In our last Clients & Friends newsletter, we reported that an administrative tax court in Brazil held that two Brazilian companies were required to pay social security taxes on stock option income realized by employees.

A Regional Court of Appeals in Sao Paulo has now held the opposite and concluded that social security taxes were not due on income realized from stock options granted by a Swedish parent company to employees of its Brazilian entity.

Even though the appeal was technically rejected based on procedural grounds, the court stated that stock option income should not be treated as compensation (and, thus, not be subject to social security taxes), because the employee has a financial risk with respect to stock options.

Until a higher court decides this matter, there continues to be significant uncertainty regarding the treatment of stock option and other equity award income. We will continue to monitor the case law in Brazil.

In the meantime, we recommend that you speak to your GES attorney about the appropriate tax treatment of your equity awards in Brazil.