1. ENTRY INTO FORCE OF LAW 26/2014 OF 27 NOVEMBER, WHICH AMENDS THE PERSONAL INCOME TAX LAW
Law 26/2014 of 27 November amends Law 35/2006 of 28 November on personal income tax, the consolidated text of the Non-Residents Income Tax Law, approved by Royal Legislative Decree 5/2004 of 5 March, and other tax legislation.
Law 26/2014, which amends the Personal Income Tax Law (Law 35/2006 of 28 November, “LIRPF”), modifies the taxation of emoluments and severance payments (“Law 26/2014”).
According to article 7e) of the LIRPF, the statutory minimum severance payments established in the Statute of Workers (“SW”), its secondary legislation or legislation on the enforcement of judgments, are exempt from tax. Any amount agreed in excess of the statutory severance payment is taxable. Likewise, in collective redundancies carried out in accordance with article 51 or article 52c) of the SW that are based on economic, technical, production, organisation or force majeure grounds, the part of the compensation paid to the employees who are made redundant that does not exceed the statutory minimum for unfair dismissal established in the SW is tax exempt.
This continues to be the case, although pursuant to the amendments introduced by Law 26/2014, the amount of exempt compensation may not exceed EUR 180,000 (this was already the case in the Basque Country and Navarre). This limit applies to compensation for dismissals that take effect after 1 August 2014, except for those resulting from collective redundancy proceedings which consultation period was notified to the labour authority before that date.
Any amount received in excess of the statutory minimum is considered income obtained on a non-regular basis and benefits from a 30% tax reduction, provided that the employee worked for the company for at least two years. If the compensation is paid in instalments, the period of time over which the instalments are paid counts towards the calculation of the two-year requirement.
The tax reduction will not be applicable if the employee has already applied it to another income at any point over the previous five years.
Law 26/2014 has not altered the reduced taxable base (the general base is EUR 300,000 per year) for the tax reduction that applies when the compensation received following the termination of an employment relationship exceeds EUR 700,000.
For corporation tax purposes, compensations that exceed EUR 1,000,000 are not tax deductible.
Prior to the reform, it was unclear which salary amounts were non-taxable (and therefore could not be classed as remuneration in kind) and which were tax exempt. Following the entry into force of Law 26/2014, the only non-taxable amounts are:
a) training costs, expenses and investments in familiarising employees with new technology, and
b) occupational accident and civil liability insurance.
The following are tax exempt:
a) products sold at reduced prices in company canteens,
b) goods used for social or cultural services,
c) health insurance,
d) schooling costs for employees’ children,
e) transport services, and
f) transfers of company or group shares to employees for free or for below the market price. The first EUR 12,000 are exempt for each employee, provided that the shares are offered to all company and group employees under the same conditions.
Law 26/2014 reduces the number of personal income tax rates applicable to emoluments from seven to five. This is to be implemented in two phases (between 2015 and 2016) and from 1 January 2016 the minimum personal income tax rate (excluding regional variations) will be 19% and the maximum rate 45%.
It also repeals the provisions that allowed for tax deductions to be made from the income obtained from the exercise of stock options that were not granted annually and that were exercised at least two years after they were granted. Transitional rules are in place for options granted before 1 January 2015.
The “inpatriates rules” have undergone significant changes and an “exit tax” has been introduced that applies to employees who are sent abroad but who have paid Spanish personal income tax for at least ten of the last 15 years and who will cease to be personal income tax payers when they move abroad. It is also applicable to employees who are transferred to tax havens and who continue to be taxpayers pursuant to article 8.2 of the LIRPF. In the case of inpatriates, the ten-year period is calculated from the first year in which the inpatriates rules were not applied. The “exit tax” is payable on unrealised tacit gains from shares.
The reform brings to an end the controversy as to how extraordinary voluntary payments to company directors (liberalidades) should be classed for corporation tax purposes and confirms that “payments made to directors for the performance of their senior management duties or others derived from an employment contract with the company” are not liberalidades and therefore they are not deductible for corporation tax purposes. The reform reduces the tax withholding rate from company directors’ pay to 37% in 2015 and 35% in 2016. In the case of companies with a net turnover of less than EUR 100,000, the withholding rate is 19%.
Finally, the reform amends the Pension Plans and Funds Law to limit the annual amount that a company may contribute to an employee’s pension fund to EUR 8,000. Beneficiaries of company pension plans may only exercise their consolidated pension rights when they have been out of work for a long time or suffer a serious illness. Employees who have worked for a company for at least ten years may exercise their consolidated rights early, although it will only be possible to exercise these rights fully from 2025.
Order ESS/2098/2014 of 6 November modifying the schedule to the Order dated 27 December 1994
This Order stipulates that payslips must now also include the employer’s social security contributions. Up until now, only the minimum contribution base and the employee’s social security contributions had to be included.
Companies must adapt all their payslips within six months of this Order entering into force. This Order entered into force on 12 November 2014.
3. SUBCONTRACTING AT A LOWER COST AFTER A COLLECTIVE REDUNDANCY
Judgment of the Labour Chamber of the Supreme Court dated 23 September 2014
The Spanish Supreme Court (“SC”) dismissed the appeal filed by part of the employee representation and upheld the decision of the National Court dated 15 July 2013, which declared the collective redundancy procedure lawful.
The SC upheld the collective redundancy implemented by a group of companies, which concluded with an agreement with most of the employee representatives. However, some of the employee representatives challenged the lawfulness of the redundancy procedure before the Spanish National Court first and ultimately before the SC.
According to the employee representatives, the collective redundancy procedure was void because: (i) the mandatory documentation had not been provided; (ii) the selection criteria were discriminatory on the grounds of gender; (iii) no social support measures had been negotiated, and (iv) the company outsourced part of its business after the redundancy procedure. Furthermore, they claimed that the company’s measures violated fundamental rights, that all the companies of the group were not present during the procedure and that the company did not act in good faith during the negotiations. Failing this, the employee representatives requested that the redundancies be declared unlawful because the measure was not duly justified.
The appeal brief clearly failed to fulfil the minimum requirements for its filing and could have been rejected outright. However, in view of the importance of the subject matter in question, the SC decided to resolve the case by issuing a judgment. The SC confirmed that the procedure had been conducted without incurring in irregularities and stated as follows:
1. The obligation to provide the mandatory documentation was complied with.
2. The selection criteria had been duly negotiated.
3. The criteria used was not discriminatory.
4. The company suffered losses that justified the need to outsource the services previously rendered by the dismissed employees.
Finally, the allegation that there had been a lack of good faith during the negotiation process was rejected. The fact that the company decided to outsource services to reduce costs by eliminating certain job positions does not mean that there was bad faith.
4. COLLECTIVE REDUNDANCY DECLARED VOID FOR VIOLATION OF THE RIGHT TO FREEDOM OF ASSOCIATION
Judgment of the National Court dated 11 November 2014
The National Court (“NC”) declared a collective redundancy void because it violated the right to freedom of association. The signatory trade unions made their decision subject to ratification by the majority of the affected employees, excluding employees belonging to non-signatory trade unions.
Although article 51.2 of the Statute of Workers does not require the consultation period to end in agreement, the NC appreciated a link between the decision to carry out a collective redundancy and the result of the referendum. The referendum was organised by the company and the signatory trade unions. In addition, the company made its offer subject to the employees’ acceptance before it became effective. This meant that the employer’s offer was totally reliant on the consultation procedure. The NC found the consultation procedure to lack the minimum democratic guarantees regarding: the publishing of the voting register and the public and impartial composition of the electoral committee, the confidentiality of the voting system and the counting of votes in public.
In light of the above, the NC held that the collective redundancy violated the right to freedom of association in collective bargaining procedures. Therefore, the NC declared the collective redundancy void.
5. TRADE UNION ENTITLED TO CALCULATE NUMBER OF UNION HOURS BY REFERENCE TO TOTAL NUMBER OF EMPLOYEES
Judgment of the Labour Chamber of the Supreme Court dated 18 July 2014
The Labour Chamber of the Supreme Court (the “SC”) stated that, when calculating the number of hours dedicated to union-related activities, it was necessary to use the total number of employees in the whole company as the reference, and not the number of employees in each workplace. The trade union had demanded that the company increase the representatives’ number of trade union hours based on the total number of employees in the company.
The SC stated that, according to article 10.1 of Basic Law 11/1985 of 2 August on the right to freedom of association, the trade union is entitled to decide whether the representatives’ trade union hours are calculated by reference to the total number of employees or by number of employees in the corresponding workplace.
6. DISMISSAL DEEMED VOID DUE TO A FAILURE TO COMPLY WITH FORMAL REQUIREMENT OF THE APPLICABLE COLLECTIVE BARGAINING AGREEMENT
Judgment of the High Court of Justice of Galicia dated 5 June 2014
The High Court of Justice of Galicia (“HCJG”) held that an employee’s dismissal was void due to the non-compliance of the company with a formal requirement of the applicable collective bargaining agreement, despite the serious misconduct by the employee that had been evidenced.
The employee was sent formal letters by the company using the burofax service to his home address. The letters requested that the employee return to his post and supply documentation to account for his absence from work. The employee did not comply with the requests.
The applicable collective bargaining agreement, in its regulations regarding the imposition of sanctions, established the obligation on the company's disciplinary committee to obtain non-binding legal and technical opinions prior to issuing any sanctions. The employee alleged that the failure to obtain these opinions meant that the committee did not have the necessary information at its disposal in order to be able to carry out a detailed analysis of the situation.
In spite of the fact that it had been evidenced that the employee had failed to comply with the specific demands and instructions he had received from the company, the failure by the company to obtain the legal and technical opinions stipulated by the applicable collective bargaining agreement led the HCJG to hold that the dismissal had been carried out unlawfully and was therefore deemed void.
7. LACK OF EMPLOYER´S LIABILITY WHEN TERMINATION OF HAND-OVER AND PARTIAL RETIREMENT CONTRACTS IS BASED ON COLLECTIVE REDUNDANCY
Judgment of the High Court of Justice of Madrid dated 13 June 2014
The High Court of Justice of Madrid (“HCJM”) held the employer not liable for the termination of a relay worker’s contract, because the collective redundancy affected all the employer’s workforce or all the workforce in the workplace where the relay worker rendered services.
The HCJM held that employer liability arises when the dismissal of a relay worker or a partially retired worker is carried out at the employer’s discretion. However, when the dismissal is due to collective redundancy affecting all the workforce, no such liability arises.
In the case at hand, the HCJM stated that there was no obligation to hire a new relay worker nor was the employer liable because a collective redundancy had been carried out in that workplace.