Last week, the Brazilian Superior Court of Justice (STJ) rendered an important decision in Special Appeal No. 2074564/SP (Theme 1.226/STJ), which directly affects companies that offer stock option plans to directors and employees. The ruling recognized the mercantile nature of stock option plans and defined that the Individual Income Tax (IRPF) is levied if and when the purchaser of shares in the Stock Option Plan resells them and realizes a capital gain, which is subject to IRPF at rates ranging from 15% to 22.5%.
Central Point of the Decision
The decision was handed down by the 1st Section of the STJ, by a majority of votes, and established the understanding that “In the Stock Option Plan regime (art. 168, § 3, of Law no. 6,404/1976), because it is of a mercantile nature, personal income tax/IRPF is not levied when the shares are actually acquired…”. The main argument used by the STJ was that there would be no increase in assets for the benefit of the option holder/acquirer of the shares at the time the option is exercised. Thus, contrary to the National Treasury’s thesis (IRPF of 0% to 27.5% on the difference between the exercise price and the shares’ market value), the STJ ruled that taxation should only occur on the sale of the shares, if a capital gain is realized.
Impact on the market
The decision was taken under the system of repetitive appeals, and therefore has binding effects on the public administration and the Brazilian Courts. However, it is important to note that the decision deals specifically with the levy of IRPF in the case of Stock Option Plans, so the STJ’s understanding (i) does not apply to the discussion regarding the levy of Social Security Contributions (also commonly charged by the tax authorities); and (ii) does not consider other types of Share-Based Payments, such as Restricted Stock Units (RSU), Matching Shares, Phantom Share, or Performance Shares. In any case, the new guidance brings legal certainty to companies that use stock option plans as a way of retaining and incentivizing their executives and employees, promoting the alignment of interests and the development of a more competitive corporate culture.
