International Tax Newsletter - Setembro 2024

STJ decides that stock options are not part of the salary

On September 11th, 2024, the Superior Court of Justice (STJ) ruled that stock option plans, also known as stock options, are not part of the salary and are not considered remunerative for the purposes of Personal Income Tax (IRPF).

The decision was made in the judgment of Repetitive Theme 1,226, by a majority vote (6 to 1). The rapporteur, The ministers analyzed the legal nature of stock options (the Court's controversy 573) and decided that contracts signed between companies and professionals are strictly commercial, not linked to the employment contract – and, therefore, are not part of the remuneration. Minister Sergio Kukina, understood that stock options are a commercial contract and not indirect remuneration.

The main consequences of the decision are:

• Income tax should not be charged on the granting or exercise of stock options

• Income tax should only be charged when the purchaser of the shares sells them at a profit

• The decision provides clearer rules for taxpayers on the tax effects of stock options

• The decision provides legal certainty for companies and beneficiaries

The decision may have a significant impact on Income Tax and affect companies, executives and more than 500 ongoing lawsuits.

Federal Revenue Services changes rules on the use of tax losses and negative CSLL base

The Brazilian Federal Revenue Service has announced important changes to the rules for offsetting tax losses and the negative basis of the Social Contribution on Net Income (CSLL). The new rules directly affect companies that use these mechanisms to reduce their taxes and aim to increase rigor and transparency in the tax calculation process.

The new rules, which were published through a normative instruction, establish more restrictive criteria for the use of tax losses and the negative basis of CSLL in the calculation of Corporate Income Tax (IRPJ) and CSLL itself. The main change is in the definition of the limits and conditions for companies to use these accumulated losses to reduce the amount of their taxes.

Previously, companies could offset up to 30% of taxable income with tax losses accumulated in previous years. However, with the new regulation, the RFB specifies that the offset must be made in a more detailed manner, considering the origin of the losses and the nature of the company's operations. In addition, the RFB has also intensified its monitoring to prevent the improper use of this offset, which can lead to fines and penalties in the event of discrepancies.

These changes could have a significant impact on companies’ tax strategies. Many companies use loss carryforwards as a form of tax planning, which allows them to reduce the amount of tax they pay in profitable periods. With the new rules, companies will need to review their practices and ensure they are compliant with the new requirements to avoid penalties.

Chamber of Deputies approves gradual end to payroll tax relief

The Chamber of Deputies approved on September 12th bill #1.847/24, which proposes a three-year transition to end the payroll tax exemption for 17 sectors of the economy and to charge the full INSS (National Social Security Institute) tax rate in municipalities with up to 156 thousand inhabitants. The proposal will be sent for presidential sanction.

Bill #1847/24, from the Senate, came about after the Federal Supreme Court (STF) considered Law #14.784/23, which extended the tax exemption until 2027, to be unconstitutional due to the lack of resources to support the decrease in revenue. A subsequent agreement was reached to maintain the rates for 2024 and seek sources of financing for the following years.

The text contains several measures that seek resources to support the exemptions during the period of their validity, such as updating the value of properties with a lower capital gains tax, use of judicial deposits and repatriation of amounts taken abroad without declaration.

With the exemption, benefited companies can choose to pay social contributions on gross revenue at rates of 1% to 4.5%, instead of paying 20% ​​of INSS on the payroll. The text provides for a gradual reduction of the rate on gross revenue and a gradual increase in the rate on payroll from 2025 to 2027. From 2028 onwards, the 20% rate on payroll will return and the rate on gross revenue will be eliminated.

Government proposes taxing Big Techs and a new global minimum tax of 15% for multinationals in fiscal measures for 2025

At a press conference held on September 2nd, the executive secretary of the Ministry of Finance, Dario Durigan, announced that the federal government is considering sending two bills to the National Congress in 2024, aimed at increasing revenues for next year, in case there is a shortfall in expected revenues.

The first bill proposes the implementation of a tax on large technology and social media companies, known as "big techs". Durigan, however, did not specify the details of the proposed rate or the revenue expectations. The measure aims to align Brazil with global trends and discuss the taxation of technology giants, which has been a prominent topic in international forums, especially at the Organization for Economic Cooperation and Development (OECD).

The second bill, as reported by Durigan, aims to establish a minimum global tax of 15% on large multinational corporations. Like the first, this bill is still in the development phase and no details were provided about the timetable for submission to the Legislature.

"These two discussions on the taxation of large technology companies and multinationals are topics that are widely debated at an international level. We have been closely following the discussions at the OECD and we believe that, by approving the Social Contribution on Net Income (CSLL) and Interest on Equity (JCP), together with these new measures, we will be able to offset the payroll tax relief," said Durigan during the press conference on the Annual Budget Bill for 2025.

Law changes rules for additional COFINS-importation

Law #14,973/2024, published in the DOU (Union Official Gazette) Extra of 09/16/2024, determines that until 12/31/2024, the Cofins-Importation rates will be increased by 1 percentage point in the event of import of goods related in art. 8, § 21 of Law #10,865/2004.

However, the aforementioned Law determines that the percentage increase in the Cofins-Importation rates will be:

I.    0.8% (eight tenths of a percent) from January 1 to December 31, 2025;
II.    0.6% (six tenths of a percent) from January 1 to December 31, 2026; and
III.    0.4% (four tenths of a percent) from January 1 to December 31, 2027.

New features in the Personal and Corporate Income Tax

In addition to the aspects of payroll tax relief, Law #14,973 of September 16th, 2024 provides some possibilities for Individuals regarding the updating of assets in the Corporate Income Tax Return A resident individual may choose to update the value of their real estate assets already reported in the Individual Tax Return to the market value and tax the difference to the acquisition cost, at the final rate of 4%.

Furthermore, the Law stipulates the percentages of tax due in the event of sale after the update of the values ​​of real estate assets, which range from 0%, if the sale occurs within 36 months of the update up to 100%, if the sale occurs after 180 months of the update. The Special Regime for General Regularization of Foreign Exchange and Tax Assets (RERCT-Geral) was also instituted, which aims to update resources, assets or rights abroad, of lawful origin, not previously declared in accordance with foreign exchange or tax legislation.

According to Normative Instruction #2,221, issued by the Federal Revenue Service on September 19th, 2024, taxpayers may voluntarily declare the assets, rights and resources they owned on December 31st, 2023. The report involves the payment of income tax of 15% on the value of these assets, plus a fine of 100% on the tax, resulting in a total of 30%.

The Tax Return must be made using the service "submission of the Declaration of Exchange and Tax Regularization - Dercat", available at the Virtual Service Center (e-CAC), on the Federal Revenue website, and the deadline for joining the regime is December 15th, 2024.

The Law also determines that the legal entity may choose to update the value of real estate assets listed in the permanent assets of its balance sheet to the market value and tax the difference to the acquisition cost, by IRPJ (Corporate Income Tax) at the definitive rate of 6% and by CSLL (Social Contribution on Net Income) at the rate of 4%. The tax must be paid within 90 days from the publication of this Law.