Process: 113/2017-T

Date: October 16, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Arbitral Award 113/2017-T addresses a jurisdictional challenge in IRC (Corporate Income Tax) proceedings involving the RETGS (Special Regime for Taxation of Groups of Companies). Two companies, A... LDA and B... LDA, filed joint arbitration requests seeking annulment of decisions rejecting their requests for review of IRC self-assessments for tax periods 2010-2012. The claimants sought retroactive recognition of their right to opt for RETGS application under article 69-A CIRC, added by Law 82-C/2014. The Tax Authority raised three procedural exceptions: material incompetence of the arbitral tribunal, lack of standing due to insufficient joinder of parties, and lis pendens regarding 2010 and claimant B.... The core legal issue concerns whether CAAD has jurisdiction to adjudicate disputes involving retroactive application of RETGS and validation of formal requirements for group taxation regimes. This case illustrates critical boundaries of tax arbitration competence under RJAT (Decree-Law 10/2011), particularly regarding requests that seek not merely annulment of tax acts but positive recognition of tax regime elections and supply of missing formal requirements. The tribunal's decision on competence will determine whether such comprehensive relief falls within arbitral jurisdiction or requires ordinary tax court proceedings, with significant implications for corporate groups seeking RETGS application and procedural strategy in IRC disputes.

Full Decision

CAAD Arbitral Award

The arbitrators Counselor Doctor Fernanda Maçãs (arbitrator-president), Professor Doctor Luísa Anacoreta and João Menezes Leitão (arbitrators-members), appointed by the Deontological Council of the Administrative Arbitration Centre to form the present Arbitral Tribunal, established on 19.4.2017, hereby agree as follows:

I. Report[1]

1. A..., LDA (hereinafter abbreviated as A...), legal entity no. ..., with registered office at Place of ..., parish of ..., ... and B..., LDA (hereinafter abbreviated as B...), legal entity no. ..., with registered office at Street ..., no. ..., ..., in Viana do Castelo (hereinafter, jointly referred to as Claimants), filed on 14.2.2017, in joint action and in cumulative claims, pursuant to the provisions of articles 2, no. 1, al. a) and 10 of Decree-Law no. 10/2011, of 20 January, as amended (Legal Framework for Tax Arbitration, hereinafter RJAT), a request for arbitral pronouncement, in which the Tax and Customs Authority is requested (hereinafter, Respondent or AT), with respect to the decisions of express rejection of the requests for review of tax act submitted in relation to the self-assessments of Corporate Income Tax (IRC) underlying, subject of the following identified notices:

i) Notice no. ... issued in process no. .../2016, concerning tax assessment no. 2011... relating to the tax period of 2010 of A...;

ii) Notice no. ... issued in process no. .../2016, concerning tax assessment no. 2013... relating to the tax period of 2011 of A...;

iii) Notice no. ... issued in process no. .../2016, concerning tax assessment no. 2015... relating to the tax period of 2012 of A...;

iv) Notice no. ... issued in process no. .../2016, concerning tax assessment no. 2012... relating to the tax period of 2011 of B...;

v) Notice no. ... issued in process no. .../2016, concerning tax assessment no. 2013... relating to the tax period of 2012 of B....

2. In accordance with articles 5, no. 3, al. a), 6, no. 2, al. a) and 11, no. 1, al. a) of RJAT, the Deontological Council of this Administrative Arbitration Centre (CAAD) appointed as arbitrators of the collective arbitral tribunal Counselor Doctor Fernanda Maçãs, as arbitrator-president, Professor Doctor Luísa Anacoreta and João Menezes Leitão, as arbitrators-members, who accepted the appointment.

3. The parties were duly notified of this appointment, to which they did not oppose refusal in accordance with the combined provisions of articles 11, no. 1, letters b) and c) and 8 of RJAT and 6 and 7 of the CAAD Deontological Code.

4. By virtue of the provision in letter c) of no. 1 and no. 8 of article 11 of RJAT, as communicated by the President of the Deontological Council of CAAD, the Arbitral Tribunal was established on 19.4.2017.

5. In the request for arbitral pronouncement (hereinafter initial petition or IP), the Claimants petitioned (according to the final statement of claims, contained in point no. VI of the IP, precisely headed "Of the claim") the following:

"a) Annulment of the decisions rejecting the Requests for Review of Tax Acts and, as a consequence thereof, the annulment of the Corporate Income Tax assessment acts number 2011..., issued to Claimant A..., relating to the tax period of 2010; 2013..., issued to Claimant A..., relating to the tax period of 2011; 2015..., issued to Claimant A..., relating to the tax period of 2012; 2012..., issued to Claimant B..., relating to the tax period of 2011; 2013..., issued to Claimant B..., relating to the tax period of 2012, so as to proceed to the immediate and complete restoration of legality;

b) Admissibility of the right to opt for the application of RETGS to the present Claimants, by reference to the tax periods of 2010, 2011 and 2012, i.e. with retroactive effects to the entire tax period from 1 January 2010 to 31 December 2010, 1 January 2011 to 31 December 2011 and finally 1 January 2012 to 31 December 2012; and

c) Supply of the fulfillment of formal requirements non-existent, at the date of the beginning of RETGS relating to the tax periods of 2010, 2011 and 2012, for the constitution of that same RETGS; and

d) To consider as valid the application, in the tax periods of 2010, 2011 and 2012, of RETGS, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69° and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable".

6. The AT, pursuant to the provision in art. 17 of RJAT, submitted, on 24.5.2017, a reply, in which it defended itself by exception and by objection, finally petitioning as follows:

"a) To determine that the dilatory exception is established, embodied in the material incompetence of the arbitral tribunal and/or the exception of lack of standing, which prevent the examination of the claim, and, therefore, the absolution of the Respondent Entity from the instance should be ordered, having regard to the provisions of articles 576, no. 1 and 577, letters a) and e) of CPC, applicable ex vi article 29, no. 1, letter e) of RJAT,

b) It should further be declared the lis pendens regarding the year 2010 and to respondent B..., if thus not considered,

c) the present request for arbitral pronouncement should be judged as unfounded, as not proven, maintaining in the legal order the impugned tax acts and absolving, accordingly, the respondent entity from the claim".

7. By order of the Arbitral Tribunal of 25.5.2017, the Claimants were notified to exercise, if so desired, the right of reply regarding the exceptional matter alleged by the Respondent, which was accomplished by the request for reply to exceptions of 5.6.2017.

8. By order of 2.7.2017, given the non-existence of evidence to be produced at hearing and the pronouncement already made in writing by the Claimants on the matter of exception, the holding of the meeting referred to in art. 18 of RJAT was dispensed with and the production of successive written submissions was ordered, which was accomplished by the Claimants on 7.7.2017 and by the Respondent on 11.9.2017.

The Arbitral Tribunal fixed, in its order of 2.7.2017, as the time limit for the issuance of the arbitral award the day 19.10.2017.

9. The Arbitral Tribunal is duly constituted (arts. 5, nos. 1 and 3, al. a), 6, no. 2, al. a) and 11 of RJAT), the parties enjoy legal personality and capacity and are duly represented.

The remaining matters relating to procedural prerequisites, as they conflict with the exceptions invoked by the Respondent, shall be examined hereinafter, in a specific and autonomous manner, without prejudice, of course, to the solution given to a certain matter being capable of prejudicing the examination of the remaining questions raised by the parties (cfr. art. 608, no. 2 of the Code of Civil Procedure - CPC).

II. Questions to be decided

10. In light of the allegations contained in the IP and the exceptions raised by the Respondent in its reply (cfr. above nos. 5 and 6), the questions submitted, within the framework of the dispute formulated, to the cognizance of the Arbitral Tribunal, which are defined by the facts alleged and by the claims procedurally formulated that require specific decision, including the matters relating to procedural prerequisites raised by the parties or of official knowledge, are the following (always without prejudice to the decision of a certain question being capable of prejudicing the examination of others):

- material incompetence of the arbitral tribunal;

- lack of standing of the Claimants due to lack of necessary joinder of parties;

- lis pendens regarding the year 2010 and to Claimant B...;

- recognition of the application to the Claimants, in the years 2010 to 2012, of the special regime for taxation of groups of companies (RETGS), pursuant to the provision in article 69-A of the Corporate Income Tax Code, which was added by Law no. 82-C/2014, of 31.12;

- consequent illegality of the self-assessments of Corporate Income Tax challenged for violation of the Principles of Freedom of Establishment, of European Union Law and of the Principle of its Supremacy over National Law and of Subsidiarity, provided for in arts. 49 and 54 of the TFEU and in art. 5 of the Treaty on European Union, and of the Principles of Legality and Pursuit of the Public Interest and Protection of the Rights and Interests of the Citizen, as well as the Principles of Justice and Impartiality, enshrined in nos. 1 and 2 of art. 266 and in no. 1 of art. 269 of the Constitution of the Portuguese Republic (CRP) and in arts. 3, 4 and 6 of the Code of Administrative Procedure (CPA);

- determination of the issuance of new Corporate Income Tax assessment notices for the Claimants based on RETGS with calculation of Corporate Income Tax to be paid or refunded by RETGS B... in the following terms: i) tax period of 2010: issuance of assessment notice from which would result a consolidated amount to be paid of Euro 6,512.47; ii) tax period of 2011: issuance of assessment notice from which would result a consolidated amount to be refunded of Euro 45,451.19; tax period of 2012: issuance of assessment notice from which would result a consolidated amount to be refunded of Euro 606,826.40; and corresponding tax consequences.

III. Decision on the facts and its reasoning

11. Having examined the allegations contained in the procedural documents submitted, the documentary evidence produced, both that which was presented with the IP and that which results from the five official review administrative proceedings attached to the case file (hereinafter PA), the Tribunal finds proven, with relevance for the decision of the case, the following facts:

I. The Claimants are Portuguese legal entities that have been part, from 2015, of a group of companies that opted for taxation in accordance with RETGS, provided for in articles 69 to 71 of CIRC, as demonstrated by the communication of option for RETGS presented on 31.3.2015 demonstrating compliance with the legal conditions provided for in articles 69 and 69-A CIRC (cfr. doc. no. 16 attached to the IP and factuality alleged in arts. 43, 47 and 48 of the IP recognized by the Respondent in arts. 62 and 63 of the reply).

II. The scope of the group encompasses, in the capacity of controlled companies, the Claimants and in the capacity of parent company C... AG, a German legal entity, resident for tax purposes in Germany (cfr. doc. no. 16 attached to the IP and factuality alleged in art. 44 of the IP recognized by the Respondent in art. 64 of the reply).

III. The Claimants or the parent company C... AG did not formulate or request, in any way, the option for the application of RETGS prior to 2015, namely until the end of the 1st quarter of the tax period of 2010 (factuality recognized by the parties in arts. 30, 52, 53, 136 of the IP and 107 and 108 of the reply).

IV. The Claimants submitted, in the years 2010 to 2012, the following periodic income declarations Form 22 of Corporate Income Tax:

- Claimant A...:

(i) Tax period of 2010: declaration with identification no. ..., with computation of taxable profit in the amount of €515,363.35, according to doc. no. 11 attached to the IP;

(ii) Tax period of 2011: declaration with identification no. ..., with computation of taxable profit in the amount of €2,885,191.91, according to doc. no. 12 attached to the IP;

(iii) Tax period of 2012: declaration with identification no. ... with computation of taxable profit in the amount of €4,110,599.79 [which replaced the declaration previously filed with identification no. ...], according to doc. no. 13 attached to the IP;

- Claimant B...:

(i) Tax period of 2011: declaration with identification no. ... with computation of tax loss in the amount of €345,443.26, according to doc. no. 14 attached to the IP;

(ii) Tax period of 2012: declaration with identification no. ... with computation of tax loss in the amount of €53,300.80, according to doc. no. 15 attached to the IP.

V. A... submitted on 29.5.2015 regarding the self-assessment of Corporate Income Tax no. 2011 ... relating to the year 2010, as demonstrated by the assessment statement attached as doc. no. 6 to the IP, a request for official review, according to doc. no. 18 attached to the IP and ff. 2 and ff. of the corresponding PA, in which it requested the following: "To proceed to the annulment of the self-assessment of Corporate Income Tax number 2011..., relating to the year 2010, as well as determine the refund of the amount to be refunded unduly self-assessed as a result of its issuance, in May 2011, of Euro 48,328.47 (...) or the compensation of such amount in the sphere of the assessment to be issued for A... after the approval of the recognition of the existence, in 2010, of RETGS B..., with the amount to be received by B... Viana, of Euro 62,571.39 (...) petitioned in parallel process of Request for Review of Tax Act (...) and To consider as valid the existence, in the year 2010, of the above described as RETGS B..., proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69 and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable (...)".

VI. By Notice no. ..., dated 15.11.2016, A... was notified of the order rejecting the request for official review of Corporate Income Tax relating to the self-assessment of Corporate Income Tax of the year 2010 issued in process no. .../2016, attached as doc. no. 1 to the IP and contained in ff. 87 and ff. of the corresponding PA, rejection which was based on the following reasons:

- "With respect to the possibility of retroactive constitution of the group to the period of 2010, here requested by the claimant in the present review procedure, Law no. 82-C/2014, of 31 December mentions in no. 1 of article 5, regarding the production of effects that: "The provision in subparagraph 2) of paragraph a) of no. 4 of article 6, in no. 2 of article 28-A, in articles 28-C and 69-A and in no. 3 of article 88 of the Corporate Income Tax Code, as amended by the present law, applies to tax periods that begin on or after 1 January 2015";

- "Given the clarity of the wording of the rule, and it not being attributed to it any interpretative nature, we must conclude that such hypothesis is from the outset rendered impossible, whereby the regime embodied in article 69-A of the Corporate Income Tax Code is only applicable to tax periods beginning on or after 1 January 2015";

- "Thus, the controlled companies A... [claimant] and B... Viana, resident for tax purposes in Portugal should henceforth be considered as being part of a perimeter of companies taxed by RETGS with the consequences arising therefrom regarding the Corporate Income Tax levied by both (...) but only from the tax period of 2015 onwards".

VII. A... submitted, on 29.3.2016, regarding the self-assessment of Corporate Income Tax no. 2013 ... relating to the tax period of 2011, as demonstrated by the assessment statement attached as doc. no. 7 to the IP, a request for official review, according to doc. no. 19 attached to the IP and ff. 2 and ff. of the corresponding PA, in which it requested the following: "To proceed to the annulment of the self-assessment of Corporate Income Tax number 2013..., relating to the year 2012, and To consider as valid the existence, in the year 2011, of the above described as RETGS B... and considering its constitution in the year 2010, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69 and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable (...)".

VIII. By Notice no. ..., dated 21.11.2016, A... was notified of the order rejecting the request for official review of Corporate Income Tax relating to the self-assessment of Corporate Income Tax of the year 2011 issued in process no. .../2016, attached as doc. no. 2 to the IP and contained in ff. 165 and ff. of the corresponding PA, rejection which was based on the same reasons transcribed above in VI and which are here reproduced.

IX. A... submitted on 29.3.2016 regarding the self-assessment of Corporate Income Tax no. 2015 ... relating to the tax period of 2012, as demonstrated by the assessment statement attached as doc. no. 8 to the IP, a request for official review, according to doc. no. 20 attached to the IP and ff. 2 and ff. of the corresponding PA, in which it requested the following: "To proceed to the annulment of the self-assessment of Corporate Income Tax number 2015..., which replaces the assessment number 2013..., relating to the year 2012, and To consider as valid the existence, in the year 2012, of the above described as RETGS B... and considering its constitution in the year 2010, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69 and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable (...)".

X. By Notice no. ..., dated 21.11.2016, A... was notified of the order rejecting the request for official review of Corporate Income Tax relating to the self-assessment of Corporate Income Tax of the year 2012 issued in process no. .../2016, attached as doc. no. 3 to the IP and contained in ff. 166 and ff. of the corresponding PA, rejection which was based on the same reasons transcribed above in VI and which are here reproduced.

XI. B... submitted on 22.3.2016, regarding the self-assessment of Corporate Income Tax no. 2012 ... relating to the tax period of 2011, as demonstrated by the assessment statement attached as doc. no. 9 to the IP, a request for official review, according to doc. no. 21 attached to the IP and ff. 1 and ff. of the corresponding PA, in which it requested the following: "To proceed to the annulment of the self-assessment of Corporate Income Tax number 2012..., relating to the year 2011, and To consider as valid the existence, in the year 2011, of the above described as RETGS B... and considering its constitution in the year 2010, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69 and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable (...)".

XII. By Notice no. ..., dated 25.11.2016, B... was notified of the order rejecting the request for official review of Corporate Income Tax relating to the self-assessment of Corporate Income Tax of the year 2011 issued in process no. .../2016, attached as doc. no. 4 to the IP and contained in ff. 93 and ff. of the PA, rejection which was based on the same reasons transcribed above in VI and which are here reproduced.

XIII. B... submitted on 22.3.2016 regarding the self-assessment of Corporate Income Tax no. 2013 ... relating to the tax period of 2012, as demonstrated by the assessment statement attached as doc. no. 10 to the IP, a request for official review, according to doc. no. 21 attached to the IP and ff. 1 verso and ff. of the PA, in which it requested the following: "To proceed to the annulment of the self-assessment of Corporate Income Tax number 2013..., relating to the year 2012, and To consider as valid the existence, in the year 2011, of the above described as RETGS B... considering its constitution in the year 2010, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69 and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable (...)".

XIV. By Notice no. ..., dated 25.11.2016, B... was notified of the order rejecting the request for official review of Corporate Income Tax relating to the self-assessment of Corporate Income Tax of the year 2012 issued in process no. .../2016, attached as doc. no. 5 to the IP and contained in ff. 119 and ff. of the corresponding PA, rejection which was based on the same reasons transcribed above in VI and which are here reproduced.

XV. B... submitted an administrative action for condemnation to the performance of a due act in consequence of the rejection of a hierarchical appeal filed regarding the year 2010 having equally as object the application of RETGS (factuality recognized in art. 144 and in footnote 11 of the IP, having been attached to the case file as doc. 27 to the IP only the opening page of the respective initial petition).

12. There is no factuality given as not proven that is considered relevant for the decision of the dispute under examination.

13. The Tribunal's conviction regarding the facts given as proven resulted from the documents attached to the case file by the Claimants, equally contained in the five official review procedures attached by the Respondent, as well as from the recognition of facts made by the parties, all as specified in each of the evidentiary points outlined above.

IV. On the Law

a) On the competence of the Arbitral Tribunal

14. According to the consolidated guideline contained in article 608, no. 1 of the CPC, procedural matters that are capable of determining the absolution of the instance should be examined according to the order imposed by their logical precedence.

This results in the need to examine, first and foremost, the matter of the competence of the Arbitral Tribunal, whose examination precedes that of any other question (cfr. articles 13 of the Code of Procedure in Administrative Courts (CPTA) and 278, no. 1, al. a) of the CPC), since, with the reservation precisely of its own competence, the court that is incompetent is prevented, not only from examining the merits of the case, but all other procedural prerequisites.

In this manner, in accordance with the principle of competence-competence (Kompetenz-Kompetenz), by virtue of which the court has competence to verify its own competence, whatever the criterion from which it derives, even to conclude as to its incompetence, it falls preliminarily to proceed to the examination of this matter.

15. As indicated, the Respondent, in its reply (arts. 8 to 48), which it reiterated in its submissions, invoked the dilatory exception of material incompetence of the arbitral tribunal to examine and decide on the claims formulated by the Claimants, basing itself on the following grounds:

- "In accordance with the provision in art. 2, letter a) of Ordinance no. 112/2011, of 22 March, the AT bound itself to the jurisdiction of the arbitral tribunals operating in CAAD that have as their object the examination of claims relating to taxes whose administration is entrusted to them, referred to in no. 1 of art. 2 of RJAT, "with the exception of claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to administrative means in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", and that: "In the present case, the Claimants did not have recourse, in due time, to the gracious complaint provided for in no. 1 of art. 131 of CPPT which, in this case, was necessary since they also raised questions of fact, as is proven by the official reviews submitted, in which they claim that they meet the prerequisites, also of fact, to be part of a group to which RETGS can be applied, and therefore to be taxed in accordance with such regime" and "the official review, in accordance with art. 78 of LGT, cannot replace the gracious complaint provided for in art. 131 of CPPT, particularly when recourse to it is made beyond the 2-year period provided for in no. 1 of such article";

- "In the present case, given the decision rejecting the requests for official review, it was not a matter of examining the legality of any assessment, but only the question of whether the claimants could benefit, retroactively, from the application of a rule that allows them to opt for taxation in accordance with the special tax regime for taxation of groups of companies, cfr. arts. 69 and 69-A of CIRC";

- the incompetence further results from the cause of action and the claims formulated before the Arbitral Tribunal, given that "what the claimants intend is to obtain the recognition of a right which, in accordance with the provisions provided for in the legislation in force in the national legal order, did not belong to them at the date of the facts", "attempting, by means of the request for arbitral pronouncement, to obtain the recognition of that right: to be taxed in accordance with a special regime for taxation of groups of companies, with an already calculated computation of the tax due, that is, doing what it is incumbent on the AT to do: the assessment of the tax"; "Now, to admit that the Arbitral Tribunal has competence for the examination of this claim would represent (...) the substitution of the present Arbitral Tribunal in the competencies proper to the AT", which: "Not even in administrative special proceedings, the procedural means in which the condemnation of the administration to the performance of a due act is provided for, cfr. arts. 66 and ff. of the CPTA, is it permitted to the Judicial Court to go so far";

- "the legal claim formulated by the claimants is reduced to the recognition of a right or the request for condemnation to the performance of a due act, which cannot be obtained by this means", whereby "the request for arbitral pronouncement does not embody the proper means, which, in this case, results in the very incompetence of the Arbitral Tribunal, to recognize the right that the claimants intend to obtain, or to, as an alternative to the administrative special action, condemn the AT to the performance of a due act", for, "it is not here a matter of the examination of any assessment act, but rather of a purported and hypothetical right that is always prior to such assessment, and the arbitral tribunal is not competent to examine the rejection of the requests for official review that deny the recognition of such right".

16. In the reply to exceptions submitted by the Claimants, these argue, with respect to the question of material incompetence of the Tribunal (arts. 15 to 54), the following:

- "the assessment acts whose legality is now discussed were indeed preceded by "administrative challenge" by means of the mechanism of official review", "the restrictive interpretation propagated by the AT cannot be admitted, surrounding the provision in letter a) of article 2 of Ordinance no. 112-A/2011, of 22 March", whereby "given the administrative nature of the procedure of official review it is possible its assimilation to the provision in article 131 to 133 of CPPT for the purpose of the subsequent challenge of its decision to reject", it should, therefore, "be understood that the examination of acts rejecting requests for review of the tax act, submitted under article 78 of LGT, is included within the scope of competencies attributed to arbitral tribunals";

- "the AT incorrectly reconditions the legal claim formulated by the Claimants to the recognition of a right or the request for condemnation to the performance of a due act", in that: "what the Claimants effectively petition is the annulment of the decisions rejecting the Requests for Review of Tax Acts and, as a consequence thereof, the annulment of the Corporate Income Tax assessment acts (...) issued to Claimants B... and A... regarding the tax periods of 2010 to 2012", "Request this directly imbricated in the discussion of the applicability of RETGS (...) to the Claimants in the fiscal years above indicated", whereby "from the moment in which the arbitral tribunal's examination is placed on the examination of the illegality of tax assessment acts it will necessarily have that object to be considered susceptible of examination by the arbitral tribunal", "Regardless of the reason alleged for them to be flawed by illegality".

17. It is thus incumbent to examine this preliminary question of the competence ratione materiae of this Arbitral Tribunal, a question, moreover, that is of official knowledge, and the infraction of the rules of competence ratione materiae determines the absolute incompetence of the court (art. 16, nos. 1 and 2 of the Code of Tax Procedure and Process (CPPT) applicable ex vi art. 29, no. 1, als. a) and c) of RJAT).

The competence of the court to judge the case that was brought before it, which constitutes an essential procedural prerequisite and, as such, a necessary condition for the court to be able to pronounce on the merits of the case, is the measure of its jurisdiction, whereby a certain court is competent for the judgment of a certain case when the criteria determining competence attribute to it the measure of jurisdiction sufficient for that examination.

Now, the competence of the court should be assessed, in general, according to the claim formulated by the plaintiff and the grounds (cause of action) that support it, taking into account the manner in which they appear formulated in the initial petition, independently of any inquiry into their merits. Competence is thus ascertained, in accordance with the quid disputatum or quid decidendum (as opposed to what will be the quid decisum), as configured by the plaintiff (vd., thus, the decisions of the Court of Conflicts of 5.5.2011, proc. no. 29/10 and of 2.2.2016, proc. no. 045/15).

18. Having regard to the manner in which the Claimants structured the present case in their IP and expressed in this arbitral proceeding their claims, by means of the binomial claims/cause of action, it is verified that a cumulation of claims was made, which, as transcribed above (no. 5), appear formulated in the following manner:

"a) Annulment of the decisions rejecting the Requests for Review of Tax Acts and, as a consequence thereof, the annulment of the Corporate Income Tax assessment acts number 2011..., issued to Claimant A..., relating to the tax period of 2010; 2013..., issued to Claimant A..., relating to the tax period of 2011; 2015..., issued to Claimant A..., relating to the tax period of 2012; 2012..., issued to Claimant B..., relating to the tax period of 2011; 2013..., issued to Claimant B..., relating to the tax period of 2012, so as to proceed to the immediate and complete restoration of legality;

b) Admissibility of the right to opt for the application of RETGS to the present Claimants, by reference to the tax periods of 2010, 2011 and 2012, i.e. with retroactive effects to the entire tax period from 1 January 2010 to 31 December 2010, 1 January 2011 to 31 December 2011 and finally 1 January 2012 to 31 December 2012; and

c) Supply of the fulfillment of formal requirements non-existent, at the date of the beginning of RETGS relating to the tax periods of 2010, 2011 and 2012, for the constitution of that same RETGS; and

d) To consider as valid the application, in the tax periods of 2010, 2011 and 2012, of RETGS, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69° and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable".

This cumulation of claims, as far as its structure is concerned, constitutes a simple cumulation, in that the Claimants intend the success of all the formulated claims and the production of all their effects (vd. TEIXEIRA DE SOUSA, "Cumulation of claims and apparent cumulation in administrative litigation" in CJA, no. 34, p. 35; VIEIRA DE ANDRADE, Administrative Justice. Lessons, 16th ed, 2017, p. 277).

19. On the cumulation of claims in the context of tax arbitral proceedings, the provision in article 3, no. 1 of RJAT is as follows: "The cumulation of claims even if relating to different acts and the joinder of plaintiffs are admissible when the success of the claims depends essentially on the examination of the same factual circumstances and on the interpretation and application of the same principles or rules of law".

Considering merely this provision, the cumulation of claims requires a certain "objective connection" – precisely, the examination of the same facts or the interpretation and application of the same principles or rules of law in examining its success. However, beyond this material requirement, it is still indispensable (cfr. no. 3 of art. 5 of CPTA) a "procedural compatibility between the claims", by which "the court must be materially competent for all cumulated claims", whereby "the admissibility of their cumulation is restricted in accordance with the court's competence for the examination of each of them" (TEIXEIRA DE SOUSA, loc. cit., p. 36; in the same sense, vd. CECÍLIA ANACORETA CORREIA, "The principle of cumulation of claims in the Code of Procedure in Administrative Courts in particular in the executive context" in Studies in Homage to Prof. Doctor Jorge Miranda, vol. IV, 2012, p. 223).

Thus, by virtue of the delimitation of competencies of tax arbitral tribunals, they cannot be the object of examination, in cumulation of claims, the plurality of legal claims that possess objective connection if the tribunal does not have competence for all of them. That is to say, only those claims that are materially connected for which the court is competent can be cumulated in tax arbitral proceedings.

In summary, the cumulation of claims admitted by art. 3, no. 1 of RJAT is only viable and legal if all cumulated claims fall within the scope of the competencies legally attributed to arbitral tribunals.

20. The scope of tax arbitral jurisdiction is assessed, first and foremost, according to the criteria for determining material competence that are established by art. 2, no. 1 of RJAT, according to which:

"The competence of arbitral tribunals comprises the examination of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable base and of acts of determination of patrimonial values".

Subsequently, in accordance with the provision in no. 1 article 4 of RJAT (whereby: "The binding of the tax administration to the jurisdiction of the tribunals constituted in accordance with the present law depends on an ordinance of the Government members responsible for the areas of finance and justice, which establishes, namely, the type and maximum value of disputes covered"), it is important to have regard to the provision in article 2 of Ordinance no. 112-A/2011, of 22 March, which, with respect to the examination of claims, relating to taxes whose administration is entrusted to services and bodies of the AT, referred to in no. 1 of article 2 of RJAT, excepts, to the extent relevant here, "Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to administrative means in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" and "Claims relating to acts of determination of taxable base and acts of determination of taxable matter, both by indirect methods, including the decision of the review procedure".

In view of what is provided for in these provisions, it is incumbent to understand, in terms of basic delimitation criterion, that the competence of arbitral tribunals is restricted to claims of challenge of acts relating to the assessment of taxes or the determination of taxable matter, which aim at the declaration of their nullity or annulment (without prejudice to non-strictly annulment elements associated with the challenge process, as occurs with condemnation to indemnity interest or indemnification for guarantee given).

Thus, when confronting art. 2, no. 1 of RJAT with art. 97, no. 1 of CPPT (vd. also art. 101 of LGT) one easily concludes that claims that do not concern the challenge of tax assessment acts, but the recognition of a right or interest in tax matters (al. h) of no. 1 of art. 97 of CPPT; cfr. also art. 145 of CPPT), are not comprised in the competence of tax arbitral tribunals.

Consequently, claims that do not concern the validity of the tax act in itself considered, but which are instead intended for the recognition of a right resulting from the tax legal relationship or for the obtaining of the condemnation of the competent entity to the performance of an act that has been illegally omitted or refused, escape the jurisdiction of tax tribunals.

21. In accordance with the demand formatted by the Claimants, the claims formulated concerning "Admissibility of the right to opt for the application of RETGS to the present Claimants, by reference to the tax periods of 2010, 2011 and 2012, i.e. with retroactive effects to the entire tax period from 1 January 2010 to 31 December 2010, 1 January 2011 to 31 December 2011 and finally 1 January 2012 to 31 December 2012"; to "Supply of the fulfillment of formal requirements non-existent, at the date of the beginning of RETGS relating to the tax periods of 2010, 2011 and 2012, for the constitution of that same RETGS"; and "To consider as valid the application, in the tax periods of 2010, 2011 and 2012, of RETGS, proceeding to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69° and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable" (vd. supra no. 5), which are globally concerned with the Claimants intending that they be recognized the right to taxation by RETGS, whose application depends on an option to be made by the parent company and on the satisfaction of requirements of material and formal character legally imposed (cfr. arts. 69 and 69-A of CIRC), relate to a subject matter that is autonomous and prior to the Corporate Income Tax assessments, a subject matter that must be the object of formal declaration by the parent company and is subject to specific examination by the AT (cfr., namely, nos. 1, 2, 3, 7 and 12 of art. 69 of IRC).

It must be noted, indeed, that, differently from what the Claimants refer to in their reply to exceptions (vd. supra no. 16), it is this claim of application of RETGS to the years 2010 to 2012 that appears as the essential and primary content of the procedural object defined by the Claimants.

Notice, indeed, that, whilst asserting that the claims in question in the present proceedings concern acts of Corporate Income Tax assessment, the Claimants expressly state that: "In reality, what is under discussion in all requests for review of the tax act is – in essence – the applicability of the Special Regime for Taxation of Groups of Companies (RETGS) provided for in articles 69 and following of the Corporate Income Tax Code, to the Claimants, in the fiscal years in question" (arts. 16 and 19 of the IP). Hence it is stated in art. 130 of the IP that "what is intended in the present request is the recognition of the application of RETGS to a group of companies, whose parent company is located in another Member State of the EU", for which, as written in art. 143 of the IP, "in order to determine the application of RETGS to the present Claimants, by reference to the tax periods of 2010, 2011 and 2012, it is necessary to prove the requirements provided for in article 69 of the Corporate Income Tax Code". Similarly, it is also indicated in arts. 38, 41 and 51 of the Claimants' submissions that it is intended that this Tribunal recognize "by reference to the tax periods of 2010 to 2012, the existence of a fiscal group that can be taxed under the rules of RETGS, which should integrate the Claimants, being them considered sister companies resident in Portugal, indirectly held by C... AG (resident for tax purposes in Germany), in so far as they all comply with the legal requirements imposed by such special regime" and that above, "with respect to the fulfillment of formal requirements for the application of RETGS, that the non-exercise of the right, until the end of the 3rd month in the tax period to which it is intended to initiate the application, does not invalidate the subsequent recognition of such right".

Thus, it is only as a result of the prior recognition by the Tribunal of the application of RETGS that the Claimants refer to the Corporate Income Tax assessment acts and the orders rejecting the requests for official review – see what is stated in arts. 151 and 152 of the IP and also in arts. 51 and 52 of the submissions, in which it is requested that it be concluded "that the Claimants, as controlled companies resident for tax purposes in Portugal, indirectly held by C... AG, should henceforth be considered, in the mentioned years, as being part of a perimeter of companies taxed by RETGS with the consequences arising therefrom regarding the Corporate Income Tax levied by both, namely, having regard to the provision in articles 70, 71 and 115 of the Corporate Income Tax Code", and should, subsequently, "the self-assessments of Corporate Income Tax attached with the request for arbitral pronouncement under Documents nos. 6 to 10 be considered illegal, for violation of the Principles of Freedom of Establishment, the Law of the European Union and Subsidiarity (provided for in the Treaties of the European Union) and the Principles of Legality and Pursuit of the Public Interest and Protection of the Rights and Interests of the Citizen (enshrined in the CRP)".

22. In these terms, the present dispute directly concerns the claim of the Claimants that they be recognized by the Tribunal the right to the constitution of a fiscal group under RETGS for the years 2010, 2011 and 2012, which, however, it should be said, in accordance with what is outlined above in no. III of the evidentiary section, regardless of its admissibility in the face of domestic legislation and European Law, was not the object of any declaration of option or request prior to 2015.

Following what has been set out above, in so far as the recognition of right or legitimate interest in tax matters is petitioned in this proceeding, it is incumbent to declare that such request does not possess a framework within the material competence attributed by law to tax arbitral tribunals, in that the powers of cognition that fall to them correspond, in accordance with letter a) of no. 1 of art. 2 of RJAT, to the knowledge of the legality of acts of tax assessment, in accordance with the typical scheme of judicial challenge, excluding, therefore, the requests for whose examination corresponds the procedural form of the action for recognition of a right or legitimate interest legally protected in tax matters.

As was written in the award issued by Arbitral Tribunal of this CAAD in tax arbitral proceeding no. 693/2014-T:

"Decree-Law no. 10/2011, of 20 January (RJAT) included only within the scope of tax arbitration competencies for the examination of the legality of acts of the types referred to in its article 2, no. 1, proper to judicial challenge proceedings.

Therefore, the arbitral tribunals functioning in CAAD have powers of cognition limited to those that tax tribunals can exercise in judicial challenge proceedings (which has been understood to encompass the declaration of illegality of acts and determination of indemnity interest and indemnifications for unjust guarantee), but do not include those that in tax tribunals can be exercised in proceedings for enforcement of judgments and in action for recognition of right or legitimate interest".

Thus, the specific claims for judicial protection requested by the Claimants to this Tribunal concerning the recognition of the application of RETGS in the years 2010 to 2012 and the constitution in those periods of a fiscal group between the Claimants and the parent company C... AG, by belonging to the field of application of the action for recognition of a right or legitimate interest, do not adjust to the circle of competence established by law for tax arbitral tribunals, whereby they cannot be examined by this Tribunal.

It should further be added that, as far as specifically concerns the request to "consider as valid the application, in the tax periods of 2010, 2011 and 2012, of RETGS" and to proceed "to taxation, in the scope of Corporate Income Tax, of the same, in light of articles 69° and following of the Corporate Income Tax Code, with all the legal tax consequences legally applicable" (vd. supra no. 5), in consequence of which the Tribunal's cognition is submitted to the determination of the issuance of new Corporate Income Tax assessment notices for the Claimants, based on RETGS with calculation of Corporate Income Tax to be paid or refunded by the intended "RETGS B..." in the following terms: i) tax period of 2010: issuance of assessment notice from which would result a consolidated amount to be paid of Euro 6,512.47; ii) tax period of 2011: issuance of assessment notice from which would result a consolidated amount to be refunded of Euro 45,451.19; tax period of 2012: issuance of assessment notice from which would result a consolidated amount to be refunded of Euro 606,826.40; and corresponding tax consequences (vd. above no. 10 and arts. 157 to 160 of the IP), the Claimants even request the Tribunal to condemn the AT to the performance of tax acts whose issuance presupposes assessments and evaluations reserved by law for the exercise of the administrative-tax function, which is entirely outside the jurisdiction of the courts by reason of the principle of separation of powers (cfr. no. 1 of art. 3 of CPTA).

23. With respect to the claims, also formulated in the IP, for "Annulment of the decisions rejecting the Requests for Review of Tax Acts and, as a consequence thereof, the annulment of the Corporate Income Tax assessment acts number 2011..., issued to Claimant A..., relating to the tax period of 2010; 2013..., issued to Claimant A..., relating to the tax period of 2011; 2015..., issued to Claimant A..., relating to the tax period of 2012; 2012..., issued to Claimant B..., relating to the tax period of 2011; 2013..., issued to Claimant B..., relating to the tax period of 2012, so as to proceed to the immediate and complete restoration of legality" (vd. supra no. 5), it is understood, equally, that a conclusion of incompetence of this Tribunal for its examination should be reached. See why.

Preliminarily, it must be noted that these claims are in clear relation of prejudicedness with the claim, above considered, of application of RETGS to the Claimants, and the knowledge of this being indispensable and prior to the decision of those, for whose success it constitutes an essential premise. In truth, without the recognition of the right to opt for RETGS in the years in question and the condemnation of the Respondent in the respective application, the allegation made regarding the illegality of the assessment acts and the rejections of the requests for official review is lacking. One could even understand, as far as the challenge of each one of the decisions rejecting the requests for official review regarding each one of the assessments challenged concerning the years 2010, 2011 and 2012 and the claim of application of RETGS is concerned, there is an apparent cumulation of claims since the various claims refer to the same asset in economic sense and thus "the party formulates various claims, but it does not obtain distinct benefits from the success of each of those claims" (TEIXEIRA DE SOUSA, loc. cit., p. 37). In this measure, the impossibility of examining the claims concerning the application of RETGS would imply the consequent unfoundedness of the claims for annulment of the rejections of the requests for official review and of the underlying assessments.

It is understood, however, that, as this Tribunal cannot examine, because it does not possess for this purpose competence, the claims concerning the application of RETGS to the Claimants in the years 2010 to 2012, which, as has been seen, are prior and prejudicial to the very examination of the intended declaration of illegality of the acts rejecting the requests for official review and underlying assessments challenged here, it should be considered prejudiced, by reason of the indicated incompetence of the Tribunal, the knowledge of such claims for annulment of the acts rejecting and underlying assessments.

24. For all these reasons, in accordance with the provision in art. 2, no. 1, letter a) of RJAT and art. 16 of CPPT, applicable ex vi letter c) of art. 29 of RJAT, there is verified the incompetence, in terms of subject-matter, of this Arbitral Tribunal, which implies a dilatory exception preventing the examination of the remaining procedural prerequisites and of the merits of the case, which determines the absolution of the Respondent from the instance, in accordance with the provisions of arts. 576, nos. 1 and 2 and 577, letter a) of CPC applicable ex vi art. 29, no. 1, letter e) of RJAT.

Whereby it is judged that the invoked exception of material incompetence of the Arbitral Tribunal is well-founded and the Respondent is absolved from this arbitral instance.

V. Decision

Whereby this Arbitral Tribunal hereby agrees to:

- Judge well-founded the dilatory exception of incompetence of this Tribunal ratione materiae and, consequently, absolve the Respondent from the instance;

- Condemn the Claimants to the costs of the proceedings.

VI. Value of the proceeding

In accordance with the provision in art. 306, nos. 1 and 2 of the Code of Civil Procedure (CPC), in article 97-A, no. 1, al. a) of CPPT, applicable by virtue of letters c) and e) of no. 1 of article 29 of RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceeding is set at € 1,325,669.98 (one million, three hundred and twenty-five thousand six hundred and sixty-nine euros and ninety-eight cents).

VII. Costs

In accordance with the provision in articles 12, no. 2, and 22, no. 4, both of RJAT, and in article 4, no. 4 of RCPAT, the amount of the arbitration fee is set at €18,054.00, in accordance with Table I of the aforementioned RCPAT, to be borne by the Claimants (art. 527, nos. 1 and 2 of CPC ex vi art. 29, no. 1, al. e) of RJAT).

Notify accordingly.

Lisbon, 16 October 2017.

The Arbitrators

Fernanda Maçãs
(President)

Luísa Anacoreta

João Menezes Leitão

[1] The orthography resulting from the Agreement on the Orthography of the Portuguese Language of 1990 is adopted, having been updated accordingly the spelling contained in the citations made.

Frequently Asked Questions

Automatically Created

What is the RETGS regime and how does it affect IRC corporate tax group taxation in Portugal?
RETGS (Regime Especial de Tributação de Grupos de Sociedades) is the special regime for taxation of groups of companies under Portuguese IRC law, governed by articles 69 and following of the Corporate Income Tax Code. It allows eligible corporate groups to consolidate taxable income of group members, offsetting profits and losses within the group. Article 69-A CIRC, added by Law 82-C/2014, established transitional provisions for RETGS application. The regime requires formal option exercise, specific group structure requirements, and compliance with holding and subsidiary relationship thresholds. RETGS affects IRC taxation by permitting group-level tax calculation rather than separate entity taxation, potentially reducing overall tax liability through intra-group loss utilization and eliminating double taxation of intra-group transactions.
When can the CAAD Arbitral Tribunal be deemed incompetent to adjudicate IRC tax disputes?
The CAAD Arbitral Tribunal may be deemed incompetent to adjudicate IRC disputes when: (1) the matter falls outside the jurisdictional scope defined in articles 2 and 10 of RJAT (Decree-Law 10/2011); (2) the claim seeks relief beyond annulment of tax acts, such as positive recognition of tax regime options or supply of missing formal requirements; (3) the dispute involves issues requiring constitutional interpretation or administrative rulemaking authority; (4) necessary parties are not properly joined; or (5) there exists res judicata or lis pendens with proceedings in other jurisdictions. Material incompetence is a dilatory exception that, if established, results in absolution from the instance under articles 576-577 CPC, without examination of merits. The tribunal must decide competence issues as preliminary matters pursuant to article 608(2) CPC.
How does the coligação de autores (joinder of parties) work in Portuguese tax arbitration proceedings?
Coligação de autores (joinder of parties) in Portuguese tax arbitration allows multiple claimants to file joint proceedings when their claims arise from related facts, involve similar legal grounds, or concern connected tax acts. Under article 10 RJAT and CPC provisions, voluntary joinder is permitted for procedural economy when claims are compatible. However, the Tax Authority may challenge joinder through the exception of lack of standing, arguing for necessary joinder (litisconsórcio necessário) when the legal relationship is indivisible or when all interested parties must participate for effective adjudication. In RETGS cases involving corporate groups, questions arise whether all group members must be joined when seeking recognition of the group taxation regime. The tribunal examines whether joint claims satisfy procedural prerequisites under articles 576-577 CPC and whether unified or separate proceedings better serve judicial economy and rights protection.
What is the procedure for requesting revisão de ato tributário (review of tax acts) related to IRC self-assessments?
The procedure for requesting revisão de ato tributário (review of tax acts) related to IRC self-assessments begins with a written request to the Tax Authority under article 78 LGT (General Tax Law), filed within specified time limits after the tax act. The request must identify the contested act, state grounds for review (illegality, error, or new facts), and include supporting documentation. The Tax Authority examines the request and issues a decision accepting or rejecting the review. If rejected, the taxpayer may challenge the rejection decision through: (1) hierarchical appeal; (2) judicial tax court proceedings; or (3) tax arbitration under RJAT, filing a request for arbitral pronouncement within 90 days. In arbitration, the tribunal reviews both the rejection decision and the underlying tax act's legality. For IRC self-assessments, common review grounds include calculation errors, improper regime application, or incorrect interpretation of CIRC provisions. The tribunal may annul the rejection and the underlying assessment if illegality is proven.
What are the legal consequences when an Arbitral Tribunal declines jurisdiction over RETGS-related IRC disputes?
When an Arbitral Tribunal declines jurisdiction over RETGS-related IRC disputes, the legal consequences include: (1) absolution of the Respondent from the instance (absolvição da instância) under articles 576-577 CPC, without examination of merits; (2) the contested tax acts remain in full force and effect in the legal order; (3) claimants must seek remedy in competent jurisdiction, typically ordinary tax courts under CPPT; (4) time limits for alternative remedies continue running from original notification dates, potentially affecting appeal deadlines; (5) arbitration costs may be allocated against claimants; and (6) no res judicata effect on substantive issues occurs, only on competence determination. The incompetence decision establishes that claims seeking positive recognition of RETGS application and supply of formal requirements exceed arbitral jurisdiction under RJAT article 2. Taxpayers must reformulate claims as pure annulment actions or pursue administrative procedures for regime election before contesting resulting tax acts.