Despite the widespread crisis caused by the pandemic, the trajectory of accelerated and steady growth in agribusiness ensured that the fall in the Brazilian GDP was not so tragic. According to data released by the Confederation of Agriculture and Livestock of Brazil (CNA) and the Center for Advanced Studies in Applied Economics (Cepea), the Gross Domestic Product (GDP) of agribusiness in 2020 grew a record 24.31% compared to 2019 figures.[1] An extraordinary advance, especially when considering the major obstacles in the taxation of the sector, such as reduction of tax benefits and the rules on PIS and COFINS credits. In the list of fiscal obstacles that impact on agribusiness one finds the Rural Territorial Tax (ITR), which is rarely addressed by legal scholarship on tax law and on which it is necessary to make some comments.
Despite its national scope, the ITR goes beyond the most relevant tax debates, such as discussions on tax reform proposals, quite possibly due to their reduced impact on federal revenue. According to the 2019 Annual Inspection Report, published by the Internal Revenue Service, the ITR accounted for less than 1% of all assessments from audits.
However, although it is not a significant tax in terms of revenue, the ITR is a tax of unquestionable relevance for the agribusiness sector, directly affecting the tax burden players in this market.
According to the original wording of Article 153 of the Federal Constitution, the ITR is a tax of the Federal Government. But since 2003, with the enactment of Constitutional Amendment No. 42, municipalities may choose to oversee and collect the federal tax by entering into an agreement.
For municipalities, the advantage of this division of powers is that proceeds from the collection of the tax on properties established in their territory will be 100% directed to the municipality, expanding local revenue. For the Federal Government, which would need to pass part of the collection on to the municipalities (article 158, II, of the Federal Constitution of 1988), the benefit is to ensure greater effectiveness in the supervision of the tax.
In a country with continental dimensions, delegating the activity of assessment and collection to the municipalities is a reasonable measure and, in a way, even desirable. However, there are issues arising from the dispersal of collection activities that merit debate and that require further reflection.
The first question is related to preservation of the uniformity of the general premises of the tax. Although the competence to legislate on assessment criteria remains exclusive to the Federal Government, municipalities end up interfering – in a questionable manner – in the composition of the tax calculation basis when they go through the assessment and collection activity.
As we know, the taxable event of the ITR is the ownership, possession, or useful domain of property located outside the urban area of the municipality, based on calculation of the assessment value of the unbuilt land (VTN).
The VTN, in turn, per the definition of Normative Instruction RFB No. 1,877/19, is the market price of the property, which is established considering the following criteria: (i) location of the property, (ii) agricultural aptitude, and (iii) size of the property.
By signing an agreement with the Federal Government to oversee the ITR, in exchange for the benefit of keeping the total amount of the tax collected, municipalities begin to have the task of periodically indicating the value of unbuilt land per hectare (VTN/ha) that will serve as a reference to update the Land Price System (SIPT) of the Internal Revenue Service. The SIPT is a database fed by the municipality that allows the taxpayer to consult the reference agenda of the VTN of the locality and is used in any levies to collect the tax.
As a reflection of this "municipalization of the tax", there is, in practice, a diversification of the criteria for measuring the value of the land, which, in turn, will directly affect the value of the ITR.
For example, the neighboring municipalities of Sarzedo and Ibirité, in Minas Gerais, whose VTNs are, respectively, R$ 375,659.78 and R$ 74,134.90 per hectare for cropland. In addition to the absurd discrepancy in value, the comparison with the NV in the municipality of Sorriso, Mato Grosso, makes more evident the lack of criteria in measuring the NMV. A soybean production center in Brazil and the Brazilian municipality with the highest value of agricultural production, Sorriso established a VTN of R$ 4,763.09 per hectare for cropland.
Although the SIPT was created to provide transparency and certainty regarding the VTNs calculated, in practice, a lot of table data does not meet the criteria required by the legislation.
Moreover, the transfer of collection capacity to municipalities increases the risk of inversion of the intent to merely raise the rural tax, impairing its typically extra-fiscal function. Article 153, VI, of the Federal Constitution of 1988 (current wording), regulated by Law No. 9,393/96, gives the tax a major extra-fiscal function, which must be guarded so that it always has a positive impact on the productive use of land.
With regard to administrative discussions on collection of the tax, because it is a tax within the competence of the Federal Government, cases involving the ITR are analyzed by the Administrative Tax Appeals Board (Carf), more specifically, by the panels of the 2nd Section.
In the Carf, the ITR is a tax that has seldom appeared in recent litigation – the use of the term ITR in the field "search decisions" on the Carf's website returns, for the most part, cases with taxable events prior to 2010. But precisely because of the municipalization and the increase in supervision, the ITR should gain more space on the agenda for discussions.
Last year, the 2nd Panel of the Upper Chamber of Tax Appeals (CSRF) reviewed various cases[2] discussing the need to present the Environmental Declaratory Act (ADA) to exclude the Permanent Preservation Area (APP) from the ITR calculation basis.
In such cases, the tax requirement was based on Article 17-O, head paragraph and paragraph 1 of Law No. 6,938/00, a rule that is still in force, which requires the ADA to reduce the rural tax. However, this obligation to submit the ADA fell with the case law established by the Superior Court of Appeals (STJ) – see REsp No. 587.429/AL – and the opinion issued by the Attorney General of the National Treasury PGFN/CRJ 1329/2016. Although neither the Decision by the STJ nor the opinion of the PGFN are formally binding on the Carf, the 2nd Panel of the CSRF, in a close vote, gave cause for gains for the taxpayer, deciding in favor of the need to preserve the coherence of the jurisprudential interpretation of the legal system and dispense with the requirement of the ADA in order to recognize the non-application of ITR in an environmental preservation area (provided that the evidence of the area is validated by means of a technical report prepared under the legislation).
The decision was also a breakthrough, but the other controversies regarding the ITR remain. It is expected that Carf, as the body responsible for reviewing tax assessments, will continue to give the most correct interpretation of the current normative provisions, maintaining the constitutional and legal contours of the tax, without restrictions or invasions.
In another year of the pandemic, a correct analysis of the ITR measurement criteria is necessary for agribusiness to continue advancing in Brazil.
[1] https://www.cnabrasil.org.br/boletins/pib-do-agronegocio-alcanca-participacao-de-26-6-no-pib-brasileiro-em-2020
[2] Among them, Ac. 9202-009.243 and 9202-009.343
