Be careful when transferring estate to companies!

STF and ITBI immunity in the capital increase of legal entities

In August 2020, the Federal Supreme Court (STF) decided, in general repercussion, that the immunity from the Tax on Transmission of Real Estate (ITBI) on real estates that have been contributed to legal entities as paying in of its equity is limited to the amount attributed to the “share capital” account.

Since then, much has been speculated about the practical effects of the STF ruling in the judgment of RE No. 796,376 for the so-called “family holdings” or “real estate holdings”.

Some professionals overestimated the negative effects of the decision by distorting the situations in which it could be applied. Others, with a more pragmatic approach, have manifested themselves due to the Court’s lack of rigor in addressing tax and corporate matters.

In the decision, the STF established that the immunity in relation to ITBI, provided for in item I of § 2 of art. 156 of the Federal Constitution, does not reach the value of the assets that exceed the limit of the share capital to be paid in. To clarify: in the capital increase with real estate, if the subscription price is allocated part to the share capital account and part to the capital reserve account, the part allocated to the capital reserve account would not have ITBI immunity.

The practical solution for the taxpayer, then, is to assign the entire value of the real estate to the share capital account.

Although it is a simple solution, it is worth criticizing the STF’s decision, which creates a limitation not authorized by the Constitution, since the rule is clear in guaranteeing the tax immunity in the transfer of assets incorporated into the net worth of legal entities. In other words: the simple fact that the shareholder allocates part of the value of the real estate incorporated into the equity of the legal entity to the capital reserve account should not detract from the constitutional immunity of ITBI.

It is important to note that there was no debate whatsoever on a possible procedure by the Municipality to charge the ITBI on the difference between the paid-in capital value and the market value of the property arbitrated by the Inspection. In our view, this type of interpretation would overestimate the scope of the judgment and is not aligned with the reality of the interpretation given by the STF.

Let this be a warning for taxpayers who wish to plan and organize their assets: a tax of little expression and relevance such as the ITBI may, indeed, have a potential for a lot of discussion.

By Júlia Malafaia Vituli Silva, associate at Candido Martins Advogados
tributario@candidomartins.com.br