Changes in the Transfer and Gift Tax (“ITCMD”) legislation

In the middle of April, the Legislative Assembly of the State of São Paulo started analysing the Bill of Law No. 250/20, which proposes relevant changes in the Transfer and Gift Tax (“ITCMD”) legislation.
The ITCMD is a State tax due over gifts and inheritances. In São Paulo, the legislation currently in force provides that ITCMD is due at a flat rate of 4%.
One of the main proposed changes is the creation of progressive tax rates, which would vary between 4% and 8%, depending on the value of the gift or inheritance.
Among other relevant changes, we highlight the levy of ITCMD over the amounts received as a complementary pension plan, such as the Plan Generator of Free Benefit (“PGBL”) and the Life Generator of Free Benefit (“VGBL”) including the tax liability of private pension entities.
Changes are also proposed with regard to the definition of the ITCMD tax basis over real estate properties and equity interest participations. For real estate properties, the Treasury Department would publish a list with the market value to be considered; While this list was not disclosed, the adoption of the bare land value for rural real estate properties and the tax  basis of the ITBI (Inter vivos Transfer Tax) or, in its absence,  the  IPTU (Real Estate Tax) basis remain in force. With respect to equity interest participations, the tax basis should consider the companies’ net equity including the market value of the assets included in the company’s balance sheet.
If approved, the changes will only take effect in the following year, also respecting the minimum 90-day holding period.
Therefore, although the Bill of Law proposes relevant changes to ITCMD legislation, there is still a window of opportunity opened for estate planning of the Families considering the legislation currently in force and the uncertainty about the approval still this year .

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