Summary
Full Decision
ARBITRAL DECISION
REPORT
A... S.A., taxpayer no. ..., with registered office at ..., ..., ...-... ... (Claimant), submitted on 06/04/2018, a request for arbitral pronouncement in which it petitions the declaration of illegality and consequent partial annulment of the tax assessment act for Corporate Income Tax (IRC), relating to the taxation period of 2014 and, likewise, the condemnation of the Tax and Customs Authority (AT) to reimburse the amount of € 19,712.58 paid in excess, plus compensatory interest and default interest.
The Esteemed President of the Deontological Council of the Administrative Arbitration Center (CAAD) appointed, on 27/04/2018, the undersigned as sole arbitrator of this decision.
On 21/06/2018 the arbitral tribunal was constituted.
In compliance with the provisions of article 17, paragraph 1 of the Legal Regime of Tax Arbitration (RJAT), the AT was notified on 22/06/2018 to, if it wished, present a reply and request the production of additional evidence.
On 10/09/2018 the AT submitted its reply, accompanied by the respective administrative file.
The arbitral tribunal on 12/09/2018 decided to waive the holding of the meeting referred to in article 18, paragraph 1 of the RJAT, on the grounds of the principle of autonomy of the arbitral tribunal in conducting the proceedings, inviting both parties to, if they wished, submit optional written submissions and scheduled the date for pronouncement of the final decision.
The Claimant and the AT did not submit optional written submissions.
PRELIMINARY MATTERS
The arbitral tribunal was regularly constituted and is materially competent.
The parties have legal standing and capacity and are legitimate, with no defects in representation occurring.
There are no nullities, exceptions or preliminary matters that preclude knowledge of the merits and which it is necessary to know ex officio.
Consequently, the conditions for pronouncement of the final decision are met.
POSITIONS OF THE PARTIES
There are two positions in confrontation, that of the Claimant, set out in the request for arbitral pronouncement, and that of the AT in its reply.
In summary, the Claimant alleges that, being subject to a taxation period commencing on 01/07 and ending on 30/06 of the following year, and having occurred the alteration of the IRC rate for the period of 2015, introduced by Law no. 82-B/2014, of 31 December, entering into force on 01/01/2015, it should be that rate (21%) to be applied to the year 2014, as nothing in that law excepts it.
In another manner, the AT sustains, in summary, that it is not by virtue of the fact that the Claimant has a taxation period different from the calendar year, that the rules of one year should be applied to the part of the taxation period occurring in a given year and the rules of another for the period of the following year.
The AT further alleges that the IRC rate for the period of 2014 is 23%, in accordance with the wording in force for taxation periods commencing on or after 01/01/2014, as given by Law no. 2/2014, of 16 January (IRC Reform).
FACTUAL MATTERS
FACTS DEEMED ESTABLISHED
In light of the documents placed in the proceedings, it is established that:
The Claimant is a commercial company whose corporate purpose consists, inter alia, in the commercialization, distribution, maintenance and assembly of furniture, household appliances, television sets, radios and music equipment, upholstery and various decoration items intended for home furnishing, which is part of Group B....
Group B... was acquired in 2011 by Group C..., an economic operator dedicated, among other activities, to the manufacture, distribution and retail of furniture and other articles intended for home furnishing in Europe, Africa and Australasia.
When Group B... was acquired, the economic (and fiscal) period of Group C..., led by company D..., was different from the calendar year, commencing on 01/07 of each year and ending on 30/06 of the following year.
The Claimant altered its taxation period in 2011, so that it would coincide with the taxation period of the other entities of Group C....
On 30/11/2015, the Claimant submitted its IRC Form 22 Declaration with reference to the taxation period of 2014, ended on 30/06/2015, having calculated a positive net result of € 2,942,029.30.
After the net result of the period was corrected in accordance with the adjustments provided for in the IRC Code, the Claimant obtained a taxable profit of € 3,285,430.17 and, after the deductions permitted by the said legislation, a taxable base of € 985,629.05.
To the taxable base was then applied, by definition of the AT's computer system, the IRC rate of 23% in force during the taxation period of 2014.
The Claimant attempted, without success, to alter from 23% to 21% the IRC rate indicated in its respective IRC Form 22 Declaration, but the AT's computer system did not permit such alteration.
From the application of the said rate of 23% resulted in a total tax collection, including state surcharge, of € 280,257.59.
After the deduction of special advance payments and advance payments and the increase of the municipal surcharge and autonomous taxation, an amount payable of € 131,658.54 was calculated, which was settled by the Claimant on 30/11/2015.
Having verified that in the IRC self-assessment not all special advance payments previously made and capable of deduction were deducted from the tax collection, on 04/12/2015 the Claimant submitted a replacement IRC Form 22 Declaration, from which resulted an amount of IRC payable of € 118,013.49.
Considering that the amount of € 131,658.54 had already been paid, after the submission of the replacement Form 22 Declaration, the Claimant had a credit against the AT in the amount of € 13,645.05 (€ 131,658.54 - € 118,013.49).
The AT recognized such credit and effected the reimbursement of the amount of € 13,645.05 on 29/12/2015.
Notwithstanding, disagreeing with the application of the IRC rate of 23% to its taxable base, the Claimant submitted, on 03/03/2016, a voluntary appeal for reconsideration, having been notified on 20/10/2017 of the preliminary rejection draft.
The Claimant exercised its right to prior hearing, having been notified on 05/01/2018 of the final decision rejecting the appeal for reconsideration submitted.
The Claimant submitted on 06/04/2018, a request for arbitral pronouncement requesting the review of the contested tax assessment.
FACTS DEEMED NOT ESTABLISHED
There are no facts relevant to the decision that have not been deemed established.
THE LAW
ON THE SUBJECTIVE INCIDENCE OF THE TAX
In accordance with the understanding of the DSIRC contained in Information no. 1725/2016, sanctioned by order of the Deputy General Director of 04/05/2017 and which founded the application of the 23% rate to the case in question:
IRC is an annual tax (see paragraph 5 of the Information);
The Claimant's taxation period of 2014 commenced on 01/07/2014 and ended on 30/06/2015 (see paragraph 6 of the Information); and
The new law applies to the facts occurring in the period in which it enters into force, that is, 2015 (see paragraph 7 of the Information).
That is, the DSIRC concludes, based on the following premises: (i) IRC is a tax with an annual basis, and (ii) the IRC rate was altered in the calendar year of 2015 (which, as a general rule, corresponds to the taxation period), that the new IRC rate should be applied only to "taxation periods of 2015", also in the case of entities whose taxation periods do not coincide with the calendar year (as is the case of the Claimant).
Let us examine this.
In accordance with the provisions of article 87, paragraph 1 of the IRC Code, as worded by Law no. 2/2014, of 16 January, legislation that proceeded to the IRC reform, the IRC rate in force in the year 2014 was 23%.
By virtue of article 14 of the said Law no. 2/2014, the alterations introduced to the IRC Code applied to taxation periods commencing, or to tax facts occurring, on or after 01/01/2014.
Thus, on 01/07/2014, the date on which the Claimant's taxation period of 2014 commenced, the IRC rate in force was 23%.
However, at the end of the same year, article 192 of Law no. 82-B/2014, of 31 December ("State Budget Law for 2015") came to alter the IRC rate to 21%.
Pursuant to paragraph 1 of its article 261, the State Budget Law for 2015 entered into force on 01/01/2015 and, therefore, the general IRC rate in force from that date is 21%.
Now, contrary to what it did in the previous legislation that altered the IRC rate, the legislator did not establish in the State Budget Law for 2015 any transitional provision relating to the alteration of the IRC rate and its temporal application.
With no transitional rule existing, it is necessary to attend to the general rules on the temporal application of tax law.
Under paragraph 1 of article 12 of the General Tax Law, "Tax rules apply to facts subsequent to their entry into force, and no retroactive taxes may be created" (emphasis added).
Thus, having regard to the fact that the State Budget Law for 2015 entered into force on 01/01/2015, it is necessary to determine when the taxable event of IRC, relating to its taxation period of 2014, occurred in the sphere of the Claimant.
On this question, the DSIRC understands, based on its interpretation of the succession of laws over time, that:
To the taxation period of 2014 (commenced on 01/07/2014 and ended on 30/06/2015) apply the rules of the IRC Code in force for the taxation period of 2014 (in other words, the IRC rate in force during the calendar year of 2014, which, as a general rule, corresponds to the taxation period of the majority of taxpayers);
To the taxation period of 2015 (commenced on 01/07/2015 and ended on 30/06/2016) apply the rules of the IRC Code in force for the taxation period of 2015 (in other words, the IRC rate in force during the calendar year of 2015); and
The tax obligation arises after the alteration of the IRC rate, which applies only to taxation periods commencing on or after 1 January 2015.
That is, for the DSIRC, the tax obligation (read, the taxable event for IRC purposes, which will determine the applicable rate), arises with the commencement of the taxation period.
Thus, to the taxation period commenced during the calendar year of 2014, applies the IRC rate in force for 2014, of 23%, while to the taxation period commenced during the calendar year of 2015, applies the rate of 21%.
Now, this position is in total disagreement with the applicable rules.
Indeed, paragraph 9 of article 8 of the IRC Code provides that the "taxable event of the tax is deemed to occur on the last day of the taxation period".
But if any doubts existed, to clarify them it would suffice to attend to the decision handed down by the Constitutional Court in Judgment no. 382/2012 of 12 July 2012, in analysing the retroactivity of the tax law that altered the rates of autonomous taxation in the year 2008, "in the taxation of income in the context of IRS or IRC, in which the aggregate of income obtained in a given year is taxed (which implies that only at the end of the same may the tax rate be calculated, as well as the bracket in which the taxpayer is situated)... in the case of IRC, we are facing an annual tax, in which each income received per se is not taxed, but rather the aggregation of all income obtained in a given year, the law considering that the taxable event of the tax is deemed to occur on the last day of the taxation period (see article 8, paragraph 9, of the CIRC)" (emphasis added).
Moreover, the AT itself refers in the rejection decision that "Pursuant to the provisions of paragraph 9 of article 8 of the CIRC, the taxable event of the tax is deemed to occur on the last day of the taxation period" (see page 3).
Therefore, in the case of the Claimant, the taxable event of IRC due with reference to the taxation period of 2014 occurred on the last day of that taxation period, that is, on 30/06/2015, when the IRC rate in force was 21%.
And it should not be said to counter the conclusion we have reached in the preceding article that, in truth, only through mere oversight did the legislator not establish a transitional rule in the State Budget Law for 2015, his intention being that the new IRC rate applies only to taxation periods commenced after 01/01/2015.
This assertion must be summarily rejected, as it does not deserve any acceptance under the interpretative rules provided in the Civil Code, in particular in paragraph 3 of its article 9, according to which the "interpreter shall presume that the legislator established the most appropriate solutions and knew how to express his thought in adequate terms".
Indeed, if the legislator did not establish a transitional rule, we must conclude that he only failed to do so because he did not wish to, that is, because he intended the application of the general rules referred to above, from which results the immediate application of the new IRC rate to all taxation periods commenced or in progress on 01/01/2015.
Indeed, on previous occasions where the general IRC rate was altered and the legislator wished the new rate to apply only to taxation periods commenced after the entry into force of the new rate, the legislator established a transitional rule in that sense, as results from the various examples that follow.
In its original wording, the current paragraph 1 of article 87 of the IRC Code corresponded to paragraph 1 of article 69 of Decree-Law no. 442-B/88, of 30 November, and provided that "The IRC rate is 36.5%, except in the cases provided for in the following paragraphs".
Under paragraph 1 of article 41 of Law no. 3-B/2000, of 4 April (State Budget Law for 2000), the wording of paragraph 1 of article 69 of the IRC Code in force at the time was altered to "The IRC rate is 32%, except in the cases provided for in the following paragraphs".
Simultaneously, the legislator established in paragraph 3 of the same article that "The provisions of paragraph 1 of article 69 of the IRC Code, as worded by the present law, apply to income obtained in taxation periods whose commencement occurs from 1 January 2000" (emphasis added).
In the year 2002 there was a new alteration to the IRC rate through paragraph 1 of article 32 of Law no. 109-B/2001, of 31 December (State Budget Law for 2002), with the wording of the then article 80 of the IRC Code becoming "The IRC rate is 30%, except in the cases provided for in the following paragraphs".
Once again, the legislator established a transitional rule relating to the temporal application of the new IRC rate in paragraph 7 of the article referred to in the preceding paragraph which provided "The provisions of paragraph 1 of article 80 apply to income obtained in taxation periods whose commencement occurs from 1 January 2002" (emphasis added).
The evolution of the IRC rate maintained its tendency and in the year 2004, and paragraph 1 of article 30 of Law no. 107-B/2003, of 31 December (State Budget Law for 2004) altered paragraph 1 of article 80 of the IRC Code in force at the time so as to establish that "The IRC rate is 25%, except in the cases provided for in the following paragraphs".
In accordance with the procedure adopted by the legislator in the previous alterations to the IRC rate, under paragraph 2 of the same article, "The provisions of paragraph 1 of article 80 of the IRC Code apply to income obtained in taxation periods whose commencement occurs from 1 January 2004" (emphasis added).
As results from the various examples of alterations to the IRC rate mentioned above, whenever the legislator's intention was to exclude the application of the new IRC rate to taxation periods commenced before the entry into force of the new law, but with a term subsequent to the alteration of the rate, the legislator established transitional rules in that sense.
If it did not do so for the reduction of the IRC rate provided in the State Budget Law for 2015, it was certainly not because it forgot.
It was simply because it intended the immediate application of the new rate to all taxation periods commenced on 01/01/2015, after 01/01/2015 or in progress on 01/01/2015.
Thus, it is imperative to conclude that the general IRC rate in force on 30/06/2015, the date of the end of the Claimant's taxation period of 2014, was 21%, being that the rate to be applied for the purpose of calculating the IRC owed by the Claimant with reference to that period.
It is important to note here that the topic of the taxable event and entities with a taxation period different from the calendar year is not a novelty.
Rui Duarte Morais states that "Regarding the lasting taxable event, the question arises of the moment to consider in order to determine which law will govern the tax obligation relating to a given year. The answer will result, in principle, from the provisions of paragraph 9 of article 8: the taxable event of the tax is deemed to occur on the last day of the taxation period. That is, the applicable tax law will be, as a general rule, (assuming the normal coincidence of the year with the calendar year), that in force on 31 December. This results coherently with the annuality of the taxes (in particular, with the alterations that are introduced in tax law by virtue of the State Budget Law, also referring to a calendar year).
This means that taxpayers whose year does not coincide with the calendar year will be subject, in the calculation of taxable profit and the tax to be paid for each twelve-month period, to rules different from those to which the majority of taxpayers are subject" (emphasis and highlighting added).
In identical sense, Patrícia Anjos Azevedo in annotation to paragraph 9 of article 8 of the IRC Code, "The taxable event of the tax, that is, the tax fact (understood as that which will trigger the obligation to pay the tax) is deemed to occur on the last day of the taxation period (as a rule, 31 December of each calendar year, with the punctual exceptions observable and in accordance with the provision under analysis).
In this way, the tax law applicable to each year will be that in force at the end of the taxation period considered, coherently with the issue of the annuality of the taxes and in light of the issue that, for example, possible fiscal alterations are introduced when the State Budget Law is enacted, valid for a calendar year" (emphasis and highlighting added).
Finally, it is important to note that the DSIRC refers to the fact that the 23% rate should apply to the Claimant's taxation period of 2014, since article 14 of Law no. 2/2014, of 16 January, establishes that "Without prejudice to the provisions of article 8, the present law applies to taxation periods that commence, or to tax facts that occur, on or after 1 January 2014".
Article 14 established that the IRC rate of 23% introduced with the said law was applicable to taxation periods commenced on or after 01/01/2014, or to tax facts occurring after that date.
Indeed, the Claimant's taxation period of 2013, commenced 01/07/2013, ended on 30/06/2014, was already in progress when Law no. 2/2014, of 16 January, entered into force, whereby the tax fact occurring after 01/01/2014 was the taxable event of IRC for the taxation period of 2013, on 30/06/2014 (determining thus, even though it was not claimed by the Claimant, that the IRC for that taxation period should have been applied the rate of 23% and not 25%).
In the same manner as in the following year, on 30/06/2015, the taxable event of IRC relating to the Claimant's taxation period of 2014 was consummated, when the IRC rate in force was 21%.
In light of all that has been set out above, it is easy to conclude that:
The State Budget Law for 2015 altered the IRC rate provided in paragraph 1 of article 87 of the IRC Code, and came to reduce the same from 23% to 21%;
The State Budget Law for 2015 did not establish a transitional rule on the temporal application of the new IRC rate of 21%;
The State Budget Law for 2015 entered into force on 01/01/2015;
The Claimant's taxation period of 2014, commenced on 01/07/2014 (ended on 30/06/2015) was already in progress when the State Budget Law for 2015 entered into force;
Pursuant to paragraph 1 of article 12 of the General Tax Law, tax rules apply to facts subsequent to their entry into force;
Pursuant to paragraph 9 of article 8 of the IRC Code, the taxable event of IRC is deemed to occur on the last day of the taxation period;
The taxable event of IRC of the Claimant's taxation period occurred on 30/06/2015; and
The IRC rate in force on 30/06/2015 was 21%.
Thus, the total amount of the IRC tax collection owed by the Claimant with reference to the taxation period of 2014 should amount to € 206,982.10 (€ 985,629.05*21%) and not to € 226,694.68 (€ 985,629.05*23%) considered in the contested IRC tax assessment, whereby it is concluded that the Claimant unduly paid an amount of € 19,712.58.
DECISION
In these terms and with the reasoning described above, the arbitral tribunal decides:
To judge wholly to be founded the request for declaration of illegality of the tax assessment act for IRC, relating to the taxation period of 2014; and
To condemn the AT to reimburse the amount of € 19,712.58, plus compensatory interest accrued and to accrue from the date of payment until effective and full reimbursement of the amount paid, and default interest, if applicable;
To condemn the AT to pay the costs of the present proceedings.
VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at € 19,712.58 (nineteen thousand, seven hundred and twelve euros and fifty-eight cents), pursuant to article 97-A of the Code of Tax Procedure and Proceedings (CPPT), applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of the RJAT and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).
COSTS
Costs to be borne by the AT, in the amount of € 1,224 (one thousand two hundred and twenty-four euros), pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, pursuant to paragraph 2 of article 22 of the RJAT.
Notify.
Lisbon, 15 October 2018
The arbitrator,
(Hélder Filipe Faustino)
Text produced by computer, in accordance with the provisions of paragraph 5 of article 131 of the CPC, applicable by referral from subparagraph e) of paragraph 1 of article 29 of the RJAT.
The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.
[1] See "Notes on IRC", 2007, Almedina, pp. 46 and 47.
[2] See "Annotated & Commented Codes – IRC, Coordination by Prof. Dr. Glória Teixeira and Master Patrícia Anjos Azevedo", 2015, Lexit, p. 51.
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