As widely published, Law nº 12,973 of May 13th 2014 brought dramatic changes for Brazilian corporate taxation by revoking the Transitional Tax Regime ("RTT"), according to which taxation of Brazilian resident companies was based in the accounting rules in force until December 31st 2007 (instead of the International Financial Reporting Standards - "IFRS" - currently in force). According to the new rules, the IFRS becomes the starting point for calculating taxes such as Corporate Income Tax ("IRPJ"), Social Contribution on Net Profits ("CSLL"), Contribution for the Social Integration Program ("PIS") and Contribution for the Financing of Social Security ("COFINS"); except when Law nº 12,973/14 provides for it differently, by determining specific adjustments for the calculation of those taxes and contributions.
Regarding Stock Option Plans, article 33 of Law nº 12,973/14 provides for the applicable tax treatment by expressly characterizing the corresponding values as compensation for the rendering of services by employees or similar, and by establishing the conditions for its addition in the IRPJ and CSLL calculation basis. As result of these changes, we anticipate that there may be a reduction of the chances that tax authorities will agree with the commercial nature of the Stock Option Plans.
Moreover, even though the new Law only provides for the tax implications of Stock Option Plans for legal entities - for purposes of determining the calculation basis of IRPJ and CSLL - other consequences may result from the characterization of Stock Option Plans as compensation for the rendering of services by employees or similar. In this regard, the corresponding social contribution and income tax impacts, both for companies and individuals, must be evaluated.
Accordingly, special attention should be directed to the granting of Stock Options during the effectiveness of the new rules (in other words, during 2014 for companies that have opted for the anticipation of Law 12.973/14 effects for January of this year, or as of 2015 for other companies).
In this context, we recommend companies to consider the aforementioned legislative changes while formulating their strategies regarding equity based plans with a view to attract and retain talents.
We remain at your disposal to assist with such evaluation.