Process: 364/2018-T

Date: March 12, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (364/2018-T) addresses the critical issue of statute of limitations (caducidade) for IRC assessments under Portugal's special taxation regime for groups of companies (RETGS). A... SGPS, as the dominant company of a tax group, challenged additional IRC assessments for 2013 issued after corrections made to its dominated subsidiary B... S.A. The central dispute concerns whether the Portuguese Tax Authority could still legally issue assessments after the four-year limitation period expiring December 31, 2017. The taxpayer argued on two grounds: first, that the limitation period expired in the subsidiary's sphere because the inspection exceeded six months (per Article 46 LGT), rendering corrections unusable for group assessments; second, that the inspection procedure against the parent company itself failed to validly suspend the limitation period. The Tax Authority countered that it properly suspended limitation periods and timely notified assessments. This case establishes important precedent on how inspection procedures in dominated companies affect limitation periods for dominant companies under RETGS, the interplay between separate inspection procedures within corporate groups, and whether corrections made after limitation expiry in one group entity can support assessments against another. The decision clarifies procedural requirements under Articles 69-71 CIRC and the temporal coordination of inspection procedures across related entities in tax groups.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

1. Report

A... – SGPS, LDA., hereinafter referred to as "A... - SGPS, Lda.", "A...", "Applicant" or "TP" (Taxpayer), with tax identification number ... and registered office at ..., n.º..., ..., ...-... Lisbon, hereby, pursuant to Articles 2º, paragraph 1 subparagraph a) and 10º, paragraph 1, subparagraph a) and paragraph 2 of the Legal Regime of Tax Arbitration (Decree-Law no. 10/2011, of 20 January, hereinafter "LRTA") - and furthermore, pursuant to Articles 95º of the General Tax Law (LGT), 99º, subparagraph d) of the Code of Tax and Customs Procedure (CPPT) and 137º, paragraph 1 of the Corporate Income Tax Code (CIRC) - requests the constitution of an Arbitral Tribunal.

It petitions for the declaration of illegality of acts of tax assessment, more specifically of additional assessment acts in the context of Corporate Income Tax (IRC) for the year 2013, and compensatory interest, as per Assessments numbered 2018... and 2018..., respectively (hereinafter also referred to as "the Assessments" or, jointly, "the Assessment").

The Assessments were made following a tax inspection action initiated against the Applicant with reference to the year 2013, under Service Order OI2017... . And further, as will be better appreciated below, following a tax inspection action initiated against company B..., S.A., hereinafter referred to as "B... S.A." or "B..." (under Service Orders OI2017... and OI2017...), tax identification number ..., a company dominated by the Applicant within the scope of the Group of companies that both integrate and of which the now Applicant is the dominant company. Service Orders better identified below (see proven facts).

In effect, in the year in question in these proceedings, 2013, the Applicant integrated, as dominant company, a group of companies, within which scope the special taxation regime for groups of companies ("RETGS"), applied by exercising the respective option, as provided in particular in Articles 69º to 71º of the CIRC.

From the tax inspection action initiated against the dominated company B... S.A. there resulted corrections, within its own legal sphere, in the context of IRC and with reference to the year 2013, as contained in the respective Tax Inspection Report ("RIT").

In a second moment, as will be better developed below, the Applicant was also targeted by an inspection procedure, relating to the same year 2013, also in the context of IRC.

As a consequence thereof, the now Applicant, A... - SGPS, Lda., was notified of the Assessment acts which are challenged herein.

The present proceedings concern the alleged illegality, by untimeliness, of the Assessments. In effect, the Applicant contends that - at the moment when the Tax and Customs Authority notified it of the acts now in question - it could no longer do so because the statutory limitation period for the right to assess had by then already expired.

The Applicant presents two distinct grounds for why the statutory limitation period should be understood to have expired.

The first concerns the fact that in the sphere of B... S.A. - the sphere in which corrections were made in a first moment - the Respondent no longer had the possibility of issuing an Assessment and notifying the inspected party (B... S.A.) within the statutory limitation period. In effect, when the Inspection Procedure ended more than six months had elapsed since its commencement and thus the six-month period of suspension of the statutory limitation period had been exceeded (see Article 46º, paragraph 1 of the LGT). Whereby everything occurred as if the statutory limitation period had never been suspended. And for that reason, statutory limitation operated, it contends, on 31 December 2017. Because this occurred in the sphere of B..., the Applicant contends that it should be understood that also in the sphere of the Applicant (or in any other sphere) the Respondent is prevented from - based on these same corrections - coming to make any additional Assessment.

In essence, as we add, because the statutory limitation period had expired in the sphere of the dominated company, those corrections would be rendered incapable of being used with a view to an Assessment act in the sphere of the Applicant.

The second ground concerns the fact that, notwithstanding an Inspection Procedure having been initiated against the Applicant itself, within which scope it was notified of the Assessments, that Inspection Procedure did not have the capacity, in the Applicant's view, to suspend the statutory limitation period for the right to Assessment.

The Applicant frames each of these two grounds in two distinct requests. Which it presents, in the order that precedes, in a relationship of subsidiarity.

The corrections made by the Tax and Customs Authority, within the scope of the inspection action against the dominated company B... S.A., and which are contained in the respective RIT, were later transposed to the draft RIT, subsequently RIT, in the context of an inspection procedure against the dominant company (the Applicant), for the purpose of corrections to the Group's Taxable Result. Which led, finally, to the Assessments relating to the year 2013 of which the Applicant was the recipient, and which it now challenges herein.

In essence, the divergence of positions between the Parties in the present proceedings is based on antagonistic perspectives as to whether or not, in this case, the statutory limitation period for the right to assess had actually expired before the notification to the Applicant of the Assessments in question.

Thus, the Applicant adopts the understanding that, with reference to the applicable statutory limitation period of four years, which would end - both Parties agreeing on this point - on 31 December 2017, it cannot be considered that an effective suspension occurred. Either having regard to the inspection procedure against B... S.A. (with the consequences it understands to flow therefrom for the Assessments, directed to it as Applicant), or if the inspection procedure against it as Applicant is considered.

Whereas the Respondent, for its part, understands the opposite. That is, it understands that it succeeded in suspending the statutory limitation period for its right to assess and that it thus notified the Applicant, in time, of the acts in question herein.

The Applicant, nevertheless, not accepting the Assessments in question, proceeded to their payment, and thus comes now to petition: (i) the annulment of the Assessments (of tax and of compensatory interest) in question, (ii) the reimbursement of the amounts paid, and (iii) compensatory interest. And further, the conviction of the Respondent in the costs of the proceedings.

The Respondent is the Tax and Customs Authority (hereinafter "TA" or "Respondent").

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and notified to the TA on 06.08.2018.

Pursuant to subparagraph b) of paragraph 1 of Article 11º of the LRTA, the Deontological Council designated as arbitrator of the singular Arbitral Tribunal the undersigned, who timely accepted the appointment.

On 19.09.2018 the Parties were notified of the designation of arbitrator and did not express the intention to reject it, see Article 11º, paragraph 1, subparagraphs a) and b) of the LRTA and Articles 6º and 7º of the Deontological Code.

Pursuant to subparagraph c) of paragraph 1 of Article 11º of the LRTA, the singular Arbitral Tribunal was constituted on 10.10.2018.

Notified for this purpose, the TA submitted a Response, arguing for the total dismissal of the Request for Arbitral Pronouncement (hereinafter "RAP") and for the consequent maintenance of the Assessment in question in the Legal Order.

The Respondent contends, as per its Response and in summary, that:

(i) The Assessments in question result from an inspection procedure external to the tax return filed by the Applicant in its capacity as dominant company of the Group of companies, the "group return";

(ii) Inspection procedures initiated against dominated companies are not under review, nor is the assessment of tax in the sphere of one of the dominated companies;

(iii) Corrections made for each of the dominated companies are not relevant.

It thus contends that there occurred what it refers to as a "group inspection procedure", with commencement within the statutory limitation period and, in its understanding, with conclusion also within that period, since, the Respondent argues, the inspection procedure against the Applicant determined the suspension (for six months, see Article 46º, paragraph 1 of the LGT) of the statutory limitation period.

As it also understands occurred - within the statutory limitation period - the notification to the Applicant of the Assessments. Arguing, as a consequence, for their maintenance in the Legal Order.

By order dated 19.11.2018 this Tribunal decided to dispense with the meeting provided for in Article 18º of the LRTA and that the proceedings continue with optional written submissions.

The Applicant presented submissions, adding therein what it considers should be understood as proven after the Respondent's Response and, essentially, corroborating what was already stated in the RAP.

Notified of the presentation of the Applicant's submissions, the Respondent did not submit submissions.

The Arbitral Tribunal was duly constituted, is competent, and the Parties have legal personality and capacity, are legitimate and are duly represented, see Articles 4º and 10º, paragraph 2 of the LRTA and Article 1º of Ordinance no. 112-A/2011, of 22 March.

The Proceedings do not suffer from nullities and there is no matter of exception.

2. Matter of Fact

2.1. Proven Facts

The following facts are considered proven:

a) The Applicant is a commercial company limited by shares, incorporated under Portuguese law, with registered office and effective management in national territory, subject to the general regime of IRC taxation and which has as its purpose the management of equity interests in other companies as an indirect form of exercise of economic activities - CAE 64202;

b) B... S.A. is a public limited company, incorporated under Portuguese law, with registered office and effective management in national territory, subject to the general regime of IRC taxation, which dedicates itself to the exploitation of advertising media and to the conception, exploitation, production and commercialization of advertising - CAE 73120;

c) At the time of the facts in question in these proceedings the Applicant held entirely the equity interests of B... S.A.

d) At the time of the facts in question in these proceedings the Applicant and B... S.A. integrated a Group of companies within whose fiscal scope a total of four companies were included, with the Applicant being the dominant company and B... S.A. being one of the three dominated companies.

e) The Group of companies (in d) above) was subject, by option and at the time of the facts in question in these proceedings, to the Special Taxation Regime for Groups of Companies ("RETGS") provided for in the CIRC.

f) On 19.07.2017 a Service Order was signed by a representative of B... S.A. which determined the Tax Inspection Procedure that was initiated against it, containing therein Service Orders No. OI2017..., of 2017-05-09, relating to the year 2014, and No. OI2017..., of 2017-05-25, relating to the year 2013.

g) Under Service Order No. OI2017... an Inspection Procedure was conducted against B... S.A., relating to the year 2013, of partial scope in the context of IRC.

h) On 18.12.2017 B... S.A. became aware of the Diligence Note of the Inspection Procedure for the year 2013.

i) By letter dated 03.01.2018, no. ..., B... S.A. was notified of the draft Tax Inspection Report and for the exercise of the right to be heard.

j) By letter dated 09.01.2018, no. ..., B... S.A. was notified of the extension of the ongoing Inspection Procedure for an additional period of three months.

k) From the letter to B... S.A., in j), which notifies of the extension of the procedure and which is hereby reproduced, it contains, among other things:

"Subject: Notification of extension of the inspection procedure deadline – Article 36º of the Complementary Regime of Tax and Customs Inspection Procedure (RCPITA)

You are hereby notified for the purposes of paragraph 4 of Article 36º of the RCPITA, that the ongoing inspection procedure has been extended for an additional period of three months (...), as set forth in the order issued in the information regarding extension of the inspection procedure deadline that is attached, with conclusion anticipated by 19 April 2018. (...)"

l) From the Letter, in j), it is also contained, in the order issued in the information attached to it, among other things:

"(...) the external inspection was initiated on 2017-07-19 (…).

(…) From the foregoing it appears unfeasible to conclude the process by 2018-01-19, the six-month deadline referred to in paragraph 2 of Article 36º of the Complementary Regime of Tax and Customs Inspection Procedure.

Thus, (…) it is requested that an extension be granted for a period of three months, to commence on 2018-01-20. (...)"

m) On 19.01.2018 B... S.A. exercised the right to prior hearing, and thereby contested part of the projected corrections and the projected tax assessment.

n) By Letter dated 09.02.2018, no. ..., B... S.A. was notified of the Tax Inspection Report ("RIT") (attached by the TP as doc. 4).

o) From the RIT to B... S.A., which is hereby reproduced, and which converted the corrections into final form as they had been projected, it contains, among other things:

"The inspection procedures and acts began on 19/07/2017, with the signing of the service order by the undersigned (…), pursuant to Article 51º of the RCPITA, (…)."

"II.2 – Purpose, scope and temporal incidence

The inspection procedures, with incidence on the taxation period of 2013, pursuant to paragraph 3 of Article 14º of the RCPITA, are of external nature and partial scope, with coverage of the Corporate Income Tax (IRC), in accordance with the provisions of subparagraph b) of Article 13º and subparagraph b) of paragraph 1 of Article 14º both of the RCPITA.

The inspection action has as its objective to conduct the declarative control of the taxpayer, namely, to confirm the adequate compliance with accounting and tax norms and to verify whether the determination of the taxable bases and taxable result of the taxpayer correspond to what was declared and the respective declared tax. (...)"

"II.3.2 – Tax classification and analysis of the tax situation

Tax Classification

In the context of Corporate Income Tax (IRC), B... is a taxpayer pursuant to subparagraph a) of paragraph 1 of Article 2º, being classified in the General Taxation Regime in accordance with subparagraph a) of paragraph 1 of Article 3º and with what is stipulated in paragraph 1 of Article 17º, both of the IRC Code.

The taxpayer is subject to the Special Taxation Regime for Groups of Companies, (…)."

"III – Description of facts and grounds for purely arithmetic corrections to taxable matter

In the analysis conducted of the TP's accounting and supporting documents, various active and passive operations were verified, with the following being identified, which, not being in accordance with accounting principles and applicable tax norms, namely Articles 17º, 18º, 23º and 88º of the CIRC, are the subject of a proposed correction in the context of IRC, as set forth below.

1 – In the context of Corporate Income Tax (IRC)

(…)

2 – Proposed corrections

Having regard to the foregoing, corrections are proposed for the year 2013, in the context of IRC in the amount of € 932,353.48, as demonstrated in the table below: (…)

The proposed corrections result in the proposal to alter the declared tax loss (…).

It is also proposed to correct autonomous taxation (…).

IX – Conclusions

Given the foregoing, and bearing in mind that no proof elements and/or new facts were presented that would alter the sense of the corrections proposed in the Draft Tax Inspection Report, the same are to be maintained. (…)

Lisbon, 29 January 2018 (...)"

p) On 13.11.2017 a Service Order No. OI2017... was signed by a representative of A... – SGPS, LDA., which determined the Tax Inspection Procedure that was initiated against it, of partial scope in the context of IRC, with reference to the year 2013.

q) By Letter dated 09.02.2018, no. ..., A...– SGPS, LDA. was notified of the draft Tax Inspection Report and for the exercise of the right to be heard, which it did not exercise.

r) On 12.02.2018 A...– SGPS, LDA. became aware of the Diligence Note (which it attaches as doc. 10).

s) By Letter dated 15.03.2018, no. ..., A...– SGPS, LDA. was notified of the Tax Inspection Report (which it attaches as doc. 5).

t) From the RIT to A... – SGPS, LDA., which is hereby reproduced and pursuant to which the corrections were converted into final form as projected, it contains, among other things:

"(…) II.2 – Purpose, scope and temporal incidence

The above identified service order, relating to the year 2013, is of external nature and partial scope (…), with incidence on Corporate Income Tax (IRC), in accordance with the provisions of subparagraph b) of Article 13º and of subparagraph b) of paragraph 1 of Article 14º, both of the Complementary Regime of Tax and Customs Inspection Procedure (RCPITA).

Given that in the taxation period of 2013 the taxpayer was integrated in a group of companies in which it appeared as dominant company, the opening of the said service order has as its purpose to reflect the corrections made to the dominated company B...- (…) S.A. (Tax ID ...), for the taxation period of 2013, within the scope of service order no. OI2017..., in the group's tax return, pursuant to subparagraph a) of paragraph 6 of Article 120º of the CIRC."

"III – Description of facts and grounds for purely arithmetic corrections to taxable matter

As previously stated, in the year under review, A...– SGPS Lda., was covered by the Special Taxation Regime for Groups of Companies (RETGS), provided for in Articles 69º to 71º of the CIRC, appearing as the dominant company of the group.

Considering the conditions for application of the RETGS to be met, provided for in Article 69º of the Corporate Income Tax Code, the taxable result of the group declared in the period under review was calculated by the company A... in compliance with the provisions of paragraph 1 of Article 70º of the same act and which consists of the following: "...through the algebraic sum of the taxable profits and tax losses determined in the periodic individual declarations of each of the companies belonging to the group...", as demonstrated by the following determination: (…)

III.1. Correction to the Individual Taxable Result Declared by B... S.A. (dominated company)

Within the scope of service order no. OI2017..., an external inspection action was conducted against company B... S.A. (…) from which corrections to taxable matter resulted in the amount of € 932,353.48, as demonstrated in the following table:

(…)

and correction of autonomous taxation in € 14,030.69, to be added to Field 365 of Table 10 of Form Mod 22/IRC.

III.1.1. Justification of the correction made to the Individual Taxable Result of B..., S.A. for the year 2013 (dominated company).

Based on the analysis conducted of the elements and support documents made available, irregularities of a tax nature were detected in company B..., S.A., described in Chapter III of the Tax Inspection Report attached (Annex I), which are reproduced in full:

"(…) In the analysis conducted of the TP's accounting and (…)"

(Note of this Tribunal: here continues the full transcription, in this RIT, of the RIT to B... S.A., transcription which continues until the beginning of the following point, III.2.)

III.2. Purely arithmetic corrections to the taxable result of the group of companies

In accordance with Articles 69º and 70º of the CIRC, the correction made in the year 2013 to company B..., S.A., as a company that makes up a group of companies, has repercussions on the determination of the taxable result of the group. In this way, the following correction is proposed to the taxable matter of the group for the year 2013:

It is also proposed to correct autonomous taxation in € 14,030.69, with these becoming € 58,279.08.

VIII – Right to be heard

The taxpayer was notified pursuant to Article 60º of the RCPITA to, if it so wished, exercise the right to be heard, through letter no. ... of 09/02/2018. After the deadline elapsed, the taxpayer did not exercise that right.

IX – Conclusions

The conclusion of the inspection acts occurred on 06/03/2018, on which date the diligence note (…)

In view of what was reported, the corrections contained in Chapter III of this report become final, and the respective correction document has been prepared (…).

(...)

Lisbon, 6 March 2018 (…)."

u) The Inspection Procedure against A... - SGPS, LDA. was designed to reflect in Form Model 22 of the Group of companies and with reference to the year 2013 the corrections made within the scope of the Inspection Procedure against B... S.A. for the taxation period of 2013.

v) On 21.03.2018 an additional IRC Assessment was issued, addressed to A... - SGPS, LDA., with no. 2018..., in the total amount of € 16,146.44, of which € 14,030.69 was for autonomous taxation and € 2,115.75 for compensatory interest.

w) On 23.03.2018 an Assessment of compensatory interest was issued, addressed to A... - SGPS, LDA., with no. 2018..., in the amount of 2,115.75.

x) On 23.03.2018 an Account Settlement Statement was issued, addressed to A... - SGPS, LDA., no. 2018 ..., in the total amount of € 16,146.44, with a payment deadline of 02.05.2018.

z) The Applicant was notified of the Assessment acts at the end of March 2018.

aa) On 02.05.2018 the Applicant proceeded to pay the additional Assessment in the total amount contained in the Account Settlement Statement (see doc. 11).

bb) On 30.07.2018 the Applicant submitted the RAP that gave rise to the present proceedings.

2.2. Facts Not Proven

With relevance to the decision of the case there are no facts that have not been proven.

2.3. Justification of the Matter of Fact

The facts given as proven were so on the basis of the documents attached to the RAP and in the Administrative Proceedings (hereinafter "AP"), all documents which are considered to be fully reproduced, and likewise, in the positions manifested by the Parties in the pleadings (see Article 110º, paragraph 7 of the CPPT).

It is for the Tribunal to select, from those alleged by the Parties, the facts that matter to the appreciation and decision of the case (see Article 16º, subparagraph e) and Article 19º of the LRTA and, furthermore, Article 123º, paragraph 2 of the CPPT and Article 596º of the Code of Civil Procedure), encompassing in its powers of cognition instrumental facts and facts that are a complement or concretization of those alleged by the Parties (see Articles 13º of the CPPT, 99º of the LGT, 90º of the CPTA and Articles 5º, paragraph 2 and 411º of the CPC).

Facts or assertions presented by the Parties as facts, which translate conclusive statements whose truthfulness must be assessed by reference to the consolidated matter of fact (see supra), were not considered as proven or unproven.

3. Matter of Law

3.1. Questions to be Decided

The questions to be decided in the present proceedings are essentially matters of Law and are summarized in the following:

Were the Assessment acts in question notified to the TP within the statutory limitation period of four years - see Article 45º, paragraph 1 of the LGT?

To answer the identified question, the Tribunal shall also have to, in its decision-making process, appreciate the following question:

Do the general rules applicable to the matter of statutory limitation of the right to assess undergo any adaptation, having some specificity, by virtue of the fact that the TP integrates, in its capacity as dominant company, a Group of companies to which the RETGS provided for in the CIRC applies?

Finally, should it be decided in favor of the petitioned annulment of the Assessments and return of the amounts paid, it shall be necessary to decide on compensatory interest. As follows.

3.1.1. Were the Assessment acts in question notified to the TP within the statutory limitation period - see Article 45º, paragraph 1 of the LGT?

The Applicant alleges that the statutory limitation period has been exceeded. To the contrary, as we have already stated, is what the Respondent contends.

Let us see. The basic legal framework, inherent in the LGT and within which we operate, is as follows:

"Article 45º - Statutory limitation of the right to assess

  1. The right to assess taxes is barred if the assessment is not validly notified to the taxpayer within a period of four years, unless the law provides otherwise.

  2. (…)

  3. (…)

  4. The limitation period, in the case of periodic taxes, is counted from the end of the year in which the tax event occurred and, in the case of taxes of single obligation, (…).

(…)"

"Article 46º – Suspension of the limitation period

  1. The limitation period is suspended by notification to the taxpayer, in accordance with the law, of the service order or order at the commencement of an external inspection action, ceasing, however, that effect, and the period being counted from its commencement, if the duration of the external inspection exceeds the period of six months following notification, plus the period during which the deadline for conclusion of the inspection procedure is suspended.

  2. The limitation period is further suspended: (…)."

According to the Applicant the legal rules applicable have been infringed from the outset for the following first reason. The Inspection Procedure against the dominated company B... came to extend for a period exceeding six months. Thus exceeding the six-month suspension period (provided for in Article 46º, paragraph 1 above) of the limitation period. Suspension from which thus (consequently) it did not benefit. In this context, the TA subsequently notified the Applicant A... of the Assessments here in question. The Assessments, the Applicant contends, flow from the corrections made in the context of the procedure against B... . Now, not being the TA any longer in a position to, based on those corrections, issue additional Assessments against B... - because the limitation period had been exceeded - it should be understood, according to the Applicant, that neither was it already in a position to issue Assessments against the Applicant.

Or, better yet, if we understand correctly the scope of the Applicant's argument, in its thesis it should be understood that, having the Respondent allowed the limitation period for the right to assess to expire in the sphere of B..., within the scope of that first inspection procedure, and having Assessments (notified to the Applicant) later resulted from the corrections made within that same scope, the limitation period having been exceeded there (in that first inspection procedure), those corrections ("contingencies in the context of IRC", in the Applicant's expression – see paragraph 48 of the RAP) were rendered incapable of "triggering any additional tax assessment at any moment after 31 December 2017 (...)" (see paragraph 48 of the RAP) - the end of the limitation period in the case.

And for that reason, the Respondent would not have been in time, after 31 December 2017, to proceed with notification to the Applicant of the Assessments.

In effect, the Applicant contends, although the Assessments were formally notified to it, they aimed to "materialize corrections flowing from contingencies detected in the sphere of B..., S.A." and, thus (it is the Applicant's understanding), once the TA could no longer - because the limitation period had been exceeded - make those corrections reflect in the sphere of B..., it also could not "materialize such corrections in acts of tax assessment and compensatory interest (…)" - in the sphere of the Applicant (see paragraphs 55º - 56º of the RAP).

The Applicant presents as the principal request in the RAP, that of the declaration of illegality and consequent annulment of the Assessments on the basis of what we have just explained.

That is, and let us clarify once more, on the basis that, once the limitation period for making those corrections made in the sphere of B... reflect in that same sphere has expired, neither is it permissible to do so in any other sphere. It is not possible to materialize those corrections in Assessment acts - even if Assessment acts against the Applicant.

As a subsidiary request it presents, for its part, that of the declaration of illegality and consequent annulment of the Assessments because, having the Inspection Procedure against the Applicant (dominant) itself been, in its understanding, not of external nature in reality, it does not contain the capacity to suspend the limitation period. And thus also by this route, when it proceeded with the notification of the Assessments - after 31 December 2017 - the TA could no longer do so, as the limitation period was found to have expired.

Article 124º of the CPPT tells us that, the challenger presenting requests for annulment of the act in a relationship of subsidiarity, the Judge must know them in that order.

It should be noted that in this Tribunal's understanding we are not truly faced with subsidiary requests. We would be, it is admitted, in the presence of subsidiarity between causes of action or, better, between different factual substrates of the cause of action as presented.

In effect, knowledge of the second ("subsidiary") could not be prejudiced by knowledge of the first ("principal"). For this Tribunal to decide on the first, as presented, with the justification and for the reasons set forth there by the Applicant, it could not refrain from also knowing what the Applicant presents as justification and reasons underlying the second, and to assess whether, by reference to the latter, it should be understood that the Respondent proceeded with the notification of the Assessments within the limitation period for the right to assess. Have in view furthermore, and from the outset, the defense as presented in these proceedings by the Respondent.

Thus, if by way of any of the factual-legal realities in question the Respondent has succeeded in effectively suspending the applicable limitation period and validly notifying in time the Applicant of the Assessment acts in question, the Tribunal's decision will always have to be for the dismissal of the RAP.

For what is always at issue is whether the Assessments were or were not validly notified within the limitation period. The RAP contains one request, the request for declaration of illegality, and consequent annulment, of the Assessments, having as cause of action the statutory limitation of the right to assess. Bringing for that purpose two grounds (factual substrate), as above, but always by reference to the violation of Articles 45º, paragraph 1 and 4 and 46º, paragraph 1 of the LGT – i.e., to the violation of the limitation period.

Let us proceed, thus following the order of reasons set forth by the Applicant. As follows.

The Applicant comes to invoke that the Inspection Procedure against the dominated company (B... S.A.), although it had external nature - which it accepts - and for that reason did suspend the limitation period for the right to assess, nevertheless, by virtue of the fact that it later extended beyond six months, it lost the said suspension effect of the limitation period. Coming thus to terminate at a moment when the limitation period had already expired.

And that, thus being the case, having the suspension not produced, in the end, effects and, therefore, having the limitation period run continuously, and having the Procedure terminated after 31 December 2017, the TA could not come to notify an Assessment to the dominated company (the target of the Inspection Procedure in question). It could only have done so by 31 December 2017 (the date when the limitation period expired).

It being that, as a consequence, the Applicant contends, if the TA could no longer do so (the period having passed) as to the dominated company, it should be understood that neither could it already do so as to the dominant company (the Applicant). Or better, that the TA just as it was not in time to issue and notify an Assessment to the dominated company (the TP targeted in that Inspection Procedure) based on the corrections identified in that Procedure, neither was it already for, making use of those corrections, to do so with respect to the Applicant, even if in the capacity of dominant company. Once that, as it contends, the Assessments against the Applicant, here in question, were made through the materialization of those corrections (to the dominated).

Then, and in case the Tribunal does not decide for the verification of the illegality, whose declaration is petitioned, on the basis of the foregoing, the Applicant invokes another distinct reason for why the notification of the Assessment in question should be considered as having been made at a moment when the limitation period had already elapsed.

Namely, the Applicant alleges that the Inspection Procedure that was subsequently initiated against it, and to which the Respondent attributed the qualification of a Procedure of external nature, cannot be considered as having had the capacity to suspend the limitation period.

The Respondent defends itself by arguing that it is irrelevant, for the purposes of the present proceedings, the inspection procedure against the dominated company. And it develops its defense exclusively by reference to the Inspection Procedure against the Applicant. It is based on the fact that, in its understanding, the Procedure against the Applicant had external nature and thus the limitation period was suspended (see Article 46º, paragraph 1 of the LGT). With the consequence of, by this route, the notification of the Assessments in question having occurred in time, i.e., before the expiration of the limitation period.

Now let us see.

As proven facts show (above), the succession of occurrences in our case, in what now matters most, was as follows:

The dominated company B... S.A. was targeted by an Inspection Procedure, having been notified of the respective Service Order ("SO") on 19.07.2017 (see f) - proven facts). Thus, this Procedure had its commencement on this date, see Article 51º of the RCPITA:

"Article 51º – Date of commencement of inspection procedure

  1. Of the service order (…) which determined the inspection procedure a copy shall, at its commencement, be delivered to the taxpayer (…).

  2. The taxpayer or tax obligor or its representative must sign the service order indicating the date of notification, which, for all purposes, determines the commencement of the external inspection procedure.

(…)."

As for the conclusion of that Procedure, having B... S.A. been notified of the respective Tax Inspection Report ("RIT") on 09.02.2018 (see n) proven facts), the Procedure terminated on this date, see Article 62º, paragraph 2 of the RCPITA:

"Article 62º – Conclusion of inspection procedure

  1. For conclusion of the verification and confirmation procedure a final report is prepared with a view to the identification and systematization of the facts detected and their legal-tax qualification.

  2. The report referred to in the previous number must be notified to the taxpayer by registered mail (…), with the procedure being considered concluded on the date of notification.

(…)."

Between 19.07.2017 (commencement of the Procedure) and 09.02.2018 (end of the Procedure) more than six months elapsed. The six-month period, to which we will return shortly, would have ended on 19.01.2018.

The Procedure against B... S.A. was of partial scope, in the context of IRC and relating to the year 2013. It aimed to control its respective declarative obligations, confirm compliance with accounting and tax norms, and verify whether the determination of its respective taxable bases, taxable result and tax had correspondence in what had been declared. Within the scope of the Procedure its accounting and support documents were analyzed, active and passive operations verified, and situations were detected, better described in the RIT, which, not being in accordance with accounting principles and applicable tax norms, were the subject of a proposed correction, to its Individual Taxable Result, as contained in the RIT in question.

B... S.A. came to be notified of the RIT, as we have seen.

It was not notified of any Assessment.

The Applicant, for its part, was the target of an Inspection Procedure, having been notified of the respective SO on 13.11.2017 (see p) proven facts), the date which marks the commencement of this Inspection Procedure (see Article 51º of the RCPITA, above).

As for the conclusion of the Procedure against the Applicant, having this been notified of the respective RIT on 15.03.2018 (see s) proven facts), the Procedure terminated on this date (see Article 62º, paragraph 2 of the RCPITA, above).

Between 13.11.2017 (commencement of the Procedure) and 15.03.2018 (end of the Procedure) less than six months elapsed. A six-month period, should it come to be considered relevant for our case, would have ended on 13.05.2018.

The Inspection Procedure initiated against the Applicant was of partial scope, in the context of IRC and relating to the year 2013. It aimed to make the corrections made to B... S.A. (dominated company) for the taxation period of 2013 (within the scope of the Procedure above, SO OI2017...) reflect in the Group's tax return (see subparagraph a) of paragraph 6 of Article 120º of the CIRC) relating to the same year 2013. Having been detected irregularities of a tax nature in the legal sphere of B... S.A. (from the analysis conducted of the elements and support documents made available within the scope of the Procedure against the same), and having the TA made the consequent corrections in that sphere within the scope of that Inspection Procedure (against B... S.A.), those corrections thus made generated the necessity of - by virtue of both companies being part of a Group subject to RETGS - proceeding with their respective repercussion at the level of the Group's Taxable Result. A Group in which the Applicant is the dominant company.

The Applicant came to be notified of the RIT, in which the Respondent proceeded to purely arithmetic corrections to the Group of companies' Taxable Result. We have already seen this.

And the Applicant also came to be notified of the Assessments, which it now challenges herein.

At the end of March 2018.

Appreciating.

Applicant and B... S.A. integrate a Group of companies within whose scope, by option, the RETGS is in force – see in particular Articles 69º to 71º of the CIRC.

Within this Special Taxation Regime, RETGS, joint taxation logic prevails, with the income of the set of companies - the income generated within the Group as a whole - by option, being taxed tending toward the aggregated result, as if a single entity were being dealt with.

The taxation in the context of IRC in this framework is thus made, on the basis of the algebraic sum of the aggregated results of the various companies integrating the Group, almost as if a single company were being taxed – in truth, the economic unit of the set will be being taxed.

One thus taxes, on the basis of the algebraic sum of the taxable profits and individual tax losses of the various companies in the Group's scope. Thus allowing, it should be noted, that the tax-accepted losses, determined in each, matter for the purposes of determining the tax profit of the set.

What has been said, however, does not imply that the various companies forming part of the Group cease to be distinct entities, subjects of their own legal-tax relations.

In the words of SALDANHA SANCHES, "(...) giving joint treatment to this form of business activity is an imperative of good tax practices, (…) giving legal unity and joint treatment to groups of companies. The Organschaft constitutes a joint view of the structure formed by a parent company (…) and subsidiary companies, considered as a unit for tax purposes (…) and thus resolving the contradiction between substance and form in the taxation of companies. (…) Taxation by consolidated profit is the most appropriate way to tax companies in group relationships, avoiding both double taxation and possibilities of illegitimate reduction of the tax debt."

Without further elaboration, let us thus attend to the RETGS, in what matters most for our case. First and foremost, in what is provided in Article 70º of the CIRC:

"Article 70º – Determination of the taxable profit of the group

  1. With respect to each of the taxation periods covered by the application of the special regime, the taxable profit of the group is calculated by the dominant company, through the algebraic sum of the taxable profits and tax losses determined in the periodic individual declarations of each of the companies belonging to the group, (…)."

Then, Article 120º, paragraph 6 establishes as follows:

"Article 120º - Periodic declaration of income

  1. When the special taxation regime for groups of companies is applicable:

a) The dominant company must submit the periodic declaration of income relating to the taxable profit of the group determined pursuant to Article 70º;

b) Each of the group's companies, including the dominant company, must submit its periodic declaration of income in which the tax is determined as if that regime were not applicable."

It should be noted, finally, that the option for RETGS implies that a company forming part of the Group assumes the status of dominant company, meeting certain requirements, and to which, pursuant to the CIRC, a series of responsibilities fall in this context – including for the payment of the tax, without prejudice to the joint and several liability of all companies in the Group for the same payment, see CIRC, Articles 69º, paragraph 2, 69º-A, paragraphs 1 and 3 and Article 115º.

Also in the context of CIRC, and with relevance for the case, let us pay attention to the following provisions: Article 8º/1 and 9, Article 101º and Article 134º:

"Article 8º – Taxation period

  1. The IRC, (…), is due for each taxation period, which coincides with the calendar year (…).

(…)

  1. The tax event is considered to have occurred on the last day of the taxation period.";

"Article 101º – Statutory limitation of the right to assess

The assessment of IRC, even if additional, can only be made within the periods and terms provided for in Articles 45º and 46º of the General Tax Law."

"Article 134º – Duty of special inspection

The special inspection of the provisions of this Code is governed by the provisions of Article 63º of the General Tax Law, approved (…), and the Complementary Regime of Tax Inspection Procedure, approved (…)"

Having thus set out the framework, let us then see whether the Applicant has a point when it alleges that, within the Group of companies which it integrates, and to which the RETGS applies, it should be understood that - having a Tax Inspection Procedure been conducted against a dominated company, and having that Procedure extended beyond six months, thus not occurring an "extension" of the limitation period, and not being possible, thus in the case, for the TA to come to issue an Assessment to the inspected dominated company (dominant company) as a consequence of that Procedure, by virtue of the statutory limitation of the right to assess - it should be understood that the Respondent is also prevented from making use of the corrections identified in that Procedure for the purposes of proceeding to corrections in the legal sphere of the Applicant in its capacity as dominant company. And, as a consequence of these latter corrections, subsequently coming to issue an Assessment to the Applicant. Which would, the Applicant alleges, be tainted with illegality by this route.

The Respondent alleges in its defense that it is irrelevant what may have occurred in the context of Inspection Procedure against the dominated. That what is at issue, and which is to be considered, is, only, the fact that it conducted an Inspection Procedure against the Applicant within the scope of which the Assessments were issued, with this scope being where the legality thereof should be assessed.

Let us see, before anything else, whether the assumptions on which the Applicant is based are confirmed:

As to whether the Procedure against the dominated exceeded the six-month period.

Effectively - we saw above - the Procedure against B... exceeded the six-month period.

This period is established by the legislator as the maximum duration period of the inspection procedure. See Article 36º, paragraphs 1 and 2 of the RCPITA:

"Article 36º – Commencement and period of inspection procedure

  1. The tax inspection procedure may commence up to the expiration of the limitation period for the right to assess taxes or (…).

  2. The inspection procedure is continuous and must be concluded within a maximum period of six months from the notification of its commencement."

Without prejudice to situations also being established by the legislator in which extension of such duration period is admitted, nevertheless the legislator intended that this be the maximum rule period and, in accordance, established in Article 46º, paragraph 1 of the LGT (above), that, being a limitation period of the right to assess in course, and an external nature Inspection Procedure commencing, the suspension of the limitation period operates, at most, for the duration "rule" of that Procedure. Six months.

It follows from the evidence consolidated in the proceedings that the Procedure against B... indeed had external nature (as accepted by the Applicant and as follows from the RIT, see o) - proven facts) - See Article 13º subparagraph b) of the RCPITA.

It thus facilitated the suspension of the limitation period, which was in course when the Procedure commenced - see Article 46º, paragraph 1 of the LGT (above).

But, having exceeded the six-month duration (see above; see also j), k) and l) - proven facts) everything occurred as if suspension of the limitation period had never taken place. In effect, this is the interpretation to be given to paragraph 1 of Article 46º of the LGT (above), its wording being clear in that sense. That is, the limitation period is thus counted from its commencement and as if notification of the SO had never occurred.

Not having thus the Procedure influenced the counting of the limitation period, it must be concluded that, when the Procedure terminated on 09.02.2018, the same period had been exceeded: considering that the limitation period - four years - ended on 31.12.2017, a point accepted by the Parties (see Article 8º, paragraphs 1 and 9 of the CIRC, in conjunction with Article 45º, paragraphs 1 and 4 of the LGT, all above), with the matter in question being determination in the context of IRC for the year 2013, and considering that the IRC is a periodic tax whose tax event is considered to have occurred on the last day of the taxation period, we must conclude that the Applicant has a point when it contends that the Respondent could no longer use those corrections to issue an Assessment to B... - which could be notified to it in time - the limitation period having been exceeded. That is, it could not already do so except in violation of Article 45º, paragraph 1 of the LGT.

Let us now place the distinct question - of knowing whether the Respondent could, differently, issue an Assessment to the Applicant, in its capacity as dominant company of the Group, even if, in order to do so, making use of those corrections identified in the context of inspection procedure against B... .

Let us appreciate, therefore, the relationship which the Applicant establishes between the statutory limitation of the right to Assessment in the sphere of the dominated B... S.A. / in the sphere of the dominant Applicant.

We have already seen that we are dealing with distinct entities, subjects of their own legal-tax relations. For one thing, the issuance of an Assessment to one is not confused with, nor is it the same as, the issuance of an Assessment to another. In particular, it being this other the dominant company, the Assessment to it takes on characteristics which distinguish it from any other Assessment.

In this regard let us begin by paying attention to the wording of paragraph 1 of Article 45º of the LGT:

"(...) the right (…) is barred if the assessment is not (…) notified to the taxpayer within the period (...)" (our emphasis).

The taxpayer we are dealing with in the proceedings – to whom the Assessments which it now challenges herein were issued and notified – is the Applicant, the dominant company of the Group. Which was notified of the Assessments in that capacity, as a dominant company. And on this latter point there is also no doubt, for that the corrections made in the Procedure against the Applicant, and reflected in the respective RIT, translate corrections made to Form Model 22 of the Group, corrections to the Group's Taxable Result.

The statutory limitation of the right to assess whose verification is requested to be appreciated in these proceedings, and of which Article 45º, paragraph 1 of the LGT concerns itself, is, therefore, the statutory limitation of the right to assess in the sphere of the Applicant in its capacity as dominant company.

The statutory limitation of the right to assess (indeed verified) in the sphere of B... – dominated company – taxpayer who was not after all targeted with an Assessment – is not, therefore, truly at issue in the present proceedings.

At most, and it will be this the thesis of the Applicant on this point, the corrections made in the individual sphere of B... would have become "tainted" (the expression is ours) by the expiration of the limitation period for the right to assess in that sphere, of B... . And, from that, they could not come to be used by the Respondent for purposes of proceeding to other corrections be they in what sphere.

Now let us see whether such thesis might merit our concurrence.

The corrections made in the sphere of B... are corrections to the result of B...'s fiscal year, to its individual taxable result. To the determination in IRC declared by B... in its Model 22, in its individual sphere, therefore. See Article 120º, paragraph 6, subparagraph b) of the CIRC.

Differently, the corrections made in the sphere of the Applicant are corrections to the Group's taxable result, to the Group's taxable matter. To the determination in IRC declared by the Applicant, while dominant company, in the Declaration Model 22 relating to the Group's taxable profit. Which is calculated taking as basis, as we saw above, the algebraic sum of the taxable profits and tax losses determined in the periodic individual declarations of each of the Group's companies, dominant included. See Articles 70º and 120º, paragraph 6 subparagraph a) of the CIRC.

That is, on one hand, the Declaration Model 22 to be presented by the dominant company can only be prepared on the basis of what is contained in the individual Declarations Model 22 of each and every one of the Group's companies.

Having corrections been made to one of them, as was the case in the present proceedings, the Declaration Model 22 of the Group was affected.

The corrections made in a Declaration Model 22 individual (of a dominated) are corrections to the result determined in that company.

And, returning to the concrete case – we cannot fail to recognize – they are corrections effectively processed. By the competent authority to that effect within the powers proper to it, having for that purpose initiated an Inspection Procedure whilst the limitation period was still in course – see Article 36º, paragraph 1 of the RCPITA.

It is only after the individual result of this company is corrected that the new values of the same will be able to be used, the corrected values, to be used in redoing the calculations of the determination of the Group's taxable profit.

But these latter calculations are not confused with the calculations made in correcting the Declaration Model 22 individual. They are distinct corrections. Nor do they lead to an equal result. See, for better understanding, and among other things, the various values contained in Table 5 of the RIT to the Applicant (in t) - proven facts).

Even if the basis of the corrections to be made to the Group's taxable profit must be the values resulting from the corrections made in the sphere of the dominated, the values as contained in the Declaration Model 22 individual after correction.

It is clear that it is established that we are dealing with corrections which do not confuse with one another, let it then be asked still: would the Respondent be prevented from making use of those values which it reached in the sphere of the company dominated by virtue of the corrections which it made there? And on that basis proceed to corrections to the Taxable Matter in another seat - in the case, to the Taxable Matter of the Group, in the sphere of the Applicant in its capacity as dominant company?

We do not believe so.

We have already seen that we are dealing with effective corrections. We understand that it will not be by virtue of the fact that the Procedure against the dominated exceeded the expiration of the limitation period for the right to assess - to the dominated - that the same shall cease to be able to be considered within the Group and for the purposes of the RETGS. For all that we have seen and what follows further.

First and foremost, the fact that the corrections were made in the sphere of B... and were not used there for purposes of issuing an Assessment is not such as to contradict what, in general, would already happen even if the TA were still in time in that sphere to proceed to an Assessment (and notify it). In truth, in the RETGS although each of the companies in the Group has to present its individual Declaration Model 22, this is ultimately intended to be used for purposes of determining the Group's taxable result. Not so that Assessments are issued (or, strictly speaking: not so that each company makes a self-assessment) in the sphere of each company in the Group, as is well understood.

In this sense, that dominated companies are not subject to Assessments, see as it was written in the Learned Judgment of the TCA South handed down in proceedings 05376/12, 04/30/2014: "(...) iv. The sum is made at the end of the fiscal year, being done on the basis of the periodic declaration submitted by the dominant company. However, each of the companies included in the scope must also present a periodic declaration of income, which is not, however, the subject of an assessment. (...)"

Moreover, in the concrete case of the proceedings, the corrections made in the individual sphere of B... would not, at all, be apt to give rise to any Assessment in that sphere. Even if one wished to conjecture such a hypothesis (as occurs in the thesis presented by the Applicant). In effect (see RIT in o) - proven facts) the corrections related to the value of (i) tax losses, and (ii) autonomous taxation. As to the former, the corrections to B...'s individual Declaration were in the sense of reducing them by a certain amount and, as to the latter, in the sense of increasing them by a certain amount (see RIT). Continuing to subsist in B...'s sphere tax losses, as occurred, and the autonomous taxation equally having to necessarily be determined at the end in the Group's Declaration, for in that seat the applicable rates be determined having in view the Group's tax loss, those corrections could not have given rise to an Assessment in B...'s sphere. It not being possible therefore, in truth, even properly to place a question of statutory limitation of the right to assess in that context.

And only in the Group's Declaration will the corrections in question, after being transposed for that purpose to the Group's taxable result, and in accordance with applicable terms, as we saw, come to give rise to an Assessment. And to assess whether the Assessment - in the case - is or is not tainted with the vice of violation of law by violation of the limitation period we shall have to do so by reference to the taxpayer to whom the Assessment was made. See Article 45º, paragraph 1 of the LGT. In the case, the Applicant in its capacity as dominant company, as we saw. Without it being able to be understood that corrections made in the sphere of a dominated company taint the subsequent corrections, and as a consequence the Assessment, to the Applicant.

Not having the legislator established special regulation in the matter of RETGS relative to the concrete functioning of Tax Inspection Procedures in what matters for the case of the proceedings, we shall always have to apply the general rules. As we have just done. With the consequence that precedes.

There is further that, appealing to the systematic element and to the unity of the Legal Order, which we understand we cannot fail to have in mind, it will always be said that the solution we have just reached is the one which permits maintaining the coherence of the system.

See how the dominated B... is held 100% by the Applicant (see c) – proven facts). And pay attention to what is provided in the Commercial Companies Code regarding Groups of companies with respect to the liability of the totally dominant company for the obligations of the subordinate. Subject to the necessary adaptations, note how the legislator's logic was, in that seat, to protect the creditors of the subsidiary company having in mind that this is in fact managed in accordance with the interests of the parent company, and thus redistributing the risk of business exploitation in this context. In essence recognizing that in such situations the patrimonial separation between the Group's companies loses some meaning.

Note moreover, returning to the tax legislator, how if we also pay attention to the very legal regime of the carryforward of tax losses (and here, as we saw, we are dealing also with corrections to tax losses) we will see that corrections to tax losses are not ceased to be admitted, in general, even if with reference to fiscal years (in which the losses were determined) with respect to which it would already (nor is it) possible to issue and notify an Assessment. But it being that, nevertheless, the TA continues to be able to consider such corrections for purposes of the deductions (carryforward) of the same losses in fiscal years in which the Assessment is still possible.

Now, from everything that precedes, we can only conclude in the sense of the lack of merit of the Applicant's thesis we have just appreciated, namely, that the Respondent could not have made use of the corrections identified in the sphere of B... to come to correct the Group's taxable profit and issue Assessment against it as Applicant in its capacity as dominant company.

The Applicant's thesis in this particular does not have, therefore, support either in the letter or in the spirit of the law, nor further, in the context of systematic interpretation. Not being verified, by this route, the invoked statutory limitation of the right to assess.

Let us now proceed to appreciate the second ground invoked by the Applicant in the sense of the petitioned declaration of illegality of the Assessments on the basis of statutory limitation of the right to assess. As follows.

The Applicant invokes that the notification, to it, of the Assessments was made when the limitation period (of four years, just as we have already appreciated in this respect and in accordance with the legal provisions also already analyzed there, for which we refer) had already elapsed. Because, it contends, notwithstanding the Respondent having qualified the Inspection Procedure that targeted it as Applicant as being of external nature, the same cannot be considered as having such nature. By virtue of not having involved material inspection acts. And, not having external nature, it does not have the capacity to suspend the limitation period – see Article 46º, paragraph 1 of the LGT (also already better analyzed above).

The Respondent, for its part, contends that the Procedure had external nature. Appreciating.

Article 13º of the RCPITA provides on the nature of the tax inspection procedure thus:

"Article 13º – Venue of the inspection procedure

As to the venue of the inspection, the procedure may be classified as:

a) Internal, when the inspection acts are performed exclusively in the services of the tax administration through the formal analysis and consistency of documents held by it or obtained within the scope of the said procedure;

b) External, when the inspection acts are performed, wholly or partially, in installations or premises of the taxpayers or other tax obligors, of third parties with whom they maintain economic relations or in any other place to which the administration has access."

With relevance to what we now appreciate, let us also pay attention, in this same Legal Act, to the following provisions:

Article 7º – Principle of proportionality

The actions integrated in the tax inspection procedure must be adequate and proportional to the objectives of tax inspection.

Article 12º – Purposes of the procedure

  1. The procedure is classified, as to its purposes, as:

a) Verification and confirmation procedure, aiming at verification of compliance with the obligations of taxpayers and other tax obligors;

b) Information procedure, aiming at compliance with the legal duties of information or opinion with which tax inspection is legally entrusted.

Article 29º – Prerogatives of tax inspection

  1. The exercise of the effectiveness guarantees provided for in the previous article may be materialized through the following powers of officials in tax inspection service:

a) (…) - i) (…) / 2. (…) / 3. (...)"

And, in the LGT, in particular to paragraphs 1 and 4 of Article 63º:

"Article 63º – Inspection

  1. The competent bodies may, in accordance with the law, conduct all necessary diligences for determining the tax situation of taxpayers, namely:

a) (…) - f) (…)

  1. The inspection procedure and the duties of cooperation are those adequate and proportional to the objectives to be pursued, (…)."

Be it through the LGT, be it through the RCPITA, the legislator intended to guide the conduct of the Tax Administration by criteria and principles of proportionality, adequacy, reasonableness, along with efficiency and others.

It was in this particular, in the matter of inspection acts, quite detailed even, explaining exhaustively the types of acts which fall under the respective conduct of the TA (see the two articles above in their entirety).

As regards the nature of inspections it distinguished the two situations – Internal/external Procedure – based on a criterion of the location of the acts practiced, see Article 13º of the RCPITA). A norm which, as is good to see, like the others, will have to be interpreted in light of the referred principles, in particular that of proportionality (see Article 7º RCPITA).

Now, in our case, as follows from the proven facts, and as became evident in the reasoning covered above with respect to corrections in the context of B... / in the sphere of the Applicant, the activity developed by the Respondent in the Inspection Procedure of which we now treat (against the Applicant) was limited to an operation of transposition of the corrections identified in the sphere of the dominated B... into the determination of the Group's Taxable Profit. It was, in fact, a matter of making the corrections identified in the sphere of B... reflect in the Group's Declaration Model 22 and thus determine the corrections to be made in the Group's Declaration Model 22. As better developed above.

For such purposes, we do not see how it would have been necessary to resort to an external Inspection Procedure. In effect, we see nothing but that it is certain that the TA was already in possession of all the elements necessary to proceed to the corrections which it made in the sphere of the Group, in the Procedure against the Applicant, without having to for that purpose move to the Applicant's premises. All the more so since it had opened an external Inspection Procedure against the dominated company B... within the scope of which it obtained the elements which it needed to make the corrections which it made in that same sphere.

More, as is contained in the RIT to the Applicant itself, the only "inspection act" which is referred to as having been conducted in the Applicant's premises is that of notification of the Service Order. Which, without need for further explanation, clearly is not justifying of the opening of a Procedure of external nature. Let consideration be had to the purposes of Inspection Procedures (see Article 12º RCPITA above), as well as the Principles, already referred to, which govern the matter, in particular that of proportionality and that of adequacy, as well as those of good faith and mutual collaboration (see Articles 59º, paragraph 2 and 63º, paragraph 4 of the LGT).

The same applies in the defense of the Respondent which, in its Response, equally materializes only that same act as located in the Applicant's premises.

It does not appear to us, furthermore, that this act should be qualified, even, as a material inspection act. Material inspection acts will be yes, differently, the types of acts abundantly identified by the legislator in the articles addressed above. In particular in Articles 29º of the LGT and in Article 63º of the RCPITA.

In this same sense see also how the RIT to the Applicant itself, the entirety of it, thus proves what we have just referred to. Throughout the same the RIT to the dominated is transcribed and everything which was there identified is there transcribed for, then, the consequent correction operations to be processed at the level of the Group's Declaration Model 22 (certainly beforehand in the TA's possession). No investigation/verification operations are described as to the Applicant's accounting or to any documents, computer systems or whatever else of the Applicant.

The very short duration which the Inspection Action had points in the same direction, if we pay good attention to the dates of commencement – notification for right to be heard – lapse of the period of right to be heard – notification of the RIT (see above proven facts).

On the other hand, and in light of all we have just referred to, it will certainly not be by mere effect of the Respondent attributing to a given Procedure the qualification of external that the same should be automatically deemed to be so. The respective materialization in effective inspection acts developed in the premises of the taxpayers or other tax obligors should be present. Under penalty of permitting the perversion of the objective aimed by the legislator in regulating, with high detail moreover, the matter. Unquestionably an objective of Legal Security and system organization, security of taxpayers in particular and guarantee of proportionality to the objectives to be achieved (see Preamble of the RCPITA).

The external inspection procedure is potentially more burdensome in terms of inconvenience to taxpayers, whereby its effective necessity must be weighed by the Services before deploying it. On the other hand, it is the only one which permits the suspension of the limitation period for the right to assess (see Article 46º, paragraph 1 of the LGT) which brings added implications, with consequences which are not

Frequently Asked Questions

Automatically Created

What happens when tax corrections made to a subsidiary (dominated company) affect the parent company (dominant company) under the RETGS regime?
Under RETGS, tax corrections made to a dominated company (subsidiary) flow through to the dominant company (parent) for group taxation purposes. However, this case demonstrates that procedural requirements, particularly statute of limitations rules, must be independently satisfied. When corrections are made to a subsidiary after inspection, those corrections form the basis for adjustments to the group's taxable result at the dominant company level. The Tax Authority must conduct separate but coordinated inspection procedures - first against the dominated entity, then translating those findings into the dominant company's inspection report. The critical issue is whether limitation periods expired in the subsidiary's sphere before corrections could be validly applied at the group level, potentially invalidating subsequent assessments against the parent company.
Can the Portuguese Tax Authority (AT) issue additional IRC assessments after the statute of limitations for tax assessments has expired?
No, the Portuguese Tax Authority cannot issue additional IRC assessments after the statute of limitations (prazo de caducidade) has expired, which is generally four years from the end of the tax year (Article 45 LGT). However, this period can be suspended during tax inspection procedures for up to six months (Article 46(1) LGT). If an inspection exceeds six months, the suspension becomes ineffective and time counts as if never suspended. In this case, with the limitation period ending December 31, 2017, the taxpayer argued that inspections exceeding six months meant no valid suspension occurred, causing the right to assess to expire. The determination of whether assessments were timely depends on whether inspection procedures properly suspended limitation periods in both the subsidiary and parent company contexts.
How does the special taxation regime for groups of companies (RETGS) impact tax inspection procedures under Articles 69 to 71 of the IRC Code?
The RETGS regime under Articles 69-71 CIRC allows corporate groups to be taxed as a single entity, with the dominant company responsible for the consolidated tax position. This creates unique procedural challenges for tax inspections because corrections at the subsidiary level must be reflected at the group level. Tax authorities must navigate dual inspection procedures: examining individual dominated companies for specific corrections while separately inspecting the dominant company to adjust group results. Each inspection procedure has independent limitation period implications. The regime requires coordination between procedures while respecting individual procedural guarantees and temporal limits. This case highlights tensions between substantive tax consolidation and procedural independence, particularly regarding whether limitation period expiry in one group entity prevents assessments based on those findings at the group level.
What is the legal framework for challenging the expiry (caducidade) of the right to issue tax assessments in Portuguese tax arbitration?
Under Portuguese law, challenges to assessment caducidade (expiry) can be brought before CAAD tax arbitration tribunals pursuant to Articles 2(1)(a) and 10(1)(a) LRTA, combined with Article 45 LGT and Article 99(d) CPPT. Taxpayers must demonstrate that assessments were issued after the limitation period expired. The four-year limitation period runs from January 1st following the tax year (ending December 31, 2017 for 2013 assessments). Suspension occurs during inspection procedures but only for six months maximum under Article 46(1) LGT - exceeding six months retroactively nullifies the suspension. The legal framework requires analyzing: (1) when limitation periods began and would naturally expire; (2) whether valid suspension occurred through proper inspection procedures; (3) whether suspension exceeded six months; (4) when assessments were actually notified. In RETGS contexts, additional complexity arises regarding whether limitation periods in dominated companies affect the dominant company's assessment rights.
How are tax inspection procedures conducted separately for dominant and dominated companies within a RETGS group validated for IRC purposes?
Tax inspection procedures for RETGS groups involve sequential and interconnected processes. First, the Tax Authority may inspect dominated companies individually under specific service orders, identifying corrections and documenting findings in inspection reports (RIT). These corrections must be completed within limitation periods applicable to the dominated entity. Second, a separate inspection procedure targets the dominant company, during which corrections from dominated company inspections are transposed into the dominant company's draft RIT and final RIT for adjusting the group's consolidated taxable result. Each procedure must independently comply with temporal requirements, including the six-month maximum suspension period under Article 46(1) LGT. Validation requires: proper service orders initiating each inspection; timely completion within limitation periods; documented transposition of subsidiary corrections to group-level adjustments; and final assessment notification before limitation expiry. The critical legal question in this case is whether procedural defects or limitation expiry in dominated company inspections invalidate subsequent assessments against the dominant company, even when separate procedures formally targeted the parent entity.