FIIs fail to pay tax on payment of Real Estate up to the limit of equity capital
Recent decisions by the Federal Supreme Court (STF) regarding general repercussions have brought discussions involving the Property Transfer Tax (ITBI). This time, the opinion validates two aspects that are beneficial to taxpayers in general, in particular companies and FIIs (Real Estate funds).
The first one deals with the non-incidence of municipal tax on Real Estate business not registered with a notary. In other words, the tax can be charged only on the effective transfer of property, but not on promises to buy and sell and other assignments of acquisition rights, as we can see in most municipalities.
The other benefit is related to the payment of capital contributions. Since its creation in 1988, the Federal Constitution provides that the transfer of properties incorporated into the equity of the legal entity in capital realization is immune to the payment of ITBI.
However, the rule is not valid for companies whose main activity is the purchase and sale or lease of Real Estate. These companies have always been subject to the payment of the tax in most Brazilian municipalities.
STF’s jurisprudence, on the contrary, foresees ITBI immunity in the transfer of Real Estate properties from these entities up to the value of the properties that are intended for the capital contribution. Thus, only excess amounts are subject to municipal tax.
“City halls have always sought to fully charge ITBI in these cases. Now, there is a change of understanding and eventual municipal legislation that establishes the collection of the tax starts to conflict with the opinion of the STF and, therefore, can be questioned in relation to its unconstitutionality”, says Vladimir Abreu, partner at TozziniFreire Advogados.
It is worth remembering that the analysis of Real Estate preponderance for payment of ITBI remains in other corporate transactions: merger, incorporation, spin-off, or extinction of legal entity.
Reflections in the Real Estate sector
ITBI immunity in capital contributions benefits companies and funds dedicated to Real Estate activities. Manuela Aguiar, partner of BlueMacaw, considers the deliberation positive for two reasons, the first of which is legal certainty.
“Among the foreign investors we spoke to, many justify the option of not investing in Brazil because of legal uncertainty. Regardless of the STF‘s understanding, whenever the higher courts deal with these matters, especially in terms of general repercussions, there is an increase in legal certainty and, consequently, the promotion of the economy”, she says.
Thinking about the merit of the decisions, the executive assesses that there is also an economic gain due to the reduction of costs in operations of capital contributions and the possibility of increasing the return for investors.
“The ITBI represents, on average, 2.5% to 3% of the largest amount between venal value and the business value. When we talk about transactions carried out by FIIs, it is a relevant portion”, adds Aguiar.
Bernardo Taier, vice president of Brookfield Asset Management, also praises the decision: “With no doubt, there is a positive bias. We hope that this will materialize in a practical way, that is, in the daily life of the market”. Farley Menezes, Legal Counsel at Autonomy Investimentos, celebrates: “From a cost perspective, operations can be carried out more efficiently”.
According to Aguiar, capital contributions, foreseen for many years in Real Estate funds legislation, are more common in funds focused on qualified investors and less common in funds widely traded on the Stock Exchange.
Refund of amounts paid
The STF’s understanding also leaves room for companies and Real Estate funds that have borne the tax in the last five years to claim the refund of amounts unduly paid, plus monetary restatement and interest.
“Any organization that has received capitalization via Real Estate and paid the ITBI because it has been engaged in Real Estate for the past five years has the possibility to request what we call undue repayment,” explains Abreu.
Menezes says that, at first, he does not see cases of internal operations in which it is possible to claim amounts paid under ITBI. Due to the insecurity that still surrounds the subject, Taier guarantees that he still does not have a defined position in face of this possibility.
“We remain a little hesitant about what the consequences of the STF‘s understanding will be. In the very few cases in which we participate, we may eventually plead for this refund, but we have remained undefined until now”, reveals Taier.
According to the partner of TozziniFreire Advogados, since these are decisions issued by the STF with general repercussions, the precedents must be observed by the lower levels of the Judiciary. “Judges and courts have to, necessarily, follow the decision of the Supreme Court,” assures Abreu.
Based on this the lawyer Manuela Aguiar understands that it is interesting for the FIIs to request the refund of amounts paid. “FIIs manage the money of third parties. If there is a chance to bring a benefit to the investor, to improve his profitability, I see no reason why a manager would not ask for the return”.
Irreversible decision?
Following this rationale, the two executives understand that the ITBI immunity in capital contributions is practically defined.
“In my view, it is a peaceful decision. Unless there is a change in the Constitution through a constitutional amendment, this issue has been decided”, guarantees Abreu. “It is a decision that binds the lower levels”, adds Aguiar.
Meanwhile, the vice president of Brookfield Asset Management sees greater possibilities for a turnaround. “Even though it has been the object of general repercussion, talking to some colleagues in the Real Estate market, tax lawyers and law firms, we realize that many still see this decision with some reservations”, points out Taier.
Autonomy Investimentos Legal Counsel believes that the change is irreversible but criticizes its clarity. “Some sinuous reasoning has been done to come to certain conclusions, so perhaps it is up to you to seek clarification on specific points of the theme”, concludes Farley Menezes.
By Daniel Caravetti