Beginning the series of articles on the changes implemented by Executive Order No. 905, published on Tuesday, November 12, we review below changes in the rules for creating and paying a Profit Sharing Plan (PLR).
Granted by companies to their employees as a means of integrating capital and labor and as an incentive for productivity gains, PLRs are not included in the calculation basis of social security contributions, provided that the legal requirements are duly fulfilled. Currently, Law No. 10,101/2000 regulates the matter and expressly provides for, in its articles 2 and 3, the requirements for the implementation of PLR plans.
Despite the existence of clear regulations on the subject, companies are often surprised by assessments based on requirements that are not found in the law.
The Superior Chamber of Tax Appeals (CSRF), often based on the casting vote, has ratified some of the theories and requirements created by the tax authorities, thus assuming the position of a veritable legislator, which seems to go beyond its jurisdictional function.
In this scenario, MP 905 comes to the aid of taxpayers in order to combat and eradicate illegalities perpetrated by the CSRF. In general, the various changes promoted by MP 905 seek to clarify the text of the rules used as a basis for constructing restrictive interpretations of the legislation by the tax authorities and administrative courts.
The table below compares, briefly, the position that was being consolidated before the CSRF with the new rules introduced by MP 905:
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Legal requirement |
CSRF majority position |
Rules established by MP 905 |
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Participation by the labor union |
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Implementation of PLRs through collective bargaining agreement or joint committee chosen by the parties, also including a representative appointed by the labor union. |
The absence of labor union participation from the same territorial base, even in the event of refusal on the part of the union, entails disqualification of PLR payments. |
Implementation of PLRs through collective bargaining agreement or joint committee chosen by the parties. Labor union participation is waived if the PLR is implemented by a committee elected by the parties. |
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Definition of rules |
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PLR plan should contain clear and objective rules. |
Disqualification of PLR payments where, based on a subjective interpretation, the board considered the targets not clear or objective. |
In establishing substantive rights and ancillary rules, including the setting of amounts and the exclusive use of individual goals, the autonomy of the will of the parties to the contract must respected and prevail vis-à-vis the interest of third parties. |
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Prior negotiation of rules |
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The PLR plan may be based on previously agreed-upon schedules of goals, results, and deadlines. |
The PLR plan must be signed before the start of the period for measuring targets (i.e., before the start of the calendar year, if it is an annual plan). |
The rules set in a signed instrument are considered previously established: (i) prior to advance payments, when provided for; and (ii) at least 90 days in advance of the date of payment of the lump sum or final installment, if there is advance payment. |
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Frequency of payment |
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It is prohibited to pay any advance or distribution of funds as profit sharing of the company more than two (2) times in the same calendar year and at a frequency of less than one (1) calendar quarter. |
All PLR installments should be disregarded and not only those that exceeded the frequency. Social security levied on all amounts paid in the period. |
Noncompliance with the frequency of payments only disqualifies payments made in violation of the rule, thus understood to be the following: (i) payments in excess of the second, made to the same employee, within the same calendar year; and (ii) payments made to the same employee at a frequency of less than one calendar quarter from the previous payment. |
Despite the good news for taxpayers, the provisions related to the payment of PLR, according to MP 905, will only have effects when an act of the Minister of Economy attests to compatibility with the tax results targets provided for in the schedule of the Budgetary Guidelines Law itself and compliance with the provisions of Supplementary Law No. 101/2000 and the provisions of the Budgetary Guidelines Law related to the matter.
Still, MP 905 indicates that the interpretations that were being adopted by CSRF were not in line with the spirit of the law, which may be used as an additional argument by taxpayers in pending administrative and judicial proceedings.
We will continue to monitor the evolution of the subject and its potential developments.
