New Ruling Of Income Tax On Participation In Profit Or Results Of Companies

Keywords: new ruling, income tax, employee profit sharing, PLR

Employee Profit Sharing (PLR) is regulated by Law No. 10.101 of December 19, 2000. It is considered an integration instrument between Employers and Employees, and stimulates productivity, pursuant to Article 7, paragraph XI of the Brazilian Constitution.

The implementation of profit sharing to Employees requires the establishment of goals by the company, which shall be achieved in a certain period, in order to the Employees be eligible for the distribution of profits. Companies that distribute profits to Employees without setting goals, either for productivity or results, reduce the effectiveness of the profit sharing principle established by law.

The Profit Sharing Agreement shall be negotiated between the company and its employees through: (i) a commission chosen by the parties, with participation of a class representative trade union; and (ii) collective convention or collective bargaining agreement.

The terms of the collective agreement shall contain clear and objective rules establishing the substantive rights of participation and procedural rules, including mechanisms for measuring relevant information in compliance with the schedule for the distribution, duration period of the program and terms for circumstance of review of the agreement. The following criteria and conditions may be considered among others: (i) rates of productivity, quality and profitability of the company; and (ii) goals program, results and deadlines previously agreed.

The PLR performed in accordance with the mentioned law has the legal disclaimer that it does not constitute labor charges, thus, in this case, the principle of habituality does not apply. However, if PLR is paid outside the terms of Law No. 10.101/2000, it shall be considered as bonus, and thus be paid with repercussions on 13th salary, vacation, remunerated weekly day-off, prior notice, maternity allowance, and on other benefits. In regard to taxes, the payment of Unemployment Compensation Fund (FGTS) and social security contributions to the National Social Security Institute (INSS) will be due.

On December 26th, 2012, Provisional Measure No. 597 was published in the Official Gazette. It amended paragraph 5 of Article 3 of Law No. 10101/2000 and modified the table of exclusive taxation at source. The new wording of the Article determines that income tax shall exclusively apply on the PLR at source, separate from other income received...