Can Special Advance Payments (PEC) Be Deducted from Autonomous Taxation Under IRC? CAAD Ruling 39/2017-T

ARBITRAL DECISION

PARTIES

Claimant: A…– SGPS, S.A., Tax ID…, with registered office at …, no.…, … –…Lisbon.

Respondent: TAX AND CUSTOMS AUTHORITY (AT)

I. REPORT

a) On 13 January 2017, the Claimant filed with CAAD a request for arbitral pronouncement (PPA) requesting, pursuant to the Legal Framework for Arbitration in Tax Matters (RJAT), the establishment of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant requests the annulment of the decisions of the Tax Authority, dated 16.09.2016, which rejected its requests for official review of self-assessed Corporate Income Tax (IRC) self-assessments bearing the numbers …/16 – fiscal year 2011 and …/16 – fiscal year 2012 (both opened on 16.03.2016) and consequently requests the annulment of the self-assessments, with the consequent reimbursement of the total amount of €7,125.00 (seven thousand one hundred and twenty-five euros), corresponding to €6,125.00 (six thousand one hundred and twenty-five euros) for the year 2011 and €1,000.00 (one thousand euros) for the year 2012, plus the respective compensatory interest in accordance with Article 43 of the LGT and Article 61 of the CPPT.

c) It further petitions that "any application of the provision – no. 21 of Article 88 of the CIRC – which implies an interpretation thereof in the sense of non-deductibility of special advance payments in autonomous taxation be considered unconstitutional, as a violation of the principle of non-retroactivity provided for in no. 3 of Article 103 of the CRP".

THE CAUSE OF ACTION

d) The Claimant, given that it determined in 2011 a total IRC assessment of €45,993.15 (forty-five thousand nine hundred and ninety-three euros and fifteen cents), corresponding to autonomous taxation and with a total amount of Special Advance Payments (PEC) capable of deduction in that period of €6,125.00 (six thousand one hundred and twenty-five euros), argues that this amount should be deducted up to the limit of the said total assessment.

e) And with respect to the year 2012, having the Claimant determined a total IRC assessment of €30,424.93 (thirty thousand four hundred and twenty-four euros and ninety-three cents), corresponding to autonomous taxation and with a total amount of PEC capable of deduction in that period of €1,000 (one thousand euros), it intends that this latter amount be deducted up to the limit of the said total assessment.

f) It considers that "… it should be noted that no. 21 of Article 88 of the CIRC is, in its entirety, a new provision that did not exist prior to the State Budget Law of 2016 and whose application must be limited to new cases – in accordance with, in this sense, the arbitral decision rendered in Proceeding no. 775/2015 by Messrs. Arbitrators Dr. José Baeta de Queiroz, Dr. Eva Dias da Costa and Dr. Filomena Oliveira".

g) Given that accepting "any authentic interpretation effected by virtue of no. 21 of Article 88 of the CIRC in the part relating to the non-deductibility of special advance payments in autonomous taxation manifestly offends the principle of non-retroactivity in the creation of taxes…" since " … it implies the non-application of no. 1 of Article 90 of the CIRC, which is the provision that determines how IRC is liquidated and therefore, instead of IRC being liquidated in accordance with the provision in force in the fiscal year in question, a new law is being applied and, therefore, violating the principle of tax legality, also enshrined in no.3 of Article 103 of the CRP".

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

h) The request for establishment of the TAS was accepted by the President of CAAD and automatically notified to the AT on 20-01-2017.

i) By the Deontological Council of CAAD, the signatory of this decision was designated as arbitrator, and the parties were notified thereof on 06.03.2017. The parties expressed no wish to refuse the designation, pursuant to Article 11, no. 1, subsections a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

j) The Singular Arbitral Tribunal (TAS) has been, since 21.03.2017, properly constituted to assess and decide the subject matter of this dispute (Articles 2, no. 1, subsection a) and 30, no. 1, of the RJAT).

k) All these acts are documented in the communication of establishment of the Singular Arbitral Tribunal dated 21.03.2017, which is hereby reproduced.

l) The AT was notified on 21-03-2017 pursuant to and for the purposes of Article 17-1 of the RJAT. It responded on 28.04.2017 attaching the Administrative File (PA) composed of nine computerized files, designated as PA1 with 28 pages, PA2 with 28 pages, PA3 with 21 pages, PA4 with 12 pages, PA5 with 26 pages, PA6 with 28 pages, PA7 with 22 pages, PA8 with 5 pages and PA9 with 31 pages.

m) The parties' meeting provided for in Article 18 of the RJAT was not held given the coincident position of both parties. By order of 28.04.2017, a deadline was set for submission of successive written arguments. On 23.05.2017, the Claimant presented its arguments.

n) Given that the Respondent did not submit counter-arguments within the allotted period, the TAS, by order of 08 June 2017, based on the principle of informality and autonomy in conduct of the proceedings, formulated a new invitation to submit them. It submitted counter-arguments on 19.06.2017.

o) On 20.06.2017, the Claimant attached to the file a ruling of the Constitutional Court with no. 267/2017 which addresses the matter at issue. By order of that same date, the Respondent was notified to exercise its right of reply, which it exercised by motion of 28.06.2017.

p) The Claimant in its arguments and the Respondent in its counter-arguments respectively upheld the positions already assumed in the request for arbitral pronouncement and in the response.

PROCEDURAL REQUIREMENTS

q) Legitimacy, capacity and representation – The parties are legitimate, enjoy legal personality and procedural capacity and are represented (Articles 4 and 10, no. 2, of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).

r) Principle of adversarial procedure – The AT was notified pursuant to subsection l) of this Report. All procedural documents and all documents attached to the file were made available to the respective counterparty in the CAAD Case Management System. The attachment of each document was always notified to both parties.

s) Dilatory exceptions – The arbitral procedure does not suffer from any nullities and the request for arbitral pronouncement is timely as it was presented within the prescribed period in subsection a) of no. 1 of Article 10 of the RJAT, as shown by the fact that the Claimant presented the request for pronouncement on 13.01.2017 and the notifications of the decisions on the official review requests were received on 18 October 2016, as per page 27 of PA5 and page 30 of PA9 (and Article 2 of the PPA, albeit with a one-day discrepancy). In any event, the AT did not challenge the timeliness of presentation of the present request for arbitral pronouncement.

t) The Respondent invoked the material incompetence of the TAS arising from the circumstance that the request for arbitral pronouncement was formulated as a result of rejection of official review requests, which will be assessed first below.

SUMMARY OF THE CLAIMANT'S POSITION

u) As to the taxation period of 2011 – the Claimant states that "… the amount paid as PEC and capable of deduction in the period of 2011, can and must be deducted from the total IRC assessment formed by autonomous taxation referred to in the same period and identified above, and therefore … considers itself entitled to receive from the AT a total of €6,125.00 (six thousand one hundred and twenty-five euros), equivalent to the deduction of the amount of PEC paid up to the limit of the assessment (constituted entirely, in this period, by autonomous taxation)" and accordingly "… considers that it should be reimbursed by the AT of the tax paid in excess with reference to the taxation period of 2011, in the total amount of €6,125.00 (six thousand one hundred and twenty-five euros)".

v) As to the taxation period of 2012 – the Claimant states that "… in similar manner to the Claimant's understanding with reference to the taxation period of 2011, there should be deducted up to the limit of the total IRC assessment of 2012 (constituted entirely in this period by autonomous taxation), which amounted to €30,424.93 (thirty thousand four hundred and twenty-four euros and ninety-three cents), the amount of €1,000.00 (one thousand euros), relating to the PEC that was available for deduction" and accordingly "… considers that it should be reimbursed by the AT of the tax paid in excess with reference to the taxation period of 2012, in the total amount of €1,000.00 (one thousand euros)".

w) The Claimant further considers that "autonomous taxation" "… in IRC forms part of the concept of total IRC assessment, calculated in accordance with Article 90, and must receive equal treatment, particularly regarding the deductions provided for in no. 2 of that article". "In this sense and given that, in the Claimant's understanding, the nature of autonomous taxation was preserved for IRC purposes, it is therefore necessary to proceed with consideration as to the deduction of one of the components that constitute deductions from the assessment of this tax, in particular, that relating to PEC".

x) As to the deduction from the global IRC assessment of PEC (considering as IRC assessment the assessments of autonomous taxation), it states that "currently, the regime for deduction of PEC with legal basis in Articles 93 and 106 of the IRC Code, according to the wording introduced by Law no. 2/2014, of 16 January, combines the possibility of deduction of amounts paid against the IRC assessment within a given carry-forward period with reimbursement, after the expiry of that period, subject only to a 'request by the taxpayer, addressed to the head of the tax service of the area of its registered office, effective place of management or permanent establishment where accounting is centralized…'", whereby "… it seems clear to the Claimant that the trajectory of the PEC institute represents, since its creation, a moment of departure from Law no. 30-G/2000, of 29 December, which has been followed by a movement of gradual approximation to the original framework of genuine 'advance payment', initiated by Law no. 32-B/2002, of 30 December, and reinforced by the subsequent amendments and which culminate in Law no. 2/2014, of 16 January", especially because "… for national jurisprudence (as per Court of Appeal rulings of the Superior Administrative Court of 14 October 2008 and 4 February 2016, in proceedings no. 2461/08 and no. 9222/15, respectively) it became clear that 'the special advance payment established in the IRC Code (…) has its systematic insertion in the chapter relating to the payment of the tax ultimately due, alongside advance payment, both constituting a form of anticipation of payment of the tax ultimately due'".

y) And concludes: "… the Claimant argues for the integration of autonomous taxation in the concept of total IRC assessment and requests that the 'credits' derived from advance payments of the tax ultimately due that were made as PEC, and which are capable of deduction in the period of 2011, be deducted from autonomous taxation as these constitute a portion of the tax assessment, as shown above and is recognized by the CAAD Decisions in proceedings no. 769/2014-T and no. 219/2015-T".

z) Regarding the addition of no. 21 to Article 88 of the CIRC, effected by Law no. 7-A/2016, of 30 March, it states that it should "… be noted that no. 21 of Article 88 of the CIRC is, in its entirety, a new provision that did not exist prior to the SOE Law of 2016 and whose application must be limited to new cases - as stated in this sense in the arbitral decision rendered in Proceeding no. 775/2015 by Messrs. Arbitrators Dr. José Baeta de Queiroz, Dr. Eva Dias da Costa and Dr. Filomena Oliveira", since "as can be easily verified, Article 90 of the CIRC was not amended and continues to refer to the IRC assessment".

aa) Concluding that "any authentic interpretation effected by virtue of no. 21 of Article 88 of the CIRC in the part relating to the non-deductibility of special advance payments in autonomous taxation manifestly offends the principle of non-retroactivity in the creation of taxes, unconstitutionality which is expressly being raised hereby". "In truth, accepting the interpretative character of no. 21 of Article 88 of the CIRC implies the non-application of no. 1 of Article 90 of the CIRC, which is the provision that determines how IRC is liquidated and therefore, instead of IRC being liquidated in accordance with the provision in force in the fiscal year in question, a new law is being applied and therefore violating the principle of tax legality, also enshrined in no. 3 of Article 103 of the CRP".

bb) In its arguments, it sustained what it had already stated in the request for arbitral pronouncement, emphasizing the content of the collective arbitral decision CAAD Proceeding 775/2015 presided over by Senior Counsel Dr. José Baeta Queiroz, which supports its point of view.

SUMMARY OF THE RESPONDENT'S POSITION

By exception

cc) The Respondent invokes that the TAS is materially incompetent because the Claimant challenges an IRC self-assessment without having been preceded by a gracious complaint. It argues, fundamentally, for a literal interpretation of the RJAT and the Ordinance binding the AT (Article 62 of the Response).

dd) It states that "the … Ordinance (no. 112-A/2011, of 22 March) establishes, in its Article 2, subsection a), that the AT is bound by arbitral claims that have as their object the assessment of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of Article 2 of the RJAT, 'with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding at source and advance payment acts that have not been preceded by resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process'".

ee) And that, for this reason, "the review of self-assessment acts of tax is only admissible in arbitral proceedings if, at a prior moment, they have been administratively challenged, in accordance with Article 131 of the CPPT", since "Article 2, subsection a), of the mentioned Ordinance excludes, literally, from the scope of the AT's binding to arbitral jurisdiction, '(…) claims relating to the declaration of illegality of self-assessment acts, withholding at source and advance payment acts that have not been preceded by resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process', without the mechanism of official review provided for in Article 78 of the General Tax Law (LGT) being mentioned there".

ff) "Moreover, if this were not the case, it would suffice if the legislator had reduced the exclusion provided for in Article (2, subsection a) of Ordinance no. 112-A/2011) to the expression 'that have not been preceded by resort to the administrative remedy', distinguishing nothing further".

gg) "With the express reference to prior resort to the administrative remedy in accordance with, in this case, Article 131 of the CPPT, namely, through submission of the necessary gracious complaint, regardless of its grounds".

hh) It further argues that "… the above-stated understanding, that disputes having as their object the declaration of illegality of self-assessment acts, as is the case in the situation sub judice, are excluded from the material competence of arbitral tribunals, if not preceded by a gracious complaint in accordance with Article 132 of the CPPT, is equally required by the constitutional principles of the rule of law and separation of powers (cf. Articles 2 and 111, both of the CRP), as well as legality (cf. Articles 3, no. 2, and 266, no. 2, both of the CRP), as a corollary of the principle of indisponibility of tax credits inherent in Article 30, no. 2 of the LGT, which bind the legislator and all activity of the AT".

By defense on the merits

ii) Regarding the nature of autonomous taxation in IRC, it states that "… the autonomous character of these forms of taxation, resulting from the special configuration given to the material and temporal aspects of the taxable events, requires, in certain areas, a departure from or an adaptation of the general rules for application of IRC". It adds: "In reality, the integration of autonomous taxation in the IRC Code (and IRS), conferred a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied, notably, within the framework of subsection a) of no. 1 of Article 90 of the CIRC, in separate determinations of their respective assessments, by force of them being subject to different rules". "And this, for on the one hand, it is a matter of application of the rate(s) of Article 87 of the CIRC to taxable matter determined according to the rules contained in Chapter III of the Code and, on the other hand, it is a matter of application of rates to the values of taxable matters relating to the different realities contemplated in Article 88 of the CIRC".

jj) It further states: "… the amount determined in accordance with subsection a) of no. 1 of Article 90 does not have a unitary character, as it contains values calculated according to different rules, to which different objectives are also associated, whereby the deductions provided for in the subsections of no. 2 can only be made to the part of the IRC assessment with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the general regime of the tax."

kk) And concludes, contrary to the position upheld by the Claimant: "… the delimitation of the content of the expression used by the legislator in no. 2 of Article 90 of the CIRC, 'amount determined in accordance with the preceding number', and in no. 1 of Article 105 of the CIRC, 'tax liquidated in accordance with no. 1 of Article 90', must be made in a manner to cover only '… the amount of IRC calculated by the application of the rates of Article 87 to taxable matter determined on the basis of profit and the rates of Article 87 of the Code', that is, excluding IRC derived from autonomous taxation referred to in Article 88 of the CIRC.

ll) It concludes stating that "… definitively settling the controversial question, the content of Article 133, which added no. 21 to Article 88 of the CIRC, with the effects provided for in Article 135, both contained in the State Budget Law for 2016, published on 30.03.2016, with entry into force on the following day, in which it is recommended, with interpretative character, that 'The liquidation of autonomous taxation in IRC is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the foregoing numbers, with no deductions being made to the total amount determined.'"

mm) It invokes in support of its point of view various arbitral decisions, notably "… those rendered in proceedings no. 745/2015-T and in proceeding no. 780/2015-T, which upheld the above position, likewise considering that it is a genuinely interpretative law, whereby the authentic interpretation made does not violate any constitutional principle".

nn) As to the request for compensatory interest, it states that "… if the principal claim fails, the interest claim will necessarily have to fail", being certain that "…in the situation before the court, its calculation would always have as its starting date the date on which notification occurred of the decision that rejected the official review request".

oo) In its counter-arguments, it maintained what was stated in the response to the request for arbitral pronouncement.

pp) It argues for the maintenance in the legal order of the tax acts in question as being in conformity with the law, with success of the exception raised and dismissal of the claim or, if not, with dismissal of the claims and consequent dismissal thereof.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

First, it is necessary to assess the alleged exception of incompetence of the TAS given that the acts immediately challenged (decisions rejecting the official review request) did not result from a gracious complaint procedure, but rather from an official review procedure, by initiative of the taxpayer and outside the period for administrative complaint.

Thereafter, should the exception raised fail, it will be necessary to verify whether the new no. 21 of Article 88 of the CIRC, (even if the TAS were to understand that PEC would always be deductible from the sum of IRC assessments liquidated by application of autonomous taxation rates, in accordance with what is argued by the Claimant and according to the arbitral jurisprudence it cites), is truly an interpretative law.

As to the matter under consideration, for brevity's sake, this TAS adopts the understanding that prior to the introduction of the new no. 21 of Article 88 of the IRC Code, PEC would be deductible from the IRC assessment (sum of the various IRC assessments), whether these were assessments resulting from the application of autonomous taxation rates provided for in Article 88 of the CIRC or assessment resulting from the application of general IRC rates to taxable matter resulting from the determination of taxable profit. This by force of subsection d) of no. 2 of Article 90 of the IRC Code.

For this, a mere declarative interpretation of the law would suffice. The letter of the law is the basis of all interpretation. Article 88 of the IRC Code refers to "rates" of "autonomous taxation" (nos. 14 and 15 of the article leave no doubt that the heading of the provision is assertive), even though it therein expresses the realities to which the "ad valorem" rates apply in the abstract, but without quantification. The quantification (determination of taxable matter) and liquidation, that is, the operation of applying a rate to taxable matter, from which an assessment results, whether for determination of the IRC assessment resulting from business profit or for determination of the various IRC assessments resulting from the application of the various autonomous taxation rates, is done, in both cases, through the procedure of Article 90, no. 1 of the IRC Code. And to the amount thus determined, that is, to the sum of these various IRC assessments, the provisions of no. 2 of Article 90 of the IRC Code are applied (or were applied).

On 14 June 2016, this TAS, in CAAD Proceeding 745/2016-T, decided that "… no. 21 of Article 88 of the CIRC (as amended by the SOE Law for 2016) does not permit deduction of PEC from the IRC assessment resulting from the application of autonomous taxation rates, being a genuinely interpretative law".

However, the Constitutional Court, by Ruling 267/2017 of 31.05.2017, "declared unconstitutional, as a violation of the prohibition on the creation of taxes of a retroactive nature established in Article 103, no. 3, of the Constitution, the provision of Article 135 of Law no. 7-A/2016, of 30 March, insofar as, by effect of the merely interpretative character that it attributes to it, it provides that the provision of Article 88, no. 21, second part, of the IRC Code, this number added by Article 133 of the said law - according to which, to the total amount resulting from autonomous taxation liquidated in a given year in respect of IRC, no deductions can be made of amounts paid as special advance payments in that same year, applies to fiscal years prior to 2016".

Tax arbitral tribunals may only decide in accordance with "constituted law".

III. PROVEN AND UNPROVEN FACTS

GROUNDS

As to the facts, the Tribunal is not required to pronounce on everything alleged by the parties; rather, it has the duty to select the facts relevant to the decision and distinguish proven from unproven facts (as per Article 123, no. 2, of the CPPT and Article 607, no. 3 of the CPC, applicable by virtue of Article 29, no. 1, subsections a) and e), of the RJAT).

Accordingly, the facts relevant for judgment of the case are chosen and defined on the basis of their legal relevance, which is established in consideration of the various plausible solutions to the question(s) of law (as per former Article 511, no. 1, of the CPC, corresponding to current Article 596, applicable by virtue of Article 29, no. 1, subsection e), of the RJAT).

Thus, taking into consideration the positions assumed by the parties and the documentary evidence attached, the following facts were considered proven, with relevance to the decision, as listed below, with the respective documents indicated (proof by documentary evidence), as grounds.

Proven Facts

1. On 30.11.2012, the Claimant submitted IRC Form 22 for the taxation period of 2011 – in accordance with Article 44 of the request for arbitral pronouncement (PPA) and page eight of PA9 attached by the Respondent with its response.

2. In accordance with information made available on the AT website (Your Services - Pay - Payment Documents - IRC - Advance Payments), the total amount of Special Advance Payments (PEC) still capable of deduction in the taxation period of 2011 amounted to €6,125.00 (six thousand one hundred and twenty-five euros) - as per Article 45 of the PPA and document no. 5 attached with the PPA and lack of challenge of this fact by the AT.

3. In the taxation periods of 2007 to 2011, the Claimant did not determine IRC assessment resulting from taxable profit in any of those periods, in relation to which it would be possible to deduct PEC paid, having self-assessed amounts totaling €45,993.15 as autonomous taxation, which amount was paid – as per Articles 47 to 49 of the PPA, documents nos. 6 to 11 attached with the PPA and page two of PA9 attached by the Respondent with its response.

4. On 29.11.2013, the Claimant submitted IRC Form 22 for the taxation period of 2012 – as per Article 56 of the request for arbitral pronouncement (PPA) and page eight of PA5 attached by the Respondent with its response.

5. PEC paid in 2012 totaled €1,000.00 according to information made available on the AT website (Your Services - Pay - Payment Documents - IRC - Advance Payments) – Article 68 of the PPA, document no. 5 attached with the PPA and lack of challenge of this fact by the AT.

6. In accordance with information made available in IRC Form 22 for the taxation period of 2012, no amount was deducted as PEC and the liquidated amount of autonomous taxation amounted to €30,424.93, which was paid, nor was there in this year any IRC assessment resulting from company profit – as per Article 70 of the PPA, documents 6 to 11 attached with the PPA and page nine of PA5 attached by the Respondent with its response.

7. On 16 March 2016, as a result of requests by the Claimant, official review procedures of IRC self-assessments were opened bearing the numbers …/16 – that relating to fiscal year 2011 and …/16 – that relating to fiscal year 2012 – as per Articles 1 and 2 of the PPA and first pages of PA1 and PA6 attached by the Respondent with its response.

8. On 18 October 2016, after notification for prior hearing, a right which it did not exercise, the Claimant was notified of the decisions of 23.09.2016 of the Director of the IRC Services, which rejected the procedures referred to in the preceding number, with the following essential grounds:

"Subsection a) of no. 1 of Article 90 of the CIRC establishes that the liquidation of IRC is based on taxable matter determined in income declarations.

And its no. 2 provides for the possible deductions from the amount determined in IRC liquidation as well as the place that each one occupies in the deduction order.

It is thus noted that the IRC liquidation provided for in the above-mentioned provision from which deductions to the assessment are made does not include the possibility of deduction of autonomous taxation.

The rules applicable to autonomous taxation should not be contrary to the spirit that determines them.

And, in order to respect that purpose that establishes them, it is necessary to evaluate the legislator's intention taking into account all factors.

Thus, given that autonomous taxation aims to reduce the tax advantage achieved by deducting in tax results the expenses on which it is imposed and still to combat tax evasion that this type of expense, by its nature, fosters, it cannot, through the deduction of PEC, allow the limitation of that reduction of advantage intended and determined by the legislator.

Similar to autonomous taxation, PEC is also an anti-abuse measure, through which the legislator seeks to distribute to all taxpayers the duty of participation in payment of the tax.

PEC is an advance payment of tax.

Only where assessment exists is its deduction possible, which has its own rules, and situations may occur where that deduction is not possible, presenting itself thus as a minimum assessment.

The legislator imposes payment of autonomous taxation, regardless of the existence of taxable matter, or lack thereof, for IRC purposes.

In fact, when a loss situation arises, and therefore no taxable matter is determined and consequently no payment of tax, these autonomous taxation amounts are even increased.

In this way, it would be contrary to the spirit of the system to permit that, by force of the deductions referred to in no. 2 of Article 90 of the CIRC, autonomous taxation be stripped of that anti-abuse character that presided over its implementation in the IRC system.

Furthermore, and without prejudice to the foregoing, it must be emphasized that this understanding was recently the subject of legislative confirmation, as Article 133 of Law no. 7-A/2016 of 30 March (SOE 2016) added to Article 88 of the CIRC no. 21 with the following wording: 'the liquidation of autonomous taxation in IRC is carried out in accordance with the provisions set out in Article 89 and is based on the values and rates resulting from the foregoing numbers, with no deductions being made to the total amount determined', this provision having an interpretative nature in accordance with the provisions of Article 135 of the said Law" – as per Article 2 of the PPA, pages 22, 23 and 27 of PA5 and pages 20, 21 and 25 of PA9 attached by the Respondent with its response.

1. On 13 January 2017, the Claimant filed with CAAD the present request for arbitral pronouncement (PPA) – filed entry in the CAAD Case Management System of the request for arbitral pronouncement.

Unproven Facts

There is no other factual matter alleged that has not been considered proven and is relevant for the composition of the procedural dispute.

IV. ASSESSMENT OF THE QUESTIONS FOR THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE

Regarding the alleged material incompetence of the TAS

The literal element of the provision is always the most relevant, as it delimits the interpretive activity.

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

The letter is an irremoable element of interpretation, or a "limit to the search for spirit".

"An interpretation that does not fall within the scope of possible literal meaning is no longer interpretation, but modification of meaning" (Larenz).

"(…) it must be a meaning (a motivation, a set of objectives) that reasonably fits within the literal meaning of the legislator's statement. On penalty of, if this does not occur, creating a new rule, rather than interpreting an already existing rule" (Hespanha).

The Respondent bases itself on the literal element of the provision – subsection a) of Article 2 of Ordinance 112-A/2011, of 22.03 – which it emphasizes.

The equation of official review with necessary gracious complaint is only for cases where it is deduced within the period of administrative complaint. But official review is a complementary gracious remedy, whenever the taxpayer resorts to it, beyond the period of administrative complaint, within the period of Article 78 of the LGT.

In fact, the legislator of Ordinance 112-A/2011, of 22.03, did not add to the expression "in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process", the expression "and Article 78 of the General Tax Law".

That is, for the interpreter to consider that the law has a reading as if this expression were expressly contained in the law is debatable in light of no. 2 of Article 9 of the Civil Code.

Whatever position is adopted, what could be at issue here, is solely the possible incompetence of the TAS regarding the assessment of the challenge to the primary act (self-assessment), but not incompetence regarding the assessment of the decision that issued on official reviews, which, in practical terms, leads to the indirect competence of the TAS to declare the illegality of the self-assessment act.

For simplification (and alignment with what we consider the most assertive approach), we reproduce, adhering to, decisions already adopted at CAAD regarding the matter here in discussion, in identical cases.

Reference is made to the Arbitral Tribunal Ruling, rendered in Proceeding no. 48/2012-T CAAD, of 6 July 2012, reproduced in the Arbitral Tribunal Ruling no. 73/2012-T CAAD, which alludes to a situation of "tax withheld at source", but which has identical application here, as it involves challenge of an IRC self-assessment act (note that the expression "withholding at source" or similar has been replaced with self-assessment):

"… discretion was exercised in the said Arbitral Tribunal Ruling, rendered in Proceeding no. 48/2012-T CAAD, of 6 July 2012, as follows:

'4 – The competence of arbitral tribunals operating at CAAD is, in the first place, limited to the matters indicated in Article 2, no. 1, of Decree-Law no. 10/2011, of 20 January (RJAT).

In a second line, the competence of arbitral tribunals operating at CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction, concretized in Ordinance no. 112-A/2011, of 22 March, since Article 4 of the RJAT establishes that 'the binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an ordinance of the members of Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered'.

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

In subsection a) of Article 2 of this Ordinance no. 112-A/2011, expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of arbitral tribunals operating at CAAD are 'claims relating to the declaration of illegality of self-assessment acts, withholding at source and advance payment acts that have not been preceded by resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process'.

The express reference to the prior 'resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process' must be interpreted as referring to cases where such resort is mandatory, through gracious complaint, which is the administrative remedy indicated in those Articles 131 to 133 of the CPPT, to whose terms reference is made.

In truth, in the first place, it would not be understood that, where prior administrative challenge is not necessary, 'when its ground is exclusively a matter of law and the self-assessment was made in accordance with generic guidance issued by the tax administration' (Article 131, no. 3, of the CPPT) …, arbitral jurisdiction would be ruled out due to that unnecessary prior administrative challenge not having been exercised.

But, direct challenge of the self-assessment act can only be made without prior gracious complaint in the said cases where it 'was made in accordance with generic guidance issued by the tax administration, as results from the provision … in Article 131, no. 3, of the CPPT. In the case at hand, one is not facing a situation of this type, it not even being alleged that the Tax Administration had issued guidance in the sense of the self-assessment having been made in the terms in which it was, whereby it must be concluded that challenge of the self-assessment act depended on prior gracious complaint.

Thus, absent prior gracious complaint, the claim for direct declaration of the illegality of the self-assessment act (without being a corollary of the illegality of the rejection decision on official review) is excluded from the competence of this Arbitral Tribunal, as the Tax Administration has expressly excluded such claims from the scope of its binding to the jurisdiction of arbitral tribunals operating at CAAD.

Thus, absent prior gracious complaint, the claim for direct declaration of the illegality of the self-assessment act (without being a corollary of the illegality of the rejection decision on official review) is excluded from the competence of this Arbitral Tribunal, as the Tax Administration has expressly excluded such claims from the scope of its binding to the jurisdiction of arbitral tribunals operating at CAAD.

For this reason, the exception of incompetence proceeds as regards the Claimant's claim, interpreted as direct challenge of the self-assessment act.

5 – However, as noted, the question of the competence of this Arbitral Tribunal to assess the legality of the decision that issued on the official review request must also be assessed.

As stated in the ruling of the Superior Administrative Court of 12-6-2006, rendered in proceeding no. 402/06, the duty to proceed with official review of liquidation acts constitutes a recognition, within tax law, of the duty to revoke illegal acts, which is a corollary of the principles of justice, equality and legality that the tax administration must observe in the totality of its activity (Article 266, no. 2, of the CRP and 55 of the LGT), which impose, as a rule, that all errors in liquidations that have led to collection of tax in an amount exceeding what would be due under the law be officially corrected (ruling of the Superior Administrative Court of 11-5-2005, rendered in appeal no. 319/05).

However, as stated in that same ruling, this duty 'suffers limitations, justified by the need for legal certainty, particularly where the collected revenues were collected, which justifies that temporal limitations be established'.

Review of the tax act 'constitutes an administrative means of correction of errors in tax liquidation acts, which is admissible as a complement to the administrative and procedural means of challenge of those acts, to be exercised within the respective normal periods, which aims at making possible the remedying of injustices in taxation both in favor of the taxpayer and in favor of the administration'. 'However, it is not a matter of indifference to the taxpayer whether or not to challenge liquidation acts within their respective periods, for in case of annulment in an impugn proceeding, judicial or administrative, any illegality can be invoked and there is a right to compensatory interest from the date of the irregular payment until the issuance of the credit note (Articles 43, no. 1, of the LGT and 61, no. 3, of the CPPT), whereas in cases of official review of the liquidation (when not made at the request of the taxpayer, within the period of gracious complaint, a situation that is comparable to that of gracious complaint) compensatory interest is only due in accordance with Article 43, no. 3, of the LGT and the annulment can only be based on error attributable to the services and duplication of assessment (Article 78, nos. 1 and 6, of the LGT)'. 'Essentially, the regime of Article 78, when the official review request is formulated beyond the periods of administrative and procedural challenge, reduces itself to a means of restitution of what was irregularly paid, with revocation and cessation for the future of the effects of the liquidation act, not to an annulling means, with retroactive destruction of the effects of the act'. 'In this light, the procedural means of review of the tax act cannot be considered as an exceptional means to react against the consequences of a liquidation act, but rather as an alternative means to administrative and procedural challenge means (when used at a time when the latter can still be utilized) or complementary to them (when the periods for utilization of the means of challenge of the liquidation act have already been exhausted).

This restriction on powers to revoke acts within the procedure for review of the tax act, when the request is not submitted within the periods for judicial challenge and gracious complaint of tax liquidation acts, is not materially unconstitutional, particularly in light of Article 266, no. 2, of the Constitution of the Portuguese Republic, for the preclusion of challenge rights by their non-timely exercise is justified by reasons of legal certainty, which is also a constitutional value of primordial importance, being a corollary of the principle of democratic rule of law (Article 2 of the Constitution of the Portuguese Republic).

On the other hand, the limitation of review powers to cases of error attributable to the services constitutes a balanced solution, presenting itself as a result of a just and adequate weighing of the actions of the Tax Administration, censurable only in cases where it committed an error attributable to itself, and of the taxpayer, whose situation ceases to deserve legal protection or merits lesser protection when, by its own negligence, it allowed the periods of challenge of acts to pass.

For this reason, the regime for review of the tax act provided for in Article 78, no. 1, of the General Tax Law is not unconstitutional, in limiting the grounds for review to error attributable to the services, in cases where the request is not submitted within the period of gracious complaint, in particular, that of gracious complaint of self-assessment acts, provided for in Article 132 of the Code of Procedure and Tax Process.

'In the assessment of questions relating to the official review request of the self-assessment act, it is important, first and foremost, to clarify whether the assessment of acts rejecting official review requests of the tax act, provided for in Article 78 of the LGT, is included in the competencies assigned to arbitral tribunals operating at CAAD by Article 2 of the RJAT.

In this Article 2, no express reference is made to these acts, contrary to what occurs with the legislative authorization in which the Government based itself for approving the RJAT, which refers to 'requests for review of tax acts' and 'administrative acts that involve the assessment of the legality of liquidation acts'.

However, the formula 'declaration of illegality of tax liquidation acts, self-assessment, withholding at source and advance payment', used in subsection a) of no. 1 of Article 2 of the RJAT, in a mere declarative interpretation, does not restrict the scope of arbitral jurisdiction to cases where a direct challenge is made to an act of one of those types.

In truth, the illegality of liquidation acts can be declared jurisdictionally as a corollary of the illegality of a second-degree act, which confirms a liquidation act, embodying its illegality.

The inclusion in the competencies of arbitral tribunals operating at CAAD of cases where the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of second-degree acts, which are the immediate object of the challenge claim, results with certainty from the reference made in that provision to self-assessment, withholding at source and advance payment acts, which expressly are referred to as included among the competencies of arbitral tribunals.

In effect, as to these acts, gracious complaint is imposed, as a rule, as mandatory, in Articles 131 to 133 of the CPPT, whereby, in these cases, the immediate object of the challenge proceeding is, as a rule, the second-degree act that assesses the legality of the liquidation act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the liquidation act.

The reference made in subsection a) of no. 1 of Article 10 of the RJAT to no. 2 of Article 102 of the Code of Procedure and Tax Process, dispels any doubts that cases where the declaration of illegality of the acts referred to in subsection a) of that Article 2 of the RJAT must be obtained as a result of the declaration of illegality of second-degree acts are covered by the competencies of arbitral tribunals operating at CAAD.

In fact, it was precisely in this sense that the Tax Administration, through Ordinance no. 112-A/2011, of 22 March, interpreted these competencies of arbitral tribunals operating at CAAD, in ruling out from the scope of these competencies 'claims relating to the declaration of illegality of self-assessment acts, withholding at source and advance payment acts that have not been preceded by resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process', which has the effect of restricting its binding to cases where such resort to the administrative remedy was utilized.

Having concluded that the formula used in subsection a) of no. 1 of Article 2 of the RJAT does not exclude cases where the declaration of illegality results from the illegality of a second-degree act, it will also encompass cases where the second-degree act is that of rejection of a request for review of the tax act, for no reason is apparent to restrict this, especially as, in cases where the review request is made within the period of gracious complaint, it should be equated to a gracious complaint (Essentially in this sense, one can see the rulings of the Superior Administrative Court in the ruling of 12-7-2006, rendered in proceeding no. 402/06, and of 14-11-2007, proceeding no. 565/07).

It is thus concluded that there is no obstacle to the declaration of illegality of self-assessment acts being obtained, in arbitral proceedings, through the declaration of illegality of acts rejecting official review requests'."

Since the Respondent also invokes that arbitral protection is barred here regarding the assessment of the decision that issued on official review, because it was not preceded by a prior, mandatory gracious complaint, part of Arbitral Tribunal Ruling no. 73/2012-T CAAD is reproduced, to which we adhere (replacing the expression "withholding" or equivalent with "self-assessment"):

"7 – One will now analyze the question of whether, regarding claims for declaration of illegality of self-assessment acts through the declaration of illegality of acts rejecting official review requests, prior gracious complaint is required, by subsection a) of Article 2 of Ordinance no. 112-A/2011, of 22 March. As already noted, the reference made in this provision to 'resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process' must be interpreted as referring only to cases where such resort, through gracious complaint (to which, as noted, is comparable the request for review of the tax act submitted within the period of administrative complaint) is required by those provisions of the CPPT.

In cases where an official review request of a tax liquidation act is formulated, the Tax Administration is provided, with this request, an opportunity to pronounce on the merit of the taxpayer's claim before the latter resorts to judicial proceedings, it not being required that, cumulatively with the possibility of administrative assessment within that official review procedure, a new administrative assessment through gracious complaint be required (As understood in the cited ruling of the Superior Administrative Court of 12-6-2006, rendered in proceeding no. 402/2006).

Furthermore, if it were hypothetically intended in that Ordinance, without plausible justification, to rule out the jurisdiction of arbitral tribunals operating at CAAD in cases where an official review request is formulated without prior gracious complaint (thus creating a new situation of necessary gracious complaint exclusive to this arbitral jurisdiction), the express reference made in subsection a) of Article 2 of Ordinance no. 112-A/2011 to 'the terms of Articles 131 to 133 of the Code of Procedure and Tax Process' would not be understood, for that hypothetical new situation of necessary gracious complaint would not be required 'in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process'.

It is thus concluded that the lack of gracious complaint is not an obstacle to the assessment by arbitral tribunals operating at CAAD of claims for declaration of illegality of withholding acts that is a corollary of the illegality of acts rejecting official review requests'."

The exception of incompetence of the TAS would thus proceed if it were directed at challenging directly the self-assessment acts, which did not occur, as it is stated textually in the final part of the request for pronouncement:

"Whereby, given the grounds above stated, it is requested …that it be pleased to find the present arbitral action proven and consequently annul the decision of the Tax Authority, expressly rejecting the requests for official review of the tax act, above identified by virtue of that decision being based on violation of the provision of Article 90 of the IRC Code and consequently determine the annulment of the self-assessments relating to fiscal years 2011 and 2012 with the consequent reimbursement of the total amount of €7,125.00 (seven thousand one hundred and twenty-five euros), corresponding to €6,125.00 (six thousand one hundred and twenty-five euros) for the year 2011 and €1,000.00 (one thousand euros) for the year 2012, plus the respective compensatory interest, provided for in Article 43 of the LGT and Article 61 of the CPPT".

The exception thus fails regarding the competence of the TAS to assess the decision that issued on the official review requests.

Does the IRC assessment determined in accordance with subsection a) of no. 1 of Article 90 have a unitary character?

We will follow in this regard what was decided in the collective arbitral decision adopted in CAAD Proceeding no. 673/2015-T, regarding an identical case, to which we adhere.

The Respondent alleges in Article 98 of its response: "the amount determined in accordance with subsection a) of no. 1 of Article 90 does not have a unitary character, as it contains values calculated according to different rules, to which different objectives are also associated, whereby the deductions provided for in the subsections of no. 2 can only be made to the part of the IRC assessment with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the general regime of the tax".

But without merit. Reproducing CAAD Decision no. 673/2015-T:

"This position has no consistent foundation, nor does the Tax and Customs Authority indicate any legal provision that would provide it with the minimum verbal correspondence necessary for the admissibility of an interpretation.

Notably, Article 105, no. 1, of the CIRC, in stating that 'advance payments are calculated on the basis of tax liquidated in accordance with no. 1 of Article 90 relating to the taxation period immediately preceding the one in which those payments must be made, net of the deduction referred to in subsection d) of no. 2 of the same article', refers to the totality of tax liquidated in accordance with that no. 1 of Article 90."

On the other hand, … prior to the new no. 21 of Article 88 of the CIRC, there was no legal provision establishing the form of liquidation of autonomous taxation, whereby, under penalty of unconstitutionality for violation of Article 103, no. 3, of the CRP, derived from lack of legal provision of procedure for liquidation, it would have to be understood that they were liquidated in conformity with what is provided for in no. 1 of Article 90.

Thus, prior to Law no. 7-A/2016, the deductions provided for in no. 2 of Article 90 of the CIRC, which have as their object the 'amount determined in accordance with the preceding number', applied to that single amount resulting from such determination, whenever one was not faced with one of the situations specially provided for in nos. 4 and following of that same article, which do not apply in the cases at hand.

The deduction of special advance payments from the entire value determined in accordance with that Article 90, no. 1, subsection a), also resulted from the express content of Article 93, no. 1, of the CIRC, in the version prior to Law no. 2/2014, of 16 January, in establishing that 'the deduction referred to in subsection c) of no. 2 of Article 90 is made to the amount determined in the declaration referred to in Article 120 of the same fiscal year to which it relates or, if insufficient, up to the fourth following taxation period, after the deductions referred to in subsections a) and b) of no. 2 and in compliance with no. 7, both of Article 90, are made'. (with Law no. 2/2014, of 16 January, deduction of amounts paid as special advance payment can be deducted up to the 6th following taxation period).

The amount determined in the declaration referred to in Article 120 includes amounts relating to autonomous taxation, there being no other specific declaration for this purpose, neither before nor after Law no. 7-A/2016.

In truth, the declarations provided for in Article 120 of the CIRC are drawn up in a single official model approved by order of the Minister of Finance, in accordance with Articles 117, no. 1, subsection b), and no. 2, of the CIRC.

Thus, in light of what is provided for in subsection c) of no. 2 of Article 90 and in no. 1 of Article 93 of the CIRC, prior to Law no. 7-A/2016, nothing in the literal content of the CIRC prevented the deduction of amounts of special advance payments from the totality of the IRC assessment that was determined in accordance with that no. 1 of Article 90, including that derived from autonomous taxation, within the conditionality provided for therein.

On the other hand, given that special advance payment has the nature of a forced loan (in this sense, see CASALTA NABAIS, Tax Law, 7th edition, page 541, joined by the Superior Administrative Court in the rulings of 18-2-2009, proceeding no. 0926/08, and of 13-5-2009, proceeding no. 0927/08), which creates in the legal sphere of the taxpayer a credit against the Tax Administration, it does not seem unreasonable that it be taken into account in situations in which a credit of the latter arises in relation to the taxpayer.

Furthermore, autonomous taxation in respect of IRC, in light of the growing breadth that the legislator has been giving it, so as to be compatible with the constitutional principle of taxation of enterprises fundamentally inciding on their actual income (Article 104, no. 2, of the CRP), must be understood as indirect forms of taxation of business income, through the taxation of certain expenses, as is implicit in subsection a) of no. 1 of Article 23-A of the CIRC in the version of Law no. 2/2014, of 16 January, in referring to 'IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits'. The statistics of the Tax and Customs Authority referred to above, as well as the case itself at hand, in which the Claimant had tax losses in 2012 and 2013 and in both presents only autonomous taxation of substantial value, are illustrative of the constitutionality problem that arises.

In any event, as stated in the ruling of CAAD rendered in proceeding no. 59/2014-T, autonomous taxation in IRC must be considered a form of taxation of business income:

'The Explanatory Memorandum contained in Legislative Proposal no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no room for doubt that it is a conscious and intentional broadening of previously existing distortions, as it was understood that they were necessary, in short, to compensate for other distortions resulting from significant fraud and tax evasion and thus increase equity in the distribution of the tax burden among citizens and enterprises'.

(...)

'autonomous taxation directly affecting certain expenses, within the scope of taxes that originally affected only income, are considered distortions of the system of direct taxation of income intended by the IRC, but a value that the legislator considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice for these forms of taxation, as they are in accordance with the principles of equity, efficiency and simplicity.

(...)

But this indirect taxation is not ceasing to be effected within the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as its corollary the application of the general rules specific to this tax, which do not conflict with its special form of incidence.

Thus, if it is true that autonomous taxation constitute a different form of imposing taxes on enterprises, which could consist of independent regulation or be arranged in the Stamp Duty Code, it is also true that the legislative choice to include such taxation in the CIRC reveals an intention to consider such taxation as inserted in the IRC, which can be justified by them being an indirect form, but, in the legislative perspective, equitable, simple and efficient, of taxing business income that escapes the regime of taxation with direct incidence on income'.

In fact, it is a fact that the imposition of any expense without consideration on a legal entity has as its corollary a potential decrease in its income, whereby the imposition of a unilateral tax obligation, even calculated on the basis of expenses incurred, constitutes a form of indirectly taxing its income. (It should not be forgotten, in this context of identification of the nature of a tax, that, pushing the analysis to the limit, as the late Professor Doctor SALDANHA SANCHES taught, 'the recipient of the tax is always the individual - the taxation of the commercial company is instrumental and its taxation is always a payment on account of the tax that will later be borne by the holder of the capital of the company')

The new Article 23-A of the CIRC, introduced by Law no. 2/2014, of 16 January, in stating that 'the following expenses are not deductible for purposes of determining taxable profit, even when recorded as period expenses: a) IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits', allows for the glimpse that, in the legislative perspective, IRC and autonomous taxation are taxes that directly or indirectly affect profits, as this understanding may justify the inclusion of the expression 'any other taxes', which presupposes that IRC and autonomous taxation are also taxes of these types.

For this reason, as autonomous taxation provided for in the CIRC, ultimately, forms of taxing business income, it is not apparent that there is necessarily incompatibility between them and the general rules that provide the form of effecting IRC payment'."

What is the regime for deduction of PEC from the IRC assessment resulting from the application of autonomous taxation rates, in the force of no. 21 of Article 88 of the IRC Code?

The Respondent defends in its response and in the motion presented on 28.06.2017 (given the attachment to the file, by the Claimant of Constitutional Court Ruling no. 267/2017) that it is irrelevant to know whether no. 21 of Article 88 of the CIRC (final version) has or does not have an interpretative nature, given that PEC cannot, under penalty of illegality, be deductible from the assessment of autonomous taxation. As stated above, we do not follow this line of reasoning.

In accordance with Constitutional Court Ruling no. 267/2017 of 31 May 2017, this TAS must adhere to what was decided in the Collective Arbitral Decision taken in CAAD Proceeding 775/2015-T, which concludes:

"We thus understand that no. 21 of Article 88 of the CIRC does not have an interpretative character as regards the question in discussion, not applying to facts occurring prior to its entry into force, namely, to the facts and liquidations sub judice".

Now, it results from the proven facts that the self-assessments at issue relate to the years 2007 to 2012, situations which, were not consolidated in the legal order as is verified in this case in which the timeliness of the official review requests is not disputed.

It is the AT itself that in the decision rejecting the official reviews implicitly recognizes this:

Regarding the self-assessments of 2011 (pages 67 and 68 of PA9 attached by the AT with its response)

"The jurisprudence of the Superior Administrative Court has consistently and uniformly understood that the legislator's intention, established in no. 2 of Article 78 of the LCT, was to consider that all errors in self-assessment are to be considered attributable to the services, and as such, are capable of official review within the four-year period after liquidation or at any time if the tax has not yet been paid.

In this line and in accordance with the provisions of no. 2 of Article 78 of the LCT, error in self-assessment is considered attributable to the services for purposes of no. 1, whereby, notwithstanding the provisions of Article 131 of the CPPT, the taxpayer may raise the question of official assessment of the illegality committed in self-assessment within a four-year period, and the Tax Administration cannot legally exempt itself from taking the initiative of review when called upon to do so through a request of the interested parties.

In the present case, the self-assessment of IRC of the period of 2011 occurred with the filing of the income return, Form 22, on day 30.11.2012, to which was assigned the number …, whereby, having the present official review request been filed with the Tax Service of Lisbon … on 15.03.2016, it is considered the same to be timely because submitted within the four-year period after the self-assessment".

Regarding the self-assessments of 2012 (pages 76 and 78 of PA5 attached by the AT with its response)

"The jurisprudence of the Superior Administrative Court has consistently and uniformly understood that the legislator's intention, established in no. 2 of Article 78 of the LCT, was to consider that all errors in self-assessment are to be considered attributable to the services, and as such, are capable of official review within the four-year period after liquidation or at any time if the tax has not yet been paid.

In this line and in accordance with the provisions of no. 2 of Article 78 of the LCT, error in self-assessment is considered attributable to the services for purposes of no. 1, whereby, notwithstanding the provisions of Article 131 of the CPPT, the taxpayer may raise the question of official assessment of the illegality committed in self-assessment within a four-year period, and the Tax Administration cannot legally exempt itself from taking the initiative of review when called upon to do so through a request of the interested parties.

In the present case, the self-assessment of IRC of the period of 2012 occurred with the filing of the income return, Form 22, on day 29.11.2013, to which was assigned the number …-3, whereby, having the present official review request been filed with the Tax Service of Lisbon… on 15.03.2016, it is considered the same to be timely because submitted within the four-year period after the self-assessment".

The judgment of the Constitutional Court contained in Ruling no. 267/2017 of 31.05.2017 seems clear to us:

It is "… unconstitutional, as a violation of the prohibition on the creation of taxes of a retroactive nature established in Article 103, no. 3, of the Constitution, the provision of Article 135 of Law no. 7-A/2016, of 30 March, insofar as, by effect of the merely interpretative character that it attributes to it, it provides that the provision of Article 88, no. 21, second part, of the IRC Code, this number added by Article 133 of the said law - according to which, to the total amount resulting from autonomous taxation liquidated in a given year in respect of IRC, no deductions can be made of amounts paid as special advance payments in that same year, applies to fiscal years prior to 2016".

Accordingly, only the request for arbitral pronouncement seeking the annulment of the two decisions adopted by the AT and by which it rejected the official review requests of the self-assessments of IRC of the Claimant for the years 2011 and 2012 can proceed. Which entails, indirectly, that the self-assessments at issue are not in conformity with the law, and must be as such considered and consequently annulled.

Reimbursement of amounts corresponding to PEC and claim for condemnation of the AT to payment of compensatory interest

The Claimant, although it did not determine IRC assessment resulting from company profit, succeeded in proving that it paid, by self-assessment, the values corresponding to autonomous taxation and special advance payments, these in the amount of €7,125.00 euros.

Annulling, as will be annulled, the decisions that issued on the official review requests, by non-conformity with the law, the self-assessment acts of IRC are affected, resulting in that the Claimant has a right to reimbursement of the amount of PEC that will have the right to offset against the computation of IRC resulting from autonomous taxation.

It further claims compensatory interest in accordance with the provisions of Article 43 of the LGT and Article 61 of the CPPT.

The AT in its response (Article 171) states "even if the claim regarding the payment of interest were configureable as successful… its computation would always have as its starting date the date on which notification occurred of the decision which rejected the official review request".

In accordance with the provisions of subsection b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim, insofar as it is not subject to appeal or challenge, binds the Tax Administration from the expiry of the period provided for appeal or challenge, and must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the expiry of the period provided for voluntary execution of the decisions of tax courts, 'restore the situation that would have existed if the tax act that is the object of the arbitral decision had not been performed, adopting the acts and operations necessary for this', which is in accordance with the provision of Article 100 of the LGT (applicable by virtue of the provisions of subsection a) of no. 1 of Article 29 of the RJAT), which establishes that 'the tax administration is obliged, in case of total or partial success of a gracious complaint, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation that is the object of the dispute, including the payment of compensatory interest, if applicable, from the expiry of the period for execution of the decision'.

Although Article 2, no. 1, subsections a) and b), of the RJAT uses the expression 'declaration of illegality' to define the competence of arbitral tribunals operating at CAAD, making no reference to condemnatory decisions, it should be understood that it comprises the powers which, in judicial challenge proceedings, are assigned to tax courts, being this the interpretation that is in tune with the sense of the legislative authorization in which the Government based itself for approving the RJAT, in which it proclaims, as a first guideline, that 'the arbitral tax proceeding must constitute an alternative procedural means to the judicial challenge proceeding and to the action for recognition of a right or legitimate interest in tax matters'.

The judicial challenge proceeding, although essentially a proceeding for annulment of tax acts, admits condemnation of the Tax Administration to payment of compensatory interest, as can be understood from Article 43, no. 1, of the LGT, in which it is established that 'compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due' and Article 61, no. 4 of the CPPT (in the version given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original version), which states 'if the decision recognizing the right to compensatory interest is judicial, the period for payment counts from the beginning of the period for voluntary execution'.

Thus, no. 5 of Article 24 of the RJAT, in stating that 'payment of interest is due, regardless of its nature, in accordance with what is provided for in general tax law and in the Code of Procedure and Tax Process', must be understood as permitting the recognition of the right to compensatory interest in arbitral proceedings.

In the case at hand, it is manifest that, as a result of the annulment of the decisions that issued on the official review requests (placing in question, indirectly, the legality of the self-assessment acts), there is ground for reimbursement of the paid tax, by force of the said Articles 24, no. 1, subsection b), of the RJAT and 100 of the LGT, as this is essential to 'restore the situation that would have existed if the tax act that is the object of the arbitral decision had not been performed'.

The substantive regime for the right to compensatory interest is regulated in Article 43 of the LGT, which establishes, insofar as relevant here, the following:

Article 43
Irregular Payment of the Tax Debt

1 – Compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due.

2 – It is also considered that there is error attributable to the services in cases in which, despite the liquidation being effected on the basis of the taxpayer's declaration, the taxpayer has followed, in its completion, the generic guidance of the tax administration, duly published.

3 - Compensatory interest is also due in the following circumstances:

a) When the legal period for voluntary restitution of taxes is not complied with;

b) In case of annulment of the tax act by initiative of the tax administration, from the 30th day following the decision, without the credit note having been processed;

c) When review of the tax act by initiative of the taxpayer is effected more than one year after the request thereof, except if the delay is not attributable to the tax administration.

4 - The rate of compensatory interest equals the rate of compensatory interest.

5 - In the period between the date of expiry of the period for voluntary execution of a judicial decision that has become final and the date of issuance of the credit note, relating to the tax that should have been reimbursed by judicial decision that has become final, compensatory interest is due at a rate equivalent to double the rate of default interest defined in general law for debts to the State and other public entities. (Added by Law no. 64-B/2011, of 30 December).

The illegality of the decisions adopted in respect of official reviews of the self-assessments is attributable to the Tax Administration, which rejected them by its own initiative.

In the present case, the regime of subsection c) of no. 3 of Article 43 of the LGT is to be applied, given that between the date on which the taxpayer made the requests (16.03.2016) and the date on which the decisions were notified to it (18.10.2016), there did not elapse "more than one year".

Regarding the self-assessments, which were effected by the Claimant, it is to be understood that the error affecting them is attributable to the Tax Administration, as indeed the AT recognized in the grounds of the acts rejecting the official reviews and which are expressed above.

However, in accordance with Jorge Lopes de Sousa, in "On the Civil Liability of the Tax Administration for Illegal Acts", Áreas Publishing, Lisbon, 2010, p. 52:

"In situations in which the performance of the act that defines the tax debt falls to the taxpayer (as is the case, notably, in the referred cases of self-assessment, withholding at source and advance payment), as well as those in which the act is performed by the Tax Administration on the basis of incorrect information provided by the taxpayer and there is administrative challenge (gracious complaint or hierarchical appeal), the error will become attributable to the Tax Administration after the possible rejection of the claim presented by the taxpayer, that is, from the moment at which, for the first time, the Tax Administration takes a position on the taxpayer's situation, having at its disposal the elements necessary to render a decision with correct assumptions".

Consequently, the Claimant is entitled to compensatory interest, in accordance with Articles 43, no. 1, of the LGT and 61 of the CPPT, from 18-10-2016, as to the amount of €7,125.00.

Compensatory interest is due on the said amounts, at the legal default rate, in accordance with Articles 43, nos. 1, and 35, no. 10 of the LGT, Article 24, no. 1, of the RJAT, Articles 61, nos. 3 and 4, of the CPPT, Article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or other(s) that amend the rate), from the date above indicated and until the issuance of the respective credit note.

V - OPERATIVE PART

Based on the grounds set forth above, it is decided:

1. To find the exception of incompetence of the TAS unfounded insofar as it argues for lack of material competence to review the decision of rejection that issued on the official review requests referred to in point 7 of the proven facts.

2. To find the claim well-founded regarding the annulment of the orders referred to in point 8 of the proven facts, by which the official review requests referred to in point 7 of the proven facts were rejected, given that no. 21 of Article 88 of the CIRC permits deduction of PEC from the IRC assessment resulting from the application of autonomous taxation rates for fiscal years prior to 2016, as is the case.

3. To annul the said decisions as not being in accordance with no. 21 of Article 88 and subsection d) of no. 2 of Article 90, both of the CIRC, read in conjunction with Constitutional Court Ruling no. 267/2017 of 31 May 2017, which entails, consequently, the illegality of the self-assessments referred to in points 1 to 6 of the proven facts, which are hereby also annulled.

4. To find the claims for reimbursement of the amount of €7,125.00 and condemnation of the AT to payment of compensatory interest, calculated on this amount and counted from 18.10.2016 until issuance of the respective credit note, well-founded.

Value of the proceeding: In accordance with the provisions of Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subsection a) of no. 1 of Article 97A of the CPPT), the proceeding is valued at €7,125.00.

Costs: In accordance with the provisions of Article 22, no. 4, of the RJAT, the amount of costs is set at €612.00 according to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify.

Lisbon, 30 June 2017

Singular Arbitral Tribunal (TAS)

Augusto Vieira

Text prepared by computer in accordance with the provisions of Article 131, no. 5, of the CPC, applicable by reference of Article 29 of the RJAT.

The drafting of this decision is governed by Portuguese spelling prior to the 1990 Orthographic Agreement.