Leveraging collective bargaining in Brazil: opportunities for employers navigating tax reform and the evolving jurisprudence

Rodrigo Seizo Takano
Machado Meyer, São Paulo
rtakano@machadomeyer.com.br

Murilo Caldeira Germiniani
Machado Meyer, São Paulo
mcaldeira@machadomeyer.com.br

Vitória Jordão
Machado Meyer, São Paulo
vjamaral@machadomeyer.com.br

Brazilian labour relations are undergoing a significant transformation.

Companies operating in Brazil now face a unique window of opportunity to optimise their workforce strategies through collective bargaining, as recent legal developments, both judicial and legislative, have reinforced the prominence of collective bargaining agreements. At the same time, the tax reform approved by Constitutional Amendment No. 132/2023 and regulated by Complementary Law No. 214/2025 – which will be implemented gradually over the coming years – has created intersections between employment law and tax law which require integrated planning.

This framework is particularly relevant for multinational companies with operations in Brazil, as employers now have the opportunity to use collective bargaining strategically to enhance operational flexibility regarding work shifts, variable compensation and employee benefits, while achieving greater tax efficiency under the new tax legislation. Understanding these dynamics is essential for companies seeking to remain competitive and compliant in this evolving legal environment.

The legal evolution of collective bargaining agreements in Brazil: ‘negotiated over legislated’ principle

Legislation has long recognised collective bargaining as a fundamental right preserved in Brazil’s Federal Constitution of 1988, which specifically acknowledges collective agreements and conventions among employees’ rights.

However, collective bargaining historically operated within narrow boundaries, with legislation often superseding negotiated terms. This began to change with the 2017 Labour Reform (Law No. 13,467), which introduced Articles 611-A and 611-B to the Brazilian Labour Laws (CLT), establishing that the terms negotiated through collective bargaining agreements with trade unions shall prevail over law in a non-exhaustive list of matters, but also defining rights which cannot be negotiated. The so-called ‘negotiated over legislated’ principle unlocked new possibilities for employers and unions to tailor working conditions to specific economic sectors and company realities.

Since then, Brazil’s Supreme Court (Supremo Tribunal Federal – STF) decisions have critically shaped the current legal landscape for collective bargaining. In a landmark ruling under Theme 1046 of General Repercussion (ARE 1.121.633), the STF definitively affirmed the constitutional validity of the ‘negotiated over legislated’ principle introduced by the 2017 Labour Reform. The STF held that collective bargaining agreements may validly establish conditions which differ from statutory provisions, provided they do not violate constitutionally protected employment rights.

This ruling represents a significant shift in Brazil’s labour and employment laws, as before this decision, labour courts frequently invalidated collective bargaining agreement provisions which reduced statutory benefits/rights, applying a strict interpretation of protective principles. The STF’s position now requires judicial deference to the autonomous will of the parties in collective negotiations, recognising unions and employers as legitimate actors capable of balancing competing interests.

The practical implications for employers are significant: companies can now negotiate with greater confidence matters specifically listed in Article 611-A, CLT, such as flexible working schedules. These include: annual banks of hours; compensatory time schemes; 12x36-shift systems; 12-hour working shifts for a certain number of days followed by an equivalent number of rest days; and reductions in intra-shift rest periods. Such schedules allow companies to adapt workforce deployment to operational demands without incurring overtime costs. For industries with fluctuating workloads, such as retail, hospitality and manufacturing, this flexibility can generate substantial gains in efficiency.

Collective bargaining agreements also address compensation structures, including profit-sharing programmes, performance bonuses, awards for productivity and various non-remunerative allowances. When properly structured through collective instruments, certain payments may be excluded from labour and employment charges, providing payroll cost optimisation with enhanced legal security.

Perhaps most significantly in light of recent legislative changes, collective bargaining is now a requirement to achieve certain tax benefits: employee benefits such as health plans and education-related benefits can be included in agreements not merely as employment obligations, but as strategic tax instruments. This development requires an understanding of Brazil’s ongoing tax reform.

Tax reform: a new dimension for collective bargaining

To appreciate the intersection between collective bargaining and taxation, it is essential to have a good understanding of Brazil’s ongoing tax reform.

For decades, Brazil’s indirect tax system has been notoriously complicated, featuring multiple overlapping taxes levied by federal, state and municipal governments, including: PIS and COFINS (federal contributions on revenue); ICMS (state tax on goods circulation); and ISS (municipal services tax). This fragmented structure created compliance burdens, cascading taxation and economic inefficiency.

Constitutional Amendment No. 132/2023, regulated by Complementary Law No. 214/2025, represents a fundamental restructuring of this system.

Brazil is changing to a dual Value Added Tax (VAT) model comprising the CBS (Contribution on Goods and Services – in Portuguese, Contribuição sobre Bens e Serviços), a federal tax and the IBS (Tax on Goods and Services – in Portuguese, Imposto sobre Bens e Serviços), shared between states and municipal authorities.

A VAT is a consumption tax applied at each stage of production and distribution, where businesses pay tax on their sales but receive credits for taxes paid on their purchases. This credit mechanism prevents tax from ‘cascading’ (being charged on top of tax) as goods and services move through the supply chain.

A critical provision of Complementary Law No. 214/2025 directly affects labour relations. Article 57 classifies certain employee benefits, such as health plans and education-related benefits (for example, scholarship allowances), as goods and services acquired for ‘personal use and consumption’. Under general VAT principles, personal consumption items do not generate tax credits because they represent final consumption rather than business inputs.

However, the law creates an important exception: when employee benefits are explicitly provided for in a collective bargaining agreement, they may qualify for credit treatment. This transforms collective bargaining from a purely labour relations tool into a tax governance instrument. Benefits formalised in collective bargaining agreements may generate CBS and IBS credits; those granted unilaterally as employer liberalities may not.

For companies with significant employee benefit expenditure, this distinction can have material tax and financial implications. Employers should also note the timing considerations: collective agreements typically have a two-year term. Agreements signed in 2025 without proper benefit provisions will not allow retrospective credit recovery when the new system becomes fully operational. Companies must consider these issues now to avoid losing potential credits in subsequent periods.

The intersection of labour and tax law demands that companies dismantle traditional departmental barriers: human resources must coordinate with legal and tax departments to map existing benefits, identify formalisation gaps and develop a unified strategy for collective bargaining. This integrated approach ensures that benefit policies are both labour-compliant and tax-efficient.

It is also essential that the provisions of collective bargaining agreements are carefully drafted. For credit purposes, only costs relating to employees directly linked to operations are eligible, requiring precision to avoid inconsistencies between tax declarations and labour obligations. Additionally, when benefits are formalised in collective bargaining agreements and renewed successively, they tend to consolidate as organisational practices, making their removal politically sensitive.

Key takeaways

The merging of labour reform, tax reform and judicial developments has created a distinctive moment for companies operating in Brazil.

Collective bargaining, long viewed primarily as a labour relations mechanism, now serves multiple strategic functions: enabling workforce flexibility, securing employee benefits and optimising tax positions under the new VAT framework.

For multinational organisations, understanding these dynamics is essential for effective workforce management and tax planning in Brazilian operations.

To navigate this evolving landscape, companies may consider conducting a comprehensive benefits audit, simulating tax impacts with advisors, engaging trade unions proactively and developing multi-year strategies that align negotiation cycles with the tax reform implementation timeline.

Employers who recognise this convergence and adopt integrated planning approaches will be better placed to capture available efficiencies while maintaining compliance. Those who continue to treat labour, tax and HR as separate matters risk missing opportunities and facing challenges as the new tax framework comes into full effect over the next few years. For companies willing to invest in cross-functional coordination and proactive union engagement, collective bargaining offers a valuable tool for navigating Brazil’s complicated and evolving legal landscape.