Wind Turbine Depreciation Rates for Corporate Tax (IRC): CAAD Arbitration on Useful Life of Wind Equipment

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Nuno Miguel Morujão and Jorge Bacelar Gouveia, designated by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal:

I – REPORT

On 19 April 2016, A…, S.A., a company with registered office in Place …, parish of …, municipality of …, a legal entity with tax identification number …, filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, for short, referred to as RJAT), seeking the declaration of illegality of the corporate income tax (IRC) assessment notice No. 2015…, the interest assessment notice No. 2015… and the account reconciliation statement No. 2015…, all relating to the tax period 2011, insofar as they considered as a fiscally non-deductible expense for that period the amount of €344,214.98 relating to the depreciation of the wind turbines at the Wind Park of….

To support its claim, the Applicant alleges, in summary, that:

• The depreciation rate applied by the Applicant falls within the legally permitted range.
• If the 20-year period corresponded to a minimum useful life period, this would place the maximum period at 40 or 50 years.
• There is a gross error committed by the Tax Authority.
• The Commission Proposal for Green Fiscal Reform, which led to the current law on the subject, concludes that "if the minimum operating life period of a wind turbine (guaranteed by manufacturers) were 20 years, the maximum useful life period would be automatically assumed to be twice the minimum period, i.e. 40 years, which in no way corresponds to the reality of the current wind sector. (…) With respect to photovoltaic equipment, similar reasoning applies".
• Following the Green Fiscal Reform and accepting the proposal of the respective commission, the legislator expressly regulated the useful life period of wind energy equipment (by virtue of Law No. 82-D/2014, of 31 December), providing that it should be between 12.5 and 25 years, with the said Green Fiscal Reform report referring to this period as being in line with that applied at the Iberian level.
• Applying this new rate to equipment of the type used by the Applicant and with no reason to believe that the quality of the wind turbines had deteriorated markedly and generally between 2010 and 2014 to the extent that their expected useful life had fallen from 20 to 12.5 years, it cannot be understood that already on that first date it would not be reasonable not to expect more than 12.5 years of useful life.
• The Tax Authority's interpretation of the law, which permits it to tax as corporate income tax a gain that the legislator itself confirmed did not occur, is unconstitutional for violation of the principle of equality and taxable capacity.

On 20 April 2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Applicant did not appoint an arbitrator, so, under the provisions of paragraph a) of number 2 of article 6 and paragraph a) of number 1 of article 11 of the RJAT, the President of the Ethics Council of the CAAD designated the undersigned as arbitrators of the collective arbitral tribunal, who accepted the appointment within the applicable period.

On 14 June 2014, the parties were notified of these appointments and did not express any intention to challenge any of them.

In accordance with the provisions of paragraph c) of number 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 01 July 2016.

On 22 September 2016, the Respondent, duly notified for this purpose, submitted its response defending itself solely through challenge.

On 29 November 2016, the meeting referred to in article 18 of the RJAT took place, where the witnesses presented by the Applicant were examined.

Having been granted a time period for the submission of written arguments, these were submitted by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was set for rendering the final decision, after submission of arguments by the Tax Authority.

The Arbitral Tribunal is materially competent and regularly constituted, in accordance with articles 2, number 1, paragraph a), 5 and 6, number 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ministerial Order No. 112-A/2011, of 22 March.

The proceedings are free from defects.

Thus, there is no obstacle to consideration of the merits of the case.

All considered, it is appropriate to render

II. DECISION

A. MATTER OF FACT

A.1. Facts taken as proven

1. The Applicant began its activity on 12 June 2002, which consists of "Production of electricity from wind, geothermal and solar sources" (CAE …), and is classified for VAT purposes in the normal monthly periodicity regime and for IRC purposes in the general taxation regime.

2. The Applicant's purpose is the construction and operation of wind farms, being the owner of the Wind Park of … and commenced its operation in March 2008 with an installed capacity of 28 MW.

3. The Applicant is owned by the companies "B…, S.A." and "C…, S.A."

4. In compliance with Service Orders No. OI2015… and No. OI2015…, an internal inspection action was carried out on the company "A…, Lda.", of partial scope – IRC – and covering the years 2011 and 2012.

5. From the analysis of the Applicant's accounting elements, the Tax Authority verified that the latter, in the years 2011 and 2012, recorded in account … – Non-revalued EE –…, depreciation in the amount of €1,721,074.91, which corresponds to a percentage of 6.25% on the value of €27,537,198.56, recorded in account … – Non-revalued EE-….

6. The Applicant applied depreciation rates on the equipment (EE – Electromechanical Equipment) that constitute the wind park at the rate of 6.25%.

7. In applying that rate, the Applicant considered that, for tax purposes, the aforementioned assets – wind turbines – intended for electricity production that constitute a wind farm, had an expected useful life period of 16 years.

8. The Tax Authority considered that, regarding the assets in question, a depreciation rate of 5% corresponding to 20 years of useful life was reasonable, in accordance with the opinion of the Corporate Income Tax Service Department, set out in information note No. …/15.

9. Accordingly, the Tax Authority considered that there was a bookkeeping depreciation not accepted for tax purposes, in accordance with article 34 of the Corporate Income Tax Code (CIRC), which should have been added in section 07 of the periodic declaration model 22 of IRC of the Applicant, for the years 2011 and 2012, for the purpose of calculating taxable income, in the total amount of €344,214.98.

10. The corrections made were based on the provisions of article 31 number 2 and article 34 number 1 of the CIRC, in conjunction with number 3 of article 5 of Regulatory Decree No. 25/2009, of 14 September.

11. The Respondent notified the Applicant of the Draft Report on 10 November 2015, having been notified to exercise the right of hearing, in accordance with article 60 of the General Tax Law and article 60 of the Supplementary Regime of Tax Inspection Proceedings.

12. The Applicant did not exercise its right of hearing.

13. By means of an official letter No. …, of 2 December 2015, the Applicant was notified of the Final Inspection Report, in accordance with article 62 of the Supplementary Regime of Tax Inspection Proceedings.

14. On 12 April 2016, information was issued with number 2142/15 from the Corporate Income Tax Service Department, on which a decision of the Deputy Director-General of 2 May 2016 was issued, under delegation of powers, regarding the request submitted by the Applicant, under article 31-A/2 of the CIRC, to the effect that the depreciation of all elements of tangible fixed assets forming the Wind Park of … be accepted for tax purposes, applying a useful life period of 20 years, with reference to the commencement of operation thereof.

15. The corrections made in the course of the inspection action resulted in the issuance of the corporate income tax assessment for the 2011 tax period in question and embodied in the Corporate Income Tax Assessment Statement No. 2015…, the interest assessment No. 2015 … and the account reconciliation statement No. 2015….

16. The Applicant did not make payment of the assessments, so the corresponding tax enforcement proceedings were instituted by the Financial Services Office of … (File No. …2016…), and a bank guarantee was provided in the amount of €142,242.94, for the purpose of suspending the legal process.

17. The Tax Authority made various informal consultations on the websites of the main manufacturers present in Portugal, namely D… (currently E…), F…, G… and H…, and concluded that the majority of those manufacturers assume that the expected useful life time (Life Time Cycle) of each machine they produce is 20 years.

18. In the course of the inspection actions carried out for the year 2010 (OI2014…, of 6 October 2014), to different companies belonging to Group I…, by the entities (G… GMBH (NIPC…), F…, Lda. (NIPC…) and H… GMBH – Branch in Portugal (NIPC…), the latter being the entity supplying the wind turbines for the Wind Park of…, at the request of the Tax Authority to these entities, regarding an estimated useful life period of those generators, the same indicated as reasonable a period of 20 years.

19. Standard 61400-1 of the International Committee of Electronics states on page 24: "The design lifetime for wind turbines classes I to III shall be at least 20 years".

20. In the Technical Study "Expected Useful Life Period of Wind Energy Conversion Equipment" of the National Laboratory of Energy and Geology (LNEG), of December 2013, it can be read on page 5: "(…) Thus, the warranty period of a wind turbine is similar to that attributed to any equipment acquired through a commercial transaction. In the case of wind turbines this period corresponds to 2-5 years after its entry into operation. Normally this warranty period refers not only to the operation and maintenance of the equipment but also to the production guarantee, being directly related to the period for which maintenance contracts are drawn up. Initially these contracts had a duration of 2 to 5 years, however, in more recent years there have been cases in which these contracts are drawn up for longer periods, reaching the expected useful life period for wind turbines (approximately 20 years)."

21. The dissertation "Methodologies for Assessing the Performance of Wind Parks" by Nuno Cardoso, carried out as part of the Integrated Master's in Mechanical Engineering, under the coordination of Professor Álvaro Henriques Rodrigues of the Department of Mechanical Engineering and Industrial Management, Faculty of Engineering of the University of Porto, states on page 12:

"(…) the operation phase of a wind farm is what extends over a longer time period. The 20-year time horizon is what is habitually considered, as it represents the expected useful life time for the wind turbines around which the activities carried out are centered: operation, maintenance and conservation of the farm."

1. The environmental impact study drawn up by the French "Ministère de l'Écologie et du Développement Durable" (2005) points, on page 52, to an estimated useful life period of wind turbines of 20 to 30 years, at the end of which the operator has the responsibility to dismantle the wind farm and restore the site to its original state.

2. The "Renewable Energy Fact Sheet: Wind Turbines" drawn up by the "United States Environmental Protection Agency", mentions on page 2, a typical useful life of 20 years.

A.2. Facts taken as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of proven and not proven matters of fact

With regard to matters of fact, the Tribunal does not have to pronounce itself on everything alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish proven from unproven matter (see article 123, number 2, of the Code of Tax Procedure and Process (CPPT) and article 607, number 3 of the Code of Civil Procedure (CPC), applicable by virtue of article 29, number 1, paragraphs a) and e), of the RJAT).

In this way, the facts relevant to the judgment of the case are chosen and tailored according to their legal relevance, which is established with regard to the various plausible solutions to the question(s) of Law (see former article 511, number 1, of the CPC, corresponding to current article 596, applicable by virtue of article 29, number 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the Administrative Procedure file attached to the case, the facts listed above were considered proven, with relevance to the decision.

B. MATTERS OF LAW

As it emerges from the facts taken as proven, the Tax Authority disregarded the depreciation rate corresponding to a useful life period of 16 years, applied by the Applicant, on the grounds that it considered that 20 years would be, in its judgment, the reasonable period for this purpose.

The Tax Authority's decision is based on number 2 of article 31 of the CIRC and number 3 of article 5 of Regulatory Decree No. 25/2009, of 14 September, which respectively provide:

• "With regard to items for which depreciation or amortization rates are not fixed, those which the General Directorate of Taxes considers reasonable, taking into account the expected useful life period, are accepted."

• "With regard to items for which depreciation or amortization rates are not fixed in the tables referred to in number 1, those which the General Directorate of Taxes considers reasonable, taking into account the expected useful life period, are accepted."

The question to be determined in the present proceedings has already been the subject of consideration in other tax arbitration proceedings, as indicated by the parties, and, generally speaking, the decisions rendered have gone in the direction of replacing the Tax Authority's judgment, considering the shorter period used by the taxpayers to be reasonable.

With due respect for such decisions, it is considered pertinent and correct to note the criticism made in the dissenting opinion rendered in arbitration proceedings No. 593/2015T[1], which, with due deference, is transcribed:

"Note that, under article 31, 2 of the Corporate Income Tax Code and article 5 of Regulatory Decree No. 25/2009, of 14 September, these amortization rates became the applicable rates 'ex lege', in that those provisions conferred on the Tax Authority a discretionary power to set rates – within a specific framework of 'technical discretion', as we shall see more clearly below.

This is sufficient to settle the question specifically raised by the omission of express amortization rates for the equipment in question: those provisions point the way to resolve that question, and that path was followed. There came to be amortization rates defined in accordance with the law, and those were the ones applied. (...)

Let us now clarify our understanding, both as to the existence, in the case, of technical discretion 'stricto sensu', and as to its implications regarding the judicial control of decisions taken, in that context, by the Tax Authority.

Administrative discretion is more a power-duty than a pure freedom of choice, since everything is subordinated to the pursuit of the specific public interest, although as to the content, the object, or the form of the administrative solution, a multiplicity of equally valid ways may be admitted – that is, ways that do not conflict with any other principle guiding administrative activity.

In cases where the law wished to confer discretion, it ceases to be legitimate for the Court responsible for controlling the legality of an administrative act to enter into the definition of a content, an object or a form as the only ones compatible with the purpose to be pursued, so that, based on them, it could assess the act in question – which in practice would mean admitting that the Court was substituting itself for the Public Administration in tracing the elements of the act carried out by it, denying the very existence of the discretion established by law.

The margin of administrative free decision thus constitutes a functional limit to administrative jurisdiction, in that that margin centers on areas of merit, convenience or opportunity within the scope of competence, without implications for the validity of the administrative conduct, and thus lies outside the scope of judicial control, which can only apply to the violation of the external limits of discretionary power (although the possibility of merit control through the non-judicial route remains, this being compatible with public administrative autonomy).

In other words, in pure administrative discretion, Courts must limit themselves to verifying whether the legal limits of discretion, the positive limits of competence, purpose, impartiality and proportionality were or were not respected – and cannot examine whatever resulted from the administrative decision taken in observance of those limits. (...)

Since the Court cannot substitute itself for the Administration in the formulation of a judgment that falls strictly within the merit and opportunity of the Administration's action, technical discretion is in principle also withdrawn from the Court's control, unless it displays gross, manifest, egregious error.

In the strict sense, technical discretion is that in which, being concerned with the resolution of questions that require specialized scientific knowledge, the Administration is forced to make decisions supported by information and professional technical studies, the Administration thus being bound by the conclusive statement of the professionals consulted, and cannot in sum adopt a solution different from that indicated by the specialists – and administrative decisions of this nature can only be challenged judicially or administratively if there is a lack of support in those technical professional information corroborated by specialists in the field, or if the decision diverges ostensively from the conclusions contained in those information and studies.

In technical discretion, the presuppositions that integrate the prediction of the norm constitute technical concepts relating to facts that are only verifiable or assessable on the basis of knowledge and instruments proper to sciences other than legal science.

This concerns an administrative activity translated into technical existence judgments, technical evaluative judgments or technical probability judgments, by which the law confers on the Administration a power of technical evaluation, which, not implying comparative weighing of secondary interests, involves evaluation of facts and circumstances of a technical nature.

Hence the fact that doctrine has sometimes, over a century and a half of development of the concept (which may have emerged in the mid-nineteenth century), used the expression "improper discretion" as a genus of which "technical discretion" would be a species, seeking thereby to emphasize the absence of judgments of opportunity and convenience that outweigh judgments of a strictly technical character (technical discretion would be akin to "probatory freedom" and "bureaucratic justice" within that family of "improper discretions"). (...)

On the other hand, in technical discretion 'stricto sensu' there is no room for evaluative judgment based on indeterminate legal or legal-technical concepts, a judgment that has nothing to do with the margin of free appreciation and decision that characterizes genuine discretionary judgment, but rather falls within the rules proper to legal interpretation in the course of purely subsumptive application, and therefore subject to judicial control.

With the technique of indeterminate legal concepts there is no discretion: the law refers to a sphere of reality whose limits do not appear well stated, but which can be determined in the concrete case, through interpretation, not admitting more than one solution, more than one 'specification' of the concept.

In technical discretion 'stricto sensu' there is, yes, room for evaluative judgment based on knowledge and rules proper to non-legal science or technique that are at issue, it being certain that it is not the Court's role to control the good science or the good technique employed by the administrative entity, due to manifest lack of competence in the non-legal matters necessary for this.

These are cases in which the Administration's assessment requires the use of technical criteria, and the resolution of technical questions should be carried out in accordance with the rules and knowledge proper to them – and the law not only recognizes this but imposes it on all operators of Law (and not only on the Administration, its primary addressee).

Where technical discretion 'stricto sensu' exists, judicial control must therefore be confined to the zones of constraint adjacent to the exercise of that technical discretion, that is, again, limited to verifying respect or non-respect for the legal limits of the discretion, the positive limits that presided over the legal conferral of discretionary power and corresponding prerogatives – and may specifically examine, at the frontiers of the 'margin of free appreciation', (1) a gross or manifest error of appreciation (2) an error in the factual presuppositions (3) an abuse of power or (4) manifest violation of the general principles of impartiality, equality, proportionality, justice and good faith as principles shaping administrative activity.

More specifically, if the law entrusts the Administration with the power to specify an assessment not previously fixed by the law itself, a Court cannot proceed to re-weigh the judgments made by the Administration in that sphere, except where the existence of gross or manifest error is demonstrated – namely the lack of support in professional technical information and studies corroborated by specialists and demanded by the specification of non-legal concepts. (...)

We are here very close to the scope in which the topic of 'technical discretion' has developed in the USA, there much centered on delimiting the competence of regulatory agencies, whether to define the limits of their normative function, or to establish the limits of the corresponding judicial control.

There emerged the technique of 'standards', by which the law merely establishes parameters, principles, indeterminate concepts, leaving to the agencies the function of specifying regulatory norms, guidelines – specialized and decentralized rules, based on technical knowledge that is beyond the grasp, in its specificity, of either the legislator itself or judicial control.

A Court cannot examine those judgments, it is insisted, no matter how much they diverge from the understanding of private parties or from the understanding of the judge himself – a Court having to confine itself to the zones of constraint adjacent, and at most demonstrate, through other professional technical information corroborated by specialists, that the information and studies used by the Administration in support of its judgments were glaringly false, capricious or inadequate, or that they were ostensively, grossly, disregarded in the very judgments made by the Administration for the intended specification of non-legal concepts.

Let us insist that mere divergence of judgments between the Administration and private parties, or even between the Administration and the Court, does not constitute proof of any error or defect of the challenged act that is subject to judicial control, and in no way legitimizes that the Court substitute itself for the Administration in the formulation of a judgment that falls strictly within the merit and opportunity of the Administration's action.

And such is the case that, in cases of gross error in which one may conclude that the Administration has exceeded its powers and openly left the field of technical discretion to enter that of illegality, to the extent that the Court might annul the administrative decision in question, it is settled that the Court can never replace the annulled administrative decision with another it considers more adequate – that is, it cannot, without violating the constitutional principle of separation of powers, appropriate that technical discretion to itself.

A Court cannot examine those judgments, in short, except under those strict presuppositions, except when it is patent that there is a gross, obvious, egregious error, expressed in serious misalignment of the decision to the concrete situation and the pursuit of the public interest, to such an extent that one might consider the exclusion of judicial control by non-technical means to be arbitrary – for otherwise, without all these safeguards, technical discretion 'stricto sensu' would be dead letter, everything sinking into strict constraint, and the invocation of a margin of free appreciation and technical evaluation entrusted to the Administration would become a bizarre legal fiction. (...)

Returning to the case, and summarizing.

If we accept that there is a discretionary power established in favor of the Tax Authority, we cannot fall into the temptation of proceeding to a 'comparison of reasonableness' between depreciation periods, that proposed by the Applicant and that proposed by the Tax Authority: the law expressly prohibited it by establishing a discretionary power in favor of the Tax Authority.

Thus, to reject as 'unreasonable' a period proposed by the Applicant, it was sufficient for the Tax Authority to conduct a diligence to demonstrate that that period does not flow from the concept of 'expected useful life' that it itself, the Tax Authority, embraces. The Tax Authority did so; and in doing so it did not violate ostensively, grossly, any of the general principles of law to which it is subject.

Given technical discretion, it is not the role of any Court to enter into the substantive merit of the assessment, and even less so of an arbitral tribunal, which must confine itself to questions of legality (article 2 of the RJAT).

This Court, or any other, may find that the period proposed by the Applicant is more reasonable, or may instead find that the period proposed by the Tax Authority is more reasonable – but that evaluation is, and must be, irrelevant in the case, because, it is insisted, the establishment by law of a discretionary power, such as the one exercised, precludes any possibility of 'comparison of reasonableness' between depreciation periods, as it precludes any other judgment of merit.

What would remain for this Court, or any other Court, would be to examine the zones of constraint adjacent to the exercise of said technical discretion, demonstrating that the Tax Authority adopted a procedure that was glaringly, grossly, incorrect, to the point of leaving no doubt as to whether it could harm the legality of the exercise of the discretionary power – to the point of permitting that, on the basis of a non-technical judgment, the anti-juridical nature of the results of the Tax Authority's action was evident."

This understanding is entirely endorsed, that is, that the norms in question confer technical discretion on the Tax Authority, so that the Tribunal can only "examine the zones of constraint adjacent to the exercise of said technical discretion, demonstrating that the Tax Authority adopted a procedure that was glaringly, grossly, incorrect, to the point of leaving no doubt as to whether it could harm the legality of the exercise of the discretionary power – to the point of permitting that, on the basis of a non-technical judgment, the anti-juridical nature of the results of the Tax Authority's action was evident."

Notwithstanding the position set out in the recent judgment rendered in arbitration proceedings 238/2016T[2] of the CAAD, which understood that, in a case analogous to the present one, discretionary power conferral on the Administration would not be at issue, this understanding is maintained.

Indeed, it is understood that the said ruling anchored itself essentially in case law and doctrine that is considered not directly transposable to the concrete case, since they concern a type of technical discretion based exclusively on the legislator's use of terms that are eminently technical or that, in any way, imply a judgment of such a nature.

Now, in the case at hand, not only does the judgment underlying the norms in question have, in fact, an eminently technical nature, but, furthermore, the said norms refer to a judgment of reasonableness specifically deferred to the Tax Authority, using the expression "those which the General Directorate of Taxes considers reasonable", with no doubt that one is in the domain of the discretionary powers of the Administration, which, moreover, by force of the principle of separation of powers, will have to be respected, as it continues to be recognized by recent case law[3], and the matter to which the said discretionary powers concern is of an eminently technical nature.

It is thus concluded, without doubt, that the legislator deferred a margin of freedom to the Tax Authority by using the expression transcribed above, so that, being the Tax Authority's decision subject to scrutiny, it is so only within the limits that respect the deferred margin of free appreciation legitimately deferred by the legislator to the Tax Authority.

Nonetheless, in the case, it is judged that what occurs is that the discretionary power was, in face of the law, incorrectly exercised, which it will be sought to demonstrate by two means.

Let us see.

Although, in the case at hand, we are in the field of technical discretion, the considerations set out in the Supreme Administrative Court (STA) Judgment of 27 November 2013, rendered in proceedings 01159/09[4], regarding the application of indeterminate concepts, will apply directly, it being understood that:

"In this way, when faced with indeterminate concepts, it falls to the deciding body, first of all, to grasp their meaning and scope through an interpretive operation of the norm in which they are inserted, for the law must furnish, to a large extent, a sufficiently clear standard for its interpretation. An interpretive operation which, being bound, also falls to the court to examine.

In that measure, and as ANTÓNIO FRANCISCO DE SOUSA rightly observes (In 'Indeterminate Legal Concepts in Administrative Law', Almedina, 1994, p. 18 and 60.), 'indeterminate legal concepts' have peculiarities within Administrative Law, since there the judge has the function of monitoring whether the administration gave the correct interpretation and application to these concepts. The interpretation and application of indeterminate legal concepts by the administration thus constitutes an activity strictly bound to the law. To admit any margin of appreciation in favor of the Administration 'would mean extending the field of discretion to the Tatbestand of the law and thus striking a grave blow to the guarantees of the citizen that the Rule of Law does not permit'."

That is to say: the norm that confers the powers of technical discretion on the Tax Authority is nonetheless a legal norm, in need of, before application (where discretion is exercised), interpretation, an interpretation which is, naturally, subject to judicial scrutiny.

This is not about transposing to the field of technical discretion the special obligation of reasoning that attends the Administration when it applies indeterminate concepts, but rather about affirming that, as happens with norms containing these, with regard to norms conferring that discretion, it is necessary to "grasp their meaning and scope through an interpretive operation of the norm in which they are inserted, for the law must furnish, to a large extent, a sufficiently clear standard for its interpretation. An interpretive operation which, being bound, also falls to the court to examine."

In other words, the norm that confers discretionary powers on the Administration itself requires interpretation, first of all in order to determine what the concrete powers are that are conferred – in essence, what task the legislator intends to be entrusted to the Administration's discretion, and such hermeneutical operation, as it cannot but be, is judicially subject to scrutiny.

Thus, first of all, and in the case, it appears that the Tax Authority's interpretation of the legal norms in question, indicated above, is not the correct one, the Tax Authority having wrongly determined what task fell to it in accordance with those norms.

Indeed, the Tax Authority, as emerges from the inspection report and the matter of fact ascertained, merely indicated a value corresponding to the number of years it considers reasonable for the depreciation of the equipment in question.

Now, with respect due to better opinion, that is not the meaning of the norms applied.

Indeed, both one and the other of the norms refer to situations in which, for a given item, depreciation or amortization rates are not fixed, and providing that, in that case, those that the General Directorate of Taxes considers reasonable are accepted.

Now, the use of the plural cannot fail to be significant, and the significance should not fail to be that it is not incumbent on the Tax Authority to fix a single depreciation rate as being reasonable, but rather to fix a range of rates that are considered reasonable.

Indeed, in the hermeneutical work to be done, it cannot fail to be noted that the norms in question do not prescribe that the Tax Authority substitute itself for the legislator in the indication of a percentage, analogous to those fixed in the table that is omitted with regard to the item to be depreciated, but in the indication of depreciation or amortization rates that are reasonable.

Now, acceptable depreciation or amortization rates, in the current system, are comprised within a range resulting from the combination of the minimum and maximum useful life period of an asset, as defined in article 3/2 of Regulatory Decree No. 25/2009, of 14 September.

Hence, since the omission of the table annexed to the said Regulatory Decree is at issue, the Tax Authority should proceed in the same terms, fixing not a fixed depreciation or amortization rate, based on a concept of 'expected useful life', filled in by a judgment of 'average expected utility value', but, as it flows from the regime of that same Regulatory Decree and annexed table, a range of reasonable depreciation or amortization rates, comprised between a period of minimum reasonable useful life and a period of maximum reasonable useful life (tending to be equivalent to twice the minimum useful life period)[5] such as, for items contained in the said table, occurs, and it is precisely this that is the meaning of the use of the plural of the word 'rates', and respective concordances, in the norms of articles 31/2 of the CIRC and 5/3 of Regulatory Decree No. 25/2009, of 14 September.

Otherwise, that is, if it were understood that the Tax Authority could, in each specific case where it was called upon to pronounce itself, fix for the same type of asset item a specific amortization rate, and, consequently, a single useful life period, based on what, in that specific case, seemed reasonable to it, one would fall into an unacceptable lack of generality in the Administration's decisions, referring to a 'case-by-case approach' that is precisely the opposite of what the legal system imposes should happen in filling legal gaps through the exercise of discretionary power.

The values of security and justice demand that, when the Administration is legally entrusted with the discretionary power to fill gaps in the law itself, the Administration should act on the same plane of abstraction and generality that ideally preside over the fixing of legal criteria, when these exist.

In the case of the norms in question, when the law alludes to 'are accepted', it cannot fail to refer to the admissibility of a range of rates, which become effective for a universe of omitted equipment, whether or not they have already been the subject of depreciation or amortization, tax assessment or dispute with the Administration itself.

The Administration must, whether aroused or not by the declarative initiative of some taxpayer, endeavor to ascertain, with impartiality, generality, abstraction and congruence, the rates that become the 'accepted' rates for that case and for all others.

It being otherwise, the very guarantees that, for taxpayers, result from impartiality and generality would be called into question: a taxpayer would see its rate of 5% be or not be accepted – but who would guarantee it that another taxpayer, with the same type of equipment but used in different circumstances, could not see a rate of 7 or 8% 'accepted'?

On the other hand, only the fixing of a set of reasonable rates, corresponding to the range of minimum and maximum useful life of an omitted asset item, fixed from a point of view of generality and abstraction, makes it possible to prevent that a taxpayer with equipment analogous to another to which the Tax Authority had fixed a specific depreciation or amortization rate, but which used it in different circumstances, influencing its useful life period, not be irreparably prejudiced by the circumstances assessed by the Tax Authority, particular to the first case it might appraise.

In this way, the understanding now sustained not only, it is judged, does not go against the principles of security, equality and legal generality, nor against the generic duty of impartiality that weighs on the Administration, but rather will be imposed by them.

Thus, only 'accepted' depreciation rates corresponding to a minimum and maximum useful life period, by the Tax Authority, and such rates becoming effective for all similar cases, in accordance with the express terms of the legal regime, is the gap filled and the applicable rate ceases to be the Tax Authority's rate to be the rate of the Law itself. Only in this way, it is judged, is the legal command to fix 'rates' (in the plural) of amortization or depreciation executed, it not being conceivable how the fixing of a single depreciation rate could correspond to legislative intent, when, precisely, that is not the modus operandi of the legislator in dealing with the same matter, on the one hand, and the legislative command is clear in prescribing the acceptance of 'rates' reasonable, on the other.

Moreover, this interpretation would always be required by the principle of equality, in that no material justification exists for taxpayers to be able to use depreciation rates comprised between the minimum and maximum useful life period of assets, in the case where the same are contained in the table annexed to Regulatory Decree No. 25/2009, of 14 September, and only be able to use a single rate (precisely the one considered reasonable by the Tax Authority), in the case where they are not contained.

And note that, just as in the case of items integrating the table annexed to Regulatory Decree No. 25/2009, of 14 September, there is no difficulty with the range of depreciation or amortization rates resulting from the combination of the regime with its annexed table, in the case of omissions, the Tax Authority's fixing of the range of reasonable acceptable rates, there will be no difficulty. Indeed, the subsequent procedure will be precisely the same, that is, within the range fixed, whether by the combination of the Regulatory Decree regime and respective annexed table, or by the Tax Authority, the taxpayer will choose the rate most suited to its concrete situation, without there being, in one or the other situation, any difficulties, case-by-case approach or arbitrariness, or, for whoever does not so understand, with such difficulties present in both situations.

Hence, by indicating, in accordance with articles 31/2 of the CIRC and 5/3 of Regulatory Decree No. 25/2009, of 14 September, a single amortization rate, corresponding to a fixed useful life period, the Tax Authority incurred in incorrect application of those norms and, consequently, in an incorrect exercise of the technical discretionary power that they confer on it.

Since what is at issue here is examining an illegality prior to the exercise of the discretionary power that the norms in question confer on the Tax Authority, it is naturally not a matter of entering into the substance of the exercise of such power, not discussing, therefore, the technical correctness of the solution to which it discretionarily arrived, in that what is concluded is that the solution to which it arrived was not the one that the normative commands conferring the discretionary power on it prescribed that it should produce.

The incorrect intervention of the Tax Authority in the case at hand does not stop there, however. Indeed, the situation at hand is not one in which a taxpayer, confronted with the absence of an asset in the table annexed to Regulatory Decree No. 25/2009, of 14 September, requests the Tax Authority to indicate depreciation or amortization rates it considers reasonable.

Rather, in the case at hand, the Applicant, in accordance with the law, submitted its tax return[6], possessing properly organized accounting, and the Tax Authority purported to proceed, and did proceed, to correct it, this being a case in which "It is the Tax Authority's obligation to prove the verification of legal (binding) presuppositions of its action, namely if aggressive (positive and unfavorable)"[7].

That is to say, confronted with the Applicant's return, it was incumbent on the Tax Authority, in the first place, to demonstrate that it was wrong, and such burden flows not from the norms of number 2 of article 31 of the CIRC and number 3 of article 5 of Regulatory Decree No. 25/2009, of 14 September, but from article 74/1 of the General Tax Law, combined with article 75/1 of the same Law[8].

Now, with respect due to other opinions, demonstrating that the depreciation rate used by the Applicant, corresponding to a useful life period of 16 years, was incorrect – i.e. was not 'reasonable' – is not the same as demonstrating that the depreciation rate corresponding to a useful life period of 20 years is correct – i.e. 'reasonable', which is what the Tax Authority did.

In other words, the fact that the depreciation rate corresponding to a useful life period of 20 years is reasonable tells nothing about whether the depreciation rate corresponding to a useful life period of 16 years is or is not reasonable[9].

Thus, it being, as mentioned, the burden of the Tax Authority to demonstrate the verification of the presuppositions of the legality of its action, and such presuppositions including the incorrectness of what was stated by the Applicant, it is concluded that the Tax Authority did not fully demonstrate such presuppositions, since, instead of demonstrating that the depreciation or amortization rate underlying what the Applicant stated was not reasonable, it merely demonstrated that the depreciation or amortization rate corresponding to a useful life period of 20 years was reasonable, from which it does not follow, in either a necessary or direct way, that the depreciation or amortization rate corresponding to a useful life period of 16 years, used by the Applicant, was not reasonable.

Thus, not having demonstrated by the Tax Authority the legality of its corrective intervention, it should, also by this means, be considered illegal.

The Applicant also petitions for recognition of the right to indemnification for costs incurred with the guarantee provided.

An arbitral decision on the merits of a claim with respect to which there is no appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and up to the end of the period provided for the execution of sentences of the tax courts, restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for this purpose, as expressly results from paragraph b) of article 24 of the RJAT.

In the same provision "the legislator made clear that the effects provided for there are 'without prejudice to the other effects provided for in the Code of Tax Procedure and Process'. It is considered in this regard that the legislator is here referring to all effects that flow from the Code of Tax Procedure and Process, for the taxpayer, and which are applicable after the consolidation in the legal order of a specific tax-legal situation, resulting from a final decision whether by administrative grace or judicial action."[10]

Notwithstanding the fact that the process of judicial challenge is essentially a process of mere annulment, a condemnation of the Tax Authority for payment of indemnification for undue guarantee can be rendered therein, as results from article 171 of the Code of Tax Procedure and Process.

As stated in the decision rendered in Arbitration Proceedings No. 28/2013-T[11]:

"It is unequivocal that the judicial challenge process encompasses the possibility of condemnation for payment of undue guarantee and is even, in principle, the appropriate procedural means to formulate such request, which is justified by obvious reasons of procedural economy, since the right to indemnification for undue guarantee depends on what is decided about the legality or illegality of the assessment act. The request for constitution of an arbitral tribunal has as a corollary that the 'legality of the debt subject to execution' will be discussed in the arbitral proceedings, so that, as results from the express tenor of that number 1 of the said article 171 of the Code of Tax Procedure and Process, it is also the arbitral proceedings that is appropriate for examining the request for indemnification for undue guarantee provided."

It is thus concluded that this tribunal is competent to examine the request for indemnification for guarantee improperly provided.

The regime governing the right to indemnification for undue guarantee is contained in article 53 of the General Tax Law, which establishes the following:

"1. The debtor who, to suspend execution, offers a bank guarantee or equivalent, shall be indemnified in whole or in part for the losses resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the success in administrative appeal, judicial challenge or opposition to execution that have as their object the debt secured.

1. The period referred to in the preceding number does not apply when it is verified, in administrative claim or judicial challenge, that there was error attributable to the service in the tax assessment.

2. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed amount of the rate of indemnification interest provided for in this law and may be requested in the administrative claim process itself or judicial challenge, or autonomously.

3. Indemnification for provision of undue guarantee shall be paid by deduction from tax revenue for the year in which payment is made."

In the case at hand, it is manifest that the error affecting the assessment acts is attributable to the Respondent Entity, since the assessments were initiated by it and the Applicant in no way contributed to that error being practiced.

The Applicant thus has the right to indemnification for the guarantee provided, with reference to the amount whose annulment has been determined and is not yet paid, in the amount which will in the meantime have been demonstrated to be borne, if necessary in execution of judgment.

C. DECISION

It is hereby decided that this Arbitral Tribunal shall render judgment finding the arbitral claim filed to be well-founded and, consequently,

a) Annul the corporate income tax assessment notices No. 2015…, the interest assessment notice No. 2015 … and the account reconciliation statement No. 2015…, all relating to the tax period 2011, insofar as they considered as a fiscally non-deductible expense for that period the amount of €344,214.98 relating to the depreciation of the wind turbines at the Wind Park of …;

b) Condemn the Respondent to payment of indemnification for undue guarantee, in the amount which will in the meantime have been demonstrated to be borne, if necessary in execution of judgment;

c) Condemn the Respondent to payment of the costs of the proceedings, fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at €61,536.30, in accordance with article 97-A, number 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of number 1 of article 29 of the RJAT and number 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,048.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was entirely successful, in accordance with articles 12, number 2, and 22, number 4, both of the RJAT, and article 4, number 4, of the said Regulation.

Let notification be made.

Lisbon, 30 January 2017

The Presiding Arbitrator

(José Pedro Carvalho - Reporter)

The Arbitrator Member

(Nuno Miguel Morujão – Dissenting, as per statement of dissent)

The Arbitrator Member

(Jorge Bacelar Gouveia)

Dissenting Opinion:

I. Regarding the discretionary power under analysis

I concur with the position stated in the law section of this arbitral decision, when it approaches the dissenting opinion rendered in proceedings No. 593/2015-T, and when it departs from the decision in proceedings 238/2016-T, both of the CAAD.

As is well developed in the law section of the present proceedings, in the situation sub judice there is neither total discretionary power nor absolute constraint of the Tax Authority to technical criteria; there exists a partial discretion.

Indeed, in situations in which depreciation or amortization rates are not fixed, in order to know what is a fiscally deductible expense, it is incumbent on the Tax Authority to define the rates it considers 'reasonable', 'taking into account the expected useful life period'[12].

There is discretion in the proper sense when the imprecise concept 'reasonable' is used, but there is on the other hand constraint, in the sense that account must be taken of the expected useful life.

This discretionary power is exercised in the instruction phase of the inspection procedure, through an instrumental act (the operation of law integration, by virtue of assets omitted from the Regulatory Decree on amortizations), prior to the administrative act (of assessment). It is not to be confused with the said instrumental act carried out in the course of the instruction phase with the administrative act of assessment.

This is to emphasize that this operation of law integration, in accordance with number 3 of article 10 of the Civil Code (applicable given the absence of analogous case) should be carried out according to criteria of abstraction and generality, which means that the Tax Authority should disregard the specificities of the taxpayer's concrete situation. It is important only to attend to the useful life of the asset omitted from the Regulatory Decree, according to an abstract and general criterion (or as is referred to in the dissenting opinion of proceedings 593/2015-T, 'objective assessment' and not 'subjective assessment').

This expected useful life will be found in technical studies, it is true, but within those sources, the Tax Authority will decide autonomously, in its own sphere of evaluation, what it considers 'reasonable', and from there determine which amortization rates are applicable. Which moreover is understandable; anticipating the hypothesis of different studies predicting different useful lives, and it being necessary to integrate the norm in a general and indeterminate manner, the legislator granted this (partially) discretionary power to the Tax Authority, given that (the legislator) chose to grant (only) to the Administration the role of legally binding integration of the amortization rates omitted in the Regulatory Decree.

It is to be noted, however, that the Tax Authority's autonomy, namely (in principle) in relation to judicial power in deference to the principle of separation of powers, translates to an own sphere of evaluation, but will always be legally conformed, according to the principle of juridicity.

In accordance with this principle, in the exercise of discretionary powers the Administration does not cease to be subordinate to Law, namely to the general principles of Administrative Law, such as the principle of equality and impartiality[13]. Thus, discretion will never signify arbitrariness or case-by-case approach. Indeed, in the exercise of discretionary powers the Tax Authority should compare the case in which it exercises the power with other cases (real or virtual), deciding as if that case were a species of a genus, and not an isolated case, unique, unrepeatable.

Although what is at issue is a sphere of evaluation proper to the Administration, in principle not subject to judicial examination by the court, the exercise of that discretionary power remains subject to judicial control in case of gross, evident or manifest error.

II. Regarding the appropriateness of the Tax Authority's conduct:

I disagree when the prevailing position understands that the Tax Authority's conduct was not correct, for defining only one amortization rate, based on (only) one useful life, deemed reasonable.

Indeed, in filling the gap in the Regulatory Decree regarding the wind turbines of the Applicant's Wind Park, the Tax Authority defined only one amortization rate that it considered 'reasonable', based on consultations and technical studies concerning the useful life of that equipment.

In the present arbitral decision it is said that the plural used in the pertinent legal norms in 'rates…reasonable'[14] determined that it was incumbent on the Tax Authority to establish not only one, but two amortization rates, one minimum and one maximum.

But, well considered, the plural used in the norm follows from its respective prediction (subsequently underlined). That is, in the Regulatory Decree on amortizations it says: "with regard to items for which depreciation or amortization rates are not fixed in the tables referred to in number 1, those which the General Directorate of Taxes considers reasonable, taking into account the expected useful life period, are accepted". Therefore, the word 'rates' is used in the plural, in reference to 'items', in the plural, omitted in the norm.

It is true that establishing what is 'reasonable' does not comport with the precise and unitary indication of only one rate, since that being an indeterminate concept, by definition, it necessarily entails a relative imprecision (indeterminacy).

However, careful reading of number 3 of article 5 of the Regulatory Decree quoted above reveals there to be a referral to number 1 of the same article 5, where it says, in the singular, "…the annual quota of depreciation or amortization that can be accepted as an expense of the tax period is determined by applying to the values mentioned in number 1 of article 2 the amortization rates … fixed in the table…", and number 1 of article 2, to which reference is made, refers to "[only] for the purpose of calculating maximum quotas of depreciation or amortization…" (emphasized by me).

On the other hand, expressly linked to the same number 1 of article 5, is paragraph a) of number 2 of article 3 (an article concerning the useful life period), referring only to the "minimum useful life period" (emphasized by me).

The maximum period is deduced mathematically from the minimum, this being half of that, see paragraph b) of number 2 of article 3.

Thus, according to hermeneutical criteria of intra-systematic coherence, from these norms one extracts what we consider to be the correct interpretation and application of the pertinent norms, concerning the integration of amortization rates for assets omitted from the Regulatory Decree tables. There it is established that it is incumbent on the Tax Authority to define rates deemed 'reasonable', those which are the 'maximum quotas' (see number 1 of article 2) of omitted assets, corresponding to the "minimum useful life period" (see b) of number 2 of article 3) of the same, limit of fiscal deductibility (see number 1 of article 31 CIRC). As for the maximum useful life period, the law establishes by legal fiction that it is twice the minimum period (see paragraph b) of number 2 of article 3).

Well considered, when the Tax Authority states what it considers to be the (amortization rate corresponding to the) 'reasonable' useful life of assets omitted from the Regulatory Decree, integrating the gap, it is referring to the "minimum useful life period" (see paragraph b) of number 2 of article 3), resulting from the law that the maximum period is twice the minimum period (see paragraph b) of number 2 of article 3).

Thus, when in the concrete case the Tax Authority states that the amortization rate it considers 'reasonable' is 5% (to which corresponds a useful life of 20 years), it is referring to the maximum amortization rate (minimum useful life), ipso iure resulting by legal fiction that the minimum amortization rate is 2.5% (to which corresponds a maximum useful life of 40 years)[15].

In sum, the appropriate interpretation of applicable law permits us to find the range of reasonableness of amortization rates / useful lives that is required, with the minimum and maximum limits, in full coherence with the Regulatory Decree on amortizations.

In such a way that I consider that the definition of only one amortization rate (which will be the maximum), duly interpreted, respects applicable law, and is consistent with the tax assessment here challenged.

III. Regarding the burden of proof: the demonstration of constitutive facts of the assessment

The prevailing arbitral decision adds that there was incorrectness of the Tax Authority's conduct, for not having demonstrated, as was required, the constitutive facts of the additional assessment, in a context in which the taxpayer had already filed its tax return, presumed to be truthful and made in good faith.

In accordance with article 74 of the General Tax Law, the burden of proof regarding the constitutive facts of an additional assessment rests with the Tax Authority. And the relative general presumption of accuracy (truthfulness and good faith) of returns submitted by the taxpayer, in accordance with number 1 of article 75 of the General Tax Law, offers me no doubts.

It happens that I, contrary to the majority position, consider that the burden of proof was met. Let us see.

The tax assessment resulted from an inspection, and was based on the content of the inspection report itself.

In this document, the Tax Authority concludes and demonstrates, in quantified form, that expenses should be added to the taxable profit of the year inspected, by virtue of having been considered as expenses beyond the limits of fiscal deductibility.

Because assets omitted from the amortization rate tables of Regulatory Decree 25/2009 are at issue, the Tax Authority filled the gap in accordance with the law[16], stating which amortization rates should be assumed as the limit of fiscal deductibility (maximum rates), taking into account the useful lives (minimum) ascertained through consultations and technical studies.

According to those studies and technical standards, identified in the opposition to the request for arbitral determination, national and international, subsequently transcribed based on paragraphs 17 to 23 of the matter of fact taken as proven, all the useful lives ascertained pointed to 20 years or more:

[Paragraphs 17-23 reproduced in the dissenting opinion, as set forth above]

Attending to those useful lives mentioned (between 20 and 30 years), in the exercise of the discretionary power that the law grants it, the Tax Authority considered it reasonable to establish a maximum amortization rate of 5%. From this it follows, ipso iure, that the range of reasonableness of amortization rates was situated between 2.5% and 5% (corresponding to a range of useful lives of 20 to 40 years).

Since the Applicant applied amortization rates exceeding that range, specifically 6.25% (corresponding to a useful life of 16 years, below the range of reasonableness), the excess expenses was quantified and corrected by the Tax Authority.

It seems to me therefore that the Tax Authority fulfilled, without meriting any criticisms, what the law provides[17]. Indeed, with the conduct carried out by the Tax Authority, the burden of proof of the constitutive facts of the assessment is met. There was no 'gross error'.

The excess fiscal expenses of the taxpayer is demonstrated, which flows from the taxpayer having applied an amortization rate situated outside the limits of reasonableness, in accordance with the law's integration done by the Tax Authority[18], to which the law expressly attributes the exclusive integrating competence, at least with legally binding character.

The relative presumption of accuracy of the taxpayer's tax return concerning the inspected year, provided for in number 1 of article 75 of the General Tax Law, does not exist, in accordance with paragraph a) of number 2 of the same article, by virtue of revealing errors or well-founded indicia that they do not reflect the actual taxable matter.

The particular character of this situation, what distinguishes it from the rule, is only the circumstance, unusual, that here the Tax Authority defines the assessment based on the preceding integration that (in the inspection procedure) it makes of the law, to fill a gap.

I believe that my fellow Arbitrators consider that the unreasonableness of the taxpayer's conduct was not demonstrated, for the sole reason that they have considered that the Tax Authority, in defining (only) one rate deemed 'reasonable', acted illegally. I consider that it acted legally. Truly, that is where our disagreement lies.

Concluding, for the reasons stated above, I consider that a range of reasonableness of amortization rates was defined, and with the taxpayer's amortizations falling outside that range, with excess expenses compared to the maximum limit, the Tax Authority issued the assessment to correct taxable profit. Thus, I consider the additional corporate income tax assessment concerning excessive amortizations should be maintained in the legal order.

IV. Regarding the supervening alteration of law (Green Fiscal Reform)

I endorse the understanding set out in the dissenting opinion of Proceedings 593/2015-T of the CAAD, which I will now reproduce:

"The supervening of another legal regime in which the original normative omission ceased to exist – namely the 'Green Fiscal Reform' regime (Law No. 82-D/2014, of 31 December) which permits amortizations in periods such as that adopted by the Applicant, by establishing useful life periods for these equipments with a minimum duration of 12.5 years and maximum of 25 years – has no relevance and cannot have any relevance to the case, since here the regime that applied at the time of the facts was one in which a discretionary power existed that was regularly exercised by the Tax Authority, resulting from which the fixing of amortization rates that were legally applicable to the equipment in question. Let us admit that, if the succession of legal regimes could serve as an additional and exceptional basis for the impugnation of a decision taken in the exercise of a discretionary power, then not only would all decisions of the Administration thus made be fragile because subject to a precarious status, at least within the periods of expiration (or, absurdly, would such decisions have to be deemed 'unreasonable' by the sole circumstance of not incorporating a judgment of prognosis as to possible future regimes within a period of expiration); but the legal criteria themselves that would have been fulfilled by the exercise of a discretionary power of the Administration would be critically exposed to the succession of regimes, in an endless cascade of retroactivities".

V. Regarding the request for indemnification for undue guarantee, I disagree with the prevailing position – I consider that the Applicant has no right to indemnification given that the presuppositions provided for in article 53 of the General Tax Law are not met – as a logical corollary of the disagreement regarding the essential matter: the (illegality) of the assessment issued by the Tax Authority.

VI. In order to maintain the assessment challenged by the Applicant in the legal order, I consider that the costs of the proceedings are attributable to it.

Nuno M. Morujão.

Lisbon, 5 February 2017.

[1] Available at: https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=593%2F2015&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=2047.

[2] Available at https://caad.org.pt/tributario/decisoes/decisao.php?listPage=217&id=2277.

[3] See, for example, the STA Judgment of 03 March 2016, rendered in proceedings 0768/15, available at www.dgsi.pt, where one can read:

"I - Discretion consists of a freedom of choice among various solutions deemed equally possible [the Administration freely chooses one of the solutions pointed out in the law, being deemed equally good, any one of them]. On the other hand, judicial control of discretionary power obeys only control of legality, not extending to the sphere of opportunity, where discretionary power occupies its space par excellence."

[4] Available at www.dgsi.pt.

[5] Without need, naturally, for any dialogue between Tax Authority and Taxpayer at the end of which one concludes that rates and depreciation or amortization periods 'proposed' by the Taxpayer are 'accepted' or 'rejected'.

[6] Which is presumed truthful, in accordance with article 75/1 of the General Tax Law.

[7] See Judgment of the Southern Administrative Court of 16 January 2007, rendered in proceedings 00911/03, available at www.dgsi.pt.

[8] Hence it is not being sustained the necessity for the Tax Authority to prove the unreasonableness of every and any rate that diverged from the one it was called upon to define, but solely that, if it understands that a duly stated rate is not correct, it lacks, as a condition of the legitimacy of its corrective intervention, demonstrating its incorrectness.

[9] In fact, the circumstance that both useful life periods fall within what the Legislator, when it so understood, considered to be acceptable, indicates, in light of article 9/3 of the Civil Code, that both will be reasonable.

[10] Carla Castelo Trindade – Legal Framework for Tax Arbitration – Annotated, Coimbra, 2016, p. 122.

[11] Available at www.caad.org.pt.

[12] See number 3 of article 5 of Regulatory Decree 25/2009, of 14 September and number 2 of article 31 CIRC, according to the numbering in force at the time.

[13] See article 55 of the General Tax Law, articles 6 and 9 of the Administrative Procedure Code and number 2 of article 266 of the Constitution of the Portuguese Republic.

[14] Number 2 of article 31 of the CIRC and number 3 of article 5 of Regulatory Decree 25/2009, of 14 September.

[15] All this without prejudice to the law providing for an intensive regime of use of depreciable assets provided for in article 9 of Regulatory Decree 25/2009, of 14 September, which legitimizes, where the conditions provided for there are met, amortization rates outside this range.

[16] In accordance with the provisions of number 2 of article 31 CIRC and number 3 of the said Regulatory Decree.

[17] Article 74 of the General Tax Law as a general principle, and the more specifically applicable norms, which would always prevail over the general principle in case of disagreement, number 2 of article 31 CIRC and number 3 of Regulatory Decree 25/2009, of 14 September.

[18] As explicitly demonstrated in the report of the inspection procedure.