Stock Options, regulated under Article 168, Paragraph 3 of the Brazilian Corporations Law, allow companies to offer executives and employees the option to purchase shares under specific conditions and at a predetermined price, turning those buyers into shareholders. The primary issue in administrative and judicial courts is the legal nature of such plans: whether they are compensatory, subjecting the transaction to income tax upon exercise, or commercial, exempting the purchase from income tax at that stage.

Tax infraction notices can be challenged in Brazil through administrative or judicial procedures. If a taxpayer disagrees with a tax infraction notice, they must submit an objection to the Federal Revenue Office. If denied, they may appeal to the Administrative Council of Tax Appeals (Carf) and, as a final step in the administrative process, present a special appeal to the Carf’s Higher Chamber of Tax Appeals. Should the taxpayer fail to overturn the notice at the administrative level, they may still seek judicial review, where courts can overrule administrative decisions.

The Higher Chamber of Tax Appeals (Carf) holds that Stock Option plans have a commercial nature, unless there is evidence of misuse to serve as compensation. Despite this stance, the Office of the Attorney General of the National Treasury (PGFN) maintains its position that such plans are compensatory, leading the matter to the Superior Court of Justice (STJ), responsible for standardizing the interpretation of federal law.

In a recent ruling by the STJ’s 1st Panel, the legal nature of Stock Option plans was settled, reaffirming that these plans have a commercial nature and are not considered compensatory. 

Given this definition, the main tax implications for taxpayers are:

• Personal income tax does not apply upon the acquisition of shares.

• Personal income tax will apply when the acquirer sells the shares, if a capital gain is realized.