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23 de May de 2024
Tax Bulletin: Brazilian Supreme Court exempts capital gains on inheritance or donations taxed by ITCMD from income tax
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In a recent decision, ARE 1387761, the Brazilian Supreme Court (STF) has exempted the applicability of income tax on capital gains resulting from the appreciation of assets transferred by inheritance or donation, already taxed by ITCMD, based on the understanding that this would constitute double taxation.

Usually, the National Treasury requires Income Tax on the gain earned at the time of transfer of the asset. In this regard, it argues that it is not a case of double taxation, since the taxable event of the income tax on capital gains is not the donation (as it is subject to ITCMD), but rather the appreciation resulting from the gain earned on the donated asset, for market parameters.

On the other hand, Justice Luis Roberto Barroso, as the rapporteur in the case, in the AgRg in ARE 1.387.761, states that the income tax is levied on on the available economic or legal increase in net worth. In the anticipation of legitimate inheritance, therefore, there is no increase in available net worth for the donor, but rather a loss of net worth, reason why any incidence of income tax against it is not justified.

Thus, it must be considered that, with the donation, the donor disposes of his assets, a legal fact that does not generate the acquisition of economic availability. Therefore, deferring the payment of the tax on the asset increase until after the transfer of the asset, to impose it on the donor, violates the principles of personal capacity and economic capacity established in Article 145, § 1 of the Federal Constitution.

Furthermore, it should be emphasized that the taxpayer is granted, by article 32, of Law No. 9.532/97, the option to inform their assets at market value or historical value, initially mentioned in the income tax return. In this regard, if the taxpayer opts to donate to a third party – for the amount of R$200,000.00 – an asset worth R$500,000.00 on the market, they cannot be required to pay income tax on the gain accumulated in this transaction.

Therefore, due to these new precedents, it can be concluded that the understanding on this matter in the Supreme Court is divided, with no clear prospect of uniformity yet.

Leite, Tosto e Barros Advogados’ Tax team is available to provide you with any further information you may need.

*This newsletter had the collaboration of Andreza Speeden and partner Carlos Crosara.