Reform will overturn STF decision that banned IPVA on jets and yachts

One of the novelties of the tax reform approved in the Chamber of Deputies is the possibility for states to charge IPVA (Tax on Motor Vehicle Ownership) on aircraft and boats, instead of just on cars and motorcycles. This is an old demand from governors and a good part of parliamentarians, with the aim of taxing richer people, but which was prohibited by the Federal Supreme Court (STF) more than 20 years ago, in 2002. At the time, they were trying to validate the billing São Paulo and Amazonas. In 2008, the Court also prohibited Rio de Janeiro from levying the tax on planes and boats.

In all these judgments, a literal interpretation of the Constitution prevailed among the majority of justices, which says that the tax is levied on the ownership of “motor vehicles”, a term commonly associated with means of land transport.

Ordinary laws make this distinction. The Brazilian Traffic Code, from 1997, says that a motor vehicle is one that performs “road” transport. The Brazilian Aeronautical Code, from 1986, says that an aircraft is “a device that can be maneuvered in flight, that can support itself and circulate in the airspace”. The Maritime Code of 1984 defines a vessel as a means of transport by water.

The simplicity of these definitions has always guided the Supreme. Since the first trial, only two ministers, now retired, have disagreed: Marco Aurélio Mello and Joaquim Barbosa. Both saw no sense in taxing the middle class who owned cars and not the upper class who owned jets and yachts. The other ministers, almost all of whom are now retired, adhered to the literalness of the constitutional text and the history of the IPVA, which replaced the old Single Road Tax (TRU), established in 1969.

The IPVA initially appeared in São Paulo and Rio de Janeiro, still in 1985, with the objective of taxing aircraft and vessels. The original Constitution of 1988 did not foresee the tax, which was inserted in 1993 with an amendment that spoke of “motor vehicles”.

The STF’s attachment to the expression, in order to interpret it so that it understood only cars and motorcycles, was based on the so-called principle of legality, valid both in criminal and tax law: that a crime or tax can only be charged if it is expressly inscribed in law or in the Constitution itself.

Despite the current tax reform, included in PEC 45, focusing on consumption, the appeal of several parliamentarians led the rapporteur, Aguinaldo Ribeiro (PP-PB) to change the IPVA, a property tax, to focus on “land motor vehicles, water and air”.

“The model currently adopted is highly incoherent if analyzed from the point of view of isonomy and ability to pay, basic principles of our Tax System. It is not fair that middle-class taxpayers bear the taxation of ownership of their used cars or motorcycles while owners of speedboats, yachts and jets are exempt,” says the deputy’s report.

“The intention of the proposal is to bring more equality to the taxation of property, allowing high-value goods used for recreational purposes to be burdened in the same way as cars used by families for their daily commute. It is a measure that will bring greater progressivity to the Tax System and which is a recurring demand of most parliamentarians, regardless of legislature or party”, he argues below.

“Green IPVA” may increase vehicle tax

Currently, each state annually charges motorcycle and car owners from 2 to 4% of the vehicle’s market value, estimated by the government itself based on the Fipe table. Many people and companies choose to license their cars in states with lower rates, such as Minas Gerais, to pay less per year, even if they circulate outside the state.

The tax reform will allow higher rates, because states will be able to take into account the environmental impact of vehicles: those that emit more carbon may be taxed more. The value will also continue to influence: the more expensive, the higher the tax charged.

In tax law, there are professionals who consider that the increase and expansion of the tax will generate legal disputes.

“It will have been determining that a certain car emits a measure of carbon, but an automaker or owner will be able to present a report saying that it has carried out tests and that it emits half. In other words, there will be fights”, says Maria Carolina Torres Sampaio, partner and head of the tax area at GVM Advogados.

Another dispute can be giving about exceptions. The reform says that owners of aircraft, tractors and agricultural machinery, companies or people who own transport and fishing boats will not pay IPVA. “There will be a luxury yacht owner, registering the boat as a fishing boat for IPVA exemption”, predicts the lawyer.