Summary
Full Decision
ARBITRAL DECISION
The arbitrators Counselor Maria Fernanda Maçãs (arbitrator president), Dr. Leonardo Marques dos Santos and Prof. Doctor Luís Menezes Leitão (arbitrators members), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, agree on the following:
I. REPORT
A... – Company Managing Social Participations, S.A., with registered office at Avenue ..., no. ..., ..., in Lisbon, legal person no. ..., with share capital of € 1,000,000 (hereinafter, the "Claimant" or "A...") came, in accordance with the provisions of paragraph a) of no. 1 of article 2 and in articles 15 and following, all of Decree-Law no. 10/2011, of 20 January (hereinafter, "RJAT"), to request the establishment of an Arbitral Tribunal to examine the legality of the assessment of Corporate Income Tax (hereinafter, "IRC") no. 2018..., of the assessments of interest nos. 2018... and 2018..., and of the statement of account reconciliation no. 2018..., all relating to the taxation period of 2013.
The request for establishment of the arbitral tribunal, in which the appointment of arbitrators by the Deontological Council of the Centre for Administrative Arbitration (hereinafter, "CAAD") was requested, in accordance with the provisions of paragraph a) of no. 2 of article 6 of the said diploma, was accepted by the President of CAAD and notified to the Tax and Customs Authority (hereinafter, the "Respondent" or "AT").
The arbitrators being designated, these communicated acceptance of the task within the deadline.
Having notified the parties of such designation, no reservation was submitted by any party, wherefore, in compliance with the requirements of paragraph c) of no. 1 and no. 8 of article 11 of RJAT, the Collective Arbitral Tribunal was constituted on 16.10.2018.
To substantiate the request for arbitral pronouncement, the Claimant, after identifying the subject matter of the proceedings, alleged, in summary, statute of limitations of the right to assess and violation of law, in the following terms:
Regarding statute of limitations:
In accordance with the provisions of article 45 of the General Tax Law (hereinafter "LGT"), "1 – The right to assess taxes becomes barred if the assessment is not validly notified to the taxpayer within the period of four years, when the law does not fix another."
In accordance with the provisions of no. 1 of article 46 of the LGT, the statute of limitations period is suspended, for a maximum period of six months, with the initiation of a procedure qualified as external inspection, in accordance with article 13 of the Supplementary Regime for Tax Inspection Procedure ("RCPIT").
As is recognized (e.g.: Rulings of the Central Administrative Court South in Case no. 05458/12, of 09.03.2017; in Case no. 07026/13, of 13.02.2014; in Case no. 07343/14, of 27.02.2014; and in Case no. 04817/11, of 01.10.2014; Ruling of the Central Administrative Court North in Case no. 01854/10.8BEBRG, of 13.11.2014; Decision handed down by CAAD in Case no. 216/2013-T, of 26.02.2014) the qualification given by the AT to an inspection procedure does not have binding character and will only be valued if the actions carried out materially correspond to such qualification.
Given that it is IRC for 2013, the notification made on 04.04.2018 occurred outside the statute of limitations period.
No suspension period is applicable because, although the Claimant was subject to an inspection procedure, formally qualified as external, the acts performed by the AT within the scope of the said action were limited to analysis of documentation already in its possession, as well as to exchange of messages via electronic mail with the Claimant, and occurred without any visit to the Claimant's facilities to consult elements, collect documentation or hear statements.
Thus, the inspection procedure relating to the 2013 fiscal year of the Claimant, which is the basis for issuance of the tax acts now being challenged, cannot be qualified as external, wherefore it does not have the capacity to suspend the statute of limitations period provided for in article 46 of the LGT, which affects the validity of the assessment now being challenged and what will necessitate its complete annulment, as it was notified to the Claimant beyond the legal period provided for in no. 1 of article 45 of the LGT.
Furthermore, the inspections conducted of five of the Subsidiaries (B..., S.A.; C..., S.A.; D..., S.A.; E..., S.A.; F..., S.A.) and of G..., Lda., were expressly classified as "internal."
The inspection of H..., Lda., classified as external, but, as proper actions of an external inspection procedure were not carried out, with the corrections being based on collection and analysis of documents in the possession of the AT, such procedure – which lasted 1 month and 15 days (Order of Inspection signed on 22.03.2016 and final inspection report notified on 03.05.2016) – should be qualified as internal.
The remaining two inspections were not classified (neither as internal nor as external) and lasted less than 1 month and a half in the case of I..., S.A. (Order of Inspection of 06.10.2016 and final inspection report notified on 22.11.2016), and 2 months and 10 days in the case of J..., S.A. (Order of Inspection of 19.05.2016 and final inspection report notified on 29.07.2016).
Consequently, there are no grounds to invoke suspension of the statute of limitations period, and, when the IRC assessment for the 2013 fiscal year was received, on 04.04.2018, it was outside the legally applicable statute of limitations period.
Regarding violation of law:
The non-acceptance of the corrections relating to depreciation and amortization of equipment from its solar and wind parks were justified by the AT in the following manner:
The companies in question recorded in their tangible fixed assets equipment intended for the production of electrical energy: wind turbines and/or photovoltaic panels in the case of H...;
Given the non-existence of this type of equipment in the tables attached to Regulatory Decree no. 25/2009, of 14 September, the companies classified them, for tax purposes, under code 1230 – Equipment of hydroelectric power plants, having amortized them at the rate of 6.25% established in that legal diploma for these equipments, i.e., assuming an expected useful life period of 16 years;
According to no. 2 of article 31 of the IRC Code, and no. 3 of article 5 of Regulatory Decree no. 25/2009, of 14 September, for assets whose amortization rates have not been established – as was the case with wind turbines and photovoltaic panels – the amortization rates considered reasonable by the AT, based on the expected useful life period, are accepted;
Based on technical information obtained from the suppliers of the equipment in question, the AT concluded that the expected useful life period for wind turbines was 20 years and for photovoltaic panels was 25 years;
There being a difference between the amortization recorded by the companies as an expense and the amount of amortization that would have been recorded by them had they considered the expected useful life period defined by the suppliers of the equipment, it would be necessary to make corrections to the taxable income of each of those companies and, consequently, to the taxable profit determined by the Claimant within the scope of RETGS.
Because Accounting and Financial Reporting Standard no. 7 (hereinafter "NCRF 7") links the "useful life" of an asset to the "period during which an entity expects an asset to be available for use," or, alternatively, the "number of units of production or similar that an entity expects to obtain from the asset," and because the latter case was not applicable to wind turbines and photovoltaic panels, the companies B..., S.A.; C..., S.A.; D..., S.A.; E..., S.A.; F..., S.A.; H..., Lda.; I..., S.A., and J..., S.A. (for simplification, hereinafter referred to as "Subsidiaries"[1]) opted to consider that the useful life of such equipment should be determined based on a given time period during which they would be available for use.
Those subsidiaries of the Claimant considered that the depreciation of wind turbines and photovoltaic panels should begin at the moment when such equipment was properly installed in the appropriate locations and in conditions to operate as intended.
To determine the expected useful life period of those tangible fixed assets (or tangible fixed assets according to the current designation), after which they would be fully depreciated, the Subsidiaries took into account the following factors:
The future economic benefits that wind turbines and photovoltaic panels were capable of generating;
The technical obsolescence caused, namely, by alterations or improvements in the production of such equipment; and
Legal limits and/or constraints.
The terms and conditions establishing the fixed and guaranteed remuneration obtained by the Claimant's Subsidiaries for the supply of all electricity produced to the national electrical grid are regulated in Decree-Law no. 189/88, of 27 May, as amended, inter alia, by Decree-Law no. 33-A/2005, of 16 February.
In item 20 of Annex II, introduced by the latter diploma, the legislator defined the period of 15 years, counting from the beginning of electricity supply to the grid, as the period of applicability of the guaranteed remuneration factor.
After that period, given the possibility that the supply of electricity produced in those power generation centers could come to be subject to the rules of the liberalized market, the Subsidiaries predicted that their respective Parks would record a sharp decline in profitability.
That decline in profitability (reduction in revenue which could be between 6 to 11 times lower compared to the remuneration received under the guaranteed tariff) would be of such magnitude that those renewable energy power generation centers would no longer be capable of generating sufficient income to cover the costs inherent in their maintenance, and it might be necessary to proceed with their dismantling.
On the other hand, the energy sector and the equipment used in the context of its production is one of the most dynamic and has suffered most from technological obsolescence.
There being no even secondary market, either in Portugal or abroad, for the resale of this type of equipment (which implies that they have no residual value even in case of dismantling).
This same technical and commercial obsolescence is frequently responsible for the advancement, by electricity production companies, of plans for dismantling of such equipment (as, by way of mere example and advanced herein, occurred with the wind turbines installed by D... in the Wind Park of ... which began to be dismantled in July 2017, 14 years after entering operation).
Considering that the tables attached to Regulatory Decree no. 2/90, of 12 January, and to Regulatory Decree no. 25/2009, of 14 September (legal diploma that revoked the prior one), did not contain an express reference to the rates of depreciation and amortization (and to the useful life period underlying them) to be applied to wind turbines and photovoltaic panels, the Subsidiaries understood that the expected useful life period for this type of equipment would correspond to 16 years (the period of 15 years in which they would receive a legally guaranteed tariff, combined with the period of approximately one year relating to the installation of those power generation centers), and that they should be amortized annually at a rate of 6.25%.
In fact, that expected useful life period estimated by those Subsidiaries of the Claimant and the corresponding depreciation rate were equivalent to those that the tax legislator had established in Tables I - Specific Rates, Division V - Electricity, gas and water, of Group I - Production, transport and distribution of electrical energy, attached to Regulatory Decree no. 2/90, of 12 January, and to Regulatory Decree no. 25/2009, of 14 September, for hydroelectric power plant equipment.
The AT defended the association of the fiscal concept of useful life or expected utility of wind turbines and photovoltaic panels with the "durability" of the same, in a logic of guarantee of proper functioning.
While it is true that in technical terms the utility of an asset can be associated with the period of guarantee of its proper functioning, it is equally true that under Portuguese tax law the prevailing utility is economic utility (taking into account factors such as future economic benefits generated by the assets for their owners) and not the "durability" of the asset or the "catalog" useful life.
This is apparent from the rates expressly provided in Tables I and II attached to Regulatory Decree no. 25/2009, of 14 September, namely from the rates applicable to:
Mobile phones, which is 20% (5 years);
Light or mixed automobiles, which is 25% (4 years);
Computers, which is 33.33% (3 years).
What is implicitly recognized in the tax-accepted depreciation rates is the fact that it is not sufficient for a particular asset to function for it to have economic value, as has been recognized in the arbitral decision of 06.01.2016 handed down in CAAD in case no. 162/2015-T, and in the arbitral decision of 18.09.2014 handed down in case no. 75/2014-T, which was followed in the arbitral decisions of 01.09.2015, in case no. 16/2015-T, and of 29.06.2016, in case no. 593/2015-T.
More than that is necessary; it is essential to correlate the use expenses of an asset with the income it generates and with all circumstances (such as wear, technical obsolescence and legal constraints) that affect that capacity to generate income.
The business plans initially outlined by the companies of the Group and which presided over the definition of a depreciation rate of 6.25% precisely took into account the capacity of these equipments to produce electricity during a certain period of time and, in that sense, to be capable of generating income for their respective owners.
In fact, if a hydroelectric project has a durability of 30 to 80 years and an expected useful life of 16 years – in accordance with Table I (Specific Rates), Division V (Electricity, gas and water), of Group I (Production, transport and distribution of electrical energy) of Regulatory Decree no. 25/2009, of 14 September – all the more so, wind turbines and photovoltaic panels that are in operation for approximately 15 years could never have an expected useful life exceeding 16 years!
In addition to the foregoing, it is recalled that the legislator appealed to the reasonableness of the depreciation rates to be applied to the assets of a taxpayer (cfr. article 31, no. 2, of the IRC Code, and article 5, of Regulatory Decree no. 25/2009, of 14 September).
Now, the Subsidiaries of the Claimant took into account – for purposes of depreciation and amortization of wind turbines and photovoltaic panels – substantial factors (of a financial, technical, environmental and legal nature) that justified the determination of a time period of useful life of 16 years and the subsequent recognition of the corresponding expense by means of the application of a rate of 6.25% on the acquisition cost of such equipment.
On the criteria of reasonableness, CAAD has also established case law (namely: in the arbitral decision of 18.09.2014, in case no. 75/2014-T, in the arbitral decision of 01.09.2015, in case no. 16/2015-T, and in the arbitral decision of 29.07.2016, in case no. 593/2015-T).
The Commission for Green Tax Reform also went in this direction, expressly advocating the establishment of an amortization period for wind and photovoltaic equipment between 12.5 years and 25 years.
In its Report, it was written, namely, the following: "The rates to be used should follow technical reasonableness and economic efficiency. On the other hand, taking into account the Iberian dimension of the electricity market, competitiveness criteria within the scope of the Iberian market and adjustment to standard economic conditions in investments in this type of equipment suggest that the Portuguese legal order be aligned with the Spanish one. Taking these two aspects into account, it seems reasonable to adopt a maximum useful life period of 25 years, to which will correspond, in accordance with the fiscal standard consecrated by the legislator, a minimum useful life period of 12.5 years."
Following the Proposal of the Commission, there was Bill no. 257/XII, which provided in its article 23, the following amendment to Regulatory Decree no. 25/2009, of 14 September:
"Code 2250 – Solar or wind energy equipment: 8%."
This Bill gave rise to Law no. 82-D/2014, of 31 December (hereinafter "Green Tax Law"), which established in its article 23 the following amendment to Regulatory Decree no. 25/2009, of 14 September: "Code 2250 – Solar energy equipment, including in particular photovoltaic solar energy equipment, or wind energy equipment: 8%."
That is, the tax legislator came to confirm, with this legislative amendment, that the expected useful life period estimated by the companies of the Group for such equipment was reasonable, both from an economic and a tax standpoint.
Finally: even assuming that the "catalog" useful life should prevail (which is only done out of mere duty of representation), even so the action should be judged as having merit because the AT forgot the difference between the maximum and minimum useful life period.
In accordance with the AT's position and by application of the legal norms (see article 3 and no. 2, of article 18 of Regulatory Decree no. 25/2009, of 14 September, and no. 6, of article 30 of the IRC Code), it is found that the minimum useful life period of such equipment would be around 10 years (for wind turbines) to 12.5 years (for photovoltaic panels).
Such minimum useful life period will correspond to the application to wind turbines of a maximum amortization rate of approximately 10% and, in the case of photovoltaic panels, of 8%.
As appears from the table below, there is no substantial difference between the estimate for useful life of wind turbines and photovoltaic panels made by the Subsidiaries and the data on which the AT based itself to make its estimate:
Equipment | Entity | Minimum useful life period (years) | Maximum useful life period (years)
Wind turbines | AT | 10 | 20
| Claimant | 8 | 16
| Legislator (Green Tax Law) | 12.5 | 25
Photovoltaic panels | AT | 10 | 20
| Claimant | 8 | 16
| Legislator (Green Tax Law) | 12.5 | 25
The useful life period that the Claimant and its Subsidiaries estimated for wind turbines and photovoltaic panels (16 years) falls within the time intervals defined both by the AT (between 10 and 20 years for both equipments) and by the tax legislator (between 12.5 to 25 years for both equipments).
In that scenario it would be legitimate for those companies to amortize annually such equipment at rates superior (8% and 10%) to that which has been effectively practiced by them (6.25%).
Therefore, the 6.25% amortization rate practiced in the sphere of the Claimant's Group falls within the intervals considered reasonable, taking into account the legal norms and the data itself collected by the AT.
Complementarily:
According to a study by the National Energy and Geology Laboratory ("LNEG"), entitled Technical Study "Expected Useful Life Period" of Wind Energy Conversion Equipment," prepared by the Unit of Energetic Analysis and Networks of LNEG and signed by K..., L... and M... in December 2013, "The methodology developed by LNEG made it possible to conclude that the expected maximum useful life period of a wind turbine is between 20 and 25 years" (p. 3).
The IRC Services Directorate itself has had the occasion to argue that, given the existence of a guaranteed tariff (in that case of 20 years), it is necessary to determine the depreciation rate of photovoltaic investments "so that expenses are balanced with the income to be obtained from the production and sale of energy."
To the above is added the violation of the constitutional principle of equality and taxation of actual profit, since the tax legislator considered reasonable a period of 16 years for hydroelectric power plant equipment.
Now, if in the case of hydroelectric power plant equipment the amortization and reinvestment period of 16 years is "reasonable," an identical conclusion will necessarily be applicable to the amortization and reinvestment period of wind turbines and photovoltaic panels.
It is not valid to argue to the contrary with the reasons of the dissenting vote opposed to the CAAD decision in case no. 593/2015-T, of 29.07.2016, reasons that prevailed in case no. 698/2016-T, of 07.06.2017, and which relate to a supposed unchallengeable nature of the discretionary judgments of the Administration.
Especially because they would have already been dismissed in the decision handed down on 28.11.2016 in case no. 238/2016-T of CAAD, which cited the Ruling of the Supreme Administrative Court of 16.06.1999 (case no. 020839), subsequently endorsed by the Ruling of the Constitutional Court no. 269/2000, of 03.05.2000, associated with case no. 598/99.
As well as in the ruling of the Supreme Administrative Court of 03.03.2016, relating to case no. 0768/15.
Especially because, otherwise, the AT could correct every and any depreciation of assets not provided for in the tables, effected by any company, since it could freely decide to add or subtract one or more years from the useful life period of those assets, and such decision could not be judicially challenged, as such a change would hardly be considered a "gross error."
This would be opening the door to all types of abuses and unchallengeable tax corrections, leaving it to cease being the AT that has to justify why it did not consider the taxpayer's judgment as reasonable, for it to be the AT deciding freely – and without challenge – what the amortization rate should be, making unchallengeable corrections at its discretion (within, obviously, a necessarily short interval, adding or subtracting one or two years, but still very significant).
It concludes by arguing that the thesis of unchallengeable nature of the soundness of the AT's actions, in the manner advocated by the aforementioned dissenting vote, suffers from three unconstitutionalities:
First, the norm that results from the combination of no. 2 of article 31 of the IRC Code and no. 3 of article 5 of Regulatory Decree no. 25/2009, of 14 September, in the wording in force in 2013, when interpreted in the sense of conferring on the AT a "technical discretion" that allows it to make corrections to the IRC self-assessed by taxpayers, without these corrections and the tax assessments resulting therefrom being subject to judicial challenge by taxpayers, in situations where the criterion used by them (amortization of wind turbines and solar panels at the rate of 6.25%, that is, over 16 years) is as or more reasonable than the criterion subsequently imposed by the AT (amortization at the rate of 5%, that is, over 20 years), is unconstitutional due to violation of articles 268, no. 4 and 20, no. 1, both of the Constitution of the Portuguese Republic ("CRP"), as well as article 104, no. 2 of the fundamental diploma.
Second, the norm that results from the combination of no. 2 of article 31 of the IRC Code and no. 3 of article 5 of Regulatory Decree no. 25/2009, of 14 September, in the wording in force in 2013, when interpreted in the sense of conferring on the AT a "technical discretion" that allows it to correct the amortization rate that had been used by the IRC taxpayer for wind turbines and solar panels, without these corrections and the tax assessments resulting therefrom being subject to judicial challenge by taxpayers, except if the latter demonstrates error in the factual presuppositions, manifest error in the interpretation and application of law, bad faith of the decision-makers, pursuit of improper purposes or consideration of irrelevant factors, is unconstitutional due to violation of articles 268, no. 4 and 20, no. 1, both of the CRP.
Third, the norm that results from the combination of no. 2 of article 31 of the IRC Code with no. 3 of article 5 of Regulatory Decree no. 25/2009, of 14 September, in the wording in force in 2013, when interpreted in the sense of allowing the AT to correct the amortization rate that had been used by the IRC taxpayer for wind turbines and solar panels to 20%, which is higher than the rate provided for in law for hydroelectric equipment, which has a useful life comprovedly much superior to wind turbines and solar panels, is unconstitutional due to violation of the constitutional principles of equality, proportionality, substantive justice and taxation by actual profit.
It requests that the amount of tax losses be restored as declared by the Claimant and by the companies of the Group, that the corrections made to the values of municipal and state apportionment of the 2013 fiscal year be annulled, and that it be indemnified as a result of the provision of a bank guarantee in an improper manner, in accordance with article 53 of the LGT.
The Respondent replied, invoking, also in summary, the following:
Regarding statute of limitations:
Regardless of the tax corrections that may take place in the sphere of each of the companies, it is necessary that those same corrections be reflected in the group's taxable profit in order, consequently, to give rise to the respective assessment, as occurred.
The consolidation of the fiscal results of each of the companies that make up the group was made within the scope of the inspection procedure, with Order of Inspection no. OI2016..., conducted by the Finance Directorate of Lisbon.
Because the Claimant is part of the list of taxpayers monitored by the Large Taxpayers Unit, the extension of competence was granted by order of 06.04.2017 of the Director of that unit.
The statute of limitations period established in article 45 of the LGT is indeed 4 years – counted in accordance with no. 4 of the same article – but, in accordance with no. 1 of article 46, it is suspended with the notification to the taxpayer of the beginning of external inspection action.
In accordance with nos. 2 and 3 of article 52 of the Supplementary Regime for Tax and Customs Inspection Procedure ("RCPITA"), the beginning of the external inspection action took place on 27.10.2017.
Inspection procedures are considered concluded with the notification of the Final Report, in accordance with no. 2 of article 62 of RCPITA.
The final Tax Inspection Report ("RIT") was sent by means of an official letter, dated 22.03.2018, sent by registered mail (CTT registry no. RH...PT), with information on the CTT website indicating its delivery on 23.03.2018.
As the suspension period can last until the maximum limit of six months after notification to the taxpayer of the beginning of external inspection action, the IRC assessments, relating to the 2013 fiscal year, issued on 29.03.2018, were timely.
Regarding violation of law:
The AT begins by invoking recent CAAD decisions (those handed down within cases no. 698/2016-TCAAD, of 07.06.2017, and 573/2016-T, of 04.05.2017) on the same matter.
And it invokes that the Claimant has not succeeded in proving – as was incumbent upon it, in accordance with no. 1 of article 74 of the LGT – the lack of reasonableness on the part of the AT in the establishment of depreciation or amortization rates in light of the expected useful life period of wind turbines and photovoltaic panels.
The calculation of depreciation and amortization shall be made, as a rule, by the straight-line method (article 30, no. 1 of the IRC Code).
With respect to elements for which depreciation or amortization rates have not been established, those considered reasonable by the AT are accepted, taking into account the expected useful life period, in accordance with the provisions of no. 2 of article 31 of the IRC Code and no. 3 of article 5 of Regulatory Decree no. 2/90, of 12 January.
The only criterion that the law imposes on the AT is that in determining the depreciation or amortization rate, it observe the "expected useful life period."
Thus, various informal inquiries were made, at the websites of the principal manufacturers present in Portugal, namely N... (currently O...), P..., Q... and R..., and it was concluded that the majority of those manufacturers assume that the expected time of useful life (Life Time Cycle), of each machine they produce is 20 years.
More, within the scope of the inspection actions carried out to the 2010 fiscal year (OI2014..., of 6 October 2014), to different companies belonging to the Group A..., by the entities (S... GMBH (NIPC...), P..., Lda. (NIPC...) and R... GMBH – Branch in Portugal (NIPC...)), at the request of the AT itself to those entities, as to an estimated useful life period of those generators, by the same it was indicated as reasonable the period of 20 years (cfr. annex 4 of the Inspection Reports, attached to Case no. 593/2015-T, of 29.07.2016, of CAAD).
In fact, this 20-year period is the period recommended by the International Electronics Committee, in its standard 61400-1.
This is also mentioned in the technical study "Expected Useful Life Period of wind energy conversion equipment" of LNEG, of December 2013, conducted by Professors Doctors Raquel Marujo, Teresa Simões and Ana Estanqueiro, where it can be read, on p. 5: "(…) Thus, the warranty period of a wind turbine is similar to that assigned to any equipment acquired through a commercial transaction. In the case of wind turbines, this period corresponds to 2-5 years after their entry into operation (10-12). Normally this warranty period refers not only to the operation and maintenance of the equipment, but also to the production guarantee, being directly related to the period for which maintenance contracts are written. Initially these contracts had a duration of 2 to 5 years, however, in more recent years there have been cases in which these contracts are written for longer periods, reaching the expected useful life period for wind turbines (approximately 20 years)."
Also the dissertation "Methodologies for assessing the performance of Wind Parks" by Nuno Cardoso, conducted within the scope of the Integrated Master's in Mechanical Engineering, with the coordination of Professor Álvaro Henriques Rodrigues of the Department of Mechanical Engineering and Industrial Management, of the Faculty of Engineering of the University of Porto, states, on p. 12, the following: "(…) the operation phase of a wind park is what extends over a longer period of time. The time horizon of 20 years is the one habitually considered, since it represents the expected useful life time for wind turbines around which are centered the activities carried out: exploitation, maintenance and conservation of the park."
The environmental impact study prepared by the French "Ministère de l'Écologie et du Développement Durable" (2005), available on the Web, points, on its p. 52, to an estimated useful life period of wind turbines of 20 to 30 years, at the end of which the operator has the responsibility to dismantle the wind park and restore the location to its original state.
The "Renewable Energy Fact Sheet: Wind Turbines" prepared by the "United States Environmental Protection Agency," also available on the Web, mentions, on its p. 2, a typical useful life of 20 years.
Concluding, therefore, that the Respondent did not err in exercising the technical discretion that was conferred upon it by no. 2 of article 31 of the IRC Code and by article 5 of Regulatory Decree no. 2/90, of 12 January.
And invoking what was decided, in the same sense, in those two CAAD decisions and in the statement of vote attached to the decision of case no. 593/2015-T, of 29.07.2016.
The AT has accepted, as to the assets in question, an amortization rate of 5% corresponding to 20 years of useful life, in accordance with the opinion of the IRC Services Directorate, issued in information no. 922/15,
The useful life of wind turbines presents a strong connection to the economic viability of the wind park, and in some studies periods of operation of 35 to 40 years are mentioned. The weight of maintenance and repairs increases with the age and use of equipment, so the maximum profitability of a wind park lies between 20 and 25 years.
Therefore, the AT did not err in exercising the technical discretion that was conferred upon it by no. 2, of article 31 of the IRC Code and by article 5 of Regulatory Decree no. 2/90, of 12 January, and all the more so the AT did not seriously err, in terms that would allow contentious challenge of the legal exercise of its discretionary power.
Furthermore, the companies of the Group have at their disposal the possibility established in article 31-B of the IRC Code[2], which establishes that when the facts that determined exceptional depreciations (ex.: exceptionally rapid technical innovations or significant alterations) of the assets and physical write-off, dismantling, abandonment or rendering unusable occur in the same taxation period, the net fiscal value of the assets may be accepted as an expense of the period.
Useful life, in accordance with NCRF 7 (NCRF published by Notice no. 15 655/2009, D.R. no. 173, Series II, of 2009-09-07) is the period during which an entity expects the asset to be available for its use.
From the legal norms analyzed here it is clear that we are talking about the useful life of an asset, and not any economic life.
Furthermore, the determination of the depreciation or amortization rate is not, and cannot be, in direct relation to the profits or losses that the activity of the companies of the group, or of any other taxpayer, may produce – obtaining profit is one of its concerns.
The criterion pointed out by no. 2 of article 31 of the IRC Code is not the "reasonableness of the rate, taking into account the profits or losses of the taxpayer's activity…," but rather the "reasonableness of the rate, taking into account the expected useful life period."
The Claimant attaches to the present case document no. 15 which corresponds to a study conducted by the International Renewable Energy Agency ("IRENA"), but this study is aimed at analyzing the costs and benefits that hydroelectric energy could bring to a State.
From Division V of Group I - Production, transport and distribution of electrical energy of Table I attached to Regulatory Decree no. 2/90, of 12 January, it results that there are other equipments that have rates lower than the 6.25% provided for hydroelectrics. For example, for fixed hydraulic works a rate of 3.33% is provided, for substations and transformation posts and for HV Lines and supports a rate of 5% is provided (Table I attached to Regulatory Decree no. 25/2009, of 14 September).
It is important to note that the Claimant makes a reasoning that is contradictory when referring to the faculty provided in no. 6 of article 30 of the IRC Code and in article 3 and no. 2 of article 18 of Regulatory Decree no. 25/2009, of 14 September.
On one hand, the application of a rate equal to half of those established according to the straight-line method, consists of a mere possibility that will always depend on the rate established by law – which is not the case here.
On the other hand, the rate of 5% corresponds to an average useful life period – and the relevant half would be 2.5% (as it would be 3.125% in relation to the rate of 6.25%).
Also from Decree-Law no. 189/88, of 27 May, no rule results that could define the depreciation or amortization rates in question.
As from the supposed order of the IRC Services Directorate (ultimately an official letter) no precedent results, because the content of the document refers to:
A License for production and commercialization of electrical energy (Intangible Asset);
The License has a maximum duration of 20 years, in accordance with a contract celebrated with the Directorate-General for Energy and Geology;
A request for authorization for the use of the units of production method for amortization of that intangible asset, in accordance with code 2475, Division II - Intangible Assets, which establishes that for elements of industrial property the amortization rate is determined as a function of the period of time in which exclusive use takes place.
The supervening of another legal regime in which the original normative omission no longer existed – namely the "Green Tax" regime (Law no. 82-D/2014, of 31 December) which allows amortizations in periods such as that adopted by the Claimant, by establishing useful life periods for these equipments with minimum duration of 12.5 years and maximum of 25 years – has, nor can have any relevance to the case, since what applied here was, at the time of the facts, a discretionary power that was regularly exercised by the AT, resulting in it the establishment of amortization rates that were those legally applicable to the equipment in question.
As to the invocation of violation of the principle of equality, the AT considers that it is bound by the principle of material truth (articles 5° and 6° of RCPIT) and to that extent adopted all the actions that were required and appropriate for the discovery of material truth, that is, to determine objectively, rigorously and with certainty the amortization rate, as provided in no. 2, of article 31 of the IRC Code, and that there is an enabling norm for the determination of the amortization rates as established by the AT: no. 2 of article 31 of the IRC Code and no. 3 of article 5 of Regulatory Decree no. 25/2009, of 14 September.
Finally, it opposes the request for indemnification for provision of improper guarantee because it considers there has been no error attributable to the services that would justify the annulment of the assessments made,
What, in any case, as no expenses are documented in the case file, would always have to be referred for execution of judgment.
By order of 31.12.2018, the Parties were notified of the designation of the date for holding the hearing referred to in article 18 of RJAT and for questioning of the witnesses presented by the Parties, a hearing subsequently subject to rescheduling.
On 01.03.2019, the hearing took place at which, with hearing of the witnesses indicated by the parties, in accordance with the Minutes that are given as reproduced. At the hearing, the date of 25.05.2019 was established as the deadline for handing down the Arbitral Decision.
The parties produced pleadings.
II. TRIAL AND DISMISSAL OF PRELIMINARY OBJECTIONS
The arbitral tribunal was regularly constituted and the request for pronouncement falls within the scope of its jurisdiction (paragraph a) of no. 1 of articles 2 and 4 of RJAT and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March).
No dilatory exceptions were invoked, nor do any appear, that could prevent ruling on the merits of the case.
The case does not suffer from any nullities.
The parties have legal standing and capacity, are legitimate, and are regularly represented.
Thus, all things considered, it is proper to decide.
III. FACTS
III.1. FACTS FOUND TO BE PROVEN
The Claimant is a company managing interests in other companies (above already designated as "Subsidiaries") as an indirect form of exercising economic activities and has been, since 2006, the parent company of a group of companies (hereinafter, "Group A...") taxed in accordance with the Special Regime for Taxation of Groups of Companies (hereinafter, "RETGS").
In turn, the Subsidiaries and G..., Lda., have as their object the production and commercialization of energy through the exploitation of undertakings for the use of renewable energy sources, as well as any other activities complementary or ancillary to that.
Following Order of Inspection no. OI2016..., of 22.09.2017, the AT conducted an external inspection action in the sphere of the Claimant, relating to the taxation period of 2013 in the field of IRC.
Such inspection was due to the fact that, within the scope of various individual inspection actions conducted on the Claimant's Subsidiaries, the AT concluded that inexactitudes had been practiced with reflection in the determination of their respective taxable matter.
The beginning of the inspection procedure occurred on 27.10.2017, with the signing of the Order of Inspection by T..., in the capacity of Administrator.
The Claimant was notified by Official Letter no. ..., of 13.10.2017, sent by post with registry no. RD ... PT.
Following the inspection action on the results of Group A..., the Claimant was notified on 23.03.2018 of the RIT.
In the RIT, the AT made the following corrections to the taxable profit of Group A...:
Company | Determined Result | Correction | Corrected Result
B..., S.A. | € 13,236,081.49 | € 1,392,899.30 | € 14,628,980.79
C..., S.A. | € 17,561,969.89 | € 1,442,267.49 | € 19,004,237.38
D..., S.A. | € 276,308.44 | € 124,201.97 | € 400,510.41
J..., S.A. | € 695,899.16 | € 102,949.46 | € 798,848.62
I..., S.A. | € 327,389.41 | € 77,652.71 | € 405,042.12
E..., S.A. | € 3,739,608.22 | € 344,214.98 | € 4,083,823.20
F..., S.A. | € 2,520,349.79 | € 224,654.86 | € 2,745,004.65
H..., Lda. | € 2,090,576.48 | € 421,143.47 | € 2,511,719.95
G…, Lda. | € 1,194,650.47 | € 5,630.71 | € 1,200,281.18
The corrections made by the AT aimed to reflect in the declaration of income Model 22 of RETGS the corrections that had already been promoted in the declarations of income Model 22 of each of the companies indicated above.
The inspections of six of those companies (B..., S.A.; C..., S.A.; D..., S.A.; E..., S.A.; F..., S.A.; and G..., Lda.) were classified as internal.
B..., S.A., D..., S.A., C..., S.A., I..., S.A., E..., S.A., and F..., S.A., conduct the activity of production and commercialization of electrical energy through the use of wind force.
The referred companies understood – in the absence of an express norm in the table attached to Regulatory Decree no. 25/2009, of 14 September, that established the manner in which depreciation of wind turbines (incorporated in the field of tangible fixed assets) should proceed – that the useful life period associated with such equipment would correspond to 16 years, applying the corresponding amortization rate of 6.25%.
H..., Lda. (hereinafter, "H..."), is a limited partnership company that has as its object the production and commercialization of energy through the exploitation of undertakings for the use of renewable energy sources, as well as any other activities complementary or ancillary to that.
H... is part of Group A..., which brings together a set of companies whose mission is the construction and exploitation of electricity production facilities from renewable sources, valuing indigenous national resources.
In order to fully comply with its corporate purpose, the Claimant invested in the construction of a Photovoltaic Power Plant, located in ..., representing such amount the largest investment ever made in that region.
These photovoltaic panels began to be depreciated, in accordance with the straight-line method in the year in which these equipments entered into operation (cfr. the testimony of U...).
Understanding that the tables attached to Regulatory Decree no. 2/90, of 12 January, did not contain an express reference to this type of equipment, H... applied the same depreciation rate (6.25%) in force for hydroelectric power plant equipment, in accordance with the provisions of Table I (Specific Rates), Division V (Electricity, gas and water), of Group I (Production, transport and distribution of electrical energy), as confirmed by witness U...
The installation of photovoltaic panels whose depreciation is disputed took place in the context of the celebration, with the Portuguese State, of an agreement that provides for guaranteed remuneration to H... with respect to the supply of electricity delivered to the grid.
H... is wholly sold under the terms and conditions provided for in Decree-Law 189/88, of 27 May, as amended, inter alia, by Decree-Law no. 33-A/2005, of 16 February, which establishes the fixed and guaranteed remuneration of photovoltaic solar energy power plants for the supply of electricity delivered to the electrical grid.
Decree-Law 189/88, of 27 May, defined as the period of applicability of the guaranteed remuneration factor provided therein the period of 15 years, counting from the beginning of electricity supply to the grid (cfr. item 20 of Annex II, introduced by Decree-Law no. 33-A/2005, of 16 February).
In light of the data available at that time, it was clear that the Photovoltaic Power Plant of ... would be economically and financially viable during the period of 15 years of guaranteed tariff,
having likewise been possible to anticipate a very sharp decline in the economic profitability of that investment once that period ended, with the possibility being foreseen that the transition from the guaranteed tariff to the liberalized market would call into question the capacity of the Photovoltaic Power Plant of ... in general to generate sufficient income to meet the costs inherent in its maintenance.
It was equally demonstrated that the energy sector and the equipment used in the context of its production is one of the most dynamic and has suffered most from the phenomenon of technological obsolescence.
In the case of photovoltaic panels, there has been brutal evolution of the technology employed by the manufacturers of such equipment.
Such evolution leads to the photovoltaic panels whose depreciation is discussed here being found today to be technologically obsolete – to such an extent that H... has encountered difficulties in repairing photovoltaic panels, given that the equipment now available on the market is not fully compatible with those installed in the Solar Power Plant).
Moreover, the witnesses confirmed that after 10 years of installation the panels are already absolutely obsolete.
It was equally demonstrated that the high degree of obsolescence of photovoltaic panels removes any economic value from them.
There is no secondary market, in Portugal or abroad, for the resale of this type of equipment (which implies that they have no residual value even in case of dismantling).
A durability period of 20/25 years is hardly applicable in the case of H..., mainly due to high temperatures, and it should not be forgotten that the tests of suppliers are conducted in Germany, a country with climatic characteristics very different from those of ....
The inspection of H..., Lda., classified as external, lasted 1 month and 15 days (Order of Inspection signed on 22.03.2016 and RIT notified on 03.05.2016).
The remaining two inspections were not classified (neither as internal nor as external) and lasted less than 1 month and a half in the case of I..., S.A. (Order of Inspection of 06.10.2016 and RIT notified on 22.11.2016), and 2 months and 10 days in the case of J..., S.A. (Order of Inspection of 19.05.2016 and RIT notified on 29.07.2016).
The final RIT was sent to the Claimant through an official letter dated 22.03.2018, sent by registered mail (CTT registry no. RH...PT), with information on the CTT website indicating its delivery on 23.03.2018.
On 04.04.2018, the Claimant was notified of the IRC assessment no. 2018..., of the interest assessments nos. 2018... and 2018..., and of the statement of account reconciliation no. 2018..., relating to the taxation period of 2013, in which an additional IRC assessment (and respective interest) was reflected that amounted to € 1,599,143.38, caused, namely, by the corrections to taxable matter identified above.
The Claimant made a partial voluntary payment of € 7,744.88, relating to tax and compensatory interest corresponding to corrections made by the AT to G..., Lda. and H..., Lda..
Considering the provisions of Annex II to Decree-Law no. 189/88, of 27 May (in its current wording), it is found that renewable power plants licensed under this Decree-Law and Decree-Law no. 312/2001, of 10 December, will be remunerated for the supply of electricity delivered to the national distribution network in medium and high voltage ("RND") through a mathematical formula that is set out in that Annex.
In accordance with that formula, provided for in § 20 of that annex, the amount of remuneration established for wind power plants guaranteed by the State to the first 33 gigawatts delivered to the RND, per megawatt of injection power to the same, shall be attributed up to the maximum limit of the first 15 years counting from the beginning of electricity supply to the grid.
In practice, after these 15 years in which the State ensures certain and predictable remuneration to economic agents exercising this activity, and in which the companies of the Claimant's Group are included, there are no guarantees as to how the remuneration of energy that may be produced by renewable energy power generation facilities using wind force will be made.
It is manifest the rapid technological development of this type of equipment, to such an extent that the wind turbines installed in the Wind Parks in question have been subject to very significant maintenance interventions,
and it can even be said that the equipment now installed does not correspond to the original equipment, so great is the impact of maintenance operations and the volume of essential parts and components that have already been replaced and of new models being launched on a continuous basis.
Note that the degree of technological obsolescence is also evident in the fact that the wind turbines installed in wind parks are no longer marketed by their respective suppliers.
The 16-year useful life period anticipated by the companies of the Claimant's Group came to be proven in practice, in the case of the Park of ... (...).
It was found that the maintenance of the current wind turbines became financially unfeasible, D... effected in 2017 the dismantling and replacement of all wind turbines in its park – that is, after only fifteen years of operation, having already obtained the necessary authorization to do so.
This example made it possible to demonstrate based on concrete facts (and not mere predictions or catalog data) that:
it was not possible to find any interested party in the acquisition of equipment in "second-hand" that will be uninstalled from the Park of ...;
the dismantling will have to be borne by D... since the residual value of scrap does not even reach to meet the costs of dismantling;
the need to proceed with the replacement of the wind turbines determined their dismantling, after the period of 15 years initially estimated.
We were faced with equipment with very high maintenance costs and which, consequently, justified the choice of dismantling.
The financial impact underlying the absence of tariff and the growing costs with maintenance and repair that these equipments require and make the use of the current wind turbines economically unsustainable.
That decline in profitability aggravated by breakneck technological evolution, condemning to total obsolescence the used wind turbines.
Faced with the decision to dismantle the wind turbines at the end of the said 15 years, the same will have no other allocation than to scrap, with it being certain that the amounts capable of being received for such scrap do not even cover the costs of dismantling the equipment.
It is equipment subject to very rapid wear, given the characteristics of the winds and the terrain (mountainous) in the parks where they are implemented in Portugal.
On the other hand, wind turbines in Portugal, with special emphasis on those here in question, are in permanent contact with very turbulent winds, subjecting themselves to enormous wear and, after some years, are subject to deep interventions, since within a few years of activity, the wind turbines have already undergone major alterations and replacements of parts.
The equipment now installed does not correspond to the original equipment, so great is the impact of maintenance operations and the volume of essential parts and components that have already been replaced.
In the cases of B... and C..., after 8/10 years of installation all wind turbines began to have new blades fitted.
Note that the degree of technological obsolescence is also evident in the fact that the wind turbines installed in wind parks are no longer marketed by their respective suppliers.
To this decline in profitability the breakneck technological evolution to which wind turbines are subject, condemning used wind turbines to total obsolescence, is not insignificant.
After fifteen years such equipment have no residual economic value.
In Portugal there are typical adverse natural conditions namely:
the great thermal amplitude and strong solar radiation, which causes accelerated wear and degradation of the equipment;
the winds and strong gusts and the topography typical of the localities where the wind turbines are installed.
In the specific case of D..., the need to completely replace the wind turbines at the end of 14/15 years was demonstrated, under the risk that maintenance costs would call into question its economic and financial viability.
In the specific case of D..., after 15 years of installation of the park, a prospection was made of potential buyers of the wind turbines in "second-hand," no buyers having been found.
Faced with the rapid obsolescence of solar panels and wind turbines, at the end of the guaranteed tariff period the said equipment will have no residual value.
The Claimant was cited of the institution of fiscal execution proceedings no. ...2018..., for coercive collection of the assessment acts now being challenged.
For purposes of legal suspension of the said fiscal execution proceedings, the Claimant presented bank guarantee no. ..., provided by Bank V..., S.A., in the amount of € 2,011,282.40.
III.2. FACTS NOT FOUND TO BE PROVEN
There are no facts judged not to be proven with interest for the case.
III.3. REASONING OF THE DECISION AS TO THE FACTS
The judgment on the facts was based on documentary evidence (which includes the administrative file) and technical studies attached to the case file, as well as critical analysis of witness testimony given at the hearing.
At the hearing, the facts found to be proven (cfr. points 38 to 51 and 55 to 58 of the evidentiary record) were repeatedly confirmed by the witnesses presented by the Claimant (U..., Director of Accounting for the companies belonging to Group A..., Eng. W... and Eng. X..., Technical Officer responsible for the installation and monitoring of the Wind Parks under analysis), who testified, in essence, in a coherent manner, well-supported and revealing mastery of the reasons for knowledge relevant to the provision of information.
IV. LAW
IV.1. ISSUE OF SUBSTANCE
We will begin the analysis with the issue of substance, which essentially reduces to determining the tax treatment to be given in the matter of depreciation of photovoltaic panels and wind turbines of the Claimant, identified in the case file, namely, to determine their useful life period for tax purposes.
From this will be inferred, finally, the depreciation rate to be accepted fiscally.
For this purpose, it is important to first determine which legal norms are applicable.
At the time of the tax facts in question in the case, article 31 of the IRC Code provided that:
"1- In the straight-line method, the annual depreciation or amortization quota that can be accepted as an expense of the taxation period is determined by applying the depreciation and amortization rates established in the regulatory decree that establishes the respective regime to the following values:
(…)
2 - With respect to elements for which depreciation or amortization rates have not been established, those which the Directorate-General for Taxes considers reasonable are accepted, taking into account the expected useful life period of such elements.
(…)
4 - The useful life period of the element of the asset is that which is derived from the depreciation or amortization rates referred to in nos. 1 and 2." (emphasis added)
It is also important to clarify what depreciation rates amount to:
In this respect, the accounting regulations contained in the System of Accounting Normalization ("SNC") deals with the matter of depreciation of certain tangible fixed assets in detail in Accounting and Financial Reporting Standard (NCRF) no. 7, designated "Tangible fixed assets."
From § 6 of NCRF 7 result the following definitions:
"- Depreciation: is the systematic allocation of the depreciable amount of an asset during its useful life";
"- Residual value: is the amount an entity would currently obtain from the disposal of an asset, after deducting the estimated costs of disposal, if the asset already had the age and condition expected at the end of its useful life;"
The result achieved by the accounting of business entities results, as is known, from the confrontation between revenues and expenses necessary to obtain them.
On the accounting plane this result is inevitably influenced by a vast set of estimates, particularly with respect to the set of costs incurred. Thus, and by way of example, provisions and depreciation constitute important portions of the costs shown in accounts whose recording is based on forecasts or estimates.
Recognizing this inevitability - that the result depends, in large part, on estimates - the Conceptual Framework (CF) of SNC, § 37 provides that "preparers of financial statements must, however, grapple with the uncertainties that inevitably surround many events and circumstances, such as…the probable useful life of plant and equipment…."
At the time of the tax facts in question, articles 28, 29 and 30 of the IRC Code - in the provisions judged relevant here - established the following:
"Article 29
Depreciation and amortization of elements of assets subject to depreciation are accepted as expenses, being considered as such tangible fixed assets, intangible assets, biological assets that are not consumable and investment properties recorded at historical cost that, on a systematic basis, suffer losses of value resulting from their use or the passage of time."
"Article 30
1 - The calculation of depreciation and amortization is made, as a rule, by the straight-line method.
(…)
3 - Different depreciation and amortization methods may also be applied to those indicated in the preceding numbers, provided that, by means of a request, prior recognition is obtained from the Directorate-General for Taxes, except where no annual depreciation or amortization quota results that exceeds that provided for in the following article.
4 - Except in duly justified situations accepted by the Directorate-General for Taxes, the same depreciation or amortization method should be applied to each element of the asset from its entry into operation or use until its full depreciation or amortization, transfer or disposal.
5 - The provision in the preceding number does not prejudice the variation of the depreciation or amortization quotes in accordance with the more or less intensive regime or with other conditions of use of the elements to which they relate, provided, however, that the minimum quotes imputable to the taxation period cannot be deducted for purposes of determining the taxable profit of other taxation periods.
6 - For purposes of the preceding number, the minimum depreciation or amortization quotes are those calculated on the basis of rates equal to half of those established according to the straight-line method, except when the Directorate-General for Taxes previously grants authorization for the use of quotes lower than these, following the submission of a request in which the reasons that justify them are indicated."
As results from the arbitral decisions handed down in cases nos. 75/2014-T, of 18.09.2014, and 593/2015-T, of 29.07.2016, of CAAD (whose decision sense and reasoning are followed closely), the straight-line method will thus be the method-rule used in the quantification of depreciation.
In such quantification, a criterion of flexibility is observed that admits, in the consideration as a tax cost, of values resulting from minimum and maximum quotes.
As Rui Morais states, "Even when the useful life period of an asset, for tax purposes, is established by law, there is no total rigidity. Only the consideration, in compliance with the principle of matching of exercises, of a cost, in each of the exercises corresponding to the asset's useful life, of the amount corresponding to the minimum amortization quote is mandatory. Such minimum quote is calculated by applying, to the depreciable value, a rate equal to half of that provided, for the case, in the applicable table. (…)
In an example: Table II (generic rates) provides that the amortization quota for water and electricity installations is 10%. This is to say that the law establishes that the useful life period (minimum) of such installations is 10 years. Except that the taxpayer may opt for an annual amortization quota lower, up to 5% (half of the rate provided for in the table). This is to say that the maximum amortization period could go up to 20 years." (cfr. Rui Morais, Notes to the IRC Code, Coimbra, Almedina: Coimbra, 2007, pp. 110-111).
The depreciation to be recognized periodically as an expense related to the use of an asset depends, thus, on a set of estimates, in particular, the useful life period and the residual value. But those estimates should converge on a primary objective: to appropriately match the depreciation recorded to the actual wear of the asset.
It seeks, thus, to provide those who prepare financial information with a set of directives so that the process of determining depreciation leads to values of expenses that properly reflect the depreciation of assets.
It happens that, at the time of the facts, no depreciation or amortization rate was legally established for this exact type of assets.
In fact, Regulatory Decree no. 25/2009, of 14 September, which establishes the Regime for Depreciation and Amortization, did not contemplate, in the tables contained therein, this type of assets.
Consequently, the regime provided for in no. 2 of the said article 31 of the IRC Code will be applicable to the situation under analysis, from which results, with a mandatory character, that the applicable amortization rate results from the reconciliation of two aspects:
On one hand, as a base element, there must be considered the notion of "expected useful life period";
On the other hand, once the useful life period of this type of assets is defined, it is important to determine an amortization rate that appears "reasonable" for such period.
Let us consider, now, each of these aspects, separately:
In such analysis, it must be given proper account to the necessary systematic perspective of the relevant legal norms.
Tax norms must be interpreted like any others, with the conception that they would have an exceptional character, formerly assigned to them, now being surpassed.
As affirmed by J.L. Saldanha Sanches, "the unity of the legal system and the essentially common nature of the problems that arise in Tax Law and in other branches of Law make it so that the adoption of interpretive principles with application only in tax law relationships is hardly compatible with systematic unity." (cfr. J.L. Saldanha Sanches, Manual of Tax Law, 3rd Edition, Coimbra Editor: Coimbra, 2007, p. 135).
Equally, Sérgio Vasques tells us that "the interpretation of tax law does not have any specificity, sufficing itself with the traditional criteria that among us are found in article 9 of the Civil Code." (cfr. Sérgio Vasques, Manual of Tax Law, Almedina: Coimbra, 2018, p. 363).
He adds in this context that the same author, that "in interpreting tax law we should not limit ourselves to the letter of the law, but seek to reconstitute, also in this field, and from the texts, the legislative thought, taking into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied." (cfr. Sérgio Vasques, Manual of Tax Law, Almedina: Coimbra, 2018, p. 363).
In sum, "[the] teleological or purposive element is of critical importance in the interpretation of tax law, as it is in every branch of law. In a sense, we can say that in the interpretation of tax law what we seek, above all, is to ascertain the purpose to which a norm tends. The analysis of the letter, history or systematic context is largely instrumental in that search but for this reason we cannot devalue these other elements of interpretation because, as Hans-Wolfgang Arndt notes, only the appeal to the letter, history and system allows us to objectify interpretation and prevent it from being exhausted in an exercise based on subjective valuations alone." (cfr. Sérgio Vasques, Manual of Tax Law, Almedina: Coimbra, 2018, p. 365).
In this sense, article 9 of the Civil Code provides that:
"1. Interpretation should not limit itself to the letter of the law, but reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.
2. The legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot, however, be considered by the interpreter.
3. In establishing the sense and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and knew how to express his thought in adequate terms."
For its part, the LGT,
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