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Date: 26 de October de 2023
Posted by: CPDMA Team

Succession planning - Setting up a family holding company and its tax consequences

Foto de Júlia Dalpiaz ilustrando ser artigo sobre holdings familiares.

The holding company is a succession planning tool. It is a legal mechanism that allows the organization of the succession of assets in a more effective and advantageous way, during life, as it helps to avoid major losses in assets, as well as the length and wear and tear of an inventory process.

This model of holding consists of a business company that brings together, in its paid-up share capital, the assets of an individual or a couple (depending on the property regime), organizing these assets in a more rational, economical and secure way.

In practice, instead of the individuals keeping the assets in their own names, they own them through a legal entity - the estate controller. This means that the actual assets are shared, which is not possible with a will, whose effects only take effect after the testator's death. By creating holding the transfer of assets takes place by means of payment in the constitution or capital increase with immediate effects, thus serving not only for the purposes of succession planning, but also, to the same extent, for the organization of assets during life.

One of the main benefits attributed to holdings is the maximization of tax efficiency in the management of family assets.

This saving of the tax burden occurs in various aspects - from the immunity from ITBI on the transfer of real estate for the payment of capital in legal entities to the methods of evaluating assets for tax purposes (the assets that can be shared in the event of death become the quotas or shares of the company). holding and not individual assets). Furthermore, if the assets generate income, the profits are distributed in the form of (non-taxable) dividends, taking advantage of the more favorable tax regime for legal entities. The repercussions, therefore, are on the basis for calculating ITCMD, ITBI and income tax (including capital gains).

When paying assets into a company, the aim is to organize the succession, and the clauses determining the division of assets must respect the legitimate interests, including the shareholding of each of the heirs.

In this way, the transfer of assets is made with the execution of the articles of association, and the tax authorities are no longer responsible for establishing the market value of the assets when levying taxes, since the calculation basis is supported by an asset measurement report or future profitability.

By constituting a holding, you can choose between the modalities (from holding) pure or mixed.

The holdings originally, they are companies that aim to hold equity stakes in other companies of interest, managing and administering their businesses. The holding pure is the one that will serve only for the management and protection of the family assets, not carrying out any type of operational activity; the holding mixed is one that has an operational objective, i.e. in addition to asset protection, it will also carry out a business activity.

Much is said about the advantages of setting up holdings but if they are not well structured, with proper planning that takes into account the particularities of each family entity and the benefits that are intended to be achieved, the management of the family company could be compromised. 

It is therefore important to draw attention to what the Complementary Law 104/2001, which added to article 116 of the CTN, the sole paragraph with the following wording:

Art. 116. Unless otherwise provided by law, the taxable event shall be deemed to have occurred and its effects to exist:

  1. - in the case of a de facto situation, from the moment the material circumstances necessary for it to produce the effects that normally pertain to it are verified;
  2. - in the case of a legal situation, from the moment it is definitively constituted, under the terms of the applicable law.

Sole paragraph. The administrative authority may disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the taxable event or the nature of the constituent elements of the tax obligation, subject to the procedures to be established by ordinary law. (Included by Lcp nº 104, de 2001) - emphasis added.

Bringing the provision into practical application, this means that if there is any indication that the holding family holding company was set up for the sole purpose of reducing the tax burden, the administrative authority may consider that the taxable event has been simulated and deconstitute the legal entity and all the legal acts or business that resulted from it.

But it will be up to the tax authorities to prove, even if there are indications and presumptions, that simulated acts have actually been carried out, so that the act can only then be de-characterized and, in the end, the tax credits assessed in accordance with the real business demonstrated.

In any case, each case must be assessed individually in order to identify the hypothesis that best fits the reality and particularities of the scenarios that arise, and only then can succession planning be drawn up with a view to the best way of safeguarding the interests of those involved.

The fact is that legal structures such as companies holding can bring various benefits to their creators, from the organization of succession, to tax savings and, in general, a better distribution of assets, preventing litigation and unnecessary expenses, although attention must be paid at the time of their incorporation in order to effectively achieve these benefits to the maximum.

By: Júlia Farina Dalpiaz

Tax Law | CPDMA Team

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