Brazilian Superior Court decides on the non-remunerative nature of stock option plans

On September 11, 2024, in its ruling on Case No. 1226, the Brazilian Superior Court (STJ) determined that gains derived from stock option plans do not constitute remuneration for the purposes of personal income tax (IRPF, charged based on the progressive table that reaches 27.5% of the total amount received). Instead, such gains are considered commercial in nature and are subject only to capital gains tax (15% of the difference between the acquisition cost and the selling price) upon the sale of the acquired shares.

This decision resolves years of legal uncertainty surrounding the issue, stemming from disputes between taxpayers and tax authorities. The tax authorities had consistently argued that gains from stock options constituted remuneration, a position that was frequently upheld by the Administrative Tax Appeals Council (CARF) but was largely rejected and not followed by Labor Courts decisions.

Labor courts generally sided with taxpayers, ruling that gains from stock options did not constitute salary as the operation involved risk and participation was voluntary and burdensome. These factors negated the remunerative nature of such transactions.

The STJ’s ruling in Case No. 1226 provides a positive outcome and is likely to end the legal battles that have been waged over this issue. The Court’s consolidated position is that stock options, in and of themselves, do not constitute remuneration (but are subject to capital gains tax upon the sale of the acquired shares).

This new legal landscape is expected to provide greater legal certainty for companies implementing stock option plans in Brazil, which can now benefit from a favorable ruling by the STJ.

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