Brazil: Corporate income tax treatment of bonus, profit-sharing payments made to directors (court decision)

Deductibility of payments of bonuses and profit sharing to managers and administrators

Deductibility of payments of bonuses and profit sharing to managers and administrators

A decision by a tax appellate court (Câmara Superior de Recursos Fiscais) addresses the deductibility of payments of bonuses and profit sharing to managers and administrators.

The case identifying information is: CSRF ruling nº 9202-009.801

The tax treatment of such payments historically has been a focus of the tax authority (Receita Federal) which considers such payments to be non-deductible for the corporate income tax (IRPJ) purposes, without identifying the employment relationship of such officers or administrators.

The court’s decision reaffirms that, in order to apply a prohibition as contained in the then-applicable rules that provided for the non-deductibility of such payments to directors, the burden rests with the tax authority to demonstrate that there was no existing relationship inherent to an employment relationship (that is, subordination).

KPMG observation

Tax professionals note this is an important decision for taxpayers because the court recognized and reaffirmed the position of an “employed statutory director.” Another important point in the judgment is that the burden of proof of the characterization of the non-existence of the subordination rests with the tax authority.

Read a March 2022 report (Portuguese) prepared by the KPMG member firm in Brazil


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