CAAD 599/2017-T: IRS Tax on Employment Contract Termination Compensation – Seniority Calculation Under Article 2(4)(b) CIRS

ARBITRAL DECISION

1. Report

1.1

A…, hereinafter referred to as the "Claimant," taxpayer no. …, resident at Avenue …, no. …, …, in Lisbon, requested the establishment of a sole arbitrator tribunal, pursuant to the combined provisions of Article 2, No. 1, subparagraph a) and Article 10, both of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "LRATM") and Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, in which the Tax and Customs Authority (TCA) is the Respondent.

1.2

The request for arbitral pronouncement, presented on 15 November 2017, has as its object the declaration of illegality and consequent annulment of the assessment of personal income tax (PIT) No. 2017… and corresponding compensatory interest, in the amount of €24,713.35, relating to the year 2013, embodied in the collection note No. 2017…, in the amount of €26,592.66 (twenty-six thousand, five hundred and ninety-two euros and sixty-six cents), in light of the statement of account settlement No. 2017….

1.3

The Claimant further requests the condemnation of the Respondent to reimburse the amount paid with respect to the aforesaid assessment, plus the corresponding indemnity interest, pursuant to Articles 43, No. 1 of the General Tax Law (GTL) and 61 of the Code of Tax Procedure and Process (CTPP), counted from the date of undue payment of the tax until the date of processing of the respective credit note.

1.4

The Claimant chose not to designate an arbitrator.

1.5

The request for establishment of the arbitral tribunal was accepted by the President of CAAD and notified to the TCA on 15 November 2017.

1.6

The undersigned was designated by the President of the Deontological Council of CAAD as arbitrator of the sole arbitrator tribunal, pursuant to the provisions of Article 6 of the LRATM, and acceptance of the appointment was communicated within the applicable time period.

1.7

On 8 January 2018, the Parties were notified of this designation, having not objected to it, pursuant to the combined provisions of Article 11, No. 1, subparagraphs a) and b) of the LRATM and Articles 6 and 7 of the Deontological Code of CAAD.

1.8

Thus, in accordance with the provisions of Article 11, No. 1, subparagraph c), of the LRATM, the sole arbitrator tribunal was constituted on 30 January 2018.

1.9

The Respondent was notified, by arbitral order of the same date, pursuant to Article 17, No. 1 of the LRATM, to, within a period of 30 days, submit a response, if it so wished, and request the production of additional evidence.

1.10

It was further notified to, within the same period, submit the administrative file (AF) referred to in Article 111 of the CTPP.

1.11

On 2 March 2018, the Respondent submitted its Response, defending itself by objection, arguing for the dismissal of the request for arbitral pronouncement.

1.12

On the same date, it joined to the case file the respective AF.

1.13

Considering that the Parties did not request the production of any evidence beyond the documentary evidence that the Claimant joined to the request for arbitral pronouncement, the Arbitral Tribunal, in light of the principles of autonomy in the conduct of proceedings, celerity, simplification and procedural informality, inherent in Articles 16 and 29, No. 2, of the LRATM, by order of 5 March 2018, dispensed with the holding of the meeting provided for in Article 18 of the same statute, having further decided that the proceedings would continue with optional written arguments, presented successively by the Respondent.

1.14

It was further decided that the final arbitral decision would be rendered within 30 days following the submission of arguments by the Respondent or the expiry of the respective time period.

1.15

The Parties were notified of this order on 6 March 2018, the Claimant having chosen not to submit arguments, which was done by the Respondent on 23 of the same month.

2. Position of the Parties

2.1 Of the Claimant

The Claimant sustains its request for arbitral pronouncement, synthetically, as follows:

The dispute is based on the interpretation that the Tax and Customs Authority makes of subparagraph b), No. 4 of Article 2 of the PIT Code, specifically of the excerpt "number of years or fraction of seniority or of exercise of functions in the debtor entity, in other cases".

On 1 January 1997, she commenced professional activity at B…, SA, where she worked until 31 July 1997. From 1 August 1997 to 3 February 2010 she held functions at C…, S.A., with the professional category of Group I, Level 6, as defined in the Collective Bargaining Agreement of the Banking Sector (CBA). And on 3 February 2010 she commenced functions at D…, having with this concluded an agreement for revocation of the employment contract, on 30 April 2013, with effect from 14 June 2013.

When she concluded the employment contract with C…, S.A., it was stipulated in clause 12 thereof that seniority and length of service would be counted for all purposes, from 1 August 1997, according to the rules contained in the CBA of the same sector.

At the date of revocation of the employment contract with D…, the latter paid her a monetary compensation in the amount of €83,340.00, whereby the question to be decided relates to labor law because it concerns the determination of seniority.

Thus, as neither tax legislation nor the Labor Code provides a legal definition of the concept "seniority," the same should be sought in the Collective Bargaining Agreement (CBA) of the banking sector, published in the Bulletin of Labor and Employment, No. 20, of 29 May 2011, where, in clause 17, it is stated: "Determination of seniority - For all purposes provided in this agreement, the seniority of the worker shall be determined by counting the length of service provided as follows: a) All years of service, provided in Portugal, in credit institutions with activity in Portuguese territory (…)," all the more so as the CBA is a source of labor law, as results from Articles 1 and 2 of the Labor Code.

Beyond what is provided in the aforementioned clause of the CBA, it is explicitly stated in No. 2 of clause 15 of the Agreement for Revocation of the Employment Contract concluded between the Claimant and D…, that "Taking into account the applicable terms of Clause 17 of the CBAs of the Banking Sector ("CBA") and bearing in mind the interpretation sustained in the rulings of the Central Administrative Court of the South of 11 May 2004 (Proc. 06002/01) and, in particular, of 21 September 2010 (Proc. 03478/10), both parties recognize their agreement in the determination of the Seniority of the Employee by counting their length of service in banking entities indicated in the aforementioned clause of the CBA, for the purposes of the provision of subparagraph b) of No. 4 of Article 2 of the Personal Income Tax Code, as amended by Article 108 of Law No. 64-B/2011, of 30 December".

Thus the TCA should have respected the terms of the aforementioned CBA which impose, in the transfer of a worker between credit institutions, the counting of seniority time verified in the previous or earlier credit institutions of which the worker has been an employee, and in this way, for purposes of the provision in subparagraph b), No. 4 of Article 2 of the PIT Code, to have recognized that the Claimant's seniority related to 1 August 1997, as understood by some CAAD jurisprudence and the Central Administrative Court of the South, which she cites.

No one would conceive that, having the Claimant 3.36 years of service at D…, the latter would accept paying a total indemnity of €83,340.00, equivalent to 20.80 times the Claimant's average monthly remuneration.

If D… did not consider the aforementioned clause 17 of the CBA applicable to this concrete situation, it would be the first to invoke its inapplicability to exempt itself from paying such a high seniority indemnity.

The Claimant concludes by arguing for the success of the request for arbitral pronouncement and thereby for the annulment of the contested assessment with all the consequences provided in law, notably the restitution of the tax paid, plus the indemnity interest provided for in No. 1 of Article 43 of the GTL and Article 61 of the CTPP, in light of the imputability to the TCA of the error committed, as well as of the theory of reconstitution of the current hypothetical situation.

2.2 Of the Respondent

Defending itself by objection, it invokes the following arguments:

The seniority to be computed, for purposes of No. 4 of Article 2 of the PIT Code, is the seniority in the entity debtor of the compensation for cessation of the employment contract, and it is not to be weighed, in the application of the aforementioned legal provision, the seniority in a previous employing entity, even if the worker and the new employing entity would have agreed to consider it in any future "indemnities," by employment contract or deriving from collective regulatory instruments.

The concept of seniority – seniority per se, without any qualifying element – in labor law does not entail a special scientific density that would significantly distance it from the sense of common language: translating, as in other legal contexts, a legally relevant interval, with diverse effects, between a determined initial term and a determined final term.

Although collective regulatory instruments – but not only these – add various qualifiers to labor seniority, the truth is that the Labor Code does not define what seniority is, nor does it present a univocal qualification of it, noting, however, abundantly, the prevalence of the notion of "seniority in the company," including in the matter of cessation of the employment contract.

Analyzing the content of collective bargaining agreements of the banking sector, which contain that clause 17 (under the heading "Determination of Seniority"), it is important to conclude that, beyond the indemnity regime for substitution of reinstatement arising from the unlawfulness of dismissal, such instruments do not address compensations/indemnities for termination of the employment contract, for dismissal for objective causes, for resolution of the contract by the worker based on an unlawful act of the employer, or for agreement of revocation of the employment contract – matters which, properly viewed, are therefore removed from the normative effects arising from such clause 17, simply because they do not integrate "all the purposes provided" in such instruments.

The legal regime of Article 2, No. 4, of the PIT Code is based on a clear anti-abuse vocation, inherent to special clauses preventive of tax evasion – a vocation which has particular reason to be, since in no case would agreements concerning labor seniority be acceptable that recognize merely artificial seniorities and impose such recognition for purposes of negatively delimiting the incidence of tax.

The legal problem object of the case is not limited to knowing what the concept of seniority to consider in the application of subparagraph b), No. 4 of Article 2 of the PIT Code is, in light of the provision of No. 2 of Article 11 of the GTL.

Quite the contrary, the question concerns whether that subparagraph b) of No. 4 of Article 2 of the PIT Code, as a holder of its own sense of the concept of "seniority in the company" which can be confirmed to exist, can be permeable to other qualifications of seniority agreed in legal instruments of a negotiational nature, bilateral or collective, which impose on the entity debtor of the monetary benefit referred to in that norm a seniority greater than that corresponding to the duration of the contractual relationship conferred by such entity.

Having regard to the fact that "the qualification of the legal transaction effected by the parties (…) does not bind the tax administration" according to No. 4 of Article 36 of the GTL – a provision which naturally encompasses, by greater reason, the qualifications of the parties affecting the object of negotiation – the question must obtain its solution in the full legal interpretation of all the normative framework implied by the expression "number of years or fraction of seniority or of exercise of functions in the debtor entity," contained in subparagraph b) of No. 4 of Article 2 of the PIT Code.

Once the mandatory legal limits as to compensations or indemnities for cessation of the employment contract are respected, there is naturally no question of the full legitimacy of negotiational legal instruments binding the debtor entity to monetary compensations/indemnities superior to the amount corresponding to the negative delimitation of tax incidence provided in subparagraph b) of No. 4 of Article 2 of the PIT Code.

What is at issue is whether such negotiational legal instruments can impose the scope of taxation itself, as if it were voluntary taxation.

The spirit of the law demands an interpretation in literal terms of the expression "number of years or fraction of seniority or of exercise of functions in the debtor entity" referenced to the "debtor entity," not admitting that in "seniority in the debtor entity" be considered, beyond the seniority inherent to the actual duration of the contractual relationship conferred by that entity, increases deriving from negotiational legal instruments.

The literal element of legal interpretation permits confirming, in a perspective of syntactic correction, that the seniority provided in subparagraph b) of No. 4 of Article 2 of the PIT Code is the seniority in the "debtor entity," corresponding to "seniority in the company" which, by virtue of the historical-systematic element inherent in the provision of the current No. 10 of the same article, corresponds to the "employing/employer entity," with the scope deriving from this provision, as well as from situations of succession in the position of this entity, especially through the effect of the equation inherent in Article 285 of the Labor Code of 2009.

Indeed, 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 the exclusion of taxation is conditioned by the non-creation of a new professional or business relationship within 24 months with the same "entity".

It is certain that the Labor Code does not contain a definition of what seniority is, and it may be ascertained from among the innumerable uses of the concept, with distinct amplitudes and contexts, one, more coherent and systematic, which is what conforms the term "seniority" to "seniority in the company" (cf. Articles 368, No. 1, subparagraph e); Article 112, No. 6, Article 147, No. 3, etc.), in this sense the ruling of the Supreme Court of Justice of 1 October 2014, rendered in the scope of case No. 1202/11.0TTMTS.P1S1.

The most relevant doctrine on the subject, regarding the seniority to be considered in the application of No. 4 of Article 2 of the PIT Code, understands that "The Collective Bargaining Agreement of the banking sector which imposes, in the transfer of a worker between credit institutions, the counting of seniority time verified in the previous or earlier credit institutions of which the worker has been an employee, is not opposable to the tax administration. Just as, by greater reason, neither are any agreements which, concerning the guarantee of benefits inherent to seniority, have been concluded between the worker and the employer entity. Without considerations which today could be afforded by the subjective extension of the concept of employer entity operated by No. 10 of Article 2, since that is based on relations of control or of group between companies, regardless of their geographic location, we reaffirm here the known orientation of the Tax Administration whereby the seniority time relevant is, solely, the seniority time "acquired" in the entity with which the individual employment contract is terminated, as literally flows from the law, not appearing to be any margin for another type of interpretation" (cf. Taxation 13/14, Manuel Faustino and Others, "On the meaning and scope of the new wording of Article 2, No. 4 of the PIT Code").

Also for Cláudia Reis Duarte and Filipe Fraústo da Silva, in the Journal of the Bar Association, No. 1, 2012, in annotation to the Ruling of the Central Administrative Court of the South of 21 September 2010 (Proc. 03748/10) related to the seniority of the banking employee (for purposes of calculating the amount of compensation for cessation of the employment contract not subject to taxation, pursuant to No. 4 of Article 2 of the PIT Code), "The concept of seniority which the legal provisions of the chapter of the code relative to cessation of the employment contract use and which establish criteria for defining indemnities or compensations is seniority in the company and which, consequently, are not to be considered, in such definition or indemnity calculation, additional periods of duration of the relationship which may have been recognized by the employer by mere effect of contractual consensus or, even, by unilateral admission, that is, that do not directly result from the application of legal or collective conventional norms which have as a consequence this extension, such as for example occurs in the cases already mentioned of assignment of contractual position, transmission of title or operation of company, establishment or economic unit, merger, division, etc. To these cases, collective conventions may add several others".

And "(…) the doctrine deriving from the ruling under annotation deserves the criticisms previously stated, and we tend instead to consider, as to the specific question of seniority, that from the very literalness of the normative provision results that this corresponds to the number of years or fraction of seniority in the employing entity with which the contract terminates at the origin of the amounts paid (with the exception of the seniority verified in other entities in relation of control or of group with that one by virtue of the extension of the concept operated by No. 10 of Article 2 of the PIT Code). Moreover – and although there had to be resort, in filling the concept in question (which we understand not to be the case insofar as the tax legislator was clear and established in letter of law that seniority is that verified in the debtor entity), to labor law – the solution would still be identical, since in the Labor Code we do not find a definition of seniority and, if any we have to extract from it, that will be seniority in the company, and not the seniority resulting from a clause of any collective bargaining agreement or agreement established between the parties".

The TCA also invokes the decision rendered in the arbitral case No. 323/2017-T, stating that "(…) beyond the indemnity regime for substitution of reinstatement arising from the unlawfulness of dismissal, the CBAs of the banking sector do not regulate the matter concerning compensations paid to the worker for cessation of the employment contract."

"(…) Thus, it results from the text of subparagraph b) of No. 4 of Article 2 PIT Code that the tax legislator refers expressly, for the purpose of its application, to seniority in the debtor entity, and no reason can be discerned for inquiring into the sense which the concept of seniority assumes in labor law.

Thus, in the case sub judice, in calculating the indemnity for cessation of the employment contract of the Claimant's husband, only seniority in the debtor entity – D… – should be considered.

It may be noted that we would arrive at the same conclusion if we applied the concept of seniority which prevails in labor law.

That is, even if we followed the interpretative path taken by the jurisprudence of the TCAS cited above, we would arrive at a result opposite to that affirmed in such jurisprudence…".

The Respondent concludes by arguing for the total dismissal of the request for arbitral pronouncement and acquittal of the Respondent, since the contested assessment embodies a correct interpretation and application of law to the facts, not suffering from the vice of violation of law.

3. Clarification

3.1

The Parties have legal personality and capacity, they are legitimate and regularly represented (Articles 4 and 10, No. 2, of the LRATM and Article 1 of Ordinance No. 112-A/2011, of 22 March).

3.2

The proceedings do not suffer from any nullities.

3.3

The Arbitral Tribunal is regularly constituted and is materially competent to know and decide the request, cf. Article 2, No. 1, subparagraph a) of the LRATM.

3.4

No other circumstances exist which prevent consideration of the merits of the case.

4. Reasoning

4.1 Proven Facts

With relevance for the appreciation and decision of the question of merit raised, the following facts are considered established and proven:

4.1.1

On 1 January 1997 the Claimant was admitted to the service of B…, SA, in which she held functions until 31 July 1997, cf. doc. No. 8, which is hereby given as fully reproduced.

4.1.2

On 1 August 1997 the Claimant was admitted to the service of C…, S.A., NIPC: …, with the professional category of Group I, Level 6, as defined in the Collective Bargaining Agreement of the Banking Sector, in which she held functions uninterruptedly until 3 February 2010, cf. docs. Nos. 9 and 10.

4.1.3

The Claimant was registered with the Union of Bank Workers of the South and Islands, with No. …, from 22 December 1997 to 3 February 2010, cf. doc. No. 11.

4.1.4

Clause 12 of the respective employment contract, concluded on 29 June 1998, expressly provided that "The seniority and length of service of the second party (the Claimant) is counted, for all purposes, from 1 August 1997 and according to the rules contained in the CBA of the same sector," cf. doc. No. 9.

4.1.5

On 3 February 2010 the Claimant was admitted to the service of D…, NIPC: …, with the professional category of Manager, in order to hold functions as branch manager, cf. Article 26 of the p.i..

4.1.6

On 30 April 2013, the Claimant and the aforementioned D… concluded an agreement for revocation of the employment contract, with effect on 14 June 2013, cf. doc. No. 12.

4.1.7

Clause two of the aforementioned agreement expressly provided: "1. As compensation monetary benefit globally for the revocation of the Employment Contract – in which, with the exception of the credits identified in the following number, all other sums due at the Final Date or exigible by virtue of the cessation of the Employment Contract are included – the Employee shall receive from D… the gross sum of €83,340.00 (eighty-three thousand three hundred and forty euros), which shall be paid (…)".

4.1.8

No. 2 of clause 15 of the same agreement expressly stated: "Taking into account the applicable terms of Clause 17 of the CBAs of the Banking Sector ("CBA") and bearing in mind the interpretation sustained in the rulings of the Central Administrative Court of the South of 11 May 2004 (Proc. 06002/01) and, in particular, of 21 September 2010 (Proc. 03478/10), both parties recognize their agreement in the determination of the Seniority of the Employee by counting their length of service in banking entities indicated in the aforementioned clause of the CBA, for the purposes of the provision of subparagraph b) of No. 4 of Article 2 of the Personal Income Tax Code, as amended by Article 108 of Law No. 64-B/2011, of 30 December".

4.1.9

The Claimant worked for D… between 3 February 2010 and 14 June 2013, that is, 3 years, four months and 13 days, cf. doc. No. 13.

4.1.10

For the banks referred to before, the Claimant worked, uninterruptedly, from 1 January 1997 to 14 June 2013, that is, 16 years, five months and 14 days.

4.1.11

The aforementioned labor relationship was subject to the Collective Bargaining Agreement of the banking sector (CBA), concluded between various credit institutions, notably D…, Branch, other financial companies and the National Union of Banking Managers and Technicians and another, amended on 5 May 2011 and published in the Bulletin of Labor and Employment, No. 20, of 29 May 2011, cf. Articles 29 and 30 of the p.i..

4.1.12

The Claimant was registered with the National Union of Banking Managers and Technicians between 1 March 2010 and 2 July 2013, cf. doc. No. 14.

4.1.13

Pursuant to No. 1 of Clause 2 of the CBA, it applied to all of the national territory and bound all credit institutions that subscribed to it, as well as all workers in its service represented by the signatory union associations.

4.1.14

As consideration for the revocation of the employment contract referred to in 4.1.5, D… paid the Claimant the sum of €83,340.00, as compensation for cessation by mutual agreement, cf. doc. No. 15.

4.1.15

On 16 April 2014 the Claimant submitted her model 3 PIT declaration, relating to the year 2013. In item 4 of the respective Annex A, concerning income from dependent work and pensions, the amount of €47,133.95 paid by the entity with NIPC: … (D…) was entered, in addition to other income paid by other entities, cf. doc. No. 16.

4.1.16

Of the aforementioned amount, €19,260.00 corresponded to compensation for cessation by mutual agreement and €27,873.95 to other income of category "A," and that amount was calculated pursuant to Article 2, No. 4, subparagraph b) of the PIT Code, taking into account all the time during which the Claimant worked for the aforementioned banks, that is, 16 years:

Value of the indemnity, in the part exempt from taxation, calculated by D…

4.1.17

This declaration was assessed on 8 May 2014 (assessment No. 2014 …), with the amount of €1,879.31 being determined to be reimbursed, cf. doc. No. 17.

4.1.18

By office No. … of the Tax Inspection Services of the Finance Directorate of Lisbon, of 26 February 2016, registered with postal registration code RD…PT, the Claimant was notified as follows:

"Thus, pursuant to No. 4 of Article 57 of the PIT Code, you are notified to, within the period of 15 (fifteen) days, amend the income declaration above referred to, adding the part of the indemnity that was not declared, in the amount of €50,616.62," cf. doc. No. 18.

4.1.19

By office No. … of the same inspection services, of 22 August 2016, registered with postal registration code RD…PT, the Claimant was notified, through her representative, pursuant to Articles 60 of the General Tax Law (GTL) and 60 of the Supplementary Rules for the Procedure for Tax and Customs Inspection (SRPTCI), of the draft Tax Inspection Report, prepared in the context of the inspection procedure authorized by Service Order No. OI2016…, of 3 March 2016, cf. doc. No. 19.

4.1.20

By office No. … of the same inspection services, of 14 August 2017, registered with postal registration code RD…PT, the Claimant was notified, through her representative, pursuant to Article 62 of the SRPTCI, of the conclusions of the inspection procedure and of the alteration to net income, effected on 26 July 2017, pursuant to No. 4 of Article 65 of the PIT Code, cf. doc. No. 22.

4.1.21

On page 12 of the aforementioned conclusions of the inspection procedure, which form part of the AF, it is stated:

[Content referenced as redacted with asterisks in original]

4.1.22

The omitted income, in the amount of €50,616.62, was determined by the TCA, pursuant to Article 2, No. 4, subparagraph b) of the PIT Code, taking into account the time during which the Claimant worked, only, for D… (from 3 February 2010 to 14 June 2013), that is, 3.36 years, cf. loc. cit.

Taking into account that:

• = €4,005.00 (Average monthly remuneration)
  ** = €19,260.00 (indemnity taxed)

4.1.23

On 25 August 2017, the Respondent/TCA, based on the altered income, proceeded to the additional assessment No. 2017 …, in the amount of €24,713.35, corresponding to €19,252.33 to PIT, €2,851.97 to the additional solidarity rate provided in Article 68-A of the PIT Code and €2,609.05 to compensatory interest, cf. doc. No. 1.

4.1.24

On 4 September 2017 the Claimant was notified of the statement of account settlement, embodied in the collection note No. 2017…, in the amount of €26,592.66, with the payment deadline of 4 October 2017, cf. doc. No. 5.

4.1.25

Payment of the aforementioned collection note was made on 27 September 2017, cf. doc. No. 7.

4.2 Unproven Facts

There are no facts relevant to the decision of the case which should be considered unproven.

4.3 Motivation

With respect to questions of fact, the Tribunal does not have the duty to rule on all alleged matters, having instead the duty to select those which are relevant for the decision, taking into account the cause (or causes) of action which supports the claim made by the plaintiff [(cf. Articles 596, No. 1 and 607, Nos. 2 to 4 of the Code of Civil Procedure, applicable ex vi of Article 29, No. 1, subparagraphs a) and e) of the LRATM)] and to record whether it considers it proven or unproven (cf. Article 123, No. 2 of the CTPP).

According to the principle of free appreciation of evidence, the Tribunal bases its decision, in relation to evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its life experience and knowledge of persons (cf. Article 607, No. 5 of the Code of Civil Procedure). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents, cf. Article 371 of the Civil Code) is the principle of free appreciation of evidence not applicable in the appreciation of the evidence produced.

Thus, the Tribunal's conviction was based on the documentary evidence joined to the case file as well as the positions assumed by the Parties.

4.4 Questions of Law (Reasoning)

Object of the Dispute

The question which constitutes the issue to be decided is whether the counting of the Claimant's seniority, for purposes of PIT incidence, in the case of indemnity for revocation of the employment contract, should be made taking into account the length of service provided in the banking sector (including, therefore, the length of service previously provided in other banking institutions) or whether, on the contrary, only the working time provided in the entity with which the Claimant revoked the employment contract and which gave rise to the right to the monetary compensation should be considered, that is, D….

Questions to Be Decided:

• Concerning the (il)legality of the contested assessment; and
• Concerning the request for payment of indemnity interest.

Concerning the (Il)legality of the Contested Assessment

The following is the wording, at the time of the facts (2013), of Article 2, No. 4, subparagraph b) of the PIT Code, the provision invoked to determine the question to be decided:

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

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

There are two questions to be resolved:

First, that of knowing the exact meaning of that provision, more specifically as to the phrase "number of years or fraction of seniority or of exercise of functions in the debtor entity".

Then, whether collective bargaining agreements and employment contracts as well as agreements for revocation of the latter bind the tax administration.

As to the first question, an interpretation in light of the general principles to which Article 11, No. 1, of the General Tax Law (GTL) refers, and which are contained in Article 9 of the Civil Code, seems clearly to indicate that the legislator refers to seniority and the exercise of functions in the debtor entity, which, in the present case, was D…. For this interpretation concurred the various elements proper to legal hermeneutics: grammatical, rational or teleological, systematic and historical.

Indeed, pursuant to Article 9 of the Civil Code, the interpreter must not confine itself to the letter of tax law, but must reconstruct the legislative intent from the texts, taking 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. As results from the Ruling of the STA, of 5 September 2012, rendered in case No. 314/12, "To interpret in the matter of laws means not only to discover the sense that lies behind the expression, but also, among the various meanings which are covered by the expression, to elect the true and decisive one (in this sense, cf. PIRES DE LIMA and ANTUNES VARELA, Fundamental Notions of Civil Law, 6th ed., Coimbra Editor, Coimbra, 1965, Vol. I., p. 145)".

Thus, we concur with the following segment of the decision rendered in arbitral case No. 505/2017-T, of 16 March 2018, of CAAD: "The expression 'number of years or fraction of seniority or of exercise of functions in the debtor entity,' used in subparagraph b) of No. 4 of Article 2 of the PIT Code, reveals clearly that as to the 'number of years or fraction ... of exercise of functions,' only what is reported to the exercise 'in the debtor entity' is relevant.

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

However, grammatically, the final reference to the 'debtor entity' could also, without appreciable effort, refer to 'seniority' ('seniority ... in the debtor entity'), and this is a textually adequate way to express a legislative intention to the effect that the relevant seniority is also, as occurs as to 'exercise of functions,' the one referring to the debtor entity.

This latter reading appears to be the most consistent, since the alternative referred to therein, between 'seniority' and 'exercise of functions,' is justified by the concept of seniority being suitable to reference the length of service rendered in the context of an employment contract, but not to the service rendered in the context of other functions to which this regime applies, referred to in the body of the aforementioned No. 4, as is manifestly the case with the exercise of functions of public manager (as flows from the respective Statute, approved by Decree-Law No. 71/2007, of 27 March [[1]]), but also of functions of administration in legal persons. This same is confirmed by subparagraph a) of the same No. 4 of Article 2 in which the 'exercise of functions of public manager, administrator or manager of a legal person, as well as of representative of permanent establishment of non-resident entity' is expressly referred to.

There being no negative delimitation of incidence as to the part of the indemnity which corresponds to this exercise of functions of management and representation [as came to be made explicit by the wording given to that subparagraph a) by Law No. 82-E/2014, of 31 December, to which its Article 14 attributed interpretative character], the reference in subparagraph b) to the existence of negative delimitation in cases of 'exercise of functions in the debtor entity' will aim at the cases in which the workers did not exercise only those functions in the debtor entity, cumulating them with work to which the concept of seniority applies. That is, it will be, in particular, the situations, which will be frequent, of workers bound by employment contract who pass to exercise functions of management: in these cases, the part of the indemnity which corresponds to the exercise of management functions is wholly taxable, but to the part of the indemnity which corresponds to other work the negative delimitation of incidence applies considering itself to determine its scope either the seniority or the period of exercise of the management functions.

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

In this sense, Filipe Fraústo da Silva and Cláudia Reis Duarte[[2]] "As to the first question (it refers to the interpretation and to the meaning and scope which the Tribunal extracts from the normative excerpt 'multiplied by the number of years or fraction of seniority or of exercise of functions in the debtor entity'), it cannot fail to be admitted that the legislator intended to report the phrase '…in the debtor entity…' to the two realities which literally precede it — the situations of cessation of the contract and the situations of cessation of the exercise of functions. We understand to be able to extract from the written letter of the PIT Code that the number of years or fraction to consider as a multiplier criterion in the application of the formula to arrive at the delimitation of the negatively excluded value (and excluded from taxation in PIT), whether in the situations of cessation of contracts, whether in the cessation of the exercise of functions, is the number of years or fraction verified '…in the debtor entity…'.

We do not see, moreover, a reason for the tax legislator to have intended that the concept to be followed in the first situation be unjustifiably broader than in the second, creating a situation of inequality which, ultimately, could even affect the constitutional principle[[3]]).

We understand, therefore, that the normative segment '…in the debtor entity…' (which is, and cannot fail to be, according to what we believe, the entity that obligates itself to pay the amounts whose tax treatment the provision establishes) refers to the two situations that precede it, and should be attended to, in both situations, the number of years or fraction of seniority in the debtor entity or the number of years or fraction of exercise of functions in the debtor entity".

As to the second question, that is, whether collective bargaining agreements and employment contracts as well as agreements for revocation of the latter bind the tax administration, let it be said forthwith that they do not.

Indeed, clause 17, subparagraph a) of the Collective Bargaining Agreement of the banking sector (CBA), concluded between various credit institutions, notably D…, Branch, other financial companies and the National Union of Banking Managers and Technicians and another, amended on 5 May 2011 and published in the Bulletin of Labor and Employment, No. 20, of 29 May 2011, expressly states: "Determination of seniority - For all purposes provided in this agreement, the seniority of the worker shall be determined by counting the length of service provided as follows: a) All years of service, provided in Portugal, in credit institutions with activity in Portuguese territory".

On the other hand, No. 2 of clause 15 of the agreement for revocation of the employment contract concluded, on 30 April 2013, between the Claimant and D…, with effect on 14 June 2013, expressly states: "Taking into account the applicable terms of Clause 17 of the CBAs of the Banking Sector ("CBA") and bearing in mind the interpretation sustained in the rulings of the Central Administrative Court of the South of 11 May 2004 (Proc. 06002/01) and, in particular, of 21 September 2010 (Proc. 03478/10), both parties recognize their agreement in the determination of the Seniority of the Employee by counting their length of service in banking entities indicated in the aforementioned clause of the CBA, for the purposes of the provision of subparagraph b) of No. 4 of Article 2 of the Personal Income Tax Code, as amended by Article 108 of Law No. 64-B/2011, of 30 December".

However, pursuant to No. 4 of Article 36 of the GTL, the qualification of the legal transaction effected by the Parties, even in an authentic document, does not bind the tax administration.

As the Tax and Customs Authority states, once the mandatory legal limits as to compensations or indemnities for cessation of the employment contract are respected, there is naturally no question of the full legitimacy of negotiational legal instruments binding the debtor entity to monetary compensations/indemnities superior to the amount corresponding to the negative delimitation of tax incidence provided in subparagraph b) of No. 4 of Article 2 of the PIT Code.

What is at issue is whether such negotiational legal instruments can impose the scope of taxation itself, as if it were voluntary taxation.

An interpretation of this type would imply the formal unconstitutionality of that subparagraph b) of No. 4 of Article 2 of the PIT Code, since it would be reduced to recognizing the relevance of acts of non-legislative nature to integrate a concept which, by virtue of subparagraph i), No. 1 of Article 165 of the Constitution of the Portuguese Republic (CPR), is subordinate to the reserve of formal law or, pursuant to subparagraph b), No. 1 of Article 198, to a decree-law issued pursuant to legislative authorization of the Assembly of the Republic.

We further concur with the aforementioned arbitral decision, when it states: "In truth, that subparagraph b) of No. 4 of Article 2 of the PIT Code constitutes a negative delimitation of the incidence of PIT and the provisions that define the incidence of taxes are only constitutionally valid if they are inserted in formal law or a decree-law issued pursuant to legislative authorization of the Assembly of the Republic, as results from the provisions of Articles 103, No. 2, and 165, No. 1, subparagraph i), and 198, No. 1, subparagraph b), of the CPR.

And, by virtue of the provisions of Article 112, No. 5, of the CPR, 'no law may create other categories of legislative acts or confer on acts of another nature the power to, with external efficacy, interpret, integrate, modify, suspend or revoke any of its provisions'.

Therefore, subparagraph b) of No. 4 of Article 2 of the PIT Code would be unconstitutional if interpreted as assigning to individual contract acts or to acts of non-legislative normative nature (such as collective bargaining agreements and extension ordinances) the power to define the scope of the delimitation of the incidence of PIT.

If it is understood that Article 11, No. 2, of the GTL ensures the possibility of appealing to provisions of non-legislative nature to define the scope of the incidence of PIT, in that interpretation, it would be materially unconstitutional, as it is incompatible with Article 112, No. 5 of the CPR. The reference to 'no law' which appears in this constitutional provision encompasses the GTL.

Consequently, the constitutionally admissible interpretation of this provision is the one which attributes to it a precise scope, not modifiable by normative acts or individual agreements, which is to refer to seniority in the 'debtor entity,' similar to what occurs with 'exercise of functions.'

Moreover, it is also this interpretation which is most congruent and which ensures the constitutional principle of equality (Article 13 of the CPR), since at this level of taxation in PIT of indemnities owed for cessation of activity in a company, no reasons are seen which would justify that different regimes be applied depending on the nature of the service rendered.

Indeed, in any of the cases the reasons which may justify this negative delimitation of incidence apply, which are 'to take into account the fact that the indemnity amount will be necessary to the worker to assure his subsistence during the unemployment period which, in most cases, will follow' and to 'take into account that the receipt of such a sum, generally relatively substantial, will have a triggering effect on the tax rate: the income obtained in that year will be exceptionally high, whereby it will be taxed at high rates given the progressivity of the tax' ([[4]]).

On the other hand, still in the perspective of the principle of equality, no reason is seen which would justify distinguishing, for purposes of PIT taxation of workers who receive indemnities for cessation of employment contracts, between those who are unionized in unions which concluded collective bargaining agreements and those who are not unionized or who are unionized in unions which did not conclude such agreements".

The most relevant doctrine on the subject, regarding the seniority to be considered in the application of No. 4 of Article 2 of the PIT Code, cf. Manuel Faustino and Others[[5]], understands that "The provisions of the CBA of the banking sector which impose, in the transfer of a worker between credit institutions, the counting of seniority time verified in the previous or earlier credit institutions of which the worker has been an employee, are not opposable to the tax administration. Just as, by greater reason, neither are any agreements which, concerning the guarantee of benefits inherent to seniority, have been concluded between the worker and the employer entity. Without considerations which today could be afforded by the subjective extension of the concept of employer entity operated by No. 10 of Article 2, since that is based on relations of control or of group between companies, regardless of their geographic location, we reaffirm here the known orientation of the Tax Administration whereby the seniority time relevant is, solely, the seniority time 'acquired' in the entity with which the individual employment contract is terminated, as literally flows from the law, appearing no margin for another type of interpretation" (underlining our own).

Also for Filipe Fraústo da Silva and Cláudia Reis Duarte[[6]], "(…) Having arrived here, it is important to note the second reservation before referred to, related to the content of the concept of seniority which, in those rulings, is adopted, referring in such decisions that this concept is filled by resorting to the frameworks of labor law (branch of law from which the concept in question originates), but in both cases adopting the concept of seniority which was used at the time of cessation of the employment contract (which in the case of the 2004 ruling results from an individual contractual clause in which seniority is recognized measured in a previous employer and which, in the case of the ruling under annotation, results from a clause of the CBA for the Banking Sector).

Now, admitting this position, and in an interpretation consistent with that which is espoused in those rulings, the Tribunal would find itself obliged to admit that, if in a certain agreement for revocation of an employment contract, a clause is included in which it is agreed to the recognition of a fictitious seniority, or if immediately before that revocation agreement the contract is amended, making such a clause now part of it, that is the seniority to be taken into account for labor purposes, and therefore the seniority to consider as a multiplier criterion in the delimitation of the negative incidence of tax in PIT.

As can easily be foreseen, we cannot accept this interpretation. Even admitting that the tax provision referred only to seniority (which is not conceded, to the extent that it is considered rather that the normative phrase '…in the debtor entity…' also refers to seniority and not only to the exercise of functions), the filling of this concept by resort to labor law is not necessarily referred to the seniority considered, whether at the time of conclusion of the contract, whether at the time of and for purposes of cessation of the contract or equivalent situation.

As detailed above, the Labor Code does not contain a definition of what seniority is, but if one had to elect a content of this concept as the most current or most frequently used in that normative body, we would say that the expression is reduced to the commonly designated seniority in the company. Naturally, for certain specific and particular purposes the same expression takes on a more restricted or broader perimeter, and an example of such specific situations is precisely the measure of seniority which is often taken by employer and worker for purposes of determining the global monetary compensation to be paid as consideration for cessation, by mutual agreement, of the employment contract and — leaning on decisions like the one being now annotated — to establish the point up to which such compensation is not subject to tax.

If it is clear that there is no legal constraint preventing the amount of this compensation from being determined on terms which the Parties understand fit, it is equally certain that it is common and current practice that such monetary compensation be determined with reference to, as we equally left written above, the base remuneration (or other, of different scope) multiplied by the number of years of seniority (counting or not the fraction of a year in full) and, possibly but frequently, by a factor of increase.

Naturally the number of years of seniority to consider as a multiplier for these purposes can be what the Parties understand, precisely because the gross amount of the negotiated compensation to be paid to the worker in the case of dismissal does not suffer any legal constraints.

It is, therefore, crystal-clear that, by taking as reference for filling the tax provision the concept of seniority adopted for labor purposes at the time of cessation of the contract and for purposes of calculating the compensation to be attributed to the worker, the means would be found for the limit of the exclusion from taxation to be freely manipulated by the Parties, which, we will agree, was not certainly — could not have been — the intention of the tax legislator.

In the ratio of the tax-legal provision there will be, according to what we believe, the intention to grant a kind of benefit, excluding from taxation and rewarding with that exclusion proportionally more those who have spent more years in the entity in which the contract ceases or the exercise of functions. Being thus, it would not certainly be in the spirit of the legislator to grant a greater exclusion from taxation to those who, not meeting this requirement, simply agree with the employing entity (or avail themselves of a collective agreement which thus provides) a seniority (in the sense of seniority in the company) which they actually do not have and which exceeds that which they effectively have, that is, negotiating about a 'measure' as if it were an available legal good.

As stated, such an interpretation would permit manipulation by simple agreement of the Parties which, according to what we believe, does not fit in the letter or spirit of the tax provision.

We believe, therefore, that even adopting the interpretation whereby the tax provision refers only to seniority and there is need to resort to labor law[[7]] to fill that concept, the concept of seniority to be espoused must be the strictest one, the concept 'measure,' of seniority in the company, which leads to the solution identical to that which we have as most correct and which we understand results from the very literal element, which is that the tax legislator intended to refer to '…seniority… in the debtor entity'.

It would be poorly understood that, in the cessation of an individual employment contract, a seniority resulting from a clause of the contract itself or a subsequent instrument modifying that contract, or of a collective agreement (as is done in the rulings of the Central Administrative Court of the South and North to which we have been referring) could be considered and that seniority used as a numeric factor to raise the limit of the exclusion from taxation in PIT of the amounts received by the worker; and that the solution would be different if the same clause appeared in a subordinate instrument to the appointment of a corporate administrator, for example.

The differentiated treatment, for tax purposes, of factual situations in all respects similar would find no legal justification, nor even an attainable logical sense, it being certain that the interpreter will presume that the legislator consecrated the most correct solutions and knew how to express their thought in adequate terms[[8]]).

Moreover, the fact that seniority is frequently a criterion or factor for determination of compensation in the context of the agreement concluded for labor purposes does not lead to, and according to what we understand should not lead to, the concept of seniority to be attended to for purposes of determining the limit of exclusion provided in the tax provision being coincident with that one (as the aforementioned rulings appear to point).

Moreover, it is equally common that, for labor purposes and in the context of cessation, the base remuneration be a criterion used in calculating the global monetary compensation to be attributed to the worker, it being certain that for tax purposes and with relevance for determining the amount excluded from taxation what is relevant is "the average value of regular remunerations with the character of remuneration subject to tax, earned in the last 12 months," which noticeably may not coincide (nor has to coincide) with the base value of the monthly remuneration (without even entering into the discussion, which also exceeds the scope of the present annotation, as to the concept of remuneration used here, since there are benefits from the employer to the worker which, while being subject to taxation in PIT, may not have a remuneration character in strict labor legal terms, such as will be the case of bonuses attributed by the employer with animus donandi or of supplements of purely compensatory character, or even of payment, during execution of the employment contract, of fractions of compensation for post-contractual non-competition, which jurisprudence and doctrine admit to be admissible.

It therefore seems to us notable that the tax legislator did not intend nor adopted that coincidence — nor could have, to the extent that the value of the amounts paid to the worker can be determined on the basis of any criteria which the Parties understand to agree and only by mere chance, and by the practice which we recognize is reiterated in this matter, the seniority factor is used.

But more than not intending that coincidence, we consider that the very letter of the law is very clear in establishing that the negative delimitation of the tax incidence in PIT is established using as a multiplier factor the seniority in the debtor entity of the income in question, which departs from the seniority used as a factor for determining the compensation for labor purposes whenever this be different (whether by existence of a clause to that effect in the employment contract itself, in an instrument of collective regulation of work or even in the cessation agreement).

We have, thus, for us, that the solution most consonant with the express letter of the law, as well as the most correct interpretation even if one did not already draw from the written letter and one had to resort to labor law, is the one which considers, as a multiplier factor for purposes of determining the negative delimitation of incidence, the seniority in the company or in the debtor entity, whereby we do not concur with the solution espoused by the ruling in annotation in this matter.

Also the most relevant doctrine on the subject espoused already a position identical to the one here defended (and different from the one adopted in the ruling under annotation), and in 2003, as to the seniority factor to consider in the application of this provision, wrote MANUEL FAUSTINO (MANUEL FAUSTINO, "On the meaning and scope…" cit., p. 10.): "The provisions of the CBA of the banking sector which impose, in the transfer of a worker between credit institutions, the counting of seniority time verified in the previous or earlier credit institutions of which the worker has been an employee, are not opposable to the tax administration. Just as, by greater reason, neither are any agreements which, concerning the guarantee of benefits inherent to seniority, have been concluded between the worker and the employer entity. Without considerations which today could be afforded by the subjective extension of the concept of employer entity operated by No. 10 of Article 2, since that is based on relations of control or of group between companies, regardless of their geographic location, we reaffirm here the known orientation of the Tax Administration whereby the seniority time relevant is, solely, the seniority time 'acquired' in the entity with which the individual employment contract is terminated, as literally flows from the law, appearing no margin for another type of interpretation" (underlining our own).

We are not unmindful of the solution of injustice which could be created in situations in which a worker has successive contracts with diverse companies of the same economic group, in which, for purposes of the interpretation which we here defend as the most correct, would see the amounts paid for cessation of the relationship excluded only to the extent of the seniority in the company paying such amounts.

However, and for these purposes, we are inclined to believe that the tax provision itself gives the solution in the sense of considering as seniority for these purposes the totality of the temporal period (number of years or fraction) during which the person in question remained in the same group of companies, although in distinct entities. That is because No. 10 of the same Article 2 of the PIT Code establishes that "[f]or purposes of this tax, any entity which pays or makes available remunerations which constitute income from dependent work pursuant to this Article is considered an employer entity, and any other entity which is with it in a relationship of control or of group, regardless of its geographic location, is equated to it".

Considering the systematic element, we understand not to be able to fail to consider that the 'debtor entity' referred to in No. 4 of Article 2 is the 'employer entity' mentioned in No. 10 of the same provision, which moreover becomes clear when in the first (No. 4) the exclusion of taxation is conditioned by the non-creation of a new business or professional relationship within 24 months with the same 'entity'.

We understand, therefore, that there flows from the literal and systematic element that the relevant concept of seniority in the debtor entity refers to the number of years or fraction of seniority in the entity with which the contract ceases or, by effect of the legal provision, with any other which with this is in a relationship of control or of group.

Also here we concur in full with MANUEL FAUSTINO, who at the end of the same note before cited, adds: "We safeguard, as we have already stressed, in light of the objective extension of the concept of employer entity operated by No. 10 of Article 2, the situations which occur between employer entities in relation of control or of group, regardless of their geographic location".

A parallel understanding was already conveyed by the Tax Administration, which in the order rendered in Process No. 1818/10, on 10 October 2010, states that it is not to be weighed, in the application of No. 4 of Article 2 of the PIT Code, the seniority in a previous employing entity, even if the worker and the new employer entity have agreed to consider it in any future "indemnities," only not being thus when the entity paying the income and any other which is with it in a relationship of control or of group is concerned and a 'transfer' occurs from one to the other or when, by effect of law or by the criterion of economic substance, a situation is concerned which is framed in Article 285 of the Labor Code of 2009.

In conclusion, we will say that the doctrine deriving from the ruling under annotation deserves the criticisms previously stated, and we tend instead to consider, as to the specific question of seniority, that from the very literalness of the normative provision results that this corresponds to the number of years or fraction of seniority in the employing entity with which the contract terminates at the origin of the amounts paid (with the exception of the seniority verified in other entities in relation of control or of group with that one by virtue of the extension of the concept operated by No. 10 of Article 2 of the PIT Code). Moreover – and although there had to be resort, in filling the concept in question (which we understand not to be the case to the extent that the tax legislator was clear and established in letter of law that seniority is that verified in the debtor entity), to labor law – the solution would still be identical, since in the Labor Code we do not find a definition of seniority and, if any we have to extract from it, that will be seniority in the company, and not the seniority resulting from a clause of any collective bargaining agreement or agreement established between the Parties".

Therefore, that subparagraph b) of No. 4 of Article 2 of the PIT Code would be materially unconstitutional, by violation of Article 13 of the CPR, if interpreted as making the negative delimitation of the incidence of PIT provided therein dependent upon the applicability to the worker of rules provided in collective bargaining agreements or in individual contracts.

But even if, by mere hypothesis, the application of these instruments of collective regulation of work were relevant in the aforementioned negative delimitation of the incidence of PIT, still the Claimant would not achieve the effects which she intends to avail herself of with the CBA of the banking sector, since, beyond the indemnity regime for substitution of reinstatement arising from the unlawfulness of dismissal, the same does not regulate the matter concerning compensations paid to the worker for cessation of the employment contract.

From the foregoing it is concluded that the interpretation of subparagraph b) of No. 4 of Article 2 of the PIT Code compatible with the Constitution is the one made by the Tax and Customs Authority and is underlying the contested assessment, that, for all workers, the seniority to be attended is the seniority in the debtor entity of the indemnity, similar to what occurs with managers.

Thus, considering that the Claimant worked for D… in the period from 3 February 2010 to 14 June 2013, that is, 3.36 years, and that the average monthly remuneration earned by her in the last 12 months was €4,005.00, of the compensation received for cessation of the contract by mutual agreement, in the amount of €83,340.00, only the amount of €13,463.36 will be non-subject to PIT, pursuant to Article 2, No. 4, subparagraph b) of the PIT Code, and consequently, tax is due on the remaining part (€69,876.62). Whereby, having the Claimant declared income of €19,260.00, the additional assessment made in the amount of €50,616.62 proves correct.

It is concluded, therefore, that the contested assessment does not suffer from the illegality which the Claimant imputes to it.

Concerning the Request for Condemnation in Payment of Indemnity Interest

There remains, finally, to appreciate the request for condemnation of the Respondent in payment of indemnity interest pursuant to Article 43, No. 1, of the GTL.

Now, having regard to the fact that, pursuant to the foregoing exposition, the tax act of additional PIT assessment does not suffer from the vices of violation of law which are imputed to it in the request for arbitral pronouncement, with the request for declaration of the respective illegality being dismissed, the request for indemnity interest which is raised as a consequence of the illegalities invoked necessarily fails.

**

5. Decision

In light of the foregoing, it is decided:

1. To dismiss the request for arbitral pronouncement and, in consequence, to maintain the PIT assessment No. 2017…, the compensatory interest assessments Nos. 2017 … and 2017…, as well as the settlement of accounts No. 2017…, for the year 2013.

2. To dismiss the request for recognition of the Claimant's right to reimbursement of the amount of €26,592.66 (twenty-six thousand, five hundred and ninety-two euros and sixty-six cents);

3. To dismiss the request for condemnation of the Respondent in payment of indemnity interest; and