The Supreme Federal Court (STF) of Brazil will decide whether companies predominantly engaged in real estate activities are immune to the Real Estate Transfer Tax (Imposto sobre Transmissão de Bens Imóveis – ITBI) when integrating subscribed capital stock with real estate assets.

According to Justice Luís Roberto Barroso, president of the STF, the lack of a binding position on the matter has led to frequent legal challenges, creating legal uncertainty and unequal treatment among taxpayers. Therefore, the case has been recognized as having General Repercussion, RE 1.495.108 (Theme 1348), meaning its outcome will be applied across the judiciary and must be followed by other courts.

It is important to highlight that the Brazilian Federal Constitution establishes two circumstances for ITBI immunity (Article 156, §2º, Item I), which are: (1) the transfer for the purpose of forming capital stock and, (2) the transfer resulting from mergers, incorporations, spin-offs, or dissolutions. The immunity does not apply if the legal entity mainly conducts real estate activities, such as buying, selling, or leasing real estate properties.

To recall, in August 2020, the STF addressed another controversy involving ITBI (Theme 796 – RE 796.376), defining the scope of immunity regarding the excess value of real estate assets over the subscribed capital to be integrated.

In the prevailing vote, although not addressing the merits, Justice Alexandre de Moraes argued that ITBI immunity in the formation of capital stock applies to all legal entities, regardless of their predominant activities (unconditional nature). He contended that the exception would only concern transfers resulting from mergers, incorporations, spin-offs, or dissolutions.

However, following the publication of the judgment containing Justice Alexandre de Moraes’s prevailing vote, several decisions were issued by state courts recognizing the right to ITBI immunity in the formation of capital stock by companies predominantly engaged in real estate activities (e.g., TJDFT, Special Court, Unconstitutionality Argument Incident, nº 0705115-03.2021.8.07.0018, DJe 11.05.2023; TJSP, Appeal nº 1017397-66.2018.8.26.0053, Rel. Des. Rezende Silveira, 14th Chamber of Public Law, DJe 15.07.2022).

Thus, now with the judgment of RE 1.495.108 (Theme 1348), the STF will interpret the exception to the ITBI immunity rule, deciding on the limits of its applicability. The case has not yet been scheduled for a hearing, but depending on the STF’s ruling, it could have significant implications for companies engaged in real estate activities, as well as for municipal tax revenues.

Furthermore, it is noteworthy that the issue may also affect certain estate and succession planning structures, constituted by holding companies that predominantly engage in real estate activities.