Summary
Full Decision
ARBITRAL DECISION
The arbitrators Maria Fernanda dos Santos Maçãs (Chairperson), Maria Forte Vaz and Armando Tavares, appointed by the Ethics Council of the Administrative Arbitration Centre (CAAD) to constitute the Arbitral Tribunal, established on 04-08-2016, agree as follows:
I. REPORT
1. A…, S.A. with unique identification number and registration …, with registered office at …, …, …-… … and with share capital of € 104.391.080,00 (hereinafter "Claimant") filed an application for the constitution of a collective arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to simply as RJAT), in which the AT - Tax and Customs Authority is the respondent.
The Claimant requests that the illegality and annulment of the additional corporate income tax (IRC) and compensatory interest assessment acts for the 2013 tax year in the total amount of € 491.520,06 be declared, and that the AT be condemned to reimburse the tax already paid by the Claimant and to pay indemnificatory interest provided for in article 43 of the LGT, with all other legal effects.
The application for the constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the Tax and Customs Authority on 06-06-2016.
Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed the arbitrators of the collective arbitral tribunal: Counsellor Maria Fernanda dos Santos Maçãs, Dr. Maria Forte Vaz and Dr. Armando Tavares, who communicated their acceptance of the appointment within the applicable timeframe. The acceptance of the appointment was communicated to the parties on 20-07-2016.
As the parties did not manifest any intention to refuse the appointment of the arbitrators, in accordance with article 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Ethics Code, the collective Arbitral Tribunal was constituted on 04-08-2016 in accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December.
The Tribunal dispensed with the holding of the meeting provided for in article 18 of the RJAT, in accordance with the principles of autonomy in the conduct of proceedings and in order to promote its speed, simplification and informality, see paragraph 2 of article 19 and paragraph of article 29 of the RJAT, with the proceedings continuing through the grant of a deadline for final written arguments.
Both parties submitted their final arguments within the respective deadlines and developed and updated their arguments therein.
2. In the Arbitral Application, the Claimant alleged, in summary and with relevance:
a) The request for arbitral pronouncement concerns the official additional corporate income tax assessment for 2013 and the respective compensatory interest assessment which were issued by the AT following an inspection action carried out on the Claimant in 2015, which concerned the 2013 tax year. In that inspection action, the AT denied the possibility that the Claimant could carry forward and deduct in 2013 the amount of the tax benefits resulting from the application of the Tax Incentive Regime for Investment, approved by article 13 of Law No. 10/2009, of 10 March (RFAI), from 2011 and 2012, which the Claimant had not been able to fully utilize in those years.
b) Both in 2011 and in 2012, considering the value of the tax collected by the Claimant and as a result of the provisions of article 92 of the IRC Code, a situation of insufficiency of collection was created that prevented the Claimant from fully enjoying the benefit of the RFAI, so that, in accordance with the provisions of paragraph 3 of article 3 of the RFAI, the Claimant should be allowed to deduct the surplus amount of the benefits in question in 2013.
c) By denying, within the scope of the aforementioned inspection action, the effective deduction in 2013 of the RFAI benefit from 2011, the AT altered the proportion of the deduction of the tax benefits that had been adopted by the Claimant at the time of its self-assessment, ultimately contending that the Claimant would have deducted from the collection in excess, as tax benefits and in net terms, the amount of € 481.856,54, which amount the AT seeks to collect through the additional official corporate income tax assessment and on which it levied the compensatory interest assessment equally challenged.
d) The interpretation of the applicable legal provisions, in particular article 92, paragraph 1, of the IRC Code and article 3, paragraph 3, of the RFAI, which led the AT to issue the acts sub judice proves to be erroneous and illegal and cannot stand. In the sense of the inadmissibility under the law of the AT's position, several Arbitral Tribunals established with the CAAD have already pronounced themselves, namely in proceedings Nos. 693/2014-T, 369/2015-T and 370/2015-T.
e) The Claimant thus considers that the key issue in this case is solely whether it is possible for the Claimant to carry forward in 2013 the amount of the tax benefit resulting from the RFAI for the years 2011 and 2012, actually deducting part of that relating to 2011, insofar as the deduction in the respective tax years was not possible in its entirety due to the application of article 92 of the IRC Code. It is not intended to discuss the subjection of the RFAI benefit in 2011 and 2012 to the limit of article 92 of the IRC Code, which moreover would only have relevance in those tax years and was not challenged by the Claimant.
f) In this regard, the Claimant further adds that, according to the provisions of paragraph 1 of article 3 of the RFAI, to taxpayers subject to corporate income tax resident in Portuguese territory or who have a permanent establishment therein, who exercise as their main activity a commercial, industrial or agricultural activity and who carry out, in the tax year in question, investments considered eligible, certain tax benefits are granted, including deduction from corporate income tax collection, up to the limit of 25% of the same, of the following amounts, for investments made in regions eligible for support under incentives for regional purposes: (i) 20% of the relevant investment, in relation to investment up to the amount of € 5.000.000; (ii) 10% of the relevant investment, in relation to investment of an amount exceeding € 5.000.000.
g) Accordingly, paragraph 3 of article 3 of the RFAI provides that when the deduction of eligible investments under this regime cannot be made in full due to insufficiency of collection, the amount still not deducted may be deducted, under the same conditions, in the assessments of the four following tax years, with the sole requirement upon which the legislator makes the possibility of deducting the tax benefit in question in the four following tax years dependent being that a situation of "insufficiency of collection" has occurred. The possibility of "carrying forward" to the following tax years the deduction from corporate income tax collection provided for in the RFAI constitutes a relevant guarantee for taxpayers, aimed at ensuring the effectiveness of that tax benefit.
h) Since the RFAI limits the deduction from corporate income tax collection to 25% of the value thereof, but establishes that such deduction corresponds to 20% or 10% of the relevant investment, the permission to "carry forward" was intended to ensure that the fact that, in the year of realization of the investments, the taxpayer determines a collection amount that does not allow the totality of the deduction in question does not restrict the application of the benefit in question, which may still have effect in the four following tax years.
i) Until the point at which the investments made would lead to a substantial increase in corporate income tax collection, those investments would have minimal tax relevance, so that there would be no incentives for companies to make new investments with short to medium-term impact, which is precisely the opposite effect that the RFAI intends to trigger, embodying an instrument of countercyclical fiscal policy that, through the promotion of business investment in certain regions and job creation, aims to contribute to the revitalization of the national economy.
j) If the benefit from 2011 and 2012 had not been fully utilized because the deductible investments, at the percentages fixed by the RFAI, exceeded 25% of the corporate income tax collection in those years, there could be no doubt whatsoever that, by simple and immediate application of paragraph 3 of article 3 of the RFAI, the remaining amount could be deducted in the four following tax years and, therefore, in the 2013 tax year.
k) From 2011 and until 2012, inclusive, in addition to this limit, the deduction of the RFAI tax benefit was restricted not to 25% of the collection, but rather to 10% of the collection. Specifically, since article 92 of the IRC Code came to provide that the amount of tax assessed could not be less than 90% of that which would be determined without the deduction of tax benefits, the deduction of the RFAI tax benefit could no longer exceed 10% of collection.
l) Applying this rule to the benefit established in the RFAI, if the deduction from corporate income tax collection fixed in accordance with that regime is in an amount exceeding 10% of the same, then this proves insufficient for the implementation of that deduction, as is presupposed by paragraph 3 of article 3 of the RFAI. It was precisely the limit provided for in this article 92 of the IRC Code that led to the deduction relating to investments from 2011 and 2012 not being able to be made in full in those years. In 2011, and also in 2012, and considering the joint application of the RFAI and article 92 of the IRC Code, the corporate income tax collection of the Claimant proved insufficient to allow the totality of the deduction fixed in accordance with the rules of the RFAI.
m) In this regard, the Claimant considers that the interpretation, immediately from a literal perspective, but also from a systematic one, of paragraph 3 of article 3 of the RFAI can only lead to one conclusion, that the deduction in the four following tax years of the amount that cannot be deducted in the tax year relating to relevant investments due to insufficiency of collection applies equally when that insufficiency results from the limitation embodied in article 92 of the IRC Code.
n) The provisions resulting from article 92, paragraph 1, of the IRC Code and article 3, paragraph 3, of the RFAI, interpreted in the sense of preventing the carryforward of the RFAI tax benefit to subsequent tax years in the case where it was through the application of the limit of article 92 of the IRC Code that the taxpayer could not fully deduct the benefit determined in that year—denying the occurrence of a situation of insufficiency of collection, as provided for in article 3, paragraph 3, of the RFAI—prove to be unconstitutional by violation of the principle of equality, embodied in article 13 of the Constitution.
o) The provision of paragraph 1 of article 92 of the IRC Code, interpreted in the sense of preventing the carryforward of the RFAI tax benefit to subsequent tax years in the case where it was through the application of the limit of article 92 of the IRC Code that the taxpayer cannot fully deduct the benefit determined in that year—denying the occurrence of a situation of insufficiency of collection, as provided for in article 3, paragraph 3, of the RFAI—proves to be unconstitutional by violation of the principle of proportionality, aspect of article 2 of the CRP and established in paragraph 2 of article 266 of the same constitutional compendium.
p) Concluding in this regard that it is not irrelevant to note that from 2013 onwards the limit of article 92 of the IRC Code ceased to be applicable to the RFAI, insofar as it became expressly excepted in paragraph 2 of that same article.
3. The AT, in its response, alleged, in summary and in essence, that:
a) The Claimant invoked in the 2013 corporate income tax form 22 the right to deduct a tax credit under the RFAI, of €7.849.225,59 (2011: €5.302.625,07 and 2012: €2.546.600,52), relating to prior periods, but which corresponds to the amounts of tax benefits not deducted in those tax years by force of the calculation of the result of the assessment, in accordance with article 92 of the IRC Code, however, according to the AT it is not possible, in this specific case, to utilize values of RFAI which, by reference to prior years, have not had effectiveness at the level of deduction, by force of the legal command of that provision.
b) The non-deduction of the aforementioned amounts does not result from insufficiency of collection but rather from the application of the normative that regulates the result of the assessment of deductions to tax benefits.
c) Paragraph 3 of article 3 of the 2009 RFAI provided that, "When the deduction referred to in the previous paragraph cannot be made in full due to insufficiency of collection, the amount still not deducted may be deducted, under the same conditions, in the assessments of the four following tax years.", that is, it may be deducted but at the amount referred to in subparagraph a) of paragraph 1 of that article, i.e., at the amount determined in accordance with the rules of paragraph 1 of article 90 of the IRC Code, so that the collection referred to in subparagraph a) of paragraph 1 of article 3 of the RFAI is that which results from the corporate income tax assessment act, processed in accordance with subparagraph a) of paragraph 1 of article 90 of the respective Code, which consists of the application of the tax rate to the taxable base.
d) It is evident to the AT from the letter of the law regulating the RFAI in the periods 2009 to 2012, that the use of a tax credit generated by RFAI from prior periods is only admitted in a period when the deduction in the period to which the investment relates has not been complete (in the terms that paragraph 2 of article 3 of the 2009 RFAI provides) due to insufficiency of collection and because it is expressly defined, no other interpretation is admitted that does not fully respect the text of the law.
e) The RFAI from 2011 and 2012 will only be included in the set of tax credits for deductible tax benefits in 2013 if, and only to the extent that due to insufficiency of collection it was not possible to use it in the determination of the corporate income tax for 2011 and 2012. This does not occur as is well demonstrated in the summary of corporate income tax assessments for the periods 2011 and 2012. The amount that the company claims as a RFAI tax credit carried forward from the years 2011 and 2012 is nothing more than the tax paid as a result of the assessment in accordance with the provisions of article 92 of the CIRC.
f) If one were to accept carrying forward to the following taxation periods the increase in the "result of the assessment", which in this specific case will concern the use [excessive as per article 92 of the CIRC] of RFAI, one would go on to render the article itself useless since one would first be limiting the impact of the use of the benefit on the tax payable, and subsequently, with the permission of carryforward, invalidate the very limitation that is the objective contained in the rule.
g) Regardless of whether corrections to the tax calculation were made, resulting from the result of assessment, in accordance with article 92 of the CIRC, in the periods 2011 and 2012, the deduction of RFAI would not be carryforwardable. In this regard, the Tax and Customs Administration pronounced itself in a binding information request to the Corporate Income Tax Services Directorate, proceeding with number … of 2012-06-19, which contains the understanding of the impossibility of carryforward of the RFAI corresponding to the tax increased by effect of article 92 of the CIRC, with the Services understanding that, "Regardless of whether or not the correction imposed by this article [article 92 of the CIRC] must be made, the amount of RFAI that must be deducted from collection and entered in field 355 of table 10 must correspond to the amount referred to in subparagraph a), subparagraph i) or ii) of paragraph 1 of the article that regulates it.", and that "…the deduction of carryforwardable RFAI for the following taxation periods does not undergo any alteration by force of the application of paragraph 1 of article 92 of the CIRC", further adding that "…if the possibility of carryforward of the amount of benefit that is increased as a result of the application of this provision were maintained, the effect intended by the legislator would end up being completely neutralized", concluding that as a result of the aforementioned limitation, "the amount carryforwardable to the following taxation periods remains unchanged, even though by force of paragraph 1 of article 92 of the CIRC, the correction of the assessed tax takes place".
h) Thus considering the AT that paragraph 3 of article 3 of the article that approved the RFAI only provides for the carryforward of this benefit when the deduction "cannot be made in full due to insufficiency of collection". Due to insufficiency of collection, and not, or, and not also, due to the limitation of article 92 of the CIRC.
i) It further adds that the Corporate Income Tax Services Directorate also pronounced itself, in response to the binding information request No. … of 2012-12-10, in the sense of the non-existence of conflict between the rules governing the RFAI and article 92 of the CIRC, following a framework proposed by a taxpayer that indicated that the specific limit on deduction provided for in the legislation regulating the RFAI should prevail over the general limit on the use of tax benefits provided for in article 92 of the CIRC, especially because the limitations are applied in different phases.
j) Concluding the AT that:
a. The totality of the tax credit for RFAI in 2011 and 2012 was used in the corporate income tax assessments of those periods;
b. The correction to the impact of tax benefits known as "result of the assessment" occurs in a later phase of the tax assessment and does not affect the tax benefits used, but only with the effect of that use on the effective tax rate;
c. The only legally provided possibility for a tax credit from one period to be used in subsequent periods is insufficiency of collection and this fact did not occur in the periods 2011 and 2012 in which, after the deduction of tax benefits by deduction from the tax collection (within the limits that each legislation provides for the tax benefit it regulates), the company still presents tax payable.
k) Finally, it adds that the non-deduction from collection, in 2011 and in 2012, of the amount of tax benefits relating to the RFAI, by effect of the calculation of the result of the assessment, cannot be attributed to insufficiency of collection, properly speaking, because what occurred was the product of an effect of a rule with the objective of minimizing the effect of "erosion" in collection caused by the accumulation of tax benefits and that the effects of tax benefits, as measures that introduce exceptions to the normal taxation regime, may be limited in their effects, whenever the legislator understands that there are objectives underlying taxation that are of higher value.
II. PRELIMINARIES
The Arbitral Tribunal is materially competent and is regularly constituted in accordance with articles 2, paragraph 1, subparagraph a), 5 and 6 of the RJAT.
The parties have legal personality and capacity, are legitimate and are regularly represented (articles 4 and 10, paragraph 2, of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March).
The proceedings do not suffer from defects, and no exceptions were raised, it being proper to consider and decide on the merits of the claim.
III. ON THE MERITS
III.1. FACTUAL MATTER
A. Proven Facts
The following facts are deemed proven:
a) The Claimant engages in mining extraction in the mines of …, in accordance with the concession contract for the exploitation of the mineral deposit …, …, …, …, …, … and … named …, executed between the State and the Claimant on 24 November 1994, with the wording that resulted after the amendment made on 18 June 2004 (document No. 4 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
b) In the tax years 2011 and 2012, the Claimant met the necessary requirements to be able to enjoy the tax benefit resulting from the RFAI, a matter not contested by the AT.
c) In those tax years, the Claimant made investments in its activity which led to the determination of deduction from collection in accordance with the provisions of the RFAI.
d) In 2011, the benefit resulting from the RFAI was fixed at € 8.771.595,38.
e) In 2012, the benefit resulting from the RFAI was fixed at € 5.305.308,21.
f) Taking into account the collection amounts presented by the Claimant in the tax years 2011 and 2012, combined with the rule provided in article 92 of the CIRC, the same collection proved insufficient for the full deduction of the amount of the tax benefit determined in accordance with the RFAI for 2011 and 2012, with the Claimant carrying forward the surplus amounts to the following years.
g) The Claimant carried forward and deducted the surplus amounts from the 2013 collection, proportionally and taking into account the remaining benefits determined in 2013 (document No. 5 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
h) The Claimant stated in its 2013 Corporate Income Tax Form 22 as the amount to be carried forward to 2013, with reference to the balance of RFAI not deducted in the prior period, the total amount of € 7.849.225,59, corresponding to € 5.302.625,07 from 2011 and € 2.546.600,52 from 2012 (document No. 5 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
i) The Claimant actually deducted in the 2013 tax year the amount of € 3.179.117,59 relating to the carryforward from 2011, carrying forward the surplus once more (document No. 5 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
j) In 2015, the Claimant was subject to an inspection action concerning the 2013 tax year in respect of corporate income tax in which the AT sustained, on the one hand, a correction to the amount of the relevant investment for purposes of determining the RFAI tax benefit with reference to 2013 and, accordingly, a correction to the amount of that benefit, to which the Claimant did not object.
k) Resulting from that inspection action, a correction to the total amount and apportionment of the deduction of benefits from the 2013 collection was also made, with the AT indicating that the company improperly considered the right to a deduction carryforward resulting from the RFAI for 2011 and 2012 (document No. 6 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
l) The Claimant considered a deduction, in the calculation of corporate income tax for 2013, of tax benefits in the amount of € 13.827.561,01 (document No. 5 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
m) The amount of € 13.827.561,01 is broken down and calculated as follows (See document No. 6 attached with the application for arbitral pronouncement, the content of which is taken as reproduced):
| | Tax Benefits Declared | Utilization Limit | 2013 Deduction Declared |
|---|---|---|---|
| RFAI 2011 | 5.302.625,07 | 3.456.890,25 | 3.179.117,59 |
| RFAI 2012 | 2.546.600,52 | | 0,00 |
| RFAI 2013 | 2.499.568,58 | 2.499.568,58 | 2.298.719,91 |
| AICEP 2012 | 3.371.805,31 | 1.857.041,44 | 1.707.821,97 |
| AICEP 2013 | 13.681.054,62 | 5.056.739,06 | 4.650.413,22 |
| CFEI | 1.000.000,00 | 1.000.000,00 | 919.646,67 |
| SIFIDE | 1.165.492,89 | 1.165.492,89 | 1.071.841,65 |
| Total | 29.567.146,99 | 15.035.732,23 | 13.827.561,01 |
n) Resulting from the inspection action, the AT made the following corrections (See document No. 6 attached with the application for arbitral pronouncement, the content of which is taken as reproduced):
| | Tax Benefits | Utilization Limit | 2013 Deduction |
|---|---|---|---|
| | | | |
| RFAI 2011 | 0,00 | 0,00 | 0,00 |
| RFAI 2012 | 0,00 | 0,00 | 0,00 |
| RFAI 2013 | 2.409.389,63 | 2.409.389,63 | 2.409.389,63 |
| AICEP 2012 | 3.371.805,31 | 1.857.041,44 | 1.857.041,44 |
| AICEP 2013 | 13.681.054,62 | 6.913.780,51 | 6.913.780,51 |
| CFEI | 1.000.000,00 | 1.000.000,00 | 1.000.000,00 |
| SIFIDE | 1.165.492,89 | 1.165.492,89 | 1.165.492,89 |
| Total | 21.627.742,45 | 13.345.704,47 | 13.345.704,47 |
o) The Claimant exercised the right to be heard on 18 December 2015 (document No. 7 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
p) At the end of 2015, the Final Inspection Report was issued (document No. 8 attached with the application for arbitral pronouncement, the content of which is taken as reproduced), which led to the issuance of the additional corporate income tax assessment for 2013 and the respective compensatory interest assessment (documents No. 1, No. 2 and No. 3 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
q) The Claimant made payment of the amount determined in the same, totaling € 491.520,06, on 6 April 2016 (document No. 9 attached with the application for arbitral pronouncement, the content of which is taken as reproduced).
B. Unproven Facts
There are no facts relevant to the decision that have not been proven.
C. Justification for the Determination of Facts
The facts were deemed proven on the basis of the documents attached with the application for arbitral pronouncement and the administrative record, with no controversy regarding the same, namely as to the amount of the RFAI tax benefit not deducted in 2011 and 2012 which the Claimant understands to be able to carry forward and use in 2013.
III.2. ON THE LAW
A. On the Corporate Income Tax Assessment
Given the facts considered above and the claim brought by the Claimant, it follows that the issue to be decided in the present proceedings concerns the meaning and scope to be given to the combined interpretation contained in the legal provisions in articles 3, paragraph 3, of the Tax Incentive Regime for Investment ("RFAI"), approved by Law No. 10/2009, of 10 March[1], and article 92 of the CIRC.
In the Claimant's view and, in summary, it results from paragraph 3 of article 3 of the RFAI that "when the deduction of eligible investments under this regime cannot be made in full due to insufficiency of collection, the amount still not deducted may be deducted, under the same conditions, in the assessments of the four following tax years. Whence it is manifest (…) that the sole requirement upon which the legislator makes the possibility of deducting the tax benefit in question in the four following tax years dependent is that a situation of insufficiency of collection has occurred"—see articles 28 and 29 of the initial application. Such insufficiency of corporate income tax collection may result, in particular, from the limits imposed by article 92 of the CIRC, being that "(…) the interpretation, immediately from a literal perspective, but also from a systematic one, of paragraph 3 of article 3 of the RFAI can only lead to one conclusion, namely: that the deduction in the four following tax years of the amount that cannot be deducted in the tax year relating to relevant investments due to insufficiency of collection applies equally when that insufficiency results from the limitation embodied in article 92 of the IRC Code"—see article 43 of the initial application.
Conversely, the Respondent understands, in summary, that the right to carryforward of the tax benefits resulting from the RFAI will only exist in cases where the deduction in the investment year has not been possible due to insufficiency of collection other than that resulting from the application of the regime of article 92 of the CIRC. The Respondent alleges that "The legislator of the RFAI made no reference in paragraph 3 of article 3 of the RFAI, with respect to insufficiency of collection, that it could also arise from the calculation of the result of the assessment as provided for in article 92, a rule introduced in the IRC Code in 2005, with the purpose of reducing the impact on collection of deductions made as tax benefits. Therefore, it would be difficult to understand that, on the one hand, there was concern to reduce the effect of tax benefits in the calculation of the IRC owed to the State and, on the other, that this effect would be neutralized, allowing the amounts not deducted in a given taxation period to be deducted in future years, through the mechanism of carryforward. (…) If one were to accept carrying forward to the following taxation periods the increase in the result of the assessment, which in this specific case will concern the use [excessive as per article 92 of the CIRC] of RFAI, one would go on to render the article itself useless since one would first be limiting the impact of the use of the benefit on the tax payable, and subsequently, with the permission of carryforward, invalidate the very limitation that is the objective contained in the rule"—see articles 40, 41 and 46 of the response.
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The issue to be considered being thus delimited, it is proper to analyze.
In 2011, article 3 of the RFAI provided, in the relevant part, as follows:
"Article 3
Tax Incentives
1 - To taxpayers subject to corporate income tax resident in Portuguese territory or who have a permanent establishment therein, who exercise as their main activity a commercial, industrial or agricultural activity covered by paragraph 1 of the previous article who make, in 2009, investments considered relevant, the following tax benefits are granted:
a) Deduction from corporate income tax collection, and up to the limit of 25% of the same, of the following amounts, for investments made in regions eligible for support under incentives for regional purposes:
i) 20% of the relevant investment, in relation to investment up to the amount of € 5,000,000;
ii) 10% of the relevant investment, in relation to investment exceeding the amount of € 5,000,000;
b) Exemption from municipal property tax, for a period of up to five years, in relation to real property that is their property and constitutes relevant investment;
c) Exemption from municipal tax on onerous transfers of real property in relation to acquisitions of real property constituting relevant investment;
d) Exemption from transfer tax in relation to acquisitions of real property constituting relevant investment.
2 - The deduction referred to in subparagraph a) of the previous paragraph is made in the assessment relating to the taxation period that begins in 2009.
3 - When the deduction referred to in the previous paragraph cannot be made in full due to insufficiency of collection, the amount still not deducted may be deducted, under the same conditions, in the assessments of the four following tax years."
In addition, article 92 of the CIRC provided as follows:
"Article 92
Result of Assessment
1 - For entities that exercise, as their main activity, a commercial, industrial or agricultural activity, as well as for non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with paragraph 1 of article 90, net of the deductions provided for in subparagraphs a) and b) of paragraph 2 of that article, cannot be less than 90% of the amount that would be determined if the taxpayer did not enjoy tax benefits and the regimes provided for in paragraph 13 of article 43 and in article 75.
2 - The following are excluded from the provisions of the previous paragraph:
a) Benefits of a contractual nature;
b) The system of tax incentives for research and business development II (SIFIDE II);
c) Tax benefits in free trade zones provided for in articles 33 and following of the Tax Benefits Code and those that operate by way of rate reduction;
d) Those provided for in articles 19, 32 and 42 of the Tax Benefits Code."
From the combination of these two provisions it resulted that, in 2011, the deduction from collection in which the tax benefit provided for in the RFAI was translated was subject not only to the specific limitation provided for in the aforementioned article 3 ("up to the limit of 25%" of collection), but also to the limitation provided for in this article 92 of the CIRC (that is, up to a maximum of 10% of the collection that would be owed in the case of non-existence of tax benefits). This means that, should the deduction permitted under article 3 of the RFAI exceed that permitted by article 92 of the CIRC, the limit provided for in the latter provision would be applicable, leaving the taxpayer prevented from deducting the totality of the credit to which it would be entitled under the RFAI.
And this is what occurred in 2011 and 2012 with respect to the Claimant, in that the tax collection determined in each of those years did not permit the complete deduction of the tax benefit obtained under the terms of the RFAI; that is, in compliance with the limitation imposed by article 92 of the CIRC, the Claimant did not, in the identified years, proceed to the complete deduction of the benefit to which it would be entitled. In consequence, the Claimant considered that the excess not deducted would be carryforwardable to the following years, under paragraph 3 of article 3 of the RFAI, so that in 2013 it deducted from the determined collection the amount of € 3.179.117,59, relating to the carryforwardable benefit from 2011. The Respondent refused to recognize such amount as carryforwardable, alleging that the tax benefit had been exhausted completely in 2011, with no possibility of carryforward to subsequent years, since in that year a situation of insufficiency of collection had not occurred.
Now, it must be stated first and foremost that the limitation on the deduction of tax benefits provided for in paragraph 1 of article 92 of the CIRC, with the exceptions identified in paragraph 2 of the same provision of the CIRC, does not have as its objective to restrict the application of those same benefits. It would indeed be a contradiction on the legislator's part to create a system of tax incentives for investment as those provided for in the RFAI—which expressly includes the possibility of carryforward to subsequent years—in order then, by another means, refuse the practical effects of that same system of incentives, emptying it of content and nullifying the economic effect that was intended to be obtained. In fact, according to the Report of the General State Budget for 2005 which introduced the limitation on the deduction of tax benefits, the legislator's objective was to establish a "limit to the reduction of the effective tax rate through the use of tax benefits"[2], thus ensuring a minimum tax revenue in each year. The objective was, therefore, to limit the use of tax benefits in a given taxation period, ensuring a minimum level of tax payable by the taxpayer and, consequently, of tax revenue, and not to prejudice or eliminate the carryforward of such benefits to future years, whenever such carryforward was legally provided for.
In that measure, the possible refusal of the carryforward of the tax benefits provided for in the RFAI that are not fully utilized in the period in which the relevant investment was made cannot be justified by recourse to article 92 of the CIRC.
Thus, the existence or non-existence of the right to carryforward of the benefits provided for in the RFAI is only subject to the regime of paragraph 3 of article 3 of the RFAI, which makes such right dependent on the impossibility of complete deduction in the investment year due to insufficiency of collection, regardless of the cause of that insufficiency. In fact, the legislator did not delimit or identify which situations of insufficiency of collection would give rise to such carryforward right, it being that only a broad, non-restrictive interpretation will allow ensuring the useful effect of the very system of tax incentives introduced by the RFAI.
As concluded in the arbitral decision of 01/04/2015, rendered in case 693/2014-T, with which we concur, "being to be presumed that the legislator established the most correct solution (article 9, paragraph 3, of the Civil Code) to achieve the intended objective of encouraging investment, the reference to the possibility of carryforward in the case of insufficiency of collection should not be interpreted with the reach of making it difficult for taxpayers to enjoy the tax benefit, since the objective of the provision is precisely the opposite, to increase the possibilities of taxpayers being able to actually enjoy the benefit, which is legislatively understood to be a fair counterpart of the investment.
Thus, in a teleological interpretation, which allows finding in the law a way to ensure the objectives intended legislatively and not to prejudice them, the possibility of deduction should exist in the generality of situations in which the corporate income tax collection available to enjoy the tax benefit is not sufficient for its complete use, which is not without correspondence in the letter of the law, since from article 92, paragraph 1, of the CIRC there results a reduction of the collection available to enjoy tax benefits in corporate income tax. And, therefore, when this available collection is insufficient to deduct the totality of the tax benefit resulting from the investment, one is faced with a situation of insufficiency of collection for purposes of article 3, paragraph 3, of the RFAI".
This is, moreover, the interpretation that ensures the very coherence of the tax system, since, as stated above, it would be a contradiction to create a system of tax incentives for investment by instituting a deduction from collection up to a maximum of 25% of the same with the possibility of carryforward to subsequent taxation periods, once certain conditions are met, in order then, by another means, to limit that same benefit to 10% of collection, with no possibility of carryforward.
We follow, also here, the orientation of the aforementioned arbitral decision, and subsequently reiterated in the arbitral decisions of 25/01/2016, rendered in cases Nos. 369/2015-T and 370/2015-T, in which it was concluded that "the tax benefit resulting from the RFAI in the matter of corporate income tax can only be used insofar as it does not compromise the limit provided for in article 92, paragraph 1, of the CIRC, but no legal obstacle is discerned to the part that is not used in the investment year being able to be used for deduction from corporate income tax collection in subsequent years, up to the limit provided for in paragraph 3 of article 3 of the RFAI".
Thus, we conclude that the challenged assessment, with the grounds contained in the inspection report, suffers from the defect of violation of law due to erroneous interpretation and application of article 3 of the RFAI. Contrary to what is claimed by the Respondent, the conclusions stated in the inspection report do not hold to the effect that:
- "the totality of the tax credit for RFAI in 2011 and 2012 was used in the corporate income tax assessments of those periods"—see p. 9/23 of the inspection report;
- "The invocation of the right to tax credit for RFAI from prior periods in the amount of €7.849.225,59 is improper because the totality of the tax credit for RFAI generated in 2011 and 2012 was consumed in the corporate income tax assessments of those periods since that credit does not result from insufficiency of collection, which is the sole condition for its existence under paragraph 3 of article 3 of the 2009 RFAI"—see p. 9/23 of the inspection report.
In light of the foregoing, the claim brought by the Claimant should be considered upheld, and the additional corporate income tax assessment and compensatory interest assessment acts for the 2013 tax year in the amount of €491,520.06, which are the object of challenge, should be declared illegal and, consequently, annulled.
B. On Indemnificatory Interest
It results from the proven facts that the Claimant made payment of the additional corporate income tax assessment for 2013 and compensatory interest, in the total amount of € 491.520,06, on 06/04/2016.
Under paragraph 1 of article 43 of the LGT, "Indemnificatory interest is due when it is determined, in administrative reconsideration or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount exceeding that legally owed".
As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law—Annotated and Commented, Encontro da Escrita Editora, 4th Edition, 2012, p. 342, note 2, "The error attributable to the services that operated the assessment is demonstrated when administrative reconsideration or challenge of that same assessment is carried out and the error is not attributable to the taxpayer (for example, there will be annulment due to an error attributable to the taxpayer when the assessment is based on incorrect assumptions of fact, but the error is based on an incorrect indication in the declaration that the taxpayer submitted)".
Now, in the specific case, the claim for payment of indemnificatory interest by the Claimant is unequivocally justified, since the disputed tax assessment is illegal and therefore should be annulled. On the other hand, the Claimant has the right to reimbursement of the tax improperly paid, by force of the aforementioned articles 24, paragraph 1, subparagraph b), of the RJAT and 100 of the LGT, since this is essential for "restoring the situation that would have existed if the tax act that is the object of the arbitral decision had not been made", which should be determined in execution of judgment.
The Claimant thus has the right to the payment of indemnificatory interest, at the legal rate in force, on the amount of € 491.520,06, calculated from the date of payment until the date of processing of the respective credit note, in which are included—see article 43 of the LGT and paragraph 4 of article 61 of the CPPT.
IV. DECISION
In accordance with the foregoing, this Arbitral Tribunal decides:
a) To declare the claim for arbitral pronouncement upheld, as to the request for annulment of the additional corporate income tax assessment and compensatory interest for 2013, ordering its annulment; and, in consequence,
b) To condemn the Respondent to the payment of indemnificatory interest, to be calculated on the amount of improperly paid tax, at the applicable legal rates, from the date of payment until the date of processing of the respective credit note.
V. VALUE OF THE CASE
Taking into account the provisions of article 306, paragraph 2, of the CPC and 97-A, paragraph 1, subparagraph a), of the CPPT and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 491.520,06.
VI. COSTS
Under paragraph 4 of article 22 of the RJAT, the amount of costs is fixed at € 7.650,00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Respondent.
Let this arbitral decision be registered and notice thereof be served on the parties.
Lisbon, 10 January 2017.
The Arbitrators,
Fernanda Maçãs (chairperson)
Maria Forte Vaz (member)
Armando Tavares (member)
[1] Maintained in force for the 2011 tax year by Law No. 55-A/2010, of 31 December, and for 2012 by Law No. 64-B/2011, of 30 December, respectively.
[2] Available at https://www.dgo.pt/politicaorcamental/Paginas/OEpagina.aspx?Ano=2005&TipoOE=Proposta+de+Or%u00e7amento+do+Estado&TipoDocumentos=Lei+%2f+Mapas+Lei+%2f+Relat%u00f3rio.
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