Is ITCMD (tax on donation and estate) levied on the disproportionate distribution of dividends?


The answer to this question is a little more complex than it seems.


The Brazilian Civil Code, in its articles 1,007 and 1,053, allows limited liability companies to distribute dividends in a disproportionate manner, provided that this possibility is provided for in its articles of association.


Until now, tax legislation did not expressly provide for any hypothesis of ITCMD levied in situations involving disproportionate distributions of dividends.


In the context of the tax reform, a provision had been included in Complementary Bill (PLP) No. 108/2024 providing that corporate acts that result in disproportionate benefits would be considered donations for ITCMD purposes. However, within the scope of the approval of the final version, the Chamber of Deputies removed this provision from the text.


Given this sequence of facts, it would be reasonable to assume that:


1. Currently, there is no ITCMD tax on disproportionate distribution of profits; and

2. The suppression of the provision by the Chamber of Deputies only reinforces this understanding.

However, between the end of last year and the beginning of this year, the Court of Justice of São Paulo (TJSP) decided to disregard disproportionate distributions of dividends and reclassified them as donations subject to ITCMD. The Court understood that, if there is liberality and there is no business purpose to support the distribution of dividends – requirements not provided for in the current legislation –, the transfer of company assets to one of the shareholders should be considered a donation.


It is interesting to note that the central basis of the TJSP decisions is the same reasoning as that provided for in the provision of PLP 108/24 which, as mentioned, was removed from the final text approved by the Chamber.


It is quite likely that new cases will begin to arise, and we need to be aware of how the higher courts will react to this issue. Until then, it is important that taxpayers pay attention to the risk of these transactions being disregarded by state tax authorities, especially in the absence of a well-founded business purpose.