Process: 127/2018-T

Date: January 29, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 127/2018-T) addresses international juridical double taxation under Portuguese Corporate Income Tax (IRC) involving A... S.A., a Portuguese company with an Angolan branch. The dispute arose from an additional IRC assessment of €4,268.27 for fiscal year 2014, following self-assessment payment of €545,331.20. The core issue concerns whether the taxpayer properly claimed relief from double taxation on income earned by its Angolan permanent establishment. The branch paid industrial tax in Angola totaling Akz 61,361,808.00 (approximately €1,576,120.35) through tax withholdings. The company challenged the Portuguese Tax Authority's dismissal of its gracious appeal, arguing violation of IRC Code provisions on double taxation relief (Articles 68, 90, and 91). The case highlights critical procedural requirements for claiming foreign tax credits, including documentation standards for proving tax payments made abroad through withholding mechanisms. The arbitral tribunal examined whether the Angolan branch constituted a permanent establishment, the adequacy of proof of foreign tax payment, and compliance with Portuguese IRC rules on eliminating international double taxation. This decision provides important guidance on evidentiary requirements for Portuguese companies operating through foreign branches seeking to avoid taxation on the same income in both jurisdictions, particularly regarding acceptance of foreign tax withholding certificates and substitute documentation when official tax payment receipts are unavailable.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Filipa Barros and Miguel Patrício, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 20 March 2014, A... S.A., Tax Identification Number..., with registered office at ... no...., ..., ..., ...-.... ..., filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the act dismissing the gracious appeal No. ...2017..., which concerned the act of additional corporate income tax (IRC) assessment No. 2015..., relating to the fiscal year 2014, in the amount of € 4,268.27, following a previous payment by self-assessment in the amount of € 545,331.20.

To support its request, the Applicant alleges, in summary, the occurrence of error in the factual and legal grounds, by violation of Article 13 of the Commercial Companies Code and Article 4, No. 1, Article 17, No. 1, Article 68, No. 1, Article 90, No. 1, paragraph a) and No. 2 and Article 91, No. 1 of the IRC Code.

On 21-03-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant did not proceed to appoint an arbitrator, and therefore, pursuant to the provisions of paragraph a) of No. 2 of Article 6 and paragraph a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable deadline.

On 11-05-2018, the parties were notified of these appointments and did not manifest any intent to refuse any of them.

In accordance with the provision of paragraph c) of No. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 01-06-2018.

On 05-07-2018, the Respondent, duly notified for that purpose, filed its response defending itself by exception and by impugnation.

On 11-10-2018, the meeting referred to in Article 18 of the RJAT took place, where the witnesses presented by the Applicant were examined, and an order was issued extending by 2 months, pursuant to Article 21/2 of the RJAT, the deadline provided for in No. 1 of the same article.

Having been granted a deadline for presentation of written submissions, the parties presented the same, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

The Arbitral Tribunal is materially competent and regularly constituted, pursuant to Articles 2, No. 1, paragraph a), 5 and 6, No. 2/b), of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

Thus, there is no obstacle to the examination of the case.

All considered, it is necessary to deliver

II. DECISION

A. FACTUAL MATTER

A.1. Facts established as proven

The Applicant is engaged, and was engaged in 2014, in the activity of manufacturing radio and communication equipment and apparatus (radio transmitters, telegraphy and telephony), studies, projects, commercialization, installation and maintenance of telecommunications, electrical and electromechanical equipment and construction of public and private works.

The Applicant is, and was at the time of the facts, a taxpayer for IRC purposes, with head office and effective management in Portugal.

On 28-05-2015, the Applicant submitted the IRC income statement Model 22, relating to the tax period 2014.

From said income statement resulted the following:

  • total IRC assessment: €887,126.02;
  • amount payable: €545,331.20.

In said statement, the Applicant did not indicate any tax credit for income obtained abroad.

In said statement, no deduction was made from the assessment as a title of double international legal taxation.

The Applicant established a permanent representation in Angola in the form of a Branch: B..., S.A. – Branch in Angola (hereinafter, "Branch").

The Applicant promoted the registration of the Branch in Angola, and was assigned registration No. ...–..., with the designation "Ap...– Branch", identifying the head office, the business objective, the assigned capital and the representative.

The principal activity of the Branch consists of providing installation and maintenance services for telecommunications, electricity and electromechanical equipment.

From the Private Investment Registration Certificate ("CRIP") issued by the Angolan authorities, it appears that the investment promoter was the Applicant, "aiming at the registration of a Branch, whose principal activity is the provision of installation and maintenance services for telecommunications, electricity and electromechanical equipment".

In the Private Investment Registration Certificate, the National Agency for Private Investment (ANIP) states that the Applicant's investment in Angola takes the form of a Branch.

The Tax Authorities of the Republic of Angola assigned the tax identification number ... to the Applicant's Branch.

The operations of the Branch are reflected in the Applicant's accounting for the fiscal year 2014, as follows:

[accounting table]

The Branch is not a taxpayer for IRC purposes in Portugal, as it does not conduct any activity in Portuguese territory nor obtain any income there.

The Branch, in 2014, was subject to the income tax in force in Angola, the industrial tax.

In 2014, the Branch submitted to the Tax Authorities of the Republic of Angola the Model 1 declaration of industrial tax.

From the Model 1 declaration of industrial tax submitted by the Branch, the following resulted:

  • result before taxes of kwanza 279,951,357.13;
  • collection of industrial tax of kwanza 61,361,808.00.
  • total tax payable nil as a result of the existence of tax withholdings suffered (deductible from the collection of municipal tax) in the amount of kwanza 207,091,181.19, corresponding to €1,576,120.35.

The income tax paid by the Applicant's Branch in Angola corresponded to Akz. 61,361,808.00.

Given that the tax withholdings presented in Model 1 declaration amounted to Akz 207,091,181.19, the Branch did not proceed to pay the industrial tax at the time of submission of said declaration.

The assessed tax was paid in full through said tax withholdings borne by the Branch following services provided by it locally.

The Tax Authorities of the Republic of Angola did not issue any document proving the actual payment of industrial tax, even though it took place through tax withholding.

The Tax Authorities of the Republic of Angola stamped the Model 1 declaration, as a way of proving its submission.

The Applicant requested from the entity that withheld the largest amount as tax withholdings, in the fiscal year 2014 – C... S.A.R.L. – that it issue a statement certifying said tax withholdings made.

An official letter was issued by C... addressed to the Angolan General Tax Administration, stating that the amount of tax withholding withheld from the Applicant's Branch in Angola, in the year 2014, amounted to Akz 91,209,144.96.

Said official letter was received by the Angolan General Tax Administration on 16-08-2016.

In issuing said document, C... indicated to the Angolan General Tax Administration the amount of withholdings made monthly, through different DARs (Tax Collection Documents), supported by maps whose pagination ends in "A".

On 23-05-2017, the Applicant filed gracious appeal No. ...2017... of the IRC self-assessment, relating to the tax period 2014, in which it requested the restitution of tax improperly charged in that period, by reference to a tax credit for double international legal taxation not deducted from the IRC assessment.

On 13-11-2017, the Applicant was notified of the draft dismissal of the gracious appeal and to, if it wished, exercise its right to a hearing.

On 22-11-2017, the Applicant exercised its right to prior hearing and presented the following elements:

  • Photocopies of the trial balance (expenses and income) before the determination of results, with reference to the tax period 2014;
  • Photocopies of the account extracts of expenses and income of the Branch, incorporated in the Applicant's accounts;
  • Summary table of income and expenses attributable to the Branch and their correspondence in the Applicant's accounts under SNC;
  • Private Investment Registration Certificate;
  • Certificate from the Commercial Registry Conservatory of Luanda;
  • Photocopy of the assignment of the tax identification number of the Branch;
  • Official letter issued by C... S.A.R.L.

The Applicant, by notification dated 20-12-2017, was notified of the final decision dismissing the gracious appeal.

From said decision appears, among other things, the following:

"In the first place, the claimant provides no evidence as to its relationship with this entity which allegedly paid tax in Angola.

In fact, the Tax and Customs Authority (AT) does not have any elements that would allow it to fully ensure the relationship between the claimant and that entity, whatever its legal status.

In the second place, no accounting and supporting elements were brought to the proceedings with the petition that would allow assurance and confirmation that the accounting entries corresponding to the accounting of the alleged branch are reflected in the claimant's accounting.

Finally, it should also be noted that neither does the statement submitted by the claimant as Model 1 of industrial tax prove the tax paid by that entity. That is, the AT is not demonstrated the assessment issued in the name of that entity, resident for tax purposes in Angola, nor is it demonstrated whether it actually bore and paid any resulting tax.

Consequently, we find that the provision of No. 1 of Article 74 of the LGT is violated inasmuch as the claimant fails to prove in the gracious appeal procedure what was alleged and petitioned, and therefore the respective request must be dismissed."

In the gracious appeal proceedings appear, among other things, an opinion authored by the coordinator of the Administrative Justice Division of the Tax Office (DF) of Lisbon with the following content: "given the content of the appeal petition, as well as the elements on the file, it is verified that the claimant failed to bring to these files adequate proof of the allegations now made, namely accounting and supporting elements, or such as the assessment of the tax allegedly borne in Angola, as was its responsibility in accordance with the provisions of Article 74 of the LGT. As such, the appeal should be DISMISSED, and consequently the additional IRC assessment No. 2015..., relating to the fiscal year 2014, should be maintained."

In the course of this arbitral proceeding, the Applicant obtained the missing stamp and submitted to the proceedings the same Model 1 declaration of industrial tax, previously presented, signed by the same Angolan Tax Authority official, but with the stamp of the Angolan Tax Authorities and with a white seal.

Said Model 1 declaration was also signed and stamped by the Notarial Office of ..., Province of Luanda.

Following the initiation of this arbitral proceeding, the Applicant was notified of the decision issued by the Tax Authority in an ex officio revision proceeding of a tax act, which concerned the act of IRC self-assessment relating to the tax period 2012.

From said decision appears, among other things, the following:

[decision excerpt regarding 2012]

A.2. Facts established as not proven

1- The correspondences between the amounts in Angolan Kwanzas (Akz) contained in the facts established as proven, and the amounts in euros indicated by the Applicant.

A.3. Grounds for the factual matter proven and not proven

With respect to factual matters, the Tribunal need not pronounce itself on everything that was alleged by the parties, as it is incumbent upon it to select the facts that matter for the decision and distinguish the proven matter from the unproven matter (see Article 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable by virtue of Article 29, No. 1, paragraphs a) and e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are chosen and delimited based on their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (see former Article 511, No. 1, of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29, No. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the Administrative Proceeding file attached to the record, as well as the testimonial evidence and statements of parties produced, the facts listed above were considered proven, with relevance for the decision, taking into account that, as stated in the Judgment of the TCA-South of 26-06-2014, handed down in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not impugned."

In particular, the facts established as proven in points 7 to 9 and 14 of the factual matter, concerning the existence of the Applicant's Angolan Branch, were categorically affirmed by the witnesses and declarants heard, and are consistent with the available documentary evidence, and it must be noted that the AT itself recognized this, as appears from point 36 of the factual matter.

Point 13 of the facts established as proven, concerning the integration of the Branch's accounts into the Applicant's accounts, results from the documentation submitted with the gracious appeal, namely from the trial balances of the Applicant, whose authenticity was not questioned by the AT, and was affirmed by the deponents and declarant when heard, noting also that with respect to the year 2012, the AT itself accepted that the income and expenses of the branch were, already then, recorded in the Applicant's accounting.

Points 15 to 19 and 21 of the factual matter concern the payment of the Tax in Angola, and result sufficiently from the documentation presented by the Applicant in that respect, combined with the testimonial evidence that corroborated its authenticity, noting also here that with respect to the year 2012, the AT accepted, to prove factuality identical, the same type of documentation.

Points 23 to 26, relating to documentation concerning the Angolan company C..., result from that same documentation, combined with the testimonial evidence that showed personal and direct knowledge about the manner in which it was produced and obtained.

The fact established as not proven is due to insufficient proof thereof, the circumstance that the Applicant used a particular exchange rate in its accounting records not permitting, in itself, the conclusion that such is the correct rate.

Allegations made by the parties, presented as facts, consisting of strictly conclusive assertions, unsusceptible to proof and whose truthfulness must be assessed in relation to the concrete factual matter consolidated above, were not established as proven or not proven.

B. ON THE LAW

a. on the exception

The Respondent begins its defense by arguing the material incompetence of the Tribunal for the examination of the claim formulated by the Applicant that the AT be condemned to proceed with the reimbursement of amounts improperly paid by the claimant, for IRC purposes, in the amount of €467,009.72, as a dilatory exception that impedes the continuation of the proceedings, leading to the dismissal of the instance as to the claim in question, in accordance with the provisions of Articles 576, No. 2, and 577, paragraph a) of the CPC, applicable by virtue of Article 29, No. 1, paragraph e) of the RJAT.

As the Respondent states, the "applicant intends that the calculations it made be accepted and that the IRC assessment be reformed, indeed in several articles of the petition it is this same expression that it uses, in accordance with those same calculations and proceeding to the reimbursement of an amount that, in essence, corresponds, in its entirety, to the reimbursement of a supposed tax paid in Angola as industrial contribution."

As also stated by the Respondent, "there is no legal basis that allows arbitral tribunals to issue condemnations of a nature other than those arising from the powers set forth in the RJAT: declaratory powers based on illegality," and "the definition of the acts in which the execution of arbitral judgments should be concretized is, in the first place, the responsibility of the AT, with the possibility of recourse to the tax courts to request coercively the execution, within the scope of the judgment execution proceeding, provided for in Article 146 of the CPPT and Articles 173 et seq. of the Code of Procedure in Administrative Courts (CPTA)."

The Respondent concludes that "the condemnation of the AT to reform an assessment in accordance with, and to proceed with the restitution of an amount that only results from calculations presented by the applicant, as well as to issue a reimbursement of a hypothetical tax credit that in the case corresponds, in its entirety, to the tax supposedly paid in Angola, is excluded from the scope of the competence of arbitral tribunals operating in the CAAD."

The Respondent is indeed correct on this matter.

In effect, the competence of arbitral tribunals in tax matters operating in the CAAD is essentially an annulment competence, which legitimizes the confirmation or annulment of certain tax acts, according to their (il)legality, as well as the condemnation of the AT for certain direct and immediate effects of annulment decisions, such as the payment of compensatory interest and/or compensation for undue guarantee provision.

Now, what is sought by the Applicant in the claim indicated by the Respondent, and mentioned above, as shall be seen below, goes beyond those direct and immediate effects of annulment, requiring the performance of certain material operations whose execution does not fall to the arbitral tribunals to perform or sanction.

This, however, does not lead to the legal consequence drawn by the Respondent.

In effect, the claim formulated, to "order the reimbursement of amounts improperly paid by the Applicant for IRC purposes in the total amount of Euro 467,009.72 (four hundred and sixty-seven thousand and nine euros and seventy-two cents)," is, as a rule, where the respective prerequisites are met – that is, that there was indeed tax improperly paid – a claim that flows directly and immediately from the annulment decision, integrating, therefore, the scope of the competence of tax arbitral tribunals.

What is at issue in the matter indicated by the Respondent is not, therefore, a question of the Tribunal's competence to examine the claim in question, but rather the verification or non-verification of the prerequisites of such a claim.

In light of the foregoing, the argued material incompetence of this Tribunal to examine the claim to "order the reimbursement of amounts improperly paid by the Applicant for IRC purposes in the total amount of Euro 467,009.72 (four hundred and sixty-seven thousand and nine euros and seventy-two cents)," formulated by the Applicant, must be held to be without merit.

Laterally, and still within the scope of the same issue, the Respondent further states that "In fact, the applicant's claim, if we understand correctly, does not even contemplate a request for annulment of an assessment, but rather a request for reimbursement of tax in a given amount almost as if it were a request of a non-resident entity seeking to recover the alleged tax paid, in this case, in Angola."

Now, as has been recurring case law of the superior courts of the state tax jurisdiction, "In the interpretation of procedural documents, the criteria imposed by the principles of modern procedure and likewise by the constitutional principle of effective judicial protection must be observed, whereby the court must extract from the wording given to the claim in the initial petition the meaning most favorable to the interests of the petitioner, establishing, even with recourse to the figure of the implicit claim, what the true claim for legal protection is."

The Applicant expressly requests the annulment of the "decision of the Tax Authority dismissing the gracious appeal identified above, on grounds of error in the factual and legal assumptions," and it is perfectly clear, even to the Respondent, it is believed, that the illegality of that dismissal is directly related to the position taken therein on the legality of the tax acts which were its subject-matter, and of which it had cognizance, and it is therefore manifest that, as the Applicant itself clarified in its response to the exception, that claim implicitly contains the annulment of those tax acts, which was what was sought in the gracious appeal, the annulment of the final dismissal decision of which the Applicant expressly requests.

Moreover, the most substantial part of the Respondent's response and submissions concern this matter, showing that the Respondent also understood this to be so, and that, to the extent deemed necessary, exercised all the rights that, as a party, it possessed.

In this manner, and as previously indicated, the argued exception of material incompetence of this arbitral Tribunal must be held to be without merit.

b. on the merits of the case

In the present proceedings, as is agreed, the application of Articles 90 and 91 of the applicable CIRC (2014 version) is at issue, whose content, insofar as is relevant to the case, is as follows:

"Article 90

Procedure and form of assessment

1 - IRC assessment proceeds as follows:

a) When the assessment is to be made by the taxpayer in the declarations referred to in Articles 120 and 122, it is based on the taxable matter contained therein;

b) In the event of failure to submit the declaration referred to in Article 120, the assessment is made by 30 November of the year following that to which it relates or, in the case provided for in No. 2 of said article, by the end of the 6th month following the end of the deadline for submission of the declaration mentioned therein and is based on the value of the annual minimum monthly remuneration or, when greater, the totality of the taxable matter of the closest fiscal year that is determined;

c) In the absence of assessment under the preceding paragraphs, the same is based on the elements available to the tax administration.

2 - From the amount determined under the preceding number, the following deductions are made, in the order indicated:

a) The corresponding to double international legal taxation;"

"Article 91

Tax credit for double international legal taxation

1 - The deduction referred to in paragraph a) of No. 2 of Article 90 is only applicable when the taxable matter has included income obtained abroad and corresponds to the lesser of the following amounts:

a) Income tax paid abroad;

b) Fraction of the IRC, calculated before the deduction, corresponding to the income that in the country in question may be taxed, plus the adjustment provided for in No. 1 of Article 68, net of expenses directly or indirectly borne for their obtaining."

As the Respondent itself correctly synthesizes, "the exercise of the right to a tax credit for double international taxation, pursuant to the provisions of No. 1 of Article 91 of the IRC Code, depends on: (i) the income (gross, i.e., increased by the tax paid abroad) being included in the taxable matter; and (ii) the existence of income tax paid abroad on the income in question."

This is what must, therefore, be ascertained in the case.

With respect to the first of the requisites just mentioned, given the elements in the proceedings, duly reflected in the factual matter established as proven, it is believed that there is no matter susceptible of founding any reasonable doubt in its respect.

It is certain that, as the Respondent points out:

  • "the applicant submitted a declaration pursuant to paragraph a) of No. 1 of Article 90 of the CIRC and did not indicate any tax credit for income obtained abroad";

  • "nor did it submit any substitute declaration, pursuant to No. 2 of Article 122 of the CIRC within the deadline established therein";

  • "it was not the AT that disregarded any deduction from the assessment for a tax credit for double international legal taxation, but rather the applicant that chose, for reasons that are unknown, (...) that the profits and losses attributable to a permanent establishment located outside Portuguese territory would not contribute to the determination of its taxable profit";

and that, therefore, "this fact cannot be rendered irrelevant, in particular, in terms of the presumption of truthfulness of taxpayer declarations, (...) and the allocation of the burden of proof," it is no less true that such is equivalent to a prohibition or impossibility of proof.

In other words, the circumstance that the Applicant did not include in its IRC declaration the tax credit for double international legal taxation which it now seeks to assert does not preclude the possibility of, once the respective prerequisites are demonstrated, the corresponding right being recognized.

Now, in the case, and with respect to the prerequisite relating to the requirement that "the income (gross, i.e., increased by the tax paid abroad) be included in the taxable matter," there is no doubt that the same is demonstrated, just as the AT itself had no doubt, beginning with the examination of the request for ex officio revision, with the same subject-matter, relating to fiscal year 2012 (see point 36 of the facts established as proven), and even in the examination made, in this respect, in the sub judice gracious appeal.

Indeed, after exercising the right to a hearing, in the final decision of the gracious appeal, only the following appears:

[decision excerpt]

That is, the AT did not question the table introduced in Article 18 of the gracious appeal petition, nor the other allegations made by the now Applicant in this regard, supported by the documentation it presented in the prior hearing in that proceeding, unlike what happened with respect to the first (it being the Applicant who bore the tax in Angola) and third (actual payment of the tax in Angola) grounds for dismissal that were projected (see points 23 to 25 and 31 to 36 of the decision dismissing the gracious appeal).

Here too, it is considered that the documentation submitted by the Applicant in the prior hearing of the gracious appeal proceeding (trial balances and account extracts), which, it is reiterated, was not questioned nor – as would be incumbent upon it if it suspected any shortcoming or irregularity – the object of any request for clarification or verification on the part of the AT, is adequate to demonstrate that the Branch's accounting in Angola was, in 2014, integrated in the Applicant's accounting, being, therefore, correspondingly computed for purposes of calculating the taxable profit thereof.

Having established that "(i) the income (gross, i.e., increased by the tax paid abroad) is included in the taxable matter," it is necessary to determine the verification of "(ii) the existence of income tax paid abroad on the income in question."

Essentially, the dismissal of the sub judice gracious appeal is based on the doctrine conveyed by Official Circular No. 20,022 of 19/05/2000, according to which the effectuation of the tax credit for double international legal taxation must be supported by "documentary evidence of the amount of income, its nature and payment of the tax, which should be issued or authenticated by the Tax Authorities of the respective State where the income originates."

Indeed, and as was seen, after the prior hearing was conducted, the AT concluded, in summary, that it was not duly proven:

  • that it was the Applicant who bore the tax in Angola; nor

  • the actual payment of the tax in Angola.

That is, finally, in the gracious appeal proceeding, the AT concedes the existence of a branch of the Applicant in Angola ("accepting the quality of a branch of this entity"), and does not question, as was seen, the integration of its accounts in the Applicant's accounting, everything reducing itself to the question of proof of the actual payment of tax in Angola by the Applicant, assessed in light of the aforementioned circular.

With respect to the understanding of that circular, it may be said, from the outset, that the AT is free to establish, generically, the acceptance of a certain type of documentation as suitable to demonstrate certain prerequisites of tax norms constitutive of taxpayers' rights, and should indeed proceed in this manner, in homage to the principles of legal certainty and security, equality, and efficiency and simplicity of procedures.

There is thus no legal impediment – quite the contrary – to the AT, as happens in said Official Circular, binding itself to accept a certain type of documentation for certain purposes.

To the contrary, however, one should not accept that the AT, as happens in the case, generically or in the application of internal instructions of the nature referred to, precludes taxpayers from using means of proof that the law admits and does not grant the AT the authority to restrict, with the argument that there are "more secure" or "unequivocal" ways of demonstrating the facts in question.

That is, in summary, if it is lawful for the AT to determine that certain means of proof will, by itself, be considered apt to demonstrate certain facts, thereby transmitting to taxpayers the assurance that, armed with the same, the AT will not raise any objections to their content, it is not legitimate for that Authority, in an abstract manner and a priori, to characterize – directly or by exclusion – other means of proof as unsuitable, in cases where this does not result from the law, nor does the law grant it the authority to do so.

In this manner, confronted, as happens in the case, with documentation or other means of proof, legally admissible but not corresponding to what has been previously defined by it as apt for the purposes of the proof sought, the AT cannot abdicate its responsibility to critically analyze such proof, and appropriately ground the doubts that, specifically, it raises, and limit itself simply to refusing it because it does not correspond to that which generically was deemed suitable for the purposes in question.

Moreover, in the case, the formal requirement created by the AT does not appear in any express provision of the IRC Code, particularly not in the provisions of Articles 91 and 123.

The Respondent argues that in Article 51-B of the CIRC, relating to "Proof of the requirements for application of the scheme for elimination of double taxation of profits and distributed reserves," the following are indicated as relevant documents: "statements or documents confirmed and authenticated by the competent public authorities of the State, country or territory where the entity distributing the profits or reserves has its head office or effective management."

This argumentation is, however, unsusceptible to being accepted, from the outset, since the reasoning that underlies said argumentation, according to which if the legislator, for purposes of the scheme for elimination of double taxation of profits and distributed reserves, deemed certain documentation necessary, the same must be considered equally necessary for purposes of the scheme relating to the tax credit for double international legal (in this case) taxation, is perfectly reversible, since one may, with equal basis and legitimacy, argue that if the legislator did so in the first case, and did not do so in the second, when it could perfectly do so, it is because it did not intend for it to be so.

Thus this argument, lacking other elements that corroborate it, cannot be considered determinative.

With respect to the documentation presented by the Applicant, the Respondent argues that "the documents presented reveal that a source withholding of income tax was made (...) to be delivered to the State," but that such "does not allow to conclude unequivocally that the tax withheld is calculated in full accordance with the applicable legal provisions, (n)or that it has actually been paid, precisely, because there is no confirmation or authentication by the competent tax authorities."

This understanding of the AT is based on a worldview that presupposes that all foreign states are organized in bureaucratic and legal frameworks analogous to the national/Western European one, which, notoriously, and especially, but not only, in less developed countries is not the case. Furthermore, it also assumes that foreign tax administrations, globally, are available to all those who obtain income there, to issue the declarations and certificates that the Portuguese AT deems necessary, assuming a legal framework – not demonstrated, however – analogous to the national one.

Furthermore, as has already been mentioned, the circumstance that there are evidentiary means susceptible of, in the understanding of the AT, unequivocally demonstrating certain facts, cannot justify the preclusion of others, and which, as is well known, judgments of proof rest on a standard of reasonableness (proof beyond any reasonable doubt), and not of unequivocality, formulated in concreto, that is, given the specific circumstances of the case, and not a priori or in an abstract manner.

Thus, and in the case, one cannot overlook that what is at issue is a foreign state which, at that time, had ended a civil war that lasted 27 years less than 15 years earlier, with the well-known and notorious difficulties of organization of the state and tax machinery resulting therefrom.

Furthermore, with respect to the allegation that "nothing (...) guarantees that the amount of tax calculated by the applicant is actually the amount legally due under Angolan tax laws," it should be noted that even an assessment issued by the competent tax authority, even in our country, is not susceptible to ensuring the unequivocal demonstration of such fact, it being sufficient for this to note that there are assessments, for example, that are subsequently annulled, via administrative or contentious means, it being certain that the granting of the tax credit in question in the present proceedings does not require or presuppose that the beneficiaries exhaust, or activate in any manner, any possible means of challenging the tax, or part thereof, withheld or paid abroad.

In the case, the Applicant, among other documentary and testimonial evidence that corroborate it, presents the income declaration, demonstrably submitted to the Angolan tax authorities, which contains – in an unquestionably perceptible manner by virtue of the use of the Portuguese language and because it is a Model declaration reasonably detailed, inspired, moreover, by models already used by Portuguese authorities – sufficient data to understand the calculation of the tax due to the Angolan authorities and the manner in which the same was assessed (by means of withholding on receipts for services rendered).

Such document appears to be sufficient, in the probative context in which it is presented, to demonstrate that the Applicant constitutes itself, by the submission of the same, as responsible to the Angolan State for the payment of the tax indicated as due in the same, as well as that, as a form of payment of the same, the Applicant indicated the offsetting with tax withholdings that, formally, it declared in a superior amount.

Now, taking into account that, as has already been indicated, for purposes of Article 91/1/a) of the applicable CIRC, what is at issue is not to demonstrate that the tax paid is that which results from the correct application of local tax laws, but rather that, legally, the Portuguese taxpayer constituted itself as debtor to such tax to the foreign State and that it settled such debt, and that, in the case, the data contained in the tax declaration demonstrably submitted to the foreign tax authorities are coherent with the accounting data presented by the Applicant, and which were not challenged by the AT, there is no reasonable ground to doubt that, as was stated, the Applicant legally constituted itself as a debtor of the Angolan State, for purposes of income tax on its Branch, of the value contained as such in the tax declaration submitted, nor that such debt was settled by offsetting with tax withholdings, as the tax declaration form itself evidences to be permissible.

In this manner, it should be concluded that the tax assessments subject-matter of the gracious appeal No. ...2017... are affected by error in the factual assumptions, and corresponding error of law, by disregard, for purposes of the provision of Article 91/1/a) of the applicable CIRC, of the amount of Akz. 61,361,808.00, paid by the Applicant to the Angolan state, for purposes of income tax on its branch in that country, in the year 2014.

Thus, the decision of said gracious appeal, as well as the tax assessments which it had as subject-matter, should, in that respect, be annulled, which is hereby determined.

The Applicant combines with the annulment claim, as has been seen already, the claim for condemnation of the AT to the restitution of the amount of € 467,009.72 (four hundred and sixty-seven thousand and nine euros and seventy-two cents), for purposes of tax improperly paid, as well as the payment of indemnifying interest on such amount, until its reimbursement.

Taking into account the factual matter established as proven and not proven, it is not possible for this Tribunal to determine that the amount of tax paid by the Applicant to the Angolan state, in the amount of Akz. 61,361,808.00, corresponds, effectively, to that amount in Euros.

Thus, and as the Respondent states, this arbitral Tribunal cannot "accept, (...) the calculations presented by the applicant, since the same would always have to be reviewed by the AT, beginning with the exchange rate used," which, evidently, should occur in the execution, voluntary or coercive, of the present judgment.

The requests for restitution of the amount of € 467,009.72 and the payment of respective compensatory interest should, therefore, be dismissed.

C. DECISION

On these grounds, this Arbitral Tribunal decides to hold the arbitral claim formulated as partially granted and, consequently:

  1. Hold the exception of incompetence of the arbitral Tribunal, argued by the Respondent, to be without merit;

  2. Annul the decision of gracious appeal No. ...2017..., as well as the tax assessments which it had as subject-matter, to the extent that they do not reflect, pursuant to and for purposes of Article 91/1/a) of the applicable CIRC, the amount of Akz. 61,361,808.00, borne by the Branch in Angola, for purposes of income tax in that country;

  3. Hold the claims for condemnation of the Respondent to the restitution of the amount of € 467,009.72 and the payment of respective indemnifying interest to be without merit;

  4. Condemn the parties in costs of the proceeding, in proportion to their respective extent of loss, fixing the amount of €734.00 at the charge of the Applicant and € 6,610.00 at the charge of the Respondent.

D. Case Value

The case value is fixed at € 467,009.72, pursuant to Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of No. 1 of Article 29 of the RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 7,344.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the parties in proportion to their respective extent of loss, as fixed above, given that the claim was partially granted, pursuant to Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 5, of said Regulation.

Let notification be made.

Lisbon, 29 January 2019

The President Arbitrator

(José Pedro Carvalho)

The Arbitrator Vogal

(Filipa Barros)

The Arbitrator Vogal

(Miguel Patrício)

Frequently Asked Questions

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What is international juridical double taxation under Portuguese Corporate Income Tax (IRC)?
International juridical double taxation under Portuguese IRC occurs when the same income is taxed by both Portugal and another jurisdiction. Under Article 68(1) of the IRC Code, Portugal taxes worldwide income of resident companies, including profits from foreign permanent establishments. Articles 90 and 91 IRC provide relief mechanisms: the exemption method (Article 90) for certain foreign permanent establishment income, and the tax credit method (Article 91) allowing deduction of foreign taxes paid from Portuguese IRC liability. The taxpayer must prove the foreign permanent establishment's existence, the income attribution, and actual payment of foreign tax to qualify for relief.
How does CAAD arbitration process work for IRC disputes involving double taxation?
The CAAD arbitration process for IRC double taxation disputes begins with filing a request for constitution of an arbitral tribunal under Decree-Law 10/2011 (RJAT). The taxpayer must challenge an administrative act (typically a tax assessment or dismissal of a gracious appeal) within the legal deadline. If no arbitrator is appointed by the parties, the CAAD Deontological Council appoints a three-arbitrator panel. The Tax Authority files a response, followed by evidentiary hearings under Article 18 RJAT. Parties submit written conclusions, and the tribunal issues a binding decision within statutory deadlines (extendable under Article 21/2 RJAT). The process provides specialized, expedited resolution of complex international tax matters outside traditional administrative courts.
What are the legal grounds for challenging an IRC additional tax assessment related to double taxation?
Legal grounds for challenging IRC additional assessments related to double taxation include: (1) violation of Article 68(1) IRC on territorial scope of taxation; (2) incorrect application of Articles 90-91 IRC governing double taxation elimination methods; (3) breach of international tax treaties incorporating OECD Model provisions; (4) error in factual determination regarding existence of foreign permanent establishment; (5) improper rejection of foreign tax payment proof under Article 91 IRC; and (6) violation of Article 17(1) IRC on determination of taxable profit. Challenges typically invoke both substantive errors (incorrect legal interpretation) and procedural defects (inadequate consideration of evidence).
Which articles of the Portuguese IRC Code apply to international double taxation relief?
Portuguese IRC Code articles governing international double taxation relief include: Article 4(1) defining tax residency; Article 17(1) on taxable profit determination; Article 68(1) establishing worldwide taxation of resident companies; Article 90 providing the exemption method for certain foreign permanent establishment income (with progression); Article 90(1)(a) and (2) specifying conditions for exemption; and Article 91(1) establishing the ordinary tax credit method allowing deduction of foreign taxes paid. These provisions must be interpreted alongside applicable Double Taxation Conventions. The taxpayer bears the burden of proving entitlement to relief through adequate documentation of foreign establishment status and tax payments.
What is the procedure for filing a complaint (reclamação graciosa) against an IRC additional tax assessment in Portugal?
The procedure for filing a gracious appeal (reclamação graciosa) against an IRC additional assessment involves: (1) submitting the appeal to the Tax Authority within 120 days from notification of the assessment (Article 70, General Tax Law); (2) stating grounds for illegality (substantive or procedural errors); (3) providing supporting documentation proving foreign tax payments, permanent establishment status, and income attribution; (4) awaiting Tax Authority decision (typically within statutory deadlines); and (5) if dismissed, filing arbitration request with CAAD within 90 days under RJAT Article 10. The gracious appeal is a mandatory prerequisite before judicial or arbitral challenge, serving as administrative review allowing the Tax Authority to reconsider its position before litigation.