Summary
Full Decision
ARBITRAL DECISION
The Arbitrator Alexandre Andrade, designated by the Deontological Council of the Administrative Arbitration Centre (hereinafter referred to simply as CAAD) to form the Singular Arbitral Tribunal, constituted on 3 May 2018, decides as follows:
1. Report
A..., NIF..., and B..., NIF..., (hereinafter referred to, when indicated jointly, simply as Claimants), residents at Rua ..., ..., ...-... Póvoa de Santa Iria, filed a request for constitution of an Arbitral Tribunal, pursuant to Decree-Law no. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to simply as LFATM), in which the TAX AND CUSTOMS AUTHORITY (hereinafter referred to simply as Respondent) is named Respondent.
The Claimants request that the legality of the decision rejecting the Gracious Appeal regarding the assessment relating to Personal Income Tax (IRS) for the year 2013 be reviewed, namely: (i) Statement of IRS Assessment in the amount of €23,261.46, (ii) Statement of Interest Assessment in the amount of €2,590.65, and (iii) Statement of account settlement indicating the total amount to be paid by the Claimants. The Claimants further request the condemnation of the Respondent to perform all necessary acts to restore the situation, namely the refund of the amount of €27,091.88, plus accrued interest until the effective and complete repayment of such amount. The Claimants also request compensatory interest pursuant to article 43 of the General Tax Law (LGT).
It follows from the Claimants' own words in their Submissions that: The Claimants requested from CAAD the annulment of the statement of (additional) IRS 2013 assessment issued on 1 September 2017, from which resulted taxes payable by the Claimants in the amount of €23,261.46, plus compensatory interest (statement of account settlement ID document 2017...), relating to the year 2013. They further request the condemnation of the Tax Authority to perform all necessary acts to restore the situation that would have existed if the annulled acts had not been performed, namely with the refund of the amount of €27,091.88 to the Claimants, plus accrued interest until the effective and complete refund of said amount.
As the Respondent states in its Reply, the present request for arbitral decision concerns the additional IRS/2013 assessment note, the interest assessment note, and the statement of account settlement, relating to the 2013 tax period, which resulted from the correction to taxable income in the same period, following an inspection procedure conducted under Service Order no. OI2016..., issued by the Finance Directorate of Lisbon.
The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 21 February 2018 and subsequently notified to the Respondent.
Pursuant to the provisions of article 6, paragraph 1, and article 11, paragraph 1, subparagraph b), of the LFATM, the Deontological Council of CAAD designated the undersigned as Arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable timeframe.
On 11 April 2018, the Parties were duly notified of this designation and manifested no intention to challenge the appointment of the arbitrator, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs a) and b), of the LFATM and articles 6 and 7 of the CAAD Deontological Code.
In accordance with the provision of article 11, paragraph 1, subparagraph c), of the LFATM, the Singular Arbitral Tribunal was constituted on 3 May 2018.
On 3 May 2018, the Singular Arbitral Tribunal issued an Arbitral Order for notification of the Respondent to submit a Reply, attach a copy of the Administrative File, and request, if desired, the production of additional evidence.
On 3 May 2018, the Respondent was notified to submit a Reply, attach a copy of the Administrative File, and request, if desired, the production of additional evidence.
The Respondent submitted the Administrative File on 6 June 2018.
The Respondent submitted its Reply on 7 June 2018, defending the lack of merit of the Request for Arbitral Decision and, consequently, the discharge of the Respondent from the claim.
By Arbitral Order dated 18 June 2018, the Singular Arbitral Tribunal decided, in accordance with the Principle of Autonomy of the Arbitral Tribunal in conducting proceedings, of celerity, and of procedural simplification and informality (article 19, paragraph 2, and article 29, paragraph 2, both of the LFATM), to dispense with the hearing provided for in article 18 of the LFATM and that the proceedings continue with submissions. The Singular Arbitral Tribunal set 28 September 2018 as the deadline for rendering the Arbitral Decision.
The Parties submitted their submissions.
The Singular Arbitral Tribunal is competent and was regularly constituted.
The Parties enjoy legal personality and capacity, are legitimate, and are duly represented (article 4 and article 10, paragraph 2, both of the LFATM and article 1 of Ordinance no. 112-A/2011 of 22 March).
The proceedings are not affected by any nullities.
2. Findings of Fact
2.1 Proven Facts
Having analyzed the documentary evidence produced in this Proceeding, the Singular Arbitral Tribunal considers proven, with relevance to this Arbitral Decision, the following facts:
- The Claimants were subject to an inspection action conducted under OI2016..., with an Order dated 3 March 2016, relating to the fiscal year 2013.
- The inspection action was initiated based on information received from the Large Taxpayers Unit regarding tax irregularities in the IRS context.
- From the description of the facts and grounds for purely arithmetic corrections in the Inspection Report, the following results:
1. Facts Verified: According to information prepared by the Division of Inspection of Banks and Other Financial Institutions, supported by the inspection action conducted on entity C..., [...] it was found that Taxable Person A... received, in the year 2013, indemnification in the amount of €74,084.00, as a result of termination of the employment contract. According to the information obtained, following analysis of documents presented by C... to prove the employee's seniority, it was verified that the Bank considered the time of service rendered in all banking activity for the purpose of counting seniority, whereas only the time of service performed at C... is relevant for the exempt portion. [...] Contrary to the Tax Authority's understanding, C... considered that the indemnification paid was not subject, in whole or in part, to taxation, by considering for the purpose of counting service time the seniority obtained by its employee in the previous employer, that is:
| Indemnification Paid (a) | Years of Service (b) | Average Monthly Remuneration (c) | Exempt Indemnification (d = a if b x c > a) | Taxable Indemnification (e = a - d) |
|---|---|---|---|---|
| €74,086.00 | 21 years | €3,531.01 | €74,086.00 | €0.00 |
Having analyzed the IRS return for the 2013 fiscal year, [...], it was found that in that year income from Category A was declared in the amount of €25,944.69, relating to payments made by C... which, obviously, do not include the indemnification received. Therefore, from the analysis conducted, it was possible to verify that the previously mentioned amount is not correct, with an amount of €60,648.81 remaining to be declared, calculated as follows:
2. Calculation of Income Omitted from Taxation: Since the taxable person omitted part of the income earned [...], the income omitted from taxation for the fiscal year 2013 shall be calculated as follows:
| Indemnification Paid (a) | Average Monthly Remuneration (c) | Date of Entry to C... (f) | Date of Exit from C... (g) | Time of Service (h = g - f) | Exempt Indemnification (i = h x c) | Taxable Indemnification (j = a - i) |
|---|---|---|---|---|---|---|
| €74,086.00 | €3,531.01 | 18-08-2009 | 07-06-2013 | 3.81 years | €13,437.19 | €60,648.81 |
[...]. Accordingly, it was determined that in the 2013 fiscal year, taxable income in the amount of €60,648.81 was omitted [...]. Given the foregoing, it is proposed to rectify the Annual Income Return Model 3 of IRS, altering Taxable Income as follows:
| Declared Taxable Income (A) | Omitted Taxable Income (B) | Altered/Calculated Income |
|---|---|---|
| €29,562.88 | €60,648.81 | €90,211.69 |
4. Conclusions and Proposals: Given the foregoing, closure of the inspection action is proposed with the maintenance of the proposed corrections [...].
- It follows from the Opinion of the Team Head in the Inspection Report that: According to the information available to the Tax and Customs Authority, the taxpayer received in the year 2013 an indemnification as a result of termination of the employment contract. In calculating the portion subject to taxation, the taxpayer considered for the purpose of counting seniority the time of service rendered in all banking activity and not, as determined by article 2, paragraph 4, subparagraph b), of the IRS Code, the time of service with the debtor entity. Despite notification, the taxpayer did not remedy the declarative inaccuracy, which is why a correction to taxable income in the amount of €60,648.81 is being made.
- It follows from the Order of the Division Head in the Inspection Report that: Accordingly, in accordance with the aforementioned terms and grounds, [...], I determine taxation in accordance with the proposed amount, with net income of €90,211.69 determined for the year 2013.
- The Claimants were notified of the Statement of IRS Assessment no. 2017..., in the amount of €23,261.46.
- The Claimants were notified of the Statement of Interest Assessment no. 2017..., in the amount of €2,590.65.
- The Claimants made payment of the Statement of IRS Assessment and the Statement of Interest Assessment in the total amount of €27,091.88 (Document ID 2017...).
- The Claimants filed the Annual IRS Return (Model 3) for the year 2013 within the prescribed timeframe.
- The Claimants declared the total amount of €25,944.69 for the year 2013.
- Claimant A... was an employee of Bank D..., having performed duties in banking activity between June 1992 and August 2009. Pursuant to Clause 1 of the Employment Contract: the second party undertakes to provide its services as a bank employee, under the authority and direction of the first party.
- In August 2009, an employment contract was executed between Claimant A... and C..., effective 18 August 2009. Pursuant to Clause 2, paragraph 1, of the Employment Contract: The second party shall perform the duties of Branch Director and shall be assigned the professional category of manager.
- At the time of execution of the employment contract between Claimant A... and C..., the Collective Labour Agreement of the Banking Sector published in the Labour and Employment Bulletin (BTE), 1st Series, no. 3 of 22 January 2009 was applicable to the banking sector.
- The employment contract executed between Claimant A... and C... terminated by revocation on 7 June 2013.
- The average value of regular remuneration with the character of payment to Claimant A..., subject to taxation, in the 12-month period prior to termination of the employment contract with C..., was €3,531.01.
- Claimant A..., by revocation of the employment contract, received indemnification (by mutual agreement) in the amount of €74,086.00 (dated 24 April 2013).
- For purposes of payment of indemnification (compensation), C... considered for the purpose of counting seniority the time of service rendered in all banking activity. C... included the seniority obtained by Claimant A... with the previous employer (Bank D...).
- Claimant A... was, until termination of the employment contract with C..., continuously an employee of the banking sector for 21 (twenty-one) years, as follows:
- 17 (seventeen) years at Bank D...: between June 1992 and August 2009, and
- 4 (four) at C...: between August 2009 and June 2013.
- At the time of termination of the employment contract of Claimant A... with C..., the Collective Labour Agreement of the Banking Sector published in the Labour and Employment Bulletin (BTE), 1st Series, no. 3 of 22 January 2011 was applicable to the banking sector.
- Claimant A... was a member of the Trade Union of Bankers of the South and Islands between 11 August 1992 and 7 June 2013.
- The Trade Union of Bankers of the South and Islands was a signatory to the Collective Labour Agreement of the Banking Sector referred to in M) and S).
- Claimant A... did not receive any compensation when the employment contract with Bank D... terminated.
2.2 Facts Not Proven
There are no facts relevant to this Arbitral Decision that have not been proven.
2.3 Grounds for Establishment of Facts
The facts were established by this Singular Arbitral Tribunal and its conviction was formed on the basis of the procedural documents submitted by the Parties and the documents attached to this Proceeding.
3. Law
The Claimants disagree with the position and criterion adopted by the Respondent in the case under analysis, which resulted in an additional IRS assessment relating to the year 2013.
The Claimants argue: The question at issue is whether the indemnification for termination of the employment contract (by mutual agreement) executed between Claimant A... [...] and C..., in the amount of €74,086.00, [...], is or is not subject to taxation under IRS [...].
According to the Claimants' position, the indemnification for termination of the employment contract (by mutual agreement) executed between Claimant A... and C..., in the amount of €74,086.00, dated 23 April 2013, is not subject to taxation under IRS. Indeed, when the termination agreement was executed [...] it was established that in calculating the portion subject to taxation, the time of service rendered in all banking activity be considered for the purpose of counting seniority. This was one of the conditions for the Claimant to terminate the employment contract [...] and which, in essence, constitutes a termination of the employment contract in the banking activity considered globally. [...] the employment contract between C... and Claimant A... already established the recognition of seniority arising from the employment contract established with Bank D....
The Respondent argues: the disputed question concerns whether the calculation of Claimant A...'s seniority, for IRS purposes, in the case of indemnification for employment contract termination, should be made considering the time of service previously rendered by Claimant A... at another banking institution, or, conversely, only considering the time worked with the entity with which the contract was terminated, which gave rise to the right to compensation, that is, Bank C....
The Respondent considers that the seniority to be calculated for purposes of paragraph 4 of article 2 of the IRS Code is seniority with the entity owing the compensation for employment contract termination, and that seniority with a previous employer should not be considered in the application of said legal provision, even if the worker and the new employer have agreed to consider it in possible future "indemnifications," by employment contract or arising from collective bargaining instruments.
This Singular Arbitral Tribunal understands that the question under examination is whether the calculation of Claimant A...'s seniority, for IRS purposes, in the case, in the year 2013, should be made considering all time of service rendered by Claimant A... in banking institutions (i.e., in the banking sector, both at Bank D... and at C...), or, conversely, if it should only consider the time worked with the entity with which Claimant A... terminated the employment contract that gave rise to the right to compensation, that is, C....
Strictly speaking, what is not being disputed is the revocation agreement of the employment contract in itself; rather, what is being disputed is whether Claimant A... has, for IRS purposes, the right to have recognized or attributed seniority of, in this case, 21 years, corresponding to all time of service rendered in banking institutions.
It is therefore necessary to analyze what the Law understands by seniority and what its implications are for the case under examination.
Let us first examine what Fiscal Law says.
Pursuant to article 2, paragraph 1, subparagraph a), of the IRS Code, income from dependent work shall include all remuneration paid or made available to its holder arising from: a) Work on behalf of another performed under an individual employment contract or another legally equivalent thereto.
Pursuant to article 2, paragraph 2, of the IRS Code, the remuneration referred to in the previous paragraph (i.e., article 2, paragraph 1, of the IRS Code) includes, in particular, salaries, wages, stipends, bonuses, percentages, commissions, profit-sharing, allowances or premiums, attendance fees, emoluments, participation in fines, and other incidental remuneration, whether periodic, fixed or variable, of a contractual or non-contractual nature.
Pursuant to article 2, paragraph 4, subparagraph b), of the IRS Code, when, in any manner, the contracts underlying the situations referred to in subparagraph a) [...] of paragraph 1 [...] terminate, the amounts received, under any title, shall always be subject to taxation: b) In the part exceeding the value corresponding to the average of regular remuneration with the character of payment subject to taxation earned in the last 12 months, multiplied by the number of years or fraction of seniority or years of service with the debtor entity, in other cases, except when within the following 24 months a new professional or business link is created with the same entity, regardless of its nature, in which case the amounts shall be taxed in their entirety.
It is this rule that is under examination here (article 2, paragraph 4, subparagraph b), of the IRS Code).
Paragraph 7 of article 2 of the IRS Code further states that the amounts referred to in paragraph 4 shall also be taxed in their entirety when the taxable person has benefited, in the preceding five years, from the total or partial non-taxation provided therein.
From the analysis of article 2 of the IRS Code, namely the paragraphs referred to above, it is evident that Fiscal Law contains no definition of seniority.
Pursuant to article 11, paragraph 2, of the General Tax Law (LGT), whenever fiscal norms employ terms that are specific to other legal branches, they must be interpreted in the same sense as they have therein, unless otherwise directly provided by law.
Because important to the grounds of this Arbitral Decision, invoked herein is the reasoning contained in the Arbitral Decision of CAAD in case no. 158/2017-T dated 17 November 2017, when that Decision states as follows: on this point, the doctrine set forth in the judgment of the Central Administrative Court of 11-05-2004, case no. 6002/01, states: "Because seniority constitutes a labor law concept, we consider that it is in labor law that the solution to the question should be sought, it being known that it is current doctrine (now enshrined in article 11 of the LGT) that whenever fiscal norms employ terms specific to other legal branches, they must be interpreted in the same sense as they have therein, unless otherwise directly provided by law." (to the same effect, the judgment of the Central Administrative Court of 12-03-2013, case no. 05971/12).
Also invoked is the reasoning of the Arbitral Decision of CAAD in Case no. 616/2015-T dated 2 May 2016 [...] there is no doubt that "seniority" constitutes a concept originating in Labour Law, and there is also no doubt that the fiscal legislator did not give this concept its own definition. Thus, this concept should be interpreted in the same sense as it has in labor law, insofar as the fiscal legislator did not define it for purposes of taxation under IRS, and nothing in fiscal law expressly indicates a different sense. Now, although it is true that we cannot extract from the Labour Code a definition of the concept of seniority, we follow the understanding of the judgment of the Central Administrative Court of the South of 21-09-2010, rendered in case no. 03748/10, that article 11, paragraph 2 of the LGT "directs reference to the terms proper to other legal branches, not merely to provisions of other laws."
This Singular Arbitral Tribunal follows this interpretation.
This latter Arbitral Decision of CAAD, the interpretation of which this Singular Arbitral Tribunal follows, states further that, the same judgment notes that although the current Labour Code does not itself regulate the concept of seniority of the worker, it places, first and foremost, collective bargaining instruments, such as sources of law from which, in the first instance, applicable norms to the employment contract emerge, further establishing in its article 2 the forms these may assume (collective contracts, collective agreements and company agreements). Thus, as the Central Administrative Court of the South correctly understood in the judgment of 12-03-2013 rendered in case no. 591/12, it is today unanimous in labor law that there are three sources that can establish seniority: Law, Individual Employment Contract, and Collective Labour Regulation Instruments. Since a concept of seniority cannot be extracted from Law, that is, from the Labour Code, we must analyze, in the concrete case, the Individual Employment Contract executed or refer to the Collective Agreement of Work of the banking sector.
Also invoked herein is the reasoning of the Arbitral Decision of CAAD in Case no. 512/2017-T dated 28 February 2018, when that Decision states: in this way, it will be in the collective regulation instruments applicable to the banking sector to which the Claimant bound himself and the banking institution that we shall seek the concept of the worker's seniority.
Thus,
As evidenced by items K) and L) of Section 2.1 of the Findings of Fact, Claimant A... was an employee of Bank D... between June 1992 and August 2009 (item K) and was an employee of C... between 18 August 2009 and 7 June 2013 (item L).
As evidenced by item R) of Section 2.1 of the Findings of Fact, Claimant A... was, until termination of the employment contract with C..., continuously an employee of the banking sector for 21 (twenty-one) years.
As evidenced by items M) and S) of Section 2.1 of the Findings of Fact, both at the time of execution and at the time of termination of the employment contract of Claimant A... with C..., the Collective Labour Agreement of the Banking Sector was applicable to the banking sector.
Pursuant to article 17, paragraph 1, subparagraph a) (determination of seniority) of the Collective Labour Agreement of the Banking Sector, for all purposes provided for in this Agreement, the seniority of the worker shall be determined by calculating the time of service rendered as follows: a) All years of service rendered in Portugal in Credit Institutions with activity in Portuguese territory.
The legal relationship established between C... and Claimant A... – employment contract and revocation agreement – originates from the legal labour relationship established, i.e., originates in the employment contract executed.
Pursuant to article 1 of the Labour Code, the employment contract is subject, in particular, to collective labour regulation instruments, as well as to usages that are not contrary to the principle of good faith.
Pursuant to article 2, paragraph 3, subparagraph b), of the Labour Code, collective agreements may be: b) collective agreement, an agreement executed between a trade union association and a plurality of employers from different companies.
As Luís Menezes Leitão teaches in Labour Law, 2016, 5th Edition, Almedina, collective labour regulation instruments constitute a specific source of Labour Law (article 1 of the Labour Contract), based on collective autonomy. The regulation of legal labour situations through collective labour regulation instruments allows great specialization, establishing labour regimes more adapted to various situations.
Menezes Cordeiro even questions, in António Moreira (org.), III Congress, whether collective bargaining does not give rise to a statutory law by sectors. Powerful sectors – such as that of banking among us – today have true codifications, with developed social and welfare aspects, outside State Law.
Pursuant to article 476 of the Labour Code, provisions of a collective labour regulation instrument can only be departed from by an employment contract when it establishes conditions more favorable to the worker.
Luís Menezes Leitão teaches in Labour Law, 2016, 5th Edition, Almedina that the majority of Portuguese doctrine clearly rejects the thesis of automatic reception, having spoken against it Menezes Cordeiro, Bernardo Xavier, Romano Martinez, and Luís Gonçalves da Silva. For these authors, the fact that a collective agreement has direct application does not imply the incorporation of its norms into each employment contract, but merely the fact that they cannot dispose to the contrary. Now, it is not necessary to fictitiously presume automatic reception of the collective agreement's norms into the employment contract for the parties to be bound by them. It seems to us that in fact it makes no sense to defend automatic reception of the collective agreement's norms into the employment contract, which would imply disregarding it as a source of Law. Indeed, what occurs is that the collective agreement remains heteronomous in relation to the employment contract, with the provisions thereof having to conform to it, on penalty of inefficacy. We therefore defend the doctrine of invalidating effect.
This Singular Arbitral Tribunal follows this interpretation.
That is, the employment contract of Claimant A... with C... was subject, in particular, to a collective labour regulation instrument, in this case, the Collective Labour Agreement of the Banking Sector, whereby the employment contract (the legal labour relationship) of Claimant A... with C... was subject, among others, also to paragraph 1 of Clause 17 of the Collective Labour Agreement of the Banking Sector (determination of seniority).
But furthermore,
As Luís Menezes Leitão teaches in Labour Law, 2016, 5th Edition, Almedina, finally, for eclectic theses, the collective agreement would constitute a mixed element of contract and norm, having been defined by Carnelutti as "a hybrid with the body of a contract and the soul of a law." This thesis is followed, among us, by Menezes Cordeiro, for whom collective agreements are "collective (private) dealings and mediate sources of Law. Similarly, Jorge Leite argues that the collective agreement is "neither a law, nor a regulation, nor a contract, it is a synthesis of the three figures, a complex of norms negotiated by private entities." Similarly, Rosário Ramalho defends "a hybrid construction of this figure, recognizing it both a negotiating facet and a normative facet, following Carnelutti's construction, but with a clear predominance of the normative facet, for the simple reason that the normative portion corresponds to the most important content of this instrument. We believe the eclectic configuration of the collective agreement to be the best position. In truth, the collective agreement involves both a private law contract and an act creating legal norms, which may even be extended to non-signatories through administrative means. It thus produces both norms and commands, which implies that it must be recognized as having an eclectic nature.
This Singular Arbitral Tribunal understands that, by its nature, and following the reasoning of the said Author, the collective agreement, in which the collective agreement is inserted – and in this case, the Collective Labour Agreement of the Banking Sector – should be considered as a mixed element of contract and norm.
This understanding is reinforced, on the one hand, by the provision of article 476 of the Labour Code, when it states that provisions of a collective labour regulation instrument can only be departed from by an employment contract when it establishes conditions more favorable to the worker, and on the other, by the grounds contained in the Arbitral Decision of CAAD in case no. 158/2017-T dated 17 November 2017, when that Decision states: there is no doubt that collective labour regulation instruments are a source of labour law (cf. Article 1 of the Labour Code). Therefore, the concept of seniority established in a collective labour agreement is a concept of seniority established in labour law. Pursuant to Clause 17 of the Collective Agreement between various credit institutions and the National Union of Banking Managers and Technicians and another published in the Labour and Employment Bulletin, 1st Series, no. 4 of 29 January 2005, of which, both at the date of execution and at the date of termination of the contract, Bank B..., the entity paying the compensation for employment contract termination, was a signatory, the seniority of the worker (covered by the agreement) encompassed all years of service rendered in Portugal in credit institutions with activity in Portuguese territory." Being this agreement the source of law to which reference must be made to establish the concept of seniority in the concrete case, the seniority relevant to the application of the provision of article 2, paragraph 4, subparagraph b), of the IRS Code cannot but be that which encompasses all years of service rendered in Portugal in credit institutions with activity in Portuguese territory, that is, 16 years and 11 months.
But this Arbitral Decision of CAAD states further that the fact that the effects of this definition of the worker's seniority were limited in the employment contract is not sufficient to invalidate, in our view, that, for the generality of effects, the seniority of the worker be that which flows from the application of the rules of the Collective Agreement of the Banking Sector. Accordingly, the allegation of illegality of the IRS assessment challenged proceeds, based on violation of law by error in the assumptions of law.
This Singular Arbitral Tribunal follows this understanding. Such collective regulation instrument – Collective Labour Agreement of the Banking Sector – was, accordingly, applicable to all situations (more favorable to the worker) that regulated the employment contract, i.e., that regulated the legal labour relationship between Claimant A... and C.... Including, in the present case, seniority.
In these terms, given that the Collective Labour Agreement of the Banking Sector is the source of Law to which reference must be made to establish the concept of seniority, in the absence of this concept in Fiscal Law, this Singular Arbitral Tribunal understands that Fiscal Law permits the qualification and extension of the concept of seniority. This Singular Arbitral Tribunal further adds that it permits such extension, provided that it results directly from the application of legal or collective conventional norms that have as a consequence such extension.
Continuing,
Because important to the grounds of this Arbitral Decision, invoked herein is the reasoning contained in the Arbitral Decision of CAAD in case no. 158/2017-T of 17 November 2017, when that Decision states as follows: The first question of interpretation that arises is whether the expression "seniority with the debtor entity" is equivalent to time of work with the debtor entity. That is, whether the seniority considered in article 2, paragraph 4, subparagraph b), is, in any and all cases, only the time of activity with the entity paying the indemnification, or whether it can, under certain conditions, be seniority measured from an earlier moment, incorporating one or more periods of exercise of labor activity with other employers [...]. Concluding that, for labor law, alongside "seniority in the company," other possible meanings for the term "seniority" exist, one must interpret article 2, paragraph 4, subparagraph b), of the IRS Code to ascertain the sense in which the term is used there. And, more concretely, it is necessary to inquire whether the meaning of the term "seniority" mentioned in article 2, paragraph 4, subparagraph b) admits being molded according to what is considered as "seniority" within a particular legal labour relationship in accordance with applicable labour regulation [...]. If the fiscal legislator had wanted the relevant time – for purposes of the exclusion from taxation provided for in article 2, paragraph 4, subparagraph b) – to always be the time of duration of the worker's activity in the company, it would have had no need to mention "seniority." It would have been a useless and redundant repetition. Concluding that the legislator used a useless and redundant repetition would not be consistent with the provision regarding the interpretation of legal norms in article 9, paragraph 3 of the Civil Code. Therefore, the fiscal legislator intended to open the possibility that the worker's seniority in the company be something distinct from time of activity in the company.
This Singular Arbitral Tribunal shares this interpretation.
The said Arbitral Decision continues, the difficulties do not end here, we recognize, since labor law does not contain a concept of seniority. Furthermore, there is also no doubt, given the indeterminacy of the concept of seniority, that there exists a certain margin for collective labour regulation instruments to establish the concept of seniority applicable within their scope, which removes certainty from any legal norm that makes use of it. But it was the choice of the fiscal legislator to refer to a labor law concept that is not only an indeterminate concept but is to a certain extent at the disposal of the parties executing a collective labour regulation instrument. The interpreter's task is not to correct the legislator's expression, but to derive therefrom the sense that presumably most closely approximates the legislator's intent. As also stated in the judgment of the Central Administrative Court already referred to, nothing prevents that in the establishment of the concept of seniority "be taken into account the time of service and the category already attained in another or other employers, so that the worker be hired without prejudice to seniority in the profession, since this is neither prohibited by the norms referred to in article 12, paragraph 1 of the Labour Code nor by the principles of good faith, being moreover sometimes this practice heeded in the usages of the profession of work and of companies." And continuing to follow the doctrine of that Court, "this being so, it should be noted that nothing suggests or indicates that the concept "seniority" contained in article 2, paragraph 4, of the IRS Code was not used in all its breadth, that it cannot take into account time of service (seniority) attained in another company provided it was expressly recognized in the labor contract by the debtor entity." Or as stated in the judgment of the same Court of 12-03-2013, case no. 05971/12, "Not resulting from the norm under examination (cf. Article 2, paragraph 4 of the IRS Code) that the concept of seniority refers restrictively to time of service with the entity owing compensation for employment contract termination, and nothing justifying a restrictive interpretation of the norm of incidence, the broader notion of seniority arising from labor law should be accepted for the calculation of the amount subject to taxation under IRS."
This Singular Arbitral Tribunal follows this understanding.
This Singular Arbitral Tribunal understands that the concept of seniority, in its broad sense, can be considered within a particular legal labour relationship, with that relationship being in accordance with the terms of applicable labour regulation.
Furthermore stated,
Having analyzed article 2, paragraph 4, subparagraph b), of the IRS Code, it is evident that it provides for a multiplier. See [...] multiplied by the number of years or fraction of seniority or years of exercise of functions with the debtor entity, in other cases [...].
This Singular Arbitral Tribunal understands that the Law separated two situations. On the one hand, "number of years or fraction of seniority," on the other, "number of years or fraction of exercise of functions." The Law "added," "with the debtor entity" and "in other cases."
Because important to the grounds of this Arbitral Decision, invoked herein are the arguments contained in the Arbitral Decision of CAAD in case no. 321/2017-T of 7 December 2017, when that Decision states as follows: That is, concretely, the segment of the norm that is the subject of dispute is the multiplier that the law establishes: "...number of years or fraction of seniority or of exercise of functions with the debtor entity, in other cases." The Tax Authority understands that this multiplier is the number of years of seniority in the company, with the debtor entity, with the employer that pays the indemnification and that appears as party to the revocation agreement of the employment contract with the worker. In practice, it understands that it is always the number of years of exercise of functions with the debtor entity (employer) that revokes the employment contract, the relevant multiplier. The Claimant, the husband and former dependent worker of the banking entity, understands that, in the absence of a definition in fiscal law of what must be understood by "seniority," by force of article 11, paragraph 2 of the LGT, what results from the Collective Agreement of the Banking Sector and from the contract he himself executed with the banking entity, notably Clause 17 of the Collective Agreement of the Banking Sector, making use of several decisions of the Central Administrative Court of the South to that effect, seniority resulting from the employment contract and the Collective Agreement applicable should be heeded.
The Arbitral Decision continues: The Tax Authority considers that, as the norm is worded, this segment: "...number of years or fraction of seniority or of exercise of functions with the debtor entity, in other cases" should be read as follows: Number of years or fraction of seniority with the debtor entity (employer); Number of years of exercise of functions with the debtor entity (employer). While the comments contained in the annotation to the judgment of the Central Administrative Court regarding seniority in the banking sector are relevant, it seems to us questionable that one should consider that the legislator, given the manner in which it worded the text of the norm in question, intended that the concept of "seniority" be only that obtained with the employer (debtor) entering into the termination agreement. [...] with the reasoning set forth by the Tax Authority, the norm would be emptied of content, which, by containing the expression "in other cases," seems to lead the interpreter to the idea that here two different mechanisms are established to ascertain, determine, the multiplier, leading to differentiated results. The reading of the law defended by the Tax Authority seems to lead, in practical terms, to the multiplier being always the same, whether by the criterion of "seniority," whether by the criterion of years of exercise of functions with the employer that revokes the employment contract. And thus interpreting the norm, we would be faced with equal results for cases in which the law seems to provide for differentiated mechanisms. That is, for situations of right and of fact that are different, different solutions are supposed to be established. And along these lines of thought, it does not seem one should speak of violation of the principle of material equality (isonomy) because it is a matter of establishing different multipliers for differentiated expectations, created on the basis of different legal and factual realities. This segment of the norm thus seems to be intended to consider two distinct realities (with differentiated solutions) for calculating the multiplier in question: Number of years or fraction of seniority (understood in general terms, without qualifying the type of seniority); or Number of years or fraction... of exercise of functions with the debtor entity. It is that the norm further adds, following the last expression (or exercise of functions with the debtor entity): "in other cases," leading to the perception that it contains two distinct mechanisms to obtain the multiplier, in the alternative, there thus existing, at minimum, "two" distinct cases contained in the provision of the norm.
This Singular Arbitral Tribunal follows this interpretation.
Continuing,
The Respondent invokes, both in its Reply (article 18) and in its Submissions (Section 3), among others, that: the legal regime of article 2, paragraph 4 of the IRS Code is underlain by a manifest anti-abuse vocation, proper to special clauses preventive of tax evasion – a vocation that has special reason to be, since in no case would agreements be acceptable that disposed of seniority labor recognition recognizing merely artificial seniorities and imposing such recognition for purposes of delimiting the incidence of tax.
This Singular Arbitral Tribunal understands that the question analyzed within this Proceeding does not pose itself at the artificial level.
Because important to the grounds of this Arbitral Decision, invoked herein is the reasoning contained in the Judgment of the Central Administrative Court of the South dated 12 March 2013 in case no. 05971/12, when that Judgment states as follows: the tax act always has at its base a concrete factual situation, which is provided abstractly and typically in fiscal law as generating the right to tax. That factual and concrete situation is defined as the tax fact, which only exists when all legally provided prerequisites are met. The tax norms that contemplate the tax fact are those relating to real incidence, which define its objective elements. Only with the occurrence of the tax fact is the tax obligation born. The existence of the tax fact constitutes, therefore, a condition "sine qua non" of the establishment of taxable matter and of the assessment made.
From the analysis conducted, this Singular Arbitral Tribunal understands that there is nothing artificial in the present case. There is no employment contract or revocation agreement that "illegally imposes" seniority, in the present case, on the Respondent. There are, rather, facts. There is, rather, a concrete factual situation. Indeed, Claimant A... was an employee of D..., having performed duties in banking activity between June 1992 and August 2009, and was an employee of C..., also having performed duties in banking activity between August 2009 and June 2013. And the Collective Labour Agreement of the Banking Sector establishes that the seniority of the worker shall be determined by calculating the time of service rendered as follows: a) All years of service rendered in Portugal in Credit Institutions with activity in Portuguese territory.
The Respondent further states in its Reply (article 21): Adding that the Authors argue that "the concept of seniority of which the legal provisions of the codicial chapter relating to employment contract termination and which establish criteria for the definition of indemnifications or compensations serve is that of seniority in the company and that, consequently, additional periods of duration of the bond that may have been recognized by the employer by mere effect of contractual consensus or, indeed, by unilateral admission are not to be heeded in that definition or compensatory calculation, that is, that do not result directly from the application of legal or collective conventional norms that have as consequence that extension, such as happens in the cases already mentioned of assignment of contractual position, transfer of ownership or operation of a company, establishment or economic unit, merger, division, etc. To these cases, collective agreements may add various others."
The Respondent also invokes, in point 13 of its Submissions, the following: It seems entirely evident that admitting that in seniority with the debtor entity one consider, beyond the seniority inherent to the actual duration of the contractual relationship granted by this entity (including entities equated thereto or that succeeded it), increases resulting from negotiated legal instruments, which would thus be allowed through negotiated delineations of seniorities to determine among the parties the measure of the exclusion of fiscal incidence provided for in article 2, paragraph 4 of the IRS Code – the same as to say manipulate taxation, making it, all things considered, practically voluntary – would be something absolutely incompatible with all corollaries of the principle of legality in matters of fiscal incidence (cf. Article 103, paragraph 2 of the Constitution and articles 5 and 55 of the LGT), whether the material dimension of fiscal justice – as a guarantee of equality in taxation, implying generality and responsibility/solidarity (absence of manipulation or evasion) – whether the dimension of formalization – as a guarantee of taxation according to legal standards of certainty and security, implying for the legislator the requirement of complete determination of the incidence norm and for the Tax Administration the requirement of action bound to such determination.
Now, this Singular Arbitral Tribunal understands that Claimant A...'s seniority, in the present case, the 21 years of activity in the banking sector, results from the direct application of legal and collective conventional norms, which have as a consequence the extension of seniority. There was no illegally negotiated voluntariness, manipulation or increase.
Continuing,
The Respondent further invokes in its Submissions (points 14, 15, 16, and 17), among others, the following:
Point 14: Manuel Faustino and Others, regarding the seniority to be considered in the application of paragraph 4 of article 2 of the IRS Code, understand that "The Collective Labour Agreement of the Banking Sector that imposes, in the transfer of a worker between credit institutions, the counting of seniority time verified in the previous or earlier credit institution or institutions of which the worker has been an employee is not opposable to the tax administration. As, a fortiori, neither are any agreements that, respecting the guarantee of benefits inherent to seniority, may have been executed between the worker and the employer."
Point 15: Now, were one to accept this position, and in an interpretation consistent with that followed in those decisions, the tribunal would be obliged to accept that, if in a given contract revocation agreement, a clause is included in which recognition of fictitious seniority is agreed upon, or immediately before that revocation agreement the contract is amended to include a clause of the same tenor therein, that is the seniority to be heeded for labor purposes, and therefore the seniority to consider as the multiplying criterion in the negative delimitation of incidence in IRS... It is therefore crystallinely clear that, taking as reference for fulfilling the fiscal norm the concept of seniority adopted for labor purposes at the moment of contract termination and for purposes of calculating the compensation to be awarded to the worker, the path would be found for the limit of the exclusion from taxation to be freely manipulable by the parties, which, we shall agree, was certainly not – cannot have been – the fiscal legislator's intention.
Point 16: To be thus, it would certainly not be in the spirit of the legislator to grant a greater exclusion from taxation to one who, not meeting this requirement, simply agrees with the employer entity (or makes use of a collective agreement that so establishes) seniority (in the sense of seniority in the company) that in reality does not have and that exceeds what actually has, that is, negotiating on a measure as if it were a disposable legal good.
Point 17: An interpretation such as defended by the Claimant would allow manipulation by simple agreement of the parties that, as we believe, does not fit in the letter nor in the spirit of the tax norm. We therefore believe that (...) the concept of seniority to be adopted should be the strictest, measurement concept of seniority in the company, which leads to the solution identical to that which we consider most correct and which we understand results from the literal element itself, which is that the fiscal legislator intended to refer to seniority with the debtor entity.
As previously stated, this Singular Arbitral Tribunal understands that the concept of seniority can be considered within a particular legal labour relationship if that particular legal labour relationship is in accordance with the terms of applicable labour regulation.
The Respondent's position is based on "potential" agreements executed between workers and employers. What is not being disputed here is "in the abstract." What is not being disputed here is whether there exists a fictitious agreement or "manipulation of an agreement."
Rather, what is being disputed, taking into account the proven facts, "in the concrete," is Claimant A...'s seniority for purposes of IRS incidence, in the case, in the year 2013. Claimant A... was an employee of Bank D..., having performed duties in banking activity between June 1992 and August 2009, and was an employee of C..., also having performed duties in banking activity between August 2009 and June 2013. And the Collective Labour Agreement of the Banking Sector establishes that the seniority of the worker shall be determined by calculating the time of service rendered as follows: a) All years of service rendered in Portugal in Credit Institutions with activity in Portuguese territory.
Furthermore,
Because equally important to the grounds of this Arbitral Decision, invoked herein are the grounds contained in the Arbitral Decision of CAAD in case no. 512/2017-T of 28 February 2018, when that Decision states as follows: Let us turn to the extensive jurisprudence from the Central Administrative Court to CAAD regarding, for purposes of said IRS exemption, time of service rendered by the worker to entities of the same sector, whenever the following requirements are met: namely: (i) The new employer has subscribed to the Collective Agreement of the respective sector; (ii) There exists an individual agreement between the worker and the new employer (as a rule, the employment contract) regarding the relevance of time of service rendered to entities of the same sector; and, (iii) The worker is affiliated with the respective trade union.
Having analyzed the factual matter given as proven (established), this Singular Arbitral Tribunal understands that all three requirements are met.
Let us see,
C... subscribed to the Collective Agreement of the Banking Sector, applicable to the respective sector.
An employment contract and a contract revocation agreement were executed between Claimant A... and C..., both in written form, where relevance (it is further added, legal relevance) was given to time of service rendered to entities of the same sector, in the present case, relevance was given to time of service at Bank D....
Claimant A... was a worker affiliated with the Trade Union of Bankers of the South and Islands, this trade union being also a signatory to the Collective Agreement of the Banking Sector.
The Arbitral Decision of CAAD in case no. 512/2017-T of 28 February 2018 continues, beyond these requirements there are those who understand there to exist another that relates to the existence of payment of indemnification for time of seniority in a previous banking institution. [...] Given that the question of payment of indemnification for time of seniority in a previous banking institution has not been raised in the record, this leads this tribunal to believe that such payment has not occurred and in this manner it is understood that this requirement too is met.
Pursuant to item V) of Section 2.1 of the Findings of Fact, Claimant A... did not receive any compensation when the employment contract with Bank D... terminated. This requirement is also met.
Accordingly,
This Singular Arbitral Tribunal understands that, on the basis of the facts considered proven, Claimant A... was, until termination of the employment contract with C..., continuously an employee of the banking sector for 21 (twenty-one) years.
This Singular Arbitral Tribunal likewise understands that the norm of article 2, paragraph 4, subparagraph b), of the IRS Code should be applied, in the present case under examination, as permitting the extension of seniority, by force of application of the Collective Labour Agreement of the Banking Sector.
By the foregoing, this Singular Arbitral Tribunal therefore understands that, after proper examination and consideration, it is to be applied, for purposes of IRS incidence, to the case under examination herein relating to the year 2013, the counting of seniority taking into account all time of service rendered by Claimant A... in banking institutions (in the banking sector).
Accordingly, this Singular Arbitral Tribunal decides on the declaration of illegality of the assessment examined herein, by violation of article 2, paragraph 4, subparagraph b), of the IRS Code.
Pursuant to article 24, paragraph 1, subparagraph b), of the LFATM, the arbitral decision on the merits of the contention from which no appeal or challenge lies shall bind the tax administration as from the expiration of the deadline provided for appeal or challenge, the latter being obligated to, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and until the expiration of the deadline provided for spontaneous compliance with the decisions of tax judicial tribunals: b) restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for such purpose.
4. Interest
The Claimants further request the condemnation of the Respondent in the payment of compensatory interest.
Pursuant to article 43, paragraph 1, of the LGT, compensatory interest is due when it is determined, in a gracious appeal or judicial challenge, that there was error attributable to the services that resulted in payment of tax debt in an amount exceeding that legally due.
Given the foregoing, the IRS assessment that has been annulled results from error attributable exclusively to the Respondent, insofar as the Claimants complied with their declarative duties.
It has been established that the Claimants paid tax exceeding what was due.
Accordingly, pursuant to article 43 of the LGT and article 61 of the Code of Tax Procedure and Process (CTPP), the Claimants are entitled to compensatory interest, such interest to be calculated from the date of payment of the undue (annulled) tax until the date of issuance of the respective credit note, whose deadline for payment shall be counted from the date of commencement of the deadline for spontaneous compliance with this decision (article 61, paragraphs 4 and 5, of the CTPP), at the rate referred to in article 43, paragraph 4, of the LGT.
5. Decision
Given the foregoing, this Singular Arbitral Tribunal decides:
- To adjudge as substantively well-founded the present Request for Arbitral Decision, declaring illegal the decision rejecting the Gracious Appeal regarding the assessment relating to IRS for the year 2013, corresponding to the Statement of IRS Assessment (no. 2017...) in the amount of €23,261.46, Statement of Interest Assessment (no. 2017...) in the amount of €2,590.65, and Statement of account settlement (Document ID 2017...) indicating the total amount of €27,091.88 to be paid by the Claimants.
- To annul, consequently, the IRS Assessment (no. 2017...) in the amount of €23,261.46, the Interest Assessment (no. 2017...) in the amount of €2,590.65, and the account settlement (Document ID 2017...) indicating the total amount of €27,091.88 to be paid by the Claimants.
- To condemn the Respondent in the payment of compensatory interest due.
- To condemn the Respondent to perform all necessary acts to restore the situation, namely, to condemn the Respondent to refund the amount of €27,091.88, such amount paid by the Claimants, plus respective interest, until the effective and complete refund of such amount.
6. Value of the Case
The value of the case is fixed at €27,091.88.
7. Costs
This Singular Arbitral Tribunal understands that the value to be considered for purposes of determining costs in the present Request for Arbitral Decision is the value that motivated the constitution of this Singular Arbitral Tribunal, i.e., the amount of €27,091.88, corresponding to the value of tax paid, exceeding that due and initially indicated by the Claimants in the Request for Arbitral Decision.
Pursuant to article 22, paragraph 4, of the LFATM, the amount of costs is fixed at €1,530.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Respondent.
Let notice be given.
Lisbon, 28 September 2018
Singular Arbitral Tribunal
The Arbitrator,
(Alexandre Andrade)
Frequently Asked Questions
Automatically Created