Process: 147/2018-T

Date: November 22, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 147/2018-T) addresses the tax deductibility of goodwill under Article 45-A of the Portuguese IRC Code. The claimants, a holding company and its subsidiary B..., S.A., challenged the tacit rejection of their hierarchical appeal regarding IRC self-assessment for fiscal year 2014. B..., S.A. autonomously recognized goodwill of €5,107,583.94 from a business combination and sought to deduct €255,379.20 as a tax expense (1/20th over 20 years) plus adjustments for impairment losses totaling €107,622.08. The Tax Authority raised a preliminary objection of material incompetence regarding the tribunal's jurisdiction to order tax refunds of €26,367.41. On the merits, the AT argued that the impairment loss recorded actually represented the pro-rata tax amortization already permitted under Article 45-A(1)(b), and that the claimants failed to prove compliance with applicable accounting standards in determining the goodwill amount. The case highlights critical requirements for goodwill recognition as a fiscal expense: proper accounting standard compliance, autonomous recognition in business combinations, and the 20-period equal installment deduction method. The procedural aspect addresses whether CAAD has jurisdiction to order tax restitution beyond annulling administrative decisions. This decision is significant for corporate groups undertaking business combinations, as it clarifies the boundaries between accounting impairment losses and tax amortization of goodwill, and the evidentiary burden taxpayers must meet to benefit from the Article 45-A regime. The case demonstrates how filing errors in Form 22 declarations can cascade through consolidated group taxation.

Full Decision

ARBITRAL DECISION

REPORT

"A... – Sociedade Gestora de Participações Sociais, S.A.", legal entity no. ..., with registered office at ..., no. ..., ...-..., Lisbon, and "B..., S.A.", legal entity no. ..., with registered office at Rua ..., no. ..., ..., ..., ..., hereinafter designated, jointly, as "Claimants", requested the constitution of an Arbitral Tribunal, under articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a) and no. 2, both of the Legal Regime of Tax Arbitration ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, and articles 96 and following of the Code of Procedure and Tax Process ("CPPT"), with the Respondent being the Tax and Customs Authority ("AT").

The Claimants submitted a request for arbitral pronouncement against the implied rejection of the Hierarchical Appeal filed by them against the implied rejection of the Amicable Claim of the self-assessment of Corporate Income Tax (IRC) no. 2015 ... relating to the financial year 2014, requesting, in summary, that the Arbitral Tribunal:

Annul the decision of implied rejection of the aforementioned Hierarchical Appeal and, consequently, of the implied rejection of the Amicable Claim of the self-assessment of Corporate Income Tax (IRC) no. 2015 ... relating to the financial year 2014; and

Order the deduction of the amount of €107,622.08 from the individual taxable profit of company B..., S.A. for the financial year 2014 and the reflection of this correction in the taxable profit determined by the Group, determining the restitution of the amount of €24,753.08 as IRC and the amount of €1,614.33 as Municipal Tax, in the total amount of €26,367.41.

To support their request, the Claimants allege, in summary, that:

The IRC Form 22 declaration of Claimant "B..., S.A." contains filing errors, both at the level of the deduction of the tax expense associated with the autonomous recognition of an intangible asset, and at the level of the non-deductibility of the expense associated with impairment losses recognized in the period of 2014;

These alleged errors had an impact on the determination of the Group's taxable profit determined by "A... – Sociedade Gestora de Participações Sociais, S.A." in its capacity as the parent company;

"B..., S.A" proceeded, in the financial year 2014, to autonomously recognize an intangible asset in the amount of €5,107,583.94 relating to goodwill generated within the scope of a business combination operation;

This goodwill fulfills the requirements set forth in paragraph b) of article 45-A of the IRC Code and, consequently, may be accepted as a tax deductible expense, in equal installments, during the first 20 tax periods following initial recognition, with this amount reaching €255,379.20 in the financial year 2014;

"B..., S.A." also recognized an impairment loss on the said intangible asset in the amount of €147,757.12 which, however, does not fulfill the requirements set forth in article 31-B of the IRC Code and which, therefore, cannot be considered non-deductible for tax purposes;

Consequently, "B..., S.A." may deduct from the individual taxable profit determined in the tax period of 2014 the amount of €107,622.08;

This situation has consequences at the level of the Group's taxable profit of which "B..., S.A." is a member, as well as the supported Municipal Tax, which should be reduced accordingly.

The Claimants listed 2 (two) witnesses and attached 8 (eight) documents.

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

The Ethical Council designated the undersigned as sole arbitrator of the Arbitral Tribunal, who communicated acceptance of the assignment within the applicable period, in accordance with articles 6, no. 1 and 11, no. 1, paragraph a), both of the RJAT, and article 4, no. 2 of the Code of Ethics of CAAD.

The parties, properly notified, did not manifest the will to refuse the designation, in accordance with the provisions of the Code of Ethics of CAAD, and the Arbitral Tribunal was constituted on 7 June 2018, in accordance with paragraph c) of no. 1 and no. 8 of article 11 of the RJAT.

The Respondent presented an Answer and attached the administrative file. In the Answer presented, and in summary:

It invokes the dilatory exception of material incompetence of the Arbitral Tribunal to assess the second part of the Claimants' request, that is, "(…) the restitution to the Claimant of IRC paid in excess in the total amount of €26,367.41" (cf. §12 and 17 of the Answer of the Tax Authority);

As regards the substantive matter, it argues that, in line with the information provided in the IES by B..., the amount recorded as impairment loss corresponds, in reality, to the tax amortization allowed by paragraph b) of no. 1 of article 45-A of the IRC Code calculated on a pro rata temporis basis, whereby the procedure adopted by B... of not making a correction to the taxable profit of the designated impairment losses is in compliance with the application of that provision;

This implies that, in the financial year 2014, no negative correction should be made to the taxable profit of an amount equivalent to the difference [€107,622.08] between the value of the impairment loss and the annual value of tax amortization, resulting from the application of the 5% rate (1/20) to the amount attributed to goodwill, as B... has the right to recover this difference at the end of the 20-year period;

It further states that there is no evidence in the present proceedings of compliance with the applicable accounting standards in the determination by B... of the amount of goodwill autonomously recognized in the period of 2014 (€5,107,583.94), whereby the Claimants' request cannot be accepted to the effect that they should benefit from the regime provided for in article 45-A of the CIRC;

It requested the waiver of witness testimony production and concluded by arguing for the inadmissibility of the request for arbitral pronouncement, due to lack of legal support.

Notified, on 13/07/2018, in accordance with the principle of contradiction provided for in paragraph a) of article 16 of the RJAT, to pronounce themselves on the exception invoked by the Respondent, the Claimants came, on 07/09/2018, to respond, arguing for the inadmissibility of the same.

On 12/09/2018, the Claimants were notified, in accordance with paragraphs c) and e) of article 16 RJAT, to indicate what matters they intended the witnesses they had listed to address, by reference to the articles of their request for arbitral pronouncement. The Claimants presented their response on 24/09/2018.

Considering that the facts indicated by the Claimants were not susceptible to witness testimony or that the evidence intended to be produced had already been established in the file through documents, the Arbitral Tribunal issued, on 01/10/2018, an order waiving witness testimony production, as well as the hearing referred to in article 18 of the RJAT.

In this order, the Parties were further notified of the deadline for delivering the decision, which was set at 30 November 2018, with a warning to the Claimants to pay, by that date, the subsequent arbitration fee in accordance with no. 3 of article 4 of the Regulations on Costs in Tax Arbitration Proceedings and to communicate such payment to CAAD.

PROCEDURAL SANATION

Procedural Presuppositions

The Tribunal was regularly constituted and is competent ratione materiae, considering the scope of the object of the proceedings (cf. articles 2, no. 1, paragraph a) and 5 of the RJAT).

The request for arbitral pronouncement is timely, as it was presented within the period provided for in paragraph a) of no. 1 of article 10 of the RJAT.

The parties enjoy legal personality and capacity, have standing and are regularly 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 parties is admissible as we are faced with the same factual circumstances and the interpretation and application of the same principles or rules of law (cf. article 3, no. 1 of the RJAT).

The proceedings do not suffer from any nullities.

Regarding the Exception Invoked by the Tax Authority

In the Answer presented, the Respondent invokes the dilatory exception of material incompetence of the Arbitral Tribunal to assess the second part of the Claimants' request, that is, "(…) the restitution to the Claimant of IRC paid in excess in the total amount of €26,367.41" (cf. §12 of the Answer of the Tax Authority).

Upon examination, it will be said that the Tax Authority is correct.

Notwithstanding the legislative authorization contained in article 124 of Law no. 3-B/2010, of 28 April, had sufficient scope to allow the tax arbitral process to constitute an alternative to "the action for the recognition of a right or legitimate interest in tax matters", the truth is that the legislator did not use that legislative authorization in that respect.

This is clearly evident from the RJAT. First, in the preamble to Decree-Law no. 10/2011, of 20 January, where it states: "Rigorously established are the matters on which the arbitral tribunal may pronounce. Thus, the competence of the arbitral tribunals is encompassed by the assessment of the declaration of illegality of tax assessments, of self-assessments, of withholdings at the source and of installment payments, the declaration of illegality of acts of determination of taxable matter, of acts of determination of taxable amount and of acts of fixing patrimonial values (…)".

In fact, it follows from articles 2 and 10 of the RJAT that only matters concerning the legality of assessment acts or acts of determination of taxable matter and second-degree acts that have as their object the assessment of the legality of acts of those types were included in the competencies of the arbitral tribunals functioning under the aegis of CAAD.

It is true that, regarding requests for declaration of illegality of acts of the types referred to in its article 2, and within the limits defined by the commitment that the Tax and Customs Authority is bound (circumscribed by Ordinance no. 112-A/2011, of 22 March), the arbitral tribunals functioning in CAAD have the same competencies as the Tax Courts in judicial impugnation proceedings, in accordance with article 4, no. 1, of the RJAT.

However, in the absence of any legal provision that permits a contrary conclusion, the scope of arbitral proceedings is restricted to matters concerning the legality of acts of the types referred to in article 2, and may not, in particular, define the terms in which annulment judgments that may be delivered are to be executed.

This competency, as follows from no. 1 of article 24 of the RJAT, belongs to the Tax Authority which, however, must execute the decision in the exact terms defined in the arbitral decision. It should be noted that, in case of dispute regarding the terms of execution of the arbitral decision, taxpayers may have recourse to the tax courts (note that, in accordance with article 23 of the RJAT, the arbitral tribunals are dissolved following the arbitral decision) and, through the appropriate procedural means, have their claim assessed.

In this sense, this has already been understood by arbitral jurisprudence. In this regard, reference may be made, for example, to the CAAD Awards dated 15/01/2015 and 11/12/2015 and delivered, respectively, in proceedings nos. 587/2014-T (Jorge Lopes de Sousa) and 30/2015-T (Fernanda Maçãs).

Thus, the exception of incompetence proceeds regarding the claim to the extent that it requests that the Tribunal "order the deduction of the amount of €107,622.08 from the individual taxable profit of company B..., S.A. for the financial year 2014 and the reflection of this correction in the taxable profit determined by the Group, determining the restitution of the amount of €24,753.08 as IRC and the amount of €1,614.33 as Municipal Tax, in the total amount of €26,367.41 of deduction of the amount of €107,622.08 from the individual taxable profit of company B..., S.A. for the financial year 2014 and the reflection of this correction in the taxable profit determined by the Group, determining the restitution of the amount of €24,753.08 as IRC and the amount of €1,614.33 as Municipal Tax, in the total amount of €26,367.41".

As a consequence of the foregoing, the Respondent is absolved of the action regarding this claim.

It should be emphasized, however, that this incompetence to assess one of the claims formulated by the Claimants in no way affects the competence of the Arbitral Tribunal to assess the remaining claims (if any) regarding which it has competence. This follows from no. 4 of article 186 of the CPC when it states "(…) even if one of the claims becomes without effect due to the tribunal's incompetence".

Now, in the case sub judice, in addition to the claim referred to above, the Claimants also request the annulment of the implied rejection of the Hierarchical Appeal which, in turn, fell upon the implied rejection of the Amicable Claim of the self-assessment of Corporate Income Tax relating to the financial year 2014.

The competence of this Arbitral Tribunal to assess this claim is not contested and is unequivocal, whereby it will be, below, the object of assessment.

III. LEGAL REASONING

A. AS TO THE FACTS

§1. Established Facts

The following facts are considered established:

The Claimant "A... – Sociedade Gestora de Participações Sociais, S.A." is the parent company of a group of companies taxed under the Special Regime for Taxation of Groups of Companies (RETGS) which was constituted, in addition to this, by the following companies:

  • C..., S.A., NIF...;

  • D..., S.A., NIF…;

  • E..., S.A., NIF…;

  • F..., S.A., NIF…;

  • G..., S.A., NIF…;

  • H..., Lda., NIF ...;

  • I..., S.A., NIF ...;

  • J..., S.A., NIF...;

  • K..., S.A., NIF…;

  • L..., Lda., NIF...;

  • M..., NIF...;

  • N..., Lda., NIF...;

  • B…, S.A., NIF…;

  • O..., Lda., NIF...; and

  • P..., S.A., NIF...; [Agreement].

The Subsidiary Company has as its corporate purpose the distribution of food products through vending machines; [Agreement]

On 7 February 2014, the Subsidiary Company entered into a contract for the purchase and sale of a vending unit with company Q... Lda; [document no. 7 attached by the Claimants]

Under that contract, the Subsidiary Company acquired the vending machines and the contracts for their operation, the vehicles assigned to the operation of the business, the staff and the products which, at the date of the transaction, were part of the inventory of said machines – cf. Recital B), First Clause ("Vending Unit") and Third Clause of the contract; [document no. 7 attached by the Claimants];

As a consequence of that contract, the Subsidiary Company recognized, in the financial year 2014, an intangible asset in the amount of €5,107,583.94 relating to goodwill generated with the acquisition of the business unit; [Agreement]

The Subsidiary Company recognized an impairment loss in the total amount of €147,757.12, which resulted in the recording of the intangible asset associated with the purchase of the business area in the total amount of €4,959,826.82 [document no. 8 attached by the Claimants];

B..., S.A. made no adjustment regarding the said intangible asset [document no. 1 attached by the Claimants];

There are no special relationships between the Subsidiary Company and company Q..., Lda; [Agreement]

The Claimants proceeded, on 28 May 2015, to submit their individual income declarations Form 22 of IRC, relating to the year 2014; [documents nos. 1 and 2 attached by the Claimants];

The Parent Company proceeded to submit the Form 22 declaration of IRC income of the Group on 29 May 2015; [document no. 3 attached by the Claimants];

From that Declaration, a taxable profit of €13,155,674.88 and tax payable of €1,986,359.55 (including IRC, state tax, municipal tax and autonomous taxes) resulted; [document no. 3 attached by the Claimants];

The Claimants presented, on 1 June 2017, an Amicable Claim of the self-assessment of IRC of the group relating to the financial year 2014; [document no. 4 attached by the Claimants];

The Tax Authority did not decide the said Amicable Claim, whereby on 01 October 2017, the presumption of rejection occurred; [notorious fact]

On 30 October 2017, the Claimants presented a Hierarchical Appeal of the said presumption of rejection; [document no. 5 attached by the Claimants]

On 29 December 2018, the presumption of rejection of the said Hierarchical Appeal occurred, in accordance with the law; [notorious fact]

On 27 March 2018, the Claimants presented a request for constitution of the Arbitral Tribunal in the CAAD computer system; [knowledge of the Tribunal by virtue of the exercise of its functions]

§2. Non-Established Facts

With relevance to the assessment and decision of the case, there are no facts that have not been established.

§3. Reasoning as to Matters of Fact

The Tribunal's conviction was based on the facts alleged by the Parties and documents attached, whose veracity was not put in question, as well as on the administrative file.

B) AS TO LAW

§1. Delimitation of Issues to be Decided

The only issue before the Tribunal is whether the goodwill generated in the context of the acquisition of a vending unit by Claimant B..., S.A. from company "Q..., Lda" may, or may not, benefit from the regime provided for in article 45-A of the IRC Code.

§2. Assessment

Under the heading "Intangible assets, investment properties and non-consumable biological assets" provides paragraph b) of no. 1 of article 45-A of the Code of Corporate Income Tax (IRC Code):

"1 — It is accepted as a tax expense, in equal installments, during the first 20 tax periods following initial recognition, the acquisition cost of the following intangible assets when autonomously recognized, in accordance with accounting standards, in the individual accounts of

a) (…)

b) Goodwill acquired in a business combination."

On the other hand, in accordance with no. 4 of the same article:

"4 — The provisions of no. 1 do not apply:

a) To intangible assets acquired within the scope of merger, spin-off or asset contribution operations, when the special regime provided for in article 74 is applied;

b) To goodwill relating to equity interests;

c) To intangible assets acquired from entities resident in a country, territory or region subject to a clearly more favorable tax regime included in a list approved by ordinance of the Government member responsible for the area of finance."

The rationale for this rule is expressed in the so-called "Draft Reform" authored by the Commission for the Reform of Corporate Income Tax – 2013[1]. The legislator intended, and we cite, "to provide competitive and ambitious tax treatment to intangible assets without a defined useful life. (…) Thus, and although these are assets which – precisely because they do not have a defined useful life – are not subject to depreciation, the Commission considered it advantageous for fiscal law to recognize the possibility of their acquisition cost being deductible, in equal installments, over twenty tax periods".

It follows from this regulation that the applicability of the benefit provided therein depends on the cumulative fulfillment of the following requirements:

That the intangible asset in question assumes the nature of, among others, goodwill.

That this goodwill is autonomously recognized, in accordance with accounting standards, in the individual accounts of the taxpayer;

That it was acquired within the scope of a business combination operation;

That this business combination operation does not consist of a merger, spin-off or asset contribution operation that benefited from the special regime provided for in article 74;

That this goodwill does not relate to equity interests; and

That it does not result from an operation with entities resident in a country, territory or region subject to a clearly more favorable tax regime.

As results from the established factuality, in the case at hand, all of the said requirements are fulfilled.

First, the nature of the intangible asset in question as goodwill is not contested and, moreover, was noted in the IES presented by Claimant "B... S.A." relating to the financial year 2014 and cited by the Respondent in §43 and 58 of the Answer presented.

On the other hand, and as results from doc. no. 8 attached with the request for arbitral pronouncement, on 31 December 2014, Claimant "B..., S.A." had recorded in its accounts an intangible asset of €4,959,827.00.

Furthermore, the said goodwill originates from a business combination operation as results from Accounting and Financial Reporting Standard 14 and, in particular, from §7, and does not relate to equity interests.

It is further manifest that the operation in question could not have benefited from the regime provided for in article 74 of the IRC Code precisely because it does not fall within the scope of that provision[2].

Finally, and as results from the proceedings, the operation that gave rise to the goodwill involved, solely and exclusively, companies domiciled in Portugal.

As to the doubts raised by the Respondent regarding the values considered by Claimant "B..., SA" as goodwill, it will be said that the accounting records of taxpayers enjoy the presumption of truthfulness in accordance with the provisions of no. 1 of article 75 of the General Tax Law.

The said provision states that it is presumed to be "true and in good faith the statements of taxpayers presented in accordance with the law, as well as the data and determinations entered in their accounting or books, when these are organized in accordance with commercial and fiscal legislation, without prejudice to the other requirements on which the deductibility of expenses depends."

As Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa state, "in no. 1 of this article legal presumptions of truthfulness of statements presented by taxpayers to the tax administration and of data in their accounting or books are established, if they are in accordance with commercial and fiscal legislation." And they continue: "in these cases, if the tax administration does not demonstrate the lack of correspondence between the content of such statements, accounting or books and reality, their content shall be considered as true."

Furthermore, this burden of proof of the Tax Administration "persists in the case where the taxpayer has presented a substitute declaration and, afterwards, has judicially impugned it on the ground that what was affirmed in that declaration does not correspond to reality"[3].

As J.L. Saldanha Sanches refers (although regarding the revoked article 78 of the CPT with full validity for article 75 of the LGT): "transposing such principle to Tax Law, it is not merely a matter of making it prevail only in case of dispute, but rather of attributing to it a general scope with particular validity for the hypothesis of dispute, in which the Administration puts in question the truthfulness of the facts provided by the taxpayer. Whenever this occurs, it is necessary that the Administration rebut the presumption of truthfulness of the records, demonstrating that "errors, inaccuracies or other well-founded indications that it does not reflect the taxpayer's actual taxable matter" are verified"[4].

In the case at hand, the Claimants invoke an error in the legal-tax qualification of a particular reality (goodwill resulting from a business combination operation) and have succeeded in demonstrating the occurrence of such error.

Furthermore, the Respondent did not allege, as required by no. 1 of articles 74 of the LGT and no. 1 of article 342 of the Civil Code, any facts susceptible of being subsumed under any of the situations provided for in no. 2 of article 75 of the LGT, whereby the values entered in the financial statements of Claimant "B..., SA" shall be considered valid. Indeed, in light of the rules governing the burden of proof in tax proceedings, it was the Respondent that had the burden of proving the possible incorrectness of those records and not the other way around as is clearly evident from the rule set forth in no. 1 of article 350 of the Civil Code, in accordance with which "whoever has a legal presumption in their favor is excused from proving the fact to which it leads".

This does not prevent, note, that, once the legal requirements for such are verified, the Respondent, within its legal competencies, develops the steps it considers necessary for ascertaining the tax situation of the Claimants, assessing, in that capacity, the correctness of their respective accounting records and rebutting, if appropriate, the presumption of truthfulness thereof.

In the present proceedings, however, it is manifest that the said presumption was not rebutted, whereby the Claimants' request should be judged as having merit with the appropriate legal consequences.

IV. DECISION

In view of the foregoing, this Arbitral Tribunal decides:

To judge admissible the dilatory exception invoked by AT absolving it of the claim to the extent that it requests that the Arbitral Tribunal "order the deduction of the amount of €107,622.08 from the individual taxable profit of company B..., S.A. for the financial year 2014 and the reflection of this correction in the taxable profit determined by the Group, determining the restitution of the amount of €24,753.08 as IRC and the amount of €1,614.33 as Municipal Tax, in the total amount of €26,367.41 of deduction of the amount of €107,622.08 from the individual taxable profit of company B..., S.A. for the financial year 2014 and the reflection of this correction in the taxable profit determined by the Group, determining the restitution of the amount of €24,753.08 as IRC and the amount of €1,614.33 as Municipal Tax, in the total amount of €26,367.41";

To judge the request for arbitral pronouncement as having merit and to annul the decision of implied rejection of the Hierarchical Appeal presented by the Claimants and, consequently, the decision of implied rejection of the Amicable Claim filed against the self-assessment of IRC no. 2015..., relating to the Corporate Income Tax of the financial year 2014, with all legal consequences;

To condemn the Tax and Customs Authority and the Claimant to pay the costs of the present proceedings in the proportion of 90% and 10%, respectively.

VALUE OF THE PROCEEDINGS

In accordance with articles 306, no. 2 of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €26,367.41 (twenty-six thousand, three hundred and sixty-seven Euros and forty-one cents).

COSTS

Costs in the amount of €1,530.00 in the proportion of the failure established at 10% for the Claimants and 90% for the Respondent, in accordance with Table I attached to the RCPAT and with the provisions of articles 12, no. 2 and 22, no. 4 of the RJAT, 4, no. 5 of the Regulations on Costs in Tax Arbitration Proceedings and 527, nos. 1 and 2 of the Code of Civil Procedure, ex vi article 29, no. 1, paragraph e) of the RJAT.

Lisbon, 22 November 2018.

The Arbitrator,

Isaque Marcos Lameiras Ramos

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

The drafting of this arbitral decision is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] Cf. the Draft Reform of the IRC available, for example, at https://www.portugal.gov.pt/media/1157091/20130726 seaf rel final anteprojeto reforma irc.pdf. For further development in a comparative law perspective, António Neves, Carlos Lobo, João Sousa, Et al., The New IRC, Ernst & Young, Almedina, Lisbon, 2013, p. 72 and António Carlos dos Santos, André Ventura (Coord.), the Reform of the IRC, From the political decision-making process to the revision of the Code, Vida Económica, Lisbon, 2014, p. 239.

[2] This rule applies only to merger, spin-off and asset contribution operations and not to simple asset acquisition operations as those underlying the present proceedings.

[3] Cf. Benjamim Silva Rodrigues, Diogo Leite de Campos, Jorge Lopes de Sousa, General Tax Law - Annotated and Commented, Encontro da Escrita, 4th Edition, 2012, p. 664.

[4] Cf. J.L. Saldanha Sanches, The Quantification of the Tax Obligation, Duties of Cooperation, Self-assessment and Administrative Assessment, 2nd Edition, Lex, Lisbon, 2003. By the same author, for example, J. L. Saldanha Sanches, Studies in Accounting and Tax Law, Coimbra, 2000, p. 133.

Frequently Asked Questions

Automatically Created

Can goodwill from business combinations be deducted as a tax expense under Article 45-A of the Portuguese IRC Code?
Yes, goodwill from business combinations can be deducted as a tax expense under Article 45-A of the IRC Code. The goodwill must be autonomously recognized as an intangible asset arising from a business combination operation. The deduction is made in equal installments over the first 20 tax periods following initial recognition, at a rate of 5% (1/20th) per year. However, taxpayers must demonstrate compliance with applicable accounting standards in determining the goodwill amount, and the recognition must meet the specific requirements set forth in Article 45-A(1)(b).
What are the requirements for recognizing goodwill as a deductible expense over 20 tax periods under IRC rules?
To recognize goodwill as a deductible expense over 20 tax periods under IRC rules, several requirements must be met: (1) the goodwill must arise from a business combination operation; (2) it must be autonomously recognized as an intangible asset in accordance with applicable accounting standards; (3) the recognition must comply with the conditions specified in Article 45-A(1)(b) of the IRC Code; (4) the deduction is calculated at 5% annually (1/20th of the total amount) in equal installments; and (5) taxpayers must provide documentary evidence proving compliance with accounting standards. The Tax Authority may challenge deductions where proper accounting compliance cannot be demonstrated.
How does the CAAD arbitral tribunal handle exceptions of material incompetence in IRC disputes?
The CAAD arbitral tribunal addresses exceptions of material incompetence by first allowing the opposing party to respond under the principle of contradiction (Article 16(a) RJAT). In this case, the Tax Authority raised a dilatory exception arguing the tribunal lacked jurisdiction to order tax restitution beyond annulling administrative decisions. The tribunal must determine whether the matter falls within its competence under Articles 2(1)(a) and 5 of the RJAT before proceeding to substantive issues. Material incompetence exceptions are decided in the procedural sanation phase, where the tribunal verifies all procedural prerequisites including jurisdiction ratione materiae, proper constitution, timeliness, and party legitimacy.
What happens when errors in the Modelo 22 IRC declaration affect the taxable profit of a corporate group?
When errors in the Modelo 22 IRC declaration affect a corporate group's taxable profit, corrections must be made both at the individual subsidiary level and consolidated group level. In this case, B..., S.A.'s filing errors regarding goodwill deduction (€255,379.20) and non-deductibility of impairment losses (€147,757.12) impacted the group's consolidated taxable profit determined by the parent company A... The total correction sought was €107,622.08 at the individual level, with cascading effects on group taxation. Taxpayers can challenge these errors through gracious complaints (reclamação graciosa) and hierarchical appeals, and ultimately through tax arbitration when administrative remedies result in tacit rejection. The corrections affect both IRC liability and Municipal Tax (Derrama).
Can taxpayers challenge tacit dismissals of hierarchical appeals and gracious complaints regarding IRC self-assessments through tax arbitration?
Yes, taxpayers can challenge tacit dismissals of hierarchical appeals and gracious complaints regarding IRC self-assessments through tax arbitration under the RJAT (Legal Regime of Tax Arbitration). Article 10(1)(a) and (2) of the RJAT specifically provides standing for arbitral requests against implied rejection of administrative appeals. The request must be filed within the statutory period after the tacit rejection occurs. In this case, the claimants successfully invoked CAAD jurisdiction under Articles 2(1)(a) and 10 of the RJAT to challenge the implied rejection of their hierarchical appeal against the tacit dismissal of their gracious complaint concerning the 2014 IRC self-assessment. The tribunal's competence extends to both annulment of the administrative decision and determination of the correct tax liability, though jurisdictional limits regarding ordering restitution may be contested.