The Court of Justice of São Paulo (TJSP) recently reaffirmed that the disproportionate distribution of profits among partners may be considered a donation, subject to the ITCMD tax. The decision was unanimously handed down by the 4th Chamber of Public Law. In the case analyzed, minority partners (children) received significantly higher amounts than the majority partners (parents), without there being an adequate business justification for this discrepancy.
The decision reinforces the growing trend of the tax authorities and the judiciary to assess corporate transactions based on their economic substance and their tax impacts. Although the law allows for the non-proportional distribution of profits in certain types of companies, the courts have required that this practice be supported by a legitimate motivation, such as the performance of strategic functions by a partner or a previously established remuneration structure.
Given this scenario, choosing a closed corporation, with different classes of shares, may be a safer and more suitable alternative to enable the unequal distribution of profits among shareholders.
The Tax Law team at Simões Ribeiro Lawyers remains attentive to these updates and is available to clarify any doubts on the subject.
