CESE Energy Sector Tax Constitutionality Challenge – CAAD Arbitration 312/2015-T

ARBITRAL DECISION

Process No. 312/2015-T

Subject: Extraordinary Contribution to the Energy Sector / Constitutionality

The arbitrators Professor Doctor Rui Duarte Morais (arbitrator-president), Professor Doctor Suzana Tavares da Silva and Councillor José Manuel Cardoso da Costa (arbitrator-members), hereby agree as follows:

I. REPORT

1 - A, legal entity No. …, with registered office at … (hereinafter, the Claimant), came, pursuant to paragraph a) of no. 1 of article 2 and articles 10 et seq. of Decree-Law No. 10/2011, of 20 January, in conjunction with the provisions of paragraph a) of article 99 and paragraph a) of no. 1 of article 102 of the Code of Tax Procedure and Process, applicable by virtue of what is provided in paragraph a) of no. 1 of article 10 of that Decree-Law, to submit, on 19-05-2015, a request for arbitral pronouncement with a view to reviewing the legality of the administrative acts for the assessment of the "Extraordinary Contribution to the Energy Sector" (hereinafter only CESE), created through Law No. 83-C/2013, of 31 December, whose article 228 contains its legal regime, such acts having been carried out by the Division for the Inspection of Non-Financial Companies I of the Large Taxpayers Unit of the Tax and Customs Authority (AT), relating to the year 2014 and contained in the assessment statement No. 2014 CESE..., notified on 09-01-2015.

Pursuant to the provisions of paragraph b) of no. 2 of article 6 and no. 2 of article 11 of the Legal Regime of Tax Arbitration (hereinafter LRTA), in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Claimant designated as arbitrator Professor Doctor Suzana Tavares da Silva and the Tax and Customs Authority (hereinafter AT or the Respondent) indicated as arbitrator, pursuant to the provisions of the already-mentioned paragraph b) of no. 2 of article 6 and no. 3 of article 11 of the LRTA, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, Councillor José Manuel Cardoso da Costa, having been designated by both, as third arbitrator (and arbitrator-president), pursuant to the provisions of the aforementioned paragraph b) of no. 2 of article 6 and no. 6 of article 11 of the LRTA, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, Professor Doctor Rui Duarte Morais.

The signatories communicated their acceptance of the position within the applicable period and the Parties, having been notified of the designations, did not manifest any intent to refuse the designation of the arbitrators.

Thus, in accordance with the provisions of no. 7 of article 11 of the LRTA, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 13-08-2015.

2- In the request for constitution of the Arbitral Tribunal, the Claimant alleges, in summary, that the CESE is a tax and that its subjective and objective incidence violates the principle of contributive capacity, the principle of equality, the principle of taxation of enterprises on actual profit and, furthermore, the principle prohibiting the earmarking of revenues for specific expenditures.

The Claimant further contends that, even if the CESE were to be considered a true financial contribution (and not a tax), it would nonetheless be a materially unconstitutional tax as it constitutes an inadmissible restriction of the right to property, violates the principle of proportionality and the principle of equality (the principle of equivalence).

To support its arguments, the Claimant attached expert opinions from Professors Doctor Paulo Otero and Doctor Sérgio Vasques.

Finally, the Claimant alleges that it cannot be held responsible for the delay in the assessment, since, at the date when this should have occurred, not all the respective prerequisites had yet been met.

The AT submitted its reply on 02-10-2015, having raised objections both by way of contestation and exception.

By way of exception it raised: i) lack of passive legitimacy; ii) lack of material jurisdiction of the tribunal as it is not materially empowered to review the question of unconstitutionality that underlies the request for a declaration of illegality of the challenged assessment acts; and iii) lack of material jurisdiction of the tribunal as the AT is only formally bound by arbitral tribunals constituted for the review of questions related to "taxes".

As to the merits of the claim, the AT upheld the legality of the challenged assessments, on the grounds that the CESE constitutes, both formally and materially, a financial contribution, which respects, absolutely, the principle of equivalence and does not violate the principle of equality (proportionality).

With regard to the violation of the non-earmarking rule, the AT contends that, even if one understands that a tax is at issue, there are exceptions, namely that provided for in paragraph f) of no. 2 of article 7 of the Budget Framework Law, and that the CESE meets the prerequisites of such exception.

By submission of 14-10-2015, the Claimant came to respond to the exceptions raised by the AT.

The consideration of the exceptions was appropriately, by arbitral order, deferred to the final arbitral decision.

Following the Submission presented by the Claimant on 27-10-2015, the content of which would be accepted by the Respondent on 09-11-2015, an arbitral order was issued on 10-11-2015 dispensing with the meeting provided for in article 18 of the LRTA and deciding that the process proceed, giving the parties the opportunity to, if they so wished, submit written arguments, successively, within 15 days.

The Parties submitted arguments, maintaining their respective points of view and adding nothing of substance to what had already been alleged in the previous submissions.

Thus, with all procedural documents gathered, as well as the legal opinions accompanying them, all duly reviewed and weighed by the Tribunal, it is now necessary to decide.

II - FACTS FOUND PROVED

The Claimant did not proceed with the self-assessment of the Extraordinary Contribution to the Energy Sector for the year 2014. In the face of such omission, and following an inspection action, the AT proceeded with the assessment now subject to challenge.

The Claimant does not contest that it meets the prerequisites for the incidence of such tax.

The Claimant carries out an activity regulated by the Energy Sector Regulatory Entity (ERSE).

There are no unproven facts relevant to the proper resolution of the case.

III - EXCEPTIONS

On the lack of passive legitimacy

The AT contends, in its reply, that it is not a legitimate party to this process, since the Claimant does not attribute intrinsic defects to the assessment, but rather "defects of (il)legality and (un)constitutionality of the norm [of the legal regime that approved the CESE], seeking its non-application", the Respondent being unable to review that question and proceed in such terms [of non-application of the norm], as it must act in obedience to the principle of legality.

It is to be presumed that the Respondent relies here on the circumstance that, as an administrative entity, it cannot refuse to apply legal norms on the grounds of their unconstitutionality. Now, it is true that such an impossibility – commonly recognised in principle and in general terms – extends also, naturally, to the AT. But the argument which it seeks to draw from this, to conclude its lack of legitimacy in this process, is wholly and manifestly unconvincing.

For this impossibility does not prevent, as is obvious, that, once the AT has carried out the assessment of any tax, the taxpayer may challenge this assessment judicially on the grounds of the unconstitutionality of the norm on which it was based – and in such a way that, if the court finds the defect to be well-founded and, consequently, annuls the assessment, nothing will remain for the AT but to "execute" the judicial decision (whether by reforming the assessment, in accordance with what was judicially decided, or purely and simply by promoting the reimbursement of the taxpayer).

Now, this is what is at issue here, and in this process: what is questioned in it is not, directly, and in the abstract, the unconstitutionality of the norms that approved the CESE (put in those terms, the question would indeed have to be the subject of another process, within the scope of the Constitutional Court) – it is rather, and precisely, the illegality of the acts of assessment of the CESE carried out by the Division for the Inspection of Non-Financial Companies I of the Large Taxpayers Unit of the Tax and Customs Authority (AT), relating to the year 2014 and contained in the assessment statement No. 2014 CESE..., grounded in the unconstitutionality of the Legal Regime of the CESE.

This is a diffuse, concrete and incidental review, under which the legal norm that underlies the assessment act may be found unconstitutional and, consequently, disapplied in the specific case, thereby establishing the illegality derived from the assessment act – illegality in the sense of legal illegitimacy, as it is grounded, in this case, on a violation of the Constitution, and derived, as it is not an intrinsic defect in the act itself, but rather a defect with which the same comes to be affected in its genesis as a result of the original defect of unconstitutionality that affects the norm which is its condition of validity.

This is the review provided for in article 204 of the C.R.P., according to which courts may disapply norms that infringe the provisions of the Constitution or the principles contained therein. And it is a review which the present Arbitral Tribunal, by constituting one of the categories of courts in light of the applicable legal-constitutional regime (by virtue of no. 2 of article 209 of the C.R.P.), may carry out, within the scope of legality review of the above-mentioned tax acts.

Thus, should the Arbitral Tribunal decide on the illegality of the assessment act on the grounds of the unconstitutionality of the norms that approved the Legal Regime of the CESE, in the terms before referred to, the AT cannot fail to conform to the effects of the decision, in the terms and for the purposes of the provisions of article 24 of the LRTA – without prejudice to a possible appeal to the Constitutional Court, concerning the incidental question of unconstitutionality, in the terms of paragraph a) of no. 1 of article 280 of the C.R.P.

This is what, evidently, ensures that the Respondent is a legitimate party to the process – whereby the exception of its lack of passive legitimacy shall be judged groundless.

On the lack of material jurisdiction of the tribunal as it is not materially empowered to review the question of unconstitutionality that underlies the request for a declaration of illegality of the challenged assessment acts

As already results from the grounds that sustain the lack of merit of the exception of passive legitimacy, the present arbitral tribunal has jurisdiction, pursuant to the aforementioned articles 209 and 204 of the C.R.P., to conduct, within the scope of the present process, concrete review of the constitutionality of the norms that support the assessment acts challenged by the Claimant and their possible non-application on the grounds of unconstitutionality.

A modality of constitutional review which, moreover, has even express legal repercussion in article 25 of the LRTA, thereby eliminating any doubts that might still remain as to the admissibility of concrete constitutional review of legal norms within the scope of legality review of tax acts in arbitral proceedings.

For this reason, the exception, now under consideration, of lack of material jurisdiction of the tribunal raised by the AT is groundless.

On the lack of material jurisdiction of the tribunal as the AT is only formally bound by arbitral tribunals constituted for the review of questions related to "taxes"

Finally, the Respondent raises the lack of material jurisdiction of the tribunal grounded in the absence of formal binding of the AT to arbitral tribunals constituted for the review of any questions not related to "taxes". In other words, what the AT defends is that, in the event that the tribunal concludes that the tax in question is legally a "contribution" and not a "tax", such a decision will not be opposable to the AT, to the extent that this entity, by effect of the provisions of article 2 of Order No. 112-A/2011, of 22 March, is only bound by "the jurisdiction of arbitral tribunals functioning in CAAD that have as their object the review of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of article 2 [of the LRTA]".

For the AT, although the LRTA expressly refers, in paragraph a) of no. 1 of article 2, that the material scope of arbitration covers "the declaration of illegality of acts assessing taxes", the fact that the aforementioned article 2 of Order No. 112-A/2011 used the term "taxes" instead of maintaining that of "taxes" means that the Government intended to restrict the disputes to which the AT binds itself to those relating to taxes.

However, such an interpretation does not appear to us to be legally correct.

First, the literal content and systematic arrangement of the provisions do not permit a direct and evident clarification of the meaning of the norms. And if any meaning can be attributed in a manner closer and more faithful to the literal-systematic interpretation of the provisions, it is that the reference to "taxes" instead of "taxes" in article 2 of Order No. 112-A/2011, followed by the express reference to no. 1 of article 2 of the LRTA and the express enumeration of a set of exceptions, indicates that the legislator of the Order did not have the clear restrictive intent that the AT invokes, for if so it would have made express reference to such restriction in the range of paragraphs that contemplate the exceptions.

Second, the invocation of the teleological and rational elements of legal interpretation also do not point to the reasonableness of such a restriction, but only to the "limitation of the scope of binding of the AT through ownership of the powers to administer taxes", this being, moreover, the logical limit of binding – the restriction thus not extending to those related to "contributions" also assessed by it.

The fact is that the procedure for assessment and collection of these "contributions" is in no way distinguished, in its nature and structure, from that of "taxes" (the AT acts there as if they were taxes), whereby there is no valid reason to exclude the binding of the AT, in such cases, to arbitrability.

The absence of an express reference in the text of article 2 of the aforementioned Order No. 112-A/2011 to this type of tax should be attributable only, in the end, to the fact that, at the date thereof, the AT administration had not yet been assigned any tax with such characteristics.

Moreover, the doctrine upon which the AT relies does not permit sustaining a different position, but rather the opposite.

Thus, for example, SÉRGIO VASQUES and CARLA CASTELO TRINDADE in «The material scope of tax arbitration», Journals of Tax Justice No. 00 (April/June 2013), p. 24, make clear that

"the services and bodies referred to in the preceding article [today, the AT] bound themselves to the jurisdiction of arbitral tribunals functioning in CAAD that have as their object the review of claims relating to taxes whose administration is entrusted to them referred to in article 2, no. 1, of Decree-Law No. 10/2011, of 20 January.

Under article 2 of Decree-Law No. 118/2011, of 15/12, which approved the Organic Law of the Tax and Customs Authority, this entity thus has under its aegis the administration of customs duties, income taxes, property taxes and consumption taxes and, likewise, of other taxes that are legally assigned to it as, for example, special contributions."

In this measure, it is considered that the scope of arbitrability covers, as derives from the combined interpretation of articles 2 of the LRTA and Order No. 112-A/2011, the review of claims relating to taxes whose administration is entrusted to the AT, with the exception of the cases enumerated in the paragraphs of article 2 of Order No. 112-A/2011 ̶ thus also encompassing claims relating to "contributions" administered by it.

Consequently, and since the CESE, as results from article 7 of its legal regime, approved by article 228 of Law No. 83-C/2013, of 31 December (in the wording subsequently updated by Law No. 82-B/2014, of 31 December and by Law No. 33/2015, of 27 April) is a tax administered by the AT, whose assessment and collection procedure is structurally identical to that of taxes, the arbitral tribunal is competent to resolve the present dispute, regardless of whether this tax comes to be qualified as a contribution or as a tax.

The exception, now under consideration, of lack of material jurisdiction of the tribunal is thus equally judged groundless.

The process is proper and timely, the parties are legitimate and duly represented, there are no nullities or further exceptions to be considered.

IV - ON THE MERITS

The object of the present action are the questions of whether or not the challenged assessment acts concerning the CESE of 2014 are illegal by i) the CESE regime being unconstitutional and by ii) the prerequisites for its assessment not being met.

A - ON THE UNCONSTITUTIONALITY OF THE LEGAL REGIME OF THE CESE

The first ground alleged by the Claimant to sustain the illegality of the challenged assessment acts refers to the unconstitutionality of the Legal Regime of the CESE.

According to its argument, the CESE is dogmatically a tax and not a financial contribution, to the extent that it does not present, structurally, any expression of bilaterality that can be sustained in the principle of equivalence, constituting, by contrast, a "special tax on certain operators of a specific sector of activity, to which, in view of their particular contributive capacity, the State understood that it should demand increased effort in the process of budgetary consolidation", to which it added the objective of, with this revenue or at least with part of it, reducing the stock of "tariff debt" of the electricity sector.

And then, the Claimant contends that the CESE is an "unconstitutional tax" because it violates: i) the principle of contributive capacity in its aspect of fiscal equality, as it rests on a base of subjective incidence that is arbitrary – exempting from it a part of the economic operators of the energy sector (those that, apparently, have lesser contributive capacity) and also those that do not have in the country their seat or effective management –; ii) the rule of no. 2 of article 104 of the C.R.P., which provides for taxation of enterprises on actual profit, when it excludes the CESE from allowable deductions for IRC purposes, thus creating a "tax on income [that accrues to the IRC] that impacts indirectly on profits"; iii) the principle of proportionality, by the circumstance that its objective incidence of presumptive base – which reduces to a presumption that "assets are a manifestation of potential wealth" – leads to arbitrary taxation, which added to the overlapping effect it presents in relation to the IRC, transforms it into a confiscatory tax; iv) the principle prohibiting the earmarking of revenues for specific expenditures, contained in no. 3 of article 105 of the Constitution.

Finally, it further contends that, even if it were possible to reconduce the CESE to the category of financial contribution, this would also be unconstitutional because it violates: i) the principle of proportionality, to the extent that it breaches the principle of proportional equality in the apportionment of public burdens, by imposing on certain companies operating in the energy sector a tax burden higher than that of other economic operators, when no reasoned cause exists for why these should bear differentially, and to the extent of the difference thus imposed, the social and environmental costs regarding environmental and energy policy; and ii) the principle of reasonableness, by extending temporally, and apparently with a tendency towards perpetuity, the validity of a tax that had been conceived under the denomination of extraordinary and with a character foreseably annual, as evidenced by its creation by Law of the State Budget.

In its reply, the AT contends that the CESE is a true financial contribution, intended to support the costs of mechanisms promoting the sustainability of the energy sector, which explains the earmarking of its revenues to the Fund for Systemic Sustainability of the Energy Sector, created by Decree-Law No. 55/2014, of 9 April. According to the Respondent, there exists a "causal relationship" in this tax ("a quid pro quo presumably caused or benefited by the taxpayer"), as "the economic operators of the sector, taxpayers of the CESE, will presumably cause or benefit from the financing of mechanisms that promote systemic sustainability of the energy sector". Furthermore, the subjective exemptions provided for by the legislator are not, in its view, arbitrary or disproportionate, to the extent that they exclude electro-production centres with lower representativeness, so as to ensure that this tax measure does not constitute an obstacle to market entry or permanence, that is, does not restrict competition and access to the energy market.

On the legal qualification of the CESE

1.1. The CESE is a tax created by the State Budget Law for 2014, more specifically by article 228 of Law No. 83-C/2013, of 31 December.

According to the legislator, the CESE "aims to finance mechanisms that promote systemic sustainability of the energy sector, through the establishment of a fund that aims to contribute to the reduction of tariff debt and to the financing of social and environmental policies of the energy sector" (no. 2 of article 1 of the Legal Regime of the CESE).

In the original wording of the law, the CESE was levied on natural or legal persons that formed part of the national energy sector, with tax domicile or with seat, effective management or permanent establishment in Portuguese territory, which, on 1 January 2014, found themselves in any of the situations described in paragraphs a) to l) of article 2 of the Legal Regime of the CESE.

As for objective incidence, article 3 of the Legal Regime of the CESE stipulated that it was levied on the value of the asset elements of taxpayers that cumulatively respected: tangible fixed assets; intangible assets, with the exception of industrial property elements; and financial assets assigned to concessions or licensed activities. In the case of regulated activities – such is the case of natural gas underground storage activity, which the Claimant carries out under a public service concession scheme (article 15 of Decree-Law No. 30/2006, of 15 February, as last modified by Decree-Law No. 230/2012, of 26 October), integrated in the context of the exploitation of the National Transport Network, Storage Infrastructures and LNG Terminals (RNTIAT) – the CESE was levied on the value of "regulated assets" if this were higher than the value of assets calculated according to general rules.

It is also worth noting, with interest for the characterization of the tax, that the same was conceived as a burden to be borne economically and financially by the respective taxpayers, which explains the prohibition of its pass-through to consumers, via tariff (article 5 of the Legal Regime of the CESE), and the prohibition that its value may be considered an allowable deduction for IRC purposes (article 12 of the Legal Regime of the CESE).

Finally, it is a tax with revenues earmarked to a public fund – a fund created as autonomous patrimony, without legal personality and with administrative and financial autonomy, managed, in the technical aspect, by the Directorate-General for Energy and Geology, and in the financial aspect by the Directorate-General of the Treasury (Fund for Systemic Sustainability of the Energy Sector, created by Decree-Law No. 55/2014, of 9 April) – which obeys legal rules regarding the allocation of its revenues, in particular of the CESE, whose product is used in two-thirds for the financing of social and environmental sector energy policies, related to energy efficiency measures, and the remaining third in reducing the stock of tariff debt of the National Electricity System (articles 4/2a) and 2 of Decree-Law No. 55/2014 and article 11 of the Legal Regime of the CESE).

At the end of 2014, the legislator decided to 'extend' the validity of the CESE, making some adjustments in the wording of the articles of that legal regime, in order to adapt the legal text to its continued validity in 2015 – articles 237 and 238 of Law No. 82-B/2014, of 31 December.

Already in 2015, the Legal Regime of the CESE was to undergo further modification, as a consequence of the amendments introduced by Law No. 33/2015, of 27 April, whose main purpose was to extend its scope of application to traders in the national natural gas system.

1.2. Taking into consideration the structural elements characterizing the CESE mentioned above, we can infer that the question of its legal-tax qualification must be made in the context of its recondition to the category of a tax with earmarked revenues or of a financial contribution. (The qualification as a rate is to be immediately ruled out due to the manifest absence of an individualizable quid pro quo, which is one of the prerequisites of such taxes).

Traditionally, this dividing line is established between the existence or not of a nexus of bilaterality/causality between the State and the taxpayer of the tax, that is, only those taxes that can be reconditioned to a coercive pecuniary payment intended to compensate for administrative services benefited (bilaterality) or caused (causality) by the respective taxpayers can be qualified as financial contributions in favour of public entities, while taxes with earmarked revenues come to be reconditioned to the category of coercive pecuniary payments collected with the intention of financing public expenditure – even if it is specifically identified public expenditure within the scope of revenue earmarking – whenever that expenditure cannot be reconditioned to the financial support of measures or administrative activities caused by the taxpayers or of which they are beneficiaries.

In other words, the qualification of a tax as a contribution requires "a clear connection between the origin of revenues [the prerequisite of the tax] and the destination [purpose] which the law assigns to them"; a connection that can be reconditioned to an 'exchange relationship' or a 'causal relationship' between the State and the taxpayer.

Now, economic regulation – understood, whether in its facet of modification in the form of the State's general intervention in the economy, in the conduct of public policies and in the mode of relationship with economic agents, or in the facet of promotion and guarantee of the public interest, in particular the well-being of the population, in the sense of fulfillment of the objectives of social regulation, now predominantly reconditioned to the guarantee of public service obligations (universality, accessibility, continuity, equality and adaptation to needs) in the domain of general economic interest services operated in a privatized and liberalized environment – is precisely a sector which, by imposing a recomprehension of tax categories, brings to the fore financial contributions, which inevitably emerge as typical instruments of this new economic-social model, and which, at first, raised difficulties of integration in the context of the existing tax universe (cf. Thomas von Danwitz, «Die Universaldienstfinanzierungsabgaben im Telekommunikationsgesetz und im Postgesetzes als verfassungswidrige Sonderabgaben», NVwZ, 2000, pp. 615 and P. Kirchhof, «Nichtsteuerliche Abgaben», Isensee/Kirchhof (Ed.) Handbuch des Staatsrechts, 3rd ed., Band V, 2007, pp.1164ss).

Also amongst us the question has been intensely debated at the jurisprudential level, precisely when taxes emerge associated with a regulatory function, the Constitutional Court having already considered, in decision No. 152/2013, published in the Official Journal, 2nd series, of 14 May 2013, that taxes required from economic operators of certain regulated sectors (taxes of sectorial nature) should be reconditioned to the category of financial contributions "whose objective is the achievement of extra-fiscal objectives" (understanding that in this case those taxes constitute typical measures of governmental action autonomy, whereby judicial review of their compliance with legal-constitutional conformity, at the formal and material level, cannot fail to take into account this specific framework). Already more recently, in decision No. 539/2015, published in the Official Journal, 2nd series, of 19 November 2015, the same court was to add – this time with regard to the qualification of "food tax plus" as a financial contribution – that taxes aimed at "participation in the revenues of a fund intended to finance projects, initiatives and actions developed by entities operating in that market [in this case food distribution chains with a dimension greater than 2,000 m2]" should be reconditioned to this category and that "what distinguishes it [the financial contribution] from taxes is that it is intended, not to finance public expenditure in general, but to finance expenditure associated with certain public services, for whose execution certain public entities are directly responsible".

Indeed, it is important to highlight 'the circumstance' that characterizes the sector of general economic interest services today, which includes the energy sector, and which has as imperative normative prerequisites – national, European and, although mostly mediated by European law, also international –: i) the sustainability or financial self-sufficiency of the system – which makes it impossible to finance these activities from the State budget (general prohibition of State aid, except when expressly authorized under European law) and imposes the pass-through of all costs (principle of tariff additivity) to end consumers/users –, ii) competition between operators within the framework of a free economy and iii) the integration into sectorial policies of environmental policies and guarantee of energy supply (promotion of endogenous energy sources), within the framework of a model of transition to a green economy (Kahl / Bews, Ökostromförderung und Verfassung, Nomos, 2015).

Thus, one of the typical rules of the economic regulation model consists in imposing on some economic operators of these sectors numerous public service obligations, the overcost of which may assume different forms of financing (such as the internalization of part of costs itself, see the Federutility case, CJEU, Proc. C-265/08, in which the court judged in accordance with European law the imposition of "reference prices" as a measure of economic-social regulation in the domain of natural gas supply, so long as it was safeguarded that such measures were clearly defined, transparent, non-discriminatory and verifiable, and that equal access to consumers was guaranteed to gas companies in the Union), one of such typical forms being the apportionment of the same [of the aforementioned overcost] among the remaining economic operators, which remain legally obligated to pay contributions – this is what happens amongst us, and in all European countries by virtue of Community law, in the telecommunications sector (see article 97/1b) and 2 of the Law on Electronic Communications and Law No. 35/2012, of 23 August, both in their updated versions) (Trute/Spoerr/Bosch, Telekommunikationsgesetz mit FTEG: de Gruyter Kommentar, Walter de Gruyter, 2001, pp. 208; Richard Staudacher, Verfassungsrechtliche Zulässigkeit von Sonderabgaben, 2004, p. 217) and in the banking sector, with the contribution on the banking sector, approved by Law No. 55-A/2010, of 31 December. Along the same lines, another typical situation consists in placing on economic operators some costs relating to social regulation — which in the case of the energy sector are predominantly reconditioned to social measures supporting energy poverty [we refer to the overcost of social tariffs for electricity (Decree-Law No. 138-A/2010, of 28 December, amended by Decree-Law No. 172/2014, of 14 November) and social tariffs for natural gas (Decree-Law No. 101/2011, of 30 September) and to Extraordinary Social Support for Energy Consumers (Decree-Law No. 102/2011, of 30 September); in Spain, the way the legislator conceived the pass-through of these costs, the 'bono social', on the operators of the electricity sector raised controversy, with an initial Supreme Court decision considering that the differences in treatment, because not justified, were arbitrary, but then, already under the validity of the legislative modifications introduced by Royal Decree Law 9/2013, the Supreme Court found no grounds to sustain a judgment of unconstitutionality regarding the collection of such amounts] ­— and costs relating to socio-environmental regulation, as occurs with emissions allowances, of the European emissions trading scheme, borne by some electricity producers (article 17/3a) and annex IV of Decree-Law No. 38/2013, of 15 March) (also on the non-qualification of "penalties" for excess carbon dioxide emissions as taxes, see decision No. 80/2014 of the Constitutional Court, published in the Official Journal, 2nd Series, of 12 March 2014).

In this new context – that of the regulatory State – financial contributions imposed on economic operators, whether to finance the system's overcosts, or to finance new burdens in the context of social regulation, still fulfill the required "connection between the origin of revenues [the prerequisite of the tax] and the destination [purpose] which the law assigns to them"; a connection which in this case is reconditioned to a 'causal relationship' between the State, in its capacity as guarantor of the efficient and socially equitable functioning of the system (in this case the energy sector), and the taxpayer.

Now, the CESE, when required from energy sector operators with the intention of financing social and environmental energy sector policies, related to energy efficiency measures and to the reduction of the stock of tariff debt of the National Electricity System, is clearly inscribed in this type of contributions required by the economic-social model of the regulatory State.

Thus, it is to be reconditioned to the legal-dogmatic category of financial contributions in favour of public entities.

1.3. However, let it not be said, against the conclusion just reached, that – as the Claimant alleges – «at least for the purposes of the State Budget for 2014, the CESE constitutes fundamentally a budgetary consolidation measure designed by the Portuguese Government 'to comply with the 4% deficit limit'», which amounts to saying, «a revenue intended to finance the State and the exercise of its public functions in general». It would thus be a tax «that served only as a source of revenue on a particular group of taxpayers for the general effort of budgetary consolidation of the Portuguese State» ̶ which should then (it will be said, consequently) lead to its qualification rather as a «tax».

Such an argument does not succeed, primarily because the revenue of the CESE was earmarked from the outset, already in 2014, and therefore by virtue of the Budget Law for that year (see article 11 of the Regime of the CESE, approved by article 228 of that Law: Law No. 83-C/2013), to the «Fund for Systemic Sustainability of the Energy Sector» ̶ in the terms and for fulfillment of the objectives previously described. Now, this «destination» or this «function» of the revenue, normatively defined, is what must count for its qualification – any considerations, of more general framing of the measure in the context of the need for budgetary consolidation, which appear in official texts, including the preamble of legal instruments, relating to that context and to the presentation of measures relating to that generic objective, being irrelevant in light thereof.

But then, and secondly, the fact is that there is no necessary contradiction between the destination or immediate destinations to which the CESE was allocated and that broader objective of budgetary consolidation – which perfectly explains the reference to both (or the articulation between both) in the Preamble of Decree-Law No. 55/2014. It is not, indeed, by the fact that the revenues of the CESE are earmarked to the Fund, and that it is through this that they will be allocated to the realization of the central objective aimed by them (the financing of mechanisms that promote systemic sustainability of the energy system) – it is not for this reason (as is well understood) that they cease to contribute less to the consolidation of Portuguese public accounts in general.

On the principle of contributive capacity and others

The Claimant grounds the illegality and unconstitutionality of the assessment in question, mainly, on the qualification of the tax as a tax.

Now, by recondishing the CESE, as we have seen for the reasons previously set forth, to the category of financial contributions, the arbitral tribunal is dispensed from reviewing the grounds presented by the parties regarding the qualification of that tax as a tax, namely, the violation of the principles of contributive capacity in its aspect of material equality or the violation of the principle of taxation of enterprises on actual profit.

Consequently, the arbitral tribunal will limit its analysis to the arguments put forward by the Claimant and the Respondent as to the qualification of the CESE as a financial contribution, namely, its conformity, or otherwise, with the principles of equity and proportionality.

On respect for the principles of equity and proportionality

The Claimant challenges the proportionality and equity of the tax, questioning its subjective and objective base of incidence.

3.1. With regard to the subjective base of incidence, the Claimant first questions the 'causal relationship' between the contributions of companies in the natural gas sector and those of operators of the infrastructures that make up the National Transport Network, Storage Infrastructures and LNG Terminals (RNTIAT), such as its case, and the purpose of reducing tariff debt of the National Electricity Sector, as well as the existence of an extensive range of exemptions, provided for in article 4 of the Legal Regime of the CESE, which essentially cover economic operators of production under special regime (that is, with remuneration guaranteed under special legal regimes) and small economic operators (excluding taxpayers whose total balance sheet value is less than €1,500,000).

a) With regard to the allocation of one-third of the contribution revenue to reducing tariff debt of the National Electricity Sector, it must be noted that, indeed, in this part, there is an intense reduction (if not even an exclusion) of the causal nexus that is the prerequisite of this allocation of the tax, since it is especially difficult to sustain that the requirement of the CESE from economic operators of the natural gas sector makes sense in the context of the amortization of a stock of debt that was generated by the adoption of social regulation measures in the electricity energy subsector (the stock of tariff debt of the electricity sector is a consequence of the brake clause on the admissibility of the full pass-through of the costs of the National Electricity System in the tariffs to be borne by end consumers), even knowing that the companies that today are creditors of that tariff debt (at least a significant part of those that receive costs of maintenance of contractual balance or guarantee of capacity and that operate thermoelectric plants) are consumers of natural gas that is supplied by the operators of this second sector and through their respective infrastructures.

However, this attenuation (or even interruption) of the causal nexus regarding one-third of the value of the contribution does not appear sufficient to determine whether there is a situation of significant disproportion between the requirement of the tax and the purpose to which it is intended, as not only two-thirds of the value of the same maintain, as we shall see, that causal nexus, as the CESE also assumes an extraordinary character.

This extraordinary character is immediately expressed in its own legal qualification – being that one cannot fail to attribute to this all relevance. Naturally, if the legislator qualifies and designates from the outset a tax as "extraordinary", it is because its ground lies in an exceptional circumstance or reason, which "requires" its institution, and its institution with the configuration that the legislator gives it. Even though the law does not expressly establish a time limit for such a tax, the fact is that such a qualification indicates that the same tax will not be maintained indefinitely, or will not be maintained indefinitely in the terms and with the legal conformity it received – it will, in that sense, be «provisional».

But to what is said is added that the regulation of the CESE in the Budget Law for 2014 only confirms its "extraordinary" nature – and this when, in various provisions of its legal regime (as contained in article 228 of that Law), express temporal references are made, to 1 January 2014 (article 2 and article 3, no. 4), to 31 December 2013 [article 4, paragraph o)], to 1 January and 15 December 2014 or to 31 October and 20 December 2014, to determine, whether the incidence and scope of exemptions, or the rate and assessment of the contribution. Such references would certainly not be appropriate in a tax created with a vocation for permanence – and rather even point to the apparent need for its annual renewal.

On this latter point, this Tribunal, in the case sub judice ̶ which relates, moreover, to the first year of collection of the tax, and in which, therefore, the question of its extension does not arise ̶ does not need to, nor intends to take a position. But the fact – which only confirms the «extraordinary» character of the contribution ̶ is that, in order to maintain it also in 2015, the budget legislator felt the need to, at least, «renew» correspondingly those temporal references, in article 238 of Law No. 82-B/2014 (Budget Law for 2015).

And it shall not be argued, against the extraordinary and «provisional» character of the CESE, with the fact that the same is part of the range of revenues of the Fund for Systemic Sustainability of the Energy Sector, and this Fund was created with a permanent character, similar to its European counterparts (e.g. Fondo nazionale per l'efficienza energética, article 15 of Legislative Decree 4 July 2014, No. 102): it is that such a circumstance, as is clear, is entirely irrelevant, or ineffective, to normatively alter the nature of the CESE, as results from the laws that provide for it. On this point, it may be said that, should current European policy on energy efficiency financing be maintained, of which the European Energy Efficient Fund constitutes an example alongside other financial instruments still in the structuring phase, it will not be ruled out that the Portuguese Fund will in the future adjust to that management model – a perspective in which it will be expected that the CESE, as conceived, will not be maintained.

Now, being the CESE an «extraordinary» contribution, this character of it assumes decisive relevance – it will be even sufficient cause – for, with that character, not to judge it disproportionate (inadequate, unnecessary and disproportionate), in the framework of the state of economic-financial emergency (relating to the country's economic-financial context) and sectorial (relating to the weight that the tariff debt of the SEN assumed in 2014, totalling more than 5 billion euros), in which it was instituted. It is worth recalling that it was also in this sense the decision of the Spanish Constitutional Court (judgment 183/2014, of 6 November 2014), admitting as proportionate and necessary, the fiscal measure of extraordinary character (in this case a tax, the Impuesto sobre el valor de la producción de la energía eléctrica, approved by Law 15/2012, of 27 December) adopted in Spain to equally face the stock of tariff debt that had accumulated in that country, and that reached almost 25 billion euros in 2012.

b) Still at the level of subjective incidence, and with regard, in turn, to the circumstance that the exemptions established in article 4 constitute a violation of the principle of equal proportionality, it is important to note that the majority of those economic operators were called upon to 'contribute' by another means to the elimination of the tariff deficit of the National Electricity System, that is, to prevent it from persisting and continuing to accumulate in the form of tariff debt. We refer, in the case of electricity production: i) to the elimination, for the future, of the subsidy regime for tariffs of production under special regime (from renewable sources), with the entry into force of the new wording of Decree-Laws No. 29/2006 and 172/2006, given by Decree-Laws No. 215-A/2012 and 215-B/2012; ii) with the imposition on already-installed wind power generation centres of an annual compensation to the SEN, during the eight-year period, between 2013 and 2020 (articles 5 and 9 of Decree-Law No. 35/2013, of 28 February); iii) with the drastic reduction of cogeneration subsidies (first with the approval of Decree-Law No. 23/2010, of 25 March and its amendment by parliamentary review by Law No. 19/2010, of 23 August and, finally, with the approval of Decree-Law No. 68-A/2015, of 30 April); iv) with the equally drastic reduction of subsidies for the self-consumption regime (covering microgeneration and minigeneration), following the entry into force of Decree-Law No. 153/2014, of 20 October; v) with the reduction of costs with capacity guarantee following the entry into force of the new remuneration regime provided for in Order No. 251/2012, of 20 August. All these examples show that the financial reform of the National Electricity System was also promoted by other means, with financial sacrifices imposed on the respective economic operators, with the aim of achieving sector sustainability, that is, the reduction of costs to allow all to be passed on to tariffs and that this pass-through does not result in a final price to be paid by the consumer that might exclude part of the population from normal consumption of this service. On this point, it can be said that, having been called upon to contribute financially by another means to the end of the tariff deficit, there is a reason that sustains their exclusion from the scope of the contribution to the reduction of the accumulated tariff debt in previous years, even if the contributions are not financially equivalent in their respective amounts. And it is worth recalling as well that this comparison of the financial effort required from each operator must be limited only, in the case of taxpayers of the CESE, to the value of one-third thereof, as only that portion is allocated to that purpose.

On the other hand, with regard to the contribution to social and environmental sustainability in terms of financing of measures that promote energy efficiency, it must be said that the majority of the operators exempted from the CESE give their contribution in this matter through the exercise of their respective activities, which, in themselves, internalize environmental costs and of scarcity of primary energy products, either electricity production from renewable sources (for Europe the strategy of energy efficiency is today inseparable from generation from renewable sources), or the production of biofuels, or cogeneration (in itself one of the fundamental axes of energy efficiency), or the more efficient management of the dispatch/availability service, which makes up the capacity guarantee, and where natural gas-fired thermoelectric plants are the main operators. And even small producers contribute useful input to this policy through the so-called benefits of distributed generation.

If to these facts we add the fact that the implementation of the energy efficiency policy (PNAEE 2016) presupposes today, among other measures, substantial investments in networks and meters (transition to smart grids and meters), in improving energy consumption in industry and urban mobility, where natural gas plays a relevant role as a primary energy source, we understand that there are synergies between the State and the taxpayers of the CESE, including A…, which translate into counterparts in favour of the latter, in the context of the development of their activity adjusted to the parameters of the new European requirements, and that the CESE is an appropriate means for the compensation of such counterparts, since the fulfillment of European targets regarding energy efficiency does not result solely from the improvements that these operators, each in isolation, might implement in their respective activity processes, in execution of what European energy efficiency policy designates as "energy supply efficiency" (Chapter III, articles 14 and 15 of Directive 2012/27/EU, of the European Parliament and of the Council, of 25 October 2012, on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC).

In summary, we conclude that: i) the taxpayers of the CESE and the economic operators exempted from it in accordance with the provisions of article 4 of the Legal Regime of the CESE both contribute, albeit in different measures, to the main purpose of the CESE – implementation of social and environmental measures regarding energy efficiency; ii) both also contribute, in different measure and by different means, to the auxiliary purpose of the CESE – reduction of the deficit and tariff debt of the National Electricity System – being in this case the contribution imposed on exempted entities of permanent nature (to eliminate the deficit), and the contribution imposed on taxpayers of the CESE of extraordinary and temporary nature (reduction of a part of accumulated debt stock).

Thus, it is not possible to state that the delimitation of the subjective scope of incidence of the CESE is arbitrary or that it results in a violation of the principle of equal proportionality, as, as results from the content of this principle, the efforts of taxpayers do not have to be identical, it being sufficient that the difference between such efforts is not arbitrary or excessive.

c) Meanwhile, both in the Initial Submission and in the Arguments, the Claimant invokes – although without developing the point – another «positive discrimination», which it describes as «totally unexplained», in the subjective incidence of the CESE, namely: that agents that act in the energy sector in Portugal but do not have in the country their seat or effective management are excluded from it.

It is necessary, therefore, to state, still, that neither is it seen that this other circumstance (invoked, moreover, incompletely, considering that article 2 also includes reference to «permanent establishment») should translate into a defect that affects the constitutional legitimacy of the CESE.

In short, in truth, what in article 2 of the CESE regime, at the point in question, is expressed, is nothing more, looking carefully, than the «territorial» limit inherent to all taxation (and, therefore, recurrent in tax legislation) – whether this is carried out through taxes, or, as in the case, through a financial contribution.

3.2. Already as regards the objective base of incidence, the Claimant challenges the 'causal relationship' between the value of assets and the intended purpose, alleging that: i) it is merely a criterion that allows the legislator to obtain substantial revenues with the assessment of this tax, being inadequate for the commutative objectives that must preside over a contribution, and that ii) the circumstance that it is not even possible to deduct its value for IRC purposes transforms it into a disproportionate tax.

In the case in question, dealing with regulated assets, the taxable base of the CESE corresponds to the value recognized by ERSE for purposes of determining allowed revenues (that is, the remuneration allowed to the operator, which, as it is a regulated operator, is subject to administrative criteria for determining its operating economic results), with reference to 1 January, in the case of the assessment in question, of 2014. Unless this value is lower than that resulting from the general criterion established in no. 1 of article 3 of the Legal Regime of the CESE – value of asset elements relating, cumulatively, to tangible fixed assets, intangible assets (with the exception of industrial property) and financial assets assigned to the concession – in which case this must prevail. A rate of 0.85% applies to the value of the taxable base thus determined, by virtue of the provisions of article 6 of the Legal Regime of the CESE.

Now, on this point it is not clear what criterion was followed by the legislator to delimit the objective base of incidence of the CESE, and it is not immediate and directly visible a causal relationship between the value of assets and their contribution to energy efficiency policies and measures, whereby it must be concluded that it is merely an objective criterion related to the taxpayer of the tax and to its (potential) economic capacity in the context of the sector in question and, in that measure, of (potential) capacity of impact in the context of the energy efficiency policies to which the measures to be adopted will impact.

However, what falls to the tribunal in this context is not to evaluate whether the chosen criterion is the most appropriate, but only to know whether the criterion is completely disconnected from the purpose of the tax – whether that relationship is non-existent or so tenuous as to lead to an 'interruption' of the causal nexus, preventing its qualification as a financial contribution – or whether the existing connection is sufficient for a causal relationship to still be established. It is, therefore, merely a judgment of reasonableness and not an intense review of the proportionality of the measure.

Now, it is understood that in the case it is still possible to establish a sufficient causal relationship between the criterion adopted by the legislator for the determination of the taxable base of the CESE and its purpose, as the value of assets is an adequate index to measure the difference in (potential) capacity of impact of the activity developed by taxpayers, in the context of energy efficiency policies. A judgment which is given special weight by the circumstance that we are dealing with a tax of extraordinary nature, which is therefore required to be easily implemented and applied for a transitional and short period of application, where it would not be justified to implement criteria, perhaps more appropriate, such as the "measure of the impact of potential energy savings" (something which energy efficiency management contracts have proven to be of high technical complexity), but very complex and with high compliance costs, that is, wholly mismatched with the urgency required in the case.

Beyond this reasonableness review, it is also important to clarify, in the context of the review of the proportionality of the measure, analyzing now the applicable rate (tax rate), that the result reached in the calculation of the net value of the CESE – in the case under analysis it is €774,345.19€ relating to the year 2014 – is far from being able to be considered manifestly excessive, disproportionate or confiscatory.

B - ON THE NON-FULFILLMENT OF THE PREREQUISITES FOR THE ASSESSMENT OF THE CESE

The Claimant contends that, both at the time limit for self-assessment and payment of the CESE in question), and at the date of the official assessment, (...) the prerequisites for the assessment to occur were not fulfilled.

This is because it contends that, as it is subject to regulated accounts, these would have to be previously reviewed and recognized by ERSE, which only occurred on 15 June 2015, the date on which this entity recognized the value of its assets for purposes of determining allowed revenues in that year (2014), through publication in the Official Journal.

Hence the Claimant concludes the "impossibility of any compensatory interest or fines being legitimately charged as a consequence of the alleged delay in self-assessment and payment of the CESE" and that "such charges were not only collected by the AT but are already paid".

With regard to regulated activities, the CESE was levied only on the recognized value of regulated assets (i.e., the value recognized by ERSE for purposes of determining allowed revenues), when this was higher than the accounting value of assets (no. 2 of article 3 of the Legal Regime of the CESE, in the original wording).

Now, it is evident that well before 15 November 2014 (the time limit for self-assessment), the Claimant would have had approved its accounts for the 2013 fiscal year and, therefore, knew what the accounting value of the assets in question was, which is to say that it could have proceeded with the self-assessment of the CESE based on such values. Moreover, it was based on the accounting data provided by the Claimant that the AT proceeded with the assessment in question in the present case, it being certain that the amount thus determined is not subject to challenge.

A different question is what would happen if the values subsequently approved and published by ERSE implied the alteration of the (self-)assessment effected. Then a new assessment would have to be made, there being occasion, depending on the case, for reimbursement of the excess paid (with compensatory interest) or for payment of the outstanding amount (without compensatory interest, as not due).

There was, therefore, no legal or factual impediment to self-assessment being effected within the time limit provided for in the law, it being the Claimant which caused the delay in the assessment, and is therefore obligated to pay the compensatory interest that the law provides for (article 35 of the General Tax Law).

From the foregoing, the review of the Claimant's request for recognition of its right to compensatory interest regarding the amount paid by it as a result of the challenged assessments is prejudiced.

V - DECISION

Having regard to the foregoing grounds, the arbitral tribunal decides:

To judge the exceptions raised by the Respondent as groundless;

To not consider the challenged assessments illegal (the one relating to the CESE and the one relating to compensatory interest), thereby judging the Claimant's request wholly groundless.

The value of the case is fixed at €778,815.81.

Costs by the Claimant, pursuant to article 5, no. 2, of the Rules of Costs in Tax Arbitration Proceedings.

Lisbon, 7 January 2016

The Arbitrators

Rui Duarte Morais

Suzana Tavares da Silva

José Manuel Cardoso da Costa