Court Says Foreign Assets Not Subject to Gift and Inheritance Tax

Remember this? If you’ve been following our blog, you’ll recall that the gift and inheritance tax (Imposto de Transmissão Causa Mortis e Doação or ITCMD) in Brazil is a state tax. But like all things tax related in Brazil, what seems relatively straightforward isn’t always so.

The Brazilian Constitution provides that charging ITCMD on assets outside Brazil requires the enactment of an additional federal law. So far that additional federal law hasn’t been passed. Yet still, 22 of the 27 Brazilian states have their own laws allowing them to charge the tax anyway.

It has taken ten years of legal wrangling to fight the tax. The process started in 2011 when a taxpayer from São Paulo filed the first lawsuit. That case finally reached the Supreme Court, which confirmed last month that states don’t have jurisdiction to collect ITCMD on foreign assets.

Yet the court’s decision was more nuanced than a blanket rejection of any ITCMD tax already collected. To avoid bankrupting state governments, the decision won’t be retroactive. Unless a taxpayer files suit before the decision is officially published, states aren’t required to return payments previously made. Rather, they just can’t collect them in the future. 

Now that the court has spoken, expect lawmakers to work on passing the additional federal law. States know that it’s the only way they’ll be able to collect ITCMD on foreign assets going forward. So if you’re a resident of Brazil and plan to receive assets in the US, you’ll want to move quickly to finish that transaction.