Property Transfer Tax: The Court’s View

We write about Brazil’s ITBI tax all the time. As we noted in When do I Pay the Property Transfer Tax? and the referenced posts, ITBI is a municipal tax paid on the transfer of real estate in Brazil. Recently, the country’s Superior Court (Superior Tribunal de Justiça) published its opinion about how the tax should be calculated. Here’s what the court said.

The calculation of the ITBI tax must take the property’s market value as the basis. What’s the market value? It’s whatever the taxpayer declares as the sale price. The court made clear that the market value is not the municipality’s assessed value. If the municipality disagrees with the declared value, then the municipality can initiate an administrative review process.

In cases where real estate property is acquired through judicial auction, the court concluded that the basis value for the ITBI tax calculation is the auction price. This settled past discussions about whether the tax should be calculated over the auction price, the sale price, or the court’s assessed value.

The court also cleared up a disagreement about when the ITBI tax is due. Payment should occur at the time the property transfer is registered with the respective real estate notary office. However, this interpretation conflicts with some municipal laws that require payment upon signing of a private instrument of sale.

After years of litigation, the Superior Court has finally clarified how to calculate the ITBI transfer tax and when it must be paid. Now it’s up to the municipalities to follow the court’s decision.