Treatment of the tax exemption of severance payments for collective dismissal materialized by mutual agreement of the parties

Commentary on Supreme Court rulings, Contentious-Administrative Chamber, 991/2020, of July 14, and 1189/2020, of September 21

Abstract

Rulings of the Supreme Court, 3rd Chamber, 991/2020, of July 14, and 1189/2020, of September 21, have reached different solutions for the same factual situation. As stated by the 1st Section (Admissions Chamber), in both cases an identical legal question was to be answered: «to interpret and delimit the scope of the tax exemption of article 7 e) LIRPF, in those cases in which an ERE and the termination of the employment contract occurs by mutual agreement of the company and the worker by virtue of the company’s early retirement offer with agreed amounts». The different approach applied by the Contentious-Administrative Chamber of the respective High Courts of Justice at the time to resolve the dispute has motivated that, despite the express request of the Admissions Chamber, the 3rd Chamber of Supreme Court has eluded to pronounce on the matter of interest so that a worker has seen his right to tax exemption for the compensation received due to his early retirement recognized while another affected by the same ERE has been his petition denied.