Process: 32/2016-T

Date: July 29, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision addresses two critical issues in Portuguese tax arbitration: procedural jurisdiction and substantive tax benefit entitlement under Article 43 of the Tax Benefits Statute (EBF). The claimant, a commercial partnership, challenged IRC assessment act no. 2015, seeking a refund of €3,319.33, arguing entitlement to reduced IRC rates for companies operating in specific geographical areas. The Tax and Customs Authority (TCA) raised a preliminary jurisdictional objection, arguing that the arbitral tribunal lacked material competence to assess self-assessment act disputes not preceded by a prior gracious complaint (reclamação graciosa) under Article 131 of the CPPT. On the merits, the dispute centered on whether Article 43 EBF, as regulated by Decree-Law 55/2008, requires companies to maintain a minimum payroll threshold (75% in the beneficiary area) to qualify for tax benefits. The claimant contended that Article 43 EBF does not condition benefits on job creation or payroll maintenance, arguing that regulatory provisions cannot impose additional access conditions beyond those in the statute. The claimant operated in the beneficiary area using external collaborators rather than employees. The TCA countered that Decree-Law 55/2008 legitimately specifies mandatory conditions, including the 75% payroll requirement, which was previously explicit in Law 171/99. The TCA argued that benefits require both registered office/effective management and substantial payroll presence in the beneficiary area. The tribunal considered whether regulatory provisions can establish substantive benefit conditions and whether companies without employees can qualify for geographically-targeted tax incentives designed to promote regional economic development and employment.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A…, Lda., a commercial partnership by quotas registered at the Commercial Registry Office of … under no.…, with registered office at…, Plot…, …, …-… …(hereinafter referred to as "claimant"), having been notified of the corporate income tax assessment act no. 2015…, filed, on 25/1/2016, a request for constitution of an arbitral tribunal and for an arbitral award, in accordance with the provisions of articles 2.º, no. 1, lit. a), and 10.º of Decree-Law no. 10/2011, of 20/1 (Legal Regime of Tax Arbitration, hereinafter referred to as "LRTA"), in which the Tax and Customs Authority (TCA) is called as respondent, with a view to obtaining the "declaration of illegality of the corporate income tax assessment act no. 2015 … and the consequent refund of the tax and compensatory interest wrongly assessed, all amounting to €3319,33".

1.2. On 7/4/2016 this Sole Arbitral Tribunal was constituted.

1.3. Pursuant to art. 17.º, no. 1, of the LRTA, the TCA was cited, as respondent party, to file a response, in accordance with and for the purposes of the aforementioned article. The TCA filed its response (and the Administrative Case File) on 5/5/2016, having argued, in summary, the total lack of merit of the claimant's request. In the aforementioned response, it also invoked the "lack of material jurisdiction of the Arbitral Tribunal to assess the request for declaration of illegality of the corporate income tax self-assessment act".

1.4. The claimant herein, notified of the TCA's response, replied in writing to the exception invoked, in a pleading of 24/6/2016, which was served upon the respondent.

1.5. Considering that the claimant had already expressed itself in writing with respect to the exception invoked, this Tribunal considered, pursuant to article 16.º, lit. c), of the LRTA, the meeting of art. 18.º of the LRTA to be dispensable and that the proceedings proceed to decision, having set the date of 29/7/2016 for the pronouncement thereof.

1.6. The Arbitral Tribunal was regularly constituted.

1.7. In its request for an award, the claimant invokes the illegality of the corporate income tax assessment act no. 2015…, on the grounds that, in summary: a) "article 43.º of the Tax Benefits Statute (in the wording given by Law no. 67-A/2007, of 31.12, entering into force on 01.01.2008 – former article 39.º-B) does not condition the granting of the tax benefit to the creation of job positions, and […] Decree-Law no. 55/2008, of 26.03, aims only to establish the regulatory norms necessary for the proper execution of the measures of this incentive, pursuant to article 43.º, no. 7, of the TBS"; b) "the aforementioned Decree-Law does not establish as a condition of access for the beneficiary entities or their respective obligations to maintain a minimum of job positions in order to enjoy the benefit"; c) "the elements provided for in no. 2 of article 2.º of Decree-Law no. 55/2008 cannot be interpreted as mandatory conditions, that is, it is not stated in article 43.º of the TBS, nor even in the letter of the law of the aforementioned article 2.º, no. 2, that it is a mandatory condition to enjoy the benefit, that the taxpayer has in the geographical area its registered office and effective management, and that it also has in that area 75% of the payroll, or even that it has payroll"; d) "not being provided for in article 43.º of the TBS, the requirement of possessing payroll by the taxpayer, article 2.º, no. 2, cannot be interpreted as a new condition of access to the benefit, but rather as a norm of proper execution, which presumes a certain behaviour of the taxpayer, in order for there to be such proper execution and to avoid abuse of right"; e) "the Claimant is not an employer entity, nor needs to be, to enjoy the rate reduction of art. 43.º, no. 1, lit. a), of the Tax Benefits Statute"; f) "the Claimant established itself in … and there develops its main activity. It is in … that the Claimant has its tax and effective registered office. For the provision of medical services, the Claimant has external collaborators, namely doctors and nurses resident in the city of …, who work with it in surgeries and who proceed to issue the corresponding receipt to the Claimant. It thus follows that the Claimant develops, unequivocally, its main activity in … (beneficiary geographical area), in accordance with the objective provided for in article 43.º of the TBS, and from the interpretation and analysis of the objective of the aforementioned benefit. Being thus met all the requirements for the benefit provided for in article 43.º of the TBS to be granted to the claimant."

1.8. The claimant herein concludes that "the present request for declaration of illegality of the corporate income tax assessment act no. 2015…, should be considered granted as proven and, consequently, the refund of the tax and compensatory interest wrongly assessed should be ordered, all amounting to €3319,33".

1.9. For its part, the TCA alleges, in its contestation, and in summary, that: a) there is verified "the exception of lack of material jurisdiction of the Arbitral Tribunal" because "disputes that have as their object the declaration of illegality of self-assessment acts, as occurs in the situation sub judice, are excluded from the material jurisdiction of arbitral tribunals if not preceded by a gracious claim in accordance with article 131.º of the TCPPC"; b) "the right to the tax benefit set out in article 43.º of the TBS is dependent on the verification of assumptions whose definition is not comprehended in the more general rule contained in this normative [Law no. 53-A/2006]". Thus, "without the regulation that specifies and makes concrete the remaining assumptions on which the benefit set out there depends in generic terms, it is not even admissible to speak of any right to a tax benefit, since the assumptions on which that right depends have not yet been instituted"; c) "the Claimant argues that article 43.º, no. 1, b), of the TBS should be applied to them, but no longer its no. 7. The Claimant cannot wish to benefit from only part of the legal regime established by article 43.º of the TBS"; d) "it is the legislator itself who decides to maintain in force the requirement of maintaining more than 75% of the payroll in the beneficiary area, a condition that was already expressly provided for in article 7.º, no. 4, of Law no. 171/99. Therefore, if the Claimant argues that lit. b) of no. 1 of article 43.º of the TBS is applicable to it, it also has to be subject to what is established in Decree-Law no. 55/2008"; e) "it is clear from the applicable legal norms that companies will only be able to enjoy such benefit if they exercise their main activity in one of the beneficiary areas. And it is only considered that they exercise their main activity in one of these areas if: a) they have there their registered office or effective management; and b) they establish there more than 75% of their respective payroll"; f) "we cannot interpret no. 1 of article 43.º of the TBS as granting the tax benefits in question to all companies, it being sufficient that the same exercise any activity of a commercial, industrial or agricultural nature, nothing more"; g) "[it does not hold] the vice of violation of the principle of legality and the reservation of law of the National Assembly as invoked by the Claimant".

1.10. The TCA concludes that "the above-mentioned exceptions should be judged to be granted, absolving, accordingly, the Respondent of the instance; or if this is not understood, the present request for an award should be judged to be without merit, keeping in the legal order the corporate income tax self-assessment act, absolving accordingly, the respondent entity from the requests."

1.11. In compliance with Service Order no. OI2015…/…, an internal inspection action was determined at the claimant, carried out by the Finance Department of … (see Case File). From the aforementioned inspection action resulted the correction at issue, relating to the period of 2013 (see Tax Inspection Report attached to the Case File). The amount of correction to the tax in the year 2013 was €3114,47 (see Tax Inspection Report), plus compensatory interest.

1.12. The claimant proceeded with voluntary regularization, having filed an income replacement declaration Form 22, referring to the year 2013, correcting the value of the assessment. The replacement of the aforementioned declaration occurred on 5/8/2015, as stated in the Tax Inspection Report.

1.13. From the filing of the aforementioned income replacement declaration Form 22, referring to the year 2013, resulted the corporate income tax self-assessment here at issue.

1.14. On 25/1/2016, the claimant came to file the present request for constitution of an arbitral tribunal and for an arbitral award, with a view to, in summary, obtaining the "declaration of illegality of the corporate income tax assessment act no. 2015 … and the consequent refund of the tax and compensatory interest wrongly assessed, all amounting to €3319,33".

II – On the Exception of Lack of Jurisdiction Ratione Materiae

Having in consideration that the TCA invoked the above-mentioned exception, it is justified to previously assess the same (considering also, for that purpose, the claimant's response of 24/6/2016): i.e., whether the Tribunal is materially incompetent because the request in question was not preceded by a gracious claim in accordance with the provisions of art. 131.º of the TCPPC.

Thus, this Tribunal must first ascertain whether the dispute now at issue falls within the scope of its material jurisdiction, in accordance with the terms defined by the provisions of art. 2.º, lit. a), of Order no. 112-A/2011, of 22/3.

In accordance with the Preamble of the LRTA, the scope of jurisdiction of the arbitral tribunals functioning in the CAAD is perfectly delimited. For that purpose, it was fixed "with precision which are the matters on which the arbitral tribunal may pronounce".

Thus, the cited preamble states that are included "within the jurisdiction of arbitral tribunals, the assessment of the declaration of illegality of tax assessments, of self-assessments, of withholding at source and payments on account, the declaration of illegality of acts of determination of taxable matter, of acts of determination of taxable matter and acts of fixing patrimonial values and, as well as, the assessment of any question, of fact or of law, relating to the tax assessment project, whenever the law does not ensure the faculty of deducting the aforementioned claim."

Concretely, the jurisdiction of the arbitral tribunals functioning in the CAAD appears in art. 2.º, no. 1, of the LRTA, in the following terms:

Article 2.º
Jurisdiction of arbitral tribunals and applicable law

1 – The jurisdiction of arbitral tribunals comprises the assessment of the following claims:

a) The declaration of illegality of acts of assessment of taxes, of self-assessments, of withholding at source and of payments on account;

b) The declaration of illegality of acts of determination of taxable matter, of acts of determination of taxable matter, of acts of fixing patrimonial values;

c) The assessment of any question, of fact or of law, relating to the tax assessment project, whenever the law does not ensure the faculty of deducting the claim referred to in the previous lit.

It should also be noted that the jurisdiction of arbitral tribunals is limited by the terms in which the Tax and Customs Administration (TCA) expressed its will to bind itself to that jurisdiction, which it did through the aforementioned Order no. 112-A/2011, of 22/3. Pursuant to no. 1 of article 4.º of the LRTA, the binding of the TCA to arbitral jurisdiction depends on acceptance, which shall fix the limits of that binding:

Article 4.º
Binding of operation

1 – The binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an order of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered.

Now, pursuant to the provisions of lit. a) of article 2.º of Order no. 112-A/2011 – article by which the TCA bound itself to the jurisdiction of arbitral tribunals functioning in the CAAD –, are expressly excluded from the scope of the binding of the TCA to the jurisdiction of arbitral tribunals functioning in the CAAD, the "claims relating to the declaration of illegality of acts of self-assessment, of withholding at source and of payments on account that have not been preceded by recourse to the administrative avenue in accordance with articles 131.º to 133.º of the Tax Procedure and Process Code."

For this purpose, see, for example, the Arbitral Decision (AD) no. 236/2013-T, of 22/4/2014: "the Decree-Law which institutes arbitration in tax matters contains a provision for broad arbitration of tax matters. This provision does not have immediate operability, as it is conditioned to the binding of the TCA. This is a reservation of the Administration. It is the responsibility of the Administration, represented by the Ministers of Justice and Finance, and only to it, to fix by unilateral act the limits of that binding. The binding of the TCA to the jurisdiction of arbitral tribunals is the object of a concrete limitation: claims arising from alleged illegality of acts of self-assessment, of withholding at source or of payments on account are expressly excepted from arbitration, except if their illegality has been previously raised, in accordance with arts. 131.º et seq. of the TCPPC."

Still according to the cited AD, "one should start from the broad provision of the Decree-Law, without doubt intended by the legislator, but one should also bear in mind that, also by the will of the legislator, the TCA was given the faculty of introducing one or more generic restrictions (general and abstract) to the scope of applicability of arbitration. And it should thus be verified that, in this context and by initiative of the TCA, the aforementioned Order excludes from arbitration, expressly, all claims connected with acts of «self-assessment, of withholding at source or of payments on account», and then admits only those claims that have been preceded by recourse to the administrative avenue in accordance with articles 131.º to 133.º of the Tax Procedure and Process Code."

Thus, and for better clarification, see what the here relevant nos. 1 and 3 of article 131.º of the TCPPC provide, in the wording applicable to the present case:

Article 131.º
Challenging in case of self-assessment

1 - In case of error in self-assessment, the challenge shall be necessarily preceded by a gracious claim directed to the head of the regional peripheral body of the tax administration, within the period of two years after the filing of the declaration.

3 - Without prejudice to the provisions of the above numbers, when its ground is exclusively a matter of law and the self-assessment was made in accordance with generic guidelines issued by the tax administration, the period for the challenge does not depend on a prior claim, and the challenge must be filed within the period of no. 1 of article 102.º.

Having this framework in mind, the claimant alleges, in its response of 24/6/2016, that "the taxpayer [proceeded] with the voluntary regularization of the situation in accordance with the corrections advanced by the TCA, by means of filing an income replacement declaration Form 22 referring to the year 2013, thus correcting the value of the assessment. Thus, being this the case in which the TCA, now Respondent, has already taken a position on the self-assessment of the tax – through a tax act of correction of the values declared by the taxpayer – one is not in a situation that requires new intervention by the tax administration before placing the problem before the tribunal, that is, one is not in a situation that requires a prior claim in accordance with article 131.º of the TCPPC." For this reason, the claimant herein understands that, in the case at hand, the Respondent has no grounds.

However, in light of what is stated, for example, by the following judgment of the SAC, the argument of the claimant is not to be accepted: "The imposition of a prior gracious claim resulting from art. 131.º, no. 1, of the Tax Procedure and Process Code, in cases of self-assessment in which the administration has not taken a position on the situation generated by the taxpayer's act, does not violate the constitutional principles of effective protection and contentiousness impugnability of administrative acts nor article 95.º, no. 1 of the General Tax Law. [...]. [...] self-assessment is the assessment of a tax which is not made by the Tax Administration, but by the taxpayer, whether the direct taxpayer, the legal substitute or the legal responsible. As is emphasized in the Tax Procedure and Process Code annotated by Jorge Lopes de Sousa, vol. IV, pages 406 and 407, given the concept of administrative act adopted by art. 120.º of the APC, which, although provided for in that code has to be applied by analogy, «it must be concluded that in cases of self-assessment one is not faced with an administrative act because there is no taking of any position by the administration on its relationship with the taxpayer, in the specific situation generated by the latter when self-assessing the tax». Still with regard to the need for prior claim in cases of self-assessment clarifies Joaquim Freitas da Rocha, in his Lessons of Tax Procedure and Process, 4th edition, page 224: «It seems that a convincing argument can be found in the idea that, in these situations, strictly speaking, there does not yet exist properly a conflict of claims between the tax creditor and the taxpayer that would justify the entry into the scene of a judicial body. Indeed, until the moment of self-assessment, if things proceed normally, the Administration has not yet manifested its will in any way and, consequently, has not yet done anything that could possibly harm the taxpayer. Therefore, it is justified that, before going to Court, this matter deserves an assessment by the Administration and, perhaps, the assessment made may be subject to a correction that satisfies the claims of the interested party»." (Judgment of the SAC of 27/6/2012, proc. 982/11). [Italics ours.]

Now, from the reading of the present case file, it is verified that there was: i) a correction to the corporate income tax assessment of the period of 2013, in the amount of €3114,48; ii) the voluntary regularization by the claimant, presenting this corrected declaration amending the value of the assessment; iii) the corporate income tax self-assessment, here at issue, as a result of the filing of the aforementioned declaration. From this it clearly follows that there was no "any taking of position by the administration on its relationship with the taxpayer, in the concrete situation generated by the latter when self-assessing the tax" nor was there, prior to the present request placed before the arbitration, (gracious claim by the claimant seeking) the assessment of the self-assessment by the TCA.

The claimant herein further alleges, in its response, that, "on the other hand, no. 3 of art. 131.º provides that when the ground of the challenge is exclusively a matter of law, which is manifestly the case, and the self-assessment was made in accordance with generic guidelines issued by the tax administration, the period for the challenge does not depend on a prior claim". However, while it is true that – as the claimant herein notes – the ground of the challenge here at issue is exclusively one of law, it is not verified (nor has the claimant demonstrated) that the present self-assessment was made in accordance with generic guidelines of the TCA (cf. art. 55.º of the TCPPC and art. 68.º-A of the LGT).

In light of the above, it not being possible to submit to arbitration a dispute relating to the claims referred to in article 2.º (object of binding) of Order no. 112-A/2011, of 22/3, because it has not been preceded by a (necessary) gracious claim, it appears unquestionable that this Arbitral Tribunal lacks material jurisdiction.

Thus, it is concluded that this Tribunal is materially incompetent to assess and decide on the request that is the object of the dispute sub judice, in accordance with the provisions of articles 2.º, no. 1, lit. a), and 4.º, no. 1, both of the LRTA, and articles 1.º and 2.º, lit. a), of Order no. 112-A/2011, which embodies a dilatory exception preventing the knowledge of the merits of the case, in accordance with the provisions of article 576.º, nos. 1 and 2, of the CPC, ex vi art. 2.º, lit. e), of the TCPPC, and article 29.º, no. 1, lits. a) and e), of the LRTA, which prevents the knowledge of the request and leads to the absolution of the TCA from the instance, in accordance with articles 576.º, no. 2, and 577.º, lit. a), of the CPC, ex vi art. 29.º, no. 1, lits. a) and e), of the LRTA.

In these terms, the exception of lack of jurisdiction deduced by the TCA is judged to be granted, whereby the Respondent is absolved of the instance, thus becoming prejudicial the knowledge of the issue of merits and other related issues.

III – Decision

In light of the above, it is decided:

  • To judge granted the dilatory exception of lack of jurisdiction of this tribunal ratione materiae invoked by the Respondent.
  • To absolve the Respondent of the instance (articles 96.º and 278.º of the Civil Procedure Code, ex vi article 29.º, no. 1, lits. a) and e), of the LRTA).

The value of the proceedings is set at €3319,33 (three thousand three hundred and nineteen euros and thirty-three cents), in accordance with art. 32.º of the CTAPC and art. 97.º-A of the TCPPC, applicable by virtue of the provisions of art. 29.º, no. 1, lits. a) and b), of the LRTA, and art. 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCTAP).

Costs charged to the Claimant, in the amount of €612,00 (six hundred and twelve euros), in accordance with Table I of the RCTAP, given the above-mentioned exception, and in compliance with the provisions of articles 12.º, no. 2, and 22.º, no. 4, both of the LRTA, and the provision of art. 4.º, no. 4, of the cited Regulation.

Notify.

Lisbon, 29 July 2016.

The Arbitrator

(Miguel Patrício)

Text prepared by computer, in accordance with the provisions of art. 138.º, no. 5, of the CPC, applicable by remission of art. 29.º, no. 1, lit. e), of the LRTA.

The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the material competence of tax arbitral tribunals for IRC self-assessment disputes in Portugal?
Tax arbitral tribunals in Portugal have material competence to adjudicate disputes concerning IRC self-assessment acts, but this jurisdiction is subject to specific procedural prerequisites. According to Article 131 of the CPPT, when challenging self-assessment acts (autoliquidações), taxpayers must first file a prior gracious complaint (reclamação graciosa) with the tax administration. Only disputes preceded by such administrative complaints fall within the arbitral tribunal's material jurisdiction. This procedural requirement ensures exhaustion of administrative remedies before resorting to arbitration, distinguishing self-assessment disputes from challenges to administrative liquidation acts which can proceed directly to arbitration under the RJAT.
Is a prior gracious complaint (reclamação graciosa) required before filing a tax arbitration request under the RJAT?
Yes, under Article 131 of the CPPT, a prior gracious complaint (reclamação graciosa) is mandatory before filing a tax arbitration request concerning self-assessment acts. This procedural prerequisite constitutes a condition for the arbitral tribunal's material jurisdiction. The RJAT (Decree-Law 10/2011) does not waive this requirement for arbitration proceedings. Failure to file a prior gracious complaint results in lack of material jurisdiction, leading to dismissal of the arbitration request without prejudice to substantive merits. This requirement applies specifically to self-assessment disputes, not to administrative liquidation acts which can be challenged directly through arbitration under Article 2(1)(a) of the RJAT.
How does Article 131 of the CPPT affect tax arbitration proceedings for IRC liquidation acts?
Article 131 of the CPPT establishes a mandatory procedural step that directly impacts tax arbitration proceedings for IRC liquidation acts, particularly self-assessments. This provision requires taxpayers to file a prior gracious complaint before seeking arbitral review of self-assessment acts. The TCA can invoke lack of material jurisdiction as a preliminary exception when this requirement is not met. Article 131 CPPT effectively creates a two-tier system: administrative liquidation acts can proceed directly to arbitration, while self-assessment acts require prior administrative challenge. This distinction affects procedural strategy, timelines, and the arbitral tribunal's competence to hear the dispute, potentially resulting in dismissal if the precedent gracious complaint was not filed.
Can tax benefits under Article 43 of the EBF be denied for failing to meet job creation requirements?
Tax benefits under Article 43 of the EBF for companies operating in designated geographical areas can be denied for failing to meet regulatory requirements, including job-related conditions. While Article 43 EBF establishes the general framework for reduced IRC rates in beneficiary areas, Decree-Law 55/2008 specifies implementation conditions, including that companies maintain more than 75% of their payroll in the beneficiary area. The legal controversy centers on whether these regulatory provisions constitute mandatory access conditions or merely execution norms. The TCA position is that Article 43(7) EBF authorizes regulatory definition of benefit conditions, and the 75% payroll requirement (previously in Law 171/99) is a substantive condition for benefit entitlement. Companies without employees or with payroll predominantly outside the beneficiary area may be denied benefits, as the legislative purpose is promoting regional employment and economic activity.
What are the procedural requirements for challenging an IRC liquidation act through arbitration in Portugal?
Challenging an IRC liquidation act through arbitration in Portugal requires compliance with specific procedural requirements under the RJAT (Decree-Law 10/2011). For administrative liquidation acts, taxpayers can file arbitration requests directly under Article 2(1)(a) RJAT within the statutory deadline. However, for self-assessment acts, Article 131 CPPT mandates filing a prior gracious complaint (reclamação graciosa) with the tax administration before seeking arbitration. The arbitration request must be filed within the legal timeframe, identify the challenged act, state legal grounds for illegality, specify the requested relief, and include required documentation. The arbitral tribunal is constituted according to RJAT provisions, with parties having opportunity to respond. Failure to meet jurisdictional prerequisites, particularly the prior gracious complaint for self-assessments, results in lack of material jurisdiction and dismissal of the request.