Bloomberg Law for HR Professionals is a complete, one-stop resource, continuously updated, providing HR professionals with fast answers to a wide range of domestic and international human resources...
By Ed Taylor
June 29—A Brazilian federal court has given companies an important victory in their struggle to avoid the taxation of stock option programs.
Since 2013, Brazil's tax department has held that capital gains accrued by company employees from stock option plans should be treated as salary and therefore subject to a 20 percent social security tax. Tax officials have argued that stock options are benefits that amount to remuneration because employees are allowed to buy the shares at below market values and later sell them without risk at higher values.
Companies have challenged this before the tax department's administrative appeals courts with no great success—out of 20 cases ruled on by the tax courts since 2013, companies have lost 16. According to attorney Mauricio Faro of BMA Advogados, this has led companies to turn to the court system where they have now posted their first victory, which Faro says will provide an important precedent.
On June 22, a federal court ruled in favor of the Brazilian subsidiary of Swedish multinational Skanska, the first appeals court victory by companies on this question.
Skanska challenged the tax department's policy in 2013 and won at the lower court level. The department appealed, and the Third District Court, covering Brazil's largest and most developed state Sao Paulo, has now ruled in favor of Skanska in a decision rendered by Judge Andre Nekatschalow.
According to Nekatschalow, Skanska's stock option program, which permits the purchase of the parent company's shares in Sweden, constitutes a contractual agreement between the firm and its employees.
“Therefore, the resulting final value is not due to remuneration in return for work performed by the employee but is due to a mercantile contract,” Nekatschalow said in a ruling provided to Bloomberg BNA by law firm Henriques Advogados, whose partner Guilherme de Almeida Henriques represented Skanska. “As a result, it is not possible to consider this remuneration as work related and consequently it is not subject to social security taxation.”
Henriques told Bloomberg BNA via e-mail that Skanska offers its stock option program to the employees of all its worldwide subsidiaries as an incentive to attract quality workers. Company shares are sold at market value, and employees are not required to sign up for the program.
“These shares are listed on the Swedish stock market and employees who buy shares assume the same risk as any other shareholder,” said Henriques.
Companies challenging the taxation of their stock option programs have argued that if employees purchase shares of their own free will, if they pay for the shares with their own money and if their shares are subject to market risks with no guarantee of profits, the programs should not be subject to social security taxation.
“If these three requisites are present to any degree, it is not possible to label [resulting gains] as salary,” attorney Caio Taniguchi of the law firm ASBZ Advogados told Bloomberg BNA by e-mail.
A spokesperson for the tax department informed Bloomberg BNA June 27 that the department will appeal the district court's ruling.
To contact the reporter on this story: Ed Taylor in Rio de Janeiro at firstname.lastname@example.org
To contact the editor responsible for this story: Rick Vollmar at email@example.com.
For more information on Brazilian HR law and regulation, see the Brazil primer.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)