Taxation of Brazilian stock option plans by social security taxes on the payroll

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Taxation of Brazilian stock option plans by social security taxes on the payroll

rsz-1rsz-brazilflag.jpg

Taxpayers in Brazil should take some key court decisions into account before deciding whether they should pay social security taxes on long-term incentives based on stock options.

Brazil does not have tax legislation setting forth the treatment for long-term incentives based upon stock options. As a consequence, whether social security taxes imposed on the payroll will be imposed depends on a case-by-case analysis, to claim that they are not remunerative benefits and thus not subject to this tax.

Recent tax audits resulted in tax assessments to claim social security taxes from the companies that granted stock options to employees and non-employees. Tax authorities´ arguments were based on the remunerative nature of this kind of long-term incentive plan: since the beneficiaries had an employment/working relationship with the issuer of the stock options, tax authorities claimed that the amounts perceived had the purpose of compensating services rendered. Companies involved in such tax assessments presented the respective defences to the Administrative Tax Court.

On the other side, jurisprudence issued by labour courts established parameters to differentiate a remunerative long-term incentive based on stock options from those plans that do not present this remunerative nature:

  • Voluntariness: the beneficiary voluntarily adheres to the long-term incentive plan;

  • If the beneficiary needs to invest his/her own financial resources to exercise the options; and

  • If the investment is exposed to the inherent risks of the stock market.

Companies´ defence against the tax authorities´ assessments mentioned before were based on the parameters construed by labour courts´ jurisprudence.

The Administrative Tax Court (competent to decide the tax cases) analysed closely the first two cases that came before it to see if the three conditions stated by labour jurisprudence were met by the plans adopted. The Administrative Tax Court decided that the risk conditions were not present so the social security tax on the payroll should be imposed.

Though the decisions were unfavourable to the companies assessed, the Administrative Tax Court clearly demonstrated that the parameters construed by the Labour Court´s jurisprudence shall be observed, to decide if the long-term incentive has a remunerative nature, granting more certainty to taxpayers: there is no space for a tax court´s decision stating that taxes shall be imposed, and at the same time for Labour Court decisions stating the contrary.

Companies that grant long term incentives based on stock options should review to see if the three conditions stated by Labour Courts´ jurisprudence mentioned before are met, to assess the tax risk involved in this kind of incentive, as tax assessments are becoming frequent.

Maria Isabel Tostes da Costa Bueno (isabel@mattosfilho.com.br) is a partner of Mattos Filho in Brazil.

more across site & shared bottom lb ros

More from across our site

Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
The US president also unveiled a new 50% levy on copper imports; in other news, a UK wealth tax proposal has been criticised by the Institute for Fiscal Studies
Wim Wuyts, who had been head of the specialist tax network since 2017, is moving on to a new role with WTS’s Belgian member firm
MNEs are increasingly using algorithmic tools in TP. Sahasranshu Dash argues that data ethics should therefore plug directly into the TP design process
The Institute of Chartered Accountants in England and Wales also queried whether HMRC resources could be better spent scrutinising larger entities
Grant Thornton’s Austria tax head likens his practice to an escape room, shares his football coaching ambitions, and explains why tax is cool
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 EMEA Tax Awards
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 Asia-Pacific Tax Awards
The fates of pillars one and two hang in the balance after the US successfully threw its weight around in G7 and Canadian negotiations
Gift this article