CAAD Case 150/2018-T: IRC Additional Tax Assessment Challenged on Statute of Limitations and Lack of Reasoning Grounds

ARBITRAL DECISION

I – Report

The Arbitral Tribunal Agrees:

1. A..., S.A., legal entity no. ..., filed a request for constitution of an arbitral tribunal, pursuant to Article 2, no. 1, paragraph a), and Articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to examine the legality of the corporate income tax (IRC) assessment act no. 2017 ... relating to the tax year 2012, insofar as it establishes an additional tax in the amount of €5,637,538.95, as well as the legality of the dismissal of the administrative appeal filed against this tax act.

The request is based on the following grounds:

The disputed tax act seeks to implement the arbitral decision rendered in Case no. 191/2016-T, which judged the applicant's request for arbitral pronouncement well-founded and, consequently, declared partially illegal assessment no. 2015..., for the year 2012, annulling it insofar as it failed to recognize a credit relating to the Fiscal Support for Investment Regime (RFAI) in the amount of €5,637,538.95.

However, the present challenge does not concern the operative part of the decision implementing the judgment, but rather the segment of the act that increases the assessed tax in the amount of €5,637,538.95, which corresponds to an additional assessment that is capable of being challenged independently based on its own defects.

The Applicant attributes to this additional tax assessment the defect of expiration of the right to assess, considering that the taxable event should be considered to have occurred on 31 December 2012 (Articles 8, nos. 1 and 9, of the IRC Code) and the right to assess taxes expires within the general four-year period (Article 45, nos. 1 and 4, of the General Tax Law), which had already expired as of the date of the assessment act, on 20 March 2017, and its notification, on 24 March 2017.

However, even if one were to follow the doctrine endorsed in the decision rendered in Case no. 494/2016-T, which is to the effect that the time limit for voluntary execution of judicial decisions provided for in the CPTA is applicable, the time limit for additional tax assessment would also have expired, since the arbitral decision to be executed was notified on 12 December 2016 and became final on 27 January of the following year, so that the 30-day period for voluntary execution ended on 10 March 2017.

The normative interpretation of Articles 100 of the LGT and 175, no. 3, of the CPTA to the effect that additional tax assessment can be carried out without temporal limitation would be unconstitutional for violation of the principle of the rule of law, provided for in Article 2 of the Constitution, specifically for violation of the principle of legal certainty.

The assessment act in question is further tainted by the defect of lack of reasoning insofar as it cannot be considered covered by the annulling arbitral decision rendered in Case no. 494/2016-T and the Tax Authority does not explain the grounds justifying the decision.

Furthermore, the issuance of the tax act was not preceded by prior hearing of the interested party, thereby incurring in the omission of an essential formality that is determinative of annulability.

The Tax Authority, in its response, defends itself by exception, invoking the material incompetence of the arbitral tribunal to examine matters relating to the execution of a judgment, in view of the provision of Article 2, no. 1, of the RJAT, and also the material incompetence of the arbitral tribunal to examine the act of summary dismissal of the administrative appeal, by considering that the appropriate procedural means to discuss the legality of this decision is the special administrative action.

As to the merits, the Tax Authority argues that the disputed assessment is merely corrective and was based on the conclusions of the Inspection Report with respect to which the Applicant expressed itself at the prior hearing, such that the assessment act need not reproduce these grounds, but only indicate the elements specific to the assessment notice. Furthermore, the Applicant had the opportunity to participate in the inspection procedure, which by itself fulfills the right of hearing, as was decided in a similar situation in the arbitral decision rendered in Case no. 494/2016-T.

As to the expiration of the right to assess, the Respondent further invokes the position followed in the arbitral decision rendered in Case no. 494/2016, considering that in the context of execution of the arbitral decision, the Administration is not bound by the temporal limits defined for the assessment of taxes, but rather by the time limits applicable in the process of execution of judgments, and that the period for voluntary execution, under Article 175, nos. 1 and 3, of the CPTA, is 90 days.

It concludes by requesting absolution from the instance, based on the exceptions invoked, and, if this is not accepted, by requesting rejection of the petition.

1. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority in accordance with regulatory provisions.

Under the provision of paragraph b) of no. 2 of Article 6 of the RJAT, in the version introduced by Article 228 of Law no. 66-B/2012, of 31 December, the arbitrators were appointed by the parties, with the Deontological Council being responsible for indicating the third arbitrator.

The collective arbitral tribunal was thus constituted by the present signatories, who communicated their acceptance of the assignment within the applicable time frame.

The parties were duly notified of this appointment and did not express any intention to refuse it, in accordance with the combined provisions of Article 11, nos. 4 and 5, of the RJAT and Articles 6 and 7 of the Deontological Code.

Thus, in conformity with the provision of no. 7 of Article 11 of the RJAT, in the version introduced by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 7 June 2018.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of Articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate parties and are represented (Articles 4 and 10, no. 2, of the same enactment and 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are free from nullities.

1. Witness evidence production was not requested and, in the course of the proceedings, the hearing referred to in Article 18 of the RJAT was dispensed with and the parties were ordered to submit arguments within successive time periods.

In their arguments, the parties reiterated their previous positions.

It is appropriate to examine and decide.

II – Reasoning

1. The facts relevant to the decision of the case are as follows:

A) The Applicant was notified, on 24 March 2017, of the IRC assessment act no. 2017..., relating to the tax year 2012, which contains the following references:

Reasoning

The assessment carried out corresponds to the execution of the decision rendered in the contentious proceeding identified, within the scope of which the respective reasoning was sent to Your Excellency.

Notification

You are hereby notified of the IRC assessment relating to the year in respect of which the income identified above applies – in accordance with the demonstration note – resulting from the execution of the decision rendered in the Arbitral Decision proceeding with no. 191/2016 T CAAD;

B) The arbitral decision rendered in Case no. 191/2016-T decided to judge the request for arbitral pronouncement entirely well-founded and, consequently, declared partially illegal assessment no. 2015..., relating to the year 2012, annulling it insofar as it concerned the failure to recognize a tax credit for investment resulting from the Fiscal Support for Investment Regime from prior years in the total amount of €5,637,538.95.

C) In item no. 12 of the assessment demonstration, the Tax Authority proceeds to correct the amount corresponding to the deduction of tax benefits from the 2012 IRC assessment from €22,204,077.84 to €27,841,616.79.

D) In item no. 15 of the assessment demonstration, as the result of the assessment, the corrected amount of €6,476,384.46 was fixed.

E) In item no. 15 of the IRC assessment demonstration no. 2016..., which corresponds to the initial IRC assessment relating to the tax year 2012, the amount of €838,845.51 was determined;

F) On 13 July 2017, the Applicant filed an administrative appeal against the IRC assessment act no. 2017..., seeking to obtain the administrative annulment of this act.

G) On 23 October 2017, the Applicant was notified of the draft dismissal of the administrative appeal for purposes of exercising the right of hearing.

H) In that draft decision, it is stated that the Large Taxpayers Unit proceeded to execute the arbitral decision rendered in Case no. 191/2016-T, taking into account the limitation on the deduction of tax benefits in accordance with the provision of Article 92 of the IRC Code;

I) The table contained in item 33 of the draft decision, which contains the corrections introduced in the determination of the tax, is reproduced.

J) The administrative appeal was summarily dismissed by order of the Director of the Central Service dated 6 November 2017;

L) The summary dismissal of the administrative appeal was based on the understanding that the disputed assessment is a corrective assessment intended to execute the judgment in the arbitral decision rendered in Case no. 191/2016-T, from which no administrative appeal or review is available;

M) The Applicant proceeded to pay the assessed tax.

The Tribunal formed its conviction regarding the established facts based on the documents attached to the petition and those contained in the administrative file presented by the Tax Authority with its response.

Matters of Exception

Material Incompetence of the Arbitral Tribunal to Examine Matters Relating to the Execution of a Judgment

1. The question of competence raised by the Tax Authority must be analyzed in light of the arbitral request as it is formulated in the proceedings.

In the initial petition, the Applicant repeatedly emphasizes that it does not intend to challenge the assessment insofar as it proceeds to execute the judgment under Case no. 191/2016-T that referred exclusively to the failure to recognize a tax benefit for purposes of determining the taxable income – but only the decision segment of that act that increases the assessed tax in the amount of €5,637,538.95, which is understood as corresponding to an additional assessment.

As currently provided in Article 179 of the CPTA, subsidiarily applicable in tax proceedings, within the context of execution of sentences annulling administrative acts, it is incumbent upon the tribunal to specify, in respect for the areas of evaluation proper to the exercise of the administrative function, the content of the acts and operations to be adopted to give effect to the annulling sentence (no. 1), and, where appropriate, to declare the nullity of acts that do not conform to the sentence and to annul those that maintain, without valid ground, the illegal situation (no. 2).

In this manner, in the current regime of the process for execution of sentences annulling administrative acts, the object of the proceedings is not limited to strict compliance with the duty to execute the judgment, instead expressly allowing the formulation of requests that do not have their cause or ground in the decision to be executed. Thus it is understood that the tribunal may not only declare the nullity of acts that do not conform to the sentence, but also annul acts that maintain the illegal situation, which leads to the admission, within the scope of execution of a judgment, of examination of the subsequent defects of the renewed act that do not arise from violation of the matters adjudicated (in this sense, the ruling of the Southern Administrative Court of 12 March 2009, Case no. 2211/06).

In this latter case, the tribunal does not limit itself to giving effect to the judicial determination contained in the sentence to be executed, but examines the validity of acts carried out by the Administration that aim to redefine the legal situation based on grounds different from those analyzed in the declaratory proceeding.

The possibility that is granted to the tribunal, in the execution proceeding, to examine new acts that are no longer characterizable as execution acts, but as acts of a different nature, makes clear that the illegalities in which the Administration incurs in these circumstances do not necessarily have to be examined in an autonomous proceeding to challenge them (Mário Aroso de Almeida/Carlos Fernandes Cadilha, Commentary to the Code of Procedure in Administrative Tribunals, 4th edition, Coimbra, 2017, p. 1305). Nothing appears to prevent, in any event, as has also been recognized by administrative case law, that administrative acts that are not strictly executive, even though they may be covered by Article 179, no. 2, second part, come to be the object of autonomous challenge, in which case it is incumbent upon the interested party to bring, not the competent execution of judgment proceeding, but a request for contentious annulment.

It should be noted, furthermore, that the possibility for the tribunal to "annul [administrative acts] that maintain, without valid ground, the illegal situation," under the cited Article 179, no. 2, aims at situations in which, following the annulment, the Administration practices a new illegal act with the purpose or, at least, the effect of escaping the duty that would be imposed upon it to reconstitute the factual situation that should exist in the absence of the annulled act.

However, this would not be the case when it concerns a situation of new illegality that cannot be understood as having been intended to obstruct the execution of the judgment. This other circumstance – which was analyzed in the ruling of the Southern Administrative Court of 12 March 2015, Case no. 05144/09 – is not already covered by the application scope of Article 179, no. 2, so that no obstacle arises regarding the possibility for the interested party to resort to a declaratory action that aims at the autonomous challenge of this act.

It is this situation that obtains in the present case.

The Applicant alleges that the Tax Administration gave effect to the judgment in item no. 12 of the assessment by proceeding to increase the deduction from IRC assessment of tax benefits with respect to the tax year 2012, and declares that it does not intend to challenge the decision segment of the assessment act insofar as it merely executes the arbitral decision. And it makes clear that the object of the challenge brought before the arbitral tribunal refers to item no. 15 of the assessment in which the Administration increased the assessed tax.

In the arbitral request, the Applicant does not invoke any non-conformity between the sentence to be executed and the execution act, nor does it seek the performance of any legal or factual operation of execution, nor does it allege that the new assessment maintains without valid ground the legal situation that was declared illegal. And it alleges that it merely intends to raise a new question that was not the subject of discussion in the arbitral decision rendered in Case no. 191/2016-T.

As must be concluded, in light of the terms in which the request was brought, what is at issue is not a mere request for execution of a judgment, but the declaration of illegality of a tax assessment act, which as such is covered by the scope of competence of arbitral tribunals defined in Article 2, no. 1, paragraph a), of the RJAT, so there is no reason to consider the invoked exception of the tribunal's incompetence to be substantiated.

Material Incompetence of the Arbitral Tribunal to Examine the Act of Summary Dismissal of the Administrative Appeal

1. The Tax Authority further invokes the material incompetence of the arbitral tribunal with respect to the dismissal of the administrative appeal, by considering that, since the administrative challenge was the subject of summary dismissal, the appropriate procedural means would be the special administrative action, in application of Article 97, no. 1, paragraph p), of the CPPT.

Apparently, the Respondent intends to refer to the action for condemnation to perform a due act, regulated in Articles 66 et seq. of the CPTA, which concerns situations of omission or illegal refusal to perform an administrative act, and which, in the context of the 2002 administrative litigation reform, followed the form of the special administrative action.

With the 2015 revision, approved by Decree-Law no. 214-G/2015, of 2 October, the procedural figure of the special administrative action disappeared and the only form of declaratory proceeding applicable when proceedings of an urgent nature are not involved became the administrative action that now includes the substantive claims submitted in court that concern the performance or omission of an administrative act or the performance or omission of an administrative norm, which previously corresponded to the form of the special administrative action, along with those that previously corresponded to the form of the ordinary administrative action (see Article 37 of the CPTA, as amended by Decree-Law no. 214-G/2015).

Article 97, no. 1, paragraph p), of the CPPT refers to contentious review, as one of the means capable of being invoked within the scope of tax litigation, considering it applicable, specifically, when there are involved "administrative acts relating to tax matters that do not entail examination of the legality of the assessment act." And no. 2 clarifies that contentious review of administrative acts in tax matters that do not entail examination of the legality of the assessment act is regulated by the norms on proceedings in administrative tribunals.

Meanwhile, Article 191 of the CPTA determines that "references that, in special legislation, are made to the regime of contentious review of annulment of administrative acts are considered to be made to the regime of the administrative action," which means that the reference made by Article 97, no. 1, paragraph p), of the CPPT is now considered to be made to the form of proceeding that corresponds to it in the CPTA. This would lead, in general theory, to considering the action for condemnation to perform a due act applicable when the omission or refusal to perform an administrative act was involved.

The question that, however, arises is whether the contentious review referred to in the said Article 97, no. 1, paragraph p), of the CPPT is applicable to the case.

This procedural means is not based on the dichotomy between acts of positive content and acts of negative content and is instead used – apart from the situations listed in the first part of the norm, which do not apply to the case – for the challenge of "administrative acts relating to tax matters that do not entail examination of the legality of the assessment act." For the circumstance in which the challenge of the assessment of taxes is involved, the law provides for a specific procedural means consisting of the challenge of the assessment of taxes referred to in Article 97, no. 1, paragraph a), of the CPPT.

The contentious review thus relates to the characterization of the tax question involved and is used when the question does not entail examination of the legality of the assessment act.

Now, the Applicant, unequivocally, brought a request for constitution of an arbitral tribunal for examination of the legality of an additional IRC assessment act and, previously, under Article 70 of the CPPT, filed an administrative appeal against the same assessment act, seeking its administrative annulment.

The useful and relevant effect of the dismissal of the administrative appeal – regardless of whether it was a summary dismissal or a dismissal on the grounds that the objections were no longer valid – is translated into the maintenance in the legal order of the tax assessment act.

One cannot, therefore, fail to recognize that the request for constitution of the arbitral tribunal, just as the administrative challenge brought before the Tax Authority, aimed at examining the legality of a tax assessment act. And, as a necessary consequence, one cannot state that the summary dismissal of the administrative appeal falls within the scope of the said Article 97, no. 1, paragraph p), of the CPPT, being that only in that other case in which a tax matter was involved that does not entail examination of the legality of an assessment act would there be place for contentious review with the consequent application of the procedural rules of the CPTA.

In these terms, the invoked exception of the tribunal's competence to examine the act of summary dismissal of the administrative appeal proves to be manifestly unsubstantiated.

Matters of Substance

1. The Applicant invokes the expiration of the right to assess by considering that the right to assess taxes expires within the general four-year period, under Article 45 of the General Tax Law, and that this period had already expired as of the date of the assessment act, on 20 March 2017, and its notification, on 24 March 2017, insofar as the taxable event should be considered to have occurred on 31 December 2012.

It further argues that the expiration of the right to assess also occurs if one considers applicable, according to the position endorsed in the arbitral decision rendered in Case no. 494/2016-T, the time limit for voluntary execution of judicial decisions provided for in the CPTA, taking into account that the arbitral decision became final on 27 January 2016 and the period for voluntary execution of the sentence is 30 days, under Article 170, no. 1, of the CPTA, having ended on 10 March 2017.

The Applicant further attributes to the assessment act in question the defects of lack of reasoning and failure to provide prior hearing.

As provided by Article 124 of the Code of Tax Procedure and Process (CPPT), in the sentence to be rendered in the challenge proceeding, the tribunal shall examine prioritarily the defects that lead to the declaration of non-existence or nullity of the act challenged and, thereafter, the defects alleged that lead to its annulment (no. 1), with priority examination in the first group given to the defects whose substantiation would determine, according to the judicious discretion of the judge, more stable or effective protection of the offended interests, and, in the second group, that indicated by the challenger, whenever the challenger establishes among them a relationship of subsidiarity and other defects are not alleged by the Public Prosecutor's Office (no. 2).

In the present case, no defects are alleged that lead to the declaration of non-existence or nullity of the act challenged or others that result from the exercise of public action, only defects that lead to annulment of the administrative act being involved, and the Applicant does not establish any relationship of subsidiarity among the alleged defects.

In these terms, in application of the general criterion for the order of examination of defects, there must first be examined the defect of expiration of the right to assess, as this is the one that, in principle, ensures more stable or effective protection of the offended interests, preventing, in case of substantiation, that a renewed act come to be rendered.

As provided by Article 45, no. 1, of the LGT, "the right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, if the law does not provide otherwise."

Tax case law has, however, come to distinguish, for this purpose, between the corrective assessment in favor of the taxpayer resulting from a request for official revision or administrative annulment of a prior assessment act and the innovative assessment, which permits fixing an amount of tax higher than that determined in the first assessment without correlating to a prior annulling act to be executed. In the first case, it is understood that the moment to be considered for verifying the expiration of the right to assess is that of the issuance of the initial assessment, so that the expiration period cannot be considered as having been exceeded even if the corrective assessment occurs beyond the four-year period counted from the end of the year in which the tax event occurred. In the second case, it is considered that the additional assessment embodies an autonomous act distinct from the prior one, with the expiration being deemed to have occurred if, as of the date of issuance of this new act, the four-year period had already elapsed by reference to the end of the year in which the tax event occurred (see, in this sense, rulings of the STA of 22 March 2006, Case no. 01284/05, of 9 May 2007, Case no. 0133/07, of 8 October 2014, Case no. 1114/11, and of 14 October 2015, Case no. 11104/13).

However, the arbitral decision rendered in Case no. 494/2016-T, cited by both the Applicant and the Respondent, and which pronounced on a case similar to that in the present proceedings, sustains a different understanding when the execution of an annulling sentence of the tax act is involved. Invoking the provision of Articles 24, no. 1, paragraph a), of the RJAT and 175, no. 1, of the CPTA, it argues that the new assessment act purged of the defect that caused the contentious annulment should be performed within the period fixed for voluntary execution of annulling sentences of the judicial tax tribunals, which is the procedural period of 90 days. According to this criterion, the right to assess would expire if the new tax act intended to give effect to the judgment were not rendered within the said 90-day period, counted under Article 87 of the CPA from the final judgment of the arbitral decision.

In light of these considerations, the key question that arises is whether the disputed assessment act corresponds to the execution of the arbitral decision that annulled the initial assessment by failure to recognize a credit arising from a tax benefit, or whether it is an additional assessment of an autonomous nature that has nothing to do with the execution of the judgment. And this question becomes relevant regardless of whether the expiration of the right to assess must be analyzed in light of the traditional case law – which considers the four-year period applicable, distinguishing between corrective assessment and innovative assessment – or in accordance with the specific regime applicable to the execution of sentences annulling administrative acts, which presupposes that the duty to execute be fulfilled within the procedural period of 90 days from the final judgment of the sentence to be executed.

1. At this point of analysis, the defect of lack of reasoning also alleged by the Applicant intersects.

The Applicant challenges the result of the assessment that appears in item no. 15 of the IRC assessment demonstration, in the amount of €6,476,384.46, which – according to the Applicant's allegation – determined an increase in the tax in the amount of €5,637,538.95, corresponding to the difference between this value and the result of the assessment that appeared in the initial tax act in which the amount of €838,845.51 was determined.

In the IRC assessment demonstration that is challenged, the Tax Authority merely states that "the assessment carried out corresponds to the execution of the decision rendered in the contentious proceeding identified, within the scope of which the respective reasoning was sent [to Your Excellency]," thus appearing to consider the duty to reason the tax act satisfied by reference to the annulling arbitral decision itself. Under the heading "Notification," it is also clarified that the IRC assessment concerns the income that results from the execution of the decision rendered in arbitral proceedings no. 191/2016-T.

In the draft decision to dismiss the administrative appeal, it is stated that the competent services of the Tax Authority complied with the reconstitution of the violated legal situation, in application of Article 100 of the LGT, also taking into account the mechanism provided for in Article 92 of the IRC Code. The result would thus be the assessment demonstration that appears in the table in item 33 of that draft. From it results an increase in the value to be considered as RFAI, which reached the amount of €8,647,466.03, this value being justified through the sum of the tax benefit considered in the initial assessment (€3,009,927.68) with the benefit to be considered due to the arbitral sentence (€5,637,538.95) and from which results a correction of the total deductions from €22,292,092.47 to €27,929,631.42.

However, under Article 92 of the IRC Code, there further arises a correction of the taxable income, translated into an increase as autonomous taxation in the amount of €465,434.87, and the assessment result was adjusted, which went from €838,845.51 to €6,476,384.46, corresponding this value to the sum of the result of the prior assessment (€838,845.51) and the tax benefit that came to be considered due to the annulling judgment (€5,637,538.95).

1. Apparently, the Tax Authority sought to give effect to the arbitral decision – which annulled the failure to recognize the tax benefit – by means of limiting the assessed tax, which, under the cited Article 92, no. 1, of the IRC Code, "cannot be less than 90% of the amount that would be determined if the taxpayer did not benefit from tax benefits." In accordance with this regime, the tax is calculated with and without the deduction of the tax benefit and if the tax assessed with benefits is less than 90% of the tax assessed without benefits, the difference is added to the tax to be determined so that the deduction does not exceed the 90% limit.

In this circumstance, what is not understood is why the correction of the taxable income, which was supposed to execute the judgment regarding the deduction of tax benefit, resulted in an increase as autonomous taxation, and why the result of the assessment that should result from the limitation provided for in Article 92, no. 1, of the IRC Code corresponds now to the sum of the prior assessment result (€838,845.51) plus the value of the deduction of the tax benefit that was mandated by the arbitral decision (€5,637,538.95).

The Tax Authority declares, in the assessment act, that it proceeded with execution of the annulling judgment. However, the information intended to give practical effect to the reconstitution of the violated legal situation, through the assessment demonstration, does not indicate the grounds for the corrections made, limiting itself to generically mentioning the provision of Article 92 of the IRC Code and specifying the amounts considered corrected. Being certain that the sufficiency of the reasoning must be gauged in relation to the new tax act intended to give effect to the prior arbitral decision and not in function of any other considerations produced in the context of the inspection procedure that originated the preceding tax act that came to be contentiously annulled.

As is established by prevailing case law, the reasoning of the administrative or tax act is a relative concept that varies according to the type of act and the circumstances of the concrete case, and reasoning is sufficient when it allows a normal recipient to understand the cognitive and evaluative itinerary followed by the author of the act to render the decision, that is, when the recipient may know the reasons why the author of the act decided as decided and not differently. As further appears from Article 153, no. 2, of the CPA, subsidiarily applicable to tax proceedings, "the adoption of grounds that, due to obscurity, contradiction or insufficiency, do not specifically clarify the motivation of the act is equivalent to lack of reasoning."

Since it is not possible to understand, in this case, the reasons on which the Tax Authority based itself for the determination of the tax, one must conclude that the assessment act is tainted by the defect of lack of reasoning.

1. As has been intimated, for the examination of the question of expiration of the right to assess, it is decisive to determine whether the new assessment corresponds merely to a corrective assessment resulting from the execution of the judgment or whether it translates into an innovative assessment capable of representing an additional tax not corresponding to the execution procedure.

As has been emphasized by tax case law with respect to the provision of Article 124, no. 1, of the CPPT – as well as by administrative case law in the context of the parallel provision of Article 57 of the Law on Procedure in Administrative Tribunals, which preceded the 2002 administrative litigation reform – the legal reference to the judicious discretion of the judge, for purposes of priority examination of the defects whose substantiation would determine more stable or effective protection of the offended interests, must be considered in function of the concrete case, and there may exist reasons of a logical order that impose priority examination of a formal defect, particularly when the reasoning is so scanty that it does not permit understanding the motivation of the act nor engaging in examination of the substantive aspects of the case (see rulings of the STA of 22 March 2006, Case no. 0916/04, of the Southern Administrative Court of 19 April 2007, Case no. 05394/01, and of 1 February 2001, Case no. 10007/00, and of the Northern Administrative Court of 31 January 2008, Case no. 00195/02).

This same principle is reinforced by way of the new legal criterion defined in Article 95, no. 3, of the CPTA, which, imposing on the tribunal the duty to pronounce, in challenge proceedings, on all grounds of invalidity that have been invoked against the act challenged, admits that the judge may be relieved of analyzing some or some of the defects invoked when not able to have the indispensable elements to emit a judgment of substantiation or non-substantiation.

It is this situation that obtains in the present case.

Since it is not possible to determine, due to insufficiency of reasoning, the nature of the assessment act, especially as to whether it is a corrective assessment or innovative assessment, it is necessary to examine first the stated formal defect and to consider prejudiced the examination of the defect of expiration of the right to assess and the constitutional questions that are associated with it.

Given that there would be place for a possible renewal of the act through the indication of the grounds of the decision, which will be subject, under general terms, to hearing of the interested party, the defect of violation of the right of prior hearing that is alleged with respect to the now challenged act is also prejudiced.

Examination Prejudiced

1. In light of the solution reached regarding the merits, the examination is prejudiced of the constitutional question raised in the arguments of the Applicant.

Indemnity Interest

1. The Applicant further brings a request for indemnity interest under Article 43, no. 1, of the LGT and reimbursement of the assessed tax.

The right to indemnity interest provided for in this provision, as a result of judicial annulment of an assessment act, depends on having been established in the proceedings that this act is affected by error regarding the factual or legal presuppositions imputable to the Tax Authority.

In the case, the annulment of an assessment act was based on lack of reasoning, nothing preventing the Administration, in execution of the sentence, from practicing an act with the same content, duly reasoned, provided that it complies with applicable principles and legal norms. In these terms, annulment with the stated ground does not imply the existence of any error regarding the factual or legal presuppositions of the assessment act, so there is no right to indemnity interest in favor of the taxpayer (see, in this sense, in a parallel situation, the ruling of the STA of 12 February 2005, Case no. 01610/13).

By identical reasoning there is no place for reimbursement of the assessed tax.

III – Decision

It is therefore decided:

a) To judge the request for arbitral pronouncement well-founded and to annul the IRC assessment 2017..., relating to the tax year 2012, in the amount of €5,637,538.95, and the corresponding compensatory interest in the amount of €305,618.71;

b) Consequently, to annul the order of 8 August 2017 that dismissed the administrative appeal presented against the assessment act.

Value of the Case

The Applicant indicated as the value of the case the amount of €5,943,157.66, which was not contested by the Respondent, and corresponds to the value of the assessment it sought to prevent (Article 97, no. 1, paragraph a), of the CPPT).

Let it be notified.

Lisbon, 6 November 2018

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitrator Member

João Taborda da Gama

The Arbitrator Member

Fernando Borges de Araújo
(voted in dissent in accordance with the statement attached)

DISSENTING OPINION

SUMMARY:

1. A Brief Framework
2. The Nature of the Assessment
3. Reasoning in Concreto
4. Theoretical Aspects of Reasoning
   4.1) The Need for Simplification and Dialogic Co-Responsibility
   4.2) The Impression of the Recipient
5. Returning to the Case
6. Reasoning and Prior Hearing
7. Reasoning in the Execution of a Judicial Decision
8. Reasoning that Appears in the Constitutional Illegality Argument
9. Conclusive Synthesis

I voted in dissent for the following reasons.

1) A BRIEF FRAMEWORK

It is requested in the present proceeding to annul, for illegality, the official IRC assessment no. 2017..., relating to the tax year 2012, in which an additional tax assessment was contained, against which administrative appeal no. ...2017... was filed, which subsequently became the subject of a summary dismissal order dated 27 December 2017; and to annul, for illegality, the dismissal of this administrative appeal.

The said additional assessment has the value of €5,637,538.95 (the increase from €838,845.51 to €6,476,384.46 between assessment no. 2016 ... and assessment no. 2017...). Added to that amount €305,618.71 of compensatory interest, this totals €5,943,157.66.

During the pendency of the administrative appeal proceeding no. ...2017..., the Applicant filed a new administrative appeal against the IRC assessment act no. 2017 ... relating to the tax year 2012 of Group B..., reiterating the request for partial annulment previously formulated, to which an appeal was assigned no. ...2017..., and this too was the subject of a summary dismissal order dated 28 December 2017.

Meanwhile, on 30 January 2018, the Applicant filed a hierarchical appeal, which again has as its object the IRC assessment act no. 2017....

In the notification of the official IRC assessment no. 2017... the following appears as reasoning: "The assessment carried out corresponds to the execution of the decision rendered in the contentious proceeding identified, within the scope of which Your Excellency was sent the respective reasoning." This proceeding is no. 191/2016-T of CAAD.

The Applicant acknowledges (arts. 14-16 of the Request for Arbitral Pronouncement – RAP) that the official assessment no. 2017 ... executes the annulment, decreed by the Arbitral Tribunal in the said Proc. no. 191/2016-T, of the correction and additional assessment previously carried out by the TA, in the amount of €5,637,538.95, by increasing the deduction of tax benefits from the 2012 IRC assessment from €22,204,077.84 to €27,841,616.79, reducing the IRC previously assessed by the same amount of €5,637,538.95.

It is therefore not regarding that execution of the judgment, nor even regarding the alleged lack of effective reimbursement of the amount of assessed tax plus compensatory and indemnity interest in execution of the decision of Proc. no. 191/2016-T, that the administrative appeal focuses, and now focuses the Request for Arbitral Pronouncement. The Applicant emphasizes (art. 32 RAP) that "the preceding administrative appeal (as well as the present request for arbitral pronouncement) are not directed at obtaining execution of the arbitral decision annulling the prior assessed tax, but at obtaining the declaration of illegality, and respective annulment, of a new additional tax assessment, for a different reason than the tax that had been annulled by prior arbitral decision".

It is clear that the Applicant does not attribute to the disputed assessment any deficiency or insufficiency in giving effect to the judgment, nor does it allege that the act was practiced with the intent to illegitimately obstruct the achievement of the result aimed at in the execution proceeding, maintaining, without valid ground, the existing illegal situation; so that it is not, in short, raising a question of non-execution of an arbitral decision.

Let it be emphasized: the Applicant admits that the official assessment no. 2017 ... is nothing other than the execution of the annulment, decreed in Proc. no. 191/2016-T, of the correction and additional assessment previously carried out by the TA – so much so that, at the very beginning of the RAP, it disclaims any intention to challenge such execution.

Nor is it petitioned that, in addition to the alteration of the value of the Investment Support Fiscal Regime (RFAI), embodied in the increase recorded in respect of tax benefits, any other act or operation of execution should be practiced, notably of payment of any amount.

The increase of €5,637,538.95 in tax assessed between assessment no. 2016 ... and assessment no. 2017..., both relating to the tax year 2012, would be nothing more, in the Applicant's understanding, than a new tax assessment under the pretext of execution of a condemnation to reimbursement (payment of a fixed amount) corresponding to the arbitral decision rendered in Case no. 191/2016-T (art. 79 RAP).

It may be noted that the request formulated in arbitral action no. 191/2016-T, for declaration of the partial illegality of IRC assessment no. 2015..., was judged entirely well-founded by ruling dated 12 December 2016.

For purposes of compliance with the arbitral decision and the provision of Article 100 of the LGT, the corrective assessment under examination in the present arbitral action was issued, which contained the corrected values of €27,841,616.79, as "Tax benefits," and €6,476,384.46, as "Assessment result."

The Applicant explains (art. 109 RAP): "As a result of these movements exactly in the same amounts, but of opposite sign (execution of annulment of tax determined by the arbitral decision vs additional tax assessment for another reason, but in the same amount as that annulled), no additional amount to be paid was generated, since by accounting offset the payment [...] of the amount in the meantime annulled by the arbitral decision in tax and interest was credited to the equal amount added in tax and interest by the assessment that is here challenged, in accordance with the accounting adjustment demonstration annexed thereto by the TA."

The Applicant acknowledges (art. 38 RAP) that the same occurred in the IRC assessment relating to the tax year 2011, as appears from the ruling of Case no. 494/2016-T, which in turn concerned the execution, by the TA, of the ruling rendered in Case no. 400/2015-T: the TA altered, in accordance, line 12 with the increase of the tax benefit, but then also altered the "assessment result" (in line 14 of that time, now line 15).

Nonetheless, the Applicant contends that the additional assessment is annullable for, among other reasons, in its understanding, there having been no reasoning, in violation of the legal framework, and even constitutional framework, that imposes it.

The Applicant alleges (arts. 92 and 93 RAP) that "for the concrete IRC assessment here in question, with respect to the segment that constitutes additional tax, no reasoning is known, much less contemporaneous reasoning thereof. In fact, the addition of tax in the line of the assessment result is obviously not covered by the scope of the annulling arbitral decision (of tax) rendered in proceedings no. 191/2016-T."

It is also relevant, for consideration of the reasons for a complete understanding of the case, that the Applicant further contends that the additional assessment is annullable for allegedly not having had prior hearing, again in violation of the applicable legal framework.

The Respondent counter-argues that it is not a new tax, but rather merely a corrective assessment as a result of the execution of the decision that determined the substantiation of the request for annulment of a prior assessment – and that in the corrective assessment the rules that impose limits on the increase of tax benefits resulting from that execution had to be applied, under penalty of, by violating those limits, an illegality occurring.

2) THE NATURE OF THE ASSESSMENT

The Applicant rules out, at the very beginning of the RAP, any intention to challenge the execution of the annulment, decreed by the Arbitral Tribunal in Proc. no. 191/2016-T, of the correction and additional assessment previously carried out by the TA, and acknowledges that the official assessment no. 2017 ... is nothing other than that execution.

But in fact its arguments would lead to an interference in the said challenge, in that it seeks – as it also sought regarding the tax year 2011 – to exclude from the assessment the amount that results from the application of the "ceiling on tax benefits" applicable to the RFAI, under Article 92 of the CIRC.

It happens, however, that the annulment, decreed in Proc. no. 191/2016-T, of the correction and additional assessment previously carried out by the TA, could not – nor could it – be executed in violation of legal norms, including those from which results the imposition of the said "ceiling on tax benefits" on the RFAI – a ceiling that, by cumulative effect in successive years since 2009, totaled in 2012 the amount of €5,637,538.95.

Recall that it is always the same amount that is at issue, as the Applicant acknowledges in the RAP itself (arts. 14-16): the €5,637,538.95 that had been additionally assessed by the TA with respect to the tax year 2012, by a correction that the Arbitral Decision of Case no. 191/2016-T annulled, and which the TA reduced from the IRC previously assessed giving effect to this decision (a "corrective" assessment made by the TA under Articles 24 of the RJAT and 100 of the LGT), are the €5,637,538.95 that resurface for the same reason they had emerged in the previously assessed assessment – by simple compliance with the legal limits in effect for the tax benefits applicable to the RFAI, and that govern any corrective assessment, since, let it be emphasized, no judicial or arbitral decision has the capacity to disturb the validity of a legal regime – notably, the power to derogate Article 92 of the CIRC as it was in effect as of the date of the facts.

That is, in the implementation of that corrective assessment a legal limit to the use of tax benefits was introduced, as Article 92 of the CIRC required, with no new tax assessment having been carried out with respect to the IRC of the tax year 2012 of the Applicant.

In conceptual terms, it was therefore a secondary or second-degree tax act, that is, an act that related not directly to the situation in life in which the tax event translated, but to the legal regulation operated by a tax act previously practiced.

Being certain that this annulment had retroactive effects, it did not mean that a new assessment act was practiced in its replacement, but only that the effects of the act incompatible with that decision were destroyed – since, in the execution of the annulment decreed in Proc. no. 191/2016-T, complying, as it was bound to, with a judicial decision, the TA could not aim at more than the mere reconstitution of the situation that would exist if the illegality that determined the annulment had not occurred (art. 100 LGT) – being that in that situation fully reconstituted the "ceiling on tax benefits" imposed by Article 92 of the CIRC on the RFAI would continue to be in effect.

It is emphasized that the result of that corrective assessment was not born of any power of autonomous conformation of the legal situation that the TA held, or holds, in practicing the act: hence why no inspection procedure was instigated regarding the execution of the judgment, nor any new assessment procedure, since the power/duty it exercised in carrying out a new assessment in voluntary execution of the judgment was granted to it by the judicial decision to be executed and by the existing normative guidelines.

In sum, in that execution it was not given to anyone, and certainly not to the TA, to make disappear the €5,637,538.95 that corresponded, in 2012, to the application of a "ceiling" to the cumulation of tax benefits, by force of the applicable legal framework successively: Law no. 53-A/2006, of 29 December, which excepted from paragraph c) of no. 2 of Article 86 the benefits provided for in Law no. 40/2005, of 3 August; Law no. 67-A/2007, of 31 December; Decree-Law no. 159/2009, of 13 July, which amended the CIRC and renumbered Article 86 as Article 92; Law no. 3-B/2010, of 28 April, which raised the percentage of minimum assessment provided for in Article 92 of the CIRC to 75% of the tax that would be assessed if the taxpayer did not benefit from tax benefits; Law no. 55-A/2010, of 31 December, which re-stated Article 92, raising the percentage of minimum assessment to 90% of the tax that would be assessed if the taxpayer did not benefit from tax benefits; Law no. 64-B/2011, of 30 December, which amended paragraph d) of no. 2 of Article 92.

How could one, in fact, comply with the imperative of full reconstitution determined by Article 100 of the LGT, and at the same time ignore the effects limiting the absolute computation of Article 92 of the CIRC on the computation of tax benefits – a regime in effect in the year 2012 to which the corrected assessment was referred?

How ignore this "ceiling on tax benefits" and not fall into a truncated and unilateral reconstitution, resulting in defective and incomplete execution of the annulling sentence?

How not incur an illegality, the violation of Article 173, 1, of the CPTA (applicable ex vi Article 29, 1, c), of the RJAT), insofar as it imposes, within the scope of the duty of reconstitution of the situation that would exist if the annulled act had not been practiced, the duty to "comply with the duties it did not comply with on the basis of that act, by reference to the legal and factual situation existing at the moment in which it should have acted"?

A different matter – and which is not directly at issue in the present proceeding – is to know, particularly in the context of Constitutional Law, whether the alleged contractual or "synallagmatic para-contractual nature" of the tax benefit provided for in the RFAI generated, at least through "confidence protection," an attainable expectation, or even a "right," to immutability of the values initially established in that regime, which might and should take precedence over the limits resulting from Article 92, 1 of the CIRC – or alternatively, an expectation or right relating to the immutability of Article 92, 1 of the CIRC itself, in view of the legislative mutations that successively interfered with that regime, which we have just enumerated.

These considerations plainly exceed the scope of examination of the legality of a corrective assessment in execution of an annulling sentence – since, if they did not exceed it, it would likewise be appropriate to question, in return, how the "confidence" allegedly generated by the "synallagmatic para-contractual nature" of the tax benefit provided for in the RFAI would be reconciled with the fact that Decree-Law no. 82/2013, of 17 June, through addition to paragraph c), of no. 2 of Article 92, excluded the RFAI from the scope of no. 1 of the same Article.

In synthesis: between assessment no. 2016 ... and assessment no. 2017 ... there is no "new tax," as the Applicant contended, there being, therefore, no addition to the conclusions and corrections of the tax inspection – because, being legally repositioned at the moment when it should have practiced the act in conformity with the judgment, and being subject to practicing the new act as it should have practiced it initially without the illegality, the TA had the duty to practice in execution of the ruling rendered in proceedings no. 191/2016-T an assessment act in which the taxpayer was recognized the tax benefit of the RFAI to the extent that was decided in the arbitral ruling, having thus had to act in the execution of the judgment in the way it should have acted if it had recognized that tax benefit at the moment it concluded the inspection procedure and issued assessment no. 2016..., including deciding in the execution, as it should decide in those prior moments, whether the conditions are met for the relevance of that tax benefit in the year in question, in light of the regime of Article 92 of the CIRC.

3) REASONING IN CONCRETO

In the notification of the official IRC assessment no. 2017... the following appears as reasoning: "The assessment carried out corresponds to the execution of the decision rendered in the contentious proceeding identified [Proc. no. 191/2016-T of CAAD], within the scope of which Your Excellency was sent the respective reasoning."

In compliance with Service Order no. OI2014... of 17 April 2014, an internal inspection procedure, of limited scope, into the IRC of the tax year 2012 was conducted, with the objective of verifying compliance with tax obligations in the individual sphere of the Applicant, with the Tax Inspection making corrections to the taxable matter declared individually in the amount of €17,691,831.71, and determining IRC in default in the amount of €5,637,538.95.

The Inspection Report contains (pp. 12):

"III. 2.1 Investment Support Fiscal Regime (RFAI): 5,637,538.95 Euro

In the statement of income Form 22 of IRC submitted on 2014-11-20 (no. C1380-18), the company invokes the right to tax credit by deduction from IRC assessment of tax benefits in accordance with paragraph b) of no. 2 of Article 90 of the CIRC by entering in Field 355 of Table 10 the amount of 9,809,938.49 Euro which, in accordance with information contained in Table 07 of Annex 22-D to the same statement, includes tax credit for RFAI in the total of 7,257,433.83 Euro broken down as:

| RFAI – carryforward from periods prior to 2012 | 5,620,824.79 |
| RFAI – from investment in 2012 | 1,636,609.04 |
| RFAI included in Q10 C355, of Form 22 | 7,257,433.83 |

From the analysis of the supporting elements of the tax credit for RFAI invoked by the company, it is concluded that the deduction of RFAI tax benefits in the total value of 6,530,285.59 Euros is considered improper for the reasons that follow. [...]

The investment that C... SA considered eligible for purposes of the RFAI in the period of 2012 amounted to 11,366,090.37 Euro, divided among the establishments of ... and ... as presented above.

On the basis of the breakdown of investments by business segment, C... made investments it considered eligible for purposes of the RFAI in the cellulose paste factory and in the biomass thermoelectric plant [...]

In this sense [...] we are to consider that the investment related to the activity of production of energy does not constitute relevant investment under Article 2 of the Investment Support Fiscal Regime (RFAI) because it corresponds to investment realized in an activity different from its principal activity, so it is not eligible under no. 1 of the same Article 2.

Thus, it is concluded that for purposes of calculation of the tax benefit in question the investment qualified as relevant is that which is presented in relation to the activity of production of paper pulp, in the total amount of 3,606,489.79 Euro, as appears from the foregoing map. [...]

C... SA improperly considered as relevant investment the additions of Tangible Fixed Assets related to the secondary activity of production of energy when under the RFAI/2009 only investment dedicated to the principal activity, as described above, is subject to incentive, as determined by no. 1 of Article 2 of Law no. 10/2009.

The fiscal incentive calculated for the eligible investment, taking into account the regional limits applicable to investment incentives, is fixed at 639,040.18 Euro, the fiscal incentive in respect of IRC for the period of 2012 by application of the RFAI.

The fiscal incentive for investment made in 2012 by application of the RFAI/2009 in the amount of 1,636,609.04 Euro is corrected to 997,568.86 Euro, due to the impact of the reduction of eligible investment.

Following the analysis of elements brought under the right of prior hearing, the value of the correction to the tax benefit for RFAI of 2012 is fixed at 16,714.16 Euro. [...]

As stated above, the company entered in field 713, as carryforward from prior periods of tax benefit of RFAI, the amount of 5,620,824.79 Euro. [...]

the carryforward considered by the company corresponds to a tax benefit not accepted by the TA and which was corrected in prior periods (2009/2011) because they were additions of Tangible Fixed Assets related to the secondary activity of production of energy when under the RFAI/2009 only investment dedicated to the principal activity, as provided for, is subject to incentive, as described in the respective periods.

Under the RFAI 2009, the tax credits determined by the application of rates to investment qualified as relevant are deductible from the tax of the period in which the investment was realized, capable of being carried forward to subsequent periods, as provided for in no. 3 of Article 3 of the RFAI 2009, only in case of insufficiency of assessment. [...]

considering the RFAI validated by the TA for eligible investments in the periods of 2009, 2010 and 2011 and the tax credits for RFAI used by the company in those periods, in the determination of the group's tax and by application of no. 6 of Article 90 of the CIRC, there is no amount to be carried forward from prior periods.

In this manner, C... SA is not entitled to deduct RFAI in 2012, in the amount of 5,620,824.79 Euro. [...]

In conclusion,

a) C... SA improperly considered as relevant investment the additions of Tangible Fixed Assets related to the secondary activity of production of energy when under the RFAI/2009 only investment dedicated to the principal activity, as provided, is subject to incentive, as described.

The fiscal incentive calculated for the eligible investment, taking into account the regional limits applicable to investment incentives, is fixed at 639,040.18 Euro, the fiscal incentive in respect of IRC for the period of 2012 by application of the RFAI.

The fiscal incentive for investment made in 2012 by application of the RFAI/2009 in the amount of 1,636,609.04 Euro is corrected to 997,568.86 Euro, due to the impact of the reduction of eligible investment;

b) The company improperly considered the deduction of 5,620,824.79 Euro for RFAI of prior periods under no. 3 of Article 3 of the RFAI/2009, an amount that corresponds to part of the tax credits that it improperly calculated between 2009 and 2011 on investment not qualified as relevant and corrected by the inspection of the periods 2010 and 2011.

Considering the option for the Special Regime for Taxation of Groups of Companies provided for in Articles 69 to 71 of the CIRC, the use of the tax benefit is realized only under no. 6 of Article 90 of the CIRC in the determination of the group's tax."

In compliance with Service Order no. OI2014..., of 18 November 2014, an internal inspection procedure, of limited scope, into the IRC of the tax year 2012 of group C... SA was conducted, with the objective of verifying compliance with the tax obligations inherent in the application of the RGTSG, and reflecting in the group's taxable income the corrections made in the context of the inspection action credentialed by Service Order no. OI2014....

From the respective Inspection Report it states:

"The total of corrections proposed at the level of calculation of the group's tax for the period, following the conclusions of the inspection of the company of the group and not considered in the indicated statement, amounts to 6,522,927.95 Euro, broken down as follows:

III.2.1. Investment Support Fiscal Regime (RFAI): 5,637,538.95 Euro

In compliance with Service Order no. OI2014... of 2014-04-17 an internal inspection procedure was conducted, relating to the period of 2012 [...]

As a result of the said inspection action, corrections to the calculation of Tax Benefits deductible from IRC assessment were identified in individual terms for C... SA, which were fixed in the total amount of 16,714.16 Euro, due to improper deduction from IRC assessment, under the tax benefit provided for in the 'Investment Support Fiscal Regime Carried out in 2009' (RFAI) approved by Article 13 of Law no. 10/2009, of 10 March, and which was successively extended, remaining in effect until 31 December 2012, as per Law approving the State Budget for 2012 (Law no. 64-B/2011), by not having considered in the calculation of the tax benefit the exclusion of the investment made in the activity of production of energy in accordance with the binding information provided to it and as determined by no. 1 of Article 2 of Law no. 10/2009.

Thus, the tax benefit deductible is corrected under paragraph b) of no. 2 of Article 90 of the IRC Code in the group's statement with the grounds contained in item III.2.1.1 of the attached Inspection Report which is an integral part of this Report. [...]

the IRC assessment determined after the deductions of paragraphs a) and b) of no. 2 of Article 90 of the CIRC, considering the impacts of the corrections to the Group's Taxable Income and the deductible RFAI for the period described in this Report, if calculated without the effect of tax benefits not enumerated in no. 2 of Article 92 of the CIRC is 32,279,140.77 Euro, being that 90% of its value amounts to 29,051,226.69 Euro, higher by 885,389.00 Euro to the value determined with the effect of the tax benefits.

In conclusion, in the determination of the IRC Tax to be paid by group C... with reference to the period of 2012, there is a default in the amount of 885,389.00 Euro corresponding to the part in which the IRC assessment is less than that determined under no. 1 of Article 92 of the CIRC.

As already mentioned, the correction indicated in this item takes into account the corrections to the Group's Taxable Income and the deductible RFAI for the period which appear in the prior items of this Report. Any adjustment to those values implies the correction of the adjustment proposed here."

As we shall see in more detail below, reasoning is sufficient when it allows a normal recipient to understand the cognitive and evaluative itinerary followed by the author of the act, that is, when the recipient may know the reasons that led the TA to act in that manner and not differently.

Now, in the case, the origins of the assessment harken back to the conclusions contained in the final inspection report (RIT), in the context of which the Applicant expressed itself, under the right to prior hearing, regarding the application of Article 92 of the CIRC.

In exercising its right to prior hearing, the Applicant demonstrated its knowledge of the reasoning and its implications, challenging it with its particular understanding of the applicable regime – and specifically with the allegation that the RFAI should prevail over the limits provided for in Article 92 of the CIRC in accordance with the general principle of the prevalence of special law over general law:

"It considers that this entitlement that is granted to it by the RFAI should not take into account the limit on the use of tax benefits provided for in Article 92 of the CIRC. In summary, the framework goes in the direction that the specific deduction limit provided for in the legislation governing the RFAI should prevail over the general limit on the use of tax benefits provided for in Article 92 of the CIRC.

According to its understanding, the CIRC provides the general regime for the sector of the relations it governs (general law), the legislator, in its own and autonomous enactment (Law no. 10/2009 of 10 March), established, in a complete and express manner, the entire discipline for a more restricted circle of situations, specifically for the RFAI. In this case, the conflict between the two norms must be resolved through the application of the criterion of specialization according to which special law takes precedence over general law.

Thus, for the determination of the maximum deductible limit of the RFAI benefit in a given period, the special norm would be applied, that is, the one provided for in paragraph a) of no. 1 of Article 3 of the RFAI, whereby the legislative changes that occurred in the provision of the assessment result should not be applicable to the concrete case, as the deduction limit to the assessment would correspond, in any case, to 25% of the amount of the assessment of the period, as expressly defined in Law no. 10/2009 of 10 March." (pp. 13-14 of RIT)

The inspection services subscribed to the opposite understanding: not only that Article 92 was introduced into the CIRC precisely to establish a "limit to the reduction of the effective tax rate by use of tax benefits," but also that:

"As can be verified, the RFAI is not provided for in the exclusions registered in no. 2 of Article 92 of the CIRC, in effect in 2012, so that the provision of no. 1 of the same norm applies to it;

Regarding the conflict between the norms, it is considered that, having different scopes and objectives, the RFAI and Article 92 of the CIRC, there is no conflict between the two enactments, particularly because they are applied in different phases, in which first the rules of the RFAI are applied to determine the amount of the benefit and then, in the phase of self-liquidation of the IRC, in which the amount of "minimum assessment" resulting from Tax Benefits is determined, taking into account Article 92 of the CIRC."

Indeed, any assessment relating to the use of tax benefits in respect of IRC requires the application of this calculation methodology, with Article 92, 1 of the CIRC referring to the normal IRC assessment process, but being influenced by the tax benefits that the taxpayer would be entitled to enjoy.

Thus, the assessment issued, which contains nothing innovative, merely aims to implement the decision of the Arbitral Tribunal that determined an increase in the amount of tax benefits that the Applicant would be entitled to enjoy in the tax year 2012.

The Applicant was not unaware of the legal provision, merely attempting to give it its own interpretation. But even if it had been unaware of it, that ignorance of an applicable norm would not benefit it, under the general terms of Article 6 of the Civil Code.

Returning to reasoning, let us first recall the provision of Article 153 of the CPA:

"1- Reasoning must be expressed, through a brief exposition of the factual and legal grounds of the decision, and may consist in a mere declaration of agreement with the grounds of prior opinions, information or proposals, which in this case form an integral part of the respective act.

[...]

3- In the resolution of matters of the same nature, any mechanical means may be used that reproduces the grounds of the decisions, provided that this does not entail a diminution of the guarant