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By Ed Taylor
July 28—Brazil's tax department has indicated it will not follow an appeals court ruling exempting companies from social security tax on payments made to employees prior to termination.
Employees in Brazil must receive prior notice of termination accompanied by a severance payment. In March, the superior court of justice, the country's second highest appeals court, ruled that the social security tax of between 8 percent and 11 percent cannot be levied on these payments because they do not constitute salary. The court said that its ruling should serve as precedent for lower courts.
On July 1, however, the tax department stated that it maintains its position that the payments are subject to social security taxation and that the department is not required to follow court rulings unless so ordered by the prosecutor general's office, which has thus far issued no such order.
The tax department's “maintaining this position is complicated for companies, because they make tax planning and investment decisions based on appeals court rulings,” said attorney Rodrigo Rigo Pinheiro of the law firm BCBA Attorneys
In its March ruling, the superior court also held that companies do not have to pay social security taxes on payments to employees for vacation bonuses and sick leave.
The tax department responded that it would attempt to have the decision annulled and would ask that the case be retried, basing its argument on the fact that only six of the superior court's 11 justices voted in the case.
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