Summary
Full Decision
ARBITRAL DECISION
PARTIES
Claimants: A..., NIF ... and B..., NIF ..., residing at Street ..., ..., ..., ...-... ...;
Respondent: TAX AND CUSTOMS AUTHORITY (AT)
I. REPORT
a) On 11-05-2017, the Claimants filed with CAAD a request seeking, under the Legal Regime for Arbitration in Tax Matters (RJAT), the establishment of a singular arbitral tribunal (TAS).
THE REQUEST
b) The Claimants seek the annulment of the (additional) personal income tax (IRS) assessment no. 2017..., of 13.01.2017, which resulted in tax to be paid by the Claimants in the amount of €17.634,61, including compensatory interest (seventeen thousand six hundred and thirty-four euros and sixty-one cents), relating to the year 2013.
c) They further petition for the condemnation of AT to reimburse the amount paid, plus indemnitory interest, at the legal rate in force.
THE CAUSE OF ACTION
d) The Claimant husband entered into an agreement with the banking institution where he worked at the time, on 30 April 2013, for revocation of the dependent employment contract which he had entered into on 22 September 2008, whereby his seniority would be credited back to the beginning of his activity in the banking sector, where he had been since 1994.
e) Following the signing of the revocation agreement of the employment contract, the Claimant husband received compensation in the amount of €67.389,05.
f) In accordance with the employment contract, the banking institution considered 19 years of seniority and, in light of Article 2, No. 4, subparagraph b) of the IRS Code, only considered excluded from this provision €14,552.90, not effecting withholding at source of IRS as income from category A of IRS on the remaining amount.
g) However, AT, in April 2016, through an inspection procedure, concluded that the number of years "multiplier" referred to in subparagraph b) of No. 4 of Article 2 of the IRS Code were not the 19 years, but rather the number of years (or fraction) in which the Claimant husband worked at the credit institution that assumed the position of "debtor entity", from which resulted the additional assessment here in dispute.
h) It considers that the calculation of "seniority" relevant for determining the multiplier referred to in subparagraph b) of No. 4 of Article 2 of the IRS Code shall be that which results from the employment contract and the instrument of collective regulation of the banking sector, as supported by rulings of the Central Administrative Court South of 11.05.2004 (case 06002/01) and in a ruling of 21 September 2010.
OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)
i) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to AT on 19-05-2017.
j) By the Deontological Council of CAAD, the signatory of this decision was designated as arbitrator, the parties being notified thereof on 04-07-2017. The parties expressed no intention to refuse the designation, in accordance with Article 11, No. 1, subparagraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.
k) The Singular Arbitral Tribunal (TAS) has been, since 21-07-2017, duly constituted to hear and decide the subject matter of this dispute (Articles 2, No. 1, subparagraph a) and 30, No. 1, of the RJAT).
l) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 21-07-2017 which is hereby reproduced.
m) On 21-07-2017, AT was notified in accordance with and for the purposes of Article 17-1 of the RJAT. It responded on 03.10.2017. It also attached the PA consisting of 1 digitalized file containing 38 pages and 1/53 written leaves.
n) The meeting of parties provided for in Article 18 of the RJAT was not held. The parties submitted written arguments, the Claimants on 06.11.2017 and the Respondent on 15.11.2017, both arguing for what they had already stated in their respective request and response.
PROCEDURAL REQUIREMENTS
o) Legitimacy, capacity and representation – The parties possess legal personality, judicial capacity, 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).
p) Principle of contradictory – AT was notified in accordance with item m) of this Report. All procedural documents and all documents attached to the proceedings were made available to the respective counterparty in CAAD's Case Management System.
q) Dilatory exceptions – The arbitral procedure is not affected by nullities and the request for arbitral determination is timely, having been submitted within the prescribed period in subparagraph a) of No. 1 of Article 10 of the RJAT, as is evident from the uncontested fact that the date of payment of the tax here impugned ended on 01 March 2017 and the request for determination was filed with CAAD on 11 May 2017.
SUMMARY OF THE POSITION OF THE CLAIMANTS
r) The Claimants disagree with the interpretation of the law - subparagraph b) of No. 4 of Article 2 of the IRS Code - that AT adopted during the inspection procedure under Article 46 of the RCPIT, which culminated in the additional IRS assessment for 2013, here under discussion.
s) They state textually that the Bank that entered into the revocation agreement "...undertook to pay, and paid, to the Claimant husband, as global monetary compensation due by the termination of the employment contract the amount of €67.389,05 (sixty-seven thousand, three hundred and eighty-nine euros and five cents), in accordance with the Second Clause of the Revocation Agreement". And that, by reference to the aforementioned global monetary compensation of a general nature, the parties established in the Fourteenth Clause, No. 2, the following: "taking into consideration the applicable terms of Clause 17 of the ACT of the Banking Sector ("ACT) and in light of the interpretation sustained in the rulings of the Central Administrative Court South of 11 May 2004 (case 06002/01) and, in particular, of 21 September 2010 (Case 03478/10), both signatories mutually agree on the determination of the Employee's seniority by counting his time of service in banking entities indicated in the referred clause of the ACT, for the purposes of the provision contained in subparagraph b) of No. 4 of Article 2 of the Personal Income Tax Code, as worded by Article 108 of Law No. 64-B/2011, of 30 December".
t) And further states: "The Claimants understand, from the outset, that the very wording of the norm distinguishes the two concepts: on one hand, the concept of seniority (including the expression: by the number of years or fraction of seniority); on the other hand, the concept of years in service of the debtor: number of years or fraction (...) of exercise of functions in the debtor entity, in other cases."
u) And conclude: "means that the legislator provided for two possibilities: the exempt value from taxation is achieved in one of two ways: a) By multiplying the average of regular remuneration with the character of compensation subject to tax, earned in the 12 months prior to the termination of the link, by the number of years (or fraction) of seniority; b) By multiplying the average of regular remuneration with the character of compensation subject to tax, earned in the 12 months prior to the termination of the link, by the number of years (or fraction) of exercise of functions in the debtor entity in other cases."
v) It ends by requesting that be declared as non-taxable, as earned income from dependent work, in respect of IRS, the amount of 56,273.35 euros, taking into account the defect of violation of law that the additional assessment contains, in light of the interpretation it proposes of the provisions contained in No. 4 of Article 2 of the IRS Code.
SUMMARY OF THE POSITION OF THE RESPONDENT
w) Disagreeing with the Claimants' point of view, the Respondent proposes another interpretation of the regulatory provisions in question, expressing textually as follows:
· "... AT understands that the seniority to be accounted for, for the purposes of No. 4 of Article 2 of the IRS Code, is the seniority in the debtor entity of the compensation for termination of the employment contract, it not being appropriate to consider, in the application of the referred legal provision, the seniority in a previous employer entity, even if the worker and the new employer entity have agreed to consider it in eventual future "indemnifications", by employment contract or arising from collective regulation instruments".
· "The concept of seniority – seniority per se, without any qualifier – in the labor context does not carry a special scientific density that removes it significantly from the sense of current language: translating, as in other legal contexts, a juridically relevant interval, with diverse effects, between a certain starting point and a certain ending point".
· "Although collective regulation instruments – but not only these – adduce various qualifiers to labor seniority, the truth is that the Labor Code does not define what "seniority" is nor presents a univocal qualification of it, being found, however, abundantly, the prevalence of the notion of "seniority in the company", including in the matter of termination of the employment contract".
· "In accordance with Article 339 of the Labor Code of 2009 (Article 383 of the Labor Code of 2003), interpreting the expression "indemnification" also as "compensation", in the matter of termination of the employment contract, collective labor regulation instruments may regulate the criteria for the definition of indemnifications (compensations) and the procedures and notice periods, and may also regulate the values of indemnifications (compensations) but, in this case, within the limits fixed in the Code – matters excluded from the availability of the parties in the employment contract". "From the lapse of the employment contract, from dismissal for objective causes, from the substitution of reinstatement arising from the unlawfulness of the dismissal or from the resolution of the contract by the worker on the grounds of an unlawful act of the employer – that is, from the situations that give rise to the referred compensations or indemnifications – must be distinguished the agreement of distrate/revocation of the individual employment contract, in which the freedom of contract is not limited and, thus, the contractual autonomy between the parties, being able to agree among themselves various monetary counterparts for the contractual termination, perhaps translated into a global monetary compensation that, not having to respect legal limits, is in the entire availability of the parties". And concludes:
· "Analyzing the content of the collective work agreements of the banking sector, which contain that clause 17 (under the heading "Determination of seniority"), it is important to conclude that, beyond the indemnification regime for substitution of reinstatement arising from the unlawfulness of the dismissal, such instruments do not address the compensations/indemnifications for lapse of the employment contract, for dismissal for objective cause, for resolution of the contract by the worker on the grounds of an unlawful act of the employer or for agreement of distrate/revocation of the employment contract – matters which, properly considered, are therefore removed from the normative effects arising from such clause 17, simply by not integrating "all the effects provided for" in such instruments."
x) It states the following: "the legal problem that is the subject of these proceedings is not limited to knowing which concept of seniority should be taken into account in the application of subparagraph b) of No. 4 of Article 2 of the IRS Code, in light of the provision of No. 2 of Article 11 of the LGT", "quite the contrary, the issue concerns the fact of knowing whether that subparagraph b) of No. 4 of Article 2 of the IRS Code, while holding a proper sense of the concept of "seniority in the company" which is proven to exist, can be permeable to other qualifications of seniority agreed in legal instruments of a negotiatory nature, bilateral or collective, that impose on the debtor entity of the monetary provision referred to in that rule a seniority greater than that corresponding to the duration of the contractual relationship granted by such entity".
y) And continues by stating: "Given that "the qualification of the legal transaction made by the parties (…) does not bind the tax administration" in accordance with No. 4, of Article 36 of the LGT – a rule that encompasses, naturally, by greater reason, the qualifications of the parties concerning the subject matter of the transaction -, the issue will have to obtain its solution in the integral legal interpretation of all the regulatory provision implied by the expression "number of years or fraction of seniority or of exercise of functions in the debtor entity", contained in subparagraph b) of No. 4 of Article 2 of the IRS Code."
z) "Also the most relevant doctrine on the subject, regarding the seniority to be considered in the application of No. 4 of Art. 2 of the IRS Code, understands that ""It is not opposable to the tax administration the wording of the ACT of the banking sector that imposes, in the transfer of a worker between credit institutions, the counting of the time of seniority verified in the previous or earlier credit institutions of which he has been a worker. As, by greater reason, neither are any agreements that, regarding the guarantee of the benefits inherent to seniority, have been entered into between the worker and the employer entity. Without considerations that today could be provided by the subjective extension of the concept of employer entity operated by No. 10 of art. 2, since that is based on relations of dominance 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" in the entity with which the individual employment contract is terminated, as literally appears from the law, not seeming there to be any margin for any other type of interpretation". (Fiscality 13/14, Manuel Faustino and Others, "On the meaning and scope of the new wording of Article 2, No. 4 of the IRS Code)".
aa) Also disagreeing with the sense proposed in the rulings of the TCAS invoked by the Claimants, the Respondent adduces the "annotation that, by its substantiation, deserves to be highlighted here (cfr. Annotation to the Ruling of the Central Administrative Court South on the seniority of the banking worker (for purposes of calculating the amount of compensation for 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 Magazine of the Bar Association, No. 1, 2012)".
bb) It understands that the jurisprudence of the TCAS invoked by the Claimant deserves yet another objection when "without more, it extends the notion of "seniority" of the banking worker to that established in the ACT", referring textually to the second clause of the ACT of the Banking Sector then in force:
· "For the referred ACT to be applicable, it is necessary that the worker in question be affiliated with one of the referred unions and that the credit institution be a subscriber to the referred Agreement".
· "It happens that, in the concrete case, the Claimant did not prove, nor even alleged, his affiliation to any of the mentioned unions, which, in itself, is a reason excluding the invocation of clause 17 of the ACT".
bb) It argues for the dismissal of the request, with its absolution, considering the absence of any non-conformity with the law, regarding the acts here in question.
II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE
It will be examined whether the assessment in question suffers from some illegality that prevents its maintenance in the legal order.
It must be stated that much of the matter raised by the Respondent in response and which is reproduced in the above Report does not appear in the substantiation of the decision adopted that led to the establishment of the additional IRS assessment, as can be seen from the reading of the proved and unproved facts (Part III of this decision), where the substantiation of the inspection report that was at the origin of the assessment here under discussion will be expressed.
And as such the TAS might not even pronounce itself on this subject matter, which it will address merely as a precaution.
It is well known that everything that constitutes an alteration of the substantiation of the appealed act cannot later be adduced during the proceedings, being the a posteriori substantiation irrelevant, the acts whose legality is questioned having to be examined as they were practiced, the court not being able, faced with the finding of the invocation of an illegal basis as support for the administrative decision, to examine whether its action could be based on other bases (see rulings of the STA of 10-11-98, of the Plenary, delivered in appeal No. 32702, published in Appendix to the Official Journal of 12-4-2001, page 1207, of 19/06/2002, case No. 47787, published in Appendix to the Official Journal of 10-2-2004, page 4289, of 09/10/2002, case No. 600/02, of 12/03/2003, case No. 1661/02).
There is also the observation that the TAS can only decide according to "established law" in accordance with No. 2 of Article 2 of the RJAT. Along these lines of thinking, it must take into account the existence of rulings of the TCA on the merits of the underlying legal issue, under penalty of this decision being subject to appeal under No. 2 of Article 25 of the RJAT.
III. MATTERS OF FACT PROVED AND NOT PROVED.
SUBSTANTIATION
Regarding matters of fact, the Tribunal does not have to pronounce itself on everything that was alleged by the parties, it being its duty, rather, to select the facts that matter for the decision and to discriminate between the proved and unproved matters (in accordance with Article 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable by virtue of Article 29, No. 1, subparagraphs a) and e), of the RJAT).
In this way, the facts relevant to the judgment of the case are chosen and tailored according to their legal relevance, which is established in light of the various plausible solutions of the legal issue(s) (in accordance with the previous Article 511, No. 1, of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29, No. 1, subparagraph e), of the RJAT).
Thus, taking into account the positions assumed by the parties, the documentary evidence and the PA attached to the proceedings, the following facts were considered proved, with relevance for the decision, being uncontested by the parties, indicating the respective documents (proof by documents), as substantiation.
Proved Facts
1) On 10 November 2016, following an inspection procedure carried out in 2016, under Service Order No. OI2016..., issued by the Finance Department of Porto, AT notified the Claimants of a draft correction of the inspection report, regarding IRS for 2013, regarding the taxable matter, with the following content:
- In accordance with Article 8 of the request for arbitral determination (ppa); Article 1 of the response; document No. 2 attached with the ppa and page 7 of the PA attached with the response.
2) On 25 November 2016, the Claimants exercised the right to prior hearing and on 03 January 2017, they received the report and final conclusions, and subsequently on 13 January 2017, they received the (additional) IRS assessment statement No. 2017..., of 13.01.2017, which resulted in tax to be paid in the amount of €17.634,61, including compensatory interest (seventeen thousand six hundred and thirty-four euros and sixty-one cents) – in accordance with Articles 9 to 11 of the ppa and documents Nos. 1, 3 and 4 attached with the ppa.
3) The substantiation of the tax inspection report referred to above, notified to the Claimants on 03 January 2017, contains the following:
"Service order of partial scope — IRS for the fiscal year 2013
1-During an inspection procedure carried out at company C..., NIPC: ..., it was found that in the year in question, in the context of IRS, irregularities were detected, namely with the payment of indemnifications due to processes of workforce reduction by bank restructuring, which is described below:
1.1 - The banking entity, in 2013, terminated the employment contract with its employee A... having agreed to pay an indemnification in the amount of 67,389.05 €
1.2 - From the analysis carried out on the documents presented by the Credit Institution, to prove the employee's seniority, it was found that C... considered for the counting of seniority the time of service rendered in all banking activity, that is, including the seniority obtained in a previous employer entity.
2 - Under No. 4 of Article 2 of the IRS Code, the amounts are always subject to taxation "...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 in the debtor entity..."
3 - In accordance with the binding information of October 2010 (Case No. .../10), tax law requires that the seniority to be accounted for be the seniority in the debtor entity of the compensation for termination of employment contract, it not being appropriate to consider, in the application of No. 4 of Article 2 of the IRS Code, the seniority in a previous employer entity, even if the worker and new employer entity have agreed to consider it in eventual future indemnifications.
...
From consultation with the information systems of the Tax and Customs Authority (AT), it was found that the taxpayers in question submitted the income statement model 3 of the IRS for the year 2013, as established in Articles 57 and 60 of the IRS Code, where they declared, in Annex A of the IRS model 3 statement, the amounts mentioned below:
...
Due to the fact occurred and in accordance with the legislation already previously cited, it is considered that the amount of 40,029,100 € was omitted in Annex A of the income statement model 3 of the IRS for the year 2013 as indicated below
...
...
With regard to the arguments presented by the taxpayer, it is important fundamentally to understand that the facts under examination are not of a labor character, in which the arguments described are integrated, but rather of a tax character, whose framework does not depend on the will of the parties.
Thus, it will not be the fact that the Collective Labor Agreement of the Banking Sector establishes a concept of seniority, and the rule itself invoked (Article 17) establishes that: "1. For all the purposes provided for in this agreement" (underlined), that the same prevails over tax rules, namely when in subparagraph b) of No. 4 of Article 2 of the IRS Code, it expressly refers to: "... number of years or fraction of seniority or of exercise of functions in the debtor entity..." (underlined).
Given the evolution of the banking sector in recent decades, labor law will have sought to safeguard the rights of workers, so that, in a process of external recruitment, where a certain employee, attracted by better conditions, changes employer entity, it will be normal and acceptable that he agrees with the new employer entity that, for indemnification purposes, the concept of seniority encompasses the entire period of activity in the banking sector.
However, that contractual freedom cannot be placed above a tax rule (general and abstract) whose literal interpretation allows one to affirm that the seniority provided for in subparagraph b) of No. 4 of Article 2 of the IRS Code is the seniority in the debtor entity.
Admitting the contrary, and following changes in the employer entity, by termination of the employment contract, independent of the origin in the employer entity or in the employee, the latter could, and consequently not be subject to taxation, be indemnified for the same years of seniority, a situation that is safeguarded, considering the period in each debtor entity.
With regard to the binding information referred to (No. 1818/10 of 10/10/2010): it is important to state that its application will be only to the situation that gave rise to it, however that contradicts the position of the taxpayer, insofar as it states that, "Requiring tax law, specific and expressly, that the seniority to be accounted for be the seniority in the debtor entity of the compensation for termination of employment contract, it is not appropriate to consider in the application of No. 4 of Article 2 of the IRS Code the seniority in a previous employer entity, even if the worker and the new employer entity have agreed to consider it in eventual future "indemnifications""
The very restrictions of non-subjection of the value of the indemnification, namely that arising from the creation of a new link, as provided for in the final part of subparagraph b) of No. 4 and No. 5, or from the enjoyment of the same benefit (non-subjection), as provided for in No. 7, all of Article 2 of the IRS Code, allow one to conclude as to the impossibility of considering that the spirit of that rule establishes a seniority corresponding to the entire period of activity in the banking sector, as the taxpayer defends.
These restrictions show that the concern of the legislator in not subjecting to taxation a part of the indemnification received for the extinction of a labor relationship, result in a compensation for any subsequent period, in which the worker, not having a new labor link, sees himself deprived of the earnings from dependent work that the extinguished link guaranteed him, and for this reason the restrictions referred to (No. 5 and No. 7 of Article 2 of the IRS Code).
This spirit is reinforced when it is found that these indemnifications only occur when the extinction of the labor link results from the interest of the employer entity, since when it occurs by way of a "transfer", that is by the interest of the worker, there is no indemnification whatsoever, as indeed the taxpayer refers to having occurred when he initiated his labor link with the "C...".
In light of the foregoing, it will not be, as is the understanding of the Tax and Customs Authority, that the legislator provided for similar frameworks (non-subjection) for different situations (extinction of the link by the initiative of the employer entity, with the right to indemnification or by the initiative of the employee, without the right to indemnification), which translates, in the case at hand, in questioning the compensation, by way of non-subjection to taxation, of a seniority in other entities, when the extinction of the link in those occurred by the initiative of the employee.
Finally, the Direction of Services of Personal Income Tax (DSIRS) has pronounced itself on this matter, whose information No. 415/2016, sanctioned by the Director General of the Tax and Customs Authority on 21/03/2016, is supported in an opinion issued by the Tax Studies Center (CEF) which concludes:
...
"6 - All to prove one single and necessary final conclusion: the letter and the spirit of the law demand, without margin of doubt, that the passage "number of years or fraction of seniority or of exercise of functions in the debtor entity" be legally interpreted with the following meaning: "number of years or fraction of seniority or of exercise of functions arising, in any of these situations, from the duration of the contractual relationship with the debtor entity."
...
In light of the foregoing, regarding the amounts earned by employees of the banking sector, as indemnification for the termination of the employment contract, covered by the ACT, paid by the last entity, the exclusion rule provided for in subparagraph b) of No. 4 of Article 2 of the IRS Code is applicable, taking into account, for the purposes of the respective calculation, only the number of years or fraction of seniority or of exercise of functions in the last debtor entity of the earnings.
In accordance with this understanding, the correction initially proposed in the draft report addressed to the taxpayer, to the taxable matter for IRS purposes for the fiscal year 2013 - in the amount of 40,029.00€ - is to be maintained."
- in accordance with pages 38 to 41 of the PA attached by AT with the response.
4) On 01 March 2017, the Claimants proceeded to pay the amount referred to in 2) of the proved facts – in accordance with Article 15 of the ppa and document No. 5 attached with the ppa.
5) On 11-05-2017, the Claimants submitted to CAAD the present request for arbitral determination – entry registration in the SGP of the request for determination.
Unproved Facts
There is no other factuality alleged that has not been considered proved and that is relevant for the resolution of the procedural dispute.
IV. ASSESSMENT OF THE QUESTIONS FOR THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE
The rule that is the 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 rule that is the subject of different reading and we use the version of the Code that appears on the AT's website):
"4 - When, in any way, the contracts underlying the situations referred to in subparagraphs a), b) and c) of No. 1 cease, but without prejudice to the provision in subparagraph d) of the same number, regarding the benefits that continue to be due even if the employment contract does not subsist, or the termination of the functions of public manager, administrator or manager of a legal person, as well as representative of a permanent establishment of a non-resident entity occurs, the amounts earned, in any capacity, are always subject to taxation: (Wording given by Law No. 64-B/2011, of 30 December)
a). For its entirety, if it is a matter of 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) 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 in the debtor entity, in other cases, except when in the following 24 months a new professional or business relationship is created, regardless of its nature, with the same entity, in which case the amounts will be taxed for their entirety. (Wording given by Law No. 64-B/2011, of 30 December).
That is, specifically, the segment of the rule that is the subject of dispute is the multiplier that the law establishes: "…number of years or fraction of seniority or of exercise of functions in the debtor entity, in other cases".
The AT understands that this multiplier is the number of years of seniority in the company, in the debtor entity, in the employer entity that pays the indemnification and that appears as a party to the agreement for revocation of the employment contract with the worker. In practice, it understands that it is always the number of years of exercise of functions in the employer entity that revokes the employment contract, the relevant multiplier.
The Claimant husband and former dependent employee of the banking entity understands that, in the absence of definition in tax law of what should be understood by "seniority", by virtue of Article 11, No. 2 of the LGT, what results from the ACT of the Banking Sector and from the contract itself that he entered into with the banking entity, namely clause 17 of the ACT of the banking sector, resorting to various decisions of the TCA South in that sense, should consider the seniority that results from the employment contract and the ACT applicable.
In "Labor Law", Pedro Romano Martinez, 2017 8th Edition, pages 423/424, it states: "The seniority of the worker is related to various aspects. First, it may depend on the duration of the employment contract; in this case, seniority is measured according to the worker's years of service at the company, as provided for in No. 6 of Article 112 of the Labor Code, from the beginning of the trial period.
One can distinguish activity at the company, which corresponds to the years of service with the employer; from seniority in the activity, indicating the number of years that the worker performs a certain activity in a given company; from seniority in the category, representing the number of years that the worker has in that category. If the worker changed category, job position or activity, the respective seniority will not correspond to seniority at the company.
Seniority may have consequences at various levels, with three aspects worth highlighting.
First, regarding the promotion of the worker, both in the case of automatic promotions, or even, in the event of agreed promotions, where the employer proposes them based on a certain number of years of service.
Second, at the remuneration level, even if seniority does not imply a change in activity, it can entail differences at the salary level, in the so-called seniority bonuses, which consist of portions that are added to the remuneration, depending on the years of service (Article 262, No. 2, subparagraph a) of the Labor Code).
Third, in the matter of dismissal. In case of dismissal, the years of service are relevant to determine the amount of compensation or indemnification to which the worker is entitled (in accordance with Articles 366, No. 1 and 391, No. 1 of the Labor Code,"
Now, examining the ACT of the banking sector, it can be seen that there are "automatic promotions" and attribution of "seniority bonuses" besides other situations where seniority is relevant. It is natural that whoever changes banking institutions wants to maintain his level of seniority, with a view to faster career progression and salary increases, through seniority bonuses, which can occur by mere consequence of greater seniority. Beyond a better safeguard at the level of compensation for dismissal for a fact that is not attributable to him.
We can conclude that, in this case, what was agreed between the bank and the Claimant husband, at the level of the contractual clause that established that his seniority in the company would be equivalent to the seniority in the banking sector, was intended to protect various relevant aspects of the contracted employee's career, perfectly subject to analysis, and not only to establish a contract revocation regime that aimed at a more favorable tax regime.
The Literal Element of the Rule
The literal element of the rule is always a very relevant element, as it delimits interpretative activity.
It cannot, however, be considered by the interpreter the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed. The letter is an immovable element of interpretation, or a "limit of the search for the spirit".
"An interpretation that is not 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 meaning of the legislator's declaration. Under penalty of, if this does not happen, creating a new rule, instead of interpreting an already existing rule" (Hespanha).
The AT considers that, as the rule is worded, this segment: "…number of years or fraction of seniority or of exercise of functions in the debtor entity, in other cases" should be read as follows:
- Number of years or fraction of seniority in the debtor entity (employer);
- Number of years of exercise of functions in the debtor entity (employer).
Although the comments contained in the annotation to the ruling of the TCA on the seniority of the banking sector are relevant, it seems to us debatable that one should consider that the legislator, given the way he worded the text of the rule in question, intended that the concept of "seniority" be only that obtained in the (debtor) employer entity that revokes the relationship.
Same conclusion with the reasoning expended by AT, the rule would be emptied of content, which, in containing the expression "in other cases", seems to lead the interpreter to the idea that here two different mechanisms are established for ascertaining, determining, the multiplier, leading to differentiated results.
The reading of the law defended by AT seems to lead, in practical terms, to the multiplier being always the same, whether by the criterion of "seniority", or by the criterion of years of exercise of functions in the employer entity that revokes the employment contract. And thus interpreting the rule, we would be facing equal results for cases in which the law seems to provide for differentiated 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 seem that one should speak of violation of the principle of material equality (isonomy) because it is about consecrating different multipliers for differentiated expectations, created on the basis of different legal and factual realities.
This segment of the rule seems, thus, to intend to consider two distinct realities (with differentiated solutions) to ascertain the multiplier in question:
- Number of years or fraction of seniority (understood this in general terms, without adjectifying the type of seniority); or
- Number of years or fraction ... of exercise of functions in the debtor entity.
This is because the rule then adds to the last expression (or exercise of functions in the debtor entity): "in other cases", leading to the perception that it contains two distinct mechanisms to obtain the multiplier, in the alternative, thus existing, at least, "two" cases, distinct, contained in the provision of the rule. Which are to lead to different results, with the recipients of the rule following the regime that is concretely most favorable to them.
It seems, therefore, that this reading of the law (considering the one defended by AT) is also possible, given the literal element of the rule.
Same conclusion when in the above-cited study it states (underlined) "it is not opposable to the tax administration the wording of the ACT of the banking sector that imposes, in the transfer of a worker between credit institutions, the counting of the time of seniority verified in the previous or earlier credit institutions of which he has been a worker", it seems to us that here it is not a question of opposability of a rule of contractual origin to AT, but solely and simply of interpreting the expression "seniority", through the mechanisms that tax law provides for, that is, under Article 11, No. 2 of the LGT, the interpreter resorting to the source of law that best defines that concept, in this case the ACT of the banking sector, by force of the legal-labor framework concretely applicable to the case. And, as stated above, the term "seniority" encompasses a significant range of situations. Nothing will allow the interpreter to have a restrictive view of the comprehensive meaning, according to labor law, of this expression.
One may not agree with a certain reading of a rule, that its literality embraces, but we will be solely and only within the scope of its interpretation and in the effort to seek the most assertive reading.
Finally and decisively, the various cited decisions of the TCA South are in this sense (of considering the concept of seniority contained in the ACT of the banking sector, when it comes to workers in that sector and in revocations of employment contracts), so that the TAS would always have to judge according to the "established law", and should consider the reading of the law therein presented as the most assertive and generating legal certainty for the citizens and economic agents.
Taking into account the date of delivery of the decisions of the TCA South in question (2010, 2012 and 2013), if the legislator understood that the reading of the law therein presented deserved objection, he would have already proceeded to alter or correct the text of the law.
However, there is an aspect that cannot be left unaddressed. The banking worker, when he entered the banking institution, coming from another, may have negotiated an exit by mutual agreement and have received an indemnification for the time of seniority he had there. And it would not be acceptable that, at a later moment, he would use - again - that "seniority" to increase the multiplier of the compensation in case of revocation of the employment contract.
In the context of the procedure of No. 2 of Article 65 of the IRS Code, or in the context of an inspection procedure, AT can make use of the records of IRS statements delivered many years earlier and other declarative obligations of paying entities. Specific information can be obtained, namely, from the banking institution, the previous and the current one, and also from the taxpayer (principle of the inquisitorial and principle of collaboration).
This factuality could be ascertained by AT, in the context of the procedure referred to above, preventing the application of the law in the comprehensive reading that we highlight here (if it were concluded that there was improper use of this tax regime) through, namely, the application of the general anti-abuse clause of No. 2 of Article 38 of the LGT.
Personal Scope of the Collective Convention versus Principle of Affiliation.
Although this substantiation of the appealed act was not produced in the proper context – see proved facts – something will be said about the matter.
The Respondent alleges that "for the referred ACT to be applicable, it is necessary that the worker in question be affiliated with one of the referred unions and that the credit institution be a subscriber to the referred Agreement". "It happens that, in the concrete case, the Claimant did not prove, nor even alleged, his affiliation to any of the mentioned unions, which, in itself, is a reason excluding the invocation of clause 17 of the ACT".
If that were the case, in the context of a procedure tending to produce the decision in accordance with No. 2 of Article 65 of the IRS Code or the inspection procedure, nothing prevented AT, in the exercise of the powers-duties it has, from raising this very matter to the taxpayer, to the former employer entity or to the unions that are parties to the ACT.
In the IRS statement of the various years it is possible to verify whether the worker pays dues to a union. Then the very banking entity, in principle, withholds at source, discounts and pays to the Union the union fees of its workers, so that it could always indicate which union a certain worker is bound to, if it were asked.
These are facts aimed at substantiating a decision that should have been ascertained before the same was adopted.
On the other hand, nothing that was alleged by the parties leads us to conclude that the Bank that paid the compensation treated the Claimant husband differently from other workers who may have been the subject of revocation of the employment contract. That is, it should be presumed that a general and abstract behavior occurred for all those who had worked in previous banking institutions.
The Bank, by applying the rules of clause 17 of the ACT (which increased the amounts to be paid), suggests that the ACT in question was applied. And if there was no affiliation/binding of the worker whose contract was being terminated to a Union, certainly the Bank would be the first to have an interest in that fact, because it would reduce the amount it had to pay.
Even if that were not the case, it is noted that this matter will always embody substantiation of the appealed act, raised a posteriori, which the Court cannot take into account.
Therefore, in light of the foregoing, the request for arbitral determination proceeds.
Request for Condemnation of AT for Refund of Amounts Paid and Payment of Indemnitory Interest
It was proved in item 4 of the established factual matter that on 01.03.2017 the Claimants paid the amount of IRS and interest that they here impugned.
By annulling, as will be annulled, the additional IRS assessments and interest here impugned, as they are in non-conformity with the law, it follows that the Claimants are entitled to the refund of the amount paid in excess.
They further request the condemnation of AT for payment of indemnitory interest.
In accordance with the provision in subparagraph b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim for which no appeal or impugnation is available binds the Tax Administration from the end of the deadline provided for the appeal or impugnation, and this, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for the voluntary execution of sentences of tax courts, "reestablish the situation that would exist if the tax act that was the subject of the arbitral decision had not been practiced, by adopting the acts and operations necessary for that purpose", which is in harmony with what is provided for in Article 100 of the LGT (applicable by force of the provision in subparagraph a) of No. 1 of Article 29 of the RJAT) which establishes that "the tax administration is obliged, in case of total or partial success of a gracious objection, judicial impugnation or appeal in favor of the taxpayer, to immediate and full reestablishment of the legality of the act or situation that is the subject of the dispute, including the payment of indemnitory interest, if applicable, from the end of the deadline of execution of the decision".
Although Article 2, No. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals that function in CAAD, not making reference to condemnatory decisions, it should be understood that the powers that, in a process of judicial impugnation, are attributed to tax courts are included in their competences, being this the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which is proclaimed, as a first guideline, that "the tax arbitration process should constitute an alternative procedural means to the process of judicial impugnation and to the action for the recognition of a right or legitimate interest in tax matters".
The process of judicial impugnation, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration for payment of indemnitory interest, as is deduced from Article 43, No. 1, of the LGT, in which it is established that "indemnitory interest is due when it is determined, in a gracious objection or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount higher than legally due" and Article 61, No. 4 of the CPPT (in the wording given by Law No. 55-A/2010, of 31 December, to which corresponds No. 2 in the initial wording), that "if the decision that recognized the right to indemnitory interest is judicial, the period of payment is counted from the beginning of the period for its voluntary execution".
Thus, No. 5 of Article 24 of the RJAT, by saying that "payment of interest, regardless of its nature, is due in accordance with the provisions set forth in the general tax law and the Code of Procedure and Tax Process", should be understood as permitting the recognition of the right to indemnitory interest in the arbitral process.
In the case at hand, it is manifest that, following the annulment of the assessments (IRS and interest) that is to be carried out, there is a right to refund of the tax and interest paid in excess, by force of the referred Articles 24, No. 1, subparagraph b), of the RJAT and 100 of the LGT, since this is essential to "reestablish the situation that would exist if the tax act that was the subject of the arbitral decision had not been practiced".
The substantive regime of the right to indemnitory interest is regulated in Article 43 of the LGT, which establishes, in what is relevant here, the following:
Article 43
Payment of Undue Prestations
1 – Indemnitory interest is due when it is determined, in a gracious objection or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount higher than legally due.
2 – There is also considered to be error attributable to the services in cases in which, despite the assessment being made on the basis of the taxpayer's statement, the latter has followed, in its completion, the generic guidance of the tax administration, duly published.
3 - Indemnitory interest is also due in the following circumstances:
a. When the legal deadline for voluntary refund of taxes is not met;
b. In case of annulment of the tax act by the initiative of the tax administration, from the 30th day after the decision, without the credit note having been processed;
c. When the revision of the tax act by the initiative of the taxpayer is carried out more than one year after this request, unless the delay is not attributable to the tax administration.
4 - The rate of indemnitory interest is equal to the rate of compensatory interest.
5 - In the period that runs between the date of the end of the deadline for voluntary execution of a judicial decision that has become final and the date of issuance of the credit note, regarding the tax that should have been refunded by final judicial decision, delay interest is due at a rate equivalent to double the rate of delay interest defined in general law for debts to the State and other public entities. (Added by Law No. 64-B/2011, of 30 December).
The illegality of the additional assessments is attributable to the Tax Administration, which issued them on the basis of legal assumptions that did not occur: a reading of subparagraph b) of No. 4 of Article 2 of the IRS Code that is configured as being restrictive, in light of the provision of the rule, in the reading above advocated.
In the present case, the regime of No. 1 of Article 43 of the LGT is to be applied.
Consequently, the Claimants are entitled to indemnitory interest, in accordance with Articles 43, No. 1, of the LGT and 61 of the CPPT, counted from 01.03.2017, the date of their payment, as to the amount paid in excess of 17,634.61 euros.
Indemnitory interest is due on the referred amount, at the suppletive legal rate, in accordance with Articles 43, Nos. 1, and 35, No. 10 of the LGT, Article 24, No. 1, of the RJAT, Article 61, Nos. 3 and 4, of the CPPT, Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April, from the date indicated above and until the issuance of the respective credit note.
V. OPERATIVE PART
In accordance with and based on the above grounds:
· It is held that the request for annulment of the (additional) personal income tax (IRS) assessment No. 2017..., of 13.01.2017, which resulted in tax to be paid by the Claimants in the amount of €17.634,61, including compensatory interest (seventeen thousand six hundred and thirty-four euros and sixty-one cents), relating to the year 2013, is well-founded, annulling the assessment acts, for non-conformity with subparagraph b) of No. 4 of Article 2 of the IRS Code.
· It is also held that the requests for refund of 17,634.61 euros and for condemnation of AT for payment of indemnitory interest, calculated on this amount, from 01.03.2017, until issuance of the respective credit note, are well-founded.
Value of the Case: in accordance with the provision of Article 3, No. 2, of the Regulation of Court Costs in Tax Arbitration Proceedings (and subparagraph a) of No. 1 of Article 97A of the CPPT), the value of 17,634.61 euros is fixed for the case, given the tacit agreement of AT to the value of the claim stated by the Claimant in the registration of the request in the SGP.
Costs: in accordance with the provision of Article 22, No. 4, of the RJAT, the amount of costs is fixed at 1,224.00 € in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.
Notify.
Lisbon, 07 December 2017
Singular Arbitral Tribunal (TAS),
Augusto Vieira
Text prepared on computer in accordance with the provision of Article 131, No. 5, of the CPC, applicable by referral of Article 29 of the RJAT.
The writing of this decision is governed by the orthography prior to the 1990 Orthographic Agreement.
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