STF Reaffirms Unconstitutionality of ITCMD Taxation on Donations and Inheritances Involving Foreign Elements

The Brazilian Federal Supreme Court (STF) has once again ruled on the collection of the Inheritance and Donation Tax (ITCMD) in situations involving assets, donors, or heirs located abroad, reinforcing the understanding that Brazilian states and the Federal District lack the authority to impose the tax in such cases without a prior federal supplementary law.

In the judgment of Direct Action of Unconstitutionality (ADI) No. 6,838, the STF Plenary struck down provisions of Law No. 7,850/2002 of the State of Mato Grosso, which authorized the collection of ITCMD on international transfers.

The reporting justice, Minister Cristiano Zanin, emphasized that the analysis of constitutionality must be based on the constitutional text in force at the time the law was enacted. Therefore, even though Constitutional Amendment No. 132/2023 later granted federative entities the power to legislate on the matter, this change does not validate earlier state laws that were unconstitutional from the outset.

Consolidated UnderstandingThe decision aligns with Extraordinary Appeal No. 851,108 (Theme 825 of general repercussion), decided in 2021, when the STF established the thesis that, in the absence of a federal supplementary law, states may not collect ITCMD on donations and inheritances with an international connection.

The situations that depend on such regulation include:

1. Donations in which the donor is a resident or domiciled abroad;

2. Inheritances of assets located outside Brazil;

3. Inheritances left by individuals who were residents or domiciled abroad; and

4. Estate proceedings conducted abroad.

   
   

Modulation of EffectsThe STF upheld the same modulation of effects applied in previous rulings: the decision is effective as of April 20, 2021 (the publication date of the judgment in RE 851,108), safeguarding only judicial actions that were already pending by that date.

Thus, ITCMD assessments issued without a federal supplementary law remain unconstitutional, and taxpayers who filed lawsuits before April 2021 retain the right to have the tax set aside.

Outlook and OpportunitiesThe ruling reinforces the consistency of the STF’s case law, which has already produced more than 20 identical decisions on the issue. Until a federal supplementary law is approved—expected through Bill PLC 108/2024, currently under consideration—international transfers of assets and funds remain outside the scope of ITCMD.

This scenario creates a window of opportunity for taxpayers considering international donations or estate planning reorganizations, provided they comply with the principles of tax legality and the constitutional division of powers.