Brazil: Supreme Court Ruling Will Hike Social Security Taxes

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By Ed Taylor

All payments to employees, whether salary or not, must be included in the calculation of employer social insurance liabilities, the federal supreme court ruled March 29. The decision ends a lengthy dispute on how the federal revenue service calculates the 20 percent social security tax paid by employers. Companies had claimed that the social security tax should be calculated only on salaries. The dispute has resulted in some 7,500 suits filed by employers that had been on hold waiting for the supreme court ruling.

The Determining Factor

In its ruling, the court sided unanimously with the revenue service and against employers and ruled that its judgment must by adopted by all lower courts where lawsuits are pending, an unusual requirement in a judicial system that does not generally honor precedent.

The court accepted Justice Luis Roberto Barroso's view that Brazil's constitution guarantees that all payments to employees in addition to salary be considered payroll in the calculation of the social security tax. According to Barroso, the determining factor is whether payments to employees are made on a regular basis. If they are, they constitute salary.

Justice Marco Aurelio de Mello cited as support for the court's ruling a 1998 constitutional amendment to the effect that social security taxation is based on “company payroll and other work related payments.”

‘Dangerous Precedent'?

The decision was a serious setback for employers.

Labor attorney Felipe Alves Ribeiro de Souza of the law firm Nelson Wilians considers the court's decision “too ample” in its definition of payroll.

“This is a dangerous precedent because it gives the revenue service free rein to impose the tax on items that undoubtedly are not remuneration,” de Souza told Bloomberg BNA in a March 30 email. “The supreme court will now have to set objective limits and define minimum parameters to verify the constitutional concept of payroll.”

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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