Process: 346/2014-T

Date: January 22, 2015

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision concerns a dispute between a Portuguese company and the Tax Authority (AT) regarding the recognition of SIFIDE (System of Tax Incentives for Research and Business Development) tax credits in Corporate Income Tax (IRC) for fiscal year 2009. The claimant company filed its 2009 IRC self-assessment in May 2010, then applied for SIFIDE benefits in June 2012 under transitional provisions allowing retroactive applications for pre-2012 periods. After receiving certification granting €93,630.96 in tax credits in November 2012, the company submitted a substitution declaration in May 2013 to claim a refund of €13,345.51 in overpaid IRC. The Tax Authority rejected this claim, arguing the substitution declaration was submitted outside the legal deadline. The company countered that under Article 122(3) of CIRC, the one-year period for submitting substitution declarations begins from the date of awareness of the administrative decision—in this case, the November 2012 SIFIDE certification. The company initiated arbitration proceedings under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011), requesting partial annulment of the 2009 IRC assessment. The case demonstrates the CAAD Arbitral Tribunal's material competence to adjudicate SIFIDE disputes, the procedural mechanisms for challenging denied R&D tax credits, and the interaction between SIFIDE certification deadlines and IRC self-assessment correction procedures. The tribunal accepted jurisdiction and allowed procedural refinement of the arbitral claim during the first hearing, illustrating the flexibility of tax arbitration proceedings for resolving complex R&D tax incentive disputes.

Full Decision

Case 346/2014-T

Arbitral Decision

Arbitrator Guilherme W. d'Oliveira Martins, designated by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the sole arbitral tribunal constituted on 9 July 2014, decides as follows:

I - REPORT

  1. On 22.04.2014, the company A…–, S.A., filed a request for constitution of a sole arbitral tribunal, in accordance with the terms and for the purposes set forth in articles 2nd and 10th of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter, "RJAT"), with the Tax and Customs Authority (AT) being required.

  2. The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD on 23.04.2014 and automatically notified to AT on 24.04.2014.

  3. In accordance with the terms set forth in no. 1 of article 6th and in subsection b) of no. 1 of article 11th of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228th of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrator of the sole arbitral tribunal the present signatory, who communicated acceptance of the corresponding assignment within the applicable period.

  4. On 11.06.2014, the parties were duly notified of this designation and manifested no intention to refuse the arbitrator's designation in accordance with articles 11th, no. 1, subsections a) and b) of RJAT and articles 6th and 7th of the Code of Ethics.

  5. Thus, in accordance with the terms set forth in subsection c) of no. 1 of article 11th of Decree-Law no. 10/2011, of 20 January, in the wording introduced by Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 14.04.2014.

  6. On 05.11.2014, the first meeting of the Tribunal took place, in accordance with the terms and for the purposes of article 18th of RJAT, and minutes thereof were drawn up, which are also attached to the case file.

  7. The representative of the Claimant requested the following refinement of the request for arbitral decision, which was recorded in the minutes:

"In light of the law provisions and by reference to the 2009 assessment ruling, the request for arbitral decision should be modified and adjudicated favorably and, consequently, the partial illegality of the 2009 Corporate Income Tax (IRC) assessment ruling should be declared and its partial annulment, to the extent corresponding to the lack of fiscal recognition of expenses incurred in 2009 under SIFIDE, to which corresponds the tax incorrectly collected in the amount of € 13,345.51.

The account adjustment should be made taking into account the deduction from the collection of the benefit (SIFIDE) declared in excess in form 22 of 2009 in the amount referred to above, all in accordance with article 2nd of RJAT and the binding ordinance."

  1. The request was not opposed by AT and was admitted by the Tribunal.

  2. The parties waived the production of witness testimony and the presentation of arguments.

  3. In the present arbitral process, the Claimant seeks to have the Arbitral Tribunal declare the partial illegality of the 2009 Corporate Income Tax assessment ruling and its partial annulment, to the extent corresponding to the lack of fiscal recognition of expenses incurred in 2009 under SIFIDE, to which corresponds the tax incorrectly collected in the amount of € 13,345.51.

11.A. The Claimant supports its request, in summary, in the following terms:

The Claimant here submitted its self-assessment declaration for the fiscal year 2009 in May 2010.

On 26 June 2012, the Claimant applied for SIFIDE – System of Tax Incentives for Research and Business Development, approved by Law no. 40/2005, of 3 August, for purposes of deduction of research and development expenses in the context of Corporate Income Tax relating to the year 2009.

In the application it submitted, the Claimant requested tax benefits for the year 2009, and was notified, on 27 November 2012, of the declarative statement from the SIFIDE certifying commission, which granted a tax benefit in the amount of € 93,630.96 (tax credit) resulting from expenses related to research and development actions incurred during the fiscal year 2009.

Thus, it was necessary to submit a declaration substituting the self-assessment of 2009 for purposes of reimbursement of the tax credits, wherefore, on 27 May 2013, the Claimant submitted that declaration through submission of form 22, which, due to insufficient tax collection, only the amount of € 13,345.51 was deducted in field 355 of table 10.

Following the declarative statement certifying SIFIDE, the Claimant submitted, on 27 May 2013, the substitution declaration for the year 2009, declaring in field 355 of table 10 the amount of € 13,345.51 (up to the amount of the tax collection).

In February 2014, the Claimant submitted administrative complaint no. …, relating to the self-assessment of Corporate Income Tax for 2009, in which it determined a Corporate Income Tax collection of € 13,345.51, requesting its correction in accordance with article 131st of the Code of Tax Procedure and Process (CPPT), taking into account the declarative statement certifying SIFIDE applications received on 27 November 2012.

AT argues that the substitution declaration was not submitted within the legal period provided for in article 122nd of the Code of Tax Procedure and Process (CPPT).

The Claimant understands that it was the obligation of AT to convert the administrative complaint submitted into a request for official revision in accordance with the terms set forth in article 52nd of CPPT: having the self-assessment for the year 2009, subject of the present process, been made in May 2010, the legal period for requesting official revision of this act was four years, thus verifying that the request for official revision could have been requested by the taxpayer when it submitted the administrative complaint and that, also for this reason, AT should have converted the administrative complaint into a request for official revision.

The Claimant further understands, contrary to AT's assertion, that the administrative complaint was submitted in a timely manner. Under no. 2 of article 122nd of the Code on Income of Legal Persons (CIRC), self-assessment from which resulted tax superior to that due may be corrected by means of a substitution declaration to be submitted within one year counting from the end of the legal period.

But, adds no. 3 of the cited article, that in case of a subsequent administrative decision or judgment, the period provided for in the preceding number (no. 2) is counted from the date on which the declarant becomes aware of the decision or judgment.

Thus, in this case, as the Claimant only became aware of the decision granting the SIFIDE application on 27 November 2012, the one-year period for submitting the substitution declaration would only begin with knowledge of this decision.

The Claimant complied with the period to apply for SIFIDE in accordance with the transitional regime defined by Law no. 64-B/2011 of 30 December, which, in its article 164th, allows applications relating to taxation periods prior to the year 2012 to be submitted until the end of the month of July 2012.

This is a transitional provision applicable only to taxation periods prior to 2012, as according to the current no. 3 of article 6th of the System of Tax Incentives for Research and Business Development "entities interested in resorting to the system of tax incentives provided for in this law must submit applications by the end of the month of July of the year following the fiscal year, with applications relating to years prior to that taxation period not being accepted."

In light of this impossibility of submitting applications relating to prior taxation years, and since the transitional regime allowed that, until the end of July 2012, interested parties could submit this type of applications, the Claimant here submitted, in June 2012, an application for SIFIDE, relating to the year 2009, thus complying with the period provided for in such transitional regime.

This means that the Claimant submitted its application within the period provided for in the transitional norm, namely, before the end of July 2012.

After submission of this application, the Claimant received notification of the decision granting the tax benefits on 27 November 2012, that is, from that date it became aware of the decision that allowed it to submit the declaration substituting the self-assessment of Corporate Income Tax for 2009, in accordance with such decision.

Subsequently, when the Claimant submitted the substitution declaration, it did so within one year of becoming aware of the subsequent decision, as it submitted the declaration on 27 May 2013, well before the deadline for such submission would expire.

It so happens that AT does not consider the provision of no. 3 of article 122nd of CIRC applicable to this case, which justifies the timeliness of the substitution declaration submitted by the Claimant.

AT, namely the Department of Services for Corporate Income Tax, ruled on the matter in question and considered that for purposes of no. 3 of article 122nd, only administrative decisions or judgments are considered subsequent that were not possible to invoke within the period provided for in no. 2 of article 122nd, solely and exclusively, due to the responsibility of the respective issuing entities.

The Claimant understands that this is merely an interpretation of the law by AT and nothing more than that, as from a reading of article 122nd of CIRC it does not result that subsequent administrative decisions or judgments must be rendered within the one-year period and, if they are not, that delay must be solely and exclusively attributable to those entities. From a reading of no. 3 of article 122nd it merely results that, in case of a subsequent administrative decision or judgment, the period is counted from the date on which the declarant becomes aware of the decision or judgment.

It so happens that the Claimant submitted its application on that date in accordance with the period provided for in the transitional regime, contained in article 164th of Law no. 64-B/2011, complying with the period prescribed therein.

As it only obtained the result of the decision in November 2012, it was only on that date that it had all the elements that allowed the Claimant to present its declaration substituting the self-assessment of the year 2009.

AT further states that article 164th of Law no. 64-B/2011 must be read in conjunction with the other norms of Corporate Income Tax, but according to its position, AT is not reading the said article in conjunction with no. 3 of article 122 of CIRC.

No. 3 of article 122nd allows that article 164th of Law no. 64-B/2011 has practical applicability for the tax benefits obtained for prior fiscal years, as is the case with the year 2009, where the one-year period provided for in no. 2 of article 122nd would have already expired.

Thus, and contrary to what was decided by AT, the declaration substituting the self-assessment declaration for the year 2009 was submitted in a timely manner in accordance with no. 3 and 4 of article 122nd of CIRC.

Regarding the tax credit:

During the fiscal years 2009 and 2010, the Claimant, in the course of its activity, incurred various expenses capable of being qualified as research and development expenses, under SIFIDE, approved by Law no. 40/2005, of 3 August.

In accordance with no. 1 of article 4th of Law no. 40/2005, of 3 August, Corporate Income Tax payers "may deduct from the amount determined in accordance with article 83rd of the Corporate Income Tax Code, and up to that amount, the value corresponding to research and development expenses, in the part that has not been subject to state financial participation on a grant basis, incurred in the taxation period beginning on 1 January 2006."

The same law further provides, in no. 1 of article 6th, that "the deduction referred to in article 4th must be justified by a declarative statement, to be requested by interested entities, or proof of submission of the request for issuance of such declarative statement, that the activities exercised or to be exercised effectively correspond to research or development actions, the respective amounts involved, the calculation of the increase of expenses in relation to the average of the two preceding fiscal years and other elements considered relevant, issued by an entity appointed by order of the Minister for Science, Technology and Higher Education, to be included in the tax documentation file of the taxpayer referred to in article 121st of the Corporate Income Tax Code."

On 27 November 2012, the Claimant received the declarative statement from the SIFIDE Certifying Commission, relating to its application to the said regime, in which it identifies the amount of € 93,630.96 of tax credit resulting from expenses related to research and development actions incurred during fiscal year 2009, and capable of being qualified for SIFIDE.

On 27 May 2013, a substitution declaration for fiscal year 2009 was submitted, having marked field 6 of table 04, namely, declaration of substitution resulting from a subsequent administrative decision or judgment due to insufficient tax collection in fiscal year 2009, the Claimant deducted the amount of € 13,345.51.

The excess allocation, in the amount of € 80,285.45, in accordance with no. 3 of article 4th of Law no. 40/2005, of 3 August, was deducted from the tax collection of fiscal year 2010, together with the tax credit resulting from expenses related to research and development actions incurred in the amount of € 104,859.93, which was issued by the Certifying Commission for Tax Incentives for Business R&D on 2 May 2013. An administrative complaint was filed for Corporate Income Tax for 2010 in May 2013 and the respective assessment was made on 30 October 2013.

Thus, in accordance with the terms set forth in article 6th no. 1 of Law no. 40/2005, of 3 August, the Claimant, having in its possession "declarative statement, …, that the activities exercised or to be exercised effectively correspond to research or development actions, the respective amounts involved, the calculation of the increase of expenses in relation to the average of the two preceding fiscal years and other elements considered relevant," seeks to proceed with the correction of the self-assessment of 2009, that is, seeks to deduct from the Corporate Income Tax collection for 2009 the amount € 13,345.51 in accordance with article 4th of Law no. 40/2005, of 3 August.

With respect to fiscal year 2009, submission of a substitution declaration in light of submitting an application for SIFIDE, in which the amounts of € 13,345.51 of tax credit are determined, relating to the burdens with expenses of research and development actions, implies that this value be deducted from the collection, in accordance with the terms set forth in articles 4th and 6th of Law no. 40/2005, of 3 August, whereby such amount should be reimbursed by AT to the Claimant.

11.B. In its Response, AT invoked, in summary, the following:

11.B 1. By Exception

AT invokes the exception of lack of subject matter jurisdiction of the Tribunal by reason of the fact that, within the scope of the administrative complaint whose dismissal is the subject of the request for arbitral decision, the legality was not appreciated since the request was considered untimely.

For this reason, AT understands that the contentious challenge of the dismissal decision should be made through a special administrative action as considered in articles 46th and 191st of CPTA.

Furthermore, AT also considers that there is also an exception of lack of subject matter jurisdiction arising from the circumstance that the request formulated is not consistent with the cognoscitive powers of the tribunal in that the requests formulated are directed at the annulment of the decision dismissing the administrative complaint and processing of reimbursement in a determined amount.

13.B 2. By Challenge

In the concrete case, the Claimant did not proceed with the tax deduction, in the year in which it incurred them, of the expenses relevant for purposes of SIFIDE, nor presented to the Certifying Commission documentary proof of this reality.

For the deduction of the SIFIDE tax credit in accordance with no. 1 of article 6th of Law no. 40/2005, of 3 August, the declarative statement certifying eligible expenses is not required, but only proof of its request.

In the concrete case, the Claimant submitted to the Certifying Commission the request relating to the taxation period in question (2009) only on 26.06.2012.

AT understands that if the Claimant did not deduct the amount pertaining to SIFIDE at the time of submission of the respective Form 22 declarations, it did so exclusively by its choice.

As regards the Claimant's claim that AT had the duty to convert the administrative complaint into an official revision in accordance with no. 1 of article 78th of the General Tax Law (LGT), AT understands the following:

In cases of self-assessment, as in the present case, no. 2 of article 78th of the General Tax Law expressly equates, albeit only for purposes of revision, an error (of law or of fact) committed by the taxpayer to an error committed by the services. However, this norm only fictionalizes the imputability of the error, not fictionalizing the error itself, whereby the taxpayer, should it wish to avail itself of the official revision figure after the elapse of the administrative complaint period, will always have to demonstrate the existence of the error.

In the concrete case, the Claimant did not demonstrate the existence of an error in the assessment in question, nor could it have done so as at the time of making the self-assessment sub judice, it did not have proof of having requested the competent entity the issuance of the declarative statement required by law for purposes of the benefit, in accordance with no. 1 of article 6th of Law no. 40/2005, of 3 August.

As such, the self-assessment made showed all the factual and legal premises that were contemporaneous with it, with no error existing in the same. Thus, there is no ground for official revision in accordance with no. 1 of article 78th of the General Tax Law. AT invokes, in this respect, what was decided by the Arbitral Tribunal in the context of case no. 48/2012-T, in which the Tribunal clarified that, for official revision of the tax act to be viable, it is necessary to demonstrate that there was an error in the assessment act. The Tribunal refers that "this does not remove the circumstance that there was no error – the only circumstance that is relevant here, as in the absence of this error, there is no place for official revision in the terms requested by the Claimant. It is concluded, thus, that it was not demonstrated that the assessment act suffered from any error of fact or of law. For this reason, there is no situation in which it would be allowed to the Tax Administration to proceed with official revision of the assessment act."

Thus, after the legal period for submission of an Administrative Complaint has elapsed, the procedure could only be converted into a request for official revision if the grounds invoked in that complaint were grounds for revision, which does not occur since the Claimant, in the prior hearing context within the scope of the Administrative Complaint clarified that it complained not of the Corporate Income Tax declaration filed in May 2010, but of the absence of assessment, by the Tax Authority, of the substitution declaration filed in May 2013.

As for the alleged timeliness in the submission of the substitution declaration of the self-assessment for the year 2009, AT manifests its disagreement since the Claimant delivered form 22 for the year 2009 on 21.05.2010 and the respective substitution declaration on 27.05.2013, that is, three years after submission of the first. Only on 26.06.2012 did it request certification of expenses in the context of SIFIDE, relating to the fiscal year in question here (2009), that is, after the legal period provided for in no. 2 of article 122nd of CIRC had elapsed.

AT further states that the period for submission of an administrative complaint ended on 21.05.2012 and given the terms set forth in no. 3 and 5 of article 59th of CPPT, the substitution declaration submitted could not be converted into an administrative complaint procedure.

II. FACTUAL MATTER

Before entering into the consideration of the issues, it is appropriate to present the relevant factual matter for its understanding and decision, which, having examined the documentary evidence and the tax administrative process attached to the case file and also taking into account the facts alleged, is fixed as follows:

II.1. Proven Facts

The Claimant applied, on 26 June 2012, for SIFIDE, provided for in Law no. 40/2005, of 3 August, with respect to fiscal year 2009.

On 27 November 2012, the Claimant was notified of the declarative statement certifying SIFIDE, which approved an amount of € 93,630.96 of tax credit resulting from expenses related to research and development actions incurred during fiscal year 2009.

On 27 May 2013, the Claimant submitted Substitution Form 22 relating to fiscal year 2009.

In that substitution declaration, the Claimant deducted, in field 355 of table 10, the amount of € 13,345.51.

On 13 February 2014, the Claimant filed, under the terms set forth in article 131st of CPPT, an administrative complaint relating to the aforementioned Corporate Income Tax assessment for 2009, requesting its correction and consequent restitution of the amount of € 13,345.51.

The Financial Services Department of Setúbal issued a draft dismissal of the complaint in which it argued that the prerequisites established in no. 3 of article 122nd of CIRC were not met, namely because "for purposes of no. 3 of article 122nd of CIRC, only administrative decisions or judgments are considered subsequent that were not possible to invoke within the period provided for in no. 2 of article 122nd, solely and exclusively due to the responsibility of the respective issuing entities. As the Claimant submitted the request for certification of expenses in the context of SIFIDE on 26 June 2012, that is, after the period provided for in no. 2 of the aforementioned art. 122nd had elapsed, its delay in submission of the request should be attributed to it, and as such it cannot benefit from the terms of no. 3 of art. 122nd."

Still in the context of the reasoning of that decision, the Financial Services Department of Setúbal argues that "in accordance with the terms set forth in article 131st of CPPT, the period for complaining about self-assessment is two years counting from the date of submission of the declaration. Having delivered form 22 for the year 2009 on 2010/05/21, the deadline for filing a complaint ended on 2012/05/21, whereby, given the terms set forth in no. 3 and 5 of article 59th, the declaration submitted cannot be converted into an administrative complaint procedure.

In conclusion, AT further adds that "once the right has been extinguished, the administrative complaint procedure should not produce effects, whereby we will not pronounce ourselves on the controversial matter."

By means of official letter of 2 April 2014, the Claimant was notified of the final dismissal order that fell upon the administrative complaint.

II.2. Facts Not Proven

There are no facts with relevance for the decision of the case that have not been considered proven.

II.3. Reasoning of the Decision on Factual Matter

The determination of the factual matter was based on the administrative process, on the documents attached to the initial petition and on statements of the Claimant that are not disputed by the Tax and Customs Authority.

III. ON THE EXCEPTION OF ABSOLUTE LACK OF JURISDICTION OF THE TRIBUNAL

The jurisdiction of the arbitral tribunals functioning at CAAD is, first, limited to the matters indicated in art. 2nd, no. 1, of RJAT. On a second level, the jurisdiction of the arbitral tribunals functioning at CAAD is also limited by the terms in which AT bound itself to that jurisdiction, which are specified in Ordinance no. 112-A/2011, of 22 March, as article 4th of RJAT establishes that "the binding of the tax administration to the jurisdiction of the tribunals constituted in accordance with this law depends on an ordinance of the government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered."

In light of this second limitation on the jurisdiction of the arbitral tribunals functioning at CAAD, the resolution of the question of jurisdiction depends essentially on the terms of this binding, since, even if one is faced with a situation that can be framed in that article 2nd of RJAT, if it is not covered by the binding provided for in the aforementioned ordinance, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be ruled out.

The norm provided for in subsection a) of article 2nd of Ordinance no. 112-A/2011 expressly excludes from the scope of AT's binding to the jurisdiction of the arbitral tribunals functioning at CAAD "claims relating to the declaration of illegality of self-assessment, withholding tax, and payment on account acts that were not preceded by recourse to the administrative avenue in accordance with articles 131st to 133rd of the Code of Tax Procedure and Process." The express reference to the preceding "recourse to the administrative avenue in accordance with articles 131st to 133rd of the Code of Tax Procedure and Process," should be interpreted as referring to cases in which such recourse is mandatory, through the administrative complaint, which is the administrative means indicated in those arts. 131st to 133rd of CPPT, to whose terms it refers.

With respect to self-assessment acts, in accordance with article 131st, no. 1, of CPPT, "In case of error in self-assessment, the challenge shall be necessarily preceded by an administrative complaint addressed to the head of the regional peripheral body of the tax administration, within two years after submission of the declaration." No. 3 adds, however, that "Without prejudice to the terms set forth in the preceding numbers, when its ground is exclusively a matter of law and the self-assessment has been made in accordance with generic guidelines issued by the tax administration, the period for the challenge does not depend on prior complaint, and the challenge should be submitted within the period of no. 1 of article 102nd." Thus, direct challenge of the self-assessment act can only be made without prior administrative complaint in cases in which it has been made "in accordance with generic guidelines issued by the tax administration," as results from the provision of article 131st, no. 3, of CPPT. In the case at hand, one is not faced with a situation of this type, nor have any guidelines even been alleged that AT might have issued with respect to the manner in which the self-assessment was made, whereby it must be concluded that the challenge of self-assessment acts depended on prior administrative complaint, which was, in fact, submitted by the now Claimant.

AT, however, raises the question of the jurisdiction of this Arbitral Tribunal to assess the legality of the decision dismissing the administrative complaint. Note that, notwithstanding the request submitted by the Claimant to modify the request (in which it leaves out the request for annulment of the administrative complaint dismissal decision), it is precisely the dismissal decision of the administrative complaint that allows the Claimant to submit the request for arbitral decision, in that it is timely only if the period for submission is considered from the date of the dismissal of the administrative complaint.

AT argues that it is excluded from the jurisdiction of this Arbitral Tribunal, by not being covered by art. 2nd, no. 1, of RJAT, the assessment of dismissal acts of administrative complaints that do not involve assessment of the legality of assessment acts.

The declaration of illegality of self-assessment acts can be obtained, in arbitral process, through the declaration of illegality of dismissal decisions of administrative complaints. The question is, however, whether the competencies of the arbitral tribunals functioning at CAAD include declaring the illegality of self-assessment acts when that illegality was not assessed by the act that dismissed the administrative complaint.

The fact that subsection a) of no. 1 of article 10th of RJAT makes reference to nos. 1 and 2 of article 102nd of CPPT, in which various types of acts that give rise to the period for judicial challenge are indicated, including administrative complaint, allows one to understand that all types of acts capable of being challenged through judicial challenge process, covered by those nos. 1 and 2, shall be encompassed within the jurisdiction of the arbitral tribunals functioning at CAAD, provided that they have as their object an act of one of the types indicated in that article 2nd of RJAT. This interpretation in the sense of identity of the fields of application of the judicial challenge process and the arbitral process is that which is in harmony with the legislative authorization on which the Government based itself for approving RJAT, granted by article 124th of Law no. 3-B/2010, of 28 April, in which the intention is revealed that the tax arbitral process constitute "an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest in tax matters."

On the other hand, this same argument that is extracted from the legislative authorization leads to the conclusion that the possibility of using the arbitral process will be excluded when in the tax judicial process the judicial challenge or the action for recognition of a right or legitimate interest will not be usable. In fact, being this the sense of the referred legislative authorization law and insofar as it falls within the relative reserved legislative competence of the Assembly of the Republic to legislate on the «tax system,» including «guarantees of taxpayers» [articles 103rd, no. 2, and 165th, no. 1, letter i), of CRP], and on the «organization and jurisdiction of the courts» [art. 165th, no. 1, letter p), of CRP], the said article 2nd of RJAT cannot, on penalty of unconstitutionality, for lack of coverage in the legislative authorization law that limits the power of the Government (in accordance with article 112th, no. 2, of CRP), be interpreted as attributing to the arbitral tribunals functioning at CAAD jurisdiction for the assessment of the legality of other types of acts for whose challenge are not suitable the judicial challenge process and the action for recognition of a right or legitimate interest. Thus, to resolve the preliminary question raised by AT of whether article 2nd, no. 1, of RJAT, encompasses the assessment of the act dismissing an administrative complaint in the segment relating to self-assessment acts whose legality is not assessed, it becomes necessary to ascertain whether the legality of that dismissal act could or could not be assessed, in a tax tribunal, through the judicial challenge process or the action for recognition of a right or legitimate interest.

The act dismissing an administrative complaint constitutes an administrative act, in light of the definition provided by art. 148th of the New Code of Administrative Procedure [subsidiarily applicable in tax matters, by force of the terms set forth in article 2nd, letter d), of General Tax Law, 2nd, letter d), of CPPT, and 29th, no. 1, letter d), of RJAT], as it constitutes a decision of a body of the Administration that, under the authority of norms of public law, aimed to produce legal effects in an individual and concrete situation. On the other hand, it is also unquestionable that it is an act in tax matters as the application of tax law norms is made in it. Thus, that administrative complaint dismissal act constitutes an «administrative act in tax matters.» From subsections d) and p) of no. 1 and from no. 2 of article 97th of CPPT the rule is inferred that the challenge of administrative acts in tax matters be made, in the tax judicial process, through judicial challenge or special administrative action depending on whether those acts involve or do not involve assessment of the legality of administrative assessment acts – it being understood that, in the concept of «assessment,» in the broad sense, all acts that amount to the application of a rate to a certain taxable matter are encompassed and, therefore, also withholding tax acts, self-assessment acts, and payment on account acts.

In light of this criterion for apportionment of the fields of application of the judicial challenge process and the special administrative action, the acts issued in official revision procedures of self-assessment acts can only be challenged through the judicial challenge process when they involve assessment of the legality of those same self-assessment acts. Otherwise, the special administrative action shall apply.[1]

This finding that there is always an adequate procedural remedial means for contentiously challenging the administrative complaint dismissal act of a self-assessment act leads, immediately, to the conclusion that one is not faced with a situation in which in the tax judicial process the action for recognition of a right or legitimate interest could be used, as its application in tax contentious matters is of residual nature, since such actions «can only be brought whenever such procedural means is the most appropriate to ensure full, effective and efficient protection of the right or legally protected interest» (article 145th, no. 3, of CPPT). Another conclusion that the referred apportionment of the fields of application of the judicial challenge process and the special administrative action permits is that, restricting the jurisdiction of the arbitral tribunals functioning at CAAD to the field of application of the judicial challenge process, only requests for declaration of illegality of acts dismissing administrative complaints of self-assessment acts that involve assessment of the legality of those acts are included in this jurisdiction.

The legislative concern in excluding from the jurisdiction of the arbitral tribunals functioning at CAAD the assessment of the legality of administrative acts that do not involve assessment of the legality of assessment acts, beyond resulting immediately from the generic directive of creation of an alternative means to the judicial challenge process and the action for recognition of a right or legitimate interest, results clearly from subsection a) of no. 4 of art. 124th of Law no. 3-B/2010, of 28 April, in which are indicated among the possible objects of the tax arbitral process «administrative acts that involve assessment of the legality of assessment acts,» as this specification can only be justified by a legislative intention in the sense of excluding from the possible object of the arbitral process the assessment of the legality of acts that do not involve assessment of the legality of assessment acts.

For this reason, the solution to the question of jurisdiction of this Arbitral Tribunal by reference to the content of the dismissal act of the administrative complaint depends on the analysis of the content of said dismissal act. Now, in the concrete case, the dismissal act of the administrative complaint addresses itself only to the timeliness of the request, concluding for its respective untimeliness and, therefore, not entering into assessment of the question of the legality of the self-assessment act. Indeed, as was proven supra, in conclusion of the dismissal act of the administrative complaint procedure, AT clarifies that "once the right has been extinguished, the administrative complaint procedure should not produce effects, whereby we will not pronounce ourselves on the controversial matter."

In these terms, it will be necessary to conclude that the dismissal act of the administrative complaint, through which the Claimant indirectly intended to see the question of the legality of the self-assessment act analyzed, cannot be appreciated by this Arbitral Tribunal in the measure that it could not be in the context of the judicial challenge process, but only in the context of a special administrative action.

IV. DECISION

In light of all that which has been set forth above, it is decided to adjudicate favorably on the dilatory exception of lack of subject matter jurisdiction invoked by the Respondent and, as a consequence, to dismiss the Tax and Customs Authority from the instance.

The consideration of the remaining questions raised in this process is prejudiced.

The value of the action is fixed at € 13,345.51, in accordance with article 97-A, no. 1, a), of CPPT, applicable by force of subsections a) and b) of no. 1 of article 29th of RJAT and of no. 2 of article 3rd of the Regulation of Costs in Tax Arbitration Processes.

Lisbon, 22 January 2015

The Arbitrator

Guilherme W. d'Oliveira Martins

[1] To the effect that the appropriate procedural means for knowing the legality of act of decision, in this case, of official revision procedure of assessment act is the special administrative action (which succeeded the contentious appeal, in accordance with article 191st of CPTA) if in that decision the legality of the assessment act was not assessed, see the decisions of the Supreme Administrative Court of 20.05.2003, case no. 638/03; of 08.10.2003, case no. 870/03; of 15.10.2003, case no. 1021/03; of 24.03.2004, case no. 1588/03, of 06.11.2008, case no. 357/08. More recently, see the decision of the Supreme Administrative Court of 28.05.2014, case no. 01263/13.

Frequently Asked Questions

Automatically Created

Does the CAAD Arbitral Tribunal have material competence to rule on SIFIDE R&D tax credit disputes under IRC?
Yes, the CAAD (Administrative Arbitration Center) Arbitral Tribunal has material competence to rule on SIFIDE R&D tax credit disputes under IRC. This case demonstrates that disputes concerning the fiscal recognition of SIFIDE-certified research and development expenses in Corporate Income Tax assessments fall within the jurisdiction of tax arbitration under Decree-Law 10/2011 (RJAT). The tribunal was properly constituted under Articles 2 and 10 of RJAT to adjudicate the partial illegality of IRC assessments where SIFIDE benefits were denied or not properly recognized, confirming that R&D tax incentive disputes are arbitrable matters under Portuguese tax arbitration law.
How can a company challenge a partial IRC assessment related to denied SIFIDE research and development expenses?
A company can challenge a partial IRC assessment related to denied SIFIDE expenses by filing a request for arbitration under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011). The procedural path includes: (1) submitting a substitution declaration (declaração de substituição) within one year of becoming aware of the SIFIDE certification decision under Article 122 of CIRC; (2) filing an administrative complaint under Article 131 of CPPT if the Tax Authority rejects the claim; (3) initiating arbitration proceedings with CAAD seeking partial annulment of the IRC assessment to the extent it fails to recognize certified SIFIDE expenses; and (4) potentially requesting conversion of the administrative complaint into an official revision request (pedido de revisão oficiosa) under Article 52 of CPPT if submitted within the four-year limitation period.
What is the legal basis for requesting tax arbitration under Decree-Law 10/2011 (RJAT) for SIFIDE deduction disputes?
The legal basis for requesting tax arbitration under Decree-Law 10/2011 (RJAT) for SIFIDE deduction disputes is found in Articles 2 and 10 of RJAT, which establish the framework for challenging tax assessments through arbitration. Article 2 defines the scope of arbitrable tax disputes, including challenges to the legality of IRC assessments. Companies must demonstrate that a SIFIDE-certified tax benefit was improperly denied or not reflected in their IRC liability. The arbitration request should seek declaration of partial illegality and partial annulment of the IRC assessment corresponding to the unrecognized SIFIDE expenses. Additionally, Article 122(3) of CIRC provides the substantive basis for correcting self-assessments following subsequent administrative decisions like SIFIDE certifications, with the one-year deadline for substitution declarations running from the date of awareness of the favorable SIFIDE decision.
Can SIFIDE R&D expenditures be deducted from IRC corporate tax liability if initially rejected by the Tax Authority?
Yes, SIFIDE R&D expenditures can be deducted from IRC corporate tax liability even if initially rejected by the Tax Authority, provided the taxpayer obtains proper SIFIDE certification and follows correct procedural steps. The key requirements include: (1) obtaining a declarative statement from the SIFIDE certifying commission confirming eligible R&D expenses and the corresponding tax credit amount; (2) submitting a substitution declaration (declaração de substituição) within the legal deadline under Article 122 of CIRC—specifically within one year of receiving the SIFIDE certification when it constitutes a subsequent administrative decision; and (3) if the Tax Authority refuses to recognize the certified SIFIDE benefits, pursuing administrative remedies such as official revision requests or tax arbitration proceedings to challenge the assessment and secure recognition of the R&D tax credits for deduction against IRC liability.
What procedural steps are required to amend an arbitral claim regarding SIFIDE tax credits in CAAD proceedings?
To amend an arbitral claim regarding SIFIDE tax credits in CAAD proceedings, the claimant must request refinement of the initial arbitration request during the first tribunal hearing held under Article 18 of RJAT. In this case, the company's representative formally requested modification of the arbitral decision sought, specifying: (1) the precise legal grounds for the claim by reference to applicable law provisions; (2) the specific tax year and assessment being challenged (2009 IRC assessment); (3) the exact amount of tax incorrectly collected (€13,345.51); (4) the requested relief—declaration of partial illegality and partial annulment of the assessment to the extent it fails to recognize SIFIDE expenses; and (5) specification that any account adjustment should reflect the SIFIDE benefit previously declared in excess. The amendment request was recorded in the tribunal minutes, required no opposition from the Tax Authority (which did not oppose), and was formally admitted by the tribunal, demonstrating the procedural flexibility available for refining claims in tax arbitration.