By Marcelo Blecher and Rafael Mello

As already reported in our newsletter last week, on August 29, 2020, the STF concluded the trial of RE 1,072,485/PR (Theme 985) and established the thesis that The collection of the contribution on one third of vacation pay is legitimate and constitutional. The judgment took place within the general repercussion system, and therefore, this interpretation unfavorable to taxpayers must be observed by the lower instances of the Judiciary.

We emphasize that this is an important precedent in tax matters, given that the outcome of this judgment results in a significant economic impact on employers, especially those who, in recent years, have failed to collect the contribution on the constitutional third of vacations supported by the favorable jurisprudence consolidated within the scope of the STJ (Repetitive Special Appeal 1,230,957/RS - Theme 479). Even though the ruling with the result of the trial has not yet been published, if the effects of this decision are not modulated, so that the STF determines that this interpretation be used only for facts subsequent to the trial, It is possible that after the publication of this Ruling, the Brazilian Federal Revenue Service (“RFB”) will even start to charge these amounts retroactively, limited to a period of 5 (five) years.

It is important to emphasize that the thesis established by the STF is restricted to the constitutional third incident on vacations taken, considering that the non-incidence of the contribution on the constitutional third of compensated vacations results from an express legal provision.

The decision reported here should impact companies in their tax planning and HR and payroll routines, and it is advisable to review internal procedures and assess any potential liabilities.

Our office is attentive to the possible developments of this trial and remains available to clarify any doubts regarding the matter.