Negotiated elements do not always necessarily have a
remuneratory character, being not the object of taxation,
notably due to the contributions to the Social Security and
Situations as the payment of contract bonus, retention
bonus, consideration for non-competition clauses and profit
sharing are just a few of the matters which have been
discussed by the Internal Revenue and companies in judicial and
We have noticed an intense debate about the share purchase
option plans and arrangements for payments based on shares. On
one side, taxpayers argue that such contracts do not have a
remuneratory character, but rather a merchant one; on the other
side, the Internal Revenue alleges that the elements of these
contracts denounce the remuneratory intention,
justifying the taxation.
We also note an intense debate as to the fruition of social
contribution exemption and the possibility of deducting
expenses with payments of profit sharing or results granted to
those which occupy management positions. This is because, under
the perspective of the Federal Internal Revenue, business
administrators would not be included in the exemption rule,
only employees – and only employees who do not occupy
administration positions, at that.
There have already been significant decisions within the
administrative sphere concerning this debate. Recent decisions
of the Administrative Council of Fiscal Appeals, the highest
court of analyses of notices of assessment issued by the
Internal Revenue, stated that payment plans based on shares,
including share purchase option plans, would have a
Likewise, as to profit sharing, it has been consolidated
within the administrative sphere that only payments of profit
sharing or results carried out under the terms of Law no.
10.101/00 would tax exempt. Specifically on this matter, there
is also a debate as to the comprehensiveness of administrators
under the mentioned law, which shows that the discussion should
be further extended.
Within the judicial sphere, the discussions are still in
their infancy. We also notice just a few decisions in the
Federal Regional Courts, and in the Superior Courts, about
these policies of remuneration to executives; mainly payments
based on shares and profit sharing.
With respect to profit sharing, recent one-off decisions by
the judicial courts indicate that there would be restriction of
the use of tax exemptions on payments made to administrators.
On the other hand, with respect to payments based on shares, in
recent decisions the courts have recognised the merchant nature
of these contracts, stirring the debates between the Internal
Revenue Service and the taxpayers.
It was within this context that Law no. 13.467/2017, known
as "labour reform", and more recently, Provisional Measure no.
808, of November 14, 2017, known as "reform of the reform" were
Such norms brought significant changes to the labour
relations governed by the Consolidation of Labor Laws ("CLT")
– Decree-Law no. 5.452/1943, "in order to regulate the
legislation to the new labour relations" (part of the preamble
of the law). The mentioned changes have not reached only
elements of the "labour law", but they have also directly
impacted the source of financing of social security.
Remuneration of executives
To the reality of what we are discussing herein
– remuneration of executives – two
points of the reform were more significant.
The first of these concerns the "prevalence of the
negotiated over the legislated". For employees who have a
university degree and receive monthly remuneration above twice
the maximum limit of benefits of the General Regime of Social
Security (currently BRL 11,062.62; $3,376.64), the reform
authorised individual agreements to "freely" rule about certain
matters, even if the legislation or collective negotiations
(agreements or collective conventions) provide differently,
among them: position and salary plans, remuneration by
productivity, incentive premiums and profit sharing.
Thus, executives who have employment link, who were
previously linked exclusively to the provisions under the
legislation or in collective negotiations, can have greater
autonomy when negotiating certain elements of their contracting
The second aspect refers to the payment of premiums.
Law no. 13.467/2017, besides changing exclusive rulings of
the employment relation, excluded the "premiums" from the basis
for calculation of the social contributions destined to social
This innovation is diametrically in opposition to what was
part of the legislation before, which provided for the taxation
by the social contributions of the variable parts of the
remuneration, both of employees and of other workers, including
While in the reform of the CLT, the changes pursued to set a
few minimum criteria to define what would this premium be. For
the other workers, there was not any imposition of an objective
criterion defined under the law. Thus, a possible
interpretation would be that any premium paid as remuneration
would be excluded from the taxation by the contributions to
In view of all this, many companies have re-analysed their
remuneration policies, studying moves to migrate from certain
models to others, or assessing the risks of assuming certain
postures in relation to fiscal treatment.
However, we understand that this moment calls for caution.
Besides the action we can already expect from the Internal
Revenue Service – of questioning the payment of
premium, as as it has been doing with profit sharing and with
payments based on shares – many other departments and
class entities have manifested criticism against the
innovations introduced by the reform.
For these reasons, we believe that the debates between the
Internal Revenue Service and the taxpayers will only
This article was prepared by Isabel Bueno and Luiz
Fernando Goedert Leite of Mattos Filho, International Tax
Review's tax disputes correspondents in Brazil.