Brazil: Companies Challenge New Workers' Comp Tax Calculation Under E-Social Program

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By Ed Taylor

Companies preparing for the startup of Brazil's new digital system for the reporting of employee information are challenging loss of their freedom to determine their own risk rates for the calculation of workers' compensation contributions.

Called E-Social, the new system will begin operating Jan. 8 for employers with annual revenue in excess of $24 million, July 16 for all other private companies. Employee information must be registered online as soon as it becomes available to the employer and any subsequent changes in status immediately reported. Employers will also be required to maintain up-to-date information on their total payroll, tax, and social security payments and on employee payments for payroll, social security, severance, union fees, and income taxes. This wealth of real-time data will allow tax department auditors to cross check company tax information with data on salaries and benefits paid to employees and will provide the labor ministry with immediate access to information on dismissals, vacations, sick leaves, and overtime pay.

Who Decides?

Companies have been preparing for E-Social since 2014, but as the deadline approaches some are raising objections to the new method for calculating workers' compensation insurance liabilities. Employers must make contributions of 1 percent to 3 percent of payroll depending on the degree of risk associated with the work performed, and until now companies have been able to determine independently the rates appropriate for them.

Under E-Social, however, companies will be classified by the government using Brazil's National Classification of Economic Activities, and some are objecting to the loss of the ability to determine their own job accident rates and turning to the courts for relief.

A federal court judge in Brazil's business center of Sao Paulo granted an injunction Dec. 21 allowing an employer to select its own job accident rate. Representing the employer, Thiago Taborda Simoes of the law firm Simoes Advogados argued that a 1991 law guarantees companies the right to determine their own risk level and consequently their job accident rate, which can later be verified by tax officials.

In her ruling in favor of Simoes's client, federal judge Leila Piva Morrison said that it is not reasonable for a taxpayer to be prevented from calculating its own job accident contribution based on its own risk evaluation.

Simoes is handling five other cases in which companies are seeking injunctions against the new law, the attorney told Bloomberg Law.

According to attorney Caio Taniguchi of the firm Bichara Advogados, the job accident issue is only one of several involving E-Social that will generate litigation. He cited the calculation of vacation pay and sick leave as also potentially problematic.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

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

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