CAAD 187/2018-T: IRC Environmental Damage Repair Provision Requirements Ruled

ARBITRAL DECISION[1]

The arbitrators Dr. Fernanda Maças (arbitrator-president), Dr. Sílvia Oliveira and Dr. Magda Feliciano, appointed by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 25 June 2018, agree as follows:

REPORT

A..., S.A., NIPC..., with registered office at Street..., ..., ...-... ..., hereinafter referred to as the Claimant, filed on 10 April 2018, pursuant to article 2, no. 1, subparagraph a), article 10, no. 1, subparagraph a) and no. 2, of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration – LRTA) and articles 96 et seq. of the Code of Tax Procedure and Process (CTPP), a request for constitution of a Collective Arbitral Court and for an arbitral decision, with a view to obtaining a declaration of illegality of the tax assessment acts relating to Corporate Income Tax (CIT), for the tax periods 2013, 2014, 2015 and 2016, in the total amount of EUR 144,962.74, as well as of the acts of rejection of the respective gracious claims submitted.

The Tax and Customs Authority, hereinafter referred to as the Respondent, submitted its Response on 12 September 2018, defending itself by way of objection. On the same date, it attached the respective Administrative File to the proceedings.

By arbitral order of 15 September 2018, the Claimant was notified to specify, within a period of 10 days, "the articles relating to factual aspects for which it intended to produce witness evidence".

By order of 12 October 2018, since the Claimant did not indicate the factual matters for which it intended the witnesses presented to be questioned, it was decided to reject the request for production of witness evidence.

Additionally, in the same order, it was decided to dispense with the holding of the meeting provided for in article 18 of the LRTA, and the Parties were given time for submissions.

The Claimant submitted written submissions on 24 October 2018 and the Respondent on 12 November 2018.

PRELIMINARY RULING

The Arbitral Court was duly constituted and is competent.

The request for arbitral decision is timely as it was submitted within the period provided for in subparagraph a) of no. 1 of article 10 of the LRTA.

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

The proceedings are not affected by any nullities.

There are no exceptions or preliminary issues that require knowledge, therefore nothing prevents knowledge of the merits of the case.

FACTUAL MATTERS

Facts Established

The following facts are considered established:

• The Claimant has been engaged, since 1 April 2003, in the activity of "Treatment and Disposal of Other Non-Hazardous Waste" – CAE 38212;

• The economic activity developed by the Claimant involves the operation of an environmental park, located in ..., between the municipalities of ... and ..., which includes a sanitary landfill;

• In this sanitary landfill, solid urban waste with no aptitude for recycling is deposited, previously collected throughout the ... ... ;

• In January 2005, a plan for partial sealing of the sanitary landfill of ... was prepared with a view to sealing the areas specified in the final level of the landfill;

• The plan for partial sealing of the sanitary landfill of ... was sent for approval to the competent authorities on 5 January 2006 and approved on 31 January 2006 by the Coordination Commission for Regional Development – North (CCDR-N);

• In December 2011, a provisional sealing plan was prepared for cell no. ... of the sanitary landfill of ..., whose operation began in early 2011, with an estimated useful life of 6 years;

• Under Service Orders no. OI2017..., relating to the tax periods 2013, 2015 and 2016 and no. OI2016..., relating to the tax period 2014, of partial scope in VAT and CIT, the Tax Inspection Services (TIS) prepared the Tax Inspection Reports (TIR) of 1.08.2017 and the TIR of 14.11.2017, respectively;

• According to the TIR of 1.08.2017, "(…) since the supporting document for the exemption from the constitution of the fund provided for in no. 5 of article 40 of the CIT Code is not contemporaneous with the provisional plan for closure of operations and the beginning of operation of cell no. ... of the landfill of ...(2011), to which is added the fact that the bank guarantee is expired, does not allow the Tax Administration to confirm the deductibility of the provision recorded due to lack of proof of the alleged facts" an additional CIT assessment act no. 2017..., of 2014, was issued in the amount of EUR 37,345.02;

• According to the TIR of 14.11.2017, considering that "the company does not meet the requirements mentioned in the aforementioned legal provisions, by virtue of: - Not having a provisional plan for closure of operations, approved by the competent body, as provided for in subparagraph a) of no. 3 of article 40 of the CIT Code; - Not having constituted the fund, represented by financial investments, referred to in subparagraph b) of no. 3 of article 40 of the CIT Code", additional CIT assessment acts no. 2017..., relating to the year 2013, were issued in the amount of EUR 42,452.05, no. 2017..., in the amount of EUR 33,258.33 and no. 2017..., in the amount of EUR 31,907.34.

• On 3 November 2017, the Claimant submitted a gracious claim against the additional CIT assessment act for the year 2014;

• On 12 December 2017, the Claimant submitted a gracious claim against the additional CIT assessment acts for the years 2013, 2015 and 2016;

• By order of 12 January 2018, the Claimant was notified of the decision to reject the gracious claim submitted against the additional CIT assessment act for the year 2014, identified above;

• On 10 March 2018, the Claimant was notified of the decisions to reject the gracious claims submitted against the additional CIT assessment acts for the years 2013, 2015 and 2016, identified above.

2 Justification for the Establishment of Factual Matters

With regard to the established factual matters, the Arbitral Court's conviction was based, in addition to the free assessment of the positions adopted by the Parties (on factual matters), on the content of the documents filed by both Parties in the proceedings, and on the administrative file.

Facts Not Established

It was not demonstrated that the Claimant had a provisional plan for the closure of cell no. ... of the sanitary landfill of ..., duly approved by the CCDR-N.

LEGAL MATTERS

1. The question underlying the proceedings is whether the Claimant complied, in the years 2013, 2014, 2015 and 2016, with the requirements provided for in article 40, no. 3 of the CIT Code, so as to legitimize the tax deductibility of the expenses associated with the strengthening of the provision for the repair of environmental damage, recorded in each of the said years in the Claimant's accounting.

2. Therefore, for purposes of the above, it will be necessary to determine whether, for the closure of operations of a given landfill cell, what is provided for in a Provisional Plan for Closure of Operations of that Landfill, duly approved for that purpose, but without specific reference to the cell to be closed, is sufficient and valid, or whether, on the contrary, there is a need for the existence of a Provisional Plan for Closure of a Cell, duly approved for that purpose.

3. On the other hand, it is also questioned whether the Claimant complied or not with the requirement provided for in article 40, no. 3, subparagraph b) and no. 5 of the CIT Code, with respect to the second of the conditions required for purposes of tax deductibility of the expenses associated with the strengthening of the provision for the repair of environmental damage already identified.

4. In effect, it falls to decide which of the Parties is correct in light of the arguments presented, whether in the Arbitral Request or in the Response, to assess:

4.1. The (il)legality of the tax assessment acts relating to CIT for the tax periods 2013, 2014, 2015 and 2016, in the total amount of EUR 144,962.74, as well as,

4.2. The (il)legality of the acts of rejection of the respective Gracious Claims duly submitted, under nos. ...2018..., ...2017..., ...2018... and ...2018... .

Requirement Associated with the Submission of a Provisional Plan for Closure of Operations

1. From the perspective of the Claimant, having proceeded "(…) to record the provision for the repair of environmental damage in accordance with the provisions of NCRF 26, meeting the conditions for its tax acceptance pursuant to articles 39 and 40 of the CIT Code (…)", it understands that "(…) the Tax Authority cannot make the tax deductibility of expenses dependent on any requirements additional to those established by law (…)", namely, when "(…) it claims that (….) there had to be a provisional plan specifically approved for the closure of operations of cell no. ... of the Landfill of ...", since it understands that it is valid "(…) the Provisional Plan for Closure of Operations of the Sanitary Landfill (…)", sent to the competent authorities on 05-01-2006 and approved on 31-01-2006, by the CCDR-N.[2][3][4]

2. Thus, for the Claimant, in this matter, "(…) from the date of approval of the provisional plan, all sealing operations or work to be carried out by the claimant must be in accordance therewith", so that "following (…) in full, the general and common plan for all cells of the landfill of ..., approved by the CCDR-N, it is not necessary to have a new approval from this entity for this plan specifically directed to cell no. 3" (our emphasis).

3. According to the Claimant, it does not make sense "(…) the approval of an individual and specific provisional plan for each one of the cells, when there is already an approved provisional plan that encompasses all cells, with the model being equal and replicable in all cases of this sanitary landfill" (our emphasis).

Requirement Associated with the Constitution of a Fund Represented by Financial Investments in an Amount Equivalent to the Accumulated Balance of the Provision at the End of Each Tax Period

1. With respect to the alleged non-constitution of the fund required by law, the Claimant alleges that it is covered by the exemption provided for in article 40, no. 5 of the CIT Code, by being "(…) required to provide security in favor of the entity that approves the Environmental and Landscape Recovery Plan, in accordance with the legal regime for the operation of the respective activity" which the Claimant, contrary to the Respondent, understands to be sufficient for the purposes to which it is intended.

2. The Respondent takes the opposite position as it understands that the Claimant "(…) does not meet the requirements mentioned in the legal provisions, by virtue of (i) not having a provisional plan for closure of operations, approved by the competent body, as provided for in subparagraph a) of no. 3 of article 40 of the CIT Code; (ii) not having constituted the fund, represented by financial investments, referred to in subparagraph b) of article 40 of the CIT Code".

3. Thus, and with respect to the alleged non-existence of a Provisional Plan for Closure, the Respondent argues that "the provisional plan for closure of operations of cell no. ... of the landfill of ...(…) is dated December 2011, and does not mention any approval by the competent body, so that any presumed approval could never be prior to this date (…)".[5]

4. Additionally, the Respondent further argues that the security provided "is manifestly insufficient to ensure the realization (…) of the expenses contained in the Provisional Plan for the closure of the landfill (or its respective cell)".

5. For purposes of determining which of the Parties is correct, in accordance with the obligations arising from the applicable legislation on environmental matters, as well as in light of the requirements necessary for tax deductibility, let us preliminarily analyze the environmental legislation applicable in the matter of Waste Management.

6. The depositing of waste in landfills constitutes a particular waste management operation which, in Portugal, finds in Decree-Law no. 239/97, of 9 September (Framework Law on Waste), the general rules for its exercise and in Decree-Law no. 321/99, of 11 August, the legal regime applicable to landfills for non-hazardous industrial waste.

7. Nevertheless, in the field of waste depositing in landfills, the need to ensure more effectively the protection of the environment and human health, in accordance with the general principles of waste management, has imposed the standardization of the regime of this method of waste elimination, through the adoption of special measures, applicable generically to the installation and operation of different classes of landfills.

8. In effect, the depositing of waste in all landfills must be controlled and managed appropriately, ensuring, at the same time, the effective prevention of waste abandonment and its uncontrolled disposal, as well as the choice of sites and the use of disposal methodologies and techniques consistent with the requirements for preservation and improvement of environmental quality.

9. This finding is, moreover, highlighted in Directive no. 1999/31/EC, of the Council, of 26 April, on the landfilling of waste, whose transposition into the internal legal order justified the legislative initiative underlying the publication of Decree-Law no. 152/2002, of 23 May and, subsequently, the publication of Decree-Law no. 183/2009, of 10 August.

The Regime of Decree-Law no. 152/2002, of 23 May

1. Within the framework of the legal structure established by Decree-Law no. 152/2002, the objective was to consolidate the national and community strategy concerning waste and the consequent policy for the reduction, recovery and treatment of waste, so that a progressively smaller quantity of waste would be deposited in landfills and that, at the same time, landfills would present a high level of environmental protection.

2. Thus, Decree-Law no. 152/2002, of 23 May established the rules applicable regarding the installation, operation, closure and post-closure maintenance of landfills, with the location of landfills, their design and construction also being aspects worthy of special attention, with a view to the protection, preservation and improvement of environmental quality and the prevention of risks to human health.

3. In these terms, according to article 1 of the said Decree-Law, this instrument aimed to "(…) regulate the installation, operation, closure and post-closure maintenance of landfills intended for waste, so as to avoid or reduce as far as possible the negative effects on the environment, both at the local level, particularly the pollution of surface waters, groundwater, soil and the atmosphere, and at the global level, particularly the greenhouse effect, as well as any risks to human health".

4. Its no. 2 states that "this instrument establishes the specific technical characteristics for each class of landfills and the general requirements to be observed in their design, construction, operation, closure and post-closure maintenance", with no. 3 providing that "the landfills referred to in the preceding number must be in conformity with the waste management plans in force" (our emphasis).

5. Article 19, no. 1 provided that "the licensed entity must provide to the competent authority, within 15 days of notification of receipt of the operating license, a financial guarantee or other equivalent guarantee, intended to guarantee the full compliance with the conditions imposed in the respective license, including those relating to the closure process and post-closure maintenance", with its no. 3 providing that the guarantees to be provided should be "(…) in a minimum amount equivalent to 10% of the total amount of the planned investment, autonomous, unconditional and irrevocable, callable on first request, payable within five days, following a call from the beneficiary, and will be contracted with an institution authorized by the Bank of Portugal" (our emphasis).

6. According to its no. 5, the guarantee would remain "(…) in force until canceled, in whole or in part, following written communication from the beneficiary entity to the issuing institution".

7. Now, with respect to amendments to the guarantee, article 20 provided that "upon application submitted by the licensed entity to the competent authority, the guarantee (…)" could:

"a) Be reduced to 75% of its initial value, when two years have elapsed from the date of commencement of operation of the landfill;

b) Be reduced to 25% of its initial value, following the completion of closure operations and landscape recovery of the site of its location;

c) Be fully canceled, 30 years after the beginning of the monitoring period of the landfill, except in the case of inert waste landfills, where this period is 5 years" (our emphasis).

1. However, "the partial reductions and cancellation of the guarantee referred to in the preceding number are dependent on the prior completion, by the competent authority, of a special inspection intended to verify compliance with the license conditions (…)" (our emphasis).

2. In accordance with article 43 of the said instrument, "it is the responsibility of the Waste Institute to issue the installation and operation licenses for hazardous waste landfills", with the responsibility falling to "the regional directorates of the Ministry of Economy for issuing the installation and operation licenses for landfills located within the perimeter of an industrial establishment and intended for the exclusive depositing of waste from that establishment, or from other establishments belonging to the same producer, upon binding opinion of the Waste Institute".

3. With respect to the "closure process and post-closure maintenance", article 26 of the above-cited instrument provided that:

"1 - The closure and post-closure maintenance of landfills covered by this instrument are subject to the provisions of Part II of Annex IV.

2 - Notwithstanding the provisions of nos. 3 and 4 of this article, licensed entities may only begin closure operations after notifying the competent authority of the respective date and in the following cases:

a) When the necessary conditions provided for in the license are met and with the agreement of the competent authority;

b) On their own initiative, by authorization of the competent authority;

c) By reasoned decision of the competent authority.

3 - A landfill or part of a landfill may only be considered definitively closed after the competent authority has conducted a final inspection of the site, analyzed, namely, all reports submitted by the licensed entity and communicated the decision approving closure to the licensed entity.

4 - With the definitive closure of a landfill, its operator becomes responsible for its conservation, monitoring and control in the post-closure maintenance phase for as long as required in the license and in accordance with the provisions of Part II of Annex IV, unless another period is established by the competent authority for reasoned grounds.

5 - The licensed entity must notify the competent authority of any significant negative effects on the environment revealed in the course of monitoring operations and comply with the decision of the competent authority on the nature of the corrective measures, as well as the respective implementation program and measures resulting from the decision of the competent authority" (our emphasis).

1. On matters of "Inspection" and "Administrative Violations", article 44 and article 45 of the above-mentioned instrument provided that "the verification of compliance with the provisions of this instrument is the responsibility of the General Environmental Inspection, the Waste Institute and the regional directorates for the environment and territorial planning, without prejudice to the specific powers assigned by law to other entities", with it constituting "an administrative violation subject to punishment (…) the closure of landfills outside the hypotheses provided for in article 26, as well as the failure to observe the rules for conservation, monitoring and control in the post-closure maintenance phase, provided for in that provision (…)" (our emphasis).

The Regime of Decree-Law no. 183/2009, of 10 August

1. However, since the publication of Decree-Law no. 152/2002, "(…) the national waste sector has evolved significantly, and is now better structured and equipped for the full application of the community principle of the hierarchy of waste management operations", "(…) in 2009, taking into account that the Country was endowed with a network of licensed operators for waste management and a set of entities managing specific flows that directed their activities toward the maximization of recycling and recovery, it was noted that there had been substantial strengthening of the national capacity for material, organic and energy recovery of waste".

2. Thus, in 2009 it was understood that "(…) the development of the sector would certainly not be unrelated to the reforms being introduced at the level of the applicable legal framework, namely through the general regime for waste management, approved by Decree-Law no. 178/2006, of 5 September, which created structural and innovative instruments to encourage recycling and recovery, with emphasis on the waste management fee, and the legal regime for the management of construction and demolition waste, approved by Decree-Law no. 46/2008, of 12 March, which implemented the prevention and recovery policy for this flow, significantly conditioning its disposal in landfills".

3. "Notwithstanding the manifest effort of adaptation of the sector to high environmental standards, it is important to continue the policy of promoting recycling and recovery, with a view to complying with Directive no. 2008/98/EC, of the European Parliament and of the Council, of 19 November, on waste, which sets particularly demanding recycling targets, namely for urban waste and construction and demolition waste".

4. "On the other hand, it was also identified the need to ensure full compliance of national legislation with Directive no. 1999/31/EC, of the Council, of 26 April, as amended by Regulation (EC) no. 1882/2003, of the European Parliament and of the Council, of 29 September, namely with respect to the scope, the concepts, the content of licenses, the reporting and registration obligations, the period for adaptation to the directive's requirements and the measures for reducing environmental risks" (our emphasis).

5. In these terms, "all these circumstances led to the revision of the legal framework applicable to waste depositing in landfills, in a logic, on the one hand, of strengthening measures to promote recycling and recovery and adaptation of the waste depositing operation in landfill to high environmental standards and, on the other hand, of legislative harmonization and simplification and procedural economy".

6. In this context, Decree-Law no. 183/2009, of 10 August was published, which repealed Decree-Law no. 152/2002, of 23 May, as well as article 53 of the General Regime for Waste Management, approved by Decree-Law no. 178/2006, of 5 September.

7. This new Decree-Law established in its article 55 a "Transitional Regime Relating to the Licensing of Waste Depositing Operations in Landfills", pursuant to which this instrument "(…) applies to landfills in operation at the date of its entry into force, with the licenses issued under Decree-Law no. 152/2002, of 23 May remaining valid until the end of the respective period", with "at the request of the operator, the provisions of this decree-law may be applied to licensing procedures in progress" (our emphasis).

8. Pursuant to article 56 ("Transition of Proceedings to Licensing Entities"), "proceedings relating to already licensed landfills are referred to the licensing entities defined pursuant to article 13 within a maximum period of 30 working days counted from the publication of this decree-law".

9. The 2009 instrument established that "(…) the application of the principle of the hierarchy of waste management has been strengthened, providing for the minimization of landfill disposal of waste with the potential for recycling and recovery, through restrictions on the admission of waste to be included in the respective license in a predetermined period".

10. Among other measures, with the said legal instrument "(…) the rules regarding the consultation of entities within the licensing procedure have been clarified" and, "in the same logic of simplification, there are no longer two distinct licensing phases - which involved the issuance of an installation license and an operating license for the landfill - there being now the issuance of a single license, issued within the framework of the licensing procedure for the waste depositing operation in landfill (…), which authorizes the operator to construct and operate the landfill.

11. On the other hand, "(…) the rules relating to the application of the legal regime now approved to already licensed or operating landfills were defined, as well as those relating to the duty to register and report information on the licenses issued".

12. Thus, the said Decree-Law established in its article 1 "a) The legal regime for the depositing of waste in landfill, and b) The general requirements to be observed in the design, construction, operation, closure and post-closure of landfills, including the specific technical characteristics for each class of landfills", while implementing the transposition of "(…) into the internal legal order Directive no. 1999/31/EC, of the Council, of 26 April, on the landfilling of waste, as amended by Regulation (EC) no. 1882/2003, of the European Parliament and of the Council, of 29 September, and applies Council Decision no. 2003/33/EC, of 19 December 2002".

13. In these terms, and as far as the arbitral request is concerned, the said legal instrument came, in its article 24 (Financial Guarantee) to provide that "within 15 days of communication of the decision (…) the operator provides, to the licensing entity, a financial guarantee, pursuant to the applicable legislation, intended to guarantee full compliance with the conditions imposed in the respective license, including those relating to the closure process and post-closure control and maintenance" with "the guarantee to be provided having a minimum value equivalent to 10% of the amount of the global investment of the landfill in question".

14. Pursuant to no. 5 of the article referred to in the preceding paragraph, "the guarantee remains in force until totally or partially canceled following written communication from the licensing entity to the issuing institution".

15. In accordance with article 25 (Amendment to the Financial Guarantee) of the said instrument, "the operator may request the licensing entity to amend the guarantee in the following terms:

a) Reduction to 75% of its initial value, when two years have elapsed from the date of commencement of landfill operation;

b) Reduction to 50% of its initial value, when five years have elapsed from the date of commencement of landfill operation;

c) Reduction to 15% of its initial value, following the completion of closure operations and landscape recovery of the site;

d) Full cancellation, after a minimum period of maintenance and control of the post-closure phase, fixed in the license".

1. On the other hand, and with respect to the rules on "Closure, Maintenance and Control in the Post-Closure Phase", article 42 provides that:

"1 - The operator may only begin closure operations of the landfill in the following cases:

a) When the necessary conditions provided for in the permit for the operation of waste depositing in landfill are met and after notifying the licensing entity;

b) By authorization of the licensing entity, at the request of the operator;

c) By reasoned decision of the licensing entity.

2 - A landfill may only be considered definitively closed following an approval decision for closure issued by the licensing entity, following the completion of a final inspection of the site and analysis of reports submitted by the operator.

(…)

4 - The decision approving closure referred to in no. 2 does not prejudice the operator's obligation to comply with the license conditions in the post-closure phase.

5 - The rules established in this article apply, with the necessary adaptations, to the closure of a landfill cell.

6 - The communication obligation provided for in no. 2 of article 40 is applicable to the closure and post-closure phase" (our emphasis).

1. With respect to "Inspection and Supervision", article 46 provides that "verification of compliance with the provisions of this decree-law may take the form of: a) Inspection, to be carried out systematically by the competent authorities, in compliance with the general surveillance obligation incumbent upon them, and on a case-by-case basis depending on the complaints and reports received; b) Supervision, to be carried out by entities with competence to do so, on a case-by-case and random basis or in execution of a previously approved inspection plan, or in clarification of the scope and responsibility for situations affecting the values protected by this decree-law", with "inspection within their respective competencies being the responsibility of the CCDR, the RWB and the licensing entities (…)" and "supervision being the responsibility of IGAOT".

2. According to article 48 "Administrative Violations", "the following acts constitute very serious environmental administrative violations, pursuant to the framework law on environmental administrative violations, approved by Law no. 50/2006, of 29 August:

(…)

o) The failure to comply with the obligations provided for in subparagraphs a), c) and d) of no. 3 and no. 6 of article 42;

(…)

2 - The following acts constitute serious environmental administrative violations pursuant to the framework law on environmental administrative violations, approved by Law no. 50/2006, of 29 August:

(…)

l) The closure of the landfill in violation of the provisions of subparagraphs a) and b) of no. 1 of article 42.

3 - The following acts constitute minor environmental administrative violations pursuant to the framework law on environmental administrative violations, approved by Law no. 50/2006, of 29 August:

(…)

g) The failure to comply with the obligation to communicate the interruption of landfill operation provided for in no. 1 of article 41.

(…)" (our emphasis).

1. In article 51 "Subsidiary Regime in Waste Management" it is provided that "in all matters not specially regulated in this decree-law in waste management, the general regime for waste management, approved by Decree-Law no. 178/2006, of 5 September, applies subsidiarily".

2. Having established the legal framework in environmental matters, and as far as it is relevant to the arbitral request, regarding the assessment of the legality of the corrections made by the Respondent with respect to the non-recognition, for tax purposes, of the deductions made by the Claimant in the years 2013, 2014, 2015 and 2016, to the CIT of each of those years, in the amount of EUR 150,000.00/year, relating to the increase relating to the provision for expenses relating to the closure of operations of cell no. ... of the landfill of ..., it is also necessary to analyze the tax framework associated with the deductibility of the said provision.

3. According to article 39, no. 1 of the CIT Code ("Tax-Deductible Provisions"), as worded at the date of the facts, "the following provisions may be deducted for tax purposes:

(…)

d) Those constituted with the objective of meeting expenses for the repair of environmental damage to sites used in operations, provided that such is required under the applicable legislation and after the cessation thereof".

1. No. 2 of the same article further states that "the determination of the provisions referred to in the preceding number must be based on the conditions existing at the end of the tax period".

2. Article 40, no. 1 of the CIT Code ("Provision for the Repair of Environmental Damage") states that "the annual endowment of the provision referred to in subparagraph d) of no. 1 of article 39 corresponds to the value resulting from the division of the estimated expenses for the repair of environmental damage to sites used in operations (…) by the number of years of operation provided for in relation thereto" with, pursuant to its no. 3, "the constitution of the provision being subject to compliance with the following conditions:

a) Submission of a provisional closure plan for operations, with detailed indication of the work to be carried out for the repair of environmental damage and the estimate of the associated expenses, and reference to the number of years of operation provided for and any irregularity over time of the expected level of activity, subject to approval by the competent bodies;

b) Constitution of a fund, represented by financial investments, the management of which may fall to the taxpayer itself, in an amount equivalent to the accumulated balance of the provision at the end of each tax period", with its constitution being "dispensed with when security is required in favor of the entity approving the Environmental and Landscape Recovery Plan, in accordance with the legal regime for the operation of the respective activity".

1. According to no. 4 of article 40, "whenever the revision of the provisional plan (…) results in an alteration of the estimate of the expenses inherent to the environmental recovery of sites used in operations, or there is an alteration in the number of years of operation provided for, the following procedure must be followed:

a) In the case of an increase in the estimated expenses or a reduction in the number of years of operation, the calculation of the annual endowment is to be carried out considering the total expenses not yet provided and the number of years of activity still remaining in the operation, including that of the tax period of the revision itself;

b) In the case of a decrease in the estimated expenses or an increase in the number of years of operation, the part of the excess provision corresponding to the number of years already elapsed must be subject to restoration in the tax period of the revision".

1. In accordance with nos. 6 and 7 of article 40 of the CIT Code, "the provision must be applied to cover the expenses for which it is intended until the end of the third tax period following the period of closure of operations" with "the period provided for in the preceding number having elapsed without the provision having been used, in whole or in part, for the purposes for which it was created, the unused part must be considered as income of the third tax period after the end of operations".

2. Additionally, it should be noted that the recognition, measurement and disclosure relating to environmental expenses, environmental liabilities and risks and related assets resulting from transactions and events that affect, or are likely to affect, the financial position and results of the reporting entity are regulated, in accounting matters, by Accounting Standard and Financial Reporting Standard 26 (NCRF 26).

3. It falls to decide.

4. According to the analysis carried out, and in conformity with the factual matters established, the Claimant obtained, on 31 January 2006, approval of a model for Sealing and Partial Closure of the Sanitary Landfill of ..., in conformity with Decree-Law no. 152/2002, of 23 May.

5. However, no evidence was obtained of a Plan duly approved by the competent authorities for the Closure and Sealing of Cell no. ... of the Sanitary Landfill of ..., given that the copy of that Plan attached to the proceedings, dated December 2011, appears to be a draft.

6. Now, contrary to what is defended by the Respondent, that it does not make sense "(…) the approval of an individual and specific provisional plan for each one of the cells, when there is already an approved provisional plan that encompasses all cells" (referring to the plan approved in January 2006), the legislation in force at the date of recognition of the estimated expenses for the repair of environmental damage to sites used in operations (Decree-Law no. 183/2009, of 10 August), explicitly states in its article 42, no. 1 (as mentioned above) that, with respect to the closure of a landfill, "the operator may only begin closure operations of the landfill", namely, "when the necessary conditions provided for in the permit for the operation of waste depositing in landfill are met and after notifying the licensing entity" [subparagraph a)] or "by authorization of the licensing entity, at the request of the operator (…)"[subparagraph b)].

7. It further provides, in no. 5 of article 42, that "the rules established (…) apply, with the necessary adaptations, to the closure of a landfill cell".

8. And the obligation arising from the provisions of article 42, no. 1 is reinforced by what is established in article 48 of the Decree-Law referred to in point 5.56, above, pursuant to which "it constitutes serious environmental administrative violation (…) the closure of the landfill in violation of the provisions of subparagraphs a) and b) of no. 1 of article 42 (…)" (our emphasis).

9. From the foregoing, it follows that this Arbitral Court cannot support the position defended by the Claimant that "(…) following (…) in full, the general and common plan for all cells of the landfill of ..., approved by the CCDR-N, it is not necessary to have a new approval from this entity for this plan specifically directed to cell no...", in light of what follows from the applicable legislation and transcribed above, with the Respondent being correct when it argues that there is no Provisional Plan approved for the Closure of Operations of Cell no. ... of the Sanitary Landfill of... .

10. In these terms, this Arbitral Court understands that the Claimant failed to prove that it complied with the requirement provided for in article 40, no. 3, subparagraph a) of the CIT Code, in order to legitimize the tax deductibility of the strengthening of the provision for the repair of environmental damage in question.

11. In light of this conclusion, knowledge of compliance with the requirement provided for in article 40, no. 1, subparagraph b) of the CIT Code is considered moot, as it is unnecessary, with respect to the tax deductibility of the said provision for the repair of environmental damage.

12. Thus, this Arbitral Court decides to maintain in the legal order the CIT assessments identified in the proceedings, relating to the years 2013, 2014, 2015 and 2016, as it considers that they are not affected by the illegality imputed to them by the Claimant.

13. Consequently, the decisions to reject the gracious claims filed with respect to the CIT assessments in question must also be maintained, with the consequent effects.

Responsibility for Payment of Arbitral Costs

1. In accordance with article 22, no. 4, of the LRTA, "the arbitral decision issued by the arbitral court includes the determination of the amount and distribution among the parties of the costs directly resulting from the arbitral proceedings".

2. Thus, pursuant to article 527, no. 1 of the CPC (ex vi 29, no. 1, subparagraph e) of the LRTA), it must be established that the Party that caused them shall be condemned in costs or, if there is no prevailing party, whichever party benefited from the proceedings.

3. In this context, no. 2 of the said article concretizes the expression "caused", according to the principle of success, understanding that the losing party causes the costs of the proceedings, in the proportion in which it loses.

4. In the case under analysis, taking into account the above, the principle of proportionality requires that full responsibility for costs be attributed to the Claimant, in accordance with article 12, no. 2 of the LRTA and article 4, no. 4 of the Regulations on Costs in Tax Arbitration Proceedings.

V. DECISION

In these terms, taking into account the conclusions presented in the preceding Chapter, this Collective Arbitral Court decided:

1. To declare the request, submitted by the Claimant, for annulment of the CIT assessment acts identified as inadmissible, maintaining them in the legal order;

2. Consequently, to declare the request for annulment of the decisions to reject the gracious claims filed with respect to the CIT assessment acts identified as inadmissible;

3. To condemn the Claimant to pay the costs of the present proceedings.

Value of the Proceedings: In accordance with articles 306, no. 2 of the CPC, article 97-A, no. 1 of the CTPP and article 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at EUR 144,962.74.

Pursuant to Table I of the Regulations on Costs in Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceedings is fixed at EUR 3,060.00, to be borne by the Claimant, in accordance with article 22, no. 4 of the LRTA.

Let notification be made.

Lisbon, 30 November 2018

Text prepared by computer, pursuant to article 131, no. 5, of the CPC, applicable by reference from article 29, no. 1, subparagraph e), of the LRTA.

[1] Text prepared by computer, pursuant to article 138, no. 5, of the Code of Civil Procedure, applicable by reference from article 29, no. 1, subparagraph e), of the Legal Regime for Tax Arbitration, with blank lines and reviewed by us, respecting the spelling prior to the 1990 Orthographic Agreement, except with respect to transcriptions made, where the spelling of the original was maintained.

[2] The expenses associated are relating to the Closure of Operations of Sealing of Cell no. ... of the Landfill of ..., whose operation began in 2011, with a useful life of 6 years.

[3] A copy of the Plan was attached by the Claimant (Doc. no. 15), denominated "Partial Sealing of the Sanitary Landfill of...", dated January 2005, whose purpose concerns the "work necessary for the sealing of the landfill and its landscape integration", also referring that "the partial closure of the Landfill is divided into 3 main phases: One preliminary (…)", one of "sealing proper (…)" and another of "revegetation and recovery of the zone (…)".

[4] The approval of this proposed model for sealing and partial closure of the Sanitary Landfill of ... was carried out under Decree-Law no. 152/2002, of 23 May.

[5] According to what is stated in the Final Report of Conclusions relating to the inspection procedure for the years 2013, 2015 and 2016, "cell no. ... of the landfill of ... was still in the licensing process in the (…) year (2017) (…)" reason which the TIS considered sufficient for "the provision made to have no tax relevance (…)".