STF defines whether Income Tax is levied on early inheritance donation

The plenary session of the Supreme Federal Court approved last Friday the 25th the general repercussion of an appeal in which the Union seeks to collect Income Tax from a taxpayer who donated a property to his daughter as a way of anticipating the inheritance of the asset.

The issue is controversial, and has been the subject of divergent decisions within the Supreme Court itself. In recent years, the two panels of the Court have ruled in favor of both the Federal Government and taxpayers in very similar cases. Now, the justices have decided to unify their understanding, choosing a case whose outcome will result in a thesis to be followed by all courts in the country.

This issue is particularly mobilized by tax lawyers, who work with thousands of individuals every year seeking to prevent income tax from being charged on advance inheritance payments. The main argument is that there is no income to be taxed, since the donation of an asset actually involves a subtraction of assets, not an increase.

Another argument is that the donor already pays the Tax on Transfer Causa Mortis or Donation (ITCMD), a state tax, and cannot be taxed twice for the same transaction.

To the Supreme Court, the Attorney General's Office of the National Treasury (PGFN) claims that the collection of IR is justified, since at the time of the donation a capital gain is verified with the appreciation of the asset, this being the fact that gives rise to the collection, and not the donation transaction itself.

Understand

The so-called “advance payment of legitimate inheritance” is provided for in the Civil Code. According to the law, when donating an asset to a direct descendant or spouse, the donor in fact distributes his or her assets among the heirs before his or her death. This practice is seen as a way to facilitate succession and avoid conflicts.

The problem occurs, however, when there is an update of the value of the asset to be donated. This is because the donor is allowed, for example, to update the value of a property to market conditions at the time of transfer.

For example, in the case chosen as a paradigm by the Supreme Court, the taxpayer bought a house decades ago for 17 thousand reais, but when donating it, he exercised the right to update the market value to 400 thousand reais, according to the official assessment.

Upon learning of the donation, the Federal Revenue Service charged the donor approximately R$26,000 in Income Tax on the transaction, considering only that the taxpayer obtained a property at a lower value and disposed of the same asset at a higher value, without considering whether there was in fact a sale that generated a financial gain.

Unsatisfied, the taxpayer took legal action and obtained a favorable decision from the Federal Regional Court of the 4th Region, which considered the collection of Income Tax on the advance of inheritance to be unconstitutional. The PGFN then appealed to the Supreme Court. There is no set deadline for the ministers to make a final decision on the matter.