The Treasury has obtained the endorsement of the National Court to stop terminations by mutual agreement disguised as dismissals of workers close to retirement. The court considers that departures from the company should be treated as terminations agreed upon by mutual agreement and, therefore, not exempt from the payment of personal income tax, if the employees accept compensations that are much lower than those that would correspond to them by law in the event of an unfair dismissal and, instead of being based on seniority or salary, the amounts are inversely proportional to the time left for the worker to retire, forming a mathematical calculation designed so that they can directly link the collection of unemployment benefits with the pension.
As stated in the ruling (SAN 1338/2026), the conflict between the Tax Agency and the company arose over the settlement of the Personal Income Tax (IRPF) corresponding to the years 2012 and 2013, for a total amount of 191,714.50 euros (154,079.65 euros for the principal installment and the rest for late payment interest).
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The Court had to resolve whether the compensation paid to six workers after the termination of their employment relationship should be subject to personal income tax withholding or whether they were exempt. The company defended that these were compensation for the forced loss of a job, which are exempt from taxation according to article 7.e) of the Personal Income Tax Law. However, the Administration concluded that the terminations were the result of terminations by mutual agreement between the company and the employees, which makes it impossible to apply said exemption and requires withholdings to be applied.
The indications by which the National Court considers that the dismissals were agreed
In this case, the National Court agreed with the Tax Inspection, validating that the nature of the termination was strictly agreed upon, based on a series of rational and concurrent indications.
The first indication was the change in the reasons for dismissal. Initially, the dismissal letters alleged objective causes of an economic nature due to a context of financial crisis. However, the company later recognized in the conciliation act that the dismissals were unfair and admitted that the objective causes originally cited were not those that motivated the amortization of the jobs. After recognizing the inadmissibility, the company chose not to reinstate the workers, which generated their right to receive compensation higher than that of objective dismissal.
The second key aspect was the age of the workers: all the affected employees were very close to retirement ages (61 years and older), which allowed them to receive unemployment benefits for a few months and then directly link to the collection of a retirement pension.
The third indication was the compensation received, since they were significantly lower than those legally established in the Workers’ Statute for unfair dismissals. Despite this, the employees agreed to give up a significant part of the amount without any justifiable reason being stated and without any complaints or union mobilizations occurring.
In relation to this, the amount paid was also not related to the seniority or salary of the workers, but was inversely proportional to the years they needed to reach retirement age. The sum of the agreed compensation, unemployment and retirement benefits was mathematically calculated to compensate what the worker would have received if he had continued in the company until he was 65 years old.
For the National Court, “all these data allow us to conclude that there was an agreement that ended the employment relationship, being beneficial for both parties, considering “that the compensation is more related to the years that the worker has left to reach retirement age and, therefore, that it is more considered a premium for the voluntary cessation of the employment relationship by the worker than compensation for the forced loss of the job.”
Thus, it concludes that the Administration acted correctly under the protection of tax regulations by qualifying the true legal nature of the dismissal, without it being necessary to previously declare the existence of simulation or fraud of law. Consequently, the company must pay the Treasury the withholdings that it would have been responsible for and pay for the compensation paid.
Analyze case by case
It should be noted that, recently, the National Court stopped the Tax Agency’s criteria when it came to reclassifying dismissals as contract terminations by mutual agreement based solely on circumstantial evidence. In the ruling (SAN 4912/2025), it determined that the arguments used by the Treasury (such as the advanced age of the workers, the collection of compensation less than the legal amount, the absence of legal claims by the employees or the quick agreement in the conciliation service) did not demonstrate, neither separately nor as a whole, the existence of a covert agreement between the company and the workers.
This shows that each case must be analyzed individually and that, to demand personal income tax withholdings, the Tax Agency must provide sufficient and coherent evidence to allow it to be deduced that the termination was really agreed upon and not an exempt, compensated dismissal.