In a recent judgment, the Higher Court ruled, in a specific case, whether or not the salary norm was met at the time of hiring (“pre-test”) and also in the relevant subsequent years (“continuity test”). In particular, the Higher Court clarified that the taxable moment entails that salary which has not (yet) been paid, but is already determinable as well as claimable and collectible, must also be included and allocated to the relevant periods (years) subject to those assessments. In this case, it concerned Portuguese social security contributions and health insurance premiums reimbursed by the employer.
Factual background and Higher Court’s assessment
An employee was seconded by his employer to another company under a traineeship arrangement from 1 September 2019 to 31 October 2021, despite the fact that the employee was no longer enrolled in any studies or training. During this period, the employee received allowances from the formal employer, specifically a ‘monthly maintenance allowance’. Additionally, he received a ‘monthly subsistence allowance’ from the host company where he performed his work activities. Furthermore, he was entitled to reimbursement (on a net basis) of (i) Portuguese social security contributions and (ii) incurred healthcare costs. No specific amount was stated in the contract regarding the first reimbursement. The second reimbursement was only received by the employee as a ‘lump sum payment’ in 2021. The 30% ruling was not applied for in respect of this (first) employment.
On 15 October 2021, the employee entered into an employment agreement with another formal employer, with a commencement date of 15 November 2021. For this employment, the 30% ruling was applied for. Although the employee cannot be regarded as an ‘incoming employee’ prior to the new employment, it is possible to invoke the ‘fictitious change of withholding agent’ clause in law, allowing the 30% ruling to be (fictitiously) continued. This is subject to the condition that, inter alia, the salary with the first employer meets both the pre-test and the continuity test criteria.
The first question was whether the reimbursements of social security contributions should be included in the salary norm assessment at the time the employment contract with the first employer was entered into in 2019 (pre-test). The Higher Court ruled that an enforceable right existed to a monthly reimbursement of social security contributions and that, at that point in time, the amount of this reimbursement was also determinable based on the applicable Portuguese legislation, notwithstanding the fact that the contract did not specify a concrete amount. Therefore, the monthly reimbursements are to be included in the pre-test. The fact that the reimbursements were ultimately not paid until after 2019 is irrelevant for the purposes of this assessment.
The next question is whether the continuity test was met. In line with the above, the taxable moment is decisive for each separate relevant year, according to the Higher Court. With respect to the year 2020, the employee received ‘lump sum payments’ in 2020 and 2021, which included the monthly reimbursements for both social security contributions and healthcare expenses. The Higher Court ruled that, insofar as these lump sum payments pertained to monthly reimbursements for the year 2020 that were both claimable and collectible, they are to be taken into account for the purposes of the continuity test for 2020.
This judgment clearly establishes that, for both the pre-test and the continuity test, the taxable moment is decisive in determining whether the applicable salary norm is met.
