Summary
Full Decision
ARBITRAL DECISION
The arbitrator Pedro Miguel Bastos Rosado, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Singular Arbitral Tribunal, decides as follows:
REPORT
1. A..., S.A., holder of tax identification number..., with registered office at..., no. ... -..., ...-... Lisbon, hereinafter referred to as the Claimant, submitted, on 20 April 2018, a request for arbitral ruling, concerning the additional assessment of Corporate Income Tax (IRC) no. 2017..., issued on 28 June 2017, as well as the corresponding statement of reconciliation of accounts no. 2017..., of 13 December 2017, both associated with the offsetting no. 2017..., relating to the tax period of 2013, with the Respondent being the TAX AND CUSTOMS AUTHORITY, hereinafter referred to as the Respondent or AT.
2. The subject matter of the arbitral ruling request consists of the declaration of illegality and consequent partial annulment of the additional Corporate Income Tax assessment no. 2017..., to the extent that it implements a correction to the determination of taxable profit declared in that fiscal year by the Claimant, concerning the portion of the increase relating to job creation whose deduction was not fiscally accepted, due to violation of law by reason of error in the legal presuppositions.
3. The Claimant further requests the reimbursement of amounts unduly paid as Corporate Income Tax in the total amount of Euro 14,503.87 (corresponding to Euro 13,119.87 of tax and 1,384.23 of compensatory interest), as well as the annulment of the offsetting unduly effected, as well as the condemnation of the AT to payment of indemnificatory interest in accordance with Article 100 of the General Tax Law (LGT).
4. The request for the constitution of the arbitral tribunal was accepted by the President of the Centre for Administrative Arbitration (CAAD), on 20 April 2018, and subsequently notified to the AT.
5. The Claimant did not proceed to appoint an arbitrator, whereby, under the provisions of Article 6, paragraph 1 and Article 11, paragraph 1, subparagraph a) of the Rules of Arbitral Tax Procedure (RJAT), the President of the Deontological Council of CAAD appointed, on 27 April 2018, the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the legal deadline.
6. On 14 June 2018, the parties were notified of the arbitrator's appointment, with neither party raising any objection.
7. In accordance with the provisions of Article 11, paragraph 1, subparagraph c) of the RJAT, the singular arbitral tribunal was constituted on 4 July 2018.
8. Notified in accordance with the provisions of Article 17 of the RJAT, the Respondent submitted a response and forwarded the "administrative file" (hereinafter referred to as simply AF).
9. By order of 20 October 2018, the meeting provided for in Article 18 of the RJAT was dispensed with and it was determined that the proceedings continue with optional written arguments.
10. In the same order of 20 October 2018, 4 January 2019 was set as the date for issuance of the arbitral decision.
11. The Claimant submitted arguments, in which it reiterated the position assumed in the initial procedural document.
12. By order of 4 January 2019, the Tribunal decided to extend the deadline for issuance of the arbitral decision for a period of two months, indicating that the arbitral decision would be issued and notified to the parties by 4 March 2019.
II. SUBSTANTIVE PREPARATION
1. The arbitral tribunal was regularly constituted, in accordance with the provisions of Articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law no. 10/2011, of 20 January.
2. The parties are duly represented, possess legal personality and capacity and have standing (Articles 4 and 10, paragraph 2, of the same decree and Article 1 of Order no. 112-A/2011, of 22 March).
3. The proceedings are not affected by any nullities.
4. The request for arbitral ruling is timely.
5. The Tribunal is competent.
III. MATTERS OF FACT
1. Proven Facts
The following facts with potential relevance to the decision are deemed proven:
A) The Claimant is a joint-stock company engaged in "management and information systems auditing, management and information systems consulting, risk management services, economic and financial consulting; accounting and tax advice, accounting organisation and processing and other administrative and business processes, personnel selection and human resources consulting, investment consulting; preparation of investment projects; economic and market studies, company valuation, real estate asset valuation, intangible asset valuation, support for business transactions, design and execution of corporate restructuring, support in treasury management and financial management of companies";
B) For Corporate Income Tax purposes, the Claimant is a non-exempt taxpayer, subject to the general regime for determining taxable profit;
C) The Claimant recruits a significant number of employees, which contributes to the creation of jobs, as defined by Article 19 of the Tax Benefits Code ("EBF").
D) On 30 May 2014, the Claimant submitted the Corporate Income Tax return, Model 22, relating to the tax period of 2013 (document no. 5 attached to the request for arbitral ruling, the content of which is deemed reproduced);
E) On 29 May 2015, the Claimant submitted the replacement Corporate Income Tax return, Model 22, relating to the tax period of 2013 (document no. 6 attached to the request for arbitral ruling, the content of which is deemed reproduced);
F) The Claimant deducted in field 774 of section 07 of its respective Return, the amount of Euro 729,119.80.
G) As shown in Annex D attached to the aforementioned Return, the total amount indicated there corresponds to the deduction arising from:
i) the increase relating to job creation, under Article 19 of the EBF, in the amount of Euro 674,725.99; and
ii) the increases applied to donations provided for in Articles 62 and 62-A of the EBF, in the amount of Euro 54,393.81.
H) In compliance with Service Order no. OI2016..., issued on 20 December 2016, a partial scope internal inspection action was ordered on the Claimant, for Corporate Income Tax purposes, for the tax period of 2013 (document no. 3 attached to the request for arbitral ruling, the content of which is deemed reproduced);
I) Within the scope of such inspectorial procedure, the Claimant was notified of the Draft Tax Inspection Report referred to above, through Letter no. ..., of 15 May 2017 (document no. 3 attached to the request for arbitral ruling, the content of which is deemed reproduced), in which reference is made, inter alia, to the following:
II.4. Procedures carried out during inspection acts
II.4.1. Notifications and requests for clarification
The company deducted in field 774 (tax benefits) of section 07 of the replacement Corporate Income Tax return, Model 22, of the tax period of 2013, the amount of 729,119.80 €. (see Annex 1, page 4)
According to Annex D of the same return, the deduction made arises from the increase relating to job creation (Article 19 of the EBF), in the amount of 674,725.99 €, and the increases applied to donations provided for in Articles 62 and 62-A of the EBF, in the amount of 54,393.81 €. (see Annex 1, page 10)
On 1 February 2017, through letter no. ... (registered mail with acknowledgement of receipt RD ... PT), the taxpayer was notified to submit the following clarifications / documents to this service relating to the amount declared in field 774 of section 07 of the replacement return, Model 22;
Analytical trial balance before and after profit determination for the tax period of 2013;
Field 774 of section 7 of the Corporate Income Tax return, Model 22 of 2013 – Tax benefits
Increase relating to job creation (Article 19 of the EBF) – 674,725.99 €
Calculation of net job creation in the tax period of 2013;
Copies of employment contracts entered into with workers covered by the application of this benefit;
Amounts borne by the employer, with each worker, as fixed remuneration and contributions to social security charged to the same entity (net salary, including holiday and Christmas bonuses, contributions to social security charged by the company, meal allowance, other fixed charges that assume the nature of dependent work income according to Article 2 of the Personal Income Tax Code (CIRS));
Extracts from the accounts in which the respective amounts borne by the employer are recorded.
Increases applied to donations provided for in Articles 62 and 62-A of the EBF – 54,393.81 €
Extract from the account in which donations are recorded;
Copies of supporting documents of donations made to donee entities.
Tax identification number of donee entity | Donation amount
... | 10,000.00
... | 560.67
... | 67,231.80
... | 100,000.00
On 20 February 2017, the requested clarifications were received by electronic mail (receipt records no. 2017..., no. 2017... and no. 2017...).
In March and April of that year, further clarifications and additional documents were requested, via mail and electronic mail, related to job creation, and these were obtained by electronic mail (receipt records no. 2017..., no. 2017... and no. 2017...).
II.4.2. Documentary analysis
On the increase relating to job creation
The company presented the calculation schedule for Net Job Creation (CLPT) in the tax period of 2013, specifying, by employee, the start date of Indefinite-Term Contract (CST), age on the date of the CST, the amount of fixed annual remuneration, the annual amount of contributions to social security, majorable charges, the maximum limit of increase and the respective deducted amount. (see Annex 2, page 2)
It also submitted a schedule identifying the tax identification number and name of employees included in the CLPT calculation schedule. (see Annex 2, pages 3 to 5)
By way of example, 5 indefinite-term employment contracts and respective salary receipts for the year were presented, as well as account extracts where allowances and contributions to social security of some workers are recorded.
After analysis of all documents submitted by the taxpayer, it was found that the company unduly deducted, in field 774 of section 07 of the replacement return, Model 22, the amount of 75,599.65 €, for not having complied, in one case, with the maximum age limit provided for in Article 19, paragraph 2, subparagraph a) of the EBF, and in others, the amounts to be considered taking into account the deadline for application of the increase of charges corresponding to net job creation defined in paragraph 5 of the same article.
The irregularities detected are described and quantified in Chapter III of this report.
On the increase applied to donations
The company presented supporting documents of donations made to donee entities in the tax period of 2013, as well as the extract from account 6882000 Donations where they are recorded.
From its analysis it was found that such donations were granted without any consideration, with legal framework in paragraphs 3, 4 and 6 of Article 62 of the EBF, respecting the limits provided therein.
…..
III. DESCRIPTION OF FACTS AND GROUNDS OF PURELY ARITHMETIC CORRECTIONS TO TAXABLE MATTER / TAX
As mentioned in point II.4.1. of this report, the taxpayer deducted in field 774 (Tax benefits) of section 07 of the Corporate Income Tax return, Model 22 replacement, of the tax period of 2013, the amount of 674,725.99 € relating to the increase for job creation, provided for in Article 19 of the EBF.
In order to certify the possibility of A... SA benefiting from this tax benefit, clarifications were requested and, by way of example, some documents supporting the deducted amount.
It should be noted that according to the information obtained:
In the tax period of 2013, net creation of 28 jobs was determined (61 eligible hiring and 33 departures of workers who, on the date of their hiring, were considered eligible),
In the CLPT calculation schedule, only eligible hiring in 2013 corresponding to net job creation is included, and none of the employees who left in that year is part of the said schedule.
(see Annex 3, pages 2 and 3)
From the analysis of documents submitted by A... SA, it was found that 117 workers were considered for purposes of calculating the tax benefit. (see Annex 2, page 2)
As a result of validation tests performed on the CLPT calculation schedule presented by the company, the following situations were detected:
The existence of a worker who, on the date of contract signature, was older than the age limit indicated in Article 19, paragraph 2, subparagraph a) of the EFB. A situation that the company acknowledged as an error. (see Annex 3, page 3)
As to the increase on charges corresponding to net job creation, in some cases the company did not observe the commencement and termination of conditions of eligibility for purposes of the tax benefit.
For in accordance with paragraphs 3 and 5 of Article 19 of the EBF, the annual limit must be adjusted proportionally to the number of months in which conditions are met, under penalty of being considered a tax benefit higher than that provided by law. The same conclusion is drawn from the reading of binding information relating to process no. 1498/2006, with order of 26.09.2006 from the Director General, where it states that "the five-year period referred to in paragraph 3 of Article 17 of the EBF may span 6 economic years, whenever the start of the employment contract does not coincide with the start of the economic year."
Given the above, on the basis of accounting extracts of the workers in question, recalculation was carried out for each of the situations previously pointed out, obtaining an amount not accepted for tax purposes of 75,599.65 €, as shown in the schedule attached to this report. (see Annex 4, pages 46-47)
It is pointed out that the charges borne by the company as "fixed remuneration" (Article 19, paragraph 2, subparagraph c) of the EBF), included the amounts with salaries, holiday bonuses, Christmas bonuses and non-exempt meal allowances, of employees.
VIII. PROPOSALS
In the analysis carried out on the documents supporting the amount deducted in field 774 (tax benefits) of section 07 of the Corporate Income Tax return, Model 22 replacement of the tax period of 2013 (729,119.80 €), the irregularity described and quantified in Chapter III of this report was verified with the following impact on the determination of taxable profit declared by the taxpayer for that tax period:
| Description | Report section | Amount |
|---|---|---|
| Declared taxable profit | | 23,404,552.35 |
| Correction proposed by AT (job creation increase) | III | 75,599.65 |
| Corrected taxable profit | | 23,480,152.00 |
J) The Tax Inspection Services ("SIT") proposed corrections to the Claimant's taxable matter, for Corporate Income Tax purposes, for the fiscal year of 2013, in the amount of Euro 75,599.65, considering such amount as not accepted for the calculation of the job creation increase determined in that period (document no. 3 attached to the request for arbitral ruling, the content of which is deemed reproduced);
K) Notified for the exercise of the right to be heard on the correction proposal described above, the Claimant did not exercise the right to be heard within the legally provided deadline for such purpose;
L) The Claimant was notified of the Final Tax Inspection Report, through Letter no. ..., of 17 June 2016 (document no. 4 attached to the request for arbitral ruling, the content of which is deemed reproduced);
M) The AT issued the corresponding Corporate Income Tax assessment and statement of account reconciliation, relating to the fiscal year of 2013, and these were notified to the Claimant, via electronic postal on 15 December 2017 (documents nos. 1 and 3 attached to the request for arbitral ruling, the content of which is deemed reproduced);
N) As the assessed amount was not paid by 22 January 2018, the AT instituted, on 12 February 2018, enforcement proceedings no. ...2018... (See documents nos. 9 and 10 submitted by the Claimant on 24 April 2018, the content of which is deemed reproduced);
O) On 29 March 2018, the Claimant proceeded to pay the exigible amount and accrued interest, in the total amount of 27,013.16 Euro which resulted in the termination of the enforcement proceedings and the consequent full payment of the Corporate Income Tax assessment amount for the year 2013 and compensatory interest (See documents nos. 9 and 10 submitted by the Claimant on 24 April 2018, the content of which is deemed reproduced);
P) On 20 April 2018, the Claimant submitted the request for arbitral ruling that gave rise to the present proceedings.
Q) The Claimant accepts the correction made by the AT, in the amount of Euro 6,790.00, concerning the value of the increase relating to employee B..., who at the date of hiring was already 36 years old.
R) The Claimant does not contest the amounts considered as "not accepted" by the AT in the calculation of the CLPT, relating to the increase for employees whose period of increase of the employment contract ended on 31.08.2012 – corresponding to the cases identified under subparagraph f) of the "OBS" column of the Summary Map of amounts not accepted for tax purposes, corresponding to Annex 4 of the Tax Inspection Report.
S) Of the amount considered as not accepted by the AT for the calculation of the increase in question – in the total amount of Euro 75,599.65 -, the Claimant does not dispute the amount of Euro 33,950.00, accepting the corrections made by the AT in this regard.
2. Grounds for the Facts Deemed Proven
The proven facts are based on documents attached by the Claimant to the request for arbitral ruling and on the administrative file, the authenticity of which was not challenged.
3. Unproven Facts
There are no other facts with relevance to the arbitral decision that have not been deemed proven.
IV. MATTERS OF LAW
1. The Question of the Tax Benefit Relating to Net Job Creation – Article 19 of the Tax Benefits Code
1.1 Positions of the Parties
The Claimant argues, in summary:
- that "the focus of the Claimant's disagreement lies in the correction made by the AT due to the alleged non-compliance with the "commencement and termination of conditions of eligibility for purposes of the tax benefit".
- that "in the AT's view, the Claimant, in cases where eligibility conditions did not apply throughout the entire tax period, should have adjusted the annual maximum increase to the number of months in which the conditions of eligibility existed";
- that "In summary, according to the Tax Inspection Services, the Claimant should have applied the "daily apportionment" criterion in the calculation of net job creation, which is inferred from the calculations made by the AT";
- that the AT states in the report that "the limit must be adjusted proportionally to the number of months in which conditions existed";
- that "on this assumption, the AT corrected the value of the deduction to be made in Field 774, in the determination of taxable profit for the tax period of 2013, considering only as job creation increase the value of Euro 599,126.34 (corresponding to the difference between the amount of Euro 674,725.99, determined and deducted by the Claimant, and the correction made by the AT, in the amount of Euro 75,599.65)";
- that "to the amount determined as to this increase - Euro 674,725.99 – the AT deducted the correction made not only as a result of non-compliance with the age limit indicated in Article 19, paragraph 2, subparagraph a) and paragraph 5 of the EBF (accepted by the Claimant), but also paragraph 3 of the same article – in the amount of Euro 75,599.65 -, thus determining an increase of only Euro 599,126.34";
- that it is because of "disagreement with part of the corrections made by the AT, directly related to the "daily apportionment" criterion in the calculation of net job creation (but which the AT described as monthly apportionment) that the Claimant comes to assert the present request for constitution and arbitral ruling, understanding that the correction made is illegal, in light of Article 19 of the EBF";
- that "From a reading of the aforementioned legal provision, it is therefore extracted that with respect to the maximum increase limit applicable to the benefit arising from job creation, the legislator only establishes as the "ceiling" for annual increase amount the value corresponding to 14 times the guaranteed minimum monthly remuneration";
- that "being the guaranteed minimum monthly remuneration in force for the fiscal year 2013 corresponding to the amount of Euro 485.00, via the provisions of Decree-Law no. 143/2010, of 31 December, the maximum legal limit for the annual increase in question amounted only to the amount of Euro 6,790.00";
- that "the understanding set out in the Binding Information (…) constitutes merely a technical opinion, not possessing force of law, nor a binding character";
- that "With regard to the use of Binding Information, by the Tax Administration for Lisbon, as a key element to anchor its decision, it is important to note that only the AT is bound "to the generic guidelines contained in circulars, regulations or instruments of identical nature", as provided for in paragraph 1 of Article 68-A of the LGT";
- that "the Portuguese legal system does not consider Binding Information issued by the Tax Authorities as a source of law, whereby, given the absence of legislation that provides for the production of external legal effects by these acts, their binding character is merely internal";
- "Therefore, the AT cannot clearly support the correction based on an understanding that lacks force of law";
- that it does not result "directly from the provision contained in Article 19 of the EBF that the taxpayer must adjust the maximum limit of increase, proportionally, to the time of work of the employee";
- that "with paragraph 3 of Article 19 of the Tax Benefits Code referring only to the "annual maximum amount of increase", it is not clear from the letter of the Law how the AT can conclude that any adjustment must be made to the increase, whether, for example, as a function of the effective duration of employment contracts or, in the present case, by the proportion of the reduction in the normal working period";
- that "the limit of the tax benefit is what applies when 50% of remuneration exceeds 14 times the guaranteed minimum monthly remuneration, and it is thus independent of the number of months the employee worked for the company";
- that "Neither the letter nor the spirit of the law intended to limit the use of the benefit by the fact that the worker did not contribute to it in 365 days of the year";
- that "The AT cannot, through the restrictive interpretation above evidenced, attempt to curtail the Claimant's portion of the tax benefit calculated, without the slightest textual, teleological or historical correspondence evident in the law, basing its decision on binding information issued by the AT itself and calculating the correction inconsistently with this reasoning";
- that it must "therefore, be annulled part of the correction to the value of the benefit calculated by the AT, in the amount of Euro 41,649.65 (corresponding to Euro 75,599.65 - Euro 33,950, relating to the portion of the correction accepted by the Claimant)".
The Tax and Customs Authority argues the following, in summary:
- that "in light of paragraphs 3 and 5 of Article 19 of the EBF, the annual limit must be adjusted proportionally to the number of months in which conditions are met, under penalty of being considered a tax benefit higher than that provided by law";
- that "The same conclusion is drawn from the reading of binding information relating to process no. 1498/2006, with order of 26.09.2006 from the Director General, where it states that "the five-year period referred to in paragraph 3 of Article 17 of the EBF may span 6 economic years, whenever the start of the employment contract does not coincide with the start of the economic year."";
- that "only the 2nd "situation" examined by SIT is contested in the present proceedings";
- that "it is true that the understanding contained in that Binding Information does not bind the Claimant, however, the norm referred to therein (paragraph 5 of Article 19 of the E.B.F.) is" enforceable";
- that the understanding of CAAD jurisprudence prior to 2014 "is outdated";
- that the decision rendered in process 628/2016-T, of 6/4/2017, (…) did not become final because an Opposition Appeal was filed;
- that "this matter has already been subject to interpretation by the Superior Courts, namely by the Central Administrative Court of the South";
- that "the Judgment of the Central Administrative Court of the South, of 12-06-2014, rendered in process no. 07437/14, is very clear on the interpretation to be made of the provision in question", with which it agrees;
- that "necessarily it must be concluded that the SIT's action in the correction made was correct and, consequently, the additional assessment resulting from that correction is legal";
- that "this request for arbitral ruling must be judged unsuccessful, for not being proven, with the tax acts of assessment subject to impugnation remaining in the legal order and the respondent entity being absolved of all claims accordingly".
1.2 Appreciation of the Question Raised by the Claimant
Article 19 of the EBF provides as follows:
"1 - For the determination of taxable profit of taxpayers subject to Corporate Income Tax and taxpayers subject to Personal Income Tax with organized accounting, the charges corresponding to net job creation for young people and for long-term unemployed persons, hired by indefinite-term employment contract, are considered at 150 % of their respective amount, accounted for as an expense of the fiscal year.
2 - For the purposes of the foregoing paragraph, the following are considered:
a) 'Young people' workers aged over 16 and under 35 years, inclusive, determined on the date of celebration of the employment contract, with the exception of young people aged under 23 years who have not completed secondary education and who are not attending an education-training course that allows them to raise the level of education or professional qualification to ensure completion of such level of education;
b) 'Long-term unemployed persons' workers available for work, as provided for in Decree-Law no. 220/2006, of 3 November, who are unemployed and registered at employment centres for more than 9 months, without prejudice to the fact that fixed-term contracts may have been entered into during that period for a period of less than 6 months, whose aggregate duration does not exceed 12 months;
c) «Charges» the amounts borne by the employer with the worker, as fixed remuneration and contributions to social security charged to the same entity;
d) «Net job creation» the positive difference, in a given economic year, between the number of eligible hirings in accordance with paragraph 1 and the number of departures of workers who, on the date of their respective hiring, met the same conditions.
3 - The annual maximum amount of increase, per job, is the amount corresponding to 14 times the guaranteed minimum monthly remuneration.
4 - For the purposes of determining net job creation, workers who form part of the family unit of the respective employer are not considered.
5 - The increase referred to in paragraph 1 applies for a period of five years from the commencement of the employment contract, and is not cumulative, either with other tax benefits of the same nature, or with other employment support incentives provided for in other legislation, when applicable to the same worker or job.
6 - The regime provided for in paragraph 1 can only be granted once per worker hired by that entity or another entity with which there are special relationships in accordance with Article 63 of the Corporate Income Tax Code".
From the outset, we agree with the Claimant that from a reading of the aforementioned legal provision it is extracted that with respect to the maximum increase limit applicable to the benefit arising from job creation, the legislator only establishes as the "ceiling" for annual increase amount the value corresponding to 14 times the guaranteed minimum monthly remuneration.
The parties have cited CAAD jurisprudence and that of the Central Administrative Court of the South on this matter.
The AT does not agree with CAAD jurisprudence, considering it outdated in light of the Judgment of the Central Administrative Court of the South, of 12-06-2014, rendered in process no. 07437/14, considering that the decision rendered in process 628/2016-T, of 6/4/2017, did not become final because an Opposition Appeal was filed.
At this moment, the Tribunal is unaware whether or not an Opposition Appeal was filed and if, having been filed, a judgment of the Supreme Administrative Court (STA) was rendered that calls into question the interpretation of the said CAAD jurisprudence.
That being so, after careful analysis of the facts and the question of law, the Tribunal understands that the correct interpretation of the provisions in question is that conveyed in the arbitral decisions of the CAAD.
From the outset, see the provision in the arbitral decision rendered in process no. 662/2016-T, in the context of which the Arbitral Tribunal decided that the taxpayer has right in the sense of rejecting the thesis of increase proportional to the duration of employment contracts, on the argument that "the only reason that, abstractly, could explain other limitations of the increase, not expressly provided for, would be the maximization of tax revenue, and that reason does not hold when one is interpreting provisions that provide for tax benefits, which are justified by extra-fiscal reasons."
Also in the same sense, see the arbitral decision rendered in process no. 212/2013-T which considered illegal the aforementioned understanding advocated by the AT, stating regarding the question of proportional adjustment of the increase of charges in cases of contracts that terminate during the fiscal year that "(…) there is no textual support nor reasonable justification for establishing other limits than those expressly provided in the context of each of the versions of paragraph 2 of Article 17 of the EBF".
Adding, further, that "(…) in this case, there are reinforced reasons to give relevance to the textual element, deriving from the fact that one is faced with a legal regime that was revised several times and in which, therefore, several possibilities materialized for the legislator to have reformulated the expression of its intent, if it had found that it had said more or less than what it intended".
Concluding then that "On the assumption that the legislator knew how to express its intent in adequate terms, as it must be presumed, by virtue of Article 9, paragraph 3, of the Civil Code, the «annual increase» of which paragraph 2 of Article 17 of the EBF speaks, in the wording given by Law no. 32-B/2002, will refer to calendar years, as is inferred from the fact that it is annual and is calculated as a function of the amount of the national minimum wage, for which the rule of annual fixing applied, with reference to each calendar year, as follows from Articles 9, paragraph 1, and 12, paragraph 1, of Decree-Law no. 69-A/87, of 9 February".
In the same Arbitral Decision no. 212/2013-T it is stated that, specifically, on this question "(…) there is no textual support nor reasonable justification for establishing other limits than those expressly provided in the context of each of the versions of paragraph 2 of Article 17 of the EBF".
Emphasizing, equally, that "(…) the rational or teleological element also does not point to an interpretation that restricts the scope of the tax benefit".
And the Arbitral Tribunal concluded that, "(…) one cannot imagine that the legislator, in establishing the increase to apply in calendar years, did not foresee the situation of workers initiating their contracts outside the date of the start of the calendar year, for, statistically, in a year with 365 days, it will be 364 times more probable that this occurs than on the precise day of the start of the year. Therefore, also on this question the Claimant is right, whereby the decisions of the hierarchical remedies are affected by violation of law, by error over the legal presuppositions in the interpretation of Article 17, paragraph 2, of the EBF, which justifies its annulment, in accordance with Article 135 of the Code of Administrative Procedure".
It also results from the arbitral decision rendered in process no. 628/2016-T, of 06 April 2017, that "In the case at issue, there is no reference in the law to the effect that «the annual maximum amount of increase» be reduced proportionally to the period of validity of the contract in the initial and final fiscal years of the five-year period of the tax benefit, in cases where the start of the employment contract does not coincide with the start of the fiscal year".
Referring, in the same way, that "(…) being to be presumed that the legislator knew how to express its intent in adequate terms, as required by paragraph 3 of Article 9 of the Civil Code, the letter of the law leads to the conclusion that there was no legislative intention for proportional increase to be calculated in relation to the period of validity of the contract in the initial and final fiscal years.
Thus, if it is true that the letter of the law is compatible with an interpretation such as that proposed by the Tax and Customs Authority to the effect that «annual increase» refers to each of the five periods of 365 (or 366 days) subsequent to the commencement of validity of each eligible employment contract, it is equally true that it is not compatible with monthly increases or those proportional to the number of days or months".
For the above reasons, without need for further considerations and following the aforementioned CAAD jurisprudence, with which we agree, it is thus to be concluded that the interpretation of paragraph 3 of Article 19 of the EBF that follows from the interpretative rules is that defended by the Claimant.
This defect justifies the annulment of the assessment subject to impugnation, in accordance with Article 163, paragraph 1, of the Code of Administrative Procedure, subsidiarily applicable pursuant to Article 2, subparagraph c), of the LGT.
Compensatory interest is included in the tax debt itself (Article 35, paragraph 8, of the LGT), whereby the assessment of compensatory interest is affected by the defect affecting the Corporate Income Tax assessment.
In light of the above, and without need for further considerations, it must be concluded that the additional assessment of Corporate Income Tax (IRC) no. 2017..., issued on 28 June 2017, as well as the corresponding statement of account reconciliation no. 2017..., of 13 December 2017, both associated with the offsetting no. 2017..., relating to the tax period of 2013, are illegal, and must be partially annulled, to the extent that it implements a correction to the determination of taxable profit declared in that fiscal year by the Claimant, concerning the portion of the increase relating to job creation whose deduction was not fiscally accepted, due to violation of law by reason of error in the legal presuppositions.
2. Request for Reimbursement of Amounts Paid and Indemnificatory Interest
The Claimant formulates a request for reimbursement of amounts collected by the AT, as well as payment of indemnificatory interest, with express reference to Articles 43 of the LGT and 61 of the Code of Tax Procedure and Process (CPPT).
The Respondent does not challenge the payment of the tax, limiting itself to concluding that the request for arbitral ruling should be judged unsuccessful for not being proven, and, consequently, the Respondent absolved of all claims.
In accordance with the provision in Article 24, paragraph 1, subparagraph b) of the RJAT, the arbitral decision on the merits of the claim over which no appeal or impugnation is available binds the Tax Administration from the end of the deadline provided for appeal or impugnation, and this must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for voluntary execution of the judgments of tax courts, "restore the situation that would have existed if the tax act subject to the arbitral decision had not been performed, adopting the acts and operations necessary for such purpose", which is in line with the provision in Article 100 of the LGT [applicable by virtue of Article 29, paragraph 1, subparagraph a) of the RJAT] which establishes that "the tax administration is obliged, in case of full or partial success of a claim, judicial impugnation or appeal in favor of the taxpayer, to immediate and full restoration of the legality of the act or situation subject to litigation, including payment of indemnificatory interest, if applicable, from the end of the deadline for execution of the decision".
Although Article 2, paragraph 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating at the CAAD, not making reference to condemning decisions, it should be understood that the powers attributed to tax courts in judicial impugnation proceedings are comprehended therein, and this is the interpretation that aligns with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first directive, that "the arbitral tax process must constitute an alternative procedural means to judicial impugnation proceedings and to actions for the recognition of a right or legitimate interest in tax matters".
Judicial impugnation proceedings, despite being essentially a process for annulment of tax acts, admit the condemnation of the Tax Administration to payment of indemnificatory interest, as is deduced from Article 43, paragraph 1, of the LGT, in which it is established that "indemnificatory interest is due when it is determined, in a gracious claim or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due" and from Article 61, paragraph 4 of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds paragraph 2 in the initial wording), which states that "if the decision that recognized the right to indemnificatory interest is a judicial decision, the payment deadline is counted from the start of its voluntary execution deadline".
Thus, paragraph 5 of Article 24 of the RJAT, in stating that "payment of interest is due, regardless of its nature, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as permitting the recognition of the right to indemnificatory interest in arbitral proceedings.
On the other hand, with the right to indemnificatory interest depending on the right to reimbursement of amounts unduly paid, which are its calculation basis, the possibility of recognition of the right to indemnificatory interest is inherent in the possibility of examination of the right to reimbursement of those amounts.
It is therefore necessary to examine the request for reimbursement of amounts unduly paid and payment of indemnificatory interest.
Based on what has been stated, the request for arbitral ruling succeeds against the additional assessment of Corporate Income Tax (IRC) no. 2017..., issued on 28 June 2017, as well as the corresponding statement of account reconciliation no. 2017..., of 13 December 2017, both associated with the offsetting no. 2017..., relating to the tax period of 2013, in the total amount of Euro 14,503.87, corresponding to Euro 13,119.87 of tax and 1,384.23 of compensatory interest.
Therefore, the Claimant has the right to be reimbursed this amount, by virtue of the aforementioned Articles 24, paragraph 1, subparagraph b) of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would have existed if the tax act subject to the arbitral decision had not been performed".
For the above reasons, the request for reimbursement of the amount of Euro 14,503.87 succeeds.
The illegality of this assessment is attributable to the AT, as it issued it on its own initiative, with erroneous interpretation of the law.
Consequently, the Claimant has the right to indemnificatory interest, in accordance with Articles 43, paragraph 1, of the LGT and 61 of the CPPT, in relation to the amount to be reimbursed.
Indemnificatory interest will be paid from the date on which the Claimant made the payment until full payment of the amount to be reimbursed, at the legal default rate, in accordance with Articles 43, paragraph 4, and 35, paragraph 10, of the LGT, Article 61 of the CPPT, Article 559 of the Civil Code and Order no. 291/2003, of 8 April.
V. DECISION
In light of the above, the Arbitral Tribunal decides:
To judge the present request for arbitral ruling well-founded and, consequently, to partially annul the additional assessment of Corporate Income Tax (IRC) no. 2017..., issued on 28 June 2017, as well as the corresponding statement of account reconciliation no. 2017..., of 13 December 2017, both associated with the offsetting no. 2017..., relating to the tax period of 2013, to the extent that it implements a correction to the determination of taxable profit declared in that fiscal year by the Claimant, concerning the portion of the increase relating to job creation whose deduction was not fiscally accepted, due to violation of law by reason of error in the legal presuppositions, in the total amount of Euro 14,503.87, corresponding to Euro 13,119.87 of tax and 1,384.23 of compensatory interest, with the consequent restitution of the referred amount;
To judge well-founded the request regarding the recognition of the right to indemnificatory interest in favor of the Claimant, by virtue of the amount unduly paid, from the date on which the Claimant made the payment (29/03/2018) until full payment of the amount to be reimbursed, at the legal default rate.
VI. VALUE OF THE PROCEEDINGS
In accordance with the provisions of Articles 306, paragraph 2, and 297, paragraph 2 of the Code of Civil Procedure, Article 97-A, paragraph 1, subparagraph a) of the Code of Tax Procedure and Process and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 14,503.87.
VII. COSTS
In accordance with the provision in Articles 22, paragraph 4, and 12, paragraph 2, of the RJAT, Article 2, paragraph 1 of Article 3 and paragraphs 1 to 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, as well as in Table I attached to this regulation, the total amount of costs is set at € 918.00, charged to the Tax and Customs Authority.
Lisbon, 4 March 2019
The Arbitrator,
Pedro Miguel Bastos Rosado
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