In an unprecedented decision, the Superior Chamber of CARF, the last administrative instance for discussing tax issues, understood that social security contributions are not levied on the sale of company shares to their employees, the so-called stock option plans.
In recent years, many companies have stopped using this tool to retain top management employees due to the high risk of tax assessments.
The Federal Tax Authority had been assessing both the companies and the employees who benefited from the stock option plans because it understood that the plans were, in reality, a remuneration / consideration for the services provided, this removing the commercial nature of the program.
It is true that, in some cases, company shares were transferred free of charge to employees, and stock option plans were not even formalized.
However, most administrative precedents analyze cases in which the stock option program was duly formalized and published by the companies (a fact that even enables the Tax Authorities to act upon), and the company’s shares were purchased by employees (albeit under advantageous conditions).
In the lawsuits, the taxpayers’ allege the commercial nature of these plans, since the employees paid the agreed price (although in more favorable conditions compared to those offered to the market), waited for the period of maturation of the shares (vesting) and assumed the risk of shares devaluing over time.
CARF, historically and, except for occasional favorable decisions, had been reinforcing the position led by the Tax Authority, judging the taxpayers’ thesis unfavorably. The CARF’s decisions assigned indirect compensation characteristics to stock option plans. In this way, the CARF had been confirming the remunerative nature of the plans insofar as the shares were granted at more advantageous amounts, with the requirement for the employee to remain in the company.
The new decision from the Superior Chamber is important because it corrects these previous decisions, and confirms the commercial nature of the plans that bring payments by beneficiaries and the risk of loss of value over time. These are characteristics that were previously understood as indicators of indirect remuneration and are now, correctly, adjusted to the appropriate concept of the “stock options” tool.
