Income tax deductions could encourage remote working. Faced with the need to use teleworking during the pandemic, many companies have become concerned about the expenses borne by employees, such as electricity, internet and any costs incurred for working from home.
Despite the fact that the Consolidation of Labor Laws (CLT) expressly states that expenses, even if they are regular, do not constitute a basis for calculating labor and social security charges, many companies began to question how to avoid and/or minimize, in the event of a labor lawsuit or inspection by the competent bodies, that such amounts would be considered in the basis for calculating labor, social security and tax charges, which would attract considerable contingency in these areas.
In order to regulate how these expenses would be taxed, in May the Federal Revenue Service published COSIT Consultation Solution No. 87, of March 14, 2023, which allows teleworking expenses to be deducted when calculating Corporate Income Tax (IRPJ).
Under this rule, electricity and internet costs can now be deducted at tax time, provided proof of these costs is provided. This decision could be a way of encouraging remote working, which has lost ground to the hybrid and face-to-face system.
For companies, this deduction means a reduction in the amount of income tax to be paid, which can increase their competitive advantage. In order for a company to be able to deduct expenses from its income tax base, it must prove that it has borne this financial burden.
The rule published by the Internal Revenue Service is quite comprehensive in terms of the documentation required to prove this. According to the text, the company must have “appropriate and suitable documentation”.
By way of comparison, the IRS also mentions in the consultation solution the requirement for proof of expenses for the use of an employee’s vehicle and for childcare reimbursement. According to the agency, “the same logic should be applied to the amounts paid to employees in order to reimburse the expenses incurred by them as a result of the adoption of the teleworking regime”.
In the text, the Revenue Department treats these amounts as operating expenses, deductible from taxable income, for the purposes of calculating IRPJ: “Since they are related to the company’s activity and the maintenance of the source of production, these amounts paid to employees can be considered operating expenses”.
It is of the utmost importance that the rules for deducting home office expenses are clear and fair, in order to avoid abuse and tax fraud. It is also essential that there is proper monitoring and inspection to ensure that the deductions are used correctly.
