IPTU collection not enforceable before “Habite-se” certificate is issued

Recent decisions rendered by regional state courts of appeal have established important precedents for real estate developers.

The Courts’ decisions favored taxpayers of the Urban Real Estate Tax (“IPTU”), since such decisions were contrary to the collection of the IPTU before the issuance of the certificate of occupancy attesting to the conclusion and good standing of a construction work (“Habite-se”).

These decisions diverge from those rendered by other courts, which were not favorable to taxpayers, given that they established that the IPTU is due from the moment the construction work is completed, regardless of the issuance of “Habite-se”.

Decisions that are favorable to taxpayers are founded on the argument that the taxable event of the IPTU is:

(i) the property;

(ii) the beneficial ownership of property; or

(iii) the actual ownership of real estate property, which could only be possible after the issuance of “Habite-se”, given that, prior to the issuance of “Habite-se”, there is no lawful enjoyment and benefit of such property.

On the other hand, the decisions that did not favor taxpayers are based on the argument that the taxable event of the IPTU is the ownership of property, regardless of whether the construction on such property is in good standing. In this regard, the important triggering event is the date of conclusion of a construction work, and not the date of issuance of “Habite-se”, which, in turn, can attest to the good standing of such construction work.

It is likely that the municipalities will convey the dispute to Brazilian High Courts (Superior Court of Justice and Federal Supreme Court). In this case, if the higher courts rule in favor of taxpayers, real estate developers will certainly benefit from such decision. This is because the delivery of the keys, at the conclusion of the construction work, can only take place after the issuance of “Habite-se”. As a result, the IPTU relating to that self-contained unit would be collected simultaneously to the delivery of the keys. Consequently, the IPTU would be paid by the buyer of the autonomous unit from the beginning of its collection, making it less burdensome to the developers, who currently pay the IPTU of self-contained units within the period between the conclusion of the construction and the issuance of “Habite-se”.

Note that when the matter is decided by High Courts, a modulation of the decision is expected and, in those circumstances, taxpayers who have not initiated their claims may not be able to recover undue payments.

Demarest’s Real Estate and Tax teams are monitoring new developments within the sector and are available to provide any further clarifications.