Summary
Full Decision
ARBITRAL DECISION
The arbitrators Advisor Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Rui Ferreira Rodrigues and Prof. Dr. Ana Maria Rodrigues (arbitrators-members), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 25-05-2016, agree as follows:
- REPORT
A…, SGPS, S.A., Tax ID …, hereinafter referred to as "Applicant", submitted a request for arbitral ruling in accordance with the Legal Regime of Tax Arbitration, approved by Decree-Law No. 10/2011, of 20 January (hereinafter referred to as LRTA).
The Respondent is the TAX AND CUSTOMS AUTHORITY.
The Applicant requests the declaration of illegality and annulment of the act dismissing the request for ex officio revision and of the self-assessment acts relating to the years 2010 and 2011 and the consequent reduction of the tax losses of 2010 and 2011, given the non-deduction of expenses subject to autonomous taxation and ordered the restitution of the amount of autonomous taxation paid in the total amount of € 1,595,494.53 in 2010 and 2011, which amount increased, where applicable, by indemnity interest at the legal rate, with the appropriate legal consequences.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 15-03-2016.
Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and of subparagraph b) of paragraph 1 of article 11 of the LRTA, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable deadline.
On 10-05-2016, the Parties were duly notified of this designation and did not express any intention to refuse the designation of the arbitrators, in accordance with the combined terms of article 11, paragraph 1, subparagraphs a) and b) of the LRTA and articles 6 and 7 of the Deontological Code.
Thus, in compliance with the provisions of subparagraph c) of paragraph 1 of article 11 of the LRTA, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 25-05-2016.
The Tax and Customs Authority responded arguing that the request should be judged as unfounded.
By order of 04-07-2016, it was decided to dispense with the hearing and that the case should proceed with written arguments.
The Parties submitted arguments.
The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January.
The Parties are duly represented, possess legal standing and capacity, are legitimate and are represented (articles 4 and 10, paragraph 2, of the same statute and article 1 of Ordinance No. 112-A/2011, of 22 March).
The case does not suffer from any nullities nor have exceptions been raised, so there is no obstacle to the examination of the merits of the case.
- FACTUAL MATTERS
2.1. Proven Facts
Based on the elements contained in the case file and documents attached to the request for arbitral ruling, the following facts are considered proven:
a) The Applicant A… submitted, on 31 May 2011 and 2012, its consolidated CIT returns Form 22 for the years 2010 and 2011, respectively, having at those times proceeded with the self-assessment of said tax, including autonomous taxation (documents Nos. 2 and 3 attached to the request for arbitral ruling, whose contents are reproduced hereby);
b) The amount of CIT, including autonomous taxation, and of the corresponding surtax, self-assessed, in the amounts of € 90,979.65 and € 1,113,170.94, respectively, are paid (documents Nos. 4 and 5 attached to the request for arbitral ruling, whose contents are reproduced hereby);
c) With respect to the year 2010, the applicant self-assessed autonomous taxation in the total amount of € 100,375.10, as per field 365 of table 10 of Form 22 and in accordance with the itemization thereof contained in document No. 6 attached to the request for arbitral ruling, whose content is reproduced hereby;
d) The amount of autonomous taxation, minus the autonomous taxation on undocumented expenses (which is not the subject of the present arbitral action, as it was not the object of the request for ex officio revision), amounts to € 77,654.95 (€ 100,375.10 - € 22,720.15);
e) With respect to the year 2011, the Applicant self-assessed autonomous taxation in the total amount of € 1,906,358.08, as per field 365 of table 10 of Form 22 and in accordance with the itemization thereof contained in document No. 7 attached to the request for arbitral ruling, whose content is reproduced hereby;
f) Also with respect to the year 2011, the autonomous taxation on variable remuneration of administrators, managers and directors [article 88, paragraphs 13 and 14 of the Corporate Income Tax Code], initially in the amount of € 1,688,959.80 (€ 3,753,244.00 x 45%), was subsequently cancelled by the Tax Authority as regards the amount resulting from the increase of 10 percentage points in the respective rate, provided in paragraph 14 of article 88 of the CITC [initial rate of 45% changed to 35%), for the reasons contained in document No. 8 attached to the request for arbitral ruling, whose content is reproduced hereby;
g) Therefore, this part of the autonomous taxation self-assessed by reference to the year 2011 on variable remuneration decreased by € 375,324.40 to € 1,313,635.40 (€ 1,688,959.80 - € 375,324.40), and the total autonomous taxation of the same year 2011 consequently also reduced to € 1,531,033.68 [€ 1,906,358.08 - € 375,324.40);
h) This amount, minus the autonomous taxation on undocumented expenses (which is not the subject of the present arbitral action, as it was not the object of the request for ex officio revision), amounts to € 1,517,839.58 (€ 1,531,033.68 - € 13,194.10);
i) The Applicant deducted in accordance with general provisions for the purposes of determining taxable income under CIT the expenses, costs and charges on which the said autonomous taxation self-assessed was levied, both with respect to the year 2010 and with respect to the year 2011, with the exception of undocumented expenses, documents Nos. 6 and 7 attached to the request for arbitral ruling;
j) With respect to the autonomous taxation of the year 2011, the expenses with variable remuneration to administrators, managers or directors, in the amount of € 3,753,244.00, were, as to € 1,731,551.00, deducted for tax purposes in Form 22 of the year 2010, since although the remunerations were only paid and subject to autonomous taxation in 2011, they related to performance in 2010 and in the remaining part, as to € 2,021,693 (€ 3,753,244.00 - € 1,731,551.00), were deducted for tax purposes in Form 22 of the year 2011;
k) The Applicant became aware of the arbitral decision rendered on 24-04-2015, in case No. 659/2014-T, in which it was Applicant (document No. 9 attached to the request for arbitral ruling, whose content is reproduced hereby);
l) The Large Taxpayers Unit issued decisions with the reasoning contained in the draft decisions attached to the request for arbitral ruling as documents Nos. 10 and 11, whose contents are reproduced hereby;
m) On 26-05-2015, the Applicant submitted a request for ex officio revision of the self-assessments for the years 2010 and 2011 (document No. 12 attached to the request for arbitral ruling, whose content is reproduced hereby);
n) The request for ex officio revision was dismissed by order of the Deputy Director General of the Tax and Customs Authority of 03-12-2015 (document No. 1 attached to the request for arbitral ruling, whose content is reproduced hereby) which was based on a report stating, among other things:
2.4 - EFFECTS
In the case at hand, the factual and legal matters at issue are tied to the following question:
- Should autonomous taxation not apply in case of non-deduction of expenses and charges that constitute the basis of incidence of such autonomous taxation for purposes of determining taxable income under CIT?[1]
In order to answer this question, we must keep in mind, beyond the manner in which CIT assessment is carried out, the nature and genesis of autonomous taxation.
The legislator in the CITC establishes in subparagraph a) of article 89 of the CITC that the authority to assess CIT rests with the taxable person itself, being incumbent upon the latter to determine the taxable matter and proceed with self-assessment in the periodic income declaration referred to in articles 120 and/or 122 of the same statute. In the case of entities resident in the national territory (legal entities and other entities with registered office or effective management in Portuguese territory), CIT is levied on the totality of their income including that obtained outside national territory.
In the case at hand, the determination of the taxable matter of the group of companies was effected by the present appellant, by choice, as the dominant company in the income declaration under the Special Taxation Regime for Groups of Companies, and corresponds to the taxable profit of the group, resulting from the algebraic sum of taxable profits and tax losses determined in the periodic individual income declarations of each of the companies belonging to the group in accordance with paragraph 1 of article 70 of the CITC, corrected for profits distributed among group companies that are included in individual tax bases (paragraph 2 of the same article 70), net of deductible tax losses in accordance with article 52 and article 71, both of the CITC and of any existing tax benefits that consist of deductions from such profit.
The determination of the individual taxable result of each of the companies belonging to the group, under the general regime, is carried out in accordance with article 17 et seq. of the CITC and has as its starting point the net result of the year determined by the taxable person in accordance with accounting principles. To this amount will be added or subtracted the positive and negative changes in equity verified in the same period and not reflected in that result, with those items possibly being corrected in accordance with the CITC which adopts the principle constitutionally established in article 104, paragraph 2 of the Portuguese Republic Constitution (PRC), which is embodied, in the case of companies, in the taxation of real effective income.
Article 17 of the CITC in its paragraphs 1 and 3 states:
"1. The taxable profit of legal entities and other entities mentioned in subparagraph a) of paragraph 1 of article 3 consists of the algebraic sum of the net result of the year and of the positive and negative changes in equity verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this code.
- In order to permit the determination referred to in paragraph 1, accounting must:
a) Be organized in accordance with accounting standardization and other legal provisions in force for the respective sector of activity, without prejudice to compliance with the provisions set forth in this code;
b) Reflect all operations carried out by the taxable person and be organized so that the results of operations and changes in equity subject to the general regime of CIT can clearly be distinguished from those of the rest."
Accounting-wise, starting in 2010, the new national accounting model came into force which succeeded the POC - the System of Accounting Standardization (SAS), published through Decree-Law No. 158/2009, of 13 July, which repealed the POC and complementary legislation, as well as Accounting Guidelines Nos. 1 to 29, and which came into force as of 1 January 2010.
Now, accounting as an information system in which through financial statements a true and fair picture of the company, its assets, financial position and results is given for decision-making by its organs and recipients thereof in general (investors, financiers, workers, suppliers and other creditors, Public Administration, general public...) must reflect, in determining the net result of the period, the result of the various operations in which the company engaged, namely and among many others, those relating to the assumption of expenses and charges which, given their substance, were accounted for as, for example, undocumented expenses, entertainment expenses, vehicle expenses (depreciation, rents or leases, insurance, maintenance and repairs, fuel and taxes levied on their possession or use), expenses for travel allowances and compensation for the displacement of workers in their own vehicles, expenses or charges relating to indemnities and any compensation owed to manager, administrator or director, among many others.
As provided in the aforementioned article 17 of the CITC, the net result determined individually in accordance with the applicable accounting standardization is the starting point for determining the taxable result of each of the companies in the group, a consequence of the adoption in Portugal of the system of partial dependence of the tax result on the accounting result.
Now, the disregard of expenses and charges that affected the net result of the taxable person for purposes of determining taxable income is carefully circumscribed to what is provided for in the Corporate Income Tax Code. This determines all elements necessary for taxation, and once the factual requirements are met, the obligation strictly bound arises, being forbidden both to the administration and to the taxable persons to introduce subjective criteria of assessment in its concrete application under penalty of violation of the principles of legality and typicality of taxation (in turn, emanating from the principle of legal certainty).
Thus, and contrary to what is requested by the applicant and what appears to result from the content of the arbitral decisions alluded to, with due respect, we consider that, from the moment when taxable persons choose, being indeed a management choice, to bear that type of expenses, costs and charges enumerated in article 88 of the CITC, a procedure that the legislator, in creating autonomous taxation, intended to discourage because they contain a high anti-social potential expressed in practices that are somewhat evasive, abusive and concealed in order to avoid taxation in the most diverse aspects (whether in terms of income taxes and/or contributions to the social security system or other tax), providing in the final analysis for condemnable mechanisms of tax fraud and evasion, there is no legal basis for a removal of these expenses and charges demonstrably borne for purposes of determining net result and consequently for determining the taxable result of the taxation period in which they were borne.
Under penalty of, in addition to being faced with the production of unreliable financial information resulting from serious violation of one of the qualitative characteristics that financial information must present - reliability and more specifically completeness, since the omission of those expenses from the net result will result in misleading financial information, also frustrating the objectives of the legislator in creating autonomous taxation.
Such conclusion is also related to the very nature of autonomous taxation. It is the understanding of these services that autonomous taxation is part of the CIT regime and is due as part of this tax. For, and as stated in the ruling of 24 February 2014 (Case No. 209/2013 - T) of CAAD referred to by the applicant and not yet final, «(...) although accepting as materially distinct, in the sense established by the Constitutional Court, as to the form of tax imposition (one being through an instantaneous fact and another through a continuing fact), taxation both as regards the autonomous taxation we are now dealing with, and as regards CIT pure and simple, occur within the scope of and as part of CIT, in the same way that, for example, autonomous taxation under the Personal Income Tax (and the own liberatory rates which, unless we are mistaken, will themselves integrate a kind of autonomous taxation), despite possibly being based on instantaneous facts, are assessed and paid as part of Personal Income Tax.
It is understood, thus, in summary, that one thing is the type of taxable fact that underlies a given imposition. Another thing is the title under which such imposition is due, ultimately, the tax obligation. And in the case of autonomous taxation as part of CIT, that cause, the title under which the tax is demanded, will still be CIT.
In this sense, attention should be paid, first and foremost, to the fact that the legal regime of autonomous taxation in question only makes sense in the context of taxation under CIT. That is, disconnected from the legal regime of this tax, they would completely lack meaning. Their existence, their purpose, their explanation, ultimately, their legality, is only comprehensible and acceptable within the framework of the legal regime of CIT.
In fact (...), the autonomous taxation now under analysis belong, systematically to CIT, and not to VAT (as we have seen), to other taxes, or to any new tax.
That is, although it can be accepted that the taxable impositive fact is each of the singular legally typified expenses, the fact is that these, as such, are not the final object of taxation, the reality that is intended to be aggravated by the tax. If it were, they would obviously be taxed, all expenses incurred by all subjects, and not just by some of them. That is, autonomous taxation of the kind we are now dealing with are strongly linked to the subjects of the respective income tax, and more specifically, to the economic activity carried out by them.»
Although it can be considered that autonomous taxation has the same nature as CIT, it is essential to bear in mind the spirit that determined them, being essential to assess the intention of the legislator, expressed in the legislative text, understood as a whole.
Now, autonomous taxation, as concluded by prevailing doctrine and jurisprudence, was created by the legislator with the objective, on the one hand, of encouraging taxpayers subject to it to reduce as much as possible the expenses that negatively contribute to the formation of taxable profit and thus negatively affect tax revenue, and on the other, to prevent that, through these expenses, companies proceed to disguised distribution of profits, which would not otherwise be taxed, as well as to combat tax fraud and evasion that such expenses cause not only in relation to CIT or Personal Income Tax, but also in relation to the corresponding contributions, both of employer entities and of workers, to social security (not infrequently, such expenses are nothing more than disguised wage payments).
We note that the reduction of expenses, costs and charges subject to autonomous taxation aimed at by the legislator with its creation obviously implies that these expenses are not borne at all a priori by the taxable persons. The taxable person exercises its option: it does not incur the expenses typified in article 88 of the CITC thereby avoiding the assessment of autonomous taxation legally fixed or it bears those expenses and the consequent autonomous taxation taking into account that the behavior more or less censurable that the legislator intended to discourage has already occurred. Each act of expense borne by taxable persons that is subject to autonomous taxation constitutes an autonomous taxable fact, to which the taxpayer is subject, regardless of whether or not it has taxable matter under CIT at the end of the respective taxation period. It should be noted that the rate of autonomous taxation to be applied may vary, not only depending on the nature of the expense incurred to which it applies (e.g. undocumented expenses, travel allowances not invoiced to customers, expenses with light passenger vehicles), but also on the type of taxable person (e.g. non-profit entity, exempt entities, entity that conducts mainly a commercial, industrial or agricultural activity) that bore it as well as on the very tax performance of the CIT taxable person, by assuming different percentages when determining profit or tax loss.
That is, it is easily concluded that the raison d'être, so to speak, of autonomous taxation is not only in the simple collection of more tax, it rather has a strongly marked anti-abuse character, in the sense of discouraging recourse to the type of specific expenses and charges it taxes, which, by their nature, namely expenses borne that are situated in a gray area separating what is business expense (production) from what is private expense (consumption), easily diverted to private consumption, that is, of questionable business character, are conducive to payment of disguised income, and ultimately, even, allow recovering some of the tax that ceased to be paid by the recipient of the income, transferring the tax responsibility of the latter to the sphere of who pays that income. Like all anti-abuse rules, autonomous taxation owes its existence to the evasive and fraudulent behaviors of taxable persons in tax matters and to the need to establish adequate means of reaction so as to ensure compliance with the principle of equality in the distribution of the tax burden and in the pursuit of satisfaction of the financial needs of the State and other public entities (cf. article 103, no. 1, of the PRC)
In the case at hand, the autonomous taxation self-assessed by the applicant was levied on expenses incurred by the companies belonging to the group and fiscally deductible in accordance with the applicable tax legislation.
As we stated previously, in addition to there being no legal basis for the expenses in question, which negatively affected the individual accounting results of the companies belonging to the group for the taxation periods of 2010 and 2011 and whose accounts are closed, approved and filed, to now be disregarded both for accounting purposes and for purposes of determining the tax result of these companies and consequently the taxable result of the group, neither does any argument capable of supporting, technically and legally, such disregard appear.
III - CONCLUSION AND PROPOSED DECISION
In view of the foregoing, the present request for ex officio revision of the tax act based on error in self-assessment should be dismissed as the respective requirements are not met.
o) On 14-03-2016, the Applicant submitted the request for constitution of the arbitral tribunal that gave rise to the present case.
2.2. Unproven Facts
There are no facts relevant to the decision of the case that have not been proven.
2.3. Substantiation of Factual Findings
The proven facts are based on documents submitted by the Applicant with the request for arbitral ruling and, subsequently, in application of 19-09-2016.
- LEGAL MATTERS
The essential question that is the object of this case is that which the Applicant poses in these terms: «should autonomous taxation not apply in case of non-deduction of expenses and charges in the context of CIT that taxes taxable profit that constitute the basis of incidence of such autonomous taxation».
The Applicant states that it was unaware of the existence of "this innovative interpretation of the legal framework" and that, upon detection of the error, it requested the exercise of the option, which was denied to it by the decision on the request for ex officio revision and in contradiction with the position previously adopted by the Tax and Customs Authority.
The Applicant understands that the Tax and Customs Authority acts in bad faith, violating the principles of good faith and the prohibition of "venire contra factum proprium", saying that "it cannot, in one case because it is favorable to its arguments, assert to the Author regarding expenses subject to autonomous taxation that 'the legal option is conferred on it to consider them fiscally non-deductible and then say laconically in its dismissal act that <<there is no legal basis for removal of these expenses and charges>>."
3.1. Question of the Existence or Not of an "Error of Interpretation" by the Applicant
The thesis defended by the Applicant, in the wake of a possible interpretation of some arbitral jurisprudence, which indicates, leads to depending on the choice of the taxpayer the subjection to autonomous taxation of expenses indicated in article 88 of the CITC.
There is no rule that establishes the possibility of choice, nor does the Applicant offer textual support for its position either in article 88 or in any other rule.
The possibility of choice, in the matter of expense deduction, is limited to the possibility of deducting them or not, for the purposes of article 23 of the CITC, since it is incumbent upon the taxpayer, in the first place, to formulate and apply a judgment on its necessity for the achievement of income subject to tax or for the maintenance of the income-generating source.
But this judgment is subject to the control of the Tax and Customs Authority which may and must make the appropriate corrections, whether they are favorable or unfavorable to the taxpayer, in the exercise of its duties in pursuit of the public interest, in accordance with the principle of legality (article 55 of the LGT).
Thus, even if the taxpayer chooses not to deduct certain expenses, by understanding not to formulate a judgment in the sense of that necessity, these accounted expenses do not cease to have been incurred and to be qualified as deductible, if that is the qualification that should be given to them in light of article 23 of the CITC.
And, therefore, if they are to be qualified as deductible and meet the requirements for the application of autonomous taxation applicable to deductible expenses, they will be subject to them.
It is not recognized, thus, to the taxpayer a right to consider non-deductible expenses that are deductible for the purpose of removing the application of autonomous taxation.
Moreover, it is essentially this that is expressly clarified in footnote no. 6 of the arbitral ruling of 02-02-2015, rendered in case No. 628/2014-T, in which, after referring that the taxpayer can choose to "not deduct the expense" it is clarified:
"We are not here sustaining, obviously, that autonomous taxation is optional. Rather, what will be optional (in a certain sense, at least) is the classification or not of a certain charge as deductible, to the extent that it presupposes its necessity for the maintenance of the income-generating source, and such judgment falls to the taxable person (in this sense, cf. for example, the Judgment of the Supreme Administrative Court of 30-11-2011, rendered in case 0107/11, available at www.dgsi.pt).
Neither is this, in the same way, to suggest that one can 'omit expenses'. In fact, the accounting of a certain charge as non-deductible implies, precisely, its relevance in accounting, which is, precisely, the opposite of its omission."
By this note, which specifically aims to clarify the scope of the statement on the choice of "not deducting the expense", it can be seen that the arbitral jurisprudence that the Applicant invokes is not uniform and even considers that, "obviously", autonomous taxation is optional.
Moreover, the letter to the references that in article 88 of the CITC are made to "deductible charges" and not to "deducted charges" points in the direction that what is relevant for the purposes of autonomous taxation in which that expression is used is the nature of the charges and not the choice of the taxpayer to deduct them or not.
Therefore, being it to be presumed that the legislator knew how to express its thinking in adequate terms (article 9, paragraph 3, of the Civil Code), only could this interpretation that results linearly from the literal tenor be set aside if the existence of other legally admissible interpretive elements were found. But this does not occur because, on the contrary, the primary reason for autonomous taxation relating to fringe benefits is to encourage taxpayers to refrain from incurring those expenses, "whether for reasons of transparency in companies' remuneration practices, or for reasons of tax evasion"[2], reasons that do not cease to apply in cases in which the taxpayer chooses not to deduct the expenses.
Thus, in the case at hand, the qualification of the expenses in question as "deductible charges" not being questioned, in light of the criteria of article 23 of the CITC, it cannot be concluded otherwise than that the autonomous taxation provided for in the fulfillment of the normative hypotheses contained in article 88 of the CITC are applicable.
In truth, as the Tax and Customs Authority understood in the decision on the request for ex officio revision, if the taxpayer incurs the expenses that are provided for in article 88 of the CITC, there is application of the corresponding taxation, regardless of the tax relevance of the expenses as items for purposes of determining taxable profit, as results from the autonomous nature of those taxation: "Each act of expense borne by taxable persons that is subject to autonomous taxation constitutes an autonomous taxable fact, to which the taxpayer is subject, regardless of whether or not it has taxable matter under CIT at the end of the respective taxation period."
Therefore, it must be concluded that the Applicant did not incur an error of interpretation in considering the charges referred to in its Forms 22 of 2010 and 2011 as subject to autonomous taxation and that the decision dismissing the request for ex officio revision does not suffer from error in interpretation and application of that article 88. Furthermore, the error that constitutes a defect of an administrative or tax act and has annulling effect is only that which affects the factual requirements (dissonance between the requirements of the act and reality) or affects the legal requirements (incorrect application of law), which does not occur in the case at hand.
In any event, if it were understood, incorrectly, that the application of autonomous taxation depended on a choice of the taxpayer regarding the deduction of expenses, the fact is that the Applicant made it in the declarations of 2010 and 2011 and, therefore, also from this perspective the requirements for the application of autonomous taxation will be met.
3.2. Question of the Self-Binding of the Tax and Customs Authority to the Interpretation of the Legal-Tax Regime of Autonomous Taxation
The Applicant refers to decisions of the Tax and Customs Authority, contained in documents Nos. 10 and 11 attached to the request for arbitral ruling, in which the Tax and Customs Authority, in points 19 and 20 respectively, states that "taxpayers, with reference to expenses subject to autonomous taxation, are legally conferred the choice of considering them fiscally non-deductible, not submitting them, in this way, to autonomous taxation, or, considering them relevant for purposes of determining taxable profit, bearing, in this case, the taxation in question."
The first of those decisions refers to a request for ex officio revision, submitted by the Applicant regarding the year 2010, and the second was rendered in a request for administrative reconsideration submitted by the Applicant regarding CIT for the years 2011 and 2012.
The Applicant argues that "the Tax Authority cannot, in one case because it is favorable to its arguments, assert to the Author regarding expenses subject to autonomous taxation that 'the legal option is conferred on it to consider them fiscally non-deductible and then say laconically in its dismissal act that <<there is no legal basis for removal of these expenses and charges>>."
The scope and limits of the binding of the Tax and Customs Authority by positions previously adopted are especially provided for in articles 68 (binding information) and 68-A of the LGT (generic guidance).
In the context of binding information, "the tax administration, in relation to the object of the request, may not subsequently proceed in a manner different from the information provided, except in compliance with a judicial decision" (paragraph 14 of article 68 of the LGT).
In the case at hand, the Applicant did not request nor was any binding information issued by the Tax and Customs Authority, so there is no basis in this rule for concluding that the Tax and Customs Authority is bound by the reasoning previously adopted.
As regards generic guidance, "the tax administration is bound by generic guidance contained in circulars, regulations or instruments of similar nature, regardless of their form of communication, aiming at uniformity of interpretation and application of tax rules" (article 68-A, paragraph 1 of the LGT).
In this case, no generic guidance was issued on this matter, so there is no binding effect by this means either.
Being expressly provided for in law the limits of the binding of the Tax and Customs Authority by positions assumed, only those are the limits to be observed.
3.3. Question of Violation of the Principle of Good Faith, of the Prohibition of "Venire Contra Factum Proprium" and of Legal Certainty
The Applicant imputes to the Tax and Customs Authority violation of the principle of good faith and the prohibition of "venire contra factum proprium", for adopting in the decision on the request for ex officio revision a position in contradiction with the reasoning of previous decisions.
The issuance by the Tax Administration of a decision with reasoning different from other decisions does not, by itself, reveal bad faith, nor does it violate the prohibition of "venire contra factum proprium" nor does it affect legal certainty in an intolerable manner. Legal positions can evolve, as they frequently do, at the administrative and jurisprudential level and of the taxpayers themselves, as seen in the request for arbitral ruling, in which the Applicant repeatedly speaks of an innovative understanding.
The LGT explicitly provides, in paragraph 2 of article 68-A, this possibility that the Tax Administration may alter its legal positions by foreseeing the alteration of generic guidance and by establishing the extent of protection of taxpayers against such alterations.
Furthermore, the aforementioned article 68 of the LGT, which establishes the regime for binding information, only prohibits the Tax and Customs Authority, in its paragraph 14, from acting in nonconformity with information provided within the procedures provided therein, which implies that outside those cases, the Tax and Customs Authority not only may but must, in compliance with the principle of legality, alter its understandings on the interpretation of the rules it must apply, when it believes that the positions previously adopted are wrong.
In the case at hand, there is no legal limitation to the alteration by the Tax Administration, so there is no obstacle in the tax laws to the adoption in the decision on the request for ex officio revision of what it considered correct, which is imposed on it by the subordination of the totality of its activity to the principle of legality (articles 266, paragraph 2, of the PRC and 55 of the LGT).
It is true, however, that strict legality, resulting from specific tax rules applicable to determined situations, may be set aside by the application of constitutional and legal principles, of a general nature, among which is included that of protection of good faith, which also integrates the block of legality applicable and which has legal coverage, in addition to paragraph 2 of article 266 of the PRC, in articles 10 and 11 of the Code of Administrative Procedure and also in articles 59, paragraph 1 and paragraph 3, subparagraph f) of the LGT, invoked by the Applicant.
But the invalidating effect of the principle of good faith, in the context of acts practiced in the exercise of non-discretionary power, subject to the principle of legality, is limited to situations in which in an adequate weighing of values it is justified that the protection of good faith supersedes strict legality.
These are cases in which the strict application of the law to a given situation results in the creation of a flagrantly unjust situation, as understood by the Supreme Administrative Court in the ruling of 28-01-2009, rendered in case No. 0699/08: "in the confrontation between the principles of legality and good faith, each situation in concreto must be weighed so as to be able to conclude whether from the prevalence of the first, in a strict sense, results a flagrant injustice for the taxpayer, entailing a disproportionate and intolerable prejudice to it". "Only in this latter case should the violation of the principle of good faith, in its dimension of protection of trust of individuals and as part of the block of legality, in a broad sense, have invalidating effects of the tax act practiced."
In the case at bar, there is no situation of this kind.
In truth, as stated, on the one hand autonomous taxation has textual support in article 88 of the CITC and the reasons that justify them apply in the case at hand, so that their application cannot be qualified as unjust, nor can it be understood that it causes a disproportionate and intolerable prejudice to the Applicant. On the contrary, the non-application of autonomous taxation to the Applicant, without any other previous similar situation being known in which the Tax and Customs Authority has not applied them, is what would generate a situation of injustice and inequality favorable to the Applicant in relation to the generality of taxpayers. In truth, in the two situations that the Applicant refers to as ones in which the Tax and Customs Authority adopted the understanding it proposes, the latter did not issue any decision in the sense of non-application of autonomous taxation by choice of the taxpayer, since the object of the decisions was another.
On the other hand, the situations in which the principle of good faith or of protection of trust and legal certainty should supersede legality, being ground for annulment of assessment acts, are only those in which an action of the tax administration influenced the behavior of the taxpayer generating tax legal relations, leading it to practice tax acts in the conviction that it would be given a certain tax treatment.
In the case at hand, none of this situation occurs, the acts of the Applicant that generated autonomous taxation (the expenses incurred, which constitute taxable facts) occurred in 2010 and 2011, before any position of the Tax Administration that could influence its behavior.
Moreover, the Applicant insistently states that it considers innovative the understanding it proposes and that only in 2014, through arbitral decisions, did it become aware of it, which reveals that, when it incurred the expenses, it expected that autonomous taxation would be applicable to them, as it itself assumed by completing accordingly Forms 22 of 2010 and 2011.
Being so, there is no violation of the principle of good faith or legal certainty, since the decision on the request for ex officio revision comes to confirm the understanding that the Applicant expected would be given to the taxable facts it generated, when it practiced them.
Furthermore, in the case at bar, the decision of the ex officio revision being contested does not deal with the same question that was examined in the administrative decisions referred to by the Applicant, which concern the question of the deductibility of the fiscal benefit relating to SIFIDE from the collection of state surtax and autonomous taxation, so that the Tax Administration in the decision on the request for ex officio revision did not practice an act that is in contradiction with previous ones as regards the decision of the same legal question, that would be capable of constituting "venire contra factum proprium".
Thus, one is outside the scope of protection of the principle of good faith and legal certainty and of its invalidating effect of tax acts subject to the principle of legality, as are self-assessment acts.
On the other hand, in the specific context of requests for ex officio revision, when presented outside the deadline for administrative reconsideration, one is faced with a means of challenging assessment and self-assessment acts of limited reach, since these acts may only be invalidated on the basis of error imputable to the services, as results from the explicit tenor of article 78, paragraph 1 of the LGT, and not on the basis of any illegality, as occurs with the means of challenging used within the normal deadline for challenging assessment acts, cf. article 99 of the Code of Tax Procedure.
The term "error" used in paragraph 1 of article 78 of the LGT refers to the defects of tax acts that in administrative dogmatics are designated as such, which are error concerning the factual requirements and error concerning the legal requirements. What excludes, as a basis for revision not presented within the deadline for administrative reconsideration (in which case any illegality can be invoked), all defects to which in that dogmatics the designation of "error" is not attributed.[3]
From this it follows that, the self-assessment acts not being affected by any defect qualifiable as error concerning the factual requirements or error concerning the legal requirements, the decision on the request for revision, even if it suffers from its own defects, can never lead to annulment of those acts.
The defects that are not qualifiable as "error" which self-assessment or assessment acts may suffer, as well as the autonomous defects of the decision on the request for revision, cannot be grounds for annulment of those assessment or self-assessment acts, although the illegalities may possibly have other consequences, which is not for here to examine, since it is a matter foreign to the competences of the arbitral tribunals functioning at CAAD.[4]
For the foregoing, there is no violation of the principle of good faith that justifies the annulment of the self-assessment acts nor the act that decided the request for ex officio revision.
- INDEMNITY INTEREST
The requests for declaration of illegality and annulment of the self-assessment acts proving to be unfounded, the request for indemnity interest is unfounded, since none of the situations provided for in article 43 of the LGT are met.
- DECISION
In these terms, the Arbitral Tribunal hereby agrees:
a) To judge unfounded the request for arbitral ruling;
b) To absolve the Tax and Customs Authority of the requests.
- VALUE OF THE CASE
In accordance with the provisions of article 306, paragraph 2 of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a) of the Code of Tax Procedure and 3, paragraph 2 of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is set at € 1,595,494.53.
- COSTS
Pursuant to article 22, paragraph 4 of the LRTA, the amount of costs is set at € 21,114.00, in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, borne by the Applicant.
Lisbon, 03-10-2016
The Arbitrators
(Jorge Manuel Lopes de Sousa)
(Rui Ferreira Rodrigues)
(Ana Maria Rodrigues)
[1] With the exception of undocumented expenses.
[2] State Budget Report for 2011.
[3] Essentially in this sense the consistent jurisprudence of the Supreme Administrative Court can be seen, namely the following rulings: of 5-5-1999, case No. 05557-A, published in BMJ No. 487, page 181; of 17-11-2004, case No. 0772/04; of 1-10-2008, case No. 0244/08; of 29-10-2008, case No. 0622/08; of 21-1-2009, case No. 0945/08; of 4-2-2009, case No. 0766/08; of 9-9-2009, case No. 0369/09; of 4-11-2009, case No. 0665/09; of 12-11-2009, case No. 0822/09; of 2-12-2009, case No. 0892/09; of 24-2-2010, case No. 022/10; of 7-9-2011, case No. 0416/11.
[4] By way of obiter dictum, it may be added that, as the competences of the arbitral tribunals functioning at CAAD are limited to the declaration of illegality of acts of the types referred to in article 2, paragraph 1 of the LRTA, the examination of the legality of acts which decided requests for ex officio revision of self-assessment acts can only be examined by the arbitral tribunals to the extent that those decisions incorporate the defects affecting the acts which are their subject, since in those situations, one will be examining indirectly the illegality of the act whose revision was requested.
That is, the illegality of a self-assessment act can be declared in court proceedings as a corollary of the illegality of an act rendered in ex officio revision proceedings that confirm it, incorporating its illegality. But in situations of this type, the examination of the legality of the decision of the ex officio revision only falls within the competences of the arbitral tribunals functioning at CAAD because the illegality of the self-assessment act is incorporated in that decision and therefore the examination of the illegality thereof comes down to examining the same legality of the previous assessment act.
But the examination of the illegality of autonomous defects of those assessment acts no longer relates to the legality of self-assessment acts, to the examination of the legality of self-assessments.
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