CFEI Tax Credit Transfer After Merger: CAAD Rules on Fiscal Benefit Transmissibility (Case 249/2016-T)

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Sérgio de Matos and Sérgio Pereira da Silva, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal:

I – REPORT

On the second day of May 2016, "A…, S.A.", hereinafter referred to only as "A…" or "Claimant", holder of the corporate identification number…, with registered office at…, no.…, in…, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the corporate income tax (IRC) assessment act for the period 2014, identified under no. 2015…, as well as the account reconciliation demonstration act, identified under no. 2015…, in the amount of € 187,686.61.

To substantiate its request, the Claimant alleges, in summary, that:

i. The assessment under litigation is based on the fact that, allegedly, the Claimant improperly benefited from an Extraordinary Tax Credit for Investment, also designated ("CFEI");

ii. This is because the tax benefit was transferred to company B… in the period 2013, which subsequently merged into company A… through a merger operation, thus becoming extinguished;

iii. The merger of B… into A… does not constitute a fact capable of violating the normative provision of article 4, no. 9 of Law no. 49/2013;

iv. Therefore, the sanctionary norm provided for situations of non-compliance with investment expense eligibility rules cannot be applied, which would imply the repayment of the amount of tax that ceased to be assessed by virtue of benefiting from the CFEI;

v. By virtue of the transmission of the global assets of the merged company to the merging company and notwithstanding the legal extinction of the merged company, the assets of B…, including here also the property constituting the object of investment within the scope of the CFEI, were maintained in A…, albeit under the guise of another reality;

vi. From a merger operation one cannot derive as a consequence, in the economic sphere, the disappearance of the merged company, but rather a transformation of the company;

vii. In the transmission of the global assets of the benefit holder to the merging company, as occurs in the present case, one should understand that notwithstanding the legal extinction of the merged company, the assets thereof (where investment property within the scope of the CFEI is included) are maintained in the company to which they were allocated;

viii. Maintaining all of their rights and obligations, by virtue of the fact that the merging company absorbs everything that exists in the merged company;

ix. Thus fulfilling the requirement of maintenance of the property constituting the object of investment in situations where such property is transferred from one company to another;

x. For purposes of the requirement provided for in no. 9 of article 4 of Law no. 49/2013, it should be considered that there was no transmission of assets whatsoever;

xi. Both in terms of rights and from the perspective of obligations, the merger maintains all circumstances that were bound to B…;

xii. Article 4, no. 9 of Law 49/2013 was not violated, because the merger does not constitute a situation of non-holding for the period of five years of the assets underlying the CFEI;

xiii. For which reason the consequence cannot be attributed to the Claimant of proceeding with the restoration of the tax benefit enjoyed in the period 2013, in the amount of € 172,335.67;

xiv. The AT further proceeded to the correction of the corporate income tax that carried over as a balance from 2013 to the period 2014, in the amount of € 12,136.33;

xv. To the merger operation here under analysis, the provisions of article 73 and following of the IRC Code apply, which comprise the principle of fiscal neutrality of the merger that is embodied in Directive 2009/133/CE;

xvi. The reason why the Claimant did not request authorization from the Minister of Finance for the transmission of tax benefits was due to the fact that it was an operation subject to the regime of fiscal neutrality, by application of the new article 75-A of the IRC Code - already in force at the date of the facts;

xvii. The only norm that, for the case at hand, should be taken into consideration was fulfilled, that is, no. 1 of article 75-A of the IRC Code.

xviii. The assessment of corporate income tax is tainted with illegality, and the same should be annulled and the amount paid duly refunded.

On 03-05-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT.

The Claimant did not appoint an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of no. 2 of article 6 and subparagraph a) of no. 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable period.

On 29-06-2016, the parties were notified of these appointments and did not manifest their intention to refuse any of them.

In accordance with the provision of subparagraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 14-07-2016.

On 30-09-2016, the Respondent, duly notified for this purpose, presented its response defending itself solely through objection.

Pursuant to the provisions of subparagraphs c) and e) of article 16 and no. 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

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

A period of 30 days was set for the pronouncement of a final decision, after the submission of arguments by the AT, which period was extended by a further 30 days.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to articles 2, no. 1, subparagraph a), 5 and 6, no. 1, of the RJAT.

The parties have judicial personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

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

All having been considered, it falls to pronounce

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

1. The Claimant is registered for activity as "Intercity Bus Transport", CAE-…, being taxed under corporate income tax according to the general taxation regime and under VAT is classified under the normal monthly regime.

2. In a period comprised between 1 September and 28 December 2015, the Tax Inspection Services of the Finance Department of… carried out an external inspection action, of partial scope, with the Claimant, through Service Order credited with the number OI2015…, which had as its object the fiscal year 2014.

3. Within the scope of the inspection action, the model 22 declarations relating to the fiscal years 2013 and 2014 were analyzed, and the Tax Inspection Services ascertained that B… deducted from the corporate income tax collection the amounts relating to the Extraordinary Tax Credit for Investment (CFEI), provided for in Law no. 49/2013 of 16 July, referenced in the table reproduced below:

1. The tax benefit enjoyed in 2013 and 2014 is based on an investment made by B… in December 2013, in the amount of € 922,360.10, which consisted of the acquisition of 5 chassis of the brand "…" and their respective bodies of the model "…", which gave rise to five buses registered and used for exploitation from April and May 2014.

2. Within the scope of the inspection action, by official letter no.…, dated 28 October 2015, the Tax and Customs Authority notified the Claimant of the Draft Tax Inspection Report, granting, in accordance with the law, the possibility of exercising the right of hearing, which was exercised by the Claimant.

3. The Claimant was notified of the final inspection report, in which the AT did not heed the arguments presented in the hearing, maintaining the arithmetic corrections to the corporate income tax for the year 2014.

4. The inspection report contains, among other things, the following:

a. "The tax benefit enjoyed by the company is regulated by Law no. 49/2013, of 16 July, which approves the CFEI establishes in no. 9 of its article 4 that: 'The assets underlying eligible expenses must be held and accounted for in accordance with the rules that determined their eligibility for a minimum period of five years or, when shorter, during their respective minimum useful life, determined pursuant to Regulatory Decree no. 25/2009, of 14 September, as amended by Law no. 64-B/2011, of 30 December, or until the period in which their respective scrapping, dismantling, abandonment or destruction occurs, observing the rules provided for in article 38 of the IRC Code.' - underlined by us

The said Law, which approves the CFEI establishes in no. 7 of its article 3 that: 'To taxpayers who reorganize as a result of any operations provided for in article 73 of the IRC Code, the provisions of no. 3 of article 15 of the Tax Benefits Statute apply.' Our emphasis

Article 73 of the IRC Code deals with Definitions and scope of application of the Special Regime applicable to mergers, divisions, asset contributions and exchanges of share interests.

In the case of reorganizations dealt with in article 73 of the IRC Code the provisions of no. 3 of article 15 of the Tax Benefits Statute apply, hereinafter referred to as TBS, which is transcribed below:

'3. It is equally transmissible inter vivos, by authorization of the Minister of Finance, the right to tax benefits granted by act or tax contract to natural or legal persons, provided that the transferee meets the benefit's requirements and public interest protection pursued therewith is assured.' Underlined by us.

The CFEI is a tax benefit of automatic nature, because Law is the immediate source of the benefit, without the need for any intermediate autonomous act at the tax level that expressly recognizes it, wherefore such benefit is necessarily qualified as automatic in nature, pursuant to the provisions of article 5 of the Tax Benefits Statute.

The very Law that creates the CFEI decrees that in the case of mergers, the transmissibility of tax benefits is effected by authorization of the Minister of Finance.

Not complying with the eligibility rules, namely no. 9 of article 4 of Law no. 49/2013 of 16 July, the sanctionary norm established in article 8 of the same instrument is applied, which is transcribed: 'Without prejudice to the provisions of the General Regime of Tax Infractions, non-compliance with the eligibility rules for investment expenses provided for in article 4, as well as in article 5 and in no. 1 of article 6 implies the repayment of the amount of tax that ceased to be assessed by virtue of the application of this regime, plus the corresponding compensatory interest increased by 15 percentage points.' - underlined by us.'.

b. 'The company made the investment in 2013, but ceased its activity on 2014-09-26, being merged into Company A…, SA, NIPC… in accordance with a merger project by incorporation, wherefore it did not hold the underlying assets for the minimum period of five years, not complying with the provision of no. 9 of its article 4 of Law no. 49/2013 of 16 July.

Although the merger, with the loss of legal personality of the company, did not result in the disappearance of the economic and business reality that it constituted, it is certain that, except in rare exceptions, the tax benefit is non-transferable, as found in no. 1 of article 15 of the Tax Benefits Statute - TBS.

However, as a result of the merger, an operation provided for in article 73 of the IRC Code, the company reorganized and could, if the benefit's eligibility rules were complied with, have transmitted it, requiring only to request authorization from the Minister of Finance, which did not occur, as emerged from the clarifications provided by the company's certified tax advisor, who when questioned by email whether the authorization referred to in no. 3 of article 15 of the TBS, established in no. 7 of article 3 of Law no. 49/2013 of 16 July, was requested, and in this case, present a copy (see annex 4), responded that 'the aforementioned authorization was not requested' (see annex 5).

Indeed, the company made the investment in 2013, was merged by incorporation in 2014, did not request any authorization from the Minister of Finance to transmit the benefit to the merging company (A…) in accordance with the provision of no. 3 of article 15 of the TBS and ceased its activity on 2014-09-26.'

c. 'In ceasing activity on 2014-09-26, the company did not hold nor does it hold the assets for a period of five years, as provided for in no. 9 of article 4 of Law no. 49/2013 of 16 July, wherefore it could not benefit from the tax benefit (CFEI) in the amount of € 12,136.33 declared in 2014 (allocation of the period 2013, not deducted in the period) and should restore the tax benefit (CFEI) deducted in 2013 in the amount of € 172,335.67, entered in field 355 of section 10 of the respective income tax declarations 2014 and 2013.

Thus it is proposed to make corrections in 2014 of the amounts indicated above, with the restoration of the benefit enjoyed in 2013 also being increased by the corresponding compensatory interest increased by 15 percentage points, as established by article 8 of Law no. 49/2013 of 16 July.'.

1. Subsequently, the Claimant was notified of the respective assessment, containing the corrections proposed during the tax inspection.

2. According to the final inspection report, these corrections are based on the following values:

1. On 18 February 2016, the Claimant proceeded to payment of the assessed tax in the amount of € 187,686.41.

2. On 4 August 2014, B… and A… signed a merger project through which they decided the merger by incorporation of B… into A….

3. B… began its activity on 04-03-1985 and ceased it on 25-09-2014 following the merger by incorporation into company A…, S.A., now Claimant.

4. The now Claimant, prior to the merger operation, was the sole shareholder of the merged company B….

5. Following the global transmission of assets of B… to the Claimant, resulting from the merger, the ownership of the vehicles subject to the CFEI came to be held in the sphere of the merging company.

6. The merger referred to above was carried out under the fiscal neutrality regime (article 74 of the IRC Code).

7. No authorization was requested from the Minister of Finance for transmission of the aforementioned benefit to the merging company A…, now Claimant.

A.2. Facts established as unproven

With relevance for the decision, there are no facts that should be considered as unproven.

A.3. Reasoning of the matter of fact proven and unproven

Regarding the matter of fact the Tribunal does not have to rule on everything that was alleged by the parties, but rather it falls to it to select the facts that matter for the decision and distinguish the proven from the unproven matter (see article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable ex vi article 29, no. 1, subparagraphs a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and selected in function of their legal relevance, which is established in consideration of the various plausible solutions of the legal question(s) (see the previous article 511, no. 1, of the CPC, corresponding to the current article 596, applicable ex vi of article 29, no. 1, subparagraph e), of the RJAT).

Thus, having regard to the positions taken by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the administrative file joined to the record, the facts listed above were considered proven, with relevance for the decision, taking into account that, as written in the Decision of the TCA-South of 26-06-2014, rendered in case 07148/13[1], "the evidentiary value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged".

In particular, point 15 of the proven facts was repeatedly reaffirmed by the Claimant, from the inspection procedure (see annex V of the inspection report and hearing statement) to the present arbitration action (both in the initial petition and in the arguments), having been at no time contested by the AT, wherefore pursuant to the aforementioned article 110/7 of the CPPT it is considered proven.

B. ON THE LAW

The issue to be considered in the present proceedings is divided into two parts, namely one relating to the tax benefits enjoyed in 2013 by company B…, later merged into the Claimant, and another relating to the tax benefits enjoyed in 2014, already by the Claimant, having incorporated the said company B….

The tax benefit in question is the Extraordinary Tax Credit for Investment (CFEI), regulated by Law 49/2013 of 16-07, which, insofar as relevant for the case, and among other things, provides:

• in article 3:

"1 - The tax benefit to be granted to taxpayers referred to in the previous article corresponds to a deduction from the IRC collection in the amount of 20% of investment expenses in assets used for exploitation, made between 1 June 2013 and 31 December 2013. (...)

6 - The amount that cannot be deducted under the previous numbers may be deducted, under the same conditions, in the five subsequent tax periods.

7 - To taxpayers who reorganize as a result of any operations provided for in article 73 of the IRC Code, the provisions of no. 3 of article 15 of the Tax Benefits Statute apply.";

• In article 4:

"9 - The assets underlying eligible expenses must be held and accounted for in accordance with the rules that determined their eligibility for a minimum period of five years or, when shorter, during their respective minimum useful life, determined pursuant to Regulatory Decree 25/2009, of 14 September, as amended by Law 64-B/2011, of 30 December, or until the period in which their respective scrapping, dismantling, abandonment or destruction occurs, observing the rules provided for in article 38 of the IRC Code.";

• In article 8:

"Without prejudice to the provisions of the General Regime of Tax Infractions, non-compliance with the eligibility rules for investment expenses provided for in article 4, as well as in article 5 and in no. 1 of article 6 implies the repayment of the amount of tax that ceased to be assessed by virtue of the application of this regime, plus the corresponding compensatory interest increased by 15 percentage points."

With relevance for the consideration of the case, by reference of article 3/7 of the said Law 49/2013, article 15/3 of the applicable TBS further provides:

"It is equally transmissible inter vivos, by authorization of the Minister of Finance, the right to tax benefits granted by act or tax contract to natural or legal persons, provided that the transferee meets the benefit's requirements and public interest protection pursued therewith is assured.".

Examining the established matter of fact, it is apparent that the corrections in question have underlying distinct factual assumptions.

Thus, insofar as the year 2013 is concerned, what is at issue is the CFEI tax benefit relating to company B… and the assessment of corporate income tax of that same company, which considered such benefit.

As for the year 2014, what is at issue is the same tax benefit, relating to the same company B…, in the part not exhausted by it in the year 2013, reflected in the assessment of corporate income tax for the fiscal year in question of the now Claimant, which meanwhile incorporated by merger the said company B….

Being distinct, therefore, the factual situations underlying the corrections now in dispute, they should be subject to separate consideration.

Beginning, then, with the correction relating to the year 2013, it is found that, according to the inspection report, the AT bases it on violations of the provisions of:

• No. 9 of article 4 of Law 49/2013, in that in the AT's view, B… ceased its activity on 2014-09-26, being merged by incorporation into the Claimant, wherefore it did not hold the underlying assets for the minimum period of five years;

• Article 3/7 of the same Law 49/2013 and article 15/3 of the TBS, in that also in the AT's view, the taxpayer who made the investment in 2013 was merged by incorporation in 2014 and did not request any authorization from the Minister of Finance to transmit the benefit to the merging company.

On the basis of the violation of the said norms which it considered verified, the AT proceeded to apply the provisions of article 8 of Law 49/2013, determining the restoration of the benefit enjoyed in 2013 by B… plus compensatory interest increased by surcharge.

Let us consider then.

Beginning with the sanctionary norm applied by the AT at the end, it is found that the same conditions its respective provision on "non-compliance with the eligibility rules for investment expenses provided for in article 4, as well as in article 5 and in no. 1 of article 6".

Such provision, immediately, excludes the provision of article 3/7 of Law 49/2013 as well as article 15/3 of the TBS, insofar as such norms, on one hand, do not refer to the eligibility rules for investment expenses for the tax benefit in question, and on the other, are not contained in the reference made in that article 8, which is limited to the provisions of article 4 as well as article 5 and no. 1 of article 6 of Law 49/2013.

Hence, having in mind that the Tribunal must adhere, in assessing the legality of the act in question, to the grounds, both factual and legal, expressed therein, since "It is exclusively in light of the grounds expressed by the AT when practicing the additional VAT assessment that the legality of such tax act should be assessed."[2], the legality of the correction operated now in question must be assessed in light of the remaining norm on which it is based, embodied in no. 9 of article 4 of Law 49/2013, thus coming down to the question of whether it is demonstrated that the assets underlying the CFEI tax benefit were not held and/or accounted for in accordance with the legal terms for the minimum period of five years, as imposed by the said norm.

Now, the AT sustains such conclusion solely on the ground that B… ceased its activity on 2014-09-26 by having been merged by incorporation into the Claimant.

While respecting other views, such understanding cannot be ratified.

Indeed, and as the AT itself, immediately in the inspection report, understood, "the merger, with the loss of legal personality of the company, does not (...) imply(...) the disappearance of the economic and business reality that it constituted".

Effectively, it has been jurisprudence of our superior Tax Tribunals that:

• "The merger by incorporation, even though it implies that only the company into which the others are incorporated survives with its own legal personality, does not have as a consequence in the field of economic and business realities the disappearance of the merged companies. Some commercial doctrine – see PINTO FURTADO, PINTO COELHO and PUPO CORREIA in the places cited in the appealed judgment – points out that the merged company, losing its legal personality, nonetheless persists, modified, forming a whole with others, in conditions different from those occurring before the merger. But the same economic reality continues to exist, a same set (now integrated into another, broader one) of means affected to a productive activity, which the shareholders, furthermore, wanted to enhance with the merger.

That is, with the merger by incorporation a transformation of the company occurs, but not an extinction, with no disappearance resulting from the integration, but its alteration, even though it implies the loss of legal personality." [3]; and that

• "the merger of companies is the act by which two or more companies unite their economic forces to form, with the shareholders of all of them, a single legal entity, a new economic and legal subject.

Hence it can be stated, as seems to have been done by the A., that the merger is, as a general rule, and the situation under analysis is not an exception thereto, recommended by interests common to the companies participating therein, and not only to one of them. (...)

It is true that one could argue that the merged company, losing its legal personality, nonetheless persists, modified, forming a whole with others, in conditions different from those occurring before the merger; however, it is also true that the same economic reality continues to exist, a same set (now integrated into another, broader one) of means affected to a productive activity, which the shareholders, furthermore, wanted to enhance with the merger.

In another formulation, it can be stated that with the merger by incorporation a transformation of the company occurs, but not an extinction, with no disappearance resulting from the integration, but its alteration, even though it implies the loss of legal personality." [4].

That is, and in sum, the normal effect[5] of the merger by incorporation with respect to the merged company is not its factual extinction but merely an alteration in its legal form of operation.

Hence it is considered that one cannot derive, without further ado, as is the case, from the mere occurrence of a merger by incorporation, the conclusion that the assets underlying eligible expenses have ceased to "be held and accounted for in accordance with the rules that determined their eligibility for a minimum period of five years". In other words, the merger by incorporation of a company, even if accompanied by its cessation of activity for tax purposes, does not fulfill, by itself, either directly certainly, or indirectly, the assumptions of no. 9 of article 4 of Law 49/2013. It is considered thus that in order for such assumptions to be properly fulfilled, it is necessary to demonstrate that, indeed, the assets in question have ceased to be held and/or accounted for in accordance with the necessary rules, a demonstration which, in this case, was minimally not made.

As already referred, the AT itself, immediately in the inspection report, shows acceptance of what has been stated, then attempting the argument that tax benefits are, as a rule, non-transferable, and that authorization from the Minister of Finance was not obtained in accordance with the terms prescribed by articles 3/7 of Law 49/2013 and 15/3 of the TBS.

Such argument, however, is not susceptible to proceed with respect to the situation now under consideration (tax benefit for 2013).

Indeed, and first of all, there is no logical relationship between one and the other of the grounds invoked, that is, the effective holding and/or accounting of asset elements relevant in accordance with legal terms has nothing to do with the transferability of the tax benefit nor with authorization from the Minister of Finance or lack thereof.

In other words, asset elements can be held and accounted for in accordance with applicable rules without there being authorization from the Minister of Finance and, given this, it could be verified that those cease to be held and/or accounted for in the correct terms, so that from the existence or non-existence of the authorization in question nothing can be derived as to the holding and accounting of such assets.

On the other hand, insofar as, as already seen, what is at issue is the assessment of corporate income tax of B… relating to the fiscal year 2013, there is no situation of transmission of the tax benefit, since it was exercised within the sphere of the taxpayer who made the eligible investment. As the AT itself initially formulated the problem correctly, with respect to the year 2013, the issue arises solely at the level of compliance with the obligations necessary to prevent revocation of the benefit imposed by article 4/9 of Law 49/2013, and not as to the transferability thereof, since with respect to the year in question, as was noted, the benefit was enjoyed by the taxpayer within whose sphere it formed. Thus, not only could the question of transferability be raised only as to the transfer of the said obligations (and not of the benefit, which was enjoyed in 2013 by B…) to the Claimant, a matter that is regulated neither by article 3/7 of Law 49/2013 (which refers systematically, as will be seen below, to situations of no. 5 of the same article) nor by article 15/3 of the TBS and was not raised by the AT, but also following what was seen above there is not made the demonstration that those referred conditions of article 4/9 of Law 49/2013 were not effectively complied with, and with the entity that enjoyed the benefit continuing its activity integrated into the Claimant, the merger by incorporation verified does not impede, by itself alone, compliance with the said obligations.

There is not here, contrary to what was suggested by the Respondent, any restrictive interpretation of the norms in question, especially of article 3/7 of Law 49/2013 and/or article 15/3 of the TBS, insofar as, as was seen, with no situation of transmission of the tax benefit occurring in the year 2013, its application will not be at issue.

Thus, with the prerequisites of article 4/9 of Law 49/2013 not being in this case demonstrated, that is, that the assets underlying the CFEI tax benefit were not held and/or accounted for in accordance with legal terms for the minimum period of five years, and there being no situation of transmission of tax benefit at issue with respect to the tax benefit for 2013, nor constituting in any case non-observance of the provisions of articles 3/7 of that Law and 15/3 of the TBS, by itself and without more, grounds for application of article 8, also of Law 49/2013, the correction relating to the fiscal year 2013 of B…, now contested, is tainted with error in the factual premises and consequent erroneous application of the law, whereby in this respect the arbitral petition should proceed, determining the annulment of the said correction.

The correction operated by the AT relating to the CFEI tax benefit included by the Claimant in its assessment of corporate income tax for 2014 should be framed in distinct terms.

Here, there is already a situation in which the remainder of the tax benefit in question is used following a reorganization operation resulting from operations provided for in article 73 of the IRC Code, namely a merger by incorporation provided for in no. 1, paragraph d) of that provision.

Now, no. 7 of the said article 3 of Law 49/2013 requires that in such situations the provisions of no. 3 of article 15 of the Tax Benefits Statute apply.

The Claimant argues in this regard that the new article 75-A of the IRC Code, later than Law no. 49/2013 and already in force in the tax period 2014, provides for automatic transferability of tax benefits – in situations of fiscal neutrality as was the case – as opposed to what is provided for in the CFEI and in the TBS.

Indeed, the said article 75-A of the IRC Code provides, introduced by Law no. 2/2014, of 16 January:

"Tax benefits of merged companies are transmitted to the beneficiary company, provided that the respective conditions are met therein and the special regime established in article 74 is applied".

The Respondent, for its part, understands that the said norm did not repeal either article 3/7 of Law 49/2013, since it will be a special norm, and there is no discernible an unequivocal intention of the legislator in that sense, as required by article 7/3 of the Civil Code, but rather the contrary.

The answer to the question to be decided is placed exactly at this point.

We find ourselves in a situation of conflict of norms which must be resolved by means of valid hermeneutical criteria.

As was written in the Opinion of the Advisory Council of the Attorney General of 21-03-2013[6]:

"There is a normative antinomy when there is a conflict of norms, although it is important to distinguish in the typology of antinomies according to whether they are or are not resolvable through recourse to hermeneutical criteria.

These criteria are as follows:

i) Hierarchy (superior law derogates inferior law);

ii) Specialty (special law derogates general law);

iii) Chronology (later law derogates prior law).

Outside these cases there would still be room for conflicts of laws in time - whenever a particular factual situation persists in time and thus has elements of connection with different laws - and in space – when the same situation has connection with different legal systems (a case in which resolution will be obtained in principle through the norms of Private International Law). These two types of conflicts are still resolvable by objective criteria.

There is, however, a last type of antinomies whose resolution is more difficult – or even impossible without legislative intervention - which are those that occur when, as BATISTA MACHADO refers, 'the same concrete fact appears covered by the legal hypotheses of norms simultaneously in force in the same legal system but whose simultaneous application is impossible by implying a contradiction – and we will then have true internal conflicts of norms'.

And the Author continues:

'Conflicts or contradictions of this type will still exist when two or more norms which propose to resolve 'the same question of law' within the domain of the same legislation and within the same teleological context establish for identical cases or for legally equivalent cases different legal consequences. Therefore the contradiction can be a logical contradiction (if, for example, one norm imposes certain conduct and another prohibits it or in general if the legal consequences established by two norms for the same fact are incompatible with each other) or a teleological or axiological contradiction.

In any case we must hold that the postulate of the 'unity of the legal system' requires that there are no contradictions between its norms (for the same reason that requires the filling of their respective gaps). If a contradiction is discovered and it is not at all possible to eliminate it by the criteria above referred to or by the interpretive route then we must depart from the idea that the norms in contradiction annul one another and give for verified a 'collision gap.'

In the matter at hand, excluding conflict in time and space, it is necessary to verify whether the antinomy detected is resolved in accordance with one of the criteria above referred to – hierarchy, specialty or chronology - to, if otherwise determine that there exists a true 'internal conflict of norms' and analyze the possible paths for its resolution.".

In the present case, as in that analyzed in the opinion now transcribed, the criterion of hierarchy must be dismissed at the outset, since we are dealing with normative instruments of identical value.

In order to resolve the normative antinomy by means of the criterion of specialty, as the AT proposes, it is necessary to validly establish a relationship of specialty between the norms in question, being thus important to ascertain whether and which norm effectively stands in a relationship of specialty in relation to another.

Now, if it is true that, as the AT argues, the norm of article 3/7 of Law 49/2013 applies to a specific tax benefit – the CFEI – it is no less true that article 75-A/1 of the IRC Code in question applies also to a restricted group of situations – situations of merger under the fiscal neutrality regime. Hence both can it be said that the first is special in relation to the second (that is, that CFEI situations are an exception to the rule of automatic transferability of tax benefits in cases of merger under the fiscal neutrality regime) as can it be said that the second is special in relation to the first (that is, that automatic transferability of tax benefits in cases of merger under the fiscal neutrality regime is an exception to the rule of transferability with authorization of the CFEI).

That is: if on one hand the norm of article 3/7 of Law 49/2013 refers to a restricted group of situations covered by article 75-A/1 of the IRC Code in question, because the latter refers generically to all tax benefits and the former refers specially to the CFEI, on the other, also the norm of article 75-A/1 of the IRC Code in question refers to a restricted group of situations covered by article 3/7 of Law 49/2013, in that the latter refers generically to all company reorganizations as a result of any operations provided for in article 73 of the IRC Code and the former refers specifically to mergers carried out under the fiscal neutrality regime.

We are here thus faced with a situation analogous to that analyzed in the Opinion of the Advisory Council of the Attorney General of 21-03-2013, referred to, where one can read:

"in reality these norms are special by reason of different criteria and in function of different recipients, which means there is not directly between them a relationship of specialty.

As OLIVEIRA ASCENSÃO refers, a relationship of specialty occurs when 'the norms are between themselves in the relationship of genus to species. One of the norms would fit entirely within the content of another'.

Now this does not happen in the matter at hand: none of the precepts contains a general rule – the genus - of which the other precept is the species, despite both norms being special by reason of different universes, but not reciprocally.

For this very reason the collision of norms is not either resolved by the criterion of specialty."

This situation was resolved in that referred opinion as follows:

"Finally with respect to the chronological criterion, according to which later law derogates prior law, it is necessary to analyze the succession of the laws in question. (...)

This is a (partial) tacit repeal resulting from the incompatibility between the new disposition and the prior disposition as results from the second segment of no. 2 of article 7 of the Civil Code (hereinafter designated briefly as CC).

It would not be so only pursuant to no. 3 of the same precept if the later law could be considered general law and the prior law special law, which as was referred above does not happen in the matter at hand. (...)

Effectively as GALVÃO TELLES notes '[Tacit repeal by its very nature only operates to the strict extent of the incompatibility or contrariety. That is, the prior law is only considered repealed in that which is incompatible with the new; in all else it continues in force; the two coexist, being conjugated in a manner to form a whole'. (...)

It is concluded thus that the antinomy detected is resolved in accordance with the chronological criterion, applying the later norm and thus excluding the existence of a 'collision gap'.

In other words: such a gap would only exist if none of the criteria for resolution of antinomies could be applied, for example by dealing with simultaneous norms.

Indeed the conclusion for the existence of a gap which could be integrated (more or less) freely by the interpreter presupposes that all hypotheses of reconciling the opposing dispositions or of making one prevail over the other have been exhausted."

Thus and by the grounds set forth therein it is considered that also here the antinomy detected should be resolved on the basis of the chronological criterion.

Thus, the norm of article 75-A/1 of the IRC Code being supervenient to the norm of article 3/7 of Law 49/2013 and there not existing as was seen between both a relationship of specialty, should pursuant to the provision of no. 2 of article 7 of the Civil Code the first prevail, considering the second tacitly repealed with respect to mergers carried out under the principle of fiscal neutrality wherefore its application in the case by the AT is tainted with error of law generating the voidability of the correction operated.

Thus and by what has been stated should also in this part the arbitral petition proceed.

The Claimant cumulates with the request for annulment of the tax acts that are the object of the present proceedings the request for condemnation of the AT in the payment of indemnificatory interest.

In light of the success of the request for annulment the sums that with respect to the tax acts annulled are shown to have been paid by the Claimant should be refunded if necessary in execution of judgment. In the case at hand it is manifest that the illegality of the assessment acts whose sum the Claimant paid is imputable to the Respondent which by its initiative practiced them without legal support.

Consequently the Claimant is entitled to indemnificatory interest pursuant to articles 43, no. 1 of the LGT and 61 of the CPPT. Indemnificatory interest is due from the date of the payments shown to have been made and calculated on the basis of their value until their full refund to the Claimant at the legal rate pursuant to articles 43, nos. 1 and 4 and 35, no. 10 of the LGT 61 of the CPPT and 559 of the Civil Code and Order no. 291/2003 of 8 April (without prejudice to any subsequent amendments to the legal rate).

The Respondent should give effect to the present decision pursuant to article 24, no. 1 of the RJAT determining the amount to be refunded to the Claimant and calculating the respective indemnificatory interest at the legal rate supplementary to civil debts pursuant to articles 35 no. 10 and 43 nos. 1 and 5 of the LGT 61 of the CPPT 559 of the Civil Code and Order no. 291/2003 of 8 April (or enactment or enactments that succeed it).

Indemnificatory interest is due from the date of the payment wrongfully made until the processing of the credit note in which they are included.

C. DECISION

For these reasons this Arbitral Tribunal decides to fully uphold the arbitral petition filed and in consequence:

a) Annul the corporate income tax assessment act for the period 2014 identified under no. 2015… as well as the account reconciliation demonstration act identified under no. 2015… in the amount of € 187,686.61;

b) Condemn the Respondent to refund to the Claimant the amounts wrongfully paid by force of the annulled assessment acts plus the indemnificatory interest due;

c) Condemn the Respondent in the costs of the proceedings at the amount set out below.

D. Value of the proceedings

The value of the proceedings is set at € 187,686.61 pursuant to article 97-A no. 1 a) of the Code of Tax Procedure and Process applicable by force of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is set at €3,672.00 pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings to be paid by the Respondent since the petition was fully successful pursuant to articles 12 no. 2 and 22 no. 4 both of the RJAT and article 4 no. 4 of the said Regulation.

Let notification be made.

Lisbon 9 January 2017

The President Arbitrator

(José Pedro Carvalho - Rapporteur)

The Arbitrator Vogal

(Sérgio de Matos)

The Arbitrator Vogal

(Sérgio Pereira da Silva)

[1] Available at www.dgsi.pt as with the remaining cited jurisprudence without mention of source.

[2] Decision of the STA of 23-09-2015 rendered in case 01034/11, available for consultation at www.dgsi.pt.

[3] Decision of the STA of 13-04-2005 rendered in case 01265/04, idem.

[4] Decision of the TCA-South of 17-04-2012 rendered in case 04172/10, idem.

[5] Which does not preclude naturally the occurrence of exceptional situations in which such normal effect does not obtain requiring however such occurrences to be duly demonstrated.

[6] Available at: http://www.dgsi.pt/pgrp.nsf/7fc0bd52c6f5cd5a802568c0003fb410/8e190b4baa98508580257a7c003ba1b6?OpenDocument&ExpandSection=-1.