Summary
Full Decision
The arbitrators Cons. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr.ª Maria Cristina Aragão Seia and Dr. João Cruz (arbitrators-members), appointed by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 20-09-2016, agree as follows:
- Report
A…- SOCIEDADE GESTORA DE PARTICIPAÇÕES SOCIAIS, S.A., Legal Person No. …, with registered office in … …, Place …, …-… …, District of Ovar, filed, pursuant to the combined provisions of articles 2, no. 1, paragraph a) and 10, no. 1, of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT") and of articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, a petition for constitution of a collective arbitral tribunal, in order to declare the illegality and annul the IRC assessment No. 2016…, relating to the fiscal year 2012.
The petition for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the TAX AND CUSTOMS AUTHORITY on 12-07-2016.
Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, the Ethics Council appointed the signatories as arbitrators, who communicated acceptance of the appointment within the applicable period.
On 05-09-2016, the Parties were notified of this appointment and did not manifest any intention to refuse the designation of the arbitrators, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Ethics Code.
Thus, in accordance with the provision of paragraph c) of no. 1 of article 11 of RJAT, the collective arbitral tribunal was constituted on 20-09-2016.
The Tax and Customs Authority submitted a Response, in which it raised the exception of ineptitude of the petition for arbitral pronouncement and argued that it should be judged unfounded.
By order of 25-10-2016, the holding of a meeting was dispensed with and it was agreed that the proceedings would continue with written arguments.
The Parties submitted their written arguments.
The arbitral tribunal was duly constituted and is competent.
The parties have legal personality and capacity, are legitimate (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance No. 112-A/2011, of 22 March) and are duly represented.
The proceedings do not suffer from any nullities.
It is important to examine primarily the exception raised by the Tax and Customs Authority.
- Factual Matters
2.1. Proven Facts
The following facts are considered proven:
· The Applicant A…- SOCIEDADE GESTORA DE PARTICIPAÇÕES SOCIAIS, S.A., is the parent company of a group of companies taxed in accordance with the Special Tax Regime for Groups of Companies (hereinafter designated as RETGS);
· Until 31-12-2012, the fiscal perimeter of the group had the following composition:
- B…, S.A.;
- C…, SA;
- D… Lda.;
- E…, SA;
- F…, Lda.;
- G…, SA;
- H…, SA;
- I…;
- J…, SA;
- K…, SA
· Regarding the fiscal year 2012 and taking into account the values declared in the IRC return in the group declaration, it recorded taxable profit, pursuant to article 70 of CIRC, of € 2,769,391.62;
· The Applicant, in its individual capacity, was subject to an external inspection action covered by service orders OI 2011…/OI 2015…, in which the Tax and Customs Authority made a correction to the IRC taxable income relating to financial charges allocated to the acquisition of equity interests which it understood should have been added, in the amount of €541,067.15, in accordance with article 32 of EBF and Circular 7/2004, of 30 March;
· In the Tax Inspection Report relating to this inspection of the Applicant as an individual company, which is part of the administrative proceedings, the content of which is hereby reproduced, the following is stated, among other matters:
III. DESCRIPTION OF FACTS AND BASIS FOR MERELY ARITHMETIC CORRECTIONS
III.1. REGARDING IRC - YEARS 2012 AND 2013
Taking into account the values declared by the taxpayer individually for IRC purposes in the years 2011 to 2013, the net results of the fiscal year and the fiscal results are summarized in the following table:
As can be verified in the statement of results of the taxpayer relating to those years, the expenses with interest paid are always much higher than the income from interest obtained.
In the year 2011, the taxpayer added financial charges allocated to acquisitions of equity interests in accordance with no. 2 of article 32 of EBF in the amount of € 557,423.79, calculating this value taking into account Circular 7/2004 of 30 March of the IRC Services Directorate, as per calculations presented (Annex 3).
Through personal notification made to the taxpayer on 29-01-2015, in the person of L…, in the capacity of TOC, we requested that they justify to us the fact that no additions had been made in the determination of the IRC fiscal result in the years 2012 and 2013 of non-deductible financial charges allocated to the acquisition of equity interests in accordance with no. 2 of article 32 of EBF (Annex 4). In response, the taxpayer states that until the year 2011, in the determination of the IRC fiscal result, it added non-deductible financial charges related to equity interests, in accordance with what is stipulated in Circular 7/2004 of 30 March of the IRC Services Directorate. From the year 2012 onwards, taking into account developments that had meanwhile occurred at case law level regarding the illegality of the said Circular, it chose not to apply the instructions provided therein, adding no value whatsoever.
Despite what was stated by the taxpayer, it is a fact that, as in previous years, in 2012 and 2013, the value of its equity interests in group companies continues to have very significant weight in the total of its assets. Thus, also, as correctly done in the year 2011, in 2012 and 2013 the taxpayer should have added financial charges allocated to equity interests in accordance with no. 2 of article 32 of EBF. In those years, the taxpayer added no value whatsoever relating to these financial charges, regardless of whether or not the said Circular was used, contrary to what is stipulated in the article referred to in EBF.
It should be noted that in the year 2012, in the 1st IRC return filed, in the determination of the fiscal result, the taxpayer added financial charges allocated to acquisitions of equity interests of € 592,017.60, having also calculated this value in accordance with what is stipulated in said Circular 7/2004. Subsequently, the taxpayer proceeded to file a replacement IRC return for the same year, adding no value whatsoever relating to financial charges allocated to equity interests in the determination of the IRC fiscal result, despite the fact that its asset position remained unchanged, continuing to hold equity interests, to which these charges should have been allocated in accordance with no. 2 of article 32 of EBF.
According to no. 2 of article 32 of EBF, "...the gains and losses realized by SGPS (...) from equity interests of which they are holders, provided they are held for a period of not less than one year, and also the financial charges incurred with their acquisition do not contribute to the formation of the taxable profit of these companies..."
For the determination of financial charges incurred allocated to the acquisition of equity interests in the years 2012 and 2013, as the taxpayer did in the year 2011 and in the 1st IRC return filed in 2012, we relied on Circular 7/2004 of 30 March of the IRC Services Directorate. This Circular stipulates that financial charges should be disregarded as costs, for tax purposes, in the fiscal year to which they relate, that is, tax corrections should be made for those incurred with the acquisition of equity interests that are capable of benefiting from the special regime established in no. 2 of article 32 of EBF, regardless of whether all conditions for the application of the special taxation regime for gains have already been met. If it is concluded, at the time of disposal of the equity interests, that not all requirements for application of that regime are met, the financial charges that were not considered as a cost in previous fiscal years shall, in that fiscal year, be considered as a tax cost.
As to the method to be used for allocating financial charges incurred with the acquisition of equity interests, given the extreme difficulty of using a direct or specific allocation method and the possibility of manipulation that the same would allow, this allocation should be made based on a formula that takes into account the following: the remunerated liabilities of SGPS should be allocated, in the first place, to remunerated loans granted by these companies to participating companies and to other interest-generating investments, allocating the remainder to other assets, namely equity interests, proportionally to their respective acquisition cost.
According to the accounting records of the taxpayer, namely the accounting trial balances of the years 2012 and 2013 (Annex 5) and the information obtained in the course of this tax inspection action, applying the formula of Circular 7/2004 of 30 March, which had already been applied, financial charges allocated to the acquisition of equity interests result, which should have been added in the determination of the IRC fiscal result of € 541,067.15 in the year 2012 and € 1,144,891.38 in the year 2013, calculated in accordance with the following table:
Taking into account the corrections determined, the determination of corrected fiscal losses for IRC purposes results in € 440,709.04 in the year 2012 and € 8,663.78 in the year 2013, calculated in accordance with the following table:
· In parallel, covered by Orders OI 2015…/2015…-…, an inspection action was carried out on the subsidiary G…, in which the Tax and Customs Authority made a correction in the amount of €9,172.90, relating to depreciation and amortization expenses allocated to properties not rented which it considered non-deductible for IRC purposes, by virtue of no. 1 of article 23 of CIRC, in conjunction with no. 3 of article 29, both of CIRC;
· In the Tax Inspection Report relating to this inspection of G…, which is part of the administrative proceedings, the content of which is hereby reproduced, the following is stated, among other matters:
III. DESCRIPTION OF FACTS AND BASIS FOR MERELY ARITHMETIC CORRECTIONS
III.1 REGARDING IRC - YEARS 2011, 2012 AND 2013
(...)
b) Expenses with amortizations and depreciation not accepted in the determination of the IRC fiscal result for the years 2011, 2012 and 2013
The taxpayer is the owner of various real properties registered as investment properties, mentioned in its depreciation and amortization tables for the years 2011 to 2013 (see Annex 2). According to the information obtained from the taxpayer, some of these properties are rented, and the value registered as sales and service provision in the years 2011 to 2013 refers to the rents obtained from these properties identified by the taxpayer (see Annex 3). The remaining properties registered as investment properties are available for rental or sale (see Annex 3), are not being used and do not generate income for the taxpayer.
The depreciation and amortization expenses recorded in the years 2011 to 2013 refer to the entirety of the properties (deducted from the value of the land) registered as investment properties, regardless of whether they are being used or not.
Pursuant to no. 1 of article 23 of the IRC Code (legislation at the time), "...Expenses are considered those that are demonstrably indispensable for the realization of income subject to tax or for the maintenance of the income-generating source..." (emphasis ours).
Also, pursuant to no. 3 of article 29 of the IRC Code (legislation at the time), "...Except for duly justified and accepted reasons by the General Tax Directorate, assets shall only be considered subject to depreciation after entering into operation or use..." (emphasis ours).
From the above, losses with amortization of properties registered as investment properties that are not being used and that did not generate income subject to IRC are not deductible in the determination of the IRC fiscal result for the years 2011 to 2013.
After being requested, the taxpayer indicated the losses considered with amortization relating to properties that are in use and from which rents were obtained, in the years 2011, 2012 and 2013 (Annex 7).
From the above, corrections to the IRC fiscal results of those years thus result, relating to losses with amortization for the year of properties that were not in use and did not generate income for the taxpayer, determined in accordance with the following table:
Taking into account the corrections described in the previous points, the determination of corrected fiscal losses for IRC purposes results in € 308,023.42 in the year 2011, € 83,099.09 in the year 2012 and € 95,832.39 in the year 2013, calculated in accordance with the following table:
· Subsequently, the Tax and Customs Authority carried out an inspection action on the Applicant relating to the group of companies, covered by service order OI2015…/…;
· From the Tax Inspection Report relating to this inspection of the group of companies resulted corrections corresponding to the correction in the amount of € 541,067.15 relating to the Applicant as an individual company and the correction to the individual IRC fiscal result of the company "G… S.A." in the amount of € 9,172.90;
· In the Tax Inspection Report of this inspection of the group of companies, which is part of the administrative proceedings, the content of which is hereby reproduced, the following is stated, among other matters:
III. DESCRIPTION OF FACTS AND BASIS FOR MERELY ARITHMETIC CORRECTIONS
III.1. REGARDING IRC
III.1.1. Correction to the fiscal results of the group of companies of which the taxpayer is the parent company
(...)
III.1.1.2. Year 2012
Taking into account the values declared for IRC purposes in the return of the group of companies of which the taxpayer is the parent company, it recorded taxable profit of €2,769,391.62 in the year 2012, pursuant to article 70 of the IRC Code.
Regarding that year, as already mentioned, the taxpayer and a company in its group had external tax inspection actions with technical corrections to the IRC fiscal result, as described in the following table:
Within the scope of these tax inspection actions, the companies were notified to exercise the right to a hearing regarding these corrections, and did not exercise that right.
In light of these corrections, and taking into account article 70 of the IRC Code, the determination of a corrected fiscal result for IRC purposes of the group of companies of which the taxpayer is the parent company results in € 3,319,631.67, according to the following table:
· Following that inspection of the group of companies, IRC assessment No. 2015… was issued, dated 28-10-2015, which is document No. 2 attached with the petition for arbitral pronouncement, the content of which is hereby reproduced, in which the amount to be reimbursed was determined as € 87,140.99, taking into account the corrections mentioned;
· On 02-03-2016, the Applicant sent to the Tax and Customs Authority a gracious complaint against this assessment No. 2015…, which challenged it considering illegal the two corrections mentioned;
· By registered letter sent on 25-05-2016, the Applicant was notified of an opinion, prepared on 11-05-2016, relating to the Draft decision to deny the gracious complaint, which is part of the administrative proceedings, the content of which is hereby reproduced, in which the following is stated, among other matters:
2.3.2 OPINION
Before analyzing the factual matters we should note that the complainant, when filing the 1st income return for the year 2012, added in Q07, field 779 - Non-deductible financial charges (ex article 32, no. 2 of EBF) - the amount of € 592,017.60, at pages 41 of the record, having calculated this value in accordance with what is stipulated in Circular 7/2004. Subsequently, the taxpayer proceeded to file a replacement return for the same year, adding no value whatsoever relating to financial charges allocated to equity interests in the determination of the IRC fiscal result, having justified the fact during the inspection procedure by the developments that had occurred at case law level regarding the illegality of said Circular.
Question to be decided: The factual matters are limited to the tax regime applicable to equity holding companies (SGPS), provided for in article 31 of EBF, at the time of the occurrence of the facts, in the wording given to it by Law No. 32-B/2002, of 30 December and generic guidance contained in Circular 7/2004, of 30 March, of DSIRC.
No. 2 of article 31 of EBF provides that: "The gains and losses realized by SGPS and by SCR through the onerous transfer, whatever the title by which it operates, of equity interests of which they are holders, provided they are held for a period of not less than one year, and also the financial charges incurred with their acquisition, do not contribute to the formation of the taxable profit of these companies" (emphasis ours).
Circular 7/2004 comes to confirm the understanding as to the regime provided for in article 31 of EBF, the temporal application of this regime, the fiscal year in which tax corrections of financial charges should be made and the method to be used for allocating financial charges to equity interests.
Article 31 of EBF and binding nature of Circulars
Article 55 of CPPT in its no. 1 provides: "It is the exclusive responsibility of the highest ranking official of the service or the official in whom that responsibility has been delegated to issue generic guidance aimed at uniformizing the interpretation and application of tax rules by the services". And its no. 2: "Only the generic guidance issued by the entities referred to in the preceding number bind the tax administration" (emphasis ours).
In the same vein, current article 68-A, no. 1 of LGT, as amended by Law No. 64-A/2008, of 31 December, former article 68, provides: "The tax administration is bound by generic guidance contained in circulars, regulations or instruments of identical nature, regardless of their form of communication, aimed at uniformizing the interpretation and application of tax rules".
Generic guidance is thus typical internal regulations of the Tax Administration (TA), that is, general, binding instructions, directed to the organs of the tax administration, officials and subordinate agents, regarding the sense in which, through interpretation or supplementation, tax rules and legal principles that, in the exercise of their functions, fall to them to apply should be understood.
It is generic guidance contained in circulars, regulations or instruments of identical nature issued on the interpretation of tax rules that are in force at the time of the tax event that bind the TA.
As to the illegality and unconstitutionality of the method advocated in the Circular invoked by the complainant, in a gracious complaint proceeding, whoever analyzes the petition is subject to the disciplinary regime of officials of the Public Administration, namely to the duty of obedience, whereby it is not their responsibility to assess the legality or otherwise of an understanding emanated by a hierarchically superior organ and which constitutes "law" while it prevails.
On the other hand, as the TA is subject to the principle of legality (see article 266, no. 2, of the Constitution of the Portuguese Republic (CRP) and article 55 of LGT), it cannot refrain from applying a rule on the basis of unconstitutionality, unless the Constitutional Court (TC) has already declared the unconstitutionality thereof with binding general force (see article 281 of CRP) or is faced with violation of directly applicable and binding constitutional rules, such as those referring to rights, freedoms and guarantees (see article 18, no. 1, of CRP).
Moment at which interest loses its deductibility
It is not a necessary condition for the charges incurred with the acquisition of equity interests to be disregarded that they have been disposed of in that fiscal year, giving rise to the determination of gains or losses on disposal or that all the prerequisites required in no. 2 of article 31 of EBF are satisfied. It is sufficient that there is susceptibility to benefiting from that special regime.
And this is because, at the time of disposal of the equity interests, if not all requirements for application of that regime are met, the financial charges that were not considered as a cost in previous fiscal years shall, in that fiscal year, be considered as a tax cost (final part of point 6 of Circular 7/2004).
What must actually be disregarded as a cost, and consequently be added to taxable profit, are the financial charges incurred with the acquisition of equity interests in the fiscal year to which they relate. Regardless of the moment of disposal of these equity interests.
On the imposition of the method of determination of charges
As to the question of whether a direct or specific allocation method can be used, the IRC Services Directorate concluded that the fungibility of money makes it extremely difficult to determine with exactitude what the specific application of capital obtained through a particular loan is. Thus, the indirect method advocated in point 7 of said Circular should always be used, in order to prevent manipulation of results if such was not done.
However, such "fictitious indirect method" does not embody the prerequisites for application of article 87 of LGT and consequently for the procedure of revision of taxable income pursuant to article 91 of the same statute.
It is also alleged in point 90 of the petition that it was not notified in accordance with article 60, no. 1, paragraph d) of LGT.
Said paragraph d), of no. 1, of article 60 of LGT provides: "Right to a hearing before the decision to apply indirect methods, when there is no inspection report" (emphasis ours).
In the case at hand, paragraph d) is not applicable but rather paragraph e) of the same number given the existence of an inspection report ("e) Right to a hearing before the conclusion of the tax inspection report").
Having company A…, as an individual company, been notified through official letter No. …, of 29-06-2015, to exercise its right to a hearing on the draft inspection report, it did not exercise the same.
Thus, there is no preterition of essential formality and consequently no annulability of the correction made.
Regarding the correction of € 9,172.93, in the sphere of "G…", relating to "Expenses with depreciation and amortization not accepted in the determination of the IRC fiscal result for the year 2012"
Article 23, no. 1 of CIRC, at the time of the facts, provided that: "expenses are considered those that are demonstrably indispensable for the realization of income subject to tax or for the maintenance of the income-generating source (...)".
In the initial conception of the IRC Code, a paradigm of taxation based on a relationship of partial dependence between taxable profit and the accounting result was followed. Certain requirements were thus established for purposes of the tax relevance of a broad set of income and expenses. With regard to expenses, the general principle of their acceptance contained in the referred article 23 was to consider as deductible those that were demonstrably indispensable for the realization of income subject to tax or for the maintenance of the income-generating source. With Law No. 2/2014, of 16 January, the wording of article 23 of CIRC became: "For the determination of taxable profit, all expenses and losses incurred or borne by the taxpayer to obtain or secure income subject to IRC are deductible".
This Law (No. 2/2014) which carried out the reform of company taxation entered into force on the day following its publication. Thus, and in accordance with article 12 of LGT "Tax rules apply to facts subsequent to their entry into force, and no retroactive taxes can be created".
As the fiscal year 2012 is involved, the wording of article 23 of CIRC that was in force at the time of the facts applies. That is, the general principle prevails that only expenses that are demonstrably indispensable for the realization of income subject to tax are considered deductible.
In this line of guidance and as to the concept of indispensability of the cost, we highlight by way of example, Tomás de Castro Tavares, who argues: "The general notion of indispensability is thus cut out, therefore, on an economic-business perspective, by fulfillment, direct or indirect, of the ultimate motivation to contribute to obtaining profit. Indispensable costs are equivalent to expenses incurred in the interest of the company or, in other words, in all acts abstractly subsumed in a profit profile (...). The essential expense is equivalent to every cost incurred in order to obtain income and which represents an economic decline for the company. As a rule, therefore, deductibility depends merely on a causal and justified relationship with the productive activity of the company" (emphasis ours).
The correction made is limited to the fact that losses have been considered from the amortization of properties registered as investment properties that are not being used and that did not generate income subject to IRC.
Article 29, no. 1 of CIRC, at the time of the facts, stated that: "1- Depreciation and amortization of (...) investment properties accounted for at historical cost that, on a systematic basis, suffer losses of value resulting from their use are accepted as expenses (...)" (emphasis ours).
And in no. 3: "(...) assets shall only be considered subject to depreciation after entering into operation or use" (emphasis ours).
With the complainant's actual activity being the "Purchase and sale of real properties and management of those it owns, namely through their rental", constituting the rents obtained current revenue of the company, only losses with amortization of properties registered as investment properties that have been used and have generated income subject to IRC shall be accepted as deductible costs.
- Legal Matters
3.1. Exception of Ineptitude of the Petition for Arbitral Pronouncement
The Tax and Customs Authority raises the exception of ineptitude of the petition for arbitral pronouncement, with the following grounds, in summary:
– the cause of action is the legal fact from which the plaintiff's claim arises;
– the mere generic indication of the right one intends to make effective is not sufficient; the specific indication of the constitutive facts of that right is necessary;
– in the present arbitral proceeding, the cause of action is embodied in the entirety of facts from which the corrections made to the fiscal result of the group in the total amount of €550,240.05 carried out by the Tax Inspection pursuant to internal service order No. OI 2015…/…, specifically to company A… SGPS, SA in its individual capacity and to the subsidiary G… SA, which gave rise to the additional IRC assessment No. 2015… of 2015-11-02;
– the Applicant comes to dispute the IRC assessment No. 2016…, issued on 30-03-2016, which was based on a correction made by the Tax Inspection relating to an increase in the deduction from IRC collection relating to tax benefits in the sphere of the parent company of the group, pursuant to Order OI 2016…, in the amount of € 205,300.81, the Final Report of which was notified to the complainant through official letter No. …, of 17-03-2016;
– there is no identity between what is being requested and what supports the petition;
– there is no error, or slip that can be corrected;
– article 18, no. 1, paragraph c), of RJAT only permits correction of writing errors, minor omissions, or mere imprecisions or insufficiencies in the allegation of factual matters;
– the Applicant, similarly to what it invoked when exercising the right to participate in the gracious complaint, understands that the assessment whose annulment it seeks (2016…) has come to replace the assessment on which the facts in the present case are based (2015…);
– the Applicant repeatedly affirms that it does not intend to annul assessment 2015…, but rather assessment 2016…;
– assessment which is based on facts completely unrelated to the facts on which the present proceedings are based;
– the petition for arbitral pronouncement is devoid of content, since it does not correspond to any cause of action;
The Applicant responded in its written arguments saying, in summary, the following:
– from the inspection action that took place pursuant to service order No. OI2015…/… resulted a correction to the individual IRC fiscal result of the Applicant, in the amount of € 541,067.15 and a correction to the individual IRC fiscal result of company "G… S.A." in the amount of €9,172.90;
– as a result, the taxable income of the Applicant, for the fiscal year 2012, went from €2,414,127.48 (declared) to €3,235,330.66 (corrected);
– the IRC assessment for the fiscal year 2012, No. 2015…, incorporates the aforesaid corrections;
– but the Applicant was notified of a new IRC assessment for the fiscal year 2012 with No. 2016… – where, among other things, interest on arrears and default are additionally assessed and from which a different reimbursement results;
– the Tax Administration (TA) notified the Applicant that such a tax act is subject to gracious and/or contentious challenge;
– there is no contradiction between the petition and the cause of action – and this is because, as results from the assessment in question, it incorporates the corrections to the Applicant's taxable income resulting from the inspection action that took place pursuant to service order No. OI2015…/…, which the Tax and Customs Authority addresses in the subsequent points of its response;
– faced with a tax act which, in addition to considering a corrected taxable income of € 3,235,330.66, resulting from the corrections made by the TA pursuant to service order No. OI2015…/…, considers new operations and notifies the Taxpayer to challenge contenciously, it was expected that it would do so, in exercise of its most basic rights of defense, as it has no other reason to challenge such a tax act except to annul the substantial corrections which it undeniably reflects, from which results a lower reimbursement than previously notified;
– the consideration/deduction of said tax benefits in the assessment in question also constitutes an injurious act, in that its deduction is made on the basis of taxable income corrected by the TA itself and which the Applicant understands to be illegal on several grounds;
– both tax acts in question do not subsist, nor can they subsist, in parallel in the legal system;
– the tax act in question constitutes a separate assessment from the previous one – which implicitly annuls or, at least, replaces, whether by the consideration of new operations, whether by obtaining a new result;
– the primitive assessment thus suffers from a vice in its own right – recognized by the TA itself - whereby its effects cease to be produced by virtue of a legal act that establishes and, consequently, destroys them retroactively;
– of additional/corrective assessments, only the last one that remains standing shall be impugnable, for all the previous ones to have been annulled and replaced by this one.
The ineptitude of the initial petition is provided for in article 98 of CPPT as an insanuble nullity of the tax judicial proceeding, being defined in article 186 of CPC, norms which are subsidiarily applicable by virtue of the provision of article 29, no. 1, paragraphs c) and e), of RJAT.
As results from paragraph a) of no. 2 of said article 186, as far as the cause of action is concerned, ineptitude only occurs when it is lacking or unintelligible.
However, pursuant to no. 3 of the same article 186 "if the defendant contests, despite raising ineptitude on the basis of paragraph a) of the preceding number, the raising is not judged founded when, having heard the plaintiff, it is verified that the defendant interpreted the initial petition appropriately".
In the case at hand, it is manifest that there is no total absence of cause of action, as the Applicant indicates the reasons why it understands that the assessment it is challenging should be declared illegal.
Therefore, ineptitude can only exist for want of cause of action when none is invoked or is unintelligible, it cannot be concluded that ineptitude occurs.
In any case, as the Tax and Customs Authority in its Response appreciates the legality questions which the Applicant attributes to assessment No. 2016…, which are those relating to the corrections that underlay assessment 2015… and are incorporated therein, it is verified that it understood well the grounds by which the Applicant understands that the first assessment is illegal, which it in its written arguments confirms are those which the Tax and Customs Authority understood.
Therefore, if ineptitude of the petition for arbitral pronouncement existed, its raising would always have to be judged unfounded, on the basis of no. 3 of article 186 of CPC, as, "having heard the plaintiff", it is verified "that the defendant interpreted the initial petition appropriately".
The exception of ineptitude of the petition for arbitral pronouncement is thus unfounded.
A different question is whether the Applicant may challenge the new assessment on the basis of defects that already affected the first one.
The two assessments have the following contents:
[Comparison table of two assessments]
Comparing the two assessments, it is verified that the taxable income considered is the same, with differences in the level of special payments on account and the total deductions, but the "corrected amounts" are precisely the same.
Thus, it is to be concluded that assessment No. 2016… maintains the corrections to the Applicant's taxable income that were made in the inspection underlying assessment No. 2015….
In situations of this type, in which the new assessment incorporates in the calculation of the tax the corrections that underlay the first assessment, it should be understood that its revocation by replacement operates, being the last and only this that comes to define the final position of the Tax and Customs Authority on the IRC taxation to be applied for the fiscal year 2012, which has as a corollary, namely, that there shall not be two reimbursements of the determined amount to be reimbursed, but only the single one, which is determined in the second assessment.
From the above, the exception of ineptitude of the initial petition is unfounded and there is no obstacle to examining the legality of assessment No. 2016…, in the part in which it has as its basis the correction to the individual IRC fiscal result of the Applicant, in the amount of € 541,067.15 and the correction to the individual IRC fiscal result of company G… S.A. in the amount of €9,172.90.
3.2. Question of Legality of Correction to Individual IRC Fiscal Result of the Applicant, in the Amount of € 541,067.15
3.2.1. Clarification of Relevant Grounds and the Question Which is the Subject of the Proceeding
The correction to the individual IRC fiscal result of the Applicant was based on the understanding of the Tax and Customs Authority that the financial charges allocated to the acquisition of equity interests should have been considered for determining the taxable profit for the fiscal year 2012, in the amount of € 541,067.15, in accordance with article 32, no. 2, of EBF and Circular 7/2004, of 30 March.
Law No. 32-B/2002, of 30 December, which approved the State Budget for 2003, amended article 31, no. 2, giving it the following wording:
2 - The gains and losses realized by SGPS and by SCR through the onerous transfer, whatever the title by which it operates, of equity interests of which they are holders, provided they are held for a period of not less than one year, and also the financial charges incurred with their acquisition, do not contribute to the formation of the taxable profit of these companies.
Subsequently, the Tax and Customs Authority issued Circular No. 7/2004, of 30 March, in which, among other matters, the following is stated:
- As to the method to be used for allocating financial charges incurred to the acquisition of equity interests, given the extreme difficulty of using, in this matter, a direct or specific allocation method and the possibility of manipulation that the same would allow, this allocation should be made based on a formula that takes into account the following: the remunerated liabilities of SGPS and SCR should be allocated, in the first place, to remunerated loans granted by these companies to participating companies and to other interest-generating investments, allocating the remainder to other assets, namely equity interests, proportionally to their respective acquisition cost.
Corresponding to that article 31, no. 2, of EBF, in the wording in force in the year 2012, is article 32, no. 2, which, in the wording given by Law No. 64-B/2011, of 30 December, establishes the following:
2 - The gains and losses realized by SGPS from equity interests of which they are holders, provided they are held for a period of not less than one year, and also the financial charges incurred with their acquisition do not contribute to the formation of the taxable profit of these companies.
Until the year 2011, in the determination of the IRC fiscal result, the Applicant added financial charges relating to equity interests, in accordance with what is stipulated in Circular 7/2004 of 30 March of the IRC Services Directorate. Regarding the fiscal year 2012, the Applicant, in a first return, proceeded in the same manner, but subsequently filed a replacement IRC return for that year, adding no value whatsoever relating to financial charges allocated to equity interests in the determination of the IRC fiscal result, despite the fact that its asset position remained unchanged, continuing to hold equity interests.
The Tax and Customs Authority understood that the formula provided for in said Circular No. 7/2004 should be applied, saying in the Tax Inspection Report to the Applicant:
As to the method to be used for allocating financial charges incurred with the acquisition of equity interests, given the extreme difficulty of using a direct or specific allocation method and the possibility of manipulation that the same would allow, this allocation should be made based on a formula that takes into account the following: the remunerated liabilities of SGPS should be allocated, in the first place, to remunerated loans granted by these companies to participating companies and to other interest-generating investments, allocating the remainder to other assets, namely equity interests, proportionally to their respective acquisition cost.
In the present proceeding, the Applicant defends on main grounds, in summary, the following:
– during the inspection procedure the TA had no concern to ascertain whether in the fiscal year 2012 any acquisition or disposal of equity interests was made (particularly with the consequent determination of gains or losses on disposal of those interests);
– the TA merely presumed the existence of financial charges incurred to acquire equity interests, by applying a Circular, not even specifying which concrete equity interests would allegedly have been acquired with the (supposed) use of financing;
– the TA corrected the financial charges supposedly incurred with the acquisition of the equity interests that the Challenger has in its balance sheet, but did not even bother to verify whether and when such equity interests were disposed of;
– the TA cannot make corrections for the fiscal year 2012 when the factual prerequisites contained in the legal rule it invokes have not yet been verified – particularly the holding period and the disposal;
– if any correction exists, and even if the TA demonstrated that charges with a loan contracted for the acquisition of equity interests were incurred – which did not happen - the same could only take place in the fiscal year in which those equity interests were disposed of, under penalty of violation of the principle of separation of fiscal years, provided for in article 18, no. 2, of CIRC;
– in the fiscal year 2012 the Challenger neither acquired nor disposed of any equity interests;
– the TA considered only the final balance-sheet positions on 31-12-2012, to determine the proportion of loans which, supposedly, were destined for the acquisition of equity interests - allocating financial charges according to that proportion and using, for such purpose, a method created administratively by Circular No. 7/2004, of 30 March;
– the TA used, for that purpose, an indirect method of arithmetic matrix in which it does not even question or verify whether the financing was or was not contracted for the acquisition of shares, without verifying which equity interests were acquired or disposed of, and at what moment, without ascertaining whether these equity interests generated untaxed gains;
– the TA made no inquiries whatsoever to ascertain whether the loans contracted were, in fact, destined for the acquisition of the equity interests which the Challenger held on 31-12-2012, namely by comparing the dates of acquisition of the equity interests with the dates of contracting of the loans which generated the financial charges corrected;
– the use of said indirect method violates the principle of legality, as administrative guidance does not possess normative force equivalent to legislative acts;
– as the law does not establish any form which the criteria for allocation of financial charges should take, the TA cannot, through the issuance of circulars, come to create true rules of incidence, imposing its internal instructions and interpretations with effects erga omnes.
As is concluded from the reasoning contained in the Tax Inspection Report, the position of the Tax and Customs Authority comes down to applying the method provided for in this Circular, fictionally presuming that part of the financial charges incurred in the year 2012 were destined to finance the acquisition of equity interests, regardless of whether these have or have not been acquired with the use of means that involved the payment of financial charges in the fiscal year in question. In truth, the Tax and Customs Authority understood that this indirect method should be applied "given the extreme difficulty of using a direct or specific allocation method and the possibility of manipulation that the same would allow", having not even inquired whether a specific allocation was possible or whether there was any "manipulation".
The allegation which the Tax and Customs Authority makes in the present proceeding that the indirect method is only applicable to SGPS which do not carry out or are not capable of carrying out such specific or direct allocation constitutes a posteriori reasoning which has no correspondence in the Tax Inspection Report which, manifestly, understands that this method is applicable solely because of the "extreme difficulty of using a direct or specific allocation method and the possibility of manipulation that the same would allow". In light of the Tax Inspection Report, it is the mere abstract difficulty of using a direct method and the abstract possibility of manipulation which impose the application of the indirect method provided for in Circular No. 7/2004 and not the now alleged concrete impossibility of ascertaining the direct and specific allocation, which, moreover, in the Tax Inspection Report is not even sketched to be sought to be demonstrated.
The decision of the gracious complaint clearly confirms the position assumed in the Tax Inspection Report, in the sense that "the fungibility of money makes it extremely difficult to determine with exactitude what the specific application of capital obtained through a particular loan is" and that "the indirect method advocated in point 7 of said Circular should always be used, in order to prevent manipulation of results if such was not done".
In a contention of mere annulment, as is the one which governs in the judicial challenge proceedings and in arbitral proceedings, which are its alternative (article 124, no. 2, of Law No. 3-B/2010, of 28 April), the legality of the challenged act as it occurred must be assessed, with the reasoning which was used in it, other possible reasoning which could serve as support to other acts, of content of total or partial coincidence with the act practiced being not relevant. ( [1] )
Thus, it is the legality of the position assumed by the Tax and Customs Authority in the sense that the use of the method provided for in point 7 of Circular No. 7/2004 is mandatory ("should always be used, the indirect method") which is at issue in the present proceeding, as far as the first question raised by the Applicant is concerned.
3.2.2. Examination of the Question of Mandatory Application of the Method Provided for in Point 7 of Circular No. 7/2004 and of Preterition of Legal Formality Relating to Determination of Taxable Income
In no. 2 of article 32 of EBF it is established that the "financial charges incurred with their acquisition" do not contribute to the formation of taxable profit, referring to the equity interests, so it is manifest that its literal content indicates that only the financial charges which are connected with the acquisition of equity interests are covered by the non-deductibility established therein.
Beyond being this the interpretation which results from the literal content, it is corroborated by the explanation for its introduction into the EBF which was given in the Report on the State Budget for 2003 (Law No. 32-B/2002, of 30 December).
In truth, as is mentioned in Circular No. 7/2004, the regime of this rule was introduced into the EBF by Law No. 32-B/2002, of 30 December, which approved the State Budget for 2003, then in article 31, whose regime came to be contained in article 32 after the renumbering carried out by Decree-Law No. 108/2008, of 26 June.
In Proposed Law No. 28-IX, which came to give rise to the Budget Law for 2003, article 31, no. 2, appeared with wording identical to that in force in 2011 (in article 32, no. 2), being the only difference the addition of the reference to "ICR" (abbreviation for "venture capital investors"), which is irrelevant for the interpretation of the rule.
In the referred Report on the State Budget for 2003 ( [2] ) the introduction of this rule is announced, with a view to "broadening the tax base and measures of moralization and neutrality", in the following terms:
"The non-deductibility, for purposes of determining taxable profit, of charges of a financial nature directly associated with the acquisition of equity interests by SGPS is established";
It is thus unequivocal that it was intended that only financial charges directly associated with the acquisition of equity interests should be covered by the non-deductibility.
On the other hand, as can be seen from this explanation of the scope of this final part of no. 2, this is an autonomous legislative measure in relation to the part in which it is established that gains and losses realized do not contribute to the formation of taxable profit, as it is obvious that non-contribution of gains does not broaden the tax base, but rather narrows it and, therefore, that reason does not apply.
By that express reference in the Report to the need for financial charges to be directly associated with the acquisition of equity interests (which is also expressed in the text of the rule through the reference to "financial charges with their acquisition"), it is concluded that it is not sufficient to determine the non-deductibility of financial charges for the SGPS to be a holder of equity interests, being necessary to demonstrate that there is a direct relationship between certain financial charges and the acquisition of certain equity interests.
It is thus concluded that the position adopted in the Tax Inspection Report and in the decision of the gracious complaint in the sense of the mandatory use of the indirect method provided for in point 7 of that Circular has no legal support, and that there is no reasoning to exclude the rule of deductibility of financial charges, which is contained in paragraph c) of no. 1 of article 23 of CIRC, in relation to charges which are not directly associated with the acquisition of equity interests.
Therefore, beyond the error of law in the interpretation adopted in the Tax Inspection Report and in the decision of the gracious complaint, a conclusion in the sense of the non-deductibility of the financial charges borne by the Applicant could only be reached by the Tax and Customs Authority following an examination of the manner in which the equity interests considered for allocation of the financial charges were acquired.
Being this the regime which is provided for in the law, it cannot be altered by way of regulation, as rules created by acts of a legislative nature cannot be, with external effectiveness, interpreted, supplemented, modified, suspended or revoked by acts of another nature (article 112, no. 5, of CRP).
Furthermore, the definition of the prerequisites of taxation is a matter subject to the principle of legality, foremost by virtue of the provision of article 103, no. 2, of CRP which establishes that "taxes are created by law, which determines the incidence, the rate, tax benefits and the guarantees of taxpayers".
This principle of legality is reaffirmed and expanded by the LGT, in its article 8.
It is thus clear that the rules relating to the determination of tax liabilities, namely those which define incidence and tax benefits, are subordinated to the principle of legality, consequently excluding the possibility that, through administrative means, rules be created from which result an actual burden on taxpayers. ( [3] )
Point 7 of Circular No. 7/2004 embodies an innovative rule on the determination of taxable income for IRC, creating situations of non-deductibility of financial charges not provided for in law (those in which there is no relationship between charges of that type and the acquisition of equity interests), whereby it is invalid due to violation of the principle of legality.
On the other hand, if it is certainly abstractly admissible that "in the impossibility admittedly of specific or direct allocation, it is legitimate for the TA, in light of the letter and spirit of no. 2 of article 32 of EBF, to apply an indirect or non-specific allocation method", as it comes down to a situation of "impossibility of proof and direct and exact quantification of taxable income", for purposes of no. 1 of article 90 of LGT, so also is it that the use of any indirect method to determine taxable income depends on the satisfaction of legal requirements, provided for in articles 85 and 87 of LGT, and only methods provided for in law may be used, namely in that article 90 of LGT, among which does not fit the one used by the Tax and Customs Authority.
Furthermore, in the case at hand, not even is demonstrated the impossibility of allocation of the financial charges incurred, as, in light of what is contained in the Tax Inspection Report, the Tax and Customs Authority did not even carry out any inquiry to seek to ascertain such allocation.
As to the burden of proof, invoked by the Tax and Customs Authority, it is certain that in the matter of tax benefits there are special rules from which is inferred that the burden of proof of facts necessary to benefit from them rests with whoever invokes them (articles 14, no. 2, and 74, no. 1, of LGT).
However, in the specific situation at hand, this is not a case of invocation of prerequisites of tax benefits, as the part of article 32, no. 2, of EBF which provides for the non-deductibility of financial charges incurred with the acquisition of equity interests does not establish a tax benefit, but rather a limitation on the deductibility of financial charges, unfavorable to the taxpayer, established with the purpose of mitigating the fiscally favorable regime enjoyed by SGPS in relation to companies in general.
Therefore, in determining the non-deductibility of financial charges, the Tax and Customs Authority is carrying out activity of a nature unfavorable to the taxpayer, whereby it bears the burden of proof of the facts it invokes to substantiate its action, namely, in opting for the use of an indirect method of determining taxable income, to prove that any or some of the legal prerequisites of its application, indicated in article 87 of LGT, were verified, as results from no. 3 of article 74 of LGT. This shall be the special rule of burden of proof applicable to cases of use of indirect methods of determining taxable income and not the general rule of article 74, no. 1, invoked by the Applicant.
Thus, being a prerequisite of the assessment act that financial charges incurred with the acquisition of equity interests have been borne, doubts as to whether they were borne concern the existence or quantification of the tax fact, whereby they must be valued procedurally in favor of the taxpayer and justify the annulment of the challenged act, by virtue of the provision of article 100, no. 1, of CPPT applicable to arbitral tax proceedings by virtue of the provision of article 29, no. 1, paragraph c), of RJAT.
Furthermore, as was understood in the referred judgment of the North Central Administrative Court of 15-01-2015, delivered in case No. 00946/09.0BEPRT, "the ATA, intending to disregard the costs accounted for by the appellant on the basis of violation of article 31/2 of EBF should demonstrate the prerequisites of its right to taxation, that is, should prove that these costs were not legally deductible either because less-gains were realized with the onerous transfer of equity interests held for less than one year, or because financial charges with their acquisition were incurred and accounted for".
In the case at hand, as the Applicant states, the Tax and Customs Authority "made no inquiries whatsoever to ascertain whether the loans contracted were, in fact, destined for the acquisition of the equity interests which the Challenger held on 31.12.2012 - namely by comparing the dates of acquisition of the equity interests with the dates of contracting of the loans which generated the financial charges corrected", which constitutes a procedural defect (preterition of legal formality), in light of article 58 of LGT which imposes on it the duty to "carry out all inquiries necessary to satisfaction of the public interest and discovery of material truth".
From the above, it is concluded that the assessment in question, in the part which has as a prerequisite the correction in the amount of € 541,067.15, suffers from a defect of violation of law, due to error as to the prerequisites of law, which justifies its annulment, in harmony with the provision of article 163, no. 1, of the Code of Administrative Procedure, subsidiarily applicable pursuant to article 2, paragraph c), of LGT, beyond suffering from the procedural defect which the Applicant attributes to it of omission of inquiries which it should have carried out and violation of the rules on the use of indirect methods, namely articles 81, no. 1, 85, no. 1, and 87 of LGT, invoked by the Applicant.
Proceeding with the petition for arbitral pronouncement in this respect, for these reasons, knowledge of the remaining questions raised on the legality of this correction is rendered moot, by being useless (article 130, no. 1, of CPC), namely the alleged violation of the principle of separation of fiscal years.
3.2.3. Issues of Unconstitutionality of the Applicant's Interpretation
The Tax and Customs Authority alleges that the interpretation of the Applicant violates the principles of equality, proportionality, capacity to contribute and taxation of actual income, but this position is based on the erroneous understanding that, for purposes of article 32, no. 2, of EBF an indirect allocation is relevant.
The allocation of financing to the acquisition of equity interests, when it occurs, is necessarily direct.
The "indirect allocation" created by the Tax and Customs Authority through Circular No. 7/2004, which constitutes the provision of an indirect method, is a mere fiction, based on presumptions whose basis is not explained in it, to lead to the conclusion that there was an allocation (allocation either exists or does not exist, is necessarily direct) of financing to the acquisition of equity interests without ascertaining whether it occurred or not and to what extent.
Now, as is obvious, taxpayers in relation to whom it was not proved that they allocated financing to the acquisition of equity interests cannot be given the legal treatment which is given to those in whom such allocation was proved, for purposes of article 32, no. 2, of EBF, as allocation is the necessary prerequisite of its establishment.
Moreover, no discrimination, positive or negative, of any SGPS is even glimpsed, as it is applicable to companies of all types: whatever the type of SGPS, if it bears charges with the acquisition of equity interests, it cannot deduct them; whatever the type of SGPS, if it has other financial charges related to other assets or activities it can deduct them; if an SGPS, of any type, has no financial charges, then it cannot deduct them, as none can deduct what it did not have; it does not constitute positive discrimination, certainly, that an SGPS of any type which bore more financial charges than another could deduct more charges than this one, as there is a difference between both which justifies the different deductibility.
As to the alleged unconstitutionality of article 32, no. 2, of EBF, due to violation of the principle of capacity to contribute, enunciated in article 104 of CRP, when interpreted in the sense that, being inapplicable the method provided for in point 7 of Circular No. 7/2004, all and any financial charges incurred with financing related to acquisitions of equity interests are deductible, regardless of proof promoted by that taxpayer for that purpose, nor is the relevance of its raising in the case at hand perceived, as the interpretation adopted here is precisely the opposite: article 32, no. 2, of EBF requires proof that the financial charges incurred are not related to the acquisition of equity interests and it is those which are deductible and if such relationship is proved the charges are not deductible.
The interpretation of that rule adopted by the Tax and Customs Authority in the correction challenged, by preventing that proof and by always imposing the application of the method provided for in that Circular, is what could generate difficulty in its compatibility with that constitutional principle, beyond others, if it were the manner of determination of allocation provided for in law. But, as is obvious, in case of doubt as to allocation of financial charges the rules of burden of proof apply, whereby the reality procedurally relevant is that which results from them, with its corollary at the level of deductibility.
As to the principle of taxation fundamentally on the basis of actual income, provided for in article 104, no. 2, of CRP, it is not seen that it is affected, benefiting SGPS, by a rule which provides, precisely, for the irrelevance of financial costs incurred, contrary to the general rule of article 23, no. 1, paragraph c), of CIRC.
The non-deductibility of financial costs provided for in the final part of article 32, no. 2, of EBF embodies a departure from the rule of taxation according to actual income, which is concretized in article 23, no. 1, paragraph c), of CIRC, which provides for the deductibility of financial charges.
Therefore, the exclusion of the application of an exception to that rule, provided for in the final part of article 32, no. 2, of EBF can only favor the rule of taxation according to actual income.
As to the principle of proportionality, also is not glimpsed how it may be violated by the interpretation referred to: if the existence of a situation provided for in the final part of the rule of article 32, no. 2, of EBF is proved, its establishment is applied; if that proof is not made, the rule is not applied. Certainly what would be incompatible with the principle of proportionality would be to apply the rule to situations in which the existence of a situation which fits the normative hypothesis is not proved.
It is thus concluded that the non-applicability of the rule of the final part of no. 2 of article 32 of EBF to situations in which it is not proved that financial charges incurred with the acquisition of equity interests were borne by SGPS is not incompatible with any of the constitutional principles invoked by the Tax and Customs Authority.
3.3. Question of Legality of Correction Relating to Depreciation and Amortization Expenses Recorded by G…
G… was the owner of various real properties registered as investment properties, mentioned in its depreciation and amortization tables for the years 2011 to 2013.
According to the information provided by G… to the Tax and Customs Authority, some of these properties are rented, and the value registered as sales and service provision in the years 2011 to 2013 refers to the rents obtained from these properties identified by the taxpayer. The remaining properties registered as investment properties are available for rental or sale, are not being used and do not generate income for G….
The depreciation and amortization expenses recorded in the years 2011 to 2013 refer to the entirety of the properties (deducted from the value of the land) registered as investment properties, regardless of whether they are being used or not.
The Tax and Customs Authority understood that losses from depreciation of properties registered as investment properties which are not being used and which did not generate income subject to IRC are not deductible in the determination of the IRC fiscal result for the years 2011 to 2013, basing its decision on no. 1 of article 23 and no. 3 of article 29 of the IRC Code.
The Applicant defends, in summary, the following:
– outside the concept of indispensability inherent to article 23 of CIRC must remain only the acts non-conforming with the social purpose, or which do not fit within the interest of the company, and "indispensability" should be interpreted according to the social object or activity of the company;
– the law does not require that the cost have an immediate and direct profitable purpose, it being sufficient that, in its origin and in its cause, it has a business purpose;
– the expenses in question relate to properties which are available for rental or sale;
– the materialization of costs or losses does not even have necessarily to be related, in a direct causal relationship, to the realization of income or gains;
– indispensable costs are equivalent to expenses incurred in the interest of the company or, in other words, in all acts abstractly subsumed in a profitable profile.
Article 23, no. 1, of CIRC establishes the rule that "expenses are considered those that are demonstrably indispensable for the realization of income subject to tax or for the maintenance of the income-generating source".
The interpretation which the Applicant defends of article 23, no. 1, is in harmony with what the doctrine and jurisprudence have understood about the satisfaction of the requirement of indispensability used in article 23, no. 1, of CIRC.
According to Tomás Tavares, "the legal notion of indispensability is thus cut out, therefore, on an economic-business perspective, by satisfaction, direct or indirect, of the ultimate motivation for obtaining profit. Indispensable costs are equivalent to expenses incurred in the interest of the company or, in other words, in all acts abstractly subsumed in a profitable profile." (…) Indispensability subsumes itself to every and any act carried out in the interest of the company… The legal notion of indispensability represses, therefore, acts non-conforming with the purpose of the company, not insertable in the social interest, especially because they do not aim at profit".
However, for depreciable or amortizable items, article 29 of the same Code establishes special rules which, being as they are, prevail over the general rule of article 23, no. 1, of CIRC.
In the case at hand, the Tax and Customs Authority invokes the rule of article 29, no. 3, of CIRC which establishes that "except for duly justified and accepted reasons by the General Tax Directorate, assets shall only be considered subject to depreciation after entering into operation or use".
This special rule does not limit the tax relevance as an expense of assets subject to depreciation, whereby it does not exclude the applicability of the concept of indispensability which is extracted from article 23, no. 1, of CIRC, whereby assets subject to depreciation are fully amortizable in the applicable period, in light of the regulation contained in Regulatory Decree No. 25/2009, of 14 September.
However, what results from that no. 3 of article 29 is that the beginning of the amortization periods depends on the assets in question entering into operation or use.
In the case at hand, the use of the properties referred to in the Tax Inspection Report whose amortizations were corrected by the Tax and Customs Authority did not begin until the end of the fiscal year 2012, whereby this rule is an obstacle to amortizations being made in this fiscal year.
Thus, the correction made to the taxable income of G… does not merit censure, whereby the petition for arbitral pronouncement is unfounded, in this respect.
- Decision
In these terms, this Arbitral Tribunal agrees in:
a) Judging the exception of ineptitude of the petition for arbitral pronouncement unfounded;
b) Judging the petition for arbitral pronouncement founded and declaring illegal the correction in the amount of € 541,067.15 relating to the taxable income of the Applicant as an individual company and annulling that correction and the IRC assessment No. 2016… in the part in which it has it as a prerequisite;
c) Judging the petition for arbitral pronouncement unfounded as to the illegality of the assessment in the part in which it has as a prerequisite the correction in the amount of € 9,172.90 to the taxable income of G… S.A.;
- Value of the Proceedings
In harmony with the provision of article 306, no. 2, of CPC, 97-A, no. 1, paragraph a), of CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 550,240.08.
- Costs
Pursuant to article 22, no. 4, of RJAT, the amount of costs is fixed at € 8,568.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, that of the Applicant and the Tax and Customs Authority in the percentages of 1.67% and 98.33% respectively.
Lisbon, 06-12-2016
The Arbitrators
(Jorge Manuel Lopes de Sousa)
(Cristina Aragão Seia)
(João Cruz)
[1] Essentially in this sense, the following judgments of the Supreme Administrative Court may be seen, regarding a parallel situation which arises in contentious review proceedings:
– of 10-11-98, of the Plenary, delivered in appeal No. 32702, published in Appendix to the Official Journal of 12-4-2001, page 1207;
– of 19/06/2002, case No. 47787, published in Appendix to the Official Journal of 10-2-2004, page 4289;
– of 09/10/2002, case No. 600/02;
– of 12/03/2003, case No. 1661/02.
In the same sense, the following may be seen:
– MARCELLO CAETANO, Manual of Administrative Law, volume I, 10th edition, page 479 in which he refers that it is "irrelevant that the Administration should, already in the pending contentious review, invoke as determining grounds other grounds, not set out in the act", and volume II, 9th edition, page 1329, in which he writes that "cannot (...) the responding authority, in the response to the review, justify the practice of the reviewed act by different reasons from those contained in its express reasoning";
– MÁRIO ESTEVES DE OLIVEIRA, Administrative Law, Volume I, page 472, where he writes that "reasons objectively existing but which were not expressly adduced, as grounds of the act, cannot be taken into account in the assessment of its legality".
[2] Available at:
[3] In this sense, defending that a distinction should be made, for purposes of application of the principle of legality, "between rules which constitute an actual burden on the taxpayer – subject to legal reserve – and duties of minor cooperation which may be dispensed from that (everything resulting from the degree of sacrifice which they imply and the legitimacy of their requirement in terms of proportionality) and organizational rules of collection and determination, which it does not make sense to subject to the principle of legality", may be seen SALDANHA SANCHES, Manual of Tax Law, 3rd edition, pages 121-122).
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