Hiring bonuses, also called sign-on bonuses, or in the sports arena, key money, is an amount that can be paid when hiring new professionals.
The purpose of this payment is to attract highly qualified and already positioned professionals, compensating them for the discomforts and uncertainties that naturally arise when changing companies. It is also a way to compensate them for benefits that they give up when they accept the new employment contract (for example, benefits due in the event of unjustified dismissal, job stability).
The nature of this bonus for social security contribution purposes is still controverted. Historically, the Administrative Board of Tax Appeals (Carf) has found that such amounts are directly related to the provision of services, regardless of whether they are paid only at the time of hiring, and therefore should be subject to social security contributions.
In such precedents,[1] the Carf has expressed the understanding that hiring bonuses represent an advance payment for future provision of services. To reinforce its position, the agency highlighted the existence of provisions that set forth a minimum time in employment, under penalty of return of the amount received, in whole or in part.
On the taxpayers' side, we believe there are arguments to contend that the amounts in question cannot be included in the taxable salary, the calculation basis for such payments, because, in addition to not being paid on a regular basis, they have the nature of compensation.
Article 195, I, "a" of the Federal Constitution,[2] when dealing with social contributions (and social security contributions) levied on payments made to employees, established as the taxable event (and calculation basis) the payment of "payroll and other employment income paid or credited, for any reason, due to services rendered under an employment relationship.”
In summary, based on this accrual rule, the Federal Government is authorized to institute contributions on payroll or labor income paid to employees. As provided for in article 110 of the CTN,[3] it is necessary to identify the scope of the concepts attributed to the terms "payroll" and “employment income", in order to identify the field of action of the Federal Government in requiring social (and social security) contributions.
When searching for the semantic limits of these terms, it is possible to identify that the word "salary" is directly linked to the payment for services rendered through an employment relationship. It seems clear that the word was used to refer to the remuneration of the category of workers made up of employees.
Therefore, in our view, payments that may be subject to social security contributions (according to the constitutional rule of tax accrual) is the one referring to employees' salaries, whose nature is that of consideration for services rendered under an employment arrangement. The concept does not include the sums given to employees that are used for provision of services.
Therefore, we believe social security contributions can only be levied on the remuneration paid habitually and for rendering of services. Neither requirement, it seems to us, would be met in the case of payment of a hiring bonus.
There is no habitualness, since the amount, although it can be paid in installments, is paid only at the time of hiring. Nor do the amounts arise from the provision of services, since they are agreed upon before the employment contract even begins.
Not only does the hiring bonus not meet the requirements to be considered as taxable salary, but it also has a clear nature of compensation, since it aims at compensating the benefits that the professional gave up when changing jobs.
Thus, in our understanding, it is possible to conclude that the amounts paid as hiring bonuses should not be included in the calculation basis of social security contributions simply because such payments, besides being occasional, have a remunerative/compensatory nature, and are not within the scope of social security contributions.
Recently, there have been precedents from Carf for the non-levying of social security contributions on hiring bonuses,[4] in line with the arguments set out above and in favor of taxpayers.
Some of these precedents[5] are formed due to the application of article 19-E of Law 10,522/02, included by Law 13,988/20, and according to which, in the event of a tie vote between the board members representing the taxpayer and the board members representing the Tax Authorities, the result must be favorable to the taxpayer.
This tie-breaking rule in Carf is being challenged, however, in the Federal Supreme Court (STF) in three direct actions of unconstitutionality regarding article 19-E of Law 10,522 (ADIs 6,415, 6,399, and 6,403).
The matter, therefore, is still controverted. However, even if it is not possible to rule out the risk of questioning and assessments by the Brazilian Internal Revenue Service, one cannot fail to consider that taxpayers have good arguments to contend for the non-levying of social security contributions, reinforced by the most recent precedents of the Carf.
[1] Appellate Decisions 9202-005.156, 9202-008.525, 9202-008.600, 9202-010.167, 9202-008.179
[2] Article 195. Social security shall be financed by the whole society, directly and indirectly, according to the law, through funds coming from the budgets of the Federal Government, the States, the Federal District, and the Municipalities, and the following social contributions:
I - employers, companies, and entities equated to them in the form of the law, levied on:
a) payroll and other income from work paid or credited, in any way, to the individual who works for them, even without an employment relationship;
[3] Article 110. The tax law cannot alter the definition, the content, and the reach of institutes, concepts, and forms of private law, used expressly or implicitly by the Federal Constitution, by the Constitutions of the States, or by the Organic Laws of the Federal District or of the Municipalities, to define or limit tax accrual.
[4] Appellate Decisions 9202007.637 and 9202-008.044
[5] Appellate Decisions 9202-009.762 and 9202-009.762
