Income Tax: fine on termination of employment is exempt – 03/25/2024 – Market

Payment of the 50% fine in the event of termination of an employment contract must not be deducted from Income Tax. The decision was taken by the TRU (Regional Uniformization Panel), of the JEFs (Federal Special Courts) of the 4th Region, this month, in a case filed by a doctor against the National Treasury.

The professional stated that his contract was terminated by the hospital where he worked in Paraná and went to the Judiciary to discuss the severance pay. The reason is that, after an agreement between the parties, the employer paid R$93.5 thousand as a fine provided for in article 467 of the CLT (Consolidation of Labor Laws) and the Federal Revenue deducted IR on the amount.

The article provides that the employer must pay the former employee the amount of severance pay that is not questioned by the parties, that is, by mutual agreement between the company and employee.

The amounts must be paid by the date of appearance at the Labor Court. If there is no payment, there is a 50% surcharge.

The doctor states, in the case filed against the Union, that the Federal Revenue charged income tax on the termination fine obtained in the labor action. According to the professional, “such funds are compensatory in nature and are not subject to income tax.”

The 4th Federal Court of Curitiba (PR) accepted the doctor’s argument. The Union appealed, and the 1st Appeal Panel of Paraná had a different understanding, indicating that the “fine in article 467/CLT does not have a compensatory nature, constituting an increase in assets and, therefore, subject to the incidence of IR”.

The doctor contested the decision with the TRU of the 4th Region —which comprises the states of Paraná, Rio Grande do Sul and Santa Catarina—, which decided by 2 votes to 1 that the 50% fine provided for in article 467 of the CLT is compensatory and Therefore, Income Tax should not be charged on it.

The case’s rapporteur, judge Andrei Pitten Velloso, also cited previous decisions from the 5th Appeal Panel of Rio Grande do Sul and the TST (Superior Labor Court), which support that the fine in article 467 is compensatory.

“The understanding is that there is no income but rather a compensation for the damage you suffered (in this case, the breach of the employment contract). As the compensation in this case was not considered an increase in assets, IR is not charged”, he says tax lawyer Felipe Santos Costa, from MV Costa Advogados.

According to Costa, as there were different positions on the same subject, the Regional Uniformization Panel is responsible for defining what the binding decision will be, which is the procedure to be adopted in this case and in other similar cases that may occur.

However, this definition of the TRU of the 4th Region is only valid for the states for which it is responsible, the three in the Southern region of the country. “There may be a different decision in the 1st, 2nd, 3rd and 5th Regions, for example. But in the 4th Region, the resolution is the one defined by this standardization group”, says Costa.

After the definition, the TRU judge of the 4th Region determined that the case should return to the 1st Regional Panel of Paraná, which had a different position, so that it could adapt its decision.

The TRF-4 (Federal Regional Court of the 4th Region) informed that the National Treasury may also file an appeal for clarification, used to clarify points of the decision that remained unclear.

“But this appeal will not change the merits of the decision,” the court said. The case can also be judged by the TNU (National Uniformization Panel) of the Federal Court.

When contacted, the Treasury did not respond until the publication of the report.