Brazil: Court Rules Against Taxation of Stock Option Plans

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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.

Contract, Not Salary

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.”

Assuming Risk

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

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

For More Information

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

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