RETGS Group Taxation: Right of Establishment and Option Exercise in IRC (Process 403/2017-T)

ARBITRAL DECISION

I – REPORT

1. On 30.06.2017, the Claimant, A…, Legal Entity no…, with registered office in…, …, …, Leiria, requested CAAD to establish an arbitral tribunal, pursuant to Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to as LRAT), with the Tax and Customs Authority as Respondent, with a view to annulling the Decision of the Deputy Director-General of the Tax Management-IR area, by delegation, dated 2017/03/29, which dismissed the request for Official Review of the self-assessment of Corporate Income Tax relating to the year 2012.

The Claimant further petitions for the Respondent to be ordered to pay the total amount of € 19,063.61 in tax, to which it claims to be entitled to reimbursement, and further, compensatory interest.

1. The request for establishment of the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.

Pursuant to Article 6, paragraph 1, of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed arbitrator, who communicated acceptance of the appointment to the Deontological Council and the Administrative Arbitration Centre within the regularly applicable deadline.

The Arbitral Tribunal was established on 19.09.2017.

1. The grounds presented by the Claimant, in support of its claim, were, in summary, as follows:

• On 10/08/2015, the Claimant submitted its income statement form 22, relating to the fiscal year 2012, however, the self-assessment in question was not correct, which is why the Claimant submitted a request for official review that was dismissed by Decision dated 2017/03/29.

• Indeed, with reference to the tax period of 2012, the now Claimant was the dominant company of a Group of Companies taxed according to the Special Regime for Taxation of Groups of Companies (SRTGC), and composed only of itself and company B…, S.A, with registered office in….

• The now Claimant is directly held in 99.99% of its capital by C…, SA, a commercial company resident for tax purposes in France and was never held, directly or indirectly, by any company resident for tax purposes in Portugal.

• Company C…, SA was with reference to 2012 indirectly held by Company D… SA, a company resident for tax purposes in France.

• In turn, Company D… SA held, during the tax period of 2012 and still holds, indirectly, another company resident for tax purposes in Portugal, company E…, Lda.

• Now, as is proven and demonstrated here, the composition of the SRTGC scope for the purpose of determining Corporate Income Tax for the fiscal year 2012 should include the other company fiscally resident in Portugal and which is held 100% by D…. Specifically:

• The Corporate Income Tax Code (CIRC) provided for the taxation of groups of companies by the sum of the tax results determined in the income statements of each of the companies making up the respective group, provided that a set of requirements established cumulatively in paragraph 3 of Article 69 of the CIRC were verified, and the absence of any of the situations established in paragraph 4 of the same article, it being certain that the provision contained in letter f) of paragraph 4 of Article 69 of the CIRC excludes from the SRTGC resident companies held through non-resident companies.

• The above-mentioned legal provision, by excluding from the SRTGC resident companies in Portugal whose holding is made through non-resident companies, more specifically companies resident in the European Union, is clearly violating EU law, namely the Freedom of Establishment, provided for in Article 43 of the Treaty Establishing the European Community (TEC).

• In reality, the exclusion provided for in Article 69, paragraph 4, letter f) of the CIRC, creates a situation of inequality on the grounds of location, disadvantaging, in fiscal terms, community situations compared to purely internal situations.

• It should be noted that the compatibility or conformity of a provision entirely similar to that of Article 69, paragraph 4, letter f) of the CIRC, has already been analyzed and decided in the Court of Justice of the European Union (CJEU) Judgment of 27 November 2008, handed down in Case C-418/07, better known as the Papillon Judgment.

• Thus, and as decided in the Papillon Judgment: "The provisions of the CGI at issue in the main proceedings, in so far as they disadvantage, in fiscal terms, community situations compared to purely internal situations, constitute, therefore, a prohibited restriction, in principle, by the provisions of the Treaty relating to the freedom of establishment".

• Furthermore, as was also decided in the above-mentioned Judgment, the restriction on the freedom of establishment caused by the provisions of the CGI and CIRC is not justified by overriding reasons of public interest, such as the need to preserve the distribution of fiscal jurisdiction between Member States.

• Likewise, as was decided in the above-mentioned Judgment, the restriction in question cannot be justified by the need to ensure coherence of the fiscal system, quite the contrary, since the restriction itself calls into question the coherence of the fiscal system.

• For all of the above, the CJEU decided that: "Article 52 of the EC Treaty (which, after amendment, became Article 43 EC) must be interpreted as precluding legislation of a Member State by which a consolidated profit taxation regime is granted to a parent company resident in that Member State which holds subsidiary and sub-subsidiary companies also resident in that State, but that regime is refused to that parent company if its resident subsidiaries are held through a subsidiary resident in another Member State".

• It should be noted that, following the above-mentioned decision, the legislation in force in France (as in several other Member States) was amended, in the sense of providing for the possibility of including in the consolidated profit taxation regime resident companies held through non-resident companies.

• Also in Portugal, the national legislator has already expressly recognized this non-conformity through the inclusion of Article 69-A and the repeal of paragraph 4 of Article 69 of the CIRC.

• The Tax Authority dismissed the Claimant's request, solely and simply because it understands that the extension of the SRTGC to resident companies that are held directly or indirectly by non-resident companies is only applicable to tax periods beginning on or after 1 January 2015.

• However, and contrary to what the Tax Authority appears to conclude, the Claimant does not seek retroactive application of the provisions of Article 69-A of the CIRC.

• Indeed, the duty to correct the self-assessment does not arise from the need for retroactive application of the legislative amendment introduced by Law no. 82-C/2014, of 31 December, as the Tax Authority appears to allege, but rather from the express recognition by the CJEU of the illegal character of the tax regime in force until that date, and it is certain that the alignment of Article 69 of the CIRC with Article 43 of the TEC is required independently of the fiscal year to which the specific situation relates.

• Furthermore, the CJEU has already stated that the bodies of the Public Administration must apply Union Law, repudiating the application of any national provision that is contrary to such legislation, and the same applies, naturally, to the Courts.

• In this sense, a solution must be adopted for the application of the internal legislation compatible with European Union Law that respects the Freedom of Establishment enshrined in accordance with the orientation resulting from the Papillon and C-40/13 Judgments.

• In accordance with such understanding, in view of the above, the inclusion in the SRTGC led by A…, regarding the tax period of 2012, of D… as the dominant company and of all participations held directly and indirectly by at least 90% for more than one year by the dominant company D… in resident companies in Portugal, namely company E… should be considered, which will result in the Claimant being entitled to reimbursement of the total amount of € 19,063.61, for Corporate Income Tax and Autonomous Taxation as a result of the above-mentioned corrections.

• As a result of the above, the illegality underlying the self-assessment act in question is exclusively attributable to the Tax Authority, and therefore, the Claimant has the right to reimbursement of the amount unduly paid, as well as compensatory interest accrued and accruing until full payment of the amount unduly borne. Furthermore, the illegality in question is based on the violation of European Union Law, and it is the consensual understanding of the CJEU that the collection of taxes in violation of Community Law determines the payment of interest with a view to compensation for the damage resulting from the unavailability of the amounts unduly collected in the above-mentioned terms.

• Furthermore, Article 43, paragraph 1 of the General Tax Law establishes that compensatory interest is due when it is determined, in administrative recourse or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally due, without defining the moment from which the same is due.

• In turn, paragraph 3, letter c) of the same provision provides that compensatory interest is also due "when the review of the tax act at the initiative of the taxpayer takes place more than one year after the taxpayer's request, except if the delay is not attributable to the Tax Administration".

• Thus, and since the one-year deadline provided for in the above-mentioned legal provision was not complied with in the case in question, the Tax Authority should also be ordered to pay the corresponding compensatory interest.

1. The Tax and Customs Authority, called upon to respond, contested the Claimant's claim, defending itself by exception and by impugnation, in summary, with the following grounds:

By Exception:

Of the Incompetence of the Arbitral Tribunal to hear the claim formulated by the claimant

I)

• First and foremost, pursuant to Article 2, letter a) of Ordinance no. 112/2011, of 22 March, the Tax Authority committed itself to the jurisdiction of the arbitral tribunals functioning at CAAD that have as their object the appreciation of claims relating to taxes whose administration is entrusted to them, referred to in paragraph 1 of Article 2 of the LRAT, "with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account acts that have not been preceded by recourse to the administrative route, in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process."

• In the specific case, the Claimant did not resort, in a timely manner, to the administrative recourse provided for in paragraph 1 of Article 131 of the CTPP, which, in this case, was necessary since the same also raised questions of fact, as evidenced by the official review submitted, where it claims that the companies meet the presumptions, also factual, to integrate a group to which the SRTGC can be applied and, therefore, to be taxed according to such regime.

• The official review, pursuant to Article 78 of the General Tax Law, cannot replace the administrative recourse provided for in Article 131 of the CTPP, especially when recourse to it is made beyond the 2-year deadline provided for in paragraph 1 of such article.

• In this manner, there is the existence of a dilatory exception, embodied in the material incompetence of the arbitral tribunal, which prevents knowledge of the claim, and, therefore, should determine the absolution of the Respondent entity from the instance, considering the provisions of Articles 576, paragraph 1 and 577, letter a) of the CPC, applicable by virtue of Article 29, paragraph 1, letter e) of the LRAT.

II)

Furthermore:

• The condemnation petitioned, because it always implies the prior recognition of the expansion of the scope of the group of companies that make up the SRTGC, will always be configured as prior to any annulment of the tax assessment act.

• Thus, with the present arbitral action, what the claimant seeks is to obtain the recognition of a right that, pursuant to the legislation in force in the national legal system, did not belong to it as at the date of the facts.

• It so happens that the Arbitral Tribunal does not have competence to appreciate and decide whether the claimant has the right to apply Article 69 of the CIRC, as petitioned, with effects to 2012, since what is at issue here is not the appreciation of any assessment act, but rather a purported and hypothetical right that is always prior to such assessment, and the arbitral tribunal is not competent to appreciate the dismissal of the request for official review that denies the recognition of such right.

• In this manner, also with this ground, there is the existence of a dilatory exception, embodied in the material incompetence of the arbitral tribunal, which prevents knowledge of the claim, and, therefore, should determine the absolution of the Respondent entity from the instance, considering the provisions of Articles 576, paragraph 1 and 577, letter a) of the CPC, applicable by virtue of Article 29, paragraph 1, letter e) of the LRAT.

Even if not otherwise understood, without concession:

Of the Exception of Lack of Standing

III)

• The present request for arbitral decision was submitted by the national law company, A…, seeking that company to be granted the right to be taxed according to the SRTGC in which the dominant company of the group would be another company, of French law, D… SA. (hereinafter D…).

• However, it being certain that, since such company is non-resident, the claimant does not even state that it is its representative for the purpose of application of such regime, and it is the parent company or its representative that must submit the consolidated Form 22 of the group.

• Thus, with D… not appearing in the present case as Author or claimant, any decision to be rendered in the present process would always lack any useful effect, since, given that this is a request for recognition of a group to be taxed according to the SRTGC and it being certain that it is the parent company that submits the consolidated Form 22 of the group, the law requires the intervention of all for the decision to have useful effect and bind all parties.

• Whence, due to the lack of necessary joinder of parties, the claimant lacks standing, which determines, also by this route, the absolution of the Respondent from the instance, cf. Article 33, paragraph 1 of the CPC, Articles 576, paragraph 1 and 577, letter e) of the CPC, applicable by virtue of Article 29, paragraph 1, letter e) of the LRAT.

Even if not otherwise understood, without concession:

IV) By Impugnation:

• With reference to the fiscal year 2012, the claimant was the dominant company (holding relationship of 100%) of a group of companies taxed by the SRTGC composed only of itself and B…, SA, NIPC….

• On 23-12-2015, the Claimant expanded the scope of the SRTGC to company E…, Lda, NIPC…, and from 01-01-2015 onwards, the dominant company became the company resident in France D…, the claimant remaining as a dominated company pursuant to paragraph 3 of Article 69-A of the CIRC.

• On 2016-03-28, it submitted a request for official review pursuant to Article 78 of the General Tax Law, where it requested the determination of the taxable profit, as the company of the group designated to assume responsibility for compliance with all obligations incumbent on the dominant company, by including in the SRTGC all resident companies for tax purposes in Portugal held indirectly by the dominant company D…, namely companies B…, SA (hereinafter B…) and E…, Lda (hereinafter E…).

• Following consideration of the arguments put forward at the prior hearing, the request was, by decision of 29-03-2017, dismissed on the grounds, in summary, of the following:

"It was only with Law no. 82-C/2014, of 31 December, that Article 69-A was introduced into the Corporate Income Tax Code, which established in the Portuguese tax system the possibility of national companies being able to expand the scope of the SRTGC they lead to other resident companies in Portugal, but participated by non-resident companies.

This Law expressly refers in its Article 5 (Effective Date) that the provision of the cited Article 69-A applies to tax periods beginning on or after 1 January 2015.

Given the above, we conclude that the application of such regime to fiscal years prior to 2015, as the taxpayer seeks in the case in question, is not possible."

• The initiative for amendment of the rules delimiting the scope of groups for the purposes of the SRTGC introduced by Article 69-A was inspired by the terms of the CJEU judgment of 12.06.2014, which declares, in relation to what is directly relevant to the specific case under analysis, that "In Case C-40/13, Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State by which the fiscal unity regime may be granted to a resident parent company that holds resident subsidiaries, but not to resident sister companies whose common parent company is not established in that Member State, nor has there a stable establishment."

• The special regime for taxation of groups of companies (SRTGC) is based on the fiscal integration model, that is, aggregation of tax results (taxable profit or tax loss) determined individually by each company of the group.

• Being a special regime, it is optional in application, and the option must be communicated through the declaration of changes by the end of the 3rd month of the tax period in which application is intended to begin (letter a) of paragraph 7 of Article 69), all constituent companies of the group must satisfy the requirements set out in paragraphs 3 and 4 of Article 69.

• It being certain that the Portuguese State was not the subject of any condemnation by the CJEU relating to the provisions concerning the constitution of the group for the purposes of applying the SRTGC in force for the 2012 period, nor even the institution of an infringement proceeding by the European Commission. It took, freely and unilaterally, the initiative to amend its respective internal legislation.

• In the case in question, no request for option for taxation according to the SRTGC was submitted in 2013, either by the Claimant or by the dominant company of the group.

• The application of the SRTGC not being automatic and no option having been made for its application, the individual self-assessment made by the Claimant does not suffer from illegality, for not having made application of the special regime for taxation of groups of companies, since the presumptions for its application were not met, namely a timely option submitted.

• On the other hand, the Tax and Customs Authority could not, following requests for review of the tax act, nor can this Arbitral Tribunal, fictionally assume that the option for application of the special regime for taxation of groups of companies had been made by the dominant company, within the legally prescribed deadline, for the fiscal year 2013.

• Had they exercised such option, it would have triggered a response from the Tax Authority which, in case of disagreement, could have been challenged judicially, incidentally in the exact terms of the Dutch case.

• Finally, it is clear that the new regime provided for in Article 69-A of the CIRC, introduced by Law no. 82-C/2014, is applicable only to tax periods beginning on or after 01-10-2015, as is expressly established in paragraph 1 of its Article 5, in line with the basic principle on the application in time of tax norms, set out in paragraph 1 of Article 12 of the General Tax Law.

• The application of the SRTGC not being automatic and no option having been made for its application, the individual self-assessment made by the Claimant does not suffer from illegality, for not having made application of the special regime for taxation of groups of companies, since the presumptions for its application were not met, namely a timely option submitted.

1. The Claimant responded to the matter of exception in writing, in summary, as follows:

Incompetence - Of the Requests for Official Review

I)

• First and foremost, it is important to note that the exception raised by the Respondent has already been the subject of various appreciations by the arbitral jurisprudence of CAAD, namely by decision no. 117/2013-T and by decision no. 236/2013-T, and more recently by decision no. 9/2017-T and decision no. 101/2017, having the same decided in favor of the competence of the arbitral tribunals.

• The understanding of the Respondent is based on the fact that the Claimant did not submit a prior administrative recourse, but rather a request for official review (a second-degree tax act), and that, by virtue of the binding rules contained in Ordinance no. 112-A/2011, namely the provision in letter a) of Article 2 of that decree, would allegedly prevent recourse to the arbitral instance.

• Now, the express reference to Article 131 of the CTPP, which is made in Article 2 of Ordinance no. 112-A/2011, cannot have the scope of excluding the possibility of appreciation of requests for illegality of acts dismissing requests for official review of self-assessment acts.

• In fact, the interpretation exclusively based on the literal tenor defended by the Tax Authority in the present process cannot be accepted, for as was decided in arbitral case no. 117/2013-T, handed down at CAAD, "It is manifest that the scope of the requirement for prior administrative recourse, necessary to open the contentious avenue of challenging self-assessment acts, provided for in paragraph 1 of Article 131 of the CTPP, has as its sole justification the fact that, in relation to this type of act, there is no position taken by the Tax Authority on the legality of the legal situation created with the act, a position that might even turn out to be favorable to the taxpayer, avoiding the need to resort to the contentious avenue."

• Also, the jurisprudence of the Supreme Administrative Court (notably in the terms of the judgments of 12-07-2006, handed down in case no. 402/06, and of 14-11-2007, handed down in case no. 565/07), has understood that in cases where a request for official review of a self-assessment act is formulated, the Tax Authority is provided, with this request, with an opportunity to pronounce on the merit of the pretension of the taxpayer before the latter resorts to the jurisdictional avenue, and therefore, in coherence with the solutions adopted in paragraphs 1 and 3 of Article 131 of the CTPP, it cannot be required that, cumulatively with the possibility of administrative appreciation within the scope of this official review procedure, a new administrative appreciation through administrative recourse be required.

• It is thus concluded that the lack of administrative recourse is not an obstacle to appreciation by the arbitral tribunals functioning at CAAD of claims for declaration of illegality of self-assessment acts that are a corollary of the illegality of acts dismissing requests for official review.

• The exception therefore fails to the extent that it refers to the competence of the arbitral tribunal to appreciate the decision that fell upon the requests for official review.

II)

• Also as grounds for the alleged incompetence of the Arbitral Tribunal, the Respondent alleges that in the case in question "what is at issue is not the appreciation of the legality of any assessment, but merely to know whether the claimant could benefit, retroactively, from the application of a norm that allows it to opt for taxation according to the fiscal regime of taxation of groups of companies."

• Now, with due respect, the Tax Authority seeks to ground the incompetence of the arbitral tribunal on the basis of a purported pretension of the Claimant that has no correspondence to what was alleged and petitioned in the initial petition, for at no moment did the Claimant present a request to the Tax Authority in the sense of it retroactively applying the regime of Articles 69 and 69-A of the CIRC resulting from Law no. 82-C/2014, of 31 December.

• What the Claimant alleges is that the self-assessment of Corporate Income Tax for the fiscal year in question is manifestly illegal (and consequently the Decision of Dismissal) because it was made on the basis of a legal provision – namely Article 69 of the CIRC – which was illegal because it violated Community Law.

• Thus, and contrary to what the Tax Authority alleges, what is at issue here is the illegality of the self-assessment act and the Decision of Dismissal, since both result from the application and interpretation of a legal provision that is clearly violative of Community Law.

• It is not without curiosity that the Tax Authority, on the one hand, states that the claimant should have first requested the expansion of the scope, but on the other hand, also states that such expansion was not possible.

• Now, it is important to clarify that the Claimant did not make the request to alter the scope, not because it did not want to, or because it forgot, but because Article 69 of the CIRC did not allow that request to be made in the terms set out.

• It should also be noted that, contrary to what the Tax Authority alleges, the Claimant does not seek the substitution of this Arbitral Tribunal in the competencies proper to the Tax Authority.

• The Tax Authority, in the course of analysis of the Official Review, already had the opportunity to pronounce on the legality of the tax act, having itself decided that the same did not suffer from any illegality, although Article 69 of the CIRC in effect at the date only allowed the inclusion in the SRTGC of resident companies in Portugal.

• What the Claimant seeks is for the arbitral tribunal to pronounce on the legality of the understanding of the Tax Authority contained in the Decision of Dismissal, and consequently on the legality of the self-assessment act, and this, there is no doubt whatsoever, is part of the competence of the Arbitral Tribunals.

Of Lack of Standing:

III)

• The Tax Authority in the Decision of Dismissal of the Request for Official Review analyzed precisely the question of the standing of the Claimant, having expressly decided that: "The claimant enjoys legal personality and tax capacity for submission of this official review and has standing in the tax procedure, in accordance with the provision of Articles 3 and 9, paragraph 1 of the CTPP, and in Articles 15, 16 and 18, paragraph 3 of the General Tax Law".

• It is not without curiosity that the Tax Authority considers that the Claimant has standing to submit the Official Review, but the same Tax Authority considers that the Claimant does not have standing to submit a request for arbitral decision on the Decision that dismissed that same request for official review.

Without prejudice:

• There is no doubt of the perfect standing of the here Claimant, since Article 9, paragraph 1 of the CTPP establishes that "Have standing in tax procedure, the taxpayers, including tax substitutes and those responsible, other tax obligated parties, parties to tax contracts and any other persons that prove legally protected interest".

• As writes Jorge Lopes de Sousa: "The burden rests on the interested party to allege the facts that make up its standing which, in the case of challenging assessment acts, are limited to its identification in the act as the subject of the tax assessed" (cf. CTPP annotated and commented, Areas Publishing, page 103).

• Thus, considering that the assessment act in question here concerns the here Claimant, no other conclusion can be drawn than that of its standing to request its correction through official review, and its standing to submit a request for arbitral decision on the dismissal of the request for official review.

• The standing of the Claimant derives from the fact that it is the holder of a legally protected interest, since its legal sphere can be directly affected by what is decided in this process, significantly altering its legal-tax framework, a scenario in which standing is widely assured by paragraphs 1 and 4 of Article 9 of the CTPP, as well as by paragraph 1 of Article 9 of the ACTA.

• Thus, it is manifest the interest of the Claimant in the application of the SRTGC in the fiscal period of 2011, because it seeks to obtain for its legal sphere (own interest) a specific result (Direct interest) - that of being taxed within the scope of consolidated tax profit, as set out - which is not contrary to law (legitimate interest).

• In the case in question, considering that the claims to be appreciated are only those of the correction of the self-assessment and of the decision of the official review, it appears that the Claimant will have standing, since the validity or lack thereof of these acts will be definitively decided.

• The here Claimant is also a party with standing by application of the provision in Article 9, paragraph 2 of the CTPP, which expressly provides for the standing of joint and several responsible parties.

• In these terms, taking into account everything set out here, we can and must conclude by the manifest lack of merit of the exceptions invoked by the Tax and Customs Authority.

1. Verifying the non-existence of any situation provided for in Article 18, paragraph 1, of the LRAT, which would make the arbitral meeting there provided for necessary, its realization was dispensed with, on the grounds of the prohibition of performance of useless acts.

The realization of allegations was also dispensed with, pursuant to Article 18, paragraph 2, of the LRAT, "a contrario".

The parties submitted written allegations in which, in essence, they reaffirmed the positions already set out.

1. The tribunal is materially competent and is regularly established in accordance with the LRAT.

The parties have legal personality and capacity, are parties with standing, and are duly represented.

The process does not suffer from defects that would invalidate it.

1. It is necessary to resolve the following questions:

A) Incompetence of the Arbitral Tribunal to hear the claim formulated by the claimant due to lack of prior administrative recourse necessary of the self-assessment act of the tax.

B) Incompetence of the Arbitral Tribunal to hear the claim formulated by the claimant because the same implies prior recognition of the expansion of the scope of the group of companies that make up the SRTGC.

C) Lack of standing of the Claimant.

D) Illegality of the self-assessment act subject of the present process.

E) Right of the Claimant to reimbursement of the tax and compensatory interest.

It is necessary to appreciate, as a priority matter, the exception of incompetence, pursuant to the provision of Article 13 of the ACTA (applicable to tax arbitral proceedings by virtue of the provision of Article 29, paragraph 1, letter c), of the LRAT), which establishes that "The scope of administrative jurisdiction and the competence of the administrative tribunals, in any of their species, is of public order and its knowledge precedes that of any other matter."

1. Question of the incompetence of the Arbitral Tribunal to hear the claim formulated by the claimant due to lack of prior administrative recourse necessary of the self-assessment act of the tax.

The same legal question was appreciated and decided in case no. 574/2016-T, decision which is accompanied in the exact terms and with the grounds set out therein, and where the following can be read, in particular:

"It is to be concluded, thus, that Article 2, letter a) of Ordinance no. 112-A/2011, duly interpreted on the basis of the criteria for interpretation of law provided for in Article 9 of the Civil Code and applicable to substantive and adjective tax norms, by virtue of the provision of Article 11, paragraph 1, of the General Tax Law, makes viable the submission of requests for arbitral decision relating to self-assessment acts that have been preceded by a request for official review.

Indeed, this interpretation, in the sense that Ordinance no. 112-A/2011 does not restrict the competencies of the arbitral tribunals functioning at CAAD, will be the only one that is compatible with the aforementioned principle of hierarchy of norms and with the relative competence reserve of the Assembly of the Republic, that is, the only interpretation that ensures constitutionality of that Ordinance.

Thus, the interpretation of letter a) of Article 2 of Ordinance no. 112-A/2011 adopted here, instead of being materially unconstitutional, is the only one that ensures its constitutionality, in view of the provision of Articles 103, paragraph 2, 112, paragraph 5, 165, paragraph 1, letter i), and 198, letter b) of the Constitution, as mentioned above. That is, this is the interpretation in accordance with the Constitution, in which one recognizes in the norm 'a meaning that, although not apparent or not arising from other elements of interpretation, is the necessary meaning and that which becomes possible by virtue of the conforming force of the Fundamental Law. And there are different paths that, for this purpose, are followed and different results to which one arrives: from extensive or restrictive interpretation to reduction (eliminating the unconstitutional elements of the provision or act)'."

The exception of incompetence invoked by the Tax and Customs Authority therefore fails.

1. Question of the incompetence of the Arbitral Tribunal to hear the claim formulated by the claimant because the same implies prior recognition of the expansion of the scope of the group of companies that make up the SRTGC.

As can be read in the arbitral decision handed down in case no. 101/2017-T:

"It is against the claim or set of claims formulated by the interested party that the adequacy of the special procedural forms, as is the arbitral process, is measured, from which also derives the competence of the arbitral tribunals functioning at CAAD, which is limited to the procedural means provided for in the LRAT."

In the case that concerns us, the Claimant formulates the following claims:

"In these terms and in accordance with applicable law, this request for arbitral decision should be considered well-founded, annulling in consequence the Decision of Dismissal and condemning the Tax Authority to the correction of the self-assessment of Corporate Income Tax for 2012, so that in the determination of the taxable profit of the Claimant as dominant company of the group, all resident companies for tax purposes in Portugal held, directly and indirectly, by the dominant company D… are included in the SRTGC, namely the companies:

O B…, S.A., NIPC…, and,

O E…, Lda., NIPC….

Determining in consequence that the Tax Authority reimburses the Claimant of the total amount of € 19,063.61, for Corporate Income Tax and Autonomous Taxation as a result of the corrections mentioned above."

It emerges from the claim in conjunction with the assertions of the Claimant throughout the initial petition, with sufficient certainty, that the Claimant seeks the declaration of illegality and consequent annulment of the self-assessment act subject of the present process, and it being certain that, pursuant to Article 24, paragraph 1, letter d), the tax administration shall "assess the tax obligations in conformity with the arbitral decision or refrain from assessing them."

Should the Claimant's claim for declaration of illegality of the self-assessment proceed, it would emerge for the Respondent the duty to proceed to a new assessment, and it is in this sense that the tribunal interprets the reference to the condemnation of the Tax Authority to the "correction of the self-assessment". The claim for annulment of the decision that dismissed the request for official review also points to this interpretation.

It is understood, therefore, that the Claimant seeks the declaration of illegality of the self-assessment act subject of the present process, and it being manifest the competence of this arbitral tribunal to appreciate such claim, it must be concluded that this exception of incompetence invoked by the Tax and Customs Authority also fails.

1. Exception of Lack of Standing

What is at issue in the present process is to appreciate the legality of the self-assessment of Corporate Income Tax relating to the year 2012 and the decision dismissing the request for official review submitted against that self-assessment.

The Claimant is the passive subject of the legal-tax relationship in question and the author of the self-assessment act subject of the present process, and is also the sole recipient of the decision that dismissed the request for official review of that self-assessment act and, in view of the thesis that it defends, these acts prejudiced its legal sphere.

As can be read in the arbitral decision handed down in case no. 101/2017-T, which is accompanied:

"Pursuant to the provision of Article 30 of the CPC, subsidiarily applicable by virtue of the provision of Article 29, paragraph 1, letter e), of the LRAT, 'a plaintiff has standing when it has a direct interest in suing', which is expressed 'by the utility derived from the success of the action'.

Article 33 of the same Code indicates the situations of necessary joinder of parties, establishing that 'if, however, the law or the agreement requires the intervention of several interested parties in the disputed relationship, the lack of any of them is grounds for lack of standing' and that 'intervention of all interested parties is equally necessary when, by the very nature of the legal relationship, it is necessary for the decision to be obtained to produce its normal useful effect', understanding that this is produced 'whenever, not binding the remaining interested parties, it can definitively regulate the concrete situation of the parties in relation to the claim formulated'."

In the case in question, understanding that the claims to be appreciated are only those of annulment of the assessment and of the decision that dismissed the request for official review, it appears that the Claimant will have standing, since the question of the validity of these acts will be definitively decided.

Thus, this exception also fails.

II – FACTUAL MATTER RELEVANT TO THE DECISION

1. The following facts are considered proven:

2. In May 2013, the claimant submitted its Form 22 Income Statement, having made the self-assessment of Corporate Income Tax for 2012.

3. On 10/08/2015, the Claimant submitted a replacement statement of the Form 22 Income Statement, relating to the fiscal year 2012, which appears in the case file and whose contents are given as fully reproduced.

4. On 31.05.2013, company E…, Lda, taxpayer 500730148, submitted its income statement for the tax period of 2012, which appears in the case file and whose contents are given as fully reproduced.

5. On 28.03.2016, the Claimant submitted a request for Official Review, appearing in the case file and whose contents are given as fully reproduced for all legal purposes.

6. The request for Official Review which was dismissed by Decision of the Deputy Director-General of the Tax Management-IR area, by delegation, dated 2017/03/29, which appears in the case file and is given as fully reproduced for all legal purposes.

7. With reference to the tax period of 2012, the now Claimant was, according to the Form 22 statement submitted, the dominant company of a Group of Companies taxed in accordance with the Special Regime for Taxation of Groups of Companies, and composed only of itself and company B…, S.A, NIPC…, with registered office in….

8. The Claimant was on 31.12.2012 directly held in 99.99% of its capital by company C…, SA, a commercial company resident for tax purposes in France.

9. Company C…, SA was with reference to 2012 indirectly held by Company D… SA, a company resident for tax purposes in France.

10. Company D… SA held during the tax period of 2012 – company E…, Lda, resident for tax purposes in Portugal.

With interest for the decision of the case, there are no unproven facts.

1. The tribunal's conviction regarding the decision of the factual matter was grounded in the documents appearing in the case file, as well as in the allegations submitted, the Respondent having manifested no disagreement regarding the factual matter invoked by the Claimant.

III – APPLICABLE LAW

Factual and Legal Matter

1. Article 69 of the CIRC in the wording in force at the date of the tax fact whose self-assessment is subject of the present process, established the following regarding the scope and conditions of application of the SRTGC:

"1 – Where there is a group of companies, the dominant company may opt for the application of the special regime for determining the collective subject to tax in relation to all companies of the group.

2 – There is a group of companies when a company, called dominant, holds, directly or indirectly, at least 90% of the capital of another or other companies called dominated, provided that such participation confers on it more than 50% of the voting rights.

3 – The option for the application of the special regime for taxation of groups of companies may only be formulated when the following requirements are cumulatively verified:

a) The companies belonging to the group all have their registered office and effective management in Portuguese territory and the entirety of their income is subject to the general regime of taxation in Corporate Income Tax, at the highest normal rate;

b) The dominant company holds the participation in the dominated company for more than one year, with reference to the date on which the application of the regime begins;

c) The dominant company is not considered dominated by any other company resident in Portuguese territory that meets the requirements to be qualified as dominant.

d) The dominant company has not waived application of the regime in the three years prior to the date on which application of the regime begins.

4 – The following companies cannot be part of the group which, at the beginning or during application of the regime, are in the following situations:

a) Are inactive for more than one year or have been dissolved;

b) Have had a special recovery or bankruptcy proceeding instituted against them in which a judgment ordering continuation of the action has been issued;

c) Record tax losses in the three fiscal years prior to the one in which application of the regime begins, except, in the case of dominated companies, if the participation is already held by the dominant company for more than two years;

d) Are subject to a Corporate Income Tax rate lower than the highest normal rate and do not waive its application;

e) Adopt a tax period not coinciding with that of the dominant company;

f) The level of participation required of at least 90% is obtained indirectly through an entity that does not meet the legally required requirements to be part of the group;

g) Do not assume the legal form of a limited liability company, joint-stock company, or limited partnership by shares, except as provided in paragraph 12."

In the CJEU Judgment of 27 November 2008, handed down in Case C-418/07, better known as the Papillon Judgment, it was decided that "Article 52 of the EC Treaty (which, after amendment, became Article 43 EC) must be interpreted as precluding legislation of a Member State by which a consolidated profit taxation regime is granted to a parent company resident in that Member State that holds subsidiary and sub-subsidiary companies also resident in that State, but that regime is refused to that parent company if its resident subsidiaries are held through a subsidiary resident in another Member State."

For its part, in a judgment of 12-06-2014, handed down in the joined Cases nos. C-39/13, C-40/13 and C-41/13, the CJEU decided as follows:

"1) In Cases C-39/13 and C-41/13, Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State by which a resident parent company can form a fiscal unity with a resident subsidiary when it holds it through one or more resident companies, but cannot form that fiscal unity when it holds the subsidiary through non-resident companies that do not have a stable establishment in that Member State.

1. In Case C-40/13, Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State by which the fiscal unity regime may be granted to a resident parent company that holds resident subsidiaries, but not to resident sister companies whose common parent company is not established in that Member State, nor has a stable establishment there."

As writes Alexandre Mota Pinto:

"Direct applicability of the right of establishment: Article 49 expressly prohibits all restrictions on the freedom of establishment, being clear as to the direct applicability of the norms that provide for the right of establishment, opportunely affirmed by Community jurisprudence, in relation to Article 52 of the CJEU (…) there remain no doubts as to the vertical applicability of the freedom of establishment (…)"

In this line and as referred to in the arbitral decision handed down in case no. 574/2016-T, before factuality similar to that of the present case:

"The Claimants, in view of the jurisprudence of the CJEU cited, already met, in 2011, the requirements to be taxed according to the SRTGC.

(…)

The application of the SRTGC 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 option by the dominant company, formulated in advance in relation to the end of the first fiscal year in which its application is intended.

The admissibility of the option by Corporate Income Tax taxpayers for the application of the SRTGC, with the possibility of obtaining fiscal advantages for these and consequent loss of tax revenues, is justified by extra-fiscal purposes, namely to facilitate 'the restructuring of the business fabric and the recovery of economic groups, through the promotion of synergies between companies integrated in a group, reinforcing and consolidating the business fabric, to thus achieve greater competitiveness and favor competition', not being justifiable for obtaining 'exclusively fiscal purposes' (judgment of the Supreme Administrative Court of 29-12-2012, case no. 021/12).

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

Thus, that option within the prescribed deadline must be manifested by the dominant company (and not by some or all of the dominated companies), and that manifestation is essential because, among other things, it implies for that company the assumption of fiscal responsibilities (Article 115 of the CIRC), in addition to declarative obligations.

In the case in question, no request for option for taxation according to the SRTGC was submitted (in 2011) (…)"

(…)

(…) the application of the SRTGC not being automatic and no option having been made for its application, the individual self-assessments do not suffer from any error, either regarding the factual presuppositions or regarding the legal presuppositions,

therefore the presupposition required by paragraphs 1 and 2 of Article 78 of the General Tax Law for review of the tax act is not verified.

Furthermore, the Tax and Customs Authority could not, following requests for review of the tax act, nor can this Arbitral Tribunal, fictionally assume that the option for application of the SRTGC had been made by the dominant company.

Finally, it is clear that the new regime provided for in Article 69-A of the CIRC, introduced by Law no. 82-C/2014, is applicable only to tax periods beginning on or after 01-10-2015, as is expressly established in paragraph 1 of its Article 5, in line with the basic principle on the application in time of tax norms, set out in paragraph 1 of Article 12 of the General Tax Law."

These considerations, which are accompanied, are fully applicable to the case that concerns us.

The Claimant itself argues that the duty to correct the self-assessment does not derive from the need for retroactive application of the legislative amendment introduced by Law no. 82-C/2014, of 31 December, but rather from the express recognition by the CJEU of the illegal character of the tax regime in force until that date, and it being certain that the alignment of the provision in Article 69 of the CIRC with the provision of Article 43 of the TEC is required independently of the fiscal year to which the specific situation relates, and further, that a solution should be adopted for the application of internal legislation compatible with European Union Law that respects the Freedom of Establishment enshrined in accordance with the orientation resulting from the Papillon and C-40/13 Judgments, further adding that the CJEU has already pronounced that the bodies of the Public Administration must apply Union Law, repudiating the application of any national provision that is contrary to such legislation.

For the Claimant, therefore, the exercise, within the legal deadline, of the right of option for taxation according to the SRTGC was required, and it was not permitted to do so in retroactive form, beyond the legal deadline, as it is not permitted for other taxpayers to do so.

Regarding the Claimant's claim, the applicable legal framework, as the Claimant itself recognizes by arguing that the duty to correct the self-assessment does not derive from the need for retroactive application of the legislative amendment introduced by Law no. 82-C/2014, of 31 December) was the same at the moment in which the Claimant made the self-assessment and at the moment in which it submitted the request for official review. Therefore, the Claimant, if it wished, should, within the legal deadline, have invoked the right to opt for the SRTGC and, in case of refusal of recognition of that right by the Respondent, exercise the procedural and process rights that the law confers upon it.

Given the absence of the exercise of the right of option in question, within the legal deadline, there is no illegality of the self-assessment act, followed by the decision that dismissed the request for official review, for not having made application of the special regime for taxation of groups of companies, and therefore, the Claimant's annulling claim cannot but fail, leaving, in consequence, prejudiced the knowledge of the claim relating to reimbursement of the tax and compensatory interest.

IV – DECISION

Thus, the arbitral tribunal decides to render judgment that the request for arbitral decision is not well-founded, and the self-assessment act subject of the process remains in the legal system.

Value of the action: € 19,063.61 (nineteen thousand sixty-three euros and sixty-one cents) pursuant to the provision of Article 306, paragraph 2, of the CPC and 97-A, paragraph 1, letter a), of the CTPP and 3, paragraph 2, of the Arbitration Procedural Costs Regulation.

Costs: By the Claimant in the amount of 1,224.00 € (one thousand two hundred twenty-four euros) pursuant to paragraph 4 of Article 22 of the LRAT.

Notification shall be made.

Lisbon, CAAD, 20 February 2018

The Arbitrator

Marcolino Pisão Pedreiro

[1] Consultable at https://caad.org.pt/tributario/decisoes/, website where the arbitral decisions mentioned below can also be consulted.

[2] With Law no. 82-C/2014, of 31 December, Article 69 of the CIRC passed to have the following wording:

1 - Where there is a group of companies, the dominant company may opt for the application of the special regime for determining the collective subject to tax in relation to all companies of the group.

2 - There is a group of companies when a company, called dominant, holds, directly or indirectly, at least 75% of the capital of another or other companies called dominated, provided that such participation confers on it more than 50% of the voting rights.

3 - The option for the application of the special regime for taxation of groups of companies may only be formulated when the following requirements are cumulatively verified:

a) The companies belonging to the group all have their registered office and effective management in Portuguese territory and the entirety of their income is subject to the general regime of taxation in Corporate Income Tax, at the highest normal rate;

b) The dominant company holds the participation in the dominated company for more than one year, with reference to the date on which the application of the regime begins;

c) The dominant company is not considered dominated by any other company resident in Portuguese territory that meets the requirements to be qualified as dominant;

d) The dominant company has not waived application of the regime in the three years prior to the date on which application of the regime begins.

4 - The following companies cannot be part of the group which, at the beginning or during application of the regime, are in the following situations:

a) Are inactive for more than one year or have been dissolved;

b) Have had a special recovery or bankruptcy proceeding instituted against them in which a judgment ordering continuation of the action has been issued;

c) Record tax losses in the three fiscal years prior to the one in which application of the regime begins, except, in the case of dominated companies, if the participation is already held by the dominant company for more than two years;

d) Are subject to a Corporate Income Tax rate lower than the highest normal rate and do not waive its application;

e) Adopt a tax period not coinciding with that of the dominant company;

f) (Repealed.)

g) Do not assume the legal form of a limited liability company, joint-stock company, or limited partnership by shares, except as provided in paragraph 11. (Corrected by Rectification Statement 18/2014, of 13 March)

Furthermore, the same Law no. 82-C/2014 added to the CIRC Article 69-A, with the following wording:

Article 69-A

Dominant company with registered office or effective management in another Member State of the European Union or of the European Economic Area

1 – May also opt for the application of the special regime for taxation of groups of companies provided for in this subsection the dominant company, as so qualified pursuant to paragraph 2 of the preceding article, which, not having registered office or effective management in Portuguese territory, cumulatively meets the following conditions:

a) Is resident of a Member State of the European Union or of the European Economic Area that is committed to administrative cooperation in the field of taxation equivalent to that established within the European Union;

b) Holds the participation in the dominated companies for more than one year, with reference to the date on which the application of the regime begins;

c) Is not held, directly or indirectly, at least 75% of the capital, by a company resident in Portuguese territory that meets the requirements provided for in the preceding article to be qualified as dominant, provided that such participation confers on it more than 50% of the voting rights, pursuant to paragraph 6 of the preceding article;

d) Has not waived application of the regime in the three years prior to the date on which application of the regime begins;

e) Is subject to and not exempt from a tax referred to in Article 2 of Directive no. 2011/96/EU, of the Council, of 30 November, or a tax of a nature identical or similar to Corporate Income Tax;

f) Assumes the form of a limited liability company;

g) When it holds a stable establishment in Portuguese territory through which the participations in the dominated companies are held and none of the situations provided for in letters a), c), d) or e) of paragraph 4 of the preceding article is verified in relation to this, with the necessary adaptations.

2 – The option provided for in the preceding paragraph determines the application of the special regime for taxation of groups of companies in relation to all dominated companies with registered office and effective management in Portuguese territory in relation to which the conditions established in paragraphs 3 and 4 of the preceding article are verified, as well as to the stable establishment of the dominant company located in this territory through which the participations are held.

3 – The option for the regime pursuant to this article depends on communication to the Tax and Customs Authority, in the statement referred to in paragraph 7 of the preceding article, of which company with registered office and effective management in this territory belonging to the group is designated to assume responsibility for compliance with all obligations incumbent on the dominant company pursuant to this Code, without prejudice to the joint and several liability of the dominant company and of the other companies belonging to the group for payment of the tax, pursuant to Article 115.

4 – In cases where the dominant company holds a stable establishment in Portuguese territory through which the participations in the dominated companies are held, the provision in the preceding paragraph shall be mandatorily observed by this.

5 – In all respects not provided for in this article, the provision in the preceding article applies, with the necessary adaptations.

[3] TREATY OF LISBON, Annotated and Commented, Coord. Manuel Lopes Porto-Gonçalo Anastácio, Almedina, 2012, page 319

[4] In this sense, also, arbitral decision handed down in cases 101/2017-T and also in essentially similar sense arbitral decision handed down in case 279/2014-T.

In a different sense: arbitral decisions handed down in cases 280/2014-T and 786/2015-T.