At a glance
- The Superior Court has decided that stock options are not indirect compensation linked to the employment contract.
- The distinction between employment compensation and a commercial contract determines the applicable tax rate.
- Federal Revenue Services will be bound by this judgment.
On 11 September 2024, the 1st Panel of Brazil’s Superior Court of Justice (STJ) ruled that stock options awarded to directors, officers, and employees by companies do not have a compensatory nature for the purpose of Personal Income Tax (IRPF).
This decision, issued under the 'repetitive appeal' procedure (which allows higher courts in Brazil to resolve multiple cases on similar issues simultaneously), sought to clarify the legal nature of stock option plans to determine whether this benefit is linked to the employment contract (compensation) or if it is strictly a commercial advantage. This distinction is crucial in establishing the applicable income tax rate, as well as the timing of the tax liability.
STJ decided that stock options are not indirect compensation but rather a commercial contract, meaning they are only subject to capital gains taxation when the individual eventually sells the shares. Justice Kukina's view was ultimately accepted by the court in a seven-to-one vote.
The ruling now establishes a binding precedent for public administration bodies, including the Federal Revenue Service and courts across the country.
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