Process: 272/2015-T

Date: December 10, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Process 272/2015-T addresses whether agricultural activities qualify for IRC tax benefits for interiority (inland areas) under Article 43 of the Tax Benefits Statute (EBF). The taxpayer, an agricultural company (CAE 001192), challenged an additional IRC assessment of €38,301.28 for fiscal year 2011, arguing that the Tax Authority wrongly denied the benefit. The TA relied on Portaria 170/2002, which excludes agricultural and fishery activities from interiority incentives. However, Article 43(1) EBF expressly grants benefits to companies engaged in agricultural, commercial, industrial or service activities in eligible inland areas. The Constitutional Court's Acórdão 519/2018 declined to declare Article 8(2) of Decree-Law 55/2008 unconstitutional, which temporarily applied Portaria 170/2002 rules until new regulations were approved. The Court upheld the exclusion of agricultural activities from interiority benefits, finding no violation of the tax legality principle. Following this Constitutional Court judgment, the original arbitral decision was reformulated in compliance with the ruling. This case illustrates the hierarchy of legal norms in Portuguese tax law, the limits of regulatory power versus legislative authority, and the Constitutional Court's role in reviewing tax benefit legislation. The decision confirms that ministerial ordinances can validly restrict the scope of tax benefits established by decree-law when authorized by enabling legislation, even if this appears to contradict the broader statutory language.

Full Decision

ARBITRAL DECISION

In compliance with the Judgment of the Constitutional Court no. 519/2018, case no. 226/16, of 17 October 2018, in which it was decided:

"a) not to declare unconstitutional the provision of no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, insofar as it determines that, until the approval of the ordinance provided for in no. 1, the rules established in Ordinance no. 170/2002, of 28 February, are applicable to the incentive measures relating to inland areas, from which results the exclusion of their application to the tax benefit provided for in article 43 of the Tax Benefits Statute for economic activities of an agricultural nature;"

and

"e, and consequently, to uphold the present appeal, determining the reformulation of the appealed decision, in accordance with the judgment of non-unconstitutionality formulated."

the previous and above identified arbitral decision is hereby reformulated and replaced:

ARBITRAL DECISION

(Reformulates and replaces the arbitral decision of 15 October 2015)

STATEMENT OF FACTS

A.A..., Ld.ª, a taxpayer with NIPC ..., with registered address at Rua ..., no. ..., ...-... ..., (hereinafter referred to as the Claimant), filed a request for the constitution of an Arbitral Tribunal, with the intervention of a single arbitrator, in which the Tax and Customs Authority is the Respondent (hereinafter, TA or Respondent), with a view to declaring the illegality and consequent annulment of the additional corporate income tax (IRC) assessment no. 2015..., for the fiscal year 2011, in the amount of €38,301.28 and the respective compensation note no. 2015..., from which resulted tax payable in the amount of €18,028.01, with payment deadline of 26 March 2015.

The request for declaration of illegality and annulment of the additional IRC assessment and compensation note above identified and duly notified to the Claimant is based on the following grounds:

  1. The tax in question was assessed on the basis of purely arithmetic corrections, as stated in the tax inspection report;

  2. The reasoning for such corrections and, consequently, for the additional assessment to which they gave rise, was as follows: "In the course of the inspection procedure, it was found that the taxpayer indicated in table 4 of the Model 22 income declaration for corporate income tax (IRC), for the fiscal year 2010, the regime of tax reduction, considering that it met the conditions that would allow it to benefit from the tax benefit relating to inland areas, provided for in article 43 of the Tax Benefits Statute.

Article 43, no. 7 of the Tax Benefits Statute states that "... all regulatory provisions necessary for the proper execution of this article shall be established by ordinance of the Minister of Finance," such ordinance being Ordinance no. 170/2002, of 28 February.

Thus, from paragraph a) of article 2 of Ordinance 170/2002, it is inferred that agricultural and fishery activities, identified respectively in sections A and B of the Portuguese Classification of Economic Activities (CAE), cannot benefit from the inland area incentive.

Given that the taxpayer engages in an agricultural activity included in section A of the CAE (CAE 001192 – Other Temporary Crops, n.e.c.), it does not meet the legal conditions required to benefit from the tax benefit relating to inland areas.";

  1. The Claimant opposes this understanding by the TA, tracing the legislative evolution of "tax benefits relating to inland areas," from the approval of Law no. 171/99, of 18 September and its regulation through Decree-Law no. 310/2001, of 10 December and Ordinance no. 170/2002, of 28 February, which excluded agriculture and fisheries from the incentives granted by such instruments to companies located in inland areas, designated as "eligible areas," until the publication of Law no. 53-A/2006, of 29 December (State Budget for 2007) which, repealing Law no. 171/99, of 18 September, transferred the tax benefits relating to inland areas to article 39-B of the Tax Benefits Statute (which corresponds to article 43 of the Tax Benefits Statute, after the renumbering given by Decree-Law no. 108/2008, of 26 June), under the heading "Benefits relating to inland areas," in whose no. 1 it was determined that "1 - To companies that engage, directly and as their principal activity, in an economic activity of an agricultural, commercial, industrial or service-provision nature in inland areas, hereinafter referred to as 'eligible areas,' the following tax benefits are granted:

a) The rate of corporate income tax (IRC), provided for in no. 1 of article 80 of the respective Code, is reduced to 20%, for entities whose principal activity is located in eligible areas;

b) In the case of the establishment of new entities whose principal activity is located in eligible areas, the rate referred to in the previous number is reduced to 15% for the first five years of activity;

c) Depreciation and amortization relating to investment expenses up to €500,000, excluding those relating to the acquisition of land and light passenger vehicles, of corporate income tax (IRC) taxpayers who carry out their principal activity in eligible areas may be deducted, for the purposes of determining taxable profit, with an increase of 30%;

d) Mandatory social charges borne by the employer entity relating to the net creation of permanent employment positions in eligible areas are deducted, for the purposes of determining taxable profit, with an increase of 50%, once only per worker employed in that entity or another entity with which there are related party relationships as defined in article 58 of the Corporate Income Tax Code," determining no. 7 of that article 39-B of the Tax Benefits Statute that "7 - The definition of criteria and the delimitation of eligible territorial areas, as referred to in the previous number, as well as all regulatory provisions necessary for the proper execution of this article, shall be established by ordinance of the Minister of Finance";

  1. Article 39-B of the Tax Benefits Statute would subsequently be regulated by Decree-Law no. 55/2008, of 26 March, in whose article 8 it was provided that "the provisions necessary to ensure, throughout the implementation period, full compliance with the European Commission's decision concerning the incentives in question, namely as regards their application to different economic activities, shall be the subject of a joint ordinance of government members from the area of Finance and of Labor and Social Solidarity" (no. 1) and that "The rules established by Ordinance no. 170/2002, of 28 February, shall apply to the incentive measures regulated by this decree-law, until the approval of the ordinance referred to in the previous number";

  2. The Claimant considers that the regime contained in Ordinance no. 170/2002, of 28 February, insofar as it excludes agriculture and fisheries from the tax benefits relating to inland areas, constitutes a derogation of no. 1 of article 43 of the Tax Benefits Statute (former article 39-B), which expressly provides for the attribution of the referred tax benefits "To companies that engage, directly and as their principal activity, in an economic activity of an agricultural, commercial, industrial or service-provision nature in inland areas, hereinafter referred to as 'eligible areas' (...)", as is the case here, and that such derogation constitutes a violation of the principle of tax legality (articles 103, no. 2 and 165, no. 1, paragraph i), of the Constitution of the Portuguese Republic), by creating a new rule of incidence without intervention of the Parliament;

  3. Since "the provision of no. 2 of Article 8 of Decree-Law 55/2008, of 26 March, by directing the regulation of incentive measures by the rules established in Ordinance no. 170/2002, of 28 February, in practice extinguishes the tax benefit that the Decree-Law that it aims to regulate established";

  4. Therefore, the Claimant invokes the unconstitutionality of no. 2 of Article 8 of Decree-Law no. 55/2008, of 26 March:

a) "Firstly, because there is an obvious conflict of provisions: Article 43 of the Tax Benefits Statute, Decree-Law 55/2008, of 26 March and Ordinance no. 170/2002, of 28 February, in the sense that what is advocated by the Tax Benefits Statute regarding tax benefits relating to inland areas is entirely derogated by the instruments that aim to regulate access to such benefits";

b) "Furthermore, and if we proceed in the manner advocated by the TA, we have a regulatory ordinance directly contradicting the Decree-Law that it aims to regulate";

c) (...) the constitutional (tax) principle of reserved law is divided into two aspects, namely the principle of formal reserved law and the principle of material reserved law (of law)";

d) "The first (the principle of formal reserved law) implies that there be an intervention of parliamentary law, to materially fix the very regulation of taxes and/or to formally intervene, authorizing the government – legislator, regional legislative assemblies or local authorities to establish, within certain assumptions, which must be contained in the respective authorization law, that regulation (the incidence, the rate, the tax benefits and the taxpayer safeguards)";

e) "The second (the principle of material reserved law) requires that the law (of the Parliament, authorized decree-law, regional legislative decree or local government regulation) contain, as completely as possible, the reserved matter, that is, that which, constitutionally, concerns the incidence, the rate, the tax benefits and the safeguards of taxpayers, relative to each tax";

f) "Regarding incidence, positive or negative, only law and authorized decree-law are sources of Tax Law. See Article 165, no. 1, paragraph i) of the Constitution of the Portuguese Republic (relative reserved competence of Parliament)";

g) "(...) in the Constitution, the principle of legality of tax, combined with that of annuality, is reflected in the provisions contained in Articles 103/2, 104, 165/1, i)";

h) "(...) the principle of legality unfolds in two aspects: (...) as to the supremacy of law, it dominates the entire legal order (...) one can only act validly in subordination to law, accepting its supremacy (...)";

i) "Regarding reserved law, it is a less broad and less extensive aspect (...) gains particular relevance in the field of Tax Law, since taxes can only be created and structured by law. And it is a reserved law in a formal sense, since the law creating taxes must come from an entity with normal legislative competence (Articles 103, 165/1, i) Constitution of the Portuguese Republic";

j) "(...) even on matters reserved by the Constitution to formal law, the Government may legislate, also through decree-laws, on the basis of legislative authorizations. In such cases, Parliament merely limits itself to 'defining the object, sense, scope and duration of the authorization'";

k) "(...) Regarding matters reserved to law, and the limits imposed by Article 103 of the Constitution, only complementary or execution regulations seem admissible in tax matters, autonomous or independent regulations not being admissible, which is what occurs in the situation sub judice";

l) "Thus, in summary, a material reserved law is established that translates into an obligation for law to contain all the essential regulation of each tax, which, according to no. 2 of article 103 of the Constitution includes the incidence, the rate, the tax benefits and the safeguards of taxpayers" "We are thus also faced with a principle of qualified legality from which derives the typicality of the tax or 'numerus clausus'";

m) "(...) the Constitution further expressly provides in no. 3 of Article 103 the right to resistance regarding taxes, the citizen being able to resist payment required of a tax that has not been decreed in strict compliance with the Constitution, (...)";

n) "(...) taxpayers cannot be required to pay taxes that have not been created and regulated by law, it being understood (...) that it is this law that must determine all essential elements";

o) "(...) In the case at hand, it is indisputable that the provision of no. 2 of Article 8 of Decree-Law 55/2008, of 26 March does not have a merely regulatory nature";

p) "It thus does not appear from the legislative authorization that the Legislative Assembly granted to the Government any reference to the possibility of proceeding with the modification and/or annulment of the universe of corporate income tax (IRC) taxpayers nor for alteration of incidence rules";

q) "It should further be noted that, even if the provision of no. 2 of Article 8 of Decree-Law 55/2008, of 26 March resulted from the obligation to transpose community directives, such transposition would still have to comply with the constitutional requirements of reserved tax law";

r) "Thus, in the present proceedings, the question arises of deciding and knowing whether, given that the questioned provisions are not contained in law nor in authorized decree-law, the same are innovative relative to the legal framework that was in force on the date of their approval";

s) "(...) what is verified in the understanding of the Claimant is that the provision of no. 2 of Article 8 of Decree-Law 55/2008, of 26 March, by directing the regulation of incentive measures by the rules established in Ordinance 170/2002, of 28 February, in practice extinguishes the tax benefit that the Decree-Law that it aimed to regulate established";

t) "(...) The alteration introduced by no. 2 of Article 8 of Decree-Law 55/2008, of 26 March, is thus an innovative provision, in that it restored Ordinance no. 170/2002, of 28 February, which excludes from its scope and application activities such as that at issue in these proceedings – agriculture";

u) "Thus, it is more than questionable the exclusive intention of regulation to which the preamble of Decree-Law 55/2008 alludes; in truth, this constitutes an innovative law, since it was not limited to regulating the conditions of access of eligible entities – as was proposed – but rather introduced into the legal order something that did not flow from it: the exclusion, among others, of agricultural activity with regard to benefits relating to inland areas";

v) "It will be said that such exclusion of agriculture, up to the normative act in question, was not only not certain, but rather did not even exist in the legal order; thus the new law came to confirm or regulate nothing, but rather to innovate, for which the consideration of its illegality, for being unconstitutional, is required";

x) "Consequently, illegal and unconstitutional will be the assessment challenged in these proceedings, since it is sustained and grounded in the invoked provisions that suffer from the said defect";

z) "Furthermore, we must still consider the question of the conflict of provisions, such that, by force of the aforementioned no. 2 of Article 8 of Decree-Law 55/2008, the restoration of Ordinance 170/2002 creates an obvious hierarchical conflict of provisions";

aa) (...) "When the Government approves a Decree-Law and this contradicts a constitutional provision, an unconstitutionality is verified (...) [and] a government regulation, that is, an ordinance has less hierarchical value than a decree-law, which means that if an ordinance contradicts a decree-law, this ordinance is illegal";

bb) "(...) The provision of no. 2 of article 8 of Decree-Law 55/2008 by restoring the force of Ordinance 170/2002, and consequently by derogating the tax benefit relating to agricultural activity (...) [violates] the aforementioned constitutional principles, notably that of the hierarchy of provisions, for which (...) the annulment of the assessment challenged (...) is also required".

The Claimant protests that it will proceed with voluntary payment of the additional tax assessed, petitioning, in addition to the annulment of the assessment challenged, the restitution of the amount that comes to be paid pending these proceedings, increased with the respective default and compensatory interest.

Having been notified in the terms and for the purposes provided for in article 17 of the Administrative Tax Arbitration Regulation (RJAT), the TA timely presented its response, clarifying that there is no controversy regarding the factual matter, but arguing for the legality of the disputed assessment and the constitutionality of the provision that supports it, with the following grounds:

  1. "In accordance with the legislation in force on the date of the facts, the TA concluded that the Claimant was not entitled to the reduction in the IRC rate to 15% provided for in paragraph a) of no. 1 of article 43 of the Tax Benefits Statute; [that this is so] results from the combination of no. 7 of that article 43 of the Tax Benefits Statute with no. 2 of article 8 of Decree-Law no. 55/2008, of 26/03, which in turn refers to paragraph a) of article 2 of Ordinance no. 170/2002, of 28/02, with no further regulation on the matter in question existing;

  2. (...) the tax benefit relating to inland areas grants companies that establish themselves in certain disadvantaged regions benefits that, among others, include the reduction of the IRC rate, provided that certain requirements are met. This fiscal incentive measure constitutes State aid with framing at the community level in the de minimis aid for the purposes of articles 87 and 88 of the EU Treaty. (...);

  3. The regime of reduction in the IRC rate under discussion was first established in article 7 of Law no. 171/99, of 18/09, a provision that referred, in its article 13, to a decree-law to be approved by the Government, which would contain the regulatory provisions necessary for its proper execution. This provision was subsequently amended by article 54 of Law no. 30-C/2000, of 29/12;

  4. Given that the reduction in IRC rate, as a tax benefit relating to inland areas, constituted a State aid measure, the Portuguese Authorities notified the European Commission of the draft aid contained in that Law no. 171/99, of 18/09, and the Commission on 19/09/2001 decided, under article 87 of the Treaty, not to raise objections to its implementation, finding that the conditions were satisfied for it to be considered compatible with the common market, according to State aid N 223/01 – Portugal, regarding the regime of fiscal incentives to combat desertification and recovery of development in inland areas;

  5. As expressly stated in that European Commission decision, first paragraph of its point II, it is a regime applicable "outside the agricultural and fishery sectors, as well as the coal industry";

  6. With the conditions met for the applicability of the State aid measures contained in Law no. 171/1999, of 18/09, Decree-Law no. 310/2001, of 10/05 was then approved, intended for the regulation of provisions necessary for its proper execution; (...) Decree-Law no. 310/2001, of 10/05, in its article 6, referred to an Ordinance to be approved for the provisions that prove necessary to ensure full compliance with the European Commission's decision; [finally], Ordinance no. 170/2002, of 28/02, established the necessary rules for full compliance with the European Commission's decision concerning the incentive provided for in article 7 of Law no. 171/1999, of 18/09;

  7. Meanwhile, article 7 of Law no. 171/1999, of 18/09 was transposed into the Tax Benefits Statute, coming to appear as article 39-B of such legal instrument, added by Law no. 53-A/2006, of 29/12, and amended by Law no. 67-A/2007, of 31/12; [following] various amendments introduced into the regime contained in Law no. 171/1999, of 18/09, Decree-Law no. 55/2008, of 26/03 was approved, intended to establish the regulatory provisions necessary for the proper execution of article 39-B of the Tax Benefits Statute, having repealed Decree-Law no. 310/2001, of 10/12, and maintained the rules established by Ordinance no. 170/2002, of 28/12, on a transitional basis;

  8. (...) the incentives for accelerated recovery of Portuguese regions suffering from inland area problems, as they are likely to be considered State aid, are subject to analysis by the European Commission, with a view to ascertaining their conformity with community guidelines on the matter, under the EU Treaty;

  9. As regards agricultural activity, the community regulation on this sector of economic activity is found in Regulation (EC) no. 1860/2004, of 06/10, and in Regulation (EC) no. 875/2007, of 24/07. These regulations establish a de minimis rule for the agricultural sector, concerning aid that Member States may grant, provided that the necessary conditions of control and application are verified, in particular, compliance with a de minimis limit per company (...);

  10. (...) These regulations constitute an authorization given to Member States to, within the framework of the policies they consider necessary and appropriate, be able to grant State aid according to community guidelines on this matter;

  11. (...) Ordinance no. 170/2002, of 28/02 excludes from its scope of application support granted to agricultural activity by virtue of its object concerning only the regulation of de minimis aid granted under Regulation (EC) no. 1998/2006, of 15/12, applicable to companies of all sectors of economic activity, with the exception of those provided for in article 1 of this Regulation, including agriculture;

  12. (...) Law no. 53-A/2006, of 29/12, which introduced article 39-B of the Tax Benefits Statute, current article 43, in providing for the possibility of the IRC rate reduction being applied, also to activities of the agricultural sector, established a provision whose implementability was dependent on the approval of specific regulation, as established by its no. 7, necessary to comply with Regulation (EC) no. 1860/2004, of 06/10 and, subsequently, Regulation (EC) no. 875/2007, of 24/07;

  13. Thus, Decree-Law no. 55/2008, of 26/03, by referring to Ordinance no. 170/2002, of 28/02, maintained the regulation already existing in the internal order for the execution of de minimis aid to the general sectors of economic activity, with the exception, among others, of the agricultural sector;

  14. (...) Ordinance no. 170/2002, of 28/02 is not illegal or unconstitutional since its scope of application concerns the de minimis aid contemplated for the generality of economic activities, in accordance with community guidelines on the matter; (...) by excluding agricultural activity from its scope of application, it is not, thereby, preventing the approval of other regulatory provisions intended to make the de minimis measure also applicable to the agricultural sector, but rather clarifying that its normative content is not intended to give effect to Regulation (EC) no. 1860/2004 of the Commission, of 06/10, concerning the application of articles 87 and 88 of the EC Treaty to de minimis aid in the agricultural sector;

  15. (...) The fact that the purpose of economic and social cohesion, as regards agricultural activity, is the subject of specific regulation within the framework of the Common Agricultural Policy (CAP), through Structural Funds, (of which, indeed, the Claimant is already a beneficiary, within the framework of the FEAGA), may justify the absence of such regulation, an absence that reflects a legitimate intention of the legislator;

  16. (...) it is important to emphasize the primacy of community law, since the implementability of any State aid measure, in this case the application of the IRC rate reduction benefit also to companies in the agricultural sector, depends on strict compliance with community regulations on this matter and, consequently, on the competent regulatory provisions;

  17. (...) the fiscal incentive measure specifically relating to the reduction in the tax rate on income, as is the case of paragraph a) of no. 1 of article 43 of the Tax Benefits Statute, now under discussion, although established by the legislator in terms that permit its applicability to companies engaging in an economic activity of an agricultural nature, sees its implementability dependent on the approval of the regulatory provisions necessary to guarantee compliance with community guidelines issued under the EU Treaty, by force of the primacy of community law, established in article 8 of the Constitution of the Portuguese Republic;

  18. (...) Regulation (EC) no. 1860/2004, of 06/10, subsequently Regulation (EC) no. 875/2007, of 24/07, constitutes one of the legal acts enumerated in article 288 of the Treaty on the Functioning of the European Union, which forms part of the legal order of the Union, being characterized by being directly applicable in the legal order of Member States without it being the subject of any internal transposition act; (...) because the regulation aims to ensure uniform application of Union law to all Member States, it also has the effect of making inapplicable any national provisions that are incompatible with the material provisions contained therein;

  19. (...) paragraph a) of no. 1 of article 43 of the Tax Benefits Statute established the application of a tax benefit (...) to agricultural activity, which, by force of community law is obliged to comply with the conditions established by Regulation (EC) no. 1860/2004, of 06/10 and, subsequently, Regulation (EC) no. 875/2007, of 24/07 (...) [which] are in force directly and immediately in the internal legal order, impose limits that it behoves the Portuguese State to observe (...);

  20. Therefore, the non-approval of execution provisions that guarantee compliance with those community guidelines practically prevents the application of paragraph a) of no. 1 of article 43 of the Tax Benefits Statute, in the terms here sought by the Claimant, under penalty of incurring a violation of community law;

  21. The lack of implementability of paragraph a) of no. 1 of article 43 of the Tax Benefits Statute, for the purposes sought by the Claimant, removes any legal foundation from the thesis advocated by it that no. 2 of article 8 of Decree-Law no. 55/2008, of 26/03, or Ordinance no. 170/2002, of 28/02, would be derogating the tax benefit established in that paragraph a) and, consequently, violating the provisions of no. 2 of article 103 of the Constitution of the Portuguese Republic and paragraph i) of no. 1 and no. 2 of article 165 of the Constitution of the Portuguese Republic; (...) it is not a question of the derogation of that provision, even more so since the scope of application of Ordinance no. 170/2002, of 28/02, being different from that sought by the Claimant, by not concerning de minimis aid to agriculture, does not prove minimally apt to produce the derogation that the Claimant alleges;

  22. (...) Ordinance no. 170/2002, of 28/02 does not exclude or derogate the benefit sought by the Claimant, it simply does not regulate it because the same is not part of its scope of application; [equally], there is no conflict whatsoever between article 43 of the Tax Benefits Statute and the instruments that regulate access to such benefit, more specifically Decree-Law no. 55/2008, of 26/03 and Ordinance no. 170/2002, of 28/02;

  23. (...) in view of the primacy of community law over domestic law, one cannot consider that there is any unconstitutionality here, nor even any illegality whatsoever, in that national legislation merely gave effect to the mandatory community legal acts for the Portuguese State;

  24. (...) Accordingly, it is not legitimate to conclude that article 43 of the Tax Benefits Statute has established a tax benefit relating to inland areas also for companies engaging in agricultural activity and that that right was subsequently derogated by the instruments intended for its regulation (...);

  25. Furthermore, nor would this be the proper forum to assess any legislative inertia or omission invoked by the Claimant;

  26. In conclusion, the defects of illegality and unconstitutionality should be judged not well-founded, maintaining in the legal order the assessment challenged, as it constitutes a correct application of law to the facts (...) the present request for arbitral pronouncement should be judged not well-founded, absolving the Respondent entity from the claim".

The request for constitution of the arbitral tribunal was filed with the Administrative Tax Arbitration Center (CAAD) on 24 April 2015, was accepted by the President of CAAD on 28 April 2015 and was automatically notified to the Tax and Customs Authority on the same date.

Having the Claimant opted not to appoint an arbitrator, the Deontological Council of CAAD appointed the undersigned as arbitrator of the singular arbitral tribunal, with no objection from the Parties.

The Singular Arbitral Tribunal was duly constituted on 6 July 2015 and is materially competent to hear and decide the dispute that is the subject matter of these proceedings.

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

The proceedings are not subject to any nullities and no exceptions were raised, and as no additional evidence was requested, the meeting referred to in article 18 of the RJAT was dispensed with.

By order of 30 September 2015, pursuant to the principles of the Arbitral Tribunal's autonomy in conducting the proceedings, celerity, and procedural simplification and informality (articles 19, no. 2, and 29, no. 2, of the RJAT), the dispensing of written submissions was proposed, provided that the Claimant did not object within 10 days, and 30 October 2015 was set for the pronouncement of the arbitral decision.

No submissions were filed.

STATEMENT OF FACTS

a. Facts considered proven.

2.1. The Claimant is a company with registered address in a municipality considered an "eligible area," which pursues as its principal activity "Other Temporary Crops, n.e.c.", CAE 1192, framed in the general regime for the determination of taxable profit for corporate income tax purposes and in the normal quarterly regime for value-added tax purposes;

2.2. The Claimant indicated in table 4 of the Model 22 declaration for corporate income tax, for the fiscal year 2011, the tax reduction regime, considering that it met the conditions that would allow it to benefit from the tax benefit relating to inland areas, provided for in article 43 of the Tax Benefits Statute;

2.3. By means of an official letter no. ... of the Finance Department of ..., dated 4 July 2013, the taxpayer was notified to, within 15 days from the date of notification, and under articles 60 of the Complementary Tax Inspection Regulation (RCPIT) and 60 of the General Tax Law (LGT), exercise the right to be heard on the draft inspection report prepared by the Tax Inspection Division II of that Finance Department, containing corrections to the assessment for the fiscal years 2010 and 2011;

2.4. The referred corrections were made within the scope of an internal inspection action, of partial scope and with limited temporal scope to the fiscal years indicated, opened on the basis of service orders nos. OI2012... and OI2012..., issued by the Finance Department of ... on 20 September 2012;

2.5. As regards the year 2011, under analysis in these proceedings, the corrections resulted in the elimination of the reduced rate taxation of 15%, by application of the provisions of article 43, no. 1, paragraph a), of the Tax Benefits Statute (tax benefit relating to inland areas), from which resulted an additional assessment of €17,223.92, to which were added default interest;

2.6. The grounds for the proposed corrections were, according to the draft Tax Inspection Report, "the fact that the Taxpayer used the tax benefit relating to inland areas (article 43 of the Tax Benefits Statute) not having, however, met the legal conditions required for that purpose by non-compliance with the provisions of paragraph a) of article 2 of Ordinance no. 170/2002, of 28 February"; "Article 43, no. 7 of the Tax Benefits Statute states that, '... all regulatory provisions necessary for the proper execution of this article shall be established by ordinance of the Minister of Finance,'" such ordinance being Ordinance 170/2002 of 28 February"; (...) "from paragraph a) of article 2 of ordinance 170/2002 it is inferred that agricultural and fishery activities, identified in sections A and B of the Portuguese Classification of Economic Activities (CAE) cannot benefit from the inland area incentive" (p. 5 of the RIT);

2.7. The taxpayer having not exercised the right to be heard, the aforementioned corrections were maintained, with agreement order from the Head of the Tax Inspection Division, by delegation of competence from the Finance Director, of 1 August 2013, the final report being notified to it through official letter no. ... of the Finance Department of ..., dated 2 August 2013;

2.8. On 22 January 2015, assessment no. 2015... was issued, in the amount of €38,301.28, to which corresponds the compensation note no. 2015..., from which resulted an amount payable of €18,028.01, with voluntary payment deadline of 26 March 2015.

b. Substantiation of the proven factual matters

This Singular Arbitral Tribunal's conviction as to the facts described above was based on critical analysis of the procedural documents contained in the file and the documentary evidence produced, both by the Claimant and by the Respondent (PA).

c. Facts not proven

It was not proved that, during the course of these proceedings, the Claimant proceeded to pay the assessment challenged.

LEGAL MATTERS – SUBSTANTIATION

3.1. Delimitation of the question to be decided

At issue in these proceedings is the appraisal of the legality of the correction made by the Tax Inspection of the Finance Department of ... to the Model 22 declaration for corporate income tax presented by the Claimant on 30 May 2012, by reference to the fiscal year 2011 (declaration no. ...), regarding the tax benefit relating to inland areas, that is, to know whether the additional assessment resulting from such correction and challenged here suffers from the defect of violation of law, given that it is grounded on the fact that, in the year 2011, Ordinance no. 170/2002, of 28 February, prevented the Claimant from benefiting from the legal regime of tax incentives relating to inland areas, namely the reduction of the IRC rate, by reason of the (agricultural) activity pursued.

The arbitral decision rendered in these proceedings on 15 October 2015 annulled the assessment challenged and the respective compensation note, considering that "Being Ordinance no. 170/2002, of 28 February, an execution regulation, which, through the restoration effected by no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, has the objective of regulating the tax benefits relating to inland areas provided for by article 43 of the Tax Benefits Statute (article 39-B, prior to the renumbering effected by Decree-Law no. 108/2008, of 26 June), of which companies that 'engage, directly and as their principal activity, in an economic activity of an agricultural, commercial, industrial or service-provision nature in inland areas, hereinafter referred to as 'eligible areas,' can benefit, it must be concluded that its rules may only be applicable to the specific case of these proceedings if and insofar as they do not restrict the scope of the tax benefit relating to inland areas, or we will be faced with a situation of unconstitutionality, whether by violation of the provisions of no. 5 of article 112 of the Constitution of the Portuguese Republic, whether by violation of the provisions of articles 165, no. 1, paragraph i), and 103, no. 2, of the same Fundamental Law".

The Tax and Customs Authority filed an appeal to the Constitutional Court.

On the non-unconstitutionality of the provision of no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March

The Constitutional Court, in its Judgment no. 519/2018, case no. 226/16, 3rd Section, of 17 October 2018, decided to formulate a judgment of non-unconstitutionality of the provision of no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, if interpreted as having as its basis a referral, "without restrictions," to the rules of Ordinance no. 170/2002, of 28 February, with the grounds that are transcribed and to which we adhere:

"The provision under appraisal – extracted from no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March – resulted from legislative intervention by the Government concerning the incentives for accelerated recovery of Portuguese regions suffering from inland area problems, the previous legislation on the same question having been repealed, specifically Decree-Law no. 310/2001, of 10 December.

It results from Decree-Law no. 55/2008 that Ordinances no. 1467-A/2001, of 31 December and no. 170/2002, of 28 February – emanated to give effect to the repealed instrument – continue to be applicable to matters concerning the inland area fiscal regime provided, at the time, in article 39-B of the Tax Benefits Statute: the first, for the years 2007 and 2008, ex vi of no. 1 of article 6 of that legal instrument and regarding eligible territorial areas; the second, while the ordinance referred to in no. 1 of article 8 of the same legal instrument is not published, ex vi of no. 2 of the same article and, in particular, as regards the application of benefits to eligible economic activities.

It is precisely the appraisal of the constitutionality of the referral to Ordinance no. 170/2002, of 28 February, effected by no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, that constitutes the subject matter of the present appeal, in which two questions of constitutionality are raised: (i) one related to the question of whether the provision cited permits a hierarchically inferior provision to dispose innovatively relative to the provision it aims to regulate, violating the provisions of no. 5 of article 112 of the Constitution of the Portuguese Republic; (ii) and the other concerns the possibility of the matter at hand being the subject of regulation by a non-legislative act, in particular by ordinance, given that, according to the appealed decision, such matter is encompassed within the scope of parliamentary reserved law, provided for in articles 103, no. 2 and 165, no. 1, paragraph i) of the Constitution of the Portuguese Republic.

The first question naturally encompasses only the provision contained in the legislative act, and not already that of the regulation, since it is the legislator who is the addressee of the prohibition contained in no. 5 of article 112 of the Constitution of the Portuguese Republic. Thus, what is important to determine is whether the legislative provision confers upon a regulatory act a legal force equivalent to law and, therefore, suffers from the defect of unconstitutionality, since the regulatory provision that contradicts it will suffer, for that reason, from a defect (which is one of legality and, only indirectly, of unconstitutionality) that does not fall within the powers of cognition of this Court.

The second question – concerning the problem of determining the possibility of treating by regulatory means a matter relating to tax benefits – concerns the constitutional limits of the powers of executive or complementary regulatory norm-making of the administration. The referral from law to regulation (normative referral) is also subject to the constitutional limits of reserved law, so that the legislative provision that proceeds to the "despecialization" will be materially unconstitutional if such matter is to be judged as belonging to reserved law. The question could also involve provisions contained in the regulatory act, which would be unconstitutional if judged as belonging to reserved law, but the subject matter of the appeal is delimited only by the provision contained in the legislative act.

(...)

Let us begin by analyzing the alleged violation of article 112, no. 5 of the Constitution, by the normative referral comprising no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March.

(...)

It does not result, however, from the text of the provision sub judice that its effect is to confer upon the ordinance the possibility of derogating or altering, even partially, the provision contained in the legislative instrument. The provision does not 'delegate,' nor 'authorize' or enable the Administration to create by regulation a legal regime derogatory, modifying or repealing that or another law, bringing about a lowering or degradation of the hierarchical level expressly prohibited by no. 5 of article 112 of the Constitution of the Portuguese Republic.

The sense of the referral effected by the provision impugned is to maintain transitionally in force a regulation that was issued pursuant to an enabling law already repealed.

Indeed, Decree-Law no. 310/2001, of 10 December, pursuant to which Ordinance no. 170/2002, of 28 February was issued (article 6), was repealed and replaced by Decree-Law no. 55/2008, of 26 March. This instrument not only enables the regulation to issue normative discipline over the same material space of regulation of the Ordinance, reproducing ipsis verbis the repealed enabling law (no. 1 of article 8), as, through the provision impugned, maintains in force the Ordinance, while there is no regulation of the new law (no. 2 of article 8).

The maintenance in force of a regulation issued pursuant to a repealed enabling law does not elevate it to the function and force of law, for such is expressly prohibited by the principle of typicality of laws (article 112, no. 5 of the Constitution of the Portuguese Republic). Only a simple normative referral is verified in which the law admits that a source hierarchically inferior to it assumes itself as its complement while there is no new regulation. The law refers to an already existing regulation the determination of certain normative elements that complement the ordering that the same referring law establishes. This is not, then, a normative referral in which the law, remaining in force, authorizes its modification or repeal by hierarchically inferior act, but merely autolimitation of the referring provision, which renounces regulating the totality of the matter and calls upon another to conclude or temporarily complete that regulation.

Notwithstanding the systematic internormative insertion that occurs between the material rules of the referring law and the regulation, there is no integration of the referred provision into the referring provision. The referral to the regulation is merely formal in nature. As Gomes Canotilho states, "the regulatory provision implementing or complementary continues to be a provision separate and qualitatively different from the legal provision, for the legal referring provision does not incorporate the regulatory content nor can confer legal force upon it" (see. Direito Constitucional e Teoria da Constituição, 5th ed. p. 836).

Now, within the scope of the prohibition established in no. 5 of article 112 of the Constitution of the Portuguese Republic are not included the normative referrals that consist in the fact that law refers to regulatory provisions of an executive or complementary nature of the discipline established by it. The constitutional prohibition encompasses only the normative referrals that translate into the so-called 'delegated' or 'authorized regulations' (prohibition of regulations modifying, suspending or repealing laws). As Gomes Canotilho and Vital Moreira state in annotation to that article, "no. 5 also does not prohibit the so-called normative referrals (or normative remissions), in particular in cases in which law refers to the administration the issuance of regulatory provisions of an executive or complementary nature to the discipline established by it. Through this normative referral the law pursues two objectives: a) authorization or enabling of the administration to issue regulations (enabling function); b) execution or material complementation of legal norm-making (normative function)" (see. Constituição da República Anotada. Vol. II, 4th ed. p. 70).

No. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, operates a normative referral to already existing regulatory provisions. By way of the referral a regulation already issued subsists – Ordinance no. 170/2002 - fulfilling the function of execution and material complementation of the new legislation. The subsistence of the Ordinance on those terms constitutes no novelty, whether because it corresponds to the general regime of lapsing (or tacit repeal) of regulations as a consequence of the repeal of the enabling law (articles 145, no. 2 and 146, nos. 2 and 3 of the Code of Administrative Procedure – CAP), or because the State Budget Law of 2007, in repealing Law no. 171/99, of 18 September and integrating the tax benefits relating to inland areas into the Tax Benefits Statute, maintained it transitionally in force (paragraph l) of article 88). The objective of the Parliament law and the decree-law that established the regulatory provisions necessary for the execution of article 39-B of the Tax Benefits Statute (current article 43) was the same: to avoid a normative vacuum in the legal system, susceptible of hindering the application of the new legislation concerning the tax incentives relating to inland areas.

However, the referral from law to regulation is also subject to the constitutional limits of reserved law, the law being unable to relieve itself of the regulation of the 'essential nucleus' of matters and of the fixing of basic disciplinary criteria. The constitutional prohibition emerging from no. 5 of article 112 of the Constitution of the Portuguese Republic necessarily leads to the establishment of limits to the referring law, so that the same does not contribute to the creation of regulations with force or value of law. For this reason, the referring law itself is subject to the constitutional limits of reserved law (articles 164 and 165 of the Constitution of the Portuguese Republic), being unable not to exhaust all the 'primary' regulation of the reserved matters. Thus, in the space constitutionally reserved to law, whose original regulation is the competence of Parliament, are forbidden normative referrals that confer upon the Administration the power to issue an innovative legal regime bearing on reserved matters.

Given that it is a referral to a regulation issued pursuant to repealed legislation, compliance with the insurmountable limit of reserved law has reference to the regulatory content. The subsistence of the normative provisions, when the repeal of the enabling law was accompanied by its replacement by new law, depends on its compatibility with the new substitute legal content. But the survival of the regulation by express will of the legislator, even if it does not harmonize fully with the new law, cannot permit the invasion of legal matters by regulation.

A normative referral that permits such a result would be unconstitutional, for being offensive of the principle of reserved law. The problem already confuses itself with the second question of constitutionality, concerning the constitutional limits of the powers of executive or complementary regulatory norm-making of the administration.

(...)

The question that arises in this domain consists in knowing whether the Government, through the provision of no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, invaded the reserved competence of Parliament, restricting the scope of coverage of a tax benefit created by that latter body, on the pretext of merely proceeding with its regulation, creating the normative conditions necessary for its proper execution.

The appealed decision refused the application of that precept, interpreted in the sense of referring to all the rules of Ordinance no. 170/2002, of 28 February, in particular to those that concern the exclusion of certain economic activities from the scope of the tax benefits relating to inland areas, for violation of the principle of tax legality, established in articles 165, no. 1, paragraph i) and 103, no. 2 of the Constitution of the Portuguese Republic.

The constitutional requirement that taxes be created and disciplined in their essential elements by parliamentary law unfolds in two subprinciples: (i) formal reserved law, which implies the intervention of parliament, even if it merely authorizes the government to discipline certain tax matter (article 165, no. 1, paragraph i), of the Constitution of the Portuguese Republic); (ii) material reserved law, which requires that the law define, concerning each tax, the incidence, the rate, the tax benefits and the safeguards of taxpayers (article 103, no. 2 of the Constitution of the Portuguese Republic).

Now, the question raised in the proceedings reconditions itself to the confrontation with the principle of reserved tax law in a formal sense, flowing from article 165, no. 1, paragraph i), of the Constitution – requirement of the intervention of Parliament, either directly or through legislative authorization in the production of normation concerning the matters encompassed by the reservation. In effect, what is questioned is the incidence of legislative intervention by the Government materialized in the normative referral contained in no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, without legislative authorization from Parliament.

Today the interpretation is settled that formal reserved law encompasses both the matters referred to in paragraph i) of no. 1 of article 165 (creation of taxes, tax system and general regime of rates and other financial contributions of public entities), and the matters contemplated in no. 2 of article 103 of the Constitution of the Portuguese Republic (incidence, rate, tax benefits and safeguards of taxpayers). This is to ensure that the creation of taxes, as well as the definition of their essential elements are defined by the legislative body par excellence which is the representative assembly (Judgments nos. 274/86 and 680/2014). Thus, tax benefits constitute a domain whose original norm-making is also a competence of Parliament, being forbidden normative referrals that confer upon the Administration the power to issue an innovative legal regime in its entirety.

Assuming that the tax benefits relating to inland areas and their scope of objective and subjective incidence integrate a matter of reserved competence of Parliament, is the referral contained in no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, constituted a constitutionally illegitimate intrusion by the Government in the domain of the reserved competence of Parliament?

The answer to that question has already been given by the Constitutional Court in Judgment no. 294/2018, in the following terms:

'As the Constitutional Court has repeatedly affirmed, a provision issued without parliamentary authorization – which encompasses, in the abstract, situations in which the enabling law simply does not exist and cases in which it does not cover the aspects regulated by the provision – suffers only from the defect of organic unconstitutionality when it disposes innovatively on the matter encompassed within the scope of relative reserved competence of Parliament, not suffering, by contrast, from such defect when it merely reproduces substantially the pre-existing regime, defined by the originally competent body or equipped with the necessary authorization (see, among many, Judgments nos. 176/2010 and 479/2010).

Comparing the provision of no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, and paragraph l) of article 88 of the State Budget Law for 2007 (Law no. 53 A/2006, of 29/12), we verified that both expressly refer to Ordinance no. 170/2002, of 28 February. Indeed, Parliament, in the same instrument in which it determined the addition of article 39-B to the Tax Benefits Statute, providing for the applicability of the benefit to companies engaging in economic activities in diverse areas, notably of an agricultural nature, left, on the one hand, established, in no. 7 of the article added, that the regulatory provisions necessary for its execution would be established by ordinance and, on the other hand, introduced a transitional regime, where it expressly referred that "the tax benefits relating to inland areas provided for (...) in article 39-B of the Tax Benefits Statute are applicable the rules established by Decree-Law no. 310/2001, of 10 December, and by Ordinance no. 170/2002, of 28 February" (article 88). It results, in this manner, clear that the Government, in Decree-Law no. 55/2008, merely reproduced – following the same referral technique – the pre-existing transitional regime contained in the State Budget Law, issued by Parliament. Only the referral to Decree-Law no. 310/2001 was not maintained, because the matter of its provisions was the target of specific regulation in Decree-Law no. 55/2008, which, accordingly, repealed that first instrument (article 9).

By what is expounded, it is concluded that the referral operated by no. 2 of article 8 does not constitute an innovation relative to the pre-existing normation and issued by Parliament.

It may further be said that it results from the combination of no. 7 of article 39-B, added to the Tax Benefits Statute by article 83 of Law no. 53 A/2006, with the transitional regime defined in paragraph l) of article 88 of the same instrument, that Parliament did not intend for the applicability of the benefit to agricultural economic activity to be immediate or directly implementable.

It is concluded, from what is expounded, that the maintenance of the exclusion of such activity until the publication of the ordinance intended to 'ensure, throughout the implementation period, full compliance with the European Commission's decision concerning the incentives in question, in particular as regards their application to different economic activities,' resulting from the referral operated by article 8 of Decree-Law no. 55/2008, of 26 March, to Ordinance no. 170/2002, of 28 February, does not incur the invoked defect of organic unconstitutionality'.

The conclusion that no. 2 of article 8 of Decree-Law 55/2008 operates a referral in favor of regulation in a matter of reserved law will always be able to object that it does not contain an innovative normative referral, because it already results from previous parliamentary law – paragraph l) of article 88 of Law no. 53-A/2006, of 29 December.

Indeed, as regards the tax benefit at issue in the proceedings – the reduction of the IRC rate, provided for in paragraph a) of no. 1 of article 43 of the Tax Benefits Statute – Ordinance no. 170/2002 is inapplicable to companies that engage, directly and as their principal activity, in an activity of an agricultural nature. The only regulatory provisions that concern the benefit of reduction of the IRC rate exclude from their scope of application taxpayers who in eligible zones engage in an economic activity in the agricultural and fishing sectors. No. 4 of article 5 establishes the limit of €100,000 per eligible entity, for a period of three years, 'in accordance with the community rules defined in Regulation (EC) no. 69/2001, of the Commission, of 12 January'; and no. 2 of article 6 permits accumulation with 'other de minimis aid, in compliance with the limit of €100,000 per eligible entity, for a period of three years from the date of attribution of the first incentive'. That community regulation, subsequently replaced by Regulation (EC) no. 1998/2006 of the Commission, of 15 December (which increased to 200,000 euros the limit of de minimis aid), expressly excludes from its scope of application the agricultural and fishing sectors (article 1). And this because aid granted to companies in the agricultural sector are the subject of specific norm-making forming part of Regulation (EC) no. 1860/2004 of the Commission, of 6 October 2004, subsequently replaced by Regulation no. 1535/2007 of the Commission, of 20 December 2007.

Therefore, Ordinance no. 170/2002 does not regulate the entire scope of subjective incidence of the tax benefits relating to inland areas, but only companies that engage in the economic activities encompassed by Regulation (EC) no. 69/2001, of the Commission, of 12 January. This does not mean that companies whose principal activity is of an agricultural nature do not have the right to the tax benefits provided for in article 43 of the Tax Benefits Statute. Simply, as is prescribed in no. 7 of that article, it is the responsibility of the Minister of Finance to produce the regulatory provisions necessary for the execution of that type of benefit relating to inland areas in the sectors not encompassed by Ordinance no. 170/2002.

So that the normative referral contained in no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, not operating in a matter of reserved law already addressed by law does not suffer from organic unconstitutionality.".

On the interpretation of no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March. The hierarchy of provisions.

The question to be decided has already been the subject of treatment at the infra-constitutional level by the Supreme Administrative Court (STA), both on a date prior to and after the arbitral decision of 15/10/2015 which is hereby reformulated, in the Judgments rendered in cases nos. 0115/15, of 09/09/2015, 0482/16, of 12/10/2016, 0493/16 and 0494/16, both of 18/05/2016, all available at http://www.dgsi.pt/.

In the most recent of the mentioned STA Judgments, reported by Counselor Judge Aragão Seia, it was decided that "It being certain that Ordinance no. 170/2002, of 28 February, excluded from the scope of application of the benefits of the inland area fiscal regime agricultural activity [article 2, paragraph a)], the same, in that part, cannot be considered applicable by referral of the referred article 8, no. 2 of Decree-Law no. 55/2008, in that such application would imply the repeal or, at least, the suspension of article 39-B of the Tax Benefits Statute.".

Such conclusion is grounded on the argumentation expended in the same cited Judgment, which is transcribed:

"It is indisputable that article 39-B of the Tax Benefits Statute, added by article 83, no. 1 of Law no. 53-A/2006, of 29 December (State Budget Law for 2007), provided for the granting of tax benefits relating to inland areas, in particular, '[to] companies that engage, directly and as their principal activity, in an economic activity of an agricultural nature'.

That is, the referred article provided (as, afterwards, article 43 of the same Statute) that the tax benefits relating to inland areas apply, among others, to the agricultural sector.

It is certain that, as we have already stated, no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, which established the execution rules for that article 39-B of the Tax Benefits Statute, referred, until a joint ordinance by government member from the Finance area and the Labor and Social Security area was approved, to Ordinance no. 170/2002, of 28 February, whose article 2, paragraph a), as we have already stated, excluded from the scope of application of the benefits of the inland area fiscal regime agricultural activity.

But, shall from the confrontation between article 39-B of the Tax Benefits Statute and Ordinance no. 170/2002, of 28 February result that the tax benefit relating to inland areas is not applicable to agricultural activity, as the TA considered with the approval of the appealed sentence? In other words, shall the referral to Ordinance no. 170/2002, of 28 February, made ex vi of the referred no. 2 of article 8 of Decree-Law no. 55/2008, of 26 March, have the capacity to derogate article 39-B of the Tax Benefits Statute, in particular by excluding agricultural activity from the scope of application of the referred benefit? In our view, no.

First, because the hierarchy of provisions does not permit it. Let us see:

In truth, the referred ordinance constitutes a regulation, that is, citing the judgment of that Section of Tax Litigation of the Supreme Administrative Court of 7 March 2012, rendered in case no. 1100/11 (Published in the Appendix to the Official Journal of 18 April 2013 (http://www.dre.pt/pdfgratisac/2012/32210.pdf), pp. 662 to 672, also available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/cc5328f21fd98fb6802579c30059534e.), 'a decision of a body of public administration, that, pursuant to provisions of public law, aims to produce legal effects in general and abstract situations, whereby it differs from the administrative act, first and foremost, by being general and abstract, while the administrative act produces legal effects in a concrete case (On the matter, see FREITAS DO AMARAL, in "Direito Administrativo", III, 1989, p. 36 and following, ESTEVES DE OLIVEIRA, in "Direito Administrativo" (Lectures), 1979, p. 144 and following, MARCELO REBELO DE SOUSA and ANDRÉ SALGADO DE MATOS, in "Direito Administrativo Geral", Tomo III, 2nd Edition, p. 248)'.

The referred ordinance, as to its relationship with the law and its functions, encompasses execution or complementary regulations ('As to the relationship of regulations with the law and their functions [...], regulations may be of execution, complementary or independent. Execution regulations execute the law; complementary regulations develop aspects of a normative discipline that the law did not regulate but that are not necessary for it to acquire implementability; independent regulations contain materially innovative disciplines' (MARCELO REBELO DE SOUSA and ANDRÉ SALGADO DE MATOS, Direito Administrativo Geral, Tomo III, D. Quixote, 2007, p. 246).), which, as was stated in the judgment of that Section of Tax Litigation of the Supreme Administrative Court of 1 October 2014, rendered in case no. 1548/13 (Published in the Appendix to the Official Journal of 15 January 2016 (http://www.dre.pt/pdfgratisac/2014/32240.pdf), pp. 3156 to 3162, also available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/b977d4ce1df1371f80257d690031b143.) 'constitute a "...task of elaboration, of detail and of complement of the legislative command...they are the development, operated by way of administration, of the legislative forecast, making possible the application of the primary command to the concrete situations of life – making, in essence, possible the practice of the individual and concrete administrative acts that are their natural corollary.

Complementary or execution regulations may, in turn, be spontaneous or owed. In the former case, the law says nothing regarding the need for their complementation: nevertheless, if the Administration finds it appropriate and has competence for that, it may issue an execution regulation. In the latter, it is the law itself that imposes upon the Administration the task of developing the forecast of the legislative command.

Finally, these complementary or execution regulations are, typically, 'secundum legem' regulations, and are therefore illegal if they collide with the discipline fixed in the law, of which they can only be the deepening.", see. Diogo Freitas do Amaral, Curso de Direito Administrativo, Vol. II, 2012, 2nd edition, pp. 185 and 186, see also Mário Aroso de Almeida, Teoria Geral do direito Administrativo: temas nucleares, 2012, pp. 98 and 99'.

Constituting Ordinance no. 170/2002, of 28 February, a regulation (provisions emanating from the exercise of administrative function), it is important to keep in mind that it is subject to the principle of administrative legality in its two aspects (We follow here closely the Opinion of the Consultative Council of the Office of the Attorney General of the Republic no. 5/2004, of 1 July 2004, in the Official Journal of 14 August 2004 (https://dre.pt/application/file/716772), pp. 12589 to 12600, also available at http://www.dgsi.pt/pgrp.nsf/7fc0bd52c6f5cd5a802568c0003fb410/33aaeac315ebfe1d80256e21003d5f11.): the principle of primacy or prevalence of law and the principle of legal reservation, the first meaning that the acts of the administration (of any of the public administrations) cannot contradict the laws and the second that those acts must be founded in laws (See. JORGE MANUEL COUTINHO DE ABREU, Sobre os Regulamentos Administrativos e o Princípio da Legalidade, Livraria Almedina, Coimbra, 1987, pp. 131 and 132, and GOMES CANOTILHO and VITAL MOREIRA, Constituição da República Portuguesa Anotada, 3rd revised edition, Coimbra Editora, 1993, pp. 922 and 923).

Thus, an execution regulation, taking into account its instrumental function of concretizing or elaborating the law on which it is grounded, must be considered illegal whenever it contains any provision against or praeter legem, that is, whose content disposes contrary to or beyond the legislative discipline (MÁRIO ESTEVES DE OLIVEIRA, Direito Administrativo, edition of AAFDL, 1977, p. 200. In the same sense, also FREITAS DO AMARAL, Curso de Direito Administrativo, with the collaboration of LINO TORGAL, volume II, Almedina, 2001, p. 160, where he states that 'execution regulations are typically 'secundum legem' regulations, and are therefore illegal if they collide with the discipline fixed in the law, of which they can only be the deepening' (op. cit., p. 160)).

We conclude, thus, that the referred ordinance cannot contradict the provisions of article 39-B of the Tax Benefits Statute, in the wording in force on the date of the facts, under penalty of nullity (In this sense, MARCELO REBELO DE SOUSA and ANDRÉ SALGADO DE MATOS, op. and vol. cit., who, at pp. 256/257, state: 'Regulations that violate ordinary law also have as their only admissible def

Frequently Asked Questions

Automatically Created

Are agricultural activities eligible for the IRC tax benefits for interiority under Article 43 of the EBF?
No, agricultural activities are not eligible for IRC interiority tax benefits under the current regulatory framework. While Article 43(1) of the Tax Benefits Statute mentions agricultural activities, Portaria 170/2002 explicitly excludes activities in CAE sections A (agriculture) and B (fisheries) from qualifying for these incentives. This exclusion was upheld by the Constitutional Court.
What did the Constitutional Court decide in Acórdão 519/2018 regarding Decree-Law 55/2008 and Portaria 170/2002?
The Constitutional Court in Acórdão 519/2018 decided not to declare Article 8(2) of Decree-Law 55/2008 unconstitutional. This provision temporarily applied the rules from Portaria 170/2002 to interiority incentive measures until a new ordinance was approved. The Court upheld the validity of excluding agricultural activities from the tax benefit under Article 43 EBF, finding no violation of the principle of tax legality or constitutional hierarchy of norms.
How does Portaria 170/2002 restrict the application of interiority tax incentives to certain economic activities?
Portaria 170/2002 restricts interiority tax incentives by excluding economic activities classified in CAE sections A (agriculture, hunting and forestry) and B (fishing) from eligibility. Article 2(a) of the Ordinance explicitly states that agricultural and fishery activities cannot benefit from inland area incentives, despite the broader language in the primary legislation that mentions agricultural activities as potentially eligible.
Can a CAAD arbitral decision be reformulated following a Constitutional Court ruling?
Yes, a CAAD arbitral decision can be reformulated following a Constitutional Court ruling. Process 272/2015-T demonstrates this: the original arbitral decision of October 20, 2015 was reformulated and replaced in compliance with Constitutional Court Acórdão 519/2018. When the Constitutional Court issues a judgment affecting the legal basis of an arbitral decision, the tribunal must reformulate its decision accordingly to ensure consistency with constitutional interpretation.
What was the outcome of the additional IRC assessment challenged in CAAD Process 272/2015-T?
Following the Constitutional Court's Acórdão 519/2018, which upheld the constitutionality of excluding agricultural activities from interiority benefits, the additional IRC assessment challenged in Process 272/2015-T was maintained. The reformulated arbitral decision confirmed the Tax Authority's position that the agricultural company did not qualify for the Article 43 EBF benefit, validating the assessment of €38,301.28 for fiscal year 2011.