Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A…, with NIF … and registered office in Sintra, requested, on 25 July 2016, the constitution of an arbitral tribunal, with a view to the declaration of illegality and consequent annulment of the assessments for Corporate Income Tax (IRC) that it named and shall hereinafter also be identified.
As it said nothing regarding the possible intention to designate an arbitrator, the undersigned were appointed by the Deontological Council of CAAD, an appointment which they accepted and which met with no opposition from any of the parties, the tribunal being constituted on 19 October 2016.
The Tax Authority (AT) replied, within the legal deadline, defending itself by exception and impugnation and attaching a copy of the administrative file.
The meeting referred to in article 18 of the Legal Regime for Tax Arbitration (RJAT) was dispensed with, and the parties were invited to submit written arguments, which they did, pronouncing themselves on the contested matters, reiterating and developing their respective legal positions, and the decision was announced for 31 January 2017.
II – FACTS
Without prejudice to the priority that merits the assessment of the exceptions raised, it is necessary, in order to rule on them, to establish the pertinent facts:
a) The claimant is a company engaged in the commercialization of food and consumer products, catering and beverages, the prospecting, purchase, sale, leasing and management of its own real property, the construction, remodeling and management of properties, and the editing, publication and distribution of press and provision of customer support services.
b) It is subject to the general tax regime for IRC purposes, adopting a tax period comprised between 1 March of each year and 28 February of the following year.
c) It proceeded, on 28 July 2011, to file the Model 22 income statement for IRC relating to the 2010 fiscal year, in which it calculated an amount of state surcharge of €1,830,514.26.
d) Following a subsequent inspection action, it was notified, on an imprecise date in February 2013, of the additional IRC assessment no. 2013…, of 18 February 2013, which corrected the amount of state surcharge payable to €1,972,654.85, a difference for which the Claimant was notified to pay by 19 April 2013, and paid.
e) Considering that, pursuant to article 20 of Law no. 12-A/2010, of 30 June, the rules relating to the state surcharge entered into force on 1 July 2010, and that therefore it would only be possible to assess it on the taxable profit determined from that latter date, the Claimant filed a request for revision of the tax act, on 14 March 2016, with a view to the correction of the state surcharge which it believed had been erroneously assessed.
f) Such request was dismissed by dispatch of 15 April 2016, notified by letter of the same date, without the Claimant having previously exercised its right to prior hearing, on the grounds that "(…) the fact generating the tax is deemed to have occurred on the last day of the tax period, in other words, the obligation to pay the tax arises at that moment", and therefore the AT, considering that the aforementioned rule had entered into force "before the moment of the occurrence of the taxable event", concluded "that the tax is owed in full, that is, it is not susceptible of being divided and calculated proportionally in virtue of being faced with, not a tax of single obligation, but rather one of successive formation".
The tribunal's conviction results from the documents attached, all hereby reproduced herein, in particular, the administrative file.
III – SANATION
- Competence of the tribunal
It is necessary to begin with the assessment of the exception of lack of competence of the tribunal, raised by the Respondent in its reply, since, should such lack of competence be verified, the tribunal shall be competent only to declare its incompetence.
The Respondent contends that the claimant's claim is "that the Arbitral Tribunal analyze and rule on the decision rendered in the proceedings for official revision filed against the act of additional IRC assessment of 2010", "ultimately requesting the partial annulment of the tax act of additional IRC assessment no. 2013…".
It points out that, "in accordance with the provisions of article 2, subparagraph a) of Ordinance no. 112/2011, of 22 March, the AT bound itself to the jurisdiction of the arbitral tribunals operating in CAAD which have as their object the assessment of claims relating to taxes whose administration is entrusted to them, referred to in no. 1 of article 2 of RJAT, "with the exception of claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative proceedings, in accordance with articles 131 to 133 of the Code of Tax Procedure and Process."
It considers that "the Claimant did not resort, in time, to the administrative reclamation provided for in no. 1 of article 131 of CPPT which, in this case, was necessary since the now Claimant raises also questions of fact and attaches documentation, as is proved by the official revision filed, where it alleged that it would only be possible to proceed with the assessment of the state surcharge incidental to taxable profit from 1 July 2010, the date of entry into force of article 87-A of the IRC Code, introduced by Law no. 12-A/2010, of 30 June".
It further states that the "Claimant allowed the two-year deadline provided for in no. 1 of article 131 of CPPT for filing an administrative reclamation to lapse", since "it only on 14/03/2016 filed a request for official revision against the aforementioned additional assessment".
It contends that "Such administrative procedure cannot replace the administrative reclamation provided for in article 131 of CPPT, especially when recourse thereto is made beyond the two-year deadline provided for in no. 1 of such article", and that, "given the voluntary and conventional nature of arbitration, the interpreter cannot expand the object fixed by the legislator with respect to the binding of the AT to arbitral tribunals".
It states that "(…) from the mere reading of article 2, subparagraph a) of Ordinance no. 112/2011, of 22/03 it follows that the arbitral route for the assessment of the dispute can only be opened, in cases of self-assessment, after prior filing of an administrative reclamation, which does not occur in the present case, where the assessment of a request for official revision is sought".
The Claimant counters that Ordinance no. 112-A/2011 expressly refers to "recourse to the administrative proceedings" and that "(…) undoubtedly, the Request for Revision of the Tax Act constitutes an administrative means of "impugnation" of tax acts". It adds that "The ratio of that Ordinance is, precisely, to afford the AT the opportunity to pronounce itself on the claim of the taxpayer". Now, "(…) through the decision of dismissal, the AT pronounced itself on the legality of the claim of the now Claimant, having demonstrated its disagreement with the arguments advanced".
Deciding,
In accordance with article 2, no. 1, subparagraph a) of RJAT, the competence of the arbitral tribunals includes "the declaration of illegality of acts of (…) self-assessment (…)", adding article 131, no. 1 of CPPT that, "In case of error in self-assessment, the impugnation must be preceded by administrative reclamation (…) within two years after the filing of the statement".
It is concluded, by this route, that the judicial impugnation of acts of self-assessment, although within the competence of the arbitral tribunals, can only be deduced after exhausting the administrative route. This is understandable if one considers that, in self-assessment, the Tax Authority does not intervene, which only happens when the matter is brought to it by means of the administrative reclamation, to use the expression of article 131 of CPPT.
But it happens that, in our case, what is being contested is not the illegality of the self-assessment made by the Claimant – which self-assessed the surcharge it considered due – but that of the additional assessment subsequently made by the Respondent, as, indeed, the latter recognizes, in the first article of its reply, and as also results from the claim filed and the value attributed to the case, which corresponds to the difference between the self-assessed surcharge and the additionally assessed.
Whence it is concluded that the exhaustion of the administrative reclamation route is not, here, a prerequisite for recourse to the tribunals.
That is, the competence of the tribunal opens up independently of the (re)assessment of the matter by the Tax Authority.
It should be noted that, strictly speaking, what the AT contests is not the competence of the arbitral tribunals to assess acts of self-assessment, but the lack of a prerequisite for such assessment.
Which amounts to the same thing: the tribunal, being competent to assess the act, can only do so, in the case of self-assessment, after exhausting the administrative reclamation route.
But, it is repeated, the impugnation of the tax act of additional assessment, which is the one at issue here, does not depend on such prerequisite.
It should be added, to conclude this point, that Ordinance no. 112-A/2011, of 22 March, does not have the capacity to expand or restrict the competence of the arbitral tribunals, governing only the limits of the AT's binding to the respective jurisdiction.
And within that jurisdiction falls the assessment of the legality of assessment acts, as has been seen, and the AT is bound by virtue of the body of article 2 of the aforementioned Ordinance, the present case not falling within any of the exceptions enshrined in the respective subparagraphs, in particular, in a), as results from what has been expanded upon.
Whence it is concluded that the exception is without merit and that the tribunal is competent to assess the claim.
- Timeliness of the claim
The Respondent contends that the claim for "partial annulment of the tax act of additional IRC assessment no. 2013… and respective demonstration of compensatory interest and settlement of accounts" is not timely, since "the legally defined deadline for impugnation of this tax act of additional assessment has been exceeded, in particular, in arbitral proceedings", since "article 10 of RJAT establishes, as to acts of assessment, that the deadline for presenting the request for arbitral ruling is 90 (ninety) days, referring, as to the moment of commencement of counting, to what is provided in nos. 1 and 2 of article 102, nos. 1 and 2 of the Code of Tax Procedure and Process (CPPT)", that is, counted "from notification of the assessment statement now being impugned – cf. subparagraph b) of no. 1 of article 102, no. 1 of CPPT", which "was notified (…) in February 2013, and "the request for constitution of the arbitral tribunal was presented on 2016-07-25".
The Claimant argues that "it results (…) unequivocally from the additional request that the impugned act (…) is the decision dismissing the request for revision of the tax act and not the direct impugnation of the tax act of assessment".
"Moreover, it is so apparent that the impugned act is the decision of dismissal – and not the direct impugnation of the assessment – that the AT itself admits that "(…) it results from the request for arbitral ruling that A…, requests that the Arbitral Tribunal analyze and rule on the decision rendered in the proceedings for official revision" (see article 21 of the Reply)".
Deciding,
Since official revision was requested, the impugnation must be presented within ninety days counted from notification of its dismissal, in accordance with what is provided in no. 1, subparagraph a) of article 10 of RJAT, in conjunction with nos. 1 and 2 of article 102 of the Code of Tax Procedure and Process (CPPT).
This notification occurred by letter sent on 15 April 2016, the receipt of which is presumed on 18 following (see article 39, no. 1 of CPPT) and the request for constitution of the arbitral tribunal – read, the impugnation – was filed on 25 July 2016.
More than the ninety days set out in article 10, no. 1, subparagraph a) of CPPT had thus elapsed.
However, that ninety-day period, whose starting date was 19 April, fell during judicial holidays, which ran from 15 July to 31 August.
It is true that in arbitral tribunals there are no judicial holidays, but it is also true that the same applies to the local peripheral services where petitions addressed to state courts may be delivered, by permission of article 103, no. 1 of CPPT. And, notwithstanding, the jurisprudence of the Supreme Administrative Court has understood, for a long time, and uniformly, that article 279, subparagraph e) of the Civil Code applies to cases in which the petition is presented to the administrative authority, that is, that a deadline whose starting day falls during judicial holidays is transferred to the first working day following.
The fundamental reason lies in the fact that procedural acts are not performed during judicial holidays, except for urgent ones. In truth, the court offices do not close during holidays, so nothing prevents the presentation of a petition during that period (especially, today, with the digital means available), but it would make no sense to impose on the party the requirement to present the petition at a time when it would not be given effect.
Now, this jurisprudential understanding must also apply to the arbitral tribunals, and as to these, there is an additional reason: there is no reason to discriminate against taxpayers who decide in favor of arbitral jurisdiction, which would happen if the requests for constitution of the tribunal had to be presented during judicial holidays, that is, before what the corresponding request could be in the state courts.
The Tax Authority argues, however, that the deadline for the request for constitution of the arbitral tribunal, being ninety days, is counted from the date of notification of the assessment statement, as per subparagraph b) of no. 1 of article 102 of CPPT", and therefore, since that notification occurred in February 2013, the request, presented on 25 July 2016, would always be untimely.
It is settled jurisprudence of the Supreme Administrative Court that, in the case of a request for official revision, the deadline for impugnation (which is the same as saying, for requesting the constitution of an arbitral tribunal) is not counted from the date limit for voluntary payment, but from that on which the decision dismissing that request is notified – see, among others, the judgments of 1 October 2003 and 12 October 2011, in cases nos. 893/03 and 449/11, respectively, which are cited by the Claimant.
On the other hand, it is also settled that the decision rendered on the request for official revision can be judicially impugned and that, to the extent that it preserves the assessment act, the latter is equally an indirect object of that impugnation – see articles 95, nos. 1 and 2, subparagraph a) of the General Tax Law and 102, no. 1, subparagraph e) of CPPT.
It is concluded, from the foregoing, that the request for constitution of the arbitral tribunal is timely.
IV - MATTERS OF LAW
- The question to be decided and the position of the Parties
Law no. 12-A/2010, of 20 June, approved a "set of additional budgetary consolidation measures aimed at strengthening and accelerating the reduction of excessive deficit and the control of public debt growth foreseen in the Programme of Stability and Growth (PEC)". Among these measures are measures of a tax nature that consist, fundamentally, in:
a) Increase in general PIT rates;
b) Increase in exempting rates and withholding at source of PIT;
c) Creation of a state surcharge on the portion of taxable profit exceeding €2,000,000; and
d) Increase in VAT rates on the mainland and in the Autonomous Regions.
The provision with which we are concerned is that creating the State Surcharge, by adding to the IRC Code three articles, and is found in article 2 of the aforementioned Law no. 12-A/2010. This provision created a State Surcharge – thus named to distinguish it from the municipal surcharge as to the ownership of the revenue generated – with a rate of 2.5% levied on the portion of taxable profit exceeding €2,000,000.00 (article 2 of Law no. 12-A/2010, which adds article 87-A to the IRC Code). Special rules were also provided for the payment of the surcharge in the case of groups of companies, as well as rules relating to payment (article 2 of Law no. 12-A/2010, which adds articles 104-A and 105-A to the IRC Code).
The legal question that must be decided is how article 2 of Law no. 12-A/2010, insofar as it creates the State Surcharge, applies to the Claimant's fiscal year which occurred between 1 March 2010 and 28 February 2011 (the Claimant's fiscal year does not coincide with the calendar year, but this fact is not relevant for the case at hand).
In the Claimant's view, the State Surcharge can only be applied to the portion of taxable profit corresponding to the period occurring from 1 July 2010, the date of entry into force of Law no. 12-A/2010. According to the Respondent, the State Surcharge must be applied to the entire fiscal year, that is, in the case of the Claimant, from 1 March 2010, which is, as we have seen, the first day of the tax period.
- Assessment
The first methodological step to resolve the question is to determine what the date of entry into force of article 2 of Law no. 12-A/2010, of 20 June, which creates the State Surcharge, is. The answer to this fact should be sought first of all in the legislative enactment itself that creates the tax – and indeed Law no. 12-A/2010 contains a transitional law regime in its article 20. This article contemplates a general rule of entry into force – the law enters into force on the day following its publication (no. 1) – and a special rule of entry into force – the amendments to the VAT Code and to Decree-Law no. 347/85 enter into force on 1 July (no. 2).
That is, except in cases specially regulated, Law no. 12-A/2010, of 20 June enters into force on 1 July 2010. Now, as there is no special transitional law rule in the Law as to its article 2, which creates the State Surcharge, it enters into force on 1 July 2010.
The second methodological step is to determine what the scope of application of the provisions of Law no. 12-A/2010, of 20 June, is. That is, now that we know when they enter into force, it is necessary to determine which facts they will regulate, whether only those occurring after their entry into force, or also facts occurring before that entry into force.
Law no. 12-A/2010, in the aforementioned article 20, established special rules for two specific situations: in the case of operations of a continuous character, the new VAT rates apply only to operations carried out after their entry into force, derogating the regime provided for in article 18, no. 9 of the VAT Code (no. 3); and the rules for reduction of remuneration of holders of political offices, public managers and equivalent produce effects from 1 June, that is, one month before the entry into force of the rules (no. 4). As for the remaining provisions of Law no. 12-A/2010, there is no rule in that same enactment that determines its intertemporal scope of application.
That is, the legislator of Law no. 12-A/2010, as to article 2, gives no express indication to taxpayers, nor to the tax administration, as to which facts the State Surcharge must cover, whether only those occurring after its entry into force or also those occurring or initiated before its entry into force.
As there is no express rule in the very enactment where the provisions whose temporal scope of application we seek to define are found, the third step is to seek outside the enactment a rule that regulates the matter, beginning with the branch of law in question. Interpreters-applicators are thus referred to the rules contained in article 12 of the General Tax Law which governs without any doubt the application to concrete cases of tax provisions (article 1 of GTL). In the sense of the application of article 12 of GTL to the application in time of fiscal provisions that contain no special rules, abundant jurisprudence can be seen, of which stands out the Judgment for Uniformization of Jurisprudence rendered by the Plenary of the Tax Litigation Section of the Supreme Administrative Court on 2 December 2015, in Case no. 734/15, which annuls the arbitral decision of CAAD that, in Case no. 771/2014-T, had followed the opposite understanding and whose summary states that "Law no. 15/2010, of 26 July, is silent as to the establishment of specific rules regarding its application in time, as it contains no provision as to its temporal application, limiting itself to prescribing that "This law enters into force on the day following its publication". Reason why it is imperative to apply the general rule governing the application of substantive tax law in time, embodied in article 12 of GTL." This argument and methodology are also accepted in the recent Judgment rendered in the scope of CAAD in Case no. 26/2016, of 26/7/2016, presided over by the same arbitrator who also acts in that capacity here, or, among others, in Case no. 135/2013, of 18/1/2014 and in Case no. 770/2014, of 31/3/2015.
Now, and returning to article 12 of the General Tax Law, this contains as to this respect two types of rules. A rule of broader scope is found in the 1st part of article 12, no. 1 and tells us that the provisions apply to taxable facts occurring after their entry into force. We then have two rules of special scope: one, contained in no. 3 which determines the immediate application of rules on procedure and process (without prejudice to rights previously constituted), and another rule that regulates the scope of application of tax provisions in the case of taxable facts of successive formation (article 12, no. 2 of GTL).
Insofar as the State Surcharge is levied on a portion of the taxable profit of companies, we are dealing with a taxable fact of successive formation, therefore it is the rule contained in article 12, no. 2 of GTL that must govern its application to concrete cases. From the application of article 12, no. 2 of GTL to article 2 of Law no. 12-A/2010, of 20 June, it follows that, as to the fiscal year that is in progress on 1 July 2010 – the date of its entry into force – it applies only to the period elapsed from that same 1 July.
One may even criticize the criterion contained in article 12, no. 2 of GTL, for implying the effort of an additional task of calculating the tax for taxpayers and the Administration, or for there possibly existing other better criteria for resolving the problems always associated with the application of a new law to a taxable fact in progress – but it is a criterion enshrined in the law in an absolutely clear, intelligible, practicable manner, and which does not in this concrete case lead to any injustice; it is, moreover, and it is repeated, a criterion that the legislator could expressly have excluded – and did not.
Now, given that the rules on the application of law in time and on the temporal scope of application of tax provisions result that the State Surcharge created by Law no. 12-A/2010, of 20 June, applies only to the portion of taxable profit corresponding to the period elapsed from its entry into force, we do not have here a situation of retroactivity whose admissibility it falls to assess. We would only be dealing with a case of retroactivity if the State Surcharge were applied to a portion of taxable profit that had been created before the date of its entry into force – which we have seen does not occur as the legislator resolved that potential conflict through the pro rata temporis criterion embodied in article 12, no. 2 of GTL.
We would only be dealing with a case of retroactivity – whose legitimacy would fall to analyze – if there were in Law no. 12-A/2010 itself, of 20 June, a provision that derogated the rule contained in article 12, no. 2 of GTL which is thus general to Tax Law for conflicts (even if apparent) of tax provisions in time in the case of taxable facts of successive formation, a provision that could, in theory, attribute the temporal competence of the provision to the entirety of the taxable fact that was forming on the day of its entry into force (in which case the provision would be partially retroactive) or only to continued taxable facts whose formation began after its entry into force.
Taking into account that the Constitution of the Portuguese Republic (CRP) took an express position on the retroactivity of tax provisions in 1997 – introducing in article 103, no. 3 the rule that no one can be obliged to pay taxes of a retroactive nature – and that in 1998 the legislator stipulated in the GTL rules on the application of tax law in time – which, despite not having reinforced value, cannot fail to apply to the applicators of the tax provision – the legislator of ordinary tax law who wishes to dispose on its application in time is bound by this normative framework, or to take an express decision to derogate the supplementary rules, as could have been done here as to article 12, no. 2 (naturally then opening the discussion on the constitutional legitimacy of that option in the face of the principle of non-retroactivity contained in the CRP).
Nor can it be said that the context of financial crisis is sufficient to presume the retroactive efficacy of the creation of the State Surcharge – it is repeated that the axiological and normative framework resulting from the conjunction of the constitutional prohibition of fiscal retroactivity with the rule of pro rata temporis application of provisions that deal with taxable facts of successive formation would require an express taking of position on the question. In fact, as to the alteration of PIT rates also carried out by Law no. 12-A/2010, of 20 June, the legislator admits having incorporated in the law itself the pro rata temporis rule by making only a raise of rates corresponding to 7/12 of the intended raises, a fact that was relevant in the assessment that the Constitutional Court made on the retroactivity of the provisions that increased PIT rates in Judgment no. 399/2010, of 27 October ("With regard to the additional taxation under PIT, it is materialized through the fixing of a new general table of rates, which formally affect all 2010 income and which, therefore, do not affect situations of past taxation legally and fiscally consolidated. Furthermore, in order to ensure that taxpayers only suffer an increase corresponding to seven months of the year, the additional rates of 1% and 1.5% are subject to a weighing, applying in 2010 only in 7/12 of their value. It is only in the context of the State Budget for 2011 that the necessary adjustments are introduced to the table so as to reflect the full application of the new rates in the following year", Explanatory Memorandum accompanying Bill no. 26/XI/1st).
In conclusion, it is illegal to apply the State Surcharge to the portion of taxable profit corresponding to the period occurring before its entry into force by violation of article 12 of the General Tax Law, which results in an assessment without legal basis since there was no legal rule in force that authorized the collection of Surcharge for that period.
- On the Payment of Compensatory Interest
Beyond the declaration of the illegality of the assessment, the Claimant also petitions that it be recognized its right to compensatory interest, a matter which falls within the scope of the competence of this Tribunal, as is expressly provided for in no. 5 of article 24 of RJAT.
Determined the illegality of the assessment and its consequent annulment, and the tax debt due being paid, the right to compensatory interest subsists, whenever it results from error attributable to the services of the AT, as provided for in no. 1 of article 43 of GTL.
In the present case, we are faced with an assessment determined by the AT which was later revealed to be legally unjustified, not by any act or procedure of the Claimant, but by an erroneous understanding of the prerequisites of the assessment – an understanding sustained, imposed and conveyed by the AT itself.
It is therefore considered that an error attributable to the services has been verified, with the consequent obligation to pay compensatory interest, in accordance with article 43, 1 and 2, of GTL and article 61 of CPPT.
Compensatory interest is therefore owed, at the legal rate, on the amount unduly assessed and paid, counted from the day following that of the undue payment until the date of issuance of the respective credit note.
V. DECISION
In accordance with the foregoing, this Arbitral Tribunal decides:
a) To find the claim for partial annulment of the tax act of additional IRC assessment no. 2013… and respective demonstration of compensatory interest and settlement of accounts to be well-founded, condemning the Respondent to the reimbursement of the tax unduly paid in the amount of €657,551.62;
b) To find the claim for payment of compensatory interest to be well-founded, condemning the Respondent to the payment of the corresponding amount; and
c) To condemn the Respondent to the payment of the costs of the proceedings.
VI. VALUE OF THE CASE
The value of the case is fixed at €657,551.62.
VII. VALUE OF THE COSTS
The costs are computed at the amount of €9,792.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.
Let it be notified.
Lisbon, 23 January 2017.
The Arbitrators,
(José Baeta de Queiroz)
(João Taborda da Gama)
(José Nunes Barata)
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