Publications

Category: Tax

Defined as the "word of the year" of 2021 by Collins Dictionary, the NFT, acronym for the term Non-Fungible Token (or, in Portuguese, ”token não fungível”), has increased the attention from entrepreneurs and investors in recent years.

According to Cointelegraph Research,^[1] NFT sales grew from USD 41 million in 2018 to USD 2.5 billion in the first half of 2021, a 60-fold increase in just three and a half years. According to Reuters news agency, sales of NFT have reached nearly USD 25 billion in 2021.

The Blockchain User Behavior Report, a Dapp Radar platform, reveals that Brazil ended 2021 in world’s 3rd place in ranking of adoption of non-fungible tokens and market share of collectibles. Considering all NFT applications, Brazil finished in world’s 6^th place, only behind the UK, Philippines, Russia, USA and China.

Numerous concepts exist for NFT, which are challenging even for information technology experts. In any case, a non-exhaustive definition may be proposed: it is a unique digital certificate that serves to register, through =blockchain technology^[2], the property, or related rights, of an asset, such as a work of art or a collectible item, belonging to the real or even virtual world.

Based on this definition, three relevant aspects of NFTs can be learnt:

• NFTs are protected by blockchain, in which each block of the chain confirms the previous block veracity, ensuring integrity of all transactions performed, turning NFT into a permanent and reliable record (or certificate) of a right for those who hold it;
• they are unique, unfungible, and therefore irreplaceable;
• they represent a right over something that already exists in real or even virtual world.

Notwithstanding its economic relevance, some challenges may arise in relation to the tax treatment applicable to NFTs.

This is because real world and the Brazilian tax law don't necessarily evolve at the same rate. There are examples that prove this misstep, as is the discussion that started in the 1990s regarding the taxation of software transactions. The discussion took different steps and, only in 2021, the Brazilian Supreme Court ruled that software licensing represents an “to do” obligation, which is decisive for the ISS taxation on this type of obligation.

Although NFT still lacks regulation, Bill 4,207/20, of Senator Soraya Thronicke (PSL / MS), seeks to define NFTs as "intangible virtual assets (tokens) representing, in digital format, goods, services or one or more rights, which may be issued, registered, retained, transacted or transferred through a shared electronic device, which makes it possible to identify the holder of the virtual asset, and that do not qualify as securities listed in Art. 2 of Law No. 6,385,  of 7 December 1976".

As Bill 4,207/20 still lacks approval, NFT also lacks a legal definition.

The Brazilian Tax Authorities (RFB) however obliges those who operate with cryptoassets to report their operations (as per Normative Instruction No. 1,888/19). Penalties for those who do not provide this information may be applied, such as a 3% fine on the value of the transaction, for legal entities (with a 70% reduction for Simples Nacional), or 1,5% in the case of individuals.

According to Normative Instruction No. 1,888/2019, a cryptoasset is defined as "the digital form of value defined in its own unit of account, in local or foreign currency. Transactions of cryptoassets are made electronically using encryption and contributed records technologies, which can be used as a form of investment, instrument of transfer of values or access to services, and which does not constitute a legal currency".

While there is no specific standard on the subject, taxation should follow existing ones in the Brazilian legislation. A first possible approach considers that NFT should be taxed considering its own form. Although authors disagree that NFT qualifies as cryptoasset according to definition provided in IN 1.888/19, RFB qualifies NFTs as cryptoassets.

In RFB’s Questions & Answers (Q&A) of 2022, tax authorities clarified that although cryptoassets should not be deemed as legal currency under the current Brazilian regulatory framework, "they may be treated as assets subject to capital gain and must be declared at the acquisition cost in the Assets and Rights section of the Individual Income Tax Return (DIRF)” in cases where the acquisition cost of each cryptoasset is equal to or greater than BLR 5,000.00.

NFT were one of the cryptoassets listed by RFB in its Q&A. According to RFB, for DIRF’s filling purposes, code 10 should be selected for NFT, which discrimination should contain type, quantity and where it is custodiated.

In other words, according to RFB, NFT is cryptoasset, should not be deemed as a legal currency, and should be subject to the calculation of capital gain in the disposal of assets. RFB also clarified that "monthly gains higher than BRL 35,000.00 resulting from cryptoassets sales should be taxed as capital gains at progressive rates, and the collection of income tax must be made until the last working day of the month following the transaction (code 4600 should be selected for this purpose). The exemption for disposals of up to R$ 35,000.00 per month must observe the totality of cryptoassets sold in Brazil or abroad, regardless of their type (Bitcoin, altcoins, stablecoins, NFTs, among others)".

To the extent RFB’s understanding of NFT would prevail, then no taxation on consumption should be applied. This is because the São Paulo State Treasury Office has issued the State Rulling No. 22.841/20, providing that cryptoassets are not goods and, therefore, should not subject to the State Tax (ICMS).

In any case, NFT is a permanent record that extend rights to its owners. Depending on what is established in between the parties in an NFT negotiation, these may be property rights or not. This is because many argue that the taxation of NFT should not follow the form of NFT (as a single digital certificate), but the content itself underlying the NFT, observing the existing rules transactions involving this content. As an example, the artist will consider existing rules applicable to taxation on work of art sales.

The possibilities for the legal relationship created by NFT however are not limited to the transfer of a property. NFTs may represent the admission of an event, where taxation would observe the existing ones to sales of tickets. As an example, Super Bowl has sold it’s 2022's commemorative league tickets tied to NFTs.

For companies, other issues should be further analyzed, including whether the revenues arising from NFT sales are part of company’s activities or not, which will impact the corresponding taxation.

As we can see, in addition to the challenges related to the comprehension of this new technology, the analysis of the taxation applicable to NFTs also brings interesting developments. It is expected, however, that discussions will not last for 20 years, likewise those related to taxation of software licensing.

^[1] Independent digital media platform covering a broad spectrum of news about technology, blockchain, crypto assets and emerging fintech trends.

^[2] Created in 1991, the blockchain gained notoriety in 2009 with Satoshi Nakamoto, by implementing the bitcoin. Renata Barros Souto Maior Baião defined this technology as the "set of technologies that make up a data structure organized as a triple entry accounting. This essentially means that the records of this data contains the following elements: a) an entry that corresponds to an output; (b) an exit; (c) a validation layer created by the network, which ensures the output". Reference: Cadernos Jurídicos, São Paulo, year 21, nº 53, p. 154, January-March/2020.

Category: White-Collar Crime

The Federal Supreme Court (STF) en banc is expected to consider in April the constitutionality of article 50 of the Criminal Offenses Law (LCP)^[1] and, depending on the decision, there will be important and immediate repercussions on gambling in Brazil, which activity may no longer be considered a criminal offense.

The Public Prosecutor's Office of Rio Grande do Sul filed an extraordinary appeal with the STF arguing that the criminalization of gambling does not violate any fundamental precept and rightly aims to punish conduct typified as harmful by criminal law. The case originated in a decision handed down by the Criminal Appeals Panel of the Special Criminal Courts of Rio Grande do Sul, which held that the conduct described in article 50 did not meet the elements of a crime because it went against constitutional precepts such as free enterprise, fundamental freedoms, and the principle of proportionality.

The issue is one of general repercussion. If the unconstitutionality of article 50 of the LCP is recognized, the door will be open for the legalization of gambling in Brazil, regardless of the regulations proposed by the Legislative Branch through Bill 442/91 (PL 442/91).

Recently approved by the House of Representatives, PL 442/91 seeks to transform the exploitation of games of chance into a corporate economic activity, subject to inspection by federal public agencies and tax collection. The text approved joins proposals on legalizing the operation of casinos, bingo, gambling, and other games of chance to others that aim to obtain revenue from initiatives linked to the cultural sector.^[2]

The games and betting expressly authorized in PL 442/91 are: casinos, bingo games, videobingo games, online games, jogo do bicho, and turf betting. Regarding operators, the text defines "gambling and betting operator" to be the legal entity licensed by the government to operate games. The "gaming and betting agent", on the other hand, is the individual in charge of mediating or conducting the betting processes or the dynamics of the games.

The gaming and betting operator will have a complex corporate structure, with specific rules that, if not complied with, can generate more serious punishments than those currently imposed on gambling, considered only a misdemeanor. Avoidance of the regulations will be considered a crime subject to ordinary procedural rules, liable to imprisonment, and all the subjective criminal complexity that permeates corporate structures.

Also according to the bill, games and betting are private economic activities regulated by the Federal Government and subject to the constitutional protection of free enterprise, the Consumer Protection Code (CDC), and the General Data Protection Law (LGPD). Gaming and betting operators will have to submit to a series of criteria and obligations:

• be organized as corporations;
• have a minimum amount of capital stock, depending on the activity they intend to conduct;^[3]
• comply with "fair gaming" guarantees, including with regard to publicizing the activity and establishments; and
• be subject to the control and express approval of the Ministry of Economy,^[4] which may request the information and documents it deems necessary to clarify the operation, including "origin of the funds" and "reputation of those involved".

Operators must also be subject to the guidelines on money laundering and prevention of financing of terrorism, by implementing and maintaining a policy capable of preventing practices of this type, including a risk profile classification of players and bettors and reporting suspicious transactions to the Financial Activities Control Board (Coaf).

Gaming and betting agents cannot be people previously convicted of administrative misconduct, a bankruptcy crime, tax evasion, corruption, graft, embezzlement, a crime against the popular economy, the public faith, property, or the Brazilian Financial System, or any other criminal conviction that prohibits, even temporarily, access to public office, by a final and unappealable judicial decision.^[5]

Regarding penalties, PL 442/91 establishes that simple non-compliance with legal rules can constitute an administrative infraction and a crime punishable by imprisonment from two to four years. Anyone who defrauds the result of a game or bet, or even pays a prize in violation of the law, can also be convicted of a crime and subject to imprisonment from four to seven years and a fine.

It is worth remembering that, in the Brazilian legal system, criminal liability of legal entities is restricted to crimes against the environment, such that the conduct listed in the bill is aimed at punishing individuals. The agent of games and betting emerges as the main subject exposed criminally, but one must also consider the criminal exposure traditionally linked to members of any corporate organization, including with regard to tax crimes that violate the tax collection system imposed by PL 442/91.

The liberalization of gambling in Brazil through this bill still depends on Senate and presidential approval.

^[1]RE n. 966177/RS had its general repercussion recognized in 2016 and corresponds to Topic 924.

^[2] To wit: PL 442/91, which proposes revocation of the legal provisions that mention the practice of gambling; PL 73/2021, which provides for the Federal Government's financial support to the states, Federal District, and municipalities to guarantee emergency actions aimed at the culture sector; and PL 1518/2021, which promotes the institution of a national policy to foster the culture sector.

^[3] The required capital stock varies according to the activity to be conducted, with a minimum of R$10 million for bingo operators and a maximum of R$100 million for casinos.

^[4] The bill provides that corporate acts such as changes in corporate purpose or capital, mergers, splits, or takeovers will require the express approval of the Ministry of Economy, and that the entrance of a qualified shareholder or an increase in qualified shareholding equal to or greater than 15% must be reported.

4 The bill has wording regarding impediments very similar to cases of ineligibility to occupy management positions in corporations (article 147, paragraph 1, of Law No. 6,404/76)

Category: Tax

A recurrent and still controversial topic in the scope of the Administrative Tax Appeals Board (Carf) is the application of an isolated fine of 50% for non-payment of Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) advances, cumulated with an ex-officio fine of 75%.

The discussion regarding the possibility of simultaneous charging of fines in IRPJ and CSLL assessments is based on the provisions of article 44, subsections I and II, of Law 9,430/96, as amended by Law 11,488/07. This legislative change divides the discussion into two periods.

For taxable events prior to 2007, that is, occurring before the legislative change, the understanding was consolidated by ruling out the cumulative collection of the fines. Only the requirement for the ex officio fine was maintained. This position is already settled, and was even the subject of Carf Precedent 105, approved in 2014. However, for the taxable events that occurred after 2007, the debate continues.

Those who argue for the possibility of accumulation allege that the change brought about by Law 11,488/07 differentiated the calculation bases for the two fines (the 50% fine is now calculated on the monthly payment, while the 75% fine is calculated on the entirety of the unpaid tax), solving the original problem of identity of bases that would prevent double payment. Also, in a finalistic argument to justify the double penalty, they argue that maintaining the penalty is essential to prevent the harmful taxpayer behavior of evading payment of the estimates.

On the other hand, those who argue for the impossibility of accumulation affirm that, in the annual form for calculation of the IRPJ and CSLL, the monthly estimates, by their very name, are mere provisional anticipation of the eventual amount due when the taxable event occurs, that is, on December 31 of each calendar year. In this sense, non-payment of the estimate is a "passing" offense, a preparatory act for the act of reducing the IRPJ or CSLL at the end of the year, while non-payment of the estimate is only the means of execution for non-payment of the annual amounts. The basis for this reasoning is the penal principle of consonance or absorption, in which penalty as a means is absorbed by the penalty as an end in itself, not resisting the application of two penalties. Furthermore, penalizing the taxpayer for the same conduct with a 75% fine^[1] and a 50% fine would be excessive, exceeding the reasonableness and proportionality required.

The current scenario of the Carf is one of uncertainty, with decisions being made in both directions, and often in tie votes (resolved by the provisions of article 19-E of Law 10,522/02, in favor of the taxpayer).

The situation is aggravated by the current distribution of jurisdiction for deciding the issue in the Superior Chamber of Tax Appeals (CSRF), i.e. the highest judgment bodies in the federal administrative sphere. Although this is traditionally a matter for the bodies of the 1st Section only, responsible, according to article 2, subsections I, II, and VI, of the Internal Rules of the Carf (Ricarf) for administrative proceedings that deal with IRPJ, CSLL, and related penalties, by force of Carf Ordinance 15,081/20, this competence was provisionally extended to the 3rd Panel of the CSRF, responsible, in principle, for judgments on contributions to PIS and Cofins, IPI, customs, and IOF, among others. Therefore, at present, depending on the date of filing of the appeal, the same issue can be examined by one of the two superior judgment bodies: 1st or by the 3rd Panel of the CSRF.

In a historical analysis, taxpayers who had their claim reviewed by the 1st Panel had better luck, with a decision declaring the impossibility of simultaneous levy, regardless of the year of the taxable event, due to the rule of article 19-E of Law 10,522/02 (see appellate decision 9101-005.986).

The 3rd Panel of the CSRF, on the other hand, reviewing the same issue under this provisional jurisdiction, has been deciding by majority vote in favor of the possibility of maintaining the simultaneous collection for triggering events after 2007 (see appellate decision 9303-012.015).

However, the 1st Panel of the CSRF seems to be changing its position, aligning itself with the understanding of the 3rd Panel of the CSRF. In the April 2022 session, by majority vote, the 1st Panel dismissed a taxpayer's special appeal and upheld the levy of the fines concurrently. What seems to have been decisive for reversal of the discussion was the change in the composition of the body, with the entry of alternate board member Gustavo Guimarães Fonseca, who expressed his position in favor of maintaining the collection of fines concurrently.

This change in case law, in our view, makes visible the legal insecurity emanating from the body and the instability of the case law formed.

In the judicial sphere, the Second Panel of the Superior Court of Appeals (STJ) has ruled that the principle of consolidation must be applied in situations of concomitance of the payment of an isolated fine and an ex-officio fine for failure to pay the tax ascertained at the end of the fiscal year and for failure to advance it in the form estimated,^[2] since the more serious offense encompasses the lesser one.

The understanding brought in by the Second Panel of the STJ goes against the position adopted by part of the Carf judges when they limited the application of Carf Precedent 105 to taxable events occurring before 2007.

The Federal Supreme Court, in turn, has no appeals endowed with general repercussion that discuss identical theories, but, based on the fact that the concomitant imposition of these fines results in payment of a penalty of more than 100% of the tax, in line with prior decisions of the Supreme Court,^{[3] [4]} we would have the payment ruled out due to recognition of its confiscatory nature.

Although they are not mandatory for Carf's panels, according to article 62, paragraph 1, subsection II, letter "b", of Annex II of the Ricarf, these decisions signal the normative interpretation by the highest judicial bodies and should be considered to be determining precedents for the correct outcome of the case. The expectation is that Carf will rethink its position and rule out the payment of cumulative fines, consolidating a scenario that respects the boundaries of our legal system for the application of penalties.

^[1] Without considering the existence of fraud or deceit, which can increase the fine by 150%.

^[2] AgRg no REsp 1.499.389/PB, opinion drafted by Justice Mauro Campbell Marques, Second Panel, DJe 9/28/2015; REsp 1.496.354/PR, opinion drafted by Justice Humberto Martins, Second Panel, DJe 3/24/2015.

AgInt no AREsp 11603525/RJ, opinion drafted by Justice Francisco Falcão, Second Panel, Dje 11/25/20020

^[3] A.g Reg no RE 833.106/GO

^[4] Recently, the general repercussion was recognized in Topic 1.195 in order to review the constitutional issue regarding the "possibility of setting a punitive tax fine, not qualified, in an amount greater than 100% of the tax owed.”

Category: Capital markets

Among the innovations brought about by Executive Order 1,103 (MP 1,103/22), which deals with general rules applicable to the securitization of receivables and the issuance of receivables certificates, among other topics, one of the most relevant is the possibility of establishing a fiduciary arrangement in operations whose receivables are linked to the payment of any type of securities.

Published on March 15 by the federal government, the executive order establishes in the sole paragraph of its article 17 that "securitization operations are considered to be the issuance and placement of securities^[1] with investors, whose payment is primarily conditioned on the receipt of funds from the receivables that back it.

Until then, the possibility of establishing a fiduciary arrangement was restricted to operations involving Real Estate Receivables Certificates (CRIs) or Agribusiness Receivables Certificates (CRAs), as provided for in articles 9 of Law 9,514/97 and 39 of Law 11,076/04, respectively. Article 24 of the new executive order, however, extends the possibility of establishing a fiduciary arrangement to operations whose receivables are linked to securities of any kind:

"Article 24. The securitization company may institute a fiduciary arrangement over the receivables and over the goods and rights that are subject to the collateral agreed in favor of the payment of the Receivables Certificates or of other rights and securities representative of securitization operations^[2] and, if any, of the compliance with obligations assumed by the grantor of the receivables."

Article 25 and paragraph 7 of article 21 determine that the fiduciary arrangement will be instituted by unilateral declaration of the securitizing company, when signing the securitization consent or the instrument of issuance of the securities in question. Both the securitization consent and the instrument of issuance must be registered with an entity authorized by the Central Bank of Brazil or the Securities and Exchange Commission of Brazil, which are responsible for exercising the activity of registration or centralized deposit of financial assets and securities, according to Law 12,810/13.

Once the fiduciary arrangement is established, article 26 of MP 1,103/22 determines that the receivables linked to it will be subject to the following rules:

• they will constitute separate equity, which should not be mixed with the company's common equity or with other separate equity of the securitizing company resulting from the creation of a fiduciary arrangement in other securities issuances;
• they will be kept separate from the common equity and other separate equity of the securitizing company until full amortization of the issuance to which they are allocated is completed;
• they will be destined exclusively for the liquidation of the securities to which they are allocated and for payment of management costs and related tax obligations, observing the procedures established in the issuance documents;
• they will not answer before the creditors of the securitizing company for any obligation;
• they will not be subject to the creation of collateral by any of the creditors of the securitizing company, whatever priority they might have; and
• they will only be liable for the obligations inherent to the securities to which they are linked.

The new rule is not entirely new to the market. Something similar to the fiduciary arrangement was already being done in operations that did not involve real estate receivables - CRIs or CRAs - through some legal rules. An example are financial debentures, regulated by Resolution 2,686/00, of the Brazilian Monetary Council. In these operations, a fiduciary assignment was usually constituted over the financial receivables linked to the issuance, to protect the investor against creditors of the securitization company. These mechanisms, however, brought about a series of operational complications, complexity in the structuring of documentation, and an increase in costs with registration in notaries of deeds and documents of the collateral, especially in the case of revolving receivables.

By making possible a greater standardization in the structuring of operations with different securities, providing a reduction in costs and greater legal security for investors in relation to the shielding of the linked receivables against creditors and other obligations of the securitization company, PM 1,103/22 contributes to strengthening the securitization industry in Brazil.

The rule entered into force on the date of its published, but still needs to be converted into law by the Brazilian Congress. Its term of duration is 60 days, extendable automatically for the same period, if the vote is not completed within the deadline stipulated.

^[1] Emphasis added

^[2] idem

Category: Capital markets

On April 27, the Brazilian Securities and Exchange Commission (CVM) issued CVM Instruction 88, which repealed CVM Instruction 588/17 and now regulates the public offering of securities issued by small scale companies, carried out with exemption from registration through an electronic platform for participatory investment.

This fundraising method, already widely used in more advanced markets such as the United Kingdom and the United States, is known as equity crowdfunding or investment crowdfunding, and has gained even more relevance with the prominence gained by the Brazilian startup ecosystem, especially companies whose business is related to technological innovation, which has also contributed to the growth of the national venture capital industry in recent years.

To get an idea, in 2021, according to information from the Distrito platform, the volume of investments in Brazilian startups was US$9.4 billion, an increase of 166% compared to 2020 and 526% compared to 2018. And it does not stop there! Sling Hub, a data intelligence platform about the Latin American startup ecosystem, projected that "if Brazilian startups repeat the same growth shown last year, it is possible that they will close this year 2022 with an invested volume of US$29.4 billion.”

Despite this high flow of capital, Brazilian startups still encounter difficulties in raising funds from the popular economy through capital market transactions, specifically through traditional public offerings of securities, governed by CVM Instructions 400/03, as amended, and 476/09, as amended,^[1] due to the regulatory and operational costs involved.

By creating a specific regulation on crowdfunding investment, CVM Instruction 588/17 gave new contours to this scenario, allowing companies to raise funds in the general market by issuing debt and equity securities (including convertible securities), albeit with important limitations, such as:

• funds raised (maximum amount of funding of R$ 5 million);
• amount of gross annual revenue recorded by the company whose securities are publicly offered (up to R$ 10 million as measured in the fiscal year prior to the public offering of securities); and
• restricted target audience (access to qualified investors and investors whose annual gross revenue or amount of financial investments is greater than R$100,000, in which case the annual investment limit could be increased to up to 10% of the higher of the two amounts).

Even with such restrictions, this type of fundraising has gained traction in recent years. According to information from the CVM, in 2021, approximately R$ 188 million were raised via crowdfunding investment through 114 public crowdfunding offerings. The figure represented a 123% increase in the total transacted in 2020.

In addition, there has been a substantial increase in the number of platforms registered with the agency: 56 in 2021, up from 32 the prior year, which represents a 75% increase. There was also a 139% growth in the number of investors in this type of public offering, which went from 8,275 in 2020 to 19,797 in 2021, denoting the market's appetite for this type of asset.

These factors, combined with the constant demands made by market participants for improvements in the regulation of crowdfunding investments, caused the CVM rush to revise the current rule, which culminated in the issuance of CVM Resolution 88.

In general terms, CVM Resolution 88, which enters into effect on July 1st of this year, brought about important innovations to this type of investment by broadening the spectrum of companies that can conduct offers and investors who can participate in them, as well as conferring additional protections to the investing public.

We highlight below the main changes and developments implemented by CVM Resolution 88:

^[1] At the date of publication of this article, CVM instructions 400 and 476 are under revision by the CVM. A Public Hearing Notice was published aiming at complete amendment and restatement of these rules. For more information, see https://conteudo.cvm.gov.br/audiencias_publicas/ap_sdm/2021/sdm0221.html.

Category: Tax

The Federal Supreme Court (STF) has unanimously decided to consider April 20, 2021, as the starting date for the effects of the decisions handed down in Direct Actions of Unconstitutionality (ADIs) that declared state laws unconstitutional regarding the collection of the Tax on Transmission of Property and Donations (ITCMD) on donations or inheritances from abroad. The date was set by the STF in March of this year when it softened the effects of the decisions.

The ADIs were filed by the Federal Attorney General's Office (PGR) in an action that referred to the decision reached by the STF in early 2021, in the judgment of Extraordinary Appeal (RE) 851.108. At the time, the justices established the theory of general repercussion (Topic 825) according to which, before the Brazilian Congress regulates the collection of ITCMD by means of a complementary law, the states cannot collect the tax from:

• transmissions in which the donor is resident/domiciled abroad; and
• when the deceased had assets, was resident/domiciled, or had his inventory processed abroad.

In view of the judgment of RE 851.108, the PGR filed ADIs with the STF against laws of 23 states plus the Federal District that governed and allowed the collection of ITCMD on donations and inheritances from abroad. The actions questioned laws from Pernambuco, Paraná, Pará, Tocantins, Maranhão, Paraíba, Santa Catarina, Rondônia, Rio Grande do Sul, Rio de Janeiro, Piauí, Alagoas, Acre, São Paulo, Goiás, Espírito Santo, the Federal District, Ceará, Bahia, Amazonas, Amapá, Mato Grosso, Minas Gerais, and Mato Grosso do Sul.^[1]

In the ADIs, the PGR argued that, although the understanding in RE 851.108, established as general repercussion, is mandatory for bodies of the Judiciary, it does not bind the actions of state government agencies while the laws mandating collection of the tax are still in effect. As a result, the bodies of the state treasuries were still obliged to assess taxpayers who failed to pay the ITCMD, even though these assessments could later be cancelled by the courts.

With the judgment of the ADIs, the STF recognized the unconstitutionality of the state laws that were in disagreement with the understanding set forth in RE 851.108 and, thereby, disallowed the tax authorities from charging ITCMD in the aforementioned cases. By softening the effects of the decisions handed down in the ADIs, the STF defined that they are effective as of publication of the judgment on the merits handed down in RE 851.108 (April 20, 2021). Accordingly, since that date, inheritances and donations received from abroad are not subject to payment of ITCMD until the Brazilian Congress issues a complementary law.

It is important to consider that the filing of the ADIs is part of a set of initiatives organized by the Federal Attorney General's Office, which also filed a Direct Action of Unconstitutionality by Omission 67 (ADO 67), to prompt the Brazilian Congress to prepare a complementary law establishing the general rules for levying ITCMD on donations or inheritances from abroad. Once the unconstitutionality of the state laws is recognized, the PGR's goal with ADO 67 is for Congress to be compelled by the STF to issue a law allowing the institution and collection of ITCMD by the states on donations and inheritances from abroad.

Pursuant to article 103, paragraph 2, of the Federal Constitution,^[2] an ADO lies in cases of omission by public authorities to give effect to rules already provided for in the text of the Constitution. If an omission is recognized, it is incumbent on the STF to notify the Legislature for measures to be taken. The Constitution, however, does not establish a deadline for the issuance of a regulatory standard in the event of omission by the Legislative Branch.

ADO 67 was filed under the allegation that the Brazilian Congress failed to make effective the rule contained in article 155, III, of the Federal Constitution, which allows the collection of ITCMD, by the states, on donations and inheritances from abroad, with its implementation regulated by a complementary law.

"Article 155 - It is incumbent on the States and the Federal District to institute taxes on:

I - transmission causa mortis and donation of any goods or rights;
(...)

Paragraph 1. The tax provided for in subsection I:
III - shall have authority for its institution regulated by complementary law:
a) if the donor is domiciled or resident abroad;
b) if the deceased had assets, was a resident or domiciled, or had his inventory processed abroad;"^[3]

The PGR contends that, even 32 years after the promulgation of the Federal Constitution, there is inertia in giving effect to the tax rule provided for in the text of the Constitution. The failure to enact a complementary law ends up preventing the states from demanding the tax, causing losses to the public coffers and to the autonomy of the regional entities of the States.

It is also worth pointing out that there are initiatives from the House of Representatives to issue the aforementioned complementary law. The Complementary Law Bill (PLP) 363/13, presented on December 2, 2013, by Representative Erika Kokay (PT/DF), was the first to propose to regulate the institution and collection of the scenario for the ITCMD provided for in subsection III of paragraph 1 of article 155 of the Constitution. The bill was approved in 2017 by the Finance and Taxation and Constitution, Justice, and Citizenship committees. Since then, the text awaits consideration by the full House. Aside from this, with the return of the topic to the tax agenda, in 2021 we had the submission of two new bill on the subject, PLP 67/21, authored by congressman Ricardo Barros (PP/PR), and PLP 37/21, authored by congressman Hilton Rocha (MDB/MA). Currently, the two bills are attached to PLP 363/13 in the House of Representatives.

Although the STF has softened the effects of the decision to allow the tax authorities to collect the tax in relation to triggering events that occurred up to April 20, 2021 (except in cases of lawsuits filed before this date), the decision leaves no doubt that as of this milestone there is no collection of ITCMD on donations and inheritances from abroad in the Brazilian tax system.

Thus, residents abroad are in an opportune situation to donate assets to residents in Brazil, either regular donations or donations in the form of advance of an inheritance. In particular, it is a very advantageous time to carry out succession planning, acceleration the transmission of assets, including through the institution of a usufruct. Asset reorganization in this context can involve real estate assets, shareholdings, etc.

Furthermore, we believe that the moves towards regulating the tax are tending towards intensifying, especially considering the budget crisis in the states, such that the momentary opening for ITCMD-free donations may soon come to an end.

^[1] ADI 6.817, ADI 6.818, ADI 6.819, ADI 6.820, ADI 6.821, ADI 6.822, ADI 6.823, ADI 6.824, ADI 6.825, ADI 6.826, ADI 6.827, ADI 6.828, ADI 6.829, ADI 6.830, ADI 6.831, ADI 6.832, ADI 6.833, ADI 6.834, ADI 6.835, ADI 6.836, ADI 6.837, ADI 6.838, ADI 6.839, and ADI 6.840, respectively.

^[2]  Article 103. The following may file direct actions of unconstitutionality and declaratory actions of constitutionality:

VI - the Attorney General of Brazil;

Paragraph 2. Once the unconstitutionality by omission of a measure to make a constitutional rule effective is declared, the competent Power shall be notified to adopt the measures necessary and, in the case of an administrative body, to do so within thirty days.

^[3] Emphasis added