Donating only at market value? Another controversial issue will be decided by the Supreme Federal Court (STF) with general repercussions, with its outcome affecting all other similar cases throughout the country: whether donations of assets and rights in advance of legitimate inheritance should be treated as if they were at market value and whether the difference between the cost value and the market value will be taxed or not by the Income Tax (IRPF).

The discussion arose because the Federal Revenue Service began to charge/demand IRPF on the value of the capital gain determined between the difference between the market value of the transferred asset and the cost value of the asset registered in the donor’s tax return (along with the tax on donations – due to the State and the Federal District), when the legitimate heirs, who are those who are entitled to inheritance by law, receive by donation part of the assets they would receive by inheritance.

Taxpayers do not agree with this position of the Tax Authorities. In the case that gave rise to Topic No. 1,321/STF (RE No. 1,522,312/SC), the taxpayer filed a legal objection to the collection of IRPF on the capital gains arising from a donation for the purpose of advancing the legitimate inheritance, a very common practice used in estate and succession planning.

The origin of the dispute is an overlapping of legal provisions.

On the one hand, article 23, § 1, of Law No. 9,532/1997 authorizes the collection of IRPF on the capital gains obtained when transferring property by donation in advance of the legitimate inheritance if the donor chooses to make this transfer on the market. The Federal Tax Authorities argue that there is a capital gain in the difference between the market value of the asset transferred and its acquisition cost by the donor.

On the other hand, Article 6, Section XVI, of Law No. 7,713/1988, provides that assets transferred by donation are exempt from IRPF. The rationale is justified by the impossibility of the same fact (donation) being taxed by both donation and inheritance tax (ITCMD) and IRPF, under penalty of double taxation.

The topic is controversial among the Panels of the STF itself and, despite there being favorable decisions for taxpayers in previous judgments, it is still not possible to predict with certainty what the outcome of the decision will be in general repercussion.

The future definition of the STF’s understanding on the topic will represent a great step towards legal certainty, since, at least, there will be certainty that all identical cases will have the same outcome, providing equal treatment to all taxpayers.

In this scenario, it is important to pay attention to donations in advance of inheritance already made and to be made, assessing the need for a judicial discussion on the subject in order to protect against future modulation of effects (to be decided by the STF), possibly requiring payment of IRPF on the donations.

By Júlia Dias, lawyer at Candido Martins Cukier Advogados.