Summary
Full Decision
ARBITRAL DECISION
The arbitrators constituting this Arbitral Tribunal agree as follows:
I – REPORT
Constitution of the Arbitral Tribunal and Conduct of Proceedings
A… S.A., with registered office at Avenue… no.…, …-… …, NIPC…, filed, pursuant to law, a request for arbitral decision, with the Tax and Customs Authority as Respondent.
The Claimant appointed Prof. Doctor Rui Duarte Morais as arbitrator. The chief executive of the Tax Administration appointed Prof. Doctor Manuel Pires as arbitrator. The arbitrators appointed by the Parties agreed to appoint Judge Dr. José Poças Falcão as president arbitrator.
The Collective Arbitral Tribunal was constituted on 14/08/2017.
The Tax and Customs Authority filed a response, in which it raised objections.
An arbitral ruling was issued dispensing with the meeting referred to in article 18 of the RJAT.
No further evidence beyond that already on the record was requested.
The Parties filed written submissions, with the Claimant exercising its right to reply regarding the objections raised by the Respondent.
Requests for Arbitral Decision
B.1) The Claimant requests the annulment of the additional assessment of Corporate Income Tax (IRC), relating to the period 2013, with no. 2017…, embodied in the compensation document no. 2017…, in the total amount payable of €934,409.87, of which €83,462.75 corresponds to compensatory interest.
B.2) In the final part of its Request, the Claimant, in addition to "developing" its claim on the basis of the various grounds invoked, petitions for the annulment, with all legal consequences, of the tax inspection procedure regarding the corrections to depreciation not accepted as an expense, for suffering from the defect of violation of law, for breach of the principle of proportionality, justice and discovery of material truth;
B.3) The Claimant also petitions for the condemnation of the TA to payment of compensation for improper provision of the bank guarantee.
B.4) And, alternatively, petitions for the annulment of the assessment relating to compensatory interest.
Object of the Dispute
The Claimant objects only to three of the corrections made by the TA relating to the amount of its taxable profit in the financial year 2013, which gave rise to part of the assessment now disputed, namely:
- Correction to the values of depreciation quotas considered by the Claimant, as they exceeded the applicable legal limits, without the TA having proceeded, ex officio, to "symmetrical correction" in relation to subsequent financial years.
- Autonomous taxation of expenses attributable to permanent establishments (branches) abroad.
- Non-acceptance of the deduction from the collection of municipal surcharge of tax credit for double international taxation.
D) Response of the TA
In its Response, the TA raises two objections: lis pendens (or the existence of a prejudicial question that would determine the suspension of the proceeding) and lack of material jurisdiction of the arbitral tribunal to hear the part of the claim referred to above in B.2).
Moreover, it upholds the legality of the additional assessment disputed.
Submissions
In their submissions the parties maintained their initially assumed positions, with the Claimant further concluding that the objections are unfounded.
II – GROUNDS/REASONING
Proven Facts
The following facts are considered proven:
1) The Claimant's main activity is the carrying out of construction works in the field of civil construction;
2) A large part of its turnover derives from the activity carried out by its eight branches, of which the Angola branch is the most significant, followed by those in Mozambique, Botswana, Morocco, Cape Verde, Senegal, Zambia and Malawi;
3) The Claimant was subject to an inspection procedure relating to the financial year 2013, which gave rise to the additional IRC assessment relating to that year 2013 and compensatory interest in the amount of €83,462.75;
4) The Claimant, following that additional assessment, was notified to make payment, by 9-3-2017, of the balance determined in the amount of €934,409.87 in accordance with the compensation statements, account settlement and compensatory interest calculation – See documentation attached with the request for arbitral decision;
5) The Claimant had considered as deductible fiscal expenses amounts relating to depreciation higher than those accepted for tax purposes [articles 30, 31 and 34-1/c) of the CIRC], and thus a correction to its taxable profit was made in the amount of €86,751.10;
6) According to the TA, in calculating the tax to be paid the Claimant did not assess autonomous taxation [at the rates of 10%, 10% and 20%, respectively] on: (i) charges relating to depreciation of vehicles of the Senegal branch, in the amount of €4,281.38 [articles 88 and 34-1/e), of the CIRC]; (ii) charges relating to depreciation of vehicles of the Angola branch, in the amount of €24,740.48 [articles 88 and 34-1/e), of the CIRC] and (iii) representation expenses, attributed to its various branches, in the amount of €5,859.60 – See Attached Tax Inspection Report;
7) The TA did not accept the deduction made by the Claimant of the tax credit for double international taxation [credit resulting from taxes on profits paid in the different countries where its branches are located – articles 90-2/a) and 91, of the CIRC/2013] to the amount of the municipal surcharge collection, resulting in a correction in the amount of €922,078.75 – See Report, III-2.1;
8) The Claimant filed, on 24/05/2017, a special administrative action (Proc. no. …/17… BEPNF), with which it seeks the annulment of the binding information dated 24/03/17 and requested on 01/03/2017, which concluded that «only in cases where income covered by a Double Taxation Treaty (DTT) is at issue, the deduction corresponding to the tax credit for double international taxation is effected to the sum of the IRC assessed according to the rules of the CIRC and the amount of the municipal surcharge assessed in accordance with the respective legislation»;
9) In that action brought against the now Respondent, the Claimant requests the annulment of the aforementioned binding information and recognition of the right to include in the IRC fraction, for the purposes of the provision in article 91-1/b), of the CIRC, the municipal surcharge in relation to income obtained in territories with which Portugal has not concluded a Double Taxation Treaty – See. doc. 4, attached with the Response of the TA;
10) The assessment now disputed is dated 09/01/2017 (doc. 1 attached to the initial petition), the respective notification having been received by the Claimant on 16 of the same month (no. 2 of the initial petition, a fact not disputed by the Respondent);
11) This request for arbitral decision was received by CAAD on 24-5-2017.
Facts Not Proven
Not proven:
- That a bank guarantee was provided for the suspension of enforcement action arising from the failure to voluntarily pay the amount mentioned in 4), of the list of proven facts.
Reasoning
The Tribunal has no duty to pronounce on all the matters alleged, but rather has the duty to select only those relevant to the decision, taking into account the ground(s) of claim upon which the claims are based (see arts. 596, no. 1 and 607, nos 2 to 4, of the CPC) and to record whether it considers it proven or not proven (see art. 123, no. 2, of the CPPT, applicable to tax arbitration pursuant to article 29, of the RJAT).
According to the principle of free assessment of evidence, the Tribunal bases its decision, with regard to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceeding, of the legal rules on the burden and admissible means of proof and in accordance with its life experience and knowledge of people, common sense and life in general (see art. 607-5, of the CPC). In this light, only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents - see, e.g., art. 371, of the Civil Code) does the principle of free assessment not dominate in the assessment of evidence produced.
In the present case, to form its conviction regarding the aforementioned factual framework, the Tribunal relied on the critical analysis of the parties' positions in their respective statements of claim and final submissions, as well as on the documents attached and not disputed and on a copy of the administrative investigation file submitted by the TA.
Obviously, the provision of a bank guarantee was not considered proven due to the complete absence of any means of proof. Moreover, it was not even alleged, nor is it documented, that the Claimant provided a bank guarantee to suspend enforcement based on the failure to voluntarily pay the assessments which are the subject of the proceedings.
Sanitation/Clarification of the Proceedings
Objection: Lack of material jurisdiction of the Arbitral Tribunal.
The Claimant, among other requests, petitions for "(...) the annulment, with all legal consequences, of the tax procedure in question, as far as the corrections to depreciation not accepted as an expense, in that it suffers from the defect of violation of law, due to breach of the principle of proportionality, justice and material truth (art. 266, no. 2, of the CRP, art. 55 of the LGT, art. 7 and 8 both of the CPA and art. 6 and 7 both of the RCPITA)(...)" and further requests that " (…) should such not proceed and the TA is not capable of making adjustments in the following taxation periods, it should refrain from making the correction in the taxation period of 2013 (...)"
In its response, the Respondent, TA, argues that the annulment of a tax procedure "exceeds the jurisdiction that the law establishes for tax arbitral tribunals, which is restricted, in essence, to the assessment of the legality of assessment acts, and that "the definition of the acts in which the execution of arbitral judgements should be carried out is the responsibility, in the first instance, of the TA".
On the other hand, the request for the TA to be ordered to make adjustments in the years following that of the assessment now subject to the request for arbitral decision (2013), is manifestly a matter also excluded from the material jurisdiction provided for in the RJAT – See article 2, a contrario.
Let us see:
The Claimant further requests that the TA be ordered to make adjustments to the taxable matter in the years following that of the additional IRC assessment which is the object of the objection (2013) as a consequence of the corrections determined concerning depreciation not accepted as an expense (see articles 5 to 23 of the request for arbitral decision and chapter III 1.1 of the copy of the tax inspection report attached to the case).
It follows from the entire scope of the Claimant's claim that the Claimant has not challenged the TA's position regarding the matter concerning depreciation not accepted as an expense, meaning it accepted the TA's position as to those corrections.
Certainly, the Claimant seeks the annulment also of the tax procedure, a situation that, if it were to proceed, would certainly result in the annulment of that correction.
However, given the provision of art. 2 of the RJAT, a contrario, a tax arbitral tribunal does not have jurisdiction, ratione materiae, to annul a tax procedure (inspection)[1], nor to consider a request for the TA to be ordered to make adjustments in the symmetrical adjustment procedures in the income assessments after 2013 as petitioned (our emphasis).
Thus, for the requests for annulment of the tax procedure and for the TA to be ordered to make the "symmetrical corrections" petitioned for the IRC assessments after 2013, this Arbitral Tribunal is materially incompetent to hear such claims.
And in this same line of reasoning and conclusions is the request for refusal to correct the taxable matter of the year 2013 "in case of difficulty in making correlative or symmetrical adjustments in subsequent financial years".
As a consequence, without need for further consideration, the defendant is absolved of the instance as to those claims in accordance with articles 576-2, 577-a), of the CPC, applicable pursuant to article 29-1/e), of the RJAT.
*
The Tribunal is therefore, with the limitations above, materially competent.
The request for arbitral decision is timely, the parties have legal personality and capacity, are legitimate and are duly represented.
*
Objection: Lis Pendens
The Respondent, TA, raises the objection of lis pendens on the ground, proven, that the Claimant filed, on 24/05/2017, a special administrative action with which it seeks the annulment of the binding information dated 24/03/17, which concluded that «only in cases where income covered by a DTT is at issue, the deduction corresponding to the tax credit for double international taxation is effected to the sum of the IRC assessed according to the rules of the CIRC and the amount of the municipal surcharge assessed in accordance with the respective legislation».
Lis pendens (and also res judicata) have a common objective: to avoid the repetition or contradiction of judgments (art. 580 and 581, of the CPC).
Repeating a decision is useless; contradicting a previous decision is discrediting. Hence those two objections have that well-defined objective which, in practice, is resolved either by the fulfillment of the decision that became final first (the situation of res judicata – See article 625, of the CPC) or by the continuation of the action proposed first (the situation of lis pendens – See CPC, art. 582).
Lis pendens presupposes, therefore, the repetition of causes without final decision.
The identity of elements which the cited art. 581 lists appears to us thus as a legal implementation intended to obtain the goal set out above: which means, therefore, that the triple identity imposed in that rule must be connected with the basic rule expressed in the cited art. 580-2, namely, to prevent a court from being placed in the position of repeating and/or contradicting (or coming to contradict) another judicial decision.
It is a fact that among the grounds of claim alleged by the Claimant in the present proceeding is, in some way, the same question, since, in the reasoning of the assessment here disputed, the Respondent, TA, followed the understanding also endorsed by it in such binding information. In other words, the Claimant objects, in essentially identical terms, to an interpretation of the law made by the TA in this proceeding and in what is proceeding in terms in the TAF of Penafiel.
However, there is no lis pendens, for the reason that there is no identity neither in the requests nor in the grounds of claim (in the administrative action the annulment of a binding decision by the TA is sought; in this arbitral action the annulment of an additional IRC assessment is sought; in the first case, the ground of claim is the issuance of the allegedly illegal binding opinion; in this arbitral action it is the allegedly illegal assessment of a tax).
Moreover, there is also the difference, not inconsiderable, of the temporal element in which the decisions to be taken in each of the said proceedings will project: the judgment to be rendered by the TAF of Penafiel will only produce effects relating to assessments subsequent to the date on which the binding information was provided - 28/03/2017 –[see no. 6 of the "response" of the TA, or – if understood otherwise – from the date on which such information was requested, 01/03/2017 – no. 4 of the TA's response].
Now the disputed assessment is prior to any of those dates, as it was issued on 09/01/2017 (doc. 1 attached to the initial petition), the respective notification having been received by the Claimant on 16 of the same month (no. 2 of the initial petition, a fact not disputed by the Respondent).
Since binding information does not have (cannot have) retroactive effect, meaning it is not applicable to administrative decisions (assessments) that occurred at an earlier time, the effect of the judgment to be rendered by the TAF of Penafiel, whatever the content of that judicial decision may be or come to be, will leave untouched the assessment in the present proceedings and the arbitral decision to be rendered. Indeed, such information does not, obviously, have any binding nature for the Tribunal, state or arbitral.
In other words: the risk of contradiction noted above does not exist nor subsists in the case.
Hence the unfoundedness of the objection which is thus dismissed.
*
Prejudicial Question
The TA further argues, in the alternative, that if the objection of lis pendens is not accepted, there will always be a relationship of prejudiciality between the request for arbitral decision and the aforementioned administrative action that would justify the suspension of the proceeding to be decreed in this arbitral process.
It is not right.
For the purposes of the provision of art. 272 of the CPC, a cause is dependent on the judgment of another already brought when the decision thereof may affect and/or prejudice the judgment of the first, depriving it of its foundation or reason for being, which happens, namely, when, in the prejudicial cause, a question is being considered whose resolution may modify a legal situation that must be considered for the decision of the other dispute. Moreover, it may also be a prior question not capable of being decided or considered in another Court, because the latter is not materially competent for such (e.g., a question of a criminal nature essential to a decision of a civil, administrative, fiscal nature, etc).
It is understood, then, by prejudicial cause that in which it is discussed and intended to establish a fact or situation that is an element or prerequisite of the claim made in the dependent cause, such that the resolution of the question being considered and discussed in the prejudicial cause will interfere with and influence the dependent cause, destroying or modifying the grounds on which it is based.
As is the case in situations of lis pendens or res judicata, the aim is also here, although not solely, to avoid the risk of fundamental incompatibility between the decisions to be rendered in both actions and which could result from their simultaneous continuation.
The possibility of suspension of the proceeding in the prejudicial cause – as a way to avoid the incompatibility of judgments – is reinforced in situations where the grounds invoked for the claim deduced in the prejudicial cause are the same as those that had already been invoked in the defense of the dependent cause, to prevent the acceptance of the claim made therein or, in the more common situation, of a question with manifest interest for the decision of a dispute pending in another Court being discussed in the Court competent for the purpose (e.g., a criminal, tax, arbitral, labor court).
Now in the specific case of the proceedings there appears no need/utility in the suspension of the proceeding since both actions – the arbitral and administrative - with different grounds and requests, do not, reciprocally, constitute a prejudicial cause of one another in that the decision (whatever it may be or come to be) of one of those actions will not bring any consequences for the other, namely in terms of one decision contradicting the other in terms different from those that daily occur within the freedom of judgment of all Courts, without their decisions constituting, except for the exceptions (which is not the situation of the proceedings) res judicata outside of the concrete disputed material relationship.
On the other hand, waiting for the outcome of an action in which a decision is sought on the legality of an administrative act with repercussions or binding future nature in the sense of binding interpretation for the TA of a rule in situations occurring after the situation of the proceedings would be little more than a useless act and which would seriously, unnecessarily and inevitably delay the decision in a proceeding entirely shaped, among other things, by the principle of celerity as is the arbitral process.
It is therefore and without further ado dismissed the request for suspension of the proceeding filed by the TA.
*
Partial Lack of Cause of Action in the Request for Arbitral Decision Due to Lack of Grounds of Claim for the Request for Condemnation of the TA to Payment of Compensation for Provision by the Claimant of a (Improper) Guarantee.
The Claimant formulates a request for the TA to be condemned to payment of compensation for provision of improper guarantee.
The LGT provides:
Article 53
Guarantee in case of improper provision
1 - The taxpayer who, to suspend enforcement, offers a bank guarantee or equivalent shall be compensated totally or partially for the prejudice resulting from its provision, if the taxpayer maintained it for a period exceeding three years in proportion to the filing of an administrative appeal, a judicial objection or opposition to enforcement that have as their object the debt secured.
2 - The period referred to in the preceding number does not apply when it is verified, in an amicable claim or judicial objection, that there was error attributable to the services in the assessment of the tax.
3 - The compensation referred to in no. 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of compensatory interest provided in this law and may be requested in the very process of claim or judicial objection, or autonomously.
4 - The compensation for improper provision of guarantee shall be paid by offset against the revenue of the tax of the year in which payment is made.
From this provision derives the right of the subject of the tax assessed and under dispute to demonstrate: (i) that it was sued in an enforcement action resulting from the failure to voluntarily pay a tax assessment and (ii) that, to suspend that enforcement, it provided a bank guarantee.
Once these two prerequisites are met and the annulment of the assessment that served as the basis for the enforcement is judicially determined, the objector will then have the right to demand compensation for the (improper) provision of that guarantee.
Doctrine has held, with respect to the cited legal provision, that «the reason that justifies the attribution of the right to compensation is the presumable prejudice caused to the individual by illegal action of the tax administration, by incorrectly making an assessment» (Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, Lei Geral Tributária, annotated and commented, 3rd Edition, Vislis Editores, p. 230).
And, as noted by the Supreme Administrative Court, in a Decision of 21 November 2007 (appeal proceedings no. 633/07), «the basis for the right to compensation lies in the complex fact, made up of the prejudice resulting from the provision of the guarantee and the illegal action of the administration due to its error, in incorrectly assessing, forcing the taxpayer to incur expenses with the constitution of the guarantee which, had it not been for that action by the administration, would not have been necessary to provide».
While recognizing that whoever demands compensation does not need to indicate the exact amount of damages (See article 569 of the Civil Code), the fact is that it always becomes indispensable (grounds of claim) the allegation and proof both of the institution and pendency of the enforcement, and of the suspension thereof resulting from the provision of the bank guarantee for that purpose.
That is: it is necessary essentially to allege and prove the facts that substantiate the right to compensation, albeit without the need to quantify it.
Now it is this lack of allegation and absence of proof that, in the case sub judice, are found in the analysis of the request for arbitral decision.
In fact, since the Claimant did not allege specific facts that could constitute the grounds of claim, there is a lack thereof and, consequently, a deficiency of the initial petition [See art. 193 – 1 and 2/a), of the CPC, applicable pursuant to article 29, of the RJAT] by virtue of a dilatory exception that prevents the tribunal from hearing the merits of the case (in that part) and gives rise to the dismissal of the instance (arts. 493, nos 1 and 2 and 494- b), of the CPC), being within the knowledge of the tribunal ex officio (art. 495, CPC).
Hence the conclusion that the petition is deficient as to the request for condemnation to payment of compensation for improper provision of bank guarantee and the Tax and Customs Authority (TA) is absolved of the instance.
*
There are no other objections, nullities and/or prior questions to be considered and decided.
It is therefore necessary to decide on the merits regarding the remaining issues.
II GROUNDS/REASONING (continued)
The Law
The questions that the Tribunal is called to consider and decide are, in summary and briefly, the following:
1 - Depreciation not accepted by the TA as an expense in light of the provisions of articles 30, 31 and 34, of the CIRC[2] – Refusal to correct the taxable matter of the year 2013 in case of difficulty in making correlative or symmetrical adjustments in subsequent financial years;
2 - Autonomous taxation of expenses attributable to permanent establishments abroad, of residents, namely charges relating to light passenger or mixed vehicles (articles 34 and 88, of the CIRC) and representation expenses [articles 34-1/e),and 88-7, of the CIRC];
3 - Whether in the expression "IRC fraction", contained in section b) of no. 1 of art. 91 of the CIRC, the municipal surcharge collection should or should not be included; and
4 – Whether the request for annulment of the assessment of compensatory interest is grounded.
Let us consider these issues in the aforementioned order.
1 - Depreciation not accepted by the TA as an expense in light of the provisions of articles 30, 31 and 34, of the CIRC – Refusal to correct the taxable matter of the year 2013 in case of difficulty in making correlative or symmetrical adjustments in subsequent financial years.
Without prejudice to the above-stated declaration of lack of material jurisdiction of the Tribunal, it will always be reaffirmed that the Claimant does not question the legality of this correction, but only the fact that the TA did not proceed, ex officio, to "symmetrical correction" in the following years (that is, did not correct the assessments relating to them, considering as a fiscal expense of those financial years the value corresponding to the excess depreciation made by the Claimant in the year now in question).
It is true that the best doctrine considers that there is a duty for the TA, in situations of this type, to proceed, ex officio, to the symmetrical corrections that prove necessary, so as to prevent the occurrence of situations of taxation by a net income higher than the real, when considered, globally, the different financial years in question.
As the Claimant rightly points out, the principles of proportionality and efficiency (and those of celerity and procedural economy, we would add) would require such action by the TA, primarily as a way to prevent the increased costs, for taxpayers and for the TA (that is, for taxpayers), involved by the need for new administrative or judicial procedures, aimed at achieving the necessary correlative adjustments.
However, the violation of this duty does not, by itself, imply the illegality of the additional assessment resulting from the corrections made in a given financial year and which should, ex officio, project themselves in corrections relating to other financial years. In the view of the STA (proceedings 269/12, of 9 May, reproducing the Decision of the same Tribunal no. 0325/08, of 19-11-2008) – whose view we share –, only should the violation of the principle of specialization of financial years be accepted, by invoking the principle of justice, in situations where, with all periods for revision of the tax act already exceeded, one must avoid falling into an unjustified injustice to the taxpayer.
In any case, there are no elements in the record that allow the Tribunal to determine whether the symmetrical correction of the depreciation in question would still be possible or not, namely through a request for ex officio revision of the tax assessments relating to the financial years after 2013; it can only be assumed that, given the maximum period for which the depreciation of non-current assets normally extends, such symmetrical correction, even if initiated by the taxpayer, may still be possible.
The difficulty or even impossibility of adjustments or corrections in subsequent assessments of corrections made previously is not, as previously seen, subject to review in this proceeding.
Furthermore, it should be added that it does not appear how the violation of the principles of proportionality and justice can be brought to bear to justify a request for annulment of an assessment based on the eventual or hypothetical future impossibility of non-repercussion of the correction/assessment of IRC of 2013.
Therefore, also because no factual elements have been alleged that would allow concluding that the corrections to depreciation made by the TA violate the principle of justice (and those of proportionality and material truth, also invoked by the Claimant) and because the legality of such corrections in light of the legal rules directly applicable is not at issue, the request by the Claimant will be unfounded.
2 - Autonomous taxation of expenses attributable to permanent establishments abroad, of residents
The Claimant understands that, at the time, only charges attributable to permanent establishments of resident taxpayers located in Portuguese territory were subject to autonomous taxation, in accordance with article 88 of the IRC Code/2014.
In support of this thesis it argues that this was the understanding that the legislator came to adopt in no. 16 of article 88 of the IRC Code, as amended by Law no. 2/2014, of 16 January, according to which "the provision of this article does not apply to expenses or charges of a permanent establishment located outside Portuguese territory and relating to the activity carried out through it".
The Claimant understands that such legislative amendment, despite expressly stating that it is only applicable to taxation periods beginning or tax events occurring on or after 1 January 2014 (see article 14, of the cited Law no. 2/2014), is, substantially, interpretative in nature, as the question was, previously, uncertain, with no general guidance from the TA on the matter.
For its part, the TA argues, in summary, that, prior to Law 2/2014, the situation of branches regarding autonomous taxation was not provided for in the law (namely in art. 88 of the CIRC), hence the solution was that resulting from the general rules relating to the subjection of branches to IRC.
The question of the subjection to autonomous taxation of expenses attributable to permanent establishments abroad of residents was raised in doctrine, as far as we know for the first time, by Carlos Abreu in his work A Tributação dos Estabelecimentos Estáveis, published in mid-2012, cited by both parties. From reading that work, we highlight the following conclusions by the Author: (i) the old law (that in force at the time of the facts sub judice) did not contain any rule that would allow maintaining that the general rules of art. 88 of the CIRC did not apply to expenses (to the taxation of expenses) relating to permanent establishments abroad; (ii) according to supporters of the theory of non-taxation, such understanding could not be derived "from an interpretation of Portuguese legislation provided for in the CIRC, but is related to an interpretation of the philosophy underlying the aforementioned rule according to which autonomous taxation was created, the objective of which would be to tax charges that could be used outside the domain of the company's activity, and that, in that case, being charges incurred in another country with different tax rules and philosophies, it would not make sense the taxation to apply limitations and additional taxation to such expenses"; (iv) the Author is surprised that, "as far as we are aware, there is no position on these issues by the tax administration, which means that, probably, also in this matter, the options of the taxpayer have been accepted".
Regarding the introduction of the new no. 16 of art. 88 of the CIRC (current wording, introduced by Law no. 42/2016, of 28/12), despite having taken place in the Law that approved the "IRC Reform", the fact is that such legislative amendment does not appear in the draft presented by the respective Commission, and no official texts explaining it are known.
As Baptista Machado states, Introduction to Law and Legitimating Discourse, 1983, p. 246:
"It is to be considered as interpretative law (by nature) that which, for the purpose of putting an end to the controversy (or at least the uncertainty) about the meaning of a certain legal rule, comes to consecrate a solution that the courts could have adopted: not necessarily one of the previous jurisprudential currents or a strong previous jurisprudential current which may not even exist - but a meaning that legal operators could have extracted from the rule".
And adding there, on p. 247:
"For a new Law (NL) to be truly interpretative, therefore, two requirements are necessary: that the solution of the previous law is controversial or at least uncertain; and that the solution defined by the new law is within the scope of the controversy and is such that the judge or interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of the law. If the judge or interpreter, in the face of old texts, could not feel authorized to adopt the solution that the NL comes to consecrate, then this is decidedly innovative".
From this it follows, then, that the function of an interpretative law is to fix one of the possible interpretations of the previous law, with which the interested parties could and should have counted, without violating justified and legitimate legal expectations.
The difference between an interpretative law and an innovative law lies in that the first aims to put an end to real interpretation difficulties, which motivated doctrinal and jurisprudential controversy, while the second, with uniform interpretation by doctrine and courts existing, from which the legislator disagrees, in function of which, with the new law, imposes a different interpretation – cf. Rodrigues Bastos, On Laws, their Interpretation and Application, According to the Civil Code of 1966, 2nd edition (by the author), 1978, (pp. 49 and 50).
In light of the foregoing, it is concluded that, strictly speaking, one is not dealing with an interpretative question (knowing whether the current no. 16 of art. 88 of the CIRC constitutes an innovative rule or whether it should be attributed the character of authentic interpretation) for the simple reason that in the old law there was no any rule that could be interpreted as excluding autonomous taxation regarding expenses attributable to permanent establishments abroad, with no known controversy regarding the understanding that the general rule was the subjection of residents to a taxation of universal scope, made in the same terms, regardless of the origin of part of its income (See, in particular, art. 4 and 55-no. 1, of the CIRC/2012).
The question will therefore be another: the TA never took a position on this subject, "implicitly accepting" the non-autonomous taxation of expenses attributable to permanent establishments abroad, only beginning to be attentive to this type of situations and requiring such taxation from a recent past, perhaps since the publication of the aforementioned work by Carlos Abreu. But, in 2016, the legislator prevented such action by the TA, legislatively enshrining what was, possibly, before "generalized practice".
In this context it is clear that, on the strictly legal plane, the Claimant is not right. The TA has the duty to enforce the law in force, in its best understanding, even if, here and there, it only does so tardily, many years after the entry into force of the rules in question[3].
In light of the foregoing, the Claimant's request in this regard must be unfounded.
3. - Deduction of credit for international double taxation from the collection of municipal surcharge.
This question addresses whether or not the municipal surcharge collection should be included in the expression "IRC fraction", contained in section b) of no. 1 of art. 91 of the CIRC.
The Claimant supports the affirmative understanding based essentially on the following arguments:(i) the municipal surcharge has the same nature as the state surcharge (which the TA, for this purpose, considers to be "IRC fraction"); (ii) the deduction from the collection of municipal surcharge of tax paid abroad is imposed by all Double Taxation Avoidance Conventions (DTACs) celebrated by Portugal, and the OECD Model (on which they are based) "serves as an interpretative element in international legal relationships constituted by Portugal, even in relation to countries with which Portugal has not celebrated a DTAC"; (iii) tax discrimination, with regard to the elimination of international double taxation between countries with which a DTAC exists and does not exist in force, would be contrary to the most-favored-nation clause, to which Portugal is obligated by reason of, namely, its membership of the WTO and, in particular, with respect to Angola, by the provision of the Agreement on the Reciprocal Promotion and Protection of Investments[4] in force between the two countries; (iii) the TA's understanding would result in violation of the principle of justice and the principle of taxpaying capacity, which would lead to the unconstitutionality of section b) of no. 1 of article 91 of the IRC Code in an interpretation according to which the IRC fraction excludes the municipal surcharge from the calculation of the value of the IRC.
The Respondent, TA, for its part, understands, in summary, that the IRC and the municipal surcharge are distinct taxes and that this autonomy does not allow the collection thereof to be included in the expression "IRC fraction" used by the law.
Let us see:
First, we have that the municipal surcharge is an ancillary tax of the IRC (currently, an addition), inciding on the profit of the subjects of this tax. Therefore, the text of the law ("fraction" of the IRC) is capable of encompassing the municipal surcharge (starting with, by application of the principle accessorium sequitur principale), that is, it does not exclude (negative function of the grammatical element[5]) the interpretation endorsed by the Claimant.
Now it will be important to pay attention to the evolution of the text of the rule (historical element of interpretation), that is, to the use, by the legislator, of the expression "IRC fraction".
It should be noted that this expression has remained unchanged in the legal text since the original wording of the CIRC[6]. This assumes particular interpretative significance since, initially, the tax credit for international double taxation was only granted to income from countries with which Portugal had a DTAC in force[7].
That is, in the original wording of the rule, the expression "tax fraction" necessarily, in all cases, had to be interpreted in accordance with the conventional texts, which, in their no. 2 (taxes in view), regardless of the specific formulation used[8], encompass the municipal surcharge.
When, later, the legislator decided that Portugal, as a country of residence, would unilaterally grant (that is, independently of the existence of a DTAC) a tax credit for international double taxation, it did not alter the expression "IRC fraction". That is, the analysis of the evolution of the literal element does not, at any moment, reveal a legislative will to distinguish between the effectiveness (the collections to which it can be deducted) of the tax credit in situations where a DTAC exists and those in which it does not exist (in which the granting of such credit is unilateral, resulting from internal law).
The teleological element of interpretation also does not point in the direction defended by the Respondent. The decision by Portugal to unilaterally grant (i.e., in the absence of a DTAC that requires it), to its residents with income from abroad, a credit in reason of tax paid in the source countries gives expression to the so-called principle of export neutrality: "taxpayers who obtain income in other states should be covered by a tax treatment similar to that applicable to those whose income is obtained exclusively in the state of residence" [9]. It is therefore a question of equality among residents, which should not be limited by restrictive interpretations of the law, by interpretations that restrict the actual possibility of deducting such a credit[10].
Finally, the systematic element of interpretation must be considered, which consists in determining which interpretation seems most coherent with the legal system in which the rule is inserted, considered as a whole[11]. Now there is no doubt that the obligations assumed by Portugal, in particular within the framework of the WTO and, especially, in the Agreement on the Reciprocal Promotion and Protection of Investments concluded with Angola (country where, as proven, the Claimant's main permanent establishment abroad is located) - which go in the direction of eliminating restrictions on free international competition in matters of investment - will be more fully met if, on the fiscal plane, differentiations between residents who invest abroad are avoided, depending on the country where such investments take place. That is, even if it can be understood that such international commitments do not directly bind the tax legislator, the interpreter cannot fail to keep them in mind, in the name of the unity of the legal system, considered as a whole. The interpretation that ensures the coherence of the legal system is, certainly, the one that corresponds to "the most correct legal solution" which is supposed to have been adopted by the legislator (no. 3 of art. 9 of the Civil Code)
Finally, and still within the framework of the rational/teleological element of interpretation, one cannot fail to consider the absurdity that consists in trying to keep intact the collection of municipal surcharge in situations in which such would lead to international double taxation of the income. We would even say that, rationally, this would be the collection with regard to which the deduction corresponding to the credit for international double taxation should be effected, in the first place. In reality, the municipal surcharge aims to provide municipalities with their own financial resources, obtained through taxes inciding on those who carry out profitable activities in the area of a given municipality. Therefore, going beyond the specific issue under analysis, it seems devoid of reasonable foundation to require the payment of such a tax in relation to activities carried out outside national territory. Which, with greater reason, reinforces the understanding that payment of this tax should be "eliminated" by deduction of credits for international double taxation whenever the collection of IRC, strictly speaking, does not prove sufficient to absorb them in totality, as is the case in the present case.
Thus, in the expression "IRC fraction" contained in the then (2012) section b) of no. 1 of art. 91, the collection of municipal surcharge should be included. This means that the credit for international double taxation can be deducted from the fraction of the collection of such tax originated by income obtained abroad.
In light of the foregoing, the request by the Claimant will be well-founded.
4. - Annulment of the assessment of compensatory interest
The requirement or exigibility of compensatory interest presupposes a judgment of censure regarding the conduct of the taxpayer, that is, culpability thereof in the delay in the assessment.
Thus the Decision of the STA (PLENARY), proceedings no. 01490/13, of 22-01-2014: "responsibility for compensatory interest depends, therefore, on an adequate causal nexus between the delay in the assessment and the conduct of the taxpayer, as well as the possibility of formulating a judgment of censure against its conduct (by reason of intent or negligence)".
The same decision clarifies, citing the Decision of the STA, of 18/2/98, appeal no. 22.325, that "the lack of culpability or reasonableness, in terms of a normal or average taxpayer, of the criterion adopted, in divergence with the Tax Authority, even if erroneous, eliminates culpability".
In reality, in a system based on self-assessment of tax, the taxpayer assumes the risk that the interpretation of the law always implies. Hence, there must be an enhanced requirement for the full compliance with the duty of clarification that the law imposes on the TA (art. 59, no. 3, section c) of the LGT and art. 48 of the CPPT). Beginning with, a preventive clarification to be achieved, among other means, through the systematic issuance of general guidance (art. 55 of the CPPT), whenever this proves, objectively, necessary.
Referring to the specific case, we find that, with respect to the corrections made regarding the depreciation quotas accounted for in excess by the taxpayer, the maximum value that should have been considered results directly from the law (namely from Regulatory Decree no. 25/2009, of 14 September), so no interpretative doubts could be raised. The taxpayer did not comply with clear legal requirements that it was obligated to know, so its conduct is, manifestly, reprehensible, culpable.
The question of the assessment of compensatory interest regarding the credit for international double taxation results directly from the decision regarding the principal assessment. Annulled, in this part, the assessment of tax results, consequently, annulled the assessment of compensatory interest relating to it.
With respect to the assessment of autonomous taxation, the Claimant is right, as has been seen. Notwithstanding the clarity that the law in force at the time of the facts could have had, the fact is that there were divergent understandings regarding the subjection to autonomous taxation of expenses attributable to permanent establishments abroad, without the TA having taken an express position on this question, in particular by issuing general guidance, that is, the TA failed to comply with the duty of information to which it is legally obligated. Therefore, it is understandable that the taxpayer acted in the conviction of the lawfulness of its conduct.
Moreover, it must be accepted that the interpretation of the Law made by the Claimant was plausible, was reasonable, so much so that it was, later, adopted by the legislator. So the conduct of the Claimant does not appear, objectively, to be subject to censure.
For which reason the assessment of compensatory interest impugned in the part that resulted from the non-self-assessment by the Claimant of autonomous taxation inciding on expenses subject to such taxation relating to the activity of its permanent establishments abroad should be annulled.
5. – Questions of Prejudiced Assessment
The acceptance, even if partial, of the requests formulated by the Claimant is such as to make useless the assessment of all the other questions of legality and constitutionality raised, whose assessment is prejudiced in light of the provision of article 130, of the CPC.
III - DECISION
For the reasons set out, the members of this Tribunal agree, without prejudice to the decision, as stated above, of the objections raised, as follows:
a) To find unfounded the request for annulment of the additional IRC assessment which is the subject of the present proceedings in the part relating to the corrections resulting from autonomous taxation as petitioned in b), of the initial petition;
b) To find well-founded the request for annulment of the additional IRC assessment mentioned as to the corrections of the tax credit for international double taxation, as petitioned in c), of the initial petition, and
c) To find partially well-founded the request for annulment formulated in h), of the initial petition, for illegality, partial, of the assessment of compensatory interest which is the subject of the present objection, in the terms mentioned above, in 4.;
d) To find the initial petition deficient as to the request for condemnation to payment of compensation for improper provision of bank guarantee and, in consequence, to absolve the Tax and Customs Authority (TA) of the instance as to that request;
e) To find prejudiced the assessment of the requests and other matters raised or formulated and
f) To condemn the TA to reformulate, in accordance with what is hereby decided, the additional IRC assessment/2013 with no. 2017… and the compensation document no. 2017….
VALUE OF THE PROCEEDINGS
Taking into account the provision of articles 306, no. 2, of the CPC, 97-A, no. 1, of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings the value of the proceedings is fixed at €934,409.87.
COSTS
There is no occasion to fix arbitration fee and costs (see article 2 of the respective Regulation of Costs mentioned hereinafter), taking into account the provision of articles 6-2/b), of the RJAT and 4-1, a contrario, of the Regulation of Costs in Tax Arbitration Proceedings.
Let it be notified.
Lisbon, 10 January 2018
The Collective Arbitral Tribunal
José Poças Falcão
(President Arbitrator)
Rui Duarte Morais
(Adjunct Arbitrator)
Manuel Pires, dissenting according to attached dissenting opinion.
(Adjunct Arbitrator)
Dissenting Opinion
In the assessment of the problematic relating to subjection to two judgments, an excessively formalistic conception was adopted, disregarding a vision that attends to the ultimate objective of what is invoked.
With respect to the consideration of the municipal surcharge as an amount to be included in the credit of tax as a method to avoid/eliminate international double taxation, the decision did not take into account the character of that surcharge – which is not IRC – either with respect to the active subject, consequence of local power, of financial autonomy enshrined constitutionally (articles 6 no 1, 238 no. 4 and 264 of the CRP) or regarding objective aspects, because existing or modeled in its essential elements by the local entity, implying its impure nature as an ancillary, specifically an addition, not necessarily coinciding the quid on which it incises with that of the IRC, and could even exist without IRC, provided that, as before, the carrying forward of losses without limitations is accepted, and the decision has also not attended to the element connection residence in its legal discipline. Hence the care that, in the case under judgment, must be had in the invocation of the accessory following the principal. It is added that the decision adopted the position of disregarding that conventional solutions result from advantages obtained and concessions accepted, that is, from the balance found, which makes its "importation" in different contexts inappropriate, the law in action rejects it. In this framework, it occurs, unequivocally the rejection of the most-favored-nation clause, when not expressly established in DTACs, and therefore there is no place for any discrimination (the situations are different and the interpreter cannot assume the position of judge made treaties) and, a fortiori, when it is not a matter of taxation of income and wealth, the material scope of DTACs celebrated by the Country. For in the sphere of double taxation, as, moreover, in all frames, there are own views that have to be grasped, which cannot be disregarded, seeing they impose themselves. Nor is there a principle that rejects international double taxation. As for the CEN (capital export neutrality), in its consecration, it presents itself with a tendential character, sufficing to recall the consequences of the ordinary credit method vis-à-vis the total, depending, thus, on its respective legal configuration. From all of the written, results the impossibility of interpreting "the IRC fraction" in the same way in diverse contexts, and restrictive interpretation is not precluded, if necessary.
Although agreeing with the decisions regarding the correction of depreciation and autonomous taxation, the reasoning included raises a lack of convergence regarding what, according to it, duties fell on the TA.
Given what is written in the decision and in this opinion, the annulment of compensatory interest should not have been proceeded with (in the case of those relating to the non-self-assessment of autonomous taxation, there is no legal discipline justifying it).
As for the condemnation contained in the decision, it exceeded the jurisdiction of tax arbitral tribunals (see Decisions of tax arbitration no. 52/2012, 244/2013, 587/2014 and 30/2015).
10.01.2018
(Manuel Pires)
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