By Ana Caroline Ferreira and Yasmin Taborda Agostinhaki
In a judgment rendered on December 10, the Superior Court of Justice (STJ) consolidated an important understanding regarding the possibility for the Tax Authorities to assess (arbitrate) the tax base of the Inheritance and Donation Tax (ITCMD), based directly on Article 148 of the Brazilian National Tax Code (CTN). The matter was examined by the First Panel under the system of repetitive appeals, in the judgment of Special Appeal No. 2,175,094/SP, which gave rise to Topic 1,371.
The controversy originated from lawsuits filed by taxpayers against acts of the São Paulo State Treasury, in which the legitimacy of assessing the ITCMD tax base was challenged whenever the Tax Authorities understood that the value declared did not correspond to the market value of the transferred assets.
When examining the cases, the São Paulo State Court of Justice granted relief, on the grounds that State Law No. 10,705/2000 already defined the tax base of the ITCMD as the fair market value of the asset, and that, therefore, the adoption of different criteria by the Tax Authorities would not be legitimate in the absence of specific legal authorization.
Against this decision, the São Paulo State Treasury filed an appeal with the STJ, arguing that the assessment procedure provided for in Article 148 of the CTN constitutes a general rule of tax law, applicable whenever the information provided by the taxpayer is insufficient, inconsistent, or lacking credibility.
In addressing the matter, the STJ examined the relationship between the general rules set forth in the CTN and the state legislation governing the ITCMD, particularly with regard to the limits of administrative action in determining the tax base.
The reporting justice, Justice Maria Thereza de Assis Moura, voted for the dismissal of the appeal, holding that the controversy concerned the interpretation of state legislation, which would preclude the STJ’s jurisdiction to review the matter in a special appeal.
In her opinion, the Justice emphasized that the CTN establishes general guidelines by indicating that the ITCMD tax base corresponds to the fair market value of the asset and by providing for assessment as a possible method of determination. It would nevertheless fall to state legislation to detail the valuation criteria and to regulate the specific circumstances in which assessment could be applied.
According to the reporting justice, discussions involving the use of reference values or the replacement of the declared value with another estimated by the Administration do not concern the definition of the tax base itself, but rather the method used to determine the tax, a matter within the regulatory competence of the States.
In a dissenting opinion, later adopted by the majority of the First Panel, Justice Marco Aurélio Bellizze held that the prerogative to assess the ITCMD tax base derives directly from Article 148 of the CTN, which constitutes a general rule of mandatory observance.
According to the prevailing opinion, although the States may define the ordinary criteria for determining the ITCMD tax base, this does not preclude the Administration from initiating an assessment procedure when the initially adopted criterion proves inadequate to reflect the actual value of the transferred asset.
The Justice emphasized that the São Paulo State Court of Justice had broadly and generically ruled out assessment, which is incompatible with the model established by the CTN. He also stressed, however, that assessment cannot be automatic, nor may it serve as an unrestricted discretionary instrument to disregard the information provided by taxpayers.
As established in the prevailing opinion, the administrative procedure is only legitimate when the information or documents submitted are omitted, inconsistent, or lacking credibility. In such cases, the Administration bears the burden of demonstrating, with proper reasoning, that the declared value is significantly disconnected from market value, always ensuring due process and the right to an adversarial hearing.
Accordingly, the judgment consolidated the understanding that state tax authorities are empowered to initiate an administrative procedure to assess the ITCMD tax base when the value reported by the taxpayer proves incompatible with market value. This prerogative, however, is not automatic and requires the opening of an individualized proceeding, in which the Administration must demonstrate the inconsistency of the information provided, while guaranteeing the taxpayer’s right to an adversarial hearing and full defense.
The judgment in Topic 1,371 is of fundamental relevance to estate and succession planning. With the consolidation of an understanding favorable to the São Paulo State Treasury’s position, the scenario now requires greater caution in transfer transactions, involving both real estate assets and equity interests.
Although the precedent limits assessment to exceptional situations and conditions it on the initiation of an individualized administrative procedure, the decision expands the scope of action of the Tax Authorities, which may affect the predictability of succession transactions.
In this context, proper documentation of the market value of transferred assets, as well as the technical structuring of tax returns, becomes particularly relevant as a means of mitigating risks and reducing potential tax challenges.
The Tax Law team at Marins Bertoldi continues to monitor the impacts of this decision and remains available to advise clients and partners, taking into account the specificities of each individual situation.
