The ITBI tax immunity on the transfer of real estate to the capital of holding companies

Abstract

Globalization, which emerged in the late twentieth century, transcended the physical borders between countries, strengthening their international trade relations. Business groups were the solution found to keep pace with the market. Among the ways of establishing them, there is the formation of holding companies. This corporate form carries out no operational activities: it participates in and controls other companies linked by the articles of association. Where real estate is incorporated into their capital, they must benefit from immunity from the ITBI — the tax on inter vivos transfers of immovable property — as provided in article 156, II, § 2, I of the Constitution of the Federative Republic of Brazil of 1988. The caveat in the final part of that provision excepts immunity where the company carries out real estate activities, in which case the ITBI applies in full. However, this restriction never applies to holding companies, which perform neither operational nor real estate activities. The refusal of municipal tax authorities to grant immunity to holding companies offends the constitutional principle of free enterprise in the economic order and aggravates what has been called the “Brazil cost” for foreign companies wishing to invest in the country.