Executive Order No. 905/19, published on November 12, established the Green and Yellow Employment Contract and included in the Consolidated Labor Laws (CLT) rules on the supply of food to employees and the consequences thereof for the labor, social security, and even tax sphere. With the change promoted, food provided and paid through tickets or vouchers are exempt from labor, social security, and tax charges.

The Superior Chamber of Tax Appeals of the Administrative Tax Appeals Board (Carf) adopted the understanding that the food assistance allowance, paid in cash or in food vouchers and tickets, would be part of salary for the purposes of payment of social security contributions. Thus, the social security contribution on the benefit amounts was due.

In January of 2019, the Federal Revenue Service of Brazil (RFB), through the publication of Cosit Response to Public Inquiry No. 35/19, changed Carf's understanding, establishing a new understanding that the social security contribution should not be levied on food when it is given in natura[1] or when it is paid via ticket or voucher.

However, the response to public inquiry did not exclude food paid in cash from the social security contribution, on the grounds that such remuneration is of the nature of a wage and, therefore, this amount should be part of the taxable base of the social security contribution.

It was in this context that MP 905 added to the CLT (article 475, paragraph 5), in an express manner, that the provision of food to employees, whether in nature or by means of vouchers, coupons, checks, electronic cards intended for the purchase of meals, or foodstuffs: (i) is not of the nature of wages; (ii) is not subject to the application of social security contributions; and (iii) is not included in the taxable base for other payroll charges, especially FGTS and IRRF.

The objective is to close any debates regarding the application of social security contributions and other payroll taxes on employees' food, making the administrative and judicial bodies apply the same understanding.

However, the executive order was silent regarding the payment of food in cash, which leads to the conclusion that the RFB and the Judiciary will continue to apply the understanding of Cosit Response to Public Inquiry No. 35/19 for the payment of food in cash, assigning it the nature of wages and ordering the application of social security contributions.

MP 905 ordered that changes relating to this matter shall only take effect when an act of the Minister of Economy attests to compatibility with the tax results targets provided for in the annex itself of the Budgetary Guidelines Law and compliance with the provisions of Supplementary Law No. 101/2000, which deals with public finances directed to responsibility in tax management, and the provisions of the Budgetary Guidelines Law related to the matter.

We will cover the main changes of MP 905 in the next articles in this series. Click here to read our other analyses on the topic.

[1] Furnishing of meals to employees or provision of food baskets, in accordance with article 58 of RFB Normative Instruction No. 971/2009.