Process: 401/2017-T

Date: April 30, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitral decision 401/2017-T addressed whether companies indirectly held by a Spanish parent company could be included in a Portuguese RETGS (Special Tax Regime for Groups of Companies) for IRC purposes in fiscal year 2011. The taxpayer, A… S.A., was the dominant company of a Portuguese tax group and was wholly owned by B… S.L., a Spanish company. B… also held, directly and indirectly, several other Portuguese resident companies (I…, J…, and K…) through Spanish intermediate holding companies. The taxpayer requested official revision of its 2011 IRC self-assessment, seeking to include these indirectly held Portuguese subsidiaries in its RETGS group, claiming a refund of €4,578,343.31. The Tax Authority dismissed the revision request, arguing that the legislative change introduced by article 69-A of the IRC Code, which explicitly allowed inclusion of indirectly held subsidiaries through non-resident intermediaries, only applied to fiscal periods beginning on or after January 1, 2015. The taxpayer challenged this decision through CAAD arbitration. The case illustrates the procedural requirements for challenging IRC assessments, including the two-stage process of first requesting official revision (revisão oficiosa) from the Tax Authority, then pursuing arbitration if that request is denied. The arbitral tribunal was constituted on September 12, 2017, following proper appointment procedures. This decision clarifies the temporal application of RETGS eligibility rules and the interpretation of corporate group taxation provisions under Portuguese IRC law.

Full Decision

ARBITRAL DECISION

The Arbitrators José Poças Falcão (Presiding Arbitrator), Luís M. S. Oliveira and João Taborda da Gama, appointed by the Ethics Council of the Centre for Administrative Arbitration ("CAAD") to form an Arbitral Tribunal, hereby decide as follows:

Report

A…, S.A., taxpayer with tax number…, with registered office at …, …, … (hereinafter, "Applicant"), submitted an application for constitution of a collective arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (hereinafter, abbreviated as "RJAT") and of articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, in which the Tax and Customs Authority is the respondent.

The Applicant requests that the Decision to Dismiss of the Sub-Director-General, by delegation, of 10/03/2017, dismissing the request for Official Revision that it submitted of the self-assessment of Corporate Income Tax ("IRC") for the fiscal year 2011, be annulled, so that in the determination of the taxable profit of the Applicant as the dominant company of the group, all companies resident for tax purposes in Portugal held directly and indirectly by the dominant company are included in the Special Tax Regime for Groups of Companies (RETGS), with the consequent refund of the total amount of €4,578,343.31, for IRC and autonomous taxation as a result of the corrections.

The application for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 03/07/2017.

Pursuant to article 6 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.

On 28/08/2017 the parties were duly notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of articles 11, No. 1, subparagraphs a) and b) of the RJAT and of articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provisions of article 11, No. 1, subparagraph c) of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 12/09/2017.

By order of 9-3-2018, the period for issuing and notifying the final decision was extended.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, No. 1, subparagraph a) and 10, No. 1 of the RJAT.

As to material competence:

This procedural presupposition is satisfied in the present case, as will be further substantiated below.

The parties are duly represented and enjoy legal personality and capacity, are legitimate and are represented (articles 4 and 10, No. 2 of the same statute and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there are no other exceptions or preliminary issues to be considered and decided.

Statement of Facts

Facts Established

Based on the elements contained in the proceedings and in the administrative file joined to the record, the following facts are considered established:

  • On 30/05/2012, the Applicant presented, as the dominant company of a Group of Companies subject to the Special Tax Regime for Groups of Companies (RETGS), the tax return Form 22, relating to the fiscal year 2011, declaring as the algebraic sum of the group's fiscal results the amount of €5,192,359.97, from which it deducted fiscal losses in the same amount, calculating a tax payable of €175,759.53, which was duly paid [Doc 1, with the request for arbitral decision (PPA)].

  • Because it understood that the said self-assessment was not correct, the Applicant submitted a request for official revision (Doc 2 – PPA).

  • The request for official revision was dismissed by Decision of the Sub-Director-General of the AT, by delegation, dated 10/03/2017, based essentially on the grounds that "(...) given the clarity of the wording of the rule, and as it is not attributed any interpretative nature, we must conclude that such a situation is from the outset unfeasible, and therefore the regime introduced by article 69-A of the IRC Code is only applicable to fiscal periods commencing on or after 1 January 2015. Accordingly, the companies held, directly and indirectly, by B… in companies resident in Portugal are eligible to integrate the group of which A… was the dominant company, as the applicant states in its petition, but only from the fiscal period of 2015 (...)" - See Doc 3 – PPA.

  • The Applicant was, in the fiscal period of 2011 and in accordance with its election for taxation under the RETGS taken on 1-1-2007, the dominant company of a Group of Companies subject to the RETGS, and composed of the following commercial companies (see official revision procedure – page 52):

    • A…, AS (dominant company);

    • C…, S.A., ("C…") Tax ID …, with registered office at Street…, No.…, …-… …;

    • D…, Lda., ("D…") Tax ID …, with registered office at Place …- … …-… …;

    • E…–, Lda., ("E…") Tax ID …, with registered office at …, S/N …-… …; and,

    • F…, Lda., ("F…") Tax ID …, with registered office at Place …-…, ….

  • On 22/06/2011, the Applicant acquired 100% of the share capital of the company G…, Lda., Tax ID …, with registered office at …- … …-… … (hereinafter, "G…"), having been included in the RETGS only in the fiscal period of 2013, given the necessary requirement of one year of holding by the dominant company in G….

  • During the periods of 2011 and 2012, the company G… was subject to individual taxation.

  • In the fiscal period of 2011, the Group dominated by the Applicant calculated a taxable profit of €5,192,359.97.

  • The Applicant is, and was in 2011, directly held 100% of its share capital by B…, S.L., (hereinafter, "B…") commercial company resident for tax purposes in Spain.

  • B… has never been and is not held, directly or indirectly, by any company resident for tax purposes in Portugal...

  • ...and held during the fiscal period of 2011 and still holds, directly and indirectly, various companies resident for tax purposes in Portugal.

  • In 2011, B… held 100% of the company H…, S.A....

  • ...and indirectly, was the holder of 100% of the share capital of the following companies:

    • I…, S.A., ("I…") Tax ID …, with registered office at …, …-… …;

    • J…, Lda., ("J…") Tax ID …, with registered office at Street …, …-… …, Portugal;

    • K…, S.A., ("K…"), Tax ID …, with registered office at Street …, …, …-… ….

  • The company I… is held 100% by the company L…, S.A., resident for tax purposes in Spain, which in turn is held 100% by the company B….

  • The company J… is held 100% by the company M…, SL, a company resident for tax purposes in Spain, which in turn is held 100% by the company N…, S.L., also resident for tax purposes in Spain, and which in turn is held 100% by the company B….

  • The company K… is held 100% by the company O…, S.A., a company resident for tax purposes in Spain, which in turn is held 100% by B….

  • From 23-12-2015 onwards, the Group came to integrate, for taxation purposes, the following companies, with B…, SL, with registered office in Spain, as the dominant company:

Facts Not Established

It was not established:

  • that an election for application of the RETGS for the fiscal year 2011 was requested, through communication to the Tax and Customs Authority within the period and in the manner provided for in article 69-7 of the CIRC (2011 version), formulating the inclusion in that request of other companies in addition to those mentioned above, in D).

Substantiation of Established and Non-Established Facts

The facts established are based on the documents presented by the Applicant with the request for arbitral decision and on the administrative file for instruction by the AT.

The facts not established result from the Applicant's own admission, albeit invoking motivation for such omission.

Statement of Law

Issues to be Decided

The following are, in summary and if correctly understood, the issues to be decided:

First issue: Whether the Arbitral Tribunal is materially competent to consider the present request for arbitral decision given that there has been no prior recourse to the figure of gracious complaint provided for in article 131-1 of the CPPT and in light of the object of the AT's binding commitment established by article 2-a) of Ordinance No. 112-A/2011 [exclusion of arbitrability of claims relating to the declaration of illegality of self-assessment acts (...) that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the CPPT];

Second issue: Whether it is affected by illegality, due to error in the factual and legal presuppositions, the act dismissing the request for official revision of the 2011 IRC self-assessment when it excludes from the scope of the RETGS the companies fiscally resident in Portugal and held 100% by the commercial company B…, SL [abbreviated as "B…"], resident for tax purposes in Spain.

Proceeding then to address these essential issues.

First Issue: Whether the Tribunal is Materially Competent

Scope of the Requirement of Recourse to the Administrative Remedy for Submission of Requests for Arbitral Decision Relating to Self-Assessment Acts

The competence of arbitral tribunals operating in CAAD is, in the first place, limited to the matters indicated in art. 2, No. 1, of Decree-Law No. 10/2011, of 20 January (RJAT).

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

In light of this second limitation on the competence of arbitral tribunals operating in CAAD, the resolution of the competence question depends essentially on the terms of this binding commitment, because, even if one is dealing with a situation covered by that art. 2 of the RJAT, if it is not covered by the binding commitment, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be excluded.

In subparagraph a) of art. 2 of this Ordinance No. 112-A/2011, there are expressly excluded from the scope of the binding commitment of the Tax Administration to the jurisdiction of the arbitral tribunals operating in CAAD the «claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process».

The express reference to the prior «recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process», should be interpreted as referring to cases in which such recourse is mandatory, through the gracious complaint, which is the administrative remedy indicated in those arts. 131 to 133 of the CPPT, to whose terms it refers. In fact, from the outset, it would not be understood how, when prior administrative challenge is not necessary «when its grounds are exclusively a matter of law and the self-assessment was effected in accordance with general guidelines issued by the tax administration» (art. 131, No. 3, of the CPPT, applicable to source withholding cases, by virtue of the provisions of No. 6 of art. 132 of the same Code), the arbitral jurisdiction would be excluded on the basis of that administrative challenge, which is understood to be unnecessary, not having been made.

In the present case, the declaration of illegality and annulment of the self-assessment act for IRC relating to the fiscal year 2011 is being requested, as well as the declaration of illegality and annulment of the act dismissing the request for official revision.

As emerges from the statement of facts established, it was neither proven nor even alleged that the self-assessment had «been effected in accordance with general guidelines of the tax administration» nor was a gracious complaint presented in accordance with article 131 of the CPPT.

However, a request for official revision of the aforementioned tax assessment act was submitted.

Thus, it is important, first and foremost, to clarify whether the declaration of illegality of acts dismissing requests for revision of the tax act, provided for in art. 78 of the LGT, is included in the competencies attributed to arbitral tribunals operating in CAAD by art. 2 of the RJAT.

In fact, in this art. 2, there is no express reference to these acts, in contrast with what occurs in the legislative authorization on which the Government based itself to approve the RJAT, which refers to «requests for revision of tax acts» and «administrative acts that involve the consideration of the legality of tax assessment acts».

However, the formula «declaration of illegality of acts of tax assessment, self-assessment, source withholding and payment on account», used in subparagraph a) of No. 1 of art. 2 of the RJAT, does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged.

In fact, the illegality of assessment acts may be declared jurisdictionally as a corollary of the illegality of a second-level act that confirms an assessment act, incorporating its illegality.

The inclusion in the competencies of arbitral tribunals operating in CAAD of cases in which the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of second-level acts, which are the immediate object of the challenging claim, results with certainty from the reference that in that rule is made to self-assessment acts, source withholding acts and payment on account acts, which are expressly referred to as included among the competencies of arbitral tribunals. Indeed, with respect to these acts, the gracious complaint is required, as a rule, in mandatory terms, in arts. 131 to 133 of the CPPT, and therefore, in these cases, the immediate object of the challenging proceedings is, as a rule, the second-level act that considers the legality of the assessment act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the assessment act. The reference that in subparagraph a) of No. 1 of art. 10 of the RJAT is made to No. 2 of art. 102 of the CPPT, in which the challenging of acts dismissing gracious complaints is foreseen, clears any doubts that cases in which the declaration of illegality of the acts referred to in subparagraph a) of that art. 2 of the RJAT must be obtained following the declaration of the illegality of second-level acts are covered by the competencies of arbitral tribunals operating in CAAD.

Moreover, it was precisely in this sense that the Government, in Ordinance No. 112-A/2011, of 22 March, interpreted these competencies of arbitral tribunals operating in CAAD, by excluding from the scope of these competencies the «claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process», which has the effect of restricting its binding commitment to cases in which this recourse to the administrative remedy was used.

Having reached the conclusion that the formula used in subparagraph a) of No. 1 of art. 2 of the RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-level act, it will also cover cases in which the second-level act is that of dismissing a request for revision of the tax act, as there is no apparent reason to restrict, especially since, in cases in which the revision request is made within the period of the gracious complaint, it should be equated to a gracious complaint.

The express reference to article 131 of the CPPT made in article 2 of Ordinance No. 112-A/2011 cannot have the decisive effect of excluding the possibility of considering claims regarding the illegality of acts dismissing requests for official revision of self-assessment acts.

In fact, the interpretation based exclusively on the literal meaning that the Tax and Customs Authority defends cannot be accepted, since in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (article 11, No. 1, of the LGT) and article 9, No. 1, expressly prohibits interpretations based exclusively on the literal meaning of the rules by providing that «interpretation should not be limited to the letter of the law», but rather should «reconstruct from the texts the legislative thought, having especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied».

As to the correspondence between the interpretation and the letter of the law, «a minimum of verbal correspondence, even if imperfectly expressed» is sufficient (article 9, No. 3, of the Civil Code), which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even acknowledging in it imperfection in the expression of the legislative intention.

Therefore, the letter of the law is not an obstacle to making a declarative interpretation, which clarifies the scope of the literal meaning, nor even an extensive interpretation, when it can be concluded that the legislator said less than what, in consistency, he would intend to say, that is, when he said imperfectly what he intended to say (minus dixit quam voluit). In extensive interpretation «it is the valuation itself of the rule (its "spirit") that leads to the discovery of the need to extend the text of this to the situation it does not cover», «the expansive force of the legal valuation itself is capable of leading the provision of the rule to cover situations of the same type not covered by the text».

Extensive interpretation, thus, is imposed by the evaluative and axiological coherence of the legal system, erected by article 9, No. 1, of the Civil Code as the principal interpretative criterion by way of imposing observance of the principle of unity of the legal system.

It is manifest that the scope of the requirement of prior gracious complaint, necessary to open the contention remedy for challenging self-assessment acts, provided for in No. 1 of article 131 of the CPPT, has as its sole justification the fact that with respect to this type of acts there is no taking of position by the Tax Administration on the legality of the legal situation created by the act, a position that could even turn out to be favorable to the taxpayer, avoiding the need for recourse to the contentious remedy.

In fact, in addition to there being no other apparent justification for this requirement, the fact that an identical gracious complaint is required for contentious challenge of source withholding acts and payment on account acts (in articles 132, No. 3, and 133, No. 2, of the CPPT), which have in common with self-assessment acts the circumstance that neither is there a taking of position by the Tax Administration on the legality of the acts, confirms that this is the reason for being of that required gracious complaint.

Another unequivocal confirmation that this is the reason for being of the requirement of necessary gracious complaint is found in No. 3, of article 131 of the CPPT, by establishing that «without prejudice to the provisions of the preceding numbers, when its grounds are exclusively a matter of law and the self-assessment was effected in accordance with general guidelines issued by the tax administration, the period for challenging does not depend on prior complaint, and the challenge must be presented within the period of No. 1 of article 102». In fact, in situations of this type, there has been prior generic pronouncement by the Tax Administration on the legality of the legal situation created by the self-assessment act and it is this fact that explains why the required gracious complaint ceases to be required.

Now, in cases in which a request for official revision of a tax assessment act is formulated, the Tax Administration is given the opportunity, with this request, to pronounce itself on the merit of the claim of the taxpayer before the latter resorts to the jurisdictional remedy, and therefore, in consistency with the solutions adopted in Nos. 1 and 3 of article 131 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative consideration within the scope of that procedure for official revision, a new administrative consideration be required through gracious complaint.

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from submitting requests for official revision in cases of self-assessment acts, since these are expressly referred to in No. 2 of article 78 of the LGT.

In this context, allowing the law expressly that taxpayers choose between gracious complaint or official revision of self-assessment acts, there can be no reason that can explain why a taxpayer who opted for revision of the tax act instead of gracious complaint cannot access the arbitral remedy.

Therefore, it should be concluded that the members of the Government who issued Ordinance No. 112-A/2011, in making reference to article 131 of the CPPT with respect to requests for declaration of illegality of self-assessment acts, said imperfectly what they intended, because, intending to impose prior administrative consideration of contentious challenge of self-assessment acts, they ended up by including reference to article 131, which does not exhaust the possibilities of administrative consideration of these acts.

Moreover, it should be noted that this interpretation, not limiting itself to the literal meaning, is even particularly justified in the case of subparagraph a) of article 2 of Ordinance No. 112-A/2011, because its defects are evident: one is to associate the comprehensive formula «recourse to the administrative remedy» (which references, in addition to gracious complaint, hierarchical appeal and revision of the tax act) with the «expression in accordance with articles 131 to 133 of the Code of Tax Procedure and Process», which has the potential restrictive scope of gracious complaint; another is to use the formula «preceded» by recourse to the administrative remedy, referring to «claims relating to the declaration of illegality of acts», which would obviously be much better matched with the feminine word «preceded».

Therefore, in addition to the general prohibition on interpretations limited to the letter of the law contained in article 9, No. 1, of the Civil Code, in the specific case of subparagraph a) of article 2 of Ordinance No. 112-A/2011 there is a special reason for not justifying great enthusiasm for a literal interpretation, which is the fact and the wording of that rule is manifestly defective.

Furthermore, ensuring that revision of the tax act provides for the possibility of consideration of the taxpayer's claim before access to the contentious remedy that is intended to be achieved with the required administrative challenge, the most correct solution, because more consistent with the legislative purpose of «strengthening the effective and actual protection of the rights and legally protected interests of taxpayers» manifested in No. 2 of article 124 of Law No. 3-B/2010, of 28 April, is the admissibility of the arbitral remedy to consider the legality of assessment acts previously considered in a revision procedure.

And, because it is the most correct solution, it must be presumed to have been normatively adopted (article 9, No. 3, of the Civil Code).

On the other hand, in that subparagraph a) of article 2 of Ordinance No. 112-A/2011 containing a defective formula, but which contains a comprehensive expression «recourse to the administrative remedy», which potentially also references revision of the tax act, the text is found to contain the minimum of verbal correspondence, although imperfectly expressed, required by that No. 3 of article 9 for the viability of the adoption of the interpretation that establishes the most correct solution.

In the same line as the arbitral decisions delivered, among others, in proceedings Nos. 638/2016-T (award of 8-5-2017), 117/2013-T (award of 6-12-2013) and 73/2012 (of 23-10/2012), it should be concluded that article 2, subparagraph a) of Ordinance No. 112-A/2011, properly interpreted on the basis of the criteria for interpretation of law provided for in article 9 of the Civil Code and applicable to substantive tax rules by virtue of the provisions of article 11, No. 1, of the LGT, enables the submission of requests for arbitral decision regarding self-assessment acts that have been preceded by a request for official revision.

In summary: this Tribunal is materially competent to consider and decide the dispute.

And the questions of (un)constitutionality raised by the AT on the basis of the erroneous literal interpretation of the rule in question do not arise in the perspective indicated, and therefore the consideration of those questions is thereby rendered moot.

Second Issue: Whether the Act Dismissing the Request for Official Revision is Affected by Illegality

Whether the act dismissing the request for official revision of the 2011 IRC self-assessment is affected by illegality, due to error in the factual and legal presuppositions, when it excludes from the scope of the RETGS the companies fiscally resident in Portugal and held 100% by the commercial company B…, SL [abbreviated as "B…"], resident for tax purposes in Spain.

The Tax and Customs Authority concluded that all requirements for application of the RETGS were met for the fiscal year 2015.

As for earlier periods, the Tax and Customs Authority did not invoke in the aforementioned decision that the requirements whose verification fell to the Tax and Customs Authority were not met, limiting itself to invoking as an obstacle the fact that elections for application of the RETGS were not formulated within the period established in subparagraph a) of No. 7 of article 69 of the CIRC/2011 nor was any request presented in that sense in a timely manner.

Neither the Applicant nor B… (which is not a party to this proceeding) challenged what was decided in the aforementioned decision by any means other than official revision and the present proceeding.

In the request for official revision, the Applicant requested, in summary, in addition to the annulment of the self-assessments, that it be taxed in the year 2011 under the RETGS regime provided for at that time by article 69 of the CIRC, making up for compliance with formal requirements for the constitution of that same RETGS in 2011 and considering as valid the exercise of the election for application of the RETGS effected in 2015 by the Applicant by reference to the fiscal period of 2011, that is, with retroactive effect.

Thus, what is at issue is not properly the legality or illegality of the self-assessment, which was effected in accordance with the respective Form 22 declarations and the conditions then existing (election for the RETGS in the fiscal year 2011, with a scope of companies that did not include those from 2015 onwards, headed by the dominant company B…), but rather whether the Tax and Customs Authority, faced with the election for such regime formulated in 2015, should have decided the application of that regime to the group formed by the Applicant including there not only the companies subject of the communication provided for in article 69-7 of the CIRC [in force, naturally in the fiscal period of 2011]

It is questionable whether official revision constitutes an adequate procedural means for challenging what has been decided on the infeasibility of application of the RETGS to periods prior to 2015, motivated by the fact that the elections were not made within the period and in the manner established in that subparagraph a) of No. 7 of art. 69 of the CIRC/2011, nor was any request presented in that sense in a timely manner.

However, given that the Tax and Customs Authority raised no objection and considered the request for official revision of the self-assessment, it will be on the basis of this existing procedural context (decision on the request for official revision) that the legality or otherwise of the refusal to apply that regime should be considered in the present proceeding.

In light of what has been stated, it is manifest that the self-assessments present no error of fact or law as to the presuppositions on which they are based.

In fact, «the determination of the taxable matter shall be made on the basis of the declarations of the taxpayers, provided that they present them in the manner provided for in law and furnish to the tax administration the elements indispensable for the verification of their tax situation» (article 59-2 of the CPPT). And it was precisely this that occurred.

The application of the RETGS to the fiscal year 2011 does not depend only on the verification of the legal requirements for its application, since it is an optional regime, only applicable following an election by the dominant company, formulated in advance in relation to the end of the first fiscal year for which its application is intended (in the present case, «by the end of the 3rd month of the fiscal period in which it is intended to begin application», in accordance with No. 7 of article 69 of the CIRC).

The admissibility of the election by IRC taxpayers for application of the RETGS, with the possibility of obtaining tax advantages and consequent loss of tax revenue, is justified by extrafiscal purposes, namely to facilitate «the restructuring of the business fabric and the recovery of economic groups, through the promotion of synergies between companies integrated into a group, strengthening and consolidating the business fabric, to thus achieve greater competitiveness and favor competition», not being justifiable for obtaining «purposes exclusively fiscal» (See Award of the Supreme Administrative Court of 29-12-2012, proceeding No. 021/12).

In light of this, the imposition of the obligation to elect for application of this regime before the results of its application are known harmonizes with this legislative purpose of making difficult the use of the regime for exclusively fiscal purposes, which would be viable with the possibility of retroactive application, with first determination of the fiscal results and only subsequent choice of the most advantageous fiscal regime.

Thus, that election within the prescribed period must be manifested by the dominant company (and not by some or all of the dominated companies), such manifestation being indispensable because, among other things, it implies for it the assumption of fiscal responsibilities (article 115 of the CIRC), in addition to declarative obligations.

In the present case – and as was established – no request for election for taxation under the RETGS, so as to encompass in the Group the companies held 100% by B…, was submitted to have effect in 2011.

The Applicant invokes that this did not occur because the then (2011) effective subparagraph f), of No. 4, of article 69 of the CIRC, excluded from the RETGS companies resident held through non-resident companies.

It is an argument that does not hold, regardless of the inapplicability retroactively of the amendment to article 69-A of the CIRC, introduced by Law No. 82-C/2014, of 31-12 (State Budget Law/2015).

For if the Applicant – and correctly so, moreover – was convinced that the national legislation was illegal and/or non-conforming with Community law by not permitting horizontal tax consolidation [subsequently embodied in articles 69 and 69-A of the IRC Code, through the aforementioned Law No. 82-C/2014], it should then have raised such inclusion with the AT, which would necessarily have had to pronounce itself on this subject and, in the event of a possible refusal, the taxpayer could always contest that administrative decision before the national judicial authorities, raising the primacy of Community law, on the grounds of the possible non-conformity of that provision of the IRC Code with articles 49 and 54 of the TFEU.

It was indeed that contestation that was made in the Netherlands, which had a tax rule very similar to article 69-4/f) of the CIRC/2011 and which, by Award of the CJEU of 27 November 2008, delivered in proceeding No. C-418/07 (Award "Papillon"), came to be considered a violation of article 52 (current article 43) of the TFEU.

Moreover, the cited "Papillon" Award was based on the act of dismissal, by the Dutch Tax Administration, of a request made by the taxpayer.

In the present case in question, it does not appear that such a request for inclusion by the Applicant and/or by B… was ever made, on the grounds of the illegality, by violation of Community law, of the rule of article 69-3/a) of the CIRC/2011.

And, as is obvious, the new regime provided for in article 69-A of the CIRC, introduced by Law No. 82-C/2014, is applicable only to fiscal periods commencing on or after 01-10-2015, as is expressly established in No. 1 of its article 5, in keeping with the basic principle on the application in time of tax rules, enunciated in No. 1 of article 12 of the LGT.

By what has been stated and in summary:

The act dismissing the request for official revision of the assessment is not affected by the illegality invoked and is to be maintained in the legal order and, consequently, the self-assessment in question is not affected by error in the presuppositions, of fact and of law.

Decision

In these terms, this Arbitral Tribunal agrees to:

  • Declare this Arbitral Tribunal to be materially competent to consider and decide the request for arbitral decision formulated;

  • Judge valid and lawful the act dismissing the request for official revision, which thus remains in the legal order;

  • Judge valid and lawful the IRC self-assessment under challenge, which is thus maintained in the legal order;

  • Judge totally without merit the request for arbitral decision;

  • Judge rendered moot by the decision now taken the consideration of the other questions raised in the proceedings and, consequently,

  • Dismiss the Tax and Customs Authority from the claim.

Procedural Value

In accordance with the provisions of articles 306, No. 2, of the CPC and 97-A, No. 1, subparagraph a), of the CPPT and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the procedural value is fixed at €4,578,343.13.

Costs

In accordance with article 22, No. 4, of the RJAT, the amount of costs is fixed at €57,834.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Applicant.

Lisbon, 30 April 2018

The Collective Arbitral Tribunal,

(José Poças Falcão)

(Luís M. S. Oliveira)
(dissenting as to the preliminary objection of tribunal incompetence)

Dissenting Opinion

I would have decided in favor of the preliminary objection of incompetence of the arbitral tribunal. The Applicant did not resort to the gracious complaint provided for in article 131, No. 1 of the CPPT and only submitted a request for official revision on 29 March 2016. Recalling in their entirety the pertinent legal and regulatory provisions, on which basis the tribunal considers and decides the raised preliminary objection, in the wording in force at the date of the facts, that is, on 31 December 2011 (article 8, No. 9 of the IRC Code):

CPPT, article 131, No. 1 - In case of error in self-assessment, the challenge shall necessarily be preceded by a gracious complaint directed to the head of the regional peripheral organ of the tax administration, within a period of 2 years after the presentation of the declaration.

LGT, article 78, No. 1 - The revision of tax acts by the entity that performed them may be effected at the initiative of the taxpayer, within the period of administrative complaint and on grounds of any illegality, or, at the initiative of the tax administration, within a period of four years after the assessment or at any time if the tax has not yet been paid, on grounds of error attributable to the services. 2 - Without prejudice to the legal burden of complaint or challenge by the taxpayer, error in self-assessment is considered attributable to the services for the purposes of the preceding number.

Law No. 3-B/2010, of 28 April, article 124, No. 4 - The scope of the authorization […] comprises, in particular, the following matters: a) The delimitation of the object of the tax arbitration proceeding, which may include assessment acts of taxes, including self-assessment acts, source withholding acts and payments on account, the fixing of the taxable matter when it does not give rise to assessment, the dismissal in whole or in part of gracious complaints or requests for revision of tax acts, the administrative acts that involve the consideration of the legality of assessment acts, the acts fixing patrimonial values and the rights or legitimate interests in tax matters;

Decree-Law No. 10/2011, of 20 January, article 4, No. 1 - The binding of the tax administration to the jurisdiction of tribunals constituted in accordance with this law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered.

Ordinance No. 112-A/2011, of 22 March, article 2 - The services and bodies referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals operating in CAAD that have as their object the consideration of claims relating to taxes whose administration is committed to them, referred to in No. 1 of article 2 of Decree-Law No. 10/2011, of 20 January, with the exception of the following: a) Claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process.

On the meaning and scope of the binding of the AT to tax arbitration, in accordance with article 2, a) of Ordinance No. 112-A/2011 – specifically regarding the question of whether these tribunals are, or are not, competent to know of requests for declaration of the illegality of second-level acts, practiced in the context of official revision, on self-assessment acts – there are diametrically opposed decisions in tax arbitration proceedings.

Certain decisions, of which the one extracted from Proceeding 117/2013-T is paradigmatic, are inclined to disregard the preliminary objection of incompetence, based on an exegetical and dogmatic construction summarizable as follows: (a) the formula used in article 2, No. 1, a) of the RJAT covers cases in which the second-level act is that of dismissing a request for revision of the tax act, since there is no apparent reason for restricting, especially since, in cases in which the revision request is made within the period of gracious complaint, it should be equated to a gracious complaint; (b) the express reference to article 131 of the CPPT cannot have the decisive effect of excluding the possibility of considering claims regarding the illegality of acts dismissing requests for official revision of self-assessment acts; (c) in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (article 11, No. 1 of the LGT) and article 9, No. 1 of the Civil Code expressly prohibits interpretations based exclusively on the literal meaning of rules; (d) as to the correspondence between the interpretation and the letter of the law, «a minimum of verbal correspondence, even if imperfectly expressed» is sufficient (article 9, No. 3 of the Civil Code), which only prevents interpretations that cannot in any way be reconciled with the letter of the law, even acknowledging therein imperfection in the expression of the legislative intention; (e) the letter of the law is not an obstacle to making an extensive interpretation, when it can be concluded that the legislator said less than what, in consistency, he would intend to say, that is, when he said imperfectly what he intended to say; (f) the scope of the requirement of prior gracious complaint, necessary to open the contentious remedy for challenging self-assessment acts, provided for in article 131, No. 1 of the CPPT, has as its sole justification the fact that with respect to this type of acts there is no taking of position by the AT on the legality of the legal situation created by the act, a position that could even turn out to be favorable to the taxpayer, avoiding the need for recourse to the contentious remedy; (g) another unequivocal confirmation that this is the reason for being of the requirement of necessary gracious complaint is found in article 131, No. 3 of the CPPT; in situations of this type, there has been prior generic pronouncement by the AT on the legality of the legal situation created by the self-assessment act and it is this fact that explains why the required gracious complaint ceases to be required; (h) in cases in which a request for official revision of an assessment act is formulated, the AT is given the opportunity, with this request, to pronounce itself on the merit of the claim of the taxpayer before the latter resorts to the jurisdictional remedy, and therefore, in consistency with the solutions adopted in article 131, Nos. 1 and 3 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative consideration within the scope of that procedure for official revision, a new administrative consideration be required through gracious complaint; (i) allowing the law expressly that taxpayers choose between gracious complaint or official revision of self-assessment acts and the request for official revision formulated within the period of gracious complaint being perfectly equivalent to a gracious complaint, there can be no reason that can explain why a taxpayer who opted for revision of the tax act instead of gracious complaint cannot access the arbitral remedy; (j) the members of the Government who issued Ordinance No. 112-A/2011, in making reference to article 131 of the CPPT with respect to requests for declaration of illegality of self-assessment acts, said imperfectly what they intended, because, intending to impose prior administrative consideration of contentious challenge of self-assessment acts, they ended up by including reference to article 131, which does not exhaust the possibilities of administrative consideration of these acts; (k) this interpretation, not limiting itself to the literal meaning, is even particularly justified in the case of article 2, a) of Ordinance No. 112-A/2011, because its defects are evident: it associates the comprehensive formula «recourse to the administrative remedy» (which references, in addition to gracious complaint, hierarchical appeal and revision of the tax act) with the «expression in accordance with articles 131 to 133 of the Code of Tax Procedure and Process», which has the potential restrictive scope of gracious complaint; it uses the formula «preceded» by recourse to the administrative remedy, referring to «claims relating to the declaration of illegality of acts», which would obviously be much better matched with the feminine word «preceded»; in addition to the general prohibition on interpretations limited to the letter of the law contained in article 9, No. 1, of the Civil Code, in the specific case of article 2, a) of Ordinance No. 112-A/2011 there is a special reason for not justifying great enthusiasm for a literal interpretation, which is the fact of the rule's wording being manifestly defective; (l) ensuring that revision of the tax act provides for the possibility of consideration of the taxpayer's claim before access to the contentious remedy that is intended to be achieved with the required administrative challenge, the most correct solution, because more consistent with the legislative purpose of «strengthening the effective and actual protection of the rights and legally protected interests of taxpayers» manifested in article 124, No. 2 of Law No. 3-B/2010, is the admissibility of the arbitral remedy to consider the legality of assessment acts previously considered in a revision procedure; because it is the most correct solution, it must be presumed to have been normatively adopted (article 9, No. 3 of the Civil Code); (m) in that subparagraph a) of article 2 of Ordinance No. 112-A/2011 containing a defective formula, but which contains a comprehensive expression «recourse to the administrative remedy», which potentially also references revision of the tax act, the text is found to contain the minimum of verbal correspondence, although imperfectly expressed, required by that No. 3 of article 9 of the Civil Code for the viability of the adoption of the interpretation that establishes the most correct solution.

These decisions are accompanied in substance, transcribing it, by the decisions issued in Proceedings 244/2013-T, 202/2013-T – but with dissenting vote, in the sense of the decision extracted in Proceeding 236/2013-T – and 630/2014-T. In the same sense, on the basis of reasoning that does not coincide, but without carrying new interpretative elements, are the decisions in Proceedings 221/2016-T and 39/2017-T.

The other current of case law formed in CAAD, of which the decision in Proceeding 236/2013-T is paradigmatic, is inclined to consider the preliminary objection of incompetence to be verified, based on exegetical and dogmatic construction thus summarizable: (a) the binding of the AT, contained in Ordinance No. 112-A/2011, corresponds, first, to a voluntary acceptance of the jurisdiction of arbitral tribunals and, second, to a strict delimitation of the scope of application of arbitration of tax acts generically fixed by article 2, No. 1 of the RJAT; (b) this binding corresponds to a waiver of the jurisdiction of Tax Tribunals – tribunals common in this matter; (c) the binding of the AT does not correspond to a true arbitration agreement; it appears as a unilateral generic administrative act, emanating from two ministries; (d) being a unilateral binding that implies waiver of the common forum – the tax tribunals – the declaration would always be interpreted literally, that is, strictly, as all acts of waiver, which corresponds to a general principle of law, addressed, for example, in article 237 of the Civil Code; (e) subparagraph a) of article 2 of Ordinance No. 112-A/2011, by introducing the referred exception, contains a broad expression (the "recourse to the administrative remedy") and an immediate restrictive and exhaustive concretization (operated "in accordance with articles 131 to 133 of the CPPT"); (f) the normative text does not allow finding in it a minimum of verbal correspondence, even if imperfectly expressed, with the possibility that, in any of the three situations referred to therein (self-assessment, source withholding and payment on account), it is possible to dispense with recourse to gracious complaint, stricto sensu, for arbitration of the tax claim, even if there has been some second-level act thereon and therefore, in casu, there has been a reconsideration of the tax act challenged by the AT, following a request for official revision formulated by the taxpayer; (g) such conclusion is reached independently and without prejudice to the position that is adopted on the equating of official revision, at the initiative of the taxpayer, to the gracious complaint procedure, for purposes of judicial challenge; (h) by the clarity of the binding provision, given the double negation contained therein: certain acts are not included in the object of the binding (subjection), except if preceded by gracious complaint ("preceded by… in accordance with..."), it is not seen how the interpreter can reach a conclusion different from this, especially to broaden the scope of subjection of the AT to an election of the taxpayer, a subjection that the legislator intended to be concretely delimited by the will of the AT itself, a clear reservation of the Administration with respect to self-binding; (i) in the case of the Ordinance of binding, we can speak of a declaration of unilateral binding with a restrictive character, to be interpreted in its strict terms, because the Ordinance introduces, expressly, a prior condition (consisting of gracious complaint relating to the tax act challenged), in accordance with the legal provisions specifically indicated for access to arbitration; (j) the decision contained in the award rendered in Proceeding No. 51/2012-T is thus accepted, which held that "considering the voluntary nature of arbitration" the interpretation of the binding of the AT "cannot, in any case, result in a restriction of the sphere of liberty of the AT, as a party, to establish the limits of its binding. It would only be otherwise if its position implied the total frustration of the objective intended with the institution of tax arbitration, which is not the case"; (k) as to the alleged "defective" wording of article 2, a) of the Ordinance, regardless of the merits of broad arbitrability of tax acts, there is, in fact, an error of agreement in using the past participle "preceded" in plural masculine when it should be in plural feminine, to agree with "claims", but such grammatical lapse does not prejudice or affect the understanding of the following part of the text, which is truly at issue here; the expression "recourse to the administrative remedy" constitutes a comprehensive generic formula that in itself may encompass all means by which the taxpayer may defend his rights before resorting to courts, a broad formula but not wrong or likely to mislead; the Administration (Ministries of Justice and Finance) specified thereafter, in a very precise manner, which provisions are in question, indicating them in a clear enumeration that is not exemplificative; we thus have the generic designation "administrative remedy" and a specific characterization: "in accordance with articles 131 to 133 of the CPPT"; (l) we are faced with a technique that respects logical-legal discourse, in perfect consonance with article 9, No. 3 of the Civil Code; (m) for the interpreter to seek to add to this part of the sentence "… and article 78 of the General Tax Law", which manifestly is not there, constitutes a violation of the fundamental principles of legal hermeneutics applicable both to legal rules and to legal acts.

In the same sense, but adding a relevant interpretative angle to the analysis, the decision in Proceeding 303/2013-T: Ordinance No. 112-A/2011 was approved and published already following extensive and profuse case law affirming that, given the administrative nature of the official revision procedure, it is possible to equate it to the provision of article 131, No. 1 of the CPPT for the purpose of subsequent challenge of the respective dismissal decision. Now, if the legislator did not provide, in article 2 of that Ordinance, the official revision procedure as equivalent to recourse to the administrative remedy, maxime gracious complaint, for purposes of accessing the request for arbitral decision, it was, certainly, because it did not intend to do so. It is a forced understanding to wish to conjecture that the legislator legislated in a very imperfect manner, forgetting this reference, when there was already extensive case law and when it was already repeatedly followed by the AT's conduct, so that this latter part of the rule cannot, under penalty of manifest illegality, be disregarded, interpreting the rule as if this specific reference simply did not exist. The understanding that disputes having as their object the declaration of illegality of self-assessment acts are excluded from the material competence of arbitral tribunals, if they are not preceded by gracious complaint in accordance with article 131 of the CPPT, is imposed by virtue of the constitutional principles of the rule of law and the separation of powers (articles 2 and 111 of the Constitution), as well as legality (articles 3, No. 2 and 266, No. 2 also of the CRP), with the corollary of the principle of indisponability of tax credits inherent in article 30, No. 2 of the LGT, which bind the legislator and all activity of the AT.

Still in the same sense, but without carrying new interpretative elements, the decisions issued in Proceedings 183/2014-T, 113/2014-T, 669/2015-T and 505/2016-T.

Finally, we have the Award of the Central Administrative Court of the South, in Proceeding 08599/15 (27.04.2017), in judgment of the challenge to the arbitral decision in Proceeding 630/2014-T. The challenge, filed by the AT, was dismissed on the basis of the exegetical-dogmatic reasoning established in Proceeding 117/2013-T, to which the TCAS adheres and transcribes almost in full, adding to it the consideration of the invocation of unconstitutionality of the interpretation challenged.

In the present proceeding, the interpretation was adopted in the majority to the effect that the raised preliminary objection does not prevail. Now, I hold that, for the interpretation of subparagraph a) of article 2 of Ordinance No. 112-A/2011, the systematic element cannot, in the first place, be overlooked: subparagraph a) of No. 4 of article 124 of Law No. 3-B/2010, of 28 April, fixed the scope of the legislative authorization in the dimension of the delimitation of the object of the tax arbitration proceeding. It did so in the following terms: "(…) which may include assessment acts of taxes, including self-assessment acts, source withholding acts and payments on account, the fixing of the taxable matter when it does not give rise to assessment, the dismissal in whole or in part of gracious complaints or requests for revision of tax acts, the administrative acts that involve the consideration of the legality of assessment acts, the acts fixing patrimonial values and the rights or legitimate interests in tax matters". The use of the legislative authorization was – as it could be – partial, as emerges from the comparison of the said provision with the list contained in article 2 of Decree-Law No. 10/2011, but moreover, it incorporated, through article 4, No. 1, the option to remit the definition of the type and maximum value of the disputes covered within the scope of the AT's binding to the jurisdiction of arbitral tribunals to an ordinance of the members of the Government responsible for the areas of finance and justice. That is, the Government, in the exercise of the authorized legislative function, opted not to define in the law itself the scope of the binding of the AT, but rather entrusted that definition to the issuance of an act by the Administration, in the form of an ordinance.

In the second place and downstream, another interpretative element cannot equally be overlooked, carried by the preamble itself of Ordinance No. 112-A/2011. There it reads: "With the present ordinance, the tax administration also binds itself to the jurisdiction of CAAD in accordance with No. 1 of article 4 of Decree-Law No. 10/2011, of 20 January, associating itself with this mechanism for alternative resolution of disputes and in accordance with the terms and conditions established here." Two implicit assertions result to me clearly from the said sentence. The first is that the act of binding of the AT to the jurisdiction of CAAD operated by the Ordinance is an administrative act, not a normative act of regulatory nature, as it lacks generality and abstraction. This nature of the act is fundamental for the interpretation downstream, namely to ascertain the rigor and consequent lawfulness of each of the potential interpretations on the extent of the binding that such act incorporates. The second is that the binding is made "in accordance with the terms and conditions established here". It would be unnecessary to say it, for a binding always applies in its precise terms and conditions, but the said members of the Government understood the sentence not to be disdained. That is, I also consider, in this point accompanying the decision in Proceeding 236/2013-T, that the binding of the AT corresponds to a voluntary acceptance of the jurisdiction of arbitral tribunals and incorporates a strict delimitation of the scope of application of arbitration, to be interpreted literally. I do not see, with all due respect, how validly one can consider, except for circumstances of manifest and patent error, that, where the Public Administration states binding itself in precise terms, it be interpreted that it intended to bind itself beyond them.

It further adds, as impressively was written in Proceeding 303/2013-T, that "Ordinance No. 112-A/2011 was approved and published following extensive and profuse case law, affirming that, given the administrative nature of the official revision procedure, it is possible to equate it to the provision of article 131, No. 1 of the CPPT for the purpose of subsequent challenge of the respective dismissal decision. Now, if the legislator did not provide, in article 2 of that Ordinance, the official revision procedure as equivalent to recourse to the administrative remedy, maxime gracious complaint, for purposes of accessing the request for arbitral decision, it was, certainly, because it did not intend to do so; it is a forced understanding to wish to conjecture that the legislator legislated in a very imperfect manner, forgetting this reference, when there was already extensive case law and when it was already repeatedly followed by the AT's conduct, so that this latter part of the rule cannot, under penalty of manifest illegality, be disregarded, interpreting the rule as if this specific reference simply did not exist."

Even though I accept the validity of resorting to extensive interpretation, in the abstract, is it that finding in subparagraph a) of article 2 of the Ordinance the comprehensive expression «recourse to the administrative remedy», which potentially also references revision of the tax act, legitimates the conclusion that the minimum of verbal correspondence (even if imperfectly expressed) required by article 9, No. 3 of the Civil Code is found in the text, to sustain the extensive interpretation? – that the result of this should be considered – quod erat demonstrandum – the most correct solution and therefore the one that must be retained by the interpreter / applicator of the law? I do not. The positions that defend that, by resorting to extensive interpretation, it is concluded that arbitral tribunals have competence to know of requests for annulment of decisions in the context of official revision of self-assessment acts properly equate the question, but omit to reference the legislative and regulatory framework in its entirety, to ascertain the existence of the minimum of verbal correspondence. Now, such a framework is what is contained in the following proposition, without any segment of it being validly disregarded: the AT binds itself to the jurisdiction of arbitral tribunals operating in CAAD that have as their object the consideration of claims relating to taxes whose administration is committed to it, referred to in article 2, No. 1 of Decree-Law No. 10/2011, with the exception of claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the CPPT, that is, preceded by a gracious complaint directed to the head of the regional peripheral organ of the tax administration, within a period of 2 years after the presentation of the declaration.

In the affirmation that this minimum of verbal correspondence exists, I do not always find adequately raised the search for that correspondence with the whole of this legislative and regulatory framework. Such may be because, in some of the cases subject to the arbitral tribunals operating in CAAD, the question was not decisive. Thus, in Proceeding 117/2013-T one can read "the formula used in subparagraph a) of No. 1 of article 2 of the RJAT covers cases in which the second-level act is that of dismissing a request for revision of the tax act, since there is no apparent reason for restricting, especially since, in cases in which the revision request is made within the period of gracious complaint, it should be equated to a gracious complaint". Further on: "allowing the law expressly that taxpayers choose between gracious complaint or official revision of self-assessment acts and the request for official revision formulated within the period of gracious complaint being perfectly equivalent to a gracious complaint, there can be no reason that can explain why a taxpayer who opted for revision of the tax act instead of gracious complaint cannot access the arbitral remedy". In Proceeding 73/2012-T: "the reference (…) to «recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process should be interpreted as referring only to cases in which such recourse, through gracious complaint (to which the request for revision of the tax act formulated within the period of administrative complaint is equivalent) is imposed by those rules of the CPPT."

That is, independently and without prejudice to the answer to the question of the equating of official revision, at the initiative of the taxpayer, to the gracious complaint procedure, for purposes of judicial challenge, not only does it seem to me that there is no element legitimating the extensive interpretation of the minimum of verbal correspondence "with the possibility that, in any of the three situations referred to therein (self-assessment, source withholding and payment on account), it is possible to dispense with recourse to gracious complaint, stricto sensu, for arbitration of the tax claim, even if there has been some second-level act thereon and therefore, in casu, there has been a reconsideration of the tax act challenged by the AT, following a request for official revision formulated by the taxpayer" (Proceeding 236/2013-T), as can such minimum of verbal correspondence be absent – in the relevant interpretation, which is that of the application to the concrete case – with the expression, not truncated, "preceded by a gracious complaint directed to the head of the regional peripheral organ of the tax administration, within a period of two years after the presentation of the declaration".

Now, the said minimum of verbal correspondence would be critical to legitimate the extensive interpretation precisely as regards the present proceeding, because the Applicant filed a request for official revision outside the two-year period that – according to a certain subspecies of case law which understands the preliminary objection of incompetence to be without merit – would permit equating such request to the filing of a gracious complaint. Thus, I hold that the arbitral tribunal should have judged itself to be materially incompetent to know of the request in the present proceeding.

Luís M.S. Oliveira

(João Taborda da Gama, dissenting as per the dissenting opinion that follows)

Dissenting as to the substantive issue. I would have considered the claim to be meritorious in accordance with the reasoning contained in Proceeding No. 786/2015-T, of 26 June 2016 and Proceeding No. 280/2014-T, of 12 January 2015, to which I refer, with the addition that follows.

Aware of the difficulty of the question, I hold, in summary terms, that the application of the principle of the primacy of European Union Law cannot be dependent on the duty of the practice of useless acts by taxpayers. As the STA stated in Proceeding No. 568/13, of 18-12-2013 "given the primacy of Community law, it is forbidden for the Portuguese court to apply rules of national law that affront what is imposed therein, and in the case where there is an award of the CJEU on interpretation of a rule of Community law and its compatibility with a national rule, that interpretation can and must be applied even to legal relations that arose and were constituted before the award was delivered, with the interpretative decision retroacting to the date of entry into force of the national rule, except if the award provides otherwise".

In the words of the Court of Justice "it is important to recall the case law of the Court of Justice according to which the interpretation it makes of a rule of Community law, in the exercise of the competence conferred on it by article 177 of the Treaty, clarifies and specifies, when necessary, the meaning and scope of that rule, as it must or should have been complied with and applied since the moment of its entry into force. Hence it is concluded that the rule thus interpreted can and must be applied by the judge even to legal relations that arose and were constituted before the award deciding the request for interpretation, if the conditions that allow a dispute relating to the application of that rule to be brought before the competent judicial bodies are also met (see, in particular, judgment of 2 February 1988, Blaizot, 24/86, Coll., p. 379, No. 27)". And, then, it recalls that "only exceptionally is the Court of Justice, in application of the general principle of legal certainty inherent in the Community legal order, led to limit the possibility for any interested party to invoke a provision that has been interpreted by the Court in order to challenge legal relations established in good faith. This limitation can only be admitted, according to constant case law of the Court of Justice, in the award itself that decides on the requested interpretation (see, in particular, judgment of 24 September 1998, Commission/France, C-35/97, Coll., p. I-5325, No. 49)". (citations taken from the Judgment of the Court of 4 May 1999, Sema Sürül against Bundesanstalt für Arbeit, C-292/96, 107-108).

In the present case, the Applicant complied with all internal requirements for access to the courts (otherwise this Arbitral Tribunal would have considered an exception valid), and the Court of Justice in the case Papillon did not limit the effects of its decision. And the fixing of effects that limit the scope of interpretative decisions can only be done by the Court of Justice and never by a national court such as the present Arbitral Tribunal.

And these conclusions do not change in any way by the fact that, in the present case, the Applicant did not request the inclusion in the scope of the group of a company that the law, at the time, did not allow it to be. In fact, recall that the cases in which the Court of Justice recognizes relevance to the prior procedural conduct of taxpayers are those exceptional cases where, despite deciding to limit the temporal effects of its decision to the future, it safeguards taxpayers who have initiated judicial or administrative proceedings before the date of the decision (for example, Judgment of the Court, of 9 March 2000, Evangelischer Krankenhausverein Wien against Abgabenberufungskommission Wien and Wein & Co. HandelsgesmbH against Oberösterreichische Landesregierung, C-437/97, 60).

It is important to bear in mind that in the binomial Taxpayer–State it was the latter, not the former, that committed an illegality by approving, maintaining in force and applying a rule contrary to European Union Law. Given that tax rules, in a framework of application of the same by

Frequently Asked Questions

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What is the RETGS (Regime Especial de Tributação dos Grupos de Sociedades) under Portuguese IRC law?
The RETGS (Regime Especial de Tributação dos Grupos de Sociedades) is the Special Tax Regime for Groups of Companies under Portuguese IRC law. It allows qualifying groups of companies to be taxed on a consolidated basis, where the algebraic sum of individual taxable profits and losses of group members is calculated at the dominant (parent) company level. To qualify, the dominant company must hold at least 75% (90% before 2015) of the share capital of subsidiaries for an uninterrupted period of at least one year. The regime enables tax losses of one group company to offset profits of another, providing significant tax planning benefits. Election for RETGS must be communicated to the Tax Authority according to specific procedures set out in articles 69 to 71 of the IRC Code.
Can indirectly held subsidiaries be included in the RETGS tax group for IRC purposes?
Under Portuguese IRC law as it stood in 2011, the inclusion of indirectly held subsidiaries in a RETGS group was restricted. Subsidiaries had to be directly held by the dominant company or by other Portuguese resident companies within the group. Portuguese companies held indirectly through non-resident intermediate holding companies could not be included. This changed with the introduction of article 69-A of the IRC Code by Law 82-E/2014, which explicitly permitted the inclusion of Portuguese resident companies held indirectly through non-resident entities, provided the dominant company was also resident in Portugal. However, according to the Tax Authority's interpretation in this case, article 69-A applied only prospectively to fiscal periods beginning on or after January 1, 2015, not retroactively to 2011.
How can a taxpayer challenge an IRC self-assessment through the CAAD arbitration process?
To challenge an IRC self-assessment through CAAD arbitration, taxpayers must follow a two-stage process. First, they must request an official revision (revisão oficiosa) from the Tax Authority, as provided under article 78 of the LGT (General Tax Law). This administrative request must be submitted within the statutory deadline and clearly identify the alleged errors in the self-assessment. If the Tax Authority dismisses the revision request, the taxpayer can then submit an application for constitution of an arbitral tribunal to CAAD within 90 days of notification of the dismissal decision. The application must comply with articles 2 and 10 of the RJAT (Legal Framework for Arbitration in Tax Matters) and specify the contested act, legal grounds, and relief sought. CAAD's Ethics Council appoints a three-arbitrator panel, and parties have the right to challenge arbitrator appointments under specific grounds.
What was the outcome of the CAAD arbitral decision 401/2017-T regarding the RETGS group taxation regime?
While the full outcome is not stated in the excerpt provided, the arbitral tribunal in decision 401/2017-T was constituted to decide whether the Tax Authority's dismissal of the taxpayer's official revision request was lawful. The central legal question was whether article 69-A of the IRC Code, which permits inclusion of Portuguese companies held indirectly through non-resident intermediaries in a RETGS group, could be applied retroactively to fiscal year 2011 or only applied prospectively from 2015 onwards. The Tax Authority had taken the position that the clear wording of the transitional provision meant the new rule applied only to fiscal periods commencing on or after January 1, 2015. The taxpayer sought annulment of this dismissal decision and a refund of €4,578,343.31 in IRC and autonomous taxation. The tribunal's analysis would determine the temporal scope of the legislative amendment and its application to the taxpayer's group structure.
What is the procedure for requesting an official review (revisão oficiosa) of an IRC self-assessment in Portugal?
The procedure for requesting official revision (revisão oficiosa) of an IRC self-assessment is governed by article 78 of the LGT (General Tax Law). The taxpayer must submit a written request to the Tax Authority identifying the specific errors in the self-assessment and providing supporting documentation and legal grounds. The request must be filed within the statutory limitation period, generally four years from the date the tax became due. The Tax Authority has the discretion to review and correct errors in the taxpayer's favor, even if beyond normal amendment periods. The Sub-Director-General or delegated official examines the request and issues a decision either granting the revision (wholly or partially) or dismissing it. If dismissed, the taxpayer receives a formal decision with reasoning, as occurred in this case on March 10, 2017. Following dismissal, the taxpayer has 90 days to challenge the decision through CAAD arbitration or judicial appeal to the administrative courts, preserving their right to contest the underlying tax assessment.