EXECUTIVE SUMMARY
The Brazilian IRS announced that starting this month, they will launch a crackdown on companies that deliver part of their top executive’s compensation through stock options and private pension plans.
The main target group is Brazilian companies, listed on the Brazilian stock exchange. However, multinational companies located in Brazil may also be questioned. According to the local tax authorities, such stock option plans have been frequently used as a form of compensation under an abusive tax planning alternative to avoid income tax on gains.
NEXT STEPS
Multinational companies with operations in Brazil and Brazilian companies should be aware of the recent development. However employee stock option schemes are not necessarily at risk as a result of this development, if income taxes and social charges are being properly observed by the payer and recipient of the compensation.
As a result, companies are advised to consider the impact of the IRS assessment, and review whether their long term incentive plans are in accordance with the Brazilian legislation and best practices in the market.
SOURCE: Ernst & Young
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