Workers (and companies) will have to prove expenses with the home office, decides the Revenue Agency

The Federal Revenue decided at the end of last year – just days before the end of the Jair Bolsonaro (PL) government – that workers and companies will have to prove the expenses that employees have to work from home, when the employer reimburses Internet and electricity bills to employees.

At the same time, the Revenue Agency has understood that the home working (or teleworking) allowance has a compensatory nature and is not part of the employee’s salary, therefore it should not be included in the basis for calculating social security contributions to INPS Institute (INSS) and there is no incidence of personal income tax (IRPF).

In addition, companies subject to income tax can deduct the amounts paid.

But the Revenue Agency says that the expenses with the aid must be “necessary for the company’s activity and for the maintenance of the productive source” and that, “for the characterization of the indemnity aspect of the perceived values, the beneficiary must demonstrate them, through skilled and reliable documentation”.

The decision of the Revenue Agency is unprecedented and is in the consultation solution Cosit 63/2022, signed by the then Undersecretary of Taxes and Revenue Litigation, Cláudia Lúcia Pimentel Martins da Silva, and published on December 27, 2022 in the Official Gazette federal.

The Revenue Agency did not explain how the test should be carried out. Tax lawyers consulted by Money info they say companies will be responsible for the assignment, if questioned by the Revenue Agency, and then need to charge employees for proof of expenses (and keep this information internally).

How to prove expenses?

“My reading is that the Revenue Agency has responded insufficiently,” says Alessandro Mendes Cardoso, a lawyer specializing in tax, social security and customs law. “It is bureaucratizing and placing an entirely unreasonable operational burden on companies. It is very unreasonable for a company that has hundreds of employees, but Cosit is carrying this obligation”.

Cardoso, partner of Rolim, Viotti, Goulart and Cardoso Advogados, believes that the rationale behind the decision of the Revenue Agency is that the employer should not pay a salary disguised as an allowance, but that “it is clear that the aid is for the job”, as long as the value is “reasonable”.

“[A Cosit 63/22] it was a step forward, because it recognized that the amounts reimbursed to home workers are values ​​for work. At the same time, he acknowledged that for the company the aid is an operating cost, so it can be deducted from the tax. But this, in my opinion, was foreseeable,” says the lawyer.

Matheus Bueno, a tax attorney and partner at Bueno Tax Lawyers, agrees that the IRS’ position on the compensatory nature of the aid and the deduction of expenses are Cosit’s bright spots, but highlights the proof of expenses as something of negative.

“The company must demonstrate that the employee has incurred the expense, which he is receiving [o auxílio home office] for that use. The company, if it wants to be prudent, will have to ask for these accounts”, says Bueno. “Basically, the company must keep these documents because, if one day the Revenue Agency wants it, it will have to show it”.

Leandro Nagliate, a lawyer specializing in social security and tax law, also affirms that the decision itself is “good news for employers” and underlines the fact that the Revenue Agency has clarified that the company can suspend payment of help if the) employee(s) return to work in presence, as the benefit is not part of the salary, but consider the difficulty of proving expenses:

“In small companies, with few employees, the proof required in Consultation Solution No. 63 is feasible. But, in larger companies, employee-by-employee control becomes unfeasible,” says the lawyer. Nagliate says an alternative for large companies might be to hire reports to demonstrate the average worker’s expenses (but Cosit doesn’t provide for this).

The reason for the decision

The decision of the Revenue Agency is unprecedented and it was in response to a request made by a beverage manufacturer. The company has implemented full home office for some employees due to the Covid-19 pandemic and has paid a flat monthly allowance, based on the average employee spending, to help them with internet and electricity expenses during the hours of work.

According to Nagliate, of the Nagliate and Melo Advogados studio, the beverage manufacturer argued in the consultation that the Consolidated text of labor laws (CLT) expressly provides that daily allowances, even customary ones, do not form the basis for calculating social security charges and of work.

The soda and soft drink maker is also engaged in beverage wholesale business, but its name has not been disclosed. Nagliate states that generally the taxpayer does not expose himself, to avoid possible “retaliation” by the tax authorities.

Cardoso, of the Rolim, Viotti, Goulart and Cardoso Advogados law firm, says that the company asked the Revenue Agency for two points: what would be the nature of the home assistance (whether remunerative or indemnity) and about the systematic calculation of the amount paid (be it a fixed amount or an average expense).

“It is a very common doubt for companies, after the pandemic, about the treatment of the amounts they provide to employees, mainly to pay for internet and electricity,” says the lawyer. Cosit, however, only answered the first question and started requesting proof of spending (which hadn’t been asked for).

For whom the decision is beneficial

The consulted experts believe that Cosit 63/2022 is mainly beneficial for large companies, despite the obligation to demonstrate employee expenses, and that it should not have a significant impact on employees (except for the need to demonstrate expenses with the home office).

“For large companies it is relevant. For IT companies [Tecnologia da Informação] it’s also relevant, because the home office is a trend,” says Cardoso. “In large multinationals, for example, the administration is very strong in the home office or in the hybrid regime”.

For employees, the net salary may be marginally higher, if the employer considers the nature of the home office assistance to be remunerative (which counsel considered unlikely). This is because the company would no longer withhold income tax at source (IRRF) on the benefit.

But even in this case the difference would be minimal. “The value is so low that it makes no difference. It is an effect that is not relevant individually, but it can be relevant for a company that has one or two thousand employees”, reflects Cardoso.

The lawyer gives as an example a person who earns BRL 3,000 in salary and receives BRL 300 in home office assistance: it would make a difference of about BRL 30 in net salary, due to the IRRF.

“Even those making 1 minimum wage” isn’t something that tends to make a huge difference. For companies with large numbers of employees, such as call centers — which have four or five thousand people working from home — there is a significant difference,” says the tax consultant.

Who can also benefit from the decision are the companies which have not excluded the aid amount from the IR collection basis. Nagliate, of Nagliate and Melo Advogados, says that “many are conservatives and, as there is still no ‘official’ agreement, they have preferred not to run the ‘risk’ of being fined or inspected”. “Now the alternative is to ask for the return of these values.”

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