The Finance Department of the State of São Paulo (“SEFAZ”) has published the Tax Ruling No. 25343/2022on 04/04/2023, regarding the Tax on Inheritance and Donations (“ITCMD”), in situations involving the beneficiary of a trust created abroad.

In the tax ruling, the taxpayer informed that he is domiciled in the State of São Paulo and is the beneficiary of an irrevocable trust set up abroad and that there are situations foreseen in the Letter of Wishes (Letter of Intentions) where the trust, at the discretion of the trustee, may make payments in favor of the beneficiaries.

Finally, he questioned whether the distribution of assets by the Trust to the beneficiaries would be characterized as a donation and whether ITCMD would be levied on this transaction.

In its reply, the São Paulo State Tax Department (SEFAZ-SP) position is that the assets delivered by the Settlor (Settlor) to the institution of the Trust are only under the custody of the Trustee, and the beneficiaries are the real owners of these assets. Therefore, when the beneficiaries are chosen by the Settlor, it is characterized as a non-onerous act, made by the Settlor’s liberality, configuring a donation, which is subject to the incidence of ITCMD.

According to the SEFAZ-SP understanding, ITCMD would be levied at the moment the taxpayer becomes the Trust’s beneficiary, regardless of the receipt of any resources.

The referred Response to Tax Inquiry is inconsistent in several aspects. In this case, the beneficiary does not have immediate access to the resources from the Trust, and the Trustee has total discretion to make any payments to the beneficiary. It is certain that the mere expectation of a right is not a taxable event for ITCMD.

Despite the SEFAZ’s position regarding the levy of ITCMD on assets received from abroad, the understanding faces the decision of the Federal Supreme Court (“STF”), in the judgment of Theme 825, when it was established that the States and the Federal District are prohibited from issuing rules to charge ITCMD on the receipt of assets from abroad until the issuance of a Complementary Law regulating the matter.

The understanding of the Answer to the Consultation has a binding effect on State Tax Authority and taxpayer that made the inquiry. However, due to the divergences presented above, that matter may have outcomes in court.