ITBI: Changes Proposed by PLP 108/2024

The legislative Proposal No. 108/2024 (PLP 108/2024) introduces significant amendments to the Brazilian National Tax Code (CTN), specifically regarding the Tax on the Inter Vivos Transfer of Real Estate Property (ITBI). The proposed changes directly impact how the taxable event is identified, the criteria for assessing the tax base, and the ancillary obligations involved in the onerous transfer of real estate assets and related rights. Among the key innovations is the introduction of Article 37-A to the CTN, which redefines the moment at which the tax may be levied, with practical implications for taxpayers, notarial services, and municipal tax administrations.

The main change concerning the ITBI lies in the definition of a new taxable event, as set forth in Article 165 of the legislative proposal, which adds Article 37-A to the National Tax Code:

“Art. 37-A. The tax referred to in Article 35 of this Law may be levied upon the formalization of the corresponding translative title, such as a public deed or an equivalent document eligible for registration with the Real Estate Registry Office.”

In practical terms, the ITBI may be charged at the time of execution of the public deed or any equivalent document with legal effect in transferring property rights, even if the actual registration has not yet been completed. This change addresses a historical loophole exploited in cases where the deed was executed but not registered, delaying the payment of the tax and the formal transfer of ownership.

This shift introduces a series of practical consequences:

• Anticipation of the taxable event: The tax may be collected at the moment the deed is executed, without waiting for real estate registration, providing greater agility and predictability in municipal tax collection.

• Impact on local regulations: Municipalities and the Federal District may need to adapt their local tax laws to align with this new timing for enforceability.

• Tax liability without registration: The tax obligation may arise even if the property has not been formally registered, which demands extra caution in drafting contracts, especially those subject to suspensive or resolutory conditions.

• Increase in municipal revenue: The measure is expected to enhance tax revenue by eliminating opportunities to postpone payment and by increasing the traceability of transactions.

• Improved transparency and tax control: By allowing earlier tax collection, the proposal encourages more formal real estate transactions and strengthens municipal fiscal oversight.

The legislative proposal also modifies Article 38 of the CTN, especially to clarify the concept and methodology for calculating the market value, which serves as the tax base for the ITBI. The amended provision establishes that:

• Market value refers to the cash sale price under normal market conditions, thereby eliminating the use of arbitrary or cadastral valuation.

• Objective technical criteria must be applied, taking into account factors such as actual market prices, data from notarial and real estate registry services, financial institutions, and physical features of the property, including location, type, use, size, and standard of construction.

• Mandatory disclosure of valuation criteria: Municipal and Federal District tax authorities must publish the methods they use to determine market value, ensuring transparency and legal certainty.

• Right to contest: Taxpayers may challenge the valuation by submitting a contradictory appraisal through a specific procedure governed by local legislation.

• Integration with notarial and registry services: These entities must share information on real estate transactions with municipal tax authorities, subject to penalties set out in municipal or district law in case of non-compliance.

Additionally, Article 41 of the CTN remains unchanged, reaffirming that the authority to collect the ITBI lies with the municipality where the property is located, or with the Federal District. This reiterates the principle of territorial jurisdiction and avoids intergovernmental conflicts over tax collection.

The PLP 108/2024 represents a significant advancement in the regulation of the ITBI. By anticipating the taxable event to the execution of the public deed, defining clear technical standards for determining the market value, and promoting integration between notarial services and tax administrations, the proposal enhances tax effectiveness, equity, and legal certainty. Nonetheless, the changes introduce operational and legal challenges that will require updates in notarial, contractual, and administrative practices, as well as precise municipal regulation to ensure alignment with federal standards.

Our firm is available to assist clients in evaluating the potential impacts of the PLP 108/2024, preparing estate and real estate structures for a safe and compliant transition, should the new ITBI regime be approved and enacted.