CAAD 404/2017-T: Retroactive Application of RETGS Group Taxation Regime Under EU Freedom of Establishment

Arbitration Award

The arbitrators Councillor Fernanda Maçãs (arbitrator-president), Professor Doctor Jónatas Machado and Doctor João Menezes Leitão (arbitrator-members), designated by the Ethics Council of the Centre for Administrative Arbitration to form the present Arbitration Tribunal, constituted on 19.9.2017, agree as follows:

I. Report[1]

1. A… (hereinafter, Applicant or A…), Legal Entity no. …, with registered office at …, … …, filed a request for constitution of an arbitration tribunal and subsequent arbitration ruling, under the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January, as amended (Legal Regime of Tax Arbitration, hereinafter LRTA), in which the Tax and Customs Authority (hereinafter, Respondent or TCA) is requested, regarding the Dispatch of the Head of Division of the Finance Directorate of …, by delegation, dated 2017/05/08, which dismissed the Claim against the Self-Assessment of Corporate Income Tax (IRC) for 2013, petitioning the respective annulment and the condemnation of the TCA to correct the self-assessment of IRC for 2013, so that, in the determination of the taxable profit of the Applicant as the holding company of the group, all resident companies for tax purposes in Portugal held, directly and indirectly, by the holding company B… SA (hereinafter B…), namely, companies C…, S.A. (hereinafter C…), NIPC…, and D…, Lda. (hereinafter D…), NIPC…, are included in the Special Tax Treatment Regime for Groups of Companies (RETGS), determining, consequently, that the TCA reimburse the Applicant of the total amount of €104,196.72, for IRC and Autonomous Taxation by effect of the corrections it indicates.

2. In accordance with articles 5, no. 3, paragraph a), 6, no. 2, paragraph a) and 11, no. 1, paragraph a) of the LRTA, the Ethics Council of this Centre for Administrative Arbitration (CAAD) designated as arbitrators of the collective arbitration tribunal Councillor Doctor Fernanda Maçãs, as arbitrator-president, Professor Doctor Jónatas Machado and Doctor João Menezes Leitão as arbitrator-members, who accepted the appointment.

3. The parties were duly notified of this designation, to which they made no objection in accordance with the combined provisions of articles 11, no. 1, paragraphs b) and c) and 8 of the LRTA and 6 and 7 of the Ethics Code of the CAAD.

4. By virtue of the provision in paragraph c) of no. 1 and no. 8 of article 11 of the LRTA, in accordance with the communication from the President of the Ethics Council of the CAAD, the Arbitration Tribunal was constituted on 19.9.2017.

5. In the request for arbitration ruling (hereinafter initial petition or IP), the Applicant, invoking the non-conformity of the provision at the date of the facts in no. 4 of article 69 of the Code of Corporate Income Tax (CIRC) with the freedom of establishment guaranteed by article 49 of the Treaty on the Functioning of the European Union (TFEU), petitioned that there be "considered the inclusion in the RETGS led by A…, for the tax period of 2013, of B… as the holding company and of all shareholdings held directly and indirectly at least in 90% for more than one year by the holding company B… in resident companies in Portugal, namely the company D…" (article 70 of the IP), and the new income statement of this RETGS should be applied, in the terms it presents in article 71 of the IP, determining a value to recover of €104,196.72.

Consequently, as mentioned above (no. 1), the Applicant petitioned the condemnation of the TCA to correct the self-assessment of IRC for 2013, so that, in the determination of the taxable profit of the Applicant as the holding company of the group, all resident companies for tax purposes in Portugal held, directly and indirectly, by the holding company B…, namely, companies C…, S.A., NIPC …, and D…, Lda., NIPC…, are included in the RETGS, determining that the TCA reimburse the Applicant of the total amount of €104,196.72, for IRC and Autonomous Taxation by effect of the corrections referred to, plus compensatory interest due and accruing until full payment of the amount unduly borne.

1. The TCA, under the provision of article 17 of the LRTA, submitted, on 26.10.2017, a response, in which it defended itself by exception and by challenge, ultimately petitioning the following:

"a) To find that the dilatory exception exists, consisting of the material incompetence of the arbitration tribunal and/or the exception of lack of standing, which prevent the examination of the request, and determine the acquittal of the Respondent Entity from the proceedings, bearing in mind the provision of articles 576, no. 1 and 577, paragraphs a) and e) of the CPC, applicable ex vi article 29, no. 1, paragraph e) of the LRTA,

should it not be so understood,

b) the present request for arbitration ruling should be judged as not proven, maintaining in the legal system the challenged tax acts and acquitting, accordingly, the respondent entity from the request".

1. By dispatch of the President of the Arbitration Tribunal of 27.10.2017, the Applicant was notified to exercise, if so wishing, the right to respond regarding the exceptional matter alleged by the Respondent, which was done through the request for response to exceptions of 6.11.2017 (although with reference to elements (e.g.: official revision, holding company E…) that are not present in the case file), in which the Applicant concluded:

"by the manifest lack of merit of the exceptions invoked by the Tax Authority.

Without prejudice, and as regards the issue of lack of standing should the Arbitration Tribunal conclude for its merit, then the same should invite the here Applicant to summon the intervention of the main person(s) in default".

1. By dispatch of 7.11.2017, given the absence of evidence to be produced at a hearing and the pronouncement already made in writing by the Applicant regarding the matter of exception, the holding of the meeting referred to in article 18 of the LRTA was dispensed with and the production of successive written submissions was determined, which was performed by the Applicant on 24.11.2017 and by the Respondent on 13.12.2017, the parties, as regards what may be considered relevant (since, incomprehensibly, in these submissions the parties refer to an official revision and even to a holding company E… and to the tax period of 2012, all phenomena not encountered in the case file), reiterating the positions assumed in their previous procedural documents.

The Arbitration Tribunal fixed, finally, by dispatch of 15.3.2018, as the deadline for issuance of the arbitration ruling the day 19.5.2018.

1. The Arbitration Tribunal is regularly constituted (articles 5, nos. 1 and 3, paragraph a), 6, no. 2, paragraph a) and 11 of the LRTA), the parties have legal personality and capacity and are duly represented.

The other matters pertaining to procedural requirements, as they contend with the exceptions of material incompetence of the Tribunal and of lack of standing invoked by the Respondent, will be assessed specifically and autonomously following the determination of the relevant factual matter, without prejudice to the solution given to a certain matter potentially affecting the assessment of the remaining questions raised by the parties (cfr. article 608, no. 2 of the Civil Procedure Code, hereinafter CPC, applicable ex vi article 29, no. 1, paragraph e) of the LRTA).

II. Questions to be Decided

1. In light of the allegations contained in the IP and the exceptions raised by the Respondent in its response (cfr. above nos. 5 and 6), the questions submitted, within the framework of the dispute formulated, to the cognition of the Arbitration Tribunal, which are defined by the facts alleged and the procedurally formulated claims requiring specific decision, including matters pertaining to procedural requirements raised by the parties or of ex officio knowledge, are the following (without prejudice, as mentioned, to the decision on a certain question potentially affecting the assessment of others):

• material incompetence of the arbitration tribunal;

• lack of standing of the Applicant due to absence of necessary joinder of parties;

• illegality of the decision dismissing the claim against self-assessment of IRC for 2013 in question in the proceedings by violation of the provision of article 69, no. 4, paragraph f) of the CIRC, in the wording applicable at the date of the facts, of the freedom of establishment provided for in articles 49 and 54 of the Treaty on the Functioning of the European Union (TFEU) by excluding from the RETGS resident companies in Portugal whose holding is made through non-resident companies in Portuguese territory resident in the European Union;

• consideration of the inclusion in the RETGS led by A…, for the tax period of 2013, of B… as the holding company and of all shareholdings held directly and indirectly at least in 90% for more than one year by the holding company B… in resident companies in Portugal, namely, company D…, Lda, NIPC …;

• correction of the determination of IRC for 2013 of the RETGS in question in the proceedings, from which results, by the inclusion of D…, Lda., NIPC…, a consolidated value to be reimbursed of 104,196.72€;

• right to reimbursement of the amount unduly paid plus compensatory interest.

III. Decision on Factual Matters and Its Reasoning

1. Having examined the allegations contained in the procedural documents submitted and the documentary evidence produced, including the claim procedure with no. …2016… submitted by the TCA (hereinafter PA), the Tribunal finds proven, with relevance to the decision of the case, the following facts:

I. The Applicant is a Portuguese legal entity which, in the tax period of 2013 in question, was the holding company of a Group of Companies taxed according to the RETGS, composed only of itself and by its subsidiary company C…, S.A, NIPC…, with registered office in …, of which it held 100% of the capital (Income Statement Form 22 attached as document no. 1 to the IP and 2013 Annual Report and Accounts of the Applicant, section 1.3.4., and its Annex to Financial Statements, sections 3.11, 8.1., 9, attached as document 4 to the IP, and facts alleged in nos. 6 and 7 of the IP, not refuted by the Respondent).

II. The Applicant, in 2013, was directly held in approximately 99.99% of its capital by F… (hereinafter F…), a commercial company resident for tax purposes in France (as stated in the 2013 Annual Report and Accounts of the Applicant, p. 12 and its Annex to Financial Statements, section 30, attached as document 4 to the IP), a company that has never been and is not currently held, directly or indirectly, by a company resident for tax purposes in Portugal (Annex to Financial Statements of the 2013 Annual Report and Accounts of the Applicant, section 30, attached as document 4 to the IP and fact alleged in no. 9 of the IP, not questioned by the Respondent).

III. F… was by reference to 2013 – and still is – indirectly held by B… SA, (hereinafter B…), with registered office in France (Annex to Financial Statements of the 2013 Annual Report and Accounts of the Applicant, section 30, attached as document 4 to the IP and fact alleged in no. 10 of the IP, not refuted by the Respondent).

IV. B… indirectly held during the tax period of 2013 – and still holds – the company D…, Lda (hereinafter D…), NIPC…, resident for tax purposes in Portugal, through, namely, company G…, SA, with registered office in France, which holds in its entirety the capital of D…, SA, with registered office in Spain, which in turn holds the two quotas of €190,790 and €183,308 representing the entirety of the capital of D… (Annex to Financial Statements of the 2013 Annual Report and Accounts of D…, Lda, sections 1, 12 and 26 attached as document 5 to the IP, and facts alleged in nos. 11 and 12 of the IP, not refuted by the Respondent).

V. B… did not formalize in 2013 as a holding company a RETGS perimeter with the Applicant and the companies C…, S.A and D…, Lda (fact recognized in no. 26 of the Claim attached as doc. 2 to the IP; cfr. also the factuality alleged in articles 68, 87 and 94 of the Respondent's response and recognized in nos. 13 and 14 of both the response to exceptions and the submissions presented by the Applicant).

VI. On 05/06/2014, the Applicant submitted income statement Form 22 (substitute), for the year 2013, where it declared as the algebraic sum of the group's tax results the amount of tax losses of €1,245,658.19, determining a tax payable of €225,623.27 relating to autonomous taxation, which was paid on time (document 1 attached to the IP and fact alleged in no. 1 of the IP, not questioned by the Respondent).

VII. The Applicant filed on 11/05/2016 the Claim against Self-Assessment of IRC for 2013, which is attached as document 2 to the IP and from pages 1 et seq. of the PA, which was filed under no. …2016…, in which it requested that:

"declare the illegality of the self-assessment act of IRC for the tax period of 2013:

i) Consider the determination of taxable profit of the now Claimant as the company of the group designated to assume responsibility for compliance with all obligations incumbent on the holding company by inclusion in the RETGS of all resident companies for tax purposes in Portugal held indirectly by the holding company B…, namely:

• C…, S.A., NIPC…, and

• D…, Lda., NIPC …

and consequently,

ii) The now Claimant be reimbursed the total amount of € 94,780.11 (ninety-four thousand, seven hundred and eighty euros and eleven cents), for IRC by effect of the adjustments referred to above".

VIII. The said Claim was dismissed by Dispatch of the Head of Division of the Finance Directorate of …, by delegation, dated 08/05/2017 (document 3 attached to the IP), which was based on the following essential grounds:

"11. The regime that makes it possible for a holding company with registered office or effective management in another member state of the EU to opt for the RETGS was introduced in the CIRC, through the amendment of article 69-A, by Law no. 82-C/2014, of 31.12.2014.

1. This amendment made it possible to adapt the RETGS to the case law of the CJEU cited by the claimant in its petition, case law that bases its decisions on compliance with the principle of freedom of establishment contained in articles 49 et seq. of the TFEU (Treaty on the Functioning of the European Union).

2. However, this case law runs up against the sovereignty of the various Member States in matters of direct taxes, their exclusive competence.

3. Law no. 82-C/2014, of 31.12.2014, provides, in article 5 (production of effects) its application only for tax periods beginning on or after 1 January 2015.

4. The retroactive application of the rule is excluded, in accordance with the said legal provision.

5. The TCA is bound by the principle of legality, and must therefore apply the tax law in force at the date of the tax event, which does not allow the expansion of the RETGS to resident companies in Portugal, but participated by non-resident companies.

6. In the case under analysis, the law in force in 2013 does not allow the expansion of the RETGS to company D… since it is held by the holding company B… based in France.

7. This possibility is limited to the years 2015 and following".

8. No other relevant factual matter was alleged for the decision of the dispute under consideration.

9. The Tribunal's conviction regarding the facts found to be proven resulted from the documents attached to the proceedings by the Applicant and contained in the claim procedure submitted by the Respondent, as well as from the admission of facts by the parties, all as specified in each of the points of the evidence statement set out above.

IV. On the Law

a) On the Competence of the Arbitration Tribunal

1. It is necessary to assess, first, the matter of the competence of the Arbitration Tribunal, the examination of which is ex officio and precedes that of any other question (cfr. articles 13 of the Code of Procedure in Administrative Courts (CPTA) and 278, no. 1, paragraph a) of the CPC, applicable ex vi article 29, no. 1, paragraphs d) and e) of the LRTA), so that, with the reservation, precisely, of its own competence, a tribunal that is incompetent is prevented from assessing the other procedural requirements and the merits of the case.

2. As indicated above, the Respondent, in its response (articles 9 et seq.), which it reiterated in its submissions, invoked the dilatory exception of material incompetence of the arbitration tribunal, which would prevent the examination of the request formulated by the Applicant, basing itself on the following essential reasons which are transcribed:

• The "applicant petitions that the TCA be condemned "to correct the self-assessment of IRC for 2013, so that in the determination of the taxable profit of the Applicant as the holding company of the group, all resident companies for tax purposes in Portugal held, directly and indirectly, by the holding company B…" are included in the RETGS";

• "Moreover, it goes so far as to present the new income statement Form 22 after the expansion of the RETGS with the determination of IRC to be reimbursed";

• "It being true that the condemnation petitioned, because it always implies prior recognition of the expansion of the perimeter of the group of companies that integrate the RETGS, will always be configured as prior to any annulment of the tax act of determination";

• "to admit that the Arbitration Tribunal has competence to assess this request would represent, with due respect, the substitution of the present Arbitration Tribunal in the competences proper to the TCA", and that "Even in special administrative action, the procedural means in which the condemnation of the administration to perform a due act is provided for, cfr. articles 66 et seq. of the CPTA, does the Judicial Court go as far" and "we are referring, in this case, to special administrative action and not to judicial challenge proceedings, where the process is purely of an annulment nature, it being true that recourse to the arbitral route does not constitute an alternative means to that type of action";

• "the legal claim formulated by the applicant is reduced to the recognition of a right or to the request for condemnation to perform a due act, which cannot be obtained through this route" and, therefore, "the request for arbitration ruling does not constitute the proper means, which, in the case, results in the very incompetence of the Arbitration Tribunal to recognize the right that the applicant seeks to obtain, or to, alternatively, to special administrative action, condemn the TCA to perform a due act";

• "it is not a question here of the assessment of any determination act, but rather, of a supposed and hypothetical right that is always prior to such determination, the arbitration tribunal not being competent to assess the dismissal of the request for official revision [sic] that denies the recognition of such right".

1. In the request for response to exceptions of 6.11.2017 submitted by the Applicant, the latter sustains, regarding the question of material incompetence of the Tribunal (nos. 5 to 20), the following:

• "5. (...) the TCA seeks to ground the incompetence of the arbitration tribunal on the basis of a supposed claim of the Applicant, which has no correspondence to what was alleged and petitioned, in the initial petition.

1. (...) at no moment did the Applicant present a request to the TCA to the effect that it apply retroactively the regime of articles 69 and 69-A of the CIRC that results from Law no. 82-C/2014, of 31 December.

2. What the Applicant alleges [is] that the self-assessment of IRC for the year in question is manifestly illegal (and consequently the Dismissal Dispatch) because it was made based on a legal provision – to wit, article 69 of the CIRC – that was illegal for violating EU Law.

3. That is, what is at issue here is not a simple request for retroactive application of a fiscal legal regime.

4. What is at issue here is to know whether article 69 of the CIRC, in force at the date of the facts, violated, or not, EU Law.

5. Naturally, if it is found that there is a violation – as was clearly demonstrated in the initial petition – then no other conclusion can be drawn than that of the illegality of the provision of article 69 and of all tax acts that were issued in compliance with what was stipulated there.

6. Thus, and contrary to what the TCA alleges, what is at issue here is the illegality of the self-assessment act and the Dismissal Dispatch, since both result from the application and interpretation of a legal provision that clearly violates EU Law";

• "(...) it is important to clarify that the Applicant did not make the request for change of perimeter, not because it did not want to, or because it forgot"; "The Applicant did not make this request, because the pure and simple fact is that article 69 of the CIRC did not allow that request to be made in the terms set out";

• "18. The TCA, in the context of the analysis of the Official Revision [sic] already had the opportunity to pronounce itself on the legality of the tax act, having the same decided that the same did not suffer from any illegality, albeit article 69 of the CIRC at the time in force only allowed the inclusion of the RETGS of resident companies in Portugal.

1. (...) what the Applicant seeks is that the TA pronounce itself on the legality of the TCA's understanding set out in the Dismissal Dispatch, and consequently on the legality of the self-assessment act".

2. And there is no doubt that this is part of the competence of Arbitration Tribunals".

3. Tax arbitration was created by the Government through Decree-Law no. 10/2011, of 20 January (LRTA), issued under the legislative authorization granted to it by article 124 of Law no. 3-B/2010, of 28 April.

In no. 4 of that article 124 it was established that the scope of the authorization provided for in this article comprises, in particular, the following matters:

a) The delimitation of the object of the tax arbitration proceeding, which may include acts of determination of taxes, including those of self-assessment, retention at source and payments on account, determination of taxable matter, when they do not result in determination, total or partial dismissal of claims or requests for revision of tax acts, administrative acts involving the assessment of the legality of determination acts, acts of determination of patrimonial values and rights or legitimate interests in tax matters;

Legislative authorization was essential for the Government to legislate validly on this matter, since this involves a matter pertaining to guarantees for taxpayers, included in the relative competence reservation of the Assembly of the Republic, under articles 103, no. 2, and 165, no. 1, paragraph i), of the CRP, and therefore, the Government does not have its own legislative competence, as follows from articles 198, no. 1, paragraphs a) and b), of the CRP.

Using that legislative authorization, the Government established in article 2, no. 1, paragraph a), of the LRTA that «the competence of arbitration tribunals comprises the assessment of the following claims: a) the declaration of illegality of acts of determination of taxes, of self-assessment, of retention at source and of payment on account».

It is thus beyond doubt that the Government, in the exercise of the legislative powers granted to it by the legislative authorization, attributed to arbitration tribunals competence for the declaration of illegality of acts of determination and self-assessment, without any restriction.

As was stated in the Arbitration Decision issued in case no. 101/2017-T "(…) the formula «declaration of illegality of acts of determination of taxes, of self-assessment, of retention at source and of payment on account», used in paragraph a) of no. 1 of article 2 of the LRTA does not restrict, in a purely declaratory interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged, and the illegality of acts of determination or self-assessment can be declared jurisdictionally as a corollary of the illegality of a second-order act, which confirms an act of self-assessment, incorporating its illegality.

"The inclusion in the competences of arbitration tribunals operating in the CAAD of cases in which the declaration of illegality of the acts indicated there is made through the declaration of illegality of second-order acts, which are the immediate object of the challenge claim, results with certainty from the reference made in that rule to acts of self-assessment, retention at source and payment on account, which expressly refer as being included among the competences of arbitration tribunals. In effect, regarding these acts, it is imposed, as a rule, the necessary claim, in articles 131 to 133 of the CPPT, so that, in these cases, the immediate object of the challenge proceedings is, as a rule, the second-order act that assesses the legality of the determination act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the determination act. The reference made in paragraph a) of no. 1 of article 10 of the LRTA to no. 2 of article 102 of the CPPT, in which the challenge of acts dismissing claims is provided for, removes any doubts that the competences of arbitration tribunals operating in the CAAD cover cases in which the declaration of illegality of the acts referred to in paragraph a) of that article 2 of the LRTA must be obtained following the declaration of the illegality of second-order acts.

"In fact, it was precisely in this sense that the Government, in Portaria no. 112-A/2011, of 22 March, interpreted these competences of the arbitration tribunals operating in the CAAD, by excluding from the scope of these competences the «claims relating to the declaration of illegality of acts of self-assessment, retention at source and payment on account 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», which has the effect of restricting its binding to cases in which this recourse to the administrative route was used, in line with the provision of these rules of the CPPT.

"It is in the light of the request or set of requests formulated by the interested party that the adequacy of special procedural forms, such as arbitration proceedings, is assessed, of which also the competence of arbitration tribunals operating in the CAAD results, which is limited to the procedural means provided for in the LRTA."

More specifically, the material competence of the tribunal is assessed based on the way the Claimant configures the action, more specifically by the terms in which the request (or requests) is structured, that is, the concrete claim submitted to court, and its foundations/cause of action, therefore, the factuality that serves as the basis for the legal effect sought. As observed, for example, in the Decision of the Supreme Administrative Court of 25-03-2015, case no. 01951/13: "it is in light of the request formulated by the claimant and the foundations (causa petendi) on which it is based, just as the legal relationship is outlined by the claimant in the petition (quid disputatum or quid decidendum), that it is necessary to determine the tribunal's competence to know of the action".

Thus, as a rule, it is in attention to the way in which, in the specific proceeding in which the Arbitration Tribunal is called to develop its jurisdictional activity, the applicant formulates its concrete claim for legal protection (quid disputatum or quid decidendum), in order to obtain a certain legal effect based on certain constitutive facts (cfr. article 10, paragraphs b) and c) of the LRTA), that it is necessary to assess the scope of admissibility of the jurisdictional intervention of the Tribunal, independently of any inquiry, in a prognosis judgment, regarding its merit (quid decisum).

As also taught by ALBERTO DOS REIS, Annotated Code of Civil Procedure, (volume II, pages 288-289), what is relevant for the assessment of the use of procedural means is the purpose for which the proceeding is destined, revealed by the request.

Assessing, then, the presence of the positive procedural requirement of competence, whose occurrence is indispensable for a ruling on the merits by this Tribunal, it is necessary to examine, more particularly, the configuration of the request for jurisdictional protection that was presented by the Applicant in the request for arbitration ruling and the consequent formation of the proceedings arising therefrom.

1. In this regard, as was noted above (nos. 1 and 5), the Applicant ultimately petitioned the following in the IP:

a) "that the present request for arbitration ruling be considered meritorious, annulling in consequence the Dismissal Dispatch;

b) "and condemning the TCA to correct the self-assessment of IRC for 2013, so that in the determination of the taxable profit of the Applicant as the holding company of the group, all resident companies for tax purposes in Portugal held, directly and indirectly, by the holding company B…, namely the companies:

"the C…, S.A., NIPC …, and,

"the D…, Lda., NIPC ….

c) "Determining in consequence that the TCA reimburse the Applicant of the total amount of € 104,196.72, for IRC and Autonomous Taxation by effect of the corrections referred to above".

By reviewing the pleadings in the IP, it is further verified that the Applicant states, among other things, the following:

• "(…) for the reasons of fact and law" it invokes, the self-assessment in question in the proceedings "is not correct, which is why the Applicant filed the Claim against Self-Assessment" (A-3.), which was dismissed by dispatch of the Head of Division of the Finance Directorate of…, by delegation (...);

• Not agreeing with "such decision, as it is illegal, the Applicant hereby presents the request for arbitration ruling" (….);

• According to the Applicant, the composition of the RETGS perimeter for the purposes of determining IRC for the year 2013 should not only include the companies referred to in section 6 above, but also another company fiscally resident in Portugal and which is held 100% by B…"(B-13.);

• "the obligation to correct the self-assessment does not derive from the need to apply retroactively the legislative amendment introduced by Law no. 82-C/2014, of 31 December, as the TCA seems to argue, but rather from the express recognition by the CJEU of the illegal nature of the fiscal regime in force until the said date" (C-50.);

For its part, in the response to the matter of exception the Applicant reiterates, among other things, that:

• "thus, and contrary to what the TCA alleges, what is at issue here is the illegality of the self-assessment act and the Dismissal Dispatch, since both result from the application and interpretation of a legal provision that clearly violates EU Law" (section 11.).

In summary, fundamentally, what the Applicant seeks is that the Arbitration Tribunal pronounce itself "on the legality of the TCA's understanding set out in the Dispatch dismissing the claim, and "consequent" [sic] on the legality of the self-assessment act" (section 19.).

1. In light of what has been stated, it must be concluded, in accordance with the terms of the structure of the IP and the requests formulated by the Applicant, that the purpose for which the proceeding is destined, the useful effect sought, is restricted to the decision on the dismissal of the claim that assesses the legality of the self-assessment, a decision which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the self-assessment of IRC for the year 2013. In this context, the other requests are configured as merely instrumental in relation to those, for none of them has utility for the Applicant dissociated from the annulment of the self-assessment and the decision of the claim which, by keeping it in the legal system, the Applicant deems illegal.

Therefore, it is only regarding the request formulated in paragraph a) of no. 18 above that the arbitration ruling should focus, which has as its object, ultimately, to know whether the self-assessment is illegal for not having been made with application of the special tax treatment regime for groups of companies.

It will always be added that it is outside the competences of this Arbitration Tribunal to define, in the event of eventual declaration of the illegality of that determination and the decision of the claim, the terms in which new tax acts may or may not be practiced, as this is a matter that falls within the duties of the Tax and Customs Authority, in execution of the judgment, under article 24, no. 1, of the LRTA.

Similarly, requests that do not pertain to the validity of the act in itself but are instead intended for the recognition of a right resulting from the tax legal relationship or for obtaining the condemnation of the competent entity to perform an act that has been illegally omitted or refused escape the competence of tax arbitration tribunals.

In light of what has been stated, within the scope of the dispute configured by the Applicant, in view of the provision of article 2, no. 1, paragraph a) of the LRTA, this Tribunal has competence to assess the claim pertaining to the declaration of illegality of the dispatch dismissing the claim and of the self-assessment, insofar as it was the subject of confirmation by the dismissal, incorporating its illegality.

Being manifest the competence of this Arbitration Tribunal to assess the request formulated in paragraph a) of no. 18 above, it must be concluded that the exception of incompetence invoked by the Tax and Customs Authority is thus without merit.

b) On Lack of Standing

1. Before, however, assessing the merits of this annulment claim, it is necessary to address the other exception raised by the Respondent, namely, the lack of standing of the Applicant due to absence of necessary joinder of parties (cfr. above no. 10).

The TCA alleges, in this regard, in its response (articles 39 et seq.) the following:

• the request for arbitration ruling was filed by a domestic legal entity company, A…, seeking to be recognized the right to be taxed according to the RETGS in which the holding company of the group would be another company, of French law, B… SA;

• being that company a non-resident, the applicant does not even state that it is its representative for the purposes of applying such regime, it being the mother company or its representative that must submit the consolidated Form 22 of the group;

• B… not appearing in the present case as a Claimant or applicant, any decision to be issued in the present proceeding would always lack any useful effect, since it is a matter of the request for recognition of a group to be taxed according to the RETGS and it being true that it is the mother company that presents the Form 22 of the group, the law requires the intervention of all so that the judicial decision has useful effect and binds all parties;

• due to the absence of necessary joinder of parties, the applicant is an illegitimate party which determines, also by this means, the acquittal of the R. from the proceedings, cfr. article 33, no. 1 of the CPC, articles 576, no. 1 and 577, paragraph e) of the CPC, applicable ex vi article 29, no. 1, paragraph e) of the LRTA.

In the request for response to exceptions of 6.11.2017, the Applicant sustains, regarding the issue of lack of standing (nos. 21 et seq.), the following:

• "the TCA having not alleged the lack of standing of the Applicant, in the context of official revision [sic], nor this alleged lack of standing being grounds for the dismissal of the official revision request [sic], no other conclusion can be drawn than that of the lack of merit of that exception";

• "the question at issue here is precisely the illegality of the provision of article 69 of the CIRC, at the time in force, for not admitting the possibility of constitution of a group of companies in which the mother company (holding company) would be a company resident in a Member State of the European Union"; "as expressly results from the request for arbitration ruling, the Applicant and E... [sic], did not opt for the application of the RETGS in the tax periods prior to 2015 because, at the date of the facts, the rule contained in article 69 of the Corporate Income Tax Code did not allow them to opt for the application of the special tax treatment regime for groups of companies, so they did not have the opportunity to exercise such option in fiscal years prior to 2011 [sic]", "[i]t being true that, as the TCA well knows, and even because it appears from the Dismissal Dispatch that from January 2015 onwards, the holding company became E... [sic], and the here Applicant the dominated company designated, in the terms provided for in no. 3 of article 69-A of the CIRC";

• "it is manifest the interest of the Applicant in the application of the RETGS in the fiscal period of 2011 [sic], because it seeks to extract to its legal sphere (own interest) a specific result (Direct interest! - that of being taxed within the scope of fiscal consolidated profit, in the terms set out) - which is not contrary to law (legitimate interest)"; "Once the possibility of applying the RETGS was detected, regarding this period, only the Applicant could react against the determination note in question, because only it appeared as the taxpayer for the tax, embodying this the only legal act capable of being claimed and being the Applicant the only legitimate party to raise it".

• "The Applicant, formally from 2015 onwards, presents itself as a company designated by company E… [sic] to assume all responsibility for compliance with all obligations, i.e., to play the role of holding company, as expressly referred to in the request for official revision, and which was not denied by the TCA in the Dispatch Dismissing the Official Revision [sic]" and "The Applicant is the taxpayer for the tax here in question, and is the sole recipient of the effects of the decision dismissing the official revision [sic]. These acts harmed its legal sphere, as it would be favorable to it to apply the special tax treatment regime for groups of companies, in the terms requested";

• given the provision of article 261 of the Civil Procedure Code (CPC), "should the Arbitration Tribunal conclude for the lack of standing due to absence of necessary joinder of parties, which is only accepted by mere hypothesis, then the same should invite the here Applicant to summon the intervention of the main person(s) in default";

1. It is well known that the procedural requirement of standing concerns the relationship of the parties to the concrete claim submitted. According to article 30 of the CPC "the claimant has standing when it has direct interest in suing; the respondent has standing when it has direct interest in defending" (no. 1), and "the interest in suing is expressed by the utility derived from the merit of the action and the interest in defending by the harm arising from that merit" (no. 2), it being considered, in the absence of contrary indication by law, "bearers of the relevant interest for the purpose of standing the subjects of the relationship in dispute, as configured by the claimant".

In tax procedural terms, it results from nos. 1 and 4 of article 9 of the CPPT (applicable ex vi article 29, no. 1, paragraph a), of the LRTA), that those with standing in tax proceedings are taxpayers, including substitutes and liable parties, other tax-obligated parties, parties to tax contracts and any other persons who prove legally protected interest. It may be recalled that article 95, no. 1, of the LGT provides that "the interested party has the right to challenge or appeal any act harmful to its rights and legally protected interests, according to the procedural forms prescribed by law".

In the case, the lack of standing invoked relates to plural active lack of standing, in which the same disputed legal situation concerns a plurality of persons, implying the need for the claim to be brought by several persons, in terms of necessary joinder of parties. It may be recalled that, according to no. 1 of article 33 of the CPC, if the law "requires the intervention of the various interested parties in the disputed relationship, the absence of any of them is grounds for lack of standing"; then, according to no. 2 of the same article 33, it is equally necessary the "intervention of all interested parties when, by the very nature of the legal relationship, it is necessary for the decision to be obtained to produce its normal useful effect", and, according to no. 3 of this article, the "decision produces its normal useful effect whenever, not binding the remaining interested parties, it can definitively regulate the concrete situation of the parties regarding the request formulated".

1. It should be noted that the resolution of the question raised regarding lack of standing is placed solely, in view of what was decided in the previous section regarding the competence of this Tribunal, as a function of the request in these proceedings for declaration of illegality of the dispatch dismissing the claim and the self-assessment object of confirmation by that dispatch. Thus, the singular lack of standing of the Applicant is manifest, given the existence, as regards it, regarding the self-assessment of 2013 IRC, of a direct, personal and legitimate interest in the annulment of the acts challenged, given the advantage or utility that the annulment of the act, eventually combined with execution of the judgment, provides to it.

In effect, the Applicant was the sole recipient of the dismissal of the claim and consequent confirmation of the self-assessment and, in light of the thesis it defends, these acts harmed its legal sphere, as it would be favorable to it to apply the special tax treatment regime for groups of companies.

In summary, in the case in question, understanding that the requests to be assessed are only that of annulment of the determination and the decision of the claim, it appears that the Applicant will have standing, as the validity or otherwise of these acts will be definitely decided.

Thus, this exception is without merit.

c) On the Illegality of the Decision Dismissing the Claim and of the Self-Assessment

The central question to be decided revolves around whether the self-assessment and the dispatch of dismissal, which maintained it, are illegal by applying article 69 of the CIRC in force at the date of the facts. This presupposes the analysis, albeit summary, of the evolution of the said RETGS regime, to emphasize that its application presupposes the verification of conditions and prior requirements, including a declarative act directed in a timely manner to the TCA in the sense of opting for the said regime. As will be demonstrated, only after the verification of this prior formal requirement can one proceed to the analysis of the verification of the material requirements of the RETGS.

It is necessary to assess and decide.

1. In the year 2013, article 69 of the CIRC was in force in the wording of Decree-Law no. 159/2009, of 13 July, in which it is established, among other things, the following on the scope and conditions of application of the RETGS:

1 – If a group of companies exists, the holding company may opt for the application of the special regime for determining the taxable matter in relation to all companies of the group.

2 – A group of companies exists when a company, called the holding company, holds, directly or indirectly, at least 90% of the capital of another or other companies called dominated, provided that such participation grants it more than 50% of the voting rights.

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

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

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

d) The holding company has not waived the application of the regime in the three years preceding, with reference to the date on which the application of the regime begins.

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

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

b) Special proceedings for recovery or bankruptcy have been initiated against them in which a dispatch continuing the action has been issued;

c) They record tax losses in the three years preceding the beginning of the application of the regime, except, in the case of dominated companies, if the participation is already held by the holding company for more than two years;

d) They are subject to an IRC rate lower than the highest normal rate and do not waive its application;

e) They adopt a tax period not coinciding with that of the holding company;

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

g) They do not assume the legal form of limited liability company, joint-stock company or limited partnership by shares, except as provided in no. 12.

In accordance with the provision in paragraph a) of no. 3 and paragraph f) of no. 4, the Applicant and holding company of the group in which it was included could not be included in the RETGS all the companies resident for tax purposes in Portugal held directly and indirectly by the holding company B… SA., as this did not have for tax purposes registered office or effective management in Portuguese territory.

The CJEU, in Decision of 12-06-2014, issued in the joined cases nos. C-39/13,

C-40/13 and C-41/13, decided the following:

1. In cases C‑39/13 and C‑41/13, articles 49 TFEU and 54 TFEU must be interpreted to the effect that they oppose legislation of a Member State by which a resident mother company can constitute a fiscal unit with a resident sub-subsidiary when it holds it through one or several resident companies, but cannot constitute this fiscal unit when it holds the sub-subsidiary through non-resident companies which do not have a permanent establishment in that Member State.

2. In case C‑40/13, articles 49 TFEU and 54 TFEU must be interpreted to the effect that they oppose legislation of a Member State by which the fiscal unit regime may be granted to a resident mother company which holds resident subsidiaries, but not to resident sister companies whose common mother company has not its registered office in that Member State, nor has there a permanent establishment.

With the wording given to the CIRC by Law no. 82-C/2014, of 31 December, the rules of article 69 of the CIRC now have the following wording:

1 - If a group of companies exists, the holding company may opt for the application of the special regime for determining the taxable matter in relation to all companies of the group.

2 - A group of companies exists when a company, called the holding company, holds, directly or indirectly, at least 75% of the capital of another or other companies called dominated, provided that such participation grants it more than 50% of the voting rights.

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

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

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

d) The holding company has not waived the application of the regime in the three years preceding, with reference to the date on which the application of the regime begins.

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

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

b) Special proceedings for recovery or bankruptcy have been initiated against them in which a dispatch continuing the action has been issued;

c) They record tax losses in the three years preceding the beginning of the application of the regime, except, in the case of dominated companies, if the participation is already held by the holding company for more than two years;

d) They are subject to an IRC rate lower than the highest normal rate and do not waive its application;

e) They adopt a tax period not coinciding with that of the holding company;

f) (Repealed.)

g) They do not assume the legal form of limited liability company, joint-stock company or limited partnership by shares, except as provided in no. 11. (Rectified by Rectification Declaration 18/2014, of 13 March)

In addition, the same Law no. 82-C/2014, amended the CIRC with article 69-A, with the following wording:

Article 69-A

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

1 – The holding company, as such qualified under the terms of no. 2 of the preceding article, which does not have registered office or effective management in Portuguese territory, may also opt for the application of the special tax treatment regime for groups of companies provided for in this subsection, provided that it cumulatively meets the following conditions:

a) It is resident of a Member State of the European Union or of the European Economic Area that is bound by administrative cooperation in the tax field equivalent to that established within the European Union;

b) It 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) It is not held, directly or indirectly, at least in 75% of the capital, by a company resident in Portuguese territory that meets the requirements provided in the preceding article to be qualified as holding company, provided that such participation grants it more than 50% of the voting rights, under the terms of no. 6 of the preceding article;

d) It has not waived the application of the regime in the three years preceding, with reference to the date on which the application of the regime begins;

e) It is subject and not exempted from a tax referred to in article 2 of Council Directive no. 2011/96/EU, of 30 November, or a tax of a nature identical or similar to IRC;

f) It has the form of a limited liability company;

g) Where it holds a permanent establishment in Portuguese territory through which the participations in the dominated companies are held and there is not, as regards this, any of the situations provided in paragraphs a), c), d) or e) of no. 4 of the preceding article, with the necessary adjustments.

2 – The option provided for in the preceding number determines the application of the special tax treatment regime for groups of companies in relation to all dominated companies with registered office and effective management in Portuguese territory as regards which the conditions established in nos. 3 and 4 of the preceding article are met, as well as to the permanent establishment of the holding company situated in this territory through which the participations are held.

3 – The option for the regime in accordance with the present article depends on the communication to the Tax and Customs Authority, in the statement referred to in no. 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 holding company under the terms of this Code, without prejudice to the joint and several liability of the holding company and of the other companies belonging to the group for payment of the tax, under the terms of article 115.

4 – In cases where the holding company has a permanent establishment in Portuguese territory through which the participations in the dominated companies are held, the provision of the preceding number must be obligatorily observed by it.

5 – In all matters not provided for in the present article, the provision of the preceding article shall apply, with the necessary adjustments.

1. The Applicant argues that, in light of the cited case law of the CJEU, it already met, in 2013, the requirements to be taxed according to the RETGS in accordance with a group perimeter that would include D… considering B… as the holding company.

The essential question that the Applicant raises is whether the self-assessment, as well as the decision of the claim which maintained it, should be declared illegal, for not having applied and interpreted article 69 of the CIRC, regarding the tax situations relating to the year 2013 in conformity with European Law and the case law of the CJEU.

This question has already been decided in the Arbitration Decision issued in Case no. 101/2017-T, whose factual and legal assumptions are identical to the case at hand.

As we agree with the case law stated there, we proceed to follow it closely, reproducing it, as follows:

"(…) the application of the RETGS to the year 2013 does not depend only on the verification of the legal requirements for its application, as it is an optional regime, applicable only following an option by the holding company, formulated in advance in relation to the end of the first year in which its application is sought.

"The admissibility of the option by IRC taxpayers for the application of the RETGS, with the possibility of obtaining tax advantages for these and consequent loss of tax revenues, 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 in a group, strengthening and consolidating the business fabric, thus achieving greater competitiveness and favoring competition», not being justifiable for the purpose of obtaining «exclusively fiscal purposes» (decision of the Supreme Administrative Court of 29-12-2012, case no. 021/12).

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

"Therefore, the imposition of that period for formulation of the option is based on grounds that do not comport with the Applicant's understanding that «the non-exercise of the right, until the end of the 3rd month in the tax period in which it is sought to begin the application, does not invalidate the subsequent recognition of the said right and the, consequent, retroactive application».

"In fact, this option within the prescribed period must be manifested by the holding company (and not by some or all of the dominated companies), this manifestation being essential because, among other things, it implies for it the assumption of tax responsibilities (article 115 of the CIRC), in addition to declarative obligations."

In the case at hand, as results from the factuality proven (see above no. V of the evidence), no request for option for taxation according to the RETGS was submitted in 2013 with the perimeter sought either by the Applicant or by the holding company of the group.

The application of the RETGS not being automatic and no option having been made in the sense of its application in the terms at issue in these proceedings, the individual self-assessment made by the Applicant does not suffer from illegality, for not having applied the special tax treatment regime for groups of companies in the terms of a RETGS with B… as the holding company and with the inclusion of D…, as the requirements for its application were not met, designedly an option timely presented.

On the other hand, as also stated in the Arbitration Decision referred to above, the Tax and Customs Authority could not, in the course of requests to claim the tax act, nor can this Arbitration Tribunal, fictionally assume that the option for the application of the special tax treatment regime for groups of companies regarding the year 2013 had been made by the holding company within the legally prescribed period.

Finally, it will always be added that if the Applicant intended, with the indicated perimeter, the application of the special tax treatment regime for groups of companies provided for in article 69 of the CIRC, interpreted according to the case law of the CJEU, to the 2013 IRC year, it should have begun by formulating, in a timely manner, the request for option for that regime to the TCA. It does not constitute a valid argument the allegation of the Applicant that article 69 of the CIRC did not allow it. In effect, following the TCA's response, if it were negative, the path would then open for the Applicant to resort to filing an action for recognition of rights or a special action for condemnation to perform a due act in state tax tribunals. It must further be noted that the question of eventual discrimination between resident and non-resident companies can only be raised when they are in the same situation, that is, after the declarative option for the regime has been made and the prior formal requirements have been verified. Before that, one cannot speak, without further ado, of inequality or any discrimination in the application of European law, since the situations are materially different.

By the above, it is concluded that the self-assessment, followed by the decision dismissing the claim no. …2016…, do not suffer from illegality for not having applied the special tax treatment regime for groups of companies with the inclusion of company D…, Lda.

d) Questions of Prejudicial Knowledge

Finding an obstacle to the merit of the request, the assessment of the other questions of legality raised by the Applicant and by the Tax and Customs Authority is prejudiced.

V. Decision

On these terms, the members of this Arbitration Tribunal agree to:

• Rule that the exceptions raised by the Tax and Customs Authority are without merit;

• Rule that the request for arbitration ruling is without merit;

• Acquit the Tax and Customs Authority of the requests.

VI. Value of the Proceeding

In accordance with the provision of article 306, nos. 1 and 2 of the Civil Procedure Code (CPC), article 97-A, no. 1, paragraph a) of the CPPT, applicable by virtue of paragraphs c) and e) of no. 1 of article 29 of the LRTA and no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceeding is fixed at €104,196.72 (one hundred and four thousand, one hundred ninety-six euros and seventy-two cents).

VII. Costs

In accordance with the provision of articles 12, no. 2, and 22, no. 4, both of the LRTA, and article 4, no. 4 of the RCPAT, the value of the arbitration fee is fixed at €3,060.00, as per Table I of the mentioned RCPAT, to be borne by the Applicants (article 527, nos. 1 and 2 of the CPC ex vi article 29, no. 1, paragraph e) of the LRTA).

Notify accordingly.

Lisbon, 11 April 2018.

Councillor Fernanda Maçãs (arbitrator-president),

Professor Doctor Jónatas Machado

Doctor João Menezes Leitão

[1] The orthography resulting from the Orthographic Agreement of the Portuguese Language of 1990 is adopted, with the spelling of citations being updated accordingly.