Property tax, the Constitution, and the lack of animus domini (intention to own).

The 1988 Federal Constitution (“CF/88”) established in its article 156, item I, that it is the responsibility of the Municipalities to institute “IPTU”, a tax on “ building property” (constructions in urban areas) and “urban land” (land without construction, or without including the constructed portion, also located in the urban zone).

Despite the distinction above, the constitutional provision means that IPTU applies not only to the natural surface polygon of the land that has an owner, but also to what is incorporated by artificial accession [1] in such surface polygon.

Therefore, there is no IPTU incidence on any possession relating to real estate, it being clear in the CF/88 that the tax applies to ownership, and may even, under the terms of item II, of §4, of art. 182, establishing the Municipalities a progressive increase over time of the IPTU on the owner of undeveloped urban land ( urban land property without construction), as a way to seek the best development of the social functions of the city and guarantee the well-being of those who inhabit it [2] .

And there could not be the incidence of IPTU on any of the types of possession, under penalty of undue expansion of the hypothesis of incidence of the tax, affronting the principle of legality and the limitations on the State’s power to tax (articles 145 to 152 of the CF/88) and, indeed, the very origin of constitutional law that limited the powers of the King of England in 1215 by the well-known Magna Carta [3] .

Such limitations are fundamental so that the Democratic Rule of Law does not revert taxation to an absolutist State model, in which the despot, even if enlightened (erudition does not mean wisdom and ethics with regard to families and businesses), defines when and how he wants to collect taxes from his subjects (in the Democratic Rule of Law, citizens who contribute – taxpayers [4] and not subjects), without following the guidelines and limitations imposed by his Constituent Power.

The National Tax Code (“CTN”) – Law No. 5.172/66 –, in turn, dealt with IPTU in its articles 32 [5] to 34, defining as a taxable event “ the ownership, beneficial ownership or possession of real estate by nature or by physical accession, as defined in civil law, located in the urban area of ​​the Municipality” , and continues in its §1 indicating that to be urban property it must have at least two infrastructures, among the five it enumerated.

Although the Brazilian Tax Code (CTN) was received by the 1988 Federal Constitution as a complementary law (cf. art. 146 of the CTN), the time elapsed between the two should not be disregarded. It is also worth highlighting the tax interpretation given by the CTN, which sought to curb abuses by establishing in its art. 110 that: “ Tax law cannot alter the definition, content, and scope of institutes, concepts, and forms of private law, used, expressly or implicitly, by the Federal Constitution […] ”.

It can be seen, therefore, that the CTN, already in 1966, valued the interpretation of what is contained in the current constitutional text, which is why the analysis of articles 156, 182, and other applicable articles and principles of the 1988 Federal Constitution does not allow us to consider property simply as possession without animus dominus (a Latin expression meaning “ intention to be the owner ”).

Although article 32 of the CTN mentions three situations – (i) ownership, (ii) beneficial ownership or (iii) possession of real estate by nature or by physical accession -, we understand that in all of them the incidence is, in the end, linked to the existence of animus domini , with or without title.

The hypothesis, therefore, remains unique, with animus domini being necessary for taxation by IPTU to occur. In cases, for example, of land irregularity, or institutes such as emphyteusis [6] , the true owners often do not have a title of ownership, and it is necessary that beneficial ownership and possession be vested with animus domini and fall within the concept of owner, because otherwise we would not be taxing the true owner, as a tax on property, but rather the consumption by those who rent, lease, receive in concession, etc.

As for the tax base, art. 33 [7] of the CTN fits within the constitutional concept of IPTU, by defining the market value by the urban building and land property and not by the movable goods located therein. Finally, article 34 of the CTN may generate confusion, insofar as it treated, in 1966, as “ Taxpayer of the tax the owner of the property, the holder of its beneficial ownership, or its possessor under any title. A simple reading of this 1966 provision, without bearing in mind the CF/88, may lead us to believe that a possessor without animus domini could be a taxpayer of the IPTU, which would be expanding the hypothesis of incidence permitted by the CF/88. The possession of someone who occupies the property without animus domini cannot be used by the tax authorities as a rule to facilitate collection, distorting the constitutional precept and institutes of civil law. In the jurisprudential sphere, Theme 1.139 stands out.

[8] of the Supreme Federal Court (“STF”), although understanding it as infraconstitutional, dealt with animus domini with legal certainty and resolved:

APPEAL – Tax enforcement – Property Tax (IPTU) – Fiscal Year 2017 – Preliminary objection rejected – Claim for reversal of the decision – Admissibility – Enforcement action brought against a secured creditor, who cannot be held liable for debt related to the IPTU (articles 26 and 27, § 8, of Law No. 9.514/1997) because it does not qualify as a taxpayer under any of the hypotheses of article 34 of the National Tax Code (CTN) – Indirect possession exercised precariously and which does not aim at the effective acquisition of ownership – Secured creditor who holds merely resolvable ownership, without the objective of definitively acquiring ownership of the property, which depends on the debtor’s default on the contract to be consolidated and cannot be equated to the full ownership of article 1.231 of the Civil Code – Fiduciary ownership that is provided for in article… 1.367, of the same code – Fiduciary creditor who will be responsible for the payment of the IPTU (Property Tax) levied on the property only when it is given direct possession of the asset, pursuant to art. 1.368-B, sole paragraph, of the Civil Code – Lack of standing to sue established – Decision reversed to uphold the preliminary objection – Appeal granted (Doc. 4, p. 2)

[…]

The mere status of fiduciary creditor does not grant the bank-appellee the rights to use, enjoy and dispose of the property, given that its possession, indirect and resolvable, aims only to guarantee the receipt of the financed amount and not the acquisition of ownership, being a flagrant absence of ‘animus domini’ (intention to own).

The Superior Court of Justice (“STJ”), analyzing Topic 1,158, established the following thesis: “ The fiduciary creditor, before the consolidation of ownership and the taking of possession of the property subject to the fiduciary sale, cannot be considered a taxpayer of the IPTU, since it does not fall under any of the hypotheses foreseen in article 34 of the CTN .” (emphasis added)

In another case [9] , the STJ understood that articles 32, 34 and 128 of the CTN were violated and confirmed that the lessee, under a port lease agreement, is not a taxpayer of the IPTU, as he is not the owner or the possessor by real right who exercises possession with animus domini .

The careful interpretation of the CTN, with regard to the IPTU taxpayer who has animus domini , inhibits the discussion of its constitutionality, but in cases where this does not occur, clarification is necessary regarding the constitutionality or not of the final part of article 34 of the CTN.

Of course, the analysis of reciprocal tax immunity (article 150, VI of the Brazilian Federal Constitution of 1988) of the assets (including real estate), income, and services of public legal entities, as the main object of litigation, often leads to a lack of in-depth analysis of the animus domini ( intent to own), as occurred in Supreme Court Cases 385 and 437. In contrast, Cases 508, 644, and 1140 clearly analyze reciprocal immunity without even addressing the animus domini, which is central to the application of IPTU (property tax), even if one considers that there is no tax immunity.

Supreme Court Cases 1122, 1297, and 1398, also focusing on reciprocal immunity, have not yet been judged and should pay close attention to the issue of animus domini .

If the possessor does not have animus domini (intention to own) , they cannot be considered a liable party for the purposes of paying IPTU (Property Tax) on public property (ports, railways, highways, airports, basic sanitation, subway, electricity, etc.) or private property, as is the case with lessees, tenants, assignees, concessionaires, fiduciary possessors, etc. The same

applies to those who sublet, sublease, etc. If the real estate is owned by the Union or the States/Federal District, such properties should not be subject to IPTU, insofar as (i) the owner is one of the entities of our federation, to which the immunity of property applies, and (ii) benefits, directly or indirectly, from the income or services generated by the use of such properties, whether through a fixed or variable grant, charged to lessees, assignees, permit holders, or concessionaires whose contracts include such public properties. These, in turn, use the properties with the consent of the owner and, because they do not have animus domini,They can never be considered as passive subjects of the IPTU (Property Tax).

We must now await the definitive position of the Superior Courts, and hope that they will analyze more carefully the presence (or absence) of animus domini ( intention to own), because only with the true intention of ownership will we be faced with a case of IPTU incidence.

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[1] This is a form of property acquisition through human action that incorporates constructions or goods, uniting them to the property.

[2] “May” instead of “must” is a very accurate constitutional guideline, as it will depend on the context of each city. There are beaches in Brazil with problems of sun exposure at certain times of the day due to the number of buildings on the seafront, which demonstrates that land with smaller constructions may even be better for the urban community.

[3] https://www2.senado.leg.br/bdsf/bitstream/handle/id/182020/000113791.pdf

[4] ” They take everything from me by force and then call me a taxpayer .” Millôr Fernandes. We cannot assume here that irreverence applies to each and every tax, but it is irreproachable for that which deviates from the constitutional text and its original principles.

[5] . Article 32 The tax, under the jurisdiction of the Municipalities, on urban real estate and land has as its taxable event the ownership, beneficial ownership or possession of real property by nature or by physical accession, as defined in civil law, located in the urban area of ​​the Municipality.

• • 1. For the purposes of this tax, the urban zone is defined as that established by municipal law; provided that the minimum requirement is met for the existence of improvements indicated in at least 2 (two) of the following items, constructed or maintained by the Public Authority:

I – curb or pavement, with rainwater drainage;

II – water supply;

III – sanitary sewer system;

IV – public lighting network, with or without poles for home distribution;

V – primary school or health post at a maximum distance of 3 (three) kilometers from the property in question.

• • 2. Municipal law may consider as urban areas those areas that are urbanizable, or areas of urban expansion, included in subdivisions approved by the competent bodies, intended for housing, industry or commerce, even if located outside the zones defined in the terms of the preceding paragraph.

[6] See article 2,038 of the Civil Code and Decree-Law No. 9,760/1946 and Law No. 9,636/1998.

[7]  Article 33. The tax base is the market value of the property.

Sole paragraph. In determining the tax base, the value of movable property kept, permanently or temporarily, on the property for the purpose of its use, exploitation, beautification or convenience is not considered.

[8] https://portal.stf.jus.br/jurisprudenciaRepercussao/verPronunciamento.asp?pronunciamento=9355435

[9] AgRg in AGRAVO DE INSTRUMENTO No. 1,009,182 – SP (2008/0022157-4)