One of the themes that we identify most frequently in due diligence processes in M&A transactions, especially in sectors that use intensive labor, such as technology, or when it comes to strategic management positions, is that of hiring through legal entities, what we call in Brazil, “pejotização”.
The expression is applied when (i) an individual is obliged to provide services to their real employer through a legal entity; or (ii) a legal entity is hired to carry out the contractor’s intermediate and final activities, in which the requirements of the employment relationship (personality, non-eventuality, subordination and onerousness) are not required.
This second situation has already been legitimized by the Federal Supreme Court (STF), in the joint judgment of the Action for Noncompliance with Fundamental Precept (ADPF) 324 and Special Appeal 958.252 (Theme 725), in which the judges discussed the legality of outsourcing essential activities of the company that is receiving services and resulted in the establishment of following thesis with general repercussions: “Outsourcing or any other form of division of labor between different legal entities is lawful, regardless of the corporate purpose of the companies involved, maintaining the subsidiary responsibility of the contracting company ”.
Based on this judgment, the STF has issued several decisions recognizing the legality of hiring service providers through legal entities. This is the case, for example, of Complaint 65,868, in which minister Dias Toffoli reformed a decision by the Regional Labor Court of the 15th Region (TRT-15) to eliminate the employment relationship between a director hired through a legal entity and the contracting company. In Complaint 64,608, Minister Alexandre de Morais validated the hiring of service providers through a legal entity in a company in the financial sector and annulled a tax assessment applied by the Federal Revenue Service.
Specifically in relation to services of a scientific, artistic or cultural nature, article 129 of Law 11,196/2005 authorized their provision by legal entities, on a personal or non-personal basis, for tax and social security purposes. The Labor Reform, established through Law No. 13,467/2017, which amended the Consolidation of Labor Laws, in its article 444, sole paragraph, recognized the figure of the hyper-sufficient employee, thus considered the “holder of a higher education diploma and who receives a monthly salary equal to or greater than twice the maximum limit of INSS benefits”, allowing the relativization of labor rights in free negotiation between the parties when concluding the employment contract.
Whilst in the labor area, any irregularity generates the recognition of an employment relationship and the payment of the respective amounts, in the tax area, the disregard of the services rendering relationship leads to the drawing up of an infraction notice to collect amounts not collected as social security benefits and, depending on the circumstances, the disallowance of PIS/Cofins credits eventually appropriated under the non-cumulative regime.
When we analyze the understanding of the Administrative Council of Tax Appeals (Carf), the last instance of federal tax administrative litigation, on the matter, it appears that there is no consensus on the topic. In the last five years, for example, fifteen decisions were handed down – seven in favor of taxpayers’ interests.
This scenario of an equilibrium in Carf’s decisions shows that, despite the STF’s consolidated understanding on the matter, as mentioned above, the topic is still quite controversial in the tax area.
In this context, (i) independence of agendas and schedules, (ii) absence of demanding targets and (iii) organizational independence are the main characteristics of the service rendering relationship analyzed by Carf in cases involving “pejotização”, demonstrating a tendency that the tax requirement will only be admissible when there is effective evidence that there is an employment relationship between the service contractor and the partners who constituted the contracted legal entity.
It is clear, therefore, that the topic still needs to be better debated in the tax area to bring greater legal certainty to forms of contracting that do not only involve the employment relationship.