The Supreme Federal Court of Brazil has recognized the general repercussion of the controversy in ARE No. 1,593,784/SC (Theme No. 1455) and will decide whether the adoption of differentiated IPTU rates based on the built area or the location of the property is constitutional, both before and after Constitutional Amendment No. 29/2000. In practice, the ruling will define the extent to which municipalities may apply the progressive taxation mechanism of the tax.
The controversy originated from legislation enacted by the Municipality of Chapecó, which established differentiated IPTU rates based on the built area of the property. The case reached the Supreme Federal Court of Brazil precisely for the purpose of assessing whether such criterion is compatible with the Constitution.
In the opinion rendered by the reporting Justice, Dias Toffoli, it was noted that, prior to Constitutional Amendment No. 29/2000, the Supreme Federal Court of Brazil had already established settled case law holding that it was not permissible to vary IPTU rates based on the area or location of the property, a position reaffirmed in Theme No. 155 and also reflected in Precedent No. 668.
Following the amendment, the legal framework changed. The Constitution expressly came to allow:
• the progressive application of IPTU according to the value of the property
• the adoption of differentiated rates according to the location and use of the property
Even so, controversies have remained regarding the validity of municipal laws that differentiate taxation based on other criteria, such as the built area of the property. The decision will have binding effect and, therefore, must be followed by all courts throughout the country, bringing greater uniformity and legal certainty.
In light of this scenario, it is important for taxpayers to assess measures aimed at safeguarding their rights, including considering the filing of legal actions in order to anticipate potential limitations on the effects of the future decision.
The Tax Law team at BRZ Advogados remains available to provide further clarification.
