Supreme Court suspends lawsuits on taxing holiday bonus

Supreme Court Justice André Mendonça ruled to suspend all cases pending in lower courts discussing the taxation of employees’ holiday third — a bonus equivalent to one-third of the salary to which formal workers are entitled when they go on vacation — until the matter is settled by Brazil’s highest court. 

The decision is a response to a request from an advocacy group, filed more than a year ago. This Tuesday’s ruling is important as it prevents companies from having to pay up to BRL 100 billion (USD 20.8 billion) in back taxes to the federal government if they have already been condemned in lower courts.

In August 2020, the Supreme Court decided to tax employees’ holiday third, taking companies by surprise as years before, in 2014, the Superior Court of Justice — the highest appellate court in the country — had ruled against the collection of taxes on this sum while judging a case with binding effects.

Since then, the Supreme Court has received six requests for modulation of effects, that is, from interested parties who asked that the decision not be retroactive. This is what the Court now has to decide. 

The Supreme Court was to hear the case in August last year but withdrew it from its agenda. There is still no date set for the issue to return to the plenary.

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