IRC Exemption for Religious Congregations as IPSS: CAAD Arbitral Decision 168/2016-T

ARBITRAL AWARD

The arbitrators Fernanda Maçãs (presiding arbitrator), António Sérgio de Matos and Filomena Salgado Oliveira (arbitrator members), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 01-07-2016, hereby agree on the following:

I - REPORT

1. A…, with registered office at Rua …, nº…, …, … – … …, legal entity nº … (hereinafter referred to as Claimant) came, pursuant to the provisions of article 99º of the Tax Procedure and Process Code (CPPT) and articles 2º, nº 1, al. a) and 10º, nº 1, al. a) and nº 2, of Decree-Law nº 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as RJAT), to file a request for constitution of a collective arbitral tribunal and for arbitral pronouncement, with the Tax and Customs Authority – AT being the Respondent.

2. The Claimant requests that it be recognised as benefiting from exemption from Corporate Income Tax (IRC), that the decision of 18 December 2015 of the Head of Division of the Directorate of Finance of Lisbon be revoked, which dismissed the complaint filed by the Claimant, and that the act of assessment of corporate income tax for the year 2012 be annulled, with all legal consequences, including the payment of costs relating to the bank guarantee provided and procedural costs.

3. 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 18-03-2016.

Pursuant to the provisions of paragraph a) of nº 2 of article 6º and paragraph b) of nº 1 of article 11º of the RJAT, as amended by article 228º of Law nº 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal Judge Councillor Maria Fernanda dos Santos Maçãs, Dr. António Sérgio de Matos, and Dr. Filomena Salgado Oliveira who communicated acceptance of the appointment within the applicable timeframe.

On 18-05-2016, the parties were duly notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11º nº 1 paragraphs a) and b) of the RJAT and articles 6º and 7º of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of nº 1 of article 11º of the RJAT, as amended by article 228º of Law nº 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 01-07-2016.

1. The Claimant bases its request on the following grounds:

a) The Claimant (…) being a canonical legal entity that pursues social activities is equated, with regard to those activities, to a Private Institution of Social Solidarity (IPSS) and is automatically exempt from IRC, in accordance with the provisions of paragraph b), nº 1, article 10º of this Code, in activities that can be framed under article 1º and 1º-A, as well as article 40º of Decree-Law 119/83, republished by Decree-Law 172-A/2014 - in the case in question, health and education activities.

b) As widely mentioned, both the consolidated case law at the level of the Supreme Administrative Court (STA), and that of CAAD, clearly uphold the Claimant's position, agreeing entirely with the cognitive and evaluative itinerary followed there, whereby the Claimant has no alternative but to, through this means, assert its right to IRC exemption in the Claimant's social activity – education and health – now in question and consequently, let that act of assessment be annulled, with all statutory consequences.

c) The Claimant furthermore defending that it is a Religious Congregation, canonically erected, that develops, in addition to religious activity, an activity of promotion and protection of health, in an establishment belonging to it called "B…".

d) The now Claimant is organised by National Provinces, with the Portuguese Province being the international headquarters of the Congregation, the first registered in Portugal in 1876 and has activities worldwide.

e) The first Constitutions of the Claimant date from 18 October 1901, from which the primary purpose "care for the sick both in hospitals, as well as in their homes" results, a characteristic that persists with the approval of its Statutes on 21/09/1937 and subsequently with the celebration of the 1940 Concordat and its respective notification, on 6 November 1940, to the Civil Government of Porto, in which the purpose stands out as "to dedicate itself to health care assistance to the sick and other services of charity and social assistance". (Doc. 6, already attached in Doc. 3, as documents 7 and 8 of the complaint)

f) The Claimant was thus recognised in Portugal, in addition to its religious purposes, as an institution of charity and social assistance.

g) In the establishment "B…", specially prepared and licensed for that purpose, the Claimant thus provides preventive, curative and rehabilitation medicine care, for which it receives, naturally, the due payment, although never for profit-making purposes.

h) Profits that the Claimant considers to be covered by the IRC exemption provided for in paragraph b) of nº 1 of article 10º of the Corporate Income Tax Code.

i) Indeed, pursuant to paragraph b) of nº 1 of article 10º of the Corporate Income Tax Code (CIRC), exempt from IRC are Private Institutions of Social Solidarity (IPSS) and related entities, as well as legal entities legally equated to those.

j) The Concordat of 18 May 2004, concluded between the Portuguese Republic and the Holy See ("2004 Concordat"), which entered into force on 1 January 2005, introduced profound changes to the existing tax regime, which constituted a clear legislative choice to subject to taxation income that was previously exempt and to abandon the concept of total and comprehensive exemption.

k) In summary, only monetary and in-kind donations intended to achieve religious purposes qualify as non-taxable income, for the purposes of what is established in the 2004 Concordat.

l) All other income earned by religious entities may benefit from IRC exemption, by virtue of the provisions of article 10º of the Code for this Tax, provided that these entities additionally qualify as: a) Legal entities of administrative public interest; b) Private Institutions of Social Solidarity ("IPSS") and related entities, as well as legal entities legally equated to those; c) Legal entities of mere public interest that pursue, exclusively or predominantly, scientific or cultural purposes, charity, assistance, charity, social solidarity or environmental protection.

m) Having the Claimant been canonically erected, constituted and notified to the competent authority, on a date prior to the entry into force of the Concordat, its personality is recognised by the State in accordance with article 10º, nº 2 of the Concordat.

n) Moreover, by pursuing, in addition to religious purposes, activities of assistance and solidarity, namely in the area of promotion and protection of health, without profit-making purposes, the Claimant is equated to an IPSS, namely for tax purposes, and in the exercise of those activities, as provided for in articles 12º and 26º, nº 5 of the Concordat.

o) The Claimant, as a religious organisation or institution that proposes to exercise and does exercise activities such as the protection and promotion of health, as well as in the area of education and professional training of citizens, is equally equated to an IPSS in accordance with the provisions of articles 1º, nº 1, paragraphs e) and f) and 40º of Decree-Law nº 119/83, of 25 February, which approved the Statute of IPSSs.

p) Indeed, it has always developed activities of a social character, namely in the area of promotion and protection of health, particularly in "B…", since its inception, that is, at a time well before Decree-Law 119/83, providing preventive, curative and rehabilitation medicine care, whereby it is inevitable to conclude that it came to be considered an IPSS, regardless of the form it has adopted, by virtue of the provisions of the aforementioned articles 1º, paragraph e) and 94º, nº 5 of the said statute - Legal Statute of IPSSs.

q) The now Claimant, while not formally an IPSS, is, for all purposes, namely tax purposes, equated to an IPSS in accordance with articles 10º, nº 2, 12º and 26º, nº 5 of the Concordat and articles 1º, nº 1, paragraphs e) and f) of article 1º and 40º of the Statute of IPSSs.

r) It is moreover this framing of the statement attached with the request for certificate in which the Ministry of Health itself recognises the activity of B… as legally equated to IPSS, an establishment forming part of the Congregation.

s) This same conclusion is corroborated, unequivocally, by the Supreme Administrative Court (STA) in its Awards of 7 January 2009 (Case nº 0812/08) and 18 January 2012 (Case nº 725/11).

t) Indeed, it is worth noting that the reasoning of the decision now in question is contradictory with the very terms of the applicable legislation.

u) As already mentioned, article 40º of Decree-Law nº 119/83, is not limited, merely, to subjecting the entities provided for therein to the Statute of IPSSs.

v) Indeed, legal entities equatable to IPSSs are religious legal entities that pursue the purposes of IPSSs referred to in article 1º of Decree-Law nº 119/83, of 25 February, purposes which, in accordance with the law, justify that these entities are exempt from IRC, in the activities referred to.

w) Moreover, the fact that the Claimant is, by virtue of article 40º of the same act, subject to the statute provided for therein, does not require that it proceed with the registration provided for IPSSs, which is moreover disproportionate since it is the activity that is exempt, and that same activity, because clearly not having autonomy and legal personality, cannot achieve the registration that the respondent seeks.

x) On the other hand, if it were otherwise, there would not exist legal entities equated to IPSSs, or religious entities that in addition to religious purposes, pursued social activities, but rather only IPSSs.

y) That is, legal entities – organisations and religious institutions - which, while not being IPSSs, pursue typical activities of IPSSs, as is the case with the Claimant, thus have two options: either they intend to have the nature of IPSS and can proceed with the registration resulting from article 7º of that legal act or they do not intend to have that nature and it is enough for them to effect the registration that their nature determines.

z) Now, the Claimant being a religious entity, is only bound to the notification referred to in article 45º, notification which has long been made, framed by articles 10º, 12º and 26º, nº 5 of the 2004 Concordat.

aa) It clearly follows from the regime defined, that the adoption of the form of one of the entities provided for in article 10º of the CIRC is discretionary, and that the attribution to religious legal entities of the rights legally provided for such entities is not prejudiced, if these do not adopt the form of those.

bb) On the other hand, it is noted that what is at issue, insofar as IRC exemption is concerned, relates to the activity developed by the claimant in the area of health care provision through "B…", an establishment held by that entity.

cc) In which context, moreover, the Directorate-General of Health has already considered it established that the claimant's activity is equated to an IPSS.

dd) This all means that equating to IPSS does not occur only by virtue of specific legislation such as that which applies to Community Houses and Social Solidarity Cooperatives, as the respondent erroneously contends.

ee) Equating to IPSS occurs precisely by virtue of what is provided for in article 40º itself of Decree-Law nº 119/83, and is therefore not this norm merely a means of subjecting entities that do not have the nature of IPSS to the statute of the latter.

ff) Indeed, it does not seem to make sense to submit legal entities that develop the activities provided for in article 1º of that act to the Statute of IPSSs and then say that this is not a form of equating to those same IPSSs.

gg) Indeed, in this sense, it is important to bear in mind the understanding that the Directorate of Finance of Lisbon has already assumed, in accordance with which it concluded that the Claimant, in the context of developing the activity of health care provision of "B…", is an entity equated to IPSS, basing itself precisely on the aforementioned articles 40º and 45º of Decree-Law nº 119/83, in accordance with the document already attached to this application.

hh) And moreover that Directorate of Finance concluded that IRC exemption, in accordance with the provisions of paragraph b) of nº 1 of article 10º of the CIRC, is an automatic reality, which does not require ministerial recognition!

ii) Which, moreover, is in line with what the Supreme Administrative Court decided on 7 January 2009, in whose award it states that "in qualifying the respondent as 'legal entity equated to IPSS', exempt from IRC in accordance with paragraph b) of article 10º of the CIRC, the appealed award makes correct interpretation and application of the said normative and of article 95º/5 of Decree-Law nº 119/83, of 25 February, since such legal provision equates to IPSS the legal persons canonically erected, legally recognised and that exercise purposes subsumable to nº 1 of its article 1º, already existing on the date of entry into force of that act and that did not wish to use the faculty of adopting one of the legal forms defined for IPSSs".

1. The Tax and Customs Authority presented a response raising exceptions of procedural defect, lack of passive legitimacy and incompetence of the Arbitral Tribunal, in the following terms:

a) With respect to the recognition of the Claimant as an "entity legally equated to IPSS", and the consequence of being able to automatically benefit from the tax exemption contained in article 10º/1-b), second part, of the CIRC, is a matter of exclusive competence of the Ministry of Solidarity, Employment and Social Security and its services [cf. article 2º/2-m) of Regulatory Decree 36/2012, of 27 March, article 5º, paragraphs k), l) and m) of Ordinance 105/2013, of 13 March, and paragraphs d), e) and f) of Dispatch nº 6147/2013, published in the Official Journal, 2nd series, nº 90, of 2013-05-10].

b) Following the request for IRC exemption formulated by the Claimant, DSIRC informed that when contacted with the DGSS, given its competence in the area of IPSSs, to clarify all doubts regarding the possession or not, by the A…, of the quality of IPSS, the same came to clarify through dispatch S/… of 2010-10-08 the following: "There is no record in this Directorate-General of A…" as a Private Institution of Social Solidarity, whereby it is presumed that the notification referred to in article 45º of the IPSS statute was never made (…), that is, the said institution never acquired legal personality in the civil legal order.»

c) Consequently on 21.02.2011, the Claimant was notified of the decision dismissing by the Deputy General Director of Taxes, having from the same come to file a hierarchical appeal on 28.03.2011. The Claimant lodged a complaint about the IRC assessment act for 2012, which was dismissed by Order of the Head of Division of Lisbon of 18.12.2015 on the ground that the Claimant did not present sufficient evidence for it to be equated to an IPSS and therefore exempt from the payment of Corporate Income Tax.

d) Article 10º of the Corporate Income Tax Code establishes that exempt from IRC are «Private institutions of social solidarity, as well as legal entities legally equated to those;»

e) Private institutions of social solidarity are subject to mandatory registration, in accordance with nº 2 of article 32º of the Basic Law of Social Security 4/2007, of 16 January and other applicable legislation.

f) For the respondent it is evident that the claimant, as a canonically erected institution, is subject to registration with the Directorate-General of Social Security.

g) Now, the Claimant did not request the respective registration with the competent entity, although it is not exempt from the respective registration.

h) Indeed, neither the Concordat nor the Statute of IPSSs exempt the Claimant from the respective registration with the DGSS.

i) What the State recognises to canonical legal persons is civil legal personality and that, for that reason, these "enjoy the rights and benefits attributed to private legal entities with purposes of the same nature and that are subject to the tax regime applicable to the respective activity" (article 10º nº 5 article 12º and article 26º of the Concordat)

j) There is no legal norm that grants recognition of the status of entity legally equated to IPSS to canonically erected entities.

k) Article 10º of the Concordat merely recognises legal personality to religious entities, in the manner provided for therein, not conferring on them any equating to Private Legal Entities of Mere Public Interest or Private Institutions of Social Solidarity.

l) In accordance with information provided by the Directorate-General of Social Security, the Claimant does not constitute an "entity equated to IPSS", as it does not appear on the list of institutions registered as such or as "IPSS".

m) It being certain that the argument that the Claimant does not appear on that list is not acceptable whatsoever given that canonical institutions are not required to register.

n) And such argument does not hold insofar as (as already seen above) not only is the Claimant effectively subject to registration (…).

o) …but also the list of registered institutions provided by the Directorate-General of Social Security includes 54 (fifty-four) canonical institutions registered (e.g., C…, D…, E…, F…, G…, H…, I…, J…, K…).

p) Moreover: in accordance with information provided by the Directorate-General of Health, the Claimant does not constitute an "entity equated to IPSS", as per DOCUMENTS 5 and 6 now attached and which are given as reproduced for all legal purposes.

q) In sum, the Claimant is not only not formally an "IPSS", is not only not formally (or even fiscally) an "entity equated to IPSS", but also article 10º/2-b) of the CIRC itself bars the fiscal interpreter from making any comparative reasoning about the verification, or not, of a situation of equating of pursuit of purposes of social solidarity by a particular taxpayer, which would result in an interpretation and application of the law by analogy.

r) Since such verification does not fall to the interpreter of fiscal law, but rather and above all to the service legally competent to assess matters relating to Social Security Law.

s) Religious entities recognised in accordance with article 10º of the Concordat celebrated between the Holy See and the Portuguese State and provided for in articles 12º and 26º, nº 5 of that same act, may benefit from IRC exemption under article 10º of the CIRC, provided that the respective requirements are met, namely that they have the legal nature, that is, Administrative Public Interest Legal Entity, Private Legal Entity of Mere Public Interest, Private Institution of Social Solidarity and related entities, or legal entities legally equated to that.

t) In the case of entities provided for in paragraphs a) and b) of nº 1 of article 10º of IRC, the exemption is automatic, and dependent on ministerial recognition in the case of entities provided for in paragraph c).

u) In both situations, the entities must meet the formal and material requirements as well as the conditions established in the aforementioned article.

v) The exemption contained in article 10º is an eminently personal exemption, encompassing private legal entities of administrative public interest, private legal entities of mere public interest that pursue exclusively or predominantly scientific, cultural, charity, assistance, charity, social solidarity purposes, related entities, as well as legal entities legally equated to those.

w) Understanding that (…) the Claimant cannot enjoy the exemption of article 10º of the CIRC as it is not any one of those legal figures, that is, the requirement of subjective nature referred to in nº 1 of article 10º of the CIRC is not met.

1. The claimant having responded to the matter of exception and there being no place for production of evidence, by order of 29-09-2016, the holding of the meeting provided for in article 18º of the RJAT was dispensed with, having set 1 January 2017 as the deadline for pronouncement of the arbitral decision.

2. Both parties declared to forego submitting briefs.

II - PRELIMINARY EXAMINATION

The Arbitral Tribunal was regularly constituted.

The parties are duly represented, possess legal personality and capacity and the Claimant has standing (articles 4º and 10º, nº 2, of the same act and article 1º of Ordinance nº 112-A/2011, of 22 March).

The case does not suffer from any nullities.

Exceptions were raised which we shall now analyse.

a) Exception of material incompetence of the Arbitral Tribunal

"The exception of incompetence is to be examined as a matter of priority, as results from the provisions of article 13º of the Code of Administrative Court Procedure (CPTA), applicable to tax arbitral proceedings by virtue of the provisions of article 29º, nº 1, paragraph c), of the RJAT.

The Tax and Customs Authority considers that «it clearly results from nº 1 of article 2º of the RJAT that the examination of any questions relating to the recognition of tax exemptions is outside the jurisdiction of tax arbitration, since such matter is reserved for the jurisdiction of administrative and tax courts» and that «although in judicial courts it may be admitted that in judicial review proceedings there may be examination of matters that constitute severable acts, which is debatable, these arguments do not apply in an Arbitral Tribunal».

The competence of arbitral tribunals operating in the CAAD is defined, in the first place, by article 2º, nº 1, of the RJAT, which establishes the following:

1 - The competence of arbitral tribunals comprises the examination of the following claims:

a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account;

b) The declaration of illegality of acts of determination of taxable matter when not giving rise to the assessment of any tax, of acts of determination of taxable income and of acts of determination of patrimonial values;

In the second place, the competence of arbitral tribunals operating in the CAAD is limited by the binding of the Tax and Customs Authority which, in accordance with article 4º, nº 1, of the RJAT, was defined by Ordinance nº 112-A/2011, of 12 March, which establishes the following, insofar as is relevant:

The services and organisms referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals operating in the CAAD that have as their object the examination of claims relating to taxes whose administration is entrusted to them referred to in nº 1 of article 2º of Decree-Law nº 10/2011, of 20 January, with exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative avenue in accordance with articles 131º to 133º of the Tax Procedure and Process Code;

b) Claims relating to acts of determination of taxable matter and acts of determination of taxable income, both by indirect methods, including the decision of the revision procedure;

c) Claims relating to customs duties on importation and other indirect taxes on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or steps to be taken by another Member State in the context of administrative cooperation on customs matters.

As can be seen, only with regard to customs matters is the definition of competencies made taking into account the type of taxes to which the claims relate. And as to these the Tax and Customs Authority only bound itself with regard to taxes administered by it.

As for the rest, competence is defined only taking into account the type of acts that are the subject of the challenge, there being, namely, no prohibition on examining matters relating to tax exemptions or any other questions of legality relating to acts of the types referred to in article 2º of the RJAT. An assessment of tax that departs from disregard of an exemption ceases to be a tax assessment act. And the examination of the legality or illegality of that disregard is therefore the examination of a claim relating to the declaration of illegality of assessment acts.

In the case in question, an IRC assessment act is challenged, which falls under paragraph a) of nº 1 of article 2º of the RJAT, and whose examination is not excluded by any of the norms of the aforementioned Ordinance.

On the other hand, a gracious complaint was filed regarding the assessment act, and the appeal against the decision dismissing it was filed, which was also dismissed, as the Tax and Customs Authority considered that the assessment does not suffer from illegality.

In arbitral proceedings, any illegality can, as a general rule, be imputed to assessment acts, as results from article 99º of the CPPT, subsidiarily applicable.

Only in cases where the law provides for the separate challengeability of administrative acts that are prerequisites of assessment acts, as may occur with acts of recognition of tax exemptions, which, in the cases of non-automatic exemptions, assume the nature of severable acts for the purpose of contentious challenge, will this not be the case.

But, in this case, the exemption that the Claimant considers to have been wrongly disregarded by the Tax and Customs Authority when performing the IRC assessment act is an exemption of automatic recognition, as results from paragraph b) of nº 1 of article 10º of the CIRC, combined with its nº 2, in which only the need for recognition of exemption is mentioned with regard to situations falling within paragraph c) of that nº 1. Indeed, there is no controversy between the parties on the automatic nature of the exemption that the Claimant claims to benefit from.

Being the assessment act prejudicial to the interests of the Claimant, which argues that it is illegal for not applying an automatic exemption of which it claims to benefit, its contentious challengeability with grounds in any illegality must be ensured, as results from the principle of effective judicial protection, enshrined in articles 20º, nº 1, and 268º, nº 4, of the Constitution of the Portuguese Republic (CRP).

On the other hand, the question of whether the assessment act is legal in not recognising an exemption relates to the legality of the assessment, whereby it must be examined in tax courts in judicial review proceedings, as results from paragraph a) of nº 1 of article 97º of the CPPT.

Thus, it is concluded that what is at issue is not to declare, with general effects, whether the Claimant should be equated to a private institution of social solidarity and has a right to an exemption, but only to know whether the concrete IRC assessment for the year 2011 is illegal for not having applied an exemption of which the Claimant may benefit in that year.

Therefore, there is no legal support whatsoever for the thesis of the Tax and Customs Authority that «it is completely outside the competence of this Singular Arbitral Tribunal and of CAAD itself to issue any judgment on the question of legal equating of the Claimant to a Private Institution of Social Solidarity», since the limits of competence defined in article 2º, nº 1 of the RJAT are based exclusively on the type of acts and not on the type of legality questions imputed to them and to benefit from the tax benefit provided for in paragraph b) of nº 1 of article 10º of the CIRC no administrative act recognising the exemption or recognising the Claimant's equating to IPSS is necessary.

What is asked of the arbitral tribunal is to determine whether the challenged assessment is illegal for not having applied an exemption that the Claimant claims to benefit from and this matter clearly falls within the competence of arbitral tribunals operating in the CAAD.

In this context, nor is the reference made by the Tax and Customs Authority understood to the relative reserve of legislative competence of the Assembly of the Republic to legislate on the organisation and competence of courts, since what is at issue is the interpretation of article 2º of the RJAT, which was issued in the exercise of a legislative authorisation, which appears in article 124º of Law nº 3-B/2010, of 28 April, in which there is no reference to a limitation of the competence of arbitral tribunals with respect to questions of illegality of assessments related to tax benefits.

Moreover, it is manifest that with the aforementioned legislative authorisation it was intended to extend the competence of arbitral tribunals operating in the CAAD to all questions that can be subject of judicial review proceedings and neither can it be doubted that, in proceedings of this type, it can be examined whether the taxpayer has a right to automatic tax benefits related to the legality of assessment acts, as can be seen from the uniform case law of the Supreme Administrative Court of which the following awards are examples, all handed down in judicial review proceedings: - of 30-05-2012, case nº 0949/11; - of 3-7-2013, case nº 765/13; - of 17-12-2014, case nº 01085/13; - of 11-11-2015, case nº 968/13; - of 18-11-2015, case nº 1067/15; - of 18-11-2015, case nº 575/15; - of 16-12-2015, case nº 01345/15."

This is the jurisprudential position assumed by CAAD in previous decisions, namely in Case nº 547/2015-T, to whose award the above transcription belongs, and for which we see no reason to change, whereby, also here and in the terms stated above, the exception of material incompetence raised by the Tax and Customs Authority is not sustained.

b) Exception of procedural defect

Moreover, as regards this exception we shall not depart from what was decided in that other case, as it is manifest the similarity of the situations analysed, there being even total identity of the parties involved, from which to gather here manifest use of the following:

"...

In any event, as regards the essential matter which the Tax and Customs Authority defends on this exception, which is that special administrative action, and not the request for arbitral pronouncement, is the appropriate procedural means to examine the matter in question, what has already been said concerning the question that arbitral proceedings (as judicial review proceedings) is an appropriate means to examine all questions of legality of assessment acts, including the non-application of rules that provide for tax benefits, when automatic.

Moreover, specifically on a situation substantially identical to that of the present case, one can see the award of the Supreme Administrative Court of 18-01-2012, handed down in case nº 0725/11, in an appeal filed in a judicial review proceeding."

As such, by the reasons stated and in harmony with the case law cited, this exception is also not sustained.

c) Exception of lack of passive legitimacy of the Tax and Customs Authority

By the foregoing, we shall continue on the path of the aforementioned award from which and on this subject the following is gathered:

"The Tax and Customs Authority considers that its lack of passive legitimacy occurs because «the recognition of the status of "IPSS" or "entity legally equated to IPSS" is a matter of exclusive competence of the Ministry of Solidarity, Employment and Social Security and its services [cf. article 2º/2-m) of Regulatory Decree 36/2012, of 27 March, article 5º, paragraphs k), l) and m) of Ordinance 105/2013, of 13 March, and paragraphs d), e) and f) of Dispatch nº 6147/2013, published in the Official Journal, 2nd series, nº 90, of 2013-05-10]» and «considering that the automatic operation of the exemption contained in article 10º/1-b), second part, of the CIRC presupposes, above all, an administrative decision recognising the status of "IPSS" or "entity legally equated to IPSS" to the Claimant».

Paragraph m) of nº 2 of article 2º of Regulatory Decree nº 36/2012, establishes that it falls to the Directorate-General of Social Security to «propose norms integrating the legal status of private institutions of social solidarity, including mutual benefit associations, ensure their respective registration and propose norms applicable to other entities with social support activities».

Paragraphs k), l) and m) of article 5º of Ordinance nº 105/2013, of 13 March, establish that it falls to the Service Directorate for Social Action and Institutional Affairs to «propose recognition of social solidarity foundations, pronounce on the legality of the statutes and institutional legal acts subject to registration relating to private institutions of social solidarity and institutions equated», «carry out the formal analysis of registration applications and proceed with effecting the respective registrations in accordance with applicable legislation» and «proceed with the organisation and updating of files of private institutions of social solidarity and legally equated institutions».

Dispatch nº 6147/2013, issued by a General Director, has as its addressees the respective services, having no external normative effect.

In any event, it is not clear how one can conclude on the basis of those norms that it falls to that Directorate-General to effect recognition of the status of Private Institution of Social Solidarity for purposes of tax exemptions.

But, even if this were provided for therein, it would in no way be relevant to assessing passive legitimacy for intervention in tax arbitral proceedings, as these are acts of non-legislative nature which, by virtue of the principle of hierarchy of norms, cannot override the application of norms of acts of legislative nature (article 112º, nº 5, of the CRP).

And, as is obvious, there are legislative norms that define passive legitimacy for intervention in tax arbitral proceedings.

Indeed, the right to intervene in tax arbitral proceedings always falls to the «highest leader of the tax administration service», as results from articles 11º, nº 3, 13º, nºs 1 and 2, 17º, nº 1, and 20º, nº 2, of the RJAT and is in harmony with the provision of article 9º, nºs 1 and 4, of the CPPT).

There is no legal support whatsoever to attribute passive legitimacy in tax arbitral proceedings to any other entity.

Moreover, requests being made for annulment of an assessment act and of the decision of a hierarchical appeal issued by the Tax and Customs Authority, in addition to a request for indemnity for loss directed also to the Tax and Customs Authority, it is manifest that this entity has the interest in contradicting which is the ground for passive legitimacy (article 30º, nº 1, of the Civil Procedure Code).

Thus, this exception is not sustained."

There is no reason whatsoever to alter what was decided in the award just cited, with which we fully agree both in the reasoning and in the conclusion, whereby it is in those precise terms that this exception is also judged not sustained in this matter.

III. FACTUAL MATTER

III.1. Proven Facts

1. The Claimant was notified by the respondent to proceed with the presentation of the income statement for the year 2012 and subsequent IRC assessment, with the warning that, if it did not, it would incur a situation susceptible to constituting an administrative offence;

2. In view of that notification and although disagreeing with its content, the now Claimant presented the income statement for the year 2012;

3. As a result of the presentation of that statement, the Claimant was notified of assessment nº 2015…, dated 18-02-2015, and, consequently, to proceed with the payment of the sum of 82,405.91 euros (eighty-two thousand four hundred and five euros and ninety-one cents), by way of IRC, as well as compensatory interest (5,291.07 €) and default interest (234.23 €) - Doc. 1, attached with the request, the contents of which are hereby incorporated;

4. Considering that it was exempt from IRC, the Claimant lodged a complaint regarding that IRC assessment act for 2012, attaching for all legal purposes the due bank guarantee - Doc. 2, attached with the request, the contents of which are hereby incorporated;

5. That Gracious Complaint, which received nº … 2015…, was dismissed by order of 18 December 2015, issued by the Head of Division of the Directorate of Finance of Lisbon - Doc. 3, attached with the request, the contents of which are hereby incorporated;

6. In the decision dismissing the complaint, the respondent argued, basically, that the Claimant is not exempt from IRC, as it is not registered as a Private Institution of Social Solidarity or entity legally equated thereto at the Directorate-General of Social Security;

7. That decision dismissing the complaint manifests agreement with the Information inserted in the Project that precedes it, the contents of which are hereby incorporated and from which is gathered, among other things, the following:

"INFORMATION

1. The now complainant comes, in the context of a gracious complaint, to contest the notification of its self-assessment relating to the year 2012 which, upon analysis of the request filed, it is necessary to say the following.

2. The now complainant argues that it is exempt from IRC, in accordance with paragraph b) of nº 1 of article 10º of the IRC Code, regarding the activity developed in the establishment "B…", referring that it is an entity legally equated to IPSS in accordance with articles 40.0 and 45.0 of Decree-Law nº 119/83 of 25 February.

3. Religious organisations and institutions that, in addition to religious purposes, propose activities that can be framed under article 1º are subject, as regards the exercise of those activities, to the regime established in the Statute.

4. We can say that this decree-law does not equate religious organisations and institutions to IPSS but rather subjects them to the regime established in the Statute of IPSSs.

5. Subjection to the regime established in the Statute of IPSSs, also implies that IPSSs be registered in accordance with article 7º of Decree-Law nº 119/83 of 25 February.

6. However, this procedure was altered by Ordinance 139/2007 of 29 January, that is, it altered the Regulation of Registration of Private Institutions of Social Solidarity within the Scope of Social Action of the Social Security System.

7. In accordance with this ordinance it falls to the Directorate-General of Social Security (DGSS) the registration of Private Institutions of Social Solidarity.

8. This registration, in addition to the recognition of the public interest nature of the institutions, has the purpose of verifying whether the requirements provided for in the said ordinance are met, without which the registration of the entities is refused.

9. Regarding religious organisations and institutions, in this case, canonically erected institutions, since there are no other procedures to which they are subject, are covered by the mandatory registration requirement provided for in Decree-Law nº 119/833, if they intend to acquire the status of IPSS or if they wish to be entities legally equated and consequently enjoy the tax exemptions granted by law to those entities.

10. The recognition provided for in article 45º of Decree-Law nº 119/83 of 25 February, should not be confused with the registration referred to in article 7º of the same act, through which and in accordance with article 8º, the entities automatically acquire the status of private legal entities of public interest, since recognition relates to its legal personality.

11. The now complainant had already requested the exemption provided for in article 10º of the IRC Code, from the Service Directorate for IRC, which informed it of the following:

Moreover, it is further informed that the DGSS was contacted, given its competence in the area of IPSSs, to clarify all doubts regarding the possession or not, by A…, of the quality of IPSS. The said Directorate-General, through dispatch S/…, of 2010-10-08, informed us of the following:

"...there is no record in this Directorate-General of "A…" as a private institution of social solidarity, whereby it is presumed that the notification referred to in article 45º of the IPSS statute was never made (…), that is, the said institution never acquired legal personality in the civil legal order.

No documentation relating to "B…", an establishment of that institution, has yet been detected."

1. The now complainant filed a Hierarchical Appeal of the dismissal decision. This was analysed by the competent entity which concluded the following.

2. "Having DSIRC dismissed the request that the claimant presented to it, to the effect that it be issued a certificate evidencing IRC exemption, in accordance with paragraph b) of nº 1 of article 10º of the CIRC, regarding the activity developed in the establishment "B…", referring that it is an entity legally equated to IPSS in accordance with articles 40º and 45º of Decree-Law nº 119/83 of 25.02, dismissal which was based on the fact that it was ascertained that the claimant does not possess the quality of IPSS nor of entity legally equated, nor any one of the other qualities required by article 10º of the CIRC, the claimant filed a hierarchical appeal in which it insists on equating to IPSS by virtue of article 40º of Decree-Law nº 119/83.

3. It happens that through that legal provision religious organisations and institutions are not equated to IPSS, but have rather the objective of subjecting them to the regime established in the Statute of IPSSs. Only with registration do the institutions covered by Decree-Law nº 119/83, of 25.02, acquire the status of private legal entities of public interest.

4. In the case of institutions that pursue objectives in the area of promotion and protection of health and that fall within Decree-Law 119/83 of 25.02, the said registration is effected in accordance with Ordinance 466/86 of 25.08.

5. Thus, pursuant to Decree-Law 119/83, of 25.02, and the new Concordat, there is no legal provision that equates religious organisations and institutions and, in the case of the appellant (canonically erected entities), to IPSSs, having these, in addition to the notification referred to in article 45º of the said decree law, to effect registration in accordance with article 7º of the same norm, with the Directorate-General of Social Security.

6. Because this is the competent entity, in accordance with Ordinance 466/86 of 25.08, that Directorate-General was contacted which confirmed that the appellant does not possess the quality of IPSS nor of entity to these legally equated.

7. For that reason and since it does not meet any other of the requirements established in article 10º of the CIRC there is no possibility of allowing the request."

8. Disagreeing with this understanding, the Claimant intends, with the present action, to have the IRC assessment act for 2012 annulled, in the exact terms and with the grounds contained in the decisions already handed down by CAAD in Cases:

a) Nº 98/2015-T, in which the same factual and legal question was analysed and decided but with reference to the year 2009 - Doc. 4, attached with the request, the contents of which are hereby incorporated;

b) Nº 547/2015 – T, in which the same factual and legal question was analysed and decided but with reference to the year 2011 - Doc. 5, attached with the request, the contents of which are hereby incorporated;

1. The Claimant is a Religious Congregation, canonically erected, that develops, in addition to religious activity, an activity of promotion and protection of health, in an establishment belonging to it called "B…";

2. The Claimant is organised by National Provinces, with the Portuguese Province being the international headquarters of the Congregation, the first registered in Portugal, in 1876, and has activities worldwide;

3. The first Constitutions of the Claimant date from 18 October 1901, from which the primary purpose "care for the sick both in hospitals, as well as in their homes" results, a characteristic that persists with the approval of its Statutes on 21/09/1937 and subsequently with the celebration of the 1940 Concordat and its respective notification, on 6 November 1940, to the Civil Government of Porto, in which the purpose stands out as "to dedicate itself to health care assistance to the sick and other services of charity and social assistance" - Doc. 6, attached in Doc. 3, as documents 7 and 8 of the complaint, the contents of which are hereby incorporated;

4. The Claimant was thus recognised in Portugal, in addition to its religious purposes, as an institution of charity and social assistance, an activity that it exercises in the establishment "B…", specially prepared and licensed for that purpose, where it provides preventive, curative and rehabilitation medicine care, for which it receives, naturally, the due payment, although never for profit-making purposes;

5. It is especially from the exercise of that activity that the profits declared in the 2012 income statement of the Claimant and from which the 2012 IRC assessment resulted, in the amount of 82,405.91 euros, result;

6. Because it understood that it was covered by article 10º of the Corporate Income Tax Code (CIRC), as regards the health sector activity developed in "B…", being, in that context, exempt from IRC, the Claimant had previously requested the issuance of a certificate evidencing its IRC exemption. - Doc. 7, attached in Doc. 3, as document 1 of the complaint, the contents of which are hereby incorporated;

7. A request which aimed to better document the understanding which the now respondent – AT had already conveyed, on 8 November 2007, by "Information" provided in the context of the "Matter: Request for exemption under article 10º of the CIRC for B…", from which is gathered, among other things, the following:

"Taxable Subject: A…

Tax ID: …

Arguments:

On 18.06.2007, the above identified taxable subject comes to present a request for exemption in accordance with the provisions of article 10º of the Corporate Income Tax Code (CIRC), for "B…", property of A….

Facts:

• In view of the documentation attached to the present file, it is verified that this is an entity equated to IPSS (article 40º and 45º of decree-law nº 119/83, of 25 February) as per Official Letter …, of 27-07-99 issued by the Ministry of Health, which falls within the scope of article 10º, nº 1, paragraph b), of the CIRC, whereby in view of the new wording of the same the request does not require ministerial recognition, the exemption being of an automatic character." - Doc. 8, attached in Doc. 3, as document 3 of the complaint, the contents of which are hereby incorporated;

1. The respondent, Tax and Customs Authority – AT, through the Deputy General Director of Taxes, dismissed the said request, for issuance of certificate evidencing its IRC exemption, on 21 February 2011, for which reason the Claimant filed a hierarchical appeal of that decision, on 28.03.2011 - Docs. 9 and 10, attached in Doc. 3, as document 3 of the complaint, the contents of which are hereby incorporated;

2. The representative of the Claimant and subscriber of the present application was not notified of any decision on the said hierarchical appeal - Doc. 11, attached in Doc. 3, as document 4 of the complaint, the contents of which are hereby incorporated;

3. Having the Claimant not made payment of the assessed tax, it provided the due bank guarantee, to prevent the continuation of the respective enforcement proceedings, a guarantee that imposed on it, until the moment of filing the present request for arbitral pronouncement, the cost of 953.35 euros - Docs. 13 to 16, attached with the request, the contents of which are hereby incorporated;

4. Following the request for IRC exemption formulated by the Claimant, DSIRC informed that when the DGSS was contacted, given its competence in the area of IPSSs, to clarify all doubts regarding the possession or not, by A…, of the quality of IPSS, the same came to clarify through dispatch S/… of 2010-10-08 the following:

"There is no record in this Directorate-General of A…" as a Private Institution of Social Solidarity, whereby it is presumed that the notification referred to in article 45º of the IPSS statute was never made (…), that is, the said institution never acquired legal personality in the civil legal order.» - docs. 5 and 6, attached with the response of the AT, the contents of which are hereby incorporated;

1. The aforementioned gracious complaint was dismissed on the ground that the respondent AT considered that the Claimant did not present sufficient evidence for it to be equated to an IPSS and, as such, exempt from the payment of Corporate Income Tax;

2. On 17.03.2016 the Claimant filed the present request for arbitral pronouncement.

3. The Claimant does not appear on the list of institutions registered as "IPSS" or as "entity equated to IPSS", in accordance with information provided by the Directorate-General of Social Security – Docs. 1 and 2, attached with the response of the AT, the contents of which are hereby incorporated;

4. Hereby reproduced are docs. nº 3, entitled "Registration of Private Institutions of Social Solidarity" and nº 4, with the heading "Manual of Procedures", of the DGSS, attached with the Response of the respondent – AT.

III.2. Unproven Facts

The Tax and Customs Authority states in article 50º of the Response that "On 17.08.2015 the Claimant filed with the Administrative Court of Sintra Circle, case nº … a special administrative action requesting the annulment of the order of 24.04.2015 of the Director of IRC Services, which summarily rejected the hierarchical appeal filed by the Claimant on 29.12.2014".

However, the AT did not present any supporting document either that the Claimant filed the aforementioned action or that an «order of 24.04.2015 of the Director of IRC Services, which summarily rejected the hierarchical appeal filed by the Claimant on 29.12.2014» was issued.

III.3. Reasoning for the Determination of the Factual Matter

The proven facts are based on the documents attached by the Claimant and by the Tax and Customs Authority, as well as on the circumstance that there is no controversy as to the remaining factual matter alleged.

IV. ON THE MERITS

A) Examination of the question of application to the Claimant of the exemption provided for in article 10º, nº 1, paragraph b), of the CIRC

The essential question that is the subject of the present proceedings is whether the Claimant benefited from an IRC exemption, under the provisions of article 10º, nº 1, of the CIRC, for the year 2012.

The wording of this nº, in force in the year 2012, which appears in the republication carried out by Decree-Law nº 159/2009, of 13 July, was as follows:

Article 10º

Legal entities of public interest and social solidarity

1 — Exempt from IRC are:

a) Private legal entities of administrative public interest;

b) Private institutions of social solidarity, as well as legal entities legally equated to those;

c) Private legal entities of mere public interest that pursue, exclusively or predominantly, scientific or cultural purposes, charity, assistance, charity, social solidarity or environmental protection.

On the other hand, nº 2 of article 10º further states that:

The exemption provided for in paragraph c) of the preceding number requires recognition by the Minister of Finance, at the request of the interested parties, by means of an order published in the Official Journal, which defines its scope, in accordance with the purposes pursued and the activities developed for their realisation, by the entities in question and the information of the competent services of the Directorate-General of Taxes and others deemed necessary.

Thus, we conclude that, in accordance with paragraph b) of article 10º, entitled to IRC exemption are private institutions of social solidarity, as well as legal entities legally equated to those.

On the other hand, it is concluded that the exemption has an automatic nature and is therefore not subject to recognition. On this matter, both the Claimant and the respondent are in agreement. Indeed, in this regard the Tax Authority itself expressed this understanding through a Circular Official Letter of 2009 addressed to the Services stating that "Considering that the exemption of Private Legal Entities of Administrative Public Interest and of Private Institutions of Social Solidarity (IPSS) and related entities[1], as well as legal entities legally equated to IPSSs (paragraphs a) and b) of nº 1 of article 10º of the CIRC), currently operates in an automatic manner and with retroactive effect to the date of verification of the respective requirements, the Finance Services should clarify the requesting taxpayers who are covered by such regime, of the unnecessariness of their request so as to avoid the institution of inconsequent proceedings, (…)".

With respect to their framework, the parties agree that the Claimant is not a Private Institution of Social Solidarity, whereby the application of the norm in question (paragraph b) of nº 1 of article 10º) can only occur if the Claimant is a "legal entity legally equated to a private institution of social solidarity".

Thus, the nature of the Claimant as a "legal entity legally equated to a private institution of social solidarity" assumes particular relevance to the matter brought before this court.

In this regard, already in the Award handed down by the STA in case nº 0725/11, of 18-01-2012, it was concluded that: "Private legal entities of administrative public interest, private institutions of social solidarity and legal entities legally equated to those, namely religious organisations and institutions and their institutes that propose, in addition to religious purposes, other purposes that can be framed under article 1º of Decree-Law nº 119/83, of 25 February (Statute of IPSSs), benefit from an automatic IRC exemption in accordance with article 10º, nº 1, paragraph b) and 2 of the CIRC and the combined provisions of articles 12º and 26º, nº 5 of the New Concordat, as well as articles 1º, nº 1 paragraph f), 40 and 41º of the said Statute."

Indeed, entities equated to private institutions of social solidarity (IPSS) are considered to be religious institutions that, in addition to religious purposes, pursue other purposes that can be framed under article 1º of the Statute of IPSSs, published by Decree-Law nº 119/83, of 25 February, namely with regard to the Claimant, as provided for in paragraph e) of nº 1 of article 1º, which states: "Promotion and protection of health, namely through the provision of preventive, curative and rehabilitation medicine care;" which is the case with the Claimant.

Notwithstanding it does not appear that there are any doubts as to the nature of the Claimant as an entity equated to a private institution of social solidarity, the same cannot be said regarding the obligation for the Claimant to register in order for it to benefit from the IRC exemption provided for in article 10º of the Corporate Income Tax Code.

The thesis defended by the Tax and Customs Authority, which was at the origin of the assessment in question in the present challenge, is based on the understanding that the Claimant, in order to be considered an entity legally equated to a private institution of social solidarity, was, as such, in the absence of a norm excluding it, subject to the rules governing the registration of private institutions of social solidarity, in accordance with nº 2 of article 32º of the Basic Law of Social Security nº 4/2007, of 16 January, regulated by Ordinance nº 139/2007, of 29 January, which has essentially the purpose of "a) Prove the nature and purposes of the institutions; b) Prove the legal facts specified in this act; c) Recognise the public interest nature of the institutions; d) Provide access to forms of support and cooperation" and article 40º of the Statute of IPSSs, approved by Decree-Law 119/83 of 25 February.

Thus, this Tribunal must analyse the obligation for the Claimant to register so that it could benefit from the said IRC exemption.

As handed down in the jurisprudence of CAAD, in the context of case nº 547/2015-T, of 17 February 2016, with which we fully agree both in the reasoning and in the conclusion, and which we now transcribe:

"(…) the need for registration, in the light of the norms invoked by the Tax and Customs Authority, can only have legal support in nº 2 of article 32º of the Basic Law of Social Security (Law nº 4/2007, of 16 January), and in article 40º of the Statute of IPSSs, approved by Decree-Law nº 119/83 of 25 February.

Article 32º, nº 2, of the Basic Law of Social Security establishes that «private institutions of social solidarity and other institutions of recognised public interest without profit-making character, provided for in nº 5 of article 63º of the Constitution, are subject to mandatory registration».

Article 40º of the Statute of Private Institutions of Social Solidarity, in the original wording, in force in 2011, establishes that «religious organisations and institutions that, in addition to religious purposes, propose activities that can be framed under article 1º are subject, as regards the exercise of those activities, to the regime established in the present Statute».

Article 2º of Ordinance nº 139/2007, indicates the purposes of registration of private institutions of social solidarity.

Article 29º of this Ordinance nº establishes the following:

Article 29º

Registration of canonically erected institutions

1 - The acts of registration relating to canonically erected institutions are subject to the provisions of the present act with the adaptations provided for in the following numbers.

2 - For the purpose of recognition of legal personality, in accordance with article 45º of the Statute of Private Institutions of Social Solidarity, the notification of the canonical erection of institutions that pursue exclusively or mainly objectives within the scope of social security, is made by the competent Diocesan Ordinary to the CDSS of the area of the seat of the institutions.

3 - Institutions that have acquired legal personality in accordance with the preceding number must request the respective registration and present the documents referred to in article 19º with the exception of a copy of the act of constitution.

4 - The provisions of paragraph a) of article 14º do not apply to amendments to the statutes of canonically erected institutions that are approved by the competent ecclesiastical authority.

From this norm of Ordinance nº 139/2007 results the obligation for registration for canonically erected institutions, which is the case with the Claimant.

However, as is referred to in paragraph m) of the factual matter fixed, «the notification referred to in articles III and IV of the Concordat between the Holy See and the Portuguese Republic was made to the Civil Government of … on 19 November 1940», before the revision of the Concordat between the Portuguese Republic and the Holy See, signed on 18 May 2004 in the Vatican City, approved by Resolution of the Assembly of the Republic nº 74/2004, of 30 September, published in the Official Journal, Series I, of 16-11-2004, whereby what is provided for therein regarding the effects of that notification must be taken into account.

Articles 3º and 4º of the original version of the 1940 Concordat, established that «recognition by the State of the legal personality of associations, corporations or religious institutes, canonically erected, results from mere written notification to the competent Authority made by the Bishop of the diocese where they have their seat, or by his legitimate representative» and that «the associations or organisations referred to in the preceding article» if «they also proposed purposes of assistance and charity in fulfilment of statutory duties (...) are, in the respective part, subject to the regime instituted by Portuguese law for these associations or corporations, which shall become effective through the competent Ordinary and which can never be more onerous than the regime established for legal persons of the same nature»."

In the case of the Claimant, the written notification referred to was made, whereby recognition by the State of the legal personality of the Claimant was recognised, long before the revision of the Concordat which took place in 2004. The Claimant is organised by National Provinces, with the Portuguese Province being the international headquarters of the Congregation, the first registered in Portugal in 1876 and has activities worldwide. The first Constitutions of the Claimant date from 18 October 1901, from which the primary purpose "care for the sick both in hospitals, as well as in their homes" results, a characteristic that it affirms persists with the approval of its Statutes on 21/09/1937 and subsequently with the celebration of the 1940 Concordat and its respective notification, on 6 November 1940, to the Civil Government of Porto, in which the purpose stands out as "to dedicate itself to health care assistance to the sick and other services of charity and social assistance" (see proven facts 9, 10, 11 and 12).

On the other hand, and in the line of the aforementioned Award, "Nº 2 and 3 of article 10º of the 2004 Concordat, establish the following: 2 - The State recognises the legal personality of the legal persons referred to in articles 1º, 8º and 9º in their respective terms, as well as that of the remaining canonical legal persons, including institutes of consecrated life and societies of apostolic life canonically erected, which have been constituted and notified to the competent authority by the bishop of the diocese where they have their seat, or by his legitimate representative, until the date of entry into force of the present Concordat; 3 - The civil legal personality of canonical legal persons, with the exception of those referred to in articles 1º, 8º and 9º, when constituted or notified after the entry into force of the present Concordat, is recognised through registration in the State's own registry by virtue of an authentic document issued by the competent ecclesiastical authority showing its erection, purposes, identification, representative bodies and their respective competencies.

As results from this nº 3, only for canonical legal persons that are constituted or notified after its entry into force is recognition made through registration in the State's own registry." (emphasis ours)

Thus, having the Claimant's first Statutes been approved on a date long prior to the celebration of the 2004 Concordat, the provisions of nº 3 of article 10º of that Concordat, which stipulates that canonical legal persons constituted after the celebration of the Concordat must be registered in the State's own registry, shall not apply.

In the case in question, the Claimant, whose legal personality had already been recognised before 2004, continued to be recognised, independently of registration, by virtue of nº 2 of this article 10º.

The Award further states that:

"Pursuant to article 12º of the Concordat, «canonical legal persons, recognised in accordance with article 10º, which, in addition to religious purposes, pursue purposes of assistance and solidarity, develop their respective activity in accordance with the legal regime instituted by Portuguese law and enjoy the rights and benefits attributed to private legal entities with purposes of the same nature».

Similarly, article 26º, nº 5, of the Concordat states that «canonical legal persons, referred to in the preceding numbers, when also developing activities with purposes other than religious, so considered by Portuguese law, such as, among others, social solidarity, education and culture, in addition to commercial and profit-making purposes, are subject to the tax regime applicable to the respective activity».

These articles 12º and 26º, nº 5, are clearly norms that equate canonical legal persons that develop activities of assistance and social solidarity to private institutions of social solidarity for tax purposes (among others)."

Having the Claimant been recognised in Portugal, in accordance with article 10º, nº 2, of the Concordat, in addition to its religious purposes, as an institution of charity and social assistance, providing, thus, in the establishment "B…", specially prepared and licensed for that purpose, preventive, curative and rehabilitation medicine care, it enjoys the benefits attributed to private legal entities with purposes of the same nature, namely private institutions of social solidarity, which, in accordance with article 1º, nº 1, paragraph e), of the Statute of Private Institutions of Social Solidarity approved by Decree-Law nº 119/83, of 25 February, include private institutions without profit-making purpose that develop the provision of health care.

It is further stated that:

"With regard to canonical legal persons notified before the entry into force of the Concordat that develop activities of assistance and solidarity, neither the aforementioned article 12º, nor nº 5 of article 26º of the Concordat make their equating to private legal entities with purposes of the same nature dependent on registration, but only on recognition in accordance with article 10º, nº 2, of the Concordat, for the purpose of enjoyment of tax benefits.

On the other hand, the reference made in article 26º, nº 5, to the «tax regime» refers to norms of a tax nature and not to norms on the registration of legal entities, which, as results from article 10º, nº 3, of the Concordat is only necessary for canonical legal persons that are constituted or notified after the entry into force of the Concordat.

Furthermore, from nº 2 of article 10º of the Concordat it follows that for canonical legal persons that have been constituted and notified to the competent authority by the bishop of the diocese where they have their seat, or by his legitimate representative, until the date of entry into force of the Concordat, recognition is made by the State by virtue of that very norm, not depending on any administrative act of recognition."

Pursuant to article 40º, under the heading "Religious organisations and institutions", of Decree-Law 119/83 (Statute of IPSSs), in the wording in force in 2012 "Religious organisations and institutions that, in addition to religious purposes, propose activities that can be framed under article 1º are subject, as regards the exercise of those activities, to the regime established in the present Statute.".

From this it is concluded that, in accordance with the combined provisions of article 40º of the Statute of IPSSs and article 26º, nº 5, of the Concordat signed between the Holy See and the Portuguese Republic, religious entities that, in addition to religious purposes, pursue activities that can be framed under article 1º of that Statute (Decree-Law 119/83), as is the case with the Claimant, are subject, as regards the exercise of those activities, to the regime established therein and are equatable to private institutions of social solidarity, for the purposes of application of the IRC exemption provided for in article 10º, nº 2, paragraph b), of the CIRC.

As results from the provisions of nº 2 of article 8º of the CRP "the norms contained in international conventions regularly ratified or approved are in force in the internal order after their official publication and while they bind the Portuguese State internationally".

The 2004 Concordat being an international convention that has been ratified, that article 8º, nº 2, ensures its force while it binds the Portuguese State, prevailing over the norms of internal law.

The Claimant thus meets the conditions provided for in paragraph b) of nº 1 of article 10º of the Corporate Income Tax Code, as it falls within the entities legally equated to private institutions of social solidarity, having in the same sense been ruled on by Award nº 98/2015-T, in which the same factual and legal question was analysed and decided, although with reference to the year 2009.

Thus the arbitral request is well-founded, concluding that the impugned tax assessment act for IRC for the year 2012, which is the subject of the present challenge, is illegal, by violation of paragraph b) of nº 1 of article 10º of the Corporate Income Tax Code, combined with nº 2 of article 10º, article 12º and nº 5 of article 26º of the Concordat signed between the Holy See and the Portuguese Republic, with paragraph e) of nº 1 of article 1º and article 40º of the Statute of Private Institutions of Social Solidarity, approved by Decree-Law nº 119/83, of 25 February.

B) Indemnification for Undue Guarantee

The Claimant requested, pursuant to the provisions of article 43º of the General Tax Law (LGT), the payment of indemnification for undue provision of guarantee, considering "that there was error attributable to the services from which resulted payment of tax debt in an amount greater than that legally due", arguing that in accordance with article 100º of the LGT also provides "the obligation for the AT to restore the situation that would have occurred in the case of no illegality having been committed which, depending on the cases, will imply the payment of indemnity interest."

Now, the Claimant presented a bank guarantee, on 2015-05-06, to prevent the continuation of the respective enforcement proceedings, a guarantee which imposed on it, until the moment of filing the initial petition, an expense of 953.35 euros.

On the other hand, in the case sub judice, it is manifest that the error underlying the impugned assessment is attributable to the respondent, since the assessments were of its initiative, the Claimant having not contributed to the occurrence of such error.

Thus, under the provisions of nºs 1 and 2 of article 53º of the LGT, the Claimant is entitled to indemnification for the guarantee provided undue up to the maximum limit provided for in nº 3 of the said article 53º.

Being only within the knowledge of this Tribunal the value appearing in the file – euros 953.35€ - for payment of the expenses with the provision of undue guarantee, it is considered, already, that the payment of that amount is due to the Claimant, without prejudice to its right to be indemnified for the real sum that it has spent or may spend with the aforementioned guarantee, up to the end of the proceedings, to be assessed within the framework of execution of judgment, in accordance with article 24º, nº 1, of the RJAT.

V. DECISION

In these terms, and with the grounds stated, this Arbitral Tribunal decides:

a) To dismiss the exceptions raised by the respondent;

b) To fully uphold the request for arbitral pronouncement, with the declaration of illegality, for the reasons stated above, of the IRC assessments for the year 2012 which are the subject of these proceedings and respective compensatory interest, with the consequent annulment of these assessments as they are vitiated by violation of law, by error regarding the factual and legal assumptions;

c) To annul the decision of 18 December 2015 of the Head of Division of the Directorate of Finance of Lisbon, which dismissed the complaint filed by the Claimant;

d) To condemn the respondent to payment of the costs incurred (Euros 953.35) with the bank guarantee, as well as those that may be established until the end of the proceedings;

e) To condemn the respondent to payment of the costs of the proceedings.

VI. VALUE OF THE PROCEEDINGS

In accordance with the provisions of article 305º, nº 2, of the Civil Procedure Code and 97º-A, nº 1, paragraph a), of the CPPT and 3º, nº 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at Euros 82,405.91.

VII. COSTS

In accordance with article 22º, nº 4, of the RJAT, the amount of costs is fixed at Euros 2,754.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 13 December 2016

The Arbitrators,

Fernanda Maçãs (President)

António Sérgio de Matos (Member)

Filomena Salgado Oliveira (Member)

[1] The exemption included until the end of 2011 related entities, whose exemption was revoked by article 115º of Law nº 64-B/2011, of 30 December: "The exemptions granted under the provisions of paragraph b) of nº 1 of article 10º of the Corporate Income Tax Code, in the prior wording, to related entities of private institutions of social solidarity are hereby revoked."