CAAD Process 130/2019-T: IRC Tax Losses and Statute of Limitations on Tax Assessment Revoked

ARBITRAL DECISION

The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Dr. Mariana Vargas and Dr. Sofia Ricardo Borges (arbitrators members), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 08-05-2019, agree as follows:

1. Report

A..., SGPS, S.A. (hereinafter referred to as the "Claimant" or "A..."), holder of the single registration number and collective person number ..., with headquarters in ..., ..., ...-... in Cascais, filed, pursuant to Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), a request for arbitral pronouncement with a view to the annulment of the implied rejection of the administrative complaint which it submitted against the additional assessment of corporate income tax for 1999 (assessment No. 2018..., with the amount of tax to be paid of € 331,085.01), and against the statements of assessment of compensatory interest (assessments No. 2018... and No. 2018...).

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The application for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 27-02-2019.

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

On 16-04-2019, the parties were duly notified of this designation and did not manifest a desire to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, letters a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in compliance with the provision in article 11, paragraph 1, letter c) of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 08-05-2019.

On 16-04-2019, the Tax and Customs Authority communicated the partial revocation of the assessment.

On 03-05-2019, the Claimant expressed that it had an interest in the continuation of the proceedings and submitted documents.

On 23-05-2019, the Tax and Customs Authority submitted a new assessment relating to corporate income tax for 1999, with No. 2019..., dated 17-04-2019, and statement of settlement of accounts, dated 16-05-2019.

The Tax and Customs Authority submitted a response, arguing for the extinction of the proceedings due to subsequent lack of purpose of the dispute, following the partial revocation of the assessment initially challenged.

By order dated 13-06-2019 it was decided to dispense with the meeting provided for in article 18 of RJAT and with submissions.

The arbitral tribunal was duly constituted, in accordance with the provisions in articles 2, paragraph 1, letter a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January.

The parties are duly represented, possess legal capacity and standing (articles 4 and 10, paragraph 2, of the same enactment and article 1 of Administrative Rule No. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

It is necessary to assess as a priority the question of incompetence raised by the Tax and Customs Authority and the question of subsequent lack of purpose of the dispute.

2. Factual Findings

2.1. Established Facts

The following facts with relevance to the decision are considered established:

A) In the year 2000, the Claimant filed the self-assessment of corporate income tax for the fiscal year 1999;

B) In 1999, the Claimant ascertained taxable profit, but by virtue of tax losses carried forward from prior years, in the amount of € 2,725,524, its taxable income was "0" (zero);

C) There was no, until 02-04-2018, any additional assessment, dispute, claim or challenge to the corporate income tax for 1999;

D) On 02-04-2018, the Tax and Customs Authority issued the assessment of corporate income tax No. 2018... in the amount to be paid of € 338,571.93, which includes tax and compensatory interest (documents Nos. 2 to 4 submitted with the request for arbitral pronouncement, whose contents are deemed reproduced);

E) The assessment in question was based on the Information contained in document No. 8 submitted with the request for arbitral pronouncement, whose contents are deemed reproduced, on the basis of the understanding of the Tax and Customs Authority that, following the merits of a challenge by the Claimant relating to the fiscal year 1995, there was a need to redo various deductions of losses that had been made in subsequent fiscal years, including deductions of losses made in the fiscal year 1999, which the Tax and Customs Authority summarized in the following table:

F) In those calculations, the Tax and Customs Authority understood, furthermore, that in the fiscal year 1997 the Claimant had had taxable profit of € 1,883,787.70 determined by correction which it made, instead of the tax loss which it had declared of € 920,444.00, on the understanding that, although the respective assessment had been challenged, the aforesaid correction had been maintained;

G) In the information on which the aforesaid assessment of corporate income tax No. 2018... contained in document No. 8 submitted with the request for arbitral pronouncement, whose contents are deemed reproduced, it is stated, furthermore, the following:

1. With regard to the execution of an annulling judgment it is settled, both in doctrine and in superior case law, that the same is not limited to the annulment of the administrative act pure and simple, but rather constitutes an obligation to reconstruct the situation that would have existed if the annulled act had not been performed, which entails the performance of all the acts and material operations; necessary to place the interested party in the situation that he would have had were it not for the performance of the annulled act, in the precise terms that result from the annulling decision - in this sense, see by way of example the Judgment of the Supreme Administrative Court, of 9-10-2015, case No. 043085B.

2. And what are the "precise terms that result" from Judgment No. 06845/2013, of the Central Administrative Court of the South? Let us see then,

3. In the final segment of the aforesaid Judgment it was recorded,

As "Conclusions";

I. "It clearly follows from the law (article 91, paragraph 14 of LGT) that merely arithmetic corrections to taxable income resulting from legal imposition are outside the scope of the 'review' procedure.

II Pursuant to paragraph 7 of article 92 of LGT: "if an independent expert intervenes, the decision must "necessarily justify the acceptance or rejection, in whole or in part, of his opinion." The provision does not restrict the duty of mandatory justification of the acceptance or rejection, in whole or in part, of the expert's opinion based on the content thereof, but rather always imposes it, even in cases of acceptance of the opinion."

-Establishing itself in the seat of "Decision"

Terms in which the Judges of the Tax Contentious Section of this Central Administrative Court agree to dismiss the appeal."

In this manner,

In light of the final judgment of the aforesaid Judgment, which occurred on 2017-09-11,

1. The judicial position established in judicial challenge No. .../0... -...2T..., which, judging it founded, by judgment of 2013-03-22, decided:

• To judge "the corporate income tax debt for the fiscal year 1995 and respective compensatory interest prescribed, in the part relating to corrections to taxable income of a merely technical nature in the amount of Esc 12256 189$00" (€61,133.61);

• And as to the rest, to annul "the decision of the procedure for revision of taxable income, due to violation of the duty of justification, and consequently I annul the act of assessment of corporate income tax for the fiscal year 1995 and respective compensatory interest, in the part relating to corrections to taxable income using indirect methods, in the amount of Esc. 409 821 300$00"" (€ 2,044,180.03);

1. It results from the data collected that having been fixed taxable income using indirect methods in the assessment of corporate income tax for the fiscal year 1995, tax losses could not be considered (deducted) in that period, in light of the provisions of the then applicable article 47 of the Corporate Income Tax Code (current article 52, paragraph 3),

Now,

1. Having determined the annulment of the assessment act in the part relating to corrections to taxable income using indirect methods, taking into account the duty of restitution of legality prescribed in article 100 of LGT, it is necessary to promote the restoration of the legal-tax situation that would have existed were it not for the performance of the act of fixing taxable income by illegal indirect methods.

This means that,

1. In the assessment of corporate income tax for the fiscal year 1995, tax losses in the amount of € 852,465.34 must be deducted from taxable profit, since, in implementation of the judgment, there is no place for the fixing of taxable income using indirect methods, which would have justified its non-consideration in the assessment No. ..., now to be partially annulled.

2. From the executable judgment it results, therefore, the right of the taxpayer to carry forward losses with effects on the assessment of the period of 1995, it happens that, however, from the recognition of this right there results the correction of the excessive deduction of tax losses from the taxable profit of corporate income tax for the period of 1999, in the amount of € 502,818.68.

3. In fact, the restoration of the legal-tax situation that would have existed were it not for the performance of the act of fixing taxable income by illegal indirect methods entails (i) the restoration of the deduction of tax losses in the period of 1995 and, as a result, taking into account the legal regime of loss carryforward, and (ii) the correction, accordingly, the tax losses deducted excessively in fiscal year 1999,

4. In truth, the tax losses deducted in fiscal year 1999 correspond to the tax losses that could no longer be deducted in 1995, because it was decided by the Tax Authority to apply indirect methods. Thus, by annulling this decision and restoring the deduction of losses in fiscal year 1995, there are no longer losses to carry forward in subsequent years, so that the restoration of the situation in 1995 entails the consideration in that year of the losses, that is, it necessarily causes the withdrawal of the same losses from subsequent years.

On the other hand,

1. With regard to the institute of expiration of the right to assess, it is already advanced that it is understood that the same does not apply in the present case of the assessment that implements a judicial decision.

In fact,

1. The regime of expiration assumes the quality of term of the efficacy of the right to assess, it happens that the implementation of a judicial decision does not constitute any right of the Tax Administration to promote the assessment of the taxes that may be eventually due, but rather translates an obligation to execute the judgment, reconstructing the situation in the precise terms that result from the annulling decision.

In this context, considering, on the one hand, that expiration is a matter that is not of ex officio knowledge, and on the other, that we are not in the exercise of a right of the Tax Administration, but rather it is vested in a duty of execution of judgment, it is argued,

1. The regime of expiration enshrined in article 45 of LGT does not apply here, since in promoting the assessment that is required, reconstructing the situation in the terms judged, the Tax Administration acts as a result of a decision given in the seat of judicial challenge, which, notwithstanding formally being in the sense favourable to the challenger, materially, by force of the legal framework given to loss carryforward, influences, finally, negatively on the assessment of corporate income tax for 1999.

2. The assessment that is required has the nature of a corrective assessment, and since it is not a new tax act, it is not covered by the regime of expiration of the right to assess.

In any case.

1. It would always be incumbent upon the challenger, in the seat of a possible jurisdictional appeal of the judgment given in the challenge No. .../0...-1...T..., to make a prognosis judgment on the scope thereof, raising the question that would result from it an assessment with negative impact on its sphere, noting that by force of the restoration of the deduction of losses in fiscal year 1995 it would originate the correction of subsequent deductions, namely, and as ascertained by the services, the correction of the excessive deduction of losses in fiscal year 1999.

Having said this,

1. The tax administration is under the obligation to implement the judgment in the exact terms in which it was rendered, annulling the assessment of corporate income tax for fiscal year 1995 in the part in which it disregards tax losses, because it was judged that the performance of the act of fixing taxable income by indirect methods was illegal/improper.

2. The execution will only be complete with the inclusion in the aforesaid impugned assessment of the aforesaid losses, improperly purged by the Tax Administration, by force of the fixing of taxable income by indirect methods, as decided by the Tax Court of Lisbon.

3. And in accordance, because their maintenance would result incompatible with the execution of the judgment, the completeness of the execution further entails the correction of the excessive deduction of losses in fiscal year 1999.

4. It is incumbent upon the tax administration to implement the judgment in the exact terms in which it was rendered, under penalty of nullity of the maintenance of the tax act partially annulled, by disrespect of the aforesaid judicial decision, making their authors incur civil, criminal and disciplinary liability, as provided for in paragraph 1 of article 158 of CPTA applicable ex vi article 102 of LGT,

To this passage, and as a final note

1. In the seat of execution of the corrections which are now required, in fiscal year 1995 and 1999, the services must promote the issuance of the respective DC, in the old system of DCU (MGIT) noting (for 1995 and for 1999) that the DC originate from Tax Justice, thus avoiding that the subsequent notifications of the corrective assessments contain the mention of means of reaction/defence that do not apply in the present seat, given that these constitute the fulfillment of the obligation to execute the judgment, reconstructing the situation in the precise terms that result from the annulling decision.

H) On 26-07-2018, the Claimant filed an administrative complaint of the assessment in question (document No. 1 submitted with the request for arbitral pronouncement, whose contents are deemed reproduced);

I) The administrative complaint was not decided until 25-02-2019, the date on which the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings;

J) The Tax and Customs Authority, pending the present proceedings, partially revoked the assessment in question, as a result of which it issued, on 17-04-2019, the assessment of corporate income tax No. 2019..., a copy of which is contained in document No. 1 submitted with the application of 08-05-2019, whose contents are deemed reproduced, in which the amount to be paid is determined as € 129,474.24, which includes the amount of € 5,905.63 by way of compensatory interest relating to the period from 03-08-2000 to 28-03-2018;

K) On 03-05-2019, A... expressed an interest in the continuation of the proceedings and submitted documents;

L) With regard to fiscal year 1997, the Claimant ascertained a loss for corporate income tax purposes in the amount of € 920,444.00 (document No. 16 submitted with the request for arbitral pronouncement, whose contents are deemed reproduced);

M) Following corrections, with regard to fiscal year 1997, the Tax and Customs Authority issued the assessment of corporate income tax No. ... and corresponding compensatory interest, in the amount of € 791,046.31 (Judgment of the Administrative and Tax Court of Sintra rendered in judicial challenge proceedings No. .../0..., a copy of which is contained in document No. 2 submitted with application of 03-05-2019, whose contents are deemed reproduced);

N) By judgment of 14-04-2011, rendered in case No. .../0..., the Administrative and Tax Court of Sintra annulled the assessment of corporate income tax for fiscal year 1997 (document No. 2 submitted with the application of 03-05-2019, whose contents are deemed reproduced);

O) The Central Administrative Court of the South, by judgment of 04-06-2013, rendered in case No. .../11, confirmed the judgment of the Administrative and Tax Court of Sintra (document No. 2 submitted with the application of 03-05-2019, whose contents are deemed reproduced), saying, furthermore, the following:

In this measure, and with reference to the defect of violation of law by offense of art. 92 no. 7 of LGT, it considered, from the outset, the matter of lack of justification of the decision taken by the Tax Administration pursuant to no. 6 of art. 92 of LGT, insofar as it does not invoke the reasons and the basis on which it rejected the opinion of the independent expert, giving positive relevance to what was stated by the now Respondent, then proceeding to the assessment of the assumptions that allow the resort to indirect methods, where it concludes that, in the concrete case and in light of the regime provided for in LGT, the assumptions for resort to indirect methods in the determination of taxable income are not met. It further considered that "the claimant demonstrated that the prices practiced in the sale of the lots contained in the deeds were the actual ones, and it was widely demonstrated the inadequacy of the criterion used by the Tax Administration for the determination of the quantification of taxable income", concluding with the assessment of the request for annulment directed at the assessment of compensatory interest.

In these conditions, and in the decision-making segment, the impugned decision decides to judge the challenge as founded.

With this backdrop, it can be said that after all the work carried out, the impugned judgment ended up valuing, in the decision-making segment, the defects considered in relation to the assessment, setting aside somewhat the question of prescription, which should have appeared with another expression within the scope of the so-called decision-making segment.

(...)

Now, reading and re-reading the conclusions of the appeal presented by the appellant only two issues related to the prescription of the tax obligation and the quantification of taxable income can be discerned.

Well, there being in the impugned judgment assessment of distinct legal questions and the position assumed on any of them not being challenged, "the effects of the judgment, in the part not appealed, cannot be prejudiced by the decision of the appeal or by the annulment of the proceedings".

(...)

Examining the submissions presented by the Appellant in the present jurisdictional appeal and respective conclusions, it is noted that in no point are the three questions listed above considered - lack of justification of the decision taken by the Tax Administration pursuant to no. 6 of art. 92 of LGT, existence of the assumptions that allow resort to indirect methods (it is important to emphasize here that the Tax Authority in the exercise of its competence of inspection of the conformity of the conduct of taxpayers with the law acts in the use of strictly bound powers, subject to the principle of legality, it being incumbent upon it the burden of proof of the existence of all the assumptions of the tax act, in particular, the proof of the verification of the assumptions that determined its application of indirect methods of assessment that support the assessment) and the request for annulment directed at the assessment of compensatory interest, the correctness of what was stated in the impugned judgment on these questions not being discussed.

(...)

Thus, it must be understood that the Court of First Instance decided on the three situations in question, being the Superior Court prevented from taking a position on them and, namely, it will not be able to alter the impugned decision in that part (art. 684 paragraph 4 of C. Proc. Civil).

In these conditions, it is manifest that it would be absolutely useless to assess the grounds of the appeal invoked by the Appellant, since, even if she were recognized as being entirely in the right, the decision of the First Instance would always have to remain untouched, by not being challenged, in light of the elements now put in evidence.

P) The Tax and Customs Authority requested the reform of the aforesaid judgment of the Central Administrative Court of the South, but the request was dismissed (document No. 2 submitted with the application of 03-05-2019, whose contents are deemed reproduced);

Q) The aforesaid judgment of the Central Administrative Court of the South became final on 03-11-2014 (page 1 of the certificate contained in document No. 2 submitted with the application of 03-05-2019).

2.2. Unproven Facts and Justification for the Factual Findings

The facts established are based on documents submitted by the Claimant and by the Tax and Customs Authority.

There is no controversy over the facts given as established.

3. Question of Incompetence

The Tax and Customs Authority argues that this Arbitral Tribunal is incompetent to assess the request for arbitral pronouncement because it is a matter of execution of judgment.

Article 2, paragraph 1, letter a), of RJAT assigns to arbitral tribunals competence for the declaration of illegality of acts of tax assessments.

Administrative Rule No. 112-A/2011, of 22 March, bound the state Tax Administration (currently, the Tax and Customs Authority) "to the jurisdiction of arbitral tribunals functioning in CAAD which have as their object the assessment of claims relating to taxes whose administration is entrusted to them", with some exceptions that do not occur in this case.

In the case in question, we are faced with the challenge of an assessment of corporate income tax, which is a tax administered by the Tax and Customs Authority which clearly falls within the competencies assigned by RJAT and by that Administrative Rule No. 112-A/2011, of 22 March, to arbitral tribunals functioning in CAAD.

There is no legal provision that removes the competence of arbitral tribunals with respect to assessment acts that the Tax and Customs Authority considers (rightly or wrongly) are issued in execution of judgment.

On the other hand, even if the assessment acts are performed in execution of judgment, the jurisprudence of the Supreme Administrative Court has been consolidating in the sense that, if in the course of execution of judgment a new act is performed which, in addition to executing the executable decision, contains innovative content on which the executable judgment did not rule, the defects which the act may suffer in this innovative part could not be assessed in the execution proceedings, its challenge having to be carried out in an autonomous impugnable proceeding. ( )

But, even in cases where the new act merely executed the executable judgment, the interested party could choose to challenge it autonomously, which was intrinsic to paragraph 3 of article 9 of Decree-Law No. 256-A/77, of 17 June, which expressly provided that, in cases where an execution proceeding was instituted, but an appeal for annulment or declaration of nullity of execution acts was pending, they would be joined to the execution proceeding.

Under the regime of the Code of Procedure in Administrative Courts, there was an expansion of the scope of the execution judgment proceeding, coming to admit in it, in addition to the declaration of nullity of acts non-conforming with the judgment, also the annulment of those which maintain, without valid foundation, the illegal situation (article 179, paragraph 2, of CPTA).

But, even after the entry into force of CPTA, the majority jurisprudence of the Supreme Administrative Court continued to be in the sense that "the execution proceeding tends to give practical effectiveness to its respective title, to which it is entirely subordinate, and does not serve to obtain declaratory pronouncements on new and independent questions" and that any defect of the act issued in execution was "declarable in proceedings instituted for that purpose, but does not constitute an infidelity to the executable judgment". ( )

The justification for this jurisprudence of the Plenary of the Administrative Contentious Section of the Supreme Administrative Court may be considered doubtful in light of the CPTA regime, as is well evidenced, already, by the seven dissenting votes that were issued.

But, the serious doubts that can be raised with respect to this majority jurisprudence lie in the decided inadmissibility of use of execution of judgment proceedings and consequent obligation of use of autonomous impugnable means to scrutinize the legality of acts performed in execution which suffer from defects which were not assessed by the executable decision and not on the possibility of choosing autonomous challenge, when the interested party merely intends to discuss the legality of the innovative content of acts performed in execution of the judgment, a possibility which has always been permitted and results from the literal wording of the norms that provide for the possibility of contentious challenge.

That is, the criticism that can be made of this jurisprudence is by imposing autonomous challenge to assess defects exclusive to the new act and not by prohibiting it, which manifestly it does not.

It is true that, in the new regime of execution of judgments, one can venture that there is an apportionment of the field of application of the execution judgment proceeding and the impugnable proceeding of acts, in cases where a new act is performed aiming to execute an annulling judgment, as MÁRIO AROSO DE ALMEIDA and CARLOS CADILHA refer in these terms:

The new reference to "acts which maintain, without valid foundation, the illegal situation" goes further, allowing the executing party to also deduce, from the beginning or in the course of the execution proceeding, a request for annulment of eventual supervenient administrative acts which constitute a disguised refusal to execute, by coming to give formal but illegitimate coverage to the existing situation in the absence of execution of the judgment.

Hitherto, jurisprudence understood that these acts could only be inspected within the scope of an autonomous impugnation proceeding. Now, a distinction must be made. When the executing party alleges that the act was performed with the intent to illegitimately obstruct the realization of the result aimed at in the execution proceeding, maintaining, without valid foundation, the illegal situation existing, the executing party is placing a question which is still one of non-execution of the judgment, so it should be assessed and decided in the execution proceeding. Only those acts to which the executing party imputes illegalities that should be subsumed to different types of defects, specific to those acts, should, by contrast, be the object of autonomous impugnation. (bold ours)( )

This solution has the effect of ensuring that, whenever, in the scope of a proceeding aimed at the execution of a decision given by an administrative court, the requesting party alleges that a supervenient administrative act was performed with the intent to illegitimately obstruct the realization of the result aimed at in the execution proceeding, the judge is constituted in the duty of verifying whether this is the case, and therefore, whether that act should or should not be qualified as an act of non-execution of the executable judgment, for the purpose of being annulled within the scope of the execution proceeding itself. In this way, in this particular, a principle of completeness of the execution proceeding is enshrined, which has the consequence that, whenever it is alleged that the administrative act in the meantime performed is nothing more than a merely formal or apparent execution of the judgment, which in reality maintains, without valid foundation, the illegal situation illegally constituted by the annulled act, the interested party places a question which is still one of non-execution of the judgment and which, as such, can and should be the object of the deduction of an incident to be assessed within the scope of the execution proceeding. When, by contrast, the interested party imputes to the renewal act illegalities which already involve new aspects, the assessment of such defects should no longer take place in the execution proceeding, only being able to be raised and decided in autonomous declaratory proceedings for impugnation. ( )

From this jurisprudence and doctrine it is concluded that, whether before or after the regime of execution of judgments provided for in the Code of Procedure in Administrative Courts, it is not prohibited to the interested parties in the annulment of an administrative act performed as title of execution of judgment the possibility of challenging it autonomously, when they intend to impute defects of their own which do not result from non-conformity with the executable judgment or insufficiency of acts performed in execution. On the contrary, the predominant jurisprudence and doctrine are in the sense that, when proper defects of the new act are at issue and the interested party does not impute to it the intent to illegitimately obstruct the realization of the result aimed at in the execution proceeding, the adequate means is autonomous challenge.

It is in light of this that the question of incompetence raised by the Tax and Customs Authority must be assessed.

In the case in question, a jurisdictional decision was rendered which annulled the assessment of corporate income tax for fiscal year 1995 and, invoking that it is executing this judgment, the Tax and Customs Authority understood that, in 2018, it could issue a new assessment of corporate income tax relating to fiscal year 1999, to which there is no allusion whatsoever in the aforesaid jurisdictional decision.

The Claimant imputes to the assessment performed by the Tax and Customs Authority for fiscal year 1999, the defect of expiration of the right to assess, the defect of form due to lack of justification/insufficient justification, the defect of violation of law due to error on factual assumptions and illegality of the assessment of compensatory interest, which manifestly are proper defects of the new assessment act, "illegalities which already involve new aspects" which that majority jurisprudence and doctrine understand must be the object of autonomous challenge and not of execution judgment proceedings.

Consequently, incompetence does not occur in this Arbitral Tribunal, so the exception raised by the Tax and Customs Authority is without merit.

4. Question of Subsequent Lack of Purpose of the Dispute

The Tax and Customs Authority argues for the subsequent lack of purpose of the dispute because it understands that "it partially revoked the impugned act, thereby satisfying the Claimant's claim".

Subsequent lack of purpose of the dispute is a cause of extinction of proceedings provided for in letter e) of article 277 of CPC, subsidiarily applicable by force of the provisions in article 29, paragraph 1, letter e), of RJAT.

Subsequent lack of purpose of the dispute occurs when there is a lack of interest in proceeding, which constitutes a procedural prerequisite ( ) or condition of the action ( ) and "consists in the necessity of resorting to the proceedings, of instituting or continuing the action".( )

The Claimant requested the complete annulment of the initial assessment and not merely partial annulment, so it is manifest that it maintains an interest in the continuation of the action, which it expresses in the application in which it states that it wishes for the proceedings to continue, following the new assessment, which only partially revokes the first, made pending the proceedings.

Therefore, given that there is no subsequent lack of purpose of the dispute, this exception is without merit.

5. Matter of Law

The Claimant requests the "declaration of illegality of the tacit implied rejection act of the decision of the administrative complaint and of the assessments of corporate income tax and compensatory interest underlying them, relating to fiscal year 1999, determining their respective annulment, all on the grounds that the right to assess has expired, due to formal defect and due to defect of violation of law".

The defects of violation of law shall be assessed as a priority, in harmony with the provision in letter b) of paragraph 2 of article 124 of CPPT, applicable to tax arbitration proceedings by force of the provision in article 29, paragraph 1, letter c), of RJAT.

5.1 Question of Expiration of the Right to Assess

The Tax and Customs Authority issued in 2018 an assessment of corporate income tax for fiscal year 1999 and, already pending the present proceedings, issued another, partially revoking the former.

The Claimant argues that the expiration of the right to assess has occurred.

The general regime of expiration of the right to assess is contained in article 45 of LGT which, in the wording in force in 1999, established the following:

Article 45

Expiration of the right to assess

1. The right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, when the law does not set another.

2. In cases of error evidenced in the declaration of the taxpayer or of use of indirect methods due to the application to the tax situation of the taxpayer of the objective indicators of activity provided for in the present law, the period of expiration referred to in the previous number is three years.

3. In case loss carryforward has been made, the period of expiration is that of the exercise of this right.

4. The period of expiration is counted, in periodic taxes, from the end of the year in which the tax event occurred and, in taxes of unique obligation, from the date on which the tax event occurred.

It is manifest that the period of four years provided for in paragraph 1 of article 45 has been exceeded, counted in accordance with paragraph 4, from the end of the year in which the tax event occurred.

However, in this case, there was loss carryforward in fiscal year 1999, so, pursuant to paragraph 3 of this article 45, the period of expiration of the right to assess is the period of the exercise of the loss carryforward right, which was six years, pursuant to article 47, paragraph 1, of CIRC (in the wording resulting from the renumbering made by Decree-Law No. 198/2001, of 3 July).

This period also applies in cases where there have been corrections to tax losses from prior years, as also results from the express wording of paragraph 4 of that article 47 which establishes the following:

4 - When corrections are made to tax losses declared by the taxpayer, the deductions made must be altered accordingly, but no annulment or assessment, even if additional, of corporate income tax is made, if more than six years have elapsed in relation to the year to which the taxable profit relates.

Thus, even if, following the judgment of the Central Administrative Court of the South, it were understood that a correction of tax losses should be made relating to fiscal year 1999, it would only be possible to make a new assessment of corporate income tax relating to this fiscal year, additional or not, until the end of fiscal year 2005.

It is true that, if in the judgment of the Central Administrative Court of the South it had been decided, with final judgment, that the deduction of tax losses of fiscal year 1999 permitted the issuance of a new assessment without taking into account the period of expiration of the right to assess, this could not be applied, by force of res judicata, which forms "in the precise limits and terms in which it judges" [article 621, paragraph 1, of CPC, subsidiarily applicable by force of the provision in article 29, paragraph 1, letter e), of RJAT].

But, the fact is that there is in that decision of the Central Administrative Court of the South no trace of reference, even implicitly, to corporate income tax for fiscal year 1999 and to the non-application of the period of expiration of the right to assess which results from article 45 of LGT and article 47, paragraph 4, of CIRC.

Therefore, the Tax and Customs Authority's invocation of acting in execution of judgment has no relevance whatsoever to set aside the period of expiration of the right to assess.

By the foregoing, the expiration of the right to assess has occurred, which constitutes a defect of violation of law, which justifies the annulment of the assessment which subsists after the revocation, which is the assessment made on 17-04-2019, with No. 2019 ... and date of settlement of accounts 16-05-2019, following the partial revocation of the first [article 163, paragraph 1, of the Administrative Procedure Code subsidiarily applicable in accordance with article 2, letter c), of LGT].

5.2 Implied Rejection of the Decision of the Administrative Complaint

The implied rejection of the decision of the administrative complaint ceases to have relevance, having subsequently been rendered an express decision, underlying the new assessment, which revokes it by substitution.

5.3. Questions of Prejudiced Knowledge

Resulting from the foregoing the declaration of illegality of assessment No. 2019..., which is the object of the present proceedings, due to a defect which prevents its renewal, the knowledge of the remaining defects which are imputed to it by the Claimant is prejudiced.

In fact, article 124 of CPPT, subsidiarily applicable by force of the provision in article 29, paragraph 1, letter c), of RJAT, in establishing an order of knowledge of defects, presupposes that, judged as founded a defect which ensures the effective protection of the rights of the challengers, it is not necessary to know the remaining ones, since, if it were always necessary to assess all the defects imputed to the impugned act, it would be immaterial the order of their knowledge.

By the foregoing, no knowledge is taken of the remaining defects imputed by the Claimant to the assessment for which the declaration of illegality is requested.

6. Decision

In these terms, the arbitrators of this Arbitral Tribunal agree to:

a) Judge the request for arbitral pronouncement as founded;

b) Annul assessment No. 2019....

7. Value of the Proceeding

In accordance with the provision in art. 305, paragraph 2, of CPC and 97-A, paragraph 1, letter a), of CPPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 338,571.93.

8. Costs

Pursuant to art. 22, paragraph 4, of RJAT, the amount of costs is fixed at € 5,814.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 21-06-2019

The Arbitrators

(Jorge Lopes de Sousa)

(Mariana Vargas)

(Sofia Ricardo Borges)