Process: 146/2018-T

Date: October 9, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitration process 146/2018-T addressed a claim by a group of companies under the Special Taxation Regime for Groups of Companies (RETGS) seeking correction of their 2014 IRC self-assessment related to the youth employment creation tax incentive under Article 19 (former Article 48-A) of the Tax Benefits Statute (EBF). The dominant company A... and six dominated companies claimed they had underutilized the tax benefit by €138,329.36, including IRC and Municipal Levy. After filing an administrative appeal that was tacitly dismissed, followed by a hierarchical appeal also tacitly dismissed, the claimants brought the matter to CAAD arbitration. The Portuguese Tax Authority raised a peremptory exception of untimeliness, arguing the hierarchical appeal was filed outside the statutory deadline. The claimants acknowledged this error, admitting they had mistakenly considered office stamp dates rather than postal record dates when calculating deadlines. The Arbitral Tribunal, constituted on June 7, 2018, proceeded to address the timeliness exception as a threshold issue. The case demonstrates critical procedural requirements in Portuguese tax arbitration, particularly strict compliance with statutory deadlines for hierarchical appeals. The outcome would determine whether the substantive claim regarding the youth employment tax incentive could be heard, highlighting the importance of proper procedural compliance in IRC tax disputes under RETGS.

Full Decision

ARBITRAL DECISION

The arbitrators designated by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 7 June 2018, Dr. Alexandra Coelho Martins (presiding arbitrator), Dr. Jesuíno Alcântara Martins and Dr. Henrique Nogueira Nunes (arbitrators), agree as follows:

REPORT

A... – Sociedade Gestora de Participações Sociais, S.A., legal entity number ..., registered in the Commercial Registry Office of Lisbon under the same number, with registered office at ..., no. ..., in Lisbon, with share capital of € 10,000,000.00, hereinafter referred to as "Dominant Company" or "A...", in its capacity as the company heading the group of companies to which the Special Regime for the Taxation of Groups of Companies ("RETGS"), provided for in article 69 et seq. of the Personal Income Tax Code ("IRC"), is applied, in conjunction with the companies subsequently enumerated, hereinafter referred to as "dominated companies", or together with the Dominant Company, "Claimants":

B..., Lda., legal entity number ..., registered in the Commercial Registry Office of Lisbon under the same number, with registered office at ..., no. ..., in Lisbon, with share capital of € 100,000.00, in its capacity as a company that is part of the group of companies of which A... is the dominant company;

C..., S.A., legal entity number ..., registered in the Commercial Registry Office of Porto under the same number, with registered office at Rua ..., no. ..., ..., with share capital of € 440,000.00, in its capacity as a company that is part of the group of companies of which A... is the dominant company;

D..., S.A., legal entity number ..., registered in the Commercial Registry Office of ... under the same number, with registered office at Rua ..., no. ..., ..., with share capital of € 1,000,000.00, in its capacity as a company that is part of the group of companies of which A... is the dominant company;

E..., S.A., legal entity number ..., registered in the Commercial Registry Office of ... under the same number, with registered office at Rua ..., no. ..., ..., with share capital of € 500,000.00, in its capacity as a company that is part of the group of companies of which A... is the dominant company;

F..., S.A., legal entity number ..., registered in the Commercial Registry Office of ... under the same number, with registered office at ..., no. ..., ..., with share capital of € 500,000.00, in its capacity as a company that is part of the group of companies of which A... is the dominant company;

And

G..., S.A., legal entity number ..., registered in the Commercial Registry Office of ... under the same number, with registered office at Rua ..., no. ..., ..., with share capital of € 250,000.00, in its capacity as a company that is part of the group of companies of which A... is the dominant company,

have requested the constitution of a Collective Arbitral Tribunal and have made a request for arbitral pronouncement, pursuant to article 2, no. 1, paragraph a) of the Legal Regime for Tax Arbitration ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, having as its object the tacit dismissal of the hierarchical appeal filed by the Dominant Company, following the tacit dismissal of the administrative appeal of the IRC self-assessment no. 2015..., relating to the 2014 tax year.

In this context, the Claimants seek the declaration of illegality and annulment of the silent acts of tacit dismissal of the hierarchical appeal filed and the administrative appeal that preceded it, and consequently, that the correction of the profits/taxable results contained in the individual and Group IRC model 22 income declarations be ordered, and also the reimbursement to the Dominant Company of the amounts of tax paid in excess, in the total amount of € 138,329.36, of which € 135,219.84 of IRC and € 3,109.52 of Municipal Levy.

As the basis for their claim, the Claimants allege, in summary, that they incurred an error in quantifying the tax benefit for job creation set out in article 19 of the Tax Benefits Statute ("EBF"), with respect to the dominated companies, such that the benefits deducted were less than those legally owed, taking into account the employees eligible for the purposes of the tax benefit to be used in the 2014 period. They submitted 19 documents and called 2 witnesses.

The request for the constitution of the Arbitral Tribunal was accepted by the President of the CAAD and followed its normal procedure, namely with notification to the Tax Authority.

The Ethics Council designated the signatories as arbitrators of the Collective Arbitral Tribunal, who communicated their acceptance of the task within the applicable time-limit, as provided for in article 6, no. 2, paragraph a) and article 11, no. 1, paragraph a), both of the RJAT.

The parties, duly notified, did not oppose the designation and the Tribunal was constituted on 7 June 2018, in accordance with article 11, no. 1, paragraphs b) and c) of the RJAT and articles 6 and 7 of the Code of Ethics.

The Respondent submitted its reply, in which it raised, by way of exception, the untimeliness of the hierarchical appeal filed and, consequently, the lapse of the right of action, as provided for in articles 89, nos 1 and 3 of the Code of Administrative Court Procedure ("CPTA") and article 576, nos 1 and 3 of the Code of Civil Procedure ("CPC"), ex vi article 29, no. 1, paragraphs c) and e) of the RJAT.

Also by way of exception, the Respondent raised the incompetence of the Arbitral Tribunal with respect to the annulment of the self-assessment in the "specific amount of € 138,329.36 and the conviction [...] to its reimbursement", arguing that the taxable matter cannot be known in the proceedings and only results from the enforcement of judgments that may be carried out, in the event that the claim is upheld, as results from article 2, no. 1 of the RJAT and from Ordinance no. 112-A/2011, of 22 March, and that any different interpretation is materially unconstitutional as it violates the principle of legality.

With regard to the merits of the claim made, the Respondent contends for its dismissal, given the impossibility of validating the amount of the tax benefit, due to the absence of essential evidence, the Claimants having failed to satisfy the burden of proof incumbent upon them to demonstrate the alleged net job creation, as provided for in articles 342, no. 1 of the Civil Code and 74, no. 1 of the General Tax Law ("LGT").

In conclusion, the Respondent contends for the upholding of the peremptory exception of lapse of the right of action, with the consequent dismissal of the claim, or, if this is not understood, for the upholding of the dilatory exception of incompetence, with the dismissal of the instance as referred to, or alternatively, for the dismissal of all claims, with the legal consequences. The Respondent proceeded to join the administrative process.

The Claimants, notified to exercise their right of reply with respect to the exception of untimeliness raised by the Tax Authority, acknowledged that the Tax Authority was correct, since, by oversight, they had considered the dates of the entry stamps in the offices, instead of the dates affixed in the postal records, such that the exception would be upheld. However, with respect to the arbitration fee, they petition for the exemption from payment of the subsequent arbitration fee and the return of the initial court fee in the proportion that the Tribunal deems appropriate, since, with the Tribunal agreeing with the position assumed by the parties, the proceedings will not result in any other action, ending at an early stage.

With the right of reply exercised and given the merits of the exception of untimeliness, the Arbitral Tribunal proceeds, below, to immediately address the same.

PROCEDURAL REMEDIES AND EXCEPTION OF UNTIMELINESS

Procedural Presuppositions – in Particular of the Competence of the Arbitral Tribunal

The Tribunal was regularly constituted and is competent ratione materiae, given the configuration of the object of the proceedings (cf. articles 2, no. 1, paragraph a) and 5 of the RJAT). It is worth noting that the scope of jurisdiction and competence are matters of public order and their determination precedes that of any other matter (cf. article 13 of the CPTA ex vi article 29, no. 1, paragraph c) of the RJAT).

In these proceedings, the issue is the illegality of acts of IRC self-assessment, the examination of which falls, in accordance with article 2, no. 1, paragraph a) of the RJAT, within the competence of Arbitral Tribunals, encompassing the illegality of tacit dismissal (cf. article 102, no. 1, paragraph d) of the Tax Procedure and Process Code ("CPPT"), by referral of article 10, no. 1, paragraph a) of the RJAT).

The fact that not all elements are available for the recalculation of the value of the IRC relating to the year 2014, as stressed by the Respondent, and that, for this reason, the exact amount of tax to be corrected and reimbursed cannot be determined at the moment of the jurisdictional (arbitral) pronouncement, which is relegated for calculation in the enforcement of judgment stage, does not entail the incompetence of this Arbitral Tribunal, but only the (lesser) concretisation of the respective jurisdictional pronouncement. Thus, the exception of (partial) incompetence raised by the Tax Authority is not upheld.

The parties have legal personality and capacity, have standing and are duly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March). The joinder of claims and the joining of the Claimants is admissible, inasmuch as the merit of the claims depends essentially on the examination of the same circumstances of fact and on the interpretation and application of the same principles or rules of law, which concern the regime and presuppositions for the application of the tax benefit for net job creation, provided for in article 19 of the EBF, in force on the date of the facts (2014).

On Untimeliness

To assess the alleged (un)timeliness raised by the Tax Authority, the following factuality must be considered:

The Claimants filed the individual IRC model 22 income declarations, relating to the 2014 tax year, on 28 May 2015 (documents 1 to 7 attached with the initial petition ("i.p.")).

The Dominant Company filed the Group IRC model 22 income declaration, referring to the same period (2014) on 29 May 2015 (document 8 attached with the i.p.).

With reference to the IRC self-assessments for the 2014 tax year, the Claimants filed an administrative appeal on 26 May 2017 (document no. 9 attached with the i.p., in accordance with the dispatch date affixed in the postal record).

The Claimants filed a hierarchical appeal of the "tacit dismissal" on 27 October 2017 (document no. 9, attached with the i.p., in accordance with the dispatch date affixed in the postal record).

The request for the constitution of the Arbitral Tribunal was filed on 26 March 2018, in accordance with the record in the CAAD computer system.

* * *

The relevant facts were selected and delimited based on their legal relevance for the examination of the exception of untimeliness raised by the Respondent and acknowledged by the Claimants, grounding the arbitrators' conviction on the critical analysis of the documentary evidence attached to the case. With relevance to the decision, there are no other facts that should be considered unproven.

* * *

Considering:

In the situation at hand, the combined provisions of article 57, nos 1 and 5 of the LGT and article 26, no. 2 of the CPPT apply. In accordance with the provisions of the LGT, if the procedure (in this case of second instance) is not completed within four months, its dismissal is presumed for the purposes of hierarchical appeal, contentious appeal or judicial challenge.

In matters of calculating time-limits, the CPPT provides that, in the case of sending of petitions, statements, appeals and pleadings (or other documents) by taxpayers by mail, it is considered that the sending was effected on the date of the respective registration.

In concrete terms, the administrative appeal was lodged on 26 May 2017, with the presumption of tacit dismissal being formed on 26 September 2017, four months later, as provided for in article 57, no. 1 of the LGT.

In accordance with article 76, no. 1 of the CPPT, the Claimants could file a hierarchical appeal, within the time-limit provided for in article 66, no. 2 of the same act, that is, within 30 days, which therefore ended on 26 October 2017.

The hierarchical appeal was filed the following day, 27 October 2017, when the time-limit for exercising that right had already expired, and consequently, the act became irrevocable, administratively and contentiously, and was consolidated in the legal order.

Indeed, article 10, no. 1, paragraph a) of the RJAT provides that the request for the constitution of an arbitral tribunal is filed within 90 days from the facts provided for in article 102, nos 1 and 2 of the CPPT. In turn, no. 1[1] of this article provides for the following as relevant facts:

"a) End of the time-limit for voluntary payment of tax obligations legally notified to the taxpayer;

b) Notification of other tax acts, even when they do not give rise to any assessment;

c) Summons of subsidiary liable parties in tax enforcement proceedings;

d) Formation of the presumption of tacit dismissal;

e) Notification of other acts that may be the subject of autonomous challenge in accordance with this Code;

f) Knowledge of acts damaging legally protected interests not covered in the preceding paragraphs."

At the moment when the request for arbitral pronouncement was filed, the legal time-limit of 90 days for challenging by way of arbitration had already elapsed, calculated from the formation of the presumption of tacit dismissal, (cf. articles 10, no. 1, paragraph a) of the RJAT and 102, no. 1, paragraph d) of the CPPT). The time-limits for reacting, by way of administrative or judicial procedure, against a tax act are substantive time-limits, of forfeiture, and are part of the controvertible legal relationship itself. They aim to determine the period for exercising a right and are peremptory, as their expiry extinguishes the right itself[2].

In this regard, it is emphasised that the arbitral nature of this Tribunal and the application of the tax arbitration regime do not entail any modification regarding the nature, modalities and manner of calculating time-limits, as can be seen from a reading of the RJAT which, furthermore, in accordance with its article 29, provides for the subsidiary application of the norms of a procedural or substantive tax nature, the norms on organisation and procedure in administrative and tax courts, the Code of Administrative Procedure and the Code of Civil Procedure.

For the reasons and on the grounds set out above, in concrete terms, because the request for arbitral pronouncement was filed after the expiry of the 90-day time-limit provided for in article 10, no. 1, paragraph a) of the RJAT, the peremptory exception raised by the Respondent is upheld and it is concluded that the request for the constitution and pronouncement of this arbitral tribunal is untimely (cf. article 89, nos 1 and 3 of the CPTA and article 576, nos 1 and 3 of the CPC).

On the Exemption

The Claimants request the exemption from payment of the subsequent arbitration fee and the return of the initial court fee in the proportion that the Tribunal deems appropriate, based on the fact that the proceedings terminate "at an early stage" with the upholding of the exception raised by the Respondent. However, they do not indicate the legal basis for this claim, nor does it appear to exist.

The arbitration fee is provided for in article 12 of the RJAT, which determines, as the constitutive fact thereof, the constitution of the Arbitral Tribunal, referring its regulation to the Fee Schedule approved by the CAAD.

The Fee Schedule for Tax Arbitration Proceedings provides for the return of the arbitration fee only in the circumstance in which the procedure ceases before the constitution of the arbitral tribunal, which did not occur in casu (cf. article 3-A).

On the other hand, article 6 of this Schedule makes a referral to the Schedule of Court Costs ("RCP"), approved by Decree-Law no. 34/2008, of 26 February, and subsequent amendments, limited to the matter of expenses arising from the appointment of experts, translators, interpreters, technical consultants and other costs with the production of evidence.

Accordingly, the provisions of article 6, no. 7 of the RCP, which provides for the possible exemption, by the judge, from the payment of the remainder of the court fee, if a set of conditions is met, relating to the complexity of the case and the procedural conduct of the parties, is not applicable (due to the lack of referral in the arbitration regime). However, even if the application of this regime were to be considered, for which, it is reiterated, there is no legal basis, the exemption from payment of the remainder of the court fee (here arbitration) is only provided for in proceedings of value exceeding € 275,000.00, which is not the case.

In light of the above, the request for exemption from payment of the subsequent arbitration fee and partial reimbursement of the initial court fee is dismissed, due to lack of legal basis.

RULING

In light of the above, the arbitrators of this Arbitral Tribunal agree to uphold the exception of untimeliness and, consequently, to dismiss the claim against the Respondent.

* * *

The value of the proceedings is fixed at € 138,329.36 in accordance with the provisions of articles 3, no. 2 of the Fee Schedule for Tax Arbitration Proceedings ("RCPAT"), 97-A, no. 1, paragraph a) of the CPPT and 306, nos 1 and 2 of the CPC, the latter ex vi article 29, no. 1, paragraph e) of the RJAT.

Costs in the amount of € 3,060.00, to be borne by the Claimants, in accordance with Table I attached to the RCPAT, and with the provisions of articles 12, no. 2 of the RJAT, 4, no. 5 of the RCPAT and 527, nos 1 and 2 of the CPC, ex vi article 29, no. 1, paragraph e) of the RJAT.

Lisbon, 9 October 2018.

[Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by referral of article 29, no. 1, paragraph e) of the RJAT]

The Arbitrators,

Alexandra Coelho Martins

Jesuíno Alcântara Martins

Henrique Nogueira Nunes

[1] No. 2 of article 102 of the CPPT was repealed by article 16, paragraph d) of Law no. 82-E/2014, of 31 December.

[2] Cf. Decision of the TAC North, proceedings no. 01811/09.7BEBRG, of 23 September 2010, for further development of the evolution of the case law of the STA, and the doctrine cited therein (Cf. MANUEL DE ANDRADE, General Theory of the Legal Relationship, volume II, 1987, pages 463-464, MOTA PINTO, General Theory of Civil Law, 2nd edition, no. 93, pages 370-375, and PIRES DE LIMA and ANTUNES VARELA, Annotated Civil Code, volume I, 4th edition, pages 272/273).

Frequently Asked Questions

Automatically Created

What is the tax incentive for youth employment creation under Article 19 (former Article 48-A) of the Portuguese Tax Benefits Statute (EBF)?
Article 19 (former Article 48-A) of the Portuguese Tax Benefits Statute (EBF) provides a tax incentive for youth employment creation, allowing companies to deduct amounts from their IRC liability based on eligible young employees hired. The benefit aims to encourage employers to create jobs for young workers. In this case, the claimants argued they had underutilized this benefit in their 2014 tax year declarations, calculating the tax benefit for dominated companies at less than legally owed amounts. The incentive is available to companies under the Special Taxation Regime for Groups of Companies (RETGS), with both dominant and dominated companies potentially eligible based on net job creation of qualifying young employees.
How does the timeliness (intempestividade) issue affect claims for IRC tax incentives at CAAD arbitration?
Timeliness (intempestividade) is a critical procedural requirement in CAAD arbitration for IRC tax incentives. In Process 146/2018-T, the Tax Authority raised a peremptory exception arguing the hierarchical appeal was filed outside statutory deadlines under Articles 89(1) and (3) of CPTA and Article 576(1) and (3) of CPC. The claimants acknowledged their error, having mistakenly used office stamp dates instead of postal record dates when calculating deadlines. Untimeliness results in lapse of the right of action, preventing the Tribunal from hearing the substantive merits of the case. This demonstrates that strict compliance with procedural deadlines is essential—even meritorious substantive claims regarding tax benefits will be dismissed if appeals are not timely filed. Taxpayers must carefully track postal dates, not just office receipt stamps, when filing hierarchical appeals.
Can companies under the Special Taxation Regime for Groups of Companies (RETGS) claim the youth employment creation tax incentive?
Yes, companies under the Special Taxation Regime for Groups of Companies (RETGS) can claim the youth employment creation tax incentive under Article 19 of the EBF. In Process 146/2018-T, the dominant company A... filed the arbitration claim on behalf of itself and six dominated companies (B..., C..., D..., E..., F..., and G...), all part of the same corporate group. The claim related to correction of both individual and Group IRC model 22 income declarations for the 2014 tax year. The RETGS regime, provided for in Article 69 et seq. of the IRC Code, allows consolidated taxation of corporate groups. Each dominated company's eligible young employees can contribute to the overall tax benefit calculation. However, companies must properly quantify the benefit for each entity within the group and ensure all procedural requirements are met when seeking corrections.
What are the procedural requirements for filing an arbitral tax claim related to IRC employment incentives in Portugal?
Filing an arbitral tax claim for IRC employment incentives requires strict procedural compliance. First, taxpayers must file an administrative appeal (reclamação administrativa) against the self-assessment within the statutory deadline. If this is tacitly or expressly dismissed, a hierarchical appeal (recurso hierárquico) must be filed within the legal timeframe—calculated from postal record dates, not office stamp dates. Only after tacit or express dismissal of the hierarchical appeal can taxpayers request arbitration under Article 2(1)(a) of the Legal Regime for Tax Arbitration (RJAT), approved by Decree-Law 10/2011. The arbitration request must include the request for constitution of the Arbitral Tribunal, submission of supporting documents, and payment of required fees. In Process 146/2018-T, failure to meet the hierarchical appeal deadline resulted in a peremptory exception that would likely bar the entire claim, despite its substantive merits regarding the Article 19 EBF benefit.
What was the outcome of CAAD arbitration process 146/2018-T regarding the IRC youth employment tax benefit?
The outcome of CAAD arbitration process 146/2018-T regarding the IRC youth employment tax benefit was determined by a procedural defect rather than substantive merits. The Portuguese Tax Authority raised a peremptory exception of untimeliness (intempestividade), arguing the hierarchical appeal was filed outside statutory deadlines. The claimants acknowledged this error, admitting they had mistakenly considered office stamp dates instead of postal record dates when calculating filing deadlines. Given the admitted procedural defect, the Arbitral Tribunal indicated it would uphold the timeliness exception, resulting in dismissal of the claim due to lapse of the right of action under Articles 89(1) and (3) of CPTA and Article 576(1) and (3) of CPC. The claimants requested exemption from subsequent arbitration fees and proportional return of initial fees, given the early-stage termination. The Tribunal never reached the substantive issues regarding the €138,329.36 claimed undercalculation of the youth employment tax benefit, demonstrating how procedural errors can prevent adjudication of otherwise meritorious tax claims.