IRC Tax Benefits Under Article 43 of EBF: CAAD Arbitration Case 374/2017-T on Corporate Income Tax Liquidation

ARBITRAL AWARD

The arbitrators Dr. José Poças Falcão (presiding arbitrator), Prof. Dr. Maria do Rosário Anjos, and Dr. Ana Teixeira de Sousa, appointed to form the Collective Arbitral Tribunal, constituted on 01-09-2017, agree to issue the following arbitral award:

I – REPORT

The company "A…, S.A.", a joint-stock company, with headquarters at Rua …, N.º …, …-… …, hereinafter referred to as the "Applicant," presented a request for constitution of a Collective Arbitral Tribunal, pursuant to article 2, section 1, paragraph a), of Decree-Law No. 10/2011 of 20 January (RJAT) and Ordinance No. 112-A/2011 of 22 March, for challenging and declaring the illegality of the Corporate Income Tax (IRC) assessment No. 2017…, in the amount of €202,652.75, as well as the acts demonstrating assessment of compensatory interest in the amount of €18,825.22 and the demonstration of assessment of compensatory interest No. 2016…, for improper receipt, in the amount of €2,624.84 (and also the reversal of the assessment relating to the 2013 fiscal year, in the amount of €15,758.36), included in the Account Settlement Demonstration Act No. 2017…, the total amount due for which amounts to €218,411.11, with reference to the year 2013, in the total amount of €218,411.11.

The request for constitution of the Arbitral Tribunal was presented by the Applicant on 14-06-2017; on the same date it was accepted by the Honorable President of CAAD and automatically notified to the Tax Authority (AT), in accordance with and for the purposes of the legally provided terms. The Applicant opted not to appoint an arbitrator, so in accordance with the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Ethics Council designated the signatories as arbitrators, who communicated acceptance of the assignment within the applicable period. The tribunal was constituted on 01-09-2017.

On 09-09-2017 an arbitral order was issued requiring the Tax and Customs Authority (AT) to submit its response within the legal period, in accordance with and for the purposes of sections 1 and 2 of article 17 of the RJAT. The Respondent submitted its response on 16-10-2017, the contents of which are deemed fully reproduced herein.

On 07-11-2017, in light of the positions of the parties evidenced in the record, an arbitral order was issued regarding the meeting provided for in article 18 of the RJAT, with the following content:

"I – Meeting of the Tribunal with the Parties (article 18 of the RJAT)

Unless expressly opposed and substantiated by either party within a period of 5 days, the meeting is hereby dispensed with, taking into account that this is a case not subject to the definition of specific procedural rules, different from those commonly followed by CAAD in the generality of arbitral cases, and there are no exceptions or preliminary issues to be considered at this stage, nor any apparent need for correction of procedural documents.

II – Witness Testimony

Having examined the procedural documents of both parties and the AT's position regarding the factual framework invoked by the opposing party, the Tribunal considers there apparently to be no controversy regarding the essential facts alleged for the proper resolution of the case capable of being proven by witness testimony.

Accordingly, considering the apparent uselessness of the requested diligence of witness examination and in light of the provisions of articles 16-c) of the RJAT and 130 of the Code of Civil Procedure, applicable by virtue of article 29-1/e) of the RJAT, the production of witness testimony is hereby dispensed with as unnecessary or without object, without prejudice to the Applicant's right to insist, with sufficient grounds and within a period of 5 (five) days, on the carrying out of the diligence, in which case and within the aforementioned period, indicating the specific essential facts on which it wishes the examination to focus.

III – Final Submissions

Both parties shall submit, simultaneously, within a period of 15 (fifteen) days (articles 29 of the RJAT, 91-5 and 91-A of the Code of Administrative Procedure, republished version appended to Decree-Law No. 214-G/2015 of 2-10), written submissions on fact (essential facts which they consider proven and not proven) and on law. This period shall commence after the expiration, by silence, of the 5 days mentioned in I and II.

IV – Date for Delivery and Notification of Final Decision

16-02-2018 is hereby set as the deadline for delivery and notification of the final arbitral decision."

Following the expiration of the prescribed period, the silence of the parties shall be understood as their agreement with the proposal to dispense with the meeting. Accordingly, on 30-11-2017, the Respondent submitted its submissions to the record. The Applicant submitted its submissions on 04-12-2017.

On 03/01 an arbitral order was issued requesting the parties, pursuant to the principle of cooperation, to make their procedural documents available in Word format for the preparation of the final decision.

B) THE CLAIM FORMULATED AND THE APPLICANT'S POSITION

In summary, the Applicant, in its arbitral petition, challenges the conclusion of the inspection procedure that resulted in the issuance of the assessments being challenged, on two grounds raised by the AT:

The first ground is based on the understanding that article 43 of the Tax Benefits Statute is not applicable to the present case, considering that it does not meet the requirement of locating its principal activity in the beneficiary area, nor does it meet the requirement of more than 75% of the wage bill being located within the eligible area.

The second ground results from the AT's understanding that the reduced rate of 10% provided for in paragraph b) of article 43 of the Tax Benefits Statute could not be applied, since that provision applies only in the case of establishment of new entities, and in the present case there was a transfer of headquarters of an entity from … to ….

The Applicant does not accept such understanding, against which it protests, alleging, in summary, that the type of activity pursued by the Applicant does not lend itself to concentration of the activity in a particular location; rather, it entails significant dispersion of the exercise of the activity, which depends essentially on the locations where television programs are produced.

Given that this Arbitral Tribunal has already admitted, in the context of Case No. 186/2016-T, that "(…) in this case, the Applicant, as a sole proprietorship in which management is exercised by the sole shareholder, created at least one independent job position for this managing shareholder. It established it much more securely in the geographic area, if it was even previously located in the area. Its business activity, even if exercised through operations performed physically outside the area eligible for the tax benefit, will capture resources that in one way or another will remain in the area of the center of activities of the company and potentially be applicable there. By creating at least one independent job position for its managing shareholder, the Applicant creates a stimulus for employment as stable as if it were to create 1 dependent job position (given the current flexibility of labor law and economic and social instability), and can contribute with equal intensity to combating human depopulation of the interior." (emphasis by the Applicant).

In any case, it further alleges that if the Applicant had not created any job position, even so, the requirement of the wage bill provided for in article 2, section 2 of Decree-Law No. 55/2008 of 26 March cannot be interpreted as a mandatory condition with the effect of overriding the regime of article 43 of the Tax Benefits Statute.

In the Applicant's view, it cannot be considered that by not having employees – which is not even true – the Applicant does not fulfill one of the objectives of the interior benefit, which consists of job creation in the beneficiary areas, since that objective of the benefit is not exclusive or unique. If the legislator intended that what is provided for in article 2, section 2 of Decree-Law No. 55/2008 of 26 March, constituted a mandatory condition, it would have done so within the framework of the various Laws and respective State Budgets that created and successively approved fiscal benefits for inland regions, and would not have done so within the framework of a Decree-Law to regulate the rules necessary for its proper execution.

It alleges, accordingly, that in accordance with the general rules of interpretation of law and in particular in accordance with article 10 of the Tax Benefits Statute, an extensive interpretation should be carried out, effectively the benefit covers all companies that develop their principal activity in the geographic area, and does not expressly limit that scope. That is, the rule should be interpreted to cover all companies that have or do not have their registered office or effective management, and possess or do not possess wage bill in those geographic areas - provided they develop their principal activity in the beneficiary geographic area.

It further adds that, resorting to a historical interpretation, the creation of the benefit by Law 171/99 of 18 September was not dependent on the creation or existence of employees or wage bill, and its rules of regulation necessary for the proper execution of the measures to incentivize the accelerated recovery of Portuguese regions suffering from inland deprivation problems, provided for in articles 7 to 11 of Law 171/99 of 18 September, were established by Decree-Law 310/2001 of 10 December, which likewise did not provide for this. Both instruments make no reference to possession of a wage bill or creation of a job position within the beneficiary as a condition of access to any of the benefits provided, with the exception of those specifically applicable to the creation of job positions (paragraph d) of section 1 of article 43 of the Tax Benefits Statute).

Accordingly, since it is not provided for in article 43 of the Tax Benefits Statute that the taxpayer must possess a wage bill, article 2, section 2 of Decree-Law No. 55/2008 of 26 March cannot be interpreted as a new requirement for access to the benefit. Therefore, such a rule can be set aside if the taxpayer demonstrates that it meets the fundamental requirement, which is the development of principal economic activity in the beneficiary area, which in the case under analysis results, in particular, from the fact that the Applicant has its headquarters in …, which is the location of its effective management.

It concludes that, because the objective of fiscal benefits relating to inland regions is the development of the interior, through investment, creation of infrastructure and creation of job positions, not limited exclusively to the creation of job positions, but rather a broad range of economic activities, and limiting those activities to only those that directly create job positions within their own company is not the objective provided for in article 43 of the Tax Benefits Statute, nor does it result from the content of the creation of this benefit, taking into account the analysis and interpretation of all the instruments that created and established this benefit. To hold otherwise would be a clear violation of the principle of legislative reservation provided for in article 103, section 2 of the Constitution of the Portuguese Republic, in accordance with which "taxes are created by law, which determines the incidence, the rate, tax benefits and the guarantees of taxpayers."

Accordingly, in light of the arguments presented, it is unequivocal that the Applicant fulfills the requirements established in article 43 of the Tax Benefits Statute for purposes of applying the inland tax regime.

It further alleges that in this same sense this Arbitral Tribunal has already ruled in Case No. 18-2015T, in which it was decided that:

"It is equally important in interpretation to take into account the constitutional rules of legislative reservation, since the referred Law creating the benefit for inland regions of article 43 of the Tax Benefits Statute, approved by the State Budget Law approved by the Assembly of the Republic in accordance with paragraph g) of article 161 of the Constitution, created a legislative authorization in article 43, section 7 of the Tax Benefits Statute, for the definition of the criteria and delimitation of geographic areas, as well as the regulatory rules necessary for the proper execution of the benefit.

Tax Benefits must have their prerequisites expressly listed in the Law approved in accordance with the Assembly of the Republic; the prerequisites that can be constitutionally limited by the Law approved by the Assembly of the Republic are only those provided for in that law that can be applied to the Taxpayer.

It is the exclusive competence of the Assembly of the Republic, except where authority is granted to the Government, the 'creation of taxes and fiscal system and general regime of rates and other financial contributions in favor of public entities,' article 165, section 1, paragraph i) of the Constitution of the Portuguese Republic (CRP), but also the determination of the respective essential elements set forth in article 106 of the CRP, encompassing tax benefits.

Constitutionally, the principle of legality of administration postulates two fundamental principles: (i) the principle of supremacy or prevalence of law, and (ii) the principle of legislative reservation. Parliamentary law is the privileged expression of the democratic principle and the most appropriate and secure instrument for defining the regimes of certain matters.

The principle of general legislative reservation means that certain material domains must be reserved for regulation by Law, enacted by parliament. Legislative reservation in fiscal matters assigns exclusive competence to the Assembly of the Republic or to the Government under its authorization for the production of the tax laws that will govern in the country.

Rules that allocate tax benefits, creating exceptional regimes, are a decision about the distribution of tax burdens and therefore are subject to legislative reservation.

But legislative authorization laws must define the object, the sense, the extent and the duration of the authorization, article 165, section 2 of the CRP.

It is not permissible for a simple regulatory rule to innovatively fix general and abstract criteria that would allow the fixing of the amount on which they will bear.

Based on the foregoing, it follows that the interpretation of the Decree-Law is limited in the sense of limiting or increasing the scope of the conditions provided for in article 43 of the Tax Benefits Statute, because to do so would be to fall within the scope of the creation of Tax Benefits, which is solely the responsibility of the Assembly of the Republic, so that the conditions of access to the tax benefit of article 43, if fulfilled, guarantee the Taxpayer's access to the Benefit.

This Arbitral Tribunal does not have competence to decide whether the Decree-Law violates or not the constitutional principle of legislative reservation, however it has competence to interpret the legislative rules, taking into account these constitutional principles.

But it should be equally noted that the hierarchical rules of the sources of Law should be considered in the interpretation, and parliamentary law is hierarchically superior to Decree-Law No. 55/2008 of 26 March 2008, so it cannot contract or alter the meaning of parliamentary law.

And thus, in that sense, Decree-Law No. 55/2008 of 26 March 2008 should be interpreted as a rule that, within the legislative authorization conferred and which comes to complement article 43 of the Tax Benefits Statute, cannot in that sense create new requirements or limit access to the benefit, beyond what is already provided for in article 43 of the Tax Benefits Statute."

As regards the second ground invoked by the AT as the basis for the issued assessments, the Applicant alleges that in the present case it should be noted that the objective which presided over the creation of the inland fiscal benefits regime was the implementation of measures to incentivize the accelerated recovery of Portuguese regions suffering from inland deprivation problems (see preamble of Decree-Law No. 55/2008 of 26 March).

Now, "accelerated recovery" is not compatible with the allocation of benefits only to companies that already conducted their activity in the zone or that were created ex novo to conduct it – with all the time that this implies, not only in terms of meeting the bureaucratic conditions that depend on the constitution of a company, but also of meeting economic, financial, logistical and other conditions on which the creation of a new company depends.

It alleges that, in fact, what was intended was to attract economic activity to the interior, regardless of whether that economic activity entailed the incorporation of a new company or merely the transfer to the beneficiary zones of activity that was being conducted outside those zones.

Indeed, as "inland deprivation" is the condition of certain areas of the country that expresses their distance from major urban centers and economic development hubs of the country, what was intended with the creation and subsequent maintenance of the inland fiscal benefits regime was precisely to attract ("in an accelerated manner") the economic activity that was concentrated in more developed areas of the country, diverting it to the areas that suffer the negative consequences of inland deprivation.

The distinction between paragraphs a) and b) of section 1 of article 43 of the Tax Benefits Statute is not, therefore, based on the application of the former to already-constituted entities and the latter to entities constituted ex novo.

Rather, it is based on the application of the former to companies that already conducted their activity in the beneficiary zones (incentivizing them to stay) and the application of the latter to companies that come to conduct their activity in the beneficiary zones (attracting them there), regardless of whether they incorporate ex novo in those zones or relocate their registered office or effective management to the beneficiary areas.

C – THE RESPONDENT'S RESPONSE

In its response, filed on 16-10-2017, the Respondent came to argue for the legality of the challenged acts. It holds that in the present arbitral process the application of the inland tax benefit provided for in article 43 of the Tax Benefits Statute (repealed by Law No. 64-B/2011 of 30.12) is at issue. Being necessary in the present case to proceed with the combined application of section 7 of article 43 of the Tax Benefits Statute with section 2 of article 2 of Decree-Law No. 55/2008 and with article 14, section 6 of Law No. 2/2007 of 15 January.

In general terms, the inland tax benefit grants companies that establish themselves in certain regions that are considered, for that purpose, disadvantaged by their location, benefits that, among others, comprise a reduction of the IRC rate, provided that certain requirements are met. This tax incentive measure constitutes state aid with framework at the community level in the de minimis aid for the purposes of articles 107 and 108 of the Treaty on the Functioning of the European Union (previously articles 87 and 88 of the EU Treaty). Thus, on this matter, it is important to bear in mind the national legislation as well as its necessary articulation with community law.

It adds that the regime for the reduction of the IRC rate under discussion was initially established in article 7 of Law No. 171/99 of 18 September, which instrument provided in article 13 for a decree-law to be approved by the Government the regulatory rules necessary for its proper execution.

Article 1, section 1 of Law No. 171/99 provided that "This law establishes measures to combat human depopulation and to incentivize the accelerated recovery of inland zones."

Section 2 of the aforementioned article 1 determined that: "2. The measures adopted focus on the creation of infrastructure, investment in productive activities, the stimulus to job creation and incentives for the establishment of companies and the fixation of young people."

Article 7, sections 1 and 2 of Law No. 171/99 established that:

"1 — The rate of the tax on the income of legal persons (IRC), provided for in section 1 of article 69 of the respective Code, is reduced to 25% for entities whose principal activity is located in the beneficiary areas.

2 — In the case of establishment of new entities, the rate referred to in the previous number is reduced to 20% for the first five fiscal years of activity."

Article 7 of Law No. 171/99 was amended by article 54 of Law No. 30-C/2000 of 29 December, with section 4 being added to that article, which provided as follows: "The principal activity is considered to be exercised in the beneficiary zones when the taxpayers have their registered office or effective management in those areas and therein concentrate more than 75% of their respective wage bill."

This addition thus clarified the manner of determining the criterion regarding the exercise of "principal activity in beneficiary areas." Meanwhile, article 7 of Law No. 171/99 was transposed to the Tax Benefits Statute, coming to be included in article 39-B thereof, added by Law No. 53-A/2006 of 29 December, and amended by Law No. 67-A/2007 of 31 December. Which became article 43 of the Tax Benefits Statute, following renumbering by Decree-Law No. 108/2008 of 26/06, with the wording aforesaid.

Following various amendments introduced to the regime provided for in Law No. 171/99, Decree-Law No. 55/2008 of 26 March was approved, intended to establish the regulatory rules necessary for the proper execution of article 39-B of the Tax Benefits Statute, having repealed Decree-Law No. 310/2001.

Article 103, section 2 of the CRP establishes that: "Taxes are created by law, which determines the incidence, the rate, tax benefits and the guarantees of taxpayers." As can be read in General Annotated and Commented Tax Law, Diogo Leite de Campos, Benjamim Silva Rodrigues, Jorge Lopes de Sousa, 4th Edition, 2012, page 105, in annotation to article 8 of the General Tax Law: "The law referred to here is a law in the proper sense, emanating from the Assembly of the Republic as concluded from the provisions of article 165, section 1, paragraph i) of the CRP, in which is included in the relative reservation of competence of the Assembly of the Republic the creation of taxes and fiscal system. Although this rule only refers to the creation of taxes and fiscal system, it should be understood that article 103 constitutes an explanation of the scope of the matters included in that reservation. Therefore, all the elements referred to in that article 103, section 2 are encompassed in this reservation. (…) It is to the legislation on these matters that section 1 of the present article 8 of the General Tax Law refers and, therefore, the law required by the principle of legality is a Law in the proper sense, issued by the Assembly of the Republic, or a Decree-Law based on legislative authorization."

The AT further alleges that Decree-Law No. 55/2008 established the regulatory rules necessary for the execution of measures to incentivize the accelerated recovery of Portuguese regions suffering from inland deprivation problems, as provided for in the Tax Benefits Statute. Particular attention must be paid to what is provided by Law No. 53-A/2006 of 29 December (State Budget for 2007). It is Law No. 53-A/2006 that in its article 83 adds to the Tax Benefits Statute, then article 39-B (current article 43) which established the following:

"Article 39-B Tax Benefits Relating to Inland Regions

1 - To companies that exercise, directly and as principal activity, an economic activity of an agricultural, commercial, industrial or service-providing nature in the inland areas, hereinafter referred to as "beneficiary areas", the following tax benefits are granted:

a) (…);

b) In the case of establishment of new entities, whose principal activity is located in the beneficiary areas, the rate referred to in the previous number is reduced to 15% for the first five fiscal years of activity;

(…)

7 - The definition of the criteria and the delimitation of the beneficial territorial areas, in accordance with the previous number, as well as all the regulatory rules necessary for the proper execution of this article, are established by ordinance of the Minister of Finance."

It is also Law No. 53-A/2006 that in its article 87, section 3 repeals Law No. 171/99 of 18 August. It is Law No. 53-A/2006 that expressly determines that the tax benefits relating to inland regions provided for in article 39-B of the Tax Benefits Statute are applicable to the rules established by Decree-Law No. 310/2001, which would later be repealed by Decree-Law No. 55/2008. As can be read in Manual of Constitutional Law, Volume V – Constitutional Activity of the State, 2nd Edition, page 354, Jorge Miranda: "A careful reading of the Constitution, in its current text, permits pointing to the following types of reinforced laws (in the strict sense): - State Budget [articles 105, 106 and 161 paragraph g) and 165 section 5]."

And further, on page 362: "7) As regards the relations between the organs – Laws of Plural Binding (binding both their own organ and other organs) – (…), budgetary laws, (…)."

The right to the tax benefit provided for in article 43 of the Tax Benefits Statute is dependent on the verification of prerequisites whose definition is not comprehended in the more general rule contained in this normative.

Thus, without the regulation that specifies and concretizes the remaining prerequisites on which the benefit there provided in generic terms depends, it is likewise not admissible to speak of any right to a tax benefit, since the prerequisites on which that right depends have not yet been instituted.

Furthermore, the Applicant claims the right to gather the legally provided requirements to benefit from the inland tax benefit provided for in article 43 of the Tax Benefits Statute.

However, without specifying in what terms and to what extent, since it seeks to fit into the aforementioned regime in generic terms.

Emphasizing, exhaustively, instead, not considering as an essential condition the possession of a concentration of 75% of the wage bill in the area where it seeks recognition of the aforementioned tax benefit.

Thus, concludes the AT, given the factual framework set forth, namely the contours assumed by the activity of the Applicant, it is not apparent in what way, and in what terms, the Applicant considers that the inland tax benefit can be applied to it. Since the same has as its primary objective the dynamic development of a certain geographic area, precisely to combat depopulation of the territory. It further considers that, having regard to the activity of the Applicant, the manner in which it practices it, it shows itself to be completely indifferent from which location it administers or manages the future of the activity. It considers there to be no synallagmatic relationship between the activity conducted by the Applicant and the real benefits that the territorial area of … enjoys, this being also one of the underlying reasons for the inland tax benefit provided for in article 43 of the Tax Benefits Statute.

Section 7 of the aforementioned article 43 establishes that: "The definition of the criteria and the delimitation of the beneficial territorial areas, in accordance with the previous number, as well as all the regulatory rules necessary for the proper execution of this article, are established by ordinance of the Minister of Finance." For its part, article 14, section 6 of Law No. 2/2007 established that: "Wage bill is understood to be the value of expenses incurred with personnel and recorded in the fiscal period as remunerations, wages or salaries."

As amply demonstrated in the Tax Inspection Report (RIT), the expenses the Applicant bears with the wage bill are not located in … (See RIT).

It refers on this point to what is confirmed by the Applicant itself, in points 24 and 25 of the petition for arbitral pronouncement, when it indicates that it hired only two employees to perform administrative work. Moreover, one of the employees was hired only temporarily and under a service provision arrangement, to replace the employee who was unable to work.

It is important to note that article 43, section 1 of the Tax Benefits Statute uses the expression "To companies that exercise, directly and as principal activity, an economic activity of an agricultural, commercial, industrial or service-providing nature in the inland areas, (…)"

Now, the tax benefits provided for in the Tax Benefits Statute are exceptional in nature, as can be read in its preamble: "In the review of the regime now being implemented with the approval of the Tax Benefits Statute, relating above all to taxes on income, the Government chose to adopt principles that include the allocation to tax benefits of a necessarily exceptional character, only to be granted in cases of recognized public interest; by stability, so as to guarantee taxpayers a clear and secure situation; by moderation, given that revenues are at stake with the grant of benefits, when the Country must reduce the weight of the public deficit and, simultaneously, carry out investments in infrastructure and public services."

We cannot interpret section 1 of article 43 of the Tax Benefits Statute as granting the tax benefits in question to all companies, it being sufficient that they exercise some economic activity of a commercial, industrial or agricultural nature, and nothing more.

It is the legislator itself who, in article 43 of the Tax Benefits Statute, assumes that this rule needs to be regulated to be applied!

The situation we are confronted with is related to a figure or instrument of legislative technique – the referential provision.

A referential rule is a rule in which the legislator, instead of directly regulating the legal question at hand, directs its application to other rules of its legal system, contained in the same or another legal instrument.

"Referential rules constitute an instrument of legislative technique to which recourse is had frequently and which is appropriate whenever a given fact or legal institute already possesses its own legal discipline and the legislator wants that discipline to apply also to another fact or institute. For this purpose, it then elaborates a rule in which it declares that the legal relations which relate to the latter are regulated (mutatis mutandis) by the rules that comprise the legal regime of the former." (J. Dias Marques, Introduction to the Study of Law, Lisbon, 1979, p. 199.).

The referral is said to be static or material when it is made to a certain rule, in view of its content; it is said to be dynamic or formal when it is made to a certain rule, solely in view of the fact that it is the one which, at a certain moment, regulates a certain matter, accepting the content, even if subsequently altered, of the referred rule (Castro Mendes, op. cit., p. 66 et seq.; Menezes Cordeiro, "Annotation" to the judgment of the Administrative Circuit Court of Lisbon of 15 March 1987, in The Law, Year 121, 1989, I (January-March), pp. 192-193.).

It can be concluded that the creation of job positions, in order to permit the fixation of population in those determined zones, and in particular, the concentration of more than 75% of the wage bill in the development of principal activity in the registered office of the taxpayer, has always been a condition for attribution of the benefit.

Moreover, it is notable that this prerequisite, relating to the concentration of more than 75% of the wage bill in the beneficiary zone, was introduced by Law of the Assembly of the Republic, more specifically through the 2005 State Budget. So much so that this is also the understanding of the Administrative and Tax Court of Viseu which in its judgment relating to Case No. 9/12.1BEVIS notes the following:

"(…) tax benefits – in particular one of the type at issue, that is the reduction of the tax rate for certain taxpayers – exist in a 'permanent relationship of tension with the principle of distribution of tax burdens according to the principle of tax capacity', which gives them 'special legitimation: the achievement of a certain economic objective of special importance' (see Saldanha Sanches, Manual of Tax Law, Coimbra Editora, pp. 151, 285-286).

Which means that in the interpretation made of them, account should be taken of the special public interest underlying them and which supersedes the public interest in tax collection and the principles of equality and contributive capacity, such that there are encompassed in their provision the situations that effectively contribute to the realization of the designs that determined their provision.

Which is certainly not the case when the entity has no wage bill, since in such circumstances there is no job creation, no fixation of young people, nor attraction of human resources to the region, with a view to promoting its development. (underlined in the original)

And concludes by noting that: "(…) whether considering the literal sense of the rule, or the historical element, or its ratio, it is manifest that an entity such as the Appellant which does not hold a wage bill and does not meet the condition of access to the inland tax benefit provided for in article 43, section 1, paragraph a) of the Tax Benefits Statute, reported to locating its principal activity in the beneficiary areas, in accordance with the provisions of article 2, section 1, paragraph d) and 2 of Decree-Law 55/2008."

Thus, concludes the AT that the arbitral petition cannot proceed, by the non-existence of any vitiating defect, in particular the alleged defect of violation of the principle of legality and legislative reservation of the Assembly of the Republic provided for in section 2 of article 103 of the Constitution of the Portuguese Republic, alleged by the Applicant, that the tax assessments being challenged are legal and should be maintained.

II - PROCEDURAL PREREQUISITES

1. The Arbitral Tribunal is duly constituted. The Parties enjoy legal personality and capacity, are legitimate and are legally represented (see articles 4 and 10, section 2 of the RJAT and article 1 of Ordinance No. 112/2011 of 22 March).

The case does not suffer from defects that would invalidate it, so all procedural prerequisites are met for the arbitral tribunal to have knowledge of the petition.

1. Having regard to the documentary evidence filed with the case and what is alleged by the parties, it is necessary to establish the factual matter relevant for the decision.

III – Factual Matter

Facts Established

1. As relevant factual matter, the present tribunal accepts as established the following facts:

• The Applicant is engaged in the production, editing, publication and marketing of television and radio programs, production and marketing of theater and musical shows, film production and distribution, production and marketing of content on the internet, advertising and merchandising, production and conception of programs, scriptwriting, casting, figuration, representation and agency of national and foreign actors, artists and entertainers, editing of all types of periodic and non-periodic publications, phonographic editing, videogram editing or any other audiovisual medium, representation and agency of products in the field of social communication and audiovisual, including television programs and content.

• The principal programs it developed in recent years are:

"…" – a live program in the afternoons of B… (produced in the studios of this television channel); and (Loures and/or Lisbon)

"…" – a live program accompanying the principal festive events at the local level in Portugal (produced in any area of the continental territory and islands).

Other Programs are produced in Lisbon, Setúbal, Fátima and dispersedly in other points of the country.

• This geographic dispersion inherent to the services and products developed by the Applicant implies that its employees/collaborators are likewise dispersed throughout the country and/or have total flexibility to develop their activity in any part of the country for a certain period of time, with costs reflecting this geographic dispersion (proven by accounting documents, 4, 5 and 6 attached to the PI)

• In 2013 the Applicant had its headquarters in the municipality of … (proven by allegation by the Applicant and not contested by the Respondent)

• They rented an office in … in 2011 with rent of €325/month (proven by document 7 attached to the PI)

• They hired an employee for administrative services in 2012 with an indefinite employment contract (proven by document 8 attached to the PI)

• In 2013 there were no payments of Category A IRS income to any employee;

• In the fiscal year in question, there were payments to 4 independent workers, only 1 of whom has tax domicile in the Municipality of ….

• The inspection carried out by the AT resulted in the issuance of the assessments being challenged, in the total amount of €218,411.11.

• On 14.06.2017 the Applicant presented the present arbitral petition.

FACTS NOT ESTABLISHED

1. There are no other facts relevant to the decision that should be considered as not established.

JUSTIFICATION OF ESTABLISHED FACTS

1. The facts described were established based on the documentary evidence the Applicant filed with the case, confirmed by the documents that instruct the administrative process filed with the case by the AT, by the positions assumed by the parties and by the documentary evidence filed with the case, the facts listed were considered established, with relevance for the decision, consensually recognized and accepted by the parties.

IV – ON THE LAW: Justification of the Merits Decision

1. At issue in the present case is the question of whether the Applicant met, with reference to the 2013 fiscal year, the legally provided requirements to be able to benefit from the inland tax benefit provided for in article 43 of the Tax Benefits Statute.

2. As results from the summary set forth above, the Tax Authority promoted the tax assessments by understanding that the Applicant induly benefited from the inland tax benefit for two reasons, namely:

(i) The Applicant did not comply with what is provided in paragraph d) of section 1 and in section 2, both of Decree-Law No. 55/2008 of 26/03; and

(ii) Even if it had met the above requirement, it could not benefit from the inland benefit, since it would not have legal framework in paragraph b) of section 1 of article 43 of the Tax Benefits Statute, and paragraph a) of the same normative was already repealed and has no application in the 2013 fiscal year.

It is necessary to decide.

1. In the first place, from the extensive considerations set forth above in summary of the positions assumed by the parties in their respective briefs, it follows that the essential legal question to be decided requires analysis of the legal regime of tax benefits, in general, and in particular what is provided for in article 43 of the Tax Benefits Statute, in the version in force at the time of the tax event, that is, the year 2013. It is thus necessary to systematize and analyze the legal provisions relevant to the decision of the question to be decided.

Article 43 of the Tax Benefits Statute provides, in the wording in force in 2011 and which provided the inland tax regime, comprising the tax benefits intended to encourage economic activity in areas of the country that suffer from the disadvantages of inland deprivation:

"1 - To companies that exercise, directly and as principal activity, an economic activity of an agricultural, commercial, industrial or service-providing nature in inland areas, hereinafter referred to as "beneficiary areas", the following tax benefits are granted:

a) The rate of IRC provided for in section 1 of article 80 of the respective Code is reduced to 15%, for entities whose principal activity is located in the beneficiary areas;

b) In the case of establishment of new entities, whose principal activity is located in the beneficiary areas, the rate referred to in the previous number is reduced to 10% for the first five fiscal years of activity;

c) Reinvestment deductions and depreciation relating to investment expenses up to €500,000, excluding those relating to the acquisition of land and light passenger vehicles, of IRC taxpayers who exercise their principal activity in the beneficiary areas may be deducted, for purposes of determining taxable income, with an increase of 30%;

d) Mandatory social contributions borne by the employer entity relating to the net creation of full-time job positions in the beneficiary areas are deducted, for purposes of determining taxable income, with an increase of 50%, once only per worker admitted to that entity or to another entity with which there are special relationships, in accordance with article 58 of the IRC Code;

e) Tax losses determined in a given fiscal year in accordance with the IRC Code are deducted from taxable profits, where applicable, from one or more of the seven subsequent fiscal years.

2 - Conditions for benefiting from the tax benefits provided for in the previous number are:

a) The determination of taxable income being carried out using direct valuation methods;

b) Having regularized tax status;

c) Not having overdue salaries;

d) Not resulting from a split carried out in the two years prior to benefiting from the benefits.

(...)

6 - For purposes of this article, the beneficiary areas are delimited in accordance with criteria that pay special attention to low population density, the compensation or deficit index and inequality of social, economic and cultural opportunities.

7 - The definition of the criteria and the delimitation of the beneficial territorial areas, in accordance with the previous number, as well as all the regulatory rules necessary for the proper execution of this article, are established by ordinance of the Minister of Finance."

1. For its part, Decree-Law No. 55/2008 of 26 March, which proceeded with the regulation of the rules necessary for the execution of the norm of the Tax Benefits Statute, provided in article 2 of the aforementioned Decree-Law No. 55/2008 of 26 March that the beneficiary entities must meet the following conditions of access:

"1. (...)

a) Being legally constituted and meeting the legal conditions necessary to exercise their activity;

b) Being in regularized status with respect to the tax administration, social security and the respective municipality;

c) Having organized accounting in accordance with the Official Chart of Accounts;

d) Locating their principal activity in the beneficiary areas;

e) Committing themselves, in the cases of incentives provided for in paragraph c) of section 1 and in paragraph b) of section 3, both of article 39-B [43 in the wording of the Tax Benefits Statute in force in 2011] of the Tax Benefits Statute, to keep the respective activity affixed with the realized investment, as well as to maintain their geographic location, for a minimum period of five years counting from the date of complete realization of the investment;

f) Committing themselves, in the case of incentives provided for in paragraph d) of section 1 of article 39-B of the Tax Benefits Statute, to maintain the new job positions for a minimum period of five years counting from the date of their creation;

g) Informing the entity responsible as referred to in article 3 of the present decree-law of the allocation of any other incentive or the presentation of an application for the same purpose;

h) Previously obtaining, in the case of the incentive provided for in paragraphs a) and b) of section 3 of article 39-B of the Tax Benefits Statute, the authorization referred to in section 5 of the same article.

2 - The principal activity is considered to be located in the beneficiary zones when the subjects have their registered office or effective management in those areas and therein concentrate more than 75% of their respective wage bill." (underlined in original)

Based on what is set forth above, it falls to the tribunal to determine whether the Applicant did or did not comply with what is provided in article 43 of the Tax Benefits Statute. Now, based on the factual matter established as proven in the present case, the Applicant did not comply with what is provided in paragraph d) of section 1 and in section 2, both of Decree-Law No. 55/2008 of 26/03. On the other hand, even if it had met that first requirement, it could not benefit from the inland benefit, since it would not have legal framework in paragraph b) of section 1 of article 43 of the Tax Benefits Statute, and paragraph a) of the same normative was already repealed and does not apply in the fiscal year in question.

It should be noted that regarding the benefit sought by the now Applicant, which is maintained with the same terms, albeit with different wording, in article 43, section 1 and section 1 paragraph b) of the Tax Benefits Statute as opposed to what was verified in article 7, sections 1 and 2 of Law 171/99. Arriving at this point, it is important to note that the repeal of article 43 of the Tax Benefits Statute by Law No. 64-B/2011 (2012 State Budget Law) is not relevant in the present case, since the previous version maintains its validity by virtue of the regime applicable to previously provided tax benefits, in accordance with and within the limits provided for in article 11 of the Tax Benefits Statute. Thus, in accordance with the rules regulating the application of tax benefits over time, it is understood, in compliance with the principle of confidence and stability of legal relationships established in the past, that new amendments will respect the temporal period guaranteed to the benefit.

This is, moreover, the position recognized by the AT, assumed in various binding opinions, highlighting the following:

Case: 413/2012 with order of agreement of 2012.03.19 from the Deputy General Director, legal substitute of the General Director of the Tax and Customs Authority

Case: 4/2013 of the IRC Department, with Order of the Director of Services of IRC of 2013.01.18

In both, the binding opinion concludes: "Section 1 of article 11 of the Tax Benefits Statute establishes that 'rules that alter conventional, conditioned or temporary tax benefits do not apply to taxpayers who already benefit from the respective tax benefit right, in everything that prejudices them, except when the law provides otherwise'. VI - In these terms, the repeal of article 43 of the Tax Benefits Statute does not apply to a company incorporated, in the last four taxation periods, in one of the beneficiary areas, which may thus continue to benefit from the application of a reduced rate of 10% in the context of IRC until the end of the five periods of activity expressly mentioned in paragraph b) of section 1 of the same normative."

That said, recall that the benefit consists, since its creation, in the application of a reduced income tax rate on the income of legal persons (IRC), whose principal activity is located in the beneficiary areas, respectively 10% in the first five years of activity in the case of establishment of new entities and 15% in the remaining years or situations.

From the analysis which this arbitral tribunal makes of the inland tax benefits to which the Applicant alleges it is entitled, provided for in section 1, paragraph b) of article 43, it follows that this is a tax benefit that covers companies that exercise, directly and as principal activity, an economic activity of an agricultural, commercial, industrial or service-providing nature in inland areas, designated "beneficiary areas" and whose principal activity is located in those beneficiary areas.

Conditions for benefiting from the tax benefit provided for in article 43, section 2), paragraph a) are: "a) The determination of taxable income being carried out using direct valuation methods;

b) Having regularized tax status;

c) Not having overdue salaries;

d) Not resulting from a split carried out in the two years prior to benefiting from the benefits."

The conditions are complemented, but not expanded or increased, by the regulatory rules necessary for the proper execution provided for in Decree-Law No. 55/2008 of 26 March 2008, in its article 2, section 1 "the beneficiary entities must meet the following conditions of access: a) Being legally constituted and meeting the legal conditions necessary to exercise their activity; b) Being in regularized status with respect to the tax administration, social security and the respective municipality; c) Having organized accounting in accordance with the Official Chart of Accounts; d) Locating their principal activity in the beneficiary areas;"

This regime is finalized by article 2, section 2 of Decree-Law No. 55/2008 of 26 March 2008, which provides: "The principal activity is considered to be located in the beneficiary zones when the subjects have their registered office or effective management in those areas and therein concentrate more than 75% of their respective wage bill."

From the normative provision set forth above, it follows that article 43 of the Tax Benefits Statute expressly defines that the benefit applies to entities whose principal activity is located in the beneficiary areas, leaving the definition of the regulatory rules necessary for its proper execution to the Government, which it did through the Decree-Law.

Article 11 of the General Tax Law establishes the essential rules for interpretation of tax laws, doing so in the following terms:

"1. In determining the sense of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

1. Whenever tax rules use terms proper to other branches of law, they must be interpreted in the same sense as that which they have there, unless otherwise directly follows from the law.

Whenever doubt persists about the sense of the applicable tax incidence rules, the economic substance of the tax facts must be considered.

Gaps resulting from tax rules covered by the legislative reservation of the Assembly of the Republic are not susceptible to analogical integration."

To this provision, it is equally necessary to resort to the general principles of interpretation of laws, to which section 1 of article 11 of the General Tax Law refers, established in article 9 of the Civil Code, which establishes the following:

"1. Interpretation must not limit itself to the letter of the law, but must reconstruct from the texts the legislative thought, paying special attention to 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.

However, legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter.

In fixing the sense and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its thought in adequate terms."

In the case of the Tax Benefits Statute, extensive interpretation is admitted for the rules that establish tax benefits, as is told to us by article 10 of the Tax Benefits Statute "Rules that establish tax benefits are not susceptible to analogical integration, but admit extensive interpretation."

And in that sense the Supreme Administrative Court ruled in Decision of 15-05-2000, case No. 024873: "Rules that establish tax benefits are not susceptible to analogical interpretation, but admit extensive interpretation. There is extensive interpretation when the solution for a particular case is not contained in the text of the law, but is encompassed by its spirit. There is analogical application when the solution of a particular case is found neither in the letter nor in the spirit of the rule."

It should further be noted on this point the assessment of the Supreme Administrative Court, expressed in Decision of 04-02-2003, case No. 026098, in which it ruled that: "the text of the law itself and, if necessary to resort to it, in interpretive terms, its spirit, since, as was carefully emphasized in the impugned judicial decision, by way of appeal to the always useful and often decisive purpose or legal scope set forth in the preamble of the respective instrument that established it, fixing, the new wording of the questioned provision of the Industrial Companies Code, [what was intended was, in fact, to channel the wealth generated toward new investments in order to promote growth of the business fabric and the consequent development of the sector so that increased wealth corresponds to increased productivity, job creation and economic growth of the country."

Decree-Law No. 55/2008 of 26 March 2008 came to consider in article 2, section 2, "that principal activity is developed in the beneficiary area, when the subject has registered office or effective management in those areas and therein concentrates more than 75% of its respective wage bill."

Following the decision of CAAD in Case No. 18/2015 of 6 September 2015, invoked by the Applicant: "This is clearly a rule/presumption against abuse, with a view to preventing situations of evasion and abusive tax planning, given that article 2, section 2, establishes an effective presumption, and at the same time seeks to ensure that companies with headquarters in disadvantaged areas concentrate their wage bill, devoted to their principal activity, in zones not benefiting from that benefit, which may be overcome or set aside by the AT or by the taxpayer, when necessary to demonstrate.

The elements of article 2, section 2 cannot be interpreted as mandatory conditions, that is, it is not provided for in article 43 of the Tax Benefits Statute, nor indeed in the letter of the law of article 2, section 2, that it be a mandatory condition to benefit from the benefit that the taxpayer have in the beneficiary geographic area its registered office and effective management and that it likewise have therein 75% of the wage bill or that it have a wage bill. This normative cannot be seen as a mandatory requirement, because requirements can only (in this situation) be created within the framework of the State Budget Law approved by the Assembly of the Republic, as we will verify.

It is rather a way of preventing abuse or improper use of the benefit, in the sense that to effectively and anti-abusively determine the location of principal activity of the entity, recourse is had to its registered office or effective management and the location of its wage bill.

The Decree-Law considers that principal activity in the beneficiary area is there developed if therein it possesses 75% of the wage bill, this is from the outset a rebuttable presumption.

One cannot consider that by not possessing employees, one does not meet one of the objectives of the benefit relating to inland regions, which consists of job creation in the beneficiary areas, since that objective of the benefit is not exclusive or unique, there being other benefits such as creation of infrastructure.

If the legislator intended that what is provided for in article 2, section 2, constituted a mandatory condition, it would have done so within the framework of the various Laws and respective State Budgets that created and successively approved the inland tax benefit, and would not have done so within the framework of a Decree-Law to regulate the necessary rules for its proper execution.

In accordance with the general rules of interpretation of law and in particular in accordance with article 10 of the Tax Benefits Statute, an extensive interpretation should be effected, effectively the benefit covers all companies that develop their principal activity in the geographic area, and does not expressly limit that scope, must be interpreted to encompass all companies that have or do not have their registered office or effective management, and possess or do not possess a wage bill in those geographic areas - provided they develop their principal activity in the beneficiary geographic area."

It is equally important in carrying out this task of interpretation to take into account the constitutional rules of legislative reservation, since the referred Law creating the benefit for inland regions of article 43 of the Tax Benefits Statute, approved by the State Budget Law, approved by the Assembly of the Republic in accordance with paragraph g) of article 161 of the Constitution, created a legislative authorization in article 43, section 7 of the Tax Benefits Statute, for the definition of the criteria and the delimitation of the geographic areas, as well as the regulatory rules necessary for the proper execution of the benefit.

It is the exclusive competence of the Assembly of the Republic, except where authority is granted to the Government, the "creation of taxes and fiscal system and general regime of rates and other financial contributions in favor of public entities," article 165, section 1, paragraph i) of the Constitution of the Portuguese Republic (CRP), but also the determination of the respective essential elements set forth in article 106 of the CRP, encompassing tax benefits.

Constitutionally, the principle of legality of administration postulates two fundamental principles: (i) the principle of supremacy or prevalence of law, and (ii) the principle of legislative reservation.

The principle of general legislative reservation means that certain material domains must be reserved for regulation by Law, enacted by parliament. Legislative reservation in fiscal matters assigns exclusive competence to the Assembly of the Republic or to the Government under its authorization for the production of the tax laws that will govern in the country.

Rules that allocate tax benefits, creating exceptional regimes, are a decision about the distribution of tax burdens and therefore are subject to legislative reservation. But legislative authorization laws must define the object, the sense, the extent and the duration of the authorization, article 165, section 2 of the CRP. It is not permissible for a simple regulatory rule to innovatively fix general and abstract criteria that would allow the fixing of the amount on which they will bear.

Based on the foregoing, it follows that the interpretation of the Decree-Law is limited in the sense of limiting or increasing the scope of the conditions provided for in article 43 of the Tax Benefits Statute, because to do so would be to fall within the scope of the creation of Tax Benefits, which is solely the responsibility of the Assembly of the Republic, so that the conditions of access to the tax benefit of article 43, if fulfilled, guarantee the Taxpayer's access to the Benefit.

And thus, in that sense, Decree-Law No. 55/2008 of 26 March 2008 should be interpreted as a rule that, within the legislative authorization conferred and which comes to complement article 43 of the Tax Benefits Statute, cannot in that sense create new requirements or limit access to the benefit, beyond what is already provided for in article 43 of the Tax Benefits Statute.

Not being provided for in article 43 of the Tax Benefits Statute the requirement that the taxpayer possess a wage bill, article 2, section 2 of Decree-Law No. 55/2008 cannot be interpreted as a new requirement for access to the benefit, but rather as a rule for proper execution, which presumes a certain behavior of the taxpayer, in order that such proper execution exists and abuse of right is prevented. That is, one cannot interpret, as being mandatory for benefit from the benefit, the creation or possession of a mass of workers in the beneficiary geographic area, when the scope of the requirements in article 43, section 1, is the development of principal economic activity of an agricultural, commercial and industrial nature and service-providing, in the beneficiary geographic area.

This is the consistent jurisprudence in CAAD, namely in the decisions issued in Cases No. 18/2015 of 06/09/2015, 273/2013 of 07/04/2014 and

which is also in consonance with the jurisprudence of the judicial courts. See by way of example the recent decision of the Supreme Administrative Court in Decision in case 0335/2017 of 18/10/2017 which also refers to another decision of the past 11/10/2017, issued in appeal No. 1361/16, which, with due respect, we now transcribe:

"(…) In fact, the benefit contemplated in paragraphs a) and b) of article 43, section 1 of the Tax Benefits Statute, consisting of a reduction of the IRC rate, is addressed to 'Companies that exercise, directly and as principal activity, an economic activity of an agricultural, commercial, industrial or service-providing nature in inland areas, hereinafter referred to as 'beneficiary areas'.' And section 2 of the same rule, which defines the conditions necessary for those companies to benefit from the benefit, only imposes that the determination of taxable income be carried out using direct valuation methods [paragraph a)], that the tax status be regularized [paragraph b)], that there be no overdue salaries [paragraph c)] and that the company not result from a split carried out in the two years prior to benefiting from the benefits [paragraph d)].

The existence of a wage bill does not, therefore, constitute a condition of access to the benefit in question, although in the case of effective existence of a wage bill, it must be concentrated at more than 75% in the beneficiary area.

In fact, article 2, section 2 of Decree-Law No. 55/2008 establishes that 'The principal activity is considered to be located in the beneficiary zones when the subjects have their registered office or effective management in those areas and therein concentrate more than 75% of their respective wage bill.' However, this instrument only establishes a set of regulatory rules referred to in section 7 of article 43 of the Tax Benefits Statute, that is, regulatory rules necessary for the execution of article 43 itself, taking on the nature of a complementary or implementation regulation.

Now, as was explicitly stated in the Supreme Administrative Court decision issued on 1/10/2014 in case No. 01548/13, 'Complementary or implementation regulations embody a '…task of detail, elaboration and complement to the legislative command… they are the development, carried out by administrative means, of the legislative provision, making possible the application of the primary command to situations of concrete life – making, in fact, possible the practice of individual and concrete administrative acts that are its natural corollary.

Complementary or implementation regulations may, in turn, be spontaneous or required. In the first case, the law says nothing about the need for their complementarization: however, if the Administration so deems and has competence for it, it may issue an implementation regulation. In the second, it is the law itself that imposes on the Administration the task of developing the provision of the legislative command.

Lastly, these complementary or implementation regulations are typically 'secundum legem' regulations, being therefore illegal if they collide with the discipline fixed in the law, of which they can only be a deepening," see Diogo Freitas do Amaral, Course in Administrative Law, Vol. II, 2012, 2nd edition, pp. 185 and 186, see also Mário Aroso de Almeida, General Theory of Administrative Law: core themes, 2012, pp. 98 and 99.'

It becomes, therefore, clear that the discipline contained in Decree-Law No. 55/2008 cannot contradict, or in any way exceed or alter the law that it regulates, under penalty of illegality.

For that matter, as is rightly noted in the decision issued by the Supreme Administrative Court on 9/09/2015 in case No. 0115/15, tax benefits constitute a matter subject to legislative reservation, and which, therefore, cannot be altered by a decree-law that has not been preceded by legislative authorization – see articles 165, section 1, paragraph i), and 103, section 2 of the CRP.

Now, the law, in the cited article 43 of the Tax Benefits Statute, not having established that the existence of a wage bill was a condition of access to the benefit it contemplates, such a condition cannot be legally imposed based on the regulatory rule contained in section 2 of article 2 of Decree-Law No. 55/2008."

Now, if the referred "presumption" provided for in section 2 of article 2 of Decree-Law No. 56/2008 can be set aside if the taxpayer demonstrates that it meets the fundamental requirement, which is the development of principal economic activity in the beneficiary area, the application of the benefit provided for in article 43 of the Tax Benefits Statute can also be set aside by the Tax Authority if the taxpayer does not prove that it exercises principal economic activity in the beneficiary area.

Article 2, section 2 complements, and should be interpreted in the sense of legal certainty and access to the respective benefit, that is, it is presumed that principal activity in the geographic area for purposes of article 43 of the Tax Benefits Statute is verified when the taxpayer has its registered office in that area and 75% of the wage bill.

However, it is to be believed that this presumption can be set aside by the Tax Authority in the opposing situations, where it is verified that although the taxpayer has its registered office and wage bill in the beneficiary geographic area, it develops its principal activity in the non-beneficiary geographic area or does not develop its principal activity in the beneficiary geographic area.

Based on the established factual matter, it was established that the Applicant exercises an activity of production and editing of television and entertainment programs characterized by geographic dispersion inherent to the services and products developed, which implies that its employees/collaborators are likewise dispersed throughout the country and/or have total flexibility to develop their activity in any part of the country for a certain period of time, with costs reflecting this geographic dispersion.

It was equally established that the taxpayer developed its principal activity throughout the geographic area of Portugal, but with preponderance by the Lisbon district where the television studios of B… are located.

Nevertheless, it is important to note that it had only one employee with administrative functions and an indefinite employment contract, but in fiscal years prior to the one under analysis in the case, as in 2013 there are no payments to employees for the employer. From which it is concluded that in 2013 the Applicant did not have any employee in its service under the conditions presupposed by the law that recognizes the alleged inland tax benefit, with no proof of any wage bill referring to the year 2013 in the sense given to it by article 14, section 6 of Law No. 2/2007.

Moreover, the employee the Applicant says it replaced its employee only shows receipt of work income in 2015 and 2016, as per documents 9 and 10, filed by the Applicant in annex to the PI.

Of the more than 100 independent workers who earned income from the Applicant in 2013, only 4 have domicile in the district of … and 1 in the municipality of ….

As for the television and film production activity the Applicant says it develops in its studios in … (see Doc. 3 and questions 11 and 12 of the PI), this basically occurs as of 2015, particularly because only in 2015 is there a contract for the acquisition of these studios.

The Applicant's allegation in question 80 of the initial petition that all administrative, financial and commercial activity management was developed from its headquarters in …, is not evidenced in the accounting nor was it subject to any proof. On the contrary, the documentary evidence filed in the case shows the opposite, that is, that all activity developed by the Applicant occurs throughout the country, without any special connection to …. At least, it is repeated, as regards the 2013 fiscal year under analysis in the case.

The interpretation of a rule that grants a tax benefit must be made taking into account the economic policy it expresses and the consequences that will result from that same interpretation. Within the limits created by the formulation of the legal text, the interpretation should be preferred that will produce the consequences desired by the legislator.

The objective of inland tax benefits is the development of the Interior, through investment, creation of infrastructure and job creation, not limited exclusively to job creation, but rather a broad range of economic activities. The present benefit aims at various objectives, although connected, are not cumulative, in the sense that to obtain the Benefit it is necessary that activity in the beneficiary area is necessarily developed so as to fulfill all or some objectives, being them: creation of infrastructure; investment in productive activities; stimulus to the creation of stable employment; and incentives for the establishment of companies and the fixation of young people.

Based on the proven factuality, there is no indication that the relocation of company headquarters to … has a synallagmatic relationship with any of these objectives, and even the existence of an employment contract is not proven with reference to the year 2013.

There are no minutes or documents demonstrating that the commercial, financial or administrative management of the company was developed from ….

The programs produced and edited were dispersed throughout the country and only as of 2015 are there studios in the beneficiary geographic area, with there being up to then a rented property for €325/month. This property was a ground floor and the list of equipment attached to the lease contract is minimal and in no way related to the Applicant's activity.

Therefore, the Applicant failed to prove the requirement for application of the inland tax benefit established in article 43: "1 - To companies that exercise, directly and as principal activity, an economic activity of an agricultural, commercial, industrial or service-providing nature in inland areas, hereinafter referred to as 'beneficiary areas', the following tax benefits are granted."

Accordingly, no illegality of the challenged assessment acts is apparent, which correspond to the correct application of the legal regime in force, concluding that the Applicant was not entitled to the alleged inland tax benefit with reference to the 2013 fiscal year.

In conformity, the arbitral petition must fail and, consequently, knowledge of the request for compensatory interest is obviously prejudiced.

IV - DECISION

Based on the foregoing, this Collective Arbitral Tribunal decides:

• To find the arbitral petition submitted entirely without merit and, in consequence, the challenged assessments remain in the legal system and

• To condemn the Applicant to payment of the costs of the process.

PROCESS VALUE

The process value is fixed at 218,411.11 in accordance with article 97-A, section 1, a), of the Code of Tax Procedure, applicable by virtue of paragraphs a) and b) of section 1 of article 29 of the RJAT and section 2 of article 3 of the Regulation of Costs in Tax Arbitration Processes.

COSTS

The arbitration fee is fixed at €4,284.00 in accordance with Table II of the Regulation of Costs in Tax Arbitration Processes, in accordance with articles 12, section 2, and 22, section 4, both of the RJAT, and article 5 of the cited Regulation, to be paid by the Applicant as decided above.

Notify.

Lisbon, 15-02-2018

The Collective Arbitral Tribunal,

(José Poças Falcão – President)

(Maria do Rosário Anjos)

(Ana Teixeira de Sousa)