Brazil: Court Rules Stock Options Taxable

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By Ed Taylor

The struggles of companies in Brazil to institute stock option programs continue.

On March 21, the superior court of the Administrative Council for Fiscal Appeals (Carf) ruled against the Itau Unibanco bank, upholding a 20 percent social security tax assessment. The decision reverses a 2015 ruling by a lower court of the Carf appeals system that accepted the bank's argument that stock options do not constitute disguised salary as claimed by the revenue service and are therefore not taxable.

In two previous cases, the superior court upheld lower court decisions favoring employers.

Employee-Only Plan

In 2013, the revenue service adopted the position that the capital gains registered by company employees from stock options should be treated as salary and therefore subject to the social security tax.

The bank's attorneys countered that shares are sold at market value and subject to market risks with no guarantee of profits. The bank's stock option plan merely gave selected employees the option of buying shares, which they could exercise or not, and so did not constitute salary, the attorneys argued.

For the court's majority, however, the fact that the stock options were available only to employees meant they constituted a form of payment for services rendered.

Losing Average

This was the bank's second defeat on its stock option program. In May of last year, another tax appeals court ruled that Itau Unibanco had to pay withholding income taxes on its plan.

In a statement, the bank said it has not decided whether to appeal its latest defeat to the court system. Companies appealing negative rulings on their stock option programs in Carf courts have a poor record. Out of 20 cases ruled on by the tax courts between 2013 and 2016, companies lost 16.

This has led several firms to take their cases to the court system. The situation has also discouraged many companies from creating stock option programs for their employees, according to attorney Caio Taniguchi of the law firm Bichara Attorneys.

“There are many companies that are afraid of what might happen with stock options,” he said.

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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