CAAD Case 467/2017-T: RETGS Group Taxation with Non-Resident Parent Company Under IRC

ARBITRAL DECISION

The Arbitrator Dr. Filipa Barros (sole arbitrator), appointed by the Ethics Council of the Centre for Administrative Arbitration ("CAAD") to form the Sole Arbitral Tribunal, constituted on 9 November 2017, decides as follows:

I. REPORT

The company A… legal entity no. …, with registered office at …, …, …, hereinafter "Claimant", hereby requests, pursuant to the provisions of article 10 et seq. of Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT"[1], the constitution of the Arbitral Tribunal to rule on the illegality and consequent annulment of the dispatch from the Head of Division of the Finance Directorate of …, by delegation, dated 2017/05/08, which rejected the Claim regarding Self-Assessment of Corporate Income Tax for 2014.

To support its request, the Claimant contends, in summary, the following:

• With reference to the tax period of 2014, the present Claimant was the dominant company of a Group of Companies taxed according to the Special Regime for Taxation of Groups of Companies (RETGS), and composed only of itself and by the company B…, S.A., with registered office in …;

• Thus, in Portugal, the composition of the perimeter of the RETGS with reference to the tax period of 2014 was constituted by the Claimant (A…) and by B…;

• It happens that the Claimant is directly held at 99.99% of its share capital by E…, (E…), a commercial company resident for tax purposes in France, which, in turn, is held indirectly by a company resident for tax purposes in France – C… S.A., (C… SA);

• For its part, Company C… SA held during the tax period of 2014 (and still holds) indirectly a company resident for tax purposes in Portugal - the company D…, Lda. (D…);

• Thus, the Claimant understands that with reference to the financial year 2014, the composition of the perimeter of the RETGS for purposes of determining Corporate Income Tax should integrate, in addition to the Claimant and B…, the company D…, fiscally resident in Portugal, held at 100% by the company C… SA, resident in France;

• However, the internal law at that date did not permit the integration of this company (D…) in the RETGS, since the dominant company was not resident in Portuguese territory for tax purposes;

• In this context, on 13/10/2015 the Claimant submitted its Form 22 income tax return, relating to the financial year 2014, declaring as the algebraic sum of the fiscal results of the group a taxable profit in the amount of € 2,480,936.15, determining a tax payable of € 210,998.71 which was paid in a timely manner;

• However, since in its understanding the said self-assessment is not correct, the Claimant filed a gracious claim regarding the self-assessment which was rejected by dispatch from the Head of Division of the Finance Directorate of Leiria;

• Thus, it contends that the AT's Dismissal Dispatch is illegal, as by excluding from the RETGS companies resident in Portugal whose holding is made through non-resident companies, although resident in the European Union (EU) by application of the provisions of article 69, nos. 3 and 4 para. f), in the version in force at that date, it contradicts the jurisprudence and European legislation, violating the principle of Freedom of Establishment provided for in article 43 of the Treaty of the European Community (TEC).

For its part, the AT (Portuguese Tax Authority) presented a response, agreeing with the factuality and defending itself by exception and by challenge, invoking in summary:

By exception:

• Material incompetence of the Arbitral Tribunal, pursuant to article 2, no. 1, of the RJAT, because the central issue in the case is translated into the recognition of a right.

The AT contends that the Claimant intends to obtain the recognition of a right which, according to the legislation in force in the national legal order, did not belong to it at the date of the facts, translated into the "correction of the self-assessment of Corporate Income Tax for 2014, so that in the determination of the taxable profit of the Claimant as the dominant company of the group, all companies resident for tax purposes in Portugal held, directly and indirectly, by the dominant company C… are included in the RETGS."

Now, to admit that the Arbitral Tribunal has competence to appreciate this request would represent, with all due respect, the substitution of the present Arbitral Tribunal in the competencies proper to the AT.

Nor even in the context of a special administrative action, procedural means in which the condemnation of the administration to the performance of a due act is foreseen, (see arts. 66 et seq. of the CPTA), is it allowed for the Judicial Tribunal to go so far, being unable to determine the content of the conduct to be adopted, it should only explain the constraints to be observed by the Administration.

Consequently, the legal claim formulated by the Claimant is reduced to the recognition of a right or to the request for condemnation to the performance of a due act, which cannot be obtained by this means.

The AT concludes that what is at issue is not the appreciation of any act of assessment, but rather, a supposed and hypothetical right which is always prior to such assessment, and the Arbitral Tribunal is not competent to appreciate the rejection of the gracious claim that denies the recognition of such a right.

• Illegitimacy of the Claimant due to lack of necessary joinder of parties

In this respect the AT alleges that the Claimant intends to be recognized the right to be taxed according to the RETGS in which the dominant company of the group would be another company, of French law, C… SA, which meets the requirements for it to be recognized the right to be included in the RETGS, in the capacity of dominant company. However, being that company non-resident, the Claimant does not even refer to being its representative for purposes of application of such regime.

Additionally, it is the parent company or its representative that must file the consolidated Form 22 of the group.

Thus, not appearing C… SA in the present request for arbitral ruling as Plaintiff or Claimant, any decision to be rendered in the present case would always lack useful effect.

And the AT concludes by stating that "given that the request is for the recognition of a group to be taxed according to the RETGS and it being certain that it is the parent company that presents the Form 22 of the group, the law requires the intervention of all so that the judicial decision has useful effect and binds all parties".

Wherefore, due to lack of necessary joinder of parties, the Claimant is an illegitimate party, which determines the dismissal of the AT from the instance.

The AT also presented a defense by challenge invoking, in summary, the following:

• The RETGS is structured on the model of fiscal integration, that is, of aggregation of fiscal results (taxable profit or fiscal loss) determined individually by each company of the group;

• Being a special regime, it is of optional application, and the option must be communicated through the submission of a declaration of changes by the end of the 3rd month of the tax period in which application is intended to begin (according to para. a) of no. 7 of art. 69 of the Corporate Income Tax Code and all constituent companies must satisfy the requirements set forth in nos. 3 and 4 of the said article 69);

• None of the companies formulated the option for the beginning of the application of the RETGS by the end of the 1st quarter of the tax period of 2014;

• The Claimant submitted individually a gracious claim, relating to the financial year of 2014, being certain however that there is no error of the services, insofar as the assessment based on the taxable base of the group depends on the fulfillment of a formal requirement translated into the exercise of an option within the legal time frame established;

• The Jurisprudence of the European Union invoked by the Claimant has no constitutive value, but purely declaratory, has no retroactive effect nor are the situations in which it was rendered exactly the same as the situation under consideration;

• Thus, the interpretation provided by the jurisprudence of the CJEU shall only be binding in the case in which the CJEU was asked to rule;

• And, even if this were not the case, it would always have to be taken into account that, in the case of the Claimant, access to the application of the RETGS depends and depended (in 2014) on the formulation of an option that was not effected by any of the companies in due time, neither by the Claimant, nor by the dominant Company C… SA;

• Had they exercised such an option, it would have triggered a response from the AT, which in case of disagreement, could have been judicially contested;

• Neither the jurisprudence of the European Union nor the jurisprudence of the CAAD applies to the case in question, as both concern situations different from those here in question;

• Therefore, the request for arbitral ruling should be rejected, due to lack of legal foundation.

Notified for this purpose, the Claimant presented on 10 January 2018 its Response to the exceptions raised by the AT, having therein argued (i) for the material competence of the Arbitral Tribunal for the underlying request for arbitral ruling, and (ii) sustained the legitimacy of the Claimant for its presentation.

With regard to the first exception, the Claimant notes, in summary, that if the AT accepted to appreciate the request for Gracious Claim, it is because it in fact recognizes that what is at issue here is a question of legality of the self-assessment act. Without prejudice, it reiterates that the Claimant does not intend, nor does it request the recognition of a right.

What is at issue is that the self-assessment of Corporate Income Tax for the financial year 2014 is manifestly illegal (and consequently the Dismissal Dispatch) because it was effected on the basis of a legal provision – namely article 69 of the CIRC – which was illegal because it violated Community Law.

Thus, it is intended to ascertain whether article 69 of the CIRC, in force at the date of the facts, violated, or not, Community Law. Now, if it is verified that there is a violation – as was clearly demonstrated in the initial petition – then no other conclusion can be drawn than that of the illegality of the provision of article 69 of the CIRC and of all tax acts that were issued in compliance with what was stipulated there.

Thus, and contrary to what the AT alleges, what is at issue here is the illegality of the self-assessment act and the Dismissal Dispatch, since both result from the application and interpretation of a legal provision which is clearly violatory of Community Law.

With regard to the second exception of illegitimacy, it states, in summary, that the same was never raised by the AT in the context of analysis of the request for official revision, so the AT cannot do so in the context of response to the request for arbitral ruling.

It considers it contradictory that the AT considers that the Claimant has legitimacy to present the Claim regarding Self-Assessment, but that the AT itself understands that the Claimant does not have legitimacy to submit the request for arbitral ruling of the Dispatch that rejected that same Claim regarding Self-Assessment.

Without prejudice, it also emphasizes that the legal formalism of the "designated subsidiary company" only began to be provided for, and as such could only be complied with, after the entry into force of article 69-A of the CIRC. Before that date it was not possible, formally, for C… SA to file a Form 22 in Portugal (as it still is not formally possible), or for the Claimant to file a Form 22, as a designated company, because if it were possible the Claimant would not have submitted the present request for arbitral ruling.

Moreover, it emphasizes being the holder of a legally protected interest since its legal sphere can be directly affected by what is decided in the present case, significantly altering its legal-tax framework, scenario in which legitimacy is fully assured by nos. 1 and 4 of article 9 of the CPPT, as well as by no. 1 of article 9 of the CPTA.

The Claimant contends that it is the passive subject of the tax here in question, and is the sole recipient of the effects of the decision of the rejection of the official revision. These acts harmed its legal sphere, as it would be favorable to it the application of the special regime for taxation of groups of companies, according to the terms requested.

Now, pursuant to article 30 of the CPC, subsidiarily applicable by force of article 29, no. 1, para. e), of the RJAT, "the claimant is a legitimate party when it has a direct interest in suing", which is expressed "by the utility derived from the success of the action". On the other hand, it contends that being the requests to be appreciated only that of the correction of the self-assessment and of the decision of the official revision, it appears that the Claimant will have legitimacy, as the validity or not of these acts will be definitively decided.

It also considers that it is a legitimate party by application of article 9, no. 2 of the CPPT, in which the legitimacy of jointly and severally liable parties is provided for, which is the case of companies subject to the RETGS.

On 22 January 2018, noting that, in the case, none of the purposes legally entrusted to it were verified, and there being no opposition from the parties, pursuant to articles 16 para. c), 19 and 29, no. 2 of the RJAT, as well as the principles of procedural economy and prohibition of useless acts, the holding of the meeting alluded to in article 18 of the RJAT was dispensed with.

Written submissions were presented by the Claimant, followed by submissions of the Respondent.

In the submissions presented, the parties reiterated in essence the positions defended in their respective pleadings.

The Arbitral Tribunal is properly constituted (arts. 5, nos. 1 and 3, para. a), 6, no. 2, para. a) and 11 of the RJAT), the parties have legal personality and capacity and are duly represented.

The other matters relating to procedural requirements, as they are contested by the exceptions invoked by the Respondent, will be appreciated, hereinafter, in a specific and autonomous manner, without prejudice to the fact that the solution given to a certain matter may prejudice the appreciation of the remaining issues raised by the parties (cfr. art. 608, no. 2 of the Code of Civil Procedure - CPC).

II. QUESTIONS TO BE DECIDED

In light of the allegations contained in the Request for Arbitral Ruling and the exceptions raised by the Respondent in its response, the issues submitted, within the framework of the dispute formulated, to the cognizance of the Arbitral Tribunal, which are defined by the alleged facts and by the procedurally formulated claims that require specific decision, including matters relating to procedural requirements raised by the parties or of official knowledge, are the following (always without prejudice to the fact that the decision of a certain issue may prejudice the appreciation of others):

• Of the material incompetence of the arbitral tribunal;

• Of the illegitimacy of the Claimant due to lack of necessary joinder of parties;

• Of the annulment of the dispatch dismissing the Gracious Claim presented regarding the self-assessment of Corporate Income Tax relating to the financial year 2014, for violation of the principles of Freedom of Establishment and the Primacy of European Union Law over internal law, and in consequence, of the need for application of the normative contained in para. f) of no. 4, of article 69 of the Corporate Income Tax Code, (before the amendment introduced by Law no. 82-C/2014 of 31 December) in a manner compatible with the orientation arising from the jurisprudence of the CJEU;

• Of the correction of the self-assessment of Corporate Income Tax for the financial year 2014, by force of the recognition of the application to the Claimant, as the dominant company, of the RETGS, pursuant to article 69-A of the Corporate Income Tax Code, and all companies resident for tax purposes in Portugal, held, directly and indirectly, by the dominant company C… SA, namely the companies:

  • B…, S.A., and,
  • D…, Lda.

• Determination, in consequence, that the AT reimburse the Claimant the total amount of €59,333.70, as to Corporate Income Tax and Autonomous Taxation, by effect of the aforementioned corrections.

III. DECISION ON THE FACTS

Facts Given as Proven

The facts were given as proven on the basis of the documents attached in the context of the administrative procedure, in the request for arbitral ruling, in the response presented by the AT, taking into account also the submissions presented by the parties, in the terms indicated below:

• With reference to the tax period of 2014, the Claimant was the dominant company of a Group of Companies taxed according to the RETGS and composed only of itself and by the company B…, S.A. with registered office in …;

• With reference to the tax period of 2014, the composition of the perimeter of the RETGS presented itself in the following terms:

• The Claimant is directly held at 99.99% of its share capital by E… (E…), a commercial company resident for tax purposes in France;

• E… was with reference to 2014 – and still is – held indirectly by C… SA, a company resident for tax purposes in France;

• C… SA held during the tax period of 2014 – and still holds, indirectly, another company resident for tax purposes in Portugal, namely the company D…, Lda.;

• On 31/12/2014, the corporate structure of the Claimant would be capable of being reproduced according to the following organizational chart:

• On 13/10/2015 the Claimant filed its Form 22 income tax return, relating to the financial year 2014, declaring as the algebraic sum of the fiscal results of the group a taxable profit in the amount of € 2,480,936.15, determining a tax payable of € 210,998.71 which was paid in a timely manner;

• On 24/11/2016 the Claimant submitted to the Finance Directorate of…, a gracious claim against the self-assessment of Corporate Income Tax, for the financial year 2014, in the amount of € 210,998.71.

• The claimed Corporate Income Tax assessment originated from self-assessment whose respective income tax return was filed on 26-01-2017 through a substitute declaration, determining a taxable profit of the group in the amount of € 2,480,936.15;

• Believing that, by force of the orientation of the CJEU, it would be possible to extend the perimeter of the group subject to the RETGS, with retroactive effects to the financial year 2014, the Claimant submitted the Corporate Income Tax self-assessment to a request for Gracious Claim instituted under no. …2016…;

• The Claim, which is here given as entirely reproduced, had as its object the request for determination of the taxable profit, as the company of the group designated to assume responsibility for the fulfillment of all obligations that fell to the dominant company, by inclusion in the RETGS, of all companies resident for tax purposes in Portugal held indirectly by the dominant company C… SA, namely the companies B…, SA and D…, Lda.;

• On 08/05/2017 the Gracious Claim was rejected by Dispatch from the Head of Division of the Finance Directorate of …, by delegation, in the following terms:

"20. The claimant intends, based on the CJEU judgments, the retroactive application of article 69-A of the CIRC.

1. However, as already mentioned, this is not possible. Law no. 82-C/2014, of 31.12.2014, provides in article 5 (production of effects) its application only for tax periods beginning on or after 1 January 2015.

2. The AT is bound by the principle of legality, therefore it will have to apply the tax law in force at the date of the taxable fact, which does not permit the extension of the RETGS to companies resident in Portugal, but held by non-resident companies (RETGS horizontal).

3. And it is repeated, legislation on direct taxes is the exclusive competence of each Member State, it is not directly regulated by community legislation".

• The Claimant or the dominant Company C… SA did not formulate or request, in any way, the option for the beginning of the application of the RETGS by the end of the 1st quarter of the tax period of 2014;

• On 4 August 2017, the Claimant submitted the request for constitution of the Arbitral Tribunal that gave rise to the present case (cfr. electronic request to the CAAD).

2. Facts Not Proven

No facts with relevance to the appreciation of the matter that were not proven were found.

3. Motivation

With respect to the facts, the Tribunal does not have to rule on everything that was alleged by the parties, it being rather its duty to select the facts that matter for the decision and discriminate the matter proven from that not proven (cfr. art. 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable ex vi article 29, no. 1, paras. a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and cut according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of Law (cfr. former article 511, no. 1, of the CPC, corresponding to current article 596, applicable ex vi of article 29, no. 1, para. e), of the RJAT).

Thus, taking into consideration the positions assumed by the parties, in light of article 110, no. 7 of the CPPT, the documentary evidence, the statements of the Claimant that were not questioned by the AT and the file attached to the case, the facts listed above were considered proven, with relevance to the decision.

4. MATTER OF LAW

4.1. On the Material Incompetence of the Arbitral Tribunal

According to the consolidated directive contained in article 608, no. 1 of the CPC, the procedural issues that are capable of determining the dismissal of the instance must be known according to the order imposed by their logical precedence.

This results in the necessity to appreciate, in the first place, the matter of the competence of the Arbitral Tribunal, whose knowledge precedes that of any other question (cfr. articles 13 of the Code of Procedure in Administrative Courts (CPTA) and 278, no. 1, para. a) of the CPC applicable to tax arbitral proceedings by force of article 29, no. 1, para. c), of the RJAT), since, with the sole exception of its own competence, a tribunal that is incompetent is prevented, not only from appreciating the merits of the case, but all other procedural requirements.

In these terms, it is necessary, in a preliminary manner, to proceed to the appreciation of this matter.

As already mentioned, the Respondent, in its response (arts. 9 to 39), invoked the dilatory exception of material incompetence of the Arbitral Tribunal to appreciate and decide the claims formulated by the Claimant, founding itself, briefly, on the following grounds:

• The competence of arbitral tribunals is circumscribed to the matters indicated in no. 1 of article 2 of the RJAT, as well as of Ordinance no. 112-A/2011, of 22 March, ex vi article 4 of the RJAT, by the terms in which the Tax Authority bound itself to that jurisdiction.

• The Claimant intends to obtain the recognition of a right which, according to the legislation in force in the national legal order, did not belong to it at the date of the facts, translated into the "correction of the self-assessment of Corporate Income Tax for 2014, so that in the determination of the taxable profit of the Claimant as the dominant company of the group, all companies resident for tax purposes in Portugal held, directly and indirectly, by the dominant company C… are included in the RETGS."

• Now, to admit that the Arbitral Tribunal has competence to appreciate this request would represent, with all due respect, the substitution of the present Arbitral Tribunal in the competencies proper to the AT.

• Nor even in the context of a special administrative action, procedural means in which the condemnation of the administration to the performance of a due act is foreseen, (see arts. 66 et seq. of the CPTA), is it allowed for the Judicial Tribunal to go so far, being unable to determine the content of the conduct to be adopted, it should only explain the constraints to be observed by the Administration.

• What is not at issue is the appreciation of any act of assessment, but rather, a supposed and hypothetical right which is always prior to such assessment, the Arbitral Tribunal being not competent to appreciate the rejection of the gracious claim that denies the recognition of such a right.

In the response to the exceptions presented by the Claimant, it maintains this, with respect to the question of material incompetence, the following:

• What is at issue here is the question of whether article 69 of the CIRC, in force at the date of the facts, violated, or not, Community Law. Naturally, if it is verified that there is a violation, then no other conclusion can be drawn than that of the illegality of the said normative and of all tax acts that were issued in compliance with what was stipulated there.

• Thus, and contrary to what the AT alleges, what is at issue here is the illegality of the self-assessment act and the Dismissal Dispatch, since both result from the application and interpretation of a legal provision which is clearly violatory of Community Law.

• The Claimant does not intend the substitution of the present Arbitral Tribunal in the competencies proper to the AT. The AT, in the context of analysis of the Claim regarding Self-Assessment, already had the opportunity to rule on the legality of the tax act, having the same decided that it did not suffer from any illegality, although article 69 of the CIRC in force at the date only permitted the inclusion in the RETGS of companies resident in Portugal.

• Now, what the Claimant intends is that the Arbitral Tribunal rule on the legality of the understanding of the AT contained in the Dismissal Dispatch, and consequently, on the legality of the self-assessment act.

It is thus necessary to appreciate this preliminary question of competence ratione materiae of this Arbitral Tribunal, a question, moreover, which is of official knowledge, being that the infraction of the rules of competence ratione materiae determines the absolute incompetence of the tribunal (art. 16, nos. 1 and 2 of the Code of Tax Procedure and Process (CPPT) applicable ex vi art. 29, no. 1, paras. a) and c) of the RJAT).

Now, the competence of the tribunal must be ascertained, in general, as a function of the claim formulated by the claimant and the grounds or cause of action that support it, taking into account the manner in which they appear formulated in the initial petition, independently of any inquiry into its merits. Competence is thus ascertained according to the quid disputatum or quid decidendum (as opposed to what will be the quid decisum), as configured by the claimant.

In view of the manner in which the Claimant structured the present case in its Request for Arbitral Ruling and expressed in arbitral proceedings its claims, by means of the binomial claims/cause of action, it is verified that a cumulation of claims was made, which arise formulated to achieve the following purposes:

• Of the annulment of the dispatch dismissing the Gracious Claim presented regarding the self-assessment of Corporate Income Tax relating to the financial year 2014, in consequence of the express recognition by the CJEU of the illegal character of the provision of article 69 of the Corporate Income Tax Code, before the amendment introduced by Law no. 82-C/2014 of 31 December;

• Of the correction of the self-assessment of Corporate Income Tax for the financial year 2014, by force of the recognition of the application to the Claimant, as the dominant company, of the RETGS, pursuant to article 69-A of the Corporate Income Tax Code, all companies resident for tax purposes in Portugal, held, directly and indirectly, by the dominant company C… SA, namely the companies:

  • B…, S.A., and,
  • D…, Lda.

• Determination, in consequence, that the AT reimburse the Claimant the total amount of € 59,333.70, as to Corporate Income Tax and Autonomous Taxation, by effect of the aforementioned corrections.

This cumulation of claims, as regards its structure, constitutes a simple cumulation, in that the Claimant intends the success of all formulated claims and the production of all their effects[2].

Regarding the cumulation of claims in tax arbitral proceedings, article 3, no. 1 of the RJAT provides the following: "The cumulation of claims even if relating to different acts and the joinder of claimants are admissible when the success of the claims depends essentially on the appreciation of the same factual circumstances and on the interpretation and application of the same principles or rules of law".

Attending solely to this provision, the cumulation of claims requires a certain "objective connection" – precisely, the appreciation of the same facts or the interpretation and application of the same principles or rules of law in the examination of their success. However, in addition to this material requirement, it is still indispensable (cfr. no. 3 of art. 5 of the CPTA) a "procedural compatibility between the claims", by which "the tribunal must be materially competent for all cumulated claims", whereby "the admissibility of their cumulation is restricted according to the tribunal's competence for the appreciation of each one of them"[3].

In this manner, by force of the delimitation of competencies of tax arbitral tribunals, the plurality of legal claims that possess objective connection cannot be the object of appreciation in cumulation of claims if the tribunal does not have competence for all of them. That is, only claims materially connected can be cumulated in the tax arbitral proceedings for which the tribunal is competent.

In sum, the cumulation of claims admitted by art. 3, no. 1 of the RJAT is only viable and legal if all cumulated claims fall within the scope of the competencies legally attributed to arbitral tribunals.

The scope of tax arbitral jurisdiction is ascertained, first and foremost, by the criteria for determination of material competence which are established by art. 2, no. 1 of the RJAT, according to which:

"The competence of arbitral tribunals comprises the appreciation of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, retention at source and payment on account;

b) The declaration of illegality of acts of determination of the taxable base when it does not give rise to assessment of any tax, acts of determination of the taxable amount and acts of fixing patrimonial values".

Subsequently, in accordance with the provision of no. 1 of article 4 of the RJAT (according to which: "The binding of the tax administration to the jurisdiction of tribunals constituted under the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and the maximum value of the disputes covered"), it is important to note the provision of article 2 of Ordinance no. 112-A/2011, of 22 March, which, regarding the appreciation of claims, relative to taxes whose administration is entrusted to services and agencies of the AT, referred to in no. 1 of article 2 of the RJAT, excepted, as is most relevant here, "Claims relating to the declaration of illegality of acts of self-assessment, retention at source and payment on account that have not been preceded by resort to the administrative channel in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" and "Claims relating to acts of determination of the taxable amount and acts of determination of the taxable base, both by indirect methods, including the decision of the official revision procedure".

Considering the prescribed in these provisions, it is to be understood, in terms of the basic delimiting criterion, that the competence of arbitral tribunals is restricted to claims of challenge of acts relating to the assessment of taxes or to the determination of the taxable base, which aim at the declaration of their nullity or annulment (without prejudice to elements not strictly annulatory associated with the challenge process, as occurs with condemnation in compensatory interest or indemnification for guarantee given).

Thus, when one confronts art. 2, no. 1 of the RJAT with art. 97, no. 1 of the CPPT (see also art. 101 of the LGT) one easily concludes that claims which do not respect the challenge of acts of assessment, but the recognition of a right or interest in tax matters (para. h) of no. 1 of art. 97 of the CPPT; cfr. also art. 145 of the CPPT), are not comprised within the competence of tax arbitral tribunals.

In consequence, claims which are not relating to the validity of the tax act in itself considered, but which are instead intended for the recognition of a right resulting from the tax legal relationship or for obtaining the condemnation of the competent entity to the performance of an act that has been illegally omitted or refused, escape the jurisdiction of tax tribunals.[4]

In accordance with the claims as formulated by the Claimant relating to "the annulment of the dispatch dismissing" as well as "in the condemnation of the AT to the correction of the self-assessment of Corporate Income Tax for 2014, so that in the determination of the taxable profit of the Claimant as the dominant company of the group, all companies resident for tax purposes in Portugal held, directly and indirectly, by the dominant company C…, namely the companies B… S.A. (…) and D… Lda.(…) are included in the RETGS" and "determining in consequence that the AT reimburse the Claimant the total amount of € 59,333.70, as to Corporate Income Tax and autonomous taxation by effect of the aforementioned corrections," the Claimant intends to be globally recognized the right to taxation by the RETGS, whose application depends on an option to be made by the dominant company and on the satisfaction of requirements of a material and formal character legally imposed (cfr. arts. 69 and 69-A of the CIRC), regarding a matter that is autonomous and prior to Corporate Income Tax assessments, a matter that must be subject to formal declaration by the dominant company and is subject to specific appreciation by the AT (cfr., in particular, nos. 1, 2, 3, 7 and 12 of art. 69 of the Corporate Income Tax Code).

It must be noted, indeed, that, differently from what the Claimant refers to in its response to the exceptions, it is this claim for application of the RETGS to the financial year 2014 that emerges as the essential and primary content of the procedural subject matter defined by the Claimant.

Observe, indeed, that, although stating that the claims at issue in the present case respect the illegality of the acts of self-assessment of Corporate Income Tax, and the dispatch dismissing the gracious claim, the Claimant expressly refers that: "As is proven and demonstrated here, the composition of the perimeter of the RETGS for purposes of determining Corporate Income Tax for the financial year 2014 should not only include the companies referred to in point 6 above, but also another company fiscally resident in Portugal and which is held at 100% by C…." And adds: "(…) the question is not whether the non-resident affiliate should benefit from the taxation regime of groups, but whether a company resident, held by a non-resident company, can benefit from the tax regime of its state of residence." And, although arguing that with the present action it does not intend the retroactive application of the provision in article 69-A of the Corporate Income Tax Code, it expressly records in the respective Request for Arbitral Ruling[5] that "(…) in view of the above, the inclusion in the RETGS led by A…, with respect to the tax period of 2014, of C… as the dominant company and of all holdings held directly and indirectly by at least 90% for more than one year by the dominant company C… in companies resident in Portugal, namely the company D…, should be considered."

With respect to the legal requirements imposed by such regime for purposes of application to the Claimant, the following is referred: "AT rejects the request of the Claimant, solely and simply because it understands that the extension of the RETGS to companies resident that are held directly or indirectly by non-resident companies is only applicable to tax periods beginning on or after 1 January 2015. (…) Alleging for this purpose, the impossibility of retroactive constitution of the group, since Law no. 82-C/2014, of 31 December, mentions in no. 1 of article 5 as to the production of effects that 'The provision of sub-para. 2), of para. a) of no. 4 of article 6 of article 28-A, in articles 82 C and 59-A and of no. 3 of article 88 of the CIRC, with the wording given by the present law, applies to tax periods beginning on or after 01 January 2015," and as regards the formal requirements it is indicated in the submissions of the Claimant that "The Claimant did not make that request because purely and simply article 69 of the Corporate Income Tax Code did not permit that request to be made in the terms exposed".

Therefore, it is in the consequence of the prior recognition by the Tribunal of the application of the RETGS that the Claimant refers to the acts of Corporate Income Tax assessment and to the dispatch dismissing the gracious claim – see what is stated in articles 71 and 72 of the Request for Arbitral Ruling, in which condemnation of the AT to the correction of the Form 22 declaration relating to the year 2014 is requested, inserting in the pleading of the Request for Arbitral Ruling a Form 22 declaration after the extension of the perimeter of the group for purposes of the RETGS, with the determination of Corporate Income Tax to be reimbursed, concluding in the following manner: "Thus, no other conclusion can be drawn than the right, from the outset in strict compliance with community norms, to in the RETGS led by A… also be considered listed (the companies) above. Thus, the new income tax return for this RETGS will be the one presented below:"

In these terms, the present dispute directly impacts on the claim of the Claimant that the Tribunal recognize to it the right (underlined by us) to the extension of the perimeter of the group pursuant to the RETGS for the financial year 2014, and further the supplement of formal requirements for application of that regime relating to the exercise of the right of option, which, however, as stated above in point 13 of the facts, irrespective of its acceptability in the face of internal legislation and European Law, was not the subject of any declaration of option or request prior to 2015 by the Claimant.

Now, as has been defended in other Decisions of this Tribunal, "Arbitral Tribunals do not possess competencies to determine the illegality of a tax act of self-assessment founded on a defect for lack of filing of a declaration by the passive subject necessary to enjoy a certain regime".[6]

In the sequence of the above, insofar as in this case the recognition of a right or legitimate interest in tax matters is petitioned, it is necessary to state that such a claim does not have a framework within the material competence attributed by law to tax arbitral tribunals, in that the powers of cognizance that fall to them correspond, according to para. a) of no. 1 of art. 2 of the RJAT, to the knowledge of the legality of acts of assessment of taxes, in accordance with the typical scheme of judicial challenge, excluding, therefore, claims whose appreciation corresponds to the procedural form of the action for the recognition of a right or legally protected interest in tax matters.

In this respect, the conclusions reached in other Decisions of the CAAD are followed closely, whose contributions and arguments employed we judge to be totally transposable to the case in question.[7] Thus, it can be read in the decision delivered by the Arbitral Tribunal of this CAAD in tax arbitral case no. 693/2014-T: "Decree-Law no. 10/2011, of 20 January (RJAT) only included within the scope of tax arbitration competencies for the appreciation of the legality of acts of the types referred to in its article 2, no. 1, proper to judicial challenge proceedings.

Therefore, the arbitral tribunals functioning in the CAAD have powers of cognizance limited to those that tax tribunals can exercise in the judicial challenge process (which has been understood to include the declaration of illegality of acts and the fixing of compensatory interest and indemnification for undue guarantee), but do not include those that in tax tribunals can be exercised in judgment execution proceedings and in action for recognition of right or legitimate interest".

Thus, the concrete claims for protection requested by the Claimant from this Tribunal relating to the recognition of the application of the RETGS in the financial year 2014 and to the constitution in that period of a fiscal group between the Claimant and all companies resident for tax purposes in Portugal held directly and indirectly by the dominant company C… SA, by belonging to the field of application of the action for recognition of a right or legitimate interest, do not fit within the circle of competence established by law for tax arbitral tribunals, whereby they cannot be known by this Tribunal.

It should further be added that, as regards specifically the claim of "condemnation to the correction of the self-assessment of Corporate Income Tax for 2014, so that in the determination of the taxable profit of the Claimant as the dominant company of the group all companies resident for tax purposes in Portugal held, directly and indirectly, by the dominant Company C…" (see supra no. 5), in whose consequence a new Form 22 income tax return is submitted to the cognizance of the Tribunal after the extension of the RETGS with the determination of Corporate Income Tax to be reimbursed, the Claimant asks the Tribunal to condemn the AT in the performance of tax acts whose emission presupposes valuations and appreciations reserved by law to the exercise of the tax administrative function, which is entirely outside the jurisdiction of tribunals owing to the principle of separation of powers, and the Tribunal cannot, under penalty of violation of that principle, substitute itself in the competencies of the AT (cfr. no. 1 of art. 3 of the CPTA).

Indeed, it is outside the competencies of the Arbitral Tribunal to define the terms in which new tax acts should or should not be performed by the AT, in particular in the manner requested by the Claimant.

In consequence of the foregoing, regarding the claims formulated in the Request for Arbitral Ruling, of "Annulment of the dispatch dismissing the gracious claim and appreciation of the legality of the self-assessment acts", it is similarly to be concluded as to the incompetence of this Tribunal for their appreciation, following closely the reasons invoked in the Decision of the CAAD proc. no. 113/2017 of 16 October which are next transcribed:

"Preliminarily, it must be noted that these claims are in clear relationship of prejudicial connection to the claim, above considered, of application of the RETGS to the Claimants, and the knowledge of the latter is indispensable and prior to the decision of the former, for whose success it constitutes an indispensable premise. In fact, without the recognition of the right to opt for the RETGS in the financial years in question and the condemnation of the Respondent in its respective application, the allegation made as to the illegality of the acts of assessment and the rejections of the requests for official revision fails. One can even understand, as regards the challenge of each of the decisions rejecting the requests for official revision relating to each of the assessments sindicalized relating to the financial years 2010, 2011 and 2012 and to the claim for application of the RETGS, that there is an apparent cumulation of claims in that the various claims refer to one same good in an economic sense and thus "the party formulates several claims, but it does not receive distinct benefits by the success of each one of those claims" (TEIXEIRA DE SOUSA, loc. cit., p. 37). In this measure, the impossibility of appreciation of the claims relating to the application of the RETGS would imply the consequent unfoundedness of the claims of annulment of the rejections of the requests for official revision and of the underlying assessments."

It is, however, understood that, as this Tribunal cannot know, as it does not possess for this competence, of the claims relating to the application of the RETGS to the Claimant in the financial year 2014, in accordance with article 69-A of the Corporate Income Tax Code, with the inclusion of the companies requested, which, as has been seen, is prior and prejudicial to the very appreciation of the claimed declaration of illegality of the dispatch dismissing the gracious claim and the underlying self-assessment act here sindicalized, it must be considered prejudiced, owing to the indicated incompetence of the Arbitral Tribunal, the knowledge of such claims.

For all these reasons, pursuant to art. 2, no. 1, para. a) of the RJAT and art. 16 of the CPPT, applicable ex vi para. c) of art. 29 of the RJAT, there is verified the incompetence, ratione materiae, of this Arbitral Tribunal, which implies a dilatory exception that prevents the knowledge of the other procedural requirements and of the merits of the case, which determines the dismissal of the Respondent from this instance, as provided in arts. 576, nos. 1 and 2 and 577, para. a) of the CPC applicable ex vi art. 29, no. 1, para. e) of the RJAT.

In these terms, the invoked exception of material incompetence of the Arbitral Tribunal is judged to be well-founded and the dismissal of the Respondent from this arbitral instance is determined.

IV. VALUE OF THE CASE

The value of the case is fixed at € 59,333.70, pursuant to article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paras. a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

V. COSTS

The arbitration fee is fixed at €2,142.00, pursuant to Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was entirely unfounded, pursuant to articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the said Regulations.

Let it be notified.

Lisbon, 26 April 2018

The Arbitrator

(Filipa Barros)

[1] Acronym for Legal Regime of Tax Arbitration.

[2] See in this sense, Teixeira de Sousa, "Cumulation of claims and apparent cumulation in administrative litigation" in CJA, no. 34, p. 35; Vieira de Andrade, Administrative Justice. Lessons, 16th ed, 2017, p. 277.

[3] Teixeira de Sousa, loc. cit., p. 36; in the same sense, see Cecília Anacoreta Correia, "The principle of cumulation of claims in the Code of Procedure in Administrative Courts in particular in execution proceedings" in Studies in Homage to Prof. Doctor Jorge Miranda, vol. IV, 2012, p. 223.

[4] See in this sense Decision of the CAAD Case no. 693/2014-T of 01-04-2015.

[5] See point 70 of the Request for Arbitral Ruling.

[6] See Decision of the CAAD, Proc. no. 279/14, of 27/11/2014.

[7] See Decisions of the CAAD case no. 279/2014 of 27/11/2014 and case no. 113/2017 of 16/10/2017.