IRS Tax on Employment Termination Compensation: Seniority Years Calculation in CAAD Case 157/2018-T

ARBITRAL DECISION

I. REPORT

1. The taxpayer A..., with tax identification number ... (hereinafter referred to as the "Applicant"), resident at Street ..., No. ..., ...-... Vila Franca de Xira, submitted, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, i.e., the Legal Framework for Arbitration in Tax Matters ("LFATM"), a request for the establishment of an Arbitral Tribunal, in order to have declared illegal the dismissal of the Gracious Complaint filed with a view to annulling the assessment of Personal Income Tax ("IRS") for the tax year 2013, with the Tax and Customs Authority ("Respondent" or "TCA") being named as defendant.

A) ESTABLISHMENT OF THE ARBITRAL TRIBUNAL

1. Pursuant to the provisions of paragraph (a) of paragraph 2 of Article 6 and paragraph (b) of paragraph 1 of Article 11 of the LFATM, the Deontological Council of the Administrative Arbitration Centre ("CAAC") appointed the undersigned as arbitrator of the sole arbitrator tribunal, who communicated acceptance of the appointment within the applicable time period, and notified the parties of this appointment on 21 May 2018.

2. Thus, in accordance with the provisions of paragraph (c) of paragraph 1 of Article 11 of the LFATM, and through the communication of the President of the Deontological Council of the CAAC, the Sole Arbitral Tribunal was constituted on 12 June 2018.

B) PROCEDURAL HISTORY

1. In the request for arbitral pronouncement, the Applicant petitions for the illegality of the dismissal of the Gracious Complaint, filed with a view to annulling the IRS assessment No. 2017..., issued for the tax year 2013, and further petitions the reimbursement of the amount of EUR 17,782.23 paid as tax plus the respective compensatory interest.

2. The TCA presented a response, in turn petitioning for the dismissal of the request for arbitral pronouncement, on the grounds that there is no defect of violation of law, requesting that the tax act in question, as it does not violate any legal or constitutional provision, be maintained in the legal order.

3. By order of 22 October 2018, the Sole Arbitral Tribunal, under the provisions of paragraph (c) of Article 16 of the LFATM, decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in Article 18 of the LFATM, as a result of the simplicity of the matters in question, as well as on the grounds that it had at its disposal all the necessary elements to make a clear and impartial decision.

4. Both parties, in the exercise of the right to be heard, timely chose to present their additional submissions, to which no reference shall be made, as they merely serve to reinforce the position already sustained in the pleadings and under consideration by this Arbitral Tribunal (i.e., the Request for Arbitral Pronouncement and the Response).

5. This Arbitral Tribunal decided, in accordance with paragraph 2 of Article 18 of the LFATM, that it was not necessary for oral submissions to be made, as the positions of the parties were clearly defined in their respective pleadings, and set the deadline for the arbitral decision as the end of November 2018.

6. The Arbitral Tribunal was regularly constituted and is competent to consider the matters indicated (Article 2, paragraph 1, subparagraph (a) of the LFATM), the parties possess legal personality and capacity and have full standing (Articles 4 and 10, paragraph 2 of the LFATM and Article 1 of Ordinance No. 112-A/2011, of 22 March). No nullities have occurred and no objections have been raised, and therefore nothing prevents the judgment on the merits.

7. The present case is thus in a position for a final decision to be issued.

II. QUESTION TO BE DECIDED

1. The central question to be considered and decided as to the merits of the case, as it emerges from the parties' pleadings, is to determine what portion of the compensation amount received by the Applicant for the cessation of functions at his employing entity would, in light of the wording of subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, be exempt from taxation.

III. DETERMINATION OF THE FACTS AND REASONING

1. Having examined the documentary evidence produced, this tribunal finds proven, with relevance to the decision of the case, the following facts:

I. The Applicant entered the banking sector on 8 July 1996, at the then-named Bank B..., S.A. (banking entity which gave rise to the current C..., S.A. – "C..., S.A.").

II. On 30 June 2008, the unilateral termination request submitted by the Applicant to C..., S.A. took effect, and as a result of this agreement, the Applicant did not receive any amounts as compensation or indemnity for seniority.

III. On that same date, the Applicant commenced functions with D... Company – Branch in Portugal ("Bank D...").

IV. On 12 July 2013, the Applicant terminated his contractual relationship with Bank D..., having received, as indemnity, the gross amount of EUR 68,951.87, previously stipulated in the Agreement for Revocation of the Employment Contract concluded between both parties.

V. It should be noted, additionally, that both the Applicant and the banking entities where he worked (i.e., C..., S.A. and Bank D...) are signatories to the Collective Labour Agreement of the Banking Sector (hereinafter "CLA of the Banking Sector").

VI. Within the scope of an inspection action carried out by the Inspection Services of the Directorate of Finance of Lisbon at Bank D..., with reference to the tax year 2013, the Respondent proceeded to alter the taxable base of the now Applicant, for IRS purposes.

VII. As the basis for this alteration, the Respondent considered that subparagraph (b) of paragraph 4 of Article 2 of the IRS Code was being incorrectly applied by the parties, and that, consequently, for purposes of calculating the portion of the indemnity that should be excluded from IRS taxation, only the number of years or fraction of seniority or exercise of functions with the last entity owing the income should have been taken into account.

VIII. This correction resulted in the issuance of the additional IRS assessment No. 2017..., in the amount of EUR 17,782.23 payable by the Applicant.

IX. Notified of the aforementioned assessment, and dissatisfied with it, the Applicant lodged a Gracious Complaint, in which he sought the annulment thereof, on the ground that the Respondent was not including all years of service in banking entities provided by the Applicant (17 years) in the calculation of the portion of the indemnity that would be excluded from IRS taxation.

X. With respect to this Gracious Complaint, the Respondent issued a decision dismissing it, by order notified to the Applicant on 2 January 2018.

XI. Opting to regularize his situation with the TCA, the Applicant made full payment of the outstanding tax, without prejudice to his currently requesting that this Arbitral Tribunal decide that the order dismissing the Gracious Complaint filed with a view to annulling the aforementioned additional IRS assessment is illegal, and consequently that he be reimbursed the amount of EUR 17,782.23 paid as tax plus the respective compensatory interest.

1. The conviction of this tribunal concerning the facts found proven resulted from the documents attached to the case file and contained in the pleadings of the parties, which were not contested, as specified in the factual determinations set out above.

2. There is no relevant factuality for the decision of the case found to be unproven.

IV. ON THE LAW

A) LEGAL FRAMEWORK

1. Since the legal question to be decided in this case requires the interpretation of the pertinent legal provisions, it is important, first of all, to set out the norms that constitute the relevant legal framework, at the date the facts occurred.

2. In this sense, having regard to the subject matter of this case, it is necessary to highlight the wording of paragraph 4 of Article 2 of the IRS Code, which provided, at the date of the facts, as follows:

"4 – When, in any manner whatsoever, the contracts underlying the situations referred to in subparagraphs (a), (b) and (c) of paragraph 1 cease, without prejudice to the provisions of subparagraph (d) of the same paragraph, as regards benefits that continue to be owed even if the employment contract no longer exists, or when the cessation of functions of a public manager, administrator or manager of a legal entity, as well as representative of a permanent establishment of a non-resident entity occurs, the amounts earned, in any capacity whatsoever, are always subject to taxation:

(a) In their entirety, when it concerns a public manager, administrator or manager of a legal entity, as well as representative of a permanent establishment of a non-resident entity;

(b) In the part exceeding the value corresponding to the average value of regular remuneration in the nature of compensation subject to tax, earned in the last 12 months, multiplied by the number of years or fraction of seniority or exercise of functions with the entity owing [the income], in other cases, except when within the 24 months following a new professional or business relationship is created, regardless of its nature, with the same entity, in which case the amounts shall be taxed in their entirety." (emphasis ours).

1. In fact, the disputed question in this case, as we shall explain hereinafter, will be concerned, above all, with the interpretation of subparagraph (b) of the aforementioned paragraph 4 of Article 2 of the IRS Code, namely as to the intent of the legislator when using the disjunctive conjunction "or" as a connecting element between "the number of years," the "fraction of seniority," and "exercise of functions with the entity owing [the income]."

2. Given its particular relevance for the matter in question, it is also necessary to transcribe Clause 17 of the CLA of the Banking Sector, of which the Applicant and Bank D... are signatories.

3. The aforementioned Clause (under the heading "Determination of seniority") provides regarding the seniority of workers as follows: "For all purposes provided for in this agreement, the worker's seniority shall be determined by counting the time of service provided as follows: a) All years of service, provided in Portugal, at Credit Institutions with activities in Portuguese territory" (emphasis ours).

4. Bearing this legislative framework in mind, we shall now examine the arguments presented by the Parties.

B) ARGUMENTS OF THE PARTIES

1. In the present request for arbitral pronouncement, the Applicant argues, in summary, that the IRS assessment that is sought to be annulled is tainted with illegality, as it violates the norm contained in subparagraph (b) of paragraph 4 of Article 2 of the IRS Code.

2. In support of his position, the Applicant contends that the TCA erred in its interpretation of the aforementioned legal provision by considering that, for the purpose of calculating the portion of the indemnity exempt from IRS, only years with the entity owing the income should be relevant.

3. To this end, he argues that the application of the aforementioned norm depends essentially on the concept of "seniority," a concept which remains undefined in Tax Law and whose concretization should be sought in the other branches of law, in particular in Labour Law.

4. In this respect, the Applicant cites the CLA of the Banking Sector of which he was a member, which provides regarding the concept of seniority by including it as encompassing "all years of service, provided in Portugal, at Credit Institutions with activities in Portuguese territory."

5. Furthermore, the Applicant contends that this was the concept of seniority that was considered in calculating the indemnity paid by Bank D... upon revocation of the employment contract, especially since, when leaving Bank C..., S.A., no compensation was received based on seniority criteria.

6. With this in mind, the Applicant argues that the portion of the indemnity paid by Bank D... exempt from IRS should correspond to the calculation of the value of the indemnity exceeding the average monthly value of the remuneration earned in the last 12 months, multiplied by the total years of service in Portugal with banking entities having activities in Portuguese territory (in the case of the Applicant, 17 years).

7. In order to give robustness to his position, the Applicant further cites multiple case law emanating from the Central Administrative Court, as well as from the Arbitral Tribunal itself, which takes a position favorable to the Applicant in light of similar circumstances.

8. Finally, and believing that he is faced with an error attributable to the services, the Applicant requests that he be reimbursed the amount assessed and that the TCA be ordered to pay indemnificatory interest on the amount of tax paid.

9. For its part, the Respondent, duly notified for this purpose, presented its Response in which, in summary, it sustained its principal thesis that the seniority to be counted, for purposes of paragraph 4 of Article 2 of the IRS Code, is the seniority with the entity owing the compensation for cessation of the employment contract (corresponding to 5.4 years).

10. The Respondent contends that in the application of the aforementioned legal provision, the seniority with a prior employing entity should not be considered, even if the worker and the new employer have agreed to consider it in any future indemnifications for cessation of the employment contract or that result from collective labour regulation instruments.

11. In fact, "it results from the literal and systematic elements that the relevant concept of 'seniority with the entity owing [the income]' refers to the number of years with the entity with which the contract ceases" (Article 20 of the Response).

12. In support of its position, the Respondent further argues that "(…) the Labour Code does not contain a definition of what 'seniority' is, and among the numerous uses of the concept, with different scopes and contexts, one that is more coherent and systematic emerges, which is the one that conforms the term 'seniority' to 'seniority with the company' (Article 23 of the Response)."

13. Additionally, in Article 31 of its Response, the Respondent makes reference to the fact that Bank D... subscribed to the CLA of the banking sector in 2012, but with the following proviso: "In counting the time of service for any purposes arising from the CLA, only the time of service provided to the signatory institutions themselves shall count, plus, where applicable, the time of service provided to other institutions or companies, but in this case, only if such results from an individual agreement between them and the worker" (emphasis by the Respondent).

14. Arguing, to this effect, that the Applicant failed to demonstrate that such an agreement existed between himself and C..., S.A.

15. The Respondent further states that the interpretation made by the Applicant of paragraph 4 of Article 2 of the IRS Code would violate the Principle of Equality, "in that it would consider the time of Seniority for the banking sector from the moment the worker entered that sector, while it would be considered for any other worker of any other sector of activity who had worked his entire working life in that same sector (other than banking), in different companies, only the time of service with the company with which he terminated the employment contract" (Article 40 of the Response).

16. Additionally, the Respondent notes that, within their private autonomy, the parties may agree on the calculation of the indemnity amount as they see fit, but they cannot, and must not, derogate from tax law.

17. Adding, furthermore, that it was Bank D... itself that misled the Applicant, by omitting the terms under which it had adhered to the CLA of the banking sector and the presuppositions of tax law, while simultaneously protecting itself from any liability through the provisions contained in the Agreement for Revocation.

18. Finally, the Respondent concludes that the additional assessment act, at issue in this case, is not tainted by any defect that calls into question its legality and validity, and therefore there is no basis for the payment of any indemnificatory interest.

C) TRIBUNAL'S ASSESSMENT

1. As a preliminary matter, it should be noted that, in the view of this Arbitral Tribunal, the question to be decided concerns the interpretation of subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, and it is important to determine, in particular, whether it provides that the counting of the Applicant's seniority, for IRS purposes, should be made taking into account:

– The time of service provided in the banking sector in Portugal (including, therefore, the time of service previously provided at C..., S.A.), or whether, on the contrary,

– Only the time of work provided with the entity with which the Applicant terminated the employment contract should be considered.

1. Being a matter primarily of interpretation, it is necessary to refer to paragraphs 1 and 2 of Article 11 of the General Tax Code (GTC), which provide as follows:

"1 – In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2 – Whenever terms specific to other branches of law are used in tax norms, they shall be interpreted in the same sense that they have therein, unless otherwise directly provided for by law."

1. For its part, and as to the general rules of interpretation, Article 9 of the Civil Code provides as follows:

"1. Interpretation shall not be limited to the letter of the law, but shall reconstruct the legislative intent from the texts, having particular regard to the unity of the legal system, the circumstances in which the law was enacted, and the specific conditions of the time in which it is applied.

1. The interpreter cannot, however, consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed." (emphasis ours).

2. In this context, it is without question that it is on the basis of the rules of interpretation cited that the meaning of the concept of "seniority" used by the legislator in subparagraph (b) of paragraph 4 of Article 2 of the IRS Code shall be determined.

3. Having regard to the normative provisions aforesaid, the starting point for interpretation must be the text of the norm itself.

4. In this respect, it is necessary to take a position: this Arbitral Tribunal cannot discern from the letter of the law any mention that points to the existence of two distinct situations, it being impossible to separate the number of years or fraction of seniority (in all cases) from the exercise of functions with the entity owing [the income].

5. In fact, the only reading that makes syntactic sense is that the expression "with the entity owing [the income]" refers to the expression that precedes it, namely "number of years or fraction of seniority or exercise of functions."

6. This understanding is not impeded by the inclusion, in parentheses, following the expression "or exercise of functions," of the term "in other cases."

7. In the arbitral decision issued in the context of case No. 230/2016-T, cited by the Applicant, it is argued that "the norm adds following the last expression (or exercise of functions with the entity owing [the income]): 'in other cases,' leading to the perception that it contains two distinct mechanisms to obtain the multiplier, in the alternative, and therefore, at least 'two' distinct cases contained in the provision of the norm."

8. It happens that when subparagraph (b) of paragraph 4 of Article 2 of the IRS Code refers to other cases, it is to encompass all those that do not fall within subparagraph (a); that is, the amounts referred to in Article 2, paragraph 4 of the IRS Code are taxed:

i. In their entirety when they are earned by a public manager, administrator or manager of a legal entity, as well as representative of a permanent establishment of a non-resident entity [subparagraph (a)]; and

ii. Only in the amount exceeding the limit calculated in accordance with subparagraph (b), in other cases.

1. In this manner, the reference to other cases does not permit the interpreter to conclude, as the arbitral tribunal does in case No. 230/2016-T, that the provision in question "contains two distinct mechanisms to obtain the multiplier."

2. To this extent, this Arbitral Tribunal agrees with the position expressed in the arbitral decision issued in the context of case No. 323/2017-T, in the sense that it considers that "an interpretation that would consider that the expression 'with the entity owing [the income],' contained in subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, refers only to the expression 'exercise of functions,' would imply accepting that the legislator, in this provision, delimited the scope in which the exercise of functions is relevant in the application of the calculation method provided therein, but left undelimited the scope in which seniority operates."[1]

3. Such an interpretation would also result in the acceptance of differentiated criteria applicable to "seniority" and "exercise of functions," without apparent justification therefor.

4. Thus, if we presume, as paragraph 3 of Article 9 of the Civil Code provides, that the legislator "established the most correct solutions and knew how to express his thinking in adequate terms," then we must conclude that, with coherence and in accordance with an identifiable and objective criterion, the legislator delimited the scope in which "seniority" or "exercise of functions" are relevant for the purpose of applying subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, through the use of the expression "with the entity owing [the income]."

5. This interpretive result, according to which the seniority referred to by the legislator in subparagraph (b) of paragraph 4 of Article 2 of the IRS Code is seniority with the entity owing the income, reflects a declaratory interpretation, in which this Tribunal merely "selects one of the meanings that the text directly and clearly conveys, for being the one that corresponds to the legislative intent."[2]

6. This Tribunal does not follow, therefore, the case law of the South Central Administrative Court that has assumed that the tax legislator does not define, for the purpose of applying subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, the concept of worker seniority (cf., in this sense, the following decisions of the SCAC: decision of 11/05/2004, issued in case No. 06002/01; decision of 21/09/2010, issued in case No. 03748/10; decision of 12/03/2013, issued in case No. 05971/12), nor does it follow the case law of the CAAC that has adopted the same line of reasoning (cf. the arbitral decisions issued in cases Nos. 616/2015-T and 230/2016-T).

7. It results, therefore, from the text of subparagraph (b) of paragraph 4 of Article 2 of the IRS Code that the tax legislator expressly refers, for the purpose of its application, to seniority with the entity owing the income, and no reason appears to inquire into the meaning that the concept of seniority assumes in labour law.

8. Thus, in the case sub judice, in calculating the portion of the indemnity for cessation of the Applicant's employment contract exempt from IRS, only seniority with Bank D... should be considered, amounting to 5.4 years.

9. Additionally, and merely as an academic exercise, it should be noted that we would reach the same conclusion if we applied the concept of seniority that prevails in labour law.

10. That is, even if we followed the interpretive path taken by the case law cited by the Applicant, we would reach a result opposite to that affirmed in such case law, as we shall see below.

11. On this matter, we subscribe to the content of the decision of the Supreme Court of Justice of 01/10/2014, issued in case No. 1202/11.0TTMTS.P1S1,[3] approved unanimously, in the excerpt transcribed below:

"The aforementioned Labour Code, as was the case with prior legislation, does not explicitly set out the concept of seniority, which, in a general sense, refers to seniority with the company, but which may also refer to a specific professional situation, such as seniority in the activity or in the category.

It is therefore appropriate, in order to clarify the legal meaning of seniority, to examine the legal provisions that refer to that particular figure of labour law doctrine.

(…)

The legal meaning of seniority, in its general sense, may be reduced to the time of integration of a worker in a business organization, a legal situation that is relevant, in particular, for purposes of promotion, the granting of length-of-service bonuses, the fixing of the notice period in relation to the date of cessation of the contract, and the determination of the value of compensation/indemnity, in case of dismissal or termination of the employment contract on the worker's initiative.

This is, moreover, the understanding generally adopted by legal doctrine.

According to BERNARDO DA GAMA LOBO XAVIER and OTHERS (Manual of Labour Law, 2nd edition, revised and updated, Verbo, Babel, Lisbon, 2014, pp. 432-433), '[t]he continuity of the worker's service, normally referenced to the same company, determines for him a certain seniority computed in years of service, which gives a special concrete character to the rights of the worker, enhancing them,' effects which 'are based on the progressive involvement of the worker in the company […] rewarded by the recognition of a more favorable status and by the special protection of contract stability, thus corresponding to the worker's 'expectation of security' (an aspect which today is reflected, essentially, in the protection enjoyed by more senior workers in certain dismissal cases: in the extent of notices prior — indemnities).

(…)

In this same line of thinking, ANTÓNIO MONTEIRO FERNANDES (Labour Law, 16th edition, Almedina, Coimbra, 2012, p. 191 et seq.) notes that '[t]he employment relationship is not exhausted in a moment, in an instantaneous performance. Whatever its duration, it always implies some continuity, a 'state of fact that indicates the more or less prolonged insertion of a worker in a business organization.' Continuity determines, in the legal sphere of the worker, seniority. […] From the perspective of the worker, it is closely related to the risk of breach: the longer the duration of the contract, the deeper the psychological integration of the worker in the company, the more undesirable or disturbing, therefore, the possibility of cessation of the contract. Thus, seniority creates and increasingly adds to an expectation of security in the worker. With regard to the interests of the employer, it means that the company was able to realize, over a certain period, the work availability it needed, keeping incorporated an element whose integration into the company's objectives is guaranteed by this same period of commitment. For this reason it is understood that the seniority regime is only fully suited to situations of work in the company.'

The aforementioned AUTHOR, following the passage transcribed, emphasizes that '[i]t is the moment of the worker's actual admission, that is, the moment when the worker actually begins to find himself 'in the service' of the company […], that should be relevant for purposes of counting seniority. It is not, therefore, properly identified with the 'duration of actual work performed,' but with the duration of 'belonging to the company' which begins, not with the celebration of the contract, but with incorporation in the company.'

An identical conceptual framework is adopted by MARIA DO ROSÁRIO PALMA RAMALHO (TREATISE ON LABOUR LAW, PART II – INDIVIDUAL LABOUR SITUATIONS, 5th edition, Almedina, Coimbra, 2014, pp. 492-494), when she notes that '[t]he concept of seniority expresses the special relevance of the continuing nature of the employment contract and of the element of organizational insertion of the worker that inheres in the labour relationship,' that is, 'seniority values the integration or the sense of belonging of the worker to a given organization, from the beginning of the execution of his employment contract until its respective cessation,' and it is 'because seniority values the element of organizational insertion of the labour relationship and not the actual performance of work, that it is understandable that its counting does not cease in normal situations of non-performance of work (during the worker's weekly rest and holidays) and even in the generality of situations of suspension of the employment contract […]; and it is also this scope that justifies that the worker's seniority in one employment contract may be utilized in the contract that succeeds the first one with the same company — which is what occurs in the case of renewal of a term employment contract and in its conversion to an indefinite-term employment contract (Articles 147, paragraph 3, and 149, paragraph 4).'

All to conclude that the legal notion of seniority adopted in matters of cessation of employment contract, whether for fixing the extent of the notice period in relation to the date of cessation of the contract or for determining the amount of compensation in case of collective dismissal, is that of seniority with the company."

1. In this decision of the Supreme Court of Justice, the concept of seniority is analyzed for the purpose of fixing the extent of the notice period in relation to the date of cessation of the employment contract, as well as for the purpose of determining the amount of compensation owed to the worker in case of collective dismissal.

2. Despite the differences with respect to the case sub judice, the reasoning contained in the cited decision and the conclusions reached by the Supreme Court of Justice are transposable to the analysis of the concept of seniority in case of cessation of the employment contract by agreement between the employer and the worker.

3. The decision of the Supreme Court of Justice cited allows us to extract the following conclusions, with relevance to the matter being discussed in the case sub judice:

– The Labour Code does not explicitly set out the concept of seniority, but various provisions contained therein point to a legal meaning of seniority which, in its general sense, may be reduced to the time of integration of a worker in a business organization;

– To the same effect – that of seniority with the company – the labour law doctrine points;

– Thus, the legal notion of seniority adopted in matters of cessation of the employment contract is that of seniority with the company (whether in the case analyzed in the SCJ decision – collective dismissal – or in other cases of cessation of employment contract).

1. Thus, even if it were necessary to resort to labour law for the purpose of applying subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, we would always conclude, as the Supreme Court of Justice did in the cited decision, that the general meaning recognized therein is that of seniority with the company, and that Clause 17 of the CLA of the Banking Sector is not applicable, since it does not regulate the matter relating to compensation paid to workers upon cessation of the employment contract.

2. Even if it were to be discussed whether the legal consequence of the parties recognizing, by agreement, a seniority that goes beyond seniority with the company – as occurs in the case of the Applicant with Bank D... – it would always be said that, faced with the interpretation that this Tribunal makes of subparagraph (b) of paragraph 4 of Article 2 of the IRS Code, it is irrelevant, for the purposes of this provision, the agreement between the parties in the sense of recognizing an expanded seniority that goes beyond seniority with the company, by force of the principle of the prevalence of law.

3. What is at issue is not the exercise of freedom of contract by the parties – which is not, from the outset, questioned by the Respondent – who may legitimately agree in recognition of expanded seniority;

4. What cannot occur, because the tax legislator does not permit it, is that such agreement result in tax consequences, in particular the reduction of tax payable.

5. Finally, it should be noted that the interpretive result arrived at here is also the most coherent with the constitutional principles of legality, legal certainty, and equality itself.

Otherwise,

1. Conformity of the interpretation that this Arbitral Tribunal makes of the aforementioned legal provision is ensured insofar as the criteria for determining the measure of taxation result from law (including the criteria for exclusion from liability), not depending on vicissitudes, such as the fact that workers are or are not unionized and which union, nor on the fact that the employer has or has not concluded a Collective Labour Agreement, or the circumstance that the worker carried out his functions in a given sector of activity or another, or still that which may have been agreed between the parties.

2. In this context, it is the decision of this Tribunal that the tax act of additional assessment contested in this case is not tainted by any defect of violation of law.

Wherefore,

1. The request for annulment of this act is dismissed and the request for condemnation of the Respondent to pay costs and other expenses of the proceedings is also dismissed, consequently.

V. DECISION

1. For these reasons, this Arbitral Tribunal decides to dismiss entirely the request for arbitral pronouncement and to absolve the Respondent of the request, with all legal consequences.

VI. VALUE OF THE CASE

1. The value of the case is fixed at EUR 17,782.23, pursuant to Article 97-A, paragraph 1, subparagraph (a) of the Code of Administrative Court Procedure, applicable by virtue of subparagraphs (a) and (b) of paragraph 1 of Article 29 of the LFATM and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT").

VII. COSTS

1. In accordance with the provisions of Article 22, paragraph 4 of the LFATM, the amount of the arbitration fee is fixed at EUR 1,224.00, pursuant to Table I of the aforementioned Regulation, to be borne by the Applicant, given the complete dismissal of the request.

Notify the parties.

Lisbon, CAAC, 23 November 2018

The Arbitrator

(Sérgio Santos Pereira)

[1] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=323%2F2017-T&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=3517&ccsForm=record%3AEdit

[2] (cf. JOÃO BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, Coimbra, Almedina, 2008, p. 185)

[3] http://www.dgsi.pt/jstj.nsf/954f0ce6ad9dd8b980256b5f003fa814/49e51575cc2545fb80257d640051cf1e?OpenDocument