Summary
Full Decision
ARBITRAL DECISION
I – REPORT
1. A…, with Tax Number…, and B…, with Tax Number…, married, resident at Rua… no…, …, …, …-… Lisbon, filed on 02-06-2017 a petition for constitution of a sole arbitration tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT).
2. The petition for arbitral ruling seeks the declaration of illegality, and consequent annulment, of the tax assessment identified in the demonstrative note of IRS assessment no. 2017…, in the amount of €53,085.73 and in the demonstrative note of account settlement no. 2017…, in the amount of €54,461.82, relating to the year 2013, as well as the respective assessment of compensatory interest.
3. The respondent is the Tax and Customs Authority (hereinafter referred to only as "Respondent").
4. The petition for constitution of the arbitration tribunal was accepted by His Excellency the President of CAAD and automatically notified to the Respondent on 12-06-2017.
5. Given that the petitioner did not proceed with the appointment of an arbitrator, under the provisions of Article 6, No. 2, paragraph a) of the RJAT, the signatory was designated as arbitrator by the President of the Deontological Council of CAAD, with the appointment being accepted within the legal timeframe and terms.
6. On 26-07-2017 the parties were duly notified of such designation, and did not express willingness to refuse the arbitrator's designation, pursuant to the provisions of Article 11, No. 1, paragraphs a) and b) of the RJAT, combined with Articles 6 and 7 of the Deontological Code.
7. In accordance with the provision of paragraph c), of No. 1, of Article 11 of the RJAT, the Arbitration Tribunal was constituted on 10-08-2017.
8. The petitioners substantiated their petition, alleging, in summary, the following:
a. The indemnity received (which covers the entire period in which the challenger provided work for the banking entities) is not subject to taxation (as income from category A);
b. The entity paying the indemnity, the bank "C…" was, and still is, a signatory to the Collective Labour Agreement of the Banking Sector, an instrument of collective labour regulation, whose last amendment was published in the Official Labour Bulletin, 1st series, no. 20, of 29 May 2011;
c. Both the entity paying the indemnity "C…", because it adhered to the Collective Agreement of the Banking Sector, and the challenger himself, for having been affiliated with trade unions that are signatories to that agreement, are covered by that instrument of collective labour regulation;
d. In this specific case, the entity paying the indemnity expressly recognized and safeguarded, in the Employment Contract it entered into with the challenger, in clauses 7 and 15 of its revocation, the manner in which "seniority" is ascertained in his specific case;
e. The counting of seniority was performed in compliance with the Collective Labour Agreement of the Banking Sector, as well as in respect of what was agreed between the parties in the individual employment contracts;
f. From No. 4 of Article 2 of the IRS Code, it does not follow that the seniority to be considered is only the seniority (length of service) provided by the worker to the entity paying the compensation for termination of the employment contract;
g. The seniority to be considered, in this specific case, is that which corresponds to the totality of the length of service provided by the challenger to credit institutions in Portugal, by force of the application of the Collective Labour Agreement of the Banking Sector and of the individual employment contracts that always expressly considered it;
h. The concept of seniority is not defined in Tax Law, which implies recourse to Labour Law for the determination of the said concept;
i. Therefore, the seniority of the challenger corresponds to all the length of service provided in the banking sector, that is, 25.3 years, necessarily binding the Tax Authority;
j. The Tax Authority and, in particular the Tax Inspection Services of LISBON, made a restrictive interpretation of the norm (Article 2 No. 4 of the IRS Code), thereby limiting the rights of the challenger as well as his legitimate expectations of seeing all the length of service provided in the Banking Sector considered for the purpose of attribution of indemnity as a consequence of termination of employment contract, and consequently the right that the compensation attributed not be taxed as category A income;
k. In the same sense – that seniority corresponds to all the length of service provided in the banking sector – the superior courts have already ruled, namely the Central Administrative Court-South.
9. The Respondent filed a Reply, in which it defends itself through objection, alleging, for the purpose of the dismissal of the petition for arbitral ruling, in summary, the following:
a. The seniority to be accounted for, for the purposes of No. 4 of Article 2 of the IRS Code, is the seniority at the entity owing the compensation for termination of the employment contract, and it is not to be considered, in the application of the said legal provision, the seniority at a previous employer, even if the worker and the new employer have agreed that it should be considered in eventual future "indemnities", by employment contract or deriving from instruments of collective labour regulation;
b. Therefore, it was based on the seniority of 9.68 years that the indemnity amount excluded from IRS taxation was calculated, because this is the length of service provided at the last employer, on whom falls the duty to pay the compensation;
c. The concept of seniority – seniority per se, without any qualifier – in labour matters does not bear a special scientific density that significantly distances it from the sense of ordinary language: translating, as in other legal contexts, a legally relevant interval, with different effects, between a certain starting date and a certain ending date;
d. Although instruments of collective labour regulation – but not only these – add several qualifiers to labour seniority, the fact is that the Labour Code does not define what "seniority" is nor presents a univocal qualification of it, although to satiety it is evident the prevalence of the notion of "seniority in the company", including in matters of termination of the employment contract;
e. According to Article 339 of the Labour Code of 2009 (cf. Article 383 of the Labour Code of 2003), interpreting the expression "indemnity" also as "compensation", in matters of termination of the employment contract the instruments of collective labour regulation may regulate the criteria for definition of indemnities (compensations) and the periods for procedure and notice, and may also regulate the amounts of indemnities (compensations) but, in this case, within the limits set in the Code – matters excluded from the availability of the parties in the employment contract;
f. From the expiration of the employment contract, from dismissal for objective causes, from replacement of reinstatement resulting from unlawful dismissal or from resolution of the contract by the worker on the grounds of unlawful conduct by the employer – that is, from the situations that give rise to the said compensations or indemnities – 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 autonomy of negotiation between the parties, which may agree among themselves various pecuniary counterparts for contractual cessation, possibly translated into a global pecuniary compensation which, not having to respect legal limits, is entirely at the disposal of the parties;
g. Analysing the content of the collective labour agreements of the banking sector, which contains that clause 17 (under the heading "Determination of seniority"), it is important to conclude that, beyond the indemnity regime by replacement of reinstatement resulting from unlawful dismissal, such instruments do not impinge on compensations/indemnities for expiration of the employment contract, for dismissal for objective causes, for resolution of the contract by the worker on the grounds of unlawful conduct by the employer or for agreement of distrate/revocation of the employment contract – matters that, in reality, are therefore removed from the normative effects arising from such clause 17, simply because they are not integrated in "all the effects provided" in such instruments;
h. The legal regime of Article 2, No. 4, of the IRS Code underlies a notorious anti-abuse purpose, proper to special clauses preventive of tax evasion – a purpose that has special reason to be, for it would not in any case be acceptable agreements that provided for labour seniority recognizing merely artificial seniorities and imposing such recognition for the purpose of negative delimitation of tax incidence;
i. Given that "the qualification of the juridical transaction effected by the parties (…) does not bind the tax administration" according to No. 4, of Article 36 of the LGT – a norm that encompasses, naturally, by greater reason, the qualifications of the parties impinging on the object of the transaction -, the question must obtain its solution in the integral legal interpretation of all the normative provisions implied by the expression "number of years or fraction of seniority or of exercise of functions at the debtor entity", contained in paragraph b) of No. 4 of Article 2 of the IRS Code;
j. Once the mandatory legal limits regarding compensations or indemnities for termination of the employment contract are respected, it is not naturally in question the full legitimacy of the juridical negotiating instruments binding the debtor entity to pecuniary compensations/indemnities superior to the amount corresponding to the negative delimitation of tax incidence provided in paragraph b) of No. 4 of Article 2 of the IRS Code;
k. The literal element of legal interpretation permits confirmation, from a perspective of syntactic correction, that the seniority provided in paragraph b) of No. 4 of Article 2 of the IRS Code is the seniority at the "debtor entity", corresponding to "seniority in the company" which, by force of the historical-systematic element inherent to the norm of the current No. 10 of the same article, corresponds to the "employer/employing entity", with the amplitude deriving from this norm, as well as from situations of succession in the position of this entity, especially by effect of the equation inherent to Article 285 of the Labour Code of 2009;
l. The reason why the legislator combined, alternatively and inclusively, the expressions "seniority" or "exercise of functions" has to do with the necessity of a normative provision that is comprehensive, so as to capture the multiple situations generating income from dependent work, respectively the employment contract or the provision of services, on the one hand, and the exercise of public function, service or position, on the other hand;
m. Various are the historical-systematic and teleological elements that, at the infra-constitutional level, are only compatible, either with "seniority at the debtor entity", or with the inadmissibility of the consideration of seniority at this entity, corresponding to the effective duration of the contractual relationship granted by that entity, of increases arising from juridical negotiating instruments;
n. There are also powerful moments of the constitutional system – inherent, either in the principle of equality, or in the principle of legality in matters of tax incidence, whose corollaries of equality, responsibility and security demand an intense determinability – which unequivocally presuppose in paragraph b) of No. 4 of Article 2 of the IRS Code a "seniority" referenced to the "debtor entity" and which do not permit, in view of the teleological element assessed by the purpose of the exclusion of tax incidence established in that same norm, that juridical negotiating instruments might be permitted, through increases of the seniority inherent to the effective duration of the contractual relationship granted by that entity, to voluntarily delimit the amplitude of that exclusion of tax incidence;
o. Knowing that the constitutional principle of equality, affirmed in Article 13 of the Constitution, carries a positive sense of identical or similar treatment of identical or similar situations, respectively, and of unequal treatment of situations substantially and objectively unequal, with verification by a process of comparison, justifying differentiated treatment only in function and to the extent of the diversity of situations, it would become very difficult to accept the inequality of treatment that would result from permitting that juridical negotiating instruments could delimit seniorities with effects in the integration in the regime of exclusion of tax incidence of Article 2, No. 4 of the IRS Code, without those same instruments being able, with the same effects, to delimit "exercise of functions at the debtor entity";
p. The interpretation adopted by the Respondent is the only one in conformity with the constitutional principle of legality in matters of tax incidence, which cannot permit that in the seniority at the debtor entity there be considered, beyond the seniority inherent to the effective duration of the contractual relationship granted by this entity, increases arising from juridical negotiating instruments, for to admit that these instruments could delimit seniorities with effects in the integration in the regime of exclusion of tax incidence of Article 2, No. 4 of the IRS Code would translate a notorious obscuring of all the foundations of the principle of legality, especially in the combination of fiscal justice with the certainty and legal security of taxation: as if it were a matter of voluntary taxation;
q. The "debtor entity" to which No. 4 of Article 2 refers, must be the "employing entity" mentioned in No. 10 of the same legal provision, which becomes explicit when in No. 4 the exclusion of taxation is conditioned on the creation of no new professional or business link within the period of 24 months with the same "entity";
r. Therefore, the additional tax assessment deed in question in this action does not suffer from any defect that puts into question its legality and validity. Reason for which there is no place for the payment of any compensatory interest.
10. By order of 09-10-2017, this Tribunal, under the principles of autonomy in the conduct of the proceedings, celerity and simplification and informality of proceedings (Articles 19, No. 2, and 29, No. 2, of the RJAT), and considering that no exceptions were raised, decided to dispense with the holding of the meeting provided for in Article 18 of the RJAT, determining that the proceedings continue with optional written submissions.
11. No written submissions were presented.
II – PROCEDURAL RULING
12. No exceptions were invoked.
13. The parties have personality and judicial capacity, are entitled regarding the petition for arbitral ruling and are duly represented, pursuant to the provisions of Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.
14. No nullities are found, wherefore it is necessary to proceed to the merits.
III. MERITS
III.1. FACTUAL MATTER
§1. Findings of Fact
15. The Tribunal considers the following facts as proven:
a) The petitioners are married and not separated by law as to persons and property;
b) The male petitioner was an employee at the said banking institution "C…" between 26-01-2004 and 30-09-2013;
c) During the period between 14 June of the year 1988 and 25 January of the year 2004, the male petitioner worked at Bank "D…";
d) In the year 2013, by virtue of a restructuring, the entity "C…" proceeded to reduce its workforce and, consequently, paid indemnities to the employees with whom it agreed to revoke the employment contract;
e) The employment contract entered into between the male petitioner and "C…" contains a clause (Clause 7) that has as its object seniority, in which the Bank guarantees to the worker the seniority deriving from provision of service to other Credit Institutions, since 14/06/1988, documentary proof of which is provided, but only for the purposes specified therein – relating to the Pension Fund of C… – saying nothing regarding seniority for the purpose of compensation for termination of the employment contract;
f) The agreement for revocation of the employment contract entered into between the male petitioner and "C…" contains a clause (Clause 15) in which both signatories recognize their agreement in the determination of the seniority of the employee (male petitioner) by counting his length of service at banking entities indicated in Clause 17 of the Collective Labour Agreements of the Banking Sector;
g) The male petitioner received from "C…", by way of that revocation, an indemnity in the amount of €158,820.00;
h) The said indemnity was calculated on the basis of a seniority of 26 years in the banking sector;
i) The male petitioner was affiliated with the Union of Southern and Islands Bankers, during the period between 01-09-1978 and 01-11-1999;
j) The male petitioner was affiliated with the National Union of Banking Professionals, during the period between 09-11-1999 and 30-09-2013;
k) The IRS assessments and compensatory interest at issue in the present arbitration action result from the conclusions reached in the tax inspection procedure, authorized by Service Order no. OI2016…, of the Tax Inspection Services of the Finance Directorate of Lisbon, in the course of which technical corrections were made to the IRS Form 3 Declaration, for the fiscal year 2013;
l) Following the aforementioned inspection procedure, and the conclusions of its respective report, there were issued the demonstrative note of additional IRS/2013 assessment no. 2017…, the demonstrative note of account settlement no. 2017… and the respective demonstrative note of compensatory interest assessment, relating to the taxation period of 2013, which resulted from the correction to taxable income in the same period.
m) The correction to the taxable matter in IRS of the petitioners, relating to the year 2013, in the amount of €99,582.94, by virtue of the Tax Inspection Services having considered a seniority of 9.68 years, as is evident from the following table contained in the Inspection Report:
[table reference]
n) The petitioners were notified of the demonstrative note of additional IRS/2013 assessment no. 2017…, of the demonstrative note of account settlement no. 2017… and the respective demonstrative note of compensatory interest assessment, resulting in the total amount of €54,461.82;
o) The petitioners paid the tax now being contested on 06-03-2017.
§2. Unproven Facts
16. With relevance to the decision, there are no essential unproven facts.
§3. Reasoning on the Factual Matter
17. Concerning the factual matter proven, the Tribunal's conviction was founded on the free assessment of the positions assumed by the parties regarding facts, in the Administrative Proceeding and on the contents of the documents appended to the record, not contested by the parties.
III.2. LEGAL MATTER
§1. Question to be Decided
18. It results from the positions assumed by the parties that the central question to be assessed and decided by this tribunal is that which refers to the legality of the deed of additional IRS assessment, to which the petitioners impute the defect of violation of law, by disregard of the norm contained in Article 2, No. 4, paragraph b) of the IRS Code.
19. Thus, the controversial question in the present proceeding relates to the interpretation of the said legal provision, being important to know whether from it results that the count of the seniority of the male petitioner, for the purposes of IRS incidence, in the case of indemnification for termination of the employment contract, must be made taking into account the length of service provided in the banking sector (including, therefore, the length of service previously provided at another banking institution), or whether, on the contrary, the said provision determines that only the length of work provided to the entity with which the petitioner terminated the employment contract should be considered.
§2. Application of the Law to the Case at Issue
20. Article 2, No. 4, of the IRS Code provided, at the date of the facts, as follows:
«[…]
4 - When, in any manner, the contracts underlying the situations referred to in paragraphs a), b) and c) of No. 1 cease, but without prejudice to the provision in paragraph d) of the same number, as regards the benefits that continue to be owing even if the employment contract does not subsist, or when there is cessation of the functions of manager of a public entity, administrator or manager of a legal person, as well as of representative of a permanent establishment of a non-resident entity, the amounts earned, for any reason whatsoever, are always subject to taxation:
(a) By their entirety, in the case of a manager of a public entity, administrator or manager of a legal person, as well as of representative of a permanent establishment of a non-resident entity;
(b) In the part that exceeds the value corresponding to the average value of regular remuneration in the nature of compensation subject to tax, earned in the last 12 months, multiplied by the number of years or fraction of seniority or of exercise of functions at the debtor entity, in the other cases, except when in the 24 months following a new professional or business link is created, regardless of its nature, with the same entity, in which case the amounts will be subject to taxation by their entirety.
[…]».
21. On the interpretation of tax law, Articles 1 and 2 of No. 11 of the General Tax Law (LGT) provide as follows:
«1 - In the determination of the meaning of tax norms and in the qualification of the facts to which the same apply, the general rules and principles of interpretation and application of laws are observed.
2 - Whenever, in tax norms, terms proper to other branches of law are used, the same must be interpreted in the same sense that they have there, unless otherwise derives directly from the law.
[…]»
22. As regards the general rules of interpretation, Article 9 of the Civil Code provides as follows:
«1. Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.
2. However, the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter.
3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express his thought in adequate terms.»
23. It is on the basis of the interpretation rules cited that the meaning of the concept of «seniority» used by the legislator in Article 2, No. 4, paragraph b) of the IRS Code must be sought.
24. The starting point of the interpretation is the text of the norm, which, in the case of paragraph b) of No. 4 of Article 2 of the IRS Code, points to the consideration of seniority at the debtor entity.
25. In fact, the expression "at the debtor entity", contained in paragraph b) of No. 4 of Article 2 of the IRS Code, refers to the expression that precedes it, "number of years or fraction of seniority or of exercise of functions".
26. In this manner, the legislator delimits the scope in which seniority (or exercise of functions) assumes relevance in the application of the calculation method provided in the said paragraph b).
27. To this understanding, the inclusion, between commas, following the expression "or of exercise of functions", of the term "in the other cases" does not oppose.
28. In the arbitral award handed down in the context of proceeding no. 230/2016-T, cited by the petitioners, it is argued that «the norm adds after the last expression (or exercise of functions at the debtor entity): "in the other cases", leading to the perception that it contains two distinct mechanisms to obtain the multiplier, alternatively, thus existing, at the very least, "two" cases, distinct, contained in the provision of the norm».
29. What happens is that when in the text of paragraph b) of No. 4 of Article 2 of the IRS Code reference is made to the other cases, it is to encompass all those that do not fall under paragraph a).
30. That is, the amounts referred to in Article 2, No. 4 of the IRS Code are taxed by their entirety when earned by a manager of a public entity, administrator or manager of a legal person, as well as by representative of a permanent establishment of a non-resident entity [paragraph a)], and are taxed only in the amount exceeding the limit calculated pursuant to paragraph b), in the other cases.
31. In this manner, the reference to the other cases does not permit the interpreter to conclude, as does the arbitral tribunal in proceeding no. 230/2016-T, that the provision under analysis "contains two distinct mechanisms to obtain the multiplier".
32. An interpretation that considered that the expression "at the debtor entity", contained in paragraph b) of No. 4 of Article 2 of the IRS Code, refers only to the expression "exercise of functions", would imply accepting that the legislator, in this provision, delimited the scope in which the exercise of functions assumes relevance in the application of the calculation method provided therein, but left undelimited the scope in which seniority operates.
33. Such an interpretation would also result in the acceptance of differentiated criteria applicable to "seniority" and to "exercise of functions", without any apparent justifying reason.
34. But if, instead of considering that the legislator was incoherent or arbitrary in the text it adopted, we presume, as Article 9, No. 3 of the Civil Code provides, that the legislator "adopted the most appropriate solutions and was able to express his thought in adequate terms", then we must conclude that, with coherence and according to an identifiable and objective criterion, the legislator delimited the scope in which "seniority" or "exercise of functions" assume relevance for the purpose of application of paragraph b) of No. 4 of Article 2 of the IRS Code, through the use of the expression "at the debtor entity".
35. This interpretative result, according to which the seniority referred to by the legislator in paragraph b) of No. 4 of Article 2 of the IRS Code is the seniority at the debtor entity, reflects a declarative interpretation, in which this Tribunal merely «selects one of the meanings which the text directly and clearly carries, because it is that one which corresponds to the legislative thought» (cf. JOÃO BAPTISTA MACHADO, Introduction to Law and to Legitimating Discourse, Coimbra, Almedina, 2008, p. 185).
36. This Tribunal does not follow, thus, the jurisprudence of the Central Administrative Court-South (TCAS) which has assumed that the fiscal legislator does not define, for the purpose of application of paragraph b) of No. 4 of Article 2 of the IRS Code, the concept of seniority of the worker (cf., in this sense, the following judgments of the TCAS: judgment of 11/05/2004, handed down in the context of proceeding no. 06002/01; judgment of 21/09/2010, handed down in the context of proceeding no. 03748/10; judgment of 12/03/2013, handed down in the context of proceeding no. 05971/12), nor does it follow the jurisprudence of the CAAD which has adopted the same line of reasoning (cf. the arbitral awards handed down in the context of proceedings no. 616/2015-T and 230/2016-T).
37. It results, therefore, from the text of paragraph b) of No. 4 of Article 2 of the IRS Code that the fiscal legislator expressly refers, for the purpose of its application, to seniority at the debtor entity, no reason being discerned for inquiring into the meaning which the concept of seniority assumes in labour law.
38. Thus, in the case at issue, in the calculation of the indemnification for termination of the employment contract of the male petitioner, only the seniority at the debtor entity – C… – should be considered.
39. It is worth noting that we would reach the same conclusion if we applied the concept of seniority that exists in labour law.
40. That is, even if we were to follow the interpretative path taken by the TCAS jurisprudence cited above, we would reach a result opposite to that affirmed in such jurisprudence, as we shall see below.
41. On this matter, we subscribe to the content of the judgment of the Supreme Court of Justice of 01/10/2014, handed down in the context of proceeding no. 1202/11.0TTMTS.P1S1, approved unanimously, in the excerpt which follows:
«The aforementioned Labour Code, as was the case with previous legislation, does not explicitly set out, directly, the concept of seniority, which, in a general sense, refers to seniority in the company, but which can also refer to a specific professional situation, such as seniority in the activity or in the category.
It is thus appropriate, to elucidate the legal meaning of seniority, to examine the legal provisions which refer to that particular figure of labour law dogmatics.
No. 6 of Article 112 establishes the rule according to which «[a] worker's seniority is counted from the start of the trial period», with Article 113 establishing that «[t]he trial period commences at the start of the performance of the worker, comprising training action determined by the employer, to the extent that it does not exceed half the duration of that period» (No. 1), not being «considered in the count the days of absence, even if justified, of leave, exemption or suspension of the contract» (No. 2), non-consideration which will only be relevant, specifically, for the count of the trial period, because, in the general regime, such periods count for purposes of seniority, as is derived from the provisions of Articles 255, 295 and 317, legal provisions cited below.
And No. 1 of Article 129 provides that it is prohibited to the employer «[t]o terminate the contract and readmit the worker, even with his consent, with the purpose of prejudicing him in a right or guarantee deriving from seniority» [paragraph j)].
On the other hand, No. 3 of Article 147 establishes that, in situations of conversion of a fixed-term employment contract into an indefinite employment contract, «the worker's seniority is counted from the start of the performance of work», except when a succession of fixed-term employment contracts with the same worker is configured, in which case the said count «includes the length of work provided in fulfilment of the successive fixed-term contracts».
In turn, No. 5 of Article 162 commands that «[t]he length of service provided under a commissioned service regime counts for purposes of worker's seniority as if it had been provided in the category of which the latter is holder».
Meanwhile, Article 245, providing for the particular situation of termination of the employment contract when the worker has not yet enjoyed accrued vacation, stipulates that «[t]he vacation period is considered for purposes of seniority», with there being other situations in which, despite no performance of work occurring, the relevant periods count for the purpose of seniority, as happens in absences from work linked to the scheme of protection in parenthood (Article 65, No. 1), in the so-called days of rest (daily and weekly rest, public holidays and vacation – Articles 232 to 247), in justified absences (Article 255), in reduction or suspension of the employment contract (Article 295, No. 2), in unpaid leave (Article 317) and in suspension of the employment contract due to adherence to a strike (Article 563, No. 3).
It is clear that, in unjustified absences, the period of absence is not counted in the seniority of the worker, according to the terms that Article 256 specifies in detail.
It should be noted that paragraph b) of No. 2 of Article 262 establishes long service as a remuneration benefit to which the worker is entitled as a function of seniority.
Finally, the notion of seniority is addressed in the normative provisions relating to the determination of notice period relating to the date of termination of the employment contract (Articles 363, No. 1, 371, No. 3, and 378, No. 2), to the calculation of compensation for termination of the employment contract, for objective causes (Articles 366, No. 1, 372 and 379), to indemnification in lieu of reinstatement, at the request of the worker, in the case of unlawful dismissal (Article 391, No. 1) and, furthermore, to the indemnification owed in case of resolution of the employment contract by initiative of the worker, with just cause (Article 396, Nos 1 and 2).
Thus, the legal meaning of seniority, in its general sense, is reducible to the length of integration of a worker in a business organization, a legal situation which is relevant, in particular, for purposes of promotion, of attribution of long-service payments, of determination of the dimension of notice relative to the date of termination of the contract and of determination of the value of compensation/indemnification, in case of dismissal or of resolution of the employment contract by initiative of the worker.
This is, moreover, the understanding adopted, generically, by doctrine.
According to BERNARDO DA GAMA LOBO XAVIER and OTHERS (Manual of Labour Law, 2nd edition, revised and updated, Verbo, Babel, Lisbon, 2014, pp. 432-433), «[t]he continuity of the worker's service, normally referenced to the same company, determines for him a certain seniority computed in years of service, which gives a special concrete physiognomy to the worker's rights, enhancing them», effects which «are based on the progressive involvement of the worker in the company […] rewarded by the recognition of a more favourable status and by the special protection of contract stability, thus corresponding to the "expectation of security" of the worker (an aspect which today is reflected, essentially, in the protection enjoyed by longer-serving workers in certain cases of dismissal: in the dimension of notice periods – indemnifications).
The same AUTHORS emphasize that «[i]t is debatable whether there can exist a merely conventional seniority», needing to distinguish, «since there are situations in which such provision is perfectly lawful (thus if seniority acquired in another company of the group is accounted), as there will be others in which conventional seniority is unlawful, when it intends to defraud normative preferences relating to seniority (preferences in preservation of employment or promotion assigned to workers effectively more senior)».
In this same line of thought, ANTÓNIO MONTEIRO FERNANDES (Labour Law, 16th edition, Almedina, Coimbra, 2012, p. 191 et seq.) notes that «[t]he employment relationship does not exhaust itself in a moment, in an instantaneous benefit. Whatever its duration, it always implies some continuity, a "state of fact which indicates the more or less prolonged insertion of a worker in a business organization". Continuity determines, in the legal sphere of the worker, seniority. […] From the point of view of the worker, it relates intimately to the risk of rupture: the greater the duration of the contract, the deeper the psychological integration of the worker in the company, the more undesirable or disturbing, therefore, the possibility of termination of the contract. Thus, seniority creates and increases an expectation of security in the worker. As for the interests of the employer, it means that the company was able to realize, over a certain period, the work availability it needed, maintaining incorporated an element whose integration in the company's objectives is guaranteed by that same period of bonding. This is why the seniority regime fits perfectly only in situations of work in the company.»
The aforementioned AUTHOR, following the excerpt transcribed, emphasizes that «[i]t is the moment of the worker's actual admission, that is, that moment when the worker actually begins to find himself "in the service" of the company […], which must be relevant for purposes of counting seniority. This is not thus properly identified with the "duration of actual work", but with the duration of "belonging to the company" which begins, not with the celebration of the contract, but with the incorporation into the company.»
As PEDRO ROMANO MARTINEZ states (Labour Law, 6th edition, Almedina, Coimbra, 2013, p. 382), «[f]or purposes of seniority account is taken of the duration of the employment contract and not of its performance», hence «seniority is not equal to the number of days of effective work, relating instead to the duration of the contractual relationship. In principle, whenever the worker carries out his activity without any breaches, the period runs.»
Identical conceptual framework is adopted by MARIA DO ROSÁRIO PALMA RAMALHO (TREATISE ON LABOUR LAW, PART II – INDIVIDUAL LABOUR SITUATIONS, 5th edition, Almedina, Coimbra, 2014, pp. 492-494), when she points out that «[t]he concept of seniority expresses the special relevance of the continuous character of the employment contract and of the element organizational insertion of the worker that is inherent to the labour bond», that is, «seniority values the integration or the sense of belonging of the worker to a given organization, from the start of the performance of his employment contract to its respective termination» and it is «because seniority values the element of organizational insertion of the labour bond and not the actual performance of work, that it is understood that its counting does not cease in normal situations of non-performance of work (during the worker's weekly rest and vacation) and even in the generality of situations of suspension of the employment contract […]; and it is still this purpose that justifies that the worker's seniority in an employment contract can be used in the contract that succeeds the first in the same company – this is what happens in the case of renewal of the fixed-term employment contract and in its conversion into an indefinite employment contract (Articles 147, No. 3, and 149, No. 4).»
All of which to conclude that the legal notion of seniority adopted in matters of termination of the employment contract, whether for determination of the dimension of notice relative to the date of termination of the contract, or for determination of the amount of compensation, in case of collective dismissal, is that of seniority in the company.
And it is not to be said that, in the case in question, because the author was engaged in activity in the banking sector, there is application, regarding the matter of termination of the employment contract by collective dismissal, of that which is contained in Clause 17 of the Collective Labour Agreement (ACT) celebrated between diverse credit institutions and the Union of Northern Bankers and Others, published in the Official Labour Bulletin (BTE), 1st Series, no. 4, of 21 January 2005, with subsequent amendments, the last of which was published in BTE no. 8, 1st Series, of 29 February 2012.
This is because, beyond the author not having proved, as was his responsibility (Article 342, No. 1, of the Civil Code), that he was affiliated to a union that is a signatory to that ACT, and of there being no ordinance of extension applicable, the fact is that that Clause 17 only regulates the determination of seniority for the purposes provided in that agreement, as clearly results from the body of its respective No. 1, and it is well known that the aforementioned ACT does not regulate the matter of termination of the employment contract by collective dismissal, concretely, the dimension of notice relative to the date of termination of the contract and the determination of the amount of compensation for collective dismissal».
42. In this judgment of the Supreme Court of Justice the concept of seniority is analysed for the purpose of determining the dimension of notice relative to the date of termination of an employment contract, as well as for the purpose of determining the amount of compensation owed to the worker in case of collective dismissal.
43. Despite the differences relative to the case at issue, the reasoning contained in the cited judgment, and the conclusions which the Supreme Court of Justice reaches, are transposable to the analysis of the concept of seniority in case of termination of the employment contract by agreement between the employer and the worker.
44. Relevant is also the fact that in the same judgment of the Supreme Court of Justice seniority in the banking sector is at issue, with the possible relevance which Collective Labour Agreements assume in this matter being raised and analysed.
45. The judgment of the Supreme Court of Justice cited permits us to extract the following conclusions, with relevance to the matter discussed in the proceeding at issue:
a. The Labour Code does not explicitly set out the concept of seniority, but diverse provisions contained therein point to a legal meaning of seniority which, in its general sense, is reducible to the length of integration of a worker in a business organization;
b. In the same sense – that of seniority in the company – goes labour law doctrine;
c. Thus, the legal notion of seniority adopted in matters of termination of the employment contract is that of seniority in the company (whether in the case analysed in the Supreme Court judgment – of collective dismissal – or in the other cases of termination of the employment contract);
d. Clause 17 of the Collective Labour Agreements of the banking sector only regulates the determination of seniority for the purposes provided therein, the matter of termination of the employment contract not being the subject of regulation by the aforementioned Collective Labour Agreements.
46. Thus, even if it were necessary to have recourse to labour law for the purpose of application of paragraph b) of No. 4 of Article 2 of the IRS Code, we would always conclude, as did the Supreme Court of Justice in the cited judgment, that the general meaning ascribed therein to the concept of seniority is that of seniority in the company, and that Clause 17 of the Collective Labour Agreements of the banking sector is not applicable in the case at hand, whose paragraph a) stipulates the following:
«For all the purposes provided in this agreement, the worker's seniority shall be determined by counting the length of service provided in the following terms:
a) All years of service, provided in Portugal, at Credit Institutions with activity in Portuguese territory;
[…]». [emphasis added]
47. Now, beyond the indemnity regime by replacement of reinstatement resulting from unlawful dismissal, the Collective Labour Agreements of the banking sector do not regulate the matter relating to compensations paid to the worker for termination of the employment contract.
48. It could still be debated, in the abstract, what the legal consequence is of the parties recognizing, by agreement, a seniority that goes beyond seniority in the company.
49. On this question, it would always be said that, in light of the interpretation which this Tribunal makes of paragraph b) of No. 4 of Article 2 of the IRS Code, it is irrelevant, for the purposes of this norm, any eventual agreement between the parties to the effect of recognizing a broader seniority, which goes beyond seniority in the company, by force of the principle of prevalence of law.
50. What is at issue is not the exercise of contractual freedom by the parties, which may legitimately agree to recognize an extended seniority; what cannot, because the fiscal legislator does not permit it, is that from that agreement there result fiscal consequences, namely the reduction of the tax to be paid.
51. And it is well understood that it be thus, because, as note Filipe Fraústo da Silva and Cláudia Reis Duarte, referring to the judgments of the TCAS of 21/09/2010 and 11/05/2004, «to admit this position [the acceptance of the concept of seniority such as agreed in the employment contract], and in an interpretation coherent with that profiled in those decisions, the court would be obliged to admit that, if in a given agreement for revocation of employment contract, there is included a clause in which there is agreement on the recognition of a fictitious seniority, or immediately before that revocation agreement the contract is amended to include in it a clause of the same content, that is the seniority attendable for labour purposes, and therefore the seniority to be considered as the multiplier criterion in the delimitation of the negative delimitation of tax incidence in IRS. […] It is, therefore, crystallinely clear that, by taking as reference for fulfilment of the fiscal norm the concept of seniority adopted for labour purposes at the moment of termination of the contract and for purposes of calculation of the compensation to be granted to the worker, there would be found the way for the limit of the exclusion of taxation to be freely manipulable by the parties, which, we must agree, was certainly not – cannot have been – the intention of the fiscal legislator» ["Annotation to the Judgment of the Central Administrative Court-South on Seniority of Banking Worker (for purposes of calculating the amount of compensation for termination of employment contract not subject to taxation, in accordance with No. 4 of Article 2 of the IRS Code)", in Review of the Bar Association, no. 1, 2012, pp. 463-465].
52. In the same sense MANUEL FAUSTINO had already ruled, for whom «[t]he clause of the Collective Labour Agreement of the banking sector is not opposable to the tax administration, which imposes, in the transfer of a worker between credit institutions, the counting of the length of seniority verified at the prior or prior credit institutions of which he has been an employee. Just as, by greater reason, nor are any agreements which, relating to the guarantee of benefits inherent to seniority, have been entered into between the worker and the employer entity. Without considerations that today could be occasioned by the expansion of the subjective concept of employer entity operated by No. 10 of Article 2, given that the former is based on relationships of dominance or group between companies, regardless of their geographic location, we reaffirm here the known orientation of the Tax Administration according to which the length of seniority relevant is, only, the length of seniority "acquired" at the entity with which the individual employment contract is terminated, as literally derives from the law, it not seeming that there is any margin for another type of interpretation» ["On the meaning and scope of the new wording of Article 2, No. 4, of the IRS Code – taxation of amounts received for termination of the contractual link with the employer entity", Taxation, nos 13-14, January/April 2003, p. 10].
53. It is worth noting, however, that in the case at issue the employment contract entered into between the male petitioner and "C…" does not contain any reference to seniority for the purpose of compensation for revocation of the employment contract.
54. Furthermore, the content of the agreement for revocation of the employment contract is irrelevant, since, as is affirmed in the arbitral award handed down in proceeding no. 616/2015-T, «this cannot be considered as an amendment to the Individual Employment Contract […]. All the more so that the agreement for revocation of the employment contract is precisely the contract terminating the labour relationship, which does not aim to establish conditions relating to the performance of the labour relationship but rather to its cessation».
55. It is to be noted, finally, that the interpretative result to which we arrive here is also the most coherent with the constitutional principles of legality, legal security and equality, insofar as the criteria for the determination of the measure of taxation result from law (including the criteria for the exclusion of incidence); they do not depend on vicissitudes such as whether or not workers are unionized and which union, nor on whether the employer has or has not entered into a Collective Labour Agreement, or on the circumstance that the worker has carried out his functions in a certain sector of activity or another, or even on what may have been agreed between the parties.
56. Through an objective criterion defined in law, coherent with the requirements of constitutional legal security, the taxation of the increase in tax-paying capacity (which concretizes the principle of equality in tax matters) resulting from the amounts paid by the debtor entity is assured, permitting the exclusion of incidence also in accordance with an objective criterion legally defined, which has as its reference the fraction of seniority or of exercise of functions of the worker at the said entity.
57. In conclusion, the tax deed of additional assessment contested in the proceedings does not suffer from any defect of violation of law, wherefore the petition for annulment of that deed and of the demonstrative note of account settlement is dismissed.
58. And, consequently, the petition for reimbursement of the accrued tax plus compensatory interest is dismissed.
59. No. 1 of Article 43 of the LGT provides that «[c]ompensatory interest is owed when it is determined, in a gracious reclamation or judicial review, that there has been an error attributable to the services from which results payment of the tax debt in an amount superior to that legally owed».
60. Now, in the case at issue there was no error attributable to the services from which resulted payment of the tax debt in an amount superior to that legally owed, wherefore no compensatory interest is owed.
IV – DECISION
In these terms, and with the grounds set out, this Arbitration Tribunal decides to find the petition for arbitral ruling wholly without merit and to acquit the Respondent of the petition, with all legal consequences.
V – CASE VALUE
In accordance with the provisions of Article 306, No. 2, of the Civil Procedure Code and Article 97-A, No. 1, paragraph a), of the Tax Procedure Code and Article 3, No. 2, of the Regulation of Costs in Arbitration Tax Proceedings, the case value is set at €54,461.82.
VI – COSTS
Pursuant to Article 22, No. 4, of the RJAT, the amount of costs is set at €2,142.00, in accordance with Table I annexed to the Regulation of Costs in Arbitration Tax Proceedings, to be borne by the Petitioners.
Lisbon, 18/12/2017
The Arbitrator
(Paulo Nogueira da Costa)
Frequently Asked Questions
Automatically Created