CAAD 223/2017-T: IRC Tax Benefits Under Article 92 CIRC – Revaluation Depreciation Adjustments

ARBITRAL DECISION

The arbitrators Fernanda Maçãs (arbitrator president), Dr. Carla Castelo Trindade and Prof. Dr. António Carlos dos Santos (arbitrators vogais), assembled at the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree on the following

ARBITRAL DECISION[1]

Report

1. A…, SGPS, S.A. company identification number …, with headquarters at Av. …, no. …, Lisbon, with share capital of € 534,000,000.00, hereinafter referred to as "A… SGPS" or "Claimant", holding company of a group (the B… Group or Tax Group) subject to the special regime for taxation of groups of companies provided, from 2010 to today, in articles 69 and et seq. of the Corporate Income Tax Code (IRC), came, pursuant to articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 (Legal Regime for Arbitration in Tax Matters – RJAT), of 20 January, and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March (Binding Ordinance), to submit a request for arbitral pronouncement.

The request for arbitral pronouncement concerns the rejection of the administrative complaint, issued by order issued on 27 December 2016 by Her Excellency the Director of the Tax Management and Assistance Division (DGAT) of the Large Taxpayers Unit (UGC) and, consequently, the additional IRC assessment no. 2016…, relating to the fiscal year 2012, in the part corresponding to the amount of tax of € 1,244,500.04 added as "Liquidation Result" (resulting from the alleged application of article 92 of the IRC Code), increased by the corresponding compensatory interest, as calculated below, in the amount of € 144,286.03, all in total of € 1,388,786.07 (€ 1,244,500.04 + € 144,286.03).

2.1. In the exercise of the option for appointment of arbitrator provided in paragraph b) of no. 2 and in compliance with the provisions in paragraph g) of no. 2 of article 10 and in no. 2 of article 11, all of the RJAT, the Claimant appointed as Arbitrator Dr. Carla Castelo Trindade.

2.2. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 31-03-2017.

2.3. Pursuant to the provisions in paragraph b) of no. 2 of article 6 and no. 3 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, and within the period provided for in no. 1 of article 13 of the RJAT, the senior official of the Tax Administration service appointed as Arbitrator His Excellency Prof. Dr. António Carlos dos Santos.

2.4. By agreement, the arbitrators appointed by the parties designated to preside over this Arbitral Tribunal Counselor Dr. Maria Fernanda dos Santos Maçãs who, within the applicable period, accepted the assignment.

2.5. On 05-06-2017, the parties were notified of that designation, in accordance with and for the purposes of no. 7 of article 11 of the RJAT, having neither objected nor requested anything.

2.6. In accordance with the provision in no. 8 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 21-06-2017.

2.7. In these terms, the Arbitral Tribunal is duly constituted to hear and decide the subject matter of the case.

3.1. To support the request for arbitral pronouncement, the Claimant, which attaches an Opinion of Professor Dr. C…, alleges, in summary, the following:

The essential question consists of clarifying whether "the increases in reinstatements and depreciation resulting from revaluations carried out under tax legislation" are or are not tax benefits, which in turn amounts to knowing whether the revaluations provided for in the tax legislation at their origin constitute, or not, a tax benefit, that is, (i) measures of an exceptional nature, (ii) established for the protection of extrafiscal public interests of relevance superior to those of taxation itself that prevent (cf. article 2, no. 1, of the EBF; our emphasis).

With a view to countering the arguments of the Respondent, the Claimant begins by noting that the increases in depreciation resulting from revaluation carried out under tax legislation were indicated in article 92 of the CIRC, in the wording that applied until 2010, as realities subject to that limitation and that such indication disappeared, with the normative provision that began to apply from 2011 onwards.

Until 2010 all the realities indicated in the normative provision contained in no. 2 of article 92 of the IRC Code - among which the depreciation increases in question here - were preceded by a qualifier (tax benefit) whose scope the norm itself undertook to restrict to the normative prescription specifically in question there: "For the purposes of the provision in the preceding number, the following are considered tax benefits (...)".

Conversely, in the new prescription that came into force in 2011, the normative text waives creating its own universe of realities to be considered as tax benefits for the purposes of its specific prescription, and instead relies on a prior and external normative reality, refraining from conforming it affirmatively. Limiting itself, therefore, to accepting "the tax benefit", as a normative reality that is prior to it and externally normatived conforming, in another statute.

The normative intervention on the reality "tax benefit" is, from 2011 onwards, exclusively negative: to exclude the realities it specifically indicates, from the application of its prescription: "The following tax benefits are excluded from the provision in the preceding number (...)".

Therefore, for the Claimant, the new normative text that came into force in 2011 unequivocally results in the following: the prescription of article 92 applies only to realities that qualify as tax benefits in light of the common or general concept of tax benefit (as opposed to a special concept, created by article 92 itself, as occurred until 2010).

From the moment the norm came to encompass tax benefits in general (current or future, without needing to name them), instead of encompassing only (as until 2010) the realities specifically identified in four sub-paragraphs, it is unequivocal that the aim of expanding the realities subject to article 92 was realized in the legal text.

For the Claimant there is no antinomy whatsoever between the intention and the formulation of the legal text, and it is unequivocal that the aim of expanding the realities subject to article 92 was realized in the legal text. And it adds, drawing on what is stated in the Opinion attached to the case file, that the fact that a reality specifically provided for in 2010 ceased to be provided for from 2011 onwards (insofar as it does not meet the requirements to qualify as a tax benefit under the general concept), does not annul, and therefore does not deny, the realization of the legislative intention to expand the basis of application of article 92 of the IRC Code.

Entering into the analysis of the concept of tax benefit, the Claimant begins by rejecting that the value updates on which the depreciation increases in question here rest represent a measure of an exceptional nature, rather they form part of the ordinary (and regular) fabric of the normative systems of taxation of business income, and of ours in particular.

For the Claimant, the legal measures in question (tax revaluations) do not have an extraordinary character, rather they are ordinary, normal measures, which fit into the measurement of taxpaying capacity, established with greater or lesser regularity or periodicity depending on whether or not one is in periods of inflation, and whose non-establishment, in the presence of relevant inflation, corresponds to a political choice motivated by extrafiscal reasons.

Subsequently, the Claimant attempts to demonstrate that one is not dealing with a tax benefit due to the absence also of the requirement, integral to its concept, that one is dealing with a measure aimed at "the protection of extrafiscal public interests of relevance superior to those of taxation itself that prevent".

Drawing on doctrine, the Claimant argues that the interest protected by the fiscal revaluation measures is not, therefore, extrafiscal, external to the tax and its purposes. On the contrary, it is a fiscal interest, internal and inherent to the tax and its purposes: in the concrete case, the purpose of correct measurement of profit, the purpose of correct measurement of the real increase in assets between the beginning and end of successive taxation periods.

The Claimant concludes by reproducing the opinion attached to the case file where one can read: "In short, the legal regimes for revaluation of assets cannot be said to be tax benefits for purposes of article 165 of the Constitution of the Republic, of article 2 of the EBF or of article 92 of the IRC Code. We are only dealing with a tax benefit when there is a relief measure, motivated by reasons of an extrafiscal nature and that derogates from the principle of tax equality, which is why it is exceptional. That is not the case, however, with regimes such as that established by Law no. 36/91 and Decree-Law no. 22/92, or as established by Decree-Law no. 264/92: these regimes constitute "legislative solutions that [allow] avoiding the problems pointed out without breaching the principles of fair distribution of the tax burden". And therefore, the increased depreciation resulting from the application of this regime to A… should be considered outside the limit that article 92 of the IRC Code sets for the liquidation result.

(...)

With the wording that article 92 has today, however, we are certain that the legal regimes for asset revaluation are not covered by the liquidation result rule.

(...)

1. The results to which the legal regimes for revaluation of assets lead show themselves to be in conformity with the principle of taxpaying capacity, insofar as they allow bringing the taxation of these companies closer to their actual economic situation.

2. The regime established by Law no. 36/91 and Decree-Law no. 22/92, as well as the regime established by Decree-Law no. 264/92, cannot be qualified as tax benefit regimes for purposes of article 2 of the EBF and article 92 of the IRC Code, and should therefore be considered so that the increase in depreciation to which they give rise is not covered by the liquidation result rule."

The Claimant further argues that, contrary to the thesis of the Respondent, accelerated depreciation is not a reality comparable to the issue of tax revaluations.

3.2. The Claimant concludes by requesting:

the declaration of illegality of the rejection of the administrative complaint above identified, insofar as it refused the annulment of the illegal part here in question of that additional IRC assessment;

the declaration of illegality of the IRC assessment act relating to fiscal year 2012 and its corresponding compensatory interest, in the part corresponding to the amount of € 1,388,786.07 (interest included);

consequent recognition of the right to indemnification for damages resulting from the provision of guarantee.

4.1. The Tax and Customs Authority (Respondent) presented a Response and attached the respective administrative file, invoking, in summary, the following:

As is evident from the Tax Inspection Report (RIT) and is corroborated in the decision rejecting the administrative complaint, the increase in depreciation, in the part [60%] deductible from taxable profit qualifies as a tax benefit and, consequently, the effect of the tax deduction is subject to the limitation resulting from article 92 of the IRC Code;

In that sense, argues the Respondent, the wording of article 92, no. 2 of the IRC Code, until 2010 and in the amendment introduced by Law no. 55-A/2010, which had the aim of "expanding the basis of incidence of IRC";

That is, as already concluded in the decision of the administrative complaint "not only did the legislator itself qualify the increases in depreciation and depreciation resulting from legal revaluation as a tax benefit, but did so for the purposes of applying article 92 of the IRC Code, the matter on which the correction in analysis bears";

And, if this mention ceased to exist from 2011 onwards, this is because, by virtue of the amendment to the wording of the rule, one began to indicate the tax benefits that are excluded from that calculation;

Although following a different legislative technique, reviewing the evolutionary history of this normative provision, it is verified that the underlying philosophy has not undergone changes, with such understanding expressed, as stated in the administrative complaint hearing and further explained below, in the very statement of reasons of the State Budget Law Proposal;

According to this Report, this amendment resulted in the inversion of the "structure of this limitation rule, given that instead of positively enumerating the benefits to which it applies, it now applies generically to any tax benefit, with only the exceptions being enumerated", further stating that this amendment had been dictated by the "concern to expand the basis of incidence of IRC and to ensure greater equity in the fiscal treatment of companies";

That is, given the legislative technique used, which consisted in delimiting what is excluded, it cannot be inferred from this that what was provided for in the former sub-paragraph d) of no. 2 of article 92 of the IRC Code has been disqualified as a "relevant tax benefit" for the calculation of the Liquidation Result: the legislator's objective was to indicate that it would now apply generically to any tax benefit, which was not excepted;

On the other hand, the Respondent argues that the model of wording of no. 2 of article 92 of the IRC Code, which applied until 2011, had as a backdrop a concept of "tax benefit" that incorporated, in the terminology of Dr. NUNO SÁ GOMES, a material and not merely formal concept, in the sense that "not all relief measures presented formally as such are necessarily tax benefits, but only those that meet the requirements integrating the definition."[2]

Given that the increases in depreciation and depreciation resulting from revaluations under article 4 of Law no. 36/1991 and Decree-Law no. 22/92, and Decree-Law no. 264/92, meet all the requirements to be qualified as tax benefits;

Contrary to the matrix invoked by the Claimant in the arbitral request, it is evident the special and discretionary nature of the legislation that authorized the revaluations of the fixed asset elements in question, given that each statute determined its respective scope of application, revaluation process and methodologies applicable in updating the values of the goods, as well as the associated benefits;

For the Respondent, the theoretical construction of Professor Dr. C…, endorsed by the Claimant, in which it seeks to counter the conception of tax benefit of Dr. Nuno Sá Gomes, "a material conception in which tax benefits are represented as an exception to the principle of equality", with all due respect, has neither legal nor doctrinal consecration, especially as it errs in a reductive confusion by considering that the notion of tax benefit enshrined in no. 1 of article 2 of the EBF does not constitute a mere exception to the regime-rule but an exception to the principle of equality – the principle of taxpaying capacity;

In the specific case of the revaluation carried out under article 4 of Law no. 36/91 and Decree-Law no. 22/92, the exceptionality to the regime-rule manifests itself, both in the process and method of revaluation which consisted in the replacement of the historical values of the fixed asset elements by values resulting from evaluations made by entities selected for that purpose, which came to serve as the basis for the calculation of depreciation, and also in the delimitation of the companies covered: only companies involved in privatization processes;

That is, for the Respondent, differently from what the Claimant argues, based on the opinion of Professor Dr. C…, the method of monetary updating of the values of the revalued goods adopted by Decree-Law no. 264/92 does not aim to restore the taxpaying capacity of the company, neutralizing the effects of inflation, because, for that to be the case, it would be necessary to provide legal correction of all effects, positive and negative, caused by monetary erosion in the patrimonial elements;

Finally, the Respondent argues that the benefits of fiscal revaluations must be established for the protection of extrafiscal public interests of relevance superior to those of taxation itself that prevent;

The Respondent further argues that it is important, in any case, to distinguish the revaluation carried out under article 4 of Law no. 36/91, of 27 July and Decree-Law no. 22/92, of 14 February, inserted in the specific context of the Privatization Framework Law – Law no. 11/90, of 5 April;

In article 5, no. 1 of that Law, it was provided that "The process of privatization of ownership or the right to operate the means of production and other nationalized goods referred to in article 1 shall always be preceded by an evaluation, made, at least, by two independent entities, chosen from among those pre-qualified in a tender held for that purpose.", with a view to determining the value of the companies to be privatized and fixing their respective sale price;

Therefore, the fiscal relevance attributed by article 4 of Law no. 36/91 and Decree-Law no. 22/92 to the values of the evaluations prepared by the entities qualified for the purposes of privatization processes resulted, therefore, in a special fiscal advantage granted only to companies to be privatized, without which the fiscal deduction of the entire increase in depreciation resulting from the increase in the value of the goods would be disregarded, thus providing it, for the future (after privatization), with the obtaining of IRC tax savings (IRC).

1. By order, of 10 September 2017, the holding of the meeting provided for in art. 18 of the RJAT was waived and the parties were notified to file written submissions in a successive manner. The date of 21 December was further designated as the deadline for issuing the arbitral decision.

2. Claimant and Respondent submitted submissions reiterating in substance the arguments presented in the earlier procedural documents.

3. The deadline for issuing the Arbitral Decision was extended, by order of 18 December 2017, to 21 February 2018.

Merits

1. The parties have judicial personality and capacity, prove themselves to be legitimate and are duly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

8.1. The tribunal is materially competent and duly constituted.

8.2. The case does not suffer from any nullities.

8.3. No exceptions that would impede the examination of the merits of the case were raised.

8.4. No other circumstances exist that would impede the examination of the merits of the case.

On the Facts

III.1. Proven Facts

With respect to the factual matter, it is important, first and foremost, to emphasize that the tribunal does not have to rule on everything that was alleged by the parties, but rather it is the duty to select the facts that matter for the decision and to distinguish the proven from the unproven matter. All in accordance with article 123, no. 2, of the Code of Tax Procedure and Process and article 607, nos. 2, 3 and 4 of the Code of Civil Procedure, applicable ex vi article 29, no. 1, sub-paragraphs a) and e), of the RJAT. In this way, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established with regard to the various plausible solutions of the question(s) of Law (cf. article 596 of the Code of Civil Procedure applicable ex vi article 29, no. 1, sub-paragraph e), of the RJAT).

Given the positions assumed by the parties, the documentary evidence and the Administrative File attached to the case, the following facts with relevance to the decision are considered proven:

The IRC calculated by the Claimant relating to fiscal year 2012 was € 15,269,798.07 (cf. field 358 of table 10 of the income return form Model 22);

In 2016 the Respondent (through its tax inspection services) carried out an external inspection procedure to the period of 2012, in the context of IRC, relating to the application of the Special Regime for Taxation of Groups of Companies (RETGS), accredited by Service Order no. OI2015… (cf. document no. 3 of the PA);

In that inspection procedure, the tax inspection services verified that, in the period of 2012, the Claimant, holding company of the group, did not enter any amount in field 371 of table 10 of the substitute income return form Model 22 of the group,[3] under the liquidation result, as proposed in article 92 of the IRC Code;

Those services proceeded with the calculation provided for in that rule, which aimed to determine whether the tax assessed, net of the deductions/tax benefits referred to in article 92 of the IRC Code, would, or would not, be less than 90% of the tax assessed that the taxpayer would calculate, in the absence of such tax benefits;

Having concluded, in accordance with the calculation set out in Annex B to the report, that 90% of the IRC assessed, as proposed in article 92 of the CIRC, amounted to € 16,193,225.99;

Considering that the IRC calculated by the Claimant (cf. field 358 of table 10 of the income return form Model 22) is € 15,269,798.07, the tax inspection services concluded that there would be a correction to the calculation of the tax revealed by the group, as provided for in article 92 of the CIRC, in the amount of € 923,427.92 (€ 16,193,225.99 - € 15,269,798.07), to be entered in field 371 of table 10 of the substitute Model 22 return form of the group (cf. table on page 10 of the RIT);

Given that the Claimant had entered nothing in that field 371 of table 10 of the Model 22 return form of the group, on 2016-04-04, the tax inspection services requested from the Claimant the demonstration of the calculations that led to the inapplicability of article 92 of the IRC Code;

After sending by the Claimant, on 2016-04-06, of the schedule in which it evidences the demonstration of the calculations for the non-applicability of article 92 of the Code (cf. Annex C of the RIT), the tax inspection services proceeded with its analysis, having verified that the Claimant, although it had entered the amount of € 8,673,231.89, corresponding to 60% of the increase in depreciation and depreciation resulting from revaluation carried out under tax legislation, in company D.., S.A., the same had not been considered for the purposes of the calculation referred to in the aforementioned legal rule;

Questioned the Claimant, on 2016-04-07, about the non-consideration of the amount of 60% of the increase in depreciation and depreciation resulting from revaluations, carried out under tax legislation, in the calculation of the amount provided for in article 92 of the CIRC, it stated, on 2016-04-13, the following: "No. 1 of article 92 of the IRC Code establishes a general limitation on the use of tax benefits, so only legal figures qualifiable as a tax benefit, (...) are included within the scope of that rule.

"The regime for increases in depreciation and depreciation resulting from revaluation (60%) carried out under tax legislation is not classifiable within that concept of tax benefit, (...) so the same cannot be considered for the purposes of calculating the limit of the liquidation result.

And that, if until 2010 "no. 2 of that article fictionalized a set of realities that should be considered as "tax benefits", among which the increases in depreciation resulting from revaluations carried out under tax legislation" and that "the increase in depreciation associated with revalued assets was only considered for the purposes of that regime because it was specially expressed in article 92 of the IRC Code, as a reality assimilated to "tax benefits"", currently, that regime only covers realities that are actually tax benefits.

Therefore, considers A…, SGPS, "insofar as article 92 of the IRC Code ceased to make any reference to the assimilation of those depreciation increases to the concept of tax benefits, that reality ceased to be considered relevant for the purposes of applying that regime." (cf. summary contained in the RIT, page 11);

Having assessed the arguments presented, the inspection services concluded that there were no valid reasons for the non-inclusion of the value of 60% of the increase in reinstatements and depreciation resulting from revaluations carried out under tax legislation, in the calculation of the amount provided for in article 92 of the IRC Code, having argued as follows for that purpose:

"Article 2 of the Statute of Tax Benefits (EBF), nos. 1 and 2 provides that:

"1 - Tax benefits are considered to be measures of an exceptional nature established for the protection of extrafiscal public interests of relevance superior to those of taxation itself that prevent.

2 - Exemptions, reductions of rates, deductions to the taxable base and to the tax, accelerated depreciation and reinstatements and other fiscal measures that obey the characteristics listed in the preceding number are tax benefits.[4]

The legislator immediately establishes accelerated depreciation and reinstatement as tax benefits. Recall in this regard what Nuno de Sá Gomes wrote: "Also depreciation and reinstatement are, in principle, relief-rules, structural, intended to ascertain the real profit of the taxpayer. (...) However, accelerated depreciation and reinstatement are tax benefits which can further take various forms, depending on the level of acceleration legally enshrined (...) In these cases, we are, therefore, faced with exceptional relief with extrafiscal grounds that must be qualified as true tax benefits."[5] Now, in the specific case of revaluations under tax legislation, the legislator, with economic objectives aimed to "allow improvement of the image of companies' balance sheets, enable updating of production costs through increased reinstatements and favor the formation of gross fixed capital by strengthening the financial capacity and financing of companies" (cf. preamble of Decree-law no. 49/91, of 25 January) so it allowed an increase of costs corresponding to 60% of the increase in reinstatements, the amount of Tax Benefit being the equivalent of the amount of tax that the State ceased to collect because it accepted part of that increased reinstatement. If any doubts existed about the fact that a special intent was pursued with these revaluations, it would suffice to compare the tax treatment of revaluations, depending on whether or not they are carried out under tax legislation to understand that we are clearly dealing with an exceptional rule. Thus, regarding revaluations carried out under tax legislation, we have that, from the combined reading of article 21, no. 1 sub-paragraph b) of the CIRC with article 8, no. 1, sub-paragraph a) of Decree-Law 49/91, of 25 January, or with article 6, no. 1, sub-paragraph a) of Decree-Law 22/92, of 14 February, or with article 7, no. 1, sub-paragraph a) of Decree-Law no. 264/92, of 24 November, the following results: the revaluations, at the moment of constitution of the revaluation reserve, do not compete for the formation of taxable profit but follow a specific tax regime within which it is expressly stated that the following costs or losses are not deductible for tax purposes: a) The product of 0.4 by the amount of the increase in annual reinstatements resulting from the revaluation" (cf. article 8, no. 1, sub-paragraph a) of Decree-Law 49/91, of 25 January, article 6, no. 1, sub-paragraph a) of Decree-Law 22/92, of 14 February and article 7, no. 1, sub-paragraph a) of Decree-Law no. 264/92, of 24 November). Whereas with regard to the regime of revaluations that are not carried out under tax legislation we can read the annotation, which remains current on this topic, which is contained in the Code of Corporate Income Tax, annotated and commented, Rei dos Livros, 5th edition, 1996, p. 195 and 196: "Revaluations of fixed assets not classifiable under a legal statute are patrimonial variations, which are excluded in sub-paragraph b) of article 21 of the CIRC. Therefore, there is a place for the taxation of revaluation reserves not constituted under tax legislation. The revalued amount is relevant neither for the determination of reinstatements[6] nor for the ascertainment of any potential gains realized. (Proc. 1749/89, Order of 21-12-1989)". We can then conclude that, whereas only accounting relief resulting from the revaluation of assets is admissible, the rule is that fiscally the same is not relevant in terms of reinstatements. If the tax legislator comes to give relevance to those reinstatements, accepting fiscally those costs in 60% (the taxpayer would only have to increase 40% in Table 7 of the IRC Model 22 declaration), it was because he wanted to introduce "measures of an exceptional nature established for the protection of extrafiscal public interests of relevance superior to those of taxation itself that prevent", that is, we are talking about a tax benefit. The taxpayer further states that because article 92 ceased to make any reference to the assimilation of those depreciation increases to the concept of tax benefits, that reality ceased to be considered relevant for the purposes of applying that regime. In accordance with no. 1 of article 92 of the IRC Code, (version in force in 2012):

"1 — For entities engaging, as a principal activity, a commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90, net of the deductions provided for in sub-paragraphs a) and b) of no. 2 of the same article, cannot be less than 90% of the amount that would be ascertained if the taxpayer did not enjoy tax benefits and the regimes provided for in no. 13 of article 43 and in article 75.

2 — The following tax benefits are excluded from the provision of the preceding number: (...)" We do not concur with the argument raised by the taxpayer. In fact, according to the State Budget Report for fiscal year 2011, and with the concern to "expand the basis of incidence of IRC (...) [the legislator] proceeded to a review of the global limit on the use of tax benefits that appears in article 92 of the IRC Code". It can be read in that document, "With the State Budget Law Proposal for 2011, two amendments are introduced intended to strengthen this limitation: first, raising to 90% the percentage of reference below which tax benefits are disregarded; and second, inverting the structure of this limitation rule, given that instead of positively enumerating the benefits to which it applies, it now applies generically to any tax benefit, with only the exceptions being enumerated." - Parliamentary Records, II Series A, number 17, p. 82, of 16 October 2010. Thus, until fiscal year 2010 the tax benefits that would be covered by no. 1 of article 92 were enumerated and from fiscal year 2011 onwards tax benefits that are excluded from that limitation began to be enumerated. Now because of such amendment, the aim that A… seeks to achieve is not realized, not meaning that the benefits enumerated until the amendment of the State Budget for 2011, read as: a) In articles 19 and 67 of the Statute of Tax Benefits; b) In Law no. 26/2004, of 8 July, and in articles 62 to 65 of the Statute of Tax Benefits; c) In benefits in the form of deduction to the tax collection, with the exception of those provided for in Law no. 40/2005, of 3 August, and those that have a contractual nature; d) In increases in depreciation and depreciation resulting from revaluation carried out under tax legislation.... ceased to be considered tax benefits, by reason of the new wording in force from that year. Thus, without room for doubt, and in light of the law, depreciation and depreciation resulting from revaluation carried out under tax legislation are a tax benefit and, as such, a reality relevant for the purposes of article 92 CIRC. In fact, it suffices to perceive that 40% of the increase in depreciation is added in Table 07 of the Model 22 income declaration, being relevant for tax purposes the remaining 60%. In the remaining cases, revaluations carried out in the absence of a statute permitting them, are not recognized in full, for the purposes of determining the taxable result. That is, the 60% are recognized exceptionally.

However, we are always talking about tax benefits, which includes the increases in depreciation and depreciation resulting from revaluation carried out under tax legislation." (our emphasis)";

Given the above, and also having regard to the corrections made to the dominated company D…, S.A., identified in point III.1 of the RIT in question, which altered its individual taxable result by € 856,192.30 (which determined an alteration of the group's taxable result, going from € 42,529,510.65 to € 43,385,702.95, and the IRC assessed rising to € 15,526,655.76), it was determined by the tax inspection services that the amount corresponding to 90% of the IRC assessed without tax benefits is € 16,771,155.80, so the amount to be considered as the liquidation result is € 1,244,500.04 (cf. demonstration in the table on page 15 of the RIT);

In this way, it was concluded in the inspection report draft that: "Since A.., SGPS, as the holding company of the B… group, did not enter any amount in field 371 of table 10 of the DRM22 of the group, substitute, as the liquidation result, as proposed in article 92 of the CIRC, a correction to the calculation of the tax is made in the amount of 1,244,500.04 euros, as per the schedule that constitutes Annex D)";

Notified of the inspection report draft, the Claimant exercised the corresponding right to prior hearing;

The tax inspection services did not uphold the arguments presented by the Claimant in the prior hearing proceedings, having maintained the projected correction, understanding, for that purpose, the following (cf. pages 33 to 37 of the same):

"A… refers that the acceptance of a portion of depreciation and depreciation does not translate into a tax benefit because it does not correspond to any reduction of rate, exemption, deduction to the taxable base or to the tax collection. However, what translates into a tax benefit is the fact that the characteristics listed in no. 1 of article 2 of the EBF are met, that is, a measure of an exceptional nature established for the protection of extrafiscal public interests of relevance superior to that of taxation that prevent. To understand if we are dealing with an exceptional rule or a general rule, it is important to ascertain what is the regime-rule. A… comes to say that the regime-rule is the acceptance of fiscal depreciation associated with assets that result from revaluations carried out under tax legislation and that the exception is the non-acceptance of the portion of 40%. However, one thing is to say that revaluations under tax legislation should have similar consequences, that they should be harmonized in their benefits, which is understood even as a matter of equality, another thing is to say that that is the regime-rule. In this regard, it should be noted that we consider the argument presented by A… that article 2 and 15 of Decree-Regulatory no. 25/2009 establishes the regime-rule to be entirely unjustified. First because the regime of revaluations under tax legislation results from its own legislation, which is prior to the Decree-Regulatory itself. What happens is that this legislation provides in all cases that the following is not deductible for tax purposes "the product of 0.4 by the amount of the increase in annual reinstatements resulting from the revaluation"[7] so that Decree-Regulatory no. 25/2009 brings nothing new in this field, does not establish a regime-rule. Second because it is not in this way that we assess whether we are dealing with a tax benefit, otherwise, we could also say that the intensive regime for the use of depreciable assets, contained in article 9 of Decree-Regulatory no. 25/2009, does not integrate a tax benefit because that article contains the rule applicable when fixed tangible assets are subject to more rapid wear than normal. The question we must ask is: what would happen if this rule were extinguished? The answer is: taxation-rule would be automatically restored, that is, the revalued amount would not be relevant for the determination of depreciation (cf. in this regard the annotation to the Code of Corporate Income Tax, already cited in the draft report and on pages 12 and 13 of the present report). A… refers that what is at issue is imposing a 40% taxation when what is really at issue is ceasing to calculate the amount corresponding to 60% of the increase in depreciation and depreciation carried out under tax legislation. That is precisely what is referred to in article 11 of Decree-Law 49/91, of 25 January, applicable ex vi article 8 of Decree-Law no. 22/92, of 14 February. That article provides that the use of the revaluation reserve for purposes other than those legally provided for has as a consequence the addition to the value of the IRC, assessed in the fiscal year in which such use occurs, the IRC that as a result of the revaluation ceased to be assessed in previous fiscal years, increased by the corresponding compensatory interest. The legislator renounced part of the revenue because this measure appeared to be essential to accomplish extrafiscal purposes superior to those of taxation itself that prevent. What extrafiscal purposes are these? It is certain that all taxation has inherent a certain degree of extrafiscality but within the scope of revaluations under tax legislation, the legislator, with economic objectives aimed to "allow improvement of the image of companies' balance sheets, enable updating of production costs through increased reinstatements and favor the formation of gross fixed capital by strengthening the financial capacity and financing of companies" (cf. preamble of Decree-law no. 49/91, of 25 January) so it allowed an increase of costs corresponding to 60% of the increase in reinstatements, the amount of the Tax Benefit being the equivalent of the amount of tax that the State ceased to collect because it accepted part of the referred increase in those reinstatements. These economic objectives, in particular the improvement of the image of the company balance sheet, are also present in the case of companies that were in the process of privatization or being privatized, as was the case with A…. Moreover, note that the taxpayer does not dispute at any point that these measures were not constituted with extrafiscal purposes, of an economic character. What the taxpayer comes to say in various points of its hearing is that we are dealing with fiscal relief measures, fiscal relief of a structural nature. Regarding fiscal relief that are not tax benefits, article 4 of the EBF provides in its nos. 1 and 2:

1 - Non-taxable situations are not tax benefits.

2 - For the purposes of the provision in the preceding number, generically considered to be non-tax situations the structural fiscal measures of a normative nature that establish expressed negative delimitations of incidence. We agree that making the legal distinction between one and the other is not easy. However, the Report of the Working Group created by Order of 1 May 2005 of the Minister of State and Finance for the Revaluation of Tax Benefits (Notebooks of Science and Technical Taxation, no. 198), which the taxpayer cites in point 119 of its hearing, also states, on page 97, that: "(...) both tax benefits and structural relief can be realized by a set of common techniques. In fact, for example, a deduction to the taxable base can embody relief or a benefit. Pursuant to no. 2 of art. 2 of the EBF: "exemptions, reductions of rates, deductions to the taxable base and to the tax collection, accelerated depreciation and reinstatements and other fiscal measures that obey the characteristics listed in the preceding number, that is, that fit within the concept of tax benefit, are tax benefits. When this is not the case, such techniques will embody situations of fiscal relief'". Therefore, if we have already demonstrated that the legislator wanted to introduce "measures of an exceptional nature, established for the protection of extrafiscal public interests of relevance superior to those of taxation itself that prevent", if we have already demonstrated that we are dealing with a tax benefit, the question of being before structural fiscal relief, a "non-taxation situation", as the law refers to in article 4 of the EBF, does not arise. In this regard, see non-taxation situations, such as, for example, that proposed by no. 3 of article 54 of the CIRC relating to quotas paid by partners, in accordance with the statutes. The mention in the Preamble of Decree-Law no. 49/91, of which we are dealing with fiscal relief measures, does nothing to alter that qualification of tax benefit because, as we know, tax benefits are themselves fiscal relief. It is certain that there can be fiscal relief that are not tax benefits but, in that case, as article 4, no. 1 of the EBF says, it is because we are dealing with non-taxation norms, which is not our case here. Even so, we do not want to fail to pronounce on the observations made by A…, that there are administrative sources that prove that this situation does not fit within a tax benefit. In the first place, as to the way this benefit operates in Model 22: the technique is used, also used in the regime of accelerated depreciation and which therefore does not cease to be tax benefits, of accepting the depreciation recognized in the accounts, that is, these amounts are already in the company's balance sheet so they are already contemplated in the Net Result of the Period presented in Model 22. However, as at the fiscal level, the State only waives collecting tax relating to 60% of the increase in depreciation and depreciation under tax legislation, the remaining 40% must necessarily be added in Table 7 of Model 22, for the purposes of determining the taxable result. In the second place, the argument that doctrine does not point out this situation as a tax benefit is a false argument because doctrine also does not point out this situation as an example of structural relief. In practice, what the legal statutes allow, with the revaluations of fixed assets, is an increase of expenses of 60%[8] compared to the General Taxation Regime and not a reduction of those expenses as the taxpayer seeks to suggest. In the third place, still regarding "administrative sources" and making the bridge with the ratio of the amendment to article 92 of the IRC Code, we cannot forget to go to the sources that respect the historical element of interpretation - "the circumstances in which the law was drafted" (cf. art 9, no. 1 of the Civil Code) - and that allow the reconstruction of legislative thought, such as the preparatory work of legislative initiatives. Well, the State Budget Report for 2011 begins by recording that with the concern to "expand the basis of incidence of IRC (...) [the legislator] proceeded to a review of the global limit on the use of tax benefits that appears in article 92 of the IRC Code". It can still be read in that document, "With the State Budget Law Proposal for 2011, two amendments are introduced intended to strengthen this limitation: first, raising to 90% the percentage of reference below which tax benefits are disregarded; and second, inverting the structure of this limitation rule, given that instead of positively enumerating the benefits to which it applies, it now applies generically to any tax benefit, with only the exceptions being enumerated[9]." - Parliamentary Records, II Series A, number 17, p. 82, of 16 October 2010. In this way, it is safe to conclude that the amendment to the wording of art 92 of the IRC Code that occurred with the State Budget Law of 2011 did not intend to exclude the increases in depreciation and depreciation resulting from revaluation carried out under tax legislation and, on the contrary, if there is anything that this amendment came to do was precisely to strengthen our understanding that we are dealing with a tax benefit. It also remains entirely appropriate the reference we made to what Nuno de Sá Gomes wrote; "Also depreciation and reinstatement are, in principle, relief-rules, structural, intended to ascertain the real profit of the taxpayer. (...) However, accelerated depreciation and reinstatement are tax benefits which can further take various forms, depending on the level of acceleration legally enshrined (...) In these cases, we are, therefore, faced with exceptional relief with extrafiscal grounds that must be qualified as true tax benefits".[10] We emphasize: depreciation and reinstatement are, in principle, relief-rules. However, accelerated depreciation are tax benefits because we are dealing with exceptional relief with extrafiscal grounds that should be qualified as true tax benefits. The same reasoning is applicable, mutatis mutandis, to the acceptance of fiscal deduction of the increase in depreciation of revalued assets, in 60% of the respective amount. Thus, without room for doubt, and in light of the law, the acceptance of the fiscal deduction of 60% of the increase in depreciation and depreciation resulting from revaluation carried out under tax legislation is a tax benefit and, as such, a reality relevant for the purposes of article 92 CIRC so that, for all the above stated, the taxpayer's arguments do not hold and the proposed corrections are to be maintained." (our emphasis);

The Claimant, notified of the subsequent tax assessment of IRC and compensatory interest, above better identified, presented, on 03-11-2016, an administrative complaint;

The Respondent issued a draft decision rejecting the complaint, having understood, as to the correction in examination in the present proceedings, that[11]:

"69. Notwithstanding the merit of the arguments suggested by the Complainant, it is easily discerned that nonetheless it has no reason. Therefore,

1. For what has already been set out, just as it was then understood by Tax Inspection, also in the present hearing it is considered that the way to ascertain whether we are in the presence of a tax benefit translates into the verification of the compliance with the characteristics listed in no. 1 of article 2 of the EBF, that is, we verify the existence of a measure of an exceptional nature established for the protection of extrafiscal public interests of relevance superior to that of taxation that prevent.

2. Now, the exceptional character of the measure is determined by contrast with the regime rule established for the matter on which the measure bears.

3. We are here in the presence of a legal discipline derogatory of the ordinary discipline of the respective tax, revealing a regime more favorable for the taxpayer than that implied in its ordinary treatment.

4. As is well known, companies may, whenever good management standards justify it, proceed to free revaluations of their assets, with the constraint of using objectively valid criteria, leading to a balance sheet that faithfully represents the patrimonial situation on the date to which it relates.

5. These free revaluations of the asset, not classifiable under a legal statute, are patrimonial variations that are excluded from article 21, no. 1, sub-paragraph b), of the IRC Code, since only "positive patrimonial variations not reflected in the result concur in the formation of taxable profit, except for potential or latent gains, even if expressed in the accounts, including legally authorized revaluation reserves".

6. The revalued amount resulting from them is not relevant, for tax purposes, in determining the depreciation nor in ascertaining any eventual realized gain.

7. Therefore, although free revaluation of the assets involves an accounting relief, it is not, however, associated with any fiscal effect in terms of depreciation.

8. This means that the possible increase in the value of assets by reason of free revaluation will not determine any increase in depreciation.

9. This will not be the case with revaluations carried out under tax legislation, because in these the possible increase in the value of assets resulting from its implementation will determine an increase in the value of depreciation.

10. Thus, with respect to the difference between free revaluations and those of a legal nature, it may be said that in these the 60% of the excess depreciation or reinstatement of the revalued asset is accepted compared to the value prior to revaluation, whereas in those of a free nature, that excess is not accepted in full.

11. In light of the above, it is indisputable that the acceptance of part of the increase in depreciation resulting from legal revaluation constitutes, without room for doubt, an exceptional measure that involves clearly more favorable treatment for the taxpayer, insofar as it considers as a cost part of the increase in the value of the revalued asset that would otherwise not be accepted.

12. Addressing now the question of whether the measure was established for the protection of relevant extrafiscal public interests, it is drawn from the preamble of Decree-law no. 49/91, of 25 January that through this measure it was sought to achieve objectives of an economic-social nature, extrafiscal objectives, such as that of "allow improvement of the image of companies' balance sheets, enable updating of production costs through increased reinstatements and favor the formation of gross fixed capital by strengthening the financial capacity and financing of companies".

13. It is thus noted that through this measure "it allowed an increase of costs corresponding to 60% of the increase in reinstatements, the amount of Tax Benefit being the equivalent of the amount of tax that the State ceased to collect because it accepted part of the referred increase in those reinstatements".

14. Following this brief excursus, we can safely say that the increases in depreciation and depreciation resulting from revaluation carried out under tax legislation should be qualified as a tax benefit, given the demonstrated compliance with the elements that define this concept.

15. In support of this understanding, it should be noted that article 92 of the IRC Code itself, in the wording that applied until 31.12.2010, for the purposes of calculating the tax assessed in accordance with no. 1 of article 90, net of the deductions provided for in sub-paragraphs a) and b) of no. 2 of the same article, considered as tax benefits the increases in depreciation and depreciation resulting from revaluation carried out under tax legislation.

16. Therefore, not only did the legislator itself qualify the increases in depreciation and depreciation resulting from legal revaluation as a tax benefit, but did so for the purposes of applying article 92 of the IRC Code, the matter on which the correction in analysis bears.

17. In this regard, it is important to point out that the fact that the increases in depreciation and depreciation resulting from legal revaluation are no longer contained in the text of the rule in question is solely due to legislative technique questions.

18. In fact, as highlighted in the State Budget Report for 2011, two amendments were introduced to article 92 of the IRC Code intended to strengthen the global limit on the use of tax benefits: "first, raising to 90% the percentage of reference below which tax benefits are disregarded; and second, inverting the structure of this limitation rule, given that instead of positively enumerating the benefits to which it applies, it now applies generically to any tax benefit, with only the exceptions being enumerated".

19. In light of this, and making our own the conclusion embodied in the Report, "the amendment to the wording of article 92 of the IRC Code, which occurred with the State Budget Law of 2011, did not intend to exclude the increases in depreciation and depreciation resulting from revaluation carried out under tax legislation".

20. The Complainant does not accept this understanding, arguing, instead, that the regime-rule is the acceptance of fiscal depreciation associated with assets that result from revaluations carried out under tax legislation and that the exception is the failure to accept the portion of 40%.

21. At the base of this conclusion would be the fact that the taxation of companies in IRC has as its reference the profit ascertained through the accounts, so that if the expenses with increases in depreciation and depreciation resulting from revaluation carried out under tax legislation are accounted for relief the exception will be the failure to accept part of those depreciation.

22. With due respect, this does not appear to us to be the most correct approach to the issue.

23. Because the regime rule, the regime arising from the accounting rule, is that the revalued amount is not relevant for the determination of fiscal depreciation and depreciation accepted.

24. Indeed, pursuant to the accounting rule applicable, assets that integrate tangible fixed assets are initially valued at their cost.

25. After initial measurement, one can opt for a measurement model by cost or revaluation.

26. The option for the revaluation model, as well as the carrying out of "free revaluations", although allowing a greater approximation of equity to its actual value, has as a counterpart the fiscal disregard of its effects, given that, on the one hand, the revaluation reserve does not compete for the formation of taxable profit, because it relates to potential or latent gains and, on the other hand, the increase in depreciation is not considered for tax purposes.

27. Thus, only in limited cases, therefore, in those where there is enabling legislation for that purpose, is it possible to give fiscal relevance to the increase in depreciation resulting from revaluation of assets.

28. It is thus demonstrated that the regime rule was characterized by the lack of fiscal relevance of the increase in depreciation and depreciation resulting from revaluation.

29. On the other hand, the Complainant states that "notwithstanding the concept of tax benefit referring to an extrafiscal purpose (...), this does not mean (...) that all measures that have an extrafiscal purpose are tax benefits".

30. Referring, in this regard, to the regime of fiscal neutrality of mergers, the regime for the elimination of double taxation of profits distributed among companies and, likewise, the regime provided for in article 44 of the IRC Code, despite constituting "regimes that imply a deviation from the rule taxation, and although that deviation has an extrafiscal justification, in none of them are we dealing with a tax benefit, under the terms of article 2 of the EBF".

31. Once again the Complainant has no reason.

32. In the first place, let it be noted, from the outset, that we do not agree with this statement by the Complainant, that there can be regimes that translate into deviations from rule taxation, motivated by an extrafiscal purpose, but that, however, are not tax benefits.

33. If what is proposed by the Complainant is accepted, there would no longer be reliable criteria that would allow the delimitation of the figure of tax benefits.

34. Because, according to the Complainant, the elements that the tax legislator expressly indicated as characterizing tax benefits, could also characterize other figures distinct from benefits.

35. Resulting therefrom an absolute lack of means and guidelines in the identification of certain legislative measures as tax benefits.

36. Hence it does not correspond to the truth that regimes that translate into deviations from rule taxation and are motivated by extrafiscal purposes are not tax benefits.

37. To demonstrate what we have just stated and taking the examples presented by the Complainant to support its thesis, let it be noted that we agree with Carlos Batista Lobo when he states that "(...) there is no basis of extra-fiscality for the justification of the fiscal regime provided for in articles 67 to 72 of the IRC Code. On the contrary, the regime provided for translates into a structural relief to conform the tax system to the economic and commercial reality of the merger"[12].

38. "Indeed, and in accordance with the principle of efficiency, the tax system cannot create significant distortions in economic traffic, and must adapt efficiently to normal commercial traffic. Fiscal neutrality of mergers is essential to ensure their economic neutrality. It is not a matter of encouraging or promoting business restructuring, it is, rather, eliminating disproportionate and inappropriate obstacles to the economic freedom of economic agents. In the limit, it can even be said that the inclusion of taxation in this matter (...) would inevitably insert inefficiency in the system, disproportionately and unjustifiably"[13].

39. Also in the case of the elimination of double taxation of profits distributed among companies, the legislator's concern is linked to the "defense of the neutrality of tax law, that is, with the position in principle that the shaping of taxes should have the least possible influence on the free decisions (of an economic and other nature) of taxpayers"[14].

40. "In the case of plural taxation of profits distributed by commercial companies, it is well understood what the difference would be: plural taxation would have, from the outset, the effect of discouraging the distribution of profits among companies, or of fostering a preference for financing through own capital"[15].

41. "In any case, it would always pressure groups of companies to adopt horizontal structures, in light of the potential increased fiscal cost of vertical structures"[16].

42. "For the rest, among us, the pursuit of fiscal neutrality, in this particular respect, is also the pursuit of a corporate income tax regime that respects the principle of taxation of actual income. Such a principle, if it imposes that all wealth generated by commercial companies, which translates into a certain taxpaying capacity, must be taxed, must also surely imply - in the opposite sense - that the same wealth is not taxed more than once, even though in the sphere of distinct taxpayers"[17].

43. "It is for this reason, moreover, that the institutes aimed at eliminating double economic taxation are not considered as tax benefits, granted as exception measures to taxation. We are instead dealing with structural mechanisms of the tax itself, which act within its field of objective incidence in obedience to the principle of actual capacity"[18].

44. Finally, as to the quotations in favor of business associations, it should be noted that, with the addition of this article to the IRC Code, the legislator in order to promote the strengthening of associationism granted a tax benefit to companies, individually considered, provided that they met the conditions referred to in the article.

45. We are, here in the presence, without room for doubt, of a tax benefit provided for in the IRC Code.

46. In light of the above, it appears that there are no doubts as to the lack of foundation of the thesis presented by the Complainant.

47. Moving on now to the analysis of a set of final arguments presented in the complaint, it should be noted that the Report does not make any subsumption of the figure in analysis in the concept of accelerated depreciation and reinstatement, as the Taxpayer seems to suggest.

48. In reality, the intention that seems to have been behind the reference to this figure was to alert to the fact that, alongside structural relief, translated, for example, in the figure of depreciation and reinstatement, situations of fiscal relief, of an exceptional nature, are provided for, presided over by extrafiscal purposes, giving the example of your case (accelerated depreciation).

49. And if accelerated depreciation are considered, in the opinion of that illustrious Tax Expert Nuno Sá Gomes, exceptional relief, and can be qualified as true tax benefits in light of its extrafiscal intent, we see no obstacle to the application of the same order of reasons to the figure of the increases in depreciation and depreciation resulting from revaluation of a fiscal nature.

50. All the more so because, in this latter figure, the benefit is much more evident, in that there is an increase in the value of the deductible expense, whereas in accelerated depreciation what occurs is solely fiscal relevance of the expense in a shorter period of time.

51. Neither does it appear correct the contestation made to the statement contained in the Report, with respect to the manner in which the benefit in discussion "operates in Model 22".

52. We believe it offers no discussion that, both in the case of accelerated depreciation, and in the acceptance of 60% of the increase in depreciation resulting from fiscal legislation, the respective amounts are reflected in the accounting result ascertained by the company at the end of each period.

53. For this reason, we do not understand what the Complainant seeks to mean by the statement that "in the case of accelerated depreciation (...) a deduction is made to taxable profit that aims (...) to reflect an expense greater than that recorded in the accounts".

54. Because, as we have already said, the expense is already reflected in the net result of the fiscal year, with no adjustment (deduction) to taxable profit being necessary.

55. It can be concluded that, similarly to accelerated depreciation, the increase in depreciation and depreciation resulting from legal revaluation is also manifested in the accounting result.

56. Finally, a final note to say that the lack of reference to the tax benefit in discussion in works of doctrine or its consideration in the calculation of fiscal spending, criticisms raised by the Complainant in the final part of its complaint, do not constitute arguments relevant to the ascertainment of the nature of the measure in question, because, as we have already seen above, this is done by appealing to the compliance with the elements integrating the concept of a tax benefit.

57. In this regard, it is also important to recall what the Illustrious Tax Expert Casalta Nabais, when alluding to the panorama of tax benefits, states: "(...) the universe of tax benefits is so broad and diversified that we have no intention whatsoever of referring to all of them. Indeed, alongside the tax benefits contained in statutes that are intended as general codification or special codifications of their discipline, as is the case of the EBF (...), we have the most varied piecemeal legislation contained either in norms dispersed through tax codes (...) or in statutes relating to the most diverse matters. (...) On the one hand, the discipline of tax benefits continues to be spread across the EBF, the various tax codes, the piecemeal tax legislation, whether this respects tax benefits or constitutes more general fiscal legislation, and still the numerous provisions contained in legislation covering the most diverse matters".

58. In such a way that, it is not surprising that doctrine does not make reference to all the tax benefits in force.

59. On the other hand, the sources of information used in the process of quantifying fiscal spending are essentially of a tax nature, coming from the information systems for the assessment of taxes and the corresponding declarative supports where the records fiscally relevant for the calculation of fiscal spending appear.

60. It happens that tax information systems do not contain all the data necessary for adequate quantification of fiscal spending, and moreover, the sources of information for that purpose are not formally defined and approved.

61. Thus, it is not surprising that the increase in depreciation and depreciation resulting from revaluation of a fiscal nature is not considered for the purposes of determining fiscal spending, but nonetheless, it is not legitimate to infer from this that we are not in the presence of a tax benefit."

The Claimant, notified to exercise the right to participation, in the form of prior hearing, regarding the draft decision rejecting the administrative complaint, did not respond;

By order of the Head of the Tax Management and Assistance Division of the Large Taxpayers Unit, under delegation of powers, dated 27-12-2016, a decision was issued rejecting the administrative complaint presented by the Claimant;

Until the present date, the Claimant has not paid the IRC and corporate income surcharge and corresponding compensatory interest calculated by the Respondent relating to the part now contested of the assessment act subject to the present proceedings;

The Claimant presented a guarantee to stay the fiscal enforcement proceedings (docs. nos. 11 and 12).

III.2. Unproven Facts

There are no other facts that should be considered proven with relevance to the decision of the case.

IV. On the Law

A) Delimitation of the Subject Matter of the Claim

As we have seen, although the Claimant, in the administrative complaint presented against the consequent additional assessment of IRC and compensatory interest, contested the corrections, from the express rejection decision of the administrative proceedings, only challenged in the arbitral request sub judice the correction of tax to be paid in the amount of € 1,244,500.04, referring to the liquidation result.

Consequently, it is important to ascertain whether the additional IRC assessment no. 2016…, relating to fiscal year 2012, in the part corresponding to the amount of tax of € 1,244,500.04 added as "Liquidation Result" (by application of article 92 of the IRC Code), increased by the corresponding compensatory interest, in the amount of € 144,286.03, all in total of € 1,388,786.07 (€ 1,244,500.04 + € 144,286.03), is or is not affected by illegality.

B) On the Illegality of the Additional Assessment in Question

The central question to be decided is translated into the interpretation of article 92 of the CIRC in force at the time of the facts ascertained in the case, that is, the interpretation of the version of that article resulting from Law no. 55-A/2010, of 31 December (State Budget Law for 2011).[19]

The first observation goes in the direction of emphasizing that the avalanche of legislative amendments relating to the matter sub judice is linked to the decision of questions of a conjunctural nature. In this way, it suggests that we are dealing with options of economic policy and financial control in fiscal form, which result in tax advantages usually temporary, provisional, transitional, and not with questions inherent to the structure of the tax system itself.

Let us then examine the main amendments suffered since 2005 by that rule.[20]

Under the heading "Liquidation Result", it was initially contained in article 86 of the IRC Code (currently 92) added by article 29 of Law no. 55-B/2004, of 30 December (State Budget Law for 2005), whose content was as follows:

"1 - For entities engaging, as their principal activity, in a commercial, industrial or agricultural activity not covered by the simplified regime, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 83, net of the deductions provided for in sub-paragraphs b) and d) of no. 2 of the same article, cannot be less than 60% of the amount that would be ascertained if the taxpayer did not enjoy tax benefits, the regimes provided for in no. 13 of article 40 and in article 69.

2 - For the purposes of the provision in the preceding number, the following are considered tax benefits:

a) Those provided for in articles 17 and 59 of the Statute of Tax Benefits;

b) Those in Law no. 26/2004, of 8 July, and in Decree-Law no. 74/99, of 16 March;

c) In benefits in the form of deduction to the tax collection, with the exception of those that have a contractual nature, namely the fiscal reserve for investment;

d) In regime of fiscal incentives to inland;

e) In increases in reinstatements and depreciation resulting from revaluation carried out under tax legislation."

This express qualification of the increases in reinstatements and depreciation (and only these) aimed to avoid, as much as possible, divergent interpretations.

With the State Budget Law for 2006, the wording of sub-paragraph c) of no. 2 was modified as follows: "c) In benefits in the form of deduction to the tax collection, with the exception of those provided for in Law no. 40/2005, of 3 August, and those that have a contractual nature;"

In the following year, the State Budget Law for 2007 modified the text of sub-paragraphs b) and d) of the same no. 2, which came to have, respectively, the following wordings: "b) Those in Law no. 26/2004, of 8 July, and in articles 56-D to 56-G of the Statute of Tax Benefits; ...d) In article 39-B of the Statute of Tax Benefits;". Meanwhile the State Budget Law for 2008 eliminated sub-paragraph d) of that article 86.

Decree-Law no. 159/2009, of 13 September (which amended the IRC Code, adapting the rules for determining taxable profit to international accounting standards as adopted by the European Union) brought no substantial amendments in this matter, but performed the renumbering of articles, converting, with identical heading, the former article 86 into the current article 92 of the CIRC, whose wording, in the consolidated version attached to that same statute, read as follows:

"1 — For entities engaging, as their principal activity, in a commercial, industrial or agricultural activity not covered by the simplified regime, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90, net of the deductions provided for in sub-paragraphs a) and b) of no. 2 of the same article, cannot be less than 60% of the amount that would be ascertained if the taxpayer did not enjoy tax benefits, the regimes provided for in no. 13 of article 43 and in article 75.

2 — For the purposes of the provision in the preceding number, the following are considered tax benefits:

a) Those provided for in articles 19 and 67 of the Statute of Tax Benefits;

b) Those in Law no. 26/2004, of 8 July, and in articles 62 to 65 of the Statute of Tax Benefits;

c) In benefits in the form of deduction to the tax collection, with the exception of those provided for in Law no. 40/2005, of 3 August, and those that have a contractual nature;

d) In increases in depreciation and depreciation resulting from revaluation carried out under tax legislation."

Later, with Law no. 3-B/2010, of 28 April (State Budget Law for 2010), no. 1 of this article 92 was amended in the sense of increasing the percentage referred to therein, as follows:

"1 - For entities engaging, as their principal activity, in a commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90, net of the deductions provided for in sub-paragraphs a) and b) of no. 2 of the same article, cannot be less than 75% of the amount that would be ascertained if the taxpayer did not enjoy tax benefits, the regimes provided for in no. 13 of article 43 and article 75."

It was, however, with Law no. 55-A/2010, of 31 December (State Budget Law for 2011), that finally a change in legislative technique occurred, with this rule coming to have the following wording, which was in force at the time of the facts reported in the case:

"1 — For entities engaging, as their principal activity, in a commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90, net of the deductions provided for in sub-paragraphs a) and b) of no. 2 of the same article, cannot be less than 90% of the amount that would be ascertained if the taxpayer did not enjoy tax benefits and the regimes provided for in no. 13 of article 43 and in article 75.

1. The following tax benefits are excluded from the provision of the preceding number:

a) Those that have a contractual nature;

b) The system of fiscal incentives for business research and development II (SIFIDEII);

c) Tax benefits to free trade zones provided for in articles 33 and et seq. of the Statute of Tax Benefits and those that operate by rate reduction;

d) Those provided for in articles 19, 32 and 42 of the Statute of Tax Benefits."[21]

Let us pay attention, then, to what changed with the amendment to the wording of this provision.

First, there is found that the only truly substantial amendment in no. 1 of both legal devices (former 86 and later 92 of the CIRC) is the increase of the percentage of the limitation to be applied to IRC relief which goes from 60% in the 2005 version, to 75% in the version of the State Budget Law for 2010 and, finally, to 90% in the version of the State Budget Law for 2011. Resulting from this an increase in the effective rate of IRC taxation which goes from 18.75% to 22.5% and, consequently, a containment of fiscal spending. The remaining amendments are, in essence, updates of legislative remissions.

It should also be emphasized that the universe to which the increase in the limiting percentage of fiscal relief is applied is the same in both cases: the amount that would be ascertained if the taxpayer did not enjoy tax benefits and the regimes provided for in no. 13 of article 40 and in article 69 (in the version of article 86) and in no. 13 of article 43 and article 75 of the CIRC, whose contents are identical. The consideration is also maintained for purposes of the ceiling of operations that are not, strictly speaking, tax benefits, such as the value of complementary contributions to pension funds or the consideration of tax losses within the scope of the application of the special regime for taxation of groups of companies.

Second, there is a change in legislative technique. In the wordings that applied until 2010, the legislator, in providing that "For the purposes of the provision in the preceding number are considered tax benefits the following…", enumerates exhaustively and affirmatively the categories of tax benefits that it considered encompassed by the provision. Already in the wording introduced by the State Budget Law for 2011, the legislator, in stating "The following tax benefits are excluded from the provision of the preceding number", enumerates, in equally exhaustive form, for the same purposes of application of no. 1, but now negatively, the categories of fiscal relief that are not encompassed by the limitation contained in no. 1 of the same provision.

In both cases, the legislator departs from a specific category, very broad, that of "tax benefit for purposes of the provision", limiting itself to altering the legislative technique used in the enumeration of benefits and other relief to be considered for the purposes of the provision in question: i) In the first case it enumerates those it considers encompassed; ii) and, in the second, it comes to list those it considers excluded. Thus the relief deriving from increases in depreciation and depreciation resulting from revaluation carried out under tax legislation are expressly considered as tax benefits in the version of article 86 of the CIRC and are not found in the list of exclusions provided for in article 92 of the same statute.

The ratio legis advanced, both for the increase of limits to relief, or, in other words, the introduction of limitations to liquidation result, and for the change in legislative technique, was that of expanding the basis of incidence of IRC and correspondingly the effective rate of IRC taxation, a fact that is accepted by both parties in the present proceedings.

Argues, however, the Claimant that, with the change in legislative technique effected by the new wording of article 92 of the CIRC, the limits would have come to apply only to realities materially qualifiable as tax benefits by meeting the criteria that define this notion. And this qualification, given that it considers the legal notion deriving from article 2 of the EBF to be imperfect, would imply a clarification to be made by doctrine, and such notion should be limited to exceptional fiscal measures, that is, in the Claimant's understanding, those that derogate from the principle of taxpaying capacity.

Thus, in this interpretation, "the increases in reinstatement and depreciation resulting from revaluation carried out under tax legislation", should be considered realities excluded from the provision in question, because they do not meet the criteria that would allow them to be qualified as tax benefits[22].

It appears, however, that this interpretation finds no support in the letter of the provision, nor is it in accordance with the reason for the change in legislative technique effected by article 92 of the CIRC. On the other hand, it is in contradiction with the notion of tax benefit embraced, in broad terms, for purposes of this same article, and, in our understanding, even deviates from the notion deriving from the EBF.

First, the letter of the provision does not include (and, indeed, continues not to include, in its current version, as is referred to above in note 21) in the universe of tax benefits excluded from the limits the increases in reinstatement and depreciation resulting from revaluation carried out under tax legislation. The thesis of the Recurrent seems to be that they are not excluded nor would they have to be, because, in its understanding, they are not tax benefits (because, in its understanding, they do not contradict the principle of taxpaying capacity), such increases would be automatically excluded from that legal limit. The objective result of this interpretation is, in relation to the situation existing before the 2010 legislative amendment, the attribution, for unjustified reasons, of a specific advantage, that is, a true tax benefit. It is not understood what foundation or hermeneutical criterion would enable us to conclude that the change in legislative technique used by the legislator had brought about a change of paradigm in the notion of tax benefit underlying the provision, having regard to the aims pursued by the same.

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