Summary
Full Decision
ARBITRATION DECISION
PARTIES
Claimant: A…, NF…, resident at Street … no…, Place of …, …, …– …-… …;
Respondent: Tax and Customs Authority (TCA)
I. REPORT
a) On 19-04-2016, the Claimant filed with the CAAD a request seeking, under the Legal Regime for Arbitration in Tax Matters (RJAT), the constitution of a Singular Arbitration Tribunal (SAT).
THE REQUEST
b) The Claimant requests a declaration of illegality of the act of additional Personal Income Tax (IRS) assessment for the year 2013, as he disagrees with the alleged inaccuracies detected by the Tax and Customs Authority in the income tax return, expressed in the notification sent to him by letter … of 14.03.2016, presupposing an amount of undeclared work income of 56,273.35 euros, to which corresponds 19,438.00 euros of additional IRS to be paid, according to the following calculations:
c) He concludes by requesting that the amount of 56,273.35 euros be declared as not taxable, as dependent work income, for IRS purposes, taking into account the defect of violation of law that the additional assessment contains in light of the interpretation he proposes of the norms contained in no. 4 of Article 2 of the IRS Code.
THE CAUSE OF ACTION
d) In 2013, the Claimant, by mutual agreement, terminated the dependent employment contract with the credit institution where he worked, receiving as compensation 94,234.32 euros.
e) And he considers that he is only subject to IRS as to 11,232.14 euros, the amount which he entered in the respective IRS return.
f) Since he considered he had 26 years of seniority for purposes of effectuating the calculations that result from the application of the negative delimitation norm of taxable scope contained in paragraph b) of no. 4 of Article 2 of the IRS Code.
g) He considers that the calculation of "seniority" relevant for determining the multiplier referred to in paragraph b) of no. 4 of Article 2 of the IRS Code is that which results from the collective bargaining instrument of the banking sector, as endorsed by the decisions of the Central Administrative Court South of 11.05.2004 (case 06002/01), of 21.09.2010 (Case 03748/10) and 12.03.2013 (case 05971/12).
OF THE SINGULAR ARBITRATION TRIBUNAL (SAT)
h) The request for constitution of the SAT was accepted by the President of the CAAD and automatically notified to the TCA on 28-04-2016.
i) By the Deontological Council of the CAAD, the signatory of this decision was designated as arbitrator, and the parties were notified thereof on 11-07-2016. The parties did not express any wish to refuse the designation, in accordance with Article 11 no. 1 paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Ethics.
j) The Singular Arbitration Tribunal (SAT) has been, since 26-07-2016, regularly constituted to examine and decide the subject matter of this dispute (Articles 2 no. 1, paragraph a) and 30 no. 1, of the RJAT).
k) All these acts are documented in the communication of constitution of the Singular Arbitration Tribunal dated 26-07-2016 which is hereby reproduced.
l) On 26-07-2016 the TCA was notified in accordance with and for the purposes of Article 17-1 of the RJAT. It responded on 28.09.2016. It also attached the case file (PA) comprised of 1 digitized file with 38 pages and 38 written folios.
m) The meeting of parties provided for in Article 18 of the RJAT was not held nor did the parties produce oral or written submissions, taking into account that the TCA waived these procedural formalities and the Claimant, having not pronounced himself thereon, such silence was considered as assent to the position of the opposing party, since what is at issue are merely divergent interpretations of the law, duly explained in the request for ruling and in the response.
PROCEDURAL REQUIREMENTS
n) Legitimacy, capacity and representation – The parties enjoy legal personality, capacity to sue, are legitimate parties and are represented (Articles 4 and 10 no. 2, of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).
o) Principle of contradictory proceedings – The TCA was notified in accordance with subsection l) of this Report. All procedural documents and all documents attached to the case were made available to the respective opposing party in the CAAD's Case Management System. Notification of their attachment was always given to both parties. Similarly, as regards the subsequent procedural proceedings, the SAT followed what resulted from the expressed or tacit position of the parties as written in paragraph m) above.
p) Dilatory exceptions – The arbitration procedure is not affected by nullities and the request for arbitration ruling is timely since it was presented within the prescribed period in paragraph a) of no. 1 of Article 10 of the RJAT, as results from the fact, not contested, that the decision to alter the income tax return for the year 2013 was notified by letter dated 14.03.2016 and the present request for ruling was filed with the CAAD on 19-04-2016.
SUMMARY OF THE CLAIMANT'S POSITION
q) The Claimant disagrees with the interpretation of the law – no. 4 of Article 2 of the IRS Code – which the TCA adopted in the proceeding it opened in accordance with no. 4 of Article 65 of the IRS Code and which culminated in the decision not to consider the income tax return as the taxpayer presented it, altering it, resulting in an additional IRS assessment for 2013 in accordance with the final part of paragraph b) of this Report.
r) He states textually the following: "Whereas the Tax and Customs Authority considers that for the calculation of the amount subject to taxation only the seniority of the subject to tax at the entity paying the compensation due to termination of the employment contract should be taken into account, the claimant believes it should be based, for that purpose, not on the moment of conclusion of the contract with the entity paying the compensation, but rather on that of the conclusion of the first of the contracts with the first of his previous employers". "In truth, at the level of case law, which always constitutes the best reference regarding the interpretation and application of the norms of Law, there appears to be unanimity of interpretation on such a matter, and to this effect may be found, for example, the learned Decision of the Central Administrative Court South, of 11 May 2004 (Case no. 06002/01), in which it reads:"[…] it must be noted that nothing suggests or indicates that the concept of "seniority" contained in no. 4 of Article 2 of the IRS Code has not been used in its full scope, that it cannot take into account the time of service (seniority) achieved in another company" (page 8)". "In the same sense, adds the same Court, in a learned Decision issued on 21 September 2010 (Case no. 03748/10), having regard to the data of the situation under scrutiny there, that: "it would indeed be an intolerable abuse of rights, in the form of 'venire contra factum proprium', for the Tax Administration to make use of the amount of income calculated on the basis of seniority of 13 years for the Respondent to collect greater tax revenue and prevent the consideration of that same seniority for purposes of non-taxation of a small part of that same income" (page 5)". "Still recently, on 12 March 2013, the same Central Administrative Court South, pronounced itself in like manner (Case no. 05971/12), considering that "this (seniority) cannot subsequently be restricted, for purposes of indemnification, to the time of service rendered by account of the (last) employer". (page 12)". "Beyond the scope of judicial decisions, one may also give weight to the content of Circular Letter no. 11/89 (with the necessary adaptations to current law)", "as well as the provision in clause 17 of the Collective Agreement of the Banking Sector (ACT) and in light of the interpretation contained in the case law cited above, which conclude by counting the time of service rendered to other credit institutions beyond the last one for which the subject to tax rendered his work."
s) He concludes, it should be noted, by requesting that the amount of 56,273.35 euros be declared as not taxable, as dependent work income, for IRS purposes, taking into account the defect of violation of law that the additional assessment contains in light of the interpretation he proposes of the norms contained in no. 4 of Article 2 of the IRS Code.
SUMMARY OF THE RESPONDENT'S POSITION
t) Disagreeing with the point of view of the Claimant, the Respondent proposes another interpretation of the applicable norms, expressing textually the following:
· "… the TCA understands that the seniority to be counted, for purposes of no. 4 of Article 2 of the IRS Code, is the seniority at the entity paying the compensation due to termination of the employment contract, with the seniority at a previous employer not being to be considered, in the application of the said legal provision, even if the worker and the new employer have agreed to consider it in any future "indemnities" (Binding Information of 10/10/2010, Case 1818/10".
· "It is clear from the letter of the tax law that the negative delimitation of the scope of IRS taxation is established using as a multiplying factor the seniority at the entity paying the income in question (and not the seniority provided for in a contractual clause or in a collective labour regulation instrument or even in a termination agreement)". "It follows from the literal and systematic element that the relevant concept of "seniority at the paying entity" refers to the number of years at the entity with which the contract terminates (no. 10 of Article 2 of the IRS Code)". "Indeed, the "paying entity" referred to in no. 4 of Article 2 must be the "employer" mentioned in no. 10 of the same legal provision, which becomes explicit when in no. 4 it conditions the exclusion from taxation on the non-creation of a new professional or business relationship within 24 months with the same "entity"".
· "Then, even though the absence in tax law of a definition of "seniority", may lead to the filling of this concept in the branch of law that accommodates it, that is, in labour law, as provided in no. 2 of Article 11 of the General Tax Law" "it is certain that the Labour Code does not contain a definition of what is "seniority", being drawn from among the numerous uses of the concept, with different scopes and contexts, one that is more coherent and systematic, which is the one that conforms the term "seniority" to "seniority in the company" (cf. Articles 368 no. 1, paragraph e); Article 112 no. 6, Article 147 no. 3, etc.)".
· "Also the most relevant doctrine on the subject, regarding the seniority to be considered in the application of no. 4 of Article 2 of the IRS Code (with full adherence to the wording at the time of the facts, as far as is relevant here), understands that ""It is not opposable to the tax administration the clauses of the … banking sector that impose, upon the transfer of a worker between credit institutions, the counting of time of seniority verified at the previous or prior credit institutions of which he had been an employee. As, by a fortiori, also are not any agreements which, relating to the guarantee of benefits inherent in seniority, have been entered into between the worker and the employer. Without considerations that today could be provided by the subjective extension of the concept of employer operated by no. 10 of Article 2, since that is based on relations of control or group between companies, regardless of their geographical location, we reaffirm here the known orientation of the Tax Administration according to which the time of seniority relevant is, solely, the time of seniority "acquired" at the entity with which the individual employment contract terminates, as literally results from the law, there appearing to be no room for any other type of interpretation". (Tax Law 13/14, Manuel Faustino and Others, "On the meaning and scope of the new wording of Article 2, no. 4 of the IRS Code)".
u) Disagreeing further with the sense propounded in the decisions of the TCAS invoked by the Claimant, the Respondent adduces an "Annotation which, by its reasoning, deserves to be highlighted here (cf. Annotation to the Decision of the Central Administrative Court South regarding the seniority of the banking worker (for purposes of calculation of the amount of compensation due to termination of the employment contract not subject to taxation, in accordance with no. 4 of Article 2 of the IRS Code), by Cláudia Reis Duarte and Filipe Fraústo da Silva in Revista da Ordem dos Advogados, no. 1, 2012)".
v) It understands that the case law of the TCAS invoked by the Claimant still merits another objection when "without further, extends the notion of "seniority" of the banking worker to what is established in the ACT", referring textually on the subject of clause 2 of the ACT of the Banking Sector then in force:
· "For the aforementioned ACT to be applicable, it is necessary that the worker in question be affiliated with one of the aforementioned unions and that the credit institution be a subscriber to the aforementioned Agreement".
· "It happens that, in the concrete case, the Claimant did not prove, nor even alleged, his affiliation with any of the mentioned unions, which, in itself, is grounds for excluding the invocation of clause 17 of the ACT".
· "Furthermore, Bank B… subscribed to the ACT (2012) having, however, made a reservation, in the following terms: "In counting the time of service for any purposes arising from the ACT, shall count only the time of service rendered to the entities themselves that are signatories of this reservation, added eventually to the time of service rendered to other institutions or companies, but, in this case, only provided that this results from an individual agreement between those and the worker"".
· "Which was not the case, or, at least, was not demonstrated by the Claimant, as was incumbent upon him, in terms of burden of proof".
w) It proposes the dismissal of the request, with its absolution, considering the absence of any non-conformity with the law, in what concerns the acts at issue here.
II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE
It shall be examined whether the assessment in question suffers from some illegality that prevents its maintenance in the legal system.
And it shall further be examined, should it be appropriate to apply here the concept of "seniority" that results from clause 17 of the ACT of the Banking Sector, the question of the reservation that the paying entity placed when it subscribed to it (personal scope of the collective convention versus the principle of affiliation).
However, it should be noted from the outset that the matter adduced by the Respondent in its response and which was reproduced in v) of the Report above, is not contained in the reasoning of the decision adopted that led to the determination of the additional IRS assessment at issue here, as can be seen from the reading of the proven and unproven facts (Part III of this decision).
And as such the SAT could refrain from pronouncing on this subject matter, which it will address merely as a precaution.
It is well known that anything that constitutes alteration of the reasoning of the contested act cannot thereafter be adduced in pleadings, post hoc reasoning being irrelevant, and acts whose legality is questioned must be examined as they were taken, the tribunal not being able, in the face of the finding of the invocation of an illegal ground as support for the administrative decision, to examine whether its action could be based on other grounds (see decisions of the STA of 10-11-98, Plenary, issued in case no. 32702, published in Appendix to the Official Gazette of 12-4-2001, page 1207, of 19/06/2002, case no. 47787, published in Appendix to the Official Gazette of 10-2-2004, page 4289, of 09/10/2002, case no. 600/02, of 12/03/2003, case no. 1661/02).
It must also be observed that the SAT can only decide according to "constituted law" as provided in no. 2 of Article 2 of the RJAT. Along these lines of thinking, account must be taken of the existence of decisions of the CAC on the merits of the substantive question, lest this decision be subject to appeal under no. 2 of Article 25 of the RJAT.
III. PROVEN AND UNPROVEN FACTS.
REASONING
Regarding matters of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish proven facts from unproven ones (as provided in Article 123 no. 2, of the CPPT and Article 607 no. 3 of the CPC, applicable ex vi Article 29 no. 1, paragraphs a) and e), of the RJAT).
Thus, the pertinent facts for judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of law (as provided in the previous Article 511 no. 1, of the CPC, corresponding to the current Article 596, applicable ex vi Article 29 no. 1, paragraph e), of the RJAT).
Thus, taking into account the positions assumed by the parties, the documentary evidence and the case file attached to the record, the following facts were considered proven, relevant to the decision, and in any case not contested by the parties, with indication of the respective documents (proof by documents), as reasoning. Indeed,
Although the TCA refers in Article 33 of its response that "it contests all alleged by the Claimant" without, however, specifying any fact that merits its disagreement, such "contest" is naturally confined to the legal construction, the interpretation of the law, which the Claimant adduces in its request, since it opposes a completely divergent one, as was noted above.
Proven Facts
1) On 04.01.2016, the Chief of the Taxation and Collection Division of the Finance Directorate of …, issued a draft decision, regarding the income tax return for the year 2013 of the Claimant, for considering that it contained omissions/inaccuracies – as per the penultimate folio of the PA, Document no. 1 attached with the request for ruling and joint position of the parties;
2) The draft referred to in 1) textually states the following: "As a result of the inspection analysis carried out by the central services of the TCA to company B…, … (hereinafter referred to as Bank), for the taxation period of 2013, irregularities were detected in the IRS regarding the payment of indemnities for termination of employment contracts. Following the decision of the Chief of the Division of Inspection of Banks and Other Institutions (DIBIF) of the Large Taxpayers Unit, issued in information no. …/2015 of 04/12/2015, an inspection of the IRS return was carried out for the subject to tax A…, NIF…, for the year 2013" - As per pages 25 to 27 of the PA, Document no. 1 attached with the request for ruling and joint position of the parties;
3) Furthermore, in the draft referred to in 1): "The subject to tax did not declare in box 4 of annex A of the IRS return for the year 2013 the income earned in 2013, in the amount of 56,273.35 euros, paid by Bank …, NIF:…, classified under no. 4 of Article 2 of the IRS Code (CIRC)". "In 2013, the Bank terminated the employment contract with the subject to tax A…, NIF…, having paid 94,234.32 euros of indemnity. Of this amount the subject to tax considered that only the amount of 11,232.44 euros is subject to taxation, which he entered in his IRS return for the year 2013" - As per the penultimate folio of the PA and Document no. 1 attached with the request for ruling;
4) Furthermore, it is stated in the draft referred to in 1): "From the analysis performed on the documents presented by the Bank to prove the seniority of its employees, it was found that the Bank considered for the counting of seniority the time of service rendered at a previous employer. As is stated in Binding Information no. 10/102010, Case no. 1818/10, with a decision in agreement of the substitute of the Director-General, since tax law specifically and expressly requires that the seniority to be counted is the seniority at the entity paying the compensation due to termination of the employment contract, the seniority at a previous employer should not be considered in the application of no. 4 of Article 2 of the IRS Code, even if the worker and the new employer have agreed to consider it in any future indemnities" - As per the penultimate folio of the PA, Document no. 1 attached with the request for ruling and joint position of the parties;
5) And it is concluded in the draft decision referred to in 1): "Thus, the amount of the indemnity paid, subject to taxation is 67,505.79 euros (category A income), as shown in the following table, contained in information no. …/2015 of 04/12/2015 of the DIBIF, and the value of income missing from the IRS return for the year 2013 is 56,273.35 euros":
Thus, the legal requirements provided in no. 4 of Article 65 of the Personal Income Tax Code are met, to on the basis of the facts mentioned above, alter the income tax return for the year(s) indicated above, and the respective report is forwarded for purposes of administrative penalty proceedings". - As per the penultimate folio of the PA, Document no. 1 attached with the request for ruling and joint position of the parties;
6) The Claimant was notified of the draft decision referred to in 1) and reproduced in 2) to 5) to exercise, in writing, the right to a hearing, it being stated that "within the period of the right to be heard, he may correct any inaccuracies in the income tax return, with reduction of penalties, after which, if evidence is not produced leading to alter the decision, the declared items shall be altered…" through letter … of 04.01.2016 – As per document no. 1 attached with the request for ruling and pages 9 of the PA.
7) On 15.01.2016 the Claimant exercised the right to a hearing invoking the same arguments which he invokes in the present request for arbitration ruling – as per pages 13 to 22 of the PA and Document no.2 attached with the request for ruling.
8) By letter … of 14.03.2016 the Claimant was notified of the final decision which reproduces the final draft decision above referred to and transcribed in the descriptive part of facts, with the following being added in light of what was adduced in the prior hearing: "The subject to tax was notified on 06/01/2016, for the exercise of the right to a hearing in accordance with Article 60 of the General Tax Law. On 15/01/2016, in exercise of the right to a hearing the subject to tax alleges, in summary, that the decisions of the Central Administrative Court South of 11/05/2001, 21/09/2010 and 13/03/2013, already admitted the counting of time of service rendered at a previous employer for purposes of calculating the time of service referred to in no. 4 of Article 2 of the IRS Code and that the Collective Agreement of the Banking Sector admits that counting of the time of service rendered". "In response to the right to a hearing it must be said that the binding information of 10/10/2010, Case no. 1818/10, with a decision in agreement of the substitute of the Director-General, is clear regarding the interpretation of the Tax and Customs Authority, since, with tax law specifically and expressly requiring that the seniority to be counted is the seniority at the entity paying the compensation due to termination of the employment contract, the seniority at a previous employer should not be considered in the application of no. 4 of Article 2 of the IRS Code, even if the worker and the new employer have agreed to consider it in any future "indemnities" - As per pages 25 to 27 of the PA and Document no.3 attached with the request for ruling.
9) On 19-04-2016, the Claimant filed with the CAAD the present request for ruling – registration of entry in the SGP of the request for ruling.
Unproven Facts
There is no other factual matter alleged that has not been considered proven and that is relevant to the composition of the procedural dispute.
IV. EXAMINATION OF THE QUESTIONS FOR THE SINGULAR ARBITRATION TRIBUNAL (SAT) TO RESOLVE
The norm subject of discussion in this case is contained in no. 4 of Article 2 of the IRS Code, namely (we emphasize the specific part of the norm that is the subject of divergent reading and use the version of the Code that appears on the TCA's website):
"4 - When, in any manner, the contracts underlying the situations referred to in paragraphs a), b) and c) of no. 1 terminate, but without prejudice to the provision in paragraph d) of the same number, as to the benefits that continue to be owed even if the employment contract ceases to exist, or where there is termination of the functions of public manager, administrator or manager of a legal person, as well as of representative of a permanent establishment of a non-resident entity, the amounts earned, in any capacity, remain always subject to taxation: (Wording given by Law no. 64-B/2011, of 30 December)
a) By their entirety, in the case of a public manager, administrator or manager of a legal person, as well as representative of a permanent establishment of a non-resident entity; (Wording given by Law no. 64-B/2011, of 30 December)
b) In the part that exceeds the value corresponding to the average value of regular remuneration with the character of compensation subject to tax, earned in the last 12 months, multiplied by the number of years or fraction of seniority or of exercise of functions at the paying entity, in the other cases, except when within 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. (Wording given by Law no. 64-B/2011, of 30 December).
That is, in concreto, the segment of the norm that is the subject of dispute is the multiplier which the law establishes: "…number of years or fraction of seniority or of exercise of functions at the paying entity, in the other cases".
The TCA understands that this multiplier is the number of years of seniority at the company, at the paying entity, at the employer that pays the indemnity and that appears as a party to the termination agreement of the employment contract with the worker. That is, in practice it understands it to be the number of years of exercise of functions at the paying entity (employer) with the scope laid out in the binding information extracted in case 1818/10 (in situations of entities in a relationship of control or group and in situations of the then Article 285 of the Labour Code).
The Claimant here and former dependent worker of a banking entity understands that, absent a definition in tax law of what should be understood by "seniority", by virtue of Article 11 no. 2 of the General Tax Law, what results from the ACT of the Banking Sector applies, particularly clause 17, relying on various decisions of the South CAC to that effect.
The Literal Element of the Norm
The literal element of the norm is always very relevant, as it delimits interpretive activity.
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. The letter is an irremovable element of interpretation, or a "limit to the search for meaning".
"An interpretation that is no longer within the scope of the possible literal meaning is no longer interpretation, but modification of meaning" (Larenz).
"(...) there must be a meaning (a motivation, a set of objectives) that reasonably fits within the literal sense of the legislator's declaration. Under penalty of, if this does not happen, creating a new norm, instead of interpreting an already existing norm" (Hespanha).
The Respondent places emphasis on the literal element of the norm, as results from the reading of its position in t) of the report of this decision and of the studies and positions it cites in support of its reading of the law (Dr. Manuel Faustino and Dr. Filipe Fraústo da Silva and Dr. Cláudia Reis Duarte).
It considers that, as the norm is worded, this segment: "…number of years or fraction of seniority or of exercise of functions at the paying entity, in the other cases" should be read as follows:
- Number of years or fraction of seniority at the paying entity (employer);
- Number of years of exercise of functions at the paying entity (employer).
Although the learned commentaries contained in the annotation to the decision of the CAC on the seniority of the banking sector to which we referred above are relevant, it seems to us debatable that one should consider that the legislator, given the way in which he worded the text of the norm in question, intended that the concept of "seniority" be only that obtained at the paying employer (entity) making the termination.
The same applies to the reasoning put forward by the TCA; it would empty the norm of content that, by containing the expression "in the other cases", appears to lead the interpreter to the idea that here two different mechanisms are established to assess, determine, the multiplier, leading to differentiated results.
The reading of the law defended by the TCA, with the scope set out in the binding information extracted in case 1818/10 (in situations of entities in a relationship of control or group and in situations of Article 285 of the Labour Code), appears to lead, in practical terms, to the multiplier always being the same, whether by the criterion of "seniority" or by the criterion of years of exercise of functions at the employer making the termination of the employment contract. And thus interpreting the norm we would be faced with equal results for cases in which it appears to provide different mechanisms.
That is, for situations of law and fact that are different, it is supposed that different solutions be established. And along these lines of thinking it does not appear one should speak of violation of the principle of material equality (equal treatment) because it is a matter of establishing different multipliers for different expectations, created on the basis of different legal and factual realities.
This segment of the norm appears, thus, to be intended to consider two distinct realities (with differentiated solutions) for determining the multiplier in question:
- Number of years or fraction of seniority (understood this in general terms, without specifying the type of seniority); or
- Number of years or fraction … of exercise of functions at the paying entity.
The norm adds thereafter to the last expression (or exercise of functions at the paying entity): "in the other cases", leading to the perception that it contains two distinct mechanisms for obtaining the multiplier, in the alternative, existing thus, at least, "two" cases, distinct, contained in the provision of the norm. Which must lead to different results, with the subjects of the norm following the regime that concretely is more favorable to them.
It seems, therefore, that this interpretation of the law (considering that defended by the TCA) is also possible, in light of the literal element of the norm.
The same applies when in the study cited above it is stated (underlining ours) "It is not opposable to the tax administration the clauses of the … banking sector that impose, upon the transfer of a worker between credit institutions, the counting of time of seniority verified at the previous or prior credit institutions of which he had been an employee", it appears to us that here it is not a question of opposability of a norm from a contractual source to the TCA, but simply and solely of interpreting the term "seniority", expressed in general terms in tax law, through the mechanisms that tax law provides, that is, ex vi Article 11 no. 2 of the General Tax Law, the interpreter resorting to the source of law that best defines this concept, in this case the ACT of the banking sector, by force of the labour law system concretely applicable to the case.
One may not agree with a particular interpretation of a norm, which its literality accommodates, but we would be solely and only within the scope of its interpretation and in the effort to seek the most assertive reading.
Finally and determinatively, the various decisions cited by the parties from the South CAC are all to this effect (invoking the concept of seniority set forth in the ACT of the banking sector, when it concerns workers in that sector and in termination of employment contracts), whereby the SAT would always have to judge according to "constituted law", considering the reading of the law embodied there as the most assertive and generating legal certainty for citizens and economic agents.
Given the date of issuance of the South CAC decisions in question (2010, 2012 and 2013), if the legislator understood that the reading of the law embodied there merited criticism, he would already have proceeded to alter or correct the text of the law.
There is, however, an aspect that cannot be left unaddressed. The banking worker when he entered the banking institution, coming from another, may have negotiated a termination by mutual agreement and received an indemnity for the seniority he had there. And it would not be acceptable that, at a later time, he come to use – once again – that "seniority" to increase the multiplier of the compensation.
In the course of the investigation of the proceeding of no. 2 of Article 65 of the IRS Code, the TCA may resort to records of IRS returns filed many years earlier and other declarative obligations of the paying entities. Specific information can be obtained, namely, from the banking institution, the current employer paying entity and from the worker (principle of official investigation and principle of collaboration).
This factuality must be ascertained, by the TCA, in the course of the investigation of the proceeding referred to above, preventing the application of the law in the comprehensive reading that we highlight here (should there be improper use of this tax regime) through the application of the general anti-abuse clause of no. 2 of Article 38 of the General Tax Law.
Personal Scope of the Collective Convention versus the Principle of Affiliation. The Reservation that the Paying Entity Placed When It Subscribed to the ACT.
Although this reasoning of the contested act was not produced in its proper place – see proven facts – it should be noted something on the matter.
The Respondent alleges that "For the aforementioned ACT to be applicable, it is necessary that the worker in question be affiliated with one of the aforementioned unions and that the credit institution be a subscriber to the aforementioned Agreement". "It happens that, in the concrete case, the Claimant did not prove, nor even alleged, his affiliation with any of the mentioned unions, which, in itself, is grounds for excluding the invocation of clause 17 of the ACT".
If it were so, in the course of a proceeding intended to produce the decision in accordance with no. 2 of Article 65 of the IRS Code, nothing prevented the TCA, in exercise of the powers-duties it has, from raising this very matter to the taxpayer, the former employer or the unions that are parties to the ACT.
First, in the IRS return for various years it is possible to verify whether the worker pays union dues. Then the banking entity itself, in principle, withholds at source, deducts and pays to the Union the dues of its workers, whereby it could always indicate to which union a certain worker is bound, if asked.
These are facts intended to support a decision that should have been ascertained before the decision was adopted.
Moreover, in 4) of the settled matters of fact it is stated (underlining ours): "From the analysis performed on the documents presented by the Bank to prove the seniority of its employees, it was found that the Bank considered for the counting of seniority the time of service rendered at a previous employer. As is stated in Binding Information no. 10/102010, Case no. 1818/10, with a decision in agreement of the substitute of the Director-General, since tax law specifically and expressly requires that the seniority to be counted is the seniority at the entity paying the compensation due to termination of the employment contract, the seniority at a previous employer should not be considered in the application of no. 4 of Article 2 of the IRS Code, even if the worker and the new employer have agreed to consider it in any future indemnities".
This action by the Bank indicates two situations:
- The Claimant was not treated differently from other workers who were subject to contract termination. That is, there was general and abstract behavior for all those who had worked at previous banking institutions;
- The Bank, by applying the rules of clause 17 of the ACT (which burdened the amounts to be paid), indicates that there was binding, at least by the Bank, to the ACT in question. And if there were no affiliation/binding of the terminating worker to a Union, certainly the Bank would be the first to have interest in this, because it would reduce the amount it had to pay.
The same applies to what was stated by the Respondent in Articles 31 and 32 of its learned response: "Furthermore, Bank B… subscribed to the ACT (2012) having, however, made a reservation, in the following terms: "In counting the time of service for any purposes arising from the ACT, shall count only the time of service rendered to the entities themselves that are signatories of this reservation, added eventually to the time of service rendered to other institutions or companies, but, in this case, only provided that this results from an individual agreement between those and the worker". "Which was not the case, or, at least, was not demonstrated by the Claimant, as was incumbent upon him, in terms of burden of proof".
What we stated above regarding affiliation with a union adhering to the ACT of the Banking Sector should be applied here.
The TCA in the course of the investigation of the assessment proceeding, or correction, or detection of any errors or omissions in the income tax return, could obtain these elements to support its decision (or obtain information of their non-existence). Having not done so, it will not now be in judicial proceedings that the reasoning of the act here contested can be altered or supplemented.
Moreover, the Bank would be the first to have interest in alleging the non-existence of a contract with the terminating worker that would prevent the application of the reservation placed on the ACT.
The action, concretely, of the banking entity indicates that there was, both the union affiliation of the worker, and the provision in the employment contract that permitted the application of the reservation placed on the application of the ACT.
Even if it were not so, it should be noted, in any case this matter will be part of the reasoning of the contested act, adduced post hoc, which the Tribunal cannot take into account.
By which, in light of the above, the request for arbitration ruling is granted.
V. JUDGMENT
In accordance with and for the reasons stated above:
- It is judged that the request for annulment of the final decision referred to in 8) of the settled matters of fact is granted and consequently the additional IRS assessment implicit in the calculation made by the TCA in b) of the Report of this decision and in 5) of the settled matters of fact.
- It is declared that the amount of 56,273.35 euros is not taxable for IRS purposes, as dependent work income, in accordance with the provision in paragraph b) of no. 4 of Article 2 of the IRS Code.
- The decision and assessment are annulled.
Value of the Case: in accordance with the provision in Article 3 no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and paragraph a) of no. 1 of Article 97A of the CPPT), the case is assigned the value of 19,438.00 euros, given the tacit consent of the TCA to the value of the benefit declared by the Claimant in the registration of the request in the SGP.
Costs: in accordance with the provision in Article 22 no. 4, of the RJAT, the amount of costs is fixed at 1,224.00 € according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.
Notify.
Lisbon, 14 November 2016
Singular Arbitration Tribunal (SAT),
Augusto Vieira
Text prepared by computer in accordance with the provision in Article 131 no. 5, of the CPC, applicable by reference from Article 29 of the RJAT.
The writing of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.
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