Process: 422/2017-T

Date: December 6, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

Process 422/2017-T addresses the procedural consequences of voluntary withdrawal (desistência do pedido) in tax arbitration proceedings concerning IRC additional assessments. A company challenged three additional IRC assessments for tax periods 2013, 2014, and 2015 (1st Quarter) after an unsuccessful administrative review complaint. The arbitral tribunal was constituted on 18 September 2017 with three designated arbitrators. A significant preliminary issue arose regarding case valuation: the Claimant valued the case at €560,025.70 (the total amount of corrections to taxable income), while the Tax Authority argued for €130,886.25 (applying applicable IRC rates of 25%, 23%, and 21% respectively to each correction). The Tax Authority's position relied on Article 97°-A of the CPPT and Article 3(3) of the Regulation of Costs in Tax Arbitration Proceedings, which specify that case value should reflect the assessment amount contested, not the taxable income correction. The Claimant countered that since the assessments resulted in zero tax due to existing tax losses that could be carried forward, the full correction amount should determine case value, as future utilization of losses could have varying tax rate implications. Before the scheduled hearing on 6 December 2017, the Claimant withdrew the arbitration request and requested exemption from paying the second installment of the arbitral fee. This decision illustrates CAAD's handling of withdrawal procedures in IRC liquidation disputes, including the tribunal's constitution requirements under RJAT (Decree-Law 10/2011), the controversy over proper case valuation methodology when assessments result in zero tax liability due to loss carryforwards, and the fee implications of mid-proceeding withdrawal after tribunal constitution but before substantive hearings.

Full Decision

Arbitral Decision

The arbitrators Councillor Jorge Manuel Lopes de Sousa (president-arbitrator), Professor Doctor Nuno Cunha Rodrigues and Professor Doctor António Martins (arbitrator-members), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 18-09-2017, hereby agree as follows:

1. Report

A… LDA., a legal entity …, with head office at Rua …, n.°…, …-… …, …, (hereinafter, "Claimant"), filed, pursuant to articles 10.° and 2.°, n.° 1, subparagraph a), of Decree-Law n.° 10/2011, of 20 January (RJAT) a request for arbitral pronouncement on the legality of the acts of additional assessment of Corporate Income Tax (IRC) n.° 2016…, referring to the tax period of 2013, n.° 2016…, referring to the period of 2014, and n.° 2016…, referring to the period of 2015 (1st Quarter), all issued by the Tax and Customs Authority, in respect of which it filed a complaint for administrative review (administrative review procedure n.° …2016…), which was dismissed.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 11-07-2017.

Pursuant to the provisions of subparagraph a) of n.º 2 of article 6.° and subparagraph b) of n.° 1 of article 11.° of RJAT, in the wording introduced by article 228.° of Law n.° 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable time period.

On 01-09-2017 the parties were duly notified of this designation, and did not manifest a willingness to refuse the designation of the arbitrators, pursuant to the combined provisions of article 11.° n.° 1 subparagraphs a) and b) of RJAT and articles 6.° and 7.° of the Deontological Code.

Thus, in accordance with the provisions of subparagraph c) of n.° 1 of article 11.° of RJAT, in the wording introduced by article 228.° of Law n.° 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 18-09-2017.

The Tax and Customs Authority replied arguing that the request should be dismissed as unfounded and that the value of the case should be amended.

The Claimant pronounced itself on the question of the value of the case.

The date of 06-12-2017 was set for the holding of the meeting provided for in article 18.° of RJAT, being cancelled following the filing by the Claimant of withdrawal of the request.

With the withdrawal of the request, the Claimant requests that it be dispensed from payment of the second instalment of the arbitral fee.

The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2.°, n.° 1, subparagraph a), and 10.°, n.° 1, of Decree-Law n.° 10/2011, of 20 January, and is competent.

The parties are duly represented, possess legal standing and capacity, are legitimate and are represented (articles 4.° and 10.°, n.° 2, of the same statute and article 1.° of Regulation n.° 112-A/2011, of 22 March).

The case does not suffer from nullities and there are no exceptions, with the Tax and Customs Authority raising the preliminary question of the value of the case.

2. Question of the Value of the Case

The Claimant indicated as the value of the case the amount of € 560,025.70, corresponding to the sum of the values of the corrections to taxable matter that it intended to have annulled.

The Tax and Customs Authority argues that, given that the assessments have a zero value, the value of the case should be fixed by applying the IRC rates of 25% to the correction relating to 2013, 23% to the correction relating to 2014 and 21% to the correction relating to 2015, which amounts to a total of € 130,886.25.

The Tax and Customs Authority states, in summary, the following:

– according to the provisions of article 296.°, n.° 1, of the Code of Civil Procedure (CPC), applicable ex vi article 29° of RJAT, "[e]very action must be assigned a definite value, expressed in legal tender, which represents the immediate economic utility of the claim":

– on the other hand, article 297.°, n.° 1, of the same CPC provides that "[i]f the action seeks to obtain any definite sum of money, that is the value of the case, with no objection being admissible nor contrary agreement; if the action seeks to obtain a benefit different from that, the value of the case is the sum of money equivalent to that benefit";

– in turn, article 32.°, n.° 1, of the Administrative Court Procedure Code (CPTA), likewise applicable ex vi article 29° of RJAT, provides that "[w]hen the action seeks to obtain the payment of a definite sum, that is the value of the case"; pursuant to n.° 2 of the provision, "[w]hen the action seeks to obtain a benefit other than the payment of a sum, the value of the case is the sum equivalent to that benefit".

– on the other hand, as special law, n.° 3 of article 3.° of the Regulation of Costs in Tax Arbitration Proceedings expressly provides that "The value of the case in the instances provided for in subparagraphs b) [and c)] of n.° 1 of article 2.° of the Legal Regime of Arbitration is that of the assessment which the taxpayer, wholly or in part, seeks to oppose."

– furthermore, n.° 2 of article 3.° of the Regulation of Costs provides that "The value of the case is determined pursuant to article 97.°-A of the Code of Tax Procedure and Process.";

– article 97°-A of the Code of Tax Procedure and Process (CPPT), applicable ex vi article 29° of RJAT, under the heading "Value of the Case", provides the following:

"1 - The values to be considered, for purposes of costs or others provided for by law, for actions that take place in tax courts, are the following:

a) When an assessment is contested, the amount whose annulment is sought; (…)"

– for purposes of assigning a value to the action of impugnation of an assessment, as is the case here, the law requires consideration of the value of the amount to be annulled;

– the assessments issued resulted in certificates demonstrating account reconciliation with zero value, nonetheless, the value of the case is not that of the correction to taxable matter;

– that is, even in situations where recourse to tax arbitration concerns tax acts that consist of the declaration of illegality of acts determining the taxable matter or taxable base, when they do not result in the assessment of any tax, the value of the case is that of the assessment "which the taxpayer, wholly or in part, seeks to oppose", as provided in n.° 3 of article 3.° of the Regulation of Costs in Tax Arbitration Proceedings.

The Claimant argues that the value it indicated should be maintained, in line with the arbitral decision in case n.° 151/2013-T, since "in cases such as the present one, where the balance determined is zero because the Claimant has tax losses, reason why one should consider the amount contested (i.e., the correction made)", "not least because the said correction, given the possibility of, in certain circumstances, carrying forward the losses, may have repercussions in different years, in which the IRC rate may be different".

2.1. Assessment of the Question of the Value of the Case

The RJAT does not explicitly establish any criterion for determining the value of arbitral disputes which have as their subject the declaration of illegality of acts fixing taxable matter that did not result in an assessment or resulted in an assessment with zero value.

However, the RJAT contains provisions that refer to the value of disputes.

In article 5.° of RJAT, there are three references to the "value of the claim", but no indication is given on how to determine it.

Another provision that refers to value is subparagraph e) of n.° 2 of article 10.°, which makes reference to the "indication of the value of the economic utility of the claim", as one of the requirements of the request for constitution of the arbitral tribunal, and it is on this provision that the Tax and Customs Authority grounds its thesis that the value of the case should be determined based on the value of the corrections made multiplied by the IRC rates that were in force in the years to which the corrections refer.

It is evident, however, that the IRC rates in force in the years to which each of the corrections refers have nothing to do with the economic utility of the claim, since what is at issue is not the payment of any IRC for those fiscal years, but rather the possible repercussion of these corrections (which reduced values of tax losses), in future fiscal years, not yet determined, under the regime of loss carryforward.

It is not known in which fiscal years the tax losses referred to may be relevant and what IRC rates will be in force in them.

Thus, while it is true that this subparagraph e) points towards the value of the dispute in arbitral proceedings being the "economic utility of the claim", it is equally true that the application of this criterion for determining the value of the case is only viable when it is possible to determine such economic utility. In fact, the practical viability of application of a provision to a given legal situation is naturally an indispensable requirement for its use, for natural impossibility is an insuperable obstacle to everything, including the application of any provision to a situation.

For this reason, the said subparagraph e) of n.° 2 of article 10.° must be interpreted restrictively, with the natural and forced limitation that the value of arbitral proceedings will be the economic utility of the claim, when it is possible to determine such utility.

Now, there are disputes within the competence of arbitral tribunals operating at CAAD that do not have determinable economic utility, because their definition depends on factors that are not known at the time of filing the request for constitution of the arbitral tribunal, nor even will they be known until the end of the proceedings.

Among these cases of indeterminable value in light of the criterion of economic utility are, in the first place, most requests for declaration of illegality of acts fixing property values, provided for in subparagraph b) of n.° 1 of article 2.° of RJAT, because, as occurs in cases of property values of real property, the value that is determined will be repercussed in an undetermined and unpredictable number of annual acts assessing Municipal Property Tax, in addition to, possibly, occasional acts assessing Municipal Tax on Onerous Transfer of Real Property (articles 12.°, n.° 2, and 14.° of the Municipal Tax Code on Onerous Transfer of Real Property) and Stamp Tax (article 13.°, n.° 1, of the Stamp Tax Code), and normally also acts assessing municipal fees connected with urban infrastructure.

Since it is unpredictable which acts of assessment will be affected by the determination of property values, it is evident that the economic utility of requests for impugnation of acts fixing property values cannot be determined and, therefore, cannot serve as a criterion for fixing the value of the dispute.

Similar impossibility in determining the economic utility of the dispute occurs in cases of requests for declaration of illegality of acts fixing taxable matter when they do not result in the assessment of any tax, especially because taxable matter is negative (tax losses), as occurs in the present case.

In fact, in these cases, the losses ascertained may never even become relevant to the performance of any assessment act, because such relevance will depend on whether in some or several of the tax periods in which it is legally permissible to carry forward the losses there comes to be ascertained taxable profit without recourse to indirect methods and there are no losses relating to other prior tax periods that exceed that taxable profit (article 52.°, n.ºs 1, 2 and 3, of the Corporate Income Tax Code (CIRC)).

Furthermore, the tax relevance of the losses ascertained will also depend on whether, at the end of the tax period in which the deduction is made and in relation to the period to which the losses relate, there has not been an alteration in the ownership of at least 50% of the share capital or the majority of voting rights, unless there is authorization from the Minister of Finance (article 52.°, n.ºs 8, 9 and 12, of CIRC).

On the other hand, in cases where the losses come to be carried forward and become relevant to the assessment for any of the years in which the law permits carryforward, the measure of this relevance will be defined by the rate or rates of the taxes to which the taxable profit is relevant.

And, beyond the rate applicable specifically to IRC, which may be different from that applicable in the year in which the tax losses occur, it must be taken into account that these losses may be relevant for purposes of other taxes connected with IRC, as is the case with the almost always associated municipal surcharge and others that budget needs, unpredictable but omnipresent, may impose, such as state surcharges, as have been applied since 2011 (article 87.°-A of CIRC, in the wording of Law n.° 12-A/2010, of 28 August, with subsequent budgetary renewals).

In this light, it is evident the lack of correspondence with reality of the application of rates of 25%, 23.° or 21%, suggested by the Tax and Customs Authority, to the value of the tax losses to determine the economic utility of the claim, because, beyond not knowing whether the tax losses will be carried forward to any tax period, it is already known that, if they had been in any of the years from 2013 onwards, the economic utility of the claim would be greater than that indicated by the Tax and Customs Authority for each of those years, because, beyond the losses being relevant for purposes of IRC, they would also be relevant for purposes of state surcharge, possibly municipal surcharge (depending on the municipality or municipalities where the Claimant's facilities are located), and even adjustments resulting from the rule of the result of assessment contained in article 92.° of CIRC.

In this context, the determination of the economic utility of the claim by applying imaginary rates of 25%, 23% or 21% to the value of the losses, without demonstrated correspondence with the actual taxation connected with the losses referred to, cannot be considered more than a guess about the hypothetical economic utility of the claim, if, possibly, it comes to be effected through carryforward of losses.

This means that the extent of the relevance of the losses at the level of the taxes whose assessment they may influence is indeterminable, although it is certain that, because the rates of the taxes are less than 100% of taxable matter, the economic utility of requests for declaration of illegality of acts fixing losses, if it comes to materialize through carryforward, will always be less than the amount of those losses.

Thus, the criterion of economic utility of the claim cannot be used.

For the same reason that it is not determinable what value of assessment of taxes the contested corrections may come to assume, it is unfeasible to use the criterion provided for in n.° 3 of article 3.° of the Regulation of Costs in Tax Arbitration Proceedings which establishes that "the value of the case in the instances provided for in subparagraphs b) and c) of n.° 1 of the Legal Regime of Arbitration is that of the assessment which the taxpayer, wholly or in part, seeks to oppose".

For this reason, by virtue of the provisions of n.° 2 of article 3.° of the Regulation of Costs in Tax Arbitration Proceedings "the value of the case is determined pursuant to article 97.°-A of the Code of Tax Procedure and Process".

For what was referred to, in these cases of indeterminable value, the value of the case cannot be fixed by applying the rule of subparagraph a) of n.° 1 of article 97.°-A of CPPT ("when an assessment is contested, the amount whose annulment is sought"), because when zero-value assessments are involved, the annulment of any assessed amount is not sought.

Consequently, the rule of subparagraph b) of n.° 1 of article 97.°-A of CPPT must be applied, which establishes that the value to be considered is "when the act fixing taxable matter is contested, the amount contested".

The amount contested is that of the corrections made, from which it is concluded that it was properly determined by the Claimant.

Thus, the preliminary question of the value of the case raised by the Tax and Customs Authority is without merit.

3. Withdrawal of the Claim

By petition of 05-12-2017, the Claimant came to withdraw the claim.

The Claimant's attorneys presented a power of attorney that did not include special powers to withdraw the claim.

The withdrawal is valid as to its object, whereby this Arbitral Tribunal agrees to homologate it, and it is declared that the rights which the Claimant intended to exercise in seeking the annulment of the following acts are extinguished:

– assessment of IRC n.° 2016…, of 10-08-2016, referring to the tax period of 2013;

– assessment of IRC n.° 2016…, of 10-08-2016, referring to the tax period of 2014;

– assessment of IRC n.° 2016…, of 22.09.2016, referring to the tax period of 2015 (1st Quarter);

– decision dismissing the complaint for administrative review n.º …2016… .

In view of the said lack of special powers of the Claimant's attorneys, this arbitral decision shall be personally notified to A… LDA., with the warning that, if it says nothing within the period of 10 days, the withdrawal shall be deemed ratified and the nullity cured and that, if it declares that it does not ratify the act of the attorneys, this shall produce no effect against it [article 291.°, n.° 3, of the Code of Civil Procedure subsidiarily applicable, by virtue of the provisions of article 29.°, n.° 1, subparagraph c), of RJAT].

4. Request for Exemption from Payment of the Subsequent Arbitral Fee

The Claimant requests that, given the procedural phase in which the present dispute finds itself, exemption from payment of the second instalment of the arbitral fee owed.

The arbitral tribunals operating at CAAD are part of institutionalized arbitration.

In institutionalized arbitration, the costs of the arbitral proceedings, in particular the arbitrators' fees and their expenses, are not fixed in an arbitration agreement or in a written agreement between the arbitrators and the parties, as provided in article 17.°, n.° 1, of the Law on Voluntary Arbitration (Law n.° 63/2011, of 14 December), nor are they fixed by the arbitrators, pursuant to n.° 2 of the same article, but are instead fixed by the institution itself that organizes the arbitration.

In the case of CAAD, there is a Table of Arbitrators' Fees, which is presented to the arbitrators designated for each arbitral proceeding at the moment notification of the designation is communicated, and with the acceptance there is perfected a contract between the designated arbitrators by which they commit themselves to CAAD to provide their services in the arbitral proceeding for the proposed fees.

The arbitrators do not enter into any agreement on fees with the parties or on the overall costs of the arbitral proceedings, and the determination of the amount to be paid by the applicant in the arbitral proceeding results from the Regulation of Costs in Tax Arbitration Proceedings, whose rules are implicitly accepted by the applicant.

One of these rules is that "beyond the cases expressly provided for in this regulation, there is no reimbursement, refund or compensation, under any title" (article 4.°, n.° 6, of the said Regulation), whereby the applicant in arbitration knows in advance how much is owed and what the procedural situations are in which he may cease to pay what he undertakes to pay when he files a request for constitution of an arbitral tribunal.

In this light, the fixing of the amount of costs by the arbitral tribunal in the final decision, provided for in articles 12.°, n.° 2, and 22.°, n.° 4, of RJAT, is of a purely certificatory nature, not having underlying it the attribution to the arbitrators of any power to consider what is the appropriate rate, this indication being justified only for there to exist a title that permits imputing to the Parties the responsibility for payment of costs.

An unequivocal proof that this is the reason for the fixing of the amount of costs in the arbitral decision is found in the fact that, in cases where the applicant in arbitration opts for the choice of arbitrator, the fixing in the arbitral decision of the amount of costs is not provided for, as results from the comparison of n.ºs 2 and 3 of article 12.° and the final part of n.° 4 of article 22.° of RJAT. In fact, in these cases where the applicant in arbitration opts to choose the arbitrator, it is he who has to bear entirely and in advance the costs of arbitration, even if he obtains success in the proceedings, pursuant to article 5.°, n.° 2, of that Regulation and article 12.°, n.° 3, of RJAT) and it is because he does not have to have the responsibility for costs of the Tax and Customs Authority fixed that the fixing of its amount need not be included in the arbitral decision.

This means that the provision for fixing costs in the arbitral decision, in cases where there is no choice of arbitrator by the applicant in arbitration, does not have underlying it the attribution to the arbitral tribunal of the power to consider what is the appropriate amount of the arbitration rate, being justified only for reasons of clarification of the current or eventual responsibility for costs of the Tax and Customs Authority.

As for the applicant in arbitration, responsibility for costs is previously defined through the initial and subsequent arbitration rates that he accepted to pay before the arbitral decision, as results from the rule of no reimbursement, refund or compensation, under any title, which is contained in article 4.°, n.° 6 of the Regulation of Costs.

For this reason, as there is no distinction in this Regulation between cases in which the arbitral decision rules on the merits of the case and those in which the proceeding terminates by the success of an exception, there is no normative support for this Arbitral Tribunal to reduce the amount of costs that the Claimant accepted to pay nor to order its reimbursement.

5. Value of the Case

For what was referred to and in accordance with the provisions of article 306.°, n.° 2, of the CPC and 97.°-A, n.° 1, subparagraph a), of CPPT and 3.°, n.° 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 560,025.70.

6. Costs

Pursuant to article 22.°, n.° 4, of RJAT, the amount of costs is fixed at € 8,658.00, pursuant to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant, which shall pay the subsequent arbitral fee within the period of 10 days.

Lisbon, 06-12-2017

The Arbitrators

(Jorge Lopes de Sousa)

(Nuno Cunha Rodrigues)

(António Martins)

Frequently Asked Questions

Automatically Created

What happens when a taxpayer withdraws an arbitration request regarding IRC additional assessments?
Quando um contribuinte desiste de um pedido de pronúncia arbitral relativo a liquidações adicionais de IRC, o tribunal arbitral toma conhecimento da desistência e cancela as diligências agendadas, como a audiência prevista no artigo 18.° do RJAT. A desistência implica o término do processo arbitral sem apreciação do mérito da causa, sendo o pedido considerado extinto por vontade expressa do requerente.
Can the arbitral tribunal dismiss a case following a voluntary withdrawal of the tax dispute?
Sim, o tribunal arbitral pode e deve arquivar o processo após a desistência voluntária do pedido de pronúncia arbitral. A desistência do pedido é um direito processual do requerente que determina a extinção da instância arbitral, não sendo necessária a concordância da Autoridade Tributária e Aduaneira nem a prolação de uma decisão de mérito sobre a legalidade das liquidações contestadas.
Is the taxpayer exempt from paying the second installment of the arbitration fee upon withdrawal?
O contribuinte solicitou a dispensa do pagamento da segunda prestação da taxa de arbitragem após apresentar a desistência do pedido. A questão da isenção do pagamento da segunda prestação depende do regulamento de custas e do momento processual em que ocorre a desistência. No caso concreto, o tribunal arbitral já estava constituído e a desistência ocorreu antes da audiência agendada, situação em que o Regulamento de Custas dos Processos de Arbitragem Tributária poderá prever condições específicas para dispensa ou redução da taxa arbitral.
What is the legal basis for challenging additional IRC assessments through tax arbitration in Portugal?
A base legal para impugnar liquidações adicionais de IRC através de arbitragem tributária em Portugal encontra-se no artigo 2.°, n.° 1, alínea a), e artigo 10.° do Decreto-Lei n.° 10/2011, de 20 de janeiro (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária). Os contribuintes podem requerer pronúncia arbitral sobre a legalidade de atos de liquidação adicional de IRC após esgotamento da via administrativa (reclamação graciosa), sendo o pedido dirigido ao Centro de Arbitragem Administrativa (CAAD), que designa os árbitros através do Conselho Deontológico.
How does the CAAD handle withdrawal requests (desistência do pedido) in corporate tax liquidation disputes?
O CAAD trata os pedidos de desistência em processos de arbitragem sobre liquidações de IRC de forma processual e célere. Após a apresentação da desistência pelo requerente, são canceladas as diligências processuais agendadas (como audiências ou prazos em curso), o tribunal arbitral toma conhecimento formal da desistência e procede ao encerramento do processo sem apreciação do mérito. A desistência após a constituição do tribunal arbitral pode ter implicações ao nível das custas processuais, nomeadamente quanto ao pagamento das prestações da taxa de arbitragem, conforme previsto no Regulamento de Custas dos Processos de Arbitragem Tributária (Regulamento n.° 112-A/2011).