Where does the collection of ITCMD on inheritances and donations abroad stand?

Recent Federal Supreme Court understanding on the non-levy of ITCMD on inheritances and donations from abroad opens a window of tax opportunity

The Federal Supreme Court (Supremo Tribunal Federal - STF) established the understanding that states cannot collect ITCMD on inheritances and donations from abroad. The decision is valid for taxable events from April 20, 2021, date of publication of the judgment, and for lawsuits already filed. Cases in which the taxable event has occurred and the tax has been paid by the taxpayer will not be refunded.

The validity of the decision is subject to the lack of a specific federal complementary law regulating the form of ITCMD collection by the States and the Federal District in these cases. Therefore, the tax collection may become regulated in this sphere later on, based on legislative action.

What does this represent today?

“This is a window of opportunity for those who expect succession abroad to anticipate the process in the form of a donation”, assesses Augusto Andrade, partner at Domingues e Pinho Contadores.

Right now, by seizing the Federal Supreme Court understanding and the lack of specific federal legislation dealing with the issue, it is possible and legally safe for the donee to benefit from the exemption from ITCMD payment on goods abroad.

It is worth noting that the effects do not apply to the taxpayer who has already paid the tax. In this situation, there is no loophole to request reimbursement.

Understanding ITCMD and the controversy

The Causa Mortis Transmission Tax or Donation Tax (ITCMD) is a state tax and is levied on the transfer of assets and rights from one person to another through inheritance or donation. Its rate varies by state, but is limited to 8% on transferred assets.

See also: ITCMD: strategy can reduce the impact of taxation on equity

The 1988 Constitution grants the states and the Federal District the power to institute the ITCMD. Having this jurisdiction, some states have adopted taxation on inheritance and donation in general, disregarding the limitation imposed by the Constitution on the need for regulation by complementary law in cases in which:

• the donor is domiciled or resident abroad;
• the deceased owned property, was resident or domiciled abroad or had its probate process carried out abroad.

Finally, after the judgment of Extraordinary Appeal No. 851.108 (General Repercussion), the Supreme Court reached the majority decision on the unconstitutionality of charging the tax on donations and inheritances abroad.

Succession planning practices

Donations while living is usually part of an estate planning strategy. But it is always necessary to calculate the amount of taxes, including ITCMD and others, to confirm the feasibility of the adopted measures.

Succession planning is a way to protect assets and reduce and defer tax burdens. This process is also adopted for reducing costs, bureaucracy and attrition related to a probate process.

Learn more: Wealth succession: early planning of assets distribution can lead to tax savings

Tax consultancy for estate succession

Domingues e Pinho Contadores advises taxpayers on taxes levied on practices adopted for wealth succession, supporting the preservation of family assets and resources. This work is carried out as a complement to legal advice, which is also essential in the composition of succession strategies.