Process: 101/2017-T

Date: July 10, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitral decision 101/2017-T addresses a fundamental question in Portuguese corporate tax law: whether the RETGS (Regime Especial de Tributação dos Grupos de Sociedades - Special Group Taxation Regime) can be applied retroactively to IRC (Corporate Income Tax) assessments. The claimant company challenged the rejection of an administrative appeal concerning an IRC self-assessment for the 2013 taxation period, seeking retroactive recognition of group taxation status. The Tax Authority raised procedural exceptions, arguing that the arbitral tribunal lacked material competence to examine the case, asserting that the claimant was seeking recognition of a right not available under applicable law at the relevant time. The Tax Authority contended that granting such relief would constitute an improper substitution of the tribunal for the Tax Authority's powers, and that the proper procedural vehicle would be special administrative action rather than tax arbitration. The claimant countered that the request properly fell within CAAD's jurisdiction under Decree-Law 10/2011, which grants arbitral tribunals competence to declare illegal acts of assessment and self-assessment without restriction. The tribunal examined whether its competence extended beyond merely declaring illegality of assessment acts to recognizing substantive tax rights with retroactive effect. The case illuminates critical boundaries of tax arbitration jurisdiction in Portugal, particularly regarding temporally complex situations where taxpayers seek application of special tax regimes to prior periods. The decision has significant implications for corporate groups navigating RETGS elections and for understanding the scope of remedies available through administrative appeals and tax arbitration when challenging group taxation determinations.

Full Decision

ARBITRATION DECISION

The arbitrators Counselor Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Olívio Mota Amador and Prof. Dr. Ana Maria Rodrigues (arbitrator-members), appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 19-04-2017, agree as follows:

1. Report

A…, LDA., (hereinafter referred to as "A…" or Claimant), holder of NIPC…, with registered office at…, parish…, municipality of…, hereinafter abbreviated as "Claimant", came pursuant to the provisions of section a) of no. 1 of article 2 and articles 10 and following of Decree-Law no. 10/2011, of 20 January ("Legal Framework for Tax Arbitration" or "RJAT"), requesting the constitution of an Arbitral Tribunal, with a view to declaring the illegality of the act of rejection of the administrative appeal with no. …2016…, issued within the scope of Office no.…, of the Finance Directorate of…, issued on 08-11-2016 and consequent declaration of illegality of the self-assessment of Corporate Income Tax no. 2015…, which replaced the assessment notice number 2014…, relating to the taxation period of 2013.

The respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs Authority on 17-02-2017.

Pursuant to the provisions of section a) of no. 2 of article 6 and section b) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

On 03-04-2017, the parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, no. 1, sections a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in compliance with the provision of section c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 19-04-2017.

The Tax Authority and Customs Authority responded, raising the exception of incompetence of the Arbitral Tribunal and/or the exception of lack of standing of the Claimant, and arguing that the claim should be judged without merit.

By order of 26-05-2017, a hearing was dispensed with and it was decided that the proceedings would continue with written submissions.

The Parties presented submissions.

The arbitral tribunal was properly constituted, in accordance with the provisions of articles 2, no. 1, section a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented and have judicial personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same enactment and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings have no defects of form.

It is necessary to address primarily the exception of incompetence, in accordance with the provision of article 13 of the CPTA, applicable to tax arbitration proceedings by virtue of the provision of article 29, no. 1, section c), of the RJAT.

2. Question of material incompetence

The Tax Authority and Customs Authority argues, in summary, that

– what "the claimant seeks is to obtain recognition of a right that, under the terms provided in the legislation in force in the national legal system, was not available to it on the date of the facts";

– to admit that the Arbitral Tribunal has competence to examine this claim would represent, with all due respect, the substitution of the present Arbitral Tribunal in the powers proper to the TA;

– nor in the context of special administrative action, the procedural means in which condemnation of the administration to perform a due act is envisaged, cf. articles 66 and seq. of the CPTA, does it allow the Court to go so far, and the Court cannot determine the content of the conduct to be adopted, it must only make explicit the constraints to be observed by the Administration,

– the legal claim formulated by the Claimant amounts to recognition of a right or a request for condemnation to perform a due act, which cannot be obtained through this means;

– the request for arbitral pronouncement does not constitute the proper means, which, in this case, results in the very incompetence of the Arbitral Tribunal to recognize the right that the claimant seeks to obtain, or, alternatively, to the special administrative action, to condemn the TA to perform a due act;

– what is at issue here is not the examination of any assessment act, but rather, a purported and hypothetical right that always precedes such assessment, and the arbitral tribunal is not competent to examine the rejection of the administrative appeal that denies recognition of such right;

The Claimant responded in its submissions stating, in summary, the following:

– The Claimant petitions for the examination of the decision to reject the administrative appeal and, consequently, the annulment of the Corporate Income Tax assessment act relating to the year 2013;

– the TA cannot therefore base the exception of incompetence of the arbitral tribunal on the assumption that the Claimant merely seeks recognition of a right - i.e., the retroactive application of the existence of a tax group subject to the RETGS.

Tax arbitration was created by the Government through Decree-Law no. 10/2011, of 20 January (RJAT), issued under the legislative authorization granted to it by article 124 of Law no. 3-B/2010, of 28 April.

In no. 4 of that article 124, it was established that the scope of the authorization provided in this article includes, in particular, the following matters:

a) The delimitation of the object of the tax arbitration proceedings, which may include acts of assessment of taxes, including self-assessments, withholding at source and payments on account, acts fixing the taxable matter, when they do not give rise to assessment, acts of total or partial rejection of administrative appeals or requests for revision of tax acts, administrative acts involving the examination of the legality of assessment acts, acts fixing property values and rights or legitimate interests in tax matters;

The legislative authorization was indispensable for the Government to legislate validly on this matter, since this is a matter relating to the guarantees of taxpayers, inserted within the relative legislative competence of the Assembly of the Republic, pursuant to articles 103, no. 2, and 165, no. 1, section i), of the CRP, and therefore, the Government does not have its own legislative competence, as follows from articles 198, no. 1, sections a) and b), of the CRP.

Using this legislative authorization, the Government established in article 2, no. 1, section a), of the RJAT that "the competence of arbitral tribunals includes the examination of the following claims: a) the declaration of illegality of acts of assessment of taxes, self-assessments, withholding at source and payments on account".

It is thus unequivocal that the Government, in the exercise of the legislative powers granted to it by the legislative authorization, attributed to arbitral tribunals competence to declare illegal acts of assessment and self-assessment, without any restriction.

However, the formula "declaration of illegality of acts of assessment of taxes, self-assessments, withholding at source and payments on account", used in section a) of no. 1 of article 2 of the RJAT, does not restrict, in a merely declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged, and the illegality of assessment or self-assessment acts may be declared jurisdictionally as a corollary of the illegality of a second-degree act, which confirms a self-assessment, incorporating its illegality.

The inclusion within the competences of the arbitral tribunals operating at the CAAD of cases in which the declaration of illegality of the acts indicated there is made through the declaration of illegality of second-degree acts, which are the immediate object of the impugned claim, follows with certainty from the reference made in that norm to self-assessment acts, withholding at source and payments on account, which are expressly referred to as included among the competences of the arbitral tribunals. In fact, with respect to these acts, administrative appeal is imposed, as a rule, as necessary, in articles 131 to 133 of the CPPT, so that in these cases, the immediate object of the impugning proceedings is, as a rule, the second-degree act that examines the legality of the assessment act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the assessment act. The reference made in section a) of no. 1 of article 10 of the RJAT to no. 2 of article 102 of the CPPT, in which the challenge of acts rejecting administrative appeals is provided for, removes any doubt that the competences of the arbitral tribunals operating at the CAAD cover cases in which the declaration of illegality of the acts referred to in section a) of that article 2 of the RJAT must be obtained following the declaration of illegality of second-degree acts.

Moreover, it was precisely in this sense that the Government, in Ordinance no. 112-A/2011, of 22 March, interpreted these competences of the arbitral tribunals operating at the CAAD, by excluding from the scope of those competences "claims relating to the declaration of illegality of self-assessment acts, withholding at source and payments on account that have not been preceded by recourse to the administrative procedure under articles 131 to 133 of the Tax Procedure and Process Code", the effect of which is to limit its binding force to cases in which this recourse to the administrative procedure was used, in line with the provision of these norms of the CPPT.

It is in light of the claim or set of claims formulated by the interested party that the adequacy of special forms of proceedings, such as arbitration proceedings, is assessed, from which also follows the competence of the arbitral tribunals operating at the CAAD, which is limited to the procedural means provided for in the RJAT.

And, as ALBERTO DOS REIS teaches, Annotated Civil Procedure Code, volume II, pages 288-289, what is relevant for assessing the use of procedural means and the purpose to which the proceedings is intended, revealed by the claim.

In the case at hand, the Claimant makes the following claims:

a) Annulment of the decision to reject the Administrative Appeal sub judice and, consequently, the annulment of the Corporate Income Tax assessment act number 2015…, which replaced assessment number 2014… relating to the taxation period of 2013, so as to proceed with the immediate and full "restoration of legality";

b) Admissibility of the right to opt for the application of the RETGS to the Claimant, with reference to the taxation period of 2013, i.e. with retroactive effect to the entire taxation period from 1 January 2013 to 31 December 2013; and

c) Remedying the failure to meet non-existent formal requirements as of the start date of the RETGS relating to the taxation period of 2013, for the establishment of that same RETGS;

d) To consider as valid the application, in the taxation period of 2013, of the RETGS, proceeding to its taxation, for Corporate Income Tax purposes, in accordance with articles 69 and following of the Corporate Income Tax Code, with all the legal-tax consequences legally applicable.

Examining these claims, it is found that the purpose to which the proceedings is intended, the useful effect sought, is restricted to the annulment of the administrative appeal decision and assessment no. 2015…, relating to the year 2013, the other claims being merely instrumental in relation to that one, since none of them has utility for the Claimant dissociated from the annulment of the self-assessment and the administrative appeal decision.

Therefore, it is only on the claim formulated in section a) that the arbitral decision should focus, which has as its object, ultimately, to determine whether the self-assessment is illegal because it was not made with the application of the special taxation regime for groups of companies.

In any case, it is outside the competences of this Arbitral Tribunal to define, in case of eventual declaration of the illegality of that assessment and the administrative appeal decision, the terms in which new tax acts may or may not be performed, since this is a matter that falls within the duties of the Tax Authority and Customs Authority, in execution of judgment, pursuant to article 24, no. 1, of the RJAT.

Since the competence of this Arbitral Tribunal to examine the claim formulated in section a) is manifest, it must be concluded that the exception of incompetence invoked by the Tax Authority and Customs Authority is without merit.

3. Exception of lack of standing

The Tax Authority and Customs Authority argues, in summary, the following:

– the Claimant seeks to be recognized as having the right to be taxed according to the RETGS in which the fiscal perimeter of the group is made up of B… and the parent company, a company of German law, C…;

– it is the parent company or its representative that must file the consolidated Form 22 of the group;

– therefore, since neither B… nor C… appear in the present request for arbitral pronouncement as Author or claimant, any decision to be rendered in the present proceedings would always lack any useful effect;

– since, given that the request is for recognition of a group to be taxed according to the RETGS and it is certain that it is the parent company that files the consolidated Form 22 of the group, the law requires the intervention of all so that the judicial decision has useful effect and is binding on all parties;

– hence due to the lack of necessary joinder of parties, the claimant is a party lacking standing, which determines the dismissal of the Tax Authority and Customs Authority from the case.

The Claimant responded in its submissions, stating, in summary, the following:

– The fiscal consolidation regime provided for in the Corporate Income Tax Code, in force in the taxation period at issue in the present proceedings, did not admit the possibility of constituting a group of companies in which the parent company (dominant) was a company resident in a Member State of the European Union;

– Thus, and as expressly stated in the request for arbitral pronouncement, the Claimant and B… did not opt for the application of the RETGS in taxation periods prior to 2015 because they understood that, on the date of the facts, the norm contained in article 69 of the Corporate Income Tax Code did not allow them to opt for the application of the special taxation regime for groups of companies, so they did not have the opportunity to exercise that option in the fiscal year 2013;

– in light of recent case law from the Court of Justice of the European Union, any legislative provision of a Member State that prevents the constitution of fiscal consolidation groups between companies in which the parent company (dominant) is an entity resident in another Member State constitutes a restriction violating the Principle of Freedom of Establishment enshrined in the Treaty on the Functioning of the European Union ("TFUE");

– the Claimant seeks the admission of the application of the RETGS to its specific legal-tax situation in the year 2013, with restoration of legality, demonstrating that the domestic rules, at that time, were illegal and non-compliant with European Union law and principles;

– the standing of the Claimant derives from the fact that it is the holder of a legally protected interest since its legal sphere may be directly affected by what is decided in the present proceedings, significantly changing its legal-tax framework, a scenario in which standing is fully assured by nos. 1 and 4 of article 9 of the CPPT, as well as by no. 1 of article 9 of the CPTA;

– in a scenario of non-application of the RETGS with reference to the taxation period of 2013, it will be taxed on an individual and autonomous basis, instead of being taxed according to the rules of fiscal consolidation, which, in most cases, entails benefits;

– it is manifest that the Claimant has an interest in the application of the RETGS in the taxation period of 2013, because it seeks to draw into its legal sphere (own interest) a specific result (direct interest - to be taxed within the scope of consolidated fiscal profit) - which is not contrary to law (legitimate interest);

– following the assessment, the competent administrative appeal was filed, with a view to validating the option for the application of the RETGS in the year 2013 and confirming taxation for Corporate Income Tax purposes under the RETGS with the subsequent annulment of the above-identified Corporate Income Tax assessment;

– as soon as the possibility of applying the RETGS was detected with respect to this period, only the Claimant could react against the assessment notice in question, as it alone appears as the passive subject of the tax, this being the only legal act susceptible of challenge and the Claimant being the only legitimate party to raise it;

– the Claimant, formally since 2015, presents itself as the company designated by C… to assume all responsibilities for the fulfillment of all obligations, i.e., to perform the role of parent company;

– in parallel with the present proceedings, B… filed an Administrative Appeal on the same terms as the now Claimant, which was rejected on the basis of its lack of standing, since it is not the parent company of the RETGS sought to be established here, having alleged by the TA, in that context, that the proper means was not used;

– in that sense, it was up to B… to file a Request for Revision of Tax Act, pending its decision by the TA;

– the Claimant did not legally and formally consider it possible to file the present request for arbitral pronouncement in joinder of parties and accumulation of claims, with reference to the fiscal year 2013.

As already mentioned, the present proceedings concern the examination of the legality of assessment no. 2015… and the administrative appeal decision no. …2016….

The Claimant was the sole recipient of the assessment and the administrative appeal and the annulment of these and, in light of the thesis it defends, these acts injured its legal sphere, as it would have been favorable for it to apply the special taxation regime for groups of companies.

In accordance with the provision of article 30 of the CPC, subsidiarily applicable by virtue of the provision of article 29, no. 1, section e), of the RJAT, "the plaintiff is a party with standing when it has a direct interest in bringing the action", which is expressed "by the utility derived from the success of the action".

Article 33 of the same Code indicates the situations of necessary joinder of parties, establishing that "if, however, the law or the transaction requires the intervention of various interested parties in the disputed relationship, the absence of any of them is a reason for lack of standing" and that "it is likewise necessary for all interested parties to intervene when, by the very nature of the legal relationship, it is necessary for the decision to be obtained to produce its normal useful effect", being understood that this is produced "whenever, not binding the remaining interested parties, it can definitively regulate the concrete situation of the parties in relation to the claim formulated".

In the case at hand, if it is understood that the claims to be examined are only the annulment of the assessment and the administrative appeal decision, it appears that the Claimant will have standing, since the validity or otherwise of these acts will be definitively decided.

Thus, this exception is without merit.

4. Factual matter

4.1. Proven facts

Based on the elements in the proceedings and the administrative proceedings attached to the case, the following facts are considered proven:

a) The Claimant is a Portuguese company whose taxation period coincides with the calendar year;

b) With reference to the taxation period of 2013, the Claimant proceeded with the filing of the corresponding periodic declaration of Corporate Income Tax Form 22, with identification no. …-… -…, calculating a taxable profit in the amount of Euro 4,188,462.12 (document no. 4 attached with the request for arbitral pronouncement, the content of which is reproduced);

c) Following the filing of that declaration, Corporate Income Tax assessment no. 2015… was issued (document no. 2 attached with the request for arbitral pronouncement, the content of which is reproduced);

d) On 31 March 2015, the Claimant and the company B…, Lda., filed a declaration of amendments opting for the application of the RETGS (document no. 5 attached with the request for arbitral pronouncement, the content of which is reproduced);

e) The perimeter of that group comprises, as dominant companies, the Claimant and the company B…, Lda. and, as dominated company, C…, a company of German law and tax resident in Germany;

f) With reference to the taxation period of 2013, the Claimant was taxed from an individual perspective, since, under the terms of the domestic legislation in force in this period, it was not legally possible to opt for the RETGS, due to the fact that company C… was not resident, for tax purposes, in Portuguese territory;

g) Understanding that, in light of the guidance of the CJEU, it would be possible to apply the RETGS, with retroactive effect to the year 2013, the Claimant filed individually, on 17-05-2016, an administrative appeal of the self-assessment of that year, instituted under no. …2016… (administrative proceedings);

h) By order of 8 November 2016, issued by the Finance Director of…, that appeal was rejected, expressing agreement with the grounds of an opinion whose content is reproduced, in which reference is made to the grounds of the draft decision in which it states, among other things, the following:

Through article 3 of Law no. 82-C/2014, of 31 December, article 69-A was added to the Corporate Income Tax Code which, following the case law of the CJEU, extended the RETGS to groups of companies in relation to which the conditions already provided for in nos. 2 and 3 of article 69 are met, but in which the parent company may be resident in a Member State of the EU or the European Economic Area that is bound by administrative cooperation in the tax field equivalent to that established within the EU.

That is, the said law amended the Corporate Income Tax Code, transposing Directive no. 2014/86/EU of the Council of 8 July, amending Directive no. 2011/96/EU on the common system of taxation applicable to mother companies and subsidiary companies of different Member States and adapting the RETGS to the case law of the CJEU.

Being that, no. 1 of article 5 of that said law, under the heading "Production of effects", precisely establishes that "The provision of article 69-A of the Corporate Income Tax Code, in the wording given by this law, applies to taxation periods beginning on or after 1 January 2015." (Underlined and highlighted by us).

That is, Law no. 82-C/2014 of 31.12 (subsequently to the significant amendments introduced following the publication of Law no. 2/2014 of 16 January to the RETGS) added further adjustments regarding RETGS, specifically by adding article 69-A to the Corporate Income Tax Code, but simultaneously, imposing that this legal provision would only apply to taxation periods beginning on or after 1 January 2015.

Additionally, it should be emphasized that it was (as, moreover, already mentioned) specifically and in accordance with the cited Judgment of the CJEU, issued in the context of the joined cases nos. C-39/13, C-40/13 and C-41/13, on 12 June 2014, that article 69-A of the Corporate Income Tax Code was added, which, it is understood, does not have an interpretative nature, contrary to what the Claimant maintains in its Initial Petition of pages 1 to 23, so no violation of the principles cited and invoked of Community law can be envisaged.

Furthermore, it should be stressed that the TA is legally bound, by virtue of the provision of article 69-A of the CIRC, added by Law no. 82-C/2014, whose article 5 (relating to the production of effects) very clearly establishes that it applies to those taxation periods ("beginning on or after 1 January 2015"), not giving to the same norm an interpretative nature, so it cannot be applied retroactively to the period of 2013 or to any other (previous) period, as the Claimant here seeks.

Since the TA is subject to the Principle of Legality (see article 266 of the CRP, article 55 of the LGT and no. 1 of article 3 of the CPA), it cannot fail to apply a norm on the grounds of, namely, its unconstitutionality, unless the Constitutional Court has already declared it with binding general force (see article 281 of the CRP) or it is a matter of disrespect for constitutional norms directly applicable and binding, such as those referring to rights, freedoms and guarantees (see article 18, no. 1, of the CRP), which is not the case.

In truth (as, moreover, the Claimant refers to), all the TA's conduct must be guided by this principle of legality which translates, however, into its binding to the legal norms in force, within the limits of the powers attributed to it, and in accordance with the purposes for which those powers were granted to it.

Being that, respect for the principle of legality encompasses both the application of the law to tax facts and compliance with the norms and principles of procedure, the TA having no competence to decide on the non-application of norms in relation to which doubts about constitutionality are raised.

Indeed, under article 266, no. 2, of the CRP, administrative bodies and agents are subordinate to the Constitution and to the law, unlike Courts which (under the same CRP) are prevented from applying unconstitutional norms, being granted the competence to review their constitutional conformity.

Therefore, in light of the foregoing, it cannot be concluded otherwise than that the TA cannot decide differently in the present procedure, because it will not have the right to refuse to apply the norm at issue here.

Thus, for all the reasons given, the present Administrative Appeal should not be granted.

VI) - Conclusion and Opinion

In this manner, and based on the foregoing, and without need for further lengthy recitals, and saving, as always, the respect due for better and differing opinion;

It is suggested that "the Request be Wholly Rejected".

Therefore, the present Administrative Appeal should naturally be without merit, thus maintaining the Self-Assessment of Corporate Income Tax relating to the year 2013 challenged here.

i) On 10-11-2016, the Claimant was notified of the decision to reject the administrative appeal;

j) On 03-02-2017, the Claimant filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

4.2. Unproven facts

There are no facts relevant to the decision of the case that have not been proven.

4.3. Grounds for determining the facts

The proven facts are based on the documents attached by the Claimant with the request for arbitral pronouncement.

There is no controversy about the facts invoked by the Claimant.

4. Legal matter

4.1. Questions raised

In the year 2013, article 69 of the CIRC was in force in the wording of Decree-Law no. 159/2009, of 13 July, in which the following was established regarding the scope and conditions of application of the RETGS:

1 – Existing a group of companies, the parent company may opt for the application of the special regime for determining the collective taxable matter in relation to all companies in the group.

2 – There is a group of companies when a company, called parent, holds, directly or indirectly, at least 90% of the capital of another or other companies called subsidiaries, provided that such participation confers on it more than 50% of voting rights.

3 – The option for the application of the special regime for taxation of groups of companies can only be formulated when the following requirements are cumulatively met:

a) The companies belonging to the group all have their registered office and effective management in Portuguese territory and all of their income is subject to the general corporate income tax regime at the highest normal rate;

b) The parent company has held the participation in the subsidiary company for more than one year, with reference to the date on which the application of the regime begins;

c) The parent company is not considered a subsidiary of any other company resident in Portuguese territory that meets the requirements to be qualified as parent;

d) The parent company has not waived the application of the regime in the three years prior, with reference to the date on which the application of the regime begins.

4 – The following companies cannot be part of the group:

a) Those that, at the beginning or during the application of the regime, are in the following situations:

a) Are inactive for more than one year or have been dissolved;

b) A special recovery or bankruptcy proceeding has been instituted against them in which a continuation order of the action has been issued;

c) Have tax losses in the three fiscal years prior to the beginning of the application of the regime, except, in the case of subsidiary companies, if the participation is already held by the parent company for more than two years;

d) Are subject to a Corporate Income Tax rate lower than the highest normal rate and do not waive its application;

e) Adopt a taxation period not coinciding with that of the parent company;

f) The required 90% participation level is obtained indirectly through an entity that does not meet the legally required requirements to be part of the group;

g) Do not adopt the legal form of limited liability company, public limited company or limited partnership with shares, except as provided in no. 12.

In accordance with the provisions of section a) of no. 3 and section f) of no. 4, the Claimant and the parent company of the group in which it was included could not opt to be taxed according to this regime, as the parent company did not have its registered office or effective management in Portuguese territory.

The CJEU, in a judgment of 12-06-2014, issued in the joined cases nos. C-39/13, C-40/13 and C-41/13, decided the following:

  1. In cases C‑39/13 and C‑41/13, articles 49 TFUE and 54 TFUE should be interpreted as meaning that they preclude legislation of a Member State under which a resident parent company can form a fiscal unity with a resident subsidiary when it holds it through one or more resident companies, but cannot form that fiscal unity when it holds the subsidiary through non-resident companies which do not have a permanent establishment in that Member State.

  2. In case C‑40/13, articles 49 TFUE and 54 TFUE should be interpreted as meaning that they preclude legislation of a Member State under which the fiscal unity regime may be granted to a resident parent company holding resident subsidiaries, but not to resident sister companies whose common parent company does not have its seat in that Member State, nor does it have a permanent establishment there.

With the wording given to the CIRC by Law no. 82-C/2014, of 31 December, the provisions of article 69 of the CIRC now have the following wording:

1 - Existing a group of companies, the parent company may opt for the application of the special regime for determining the collective taxable matter in relation to all companies in the group.

2 - There is a group of companies when a company, called parent, holds, directly or indirectly, at least 75% of the capital of another or other companies called subsidiaries, provided that such participation confers on it more than 50% of voting rights.

3 - The option for the application of the special regime for taxation of groups of companies can only be formulated when the following requirements are cumulatively met:

a) The companies belonging to the group all have their registered office and effective management in Portuguese territory and all of their income is subject to the general corporate income tax regime at the highest normal rate;

b) The parent company has held the participation in the subsidiary company for more than one year, with reference to the date on which the application of the regime begins;

c) The parent company is not considered a subsidiary of any other company resident in Portuguese territory that meets the requirements to be qualified as parent;

d) The parent company has not waived the application of the regime in the three years prior, with reference to the date on which the application of the regime begins.

4 - The following companies cannot be part of the group:

a) Those that, at the beginning or during the application of the regime, are in the following situations:

a) Are inactive for more than one year or have been dissolved;

b) A special recovery or bankruptcy proceeding has been instituted against them in which a continuation order of the action has been issued;

c) Have tax losses in the three fiscal years prior to the beginning of the application of the regime, except, in the case of subsidiary companies, if the participation is already held by the parent company for more than two years;

d) Are subject to a Corporate Income Tax rate lower than the highest normal rate and do not waive its application;

e) Adopt a taxation period not coinciding with that of the parent company;

f) (Repealed.)

g) Do not adopt the legal form of limited liability company, public limited company or limited partnership with shares, except as provided in no. 11. (Rectified by Rectification Declaration 18/2014, of 13 March)

Furthermore, the same Law no. 82-C/2014 added to the CIRC article 69-A, with the following wording:

Article 69-A

Parent company with registered office or effective management in another Member State of the European Union or the European Economic Area

1 – The parent company, as so qualified under no. 2 of the previous article, may equally opt for the application of the special regime for taxation of groups of companies provided for in this subsection, which, not having registered office or effective management in Portuguese territory, cumulatively meets the following conditions:

a) Is resident in a Member State of the European Union or the European Economic Area that is bound by administrative cooperation in the tax field equivalent to that established within the European Union;

b) Holds the participation in the subsidiary companies for more than one year, with reference to the date on which the application of the regime begins;

c) Is not held, directly or indirectly, in at least 75% of the capital by a company resident in Portuguese territory that meets the requirements provided for in the previous article to be qualified as parent, provided that such participation confers on it more than 50% of voting rights, under no. 6 of the previous article;

d) Has not waived the application of the regime in the three years prior, with reference to the date on which the application of the regime begins;

e) Is subject to and not exempt from a tax referred to in article 2 of Directive no. 2011/96/EU of the Council of 30 November, or a tax of identical or similar nature to Corporate Income Tax;

f) Adopts the form of a limited liability company;

g) When it holds a permanent establishment in Portuguese territory through which the participations in the subsidiary companies are held and there is none of the situations provided for in sections a), c), d) or e) of no. 4 of the previous article, with the necessary adaptations.

2 – The option provided for in the previous number determines the application of the special regime for taxation of groups of companies with respect to all subsidiary companies with registered office and effective management in Portuguese territory in relation to which the conditions established in nos. 3 and 4 of the previous article are met, as well as the permanent establishment of the parent company located in this territory through which the participations are held.

3 – The option for the regime under the terms of this article depends on notification to the Tax Authority and Customs Authority, in the declaration referred to in no. 7 of the previous article, of which company with registered office and effective management in this territory belonging to the group is designated to assume responsibility for the fulfillment of all obligations that fall to the parent company under this Code, without prejudice to the joint and several liability of the parent company and the other companies belonging to the group for the payment of the tax, under article 115.

4 – In cases where the parent company has a permanent establishment in Portuguese territory through which the participations in the subsidiary companies are held, the provision of the previous number must be observed by this.

5 – In all matters not provided for in this article, the provision of the previous article applies, with the necessary adaptations.

The Claimant, in light of the cited case law of the CJEU, already met, in 2013, the requirements to be taxed according to the RETGS.

The essential question that the Claimant raises is whether the self-assessment, followed by assessment no. 2015… as well as the administrative appeal decision that upheld it should be declared illegal, because "the provision of article 69-A of the CIRC, added by Law no. 82-C/2014 of 31/12, applies to the tax situations relating to the year 2013" (article 72 of the submissions).

The application of the RETGS to the year 2013 does not depend solely on the verification of the legal requirements for its application, since it is an optional regime, only applicable following an option of the parent company, formulated in advance in relation to the end of the first year in which it is intended to apply.

The admissibility of the option by Corporate Income Tax taxpayers for the application of the RETGS, with the possibility of obtaining tax advantages for them and consequent loss of tax revenue, is justified by extrafiscal purposes, namely facilitating "the restructuring of the business fabric and the recovery of economic groups, through the promotion of synergies between companies integrated in a group, strengthening and consolidating the business fabric, in order to achieve greater competitiveness and favor competition", not being justifiable for obtaining "purposes exclusively fiscal" (judgment of the Supreme Administrative Court of 29-12-2012, case no. 021/12).

In this light, the imposition of the obligation to opt for the application of this regime before the results of its application are known, is in harmony with this legislative design of making it difficult to use the regime for exclusively fiscal purposes, which would be viable with the possibility of retroactive application, with first calculation of the fiscal results and only subsequent choice of the most advantageous tax regime.

Therefore, the imposition of that deadline for formulation of the option has grounds that do not accord with the understanding of the Claimant that "the non-exercise of the right, until the end of the 3rd month in the taxation period in which it is intended to start the application, does not invalidate the subsequent recognition of that right and the consequent retroactive application".

In truth, this option within the prescribed period must be manifested by the parent company (and not by some or all of the subsidiary companies), and such manifestation is indispensable because, among other things, it implies for that company the assumption of tax responsibilities (article 115 of the CIRC), in addition to declarative obligations.

In the case at hand, in 2013, no request was filed for the option for taxation according to the RETGS either by the Claimant or by the parent company of the group.

Since the application of the RETGS is not automatic and no option was made for its application, the individual self-assessment made by the Claimant does not suffer from illegality, for not having applied the special regime for taxation of groups of companies, as the requirements for its application were not met, namely a timely filed option.

On the other hand, the Tax Authority and Customs Authority could not, following requests for revision of the tax act, nor can this Arbitral Tribunal, fiction that an option for the application of the special regime for taxation of groups of companies had been made by the parent company within the legally prescribed period with respect to the year 2013.

Finally, it is clear that the new regime provided for in article 69-A of the CIRC, introduced by Law no. 82-C/2014, is applicable only to taxation periods beginning on or after 01-10-2015, as is expressly established in no. 1 of its article 5, in line with the basic principle on the application in time of tax norms, stated in no. 1 of article 12 of the LGT.

Therefore, it is concluded that it is not verified that the self-assessment, followed by assessment no. 2015… and the administrative appeal decision no. …2016… does not suffer from illegality for not having applied the special regime for taxation of groups of companies.

4.2. Questions of prejudicial knowledge

Given that there is an obstacle to the success of the claim, the knowledge of the other legal questions raised by the Claimant and the Tax Authority and Customs Authority is prejudicial.

5. Decision

In these terms, the Arbitral Tribunal agrees to:

· Judge without merit the exceptions raised by the Tax Authority and Customs Authority;

· Judge without merit the request for arbitral pronouncement;

· Dismiss the Tax Authority and Customs Authority of the claims.

6. Value of the proceedings

In accordance with the provision of article 306, no. 2, of the CPC and 97-A, no. 1, section a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 966,285.86.

7. Costs

Under article 22, no. 4, of the RJAT, the amount of costs is set at € 13,464.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 10-07-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Olívio Mota Amador)

(Ana Maria Rodrigues)

Frequently Asked Questions

Automatically Created

What is the RETGS (Regime Especial de Tributação dos Grupos de Sociedades) and how does it apply to corporate income tax (IRC) in Portugal?
The RETGS (Regime Especial de Tributação dos Grupos de Sociedades) is Portugal's special group taxation regime for Corporate Income Tax (IRC). It allows qualifying groups of companies with controlling relationships to be taxed on a consolidated basis rather than as separate legal entities. Under RETGS, a dominant company and its subsidiaries meeting specific ownership and operational requirements can combine their taxable profits and losses, potentially reducing overall tax liability through intra-group loss offset. The regime applies specific rules for determining group composition, calculating consolidated taxable income, and allocating tax liability among group members.
Can the RETGS special group taxation regime be applied retroactively under Portuguese tax law?
The retroactive application of RETGS is the central legal issue in decision 101/2017-T. Portuguese tax law generally follows the principle of prospective application of tax regimes, meaning that elections for special regimes typically apply from the time of election forward. However, the specific circumstances under which RETGS might apply retroactively—such as when administrative errors occur, when legislative changes create transitional situations, or when taxpayers can demonstrate entitlement that was improperly denied—remain subject to case-by-case analysis. The Tax Authority in this case argued that the law did not permit retroactive recognition of group taxation status for the 2013 period in question.
What was the outcome of CAAD arbitral decision 101/2017-T regarding the retroactive application of RETGS?
The document excerpt does not contain the final ruling of CAAD decision 101/2017-T, as it concludes mid-argument during the procedural phase. The available text shows that the arbitral tribunal was properly constituted on 19-04-2017 and proceeded to examine the Tax Authority's preliminary exceptions of incompetence and lack of standing. The tribunal determined it would first address the competence exception pursuant to article 13 of CPTA before reaching the merits. The claimant argued that CAAD had jurisdiction under article 2(1)(a) of Decree-Law 10/2011 to examine illegality of self-assessments, while the Tax Authority contended the claim improperly sought recognition of substantive rights beyond the tribunal's mandate.
What is the procedure for challenging an IRC self-assessment through tax arbitration (CAAD) in Portugal?
To challenge an IRC self-assessment through CAAD arbitration in Portugal: (1) File a request for constitution of an arbitral tribunal under Decree-Law 10/2011 (RJAT), citing article 2(1)(a) for assessment act challenges; (2) The CAAD President reviews and accepts the request; (3) The Tax Authority is automatically notified; (4) The Deontological Council appoints arbitrators (single arbitrator or three-member panel); (5) Parties receive notification of appointments and may object within the statutory period; (6) The tribunal is formally constituted; (7) The Tax Authority files its response, potentially raising preliminary exceptions and substantive defenses; (8) The tribunal may dispense with oral hearings and order written submissions; (9) Parties file sequential submissions presenting arguments; (10) The tribunal issues a final decision on jurisdiction and merits.
What exceptions did the Tax Authority raise regarding tribunal competence and taxpayer legitimacy in process 101/2017-T?
In process 101/2017-T, the Tax Authority raised two preliminary exceptions: (1) Exception of material incompetence of the Arbitral Tribunal—arguing that the claimant sought recognition of a right to retroactive RETGS application that was not available under law, which exceeded the tribunal's jurisdiction to merely declare assessment acts illegal; the Tax Authority contended that granting this relief would improperly substitute the tribunal for the Tax Authority's administrative powers; (2) Exception of lack of standing of the Claimant—challenging the claimant's legal capacity to bring the claim. The Tax Authority further argued that the proper procedural vehicle was special administrative action under articles 66 et seq. of CPTA to condemn the administration to perform a legally required act, rather than tax arbitration proceedings.