Brazil: Companies Battle Restoration of Payroll Tax

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By Ed Taylor

Brazilian companies have hit upon a successful legal strategy to delay payment of an unpopular payroll tax.

In 2011, 56 business sectors were allowed to replace a 20 percent payroll tax with a 1 percent to 4.5 percent tax on gross revenues. Seeking to increase tax receipts, the government restored the payroll tax this May for 39 of those sectors (Law 13,670). This generated widespread opposition from the affected companies, many of which turned to the courts.

Three of these firms successfully challenged the tax on the grounds that the 2011 law (Law 12,546) requires companies to decide in January of each year whether to pay the payroll tax or the tax on gross revenues, and that decision is valid for the remainder of the year.

Attorney Adriana Nogueira Torres of the law firm Castro, Barros, Sobral, Gomes represented the three companies and said that “changing the rule during the year amounts to increasing the tax load,” which in most cases in Brazil can only occur the following tax year.

Judge Augusto Carneiro Araujo agreed and ruled that the government was in violation “of the principle of judicial security” and ordered that the new tax only be charged starting next January. This will produce a savings of $1 million for the three companies, according to Torres.

This was the first ruling in favor of companies on this question, but attorneys told Bloomberg Law that they expect it to serve as a precedent for similar cases now before the courts, including a suit filed by Brazil's most powerful business association, the Sao Paulo State Federation of Industries. The federation is seeking the same extension until January for the initial payment of the tax for its 150,000 member companies.

“Changing the taxation in the middle of the year prejudices companies that had already planned on paying the lower tax,” said Helcio Honda, the federation's legal director.

Brazil's finance ministry issued a statement in which it said it will appeal any adverse court rulings on the payroll tax start date. Companies are preparing to continue to challenge the payroll tax in 2019.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at

To contact the editor responsible for this story: Rick Vollmar at

For More Information

Full text of Law 13,670 is available here, of Law 12,546 here, of Judge Araujo's decision here, all in Portuguese.

For more information on Brazilian HR law and regulation, see the Brazil primer.

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