Summary
Full Decision
ARBITRATION DECISION
The Arbitrators José Pedro Carvalho (Presiding Arbitrator), João Ricardo Catarino and Maria Manuela do Nascimento Roseiro, appointed by the Ethics Council of the Administrative Arbitration Center to form an Arbitral Tribunal, hereby agree:
I – REPORT
On 04 March 2016, A..., legal entity no. …, with registered office at Rua…, 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 Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality of the act of dismissal of the Hierarchical Appeal filed, concerning the self-assessment of Corporate Income Tax ("CIT"), no. 2011…, relating to the year 2010, in the amount of €91,354.90.
To support its request, the Claimant alleges, in summary, that in the year 2010, the Claimant, for the purposes of determining taxable income, deducted, as a tax benefit relating to net job creation, the amount of €4,271,545.46, when, in its view, an additional amount of €317,094.41 should have been deducted, whereby the tax benefit to be deducted should have totalled €4,588,639.87, since the present Claimant improperly limited, in its view, the increase in the net job creation tax benefit proportionally to the duration of the validity of the work contracts of its employees.
On 07-03-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.
The Claimant did not appoint an arbitrator, and therefore, pursuant to the provisions of subparagraph a) of article 6, paragraph 2 and subparagraph a) of article 11, paragraph 1 of the RJAT, the President of the Ethics Council of the CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
On 04-05-2016, the parties were notified of such appointments and expressed no objection to any of them.
In accordance with the provisions of subparagraph c) of article 11, paragraph 1 of the RJAT, the collective Arbitral Tribunal was constituted on 27-05-2016.
On 22-06-2016, the Respondent, duly notified for this purpose, filed its defence, defending itself solely through impugnation.
Given that none of the purposes legally assigned to the Tribunal were present, pursuant to the provisions of articles 16(c) and 19 of the RJAT, as well as the principles of procedural economy and prohibition of useless acts, the holding of the meeting alluded to in article 18 of the RJAT was dispensed with.
The parties were given the opportunity to submit written submissions, if they so wished, which they did not.
A period of 30 days following the submission of submissions by the Respondent, or the expiration of the applicable period, was set for the delivery of the final decision, which period was extended by a further 30 days.
The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1, of the RJAT.
The parties have legal personality and capacity, are entitled and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March.
The proceedings are not affected by nullities.
Accordingly, there is no obstacle to consideration of the merits of the case.
All considered, it behooves us to deliver
II. DECISION
A. MATTER OF FACT
A.1. Facts Established as Proven
1- The present Claimant is a company that operates in the area of food distribution, and is the owner of several shops located in various localities throughout the country.
2- The Claimant recruits a quite significant number of employees, which contributes to the creation of jobs, in accordance with the terms defined by the then applicable article 19 of the Tax Benefits Statute ("TBS").
3- The Claimant adopts a taxation period between 1 March and 28 February.
4- In compliance with its declaratory obligations regarding Corporate Income Tax ("CIT"), the Claimant timely filed, on 28/07/2011, the Income Statement – CIT Form 22, relating to the period of 2010.
5- In the year 2010, the Claimant, for the purposes of determining taxable income, deducted, as a tax benefit relating to net job creation (NJC), the amount of €4,271,545.46.
6- The present Claimant limited the increase in the net job creation tax benefit proportionally to the duration of the validity of the work contracts of its employees.
7- Had it not proceeded with such limitation, the tax benefit to be deducted would have totalled €4,588,639.87, corresponding to an additional amount of €317,094.41.
8- The Claimant timely filed a Request for revision of the tax act.
9- The Tax Authority rejected it, first in the context of a Request for Revision of a Tax Act and subsequently in the context of a Hierarchical Appeal.
10- The Tax Authority understood that "(...) as number 5 of the aforementioned article 19 of the TBS stipulates a time limit for the tax benefit, which is calculated on the basis of the start of the work contract's validity, the maximum increase referred to in number 3 must also be based on the same period".
A.2. Facts Established as Not Proven
With relevance to the decision, there are no facts that should be considered as not proven.
A.3. Reasoning on the Matter of Fact Proven and Not Proven
Regarding the matter of fact, the Tribunal does not need to pronounce itself on everything that was alleged by the parties; rather, it falls to it to select the facts that are important for the decision and to distinguish between proven and unproven matter (see article 123, paragraph 2, of the CPPT and article 607, paragraph 3 of the CPC, applicable by virtue of article 29, paragraph 1, subparagraphs a) and e), of the RJAT).
In this manner, the facts relevant to the judgment of the case are selected and determined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law (see previous article 511, paragraph 1, of the CPC, corresponding to current article 596, applicable by virtue of article 29, paragraph 1, subparagraph e), of the RJAT).
Thus, having regard to the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the Administrative File attached to the record, the facts listed above were considered proven, with relevance to the decision, taking into account that, as was written in the Decision of the Administrative Court of Appeal-South of 26-06-2014, delivered in case 07148/13[1], "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not impugned".
B. ON THE LAW
As both parties agree in the present tax arbitration proceedings, the disputed question consists of determining whether the tax benefit provided for in article 19 of the TBS (job creation for young people) must be adjusted proportionally, for the purposes of the maximum limit of the increase, in cases where the eligible work contracts cease or commence during the respective taxation period.
The following is the text of the rule in question, insofar as it is relevant and in the version applicable to the tax fact sub iudice:
"1 — For the determination of taxable profit of corporate income tax taxpayers and personal income tax taxpayers with organized accounting, the expenses corresponding to net job creation for young people and for long-term unemployed persons, admitted by indefinite-term work contracts, shall be considered at 150% of the respective amount, recorded as an expense of the financial year.(...)
3 — The maximum annual increase per job is the amount corresponding to 14 times the guaranteed minimum monthly remuneration.(...)
5 — The increase referred to in number 1 shall apply for a period of five years from the commencement of the work contract's validity, and shall not be cumulative, either with other tax benefits of the same nature, or with other employment support incentives provided for in other legislation, when applicable to the same worker or job.".
The question at issue is whether, in the case of a worker eligible for the aforementioned tax benefit, who begins work performance on a date that does not coincide with the taxation period of the employing entity, the increase enshrined in number 3 of the transcribed rule applies in its literal sense in the year of commencement and in the year of termination of the 5-year period referred to in number 5 of the same rule.
To illustrate with an example, the question is whether, for instance, an eligible worker for the purposes of the tax benefit in question, earning remuneration equivalent to twice the minimum wage, who commences employment midway through the taxation period, grants his/her employing entity the possibility of enjoying the benefit provided for in number 1, during the 6 financial years over which the 5-year period referred to in number 5 extends, with the full limitation to which number 3 refers; the Claimant maintains that it does, following the decision in arbitral case 212/2013T[2] of the CAAD, and the Respondent maintains that it does not.
Before proceeding further, it must be made clear, as the formulation of the problem to be resolved already indicates, that the question at issue is not whether the tax benefit in question can, or cannot, extend over 6 financial years of the employing entity. The answer to this question is clear and affirmative, with both parties to the dispute being in agreement on this point.
What is at issue to be determined, rather, is whether in such cases, that is, when the tax benefit in question is distributed over 6 financial years of the employing entity, the maximum limit to the increase enshrined in number 3 applies, tout court, to all years, and most importantly, insofar as it matters to the question to be resolved, to the first and last years.
The answer to the question to be decided is not straightforward.
Having been the subject of consideration in the aforementioned case 212/2013T, where, in short, it was held:
"In fact, regarding this question too, there is no textual support or reasonable justification to establish limits other than those expressly provided under each of the versions of number 2 of article 17 of the TBS.
And, in this case, there are reinforced reasons to give relevance to the textual element, derived from the fact that we are dealing with a legal regime that has been revised several times and in which, therefore, several possibilities have been materialized for the legislator to have reformulated the expression of his intention, if he had found that he had said more or less than he intended. Yet, it is found that, even after Law no. 32-B/2002, article 17 of the TBS was completely revised by Law no. 53-A/2006, of 29 December, and, in the new number 3, it is stated that 'the maximum annual increase per job is the amount corresponding to 14 times the guaranteed minimum monthly remuneration', which corresponds, with terminological update, to the previous wording.
On the other hand, the rational or teleological element also does not point to an interpretation that restricts the scope of the tax benefit.
Indeed, the only reason that, in the abstract, could explain other limitations of the increase, not expressly provided for, would be the maximization of tax revenues, and that reason does not hold when interpreting norms that provide for tax benefits, which are justified by extra-fiscal reasons. In fact, underlying the establishment of the tax benefit there cannot be a legislative intent to increase tax revenues, since we are dealing with situations in which the law considers that to this fiscal interest must be superimposed 'relevant extra-fiscal public interests that are superior to those of taxation itself that prevent' (article 2, paragraph 1, of the TBS)."
Whilst respectfully deferring to the aforementioned decision, it is not possible to subscribe to the understanding advocated therein.
In effect, and as was very well formulated in the cited decision, essential to the resolution of the situation that arises is to determine whether there is "textual support" or "reasonable justification", founded on the elements proper to legal interpretation, that imposes a restrictive interpretation of the rule of number 3 of article 19 of the TBS in question.
Now, it is here that the core of the divergence with what was decided in the aforementioned judgment resides, and with what is sustained by the Claimant in the present proceedings.
In effect, there is a weighty circumstance, which was not, at least noticeably, considered in the decision of case 212/2013T, nor in the Claimant's argument, which is the circumstance that the interpretation that prevailed in that judgment, and on which the latter is anchored, contains a direct and notable violation of the constitutional principle of equality.
Indeed, accepting, as did the judgment delivered in case 212/2013T, and as the Claimant contends, that the maximum limit to the increase enshrined in number 3 applies, tout court, to all years, and especially to the first and last years, when the admission of the worker eligible for the purposes of the tax benefit in question does not occur on the first day of the financial year of the employing entity, one would be creating a situation of inequality among the beneficiaries of the tax benefit, without an axiological foundation to justify it and in an absolutely arbitrary manner.
That this is so, it suffices to consider the extreme example of two employing entities that employ an eligible worker for the tax benefit in question, paying them the same salary (e.g., twice the national minimum wage), but in which one employs its worker on the first day of its financial year, and the other halfway through. In this example, whilst the first entity will receive a tax benefit equal to 5 times 14 national minimum wages, the second will receive a tax benefit equal to 5 times 14 national minimum wages.
The question, at this point, becomes one of determining whether this solution is justified and was intended by the legislator, and the answer to such a question cannot, it is believed, be other than in the negative.
In effect, the situation of inequality between the two employing entities, in the example, or, in general, between employing entities depending on the date, more or less close to the middle of the financial year in which they admit workers eligible for the tax benefit, admits of no material justification, treating in an unequal manner situations that are objectively equal.
Now, as is well known, the principle of equality is one of the foundational basic principles of tax law, and nothing, at least in light of the criterion of the reasonable legislator, permits the conclusion that, in the regime under analysis, the legislator intended to affront in such a direct manner that principle, dispensing a different benefit depending on an arbitrary factor, such as the time, in the course of the financial year, in which a worker is admitted.
Indeed, in the fiscal sphere, the principle of equality is nothing more than a specific expression of the general principle of equality of citizens before the law, provided for in article 13 of the Constitution, which comprises a twofold aspect of formal equality (equality before the law, general and abstract), and material equality (prohibiting arbitrary discrimination). Now, as is well known, the principle can be viewed in two distinct planes, namely:
• That of horizontal equality – according to which an equal income, capital or consumption should correspond to an equal measure of tax;
• That of vertical equality – according to which different income, capital or consumption should correspond to different tax.
It follows, therefore, from the general principle of equality the prohibition of arbitrary discrimination, extending to fiscal law under penalty of violation of the very idea of the Rule of Law, the prohibition of all forms of taxation (or exemption) that are discriminatory or arbitrary, unacceptable in light of the ideals of legal and substantive equality, which gives the principle a character of supra-positivity or transcendence before Created Law. That is, it follows from the principle in question the prohibition of all forms of imposition or exemption that do not rest upon, or that objectively violate, general evaluative presuppositions, known and accepted as the expression of a sense of justice adopted in the form of the Rule of Law, in the laws and in the practice of interpretation and application of law.
The idea of generality of taxation, however, does not prevent the establishment of differentiated taxation regimes, nor the establishment of exemptions, reliefs or increases in taxation, provided that they are founded on values and purposes of a public order that are superior to those that determined the creation of the tax itself. That is, differentiation based on perceived values is not prevented, but discrimination based on realities not consented to by the fundamental order itself (such as sex, age, race or creed) is prevented.
Now, whilst it is true that the principle of legal and fiscal equality is not an absolute principle, as it admits situations of discrimination, it is also true that these situations must correspond to discriminations founded on institutionalized values, generically accepted and embraced in the instituted order of values.
Thus, in theory, we can discern two discriminatory situations: the tolerable or even desirable ones, by embodying differentiated treatment of objectively different situations (vertical equality), and the intolerable ones, which are the object of repugnance both by the legal order, insofar as it reflects such order of values and the general sense of justice, as by the citizen or by the judge.
In the case at hand, the establishment of the tax benefit in question is within the instituted order of values, being clear to all that it rests on ultimate motivations that it is in the general interest to promote, as is manifestly the case with job creation and stability. Only thus is it justified that the law permits one to forego the tax revenue to which the State would normally be entitled, in the name of values that "are superior to those that support the rule of taxation", as eloquently understood by Nuno Sá Gomes (General Theory of Tax Benefits) in a felicitous formula that was subsequently enshrined in the TBS.
Now, in the case in which two companies in the situation described above find themselves objectively in the same situation and should, therefore, merit the same fiscal treatment – the same measure of benefit – one cannot attend to the fact (irrelevant) that they did not create the job at the same moment, considering that they are, therefore, in an objectively different situation.
It is thus considered that it is not sufficient that there be differences at the level of facts for the situation to be treated differently. It is, furthermore, necessary that such difference be objectively relevant. For example, for the purposes of attribution of the tax benefit it is irrelevant that one of the companies, in the example above, has its registered office in the north or south of the country. This is a difference that has no relevance and that in no way bears on the granting of the tax benefit or the determination of its amount.
The same, it appears to us, should occur with the fact that the companies create jobs in different months of the year. And this because, although the law refers to "net job creation", and thereby seeks to encourage employment and job stability, it is clear that the social welfare emerging from such creation is equal, regardless of the time of the financial year of the employer in which that employment is created, since the beneficial effect that the fiscal incentive measure provides to society in general is equal, provided that the employment relationship extends for the same period of time.
Moreover, in this same sense, the law speaks of the "maximum" amount of the annual increase, instilling the idea that the value of that increase is variable, capable of being lower, provided it does not exceed an amount that, at the limit, corresponds to 14 times the guaranteed minimum monthly remuneration. It is in these terms that it appears to us that the rule should be interpreted, taking as a basis these evaluative presuppositions which, in our view, embody its true mens legis. For every rule or legal regime rests on a ratio juris, requiring that it be understood in the sense that best responds to the achievement of the intended result, of the ideal of justice embodied therein[3].
Thus being, as, it is believed, it cannot but be, it is considered that the rational or teleological element of interpretation does indeed point to an interpretation that restricts the scope of the tax benefit, and one must conclude that the legislator has, perhaps, in the rule in question, expressed his intention in an imperfect manner, and there exists a reasonable rational justification – the categorical affirmation of the principle of equality – to operate a restrictive interpretation, which implies that, when it extends over six financial years, the maximum amount of the tax benefit enshrined in article 19(3) of the TBS is proportionally reduced to the duration of the 5-year term of the work contract that justifies it, in the first and sixth year.
In light of the foregoing, it is concluded that the application of Law made by the Tax Authority in the tax acts that are the subject of the present arbitration proceedings was correct, and therefore such acts must be maintained in the legal order, rendering the request formulated by the Claimant unfounded.
C. DECISION
For these reasons, this Arbitral Tribunal decides to render the arbitral request formulated as unfounded and, in consequence, to dismiss the Respondent from the claim, and to order the Claimant to bear the costs of the proceedings.
D. Value of the Proceedings
The value of the proceedings is fixed at €91,354.90, in accordance with article 97-A, paragraph 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of the RJAT and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The arbitration fee is fixed at €2,754.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the request was entirely unfounded, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 4, paragraph 4, of the aforementioned Regulation.
Notify.
Lisbon 16 October 2016
The Presiding Arbitrator
(José Pedro Carvalho - Rapporteur)
The Arbitrator Member
(João Ricardo Catarino)
The Arbitrator Member
(Maria Manuela do Nascimento Roseiro)
[1] Available at www.dgsi.pt, as is the remaining case law cited without mention of origin.
[2] Available at www.caad.org.pt.
[3] ANDRADE, Domingos, Essay on the Theory of Interpretation of Laws, and FERRARA, Francesco, Interpretation and Application of Laws, Arménio Amado, publisher, Coimbra, 1978.
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