The Court of Appeals of the State of São Paulo (TJSP) issued a highly relevant decision in tax litigation involving the Real Estate Transfer Tax (ITBI), by establishing, in the context of an Incident for the Resolution of Repetitive Demands (IRDR), that the levy of ITBI is not legitimate on capital contributions made with real estate assets, even when the legal entity is inactive or lacks operating revenue.
Background of the Controversy
The controversy stems from the interpretation of the tax immunity provided in Article 156, §2, I, of the Federal Constitution, which excludes the incidence of ITBI in cases of capital contributions and corporate reorganizations, except where the predominant activity of the acquiring entity is real estate-related.
In recent years, however, several municipalities have argued that the absence of economic activity prevents the assessment of such predominance, thereby precluding the recognition of the immunity.
This interpretation gained traction particularly during the COVID-19 pandemic, a period in which numerous companies operated without revenue. Based on this premise, tax authorities began to argue that inactivity would represent a misuse of the constitutional provision, which, under this view, was designed to promote economic activity and the circulation of wealth.
TJSP’s Position
In analyzing the matter, the TJSP directly addressed this line of argument and, by a narrow majority, adopted the opposite position.
The Court held that the absence of operating revenue, including in cases of inactivity, cannot be interpreted as an obstacle to the recognition of the immunity, but rather should be understood as a situation in which no predominant real estate activity exists.
Legal Grounds: Predominance Criterion
The decision is grounded on a key premise: the predominance test set forth in Article 37 of the National Tax Code (CTN) requires verification that more than 50% of the company’s operating revenue derives from real estate activities.
In this context, the absence of revenue logically precludes the characterization of such predominance. Therefore, there is no legal basis to presume predominant real estate activity in the absence of any revenue.
The reporting justice further emphasized that neither the Federal Constitution nor the CTN conditions the enjoyment of the immunity on the company’s effective activity or profitability, making it inadmissible to adopt restrictive interpretations that expand the scope of taxation to the detriment of taxpayers.
In other words, it is not for the interpreter to create requirements not expressly provided by the constitutional legislator.
Specific Case
The case involved a holding company that received real estate assets as a capital contribution through a partial spin-off and remained inactive for a certain period.
Despite not engaging in predominant real estate activity, the company was assessed by the municipality, which demanded the payment of approximately R$ 4 million in ITBI.
The TJSP overturned this assessment, fully setting aside the tax charge.
Practical Implications
From a practical standpoint, the precedent is particularly relevant for corporate transactions involving real estate assets, especially in the formation of holding companies and the reorganization of corporate groups.
The establishment of the thesis under the IRDR mechanism contributes to reducing legal uncertainty, which had been marked by divergent interpretations within the São Paulo judiciary itself.
Moreover, the decision strengthens taxpayers’ position in both administrative and judicial proceedings, by limiting attempts to unduly expand the scope of ITBI through interpretations not supported by the legal framework.
Pending Review by the STF
It is important to note that the matter is still under review by the Brazilian Supreme Federal Court (STF), within the scope of Theme 1348 of general repercussion.
To date, there is a provisional majority in favor of taxpayers, indicating that the immunity may have an unconditional nature, not subject to the verification of predominant activity in certain cases.
The final ruling by the STF will be decisive for the consolidation of the matter at the national level.