19 de abril de 2023

Stock options incentive plans in Brazil: taxpayers favoured in recent important decision


Brazil has yet to regulate option-based incentives regarding labour, tax and social security. This gives rise to uncertainties and controversies in court cases.

From the perspective of Brazilian law, the main question is if these incentives may be considered work or performance if there is no (or negligible) cost and no financial exposure to the employee. For example, restricted share units (RSUs) granted for free to the employee or stock options with cashless exercise.

Determining compensation

In these cases, if an employee files a labour claim or the company is under an audit by the tax authorities, the courts used to consider the corresponding amounts as compensation (eg, a bonus). As a result, the amount paid is subject to labour charges, such as:

  • severance pay fund (FGTS) deposits;
  • end-of-year bonus;
  • holiday pay;
  • one third vacation bonus;
  • prior notice;
  • social security contributions (up to 28.8%); and
  • income tax (up to 27.5%).

Additional penalties in connection with secondary obligations related to the reporting of these amounts in the official system (e-social) and for the non-withholding or payment of income tax may also apply (up to 150% in the worst-case scenario).

Necessary evidence

To avoid the above-mentioned tax, labour and social security risks, it is necessary to provide evidence of the commercial purpose of the stock transaction (eg, the burden of the transaction for the employee and/or the market risk for the employee). Other aspects can also be considered in the assessment by judicial and administrative authorities, such as:

  • the cost of the shares or units afforded by the employee;
  • vesting periods;
  • whether the employee participates voluntarily in the plan; and
  • the legal entity involved in the stock-based incentive plan.

Relevant case law

Historically, the Administrative Tax Court responsible for judging the disputes on tax assessment (CARF) has made decisions against companies upholding the social security contributions and the income tax charges, ruling that this sort of incentive should be considered as compensation. Among many arguments raised by the judges, it was mentioned that stock options plans usually reveal a relationship between the benefits offered to the employees and the provision of services by beneficiaries.

For instance, in November 2018, the Higher Court of CARF decided that the stock options, not the shares underlying these transactions, constituted the companies’ economic benefit to the employees was.(1) According to the judges, on the one hand, the company offers an advantage to the employee. On the other hand, the beneficiary must remain linked to the company, providing services for the minimum period determined (the vesting period) until acquiring the right to buy the shares. Additionally, the granting of stock options does not represent any risk or burden for the service provider (employee). Considering these arguments, the social security charges were due. Many other decisions issued by CARF followed this interpretation.

However, in November 2022, the Higher Court of CARF made a significant decision(2) in favour of a company about the non-payment of social security contributions on the stock options plan granted to employees. In this case, the employees had paid the amount that the stocks cost at the time the options were granted, which were lower than the market value at the exercised date. Therefore, the tax authorities understood that this difference between the fixed price and the stocks’ market value should be considered compensation, subject to the social security contributions. However, the judges decided that the income incurred by the employee through the increase of the share’s price on the stock market does not count as compensation since such a transaction is not related to employment and is determined by the stock market. According to this decision, the stock option plans granted in the context of the employment relationship have a commercial nature. As a rule, they are accessories to the employment relationship to encourage employees and managers to be more productive and committed to the business. Regarding the commercial nature of the plans, it was added that, as a rule, they are voluntary and costly, and bring a certain risk to the employee.

This decision represents a breakthrough in the High Court of CARF’s positioning towards stock option plans and improves other company’s chances to challenge tax assessments. It has been said that it represents a trend of the Court to decide in favour of taxpayers concerning stock options plans.

It must be highlighted that this decision is not binding, and the tax authorities and the administrative and judicial judges may decide differently. Therefore, the potential risks must be analysed case by case, and other adverse social security contributions and tax implications may arise from this sort of benefit.


If the Brazilian employer meets the costs of a plan, it can characterise the employer as the acquirer of the shares, resulting in the shares being categorised as delivered to the employees by the foreign entity under the employer’s order and account. This results in a higher chance of the shares be treated as part of employees’ compensation. It is also essential to determine which company will pay for such benefit (ie, the Brazilian entity or the company abroad) and if there will be any recharge or charge-back of those expenses among the companies. Any charge-back may trigger specific tax and social security exposure to the subsidiary since the cash flow may identify that the Brazilian company is paying for such benefits for its employees.

In summary, despite the recent favourable decision issued in favour of taxpayers, granting share-based incentives to employees in Brazil must be carefully analysed before implementation to avoid any adverse impact on labour, social security contributions and tax.

For further information on this topic please contact Angélica Santos or Fabiana Pacheco at CGM Advogados by telephone (+55 11 2394 8900) or email ( or The CGM Advogados website can be accessed at


(1) Decision No. 9202-007.378.

(2) Decision No. 9202-010.506.

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