Brazil: For the first time, São Paulo's Tax Authorities provide analysis on the levy of Estate and Gift Tax on Irrevocable Trusts

18 May 2023    2 minute read

In brief

On 4 April 2023, a response to the tax private ruling no 25343/2022 was published. For the first time ever, São Paulo's Tax Authorities ("Sefaz-SP") released an answer regarding the levy of Estate and Gift Tax (ITCMD) on Irrevocable Trusts dealing with Brazilian residents.

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In more detail

According to the facts presented, the inquirer reported being the beneficiary of an irrevocable Trust formed in December of 2017, by the investment of capital from a foreign company, to benefit the founding individual (Settlor) and beneficiaries (once of them the Brazilian beneficiary who requested the ruling), for 150 years or until posterior act that modify the trust period.

The analyses of the case was restricted solely to the taxation of the ITCMD regarding São Paulo's State competence, which took into consideration the 2nd article of the Haia Convention, from which Brazil is not signatory. Also, São Paulo's Tax Authorities grounded its response on some scholar's positions, due to the need of legal analyses to apply to each individual case dealing with trusts.

From the facts presented, Sefaz-SP understood that in a Trust structure the assets transferred by the settlor to the trust do not become part of the trustee´s assets, but remain under its control for the benefit of the beneficiary, and, for this reason, understood that the in fact recipient of the rights over these assets would always be the beneficiary. Moreover, the ruling understood that the assets are transferred free of charge, with animus donandi, through intention of practicing the act with freedom, which characterizes a donation. 

Therefore, succeeding the statements above, Sefaz-SP ruled in favor of the levy of the ITCMD on irrevocable trusts, at the moment the beneficiary is indicated by the settlor and, consequently, becomes the holder of the rights provided by the trust documents.

Finally, São Paulo's Tax Authorities accounted for the Brazilian Supreme Court (STF) decision on the Extraordinary Appeal nº 851.108/SP, which stated that the taxation of the ITCMD over assets received as inheritance or donation from foreign donor was unconstitutional. However, the Ruling ultimately stated that article 4th of Law no 10.705/2000 (which provides for ITCMD in State of Sao Paulo), that sets the obligation to tax donations from foreign donors to residents of São Paulo was valid in the legal system.

 

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Contact Information
Clarissa Machado
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Sao Paulo, Trench Rossi Watanabe
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clarissa.machado@trenchrossi.com

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