Social security contribution can only be levied over Stock Option Plans upon exercise of purchase option

In analyzing the taxation of Stock Option Plans, the 1st Panel of the 3rd Chamber of the 2nd Section of CARF understood that the triggering event of social security contributions due over earnings received by the employee only occurs upon the exercise of the purchase option.

The decision emphasized that Stock Option Plans, in general, are divided in four moments: (i) granting of the Stock Option by the company; (ii) vesting of the Stock Option by the beneficiary; (iii) exercising of purchase option by the beneficiary, after vesting period; and (iv) sale of the Option in the stock market.

The assessment had considered that the taxable event took place upon the granting of the Stok Option – moment (i). The understanding of the Council, however, was that the triggering event occurred only upon the exercise of the purchase option – moment (iii), when there is an effective revenue by the beneficiary.

Unsubstantiated NCM reclassification within generic tariff code should be declared null

The 1st Panel of the 4th Chamber of the 3rd Section of the CARF unanimously ruled in the taxpayer’s favor regarding a tax assessment that reclassified certain goods in a generic NCM tariff code, because tax authorities failed to substantiate this procedure.

The tax assessment disregarded the NCM originally elected by the taxpayer and classified the goods in a different and more generic tariff code, without due justification as to why the original NCM was incorrect. The understanding of the Council, understanding, however, was that the reclassification of goods requires the statement of reasons that substantiate the claim that the classification elected by the taxpayer would not be accurate.

This case, in which our law firm represented the taxpayer, is particularly relevant in the present context, since the CARF had previously sustained that general flaws in the tax assessment should be disregarded if they are incapable of obstructing the taxpayer’s defense.

Tax planning can only be disregarded willful misconduct, fraud or simulation are duly demonstrated

In a case recently ruled by the 2nd Panel of the 3rd Chamber of the 1st Section, the CARF understood that corporate restructurings carried out with the purpose of reducing tax costs could not be disregarded by the Federal Revenue Service without adequate proof of willful misconduct, fraud or simulation.

The case analyzed the legality, for tax purposes, of a corporate operation made to segregate activities of a certain company into smaller companies, which resulted in a more beneficial tax treatment overall.

In the understanding of four of five judges, the taxpayer is free to choose among the legally available alternatives for its corporate organization, including the one that is less costly overall. These judges also stressed that the argument used by the Federal Revenue Service, in the sense that the corporate restructuring had no business purpose, had no legal grounds and could not, by itself, justify a tax assessment.






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