The bite of the municipal treasury in the distribution of assets

Tax authorities of some municipalities of the Estate of São Paulo have been demanding the Inter-Vivos Real Property Transfer TaxITBI) of ex-spouses and heirs in cases involving transfer of real estate upon divorce or inheritance.
In these cases, as a rule, there is no ITBI charge – or there should not be. Some municipalities, however, have charged ITBI when, at the time of the distribution of assets due to a divorce, for example, one spouse remains with a financial asset and the other with a real estate. The collection of ITBI by the Treasury in this case is supported by the argument that the taxpayer who received the financial asset sold his/her share of the property to the other.
With the same argument, the Treasury also requires the ITBI regarding inheritances more favorable to one beneficiary than others under the terms of the law.
The good news is that the taxpayers have been obtaining favorable decisions in the Court of Justice in the State of São PauloTJ-SP) based on the rule of law that the sharing of assets does not characterize onerous transfer, but a free transfer.
Despite the favorable decisions in the Judiciary, it is common to see taxpayers paying the ITBI to expedite the transfer of the real estate, since the notary’s office requires proof of payment of the ITBI to register the transfer of the property, as requested by municipal laws. And, only afterwards, he/she files a claim requesting reimbursement of the tax.  In other cases, taxpayers prefer to anticipate the discussion and file a preventive judicial measure to guarantee non-collection of ITBI.
This is another case in which the tax authorities exceed the limits of their competence in the search for collection of taxes. Those who encounter such improper collection have a good ground to contest such collection.
By Marcela Leal, associate at Candido Martins Advogados