CAAD 458/2017-T: IRC Tax Assessment Statute of Limitations Under Article 45 LGT and Arbitral Decision Effects Under Article 24 RJAT

ARBITRAL DECISION

I. REPORT

A…, S.A., Tax Identification Number…, a company with registered office at…, number…, …-… Lisbon, filed, on 1 August 2017, a request for constitution of an Arbitral Tribunal ("Request") pursuant to the provisions of articles 2, paragraph 1, subparagraph a), 5, paragraph 3, subparagraph a), 6, paragraph 2, subparagraph a) and 10, paragraph 1, subparagraph a), all of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters ("RJAT"), and article 102, paragraph 1, subparagraph a) of the Code of Tax Procedure and Process ("CPPT"), for the assessment of the legality of the assessment No. 2017…, relating to the 2009 financial year, and the respective account adjustment statement No. 2017… in the part relating to the amount of € 388,891.92, subject to the offset No. 2017….

The Request was accepted and was notified to the Tax Authority ("TA") pursuant to article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December. The Ethics Council appointed the signatory arbitrators in a collective tribunal and the parties were notified of the appointment. The arbitral tribunal was constituted on 9 November 2017.

As it was understood that the process did not contain a need for definition of specific procedures, as there were no exceptions to be assessed prior to knowing the merits of the request, and as only legal questions were involved, it was dispensed with, by Order of 11 February 2018, the holding of the meeting provided for in article 18 of the RJAT, although the parties were, however, notified to submit, if they wished, written submissions, which they did within the fixed period. The deadline of 19 April 2018 was also set for the delivery of the arbitral decision and payment of the subsequent justice fee.

The Arbitral Tribunal is regularly constituted and is materially competent to assess and decide the object of the proceedings. The proceedings do not suffer from nullities and no issues have been raised that preclude the assessment of the merits of the case, showing that the conditions are met for a final decision to be rendered. The parties have legal personality and capacity and have standing as provided in articles 4 and 10, paragraph 2 of the RJAT and article 1 of Order No. 112-A/2011, of 22 March.

This action was brought in a timely manner and the object of the arbitral pronouncement request consists of the declaration of illegality of the assessment identified above due to it having been carried out beyond the limitation period for conducting tax assessments, provided for in article 45 of the General Tax Law ("LGT").

II. MATTERS OF FACT

Proven Facts

With relevance to the assessment of the issues raised by the Applicant, the following elements regarding matters of fact are highlighted:

a) The Applicant was notified by the "Certifying Commission for Tax Incentives for Business R&D" on 14 November 2011, of the attribution of a tax credit for deduction from the collection of the 2007 tax period, in the amount of € 1,282,837.78.

b) On 30 December 2011, it filed a replacement Form 22 declaration for the 2007 financial year, with a single change from the first declaration submitted, which was the deduction from collection by virtue of tax benefits in the amount of € 1,282,837.78, corresponding to the SIFIDE approved by AdI.

c) Subsequently, the Applicant was notified of an additional IRC assessment No. 2012…, relating to IRC for the 2007 financial year, on 5 November 2012, in the amount of € 77,595.96, which did not consider the SIFIDE values mentioned in the replacement declaration, in the amount of € 1,282,837.78.

d) The Applicant was again notified on 14 July 2015 of a new IRC assessment with an amount to be reimbursed of € 764,031.69, relating to the 2007 financial year.

e) As, in the Applicant's understanding, the full amount of the SIFIDE tax benefit in the amount of € 1,282,837.78 had not been considered in this latter assessment, it filed a gracious objection regarding the 2007 financial year, which received partial approval because it did not grant the deduction of € 388,915.97, which, in the TA's understanding, had already been deducted in the 2009 financial year.

f) After this decision, the Applicant filed a request for arbitral pronouncement to assess the legality of this assessment relating to the 2007 financial year at CAAD, which proceeded in Case No. 225/2006-T, in which, by decision of November 2016, the illegality of the challenged assessment was recognized, ordering the annulment of the corrections made by the TA.

g) In compliance with the respective judgment and in the development of subsequent operations in execution of the judgment, the TA understood to correct also the 2009 IRC assessment, as per the additional assessment that was notified in March 2017 to the Applicant, with an amount to be paid of € 388,891.92, on the grounds that by deducting this amount in the 2007 financial year, the Applicant could not maintain the deduction of the same amount in two financial years.

h) Thus, the 2009 assessment was justified by the TA precisely on the ground that the Applicant could not deduct twice the same amount of SIFIDE benefits, because that amount had already been considered previously in the assessment of this financial year.

Unproven Facts

• that the Lisbon Finance Service… has initiated the fiscal execution process No. …2017…, in the amount of € 390,252.57, which is legally suspended by virtue of the provision of bank guarantee.

There are no other facts, proven and/or unproven, with relevance to the arbitral decision.

Tribunal's Motivation Regarding Matters of Fact

In determining matters of fact, the Tribunal based itself on the documents submitted by both parties and on the instructory administrative proceeding.

The unproven facts resulted from the omission of the necessary documentary proof of the institution and pendency of fiscal execution, as well as the provision of the bank guarantee to suspend it.

III. POSITION OF THE PARTIES

Arguments Invoked by the Applicant

In defence of the request for annulment of the additional IRC assessment relating to the 2009 financial year, the Applicant argues, essentially:

1 - The object of the present request consists of the analysis of the legality of the IRC assessment act of 2009 that gave rise to the additional determination of the tax contained in the account adjustment statement No. 2017… (offset No. 2017…), in the amount of EUR 388,891.92. In the case at hand, it seems to us pacifically established that we are dealing with an autonomous assessment act directly challengeable for constituting an act prejudicial to the rights of the now applicant, being this the object of the present arbitral petition.

2 - Concretely, the material controversial question consists of evaluating the legality of the said tax act, and in particular, (i) whether the TA can issue additional assessment acts of a given financial year without recourse to an inspection procedure; and (ii) whether in the case sub judice the statutory limitation period has elapsed.

3 - "… as results from the factuality above stated, there exists no legal cause for suspension of the limitation period, since:

I) The TA did not initiate any inspection procedure for the 2009 financial year capable of determining the application of paragraph 1 of article 46 of the LGT;

II) The arbitral decision delivered in the 2007 process did not determine – neither in its factuality nor in its decision part – any right to assessment relating to the year 2009.

III) None of the other subparagraphs of paragraph 2 of article 46 of the LGT applies.

4 - In the absence of any legal cause for suspension, it is evident that as of the date of issue of the assessment object of the present arbitral pronouncement request, i.e. 22 February 2017, the period for the TA to additionally assess any amount as IRC for the 2009 financial year was long since exceeded.

5 - However, the issue of the assessment act after the expiration of the limitation period irremediably conditions its legality, which will determine the grounding of the present request and the full annulment of the additional 2009 IRC assessment now challenged.

6 - On the other hand, pursuant to article 45, paragraph 3 of the LGT "in case any deduction or credit of tax has been made, the limitation period is that of the exercise of that right".

7 - The legal provision transcribed above does not apply to the case at hand, since the issue of the assessment now challenged related solely to the correction of the SIFIDE tax benefit, which deduction may be carried out in the six following financial years, in case of insufficiency of collection in the relevant financial year – cf. article 4, paragraph 3 of Law No. 40/2005, of 3 August.

8 - However, in the case at hand there was no carryforward of the tax credit by insufficiency of collection, being the same integrally deducted in the years 2007 (and 2009), a fact confirmed by the arbitral tribunal in Case No. 225/2016-T and by the Unit for Unified Collection in the decision of partial approval of the gracious objection of the 2007 assessment.

9 - It is thus evident that the assessment now challenged directly violates the limitation period provided in article 45 of the LGT, which will motivate its full annulment.

10 - It further adds that "… the additional assessment now challenged does not constitute a mere act of execution of the arbitral decision delivered in Case No. 225/2016-T, which proceeded before this Arbitration Center.

11 - Moreover, it understands that, to obtain a proper decision, it is necessary to take into account that: 1 - In the 2007 process, what was at issue was the legality of the adjustment assessment and the offset effected by the Unit for Unified Collection following the decision of the gracious objection decision rendered by the Unit for Unified Collection on the said tax act; 2 - In Case No. 225/2016-T, neither the legality nor the object or grounds of request included any assessment regarding the 2009 financial year; 3 - The SIFIDE credit of 2007 was certified by AdI and the Applicant had sufficient collection to permit its full deduction; 4 - The Applicant was never notified of any inspection procedure aimed at making any correction to the SIFIDE tax credit declared in the 2009 financial year; 5 - The tribunal decided on the partial annulment of the assessment of the 2007 financial year, concluding that the TA should issue the assessment in accordance with the data contained in Form 22 declaration, i.e., considering the full amount of the SIFIDE tax benefit.

12 - The object of the arbitral process consisted exclusively of the assessment of the legality of the 2007 assessment, which justified, moreover, that the arbitral tribunal declared itself incompetent to assess the said request.

Therefore, it is not understood how the Unit for Unified Collection can intend to frame the issue of the assessment now challenged relating to the 2009 financial year as an act of execution of the said arbitral decision, which had as its sole and exclusive object the analysis of the legality of an IRC assessment of the 2007 financial year.

13 - For the case at hand, it is irrelevant to know whether there was effectively some excessive deduction by the Applicant, since (i) the TA did not carry out any inspection procedure for the 2009 financial year in order to correct the tax benefit declared by the Applicant; (ii) such correction was not materialized in any tax act issued during the statutory limitation period provided for in article 45 of the LGT, which is invoked for the due legal effects.

14 - To admit the procedure adopted by the TA would imply admitting that the TA can circumvent the rules pertaining to the limitation period – as a way to remedy its own inefficiencies – to the detriment of any legal certainty or even to the detriment of the procedural rules consigned for the issuance of assessment acts in disregard of the elements declared by taxpayers.

15 - On the other hand, as reinforcement for its argument, the Applicant understands that one cannot follow the thesis that the challenged assessment will be a corrective assessment of the original 2009 IRC assessment, but rather an autonomous assessment.

16 - Indeed, "analyzing the act here challenged, we can conclude, at the outset, that it does not result from any objection/decision relating to the 2009 financial year, and is also devoid of any legal basis to frame this year of additional assessment as strictly deriving from an arbitral decision relating to a distinct financial year".

17 - "We are thus dealing with an autonomous tax act, with a new payment deadline and deriving from autonomous corrections made by the TA and based on facts diverse from those that supported the previous assessments of the same financial year, without any connection to any prior gracious or judicial procedure relating to the 2009 financial year, which is invoked for the due legal effects".

Beyond all the above, to admit the procedure adopted by the TA – i.e. to intend to incorporate the act now challenged as a mere act of execution of the arbitral decision of the 2007 financial year - would also configure a crystal clear violation of the so-called "principle of specialization of financial years" provided for in articles 17 and 18 of the CIRC.

18 - On the other hand, it will always be important to note that, considering the principles of indisponibility of the tax relationship, legality and justice, it seems unequivocal that the TA does not enjoy any discretion in defining the tax situation of taxpayers, being thus forbidden the allocation of credits or the carrying out of official offsets outside the situations expressly provided for in the law.

19 - The procedure adopted by the TA blatantly violates the most elementary principles of a state of law, since:

(i) Allocated a tax deduction to a different financial year, affecting the tax result of 2007 without any legal basis – as already confirmed by decision that has become res judicata in Case No. 225/2016-T of CAAD;

(ii) Carries out an offset of a taxpayer's credit over an alleged debt not assessed in time and whose tax financial year has expired;

(iii) The TA corrects the tax result of 2009 without any inspection procedure or decision communicated according to law to the Applicant, seeking to legitimize the procedure through its incorporation as an act of execution of an arbitral decision relating to the assessment of the 2007 financial year;

(iv) Finally, confronted with the illegality of the procedure followed, it carries out an additional 2009 IRC assessment more than 8 years after the tax facts….

20 - The TA "In violation of the limitation periods, of the rules governing SIFIDE, of the very principle of specialization of financial years and of the annual nature of the tax and the rules relating to the carrying out of corrections in the sphere of taxpayers, (i) incorporated corrections to the taxable matter of the 2009 financial year in an additional assessment act relating to the 2007 financial year whose illegality has already been declared by arbitral decision in Case No. 225/2016-T and (ii) confronted with the illegality of such assessment issues, in alleged execution thereof, a new additional 2009 IRC assessment act in breach of the limitation period.

21 - In truth, if the TA intended to carry out corrections to the Form 22 declaration of the 2009 financial year and, concretely, to the value of the SIFIDE tax benefit relating to this period, it should have done so through the normal procedures for that purpose, i.e.: (i) The opening of an inspection action for the 2009 financial year; (ii) The issue of a projects of corrections, with possibility of exercise of the right to prior hearing by the Applicant; (iii) The issue of a final inspection report incorporating the final correction to the value of the tax benefit; (iv) The issue of an additional assessment document relating to IRC for the 2009 financial year during the limitation period provided for in article 45 of the LGT.

22 - In light of all the above stated in the present petition, the present request should be judged to have merit and the annulment of assessment No. 2017 … relating to the 2009 financial year and the respective account adjustment statement, in the amount of EUR 388,891.92, should be ordered, which will motivate the extinction of the fiscal execution process initiated for coercive collection of that amount and the recognition of the Applicant's right to payment of compensation for undue provision of guarantee under article 53 of the LGT, all with the due legal consequences.

Position of the Respondent

Notified of the action, the TA responded defending the rejection of the request, arguing, essentially and in summary:

1. The Respondent understands that the execution of the arbitral decision taken in Case 225/2016-T of CAAD, is a merely corrective assessment, which was effected by the TA pursuant to article 24 of RAJT and article 100 of the LGT, with a view to implementing the decision delivered within that process.

2. And moreover, "… it results crystal clear from articles 27, 29, 60, 65 and 66 of the arbitral request, as well as from articles 77 to 86, where the Applicant sustains that the decision to offset the 2007 tax credit with an excessive deduction in the 2009 financial year, is illegal due to violation of the legal framework of SIFIDE".

3. The Applicant invoked in that arbitral action, as it invokes in the present process, that it was never notified of any correction of the tax credit approved by the Certifying Commission in the amount of € 1,282,837.78, as well as that the TA did not justify the procedure and violated its right to prior hearing by "taking" the tax credit of the 2007 financial year and considering it to offset an alleged excessive deduction of the 2009 financial year, without, however, such alleged correction to the tax credit, in the 2009 financial year, being supported by any tax procedure or assessment act.

4. And it invoked, also (cf. articles 87 to 118), as in the present arbitral action, the violation of the principles of the annual nature of the tax, of specialization of financial years and of indisponibility of the tax legal relationship, arguments judged totally without merit by the Arbitral Tribunal.

5. However, following the requests formulated and the grounds invoked, the Arbitral Tribunal decided to judge the requests for declaration of illegality of the gracious objection decision and assessment No. 2014…, considering the requests to be well-founded on the grounds of lack of justification and breach of the legal formality of prior hearing.

6. Recording, in subparagraph O) of point 2. Matters of Fact, the facts contained in the gracious objection decision that support the understanding, considered illegal by the Arbitral Tribunal, of imputing the amount of € 1,282,837.78, not only to the 2007 period but also to subsequent tax periods, particularly to the 2009 tax period.

7. In these terms, the Arbitral Tribunal understood that the SIFIDE benefit attributed by the Certifying Commission, of €1,282,837.78, should have been fully imputed and deducted in the 2007 financial year, in the measure in which the Applicant had collection for such effect, determining the illegality of the challenged assessment, and consequently of the gracious objection decision.

8. In this way, and contrary to what the Applicant seeks to make believe, the execution of the arbitral decision that determines the full deduction of the tax benefit in the 2007 financial year, in the amount of € 1,282,837.78, with the consequent restitution of the amount of € 388,915.37, necessarily implies that one promotes the adjustment of the excess of the deduction from collection effected in the 2009 financial year, in that same amount.

9. Indeed, such adjustment of the excess of the deduction from collection in the 2009 financial year constituted, as demonstrated, the object of the arbitral action, being comprised within the request and grounds of request formulated by the Applicant;

10. Therefore, the execution of the arbitral decision must necessarily include the implementation of acts that prevent double restitution of the amount resulting from the adjustment and that prevent the Applicant from taking advantage, illegally, of the same tax benefit in two distinct tax periods.

11. Which would constitute a situation of unjust enrichment, at the expense of the public treasury and in violation of the constitutional principles of equality and justice in taxation, of the principle of pursuit of the public interest and of the principle of contributory capacity, inherent in articles 13, 103 and 104, paragraph 2 of the Portuguese Republic's Constitution.

12. In this way, the immediate and full reconstitution of the situation that would have existed if the tax act that was the object of the arbitral decision had not been carried out (cf. article 24 of RJAT and 100 of the LGT) only occurs by eliminating the effect of the deduction of the tax benefit considered and reflected by the TA in the 2009 financial year, by means of the issue, within the period of spontaneous execution, of an assessment act for that tax period in the same amount subject to restitution, under penalty of the tax benefit being doubly and improperly enjoyed by the Applicant in the 2007 and 2009 financial years.

13. In these terms, the arbitral tribunals decide in accordance with the powers fixed in the RJAT - powers of declaration grounded on illegality - with the Arbitral Tribunal in Case No. 225/2016-T lacking competence to determine, impose or pronounce itself on the manner in which the arbitral decision that determined the annulment of the challenged acts should be implemented.

14. As results from the provision of article 24 of RJAT, the definition of the acts in which the execution of arbitral judgments should be implemented is the responsibility, in the first place, of the TA, with the possibility of recourse to tax tribunals to require coercively the execution, within the scope of the judgment execution process, provided for in article 146 of the CPPT and articles 173 et seq. of the Code of Procedure in Administrative Courts (CPTA).

15. Thus, in accordance with the understanding of the learned Arbitral Decision referred to, the TA is obliged to reconstitute the situation that would have existed if the tax benefit had been recognized ab initio, with all the consequences that derive from such recognition, particularly the elimination of the effect of the excessive deduction in the 2009 financial year, since such deduction would never have been authorized in the 2009 financial year had the tax benefit been recognized in full in the 2007 financial year.

16. Therefore, it was necessary that the TA draw all the legal consequences of the judicial annulment decision, carrying out the operations necessary to the recognition of the previously existing situation, particularly, that it promoted the assessment that determines the reimbursement of the amount of € 388,915.37, in the 2007 financial year, and the assessment that disregards the deduction from collection, in the same amount, in the 2009 financial year.

17. In this way, in light of the jurisprudence of the learned Decision (CAAD under No. 494/2016-T), it is manifest the lack of merit of the Applicant's understanding when it sustains the obligation to institute an inspection procedure or any new assessment procedure, 'since the power/duty that it exercises in carrying out a new assessment in spontaneous execution of judgment is granted to it by the judgment decision to be executed.'.

18. However, in the present case, as fully demonstrated, the challenged assessment constitutes an act of an executive nature of the arbitral decision delivered in Case No. 225/2016-TCAAD, which was notified to the TA on 28-11-2016 and became res judicata on 10-01-2017.

19. Therefore, the period that the TA had available for the practice of acts of spontaneous execution of the arbitral decision only ended on 18-05-2017.

20. As the new assessment was issued on 22-02-2017 and notified for payment by 11-05-2017, the period during which the Tax Administration could practice the assessment act here under review did not expire.

21. As to the alleged absence of justification and prior hearing, the Applicant has perfect knowledge of the reasons that determined the issue of the controversial assessment and which relate to the implementation of the arbitral decision delivered in Case No. 225/2016-T, as expressly referred to in the notification of the assessment.

22. Indeed, the Applicant well knows that it received the reimbursement of the amount of € 388,915.37, as a consequence of the annulment of the gracious objection decision relating to the 2007 financial year, and also knows that this amount was subject to deduction in the 2009 financial year.

23. The Applicant was notified to exercise the right to hearing on the execution procedures to be promoted by the TA under article 100 of the LGT, having the Unit for Unified Collection informed of the intention to promote the adjustment of the deduction in the 2009 financial year, in order to prevent the improper utilization of the same benefit (€ 388,915.37) in two distinct tax periods.

24. The Applicant exercised the right to hearing invoking that it had already been notified of assessment No. 2017… which materializes the "(i) annulment of the correction as determined by the arbitral tribunal, as well as (ii) the restitution of the amount due as IRC for the 2007 financial year – EUR 388,915.37.", further noting that the arbitral tribunal declared itself incompetent to know of the adjustment in the 2009 financial year, "being thus this matter outside the scope of the execution of the judgment and of the provisions of article 100 of the LGT".

25. Indeed, as is well known, the requirement of justification of tax acts results, namely, from articles 268, paragraph 3, of the LGT, 77 of the LGT and 124 and 125 of the CPA.

26. It is uncontroverted, taking into account unanimous jurisprudence, that justification is sufficient when it enables a normal recipient to understand the cognitive and evaluative itinerary followed by the author of the act, that is, when the recipient can know the reasons that led the author of the act to decide that way and no other.

27. However, in the case at hand, the controversial assessment is merely corrective and its origin refers back to the implementation of the execution procedures of the arbitral decision, on which the Applicant pronounced itself, in the context of the right to hearing.

28. Indeed, the requirement of the duty to justify results from various reasons "ranging from the need to enable the administered party to formulate a conscious judgment on the convenience or not of challenging the act, to the guarantee of transparency and consideration of the action of the administration and the need to ensure the possibility of hierarchical and jurisdictional control of the act" (cf. Diogo Leite de Campos, General Tax Law – commented and annotated, 3rd Edition, Vislis, page 382).

29. Thus, it is to be concluded that the assessment act is duly justified, with no contradiction or obscurity existing that did not permit the Applicant to weigh whether it should conform to the assessment, or, on the contrary, whether it should challenge it as indeed happened.

30. Indeed, what violates constitutional principles, notably the principle of equality and justice in taxation, as well as the principle of pursuit of the public interest and the principle of contributory capacity, inherent in articles 13, 103 and 104, paragraph 2 of the Portuguese Republic's Constitution, is the Applicant's understanding of the controversial assessment, because, to admit it, by mere hypothesis and without conceding, that the Arbitral Tribunal determined the annulment of the 2009 financial year assessment, a situation of unjust enrichment would occur, under article 473 of the Civil Code.

31. Thus, if the 2009 financial year assessment is annulled, what will prevent the adjustment of the excess of the deduction from collection effected in that financial year, the Applicant will enjoy the full deduction of the SIFIDE tax benefit in the 2007 financial year, in the amount to which it is entitled of € 1,282,837.78, as well as will enjoy an improper deduction from collection in the amount of € 388,915.37, which has already been reimbursed to it, as it moreover confesses.

32. Therefore, the Applicant will unjustly enrich itself and at the expense of the public treasury in the amount of € 388,915.37, benefiting from a deduction from collection, in the 2009 financial year, of a tax benefit that it does not have the right to enjoy, a situation absolutely inconsistent with its real contributory capacity.

Terminating its Response by requesting that, if the Tribunal comes to accept the Applicant's claim and determines the annulment of the assessment, the decision be notified to the Public Prosecutor's Office, so that it may promote an action for damages based on unjust enrichment, under article 473 of the Civil Code ("CC"), article 3 of Law No. 47/86, of 15 October ("Status of the Public Prosecutor's Office"), and article 219 of the Portuguese Republic's Constitution ("CRP").

IV. SUBSEQUENT PROCEEDINGS

Although dispensed with, by Order of 11 February 2018, the Meeting provided for in article 18 of the RJAT, pursuant to the same, the parties were invited to submit, if they wished, written submissions.

The parties submitted submissions in which they reiterated, essentially, the arguments they had already developed in the Request and Response, without prejudice to highlighting the reference that the Applicant understands that "…. can never be accused of unjust enrichment, since it merely exercised its procedural rights in time, being that it is reiterated that the TA never carried out any correction to the 2009 financial year!!!!

And being a state of law, there still prevails the presumption of veracity of declarations, the need for justification, the issuance of administrative acts in legal form or the right to contradiction and counter-proof in case of administrative procedures with adverse effects for taxpayers!!!".

Thus, there is nothing further to note either as to matters of fact or matters of law, so it is necessary to decide.

V. THEMA DECIDENDUM

In accordance with the matters previously discussed, three questions need to be decided:

(A) Whether the 2009 IRC assessment No. 2017…, in the amount of € 388,891.92, is illegal because it was carried out beyond the limitation period provided for in article 45 of the LGT;

(B) Whether the Applicant is entitled to compensation for undue provision of guarantee under article 53 of the LGT, all with the due legal consequences; and

(C) Should the 2009 IRC assessment No. 2017…, in the amount of € 388,891.92, be considered illegal, whether the present Tribunal should proceed to notify the Public Prosecutor's Office, under the terms and for the purposes of article 473 of the CC – unjust enrichment –, article 3 of the Status of the Public Prosecutor's Office and article 219 of the CRP.

(A) On the Expiration of the Right to Assessment

1. This analysis begins by highlighting the two potentially conflicting principles in the present decision. The first will perhaps be the reduction in tax revenues possibly collected by the State, should the same tax benefit have indeed been deducted by the Applicant in two different financial years: 2007 and 2009. This question, however, falls outside the scope of the present decision. Indeed, the fact that the assessment was made beyond the period for stabilization of the tax legal order, i.e., beyond the limitation period, means that the substance of the assessment cannot be discussed. It is this, indeed, the second principle in tension, legal certainty and the expectation of stabilization of the tax legal situation that precludes the assessment of taxes (even though these, from a substantive point of view, would indeed have been properly due).

2. Indeed, expiration is an extinguishing cause of the tax obligation, which operates through the passage of time, with a view, namely, to guarantee principles of legal certainty and economic predictability.

3. Article 45, paragraph 1 of the LGT, relating to the expiration of the right to assessment (as worded as of the date of the facts and which still remains current), provides that the "right to assess taxes expires if the assessment is not validly notified to the taxpayer within the period of four years, when the law does not fix another".

4. The 2009 IRC assessment No. 2017…, was notified to the Applicant in March 2017.

5. According to article 45, paragraph 4 of the LGT (as worded as of the date of the facts and which still remains current), the "limitation period is calculated, for periodic taxes, from the end of the year in which the tax event occurred and, for single-obligation taxes, from the date on which the tax event occurred, except for value added tax and income taxes when taxation is carried out by withholding at source as a final matter, in which case that period is calculated from the beginning of the following calendar year in which the tax exigibility or the tax event occurred, respectively".

6. Since the Applicant adopted a tax period distinct from the calendar year, with the 2009 financial year running between 1 April 2009 and 31 March 2010, and since it is IRC, i.e., a periodic tax, the limitation period ended on 31 March 2014.

7. It would only be otherwise if: (a) a special period were to be applied; (b) a suspensive or interruptive fact of the limitation period had occurred; or if (c) the IRC assessment now being discussed were a mere act of execution of the decision in Case No. 225/2006-T, impacting on the manner in which expiration is equated and/or if the assessment effected were merely corrective.

8. With respect to the application of a special period, in the concrete case, it would only be plausible to consider the application of the period provided for in article 45, paragraph 3 of the LGT, which makes – in case of deduction or credit – the limitation period coincide with the period of exercise of the respective right.

9. However, we consider the provision inapplicable in the concrete case. Indeed, article 45, paragraph 3 of the LGT seeks to extend the limitation period only in cases in which the exercise of the right is also prolonged over time, by extending, for that reason, the stabilization that tends to occur in the legal order after the verification of the tax event. In these cases, the starting point of the limitation period is transferred to the moment of the full utilization of the credit, the moment at which the tax event relating to a given financial year and its respective effects are deemed to be substantially stabilized.

10. In any case, in the situation at hand, the exercise of the benefit was not carried forward, but fully deducted in the years 2007 (and 2009).

11. With respect to the verification of a suspensive or interruptive fact, it is essential to analyze – under article 46, paragraph 2, subparagraph d) of the LGT – whether the right to assessment results from an objection or challenge.

12. However, in this regard, it is stressed that – insofar as this Tribunal is aware – only the legality of the assessment act relating to the 2007 financial year was discussed and not relating to the 2009 financial year.

13. Indeed, as results from point 3.1. of the Decision delivered in Case No. 225/2016-T:

"The essential question to be decided is framed as follows:

(…)

– in the present process, the Applicant seeks that the illegality of assessment No. 2014…, complemented by the account adjustment statement No. 2015…, be declared, in the part in which the said value of € 388,915.37, which the Tax Authority and Customs understood to have been excessively deducted in the declaration relating to the 2009 financial year, was not considered therein."

1. Thus, the application of any suspensive fact is not verified.

2. Finally, it is necessary to analyze whether the IRC assessment now being discussed is a mere act of execution of the decision in Case No. 225/2006-T.

3. However, on this matter also, we must pronounce ourselves negatively. Indeed, in Case No. 225/2006-T, it is repeated, what was at issue was the legality of the 2007 IRC assessment, in the measure in which it did not consider the full amount of the SIFIDE tax benefit, and not the 2009 financial year.

4. The said proceeding did not delve into the origin of a potential assessment relating to the 2009 financial year, limiting itself to declaring the 2007 IRC assessment illegal, with the consequent recognition of the right to reimbursement of the additional amount of € 388,915.37, plus the corresponding compensatory interest.

5. Indeed, it is the Tribunal itself that, in the decision in Case No. 225/2006-T, states that "[w]ithout deciding this question of admissibility of adjustment for the 2009 financial year, the Arbitral Tribunal cannot decide whether there should be reimbursement and the compensatory interest requested by the Applicant".

6. In sum, the Arbitral Tribunal decided on the partial annulment of the 2007 financial year assessment, concluding that the TA should issue the assessment in accordance with the data contained in the Form 22 declaration, i.e., considering the full amount of the SIFIDE tax benefit.

7. However, the legality of the 2009 financial year assessment – the "excessive deduction" – was not in issue in the said proceeding.

8. Furthermore, the Applicant was never notified of any inspection procedure relating to the SIFIDE tax credit declared in the 2009 financial year.

9. The Applicant never had the opportunity to discuss whether the assessment relating to the 2009 financial year, in the amount of € 388,915.37, is, or is not, legal, from a substantive point of view.

10. On the other hand, the assessment now being discussed was not merely corrective. Indeed, there was not a mere "amputation" of a portion of the previous assessment act. There was indeed a new assessment act. An autonomous act.

11. The consequence of the annulment of the 2007 assessment is not the assessment of tax in 2009.

12. Indeed, the scenario at hand is not comparable to a situation in which, for example, a tax benefit was annulled leading the TA to assess the tax not paid as a consequence of the reconstitution of the situation that would have existed if the benefit had not been recognized ab initio, or vice versa. The partial annulment of the 2007 assessment is independent of the 2009 assessment.

13. The relationship between the recognition of the tax benefit and the elimination of the effect of the excessive deduction in the 2009 financial year was never discussed. Having never been analyzed this relationship, it is not demonstrated that a causal relationship exists.

14. Pursuant to article 24 of the RJAT "[t]he arbitral decision on the merits of the claim of which no appeal or challenge lies binds the tax administration from the end of the period provided for appeal or challenge, this administration must, in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and up to the end of the period provided for spontaneous execution of the judgments of the judicial tax tribunals, alternatively or cumulatively, as the case may be:

a) practice the tax act legally due in substitution of the tax act object of the arbitral decision;

b) re-establish the situation that would have existed if the tax act object of the arbitral decision had not been practiced, adopting the necessary acts and operations for such effect;

c) review the tax acts that are in a relationship of prejudicial nature or of dependence with the tax acts object of the arbitral decision, namely by being inscribed within the scope of the same legal tax relationship, although corresponding to distinct periodic obligations, altering or replacing them, totally or partially;

d) assess the tax obligations in accordance with the arbitral decision or refrain from assessing them.

2 – Without prejudice to the other effects provided for in the Code of Tax Procedure and Process, the arbitral decision on the merits of the claim of which no appeal or challenge lies precludes the right to, with the same grounds, complain, challenge, request review or the promotion of official review, or raise arbitral pronouncement on the acts object of such requests or on the consequent assessment acts.

3 – When the arbitral decision puts an end to the proceedings without knowing the merits of the claim by fact not attributable to the taxpayer, the periods for complaint, challenge, review, promotion of official review, review of the taxable matter or for raising new arbitral pronouncement of the acts object of the arbitral claim deducted are counted from the notification of the arbitral decision.

4 – The arbitral decision precludes the right of the tax administration to practice a new tax act in relation to the same taxpayer or tax obligor and tax period, except in cases in which it is grounded on new facts different from those that motivated the arbitral decision.

5 – The payment of interest, regardless of its nature, is due, under the terms provided in the general tax law and in the Code of Tax Procedure and Process.".

1. Let us then analyze, with somewhat more detail, the effects that may have arisen from the decision delivered in Case No. 225/2006-T:

a. Pursuant to article 24, paragraph 1, subparagraph a) of the RJAT, the TA may proceed to the practice of the "tax act legally due in substitution of the tax act object of the arbitral decision". In the concrete case, this implies the issuance of a new assessment relating to 2007 (a corrective assessment). No effect should arise with respect to the 2009 financial year, since this was not "the object of the arbitral decision";

b. Pursuant to article 24, paragraph 1, subparagraph b) of the RJAT, the TA may "re-establish the situation that would have existed if the tax act object of the arbitral decision had not been practiced, adopting the necessary acts and operations for such effect".

c. The norm seeks, in summary terms, to restore the initial situation. The situation existing before the practice of the tax act. Also in this regard, it seems to us that the partial annulment relating to the 2007 financial year does not imply an additional assessment in 2009. In an example of the application of this norm, given by Carla Castelo Trindade, which seems to us apt, the TA should "practice the act of extinction, total or partial, of the fiscal execution proceeding, annulling all or part of the bank guarantee (…)". (Carla Castelo Trindade, Legal Framework for Tax Arbitration, Annotated, Coimbra: Almedina, 2016, p.453);

d. More controversial may be the situation provided for in article 24, paragraph 1, subparagraph c) of the RJAT, which provides for the review "of the tax acts that are in a relationship of prejudicial nature or of dependence with the tax acts object of the arbitral decision, namely by being inscribed within the scope of the same legal tax relationship, although corresponding to distinct periodic obligations, altering or replacing them, totally or partially;".

Resorting, once again, to the examples given by Carla Castelo Trindade, under the said norm, the TA may review the taxable profit of financial year n+1 if, following an arbitral decision, it has been concluded that the company had losses and not profits in financial year n. In another example, if the same correction has given rise to assessments in various taxes, the declaration of illegality of the correction will impact, naturally, on all the taxes that may have generated assessments (Carla Castelo Trindade, Legal Framework for Tax Arbitration, Annotated, Coimbra: Almedina, 2016, p.453).

It does not seem to us, however, that there is a relationship of prejudicial nature or dependence between the 2007 assessment and the 2009 assessment. Although the relationship and connection between both assessments is understood, there is no prejudiciality or dependence since the declaration of illegality of the 2007 assessment did not result from an analysis of the underlying reason for the assessment. It was not discussed at what point the assessment of the tax now being discussed should have been effected (2007/2008/2009 financial year), for example. The substance of the matter was not discussed. It was merely said that the assessment, as it was effected in 2007, would be partially illegal. This decision permits the TA to reassess the tax which, in its opinion, is due, but not by virtue of the execution of the decision, but as an autonomous assessment act, which implies respect for the limitation periods;

e. Finally, the provision of article 24, paragraph 1, subparagraph d) of the RJAT, which permits the TA to "assess the tax obligations in accordance with the arbitral decision or refrain from assessing them" shall equally not be applicable, since Case No. 225/2006-T provides no guidance as to the assessment of tax.

(B) On the Right to Compensation for Undue Provision of Guarantee

1. Pursuant to article 171 of the CPPT, applicable ex vi article 29, paragraph 1 of the RJAT, "[c]ompensation in case of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the executable debt is disputed.", with paragraph 2 of the same article adding that "compensation should be requested in the complaint, challenge or appeal or in case its grounds are subsequent within 30 days after its occurrence.".

2. Article 53 of the LGT, relating to guarantee in case of undue provision, provides that "[t]he debtor who, to suspend execution, offers a bank guarantee or equivalent, shall be compensated wholly or partially for the damages resulting from its provision, should he have maintained it for a period exceeding three years in proportion of the outcome in administrative complaint, challenge or opposition to execution that have as object the debt guaranteed." (underlined in the original). It adds, however, paragraph 2 of the same article, that "[t]he period referred to in the preceding paragraph does not apply when it is verified, in gracious complaint or judicial challenge, that there was error attributable to the services in the assessment of the tax".

3. It is thus necessary to verify whether the present Tribunal may decide favorably on the attribution of compensation for undue guarantee to the Applicant.

4. However, in the legislative authorization on which the Government based itself to approve the RJAT, granted by article 124 of Law No. 3-B/2010, of 28 April (Budget Law of the State for 2010), it is proclaimed, as a primary guideline of the institution of arbitration as an alternative form of jurisdictional resolution of disputes in tax matters, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

5. The judicial challenge process is a procedural means that has as its object an act in tax matters, aimed at assessing its legality and deciding whether it should be annulled or its nullity or non-existence be declared, as results from article 124 of the CPPT.

6. By analyzing articles 2 and 10 of the RJAT, it is verified that only questions of legality of assessment acts or acts fixing the taxable matter and second-instance acts having as their object the assessment of the legality of acts of those types, acts whose assessment is within the scope of judicial challenge proceedings, as results from subparagraphs a) to d) of paragraph 1 of article 97 of the CPPT, were included in the competencies of the arbitral tribunals functioning in CAAD.

7. The legislator did not implement in the legislative authorization, in the part in which it was foreseen the extension of the competencies of the arbitral tribunals, questions that are assessed in tax tribunals through an action for recognition of a right or legitimate interest.

8. However, in keeping with the intention underlying the legislative authorization to create an alternative means to the judicial challenge process, it should be understood that, as to requests for declaration of illegality of acts of the types referred to in its article 2, the arbitral tribunals functioning in CAAD have the same competencies that the state tribunals have in judicial challenge proceedings, within the limits defined by the binding made by the Tax Authority and Customs through Order No. 112-A/2011, of 22 March, under paragraph 1 of article 4 of the RJAT.

9. Although the judicial challenge process has as its primary object the declaration of nullity or non-existence or the annulment of acts of the types referred to, it has been pacifically understood that therein can be delivered condemnations of the Tax Authority and Customs to pay compensatory interest and compensation for undue guarantee.

10. It is unequivocal that in judicial challenge proceedings it is possible to assess requests for condemnation to payment of compensation for undue provision of guarantee, as article 171 of the CPPT establishes that "compensation in case of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the executable debt is disputed" and that "compensation should be requested in the complaint, challenge or appeal or in case its grounds are subsequent within 30 days after its occurrence".

11. Thus, it is unequivocal that the judicial challenge process encompasses the possibility of condemnation to payment of undue guarantee and is even, in principle, the adequate procedural means to formulate such a request, which is justified by obvious reasons of procedural economy, since the right to compensation for undue guarantee depends on what is decided on the legality or illegality of the assessment act.

12. Thus, similar to what occurs with tax tribunals in judicial challenge proceedings, this Arbitral Tribunal is competent to assess requests for compensation for undue guarantee.

13. The request for constitution of the arbitral tribunal has, moreover, as a corollary to become the venue where the "legality of the executable debt" will be discussed, so, as results from the express tenor of that paragraph 1 of the said article 171 of the CPPT, the request for compensation for undue guarantee can equally be discussed within the scope of the present arbitral proceeding.

14. In this manner, within the limits fixed, arbitral tribunals have competence to assess requests for compensation for undue guarantee.

15. Under the terms described above, the Applicant will have the right to guarantee if: (i) the guarantee has been maintained for a period exceeding three years or (ii) if it is verified that there was error attributable to the services in the assessment of the tax.

16. However, finding that neither the existence of the bank guarantee nor the pendency of fiscal execution for coercive collection of the debt arising from the assessment now challenged was proven, the request for compensation for undue provision of bank guarantee must fail.

(C) On the Notification to the Public Prosecutor's Office for Bringing an Action for Unjust Enrichment at the Request of the TA

1. Without prejudice to the present Tribunal's consideration that it is not obliged to make any notification to the Public Prosecutor's Office, CAAD may, provided that the requirements are met, under the terms of article 2 of the Protocol of Institutional Cooperation Between the Administrative Arbitration Center and the Attorney General's Office, executed on 1 March 2018, proceed to the communication of the content of the present decision.

VI. DECISION

As a consequence of the above, the arbitrators constituting this Collective Arbitral Tribunal agree that:

• The request for declaration of illegality of the 2009 IRC assessment No. 2017…, in the amount of € 388,891.92, is wholly well-founded, because it was carried out beyond the limitation period;

• The request for payment of compensation for undue provision of guarantee is without merit;

• The Tax Authority is condemned to payment of arbitration costs; and

• This decision is not to be notified to the Public Prosecutor's Office, as requested by the TA in its Response, due to lack of legal basis for such purpose, without prejudice to its communication by CAAD in light of the Protocol of Institutional Cooperation between the Administrative Arbitration Center and the Attorney General's Office, executed on 1 March 2018.

VII. VALUE OF THE CASE

In accordance with the provisions of article 306, paragraph 2 and article 297, paragraph 2 of the Code of Civil Procedure, article 97-A, paragraph 1, subparagraph a) of the CPPT and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 388,891.92.

VIII. COSTS

In accordance with the provisions of articles 22, paragraph 4 and 12, paragraph 2 of the RJAT, articles 2, 3, paragraph 1 and 4, paragraphs 1 to 4 of the Regulation of Costs in Tax Arbitration Proceedings, as well as in Table I attached to this instrument, the total value of costs is fixed at € 6,426.00.

Lisbon, 19 April 2018.

The Collective Arbitral Tribunal,

José Poças Falcão
(President)

Leonardo Marques dos Santos
(Adjunct Arbitrator)

José Ramos Alexandre
(Adjunct Arbitrator)