Brazil Court Rules Vacation Bonus Subject to Payroll Social Tax

Brazil’s supreme court dealt companies a serious setback Aug. 29 in their lengthy battle to eliminate a payroll tax on vacation pay by ruling that the pay is subject to the tax.

Employees in Brazil are entitled to an annual one-month vacation for which they receive their normal monthly salary plus a vacation bonus equal to one-third of their base salary. The government took the position that the vacation bonus is salary and is subject to Brazil’s 20% social security payroll tax, but this was rejected by Brazil’s second-highest appeals court, the Superior Court of Justice, in 2016.

The government ...