The Federal Supreme Court (STF) has unanimously decided to consider April 20, 2021, as the starting date for the effects of the decisions handed down in Direct Actions of Unconstitutionality (ADIs) that declared state laws unconstitutional regarding the collection of the Tax on Transmission of Property and Donations (ITCMD) on donations or inheritances from abroad. The date was set by the STF in March of this year when it softened the effects of the decisions.

The ADIs were filed by the Federal Attorney General's Office (PGR) in an action that referred to the decision reached by the STF in early 2021, in the judgment of Extraordinary Appeal (RE) 851.108. At the time, the justices established the theory of general repercussion (Topic 825) according to which, before the Brazilian Congress regulates the collection of ITCMD by means of a complementary law, the states cannot collect the tax from:

  • transmissions in which the donor is resident/domiciled abroad; and
  • when the deceased had assets, was resident/domiciled, or had his inventory processed abroad.

In view of the judgment of RE 851.108, the PGR filed ADIs with the STF against laws of 23 states plus the Federal District that governed and allowed the collection of ITCMD on donations and inheritances from abroad. The actions questioned laws from Pernambuco, Paraná, Pará, Tocantins, Maranhão, Paraíba, Santa Catarina, Rondônia, Rio Grande do Sul, Rio de Janeiro, Piauí, Alagoas, Acre, São Paulo, Goiás, Espírito Santo, the Federal District, Ceará, Bahia, Amazonas, Amapá, Mato Grosso, Minas Gerais, and Mato Grosso do Sul.[1]

In the ADIs, the PGR argued that, although the understanding in RE 851.108, established as general repercussion, is mandatory for bodies of the Judiciary, it does not bind the actions of state government agencies while the laws mandating collection of the tax are still in effect. As a result, the bodies of the state treasuries were still obliged to assess taxpayers who failed to pay the ITCMD, even though these assessments could later be cancelled by the courts.

With the judgment of the ADIs, the STF recognized the unconstitutionality of the state laws that were in disagreement with the understanding set forth in RE 851.108 and, thereby, disallowed the tax authorities from charging ITCMD in the aforementioned cases. By softening the effects of the decisions handed down in the ADIs, the STF defined that they are effective as of publication of the judgment on the merits handed down in RE 851.108 (April 20, 2021). Accordingly, since that date, inheritances and donations received from abroad are not subject to payment of ITCMD until the Brazilian Congress issues a complementary law.

It is important to consider that the filing of the ADIs is part of a set of initiatives organized by the Federal Attorney General's Office, which also filed a Direct Action of Unconstitutionality by Omission 67 (ADO 67), to prompt the Brazilian Congress to prepare a complementary law establishing the general rules for levying ITCMD on donations or inheritances from abroad. Once the unconstitutionality of the state laws is recognized, the PGR's goal with ADO 67 is for Congress to be compelled by the STF to issue a law allowing the institution and collection of ITCMD by the states on donations and inheritances from abroad.

Pursuant to article 103, paragraph 2, of the Federal Constitution,[2] an ADO lies in cases of omission by public authorities to give effect to rules already provided for in the text of the Constitution. If an omission is recognized, it is incumbent on the STF to notify the Legislature for measures to be taken. The Constitution, however, does not establish a deadline for the issuance of a regulatory standard in the event of omission by the Legislative Branch.

ADO 67 was filed under the allegation that the Brazilian Congress failed to make effective the rule contained in article 155, III, of the Federal Constitution, which allows the collection of ITCMD, by the states, on donations and inheritances from abroad, with its implementation regulated by a complementary law.

"Article 155 - It is incumbent on the States and the Federal District to institute taxes on:

I - transmission causa mortis and donation of any goods or rights;

Paragraph 1. The tax provided for in subsection I:
III - shall have authority for its institution regulated by complementary law:
a) if the donor is domiciled or resident abroad;
b) if the deceased had assets, was a resident or domiciled, or had his inventory processed abroad;"[3]

The PGR contends that, even 32 years after the promulgation of the Federal Constitution, there is inertia in giving effect to the tax rule provided for in the text of the Constitution. The failure to enact a complementary law ends up preventing the states from demanding the tax, causing losses to the public coffers and to the autonomy of the regional entities of the States.

It is also worth pointing out that there are initiatives from the House of Representatives to issue the aforementioned complementary law. The Complementary Law Bill (PLP) 363/13, presented on December 2, 2013, by Representative Erika Kokay (PT/DF), was the first to propose to regulate the institution and collection of the scenario for the ITCMD provided for in subsection III of paragraph 1 of article 155 of the Constitution. The bill was approved in 2017 by the Finance and Taxation and Constitution, Justice, and Citizenship committees. Since then, the text awaits consideration by the full House. Aside from this, with the return of the topic to the tax agenda, in 2021 we had the submission of two new bill on the subject, PLP 67/21, authored by congressman Ricardo Barros (PP/PR), and PLP 37/21, authored by congressman Hilton Rocha (MDB/MA). Currently, the two bills are attached to PLP 363/13 in the House of Representatives.

Although the STF has softened the effects of the decision to allow the tax authorities to collect the tax in relation to triggering events that occurred up to April 20, 2021 (except in cases of lawsuits filed before this date), the decision leaves no doubt that as of this milestone there is no collection of ITCMD on donations and inheritances from abroad in the Brazilian tax system.

Thus, residents abroad are in an opportune situation to donate assets to residents in Brazil, either regular donations or donations in the form of advance of an inheritance. In particular, it is a very advantageous time to carry out succession planning, acceleration the transmission of assets, including through the institution of a usufruct. Asset reorganization in this context can involve real estate assets, shareholdings, etc.

Furthermore, we believe that the moves towards regulating the tax are tending towards intensifying, especially considering the budget crisis in the states, such that the momentary opening for ITCMD-free donations may soon come to an end.


[1] ADI 6.817, ADI 6.818, ADI 6.819, ADI 6.820, ADI 6.821, ADI 6.822, ADI 6.823, ADI 6.824, ADI 6.825, ADI 6.826, ADI 6.827, ADI 6.828, ADI 6.829, ADI 6.830, ADI 6.831, ADI 6.832, ADI 6.833, ADI 6.834, ADI 6.835, ADI 6.836, ADI 6.837, ADI 6.838, ADI 6.839, and ADI 6.840, respectively.

[2]  Article 103. The following may file direct actions of unconstitutionality and declaratory actions of constitutionality:

VI - the Attorney General of Brazil;

Paragraph 2. Once the unconstitutionality by omission of a measure to make a constitutional rule effective is declared, the competent Power shall be notified to adopt the measures necessary and, in the case of an administrative body, to do so within thirty days.

[3] Emphasis added