Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. Alexandra Coelho Martins (arbitrator-president), Dr. Pedro Nuno Ramos Roque and Prof. Doctor Jónatas Machado (arbitrators-members), designated by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the present Arbitral Tribunal, constituted on 16 July 2018, agree as follows:
Report
A... S.A., hereinafter referred to as the "Claimant", a legal entity identified under no. ..., with registered office at ..., no. ..., in Lisbon (...-...), registered under the same number, filed a request for constitution of a Collective Arbitral Tribunal and for an arbitral decision, pursuant to the provisions of articles 2, no. 1, paragraph a), 5, no. 3, paragraph a), 6, no. 2, paragraph a), 10, no. 1, paragraph a) and no. 2, all of the Legal Regime for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January.
The Claimant seeks a declaration of illegality and partial annulment of the self-assessment act for Corporate Income Tax ("IRC") for the financial year 2003 and of the rejection dispatch of the Deputy Director-General of Taxes, dated 12 January 2018, which was issued in response to the request for official revision of that act, registered under no. ...2015..., relating to the increase to taxable profit of € 3,121,452.55, due to incorrect classification and quantification of income.
The Tax and Customs Authority ("AT") is the Respondent.
As the basis for its claims, the Claimant alleges, in summary, the following defects:
The increase of € 3,121,452.55 to the taxable basis of IRC for the financial year 2003 which it reported in box 07 of declaration form 22 is improper, since it corresponds to the balance of account #7990 (constitution and allocation of provisions for general credit risks), when instead the annual variation of the provision should have been considered and, therefore, also the balance of account #8490 (restoration and cancellation of provisions), whose value in financial year 2003 was negative, in the amount of € 4,211,261.29, which negates the first;
The provision for general credit risks should be considered by the value of the annual variation of the provision, and the initial assessment carried out by the Claimant in the self-assessment of IRC was incorrect, when it submitted declaration form 22 for financial year 2003, as the AT recognized, in its assessment of the request for official revision submitted in May 2007, by referring that it was "the liable person itself, through self-assessment, who committed the error";
In fact, what occurred at the level of the provision for general credit risks in financial year 2003 was not a constitution/reinforcement of the provision of € 3,121,452.55 (balance of account #7990 on 31.12.2003), nor a restoration/cancellation of the provision of € 4,211,261.29 (balance of account #8490 on 31.12.2003), but rather a restoration/cancellation in the amount of € 1,089,808.74, corresponding to the negative variation that occurred between the balance of account #610 on 31.12.2003 (€ 19,708,421.88) and the balance of the same account on 31.12.2002 (€ 20,798,230.62);
If the Claimant were not obliged to report that information monthly to the Bank of Portugal, it would only have reflected in its accounting the annual variation of the provision, i.e., a credit movement in account #8490, of € 1,089,808.74 (which would translate the effective variation in comparison to the balance existing on 31.12.2002);
What is not at issue, nor does the Claimant intend, contrary to what the AT argues, the tax deductibility of this provision, or the application of the transitional regime that was in force for financial years 2001 and 2002, which permitted the deduction of the provision for general credit risks, at 50%, by application of article 7, no. 6 of Law no. 30-G/2000, of 29 December, ("LOE 2001"), when within the limits imposed by the Bank of Portugal. The negative patrimonial variation of € 1,089,808.74 was not recognized for tax purposes as an expense in financial year 2003 in compliance with the provisions of article 34, no. 3 of the IRC Code;
The problem concerns a different issue, which is that of the correction of the actual calculation itself of the annual variation of the provision for general credit risks which was incorrectly determined, due to the Claimant's error, at € 3,121,452.55, when it should, for tax purposes, be nil;
The AT, although admitting that, in financial year 2003, the effective variation of the provision for general credit risks of the Claimant amounted to the negative value of € 1,089,808.47, rejected the request for official revision on the grounds of lack of proof of the tax treatment afforded to the provisions whose restoration/cancellation was effected in that year, by not "knowing the breakdown of the amount in question, in order to be able to assess the value to be increased for tax purposes", in a reference to those which, in the year of their constitution, were tax expenses;
This position is illegal because it is based on incorrect factual presuppositions, since the Claimant did not recognize nor intends to recognize the negative patrimonial variation of € 1,089,808.47 as a tax expense of financial year 2003, in compliance with the provisions of the aforementioned article 34, no. 4 of the IRC Code (at that time);
And it is also illegal due to a legal error, since it is the value of the effective annual variation of the provision for general credit risks that must be considered, in view of the provisions of article 3, no. 2 of the IRC Code, according to which the concept of profit results from the difference between the value of net assets at the end and at the beginning of the taxation period, with the corrections of the Code, and of article 8, no. 9 of the same statute, which sets the taxable event on 31 December of each financial year (moreover, in compliance with the principle of specialization of financial years, as provided for in articles 17 and 18 of the aforementioned Code);
The AT itself understood it in this way when it decided the gratuitous objections relating to financial years 2004 and 2005 and upheld the taxpayer [the Claimant], whereby the opposing decision regarding 2003 constitutes a violation of the principle of equality, enshrined in article 13 of the Constitution, which prohibits arbitrariness and different solutions for equal situations;
The decision rejecting the request for official revision suffers from insufficient reasoning, which is equivalent to the defect of lack of reasoning, under article 125, no. 2 of the Code of Administrative Procedure ("CPA"), for not pronouncing on the fundamental issue under consideration, which is that the provision for general credit risks should be considered by the value of the annual variation – cf. articles 77 of the General Tax Law ("LGT") and 268, no. 3 of the Constitution;
The AT assumed that these were provisions constituted before 2001, thereby incurring a violation of the procedural defect of the inquisitorial principle and the discovery of material truth, since the latter cannot presume facts, but must instead conduct the investigatory activity necessary for their clarification, thereby violating article 58 of the LGT.
The Claimant concludes by requesting the annulment of the IRC self-assessment act inherent in its request for official revision and attached 7 (seven) documents.
The request for constitution of the Arbitral Tribunal was accepted by the President of the Administrative Arbitration Center ("CAAD") and followed its normal procedure, namely with notification to the AT.
In accordance with articles 5, no. 3, paragraph a), 6, no. 2, paragraph a) and 11, no. 1, paragraph a), all of the RJAT, the Deontological Council of CAAD designated as arbitrators of the Collective Arbitral Tribunal the signatories, who communicated acceptance of the appointment within the applicable time period, in accordance with article 4, no. 2 of the Deontological Code of CAAD.
The parties, duly notified of that designation, did not object in accordance with the combined articles 11, no. 1, paragraphs b) and c) and 8 of the RJAT and 6 and 7 of the Deontological Code of CAAD.
The Collective Arbitral Tribunal was constituted on 16 July 2018, as communicated by the President of the Deontological Council of CAAD.
The Respondent submitted its reply and attached the administrative file ("PA"). It submitted a defense by exception, raising the material incompetence of the Arbitral Tribunal, on the grounds that the request for declaration of illegality of the act was not preceded by recourse to the administrative procedure, pursuant to articles 131 to 133 of the Code of Tax Procedure and Process ("CPPT"), which does not mention the request for official revision, as required by article 2, paragraph a) of Ordinance no. 112-A/2011, of 22 March, which binds the AT to the jurisdiction of CAAD (with enabling rule in article 4, no. 1 of the RJAT).
For the Respondent, the interpretation according to which the administrative procedure would also encompass requests for official revision as provided for in article 78 of the LGT has no support in the literal element, the reference point and departure point for interpretation.
It argues that the AT's intentions are dependent on and delimited by the intentions expressed in the aforementioned Ordinance. The object fixed by the legislator regarding the Respondent's binding to arbitral jurisdiction cannot be enlarged, which limits the possibility of appeal in the event of an unfavorable decision, constituting a waiver of the right of appeal, a restriction that could only be consented to in isolation, so that the equivalence that case law recommends between the procedure of official revision and the gratuitous objection mentioned in articles 131 to 133 of the CPPT, as a prior (and necessary) stage to the subsequent challenge of the respective rejection decision, is legally prohibited in arbitral proceedings.
It further objects to that extensive interpretation, when transposed to arbitral proceedings, for constituting a violation of the principles of the Rule of Law, Separation of Powers (cf. articles 2 and 111 of the Constitution) and Legality (articles 3, no. 2 and 266, no. 2 of the Constitution) as a corollary of the principle of indisponibility of tax credits (article 30, no. 2 of the LGT).
By means of counterclaim, the Respondent considers that the AT's position is correct and that the understanding which, in 2009, underlay the favorable decisions to the taxpayer in the gratuitous objections of years 2004 and 2005 has been altered, as it does not constitute the best interpretation of the tax norms.
In its view, no defect of lack of reasoning has occurred, as the reasons have been clearly reflected in the genesis of the rejection of the request for official revision, which the Claimant understood, as it rebuts them point by point. On the other hand, even if the reasoning were insufficient, the Claimant could always resort to the mechanism of article 37 of the CPPT, which it did not do. Regarding the violation of the principles of the inquisitorial procedure and discovery of material truth, it states that the Claimant merely seeks to invert the burden of proof that legally rests upon it.
It argues that the dilatory exception of material incompetence of the Arbitral Tribunal should be upheld, leading to the dismissal of the instance against the AT under articles 576, nos. 1 and 2 and 577, paragraph a) of the Code of Civil Procedure ("CPC"), pursuant to article 29, no. 1, paragraph e) of the RJAT, and, if not so, that the arbitral request should be judged unfounded and the Respondent absolved of all claims.
By decision of 18 October 2018, the Tribunal deemed unnecessary the meeting referred to in article 18 of the RJAT and determined notification of the parties for optional written arguments.
In the arguments phase, the Claimant and Respondent maintained, essentially, the arguments contained in the request for arbitral decision and the reply, respectively. The Claimant exercised its right to respond to the exception of material incompetence, which it considers unfounded given the arguments invoked by the prevailing case law of CAAD, with articles 131 to 133 of the CPPT being unable to assume a different meaning in their application to arbitral jurisdiction.
By decision of 14 January 2019, on the grounds of the complexity of the issues raised, the time period for delivery of the decision was extended, pursuant to article 21, no. 1 of the RJAT.
Given that the success of exceptions, if verified, prevents knowledge of the merits of the case, the following proceeds with their assessment, immediately after establishment of the facts.
Factual Foundation
With relevance to the decision, the following facts are deemed proven:
A. A..., S.A., here the Claimant, is a credit institution that carries out its activities in the field of banking and financial commerce – cf. document no. 5, attached to the request for arbitral decision ("ppa") and official information contained in the PA, namely information no. .../2018 and the reasoning of the dispatch rejecting the request for official revision.
B. In financial year 2003, in compliance with Bank of Portugal Notice no. 3/95, published in the Diário da República (Official Gazette), 2nd series, of 30 June 1995, and subsequent amendments, the Claimant recorded monthly in the account #7990 – "Provisions of the financial year – Miscellaneous provisions – For general credit risks" amounts as constitution/allocation of the provision, and, in account #8490 – "Restorations and cancellations of provisions – Miscellaneous provisions – For general credit risks" amounts as restoration/cancellation of the provision, as set out in the table below, resulting in a negative variation of the provision for general credit risks in the amount of € 1,089,808.74:
#7990
(a)
#8490
(b)
Jan-03
54.71 €
266,664.79 €
Feb-03
9,049.17 €
45,233.43 €
Mar-03
234.23 €
349,672.71 €
Apr-03
3,630.08 €
220,891.62 €
May-03
290,755.35 €
14,552.97 €
Jun-03
417,755.29 €
- €
Jul-03
12,141.04 €
397,389.75 €
Aug-03
5,362.14 €
595,091.38 €
Sep-03
333,907.93 €
1,828,688.69 €
Oct-03
523,735.06 €
145.03 €
Nov-03
4,798.34 €
489,136.01 €
Dec-03
1,520,029.21 €
3,794.91 €
Total
3,121,452.55 €
4,211,261.29 €
Difference (a) – (b)
- 1,089,808.74 €
– cf. documents 1 and 2 attached by the Claimant.
C. With reference to financial year 2003, the Claimant submitted the income declaration form 22, on 29 May 2004. Subsequently, on 29 June 2004, it submitted a replacement declaration, and later still, on 29 May 2006, it filed a second replacement declaration – cf. document 5 attached to the ppa and documents 1 to 3 attached to the request for official revision which forms part of the PA.
D. In field 228 of box 07 of the income declaration form 22 for financial year 2003, the Claimant increased the total balance of account #7990, corresponding to the annual accumulated value of the various allocations/constitutions of provisions, which amounted to € 3,121,452.55, without taking into account, i.e., without deducting, the balance of account #8490 relating to restorations/cancellations of provisions, which in the year in question (2003) was € 4,211,261.29 – cf. document 5 attached to the ppa and documents 1 to 3 attached to the request for official revision which forms part of the PA.
E. Subsequently to the submission of the second replacement declaration mentioned above, the Claimant concluded that it had accorded incorrect tax treatment to the provisions for general credit risks by having increased that value of € 3,121,452.55 to the taxable profit, and therefore filed, on 25 May 2007, a request for official revision of the IRC self-assessment for 2003, pursuant to article 78 of the LGT – cf. document 3 attached to the ppa and PA.
F. In this request for official revision, the Claimant requested the correction of the IRC self-assessment, specifically, that the amount of € 3,121,452.55, entered in field 228 of box 07, be removed from the calculation of the result of the financial year. The Claimant did not request the recognition, as an expense of the financial year, of the negative patrimonial variation of € 1,089,808.74 – cf. document 3 attached to the ppa and PA.
G. The request for official revision was initially rejected on the grounds that, as it was an error in the self-assessment made by the Claimant itself, there would be no grounds for official revision, unless the taxpayer had been induced by the AT, which was not the case. This decision was confirmed on hierarchical appeal, but was annulled by judgment dated 11 July 2011, of the Tax Court of Lisbon, which resulted in the reopening of the procedure for reconsideration of the request for official revision by the AT – cf. documents 3 to 6 attached to the ppa and PA.
H. In December 2017, the Claimant was notified of the draft rejection of the request for official revision. The right to be heard was not exercised and the draft rejection became final, pursuant to the dispatch of 12 January 2018, of the Deputy Director-General, exercising delegated powers, notified by official letter dated 31 January 2018 and sent by registered mail on 1 February 2018 – cf. documents 5 and 6 attached to the ppa and PA.
I. The rejection of the request for official revision is supported by the grounds that are partly transcribed, contained in information no. 30/2018, dated 9 January 2018, which is hereby reproduced for all purposes:
"[…]
IV – Assessment of the Request
From the evolution of the legal framework
25. Through the wording of Law 3-B/2000, of 4 April, the then article 33 of CIRC, under the heading "Tax-deductible provisions" provided in paragraph d) of no. 1 that:
"1 – The following provisions may be deducted for tax purposes:
(…)
d) Those which, in accordance with the discipline imposed by the Bank of Portugal, have been constituted by companies subject to its supervision and by branches in Portugal of credit institutions and other institutions with registered office in another Member State of the European Union (…)"
26. With Law no. 30-G/2000, of 29 December, the wording of paragraph d) of no. 1 of article 33 was altered, to provide that:
"1 – The following provisions may be deducted for tax purposes:
(…)
d) Those which, within the discipline defined by the Bank of Portugal, and by virtue of an obligation of a generic and abstract nature, were mandatorily constituted by companies subject to its supervision and by branches in Portugal of credit institutions and other institutions with registered office in another Member State of the European Union, with the exception of the provision for general credit risks (…)"
27. No. 6 of article 7 of Law no. 30-G/2000, of 29 December, clarified that the new wording of paragraph d) of no. 1 of the then article 33 of CIRC applies to provisions constituted from the entry into force of that law, although a transitional regime was created, which provides that 50% of the value of positive variations of provisions for general credit risks that do not exceed the amount generically and abstractly imposed by the Bank of Portugal for institutions subject to its supervision are accepted as deductible expenses in financial years 2001 and 2002.
28. The aforementioned statute further added to article 33 of CIRC, no. 3, which provides that:
"(…)
3 – When restoration of provisions for general credit risks or others which do not aim to cover specific risks of the activity is verified, these are considered income of the financial year, first of all, those which were tax expenses in the financial year of their respective constitution."
29. In summary we have that:
Prior to the amendment introduced to the wording of paragraph d) of no. 1 of article 33 of CIRC (later article 34 of CIRC) by article 5 of Law no. 30-G/2000, of 29/12, provisions for general credit risks constituted in an economic period, according to the prevision of such rule, were tax-deductible, provided they were constituted in compliance with the provisions of no. 1 of article 7 of Notice no. 3/95 of the Bank of Portugal.
Thus, having ascertained the amount of the provision that on 31 December of year n was required to subsist by order of the Bank of Portugal, the provision would be reinforced if the value existing on 31 December of year n-1 were lower, or cancellation would be effected, in the opposite situation.
With the amendment of the rule contained in paragraph d) of no. 1 of article 33 of CIRC, provisions for general credit risks constituted in each financial year ceased to be deductible.
Nevertheless, no. 6 of article 7 of Law no. 30-G/2000, of 29.12, established a transitional regime according to which the amendment of paragraph b) of no. 1 of article 33 of CIRC applied to provisions constituted from the entry into force of that law, safeguarding the deductibility as a tax expense, in the periods of 2001 and 2002, of 50% of the value of positive variations of provisions for general credit risks that do not exceed the amount imposed, generically and abstractly, by the Bank of Portugal for institutions subject to its supervision.
Law no. 30-G/2000, of 29.12, further added, no. 3 of article 33 of CIRC so as to provide that when cancellation of provisions for general credit risks was verified, these were considered income of the financial year, first of all, those which had been tax expenses in the financial year of their respective constitution.
Opinion
30. Now, in the situation in question, the Claimant proceeded to increase the net accounting result of financial year 2003, for the purposes of calculating the respective taxable profit subject to the general taxation regime under IRC, by the amount of 3,121,452.55 € relating to movements of constitution/reinforcement of provisions for general credit risks effected during the year, and reflected at debit in account #7990 – Provisions of the financial year/Provisions for general credit risks.
31. That is, in compliance with the Chart of Accounts for the Banking System and the norms issued by the Bank of Portugal, the Claimant recorded costs with provisions for general credit risks in the amount of 3,121,452.55 €, a value which it increased for the purposes of determining taxable profit.
32. However, the Claimant comes to state that the tax treatment accorded to provisions for general credit risks, for the purposes of calculating its taxable profit for financial year 2003, was not correct.
33. It is the Claimant's conviction that such provision should be analyzed on an annual basis, given its generic and abstract character, and should only be considered, in each financial year, either a constitution/allocation of the provision in question (if the final balance of the provision on 31 December of year n is higher than its balance on 31 December of year n – 1), or a cancellation/restoration of that provision (if the opposite is verified).
34. We cannot forget that, from financial year 2003 onwards, provisions for general credit risks ceased to be deductible provisions for tax purposes, under paragraph d) of no. 1 of article 34 of CIRC.
35. Following the amendments made to the legal framework for the taxation of provisions for general credit risks, some considerations should be made and an understanding should be defined to apply in financial year 2003.
36. According to the tax regime in force until 31 December 2000, provisions which, in accordance with the discipline imposed by the Bank of Portugal, namely provisions for general credit risks, were constituted by companies subject to its supervision, could be deducted for tax purposes, provided that the minimum limits established for this purpose by the Bank of Portugal were not exceeded.
37. However, Law no. 30-G/2000, of 29 December, came to determine the non-acceptance as a tax expense of provisions for general credit risks constituted by companies subject to the supervision of the Bank of Portugal, through amendment to the previous wording of paragraph d) of no. 1 of article 34 of CIRC.
38. Notwithstanding, the same law also established a transitional period, applicable during financial years 2001 and 2002, which provided for the acceptance, as a tax-deductible expense, of 50% of the value of positive variations of provisions for general credit risks that do not exceed the amount generically and abstractly imposed by the Bank of Portugal.
39. On the other hand, and in order to clarify the tax treatment applicable to restorations of the provision in question, its no. 3 was further added to article 34 of CIRC, by the Law no. 30-G/2000 mentioned above, which provides that, when restoration/cancellation of these provisions is verified, these will be considered income of the financial year, first of all, those which were tax expenses in the financial year of their constitution.
40. That is, in the matter of provisions for general credit risks, credit institutions and financial companies came to encounter three distinct situations:
Provisions constituted until 31 December 2000, provided they are within the minimum limits established in Notice no. 3/95, are accepted as expenses in the year of their constitution.
The positive variation of provisions verified in financial years 2001 and 2002, which is recognized as an expense of only 50% of the respective amount, the remaining 50% being subject to taxation under IRC, and must, for that purpose, be increased in box 07 of the income declaration form 22.
Provisions constituted/reinforced in financial years 2003 and subsequent, which are not considered, in their entirety, as a tax expense of the financial year and, therefore, are subject to taxation under IRC through the increase of the respective amount in box 07 of the income declaration form 22.
41. Thus, in light of the various regimes that may coexist in the same institution and with respect to provisions for general credit risks, it was necessary to define what treatment was to be applied to restorations of provisions, since these only constitute tax income of the financial year to the extent that the provision which is the subject of restoration was accepted as a tax expense in the financial year of its constitution.
42. On this matter, it is the understanding already sanctioned by this Directorate of Services that:
"Regarding the transitional regime provided for, in the matter of provisions for general credit risks, in no. 6 of article 7 of Law no. 30-G/2000, of 29.12, by positive variation of those provisions should be understood the difference between the balance of provisions for general credit risks existing on 31 December of the financial year and the balance existing on 31 December of the previous financial year".
As regards the regime of restorations of provisions provided for in no. 3 of article 34 of CIRC relating to the regime of restoration/cancellation of provisions, "the same consists in considering that restorations of provisions for general credit risks occurring from 1 January 2001 are effected by utilization, first of all, of the part of the accumulated balance of those provisions which was recognized as a tax expense in the financial year of the constitution of those same provisions and, only when that same balance no longer includes values accepted as tax expenses or, if it does include them, the same is not sufficient to cover the totality of the amount to be restored, is it considered that the values restored refer to provisions not accepted as tax expenses and, consequently, such values will cease to be relevant as tax income of the financial year and, therefore, be subject to taxation under IRC".
43. In fact, given the non-specific character of provisions for general credit risks, the legislator chose to provide, in no. 3 of article 34 of CIRC, that whenever restorations of this type of provisions occur, those provisions are considered restored which were recognized as a tax expense in the financial year in which they were constituted.
44. This means, therefore, that with respect to restorations of this type of provision that are effected from financial year 2001, inclusive, the same are considered income of the financial year up to the amount that was previously accepted as a tax expense.
45. That is, it is intended that the accumulated balance of provisions for general credit risks evolve in the direction of being composed exclusively of provisions which, in the financial year of constitution and by force of the new regime contained in paragraph d) of no. 1 of article 34 of CIRC, are not recognized as tax expenses.
46. Obviously, from the moment when the restoration has as its object amounts not previously recognized as tax expenses – a situation that will be verified when the accumulated balance of provisions for general credit risks is no longer composed of values accepted as tax expenses, or which, being so partially, the respective value is less than the amount which needs to be restored – the values restored will not be subject to taxation under IRC.
47. In this way, by including in income the use or restoration of a provision accepted for tax purposes and by excluding from that income one not accepted for tax purposes, the specialization of financial years is ensured in accordance with the rules defined for tax purposes, more precisely in article 18 of CIRC.
48. More specifically, the use or restoration of provisions will be income for tax purposes up to the amount which, in the year of its constitution or reinforcement, would have been accepted as an expense for the same purposes.
49. From the foregoing, it can be concluded that the balance of the provisions account does not allow one to know which amounts refer to provisions for general credit risks which were accepted as tax expenses in the year of their constitution, and that there is a need to differentiate the periods to which the cancelled provisions refer, so as to ensure proper compliance with the law.
50. Now, it will not be a matter of indifference for the purposes of determining taxable profit whether we are canceling provisions which were subject to taxation or provisions which were accepted for tax purposes.
51. Thus, in light of the tax regime of provisions in the various periods, there can be no doubt that it would be necessary to know the breakdown of the amount in question, in order to be able to assess the value to be increased for tax purposes.
52. On the other hand, what the Claimant comes to request is that, for the purposes of tax treatment to be accorded to provisions for general credit risks, only the annual variation of this provision be considered, that is, the value of 1,089,808.47 €, which represents the effective variation of this provision in financial year 2003 as against the balance existing on 31 December 2002.
53. However, the Appellant makes no reference to the periods to which the cancellations of the provisions relate, though it may be inferred, from the procedure adopted by the Appellant, that these are cancellations of provisions constituted in periods prior to 2001, which were fully accepted as expenses.
54. And on this point, it should be noted that the concept of positive variation of the provision relates only to the transitional regime, that is, to financial years 2001 and 2002, not surviving with respect to financial year 2003.
55. In this sense, it is not possible to grant what is requested by the Claimant, and therefore it is proposed to reject the present request.
V – Conclusion and Proposed Decision
Given the foregoing, the present request for official revision should be rejected."
– cf. documents 5 and 6 attached to the ppa and PA.
J. Not accepting the decision rejecting the request for official revision relating to the IRC self-assessment for financial year 2003, the Claimant filed, in the CAAD computer system, on 3 May 2018, the request for constitution of the Collective Arbitral Tribunal which gave rise to the present case.
Motivation and Unproven Facts
The pertinent facts for judgment of the case were selected and delimited according to their legal relevance, in the light of plausible solutions to questions of law, according to the combined application of articles 123, no. 2, of the CPPT, 596, no. 1 and 607, no. 3 of the Code of Civil Procedure ("CPC"), applicable ex vi article 29, no. 1, paragraphs a) and e) of the RJAT.
As regards the proven facts, the conviction of the arbitrators was based essentially on critical analysis of the documentary evidence attached to the file and on the position assumed by each of the parties which, in this matter, is consensual, with disagreement being strictly a matter of law.
With relevance to the decision, there are no other alleged facts that should be considered unproven.
Sanation
Preliminary Issue: Material Incompetence
According to the Respondent, the assessment of a tax self-assessment act (in this case, IRC), following the express rejection of a request for official revision, goes beyond the powers reserved by law to Tax Arbitral Tribunals, in accordance with the RJAT and with the Ordinance binding the AT to the tax arbitration regime.
Violation of the rules of competence ratione materiae determines the absolute incompetence of the tribunal (and the lack of jurisdiction of the Arbitral Tribunal), which is of public order and its determination takes precedence over any other matter, making its prior assessment imperative – articles 16 of the CPPT and 13 of the Code of Procedure before Administrative Courts ("CPTA"), by reference to article 29, no. 1, paragraphs a) and c) of the RJAT.
In this context, article 2, no. 1 of the RJAT sets out the criteria for material distribution of competence of Arbitral Tribunals as follows:
"Article 2
Competence of arbitral tribunals and applicable law
1 — The competence of arbitral tribunals encompasses the assessment of the following claims:
a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account;
b) The declaration of illegality of acts determining the taxable matter when they do not give rise to assessment of any tax, of acts of determination of taxable basis and of acts setting patrimonial values;
c) (repealed)[3]".
Article 4, no. 1 of the RJAT also provides that:
Article 4
Binding and operation
1 — The binding of the tax administration to the jurisdiction of tribunals established under the terms of this law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered.
2 — […]"
Finally, the Binding Ordinance (Ordinance no. 112-A/2011, of 22 March) came to establish the conditions and limits of the voluntary binding of the AT to arbitral jurisdiction, taking into account the specificity of the matters and the value involved. Article 2 of the Ordinance delimits the object of that binding and excludes "[c]laims relating to the declaration of illegality of acts of self-assessment, of withholding at source and of payment on account which have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", norms which make reference to gratuitous objection, but not to official revision of tax acts.
In the AT's view, such norms do not admit the extensive interpretation that has already been accepted by case law concerning the impeachability of acts in administrative and tax jurisdiction, so as to encompass also requests for official revision as provided for in article 78 of the LGT, considering that the same has no support in the literal element, the reference point and departure point for interpretation.
With regard to Arbitral Tribunals, the Respondent argues that if the legislator, aware of that long-established case law, wished to encompass also the knowledge by Arbitral Tribunals of the illegality of self-assessment, when preceded by a request for official revision, with the AT being bound in this context, it would have introduced an express mention of the official revision procedure in article 2, paragraph a) of the cited Ordinance. Having not done so, the intention of the legislator to omit this must be inferred. It also considers that accession to arbitral jurisdiction is an act of declaration of will that restricts its rights, in particular the right of appeal, and therefore the rule that stipulates its binding to arbitration does not admit extensive interpretation, beyond which it would violate various constitutional principles, of which the principle of separation of powers stands out.
It appears, however, that this position is not to be endorsed, as this Tribunal has jurisdiction and competence to know of the claim, for the same reasons that led to the jurisprudential interpretation that considers that, in the context of administrative and tax jurisdiction, articles 131 to 133 of the CPPT should be understood as encompassing, in addition to gratuitous objection, the avenue of revision of tax acts opened by article 78 of the LGT.
Indeed, the purpose of these norms is to ensure that self-assessment is the subject of a prior pronouncement by the AT, so as to rationalize recourse to the judicial avenue, which is only justified if there is a divergent position, a true "dispute". For this reason, the AT is given the opportunity (and the right) to pronounce on the error in the taxpayer's self-assessment and to justify its decision before being confronted with contentious proceedings. Official revision is one of the possible avenues to achieve that pronouncement by the AT, and indeed frequently will be the only one, since in general the period for gratuitous objection in case of error in self-assessment is two years and official revision is four years, or at any time if the tax has not yet been paid (article 78, no. 1 of the LGT).
As the Claimant emphasizes, the tax legislator enshrined the administrative avenue as a necessary and prior condition for recourse to the judicial avenue, because acts of self-assessment (as well as acts of withholding at source and payment on account) stem from the initiative of the taxpayer, without the tax administration having had any intervention, that is, they are acts with respect to which the tax administration has not yet taken a position, which is why the mandatory nature of recourse to the prior administrative avenue is justified, as emerges from the Supreme Administrative Court ("STA") Decisions of 12 September 2012, case no. 476/12, and 12 July 2006, case no. 402/06.
It is not understood how the purpose of the Binding Ordinance rule referring to claims "which have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" could be different, that is, clearly referring to a prior administrative procedure and not, exclusively, to gratuitous objection. On the other hand, it would be incoherent and unsystematic if articles 131 to 133 of the CPPT, to which the Ordinance in question refers, were to have different meanings depending on whether they were being applied in Administrative and Tax Courts and in Arbitral Tribunals.
Indeed, from an identical perspective, it can be stated that the alleged lack of literal support would also be verified with respect to those Courts (administrative and tax), since the rules being interpreted are the same, which would call into question the established case law of the STA, a solution which is not accepted, all the more so as it is unequivocal that official revision constitutes a second-level procedure which is part of the "administrative avenue", a term used by article 2, paragraph a) of Ordinance no. 122-A/2011.
If the legislator, knowing of the said jurisprudential interpretation, wished to set it aside, it would have done so expressly, as it could long ago have altered the wording of articles 131 and 132 of the CPPT itself, choosing instead not to do so.
The issue in question has been discussed in several proceedings at CAAD and the thesis opposed to that of the AT is prevalent, as evidenced by decisions given in the proceedings mentioned below, without any claim to exhaustiveness: 48/2012-T, of 6 July 2012; 73/2012-T, of 23 October 2012; 117/2013-T, of 6 December 2013; 245/2013-T, of 28 March 2014; 244/2013-T, of 6 May 2014; 202/2013-T, of 12 May 2014; 630/2014-T, of 4 March 2015; 617/2015-T, of 22 February 2016; 143/2016-T, of 15 November 2016; 577/2016-T, of 1 June 2017; 668/2016-T, of 7 July 2017; and 473/2017-T, of 8 April 2018. In a divergent sense, the decisions of cases nos. 51/2012-T, of 9 November 2012; 236/2012-T, of 22 April 2014 and 603/2014-T, of 20 March 2015 may be cited, the latter with declarations of vote which are endorsed in their entirety.
As mentioned in the decision of case no. 117/2013-T, of 6 December 2013, even though the solution advocated may constitute a case of extensive interpretation, this is "imposed by the evaluative and axiological coherence of the legal system, erected by article 9, no. 1, of the Civil Code into a primary interpretative criterion by means of the imposition of compliance with the principle of unity of the legal system", to which is added the fact that the rule of article 2, paragraph a) suffers from various defects, making it imperative to remedy them, being such solution the "most accurate, because it is the most coherent with the legislative intent to «strengthen effective and efficient protection of the rights and legally protected interests of taxpayers»" manifested in the Legislative Authorization Act that preceded the RJAT (article 124, no. 3 of Law no. 3-B/2010, of 28 April) and, "as it is the most accurate solution, it must be presumed to have been normatively adopted (article 9, no. 3, of the Civil Code)".
In a similar sense, the decision of case no. 245/2013-T, of 28 March 2014, further emphasizes that "[i]t would not be reasonable at all to, cumulatively with the possibility of administrative assessment within the official revision procedure, require a further administrative assessment through gratuitous objection, thereby creating, without sufficient grounds, a new situation of gratuitous objection required exclusively of arbitral jurisdiction".
The AT invokes in favor of a different understanding the constitutional principles of Rule of Law and Separation of Powers as well as Legality as a corollary of the principle of indisponibility of tax credits inherent in article 30, no. 2 of the LGT, which bind the legislator and all the activity of the Respondent, dependent on and delimited by the intentions expressed in Ordinance no. 112-A/2011.
Such configuration is not to be accepted for several reasons. First, because it is understood, as emphasized in the decision of case no. 143/2016-T, that the nature of the Ordinance does not fundamentally correspond to an act of the Administration "of manifestation of voluntary consent to binding to the RJAT» [...] with emphasis on its "regulatory character, especially as regards the object of the binding, which projects to all disputes to be resolved by way of tax arbitration. And to that extent, that part of the ordinance configures itself as an administrative regulation, which is integrated in the RJAT", whereby it must be concluded that the full applicability of the canons governing the interpretation of legal norms and not of acts of a conventional or negotiated nature is applicable.
In light of the interpretative elements set out above, no reason is found for why the legislator (an entity distinct from the AT) should have wished to exclude from the material competence of arbitral tribunals cases in which recourse was had to official revision when errors in self-assessment were involved.
Moreover, the emphasis that the AT's binding to Arbitral Tribunals represents a restriction on its rights, in particular the right to appeal in the event of an unfavorable court decision, stems from a distorted view, without corresponding material reason, of the tax arbitration regime. First and foremost, because an equal limitation is imposed on taxpayers, so that, if the decision is favorable to the AT, the alleged non-appealability of arbitral decisions benefits it, rather than prejudices it. Furthermore, arbitral decisions are subject to appeal and challenge, under the conditions of articles 25 to 28 of the RJAT, with appeal guaranteed when there is opposition, on the same fundamental question of law, with the case law of the superior courts (the Central Administrative Court ("TCA") and the STA), in addition to appeal to the Constitutional Court on the grounds of unconstitutionality. There thus exists a different configuration of appeal within the free room for legislative conformity, but not its elimination.
Furthermore, arbitral decisions relating to claims exceeding twice the value of TCA jurisdiction are taken by a collective of three arbitrators and not by a single judge, which constitutes a strengthening of the guarantees of jurisdiction, without parallel in judicial challenges (cf. article 5, no. 3, paragraph a) of the RJAT and article 46, no. 1 of the Statute of Administrative and Tax Courts ("ETAF")). Arbitral justice is correctly viewed as an alternative means of dispute resolution that ensures the essential guarantees of the exercise of the judicial function, such as impartiality and the right to be heard, and should in no way be viewed as a restriction of the AT's rights.
With regard to the invocation of the principle of indisponibility of tax credits, it will be said, as in case no. 143/2016-T, that in deciding on its competence, relevant only as a procedural presupposition, the Arbitral Tribunal is certainly not engaging in any act of disposition of a tax credit, in the sense of the invoked article 30, no. 2 of the LGT. Indeed, if the principle of indisponibility of tax credits were to be considered operative in the matter of tax arbitration, the latter would be prohibited in any case and not merely in situations of prior recourse to the official revision procedure. It is further worth noting that we are faced with norms of tax adjectival law and not norms creating taxes, as noted by Henrique Nogueira Nunes, in the declaration of vote delivered in arbitral decision no. 236/2013-T.
Equally, the interpretation advocated does not violate the principles of Rule of Law and Separation of Powers, whose implementation the AT does not achieve. It is worth noting that the Constitutional Court has recently pronounced on the issue here under discussion and concludes that there is no unconstitutionality of the rule that considers requests for official revision equivalent to situations in which there was "recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", for the purpose of interpretation of paragraph a) of article 2 of Ordinance no. 112-A/2011, with such situations thus being encompassed by the jurisdiction of the arbitral tribunals operating in CAAD – Decision of the Constitutional Court no. 244/2018, of 11 May 2018.
As the Constitutional Court argues, the matter is not one of broadening the AT's binding to the jurisdiction of arbitral tribunals, but rather of interpreting a norm of the ordinance that excludes such binding, so that "where there is no express exclusion, we cannot say we are faced with a broadening of the binding, but rather with interpretation of a norm of exclusion of binding".
The Court further understands that there is no raising of a waiver of the guarantee of access to effective judicial protection for the protection of public interests by the administration, noting that article 209, no. 2 of the Constitution expressly provides for the existence of arbitral tribunals in the Portuguese legal order which exercise the judicial function alongside state courts.
On the question of the constitutionality of the regime of appeals from the arbitral decision, the Constitutional Court considers that it lies outside the scope of the rule interpreted, to the extent that it results from an autonomous rule, which arises from the interpretation of distinct provisions of the RJAT and which has a distinct scope of application.
Any remaining doubts concerning the constitutional conformity of the solution adopted are thus allayed.
Finally, it should be noted that, strictly speaking, the exception raised does not fall within or correspond to the presupposition of competence of Arbitral Tribunals. This presupposition is delimited in article 2, no. 1 of the RJAT and encompasses the assessment of the illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account (paragraph a)); and of acts determining the taxable matter when they do not give rise to assessment of any tax, of acts of determination of taxable basis and of acts setting patrimonial values (paragraph b)). There is no doubt that the matter submitted to this Tribunal's assessment concerns an act of self-assessment (of IRC) which falls within the legally provided powers in the rule in question.
The issue should be analyzed from the legal perspective of procedural conditions to the action relating to the tax act itself (and not to the court, as just explained), since what is involved is the necessity of a (specific) prior administrative interpellation (mandatory administrative challenge) which, for the AT, would necessarily have to take the procedural form of Gratuitous Objection, while for the Claimant it also encompasses the request for official revision.
This requirement constitutes the procedural presupposition of non-impeachability of the act, in this case of a self-assessment act, under article 89, no. 2 and no. 4 paragraph i) of the CPTA, applicable by reference to article 29, no. 1, paragraph c) of the RJAT (on this issue see Vieira de Andrade, "Administrative Justice (Lessons)", 9th edition, Almedina, 2007, p. 305 et seq.). In other words, if the AT's thesis were correct, the Arbitral Tribunal would be competent, but the act would be non-impeachable, so it could not be assessed.
In any event, regardless of its legal characterization as incompetence of the Tribunal or as non-impeachability of the act, the exception raised by the Respondent is unfounded, since it does not correspond to the best interpretation of the applicable norms, which is that claims concerning the illegality of acts of self-assessment preceded by a request for official revision are encompassed by article 2, paragraph a) of the Binding Ordinance, whereby this Arbitral Tribunal is materially competent and is not prevented from knowing the merits of the case (cf. article 2, no. 1, paragraph a) of the RJAT).
Other Procedural Presuppositions
The Tribunal was regularly constituted (cf. article 5 of the RJAT) and the request for arbitral decision was timely, having been filed within the period provided for in paragraph a), no. 1, of article 10 of the RJAT.
The parties enjoy legal personality and capacity, have standing and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
The case suffers from no nullities.
On the Merits
Delimitation of the Object
The essential question to be clarified is substantive and relates to the value of the provision for general credit risks to be considered in the case of a credit institution such as the Claimant, for the purposes of application of article 34, no. 1, paragraph d) and no. 3 of the IRC Code, in the wording in force on the date of the facts (2003), more specifically whether it should correspond to the overall annual variation of these provisions, determined by the difference between constitution/reinforcement of provisions (recorded in account #7990) and liberation of these through restoration/cancellation (recorded in account #8490), or whether only the balance (accumulated) of account #7990, relating to constitution and reinforcement of those provisions (for general credit risks) should be considered (and separately).
It is also necessary to assess the defect of insufficient reasoning that the Claimant attributes to the rejection of the request for official revision.
The Regime of Provisions for General Credit Risks - Framework
Law no. 3-G/2000, of 29 December, which approved the State Budget for 2001 ("LOE 2001"), substantially altered the tax regime of provisions for general credit risks which, until then, were tax-deductible for IRC purposes, provided they were constituted by entities subject to Bank of Portugal supervision, as is the case with the Claimant, and the minimum limits established by it were not exceeded.
It is worth noting that the Bank of Portugal, for prudential reasons, imposed on credit institutions the obligation to constitute provisions for general credit risks, as provided for in article 7, no. 1 of Notice no. 3/95, which provided as follows:
"For the purposes of constituting provisions for general credit risks, the total credit granted by the institution shall be considered, including that represented by acceptances, guarantees and other instruments of an analogous nature, and excluding that relating to operations with credit institutions in zone A or guaranteed by them, to operations with credit institutions in zone B or guaranteed by them, in this case, with a residual term to maturity of no more than one year, and that which has been the subject of constitution of provisions under nos. 3, 4 and 12."
The accounting of the provisions followed, at the time, the Chart of Accounts for the Banking System ("PCSB"), approved by the Bank of Portugal by Instruction no. 4/96, published in the Bulletin of Standards and Information of the Bank of Portugal, no. 1, of 17 June 1996, with various later amendments, and available at https://www.bportugal.pt/instrucao/496. In Annex to the aforementioned instruction, the following was determined:
"5. PROVISIONS
5.1. The movement of provisions accounts should be carried out in accordance with the following scheme:
DEBIT
CREDIT
CONSTITUTION
OR
REINFORCEMENT
79 – Provisions of the financial year
29 – Accumulated provisions – applications, or
49 – Accumulated provisions – financial fixed assets, or
61 – Miscellaneous Provisions
UTILIZATION
29 – Accumulated provisions – applications, or
49 – Accumulated provisions – financial fixed assets, or
61 – Miscellaneous Provisions
Accounts relating to risk situations
RESTORATION
OR
CANCELLATION
29 – Accumulated provisions – applications, or
49 – Accumulated provisions – financial fixed assets, or
61 – Miscellaneous Provisions
84 – Restorations and cancellations of provisions
"
It is worth noting that whether under the PCSB, or under the Official Chart of Accounts ("POC"), or even under the current Accounting Normalization System (Accounting and Financial Reporting Standard 21), the rationale behind provisions is the same, prudential, as it aims to cater to (and reflect a probable "outflow of resources" of the entity, following an identical logic in the various accounting plans. And the POC, in force at the date of the facts, clearly provided the following:
"67 - Provisions of the financial year:
This account records, in an aggregate manner, at the end of the accounting period, the positive variation of the estimate of risks, in each class of provision, between two consecutive accounting periods, which has the characteristics of an operational cost, with the exception of the variation to be recorded in account 607 «Increase in mathematical provisions».
672 - For risks and charges".
With the entry into force of the LOE 2001, through amendment to the previous wording of article 34, no. 1, paragraph d) of the IRC Code, the deduction of provisions constituted to protect against general credit risks by entities subject to Bank of Portugal supervision ceased to be accepted. A transitional regime was also established, in article 7, no. 6, LOE 2001, which clarified that the new regime applied to "provisions constituted from the entry into force of this law, with 50% of the value of positive variations of provisions for general credit risks that do not exceed the amount imposed generically and abstractly by the Bank of Portugal for institutions subject to its supervision" still being accepted as deductible expenses in 2001 and 2002.
Finally, the LOE 2001 also added no. 3 to article 34 of the IRC Code, which provided that, when cancellation of provisions for general credit risks was verified, these would be considered income of the financial year, first of all, those which had been tax expenses in the financial year of their constitution.
Concrete Analysis
On the incorrect application of article 34, no. 1, paragraph d) of the IRC Code as to its assumptions of fact and law
According to the Claimant, the reference in the provision of paragraph d) of no. 1 of article 34 of the IRC Code to provisions constituted for general credit risks which cannot be deducted for tax purposes should be understood as relating to provisions determined on an annual basis, given their generic and abstract character. In this sense, only constitution/allocation of the provision in question will be considered, in each financial year, if the final balance of the provision on 31 December of the financial year (2003) is higher than its balance on 31 December of the previous financial year (2002), or restoration/cancellation of that provision, in the opposite case.
Since in the financial year in question the variation of the provision was negative, such a situation cannot be accommodated within paragraph d) of the provision in question, since, in net terms, no accounting cost was recorded which would have to be increased for tax purposes due to being non-deductible. Thus, the increase to taxable profit declared by the Claimant in form 22 does not appear to be due.
The reason supporting the Claimant results, first and foremost, from the interpretation of article 7, no. 1 of Bank of Portugal Notice no. 3/95, pursuant to which this provision is constituted taking into account the "total credit granted" and therefore should be viewed in a global perspective, which can result either in net constitution/reinforcement of the provision or in net restoration/cancellation of it.
The reasoning described finds confirmation in the explanatory notes to the POC, with regard to account #67 – Provisions. It clarifies that should be recorded as an expense of the financial year, by way of constitution/reinforcement of the provision, "the positive variation of the estimate of risks, in each class of provision, between two consecutive accounting periods". Although, in the case of the Claimant, accounting is carried out in accordance with the chart of accounts applicable to the financial sector (the PCSB), which implies that the accounts to be moved are distinct, the logic and function inherent to provisions is, as noted above, identical, so that there is similarity of circumstances justifying the applicability of the same rule.
Furthermore, the procedure of mandatory monthly reporting to the Bank of Portugal of certain accounting and financial information generates the monthly movement of provisions accounts by the Claimant, with systematic constitution/reinforcement and cancellation/restoration of provisions which, were it not for that need to report, would be performed on an annual aggregate basis from which the reflection in the accounting of the annual variation of the provision would result, which in the situation in question would translate into a credit movement in account #8490, in the value of € 1,089,808.74, representative of the effective variation of the provision in financial year 2003, as against the balance existing on 31 December 2002.
Contrary to what the AT contends, it is not derived from the fact that the concept of positive variation is only expressly referred to in the transitional regime that was in force between 2001 and 2002, that the consideration of the global annual provision, resulting from the difference in balances of accounts #7990 and #8490, is not applicable. This is the interpretation that follows from the general accounting regime of provisions and that which best suits the principles governing taxation under IRC.
In this context, article 3, no. 2 of the IRC Code determines that profit should consist of the difference between the values of net assets at the end and at the beginning of the taxation period, without prejudice to the corrections established therein. Article 8, no. 9 of the same statute stipulates that the taxable event occurs on the last day of the taxation period, in general, and also in the case of the Claimant, on 31 December of each financial year, in compliance with the principle of periodization and specialization of financial years (cf. articles 17 and 18 of the IRC Code).
The above-stated understanding should not be conditioned or altered by the fact that accounting of the Claimant's provisions, derived from reporting to the Bank of Portugal, is reflected monthly. Indeed, the manner in which provisions are accounted for (even if done erroneously) will not be determinative of the applicable tax treatment which must consider the material reality presupposed in the tax incidence norms, as is substantiated by the STA Decision, of 15 January 2014, in case no. 815/2011 which, moreover, considers that "nothing prevents a taxpayer from invoking the illegality of assessment on the grounds of a lapse committed by him in an accounting record and, consequently, in the income declaration for IRC purposes. This is because the declaration has no constitutive effects and the law permits judicial challenge on the grounds of any illegality, whether it originates in the action of the AT, or in the taxpayer's error in the declaration (In this sense, ALBERTO PINHEIRO XAVIER, Concept and Nature of the Tax Act, Almedina, 1972, p. 205: «the tax act is subject to challenge whenever illegal, whether its content is identical to, or differs from that of the taxpayer's declaration».), even though it was the latter who proceeded to the (self-)assessment."
In these terms, the reasoning of the AT according to which it would be essential to know the breakdown of the balance of the provisions account, to know which were accepted as tax expenses in the year of their constitution and, thus, to give appropriate tax treatment and be able to assess the value to be increased for tax purposes, is not applicable to the situation in question.
Such assertion derives from, on the one hand, there being no need to operate any tax correction (increase) to provisions constituted or their reinforcement, since the variation of the provision was negative in the financial year (as against the balance existing on 31 December 2002) and, on the other hand, from the Claimant not having recognized as a tax-deductible expense of financial year 2003 that (patrimonial) negative variation, in the value of € 1,089,808.74, since it still presented a positive balance in account #610 (Miscellaneous provisions – For general credit risks), in strict compliance with article 34, no. 3 of the IRC Code.
The AT itself confirmed the Claimant's understanding in the favorable decisions of the Gratuitous Objections of the self-assessment acts which it filed for years 2004 and 2005, on the basis of the same grounds as the request for official revision sub judice, making it difficult to understand why precisely on identical facts and under the same legal framework, it decided in the opposite manner, stating lacunically that it had altered its interpretation.
Without prejudice to the foregoing, this position of the AT does not constitute an invalidating defect of the decision rejecting the request for official revision by violation of the principle of equality. In fact, in accordance with established STA case law, the principle of equality does not confer a right to equality in illegality, so that if the second interpretation (the one unfavorable to the taxpayer) were valid, it would not be its dissonance vis-à-vis the previous ones that would cause it to fail.
On the defect of reasoning
The Claimant further invokes the formal defect of insufficient reasoning, which it considers equivalent to lack of reasoning, in accordance with the regime that follows from article 153, no. 2 of the CPA.
The alleged defect is, however, to be deemed unfounded, since the reasons and motivation of the AT are discernible. And the Claimant understood the arguments, rebutting the position of the latter and pointing out its patent deficiencies.
A distinct question is whether the assumptions of taxation assumed in the reasoning of the dispatch rejecting the discussion in question are correct or demonstrated and whether the reasons therein adduced are valid, which "already has to do with the merits of the decision and with the legality 'stricto sensu' of the act itself" (cf. STA Decision, case no. 1690/13, of 23 April 2014). In this case, it is not a question of assessing the formal defect of lack of reasoning, which, for the reasons described, is unfounded, but the substantive (in)validity of the tax act.
On the violation of the principles of the inquisitorial procedure and material truth
Finally, as regards the assumption by the AT that these were "cancellations of provisions constituted in periods
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