Process: 147/2014-T

Date: October 9, 2014

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitration case 147/2014-T addressed a corporate income tax (IRC) dispute involving the SIFIDE tax incentive system for research and development. The claimant company sought revision of IRC assessments for fiscal years 2008, 2009, and 2010, requesting reimbursement of €511,786.86 in tax credits. The company had obtained approval from the Certification Commission for Tax Incentives for amounts totaling €322,274.31 (2008), €531,104.00 (2009), and €48,874.76 (2010). After submitting amended tax declarations invoking supervening facts under article 122(3) of the CIT Code, the Tax Authority rejected the 2008 claim, alleging late submission of the SIFIDE application. The claimant then filed an ex officio revision request under article 78 of the General Tax Law, which received no response within the statutory four-month period, resulting in tacit dismissal. The company invoked article 10(1)(a) of Decree-Law 10/2011 (RJAT) to initiate arbitration within the 90-day deadline. The Tax Authority raised a jurisdictional exception, arguing that the arbitral tribunal lacked material jurisdiction over tax incentive disputes under articles 2(1)(a) and 4(1) of RJAT and Administrative Order 112-A/2011. The AT contended that the legal framework excluded claims related to the application of tax benefits from arbitral jurisdiction. The case highlights critical issues regarding CAAD's competence to adjudicate disputes involving tax incentives versus tax assessments, the interpretation of procedural deadlines for SIFIDE applications, and the scope of arbitral jurisdiction in Portuguese tax law. The tribunal was constituted on April 30, 2014, following standard CAAD procedures, with the first hearing held on July 10, 2014.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 147/2014 – T

Subject: CIT – Tax Incentive; Lack of Jurisdiction on Grounds of Subject Matter.

The arbitrators Jorge Lopes de Sousa (presiding arbitrator), Paulo Ferreira Alves and Guilherme d'Oliveira Martins (arbitrators), appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on April 30, 2014, agree as follows:

I. REPORT

  1. On February 18, 2014, the company "A" (Portugal), S.A., Tax ID ..., with registered office at Street ..., Industrial Zone of ..., in ..., requested, under the terms and for the purposes of articles 2 and 10, both of Decree-Law no. 10/2011, of January 20, the establishment of a Collective Arbitral Tribunal, with the Tax and Customs Authority (AT) being named as respondent.

  2. The request for establishment of the Arbitral Tribunal was accepted by the Honorable President of CAAD on February 20, 2014, and automatically notified to the AT on February 21, 2014.

  3. In accordance with the provisions of article 6(2)(a) and article 11(1)(b) of Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012, of December 31, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the undersigned signatories, who communicated acceptance of the respective assignment within the applicable time period.

  4. On April 11, 2014, the parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of the arbitrators under the combined terms of article 11(1)(a) and (b) of the RJAT and articles 6 and 7 of the Ethics Code.

  5. Thus, pursuant to the provisions of article 11(1)(c) of Decree-Law no. 10/2011, of January 20, as amended by Law no. 66-B/2012, of December 31, the arbitral tribunal was constituted on April 30, 2014.

  6. On July 10, 2014, the first meeting of the Tribunal took place, in accordance with and for the purposes of article 18 of the RJAT, and minutes thereof were recorded, which are also appended to the case file.

  7. Upon opening the meeting, the Presiding Arbitrator gave the floor to the representatives of the Claimant and the Respondent. In exercise of the right to speak, the Claimant requested the attachment to the case file of the response to the exceptions, which was accepted.

  8. The Tribunal then notified the representatives of the Claimant and the Respondent to present, in that order and successively, written submissions within a period of 10 days.

  9. In the present arbitration proceedings, the Claimant seeks to have the Arbitral Tribunal order the revision of the CIT assessments for the fiscal years 2008, 2009 and 2010, and, consequently, the AT to proceed with the reimbursement of the amount of €511,786.86 concerning the CIT paid in the fiscal years 2009 (€183,687.85) and 2010 (€328,099.01).

I.A. The Claimant sustains its first claim, in summary, in the following terms:

  1. The Claimant submitted, on July 26, 2013, to the Corporate Income Tax Services Department, a request for ex officio revision of the CIT assessment for the fiscal years 2008, 2009 and 2010, under the terms of article 78 of the General Tax Law (LGT), and obtained no response up to the date of presentation of the request for arbitral pronouncement.

  2. In accordance with the provisions of article 57, numbers 1 to 5, of the LGT, the lapse of a period of 4 months gives rise to a presumption of tacit dismissal of the request. This period was exceeded on November 26, 2013.

  3. Under article 10(1)(a) of the RJAT, a request for arbitral pronouncement may be presented within a period of 90 days counted from the events provided for in article 102 of the Code of Tax Procedure and Process (CPPT), which include the formation of the presumption of tacit dismissal.

  4. The Claimant applied to the System of Tax Incentives for Research and Development in Business (SIFIDE), provided for in Law no. 40/2005, of August 3, concerning the fiscal years 2008, 2009 and 2010.

  5. SIFIDE is a tax benefit for investment in research and development that allows a deduction from the tax liability of the eligible amount, without limit. In case of insufficient tax liability in the fiscal year to which the investment relates, the credit may be carried forward for a period of 6 years.

  6. The applications for SIFIDE were submitted to the Certification Commission for Tax Incentives for Business R&D (Certification Commission), the entity competent for this purpose, and the following tax credits were approved:

  • 2008: €322,274.31 (approved on May 4, 2012);
  • 2009: €531,104.00 (approved on September 7, 2012);
  • 2010: €48,874.76 (approved on May 6, 2013).

  1. Considering this to be the most appropriate means to obtain the reimbursement of the SIFIDE approved for the fiscal year 2008, the Claimant submitted amended declarations (Modelo 22) relating to the fiscal years 2008, 2009 and 2010 on September 5, 2012, using the figure of supervening fact provided for in article 122(3) of the CIT Code. The amended declarations for the fiscal years 2009 and 2010 were a consequence of the insufficient tax liability in the fiscal year 2008, and did not yet include, since they had not been approved at that date, the benefits that would subsequently be approved for those periods.

  2. Through Official Letter no. ..., of June 21, 2013, the AT dismissed the request made through the amended declaration for 2008, alleging that the amended declaration for the 2008 period could not be assessed because the application relating to SIFIDE for 2008 was not submitted by the legal deadline for submission of the model 22 declaration for 2008. Regarding 2009 and 2010, the Claimant was not notified of any response from the AT.

  3. The Claimant then submitted a request for ex officio revision on July 26, 2013, seeking the reimbursement of the benefit corresponding to the deduction of SIFIDE relating to the fiscal years 2008, 2009 and 2010.

  4. The Claimant understands that no deadline for submission of the application for SIFIDE was breached because the law did not provide for any deadline for this purpose (which only occurred with the entry into force of the State Budget Law for 2012, which introduced the deadline of July 31, 2012 for submission of applications relating to prior fiscal years).

  5. The Claimant further considers that, having no legal deadline been breached, denying the reimbursement of SIFIDE would call into question the competence delegated to the Certification Commission by Administrative Order no. .../2012, of the Ministry of Economy and Employment.

I.B In its Response, the AT invoked the following:

  1. With respect to the grounds for non-assessment of the amended declarations, the AT adds that it considered the prerequisites established in article 122(3) of the CIT Code not to be met, namely because "for this purpose, those decisions or sentences are considered supervening which could not have been invoked within the period provided for in article 122(2) of the CIT Code, solely and exclusively, due to the responsibility of the respective issuing entities."

  2. After this initial clarification, the AT defends itself by way of exception and by way of substantive opposition. By way of exception, the AT invokes the lack of material jurisdiction of the arbitral tribunal, under the terms of articles 493(1) and (2) and 494(a) of the Code of Civil Procedure, under article 29(1)(a) and (e) of the RJAT, based on the provisions of articles 2(1)(a) and 4(1), both of the RJAT, and articles 1 and 2(a), both of Administrative Order no. 112-A/2011, of March 22.

  3. Specifically, the AT alleges that, under the terms provided for in article 2(a) of Administrative Order 112-A/2011, the binding of the AT to the jurisdiction referred to has as its object the assessment of claims relating to taxes whose administration is entrusted to it, referred to in article 2(1) of the RJAT, "with the exception of claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to administrative remedies under articles 131 to 133 of the Code of Tax Procedure and Process". Therefore, in its view, in the situation sub judice, the mandatory precedence of administrative objection was always required under the terms of article 131(1) of the CPPT.

  4. That is, in the opinion of the Respondent, the AT only bound itself to the jurisdiction of the arbitral tribunals under Administrative Order no. 112-A/2011, in cases where the request for declaration of illegality of an act of self-assessment was preceded by recourse to administrative remedy through administrative objection (and not by another gracious means), which means that, having the taxpayer followed the path of ex officio revision, from the decision dismissing it only can follow challenge in court (and not a request for arbitral pronouncement).

  5. Continuing with the grounds for the invoked exception of lack of material jurisdiction, the AT contends that this also arises from the fact that in the request for ex officio revision, the legality of assessment acts was not reviewed. Consequently, since the claim was not directed to the assessment of the legality/illegality of assessment acts, it can never be considered that the silent dismissal thereof "entails" the assessment of the legality of an assessment act. Therefore, the contentious challenge of the "act" should have been made by way of special administrative action.

  6. Continuing further with the grounds for the invoked exception of lack of material jurisdiction, the AT contends that this also arises from the circumstance that the claim formulated is not consistent with the cognoscitive powers of the tribunal.

  7. By way of substantive opposition, the AT states the following: the prerequisites, cumulative, for the acquisition of the right to the benefit in question were: (i) the realization of eligible R&D expenses; (ii) the deduction of such expenses in the self-assessment of the fiscal year in which they were realized (only being able to be so in subsequent fiscal years – up to the sixth immediately following fiscal year – in the case of insufficient tax liability in that year).

  8. In the concrete case, the Claimant did not proceed to the tax deduction, in the year in which they were realized, of the expenses relevant for purposes of SIFIDE. Moreover, it did not submit to the Certification Commission any request for the issuance of a supporting document to that effect. Only on April 15, 2011, July 11, 2011 and July 27, 2012 did the Claimant submit to the Certification Commission the request concerning the years 2008, 2009 and 2010, respectively.

  9. In the case, both in the procedural phase and in the present instance, the Claimant has not alleged and consequently, as it necessarily cannot but do, also not proven, the existence of any error capable of vitiating the legality of the assessment acts in question. Without this error, there could not be place for ex officio revision on the grounds of the second part of article 78(1) of the LGT.

  10. In response to the Claimant's argument regarding the non-existence of a deadline for purposes of submission of applications for SIFIDE (at the relevant date), the AT responds that notwithstanding the law that established SIFIDE I not expressly and formally providing for a deadline for submission of applications for SIFIDE, it was imposed there, as a condition of the exercise of the right to the benefit, that it be justified by a supporting statement proving that there were (in reality) eligible R&D expenses and the respective amounts, or, at least by proof of the request for issuance of that statement and still that they have to be part of the tax file, specifically i) the said supporting statement or, at least, the document proving the request for issuance thereof; and ii) a document evidencing the calculation of the tax benefit. From these terms the AT concludes that the deadline for formalizing the application for purposes of SIFIDE has, necessarily, to be reconciled with compliance with the procedural prerequisites on which the law makes the exercise of the right dependent and that, in that sense, there is a deadline for submission of applications.

  11. On article 164 of Law no. 64/2011 ("The amendment introduced by the present law to article 6(3) of SIFIDE II approved by article 133 of Law no. 55-A/2010, of December 31, applies only to taxation periods beginning on or after January 1, 2012, and applications relating to taxation periods prior thereto must be submitted by the end of July 2012"), the AT states that the legislator intended to say that the amendment introduced would have effect after January 1, 2012 and that possible applications for the benefit concerning the prior fiscal year, that is 2011, (recall that SIFIDE II is effective only for the years 2011 to 2015), should be formalized or submitted by the end of the month of June 2012.

I.C In response to the exceptions invoked by the AT, the Claimant states the following:

  1. Article 2(a) of Administrative Order no. 112-A/2011, of March 22, has a very clear purpose: in cases of self-assessment, in which the tax is assessed by the taxpayer without any intervention by the AT, naturally the recourse to judicial remedies has to be necessarily preceded by a pronouncement by the AT, lest it be a party to a dispute to which it contributed nothing. However, the request for ex officio revision has the same effect as administrative objection, allowing AT intervention.

  2. The AT's position would impose different solutions within the judicial process and the arbitration process, putting in crisis the unity of the legal system.

  3. On the other hand, one of the consequences of the referral made to article 131 of the CPPT is to invoke the doctrinal and case law positions on the rule contemplated therein, which consider ex officio revision to be equivalent to administrative objection for purposes of allowing AT intervention before judicial challenge.

  4. As to the AT's argument that what is at issue here is not a judgment on the legality/illegality of assessment acts, for which reason the process would have to follow the path of special administrative action, the Claimant responds that the object of the case is unquestionably the self-assessments of CIT relating to 2008, 2009 and 2010 by virtue of the tax credit relating to SIFIDE and that the assessment acts are subject to challenge in contentious judicial proceedings (to which arbitration proceedings are equivalent).

II. MATERIAL FACTS

II.1. Proven Facts

Before proceeding to address the issues, it is necessary to present the material facts relevant to their proper understanding and resolution, which, having examined the documentary evidence and the tax administrative process attached to the case file and having also taken into account the facts alleged, is set out as follows:

  1. The Claimant applied to the System of Tax Incentives for Research and Development in Business (SIFIDE), provided for in Law no. 40/2005, of August 3, concerning the fiscal years 2008, 2009 and 2010.

  2. On September 5, 2012, the Claimant submitted amended Model 22 declarations relating to the fiscal years 2008, 2009 and 2010.

  3. Through Official Letter no. 11534, of DSIRC, of June 21, 2013, the Claimant was notified of the non-assessment of the amended declaration relating to the period 2008, as the prerequisites established in article 122(3) of the CIT Code were not met.

  4. On July 26, 2013, the Claimant submitted a request for ex officio revision of the CIT self-assessments for the years 2008, 2009 and 2010, "in order to request the reimbursement resulting from the deduction of SIFIDE that was granted to it by the Certification Commission".

  5. On November 26, 2013, four months after submission of the request for ex officio revision, the same had not yet been decided by the AT.

II.2. Facts Deemed Not Proven

There are no facts relevant to the decision of the case that have not been deemed proven.

II.3. Reasoning for the Decision on Material Facts

The determination of the material facts was based on the administrative process, the documents attached to the initial petition and statements by the Claimant that are not disputed by the Respondent.

III. ON THE EXCEPTION OF ABSOLUTE LACK OF JURISDICTION OF THE TRIBUNAL

The jurisdiction of the arbitral tribunals functioning at CAAD is, in the first place, limited to the matters indicated in article 2(1) of the RJAT. In a second respect, the jurisdiction of the arbitral tribunals functioning at CAAD is also limited by the terms in which the AT bound itself to such jurisdiction, which are set out in Administrative Order no. 112-A/2011, of March 22, since article 4 of the RJAT establishes that "the binding of the tax administration to the jurisdiction of tribunals constituted under the terms of the present law depends on an order of the Government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered".

Given this second limitation of the jurisdiction of the arbitral tribunals functioning at CAAD, the resolution of the jurisdiction issue depends essentially on the terms of this binding, since, even if one is dealing with a situation that can be framed within that article 2 of the RJAT, if it is not covered by the binding provided for in the aforementioned order, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be precluded.

The provision in article 2(a) of Administrative Order no. 112-A/2011 expressly excludes from the scope of the AT's binding to the jurisdiction of the arbitral tribunals functioning at CAAD "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to administrative remedies under articles 131 to 133 of the Code of Tax Procedure and Process". The express reference to the precedent "recourse to administrative remedies under articles 131 to 133 of the Code of Tax Procedure and Process" should be interpreted as referring to cases in which such recourse is mandatory, through administrative objection, which is the administrative remedy indicated in those articles 131 to 133 of the CPPT, to whose terms it refers.

With respect to acts of self-assessment, under article 131(1) of the CPPT, "In case of error in self-assessment, challenge shall necessarily be preceded by administrative objection directed to the head of the regional peripheral body of the tax administration, within 2 years of the filing of the declaration." Article 131(3) adds, however, that "Without prejudice to the provisions of the preceding paragraphs, when its ground is exclusively a matter of law and the self-assessment was made in accordance with general guidance issued by the tax administration, the deadline for challenge does not depend on prior objection, and the challenge must be filed within the deadline of article 102(1)". Thus, direct challenge of the act of self-assessment can only be made without prior administrative objection in cases where it was made "in accordance with general guidance issued by the tax administration", as provided in article 131(3) of the CPPT. In the case at hand, there is no such situation, and no guidance that the AT may have issued with respect to how the self-assessments were made has even been alleged, so it must be concluded that challenge of the acts of self-assessment was dependent on prior administrative objection.

Given that there was no prior administrative objection, the direct declaration of the illegality of the act of self-assessment (that is, without being a consequence of the illegality of the act dismissing the request for ex officio revision) is precluded from the jurisdiction of this Arbitral Tribunal, because the AT has expressly excluded such claims from the scope of its binding to the jurisdiction of the arbitral tribunals functioning at CAAD.

It is, however, necessary also to address the question of the jurisdiction of this Arbitral Tribunal to assess the legality of the act dismissing the request for ex officio revision.

In assessing the questions relating to the request for ex officio revision of acts of self-assessment, it is first necessary to clarify whether the assessment of acts dismissing requests for revision of the tax act, provided for in article 78 of the LGT, are included in the competencies conferred on the arbitral tribunals functioning at CAAD by article 2 of the RJAT.

In fact, in this article 2, there is no express reference to these acts, unlike what occurs with the legislative authorization on which the Government based itself to approve the RJAT, which refers to "requests for revision of tax acts" and "administrative acts that entail the assessment of the legality of assessment acts". However, the formula "declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account", used in article 2(1)(a) of the RJAT, in a declarative interpretation, does not restrict the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In fact, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-level act that confirms an assessment act, incorporating its illegality. The inclusion in the competencies of the arbitral tribunals functioning at CAAD of cases in which the declaration of illegality of the acts indicated therein is made through the declaration of illegality of second-level acts, which are the direct object of the challenge claim, results securely from the reference made in that provision to acts of self-assessment, withholding at source and payment on account, which are expressly referred to as included among the competencies of the arbitral tribunals. With respect to these acts, administrative objection is imposed, as a rule, where necessary, in articles 131 to 133 of the CPPT, so that, in these cases, the direct object of the contentious process is, as a rule, the second-level act that assesses the legality of the assessment act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the assessment act. The reference made in article 10(1)(a) of the RJAT to article 102(2) of the CPPT, which provides for challenge of acts dismissing administrative objections, removes any doubts that cases in which the declaration of illegality of the acts referred to in article 2(a) of the RJAT has to be obtained as a consequence of the declaration of illegality of second-level acts are covered within the competencies of the arbitral tribunals functioning at CAAD. In fact, it was precisely in this sense that the AT, through Administrative Order no. 112-A/2011, of March 22, interpreted these competencies of the arbitral tribunals functioning at CAAD, by excluding from the scope of these competencies "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to administrative remedies under articles 131 to 133 of the Code of Tax Procedure and Process", which has the scope of restricting its binding to cases in which this recourse to administrative remedies was utilized.

Having reached the conclusion that the formula used in article 2(1)(a) of the RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-level act, it shall also cover cases in which the second-level act is that of dismissal of a request for revision of the tax act, since there is no reason to restrict it, all the more so because, in cases where the revision request is made within the deadline for administrative objection, it should be treated as equivalent to administrative objection[1]. It is concluded, therefore, that there is no bar to the declaration of illegality of acts of self-assessment being obtained, in arbitration proceedings, through the declaration of illegality of acts dismissing requests for ex officio revision.

It is, however, necessary to know whether, in relation to claims for declaration of illegality of acts of self-assessment through the declaration of illegality of acts dismissing requests for ex officio revision, prior administrative objection is required, by article 2(a) of Administrative Order no. 112-A/2011, of March 22. As already stated, the reference made in this provision to "recourse to administrative remedies under articles 131 to 133 of the Code of Tax Procedure and Process" should be interpreted as referring only to cases in which such recourse, through administrative objection, is imposed by those provisions of the CPPT. In cases where a request for ex officio revision of an assessment act is made, the AT is provided, with this request, an opportunity to pronounce on the merits of the claim of the taxpayer before the latter resorts to judicial remedies, and it is not required that, cumulatively with the possibility of administrative assessment within the scope of this ex officio revision procedure, a new administrative assessment through administrative objection be required[2].

Furthermore, if it were hypothetically intended in that Order, without plausible justification, to preclude the jurisdiction of the arbitral tribunals functioning at CAAD in cases where a request for ex officio revision is made without prior administrative objection (thus creating a new situation of administrative objection necessarily required exclusive to this arbitral jurisdiction), the express reference made in article 2(a) of Administrative Order no. 112-A/2011 to "the terms of articles 131 to 133 of the Code of Tax Procedure and Process" would not be understood, since that hypothetical new situation of necessary administrative objection would not be required "under the terms of articles 131 to 133 of the Code of Tax Procedure and Process". It is concluded therefore, that the lack of administrative objection is not a bar to the assessment by the arbitral tribunals functioning at CAAD of claims for declaration of illegality of acts of self-assessment that is a corollary of the illegality of acts dismissing requests for ex officio revision.

It happens that the AT also contends that the assessment by this Arbitral Tribunal is precluded, because it is not covered by article 2(1) of the RJAT, the assessment of acts dismissing requests for ex officio revision that do not entail the assessment of the legality of assessment acts. This is a different question from those addressed above, which arises after it has already been concluded that the declaration of illegality of acts of self-assessment can be obtained, in arbitration proceedings, through the declaration of illegality of acts dismissing requests for ex officio revision and that, in these cases, prior administrative objection is not required.

The question now is whether the declaration of illegality of acts of self-assessment when that illegality was not assessed by the act dismissing the request for ex officio revision is included in the competencies of the arbitral tribunals functioning at CAAD. In article 2 of the RJAT, which defines the "competencies of arbitral tribunals", the assessment of claims for declaration of illegality of acts dismissing requests for ex officio revision of tax acts is not expressly included, since only the competency of arbitral tribunals for "the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account" and "the declaration of illegality of acts determining the taxable material when it does not result in the assessment of any tax, acts determining the collective material and acts setting patrimonial values" is indicated.

However, the fact that article 10(1)(a) of the RJAT refers to article 102(2) of the CPPT, in which the various types of acts that give rise to the deadline for judicial challenge are indicated, including administrative objection, makes it clear that all types of acts capable of being challenged through the judicial challenge process, covered by those article 102(1) and (2), shall be covered within the jurisdiction of the arbitral tribunals functioning at CAAD, provided they have as their object an act of one of the types indicated in that article 2 of the RJAT. In fact, this interpretation in the sense of the identity of the fields of application of the judicial challenge process and the arbitration process is the one that is in harmony with the legislative authorization on which the Government based itself to approve the RJAT, granted by article 124 of Law no. 3-B/2010, of April 28, which reveals the intention that the arbitration process in tax matters constitute "an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

On the other hand, this same argument extracted from the legislative authorization leads to the conclusion that the possibility of using the arbitration process shall be precluded when the judicial challenge process or action for recognition of a right or legitimate interest cannot be used in the tax judicial process. In fact, being this the direction of the referred legislative authorization law and being inserted in the relative reservation of legislative competence of the Assembly of the Republic to legislate on the "tax system", including the "guarantees of taxpayers" [articles 103(2) and 165(1)(i) of the Constitution], and on the "organization and competence of courts" [article 165(1)(p) of the Constitution], the aforementioned article 2 of the RJAT cannot, on pain of unconstitutionality, for lack of coverage in the law of legislative authorization that limits the power of the Government (under article 112(2) of the Constitution), be interpreted as granting to the arbitral tribunals functioning at CAAD competency for the assessment of the legality of other types of acts for whose challenge the judicial challenge process and the action for recognition of a right or legitimate interest are not appropriate. Therefore, to resolve the prior question raised by the AT regarding whether article 2(1) of the RJAT covers the assessment of the act dismissing the request for ex officio revision in the segment relating to acts of self-assessment whose legality is not assessed, it becomes necessary to determine whether the legality of this act of dismissal could or could not be assessed, in a tax court, through the judicial challenge process or action for recognition of a right or legitimate interest.

The act of dismissal of a request for ex officio revision of the tax act constitutes an administrative act, in the light of the definition provided by article 120 of the Code of Administrative Procedure [applicable subsidiarily in tax matters, by virtue of the provisions of article 2(d) of the LGT, article 2(d) of the CPPT, and article 29(1)(d) of the RJAT], since it constitutes a decision of an organ of the Administration that, under the authority of rules of public law, aimed to produce legal effects in an individual and concrete situation. On the other hand, it is also unquestionable that this is an act in tax matters since the application of norms of tax law is made therein. Thus, that act of dismissal of the request for ex officio revision constitutes an "administrative act in tax matters". From articles 97(1)(d) and (p) and 97(2) of the CPPT, the rule is inferred that the challenge of administrative acts in tax matters is made, in tax judicial proceedings, through judicial challenge or special administrative action depending on whether those acts entail or do not entail the assessment of the legality of administrative assessment acts – it being understood that, in the concept of "assessment", in a broad sense, all acts that are reconducted to the application of a rate to a certain taxable material and, therefore, also acts of withholding at source, self-assessment and payment on account, are encompassed.

In the light of this criterion for the distribution of the fields of application of the judicial challenge process and special administrative action, acts issued in procedures for ex officio revision of acts of self-assessment can only be challenged through the judicial challenge process when they entail the assessment of the legality of these same acts of self-assessment. Otherwise, special administrative action shall apply[3].

This finding that there is always an appropriate procedural means of challenge to contenciously challenge the act dismissing the request for ex officio revision of an act of self-assessment leads, straightaway, to the conclusion that there is no situation in which the action for recognition of a right or legitimate interest could be used in tax judicial proceedings, since its application in tax disputes is residual in nature, since these actions "can only be proposed whenever that procedural means is the most appropriate to ensure full, effective and efficient protection of the right or legally protected interest" (article 145(3) of the CPPT). Another conclusion allowed by the aforementioned delimitation of the fields of application of the judicial challenge process and special administrative action is that, restricting the competency of the arbitral tribunals functioning at CAAD to the field of application of the judicial challenge process, only claims for declaration of illegality of acts dismissing requests for ex officio revision of acts of self-assessment that entail the assessment of the legality of these acts are included in this competency.

The legislative concern to remove from the competencies of the arbitral tribunals functioning at CAAD the assessment of the legality of administrative acts that do not entail the assessment of the legality of assessment acts, in addition to resulting, from the outset, from the generic directive of creating an alternative means to the judicial challenge process and the action for recognition of a right or legitimate interest, results clearly from article 124(4)(a) of Law no. 3-B/2010, of April 28, in which among the possible objects of the tax arbitration process are indicated "administrative acts that entail the assessment of the legality of assessment acts", since this specification can only be justified by a legislative intention to exclude from the possible object of the arbitration process the assessment of the legality of acts that do not entail the assessment of the legality of assessment acts.

Therefore, the resolution of the question of the jurisdiction of this Arbitral Tribunal by reference to the content of the act dismissing the request for ex officio revision depends on the analysis of the act dismissing the request for ex officio revision. Now, in the concrete case, the act dismissing the request for ex officio revision is a silent act, insofar as it was only by the effect of the passage of time that the existence of a tacit dismissal was deemed. The case law of the Supreme Administrative Court has understood that the appropriate procedural means to react contenciously against the tacit dismissal of a request for ex officio revision of an act of assessment of a tax is judicial challenge.[4] By way of example, see the reasoning used in case 1171/04: "The revision of tax acts by the entity that performed them can be triggered by the initiative of the taxpayer, and have as its ground any illegality of the act, with the aim of its annulment – see article 78(1) of the LGT. Thus, by failing to pronounce on the claim of the applicant, the respondent authority dismissed it, that is, did not recognize, in the assessment act in question, the illegalities that the applicant attributed to it. At issue, then, is, mediately, the legality of the tax assessment act: assessing the challenged act – knowing whether the claim of the applicant, that it be revised, merited, or not, to be dismissed (even if presumptively) – implies examining the legality of the assessment." Following this case law, the act of tacit dismissal entails, to a certain extent, the indirect assessment of the legality of the tax act, being, therefore, the judicial challenge process (or the arbitration process) appropriate to assess it.

Finally, the AT alleges that the claim formulated by the Claimant does not fall within the competencies of the arbitral tribunals in tax matters. And, as to this aspect, the AT is correct. In fact, under the provisions of article 2 of the RJAT, the competency of arbitral tribunals in tax matters is limited to (i) the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account and (ii) the declaration of illegality of acts determining the taxable material when it does not result in the assessment of any tax, acts determining the collective material and acts setting patrimonial values.

In the present case, the Claimant comes to request "the revision of the CIT assessments relating to the fiscal years 2008, 2009 and 2010." The Claimant does not, therefore, request that the illegality of the acts of self-assessment of CIT for those fiscal years or of the tacit dismissal of the request for ex officio revision be declared, but rather that their revision be ordered to the AT, insofar as the latter, prompted to proceed with such revision through the ex officio revision procedure, did not do so.

However, this request could never be accepted within the scope of a judicial challenge process, and therefore neither can it be accepted within the scope of an arbitration process that has that as its parameter. In fact, the request formulated by the Claimant raises from the tribunal a decision to the effect of requiring the AT to perform the act which it, when called upon to do so within a gracious procedure, did not perform. The tribunal is being asked, therefore, to define the margins of legal binding according to which the administration should have performed the act when it was legally due. The object of the proceedings is, therefore, the claim of the Claimant already formulated within the scope of the request for ex officio revision. Now, this request could only be decided within the scope of a special administrative action, not within the scope of the present proceedings, and therefore it must be considered that the present tribunal is incompetent to decide in the terms requested by the Claimant.

IV. DECISION

In view of all that is set out above, it is decided to uphold the dilatory exception of lack of material jurisdiction invoked by the Respondent and, consequently, to dismiss the case against the Tax and Customs Authority.

The examination of the remaining questions raised in this proceedings is rendered moot.

The value of the action is fixed at €511,786.86 under the terms of article 97-A(1)(a) of the CPPT, applicable by virtue of article 29(1)(a) and (b) of the RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

Under article 22(4) of the RJAT, the amount of costs is fixed at €7,956.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant "A" (Portugal), S.A.

Notice shall be given.

Lisbon, October 9, 2014

The Arbitrators

Jorge Lopes de Sousa

Paulo Ferreira Alves

Guilherme W. d'Oliveira Martins (Rapporteur)

Document prepared by computer, under the terms of article 131(5) of the Code of Civil Procedure, applicable by referral of article 29(1)(e) of Decree-Law no. 10/2011, of January 20.

This decision follows the former Portuguese spelling rules.

[1] Essentially in this sense, see the decisions of the Supreme Administrative Court in the decision of July 12, 2006, rendered in case no. 402/06, and November 14, 2007, case no. 565/07.

[2] As understood in the cited decision of the Supreme Administrative Court of June 12, 2006, rendered in case no. 402/2006.

[3] In the sense that the appropriate procedural means to know about the legality of the act of decision of the ex officio revision procedure of an assessment act is special administrative action (which succeeded the contentious appeal, under article 191 of the Code of Administrative Procedure) if in that decision the legality of the assessment act was not assessed, see the decisions of the Supreme Administrative Court of May 20, 2003, case no. 638/03; October 8, 2003, case no. 870/03; October 15, 2003, case no. 1021/03; March 24, 2004, case no. 1588/03; November 6, 2008, case no. 357/08.

[4] In this sense see the decisions of February 2, 2005, rendered in case 1171/04 and May 4, 2005, rendered in case 1276/04.

Frequently Asked Questions

Automatically Created

What IRC tax incentive was disputed in CAAD arbitration process 147/2014-T?
The tax incentive disputed in CAAD arbitration process 147/2014-T was SIFIDE (Sistema de Incentivos Fiscais à Investigação e Desenvolvimento Empresarial), the System of Tax Incentives for Research and Development in Business, established under Law 40/2005 of August 3. This incentive allows companies to deduct eligible research and development expenses from their IRC tax liability without limit, with unused credits carried forward for six years. The claimant had obtained approval from the Certification Commission for SIFIDE credits totaling €902,253.07 across the three fiscal years in question.
How does the CAAD tribunal assess its material jurisdiction (incompetência em razão da matéria) in corporate tax disputes?
The CAAD tribunal assesses its material jurisdiction (incompetência em razão da matéria) in IRC disputes by examining whether the claim falls within the scope defined by articles 2(1)(a) and 4(1) of Decreto-Lei 10/2011 (RJAT) and Administrative Order 112-A/2011. The Tax Authority argued that article 2(a) of Administrative Order 112-A/2011 limits arbitral jurisdiction to claims related to tax assessments administered by the AT, excluding disputes concerning the application of tax benefits or incentives. The tribunal must determine whether a SIFIDE reimbursement claim constitutes a reviewable tax assessment matter within its jurisdiction or falls outside the arbitral scope as a tax incentive application issue reserved for administrative or judicial review.
Can a taxpayer request revision of IRC tax assessments for multiple fiscal years through arbitration?
Yes, a taxpayer can request revision of IRC tax assessments for multiple fiscal years through CAAD arbitration. In process 147/2014-T, the claimant successfully initiated arbitration proceedings seeking revision of assessments for fiscal years 2008, 2009, and 2010 simultaneously. The legal basis includes article 78 of the General Tax Law (LGT) for ex officio revision requests and article 10(1)(a) of RJAT, which permits arbitration requests within 90 days following events specified in article 102 of the Code of Tax Procedure and Process (CPPT), including tacit dismissal of administrative requests. Multiple fiscal years can be challenged in a single proceeding when they relate to interconnected tax issues, such as the carry-forward of unused tax credits.
What is the legal basis for challenging IRC liquidations under Decreto-Lei 10/2011 (RJAT)?
The legal basis for challenging IRC liquidations under Decreto-Lei 10/2011 (RJAT) includes: (1) Article 2(1)(a) of RJAT, which establishes that taxpayers may request arbitration regarding tax assessments (liquidações) administered by the Tax Authority; (2) Article 10(1)(a) of RJAT, which permits arbitration requests within 90 days from events listed in article 102 of the Code of Tax Procedure and Process (CPPT), including tacit dismissal of administrative claims; (3) Article 78 of the General Tax Law (LGT) for ex officio revision of tax assessments; and (4) Article 4(1) of RJAT regarding the scope of arbitrable matters. Taxpayers must first exhaust administrative remedies, and tacit dismissal occurs when the Tax Authority fails to respond within four months under article 57 of LGT.
What are the procedural steps and timelines for constituting an arbitral tribunal at CAAD for IRC disputes?
The procedural steps and timelines for constituting an arbitral tribunal at CAAD for IRC disputes follow a structured sequence: (1) The taxpayer submits an arbitration request to CAAD under article 10 of RJAT, typically within 90 days of tacit dismissal or explicit rejection; (2) The CAAD President accepts the request (in this case, within 2 days); (3) The Tax Authority is automatically notified (next day); (4) The CAAD Ethics Council appoints arbitrators under article 6(2)(a) and 11(1)(b) of RJAT; (5) Appointed arbitrators communicate acceptance within the applicable period; (6) Parties are notified of appointments and have the right to refuse under articles 6 and 7 of the Ethics Code; (7) The tribunal is formally constituted under article 11(1)(c) of RJAT; and (8) The first hearing occurs under article 18 of RJAT. In case 147/2014-T, the entire process from initial request to tribunal constitution took approximately 71 days (February 18 to April 30, 2014).