CAAD 229/2018-T: PEC Deduction Against Autonomous Taxation IRC Collection – Reformed Arbitral Decision

TAX ARBITRATION JURISPRUDENCE

Case No. 229/2018-T

Decision Date: 28 February 2020

IRC (Corporate Income Tax)

Value of Claim: €58,624.48

Subject Matter: IRC – Official Review – Amendment of Arbitral Decision (attached to this decision)
Replaces the arbitral decision of 16 October 2018.

ARBITRAL DECISION

In compliance with the judgment of the Central Administrative Court – South (TCAS) rendered on 13-12-2019 which declared the nullity of the arbitral judgment of 16 October 2018, the following decision is hereby rendered:

I. REPORT

A..., S.A., legal entity no...., with registered office at..., with share capital of €837,880.00, filed a request for constitution of a single Arbitral Tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter AT or Respondent) is the respondent, with the objective of obtaining a declaration of illegality of the act of rejection of the request for official review filed and, consequently, of the act of self-assessment of IRC relating to the financial year 2011, to the extent corresponding to the non-deduction from the IRC tax collected produced by the rates of autonomous taxation of the special payment on account made in the context of IRC, in the amount of €58,624.48, or, alternatively, to the extent that the autonomous taxation assessment is undue.

The Claimant bases its request on the following arguments:

a) The IRC tax collected provided for in article 45, no. 1, letter a), of the IRC Code comprises the collection of autonomous tax rates in IRC, so it must also be understood that the IRC tax collection provided for in article 90, nos. 1 and 2, letter c), of the IRC Code, as worded in 2013, also encompasses the collection of autonomous tax rates in IRC;

b) Whereby the denial of deduction of the special payment on account from the IRC tax collection of autonomous taxation violates letter c) of no. 2 of article 90 of the IRC Code (prior to 2010, article 83; and from 2014 onwards became letter d) of the aforementioned no. 2 of article 90 of the IRC Code);

c) As a consequence, both the rejection of the request for official review filed and the self-assessment of IRC (including its autonomous taxation rates) relating to the financial year 2011 suffer from a substantive defect of breach of law, insofar as the deduction of the special payment on account from the part of the IRC tax collection corresponding to autonomous taxation rates should not be prohibited. Or, alternatively, insofar as the assessment itself of autonomous taxation would be illegal should it be deemed not to be subject to article 90 of the IRC Code (absence of the legal basis required for the purposes of the assessment and collection procedure – article 8, no. 2, letter a) of the General Tax Law (LGT), and article 103, no. 3, of the Constitution).

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 3 May 2018 and automatically notified to AT.

In accordance with the provision in letter c) of no. 1 of article 11 of the RJAT, the single Arbitral Tribunal was constituted on 16 June 2018.

AT responded, defending its absolution from the proceedings, in view of the material incompetence exception of the tribunal or, should that not be accepted, the lack of merit of the claim, taking into account, in summary, the following grounds:

a) The arbitral pronouncement sub judice has as its immediate object the decision of rejection of the request for official review of the IRC self-assessment act relating to the financial year 2011;

b) In light of the provisions of articles 2, no. 1, letter a) and 4, no. 1, both of the RJAT, and in articles 1 and 2, letter a), both of Ordinance No. 112-A/2011 of 22 March 2011, there is a material incompetence exception of this Arbitral Tribunal to hear and decide the above request;

c) In accordance with letter a) of no. 1 of article 2 of the RJAT, the competence of arbitral tribunals comprises the assessment of declarations of illegality of acts of assessment of taxes, self-assessment, withholding at source and payments on account, "with the exception of claims relating to declarations of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process";

d) By virtue of the reference in no. 1 of article 4 of the RJAT, the binding of AT to the jurisdiction of arbitral tribunals constituted pursuant to that decree is dependent on the provisions of Ordinance No. 112-A/2011, namely as to the type and maximum value of disputes covered;

e) Article 2, letter a) of Ordinance 112-A/2011 provides that the binding of AT to the referred jurisdiction has as its object the assessment of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of article 2 of the RJAT;

f) Now, the arbitral pronouncement sub judice is directed, albeit indirectly, to the declaration of illegality of an act of IRC self-assessment;

g) The scrutiny of acts of self-assessment of tax is admitted in arbitral proceedings only if, at a prior moment, they have been challenged administratively, in accordance with article 131 of the CPPT;

h) This, even without prejudice to, as concluded in the decision rejecting the request for official review sub judice, it still being, abstractly, possible to raise the illegality of self-assessment acts in accordance with nos. 1 and 2 of article 78 of the LGT;

i) Indeed, jurisprudence has established the understanding – which is not questioned – that, given the administrative nature of the official review procedure, it is capable of being equated to the provision of article 131, no. 1 of the CPPT, for the purpose of subsequent challenge of the respective rejection decision;

j) However, such equivalence is legally prohibited in arbitral proceedings, being excluded from the material competence of arbitral tribunals the assessment of claims relating to declarations of illegality of self-assessment acts that have not been preceded by recourse to administrative remedy in accordance with articles 131 of the CPPT, but only of official review in accordance with article 78 of the LGT;

k) Indeed, article 2 letter a) of Ordinance No. 112-A/2011 expressly excludes from the scope of AT's binding to arbitral jurisdiction, "(…) claims relating to declarations of illegality of self-assessment acts (…) that have not been preceded by recourse to administrative remedy in accordance with articles 131 to 133 of the CPPT.", with no reference to official review provided for in article 78 of the LGT;

l) Thus, if it is true that a taxpayer who has not filed a timely gratuitous complaint is not, ipso facto, prevented from requesting review of the self-assessment act under article 78 of the LGT, within the conditions provided therein, and from challenging in court the decision rejecting the review request (cf. article 95, no. 2, letter d), of the LGT), it is equally beyond question that AT only bound itself, in accordance with Ordinance No. 112-A/2011, to the jurisdiction of arbitral tribunals if the claim for declaration of illegality of self-assessment act was preceded by recourse to the administrative remedy of gratuitous complaint;

m) Furthermore, it appears that in the situation sub judice the alleged "self-assessment act" was not carried out in accordance with generic instructions issued by AT, making it necessary to conclude that the mandatory precedence of gratuitous complaint was always required in accordance with no. 1 of article 131 of the CPPT;

n) Whereby on these grounds access to arbitral jurisdictional protection is, with even greater reason, precluded, since here the gratuitous complaint would always be mandatory in accordance with article 131 of the CPPT, as required in article 2, letter a) of Ordinance No. 112-A/2011;

o) By way of challenge, the Respondent defends that there is not a single IRC assessment, but rather two determinations, that is, two distinct calculations which, although processed, in accordance with letter a) of no. 1 of article 90 of the IRC Code, in the statements referred to in articles 120 and 122 of the same code, are made on the basis of different parameters, as each is materialized in the application of its own rates, provided for in articles 87 or 88 of the IRC Code, to the respective taxable amounts determined also in accordance with specific rules;

p) Payments on account of the tax due finally, in accordance with the definition of article 33 of the LGT, are "advance payments made by taxpayers during the period of formation of the taxable event", constituting a "(…) means of bringing the moment of collection closer to that of perception of income so as to remedy situations in which such approximation cannot be effected through withholding at source."

q) Therefore, in sound logic, it only makes sense to conclude that the respective calculation basis corresponds to the amount of the IRC tax collected resulting from the taxable amount identified with the profit/income of the taxpayer's financial year;

r) Thus, the delimitation of the content of the expression used by the legislator in no. 2 of article 90 of the IRC Code, "amount determined in accordance with the preceding number", and in no. 1 of article 105 of the IRC Code, "tax assessed in accordance with no. 1 of article 90", must be done coherently, that is, by consequently assigning to it, in both provisions, a univocal meaning;

s) Which is to say that it corresponds to the amount of the IRC calculated by applying the rates of article 87 to the taxable amount determined on the basis of profit and the rates of article 87 of the Code;

t) By simple consequence of the preceding considerations which led to the conclusion that the deductions referred to in letters a) and b) of no. 2 of article 90 of the IRC Code are made to the "amount determined in accordance with the preceding number", understood as the amount of IRC determined on the basis of the taxable amount determined in accordance with the rules contained in chapter III and the rates of article 87 of the same Code, and descending to the specific case, it is possible to extend such conclusion to the deduction relating to special payments on account;

u) In sum: the legal nature of the special payment on account, revealed by its configuration as "an instrument or guarantee of payment of the tax on account of which it is required, and not as an imposition in itself" (cf. the Court Decision cited above), as well as by the function associated with it in combating tax evasion and fraud, inseparably links this payment to the amount of IRC determined on the basis of the taxable amount determined based on profit (chapter III of the Code);

v) Being, therefore, manifestly devoid of any basis the Claimant's claim to deduction of the amount borne in respect of special payment on account from the IRC tax collection produced by autonomous taxation rates in 2011;

w) [blank]

x) Even if compensation interest were capable of being configured in the situation at issue in the proceedings, its calculation would always have as its starting point the date on which notification of the decision rejecting the official review procedure occurred, and never the moment indicated by the Claimant in its request.

The meeting referred to in article 18 of the RJAT was dispensed with, in view of the nature of the matter contained in the proceedings, with the knowledge of the exception invoked by the Respondent being deferred to the final decision;

By decision of the Central Administrative Court – South, rendered in the context of case 111/18.6BCLSB, letter a) of article 2 of Ordinance No. 112-A/2011 enables the presentation of requests for arbitral pronouncement regarding self-assessment acts that have been preceded by a request for official review. Thus, this Tribunal shall proceed to hear the merits.

II. FACTS

Based on the elements contained in the proceedings and in the administrative file attached to the record, the following facts are deemed to be proven:

A) The Claimant filed on 31 May 2012 its IRC declaration Model 22 for the financial year 2011, having entered, in field 365 dedicated to autonomous taxation rates, the value of €58,624.48;

B) AT's IT system prevents the entry of the value relating to IRC autonomous taxation rates, deducted, within the limits of the IRC tax collected resulting from the application of these rates, of the amounts of special payments on account still available (starting with the oldest) for offset against the IRC tax collection;

C) The assessment act (self-assessment) sub judice was not carried out in accordance with any generic instructions issued by AT;

D) On 3 February 2016, the Claimant filed a request for official review against the above-identified IRC self-assessment act, claiming acceptance of the deduction of the amount borne as special payment on account in the context of IRC, from the amount of the tax collection determined in the context of autonomous taxation rates;

E) On 8 March 2018, the Claimant was notified of the rejection of the request for official review filed.

Taking into account the positions adopted by the parties, in light of article 110, no. 7 of the CPPT and the documentary evidence attached to the record, the facts listed above are deemed to be proven and relevant to the decision.

This Tribunal formed its conviction on the basis of the documents submitted to the record by the Parties.

III. LAW

The principal question that arises in the present proceedings is whether the amounts paid as special payment on account by the Claimant can be deducted from the IRC tax collected produced by autonomous taxation rates.

Taking into account the decision on the merits already rendered by this Tribunal, in the context of case No. 744/2015-T, on the deduction of the special payment on account from the collection of autonomous taxation rates, endorsed by the decision of the Constitutional Court No. 267/2017 of 31 May 2017, in the context of appeal No. 466/16, the understanding expressed there is reproduced, applicable in this specific case, it being understood that the reference to article 90, nos. 1 and 2 d) of the IRC Code corresponds to article 90, nos. 1 and 2 c), in the version in force in 2011, applicable in the case sub judice.

Thus:

"A – ON THE INTERPRETATION OF ARTICLE 90, NOS. 1 AND 2 D) OF THE IRC CODE

It follows from article 11 of the General Tax Law (LGT) that the interpretation of tax law must be carried out in accordance with general principles of interpretation.

The general principles of interpretation are established in article 9 of the Civil Code (CC), as follows:

1. Interpretation should not be confined to the letter of the law, but should reconstruct, from the texts, the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time when it is applied.

2. The interpreter cannot, however, consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator enshrined the most correct solutions and knew how to express its thought in adequate terms.

Thus, taking into account the referred principles, it is important to note the provisions of article 90 of the IRC Code, which establishes the following:

Article 90
Procedure and method of assessment

1 – The assessment of IRC is carried out as follows:

a) When the assessment is to be made by the taxpayer in the statements referred to in articles 120 and 122, it is based on the taxable amount contained therein;

b) In the absence of submission of the statement referred to in article 120, the assessment is carried out by 30 November of the following year or, in the case provided for in no. 2 of the said article, by the end of the 6th month following the end of the deadline for submission of the statement mentioned therein and is based on the annual amount of the minimum monthly remuneration or, when higher, the totality of the taxable amount of the nearest financial year that has been determined;

c) In the absence of assessment in accordance with the preceding letters, the same is based on elements which the tax administration has available.

2 – To the amount determined in accordance with the preceding number, the following deductions are made, in the order indicated:

a) That corresponding to international double taxation of a legal nature;
b) That corresponding to international double taxation of an economic nature;
c) That relating to tax benefits;
d) That relating to the special payment on account referred to in article 106;
e) That relating to withholdings at source not capable of compensation or refund in accordance with applicable legislation.

3 – (Repealed).

4 – To the amount determined in accordance with no. 1, concerning the entities mentioned in no. 4 of article 120, only the deduction relating to withholdings at source when they have the nature of tax on account of IRC is to be made.

5 – The deductions referred to in no. 2 concerning entities to which the transparent fiscal regime established in article 6 applies are imputed to their respective partners or members in the terms established in no. 3 of that article and deducted from the amount determined on the basis of the taxable amount which took into account the imputation provided for in the same article.

6 – When the special scheme of taxation of groups of companies applies, the deductions referred to in no. 2 relating to each of the companies are made to the amount determined concerning the group, in accordance with no. 1.

7 – (Repealed by Law No. 82-C/2014 of 31 December)

8 – Concerning taxpayers covered by the simplified scheme for determining the taxable amount, to the amount determined in accordance with no. 1 only the deductions provided for in letters a) and e) of no. 2 are to be made.

9 – From the deductions made in accordance with letters a) to d) of no. 2 no negative value can result.

10 – To the amount determined in accordance with letters b) and c) of no. 1 only the deductions of which the tax administration has knowledge and which can be made in accordance with nos. 2 to 4 are made.

11 – In cases where the provision in letter b) of no. 2 of article 79 applies, annual assessments are made based on the taxable amount determined on a provisional basis, and, in relation to the assessment corresponding to the taxable amount for the entire assessment period, the difference established shall be collected or cancelled.

12 – The assessment provided for in no. 1 may be corrected, if appropriate, within the period referred to in article 101, and the differences established shall then be collected or cancelled.

Thus, having regard to the literal element of the rule contained in article 90, no. 2 d) of the IRC Code, it is understood that from the amount of the IRC tax collection determined, the special payment on account referred to in article 106 of that Code is deductible.

In accordance with no. 1 of article 15 of the IRC Code, the taxable amount is obtained by deducting from taxable profit the amounts corresponding to tax losses and possible tax benefits.

The taxable profit of entities that exercise, as their principal activity, a commercial, industrial or agricultural activity is, in turn, in accordance with article 17 of the IRC Code, quantified based on the net result of the financial year determined in accordance with accounting standards, adjusted for positive and negative changes in assets not reflected in that result, with adjustments as provided for in the Code being added and subtracted.

The taxable amount is determined, based on taxable profit, from which certain tax benefits are deducted, as well as any tax losses capable of deduction.

The IRC due is generically calculated on the taxable amount determined, by applying to it the IRC rate (Tax Collection).

In determining taxable profit, the expenses, costs and charges provided for in article 88 of the IRC Code are included.

Nevertheless, the expenses, costs and charges provided for in article 88 of the IRC Code are subject to autonomous taxation.

These autonomous taxation rates constitute IRC, just as the general rates, liberatory rates or special IRS rates constitute IRS.

Given that the IRC tax collection includes the expenses, costs and charges subject to autonomous taxation, then, having regard to the provision in no. 2 d) of article 90 of the IRC Code, the special payment on account must be deducted from the IRC tax collection determined, which encompasses the autonomous taxation rates due.

In fact, the assessment of IRC (and autonomous taxation rates) is regulated by the provision in article 90, no. 1 a) of the IRC Code, according to which "When the assessment is to be made by the taxpayer in the statements referred to in articles 120 and 122, (…) the IRC assessment is based on the taxable amount contained therein."

In the absence of any rule providing for a different form of assessment applicable to autonomous taxation rates, their assessment can only be carried out in the aforementioned terms.

In truth, we cannot identify in the IRC Code any special rule applicable to the assessment of autonomous taxation rates which would allow us to conclude that the general rule established in article 90 of the IRC Code is not applicable.

As AT itself states in no. 38 of its learned response, "the assessment of autonomous taxation rates is carried out on the basis of articles 89 and 90, no. 1 of the IRC Code but applying different rules for the calculation of the tax."

In fact, the assessment of autonomous taxation rates has the same legal basis as the assessment of IRC, being, however, the taxable amount and the applicable taxation rates different.

Consequently, and taking into account a literal interpretation of the rules involved, it is only possible to conclude that, in providing in letter d) of no. 2 of article 90 of the IRC Code that "To the amount determined in accordance with the preceding number the following deductions are made, in the order indicated: (…) That relating to the special payment on account referred to in article 106"; from the literal point of view, the special payment on account must be deducted from the tax collection (of IRC, including autonomous taxation rates).

Let us see if the teleological and systematic interpretation of the rule sub judice alters the conclusion found.

Article 90 of the IRC Code refers to the methods of assessment of IRC, by the taxpayer or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (no. 10).

Therefore, it also applies to the assessment of the amount of autonomous taxation rates, which is determined by the taxpayer or by the Tax Administration in accordance with article 90 of the IRC Code, with no other provision foreseeing different terms for its assessment. Its autonomy is restricted to the applicable rates and their respective taxable matter, but the determination of its amount is carried out in accordance with article 90.

As has been extensively explained by Jurisprudence, the purpose underlying the creation of autonomous taxation rates is the combating of tax evasion, aiming with their creation to obviate the transfer to the business sphere of expenses that have an underlying remunerative intent, so as to improve the tax treatment of income in the personal sphere, or to obviate that costs without a business cause are accounted for.

This objective is pursued through autonomous taxation, not being distorted by the fact that this tax can be satisfied by the tax collected through the special payment on account.

Moreover, even if it were not so understood, in the absence of a special rule concerning the method of assessment of autonomous taxation rates, it is not apparent how one can understand there to be a conflict of rules and hence draw as a consequence the impossibility of deduction of the special payment on account from the collection, including autonomous taxation rates.

In truth, in the absence of a special rule concerning the method of assessment of autonomous taxation rates, this should be carried out in accordance with the general terms provided for in the IRC Code, by force of the principle of tax legality, which results from the provision in no. 3 of article 103 of the Constitution of the Portuguese Republic and article 8 of the General Tax Law, which prevent the assessment of tax from being carried out without legal basis.

It is concluded, therefore, that, contrary to what was defended in this situation by AT, the rule provided for in article 90, nos. 1 and 2 d) of the IRC Code must be interpreted in the sense of considering that the IRC tax collection encompasses autonomous taxation rates, which are also IRC.

B – ON THE NEW ARTICLE 88, NO. 21 OF THE IRC CODE

The State Budget Law for 2016 (Law No. 7-A/2016 of 30 March, hereinafter Budget Law), introduced into article 88 of the IRC Code no. 21, according to which:

"21 – The assessment of autonomous taxation rates in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the overall amount determined."

In light of the new wording given to article 88, no. 21 of the IRC Code, it appears that the legislator came to consider that the assessment of autonomous taxation rates in the context of IRC should be carried out in accordance with general terms, but that no deductions can be made to the overall amount determined.

In this way, it seems possible to conclude that, in light of the new wording of article 88 of the IRC Code, the special payment on account provided for in article 90, no. 2 d) of the IRC Code cannot be deducted from the collection of autonomous taxation rates.

In accordance with the provision in article 135 of the Budget Law:

"The wording given by this law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to nos. 20 and 21 of article 88 and to no. 8 of article 117 of the IRC Code is of an interpretative nature."

The Claimant alleges, however, that only the first part of the rule – "The assessment of autonomous taxation rates in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers" – is of an interpretative nature, while the second part of the rule – "with no deductions being made to the overall amount determined" – cannot be understood as interpretative.

Regarding what is to be understood by interpretative rules, article 13 of the Civil Code (CC) provides as follows:

"1 – The interpretative law integrates itself into the interpreted law, the effects already produced by fulfillment of the obligation, however, remaining protected, by judgment that has become final, by transaction, even if not approved, or by acts of analogous nature.

2 – The abandonment and confession not approved by the court can be revoked by the person abandoning or confessing to whom the interpretative law is favorable."

In an annotation to the above-transcribed article, Pires de Lima and Antunes Varela clarify that "A law must be considered interpretative that intervenes to decide a question of law whose solution is controversial or uncertain, enshrining an understanding to which jurisprudence, by its own means, could have arrived (cf. Batista Machado, op. cit., pp. 286 et seq.)."

As decided in the Plenary Session of the Supreme Court of Justice No. 2/82 of 18 June, "[i]f the rule, in addition to being uncertain, is already controversial, then the new law can only be qualified as interpretative if it resolves the problem within the parameters of the controversy generated in that regard, following a strong current of previous jurisprudence."

Now, in the case sub judice, the matter interpreted by no. 21 of article 88 of the Code which clarifies that "The assessment of autonomous taxation rates in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers" seems to have true interpretative nature, given that such understanding, in addition to resulting from the Law, as defended in this decision, has a generically consensual character among those applying that law.

However, the matter interpreted by no. 21 of article 88 of the Code which seeks to clarify that "with no deductions being made to the overall amount determined", does not seem to be a true interpretative rule, since there is no constant and settled understanding on that discussion.

Moreover, to the extent there is some understanding on the matter "interpreted" one could say that this would be in the contrary sense.

For which reason it is considered that it is not possible to conclude that "a uniform jurisprudential current was formed that made the meaning of the old rule practically certain."

Now, as Oliveira Ascensão maintains, laws said to be interpretative that are materially innovative are laws particularly to be censured since "in them are exacerbated the inconveniences that never cease to accompany interpretative laws whatever they may be", in that they will give rise to grave injury to legal certainty.

Moreover, there being no prior legal basis applicable specifically to the assessment of autonomous taxation rates, there is, in truth, also no rule specifically interpreted, into which the so-called interpretative rule can be integrated, or at least, perception of the interpreted rule is quite difficult.

Also for this reason, it is understood that taxpayers could not rely on the rule created by the provision in the second part of no. 21 of article 88 of the IRC Code, for which reason the rule in question may violate safe and legitimately founded expectations.

Thus, the second part of the rule in question cannot be considered a true interpretative rule, being therefore prohibited its retroactive application."

In light of the above, it is concluded that the second part of the rule under analysis cannot be applied to the case sub judice, whose challenged act relates to the year 2011, under penalty of violation of the provisions in article 103, nos. 1 and 3 of the Constitution of the Portuguese Republic and in article 12 of the LGT.

IV. DECISION

Whereby this Arbitral Tribunal decides:

A) To declare entirely well-founded the request to annul the rejection of the request for official review filed concerning the IRC self-assessment act relating to the year 2011, in the part corresponding to the deduction from the collection of autonomous taxation rates, in the amount of €58,624.48;

B) To condemn the Tax and Customs Authority to refund to the Claimant the amount of tax paid, plus compensatory interest;

C) To condemn the Respondent in the costs of the present proceedings, as the losing party.

V. VALUE OF THE PROCEEDINGS

In accordance with the provision in article 306, no. 2 of the Civil Procedure Code, 97-A, no. 1 a) of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is €58,624.48.

VI. COSTS

In accordance with the provisions in articles 12, no. 2 and 22, no. 4, both of the RJAT, and in article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings, the arbitration fee is set at €2,142.00, in accordance with Table I of the mentioned Regulation, charged to the Respondent.

Notify.

Lisbon, 28 February 2020

The Arbitrator,
Magda Feliciano

(The text of this decision was prepared using a computer, in accordance with article 131, no. 5 of the Civil Procedure Code, applicable by reference from article 29, no. 1, letter e) of Decree-Law No. 10/2011 of 20 January (RJAT), and is written in the spelling prior to the 1990 Orthographic Agreement.)

ARBITRAL DECISION

VII. REPORT

A..., S.A., legal entity no...., with registered office at..., with share capital of €837,880.00, filed a request for constitution of a single Arbitral Tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter AT or Respondent) is the respondent, with the objective of obtaining a declaration of illegality of the act of rejection of the request for official review filed and, consequently, of the act of self-assessment of IRC relating to the financial year 2011, to the extent corresponding to the non-deduction from the IRC tax collected produced by the rates of autonomous taxation of the special payment on account made in the context of IRC, in the amount of €58,624.48, or, alternatively, to the extent that the autonomous taxation assessment is undue.

The Claimant bases its request on the following arguments:

d) The IRC tax collected provided for in article 45, no. 1, letter a), of the IRC Code comprises the collection of autonomous tax rates in IRC, so it must also be understood that the IRC tax collection provided for in article 90, nos. 1 and 2, letter c), of the IRC Code, as worded in 2013, also encompasses the collection of autonomous tax rates in IRC;

e) Whereby the denial of deduction of the special payment on account from the IRC tax collection of autonomous taxation violates letter c) of no. 2 of article 90 of the IRC Code (prior to 2010, article 83; and from 2014 onwards became letter d) of the aforementioned no. 2 of article 90 of the IRC Code);

f) As a consequence, both the rejection of the request for official review filed and the self-assessment of IRC (including its autonomous taxation rates) relating to the financial year 2011 suffer from a substantive defect of breach of law, insofar as the deduction of the special payment on account from the part of the IRC tax collection corresponding to autonomous taxation rates should not be prohibited. Or, alternatively, insofar as the assessment itself of autonomous taxation would be illegal should it be deemed not to be subject to article 90 of the IRC Code (absence of the legal basis required for the purposes of the assessment and collection procedure – article 8, no. 2, letter a) of the General Tax Law (LGT), and article 103, no. 3, of the Constitution).

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 3 May 2018 and automatically notified to AT.

In accordance with the provision in letter c) of no. 1 of article 11 of the RJAT, the single Arbitral Tribunal was constituted on 16 June 2018.

AT responded, defending its absolution from the proceedings, in view of the material incompetence exception of the tribunal or, should that not be accepted, the lack of merit of the claim, taking into account, in summary, the following grounds:

y) The arbitral pronouncement sub judice has as its immediate object the decision of rejection of the request for official review of the IRC self-assessment act relating to the financial year 2011;

z) In light of the provisions of articles 2, no. 1, letter a) and 4, no. 1, both of the RJAT, and in articles 1 and 2, letter a), both of Ordinance No. 112-A/2011 of 22 March 2011, there is a material incompetence exception of this Arbitral Tribunal to hear and decide the above request;

aa) In accordance with letter a) of no. 1 of article 2 of the RJAT, the competence of arbitral tribunals comprises the assessment of declarations of illegality of acts of assessment of taxes, self-assessment, withholding at source and payments on account, "with the exception of claims relating to declarations of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process";

bb) By virtue of the reference in no. 1 of article 4 of the RJAT, the binding of AT to the jurisdiction of arbitral tribunals constituted pursuant to that decree is dependent on the provisions of Ordinance No. 112-A/2011, namely as to the type and maximum value of disputes covered;

cc) Article 2, letter a) of Ordinance 112-A/2011 provides that the binding of AT to the referred jurisdiction has as its object the assessment of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of article 2 of the RJAT;

dd) Now, the arbitral pronouncement sub judice is directed, albeit indirectly, to the declaration of illegality of an act of IRC self-assessment;

ee) The scrutiny of acts of self-assessment of tax is admitted in arbitral proceedings only if, at a prior moment, they have been challenged administratively, in accordance with article 131 of the CPPT;

ff) This, even without prejudice to, as concluded in the decision rejecting the request for official review sub judice, it still being, abstractly, possible to raise the illegality of self-assessment acts in accordance with nos. 1 and 2 of article 78 of the LGT;

gg) Indeed, jurisprudence has established the understanding – which is not questioned – that, given the administrative nature of the official review procedure, it is capable of being equated to the provision of article 131, no. 1 of the CPPT, for the purpose of subsequent challenge of the respective rejection decision;

hh) However, such equivalence is legally prohibited in arbitral proceedings, being excluded from the material competence of arbitral tribunals the assessment of claims relating to declarations of illegality of self-assessment acts that have not been preceded by recourse to administrative remedy in accordance with articles 131 of the CPPT, but only of official review in accordance with article 78 of the LGT;

ii) Indeed, article 2 letter a) of Ordinance No. 112-A/2011 expressly excludes from the scope of AT's binding to arbitral jurisdiction, "(…) claims relating to declarations of illegality of self-assessment acts (…) that have not been preceded by recourse to administrative remedy in accordance with articles 131 to 133 of the CPPT.", with no reference to official review provided for in article 78 of the LGT;

jj) Thus, if it is true that a taxpayer who has not filed a timely gratuitous complaint is not, ipso facto, prevented from requesting review of the self-assessment act under article 78 of the LGT, within the conditions provided therein, and from challenging in court the decision rejecting the review request (cf. article 95, no. 2, letter d), of the LGT), it is equally beyond question that AT only bound itself, in accordance with Ordinance No. 112-A/2011, to the jurisdiction of arbitral tribunals if the claim for declaration of illegality of self-assessment act was preceded by recourse to the administrative remedy of gratuitous complaint;

kk) Furthermore, it appears that in the situation sub judice the alleged "self-assessment act" was not carried out in accordance with generic instructions issued by AT, making it necessary to conclude that the mandatory precedence of gratuitous complaint was always required in accordance with no. 1 of article 131 of the CPPT;

ll) Whereby on these grounds access to arbitral jurisdictional protection is, with even greater reason, precluded, since here the gratuitous complaint would always be mandatory in accordance with article 131 of the CPPT, as required in article 2, letter a) of Ordinance No. 112-A/2011;

mm) By way of challenge, the Respondent defends that there is not a single IRC assessment, but rather two determinations, that is, two distinct calculations which, although processed, in accordance with letter a) of no. 1 of article 90 of the IRC Code, in the statements referred to in articles 120 and 122 of the same code, are made on the basis of different parameters, as each is materialized in the application of its own rates, provided for in articles 87 or 88 of the IRC Code, to the respective taxable amounts determined also in accordance with specific rules;

nn) Payments on account of the tax due finally, in accordance with the definition of article 33 of the LGT, are "advance payments made by taxpayers during the period of formation of the taxable event", constituting a "(…) means of bringing the moment of collection closer to that of perception of income so as to remedy situations in which such approximation cannot be effected through withholding at source."

oo) Therefore, in sound logic, it only makes sense to conclude that the respective calculation basis corresponds to the amount of the IRC tax collected resulting from the taxable amount identified with the profit/income of the taxpayer's financial year;

pp) Thus, the delimitation of the content of the expression used by the legislator in no. 2 of article 90 of the IRC Code, "amount determined in accordance with the preceding number", and in no. 1 of article 105 of the IRC Code, "tax assessed in accordance with no. 1 of article 90", must be done coherently, that is, by consequently assigning to it, in both provisions, a univocal meaning;

qq) Which is to say that it corresponds to the amount of the IRC calculated by applying the rates of article 87 to the taxable amount determined on the basis of profit and the rates of article 87 of the Code;

rr) By simple consequence of the preceding considerations which led to the conclusion that the deductions referred to in letters a) and b) of no. 2 of article 90 of the IRC Code are made to the "amount determined in accordance with the preceding number", understood as the amount of IRC determined on the basis of the taxable amount determined in accordance with the rules contained in chapter III and the rates of article 87 of the same Code, and descending to the specific case, it is possible to extend such conclusion to the deduction relating to special payments on account;

ss) In sum: the legal nature of the special payment on account, revealed by its configuration as "an instrument or guarantee of payment of the tax on account of which it is required, and not as an imposition in itself" (cf. the Court Decision cited above), as well as by the function associated with it in combating tax evasion and fraud, inseparably links this payment to the amount of IRC determined on the basis of the taxable amount determined based on profit (chapter III of the Code);

tt) Being, therefore, manifestly devoid of any basis the Claimant's claim to deduction of the amount borne in respect of special payment on account from the IRC tax collection produced by autonomous taxation rates in 2011;

uu) Even if compensation interest were capable of being configured in the situation at issue in the proceedings, its calculation would always have as its starting point the date on which notification of the decision rejecting the official review procedure occurred, and never the moment indicated by the Claimant in its request.

The meeting referred to in article 18 of the RJAT was dispensed with, in view of the nature of the matter contained in the proceedings, with the knowledge of the exception invoked by the Respondent being deferred to the final decision;

VIII. FACTS

Based on the elements contained in the proceedings and in the administrative file attached to the record, the following facts are deemed to be proven:

F) The Claimant filed on 31 May 2012 its IRC declaration Model 22 for the financial year 2011, having entered, in field 365 dedicated to autonomous taxation rates, the value of €58,624.48;

G) AT's IT system prevents the entry of the value relating to IRC autonomous taxation rates, deducted, within the limits of the IRC tax collected resulting from the application of these rates, of the amounts of special payments on account still available (starting with the oldest) for offset against the IRC tax collection;

H) The assessment act (self-assessment) sub judice was not carried out in accordance with any generic instructions issued by AT;

I) On 3 February 2016, the Claimant filed a request for official review against the above-identified IRC self-assessment act, claiming acceptance of the deduction of the amount borne as special payment on account in the context of IRC, from the amount of the tax collection determined in the context of autonomous taxation rates;

J) On 8 March 2018, the Claimant was notified of the rejection of the request for official review filed.

Taking into account the positions adopted by the parties, in light of article 110, no. 7 of the CPPT and the documentary evidence attached to the record, the facts listed above are deemed to be proven and relevant to the decision.

This Tribunal formed its conviction on the basis of the documents submitted to the record by the Parties.

IX. LAW

In the response filed, AT invokes the material incompetence exception which, if verified, will lead to the absolution from the proceedings. Thus let us examine:

The arbitral pronouncement sub judice has as its immediate object the decision of rejection of the official review filed by the Claimant and as its mediate object the act of self-assessment of IRC, including autonomous taxation rates, relating to the year 2011.

In accordance with the provisions of articles 16 of the CPPT, 13 of the CPTA and 101 of the CPC, subsidiarily applicable ex vi of no. 1 of article 29 of the RJAT, the determination of the material competence of courts is of public order and its determination precedes that of any other matter.

Consequently, taking into account that the finding of the exception invoked by AT, if verified, prevents the assessment of the other issues raised, it is important to delimit the scope of competence of the tax arbitral jurisdiction and to ascertain whether the competence of the tribunal encompasses, or not, the decision of rejection of the official review filed by the Claimant and the act of self-assessment of IRC.

The question of material incompetence of arbitral tribunals has been addressed in various arbitral proceedings judged within the CAAD. See in this regard the decisions rendered in the context of cases Nos. 236/2013 of 22 April 2014, 48/2012 of 06.07.2012, 73/2012 of 23.10.2012 and 76/2012 of 29.10.2012, whose decisions we follow.

Thus, first of all, it is important to note the provision in no. 1 of article 124 of Law No. 3-B/2010 of 28 April, according to which the Government was authorized "to legislate in order to institute arbitration as an alternative form of jurisdictional resolution of conflicts in tax matters", and which, according to its no. 2, should "constitute an alternative procedural means to the process of judicial challenge and to the action for recognition of a right or legitimate interest in tax matters."

Implementing the referred legislative authorization, Decree-Law No. 10/2011 of 20 January, "instituted tax arbitration limited to certain matters, listed in its article 2, making the binding of the tax administration dependent on an ordinance of the members of Government responsible for the areas of finance and justice" (see the reasoning of the arbitral decision rendered in Case No. 76/2012 above referred to).

The scope of tax arbitral jurisdiction was thus delimited, in the first instance, by the provision in article 2 of the RJAT which sets out, in its no. 1, the criteria for material distribution, encompassing the assessment of claims aimed at the declaration of illegality of acts of assessment of taxes (letter a)).

Through Ordinance No. 112-A/2011 of 20 April (hereinafter Ordinance), the Government, through the Ministers of State, Finance and Justice, bound the services of the General Directorate of Taxes and the General Directorate of Customs and Special Consumption Taxes to the jurisdiction of arbitral tribunals operating at CAAD, with these services now corresponding to the Tax and Customs Authority, in accordance with Decree-Law No. 118/2011 of 15 December, which approves the organizational structure of this Authority, resulting from the merger of various bodies.

In this Ordinance, additional conditions and binding limits are established taking into account the specificity of the matters and the value at issue.

Article 2 of the Ordinance provides as follows:

"Article 2
Subject Matter of Binding

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals operating at CAAD which have as their object the assessment of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of article 2 of Decree-Law No. 10/2011 of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts of determination of the taxable amount and acts of determination of the taxable profit, both by indirect methods, including decision of the review procedure;

c) Claims relating to customs duties on importation and other indirect taxes which fall upon goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or steps to be taken by another member state within the framework of administrative cooperation in customs matters."

In accordance with the cited article 2, letter a) of the Ordinance, it clearly results that all claims connected with acts of "self-assessment, withholding at source or payments on account" are excluded from arbitration, unless such claims have been preceded by recourse to administrative remedy, in accordance with articles 131 to 133 of the Code of Tax Procedure and Process (CPPT).

Now, the claim presented by the Claimant concerns the declaration of illegality of the rejection of the request for official review filed with respect to the act of self-assessment of IRC relating to the financial year 2011.

It thus falls within the first part of the rule provided for in letter a) of article 2 of the Ordinance, insofar as what is in question is the declaration of illegality of an act of self-assessment.

Nevertheless, it is provided that only claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process are excluded from the scope of competence of CAAD.

Thus, it is important to verify whether the self-assessment act sub judice was preceded by recourse to administrative remedy in accordance with article 131 of the CPPT, which concerns cases of self-assessment.

Thus, article 131 of the CPPT provides as follows:

"Article 131
Challenge in case of self-assessment

1 – In case of error in self-assessment, the challenge shall be necessarily preceded by a gratuitous complaint addressed to the director of the regional peripheral body of the tax administration, within two years following the submission of the statement.

2 – In case of express or tacit rejection of the complaint, the taxpayer may challenge, within 30 days, the assessment which it made, counted, respectively, from the notification of the rejection or from the formation of the presumption of tacit rejection.

3 – Notwithstanding the provisions of the preceding numbers, when its ground is exclusively a matter of law and the self-assessment was carried out in accordance with generic guidance issued by the tax administration, the deadline for challenge does not depend on a prior complaint, and the challenge must be submitted within the deadline of no. 1 of article 102."

Now, from the facts set forth in the record, it follows that the self-assessment act at issue was the subject of a request for official review and not of a prior gratuitous complaint, as provided for in no. 1 of article 131 above described.

Being so, it is to be concluded, by mere declarative interpretation, that the possibility of requesting from arbitral tribunals the declaration of illegality of acts of self-assessment, withholding at source and payments on account provided for in article 2, no. 1 a), of the RJAT, must be understood in harmony with the scheme provided for in nos. 1 and 3 of article 131 of the CPPT, being necessary the prior gratuitous complaint in cases where it is also necessary in tax courts.

In this sense, several decisions of CAAD have already been rendered, all to the effect that the express reference to the precedent "recourse to administrative remedy in accordance with articles 131 to 133 of the CPPT" must be interpreted as relating to cases in which such recourse is mandatory, through a gratuitous complaint which is the administrative means indicated therein.

Thus, taking into account that the Claimant filed a request for official review concerning the act of self-assessment of IRC and not an administrative complaint, it cannot be understood otherwise than that, by force of the provision in article 4 of the RJAT, AT is not bound to the arbitral tribunal in the case under analysis.

Whereby "(...) the lack of binding of the Tax and Customs Authority to the arbitral tribunal translates into the immediate impossibility of subjective efficacy of a judgment which, if rendered by this tribunal in the matters excluded, would produce no effects on the party which would have to execute it, constituting, therefore, lack of jurisdiction, which is delimited according to the matter and therefore constitutes the material incompetence of this tribunal (...) and the lack of jurisdiction of the tribunal to settle the dispute constitutes effectively the plea in bar of incompetence of the tribunal for any other matter, making, given the arbitral nature of the tribunal, an integrated reading of no. 1 of article 2 of the RJAT, with no. 1 of its article 4 and, furthermore, with the aforementioned article 2 of the Binding Ordinance."

In sum: it is understood that article 2 of the Ordinance can only be subject to a literal interpretation, since it constitutes a unilateral declaration of will on the part of AT.

Taking into account the general principles of interpretation contained in article 9 of the Civil Code, it does not seem to us possible to interpret article 2 of the Ordinance so as to include article 78 of the LGT.

However, the request for official review can be procedurally alternative or complementary to the gratuitous complaint, from the point of view of the rights and guarantees of taxpayers, but taking into account the voluntary nature of arbitration, the interpretation of the provision in article 2 of the Ordinance should not, in any case, translate into a restriction of AT's sphere of freedom, as a party, to establish the limits of its binding.

Thus, this Arbitral Tribunal is materially incompetent to assess and decide the claim object of the dispute sub judice, in accordance with articles 2, no. 1, letter a) and 4, no. 1, both of the RJAT and articles 1 and 2, letter a), of Ordinance No. 112-A/2011, which constitutes a plea in bar preventing the assessment of the merits of the case, in accordance with the provision in article 576, nos. 1 and 2 of the Civil Procedure Code ex vi article 2, letter e) of the CPPT and article 29, no. 1, letters a) and e) of the RJAT, which prevents the assessment of the claim and the absolution of the Respondent from the proceedings, in accordance with articles 576, no. 2 and 577, letter a) of the CPC, ex vi article 29, no. 1, letters a) and e) of the RJAT.

For which reason the plea in bar of incompetence raised by AT is deemed well-founded, and the Respondent is absolved from the proceedings.

Knowledge of the question on the merits is thus affected.

X. DECISION

Whereby this Arbitral Tribunal decides:

D) To declare well-founded the plea in bar of incompetence of this Tribunal by reason of the matter invoked by the Respondent and, consequently, to absolve the Respondent from the proceedings;

E) To condemn the Claimant in the costs of the present proceedings, as the losing party.

XI. VALUE OF THE PROCEEDINGS

In accordance with the provision in article 306, no. 2 of the Civil Procedure Code, 97-A, no. 1 a) of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is €58,624.48.

XII. COSTS

In accordance with the provisions in articles 12, no. 2 and 22, no. 4, both of the RJAT, and in article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings, the arbitration fee is set at €2,142.00, in accordance with Table I of the mentioned Regulation, charged to the Claimant.

Notify.

Lisbon, 16 October 2018

The Arbitrator,
Magda Feliciano

(The text of this decision was prepared using a computer, in accordance with article 131, no. 5 of the Civil Procedure Code, applicable by reference from article 29, no. 1, letter e) of Decree-Law No. 10/2011 of 20 January (RJAT), and is written in the spelling prior to the 1990 Orthographic Agreement.)