By Marcelo Blecher

In a recent decision, the 1st Panel of the Federal Regional Court (“TRF”) of the 4th Region unanimously upheld the terms of the judgment dismissing a tax enforcement action brought by the Federal Government (National Treasury) against an Internet access provider headquartered in Curitiba/PR, to collect amounts due as employer social security contributions and contributions to third parties and other entities, resulting from gains made by its employees through the sale of shares related to a stock option plan. The Court's understanding was that any gains resulting from the exercise of the stock option, instituted by the company in favor of its employees, should be excluded from the calculation basis for the employer social security contribution and contributions to third parties.

For the Union (National Treasury), such amounts are characterized as remuneration for work performed within an employment relationship, thus forming part of the contribution salary. Therefore, given that these amounts were not reported in the declarations submitted by the taxpayer, the Tax Authorities registered such amounts as active debt and applied a fine for the omission of information.

On the other hand, the taxpayer claimed the nullity of the charges, (i) due to the absence of legislation authorizing the taxation of amounts related to the pension plans stock options; and (ii) due to the lack of obligation to declare the amounts arising from stock option plans.

To support his vote, the Rapporteur highlighted that “the benefits received by employees at the time of exercising the Stock Option cannot be attributed to the usual salary or remuneration nature for the purposes of the levying of the employer's social security contribution. It is not a monetary amount usually paid by the employer, but an eventual gain that may be obtained, completely unrelated to the salary, intended to reward employees. The volatile nature of the shares itself is what gives the legal identity of an eventual gain, represented by the difference between the amount paid by the employee and the market value on the date of the option, a gain that is excluded, by law itself, from the contribution salary and, consequently, is not part of the remuneration”

Additionally, according to the Rapporteur's vote, “there are no legal and secure legal criteria that allow identifying, from a quantitative material perspective, the basis for calculating the hypothesis of incidence of social security contributions. The total absence of administrative regulation regarding the criteria that must be used by the tax administration reveals that, in fact, the gains must be excluded because they are not habitual”.

The Mazzucco & Mello Advogados tax team is available to provide any clarification on this topic.