Incidence of "Sistema S" Contributions on Labor Court Judgments

By Roberto de Souza Ferreira Greco

Companies have been adopting a stance that may become a contingency regarding the collection of taxes levied on judgments and settlements reached within the scope of Labor Court proceedings.

This is because the taxes assessed and collected due to payments made in the context of labor lawsuits are limited to the employer's INSS contribution (20% rate) and the RAT – Occupational Environmental Risk (rate of 1%, 2%, or 3%, depending on the level of risk associated with the company's activities). This is due to the understanding that the Superior Labor Court (TST) has repeatedly ruled that the Labor Court is not competent to demand the payment of social contributions owed to so-called "Third Parties," including SESI and SENAI.

There are strong legal arguments supporting the position that the TST’s stance does not eliminate the incidence of contributions to the "Sistema S" (which consists of private law entities) that apply to remuneration payments as a consequence of the social security contribution and its additional charge. Instead, it merely denies the Labor Court’s jurisdiction to demand such contributions from employers, including their enforcement in the same legal proceedings, as is the case with the employer’s 20% quota and the RAT additional charge.

Furthermore, nothing prevents this position from being revised by the Supreme Federal Court (STF), given its constitutional nature and the fact that the collection of contributions to the "Sistema S" falls under the responsibility of the Brazilian Federal Revenue Service (Receita Federal do Brasil).

On the other hand, it is noticeable that neither the payment slips issued by the Labor Court include a field for Third Parties (consistent with the current TST jurisprudence), nor do the GFIPs – Guides for the Collection of the Severance Indemnity Fund and Social Security Information (now replaced by DCTF-web – Declaration of Federal Tax Liabilities for Social Security and Other Entities and Funds) provide a field for "Sistema S" contributions within labor claims reporting. This supports the current stance of companies in refraining from making these payments or even formally acknowledging these liabilities.

In any case, it is important to verify whether companies report labor claims in the so-called e-Social ("digital bookkeeping system for tax, social security, and labor obligations") and whether there is a designated field for Third Parties. We recommend that companies internally investigate this matter.

Additionally, it is worth noting that the Special Panel of the Superior Court of Justice (STJ) ruled on non-precedential divergence appeals, stating that "Third Parties," including SESI and SENAI, do not have active tax capacity or legitimacy to directly collect the contributions due to them, ever since the creation of the "Super Revenue" by law, which assigned the duty of collection to the Brazilian Federal Revenue Service.

However, the STJ itself, in new divergence appeals with binding precedent status, will rule on which party has the legitimacy to collect contributions to the "Sistema S."

It is also necessary to assess the potential impact of any "Cooperation Agreements" between companies and "Sistema S" entities for the direct payment of contributions. If such agreements exist, companies' positions become more vulnerable, as there are court decisions, including from the STJ, recognizing that Third Parties have standing to demand payment when a Cooperation Agreement with the company is in place.

Despite the uncertain and cautious scenario outlined above, in practical terms, the Brazilian Federal Revenue Service does not appear to be actively pursuing the assessment and collection of "Sistema S" contributions. This is evidenced by the fact that only recently has it required labor claims to be reported via DCTF-web, with their respective formal acknowledgment by taxpayers. Many companies have also not made these payments in recent years.

In conclusion, this matter warrants further investigation, including an internal review by companies to determine whether:a) There is a Cooperation Agreement in place;b) They have been reporting labor claims in e-Social; andc) How they are currently handling these obligations with DCTF-web. This assessment will help better evaluate the likelihood of success in the event of collection attempts by "Sistema S" entities.