CAAD 197/2013-T: IRC Tax Benefit for Job Creation Under Art. 19 EBF – Partial Relief Granted

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 197/2013 – T

Subject: Corporate Income Tax – Tax Benefit; Article 19 EBF; Job Creation.

I – REPORT

A. Procedural Course

1. On 8 August 2013, A, Lda, NIPC …, hereinafter referred to as "Claimant" or "A" filed a request for the constitution of an arbitral tribunal, pursuant to and for the purposes of Article 10 of Decree-Law No. 10/2011, of 20 January (hereinafter the RJAT) and submitted the petition for arbitral pronouncement.

2. In the petition for arbitral pronouncement, the Claimant opted not to appoint an arbitrator.

3. Pursuant to subsection a) of no. 2 of Article 6 and subsection b) of no. 1 of Article 11 of the RJAT, the Deontological Council appointed as arbitrators the undersigned, who accepted office within the legally prescribed period.

4. The Arbitral Tribunal was constituted on 9 October 2013.

5. On 26 November 2013, the Arbitral Tribunal meeting was held, pursuant to and for the purposes provided in Article 18 of the RJAT (minutes attached to the file). The Claimant waived the examination of witnesses listed in the petition for arbitral pronouncement. The Tribunal notified the Claimant and the Respondent to submit written arguments within 15 days, the period for the Respondent running successively from notification of the joining of the Claimant's arguments. In compliance with the provisions of Article 18, no. 2 of the RJAT, the Tribunal indicated that an arbitral decision would be rendered by 10 February 2014.

6. The written arguments of the Claimant and Respondent were filed on 12 December 2013 and 10 January 2014, respectively.

7. On 9 February 2014, the deadline for rendering a decision was extended by one month.

8. On 24 February, the Tribunal requested supplementary information regarding the Claimant, which responded on 27 February 2014.

B. Parties' Positions

1. As justification for the petition, the Claimant stated, in summary, that:

• In Form 22 for Corporate Income Tax, filed on 03/09/2010 and relating to the fiscal year 2009 (beginning on 01/04/2009 and ending on 31/03/2010), it calculated profit and taxable income in the amount of € 6,056,472.33, having paid Corporate Income Tax in the amount of € 824,803.73;

• In subsequent internal analysis, it detected the omission of the tax benefit relating to the net creation of employment for young people and long-term unemployed persons, provided for in Art. 19 of the EBF, whereby it filed a gracious complaint regarding the self-assessment, pursuant to Article 131 of the CPPT;

• With that complaint, it intended to demonstrate the net creation of 334 jobs, based on a survey of all admissions and separations of employees that occurred from 1 April 2004 to 31 March 2010, and requested recognition of a tax benefit in the amount of € 1,937,699.00, reimbursement of the tax paid in excess and the corresponding compensatory interest;

• The Tax Authority (AT) agreed with the number of eligible exits, but not with the number of eligible entries, granting the complaint in part;

• The deduction to which the Claimant is entitled in the fiscal year 2009 relates to the net creation in fiscal years 2004, 2005, 2006, 2007, 2008, and 2009, whereby the different versions of the EBF relating to the benefit in question should be taken into account, as well as the provisions of Art. 12 of the EBF, regarding the application of the law in force at the time of verification of the requirements;

• Workers admitted before 1 January 2007 should be considered as expenses for the purpose of calculating the applicable increase, the "gross or net salary (which shall include personal income tax supported by the worker but paid by the employer) and mandatory social security contributions";

• In the case at hand, there is no cumulative application of benefits (Article 19, no. 5), nor problems in applying no. 6 of Article 19 of the EBF, which provides that the benefit of net job creation "may only be granted once in relation to the same worker, regardless of the employing entity," because in the case in question, no employee selected for the benefit in question was considered for the purpose of calculating the net job creation benefit in another company;

• Taking into account legislative evolution, the Claimant then argued that the tax benefit for job creation was calculated, with respect to employees admitted to the company's workforce before 1 January 2007, considering all tax-deductible expenses as eligible expenses, and, after 1 January 2007, only expenses borne by the Claimant on workers as fixed remuneration and Social Security contributions borne by the employer, having reached the amount of tax benefit relating to net job creation for young people, applicable to fiscal year 2009, of € 1,937,699.00, a value that should be considered in determining the Corporate Income Tax due, correcting taxable profit of € 6,056,472.33 to the amount of €4,118,773.33, reimbursing the Claimant for tax unduly paid in the amount of € 512,946.21;

• In the assessment of the gracious complaint regarding self-assessment, the AT rejected the calculation of net job creation of 334 jobs for the purposes of Article 19 of the EBF, having recognized such benefit only for 1 worker;

• The AT's analysis coincides with the Claimant's regarding the number of eligible exits, but not regarding eligible entries: it concluded that of the total of 389 entries, only 16 workers did not transfer from B, Lda. to A, Lda., and by not accepting 356 workers on the grounds that it is a mere transfer of workers from B to the Claimant, it fails to explain 13 entries, for which it presents no justification whatsoever.

• Regarding the 356 workers transferred from B to A already with indefinite-term contracts, the AT considers that the transfer of workers resulting from a contract for the transmission of an industrial establishment concluded between those entities does not qualify for the purposes of granting the benefit of net job creation, since this benefit is subject to "the sine qua non condition of an effective increase in the number of workers admitted to the service of the employing entity in the respective period, which means that there will only be a tax benefit in the fiscal year in which there was a real increase in the total number of young workers admitted to the company," with the mere transfer of workers not contributing by itself;

• Article 19 of the EBF does not exclude the possibility that the admission of workers by virtue of a transmission of an industrial establishment be relevant for the purposes of granting the benefit, since this case also constitutes an effective net creation of jobs, effective creation when, in a given fiscal year, there is an increase in the total number of eligible workers (understanding enshrined in the Jurisprudence of the STA - Decisions No. 0248/09, of 23/09 and Decision of the STA of 11/10/2006, proc. 0723/06);

• The situation in the case at hand should not have a different solution from what would result if B had not proceeded with the transmission of the establishment, choosing instead to simply close its activity and dismiss its workers, who would subsequently be hired by A, then having the right to access the benefit because all workers would be hired ab initio by A and the AT, in a situation as stated above, would have no doubt about net job creation;

• The solution should be the same regardless of the legal form through which it is implemented, the economic substance being relevant – effective job creation.

• The situation in the case at hand is not to be confused with the transmission of an industrial establishment through merger or division because in this case one cannot benefit from the fiscal neutrality regime and the acquiring company can never deduct the tax losses of the transferring company.

• The definitive transmission of an industrial establishment entails the transmission not only of the commercial establishment per se, and the various legal relationships that the transferor maintained in that establishment, including labor relations with employees performing their work there, but this means a substantial modification of the employment contract, which will enable the worker to resolve the contract according to community doctrine and jurisprudence, and the jurisprudence of our superior courts, which have come to defend a right to oppose Art. 377, no. 1, subsection b) of CT 2003, which would permit resolution of the contract with just cause;

• As the employer changes, the relationship changes, the job changes, the employment contract does not remain unaffected by this change of employer, it falling to this new employer the responsibility, both for the payment of fixed remuneration and the payment of taxes and Social Security contributions that apply to that remuneration, with costs that are all the higher the greater the number of workers admitted, regardless of the legal title given to their origin.

• The decision by the AT on the gracious complaint regarding self-assessment of Corporate Income Tax for 2009 thus made an incorrect interpretation and application of Article 19 of the EBF, the administrative decision granting the complaint in part, in the part of the denial, should be annulled for breach of law, with reimbursement of tax unduly paid, in the amount of € 511,834.50, plus the corresponding compensatory interest, pursuant to the provisions of Articles 43 of the General Tax Law (LGT).

1. The AT replied, in summary, that:

• The factual matter invoked relates to the benefit to which the Claimant is entitled in the period between 01/04/2009 to 31/03/2010 (fiscal year 2009);

• Taking into account the provisions of Art. 19 of the EBF, in the versions in force before and after 2007, the number of ceased jobs that met the eligibility requirements of that provision was in each of those fiscal years 2004, 2005, 2007, and 2008, greater than the number of eligible entries, with the exception of fiscal year 2006, where no eligible exits were found, and that in the period from 01/04/2004 to 31/03/2010 there was only, in fiscal year 2006, the net creation of one job, relating to the admission on an indefinite-term basis of worker C, with expenses incurred and increased in 2009 in the total amount of € 6,300.00;

• It therefore disagrees with the calculation of net job creation presented by the Claimant, regarding the number of eligible entries, concluding that there were 1 eligible entry in 2004, 2 eligible entries in 2005, 1 eligible entry in 2006, 4 eligible entries in 2007, and 12 eligible entries in 2008;

• By the contract for the definitive transmission of an industrial establishment concluded on 28/11/2008, the legal position in employment contracts concluded with employees assigned to that establishment was transmitted to the Claimant, without loss of any rights of those workers, nor constituting the creation of a new job;

• With the transmission of the industrial establishment, there is a transfer of the contractual position, maintaining the labor relationship intact as to the rights of the workers associated with it, namely their length of service in the job, making no sense to wish to apply that tax benefit to situations in which there is already an indefinite-term contract;

• Accordingly, expenses incurred with workers who in prior fiscal years constituted net job creation in the legal sphere of another employer are not eligible for the purposes of Art. 19 of the EBF when their transfer to the Claimant results from an operation of transmission of the industrial establishment;

• The legal provisions invoked by the Claimant are intended to protect the worker's right to rescind their labor contract and not to recharacterize the labor relationship;

• The tax benefit provided for in Art. 19 of the EBF is intended to encourage an increase in jobs that meet the requirements described therein, translating into a right, granted to the employing entity, to increase deductible expenses from the taxable base of Corporate Income Tax, in exchange for net job creation in the fiscal year of hiring workers and the maintenance of the corresponding jobs in the 4 subsequent years;

• With the transfer of workers, resulting from that transmission of the establishment, the legal requirements on which the right to that tax benefit is based are no longer met, as their jobs never corresponded to net job creation in the sphere of the new employing entity;

• The Claimant's thesis is susceptible to permitting the increase of expenses relating to workers that originated net job creation in the sphere of another employer, precisely in fiscal years in which the Claimant itself, hypothetically, had registered a negative balance in the entry and exit of workers meeting the requirements of Art. 19 of the EBF;

• The right to the tax benefit in question is constituted in the legal sphere of the employing entity in whose sphere net job creation occurs and is exhausted in its legal sphere, on pain of disrespecting the intention underlying its provision;

• Nor was it the intention underlying the creation of that tax benefit that an employer wishing to dismiss workers whose job originated net job creation and whose contract has not yet completed the five-year period from its commencement, transfer the workers to third parties using as consideration for that act between individuals the increase of expenses that will be incurred;

• In the situation, the rules regulating the transferability of tax benefits cannot be disregarded - which constitute a relationship of public law – being that, as a rule, no. 1 of Art. 15 of the EBF does not permit transferability by inter vivos act between individuals;

• According to Art. 318 of the Labor Code and 119, subsection p) of the Commercial Companies Code, labor relationships are not dissolved by reason of division, but rather are transmitted by reason of division, and therefore cannot constitute a net creation of employment in the sphere of the acquiring company as they are merely the result of a transfer of jobs;

• For the purposes of Art. 19 of the EBF, it is immaterial whether the transfer of workers occurs by reason of a merger operation, with incorporation of part of the divided assets in the sphere of the Claimant, or by reason of a mere contract of transfer of workers, as any of these legal forms is the result of an inter vivos act performed between individuals;

• The fact that the transmission of the employment contracts in question derives directly from law, and universal succession is the rule in operations of transmission of the industrial establishment, in no way conflicts with the fact that the operation that generated the transfer of workers to the Claimant is an inter vivos act between individuals, pursuant to what is provided in no. 1 of Art. 15 of the EBF;

• The subjective right to tax benefits, arising from a relationship of public law, is not transferable by an inter vivos act between individuals, in the absence of a tax rule expressly providing for it or of any of the exceptions provided in no. 2 and 3 of that Art. 15;

• The regime provided for in Art. 19 of the EBF does not expressly contemplate any transferability of the tax benefit in question by reason of any operation of transmission of an establishment or otherwise;

• This interpretation is confirmed by the absence in the special regime of fiscal neutrality provided for in Art. 67 et seq. of the Corporate Income Tax Code (current Art. 74 of the Corporate Income Tax Code) of any provision to ensure the transferability of the tax benefit in question, in a situation such as this;

• Given the automatic nature of the benefit provided for in Art. 19 of the EBF, the exceptions enshrined in no. 2 and 3 of Art. 15 of the EBF are also not applicable to it;

• The tax benefit does not fall within the provision of that no. 2 of Art. 15 of the EBF, because being a tax benefit of a mixed nature, modeled also by subjective elements and not a right "ob rem," dependent only on objective requirements, which accompanies the thing in its transmissions;

• And it is also not applicable no. 3 of Art. 15 of the EBF – which provides for the transmission, with authorization of the Minister of Finance, of a tax benefit granted by act or tax contract - because the case at hand is of an automatic character not dependent on recognition by administrative act or tax contract, following prior case-by-case examination by the Services;

• The transferability of the tax benefit provided for in Art. 19 of the EBF to the company that acquired the industrial establishment must be subsumed under Art. 15 of the EBF, and should be rejected as not falling within any of the exceptions expressly admitted in no. 2 and no. 3 of this provision;

• Even if the present petition for arbitral pronouncement were to be considered well-founded, taking into account that the correction requested by the Claimant regarding the disputed tax benefit has its origin in an error committed by the Claimant in its self-assessment of Corporate Income Tax for 2009, in having omitted the amount of € 1,931,399.00 to be deducted from taxable profit (subsection c) of no. 3 of Art. 43 of the General Tax Law), only interest would be due for the delay in the decision to recognize the claim deducted in the gracious complaint, being owed only from one year after the filing of that petition;

C. Issues to be Decided

1. Subject Matter of the Dispute

At issue is the assessment of the legality of the self-assessment of Corporate Income Tax relating to fiscal year 2009, which for the Claimant ran between 01/04/2009 to 31/03/2010.

The positions of the parties raise the following issues:

Ø How should the calculation of net job creation be made, for the purposes of the right to the tax benefit provided for (currently) in Article 19 of the EBF?

Ø Can the acquiring company, through a contract for the transmission of an industrial establishment executed on 28 November 2008, with hundreds of workers, invoking the creation of new jobs resulting from the transfer of workers effected by the said contract, calculate "net job creation," for the purpose of applying the increase of expenses under Art. 19 of the EBF, considering that the date of admission to the workforce of the transferred workers is 01/12/2008?

D. Sanitation

1. The Tribunal is materially competent and is properly constituted, pursuant to Articles 2, no. 1, subsection a), 5, no. 2, and 6, no. 1, of the RJAT.

The parties have legal personality and capacity, are legitimate, and are properly represented, pursuant to Articles 4 and 10, no. 2, of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The process does not suffer from vices that invalidate it, nor are there any preliminary questions to be decided.

II. REASONING

Based on the facts alleged by the parties and uncontested, as well as the documents filed with the case, including the administrative file (P.A.), the following relevant factual findings are made.

1. Facts Proven

a) The Claimant, A, Lda, is a company with headquarters at Av. …, … of …, whose business is the manufacture of electrical and electronic wires, manufacture of electrical and electronic equipment for motor vehicles and manufacture of distribution and control material for low-voltage electrical installations (P.A. 2, fls. 80 et seq., information of 01/4/2013, Tax Inspection, DF …).

b) The Claimant's tax period does not coincide with the calendar year, running between 1 April and 31 March, pursuant to Art. 8, no. 3 of the Corporate Income Tax Code (Art. 2 of the Petition and P.A. 2, fls. 79);

c) By contract concluded on 28 November 2008, the industrial establishment belonging to B, Lda, was transmitted to the Claimant, with an attached document relating to the workers;

d) By said contract, A transmitted an industrial establishment producing cable assemblies, installed and operating in property located at Avenue …, …, with a book value of € 10,564,587.35 (Doc. No. 6, filed by the Claimant);

e) The total value of the transaction was € 5,936,596.00, which included the urban real property (value of € 3,653,048.00), all tangible fixed assets, including industrial machinery, tools and utensils, returnable packaging, administrative equipment, computer equipment, software programs, and transport equipment (value of € 1,520,112.00) and all inventories (€ 1,070,034.00) and advances made to workers (€ 3,862.00). From this value was deducted the amount to be paid to workers as "vacation and vacation allowances for 2009," in the amount of € 311,360.00 (Doc. No. 6, filed by the Claimant);

f) The transmission of the establishment was accompanied by the assignment of the assignor's contractual position in various contracts: for contracted work with company D, Lda.; for financial leasing and rental relating to six motor vehicles, and in the position of employer in employment contracts concluded with workers assigned to the establishment and identified in the document supplementary to the deed, with the transmission without loss of any rights for the workers, in particular those arising from length of service, with the assignee assuming responsibility for all rights and obligations resulting from the said employment contracts (Doc. No. 6, filed by the Claimant);

g) The list of workers to be transferred with the establishment subject to a contract of "definitive transmission" between B, Lda. and A, Lda. (Doc. No. 6 filed by the Claimant and PA. fls. 80 et seq.) contains 726 names (as stated in a declaration in doc. filed with the case on 27/02/2014);

h) The workers transferred from B, Lda to A, Lda, were included in the list of "admissions to the workforce in 2008 – between 1 April 2008 and 31 March 2009," and the date of admission to the workforce is indicated as 01/12/2008 (doc. 10 presented with the Petition);

i) The two companies between which the definitive transmission of the industrial establishment occurred had the same partners, with the capital of both held, in more than 99%, by a company incorporated under Japanese law E (Clarification in document filed with the case by the Claimant on 27/02/2014);

j) The contracting companies, both headquartered at Avenue …, … of …, had the following amounts of capital: B, Lda, twenty million nine hundred thousand euros and A, Lda, four million five hundred thousand euros (Doc. No. 6, filed by the Claimant);

k) The transmission of the establishment occurred on 28/11/2008 and company B, Lda. was dissolved and liquidated on 31/03/2009, having in the intervening period conducted operations essentially aimed at liquidation and closure (Doc. filed with the case on 27/02/2014);

l) None of the workers considered eligible in the legal sphere of the Claimant benefited from the tax benefit for net job creation in B (PA 2, fls. 79 to 85 and Doc. filed with the case on 27/02/2014);

m) On 03 September 2010, the Claimant filed Form 22 relating to fiscal year 2009 (running between 01/04/2009 and 31/03/2010), having calculated taxable profit in the amount of € 6,056,472.33, and paid Corporate Income Tax in the amount of € 824,803.73. (Doc. No. 1 filed with the Petition, and P.A. 1, fls. 46 to 48 and PA-2, fl. 49);

n) On 09/08/2012, the Claimant filed, under Article 131 of the Code of Tax Procedure (CPPT), a gracious complaint against error in self-assessment (doc. No. 2 and P.A. 1, fls. 3 to 27), for non-consideration of net job creation of 334 jobs, on the grounds of the balance of admissions and separations of employees between 1 April 2004 and 31 March 2010 (docs. 3 and 7, filed with the Petition and P.A. 1, fls 3 et seq);

o) In the gracious complaint, a replacement statement was requested, Form 22 for Corporate Income Tax, relating to the Claimant's fiscal year, including the tax benefit relating to net job creation for young people, of € 1,937,699.00, and reimbursement of Corporate Income Tax and municipal taxes paid in excess in fiscal year 2009, in the amount of € 513,490.23 (doc. 2, with Petition and attachment 7 to the complaint, P.A. 2, fls. 31 to 34);

p) The grounds for the gracious complaint were the calculation, in the period between 2004 and 2009, of net job creation of 334 jobs, resulting from the difference between 389 eligible entries and 69 eligible exits (art. 55 of the complaint, P.A. 1, fls. 21);

q) For the calculation of the benefit in 2009, the Claimant considered entries and exits at A, Lda. in the period between 1 April 2004 and 31 March 2009 (art. 11 of the petition and art. 42 of the gracious complaint), indicating all relevant elements and taking into account, for eligible entries, the age of the employee on the date of conversion of the employment contract to an indefinite-term contract, and, for exits, the age on separation or admission as the case may be depending on whether exits occurred before or after 2006 (arts. 43 to 46 of the complaint, Doc. 2 filed by the Claimant);

r) The Chief of the Finance Service of …, given the specificity of the matter and the value subject of the complaint, decided, on 16/08/2012, based on information from that service, to send the case to the Finance Department of … (P.A. 2, fls 65);

s) By administrative decision of 25/10/2012, rendered in technical information of the same date (relating to Proc…./…, regarding gracious complaint No. …, for Corporate Income Tax 2009, and request for official review under Art. 78 of the General Tax Law, for Corporate Income Tax of 2007 and 2008), the Department of Justice Services requested the collection of various elements by the inspection services, namely confirmation of: the dates of hiring and admission to the workforce; the values considered for calculating the benefit; the education level of employees considered eligible (exits and entries) for fiscal years 2007 and onwards. (P.A. 2, fls. 67 to 69);

t) Information dated 1 April 2013, countersigned by the Head of the Tax Inspection Division on 8/04/2013, collected the requested elements, taking into account that the complainant referred to the period of entries and exits from 1 April 2002, and answered the questions identified in the information of 25/10/2012, in summary: regarding the dates of hiring, it identified that the majority of employees pointed out as eligible for determining net job creation have hiring dates in the 1990s and admission to the workforce dates only in 2004 and later years; on 28 November 2008, a contract for the definitive transmission of an industrial establishment was concluded between B, Lda and A, Lda, with an attached document identifying 614 workers who transferred from one entity to the other; regarding confirmation of the education level of employees considered eligible, the number of workers under 23 years of age is only 14, and in the year they became subject to an indefinite-term contract, Art. 17 of the EBF did not require secondary education; regarding confirmation of the values considered for calculating the benefit, and in contrast to the arithmetic calculations made by the complainant, of a total of eligible entries for job creation, only 22 did not transfer from B; of the 389, 11 transferred with fixed-term contracts, and that of that total of 389, 356 transferred already with indefinite-term contracts. It was concluded that, as to workers transferred, there had been no creation of jobs at A, and it was further informed that from analyses of B's statement, it appeared that this company had not used the tax benefit provided for in Art. 19 of the EBF on the transferred employees. (P.A. 2, fls. 79 to 85);

u) In the assessment of gracious complaint No. …, the Division of Tax Justice, taking into account the elements collected by Inspection, analyzed the map filed by the complainant (pointing out a balance of job creation of 334 jobs: 3 in 2004; 64 in 2005; 7 in 2006; 5 in 2007; 255 in 2008 and 0 in 2009) and countered that, taking into account that of the total of 389 entries indicated as eligible for job creation, only 16, in the period between 2004 and 2009, did not transfer from B to A; 4, of those eligible, transferred in 2008 with fixed-term contracts; of the 389, 356 were transferred from B with the establishment; regarding Corporate Income Tax for 2009, it prepared a draft decision (30 May 2013) to grant the complaint in part (doc. No. 3 filed with petition; P.A. 6, fls.272 et seq.);

v) The said administrative decision granting in part recognizes only a single job whose expenses incurred in 2009 are eligible for the purposes of the tax benefit under discussion, in an amount deductible from taxable profit of € 6,300.00, concerning a worker, C, for meeting the requirements of having entered directly at A and meeting all the requirements provided by law to be considered as net job creation (P.A. 6, fls. 272 et seq);

w) The draft decision countersigned on 30/05/2013 was sent to the Claimant through letter No. …, of 31/05/2013, for prior hearing as provided for in Article 60, no. 1, b) of the General Tax Law (P.A. 6, fls. 272 et seq.);

x) Without any response from the Claimant, the draft decision was converted into a final decision by administrative decision of 02/07/2013, of the Chief of the Division of Tax Justice of Contentious Matters, by delegation of the Director of Finance of …, sent by letter …, of 05/07/2013, notified to the Claimant on 11/07/2013 (doc. 3 attached to the Petition and P.A. 6, fls. 299 to 301);

y) The Claimant filed a petition for arbitral pronouncement on 11 August 2013, requesting annulment of the administrative decision granting the gracious complaint in part, the correction of the self-assessment of the tax, and "reimbursement of the payment of € 511,834.50, plus the corresponding compensatory interest, pursuant to the provisions of Articles 43 of the General Tax Law";

1. Facts Not Proven

Although the clarifications filed by the Claimant with the case on 27/02/2014 did not identify the exact corporate composition of the two companies involved in the transmission of the establishment, nor did they allow understanding the extent to which that establishment was the location of the development of the activity of B, it is concluded that the matter given as proven reveals itself sufficient for assessing the legal question, with no facts not proven relevant to the resolution of this dispute.

1. Basis of Proof

The facts were given as proven based on uncontested documents filed with the case and identified regarding each point of the factual matter.

1. Application of Law

16.1. The Tax Benefit in Question – Its Characterization

16.1.1. The Evolution of the Legal Regime

The legal provision that provides for the increase of expenses whose applicability is in question is currently Article 19 of the Tax Benefits Statute, relating to job creation [1], but has been subject to various amendments, whereby it is important to recall the evolution of the respective regime and identify the one in force at the time of the occurrence of the situation in the case.

This incentive was inserted into the Tax Benefits Statute in 1998, by Law No. 72/98 [2], of 3 November, which added to the EBF Article 48-A, with the title "Job Creation for Young People."

In the initial version, Article 48-A provided: 1. For the purposes of corporate income tax (CIT), expenses corresponding to net job creation for workers hired on permanent contracts with age not exceeding 30 years are charged at a cost equivalent to 150%. 2. For the purposes of the foregoing provision, the maximum monthly amount of expenses per job is 14 times the national minimum wage. 3. The increase referred to in no. 1 shall apply during a period of five years from the effective date of the employment contract.[3]

Following the reform introduced by Law No. 30-G/2000, of 29 December, with amendments to the Personal Income Tax, Corporate Income Tax Codes and to the EBF, followed by comprehensive revision and publication of the articles of the said Codes, by Decree-Law No. 198/2001, of 3 July, the matter came to be provided for in Article 17 of the EBF, maintaining the title "job creation for young people," with the following wording: 1- For the purposes of corporate income tax (CIT), expenses corresponding to net job creation for workers hired on permanent contracts with age not exceeding 30 years are charged at a cost equivalent to 150%.2 - For the purposes of the foregoing provision, the maximum monthly amount of expenses per job is 14 times the highest national minimum wage.3 - The increase referred to in no. 1 applies during a period of five years from the commencement of the effective date of the employment contract.

No. 2 of the said Art. 17 of the EBF was amended by Law No. 32-B/2002, of 30 December, now reading: For the purposes of the foregoing provision [4], the maximum annual amount of the increase, per job, is 14 times the highest national minimum wage.

This regime underwent significant changes with the State Budget for 2007, approved by Law No. 53-A/2006, of 29/12, in which Art. 17 came to have the title "Job Creation" [5]. The scope of application was extended to long-term unemployment, adopting, in both the case of young people and in the case of long-term unemployed, the concepts used for the purposes of access to the benefit in the area of social security, and, at the level of employing entities, enabling access to the benefit to individual entrepreneurs with organized accounting, but in this case excluding from the right to benefits the members of their respective family group providing them service.[6]

The new wording applied to tax periods beginning after the entry into force of the Law approving the Budget for 2007 (subsection e) of Article 88 of Law No. 53-A/2006).

Subsequently, the following amendments also took place:

Ø Decree-Law No. 108/2008, of 26 June, recognizing the large number of amendments that had occurred, already after 2001, to the EBF, approved by Decree-Law No. 215/89, of 1 July, proceeded to carry out a new republication of the statute, with the objective of consolidating, updating, and harmonizing the EBF. The opportunity was taken to make material corrections and a table of equivalences of provisions was approved [7];

Ø Law No. 10/2009, of 10 March[8], introduced amendments to no. 2 of Article 19, in subsection a), increasing the upper age threshold in the definition of unemployed young people and, in subsection b), decreasing the period of registration at the employment center, for defining long-term unemployed;

Ø Law No. 3-B/2010, of 28 April, which approved the State Budget for 2010, provided, in Article 115, under the title "Strengthening of tax benefits for job creation in 2010," that During the year 2010, the tax benefit provided for in Article 19 of the Tax Benefits Statute, approved by Decree-Law No. 215/89, of 1 July, is cumulative with other job support incentives provided for in other statutes, when applicable to the same worker or job;

Ø Law No. 55-A/2010, of 31 December, which approved the State Budget for 2011, amended no. 6 "The regime provided for in no. 1 may be granted only once per worker hired in that entity or in another entity with which there are special relationships as defined in Article 63 of the Corporate Income Tax Code.";

Ø Law No. 64-B/2011, of 30 December, conducting a review of the tax benefits covered by the sunset clause (art. 3 EBF), extended the job creation tax incentives [9].

Since the Claimant in the case at hand seeks to benefit from a benefit for 2009, but due to net job creation in fiscal years 2004, 2005, 2006, 2007, and 2008, it invokes fundamentally two regimes – the one prior to the amendments of Law No. 53-A/2006 (State Budget for 2007) and that after that law.

16.1.2. Qualification of the Benefit

In the situation sub judice, the application of a provision is at issue that is intended, against the grant of a tax relief, to create employment, jobs endowed with stability [10].

It is therefore a tax relief with the characteristics of a tax benefit, that is, "an exceptional measure instituted for the protection of relevant extrafiscal public interests superior to those of taxation itself which prevent" (no. 1 of Article 2 of the Tax Benefits Statute).

And, on the other hand, it is configured as a dynamic tax benefit, also called an incentive or fiscal stimulus, in which "the cause of the benefit is the adoption (future) of the benefited behavior or the exercise (future) of the encouraged activity." It is integrated into an extra-fiscal policy, for the pursuit of economic and social objectives by fiscal means.[11]

It has a temporary character [12] and is temporally conditioned [13] – the benefit is granted for a period of five years from the commencement of the effective date of the employment contract. And it is granted in the form of an increase of costs deductible from the taxable base.

And, according to the classification of the EBF [14], it is an automatic benefit because, as long as the requirements are met, it derives directly from the law, not depending on acts of recognition by the Administration.

16.2. Verification of the Requirements for the Benefit

In any of the successive versions relating to this provision (whether from its insertion in the EBF as Art. 48-A "job creation for young people," or to its current configuration as Art. 19, "job creation"), the benefit consisting of the increase of expenses is subject to the condition of net job creation and that these are permanent employment contracts or indefinite-term contracts.

16.2.1. Net Job Creation

As to the expression "net job creation," it is recalled that there is some jurisprudence of the Supreme Administrative Court on the matter.

The decision rendered by the STA on 11/10/2006, in appeal no. 723/06, concluded, in summary, (selection and emphasis ours):

Ø In the interpretation of the incentive created in 1998, with the insertion of Art. 48-A of the EBF, the legislative policy of incentives that had been pursued for that purpose must be taken into account, with the approval of Decree-Law No. 34/96, of 18 April [15], which aimed to establish an active employment measure in favor of specific groups of society particularly affected by unemployment and with greater difficulties in insertion or reinsertion into active life, due to reasons of age, lack of experience, or lack of qualification, as long as hiring by companies is part of an investment project that generates new jobs;

Ø The concept of "net job creation" used in Art. 48-A of the EBF is similar to that used in Decree-Law No. 34/96 (not in Decree-Law No. 89/95, which uses "net job creation"), which suggests that it was intended, in terms of tax incentives, to apply a regime similar to that adopted for financial incentives (...)[16];

Ø It would be incongruous that, after the legislator came to the conclusion that the regime of tax incentives provided for in Decree-Law No. 89/95 was inappropriate, for giving relevance to the hiring of workers with permanent contracts regardless of the overall increase in the number of workers in service at the company, it would come to enshrine it in terms of tax incentives, when dealing with matter with manifest affinity;

Ø Pointing to the literal tenor of Art. 48-A in the sense that it was intended to adopt a regime identical to that provided for in Decree-Law No. 34/96, as to the concept of "net job creation," it must be concluded that only when there is an increase in the overall number of employees of the company in a fiscal year is there place for the application of the tax benefit provided for therein.

In proc. 916/08, the STA, by Decision of 25/2/2009, assessed an appeal of a judgment that had decided that workers under 30 years of age who in the fiscal year became bound to the appealing company by indefinite-term employment contract, when this results from the conversion of fixed-term or indefinite-term employment contracts into indefinite-term employment contracts, do not meet the requirements of eligibility for the purposes of the tax benefit in question, pursuant to Art. 17 EBF. The Decision of the STA decided it was not necessary to investigate the existence or non-existence, in the concrete case, of "net job creation," ascertaining whether workers hired by the appellant, under 30 years of age, exceeded those dismissed in the fiscal year in question, because the relevant question was whether «workers initially hired on fixed-term or indefinite-term contracts, under 30 years of age, relative to which their respective contracts were converted into indefinite-term employment contracts, should be considered eligible for the purposes of the tax benefit referred to in Art. 17 of the EBF.

And on that question it decided, in summary:

Ø The tax benefit provided for in Article 48-A of the EBF (approved by Decree-Law No. 215/89, of 1 July), in the wording introduced by Law No. 72/98, of 3 November (which corresponds to Art. 17 in the version of Decree-Law No. 198/2001, of 3 July), is granted when there is in the fiscal year "net job creation for workers hired on permanent contract with age not exceeding 30 years";

Ø The provision requires for the application of the tax benefit the cumulative verification of the following requirements: a) result from net job creation, which translates into a positive balance between the number of hires (hiring effected) and the number of exits (dismissals or contract rescissions occurred) in a given fiscal year; b) refer to permanent contracts; c) and to workers under 30 years of age;

Ø The application of the benefit provided for in Article 17 of the EBF has as a sine qua non condition an effective increase in the number of young workers hired to the service of the employing entity in the respective period;

Ø The conversion of fixed-term employment contracts into indefinite-term contracts effects only an alteration of the legal status of workers, creates no new jobs, and therefore does not produce creation, net or otherwise, of any jobs;

Ø Workers initially hired on fixed-term or indefinite-term contracts, with no more than 30 years, relative to which their respective contracts were converted into indefinite-term employment contracts, should not be considered eligible for the purposes of the tax benefit referred to in Article 17 of the Tax Benefits Statute.

Ø That is, the condition "net job creation" cannot be deemed satisfied, solely and without more, by the execution of indefinite-term contracts with workers initially hired on fixed-term or indefinite-term contracts;

Ø Because the fulfillment of that legal condition requires the verification of an effective increase in the overall number of young workers hired in the company in a given fiscal year, on permanent contract.

The Decision rendered by the STA on 23/09/2009 (proc. 0248/09) assessed in appeal a decision that had considered that the right acquired by the assignee through a contract for assignment of contractual position is the same that already belonged to the former holder, whereby no net job creation existed as referred to in Article 17 of the EBF, as an "increase [net, interpolation] in the overall number of workers of the company in a fiscal year" did not occur, as decided by the Decision of the STA of 11 October 2006, in proc. No. 726/06.

The appellant argued that the assignment of contractual position is a form of hiring workers, a source of constitution of employment relationships, similar to the transmission of company or establishment, in which the acquirer also assumes the position of employer in an employment contract previously in force (Article 318, no. 1, of the Labor Code), imputing to the appealed decision a confusion between the concept of relationship, of employment contract, and the concept of job, which is what is at issue in Article 17 of the EBF.[17]

The said Decision, identifying the issue to be decided as "whether workers initially hired on fixed-term or indefinite-term contracts, under 30 years of age, relative to which their respective contracts were converted into indefinite-term employment contracts, should be considered eligible for the purposes of the tax benefit referred to in Art. 17 of the EBF," reiterated the understanding that "net job creation for workers hired on permanent contract with age not exceeding 30 years," presupposes an increase in the overall number of workers of the company hired on permanent contracts with age not exceeding 30 years in a given fiscal year.

And, relying on the doctrine of the Decisions of 11/10/06, in appeal no. 723/06, and of 25/2/2009, in appeal no. 916/08, it decided that:

Ø Only when there is an increase in the overall number of workers of the company in a fiscal year is there place for the application of the tax benefit provided for therein;

Ø The conversion of fixed-term employment contracts into indefinite-term contracts effects only an alteration of the legal status of workers, creating no new jobs, therefore not producing the creation, net or otherwise, of any jobs;

Ø The legal concept of net job creation applicable to the situation in question corresponds to the positive difference, in a given fiscal year, between the number of hiring effected, of workers with age not exceeding 30 years, and the number of exits of workers of the same age group, making the assessment of that difference at the end of each fiscal year.

16.2.2. Transmission of Establishment and Transfer of Workers

At the time of the transfer of workers - which occurred on 28 November 2008, with the definitive transmission of industrial establishment - from B, Lda. to A, Lda, the Labor Code approved by Law No. 99/2003, of 27 August, was in force, whose Art. 318 [18], under the title "Transmission of enterprise or establishment," provided, in no. 1: "In case of transmission, by any title, of the ownership of the enterprise, of the establishment or of part of the enterprise or establishment constituting an economic unit, the legal position of employer in the employment contracts of the respective workers, as well as the responsibility for payment of a fine applied for the practice of a labor violation," is transmitted to the acquirer, specifying in no. 4: "An economic unit is understood to be the set of organized means with the objective of exercising an economic activity, principal or incidental."

With the regime established in this matter in Articles 318 to 321, the Labor Code transposed Directive 2001/23/CE, of 22 March 2001 (which had revoked Directive 77/187/CEE, as amended by 98/50/CE), relating to the "approximation of the legislation of the Member States respecting the maintenance of workers' rights in the case of transfer of enterprises or establishments, or of parts of enterprises or establishments" [19].

The subject of transmission of establishment has raised various doubts, for the purposes provided for in the said Art. 318, particularly as to the definition of workers assigned to the part transferred, as well as whether the workers covered are transferred automatically or have the right to oppose the transfer [20].

On the concept of establishment subject to transmission, jurisprudence, interpreting even Article 37 of the Labor Code, considered that "by establishment should be understood" either the organization assigned to the exercise of a commerce or industry, or the "subordinate assemblies," corresponding to a technical unit of sale, of production of goods, or of supply of services, as long as the unit highlighted from the overall establishment is endowed with its own technical-organizational autonomy, constituting an autonomous production unit, with specific organization" (Decision of 30/06/1999, proc. 98S390)[21].

Such interpretation would also result from the CJEU before Directive No. 77/187 and would be confirmed by Directive No. 2001/23/CE of the Council of 12 March 2001 [22].

The identification of the universe of workers to be transferred will depend, in the concrete case, on the identification of the establishment subject to transmission and of the workers actually assigned to it.

Regarding the possibility of worker opposition, there is national jurisprudence in divergent directions [23].

Very briefly, the thesis against the requirement of worker agreement defends that the "transfer of workers is an effect ope legis of the transmission of the establishment," in which the position of the employer in the labor relationship is transmissible automatically regardless of the consent of the other party[24] and, although it is "unquestionable that the first and principal object of the community regime of transmission of enterprise or establishment is the protection of the workers covered, it is no less so that such vicissitude and, above all, many of the choices therein affect relevant and legitimate interests of the transmitters and acquirers, which the national legislator, bound to conform to it, cannot disregard"[25]. The transmission would not legitimize resolution with just cause by itself," although the worker's right to rescind (resolve, in the current terminology) the contract, invoking just cause, motivated by changes subsequent to the conditions of work (Art. 318 current CT, 441 in CT 2003), is recognized.

The defenders of the opposite thesis, on the other hand, consider that "the refusal of the possibility of, except through the loss of employment, workers opposing the change of employer (...) makes a clean slate in this specific domain of the worker's right to freely choose their employer entity, which is a corollary of freedom of work and the principle of prohibition of forced labor (Art. 4, no. 2, of the European Convention on Human Rights)." (Liberal Fernandes) and that once opposition is declared by the worker, the principle of job security requires that they may continue to provide their activity to the transmitter, as long as this appears possible. (Júlio Gomes). In any event, it was a settled position that the lack of provision in national legislation – considered a gap (Rita Garcia Pereira) – made the situation very fluid and subject to contradictory decisions.

If today the doctrine appears to be dominant in the first direction (also António Monteiro Fernandes, in Labor Law, 16th edition, admits [26] that the CJEU considers that Directive 2001/23/CE [27] does not require the consent of the worker for the transfer, although it does not oppose its being provided for by national rights and that national jurisprudence has understood that there is no true right of opposition) the first decade of this century was traversed by a very strong current, doctrinal and jurisprudential, in the direction of the need for worker opposition.

16.3. The Transmission of Establishment in the Case at Hand

16.3.1. The Transfer of Workers and the Labor Relationship

Based on doctrinal and jurisprudential references relating to the transmission of the commercial establishment (although omitting the divergences of interpretation cited above), the Claimant argues that the transmission deriving from the provisions of Article 318 of the Labor Code does not mean absence of alterations of labor contracts, whether in the legal sphere of the workers or in the legal sphere of the Claimant itself, whereby "it is not as obvious as the AT wished to demonstrate, that there is no alteration in the relationship and that consequently the job is the same, because in fact it is not."

The Claimant emphasizes that the possibility of worker opposition to the transmission of the labor relationship would prove that, as the employer changes, the relationship necessarily changes and, consequently, the job. And, while admitting that no new employment contracts are created, in the sense of being effectively concluded, ex novo, new labor relationships, it argues that they undergo mutations resulting from the transmission of the industrial establishment where they worked (Art. 178 of the Complaint), with the new employing entity increasing the volume of costs with its employees (179 to 181 of the Complaint).

That is, the Claimant appears to adhere to the theses (cited above) that defend the need for worker opposition not to be required for their transfer with the establishment, drawing therefrom the conclusion that the transmission of employment contracts without loss of any rights is merely a question of labor law, irrelevant in a tax context.

And it challenges the reasoning used by the AT, in the decision denying the gracious complaint, of the doctrine of the Decision rendered by the STA in process 0248/09, because in that case, there would have been a non-definitive assignment of contractual position [28], whereas in the case at hand there was a definitive transmission of an establishment.

16.3.2. The Transfer of Workers and Job Creation

However, the question continues to be: did that definitive transmission of an establishment effect an actual creation of employment for the purposes of Art. 19 of the EBF?

The Claimant argues that yes, [29] because consultation of Forms 10 relating to fiscal years 2004, 2005, 2006, 2007, and 2008, permits the conclusion that there was creation of more than three hundred eligible jobs – a real increase in the overall number of young workers hired in the company, in a total of 334 new workers - during these five fiscal years and because, although the obligations and rights provided for in the contract with the prior employer remain unchanged, there is a new relationship, there is a modification of the employer entity, creating new jobs that did not exist at the Claimant and that were created as a result of the entry of the workers in question.

Regardless of the calculations effected by the Claimant and the verifications countered by the AT (above, in 13) we note that with the transmission of the establishment to A, 726 workers will have been transferred and not 614 (as mentioned in point 2 of the information from DF…, of 1 April 2013).

And we know, through the information filed by the Claimant with the case on 27/02/2014, that after the transmission of the establishment occurring on 28/11/2008, the transmitting company proceeded to conduct operations essentially aimed at liquidation and closure, being dissolved and liquidated on 31/03/2009.

The reach of the Claimant's assertion that the situation sub judice "is not to be confused with that of a transmission of an industrial establishment through merger or division, because in this case the divided or merged company does not cease its activity, which continues to be developed by the acquiring or beneficiary company, while in the case at hand the fiscal neutrality regime does not apply and the acquiring company cannot deduct the tax losses of the transmitting company" is not well understood.

In reality, the situation appears to have, from a structural economic point of view, many similarities with a form of division (Articles 118 and 124 of the Commercial Companies Code [30]). After clarification sought at the case to the effect that B was dissolved and entered liquidation after the transfer of the establishment and of 726 workers (point 13, k)), the operation effected appears to have more resemblance to a "dissolution division" than to a "partial division," because unlike what the Claimant appears to assert (Articles 137 to 140 of the Petition) in mergers and divisions the activity of the company subject to division may or may not be maintained, if this is not subject to dissolution... [31]

What the Claimant will have wished to emphasize is that in this process there was no recourse to the figures of division or merger, with adoption of the procedures provided for in the CSC (decisions in both companies, evaluation of assets and liabilities, allocation to the partners of the company to be incorporated or divided of participations in the acquiring companies [32], etc.), whereby the liquidation process was not waived.

It should be noted that the process of merger and division has been invoked in other processes of application of Art. 19 of the EBF, with the argument that activity continues (but wishing to say thereby that the activity of the merged or divided company, being transmitted with the establishment, continues in the acquiring company), as grounds for maintenance of the tax benefit by the company receiving the establishment.

In this case, there is a point on which the Claimant is entirely right. It is that the AT's argument appears to presume the invocation of transfer of benefit from B to A, but this did not happen!

B did not avail itself of the benefit for job creation (13) and A only came to request it in 2012 (gracious complaint against the self-assessment made in 2010), regarding fiscal year 2009, although invoking conditions met in five prior fiscal years. Therefore, in the case at hand, the discussion is not about the effects of transmission of position regarding workers who had been considered eligible in another company (assignor in the context of merger or division), whereby the AT's argument regarding the non-transferability of the tax benefit (Art. 15 of the EBF) is not pertinent.

But the fundamental question, it is repeated, is whether a company receiving workers in the context of a transmission of a commercial establishment is creating jobs, for the purposes enshrined in tax legislation regarding net job creation.

The Claimant criticizes the inequality of treatment, facing an economically identical situation in which A had hired workers dismissed by B, following closure of the establishment by B, with dismissal of all workers; in that case, the Claimant considers, the same workers would be considered hired ab initio by the Claimant, having the right to the benefit pursuant to Article 19 of the EBF. It argues that both the expansion of its activity with acquisition of equipment, machinery, and hiring of new workers, and the acquisition of an industrial establishment from another company interested in selling, by constituting expansion of A's activity, at the level of equipment and at the level of workers, must fall within the scope of application of Art. 19 of the EBF.

However, this Tribunal considers that there does not exist the intended equivalence between the two situations: extinction of the transmitting company B with prior dismissal of workers would have costs that, in the situation at hand, did not occur, in addition to which it assured the passage, in this case among companies of the same group, of experienced workers who are the personal support of the establishment.

The assignment of establishment among the companies (transmission of the establishment - goods, including real property and equipment, as well as labor and other contracts that the transmitter held) corresponded to a strategy of re(organization), and the transfer of workers within a group of companies cannot fail to be seen in that overall context.

In a case such as that at hand, of companies integrated in a group of companies with unitary management [33], could one of the companies of a group, not being able to avail itself of the benefit of Article 19 of the EBF (either for not meeting the cumulative requirements or for not being able, in practice, to benefit from it by limitation resulting from no. 1 of Art. 86 CIRC) transmit an establishment with workers, who, being "new workers" of the transmitting company, would permit the new employer the use of said benefit, without this leading to net job creation from an economic point of view (that which the Claimant claims to avoid discriminatory treatment...).

In the concrete case, it should be added, the great majority of B's workers whose contracts are found in the case file, had already been hired many years before by that company, whereby, for that reason (see jurisprudence cited above), they could not, even in cases in which they signed indefinite-term contracts with more recent dates, be considered eligible in B.

And, just as it is not admitted to grant a company the benefit provided for in Art. 19 of the EBF for a worker who has already provided benefit to another employer (no. 6 introduced by Law No. 53-A/2006, of 29/12, in the then Art. 17 of the EBF [34]), it does not appear acceptable that by assignment of establishment between companies, in this case of the same group, a company of this group come to have the right to benefit for a worker who did not provide the right to benefit in the company (for having an employment contract with it for several years and/or for another reason, such as for example the existence of the limit of Art. 86 of CIRC) where the transmitted establishment was situated.

What reinforces what has been stated above regarding the unacceptability of considering new workers those transferred with the establishment where they are working, maintaining all rights acquired in their job, without the labor in another company, in this case of the same group, corresponding truly to a new investment project with job creation – in the establishment, what already existed continues, in action or in potency!

It is considered that this reading is the one that reflects the ratio of the law, because there is full agreement with the assertion (cf. decision rendered by the STA on 11/10/2006, in appeal no. 723/06) that "In the interpretation of the incentive created in 1998, with the insertion of Art. 48-A of the EBF, the legislative policy of incentives that had been pursued for that purpose must be taken into account, with the approval of Decree-Law No. 34/96," that is, as we saw above (note 15), to avoid the error made by Decree-Law No. 89/95, of 6 May, which in severing net job creation from the existence of an investment project and not requiring the creation of new jobs, but only the hiring of workers, led, in many concrete situations, not to an effective reduction in unemployment, but only to the substitution, perhaps even fictitious, of previously removed workers (in that case, it was before submission of applications for the financial support offered by the law) with system inefficiency, substantial financial waste, and significant consequences in the promotion of employment precariousness.

Indeed, and contrary to what the Claimant asserts, the perspective of labor law and that of tax law are not completely indifferent. Observations made by different authors [35] within the scope of labor law are equally relevant within the scope of tax law, signifying relative to the interests involved the strategic capacity to achieve a maximization of the interest of the company/companies involved (fundamentally of whoever at each moment holds decision-making power therein).

Hence these same authors conclude that "labor law should use a broad notion of group of companies beyond the forms of combination of companies typified in the CSC, such as all situations in which a relationship of control of fact between two or more companies is detected, or, there not being although a relationship of control, there exists, in fact, a unitary economic management, for signifying a loss of autonomy for the dominated/subordinate company liable to affect the status of the workers, as well as should be included in the concept of group, for the purposes now being analyzed, all situations in which there is a grouping (association) of two or more companies that is shown susceptible of producing effects at the level of the organizational framework itself that serves as the basis for the pursuit of the economic activity of the employer, for being that the "only way to broaden the concept of group of companies so as to embrace all configurations of the phenomenon susceptible of creating supplementary risks to workers face the normal risks that workers of a globally autonomous company generally support."[36]

Or, as another author already cited commented [37] "It is thus not by chance that, in community terms, the notion of company has been understood as an economic unit, although from the normative point of view it is effectively constituted by several legal persons, in a clear allusion to the "opacity of the employer" which has motivated the lifting (or disregard) of the legal personality of the formal employer to achieve the actual."

This view is precisely the one that is present in a case such as that at hand – the transfer of workers together with the establishment in which they worked and that was transmitted from one company to another (and in the same group, with the characteristics described) is not susceptible of creating new employment legal relationships.

Thus, the conclusion of the AT that the transfer of workers from B to A, whether as a result of the transmission contract or before that by assignment contracts, does not qualify for the purposes of granting the benefit of net job creation, since this is subject to "the sine qua non condition of an effective increase in the number of workers hired to the service of the employing entity in the respective period, which means that there will only be a tax benefit in the fiscal year in which there was a real increase in the total number of young workers hired in the company," with the mere transfer of workers not contributing by itself, is agreed with.

And the conclusion of rejection of creation of new jobs and calculation of "net job creation," for the purpose of applying the increase of expenses under Art. 19 of the EBF applies not only to the workers transferred together with the industrial establishment by the contract executed on 28 November 2008, but to workers who entered B, before that date by amendments to their respective employment contracts assigning from A to B.

According to the table presented by the Claimant (Art. 65 of the petition and Art. 55 of the complaint) there were, in the period between 2004 and 2009, 389 eligible entries at A, 10 in 2004 (67 in 2005, 7 in 2006, 10 in 2007, 288 in 2008, and 7 in 2009), while the inspection identified, in that period, that 356 workers transferred from B to A already with indefinite-term contracts.

In the context of the legal institute of transmission of establishment and regarding workers of the transmitting company to the transmitting company, it has already been extensively demonstrated above that what the legislator sought to safeguard were the rights of workers as subjects of an employment contract, not being able to consider that by that safeguard having legal establishment, it may repercuss (also) in the legal sphere of the new employing entity (the transmitting company) in terms of this being able to invoke that the mere receipt of workers resulting from a contract of transmission of establishment may be considered for the purposes of net job creation and, consequently, for the application of the granting of tax benefits.

The granting of tax benefits is an exceptional legal-tax situation, which is rooted essentially in the defense of superior social interests - the creation of incentives for net job creation. It is this net job creation that constitutes the prerequisite for the granting of the benefit and that the law, as has been demonstrated, does not embrace in the case in which there is transmission of an establishment.

The Arbitral Tribunal thus considers that the Claimant's arguments are not well-founded, as the requirements required in the EBF for the granting of tax incentives for net job creation are not met.

This is required by the exceptional character of the tax incentives that our legal system establishes. For illustration of this assertion, reference is made to the Decision of the Supreme Administrative Court, of 2-07-2013, rendered in the context of proc. No. 06629/13, according to which: 1. According to the law, tax benefits should be considered exceptional measures instituted for the protection of relevant extrafiscal public interests and that are superior to those of taxation itself which prevent (cfr. Art. 2, no. 1 of the Tax Benefits Statute, approved by decree-law no. 215/89, of 1/7). 2. From the legal point of view and in the perspective of the legal relationship of tax, tax benefits embody, before all, facts that being subject to taxation, are preventive of the birth of the tax obligation or, at least, of the same emerging in full. In fact, while a preventive fact, the tax benefit translates itself always into situations that are subject to taxation, that is, that are subsumable to the legal rules that define the incidence objective and subjective of the tax. And, precisely because the tax benefit constitutes a preventive fact of rule taxation, its extinction or lack of requirements for application has as immediate effect the automatic restoration of that same taxation, as established in Art. 12, no. 1, of the Tax Benefits Statute.

16.4. Compensatory Interest

Regardless of any considerations regarding the non-existence of error attributable to the AT, it is verified that, in not granting the Claimant's petition regarding the illegality of the self-assessment of Corporate Income Tax relating to the year 2009, no compensatory interest is owed.

III. DECISION

1. Given the foregoing, the present Arbitral Tribunal decides:

a) To dismiss the petitions for annulment of the partial denial of the gracious complaint and for acceptance of the alteration of the self-assessment of Corporate Income Tax relating to fiscal year 2009, for reimbursement of the amount of tax paid, and for payment of compensatory interest;

b) To condemn the Claimant to bear costs.

1. Value of the Case and Costs

18.1 The value of the case is fixed at € 511,834.50 (five hundred and eleven thousand, eight hundred and thirty-four euros and fifty cents), pursuant to Article 97-A, no. 1, of the Code of Tax Procedure, applicable by virtue of Article 29, no. 1, a) of the RJAT and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

18.2 The amount of costs is fixed at € 7,956.00 (seven thousand, nine hundred and fifty-six euros), charged to the Claimant and calculated in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, all pursuant to Articles 12, no. 2, and 22, no. 4, of the RJAT and Article 4 of the RCPAT.

Let notification be made.

Lisbon, 2 March 2014.

The Arbitrators

(Arbitrator President) Manuel Luís Macaísta Malheiros

(Assistant Arbitrator) Maria Manuela Roseiro

(Assistant Arbitrator) José Nunes Barata

Text prepared by computer, pursuant to no. 5 of Article 131 of the Code of Civil Procedure, applicable by remission of subsection e) of no. 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.

The drafting of this decision follows the old spelling.