Summary
Full Decision
ARBITRAL DECISION
The arbitrators Judge Counsellor Jorge Lino Ribeiro Alves de Sousa (arbitrator president), Prof. Doctor Jorge Bacelar Gouveia and Dr. André Festas da Silva (arbitrator panel members), designated by the Deontological Council of the Centre for Administrative Arbitration (CAAD) to form the Arbitral Tribunal, constituted on 25 October 2013, agree as follows:
I. REPORT
I.1
On 22 August 2013, A… – SGPS, S.A., a company with registered office at Rua de …, legal entity number …, hereinafter referred to as "Claimant" or "A…", as the entity responsible for self-assessment of Corporate Income Tax ("IRC") of the group of companies taxed in accordance with the Special Tax Regime for Groups of Companies (RETGS), by virtue of being the parent company of a group of companies, requested, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters) and Articles 1 and 2 of Order No. 112-A/2011, of 22 March, the constitution of a Collective Arbitral Tribunal.
The Claimant seeks that the Arbitral Tribunal: i) declare the illegality of the self-assessment act of the municipal surcharge relating to the financial year 2011, in the amount of €140,958.11; ii) determine the reimbursement of the amount of €140,958.11; iii) determine the payment of compensatory interest calculated on the amounts unduly paid by the Claimant.
The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD on 23/08/2013 and was notified to the Tax and Customs Authority (hereinafter referred to as "TA" or the "Respondent") on that same date.
The Claimant did not proceed with the nomination of an arbitrator, therefore, pursuant to Article 6, paragraph 2, subsection a), of the Legal Framework for Tax Arbitration (RJAT), the undersigned were designated by the President of the Deontological Council of CAAD to form this collective arbitral tribunal, having accepted under the legally provided terms.
In view of the procedural matters raised (so often repeated in other CAAD proceedings), the tribunal on 26.11.2013, pursuant to the principle of "autonomy of the arbitral tribunal in conducting the process and in determining the rules to be observed with a view to obtaining, within a reasonable time, a substantive ruling on the claims formulated" [cf. subsection c) of Article 16 of RJAT], and the principles of celerity, simplification and procedural informality [paragraph 2 of Article 29 of RJAT], decided to dispense with the meeting provided for in Article 18 of RJAT.
The parties did not object and made no further requests.
I.2 The Claimant supports its request, in summary, in the following manner:
Although the Local Finance Law (hereinafter simply "LFL") enables municipalities to obtain revenue through the use of the surcharge, the determination of the revenue from this tax addition is conditioned by the normal process of subsidiary determination of taxable matter and tax collection, which is established in the rules of the tax on which it depends: the IRC.
Characterizing the municipal surcharge as a tax which, although autonomous, continues to be dependent on IRC in many of the fields that define its fiscal legal relationship — among which stands out the determination of its taxable matter — and knowing that the Impugning Party and the set of subordinate companies that form part of RETGS are taxed in IRC within the Group, special rules for determination of taxable income established in that regime (i.e., in RETGS) must still be considered.
What, in the context of the application of RETGS, is relevant for fiscal purposes, in relation to IRC, is the fiscal result of the Group, unitary and indivisible, with the individual results of each company being merely constituent parts of the same.
The taxable income that is relevant for purposes of IRC is calculated, in the context of RETGS, in accordance with Article 70 of the IRC Code, corresponding to the taxable income of the Group.
The taxable base of the municipal surcharge in the context of RETGS cannot be determined by reference solely to the positive material elements of the Group's taxable income — which are nothing more than mere portions of an arithmetic sum, dictated by Article 70 of the IRC Code, with lesser fiscal substance.
The municipal surcharge should be determined on the only truly taxable reality — the Group's aggregated taxable income — insofar as it is this amount that forms the basis for determining the Group's taxable matter, in relation to IRC, in each tax period.
It is thus entirely legitimate to conclude that the concept of "taxable income subject to and not exempt from corporate income tax" referred to in the LFL subsumes to the same concept defined in relation to IRC, of aggregated taxable income of the Group, and not to any other in which the income of individual companies (subject to RETGS) would be relevant.
The judgment of the Supreme Administrative Court (STA) of 02.02.2011 (case no. 909/10) states in its reasoning that: "providing the IRC Code, in its Articles 69 to 71, for a special tax regime for groups of companies, a situation in which the impugning party finds itself (…) and having this opted, as the law permits, for the application of this regime to determine taxable matter in relation to all companies in the group, the determination of taxable income, for purposes of IRC, is ascertained through the algebraic sum of taxable income and tax losses determined in the individual statements of the companies belonging to the group. And thus having determined taxable income for purposes of IRC, the taxable base of the surcharge is necessarily found".
And if doubts were to persist after the approval of the legal regime of the state surcharge, these would necessarily be definitively dispelled with the entry into force of the Budget Law 2012.
In effect, Article 57 of the Budget Law 2012 provides for amendments to the wording of the LFL, it being important to highlight that introduced in the respective Article 14, paragraph 8: "When the special tax regime for groups of companies is applicable, the surcharge applies to the individual taxable income of each of the companies in the group, without prejudice to the provisions of Article 115 of the IRC Code."
The new wording given to that legal provision — obviously, without an interpretative character — has the merit of marking a distinction between what will happen from its entry into force and what existed in previous tax periods.
Now, if the legislator felt the need to make that amendment to the LFL it was because it concluded that the surcharge did not apply, in periods prior to 01.01.2012, to the individual taxable income of each of the companies taxed under RETGS.
Only from that date — and despite the regression this represents in the conceptualization of RETGS — did the taxation of the municipal surcharge actually begin to fall on the individually considered income of companies taxed under RETGS.
Pursuant to Articles 61 of the Tax Procedure Code (CPPT) and 43 of the General Tax Law (LGT), compensatory interest is due when it is determined that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due.
These provisions establish that there is deemed to be error attributable to the services in cases where, despite the assessment being made on the basis of the taxpayer's declaration, the taxpayer has followed, in completing it, the general guidance of the tax administration, properly published.
I.3 In its submissions, the Respondent sustains, in brief summary, the following:
i) By way of exception
The TA is conferred only functions of revenue collection (given the method of calculating the surcharge — which like IRC is self-assessed in the tax return — Form 22) and subsequent delivery to the municipality.
The competence to administer the municipal surcharge falls largely to the municipalities, with these being, exclusively, the active subjects of the tax. This necessarily entails that passive legitimacy to intervene in the present dispute — whose object is exclusively the municipal surcharge — shall likewise be of the municipalities (active subjects and co-administrators of the tax) and not of the TA, exclusively.
Therefore, there exists a pressing interest to act by the Municipalities in the present matter. An interest to act which, in essence, justifies the legitimacy of these to intervene in the present action, insofar as Article 26 of the Code of Civil Procedure (CPC) recognizes legitimacy as a party — in this case, as defendant in the action — for one who has a direct interest in opposing.
Thus, it appears fully justified to consider the verification of a "provoked intervention" of the Municipalities in actions that have as their object the municipal surcharge.
Any loss in the present dispute will necessarily result in financial burdens for the defendant entity, from which the municipalities cannot be excluded, as it will imply the refund of amounts possibly paid by the Claimant that are no longer in the legal sphere of the TA, as these are revenue sources of the municipalities. Moreover, it will entail — for the municipalities — the possible payment of compensatory interest, under Articles 43 and 100 of the General Tax Law (LGT), approved by Decree-Law No. 398/98, of 12 December.
Thus, not only in view of the legal relationship shown here to be configured, but also by virtue of the personal and direct interest in acting that the municipalities have, a provoked intervention of the same appears not only necessary, but even essential, in the present arbitral process, in light of Articles 325 et seq. of the Code of Civil Procedure (CPC).
The municipalities in this legal proceeding are not represented by the Respondent. In fact, involving the question to be decided interests, not of one, but of several public legal persons, which among themselves could be conflicting, the TA could never, independently, assume a position in defense of some of the interests of some of the Municipalities, without thereby prejudicing legitimate interests of others in this action.
And even if this were not the case, neither the RJAT, nor the binding regulation (Order No. 112-A/2011) confers upon the highest executive of the TA the role of representative of an entity other than the TA.
This means not only that the municipalities are not represented in the current proceeding, but also that there is no act binding the municipalities to the jurisdiction of CAAD in tax matters.
Such circumstance necessarily results in the impossibility of an arbitral tribunal constituted under the auspices of CAAD considering itself endowed with legitimacy to issue a substantive arbitral decision, whose object embraces the personal and direct interest of entities with legal personality and capacity that are not bound to its jurisdiction, nor represented in court, nor with their interests properly safeguarded.
To contend that the arbitral tribunal should decide on a matter relating to entities not bound to its jurisdiction has the consequence of the tribunal's incompetence.
When a decision cannot produce a definitive effect between the parties without simultaneously producing it also as to all other subjects of the legal relationship, we are facing a case of necessary joinder of parties, pursuant to Article 28, paragraph 2, of the CPC.
If the Claimant fails to formalize the procedural intervention of the various municipalities interested in the disputed relationship, their absence is a reason for lack of legitimacy.
Should the tribunal consider that we are not facing a situation of necessary joinder of parties, it cannot rule out the need for accessory intervention of the municipalities, as the prerequisites for provoked accessory intervention, provided for in Article 330 of the CPC, are fully met.
A different understanding — one that would accept as valid the possibilities that the municipalities have been properly represented in arbitral court, and that the binding regulation No. 112-A/2011 binds tax arbitral jurisdiction to the municipalities — public legal persons — distinct from the State/Central Administration — with legal personality and capacity and administrative and financial autonomy — will constitute a clear violation of the principles of access to law and effective judicial protection, with constitutional grounding.
The present dispute cannot be resolved through arbitration, insofar as the interested parties in the disputed relationship were not, nor can be, sued in the arbitral instance, due to the lack of an instrument of legal binding, the absence of these being constitutive of lack of passive legitimacy of the defendant entity (Articles 26 and 28 of the CPC).
And from the non-binding of the municipalities to tax arbitral jurisdiction there follows, by inherence, the understanding regarding the incompetence of the arbitral tribunal, which has legal support in Article 108 of the CPC.
The following exceptions are thus raised, as preliminary matters:
A) Lack of passive legitimacy of the TA to be sued as the sole defendant in a matter concerning the municipal surcharge, a tax co-administered with the municipalities;
B) Interest of the municipalities to act in this dispute, insofar as, in addition to being co-administrators of the tax, they have a personal and direct interest in its outcome, and any decision that may be issued regarding the dispute must necessarily be binding upon these;
C) Possibility of remedying the alleged lack of passive legitimacy through an incident of provoked intervention, to be appreciated by the arbitral tribunal, which, however, will be dependent upon the appreciation of the question of non-binding of the municipalities to CAAD jurisdiction and consequent incompetence of the arbitral tribunal to issue a substantive decision on the matter in dispute.
ii) By way of objection
The municipal surcharge is an autonomous tax, which merely avails itself of the calculation rules of IRC for determining taxable income, thus the specificities of taxation in relation to IRC concern only IRC, not being legally adopted for purposes of subjection to the surcharge.
The active subject of the tax is the municipality corresponding to the geographic area in which the income is generated and the passive subject is the resident companies that conduct, as a principal activity, a commercial, industrial or agricultural activity in the geographic area of those municipalities.
The real incidence of the municipal surcharge falls on the taxable income of companies — a concept distinct from that of taxable matter — and the allocation of the surcharge to the various active subjects is made in accordance with the provisions contained in Article 14 of the LFL.
For purposes of determining the taxable base of the municipal surcharge, the legislator avails itself of the legal mechanisms provided for in the IRC Code, which culminate in the ascertainment of taxable income subject to and not exempt from IRC.
Now, in the specific case of companies covered by RETGS, it is undeniable that each of the companies within the scope is a passive subject of IRC, and it is equally incontestable that all of them generate income subject to IRC.
We are, therefore, facing patent situations of subjection, personal and real, of each of those companies and their respective income.
At no point was any situation of non-subjection, exemption, or exclusion from taxation established for these companies or their income.
For these companies, what the legislator provides is that they may aggregate their various taxable income/tax losses, individually ascertained, and thus arrive at the so-called "taxable income of the group".
One cannot consider unfounded the understanding that the surcharge will apply to the taxable income of each of the companies in the group, this being the taxable base of this tax.
Indeed, all companies within the scope have the legal obligation to submit their own tax return, in which they ascertain their own taxable income, which is determinative for purposes of calculating the surcharge due by the company.
Absent any provision that considers the income of companies within the scope of a group of companies as not subject or exempt from IRC, it is not apparent how the same could be excluded from taxation in relation to the surcharge.
To tax each of the companies within the scope, on the basis of its own taxable income, is the best way to confer executability on the instrument for financing municipalities that is embodied in the surcharge.
To adhere to the position assumed by the STA Judgment of 2 February 2011 would be to deny the realization of constitutionally enshrined purposes, and to legitimize the reinforcement of asymmetries between municipalities, which is contrary to fundamental law.
The municipal surcharge is an autonomous tax and not an accessory one, but merely dependent, which only accepts from IRC the essential elements for determining its taxable matter — which in practice subsumes to taxable income, subject to and not exempt from IRC — and is immune to any other events with repercussions on IRC, which definitively severs its connection to that tax.
Taking into account that:
All companies within the scope of groups of companies subject to RETGS are necessarily companies with headquarters or actual management in Portuguese territory, with all of their income subject to the special tax regime in relation to IRC at the highest rate (paragraph 3 of Article 69 of the IRC Code);
There is no legal provision from which any exemption flows for such income;
Paragraph 1 of Article 69 of the IRC Code expressly refers to RETGS as "a special regime for determination of taxable matter in relation to all companies in the group" and not a special regime for determination of taxable income in relation to all companies in the group;
It follows from Article 15 of the IRC Code that taxable matter results from the deduction from taxable income, determined in accordance with Article 17 of the IRC Code, of tax losses and tax benefits ascertained in accordance with the law;
In the case of groups of companies, taxable matter is ascertained on the basis of the so-called taxable income of the group, which is nothing more, having regard to Article 70 of the IRC Code, than the algebraic sum of taxable income and tax losses ascertained by each of the companies within the scope of the group;
It is thus demonstrated that the surcharge applies to and is subject by all companies within the scope of a group of companies, which have actually ascertained taxable income, in accordance with Article 17 of the IRC Code, which will be, for purposes of municipal surcharge, the taxable matter on which the respective rate(s), set by the municipality(ies), shall apply.
The connection of the municipal surcharge to the IRC Code and its respective tax is thus exhausted with the ascertainment of taxable income subject to and not exempt from IRC, and is entirely foreign to any other events with repercussions on taxation in relation to IRC.
There is no violation of any constitutional principles that should prevail over the principle of local autonomy, when interpreting Article 14 of the LFL in the terms espoused by the TA.
The wording given to paragraph 8 of Article 14 of Law No. 2/2007, of 15 January, by Article 57 of Law No. 64-B/2011, of 30 December (State Budget Law for 2012) sought to prevent the emanation of unconstitutional jurisprudence, through violation of constitutional principles inherent in Articles 81, 103 and 238 of the Constitution of the Republic.
Such wording has an interpretative nature, thus the question of its retroactive application does not arise.
II. APPRECIATION OF PRELIMINARY MATTERS
II.1 The TA raises in its Response to the request for arbitral ruling from the Claimant a set of matters which, as they may prevent consideration of the merits of the request, must be known previously.
II.2 These matters are summarized in Article 79 of the Respondent's Response:
A) Lack of passive legitimacy of the TA to be sued as the sole defendant in a matter concerning the municipal surcharge, insofar as this is a tax co-administered by the municipalities.
B) Interest to act by the municipalities in this dispute, insofar as in addition to being co-administrators of the tax, they have a personal and direct interest in its outcome, and any decision that may be issued regarding the dispute must necessarily be binding upon these.
C) Possibility of remedying the alleged lack of passive legitimacy through an incident of provoked intervention, to be appreciated by the arbitral tribunal, a matter which, however, will be dependent upon the appreciation of the question of non-binding of the municipalities to CAAD jurisdiction and, consequently, incompetence of the arbitral tribunal to issue a substantive decision on the matter in dispute, insofar as this will not be apt to be binding upon the municipalities, which will have relevant consequences in the event of the Claimant's request being granted, leaving it unable to enforce the arbitral decision against the municipalities, as it will not have the nature of res judicata as to them.
D) Safeguarding the possibility of the arbitral tribunal considering its legitimacy verified to issue a substantive decision, the incident of provoked intervention of the municipalities is raised.
II.3 Although the matters of incompetence of the Tribunal and lack of passive legitimacy are intimately linked, having regard to how they are raised, consideration will first be given to the matter of competence, as it is of priority consideration in light of Article 13 of the Code of Administrative Court Procedure (CPTA), applicable here by virtue of Article 29, paragraph 1, subsection c), of RJAT.
Let us then see:
II.4 On the exception of incompetence of the Arbitral Tribunal
II.4.1 On the basis of the arguments presented, namely in Articles 2 to 14 of its Response (which was already referred to in the Report), the TA asserts that it "is certain that competence to administer the municipal surcharge falls largely to the Municipalities, with these being, exclusively, the active subjects of the tax" (cf. Article 15 of the same), proceeding from that assertion to base its lack of legitimacy and then the incompetence of the Tribunal.
Is this so?
II.4.2 Article 2, paragraph 1, subsection a), of RJAT provides that arbitral tribunals are competent to appreciate the claims for "declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account". In turn, paragraph 1 of Article 4 of the same Regime determines that the binding of the tax administration to the jurisdiction of arbitral tribunals "depends on a regulation of the members of the Government responsible for the areas of finance and justice".
II.4.3 This is Regulation 112-A/2011, of 22 March, from whose Articles 1 and 2 it results that the Directorate-General for Taxes and the Directorate-General for Customs and Excise Duties (to which the TA has succeeded, as stated) are bound to the jurisdiction of the arbitral tribunals operating in CAAD which have as their object the appreciation of claims relating to taxes whose administration is their responsibility referred to in paragraph 1 of Article 2 of RJAT, providing, however, for certain exceptions, which do not apply to the case (it should be noted, moreover, that the one that could have would not be verified, given that the Claimant, as already emphasized, previously resorted, unsuccessfully, to the administrative route through the submission of petitions for reconsideration of the self-assessment acts that it now submits to this Tribunal).
II.4.4 To appreciate and decide the exception of incompetence of this Tribunal, it is therefore decisive to make a judgment on the problem of administration of the municipal surcharge, that is, to whom this administration falls. Now, notwithstanding all its argumentative effort to the contrary, the truth is that the administration of the municipal surcharge is — and exclusively — the responsibility of the Respondent.
In fact, the circumstance that the municipalities are the beneficiaries of the revenue from the municipal surcharge is not to be confused with the question of who administers it. It is the holding of competence to assess and collect a tax that corresponds to what is designated as its "administration". This is the understanding that unequivocally results, for example, from the provision of Article 1, paragraph 3, of the LGT.
Now, the TA is precisely the service of direct administration of the State that has the mission to administer taxes, pursuing for this purpose, among others, the attributions of ensuring the assessment and collection of taxes and other revenues, of performing inspective tasks, of performing tax legal action and representing the Public Treasury before judicial bodies, and of informing taxpayers about their fiscal obligations (cf. Articles 1 and 2 of Decree-Law No. 118/2011, of 15 December).
II.4.5 It is true that as to the municipal surcharge the LFL attributes to municipalities, among others, the power to annually resolve to impose it, fixing the respective rate up to the legal limit (Article 14, paragraph 1), and to receive the product of its collection, net of administrative charges, borne by the TA (Article 14, paragraph 10, and Article 13, paragraph 4).
But they do not have the competence to receive fiscal declarations, to control its self-assessment, to issue replacement or additional assessments, to collect the surcharge or to receive and decide on petitions for reconsideration relating to its assessment. The municipalities may only resolve whether or not they wish to impose it and what the respective rate is, within the legal limit. However, from the moment they communicate that resolution to the TA all administration of that local tax falls outside their competence. No legal provision confers upon the municipalities the power to assess and collect the surcharges.
II.4.6 As is well stated in the Arbitral Decision handed down in case No. 10/2011-T, "notwithstanding all the powers that the Local Authorities Law (Law No. 169/99, of 18 September) and the Local Finance Law (Law No. 2/2007 of 15 January) attribute to the Municipalities by virtue of their position as creditors of the municipal surcharge, none of those laws removes the rule that it is the TA that administers those taxes, specifically in the sense of carrying out the decisive moments of the relationship with taxpayers, including the moments of subjecting disputes to judicial or arbitral adjudication. The same results from Article 14 of Law No. 2/2007, of 15 January, Local Finance Law, which confers upon the TA the role of direct interlocutor of taxpayers of surcharges".
And in another passage the same Decision emphasizes: "It does not seem, therefore, acceptable to want, on the one hand, that it be the TA that performs the majority of administrative tasks and interacts exclusively with the taxpayer, and to attempt, on the other hand, to exclude the TA from arbitral jurisdiction with the argument that it is not the TA to which that administration falls, or that it does not fall to it exclusively". In contradiction — we say — with the very fact that the TA felt it had sufficient powers to, unaccompanied by the municipalities, reject the two petitions for reconsideration relating to the surcharges in issue in the proceedings, as has also been noted in other arbitral decisions in similar situations (cf., for example, the Arbitral Decision handed down in case No. 88/2012-T).
II.4.7 We therefore hold as unequivocal that the municipalities do not possess any competencies relating to the administration of the municipal surcharge, this being administered exclusively by the TA. Being thus, and having regard to the provision of Article 2, paragraph 1, subsection a), of RJAT and the content of Article 2 of Regulation No. 112-A/2011, of 22 March, the Tribunal is materially competent to consider the request, thus the exception of incompetence ratione materiae raised by the Respondent fails.
II.5 On the exception of lack of passive legitimacy
II.5.1 Since, in its view, the municipalities are co-administrators of the municipal surcharge, the Respondent contends that there is a situation of lack of passive legitimacy, as they should also be sued. However, as was already established above, this Tribunal considers that the municipal surcharge is administered, exclusively, by the TA, with the result that no situation of co-administration with the municipalities is verified. Thus one of the arguments with which the Respondent seeks to base the alleged situation of lack of passive legitimacy fails, insofar as, on its thesis, the municipalities should also be sued.
II.5.2 However, for the TA, the municipalities would have an interest to act in this dispute, insofar as, in addition to being co-administrators of the surcharge, they "have personal and direct interest in its outcome", and for this reason, any decision that is issued regarding the dispute must necessarily be binding upon them.
Now, the truth is that to determine procedural legitimacy what is relevant is not the situation of tax creditor, but rather to whom the law attributes the competencies for assessment and collection of the tax.
II.5.3 Nor do the possible consequences resulting for the tax creditor from the arbitral decision matter. It is not apparent, moreover, in our legal system any rule that permits intervention either in procedure or in tax process of the tax creditor as such. This is what results from the provision of Article 9 of the Tax Procedure and Process Code (CPPT), which constitutes a special rule on legitimacy in tax judicial process and therefore excludes the application of Article 26 of the CPC, invoked by the Respondent. And, on the other hand, as is well referred in the Arbitral Decision handed down in case No. 98/2012-T, "the provision of Article 9, paragraph 4, with reference to paragraph 1, of the CPPT is subsidiarily applicable to the arbitral process provided for in RJAT, by virtue of the provision in subsection a) of paragraph 1 of its Article 29, since there is no provision in this instrument that defines passive legitimacy".
Contrary to what the Respondent contends, the circumstance that the declaration of illegality of acts of self-assessment of a tax whose revenue reverts to certain municipalities is being appreciated in the proceedings does not make necessary the intervention of these in the arbitral process for the decision to produce its normal useful effect, which is, after all, to declare or not the illegality of the challenged acts and to determine the consequences, whether as to the refund of tax possibly unduly paid or to the possible subjection to compensatory interest.
II.5.4 In support of its thesis, the Respondent also invokes the provision of Article 7, paragraph 1, of Decree-Law No. 433/99, of 26 October, which approves the CPPT, and of Article 54, paragraph 2, of the Statute of Administrative and Tax Courts (ETAF). However, such provisions are not applicable in the present case as they refer to "taxes administered by local authorities" (that is, assessed and collected by them), which we have already seen is not the case with the municipal surcharge.
II.5.5 In view of the foregoing, it is concluded that the Respondent is a legitimate party, thus the invoked exception of lack of passive legitimacy fails.
II.6 On the incident of provoked intervention
II.6.1 The Respondent raises the incident of provoked intervention provided for in Articles 325 et seq. of the CPC (current 316 et seq of the CPC), alleging the personal and direct interest of the municipalities to act in the present proceedings.
The matter of procedural incidents within the scope of the impugnation process is specifically regulated in Articles 127 et seq. of the CPPT and does not contemplate the incident of provoked intervention, thus it appears that the same is not admissible. But even if it were, it would be barred, as we have already seen, the passive legitimacy in the present proceedings falls exclusively to the TA. And as to accessory provoked intervention, provided for in Article 330 of the CPC (current Article 321), even admitting the possibility of its application in these proceedings, it is manifest that the case sub judice does not come within the provision of that rule as there is not, under any circumstances, the existence of a right of recourse by the TA against the municipalities, who obviously did not perform, in this context, any act capable of constituting them in liability before the Respondent.
Thus, the request for the incident of provoked intervention raised by the Respondent is rejected, without need for further consideration.
III. SANATION
The Tribunal is competent and is regularly constituted, in accordance with Articles 2, paragraph 1, subsection a), 5 and 6, all of RJAT. The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of RJAT and Article 1 of Regulation No. 112-A/2011, of 22 March. There are no vices that would invalidate the process. It is thus now necessary to appreciate the merits of the request.
IV. FACTS
IV.1 Facts held proved
The Impugning Party is a Company Managing Social Holdings and is also the parent company, for purposes of the provision of Article 69 of the IRC Code, of a group of companies taxed in accordance with RETGS.
Under this regime, the Impugning Party has ascertained the taxable income of the Group through the algebraic sum of taxable income and tax losses ascertained in the periodic tax returns of each of the companies that form part of the RETGS scope.
As the parent company, the Impugning Party submitted, on 31.05.2012, the 1st tax return Form 22 of the Group relating to the tax period 2011, having submitted, on 29.05.2013, a replacement declaration relating to the same financial year.
This last declaration reflects the ascertainment of the taxable income of the Group in the tax period 2011, in the amount of €3,767,559.95.
In this tax return is further reflected the amount of the municipal surcharge corresponding to €197,471.51.
The amount of the surcharge was calculated in accordance with Circular Letter No. 20,132, of 14.04.2008, from the Directorate of IRC Services.
The amount of the surcharge referred to above was self-assessed and paid into the State's coffers.
The municipal surcharge was self-assessed in excess by the amount of €140,958.11.
The Impugning Party submitted on 12.06.2013 a petition for reconsideration, requesting the refund of the amount unduly paid and the payment of compensatory interest.
On 12.07.2013, the Impugning Party was notified of the draft decision issued by the Tax Administration, in which the rejection of the petition for reconsideration submitted above was proposed.
The Impugning Party was notified of the express rejection of the petition for reconsideration, issued by the Honourable Deputy Director of Finance, in substitution, on 01.08.2013.
IV.2 Justification of facts
The facts held proved comprise matters not disputed and documentally demonstrated in the proceedings (administrative process and documents Nos. 1 to 6 of the file).
IV.3 Facts held as not proved
There are no facts held as not proved, since all facts relevant to the appreciation of the request were held as proved.
V. ON THE REQUEST FOR DECLARATION OF PARTIAL ILLEGALITY OF ACTS OF SELF-ASSESSMENT OF MUNICIPAL SURCHARGES
V.1 The substantive question at issue in the present proceedings consists of ascertaining whether, for purposes of determining the surcharge of a group of companies that is subject to RETGS, what is relevant is the taxable income of the group or the taxable income of each of the companies that form it.
At the date of the facts, Article 14 of the LFL, under the heading "surcharge", provided in its paragraphs 1 and 2 as follows:
"1. Municipalities may decide annually to impose a surcharge, up to a maximum limit of 1.5% on taxable income subject to and not exempt from corporate income tax (IRC), which corresponds to the proportion of income generated in its geographic area by passive subjects resident in Portuguese territory exercising, as a principal activity, a commercial, industrial or agricultural activity, and non-residents with a permanent establishment in that territory.
- For purposes of application of the provision in the preceding number, whenever passive subjects have permanent establishments or local representations in more than one municipality and taxable matter exceeding €50,000, the taxable income attributable to the jurisdiction of each municipality is determined by the proportion between the payroll corresponding to the establishments that the passive subject has in it and that corresponding to all of its establishments located in Portuguese territory".
As we have already seen, the Claimant is a parent company of a group of companies subject to RETGS, provided for in Articles 69 to 71 of the IRC Code. Now, Article 69, paragraph 1, provides that "when a group of companies exists, the parent company may opt for the application of the special regime for determination of taxable matter in relation to all companies in the group" and, in turn, Article 70, paragraph 1, provides that "relating to each of the tax periods covered by the application of the special regime, the taxable income of the group is calculated by the parent company, through the algebraic sum of taxable income and tax losses ascertained in the periodic individual statements of each of the companies belonging to the group".
V.2 Given some actual ambiguity as to how the wording of Article 14 of the LFL should be reconciled with the provisions of the IRC Code relating to RETGS, the Directorate of IRC Services issued Circular Letter No. 20,132, of 14 April 2008.
Based on the fact that with Law No. 2/2007 the surcharge ceased to apply to the taxable matter of IRC to begin to apply to taxable income, subject to and not exempt from IRC, and on the provision of Article 12 of the IRC Code, by virtue of which entities subject to the transparent taxation regime, notwithstanding being passive subjects of this tax, are not taxed in relation to IRC, except as to autonomous taxation, the tax administration concluded that this rule of non-taxation would have to lead to the conclusion that the taxable income ascertained by them was not capable of being taxed in relation to IRC. Therefore, it established in the aforementioned Circular Letter the administrative understanding that "for companies that form part of the scope of the group covered by the special tax regime for groups of companies, the surcharge should be calculated and indicated individually by each company in its statement" and the "sum of the surcharges thus calculated shall be indicated in field 364 of Form 10 of the corresponding group statement, with the payment responsibility falling to the parent company".
V.3 This understanding was contested by various taxpayers, thus a significant contention arose around this matter, which gave rise to various judgments of the Supreme Administrative Court (STA) and also to a very significant number of arbitral decisions. Now, it is verified that both STA jurisprudence and arbitral jurisprudence converged, unanimously, in the understanding that when RETGS is applicable, the surcharge should apply to the taxable income of the group and not to the taxable income of each of the companies that form it. Indeed, this was decided by the STA Judgments handed down in cases 909/10, 309/11, 234/2012, 1302/12, 105/13 and 121/13 of 2/2/2011, 22/6/2011, 2/5/2012, 9/1/2013, 13/3/2013 and 10/7/2013 respectively, and the Arbitral Decisions handed down in cases 8/2011-T, 10/2011-T, 19/2011-T, 24/2011-T, 1/2012-T, 2/2012-T, 5/2012-T, 16/2012-T, 53/2012-T, 88/2012-T, 98/2012-T, 6/2013, 11/2013 and 13/2013[1], among others.
V.4 There is no legal basis for not following all this jurisprudence. On the contrary, it appears to us that the same is entirely correct. Indeed, as the taxable base of the surcharge is taxable income subject to and not exempt from IRC, one must resort to the norms of the IRC Code to ascertain the taxable matter of the surcharge.
More important than the designation of the surcharge (accessory tax or autonomous tax), which flows from the legal regime and not the reverse, its legal regime is meager, being silent not only as to the rules on determination of taxable matter, but also as to assessment, payment, ancillary obligations and guarantees, thus the operation of the tax obliges one to draw on the IRC regime, not only as to the calculation of taxable income but in relation to many other aspects.
Being thus, one is led to conclude that the Municipal Surcharge follows the IRC regime in all that does not relate to determination of the tax collection.
Therefore, the IRC regime should also be applied as regards the calculation of taxable income in the case of opting for the special regime for taxation of groups of companies.
Foreseeing the IRC Code a special tax regime for groups of companies, and with the Claimant covered by it for determination of taxable matter in relation to all companies in the group, the determination of taxable income, for purposes of IRC, is ascertained through the algebraic sum of taxable income and tax losses ascertained in the individual statements of the companies belonging to the group. Being thus, we consider entirely justified that the determination of taxable income for purposes of the surcharge is carried out in the same manner.
V.5 Article 57 of Law No. 64-B/2011, of 30 December (State Budget Law for 2012), did — it is true — give new wording to paragraph 8 of Article 14 of Law No. 2/2007, which came to provide as follows: "When the special tax regime for groups of companies is applicable, the surcharge applies to the individual taxable income of each of the companies in the group, without prejudice to the provisions of Article 115 of the IRC Code".
That is, from the tax period 2012 onwards, the law came to expressly establish the thesis that the Respondent defends in the proceedings. But, as is stated in the STA Judgment of 2 May 2012, handed down in case No. 234/12, we are facing a provision that is "clearly innovative" and which, for that very reason, does not apply to past facts.
As is stated in the cited judgment, "the provision would only apply to past facts if it were interpretative. And if it were, the legislator would certainly not fail to state this in the text thereof, saying that it was an interpretative provision. But it did not do so, nor is it apparent in the text of the State Budget Law for 2012 or in the aforementioned paragraph 8 of Article 14 of the Local Finance Law any reference to the interpretative character of the provision or to any controversy generated by the legal solution from before". And further: "as the jurisprudence of this Supreme Administrative Court is settled, in a sense in fact opposite to that established in the new law, we must conclude that we are not facing an interpretative law but facing an innovative law, therefore, applicable only for the future".
This understanding was recently reiterated in the STA Judgment, handed down in case No. 121/13, of 10 July 2013[2].
It is thus necessary to conclude that the self-assessment act of the surcharge due by the Claimant in relation to the financial year 2011 is tainted by the vice of violation of law, by error as to the legal presuppositions, insofar as the calculation of the surcharge should have been made on the basis of the taxable income of the fiscal group headed by the Claimant and not, as happened, on the basis of the taxable income of each company individually considered.
Thus surcharge in excess was (self-assessed and paid in the following amount: €140,958.11.
VI. ON THE REQUEST FOR COMPENSATORY INTEREST
Pursuant to Article 43, paragraph 1, of the LGT "compensatory interest is due when it is determined, in a petition for reconsideration or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due". In turn, paragraph 2 of the same article provides that error attributable to the services is also deemed to exist "in cases where, although the assessment is made on the basis of the taxpayer's declaration, the taxpayer has followed, in completing it, the general guidance of the tax administration, properly published".
Now, it was precisely that which occurred in the case at bar. That is, although the Claimant carried out the self-assessment of the surcharge in the declaration that it submitted, the error is attributable to the services as it results from the pursuit of general guidance, in this case Circular Letter No. 20,132/2008, of 14 April.
Thus the request for compensatory interest is justified, which should be calculated, at the rate ascertained in accordance with the provision of Article 43, paragraph 4, of the LGT, between the days on which the improper payment was made until the date of the issuance of the corresponding credit note.
VII. DECISION
In view of all that has been stated, the following is decided:
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To judge as unfounded the pleaded exceptions of incompetence of the Arbitral Tribunal and of lack of passive legitimacy of the Respondent;
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To judge as unfounded the incident of provoked intervention raised by the Respondent;
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To judge as founded, by violation of law, the impugnation of the legality of the assessment of the municipal surcharge relating to the financial year 2011, in the amount of €140,958.11, annulling, in that part, such assessment and condemning the Respondent to refund the said amount;
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To judge as founded the request for payment of compensatory interest, at the legal rate, calculated from the date of payment of the surcharge in question until the moment of refund of the amount unduly assessed and paid.
The value of the case is fixed at €140,958.11 in accordance with Article 97-A, paragraph 1, subsection a), of the CPPT, applicable by virtue of subsections a) and b) of paragraph 1 of Article 29 of RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
The arbitration fee is fixed at €3,060.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid in full by the Respondent, since the Claimant obtained full acceptance of its request, in accordance with Articles 12, paragraph 2 and 22, paragraph 4, both of RJAT, and Article 4, paragraph 4, of the said Regulation.
Let notice be given.
Lisbon, 06 January 2014
The Arbitrators,
Jorge Lino Ribeiro Alves de Sousa
(President Arbitrator)
Jorge Bacelar Gouveia
(Panel Arbitrator)
André Festas da Silva
(Panel Arbitrator and Reporter)
Text prepared by computer, in accordance with Article 138, paragraph 5, of the Code of Civil Procedure, applicable pursuant to Article 29, paragraph 1, subsection e), of the Legal Framework for Tax Arbitration.
The wording of this decision is governed by the spelling prior to the 1990 Portuguese Orthographic Agreement.
[1] All available on the CAAD website.
[2] Available on the STA website.
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