IRS Taxation of Employment Termination Compensation: CAAD Arbitral Decision 505/2017-T

ARBITRAL DECISION

The arbiters Cons. Jorge Lopes de Sousa (arbitration president), Prof. Dr. Regina de Almeida Monteiro and Dr. Ana Teixeira de Sousa (arbiters members), designated by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 28-11-2017, agree as follows:

1. REPORT

A…– head of the estate of B…, with NIF…, resident at Rua …, no. …, …-… …, Parede (hereinafter referred to as "Claimant"), came, under article 2, no. 1, al. a), and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters or "RJAT"), to submit a request for arbitral pronouncement seeking the declaration of illegality of the IRS Assessment no. 2017 … and Account Reconciliation Statement no. 2017…, relating to the period from 01-01-2013 to 31-12-2013.

The Claimant further requests reimbursement of the tax and compensatory interest, as well as payment of indemnitory interest.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 13-09-2017.

Pursuant to article 6, no. 2, al. a), and article 11, no. 1, al. b) of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbiters of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.

On 08-11-2017 the parties were duly notified of this designation, and did not express any willingness to refuse the designation of the arbiters, in accordance with article 11, no. 1, als. a) and b) of the RJAT and articles 6 and 7 of the Ethics Code.

Thus, in accordance with article 11, no. 1, al. c) of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 28-11-2017.

On 16-01-2018, the Tax and Customs Authority submitted its response in which it argued that the request should be judged without merit.

By order of 02-02-2018 a hearing was dispensed with and oral arguments, unless the Parties objected.

Only the Claimant pronounced itself, stating it did not object to the dispensation of a hearing and oral arguments.

The arbitral tribunal was regularly constituted, in accordance with articles 2, no. 1, al. a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The parties are duly represented and enjoy legal personality and capacity and have standing (articles 4 and 10, no. 2, of the same instrument and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

2. FACTUAL MATTERS

2.1. Established Facts

On the basis of the elements contained in the file and in the administrative proceedings attached to the records, the following facts are considered established:

- B… held positions in Group C… in the period between 14 October 1987 and 15 January 2006, as confirmed by Work Certificate issued by C… (document no. 3 attached with the request for arbitral pronouncement, whose content is reproduced herein);

- B…, when he ceased his functions with Group C…, in January 2006, did not receive any amount as indemnification or compensation for the cessation of his respective employment contract;

- On 9 January 2006 an employment contract was entered into between D… and B…, which took effect from 16 January 2006 (document no. 4 attached with the request for arbitral pronouncement, whose content is reproduced herein);

- With respect to his professional category, Clause 2 (Functions) of the Employment Contract determines that he held the position of Member of the Executive Committee, with the professional category of Director;

- The gross monthly remuneration that B… received was € 11,430.00, as per the conditions regulated in Clause 4 (Remuneration) of the Employment Contract, which was later updated to € 14,285.71, paid in 14 monthly installments, by virtue of the Amendment to the Employment Contract contained in document no. 5 attached with the request for arbitral pronouncement, whose content is reproduced herein;

- In the initial contract, the following was regulated in Clause 7 (Seniority):

"1. The Bank guarantees to the Second Party B… the seniority arising from service rendered to other credit institutions, documented since 14/10/1987, with the following specifications:

a) For purposes of the D… Pension Fund, the First Party shall take into account the time of service rendered to other credit institutions, with the amount of the retirement or disability presumed pension calculated in accordance with the regime provided in the ACTV for bankers.

b) The portion of retirement corresponding to the time of service rendered by the Second Party to the First Party shall be calculated in accordance with Clause 6 of the D… Pension Plan.

c) The time of service rendered to other Credit Institutions prior to the signing of this contract shall not be taken into account for the calculation of length-of-service bonuses";

- In Clause 12 (Applicable Rules) of the Employment Contract the following was regulated:

"In the absence of provisions herein, the ACTV for the Banking Sector applies, with the exceptions contained in BTE, 1st Series, no. 42 of 15.11.94 and general labour law";

- This clause is replicated in Clause 14.1 of the Amendment to the Employment Contract which determines that the collective regulation instruments in force for the sector shall be applicable;

- D… subscribed to the said Collective Agreement and the worker in question was a member of the Union, paying union dues (document no. 6 attached with the request for arbitral pronouncement, whose content is reproduced herein);

- D… subscribed to the Collective Agreement with the following proviso:

"In counting service time for any effects arising from the Collective Agreement, only service time rendered to the Institutions themselves that are signatory to this proviso shall count, plus possibly service time rendered to other institutions or companies, but in such case only if this results from an individual agreement between those and the worker" (article 36 of the request for arbitral pronouncement, not disputed);

- On 26 February 2013 an Agreement to Terminate the Employment Contract (hereinafter "Termination Agreement") was entered into, with effect from 31 May 2013 (document no. 7 attached with the request for arbitral pronouncement, whose content is reproduced herein);

- The Whereas B of the said agreement contains the following:

"That the Parties have agreed to recognize the seniority of the Employee arising from service rendered to other credit institutions since 14 October 1987, in accordance with clause 7 of the Contract, under the terms and for the purposes of clause 17 of the Collective Labour Agreement for the Banking Sector (hereinafter, the "Collective Agreement"), in accordance with the proviso raised by the Bank, which makes the relevance of counting such service time rendered to other credit institutions dependent on an individual agreement between the Bank and each specific worker, which agreement, in the case of the Employee, indeed existed and which the Parties now reiterate for all legal purposes, in particular those set forth in the doctrine underlying the judgment of 21 September 2010 of the Central Administrative Court South (EUGÉNIO SEQUEIRA), in proc. 03748/10";

- For purposes of indemnification, Clause 2 of the Termination Agreement determines that in consideration of the termination of the Employment Contract, the Bank undertook to pay to B… the gross sum of € 750,000.00 (seven hundred and fifty thousand euros) as overall pecuniary compensation, which amount was indeed received by B… and included in the June 2013 pay slip, with the description "Comp. Cess. Mutual Accord", and upon which the applicability of IRS is disputed (document no. 6);

- In 2014 an IRS Declaration was submitted by B… and the Claimant, relating to 2013, contained in document no. 9 attached with the request for arbitral pronouncement, whose content is reproduced herein, having been declared as the overall amount of income obtained under Category A the overall value of € 406,420.02 (document no. 9 attached with the request for arbitral pronouncement, whose content is reproduced herein);

- In that declaration, it was considered by the declarants that of the € 750,000.00 mentioned, only the amount of € 232,502.24 was subject to IRS, by application of article 2, no. 4, al. h) of the IRS Code, as the amount of € 517,497.76 was considered exempt indemnification, this amount calculated taking into account the average value of € 19,903.76 of regular remuneration with the character of taxable remuneration earned in the last 12 months and 26 years of seniority;

- From that declaration resulted IRS payable, which was paid, by reference to the year 2013, the value of € 26,687.76 (document no. 10 attached with the request for arbitral pronouncement, whose content is reproduced herein);

- A tax inspection was conducted of the Claimant under OI 2016…, for IRS purposes, for the tax year 2013, in which the Tax Inspection Report was drawn up from the administrative proceedings, whose content is reproduced herein, which states, among other things, the following:

"III - DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS

III.1.1 - ACTIONS TAKEN

Following the above, in accordance with the elements obtained, we verified that the taxpayer (B…) received in 2013 an indemnification in the amount of € 750,000.00 considering that he did not declare the amount of € 370,700.71.

In this context, pursuant to article 57, no. 4 of the IRS Code, the taxpayer A…, head of the estate of B…, was duly notified, through Our Office no. …, of 2016.02.25, communicating that she should replace the income declaration referred to above, adding the portion of the indemnification that was not declared, in the amount of € 370,700.71.

It should also be noted that failure to submit the said declaration within the set periods (15 days) to AT, it should proceed to official assessment in accordance with the available elements, in accordance with article 65, no. 4 of the IRS Code.

In the case at hand, the taxpayer, duly notified, did not adduce to the proceedings any clarification or evidence elements, to submit the replacement declaration for the tax year 2013, in the capacity of head of the estate of B…, in accordance with article 29 of the General Tax Law which establishes in its no. 2 that "original and subsidiary tax obligations are transmitted even if they have not yet been assessed, in case of universal succession by death, without prejudice to the benefit of inventory."

In this sense, reporting to the subject matter in question, we found divergent understandings, for purposes of calculating the amount to be excluded from taxation, regarding the item - seniority, specifically, considering the service time rendered to the debtor entity (service time - 7.38), or the seniority considered by D… (service time - 26), in calculating the portion of the indemnification subject to taxation for IRS purposes.

III.1.2 - OF THE RELEVANT LAW

On the matter that here is considered as circumstantially relevant and to be noted the provision in article 2, no. 4, al. b) of the IRS Code, which determines that the amounts earned are subject to taxation "In the part that exceeds the value corresponding to the average value of regular remuneration with the character of taxable remuneration earned in the last 12 months, multiplied by the number of years or fraction of seniority or 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 shall be taxed in full."

From the exegesis of the said legal provision, it must be concluded that in cases of receipt of indemnifications for termination of employment contracts, the law establishes a non-subjection to tax (negative delimitation of the objective scope of IRS under Category A) albeit with a maximum limit. The limit of non-subjection is the average value of regular remuneration with the character of taxable remuneration earned in the last twelve months, multiplied by the number of years or fraction of seniority or exercise of functions in the debtor entity, 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 shall be taxed in full.

Nevertheless, even assuming the hypothesis of knowing whether the banking Collective Agreement, as applied in this case, could have any fiscal relevance here, knowing that this is not law (in the formal sense), it seems it should be ruled out by virtue of article 112 of the Constitution and article 1 of the Civil Code, since, not having been issued by any state body, under its objective competence and within the material limits of its respective subjective competence, but rather emanating from the agreement of wills formed between the union and employer associations of the sector of activity, and within the private domain of the will of the parties, it does not constitute law in the formal and proper sense.

For its part, the amount of compensation for termination of an employment contract (being the situation under analysis), is not a matter limited by any binding legal rule and, therefore, nothing prevents the parties from, even in the case of negotiating it based on the worker's seniority, considering an amount lower or higher than what the worker actually has.

The ratio of the fiscal provision would be, in our view, the intention to grant a kind of benefit, excluding from taxation and rewarding with that exclusion proportionally more those who have remained longer in the entity where the contract is terminated or the exercise of functions ceases.

In our better judgment, it would certainly not have been in the legislator's mind to grant greater exclusion from taxation to one who, not meeting this requirement, simply agrees with the employer entity (or prevails itself of a collective convention that establishes this) a seniority that in reality he does not have or exceeds what he actually has, that is, negotiating over a "measure" as if it were an available legal asset.

We believe, therefore, that even adopting the interpretation according to which the fiscal rule refers only to seniority and that one must resort to labour law to fill this concept, the concept of seniority to be adopted should be the strictest, concept "measure" of seniority in the company, which leads to the same solution that we consider correct and that we understand results from the literal element itself, which is that the fiscal legislator intended to refer to "seniority ... in the debtor entity".

And having arrived here, still regarding the seniority factor, noting the provision of the said legal rule, we cite the opinion of Manuel Faustino: "The clause of the ACTV banking sector collective agreement that imposes, in the transfer of a worker between credit institutions, the counting of seniority time verified in the previous credit institution(s) of which he was an employee is not opposable to the tax administration. As, with even greater reason, neither are any agreements that, respecting the guarantee of benefits inherent to seniority, have been concluded between the worker and the employer entity. Without considerations that could today be provided by the subjective extension of the concept of employer entity operated by no. 10 of article 2, since that is based on relationships of control or group between companies, regardless of their geographical location, we reaffirm here the known orientation of the Tax Administration according to which the relevant seniority time is, and only, the seniority time "acquired" in the entity with which the individual employment contract is terminated, as literally follows from the law, and there does not seem to be any room for any other type of interpretation".

Nevertheless, we consider for purposes of better consolidating the position of the Services, regarding the controversial matter underlying these proceedings, taking into account that there may be legal instruments of a negotiable nature that impose on the entity owing the monetary compensation referred to in the rule an amount of seniority greater than that corresponding to the duration of the contractual relationship attributed by the entity, the matter was forwarded back to the respective competent entity the body of the central tax administration - IRS Services Directorate, for higher consideration and decision.

In this sense, from 2016.06.14, the IRS Services Directorate came forward regarding the calculation of indemnification for purposes of article 2, no. 4, al. b) of the IRS Code related to its application to workers in the banking sector covered by the respective Collective Agreement, and the judgment was issued on 2016.03.21, by the General Director, the following understanding was sanctioned:

"The amounts earned by workers in the banking sector, as indemnification for the termination of the employment contract, covered by the Collective Agreement, paid by the last entity in which they provide service, being applicable the exclusion rule provided in article 2, no. 4, al. b) of the IRS Code, should take into account for purposes of its calculation only the number of years or fraction of seniority or exercise of functions in the last debtor entity of the income which, by force of the historical-systematic element inherent in the rule of the current no. 10 of the aforementioned article, corresponds to "employer/employer entity", with the amplitude resulting from this rule, as well as from situations of succession in the position of this entity, at most by virtue of the equation inherent in article 285 of the Labour Code of 2009."

Therefore, it is concluded that in the present case of indemnification for termination of the employment contract by mutual agreement, between Mr. B… and his employer entity Bank D…, the most congruent solution, regarding the concept of seniority 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 said legal rule, should take into account only the number of years or fraction of seniority or exercise of functions in the last debtor entity of the income, in accordance with the understanding advocated by the Services.

III.1.3 PROPOSED CORRECTION

In light of all the above, with particular emphasis on what is stated in III.1.2, in our better judgment, the amount of € 370,700.71 should be added to the income obtained in D…, that is, the income initially entered in Annex A - Table 4, of the IRS Form 3 declaration, relating to the tax year 2013, should be corrected to the amount of € 777,120.73, as mentioned above.

- Following the inspection, the Tax and Customs Authority issued IRS Assessment no. 2017… and Account Reconciliation Statement no. 2017…, which includes compensatory interest, relating to the period of 2013 (documents nos. 1 and 2 attached with the request for arbitral pronouncement, whose contents are reproduced herein);

- On 25-07-2017, the Claimant paid the stated assessed amount (documents nos. 11 and 12 attached with the request for arbitral pronouncement, whose contents are reproduced herein);

- On 12-19-2017, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

2.2. Unproven Facts and Justification for the Establishment of Factual Matters

There are no facts relevant to the decision of the case that have not been proven, nor is there any controversy regarding the factual matters, which are based on the documentary evidence indicated.

3. LEGAL MATTERS

3.1. Positions of the Parties

The issue at hand in these proceedings is to determine the IRS incidence on an indemnification for termination of employment contract, in light of article 2, no. 4, al. b), of the IRS Code.

Article 2, no. 4, al. b), of the IRS Code, as worded by Law no. 64-B/2011, of 30 December, establishes the following:

"4 - When, in any manner, the contracts underlying the situations referred to in als. a), b) and c) of no. 1 cease, but without prejudice to the provision in al. d) of the same number, regarding benefits that continue to be due even if the employment contract does not subsist, or there is cessation of the functions of public manager, administrator or manager of a legal entity, as well as of representative of a permanent establishment of a non-resident entity, the amounts earned, under any title, are always subject to taxation:

(...)

b) In the part that exceeds the value corresponding to the average value of regular remuneration with the character of taxable remuneration earned in the last 12 months, multiplied by the number of years or fraction of seniority or 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 shall be taxed in full."

This rule constitutes a negative delimitation of IRS incidence such that the portion of the indemnification that does not exceed the value corresponding to the average value of regular remuneration with the character of taxable remuneration earned in the last 12 months, multiplied by the number of years or fraction of seniority or exercise of functions in the debtor entity, is not subject to tax.

As is stated in the Tax Inspection Report, there are "divergent understandings, for purposes of calculating the amount to be excluded from taxation, regarding the item - seniority, specifically, considering the service time rendered to the debtor entity (service time - 7.38), or the seniority considered by D… (service time - 26), in calculating the portion of the indemnification subject to taxation for IRS purposes."

Thus, the question to be addressed is whether, for purposes of the negative delimitation of IRS incidence in the case of indemnification for termination of employment contract, all the service time rendered in that sector should be considered, even if rendered by diverse employer entities but recognized by the latter, or only that rendered to the last one and with whom the termination was effected.

The Tax and Customs Authority defended in the Tax Inspection Report that the relevant seniority is only "seniority in the company", which it understands "results from the literal element itself, which is that the fiscal legislator intended to refer to 'seniority ... in the debtor entity'".

Therefore, the Tax and Customs Authority concluded that "in the present case of indemnification for termination of the employment contract by mutual agreement, between Mr. B… and his employer entity Bank D…, the most congruent solution, regarding the concept of seniority 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 said legal rule, should take into account only the number of years or fraction of seniority or exercise of functions in the last debtor entity of the income."

The Tax and Customs Authority further invoked in the Tax Inspection Report that the fiscal relevance of the Collective Labour Agreement for the banking sector "seems it should be ruled out by virtue of article 112 of the Constitution and article 1 of the Civil Code, since, not having been issued by any state body, under its objective competence and within the material limits of its respective subjective competence, but rather emanating from the agreement of wills formed between the union and employer associations of the sector of activity, and within the private domain of the will of the parties, does not constitute law in the formal and proper sense."

In the same vein, in the present proceedings, the Tax and Customs Authority invokes the "principle of legality in tax incidence, whose corollaries of equality, responsibility and security demand an intense degree of determinability" that "unequivocally presuppose in al. b) of no. 4 of article 2 of the IRS Code a 'seniority' referenced to the 'debtor entity' and which do not permit, in light of the teleological element assessed by the purpose of the exclusion of tax incidence established in that same rule, that negotiable legal instruments might, through increases in the seniority inherent to the actual duration of the contractual relationship conferred by that entity, voluntarily delimit the scope of that exclusion of tax incidence."

The Tax and Customs Authority further states that "the 'debtor entity' referred to in no. 4 of article 2, must be the 'employer entity' mentioned in no. 10 of the same legal provision, which becomes explicit when in no. 4 it conditions the exclusion from taxation to the non-creation of a new professional or business relationship within 24 months with the same 'entity'."

The Claimant invokes case law that advocates, in summary, that it is relevant, for purposes of no. 4 of article 2 of the IRS Code, the seniority derived from service rendered by the worker to entities in the same sector when the following conditions are met:

i) The new employer entity has subscribed to the Collective Agreement of the respective sector;

ii) There exists an individual agreement between the worker and the new employer entity regarding the relevance of service time rendered to entities in the same sector; and

iii) The worker is a member of the respective union.

The Claimant argues that these requirements are satisfied in the case at hand, as:

– a clause was inserted in the employment contract entered into between D… and B…, in which the seniority in all banking institutions in Portugal since 14 October 1987 was expressly included;

– D… subscribed to the Collective Labour Agreement for the banking sector with the Unions of Bankers of the Centre, North, South and Islands, in which the worker was a member;

– from the Collective Agreement of the banking sector it follows, by force of Clause 17, that the seniority of the worker, for all purposes provided in the Agreement, shall be determined by counting all years of service rendered in Portugal in Credit Institutions with activity in Portuguese territory.

The Claimant further argues that it would be discriminatory (and therefore unconstitutional and unlawful) the interpretation of Tax Law in the sense that (as the AT does) labour seniority is only assessed by the time devoted to the last employer entity.

3.2. Consideration of the Question

The question of the interpretation of al. b) of no. 4 of article 2 of the IRS Code has been addressed by the case law of the Central Administrative Court South ([1]) and arbitral ([2]).

That case law has in common, in summary, the understanding that:

– not being defined by the IRS Code or tax legislation the concept of "seniority", the concept used in labour law should be utilized, by force of no. 2 of article 11 of the General Tax Law, which establishes that "whenever, in tax rules, terms specific to other branches of law are used, they must be interpreted in the same sense as they have there, unless otherwise directly follows from the law", which would enable the application of the concept of seniority used in labour law;

– labour law provides a broad concept of seniority by allowing service time and category already achieved in other employer entities to be taken into account, so that it may be admitted without prejudice to the seniority acquired there, since such is not prohibited by general labour law, being a practice recognized in some Collective Labour Regulation Instruments and in the customs of the labour profession and of companies.

The summary made in the judgment of the Central Administrative Court South delivered in case no. 5971/12 is particularly enlightening, in which it states:

"8. In the construction of the concept of taxable income, the IRS Code adopts the income-increase conception, according to which the tax base of this tax includes all increase in the taxpayer's purchasing power, including in it, in a general manner, irregular receipts and fortuitous gains, which should also be considered manifestations of contributive capacity (cfr. no. 5 of the preamble of the IRS Code).

9. Under article 2, no. 3, al. e), of the IRS Code, the legislator considers income from dependent work any indemnifications resulting, among other things, from the extinction of the legal relationship that gives rise to such dependent work income. Such indemnifications for termination of employment do not fit within the concept of remuneration, although they receive express classification as work income subject to taxation, in accordance with the terms established in no. 4 of the same provision.

10. From the exegesis of article 2, no. 4, of the IRS Code, it must be concluded that in cases of receipt of indemnifications for extinction of employment or other contracts that give rise to taxable income under Category A of IRS, the law establishes a non-subjection to tax (negative delimitation of the objective scope of IRS under Category A) albeit with a maximum limit. The limit of non-subjection is the value corresponding to one and a half times the average value of regular remuneration with the character of taxable remuneration earned in the last twelve months, multiplied by the number of years, or fraction, of seniority or exercise of functions in the debtor entity.

11. It not resulting from the rule under examination (cfr. article 2, no. 4, of the IRS Code) that the concept of seniority refers restrictively to the service time in the entity owing compensation for termination of the employment contract, and nothing justifying a restrictive interpretation of the rule of incidence, the broader notion of seniority derived from labour law should be accepted for calculating the amount subject to taxation for IRS purposes."

However, as this Arbitral Tribunal is not bound by precedent case law (article 2, no. 2, of the RJAT), a reanalysis of the question is justified, taking into account the arguments brought by the Parties, including the constitutional issues raised in the Tax Inspection Report and in the present proceedings.

The first question to resolve is whether the rule in question provides elements that allow one to detect what concept of seniority is considered relevant, in particular whether this may be interpreted as referring to "seniority ... in the debtor entity".

The expression "number of years or fraction of seniority or exercise of functions in the debtor entity", used in al. b) of no. 4 of article 2 of the IRS Code, reveals with clarity that regarding "number of years or fraction ... of exercise of functions", only that which refers to the exercise "in the debtor entity" is relevant.

As to "seniority" there is not the same clarity, since the final reference to "debtor entity" may grammatically refer only to "exercise of functions".

However, grammatically, the final reference to "debtor entity" could also, without appreciable effort, refer to "seniority" ("seniority ... in the debtor entity"), being this a textually adequate form to express a legislative intention to the effect that the relevant seniority is also, as happens with "exercise of functions", that referring to the debtor entity.

This latter reading appears to be the most consistent, since the alternative it refers to, between "seniority" and "exercise of functions", is justified because the concept of seniority is appropriate to reference service time rendered under an employment contract, but not to service rendered under other functions to which this regime applies, referred to in the body of said no. 4, such as is manifestly the case of the exercise of functions of public manager (as follows from its respective Statute, approved by Decree-Law no. 71/2007, of 27 March [3]), but also of the functions of administration in legal entities. This is confirmed by al. a) of the same no. 4 of article 2 in which is expressly referred to the "exercise of functions of public manager, administrator or manager of a legal entity, as well as of representative of a permanent establishment of a non-resident entity".

Since there is no negative delimitation of incidence regarding the portion of the indemnification that corresponds to this exercise of management and representation functions [as was later made explicit by the wording given to that al. a) by Law no. 82-E/2014, of 31 December, to which its article 14 attributed interpretative nature], the reference in al. b) to the existence of negative delimitation in cases of "exercise of functions in the debtor entity" will aim at cases in which workers have not exercised only those functions in the debtor entity, cumulating them with work to which the concept of seniority applies. That is, these will be, in particular, the frequent situations of workers bound by employment contract who go on to exercise management functions: in these cases, the portion of the indemnification that corresponds to the exercise of management functions is taxable in full, but to the portion of the indemnification that corresponds to work of another type applies the negative delimitation of incidence considering for determining its scope both the seniority and the period of exercise of management functions.

Thus, in the context in which the said expression is used, it appears appropriate to interpret this rule as alluding to "seniority ... in the debtor entity" and to "exercise of functions in the debtor entity".

Indeed, for purposes of indemnification for termination of employment contract, the normal scope of the expression "seniority", pure and simple, is that of "seniority in the company", the duration of the employment contract, as has long been understood. ([4])

However, even with this reading, the scope of the expression is not completely clarified, since, literally, the seniority of the worker in the debtor entity may be understood as that which is legally recognized to the worker, including that relating to work in other entities, but which is recognized to him in the company by virtue of a collective labour agreement, or an extension order, or an individual employment contract. ([5])

However, as the Tax and Customs Authority states in the Tax Inspection Report, an interpretation of this type would imply the formal unconstitutionality of that al. b) of no. 4 of article 2 of the IRS Code, since it would come down to recognizing the relevance of acts of a non-legislative nature for integrating a concept which, by force of the Constitution, is subject to the reservation of formal law.

In fact, that al. b) of no. 4 of article 2 of the IRS Code constitutes a negative delimitation of IRS incidence and the rules that define the incidence of taxes are constitutionally valid only if they are contained in formal law or a decree-law issued under legislative authorization from Parliament, as results from the provisions of articles 103, no. 2, and 165, no. 1, al. i), and 198, no. 1, al. b), of the Constitution.

And, by force of the provision of article 112, no. 5, of the Constitution, "no law may create other categories of legislative acts or confer on acts of another nature the power to, with external efficacy, interpret, supplement, modify, suspend or repeal any of its provisions".

Therefore, al. b) of no. 4 of article 2 of the IRS Code would be unconstitutional if interpreted as attributing to individual contracts or to acts of a non-legislative nature (such as collective labour agreements and extension orders) the power to define the scope of the delimitation of IRS incidence.

If it is understood that article 11, no. 2, of the General Tax Law ensures the possibility of resorting to rules of a non-legislative nature to define the scope of IRS incidence, that interpretation would be materially unconstitutional, for being incompatible with article 112, no. 5 of the Constitution. The reference to "no law" contained in this constitutional provision encompasses the General Tax Law.

Consequently, the interpretation of this rule that is constitutionally admissible is that which attributes to it a precise scope, not modifiable by normative acts or individual agreements, which is that it refers to seniority in the "debtor entity", similarly to what happens with "exercise of functions".

Moreover, this is also the most congruent interpretation and that ensures the constitutionally protected principle of equality (article 13 of the Constitution), since at this level of IRS taxation of indemnifications due by cessation of activity in a company, no reasons are seen that would justify that different regimes be applied depending on the nature of the service rendered.

Indeed, in any of the cases the reasons that may justify this negative delimitation of incidence apply, which are "to take into account the fact that the indemnification amount will be necessary for the worker to ensure his subsistence during the period of unemployment that, in most cases, will follow" and to "take into account that the receipt of such sum, generally relatively substantial, will have a triggering effect on the tax rate: the income obtained that year will be exceptionally high, so it will be taxed at high rates given the progressivity of the tax" ([6]).

On the other hand, still from the perspective of the principle of equality, no reason is seen that would justify distinguishing, for purposes of IRS taxation of workers who receive indemnifications for cessation of employment contracts, between those who are union members in unions that have concluded collective labour agreements and those who are not union members or who are union members in unions that have not concluded such agreements.

Namely, it is not demonstrated that there is unjustified discriminatory treatment in the situations that the Claimant refers to as generating unconstitutional discrimination, of "two workers with the same salary who have received the same amount of 100,000 € as indemnification for termination of employment contract, following a working career of 20 years, may have two completely different treatments" and if one "worked uninterruptedly for 20 years in the same company" and another "worked 10 years with one employer entity, then left that company without indemnification, and immediately again took another employer entity in the same sector of activity and exercising the same functions for another 10 years (that is, having a total of 20 years of activity), can only benefit from the exemption calculated based on a seniority of 10 years".

In fact, the negative delimitation of incidence may be applied to more than one indemnification for termination of the employment relationship of workers, provided that between the multiple applications there is an interval of five years, as is provided in no. 7 of article 2 of the IRS Code ([7]), therefore, in the situation described by the Claimant, the worker who saw his first employment relationship terminated after 10 years could benefit from the regime in question by repeating the application of the regime when his second employment relationship of 10 years would terminate. On the other hand, if in the first cessation of the employment relationship the worker had no right to indemnification, there is no justification for that period of work, which conferred no right to indemnification, to be recovered for purposes of taxation of indemnification relating to cessation of a distinct subsequent employment relationship.

Indeed, from this perspective of the principle of equality, in light of the said possibility of repetition of the application of the regime deriving from no. 7 of article 2 of the IRS Code, it is the thesis of the Claimant that could lead to unjustified positive discrimination of the worker who terminated more than one employment relationships with indemnifications distanced five or more years. Indeed, applying the Claimant's understanding, the same seniority that was valued for purposes of applying the regime in the first termination of the relationship could be reused several times for the negative delimitation of IRS, being, in the last use, considered all seniority from the first relationship. ([8])

Therefore, that al. b) of no. 4 of article 2 of the IRS Code would be materially unconstitutional, for violation of article 13 of the Constitution, if interpreted as making the negative delimitation of IRS incidence provided therein depend on the applicability to the worker of rules provided in collective labour agreements or in individual contracts.

Therefore, it is concluded that the interpretation of this rule of the IRS Code compatible with the Constitution is that made by the Tax and Customs Authority and is underlying the assessed liability being challenged, that for all workers, the seniority to be considered is the seniority in the debtor entity of the indemnification, similarly to what happens with managers.

It is thus concluded that the assessed liability being challenged does not suffer from the illegality that the Claimant attributes to it.

3.3. Compensatory Interest

The assessment of compensatory interest is based on the IRS assessment (article 35, no. 8, of the General Tax Law), therefore, does not suffer from the defect that the Claimant attributes to it as a reflection of the illegality of the IRS assessment.

However, the Claimant attributes defects specific to the assessment of compensatory interest, namely, in summary, the non-existence of a subjective nexus of imputation of the delay in the assessment to the taxpayer, by way of fault.

As was understood in the judgment of the Supreme Administrative Court of 23-09-1998, and is settled case law ([9]):

"Compensatory interest is intended to compensate or indemnify the tax creditor for the damage presumably suffered due to the delay in the entry of the tax into its patrimonial sphere.

The responsibility for payment of compensatory interest depends on the existence of a tax debt, the existence of a delay in the effectuation of a tax assessment, and the imputability of this delay to the action of the taxpayer.

This imputability requires the existence of a causal nexus between the action of the taxpayer and the referred delay and the possibility of formulating a censure judgment on the action of the taxpayer (fault)".

In the case at hand, the Tax and Customs Authority does not attribute to the Claimant facts that serve as a basis for a censure judgment.

On the other hand, the solution to the question of the scope of the negative delimitation of IRS incidence is not clear, in light of the letter of the law, nor is there consolidated case law in the sense defended by the Tax and Customs Authority, therefore the mere fact that the Claimant defends the interpretation of the law that it considers adequate cannot merit a censure judgment.

Therefore, there is no basis for the assessment of compensatory interest.

4. REIMBURSEMENT OF AMOUNT PAID AND INDEMNITORY INTEREST

The Claimant paid the assessed amount and requests reimbursement of the amount paid, plus indemnitory interest.

In accordance with the provision in al. b) of article 24 of the RJAT, the arbitral decision on the merit of the claim to which no appeal or challenge is available binds the Tax Administration from the end of the period set for appeal or challenge, it being necessary for it, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and until the end of the period set for voluntary execution of judgments of tax courts, to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been practiced, adopting the necessary acts and operations for that purpose", which is in harmony with the provision of article 100 of the General Tax Law [applicable by force of the provision in al. 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 claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration 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 period of execution of the decision".

Although article 2, no. 1, als. a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating in CAAD, making no reference to condemning decisions, it should be understood that it encompasses in its competence the powers which in judicial challenge proceedings are attributed to tax courts, this being the interpretation that aligns with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it is proclaimed, as the first directive, that "the tax arbitration proceedings must constitute an alternative procedural means to judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge proceedings, despite being essentially a proceeding for annulment of tax acts, admits the condemnation of the Tax Administration to payment of indemnitory interest, as appears from article 43, no. 1, of the General Tax Law, in which it is established that "indemnitory interest is due when it is determined, in gracious objection or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due" and from article 61, no. 4 of the Code of Tax Procedure and Process (as worded by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), that "if the decision that recognized the right to indemnitory interest is judicial, the period for payment shall be counted from the beginning of the period of its voluntary execution".

Thus, no. 5 of article 24 of the RJAT, when it states that "interest of whatever nature is due, in accordance with the terms provided in the general tax law and the Code of Tax Procedure and Process", should be understood as allowing the recognition of the right to indemnitory interest in the arbitral proceedings, as well as the reimbursement of the amount paid, which is the calculation base for interest.

It is therefore necessary to consider the request for reimbursement of the amount improperly paid, plus indemnitory interest.

In the case at hand, as the request for arbitral pronouncement is without merit as to the IRS assessment, its payment is not improper, therefore the Claimant has no right to reimbursement of that amount nor to indemnitory interest.

However, as regards compensatory interest, since the assessment is illegal, the Claimant improperly paid the respective amount, of € 20,454.00, therefore she has the right to its reimbursement, plus indemnitory interest.

Indeed, by force of the aforementioned articles 24, no. 1, al. b), of the RJAT and 100 of the General Tax Law, the reimbursement is essential to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been practiced".

Consequently, the Claimant is entitled to indemnitory interest, in accordance with article 43, no. 1, of the General Tax Law and 61 of the Code of Tax Procedure and Process, regarding the amount that will be reimbursed.

Indemnitory interest shall be paid from the date on which the Claimant made the payment (25-07-2017) until full payment of the amount to be reimbursed, at the legal supplementary rate, in accordance with articles 43, no. 4, and 35, no. 10, of the General Tax Law, article 61 of the Code of Tax Procedure and Process, article 559 of the Civil Code and Order no. 291/2003, of 8 April.

5. DECISION

In these terms, the arbiters of this Arbitral Tribunal agree as follows:

- To judge without merit the request for arbitral pronouncement regarding the part of Assessment no. 2017… and Account Reconciliation Statement no. 2017…, which refer to the IRS assessment, and to absolve the Tax and Customs Authority of the request in that part;

- To judge with merit the request for arbitral pronouncement regarding the parts of Assessment no. 2017… and Account Reconciliation Statement no. 2017… which relate to compensatory interest and to annul that assessment and statement in those parts;

- To judge partially with merit the request for reimbursement, regarding the amount of € 20,454.00 relating to compensatory interest and to condemn the Tax and Customs Authority to pay the Claimant that amount;

- To judge partially with merit the request for indemnitory interest regarding the part that refers to the assessment of compensatory interest and to condemn the Tax and Customs Authority to pay those indemnitory interest, calculated on the amount of € 20,454.00, from 25-07-2017 until reimbursement of this amount.

6. VALUE OF THE CASE

In accordance with article 306, no. 2, of the Code of Civil Procedure and 97-A, no. 1, al. a), of the Code of Tax Procedure and Process and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 226,007.76.

7. COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is set at € 4,284.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, borne by the Claimant in the proportion of 90.95% and borne by the Tax and Customs Authority in the proportion of 9.05%.

Lisbon, 16-03-2018

The Arbiters

(Jorge Manuel Lopes de Sousa)

(Regina de Almeida Monteiro)

(Ana Teixeira de Sousa)
(with the dissenting opinion annexed)

DISSENTING OPINION

I concur with the decision of the Arbitral Tribunal to judge the request for arbitral pronouncement without merit but not with part of the reasoning.

Without prejudice to the respect due, which is very considerable, to the reasoning presented, I vote for the judgment of no merit to the arbitral request based on the following reasoning.

No. 4 of article 2 of the IRS Code states that, to calculate the excluded portion of the indemnification for termination of employment, we should attend to the "seniority or exercise of functions in the debtor entity".

The legal provision in question speaks of "number of years or fraction of seniority or exercise of functions in the debtor entity…".

There does appear to have been, indeed, the necessity of a more comprehensive legislative norm provision since the rule that defines income from dependent work also includes in its provision a multiplicity of different situations and of more or less broad scope.

Not having the fiscal legislator defined for this purpose the concept of seniority of the worker, the interpreter and applicant must resort to the content of that concept as it operates in labour law, it being known that it is current doctrine (currently established in article 11 of the General Tax Law) that whenever tax rules employ terms specific to other branches of law, they must be interpreted in the same sense as they have there, unless otherwise directly follows from the law.

Indeed, it not resulting from the rule under examination (cfr. article 2, no. 4, of the IRS Code) that the concept of seniority refers restrictively to the service time in the debtor entity owing compensation for termination of employment, the notion of seniority derived from labour law should be accepted for calculating the amount subject to taxation for IRS purposes (cfr. judgment of Central Administrative Court South, 11/5/2004, case 6002/01; judgment of Central Administrative Court South, 21/9/2010, case 3748/10). There is already also considerable case law from both court and arbitral tribunals on this matter. Now, precisely this case law has accepted, in most cases and based on the path to be followed below, that the concept of seniority should refer to what derives from the concepts used by the Labour Code, accepting to include previous employment relationships provided that these have occurred in the same activity and there exist Collective Labour Agreements in that sense.

Accompanying the tax case law established in Case no. 616/2015-T we know that it is normal for tax rules to make use of terms and concepts specific to other branches of Law, in particular of Administrative Law, Labour Law or Civil Law, such as "income", "transmission" or "salary". In these cases, article 11, no. 2 of the General Tax Law determines that such concepts must be interpreted in the identical sense to what they have in their branches of origin, except if otherwise directly follows from tax law.

We must emphasize that these concepts often maintain their original sense, although "it is no less numerous the cases in which those concepts gain another sense when used by the tax legislator" as SÉRGIO VASQUES emphasizes in "Manual of Tax Law", referring in particular to the concepts of transmission of goods and provision of services in the VAT Code.

Now, there is no doubt that "seniority" constitutes a concept with origin in Labour Law, and there is also no doubt that the tax legislator did not give this concept its own definition. Thus, this concept should be interpreted in the same sense as it has in labour law, to the extent that the tax legislator did not define it for IRS taxation purposes, with nothing resulting, let it be reiterated, expressly from tax law any different sense.

The current Labour Code approved by article 1 of Law no. 7/2009 of 12/02/2009 (LC), places in the first place collective regulation instruments, such as the sources of law from which, in the first line, the applicable norms to the employment contract emanate, defining the forms which these may assume. From the start article 1 of the LC refers that the employment contract is subject, in particular, to collective labour regulation instruments, as well as to labour customs that do not contradict the principle of good faith. This is also the doctrine that follows concurrently from article 3 of the LC "Relations between sources of regulation" from which emerges reinforced a differentiated normative force and more binding collective labour regulation instruments as against individual employment contract, as a source of labour rights and obligations.

It is true that the LC does not present itself with a specially delineated and delimited notion of what should be understood as seniority. Nonetheless, various provisions of labour law provide a broad concept of seniority by allowing service time and category already achieved in other employer entities to be taken into account, so that the employee is not prejudiced in the seniority acquired, since such is not prohibited either by law (cfr. e.g. articles 129, no. 1, al. j), and 396, of the Labour Code) nor by the principles of good faith, being a practice recognized in some Collective Labour Regulation Instruments and in the customs of the labour profession and of companies.

And various changes in circumstances of the employment contract, in particular the assignment or temporary transfer of an employer entity or others that cause a suspension of the employment contract, do not affect the seniority of the worker in the company, a concept which here concerns us.

See, by way of example article 295, no. 2 of the Labour Code which determines that:

"The period of reduction or suspension counts for purposes of seniority".

And the Tax Administration itself has come to accept a concept of seniority that goes beyond that of "exercise of functions in the debtor entity", an express acceptance in more than one binding opinion, accepting a concept of "seniority" that goes beyond the scope of nos. 1, 4 and 10 of article 2 of the IRS Code, giving specific fiscal relevance to situations of recognition of seniority deriving from the application of the rules of the Labour Code.

In this sequence and chain it is also necessary to take account of the fact that the concept of "seniority" or "service time" is specifically regulated by the collective labour regulation instrument applicable to the banking sector.

Thus, not being able to extract a concept of seniority from the Law, that is, from the Labour Code, we will have to analyze, in the specific case, the Individual Employment Contract entered into or the Collective Labour Agreement of the banking sector.

From the Collective Agreement of the banking sector it follows, by force of clause 17, that the seniority of the worker, for all purposes provided in the Agreement, shall be determined by counting all years of service rendered in Portugal in Credit Institutions with activity in Portuguese territory.

However, it should be noted that it follows from article 2 of the Collective Agreement that it only binds the Credit Institutions and Financial Companies that subscribe to it and the workers in its employ who are members of the Unions of Bankers of the Centre, North, South and Islands, which is verified in the present case both for the Claimant and for his employer entity D….

The collective labour regulation instruments applicable to the banking sector are thus consistent and mandatory as regards the application of the concept of seniority, which always includes years of service in any credit institution or financial company that subscribes to that same collective labour regulation instrument.

And there is no contradiction here between a formal relationship and a material relationship since this seniority regime is mandatory and derives from law and from the collective labour regulation instrument and serves precisely to protect the worker and to prevent abuses from the point of view of actions by employer entities.

It no longer seems acceptable to me that this concept might be tailored by mere agreement between the parties, whether through clauses in the Individual Employment Contract or through the Employment Termination Agreement.

Citing Filipe Fraústo da Silva and Cláudia Reis Duarte in ANNOTATION TO THE JUDGMENT OF THE CENTRAL ADMINISTRATIVE COURT SOUTH ON SENIORITY OF THE BANKING WORKER (for purposes of calculating the amount of compensation for termination of employment not subject to taxation, in accordance with no. 4 of article 2 of the IRS Code) Case no. 03748/10 (1):

"It appears to us that seniority should not be considered, in itself, a subjective right or, better, object of any subjective right of workers. Consequently, it seems not to be possible to discuss its availability or non-availability (another matter will be the availability or non-availability of rights or, even, of legal expectations or, as is also used, of rights in formation, constituted as a result of the counting of certain seniority in a certain situation). For the same reason, we also consider impossible legal transactions regarding seniority: a worker cannot, for example, acquire others' seniority, nor can he alienate his own, although it is admitted that he can, before the employer, renounce expectations or rights founded in it, at least at the moment of cessation of the relationship. The impossibility of the referred transactions, even if linguistically conceivable, carries their nullity, in accordance with article 280 of the Civil Code."

Having arrived here there is to be stated the following for the process of decision-making

It does not seem to me that the tax rule is not or cannot be compatible with the rule of a collective labour regulation instrument, whose scope of application and binding force derives from the law itself. Indeed, this concept of seniority used in the Bank Collective Agreement is very specific and relevant and, whether its consideration or its non-consideration by tax law can, indeed, lead to situations of inequality and injustice as well as discrimination. Banking practice has been to pay these indemnifications considering the concept of labour law of the Collective Agreement and applying the tax rule deriving from this consideration.

It is certain that the tax rule in question – article 2, no. 4 of the IRS Code - does not intend to ensure that the entire amount to which the worker is entitled by virtue of the termination of the employment contract is not taxed, but intends to objectively limit the non-subjection of such income to IRS.

It is understandable to be concerned with ensuring that there are no prejudiced workers in cases of change of employer entity, without receiving any compensation upon cessation of the employment relationship with the first entity, which would benefit from the non-subjection in question. And that there are no unjustifiably benefited workers.

However, these situations are safeguarded by the Law and by the Labour Code.

Now, in the situation that is the subject of the present arbitral decision and from what is drawn from points 34 to 39 of the Inspection Report I understand that the recognition of the seniority provided in Clause 17 of the Collective Agreement for purposes of payment of compensation for termination of employment derives exclusively from a Clause of the Individual Employment Contract and from the Amendment to it and not from the mandatory application of the Collective Agreement in this particular.

Indeed, Bank D… is a party to the Collective Labour Agreement of the Banking Sector, whose last amendment was published in BTE, 1st series, no. 20, of 29 May 2011.

In the initial employment contract entered into with the Claimant, the following was regulated in Clause 7 (Seniority):

"1. The Bank guarantees to the Second Party B… the seniority arising from service rendered to other credit institutions, documented since 14/10/1987, with the following specifications:

a) For purposes of the D… Pension Fund, the First Party shall take into account the service time rendered to other credit institutions, with the amount of retirement or disability presumed pension calculated in accordance with the regime provided in the ACTV for bankers.

b) The portion of retirement corresponding to the service time rendered by the Second Party to the First Party shall be calculated in accordance with Clause 6 of the D… Pension Plan.

c) Service time rendered to other Credit Institutions prior to the signing of this contract shall not be taken into account for the calculation of length-of-service bonuses".

In Clause 12 (Applicable Rules) of the Employment Contract the following was regulated:

"In the absence of provisions herein, the ACTV for the Banking Sector applies, with the exceptions contained in BTE, 1st Series, no. 42 of 15.11.94 and general labour law";

Consulting the BTE 1st series no. 42 of 15/11/1994 it is stated that: "In counting service time for any effects arising from the Collective Agreement, Bank D… shall count only service time rendered to the Bank itself, plus possibly service time rendered to other institutions or companies, but in such case only if this results from an individual agreement between the Bank and the worker".

In the present case I conclude that the counting of seniority derives strictly from individual agreement and, for the reasons already stated, I understand that the referral to a concept of seniority based solely on an individual agreement between employer entity and worker goes beyond the ratio of the rule in question since the legislator cannot have designed a rule whose concrete application can support unjustified benefits for workers, by virtue of conventional amendments (in particular individual ones) to the concept of seniority, accepting a concept that would easily lead to situations of violation of the principle of equality and non-discrimination. In this case we would be clearly in a zone of unconstitutionality with the implications described in the Judgment of this arbitral tribunal therefore the request of the Claimant cannot succeed.

Ana Teixeira de Sousa

[1] Judgments of 11-05-2004, case no. 06002/01; of 21-09-2010, case no. 03748/10; of 12-03-2013, case no. 05971/12.

[2] Judgments of 02-05-2016, case no. 616/2015-T; of 19-10-2017, case no. 126/2017-T; of 20-11-2017, case no. 308/2017-T.

[3] Amended by Law no. 64-A/2008, of 31 December, by Decree-Law no. 8/2012, of 18 January, and by Decree-Law no. 39/2016, of 28 July.

[4] In this sense, ANTÓNIO MONTEIRO FERNANDES, Fundamental Notions of Labour Law, 2nd edition, 1976, page 80, accompanied by the judgment of the Supreme Court of Justice of 27-10-2009, delivered in case no. 614/06.5TTBCL.S1.

It is in this sense that the expression seniority is normally understood, when no expression is used that specifies that it is another type of seniority, as stated by FILIPE FRAÚSTO DA SILVA and CLÁUDIA REIS DUARTE in Annotation to the Judgment of the Central Administrative Court South on seniority of the banking worker (for purposes of calculating the amount of compensation for termination of employment not subject to taxation, in accordance with no. 4 of article 2 of the IRS Code), published in the Journal of the Bar Association, no. 1, 2012, page 440.

[5] The seniority in the debtor entity does not coincide with the time of exercise of functions, not least because there are periods in which work is not performed, but which count towards seniority (as happens, among various other situations, with periods of strikes and leaves within the scope of parenthood).

[6] Judgment of the Supreme Administrative Court of 31-05-2017, case no. 0801/16, in the wake of RUI DUARTE MORAIS, On IRS, 3rd ed. Almedina, pages 54/55.

[7] This limit which perceptibly aims to prevent situations of abuse.

[8] That is, for example, a worker who changed company every five years over a 40-year period could benefit from the negative delimitation of IRS incidence 8 times, valuing for its calculation 180 years of seniority in total (5+10+15+20+25+30+35+40 = 180), whereas the worker who worked the same total time in the same company would only see 40 years of seniority being relevant for calculating that negative delimitation.

[9] In the same sense, among many, the judgments of the Supreme Administrative Court of 19-11-2008, case no. 0325/08; of 11-3-2009, case no. 0961/08; and of 22-1-2014, case no. 1490/13 may be seen.