constitution requires the taxation of inheritances and donations from abroad to be regulated by a complementary law, which has not yet been established. Therefore, the states and Federal District would not have legal capacity to do so.
It is essential to observe that 22 of the 27 federated states have established ITCMD collection by law when the donor or deceased person is domiciled or resident abroad. This group includes São Paulo, the state that sets ITCMD’s rate at 4% and where the ruled appeal was originated.
Divergence in votes and modulation of effects of the decision
Justice Dias Toffoli, the first one to vote, initially proposed that the decision had effects exclusively for the events that occurred after the decision’s publication. However, if such a proposal were considered, all taxpayers with ongoing lawsuits contesting the tax collection would have to pay it, despite STF’s ruling against such taxation.
Justice Barroso brought this observation up, agreeing with Toffoli in the declaration of unconstitutionality, but diverging regarding the effects of the decision, in order to make an exception for ongoing suits, so that they would also benefit from STF’s ruling. Toffoli adopted this suggestion and adjusted his vote. Most Justices followed him. Justices Alexandre de Moraes, Carmen Lúcia, Luiz Fux, and Gilmar Mendes diverged from Toffoli on the merits and lost, since they argued that the tax collection would be constitutional.
Finally, it is essential to point out that STF’s decision demands the Legislature to create a complementary law quickly, filling this legal gap to regulate the matter properly. As long as the Brazilian Congress does not approve a law on this matter, the taxation is held unconstitutional, which means that states and the Federal District cannot collect taxes on donations and inheritances from abroad.
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