SP State Courts (TJ-SP) has a favorable position for taxpayers
The usufruct is a well-known legal instrument used in estate and succession planning, especially in relation to donations. The adoption of the usufruct in the donation institute is nothing more than the transfer of ownership of the good to a third party and the maintenance to the donor and usufructuary of the right of possession, use, administration and proceeds of that good.
The transfer of goods by donation is a taxable event for the inheritance and donation tax (ITCMD), a tax governed by state legislation. But the institution and extinction of the usufruct is not a taxable event, since there is no inheritance or donation.
In São Paulo, the ITCMD is based on the property’s nominal value on the date of donation and at a rate of 4%. However, in relation to donation with usufruct, the state legislation is not clear as to the tax rate.
The State allows that in this type of donation only 2/3 of the property’s nominal value on the date of donation be used as the tax basis for calculating the ITCMD tax and the 1/3 of the property’s nominal value corresponds to the consolidation of full ownership of the person who is the owner on the date on which the usufruct is waived or terminated. It so happens that the requirement to collect this remaining amount is not expressly provided for in the law, only in a decree that considers the extinction of the usufruct similar to donation.
Since the taxable event occurred at the time of the donation, it is not possible for the State of São Paulo to demand the payment of the tax also on the termination of the usufruct. In fact, the Federal Constitution defines that the ITCMD only applies to the transfer by succession and donation – excluding any mention of its incidence at the time of termination or waiver of the usufruct.
Contrary to the São Paulo tax authorities, which for more than a decade have demanded the additional ITCMD on the basis of calculation of 1/3 of the property’s nominal value in the termination and waiver of the usufruct, the Court of Justice of the State of São Paulo (TJ-SP) has rightly upheld its understanding in favor of taxpayers. The decisions are clear in the sense that there is no way to consider the extinction of the usufruct similar to the donation for such purpose, removing the tax requirement in such situations of extinction or waiver of usufruct.
It is worth mentioning that, specifically in the extinction of usufruct by inheritance, there is express mention in the state law that this transfer is exempt from the ITCMD.
The consideration to be made by taxpayers from São Paulo who intend to proceed with estate and succession planning is that these donations with usufruct reserve can minimize the tax burden of the ITCMD, representing considerable tax savings depending on the amount involved. It is worth reflecting on the filing of a lawsuit so that the right to non-payment of tax is preserved.
