Brazilian Supreme Court Expected to Reach Majority on ITBI Tax Immunity for Real Estate Contributions to Share Capital

This week, the Brazilian Supreme Court (STF) may reach a majority in favor of recognizing immunity from the Real Estate Transfer Tax (ITBI) on the transfer of real estate properties for the purpose of contributing to a company’s share capital, regardless of whether the company’s primary business activity involves real estate. The partial result is expected to be reached with Justice Alexandre de Moraes’ vote in the judgment of Theme 1,348 under the general repercussion system (RE 1.495.108). His vote has already been presented but has not yet been formally recorded.

The dispute concerns whether the tax immunity provided for in Article 156, §2, item I, of the Brazilian Federal Constitution also applies to legal entities whose primary business activities consist of the purchase and sale or leasing of real estate properties.

The reporting Justice, Edson Fachin, voted in favor of recognizing the tax immunity. His position was followed by Justices Cristiano Zanin, André Mendonça, Nunes Marques, and Luiz Fux. Conversely, Justices Gilmar Mendes and Flávio Dino voted against applying the benefit to companies primarily engaged in real estate activities. With Alexandre de Moraes’ vote, six Justices would support the recognition of the tax immunity.

Despite the majority that is expected to be formed, the judgment has not yet been concluded. Until the final decision is formally announced, the Justices may change their votes, although this possibility does not, in itself, indicate an expectation that the prevailing position will change. Any discussion regarding the modulation of the effects of the decision should also be closely monitored, as it may determine from when and under which circumstances the STF’s ruling will take effect.

The issue is particularly relevant to asset planning and the structuring of family holding companies, as recognition of the tax immunity may reduce the tax costs associated with transferring real estate properties to companies. Each transaction, however, must be assessed individually, taking into account the limits of the immunity, particularly with regard to the amount effectively allocated to the company’s share capital.

Franzim Consultoria will continue to monitor the conclusion of the judgment and its potential implications, including any possible modulation of the effects of the decision, which may be decisive for transactions already carried out or currently under consideration.