Real Estate Holding Company: Tax Authorities May Review the Asset Value for Calculating the ITCMD

When someone dies and leaves assets to their heirs, they must pay a state tax called ITMCD (Tax on Transfers Due to Death and Donations). This tax is levied on the value of the assets transferred, such as real estate, cash, stocks, or company shares.

In a recent decision (REsp 2.139.412-MT), the Superior Court of Justice (STJ)

understood that the Tax Authorities may disregard the value declared by the taxpayer if it does not correspond to the real market value of the properties.

The dispute involved a case in which the assets left as inheritance were held within a company, and the properties were used to compose the company’s share capital. In their tax return, the heirs used the net value of the company’s shares (calculated based on the company’s net worth) to calculate the ITMCD.

The Superior Court of Justice, however, stated that this is not sufficient. The law (Article 38 of the National Tax Code) determines that the tax must be calculated based on the market value of the assets, and not just the book value of the company’s shares.

In other words: if the share capital was formed by real estate, these properties must be valued individually and based on their actual values ​​on the date of transfer. Simply using accounting numbers can underestimate the value of the assets and, consequently, unduly reduce the tax liability.

This decision reinforces the tax authorities’ right to review the amount reported by taxpayers, requiring the tax base to be accurately calculated. The goal is to prevent inheritances from being declared at artificially low values, which would directly impact tax collection.

This is a precedent that generates a considerable level of legal uncertainty, as it completely ignores the existence of other legal standards applicable to the company (e.g., the criteria for accounting for assets received by the company as a capital contribution), and to the partners (free choice for individual partners to define whether they will adopt the historical cost or the market value of the assets, when paying up the company’s capital).