IRC Arbitration: Tribunal Competence, Res Judicata, and Tax Assessment Expiry in Process 494/2016-T

ARBITRAL DECISION

The arbitrators Cons. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Cristina Aragão Seia and Professor Doctor Nuno Cunha Rodrigues (arbitrator members), designated by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 04-11-2016, agree as follows:

1. REPORT

A…, S.A., (previously denominated B… S.A.), legal entity no.…, with headquarters in…, P.O. Box…, …, hereinafter referred to as "Claimant", submitted a request for arbitral pronouncement under the terms of the Legal Regime of Arbitration in Tax Matters, approved by Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), with a view to declaring "the illegality of an additional assessment notice notified to the Claimant in which the Respondent Entity, having concluded a tax inspection more than two years ago and without notifying any grounds, has now determined the assessment of additional tax in the line denominated 'assessment result'". The assessment in question bears the number 2016… and relates to IRC for the period of 2011.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 05-09-2016.

Pursuant to the provisions of article 6, no. 2, subparagraph a), and article 11, no. 1, subparagraph b), of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable timeframe.

On 19-10-2016 the parties were duly notified of such designation, and did not manifest any will to refuse the designation of the arbitrators, pursuant to the combined provisions of article 11, no. 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of article 11, no. 1, subparagraph c) of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 04-11-2016.

The Tax and Customs Authority responded, submitting the response twice, with some differences.

In the responses presented, the Tax and Customs Authority raises the exception of incompetence of the Arbitral Tribunal and argues that the request should be judged inadmissible.

By order of 22-12-2016 it was decided to dispense with a hearing and that the proceedings would continue with written submissions.

The Parties presented submissions.

In its submissions, the Claimant questions the timeliness of the Response presented by the Tax and Customs Authority.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, no. 1, subparagraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented, enjoy personality and judicial capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same decree and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings are free from nullities.

The Claimant raises the preliminary question of the untimeliness of the Response from the Tax and Customs Authority.

2. QUESTION OF THE UNTIMELINESS OF THE RESPONSE

By order of 05-12-2015, the deadline for Response was extended until 21-12-2016, pursuant to article 569, no. 5, of the Code of Civil Procedure.

By email sent on 21-12-2016, received at CAAD at 23:59 hours, a Response from the Tax and Customs Authority was received, with 47 pages, which is incomplete, lacking, in particular, signatures, and the text is not in pdf format, according to information from CAAD which is confirmed by the Parties.

On 22-12-2016, at 00:12 hours, another Response was received at CAAD, in pdf format, with signatures and some differences and an explanation in the email, in these terms: "By oversight the file submitted is not the PDF version, therefore the correct version is sent, requesting its attachment to the record".

This second Response is untimely and will therefore not be considered, with the first one being valid, since, despite not being signed, its authorship is confirmed.

3. RELEVANT FACTS FOR ASSESSING THE INCOMPETENCE EXCEPTION

3.1. Proven Facts

Based on the elements contained in the proceedings and the parties' agreement, the following facts are considered proven:

• A tax inspection was conducted on the Claimant, previously denominated B…, S.A and, previously, C…, S.A, relating to the fiscal year 2011, in which the Tax Inspection Report was prepared, a copy of which is contained in document no. 8 attached to the request for arbitral pronouncement, whose content is given as reproduced, in which reference is made, among other things, to the following:

I.-4.2.3 Assessment Result

By application of article 92, no. 1 of the IRC Code, it follows that the IRC collection calculated after the deductions in subparagraphs a) and b) of article 90, no. 2 of the CIRC, if calculated without the effect of tax benefits not enumerated in article 92, no. 2 of the CIRC and of €27,570,952.81, of which 90% of its value amounts to €24,813,857.53, exceeding by €1,934,667.72 the value calculated with the effect of tax benefits.

In conclusion, in the determination of IRC Tax to be paid by the group … with reference to the period of 2011, the amount of €1,934,667.72 is lacking, corresponding to the part in which the tax assessment is lower than that calculated under article 92, no. 1 of the CIRC. (see point III-2.3).

Following the exercise of the right of hearing, the correction initially proposed was altered, namely as a result of adjustment to the use of tax benefit, to €2,086,114.61.

(...)

III.2.3 Assessment Result: €2,086,114.61

Article 92 of the CIRC provides in its no. 1, that "For entities that exercise, as their main activity, a commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed under article 90, no. 1, net of the deductions provided for in subparagraphs a) and d) of no. 2 of the same article, may not be less than 90% of the amount that would be calculated if the taxpayer did not benefit from tax benefits, the regimes provided for in article 43, no. 13 and article 75".

The same article in its no. 2 indicates that, "The following are excluded from the provisions of the preceding number:

a) Those that are contractual in nature;

b) The system of tax incentives for business research and development II (SIFIDE II);

c) Tax benefits for free trade zones provided for in articles 33 and following of the Tax Benefits Statute and those that operate by rate reduction;

d) Those provided for in articles 19, 32 and 42 of the Tax Benefits Statute."

From the verifications carried out in the present inspection it is demonstrated that the taxable profit calculated by the group under article 70, no. 1 of the CIRC, in its tax return submitted by the parent company, is influenced by the following eligible tax benefits for the limit referred to in article 92 of the CIRC:

• Regarding Donation Increase: €101,641.40

Sum of fields 406 of Annex D of each company that is part of the RETGS

• Regarding donations: €430,810.62

Sum of SNC accounts … Donations of each company that is part of the RETGS

• Regarding increase in quotas: €311,700.97

Sum of fields 407 of Annex D of each company that is part of the RETGS

• Regarding increase in depreciation by fiscal revaluation: €2,692,902.84

Value calculated based on the sum of values entered by each company that is part of the RETGS in field 720 of the tax return Form 22 of IRC in the total of €1,795,268.56.

Considering that the added value corresponds to 40% of the increase in depreciation expense not accepted fiscally under subparagraph a) of article 15, no. 2 of Regulatory Decree no. 25/2009, we have that the total increase in fiscal depreciation expense by fiscal revaluations was €4,488,171.40 of which 60% corresponding to a tax benefit (€2,692,902.84).

In determining the IRC collection, the group deducted tax benefits from the collection, calculated under article 90, no. 1 of the CIRC (taxable matter x rate of article 87), corresponding to SIFIDE (€4,847,076.19), Investment Contracts (€11,799,720.18) and RFAI (€3,794,235.87).

Implementing the application of article 92, no. 1 of the CIRC we have:

It thus follows that the IRC collection calculated after the deductions in subparagraphs a) and l) of article 90, no. 2 of the CIRC, if calculated without the effect of tax benefits not enumerated in article 92, no. 2 of the CIRC and of €27,570,952.81, of which 90% of its value amounts to €24,813,857.53, exceeding by €1,934,667.72 the value calculated with the effect of tax benefits.

In conclusion, in the determination of IRC Tax to be paid by group B… with reference to the period of 2011, the amount of €1,984,667.72 is lacking, corresponding to the part in which the tax assessment is lower than that calculated under article 92, no. 1 of the CIRC.

Following the exercise of the right of hearing, the correction initially proposed was altered, namely as a result of adjustment to the use of tax benefit, to €2,086,114.61.

(...)

IX – Right of Hearing

(...)

IX.3 Assessment Result

The taxpayer contests the correction proposed in point III.2.3 of the draft report, relating to the assessment result, arguing that by meeting the conditions required to benefit from RFAI, it should be granted a tax credit "deductible up to 25% of the IRC collection".

It considers that this attribution granted to it by RFAI should not take into account the limit on use of tax benefits provided for in article 92 of the CIRC.

In summary, the approach is in the sense that the specific deduction limit provided for in the legislation that regulates RFAI should prevail over the general limit on use of tax benefits provided for in article 92 of the CIRC.

According to its understanding, the CIRC provides the general rule for the sector it regulates (general law), the legislator, in its own and autonomous decree (Law no. 10/2009 of 10 March) established, in a complete and express manner, all the discipline for a more restricted circle of situations, more specifically for RFAI. In this case the conflict between the two rules must be resolved through the application of the criterion of specificity according to which special law prevails over general law.

Thus, for the determination of the maximum deductible limit of the RFAI benefit in a given period, the special rule should be applied, that is, that provided for in subparagraph a) of article 3, no. 1 of RFAI, so the legislative amendments that occurred in the assessment result rule should not be applicable to the specific case, since the deduction limit from the collection of the RFAI benefit will, in any case, correspond to 25% of the amount of the collection for the period, as expressly defined in Law no. 10/2009 of 10 March.

Any other interpretation would be "misleading advertising".

In paragraphs 22, 23 and 24 of the Right of Hearing it states that despite not agreeing with the calculations of the TA, it reports a calculation error for not considering the increase in depreciation by revaluation of tangible fixed assets in B… and in D… in full and only at 25%, calculating a correction value relating to the assessment result exceeding by €38,434.06.

From the analysis of the arguments brought in this phase by the parent company we have that:

1. Regarding the claim that the specific deduction limit provided for in the legislation regulating RFAI should prevail over the general limit on use of tax benefits provided for in article 92 of the CIRC:

a. Article 92 of the CIRC was introduced by the State Budget for 2005 and according to its report, was created as "limit to the reduction of the effective tax rate by use of tax benefits";

b. And as the heading of the article indicates, it aims to condition the assessment result depending on whether certain tax benefits are used;

c. This mechanism operates at the assessment phase and establishes a relationship between the tax assessed with and without tax benefits:

d. Article 92 of the CERC establishes Assessment Result "1- For entities that exercise, as their main activity, a commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed under article 90, no. 1, net of the deductions provided for in subparagraphs a) and b) of no. 2 of the same article, may not be less than 90% of the amount that would be calculated if the taxpayer did not benefit from tax benefits and the regimes provided for in article 43, no. 13 and article 75. 2 -- The following are excluded from the provisions of the preceding number:

a) Those that are contractual in nature;

b) The system of tax incentives for business research and development II (SIFIDE II);

c) Tax benefits for free trade zones provided for in articles 33 and following of the Tax Benefits Statute and those that operate by rate reduction;

d) Those provided for in articles 19, 32, 32-A and 42 of the Tax Benefits Statute;"

e. As can be verified, RFAI is not provided for in the exclusions recorded in article 92, no. 2 of the CIRC, in force in 2011, so the provisions of no. 1 of the same rule apply to it;

f. Regarding the conflict between the rules, it is considered that, having different scopes and objectives, RFAI and article 92 of the CIRC, there is no conflict between the two normative provisions, also because they are applied in different phases, in which the rules of RFAI are first applied to calculate the amount of the benefit and subsequently, in the IRC self-assessment phase, in which the amount of "minimum assessment" resulting from Tax Benefits is calculated, taking into account the provisions of article 92 of the CIRC;

g. The fact that RFAI is not deductible in a tax period due to insufficient assessment does not invalidate, under article 3, no. 3 of the decree, that the amount still not deducted can be deducted, under the same conditions, in the assessments of the four following tax periods;

1. Regarding the calculation error stated by the taxpayer and the use of the tax benefit resulting from the use of the state levy in the assessment calculation:

a. We agree with the taxpayer's position and, in the recalculation made for the application of article 92 of the CIRC, we take into account the objections presented and which will have an impact on the correction presented below.

b. In this way, Annex IV derived from Annex III is included in the present report with the effects of the corrections arising from the exercise of Prior Right of Hearing;

RECALCULATION OF TAX BENEFITS

Control of tax benefit by collection deduction

Group B…, SA

Given the above, the correction initially proposed was altered as a result of the exercise of the Right of Hearing, so the correction will be €2,086,114.61.

• Following that inspection, the Claimant was notified of assessment no. 2014…, which is contained in document no. 3 attached to the request for arbitral pronouncement, whose content is given as reproduced, in which reference is made, among other things, to the following:

• The Claimant contested assessment no. 2014 … for the fiscal year 2011, by dividing it through:

– filing a request for arbitral pronouncement, which proceeded at CAAD under no. 702/2014, the subject of which was the part of the assessment influenced by the correction of €2,086,114.61, relating to the application of article 92 of the CIRC, identified in the assessment as "assessment result";

– filing a gracious reclamation, on 04-11-2014, the subject of which was the part of the assessment influenced by the correction in the amount of €4,480,834.92 concerning the investment credit resulting from RFAI;

• The aforementioned gracious reclamation was partially granted, following which the Tax and Customs Authority issued assessment no. 2015 … in which, by application of the "assessment result" regime, provided for in article 92 of the CIRC, the amount of €2,284,780.12 was indicated (no. 15), under the terms contained in document no. 2 attached to the request for arbitral pronouncement, whose content is given as reproduced, in which reference is made, among other things, to the following:

• In the aforementioned arbitral process no. 702/2014-T a decision was issued on 05-05-2015, with the request being judged inadmissible (document contained in the administrative record with the denomination "PA 6 – Judgment Process 702-2014-T");

• Following the partial dismissal of the gracious reclamation, the Claimant filed the request for arbitral pronouncement that gave rise to process no. 400/2015-T;

• In this arbitral process no. 400/2015-T a judgment was issued on 10-12-2015, a copy of which is contained in document no. 6 attached to the request for arbitral pronouncement, whose content is given as reproduced, in which it was decided:

"a) To judge admissible the requests for declaration of partial illegality of the IRC assessment no. 2014…, and of the compensatory interest assessments nos. 2014 … and 2014…, relating to fiscal year 2011, in the parts corresponding to the correction relating to RFAI;

b) To judge admissible the request for declaration of illegality of the decision partially dismissing the gracious reclamation no. … 2014…, in the part in which it maintained the aforementioned IRC and compensatory interest assessments;

c) To annul the aforementioned assessments and decision";

• The decision issued in arbitral process no. 400/2015-T was not contested or subject to appeal;

• On 11-04-2016, the Tax and Customs Authority issued IRC assessment no. 2016…, a copy of which is contained in document no. 1 attached to the request for arbitral pronouncement, whose content is given as reproduced, in which reference is made, among other things, to the following:

• The aforementioned assessment was accompanied by the Compensatory Interest Assessment Demonstration contained in document no. 1 attached to the request for arbitral pronouncement, whose content is given as reproduced in which the following is stated:

• The notification of the contested assessment was also accompanied by the Account Settlement Demonstration contained in document no. 1 attached to the request for arbitral pronouncement, whose content is given as reproduced, in which the following is stated:

• The Claimant was notified of assessment no. 2016 … without any other grounds, beyond that contained in the notification and demonstrations of compensatory interest assessment and account settlement;

• The Claimant submitted to the Tax and Customs Authority a request for certification of the grounds for the contested assessment, which was dismissed by the order, a copy of which is contained in document no. 5 attached to the request for arbitral pronouncement, whose content is given as reproduced, which manifests agreement with information in which reference is made, among other things, to the following:

1. Having analyzed the request now formulated by the Taxpayer, here Claimant, we find that the same is based on an assessment (corrective), carried out pursuant to article 100 of the General Tax Law ("LGT"), in light of the judicial decision of an annulling nature contemplated within the scope of proceedings P - 400/2015 - T, which proceeded at the Administrative Arbitration Center ("CAAD").

2. That decision, which, as is known, grounds the aforementioned "corrective assessment", was duly notified to the Taxpayer, here Claimant.

3. That is, in the present situation, the Taxpayer, here Claimant, already has in its possession all the elements that led to the corrective adjustment now brought to bear, such that it can know that, notwithstanding the amounts then established as a tax benefit, they ultimately do not prove to be materially relevant given the application of the mechanism provided for in article 92 of the CIRC, leading to the fact that, in the specific case, the tax then assessed remains as it had been in the primitive "assessment".

Moreover:

1. In any case, even if it is an act practiced in light of the aforementioned article 100 of the LGT, the Taxpayer, now Claimant, would still have the faculty to make use of the means provided for in article 95-A of the CPPT or in article 176 of the Code of Procedure in Administrative Courts ("CPTA");

• The Claimant filed a complaint with the Commission for Access to Administrative Documents regarding the lack of notification of grounds, in which it was concluded that the Tax and Customs Authority should inform the Claimant that it does not possess other information beyond that which it provided;

• The Claimant made payment of the amount indicated in assessment no. 2014 … (document no. 14 attached to the request for arbitral pronouncement, whose content is given as reproduced);

• On 26-01-2016, the Claimant filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

3.2. Unproven Facts

It was not proven that the arbitral decision issued in process no. 702/2014-T had become final.

The Tax and Customs Authority invokes the force of res judicata of that decision (article 76 of the Response), but the Claimant, in article 26 of the submissions, states that an appeal of that decision is pending in the Constitutional Court (process no. 486/15, 3rd Section).

It was not proven that the Claimant had paid any amount following the contested assessment.

3.3. Grounds for Fixing the Facts

The proven facts are based on documents attached by the Claimant with the request for arbitral pronouncement and on the administrative record, with no controversy about them.

4. INCOMPETENCE EXCEPTION

The Tax and Customs Authority raises the exception of material incompetence of this arbitral tribunal on the grounds that the contested assessment was issued in execution of the judgment issued in arbitral process no. 400/2015-T and that the arbitral tribunals operating at CAAD do not have competence to assess matters relating to the execution of judgments.

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

– what is at issue in the present arbitral action is the concretization of a corrective assessment that introduces, as article 92 requires, a legal limit to the use of tax benefits, and no additional IRC assessment has been made, as the Claimant claims, for fiscal year 2011;

– contrary to what the Claimant claims, the question of the application of article 92 of the CIRC, as "assessment result", was subject to correction in the tax inspection proceeding and was maintained in all assessments relating to fiscal year 2011, made for the purpose of implementing the decisions issued in the administrative and judicial proceedings, as the said legal provision requires;

– in fact, article 92 of the CIRC, introduced by the State Budget Law for 2005, is part of the chapter relating to the form of tax assessment and was created with a view to limiting the potentially negative effects that tax benefits may have on the tax assessment, therefore, essentially, such article intends to create a minimum ceiling of IRC to be paid, in each year, through the limitation of use of tax benefits;

– as follows from the wording of article 92, no. 1 of the CIRC, this normative provision orders comparison of two magnitudes, and from there operates a possible quantitative as "assessment result", that is, a global limitation to tax benefits;

– any assessment relating to the use of tax benefits in IRC proceedings requires the application of this calculation methodology, and no. 1 of article 92 of the CIRC refers to the normal IRC assessment process but is influenced by the tax benefits that the taxpayer would be entitled to enjoy;

– thus, the Claimant's argument that the contested assessment creates new tax under another title – assessment result – entirely lacks legal and factual support, demonstrably showing that the assessment issued contains nothing innovative, aiming only to implement the decision of the Arbitral Tribunal that determined an increase in the amount of tax benefits that the Claimant would be entitled to enjoy in fiscal year 2011;

– the reason for the Claimant's disagreement with the contested assessment is linked to the implementation of a judicial decision that was favorable to it, but that applied, in its opinion in an innovative manner, the legal limit to the use of tax benefits contained in article 92;

– expressing its disagreement with the manner in which the decision was executed in several articles of the arbitral petition (articles 26, 27, 28, 30, 37, 49, 53);

– the Claimant's claim is based solely on the assessment, in the arbitral proceeding, of the execution of a decision that determined the admissibility of a request for annulment of an assessment, but such claim exceeds the competence of the Arbitral Tribunal;

– the competence of arbitral tribunals is, from the outset, limited to the matters indicated in article 2, no. 1 of the RJAT;

– however, there is no legal basis that allows arbitral tribunals to issue condemnations of a nature other than those resulting from the powers fixed in the RJAT, which are declaratory powers based on illegality;

– even if the other claims constituted, hypothetically, a consequence, at the execution level, of a declaration of illegality of assessment acts;

– thus, they are not within the scope of the competences of arbitral tribunals, the questions that are assessed in tax courts through the action for the recognition of a right or legitimate interest, nor those related to the execution of judgments, the Arbitral Tribunal lacking competence to determine, impose or pronounce on the manner in which an arbitral decision or any other was implemented;

– under article 24, no. 1 of the RJAT, the execution of judgments falls, in the first instance, to the TA which must "in the exact terms of the admissibility of the arbitral decision in favor of the taxpayer and until the end of the period provided for spontaneous execution of judgments of tax courts…" promote the legal and material acts necessary for execution of the judgment;

– if there is any dispute between the TA and taxpayers regarding the lack of execution or the manner in which the decision is executed, as occurs in the present case, the competence to resolve it falls to tax courts, within the scope of the proceedings provided for in articles 146 of the CPPT and articles 173 and following of the Code of Procedure in Administrative Courts (CPTA), since competences in the execution of judgments are not conferred on arbitral tribunals operating at CAAD.

The Claimant presented the following conclusions on the question of incompetence:

B) The claimant requests in this arbitral proceeding that the legality of an additional tax assessment act (IRC in this case) and corresponding compensatory interests be assessed, so without need for further considerations it is obvious that its claim and respective cause of action are covered within the scope of the competence attributed to tax arbitration (article 2, no. 1, subparagraph a), of the RJAT).

C) By the negative now, the claimant does not complain, that is not the cause of action of its claim, of having been violated any binding arising from a prior decision, arbitral or judicial, or that such a decision was pending execution. In other words, its cause of action does not rest on the violation of bindings resulting from a prior arbitral decision or on its non-compliance.

D) What would a tax court say if in an execution of judgment action the claimant appeared to complain that new tax (which had never appeared in a prior assessment) lacked grounds, had been assessed without prior hearing, etc., just as it does in this arbitration? One need only think for a moment about this scenario (what is sought by the TA) to immediately understand that, quite rightly, the tax court would have to consider the execution of judgment procedural means as inappropriate for judgment of this claim of the claimant as configured in its initial petition. Strictly speaking, what the TA claims, under the guise of saying we are before a "corrective assessment" is to evade scrutiny by Tax and Arbitral Courts of acts of application and interpretation of the law embodied in new assessments with new tax under a new title that the TA determines after a judicial or arbitral decision favorable to the taxpayer that did not pronounce itself nor had to pronounce itself on this new tax under this new title (among other things, because it did not exist at the time).

E) The claimant has not yet understood, because the TA has not pointed it out, from which norm the incompetence of this Arbitral Tribunal would result. Assuming that norm to be article 2, no. 1, subparagraph a) of the RJAT (despite no support being found there for what is sought by the TA), one can only conclude that the interpretation of that article in the sense advocated by the TA violates the constitutional right to judicial protection (article 20 of the Constitution) and, more particularly still, the constitutional right to challenge unlawful administrative acts (article 268, no. 4 of the Constitution). Whence its unconstitutionality.

F) Therefore, the claim of arbitral incompetence raised by the TA is manifestly unfounded.

G) The TA is incapable of demonstrating that there is no additional tax (and corresponding compensatory interests). For the simple reason that such is undemonstrable. But that does not prevent it from repeating, exhaustively, throughout its answer, that there is no additional tax assessment, that the assessment at issue would limit itself in obedience to a prior arbitral decision to correct what was wrong.

H) This Tribunal will not be troubled again with the obvious: that there is additional assessment which, by not existing previously, was not and could not have been the subject of any judicial or arbitral proceeding (see articles 9, 15, 20 et seq and 38 et seq, of the arbitral petition – PPA).

I) But surgically one does not want to fail to point out the error (or fallacy) into which the TA systematically incurs when it brings to bear the terminology of "corrective assessment" or "corrected assessment". Corrective or corrected assessments are not susceptible to judicial challenge only when they correspond to the concept of assessments that execute a prior decision (administrative or judicial) of total or partial annulment of tax and corresponding interests. This is exactly what is reserved by jurisprudence and doctrine, including that cited by the TA in its answer, as was seen above.

As stated in the notification of the contested assessment, it was issued in execution of the arbitral judgment issued in process no. 400/2015-T, in which the decision was favorable to the Claimant.

The Claimant itself recognizes that this is so, by saying in article 23 of its submissions:

1. A first one, process no. 400/2015-T whose decision the contested assessment says it is executing (and it is, and regarding that the claimant has no reason to complain; it does more than that, and what it does more was not and remained uncovered by the arbitral decision invoked – it is beyond the arbitral decision), dealt with assessing and ended up annulling the rejection by the tax inspection of tax credits obtained under RFAI.

Thus, what the Claimant censures to the contested assessment is that, in addition to having executed the aforementioned arbitral decision (increasing, in no. 12 of the assessment, the amount of tax benefits from €21,769,826.02 to €25,963,889.37, in line with what was decided in arbitral process no. 400/2015-T), it also altered no. 13, relating to "Assessment Result", which became €6,478,843.47, when in assessment no. 2015 … it was €2,284,780.12 and in the one that was the subject of process no. 400/2015-T that value was €2,086,114.61.

The jurisprudence of the Supreme Administrative Court on situations of this type in force under the regime prior to the Code of Procedure in Administrative Courts (2004) has been consolidating in the sense that, if in the scope of execution of judgment a new act is practiced which, besides executing the decision to be executed, contains innovative content, on which the executed judgment did not take a position, the defects that the act may suffer in this innovative part could not be assessed in the execution proceeding, and its challenge had to be undertaken in an autonomous impugnatory proceeding. [1]

But, even in cases where the new act only executed what was decided, the interested party could opt for its autonomous challenge, which was inherent in no. 3 of article 9 of Decree-Law no. 256-A/77, of 17 June, which expressly provided that, in cases where an execution proceeding was instituted, but an appeal for annulment or declaration of nullity of the execution acts was pending, it would be appended to the execution proceeding.

Under the Code of Procedure in Administrative Courts regime, there was a broadening of the scope of the judgment execution proceeding, now admitting therein, besides the declaration of nullity of the acts not in conformity with the judgment, also the annulment of those that maintain, without valid grounds, the illegal situation (article 179, no. 2, of the CPTA).

But, even after the entry into force of the CPTA, the majority jurisprudence of the Supreme Administrative Court continued to be in the sense that "the executive proceeding tends to confer practical effectiveness to its respective title, to which it is entirely subordinate, not serving to obtain declaratory pronouncements on new and independent questions" and that any defect of the act issued in execution "is declarable in a proceeding instituted for that purpose, but does not constitute an infidelity to the executed judgment". [2]

The grounds for this jurisprudence of the Plenary of the Administrative Contentious Section of the Supreme Administrative Court can be considered doubtful in light of the CPTA regime, as is well evidenced, from the outset, by the seven dissenting votes that were issued.

But, the serious doubts that arise regarding this majority jurisprudence relate to the decided inadmissibility of use of the judgment execution proceeding and consequent obligation to use an autonomous impugnatory means to challenge the legality of the acts practiced in execution that suffer from defects not assessed by the executed decision and not on the possibility of opting for autonomous challenge, when the interested party merely intends to discuss the legality of the innovative content of the acts practiced in execution of the judgment, a possibility that has always been permitted and results from the literal content of the norms that provide for the possibility of contentious challenge.

That is, the criticism that can be made of this jurisprudence is that it imposes autonomous challenge to assess defects exclusive to the new act and not that it forbids it.

It is true that, in the new judgment execution regime, it may be ventured that there is a division of the field of application of the judgment execution proceeding and the act challenge proceeding, in cases where a new act is practiced aiming to execute an annulling judgment, as referred to by MÁRIO AROSO DE ALMEIDA and CARLOS CADILHA in these terms:

"The new reference to 'acts that maintain, without valid grounds, the illegal situation' goes further, allowing the executing party to also deduce, at the beginning or during the execution proceeding, a request for annulment of any possible supervenient administrative acts that constitute a disguised refusal to execute, by providing formal, but illegitimate, coverage to the situation existing in the absence of execution of the judgment.

Until here, jurisprudence understood that these acts could only be reviewed within the scope of an autonomous challenge proceeding. Now, there must be a distinction. When the executing party alleges that the act was practiced with the intent to illegitimately hinder the concretization of the result sought in the execution proceeding, maintaining, without valid grounds, the illegal situation existing, the executing party is placing a question that is still one of non-execution of the judgment, so it should be assessed and decided in the executive proceeding. Only should be, by contrast, subject to autonomous challenge the acts to which the executing party imputes illegalities that must be subsumed to different types of defects, proper to those acts. (emphasis added)[3]

This solution has the scope of making it so that, whenever, in the scope of a proceeding directed to the execution of a decision issued by an administrative court, the requester alleges that a supervenient administrative act was practiced with the intent to illegitimately hinder the concretization of the result sought in the execution proceeding, the judge is constituted in the duty to verify if such is the case, and therefore, whether that act should or should not be qualified as an act of non-execution of the executed judgment, for the purpose of being annulled within the scope of the execution proceeding itself. In this way there is established, in this particular, a principle of completeness of the execution proceeding, which has as consequence that, whenever it alleges that the administrative act in the meantime practiced is nothing more than mere formal or apparent execution of the judgment, which in reality maintains, without valid grounds, the situation illegally constituted by the annulled act, the interested party places a question that is still one of non-execution of the judgment and that, as such, can and should be the subject of filing an incident to be assessed within the scope of the executive proceeding. When, by contrast, the interested party imputes to the renewal act illegalities that already involve new aspects, the assessment of such defects should no longer take place in the executive proceeding, being able only to be raised and decided in an autonomous declaratory impugnatory proceeding. [4]

From this jurisprudence and doctrine it follows that, whether before or after the regime of execution of judgments provided for in the Code of Procedure in Administrative Courts, it is not forbidden to those interested in the annulment of an administrative act practiced as a matter of execution of judgment to challenge it autonomously, when they intend to attribute to it defects proper to it that do not result from non-conformity with the executed judgment or insufficiency of the acts practiced in execution. On the contrary, dominant jurisprudence and doctrine are in the sense that, when exclusive defects of the new act are at issue and the interested party does not attribute to it the intent to illegitimately hinder the concretization of the result sought in the execution proceeding, the appropriate means is autonomous challenge.

It is in light of this that the question of incompetence raised by the Tax and Customs Authority should be assessed.

In the case at issue, the judgment issued in process no. 400/2015-T pronounced itself only in the sense of the illegality of the assessment that was its object, because it did not consider the tax benefit of RFAI, saying nothing about the application of the "assessment result" regime.

The Tax and Customs Authority gave due execution to the judgment, as it included in no. 12 of the contested assessment the increase relating to that tax benefit.

However, the Tax and Customs Authority also altered the amount of €2,284,780.12 of the "Assessment Result" indicated in no. 14 of assessment no. 2014…, which became €6,478,843.47 in no. 15 of assessment no. 2016… .

The Claimant does not attribute to the contested assessment any deficiency or insufficiency in executing the judgment, nor alleges that the act was practiced with the intent to illegitimately hinder the concretization of the result sought in the execution proceeding, maintaining, without valid grounds, the illegal situation existing, so it is not placing a question one of non-execution of the arbitral decision.

Inclusively, the Claimant does not even argue that, in addition to that alteration of the value of RFAI, any other act or execution operation should have been practiced, particularly any payment of any amount.

On the contrary, the Claimant repeatedly and in various ways affirms that it considers the judgment perfectly executed and does not intend to question the manner in which the Tax and Customs Authority gave it execution, but rather and solely intends to challenge it as to the part relating to the "Assessment Result" which was not the object of assessment in process no. 400/2015-T:

– "The claimant hereby requests that the partial illegality of the aforementioned assessment act and corresponding compensatory interests be declared (see Doc. no. 1) – and that consequently be annulled in that part – under article 2, no. 1, subparagraph a), of Decree-Law no. 10/2011, (...) more specifically regarding the part of said assessment act in the amount of €4,194,063.35, which reflects an increase (addition) of the contribution of the assessment result line to the total assessed tax (articles 16 and 17 of the arbitral petition)

– "The claimant has no complaint of violation of the res judicata of the preceding arbitral decision. (...) the matter covered by the res judicata of the preceding arbitral decision was not affected by the assessment here contested; on the contrary, the TA executed what was required in light of the preceding arbitral decision, restoring the tax benefits whose existence was discussed there" (article 50 of the arbitral petition);

– "the claimant does not complain, that is not the cause of action of its claim, of having been violated any binding arising from a prior decision, arbitral or judicial, or that such a decision was pending execution", "its cause of action does not rest on the violation of bindings resulting from a prior arbitral decision or on its non-compliance"; (article 10 of the submissions)

– "A first one, process no. 400/2015-T whose decision the contested assessment says it is executing (and it is, and regarding that the claimant has no reason to complain; it does more than that, and what it does more was not and remained uncovered by the arbitral decision invoked – it is beyond the arbitral decision), dealt with assessing and ended up annulling the rejection by the tax inspection of tax credits obtained under RFAI"; (article 23 of the submissions).

The defects that the Claimant attributes to the new assessment are the following:

• Lack of grounds;

• Preterition of the right of prior hearing;

• Inadmissibility of alteration of the "Assessment Result" by constituting a supervenient addition to the conclusions and corrections of an external inspection;

• Expiration of the right to assess.

As can be seen, none of these defects has to do with what was decided in the executed judgment, for no position was taken therein on any of the questions raised, only having been considered illegal the position that the Tax and Customs Authority adopted in the inspection proceeding and in assessment no. 2014…, in the sense that the Claimant did not meet the conditions provided for in subparagraph a) of article 2, no. 1 of RFAI, relating to the activity of energy production using biomass.

Furthermore, by interpreting the arbitral petition and considering the value indicated for the cause, it is concluded that the quantitative illegality that the Claimant attributes to the indication of the value of €6,478,843.47 as "Assessment Result" in the contested assessment does not even rest on the understanding that the value to be considered should be that which appeared in assessment no. 2014 … (€2,086,114.61), but rather on that value being considered as higher than the value €2,284,780.12, which appears in assessment no. 2015 …, which was not even the subject of process no. 400/2015-T. [5]

Thus, the Claimant not invoking any non-conformity between the judgment and the executed, nor intending that any legal or material execution operation be practiced, nor alleging that the new assessment maintains without valid grounds the illegal situation, but rather attributing to the renewal act illegalities that already involve new aspects, "the assessment of such defects should no longer take place in the executive proceeding, being able only to be raised and decided in an autonomous declaratory impugnatory proceeding", as is argued in the cited doctrine, on this point convergent with the jurisprudence of the STA.

That autonomous means of challenge of assessment acts is, in tax courts, the contentious challenge proceeding.

Thus, corresponding the scope of the arbitral proceeding, as to the challenge of assessment acts, to the scope of the contentious challenge proceeding, as results from no. 2 of article 124 of Law no. 3-B/2010, of 28 April,[6] and framing the Claimant's claim in the prediction of subparagraph a) of article 2, no. 1 of the RJAT, it must be concluded that the arbitral proceeding is an adequate means for the challenge of the assessment in cause, in the part in which the Claimant intends to challenge it.

Consequently, the incompetence of this Arbitral Tribunal does not occur, so the exception raised by the Tax and Customs Authority is inadmissible.

5. RES JUDICATA EXCEPTION

The Tax and Customs Authority invokes the res judicata exception, formed on the arbitral decision issued in process no. 702/2014-T.

Res judicata occurs when a cause is repeated (identical to another as to the parties, the claim and the cause of action) after the first cause has been decided by a judgment that no longer admits ordinary appeal (articles 580, no. 1, and 582 of the CPC).

In the case at issue, it was not proven that the arbitral decision issued in process no. 702/2014-T became final, as the Claimant alleges that an appeal is pending in the Constitutional Court and the Tax and Customs Authority presented no proof that the finality occurred.

For this reason, one of the requirements of the res judicata exception is not proven, which is the existence of a prior decision that no longer admits ordinary appeal.

Therefore, the res judicata exception is inadmissible.

6. LEGAL MATTERS

6.1. Defect of Lack of Grounds

6.1.1. Order of Knowledge of Defects

The first defect attributed by the Claimant to the contested assessment is that of lack of grounds.

Article 124 of the CPPT establishes rules on the order of knowledge of defects in contentious challenge proceedings, which are subsidiarily applicable to arbitral proceedings, applicable to tax arbitral proceedings, by force of the provision of article 29, no. 1, subparagraph c), of the RJAT.

In the case of defects giving rise to voidability, subparagraph a) of no. 2 of that article 124 establishes that one should prioritarily know of the defects whose admission, according to the prudent judgment of the adjudicator, determines more stable or effective protection of the affected interests.

The defect of lack of grounds is a formal defect which, in case of annulment, does not necessarily prevent the renewal of the annulled act, with suppression of the defect.

However, although the defect of lack of grounds does not ensure more effective protection of the rights of the challenger, its prioritary knowledge may be necessary in situations in which the lack of grounds affects the very possibility for the court to realize what the real content of the challenged act is, as to its factual or legal presuppositions. In fact, the assessment of the defects of violation of law depends on the ascertainment of the factual and legal grounds of the challenged act, so the exact knowledge of the motivation of the decision may be an insurmountable obstacle to the assessment of the defects of violation of law. [7]

6.1.2. Irrelevance of A Posteriori Grounds

In a contentious proceeding of mere legality, as is that provided for in the RJAT for arbitral tribunals operating at CAAD, in which only the declaration of illegality of acts of the types provided for in subparagraphs a) and b) of article 2, no. 1 of RJAT is sought, the legality of the challenged act must be assessed as it occurred, with the grounds used in it, with other possible grounds not being relevant.

On the other hand, being the knowledge of the grounds necessary to effectively ensure the right of contentious challenge of unlawful acts, ensured by article 268, no. 4, of the CRP, to assess the sufficiency of the grounds one must attend only to the content of the challenged act and to the remissions expressly contained in it, as imposed by no. 3 of the same article, which establishes that "administrative acts are subject to notification to the interested parties, in the form provided by law, and require express and accessible grounds when they affect rights or legally protected interests".

Thus, as is settled jurisprudence, the relevant grounds are only those contemporary with the act, which precede or accompany the act and which are contained in it directly or by remission, and a posteriori grounds being irrelevant, including those invoked in the contentious challenge proceeding.

In the case at issue, the grounds for the contested assessment are those contained in the text of document no. 1 through which the notification was made, in which it refers to the grounds of the arbitral decision issued in process no. 400/2015-T, besides the demonstration of the compensatory interest assessment and the demonstration of account settlement, in which it is verified that there was reversal of the prior assessment, which is no. 2015… .

It is, thus, in light of the grounds contained in assessment no. 2016 … and documents accompanying it, as well as what is contained in the arbitral decision issued in process no. 400/2015-T, that the sufficiency of the grounds should be assessed.

6.1.3. Question of Sufficiency of Grounds

The right to grounds of administrative acts, of which assessment acts are a special type, has support in article 268, no. 3, of the CRP, which establishes that "administrative acts are subject to notification to the interested parties, in the form provided by law, and require express and accessible grounds when they affect rights or legally protected interests".

Article 77 of the LGT makes concrete the content of the grounds of tax acts by establishing, besides more, that "the grounds of tax acts may be made in summary form, and must always contain the applicable legal provisions, the qualification and quantification of tax facts and the operations for ascertaining taxable matter and the tax".

The Supreme Administrative Court has uniformly come to understand that the grounds of an administrative or tax act is a relative concept that varies according to the type of act and the circumstances of the specific case, but that the grounds are sufficient when it enables a normal recipient to realize the cognitive and valuative itinerary followed by the author of the act to issue the decision, that is, when the recipient can know the reasons why the author of the act decided as it did and not differently, so as to be able to trigger the administrative or contentious mechanisms of challenge. [8]

The aforementioned rules relate to administrative and tax acts, which are, defined by the Code of Administrative Procedure of 2015, in force at the time the contested assessment was practiced, as "the decisions which, in the exercise of legal-administrative powers, intend to produce external legal effects in an individual and specific situation".

In the specific case of tax acts, these are the decisions that are taken in the scope of tax procedures, constituted by a "succession of acts directed to the declaration of tax rights", namely those listed in articles 54, no. 1, of the LGT and 44 of the CPPT.

Following a jurisdictional decision of arbitral annulment of an assessment, the Tax Administration may again have power to carry out a new assessment without contradicting the judgment, but those powers are no longer those of autonomous declaration of tax rights, conferred by law for the pursuit of the public interest (article 266, no. 1, of the CRP), which it held when practicing the annulled act, but rather those that derive from the obligation to draw the legal consequences of the judicial decision of annulment (article 205, no. 2, of the CRP), which must translate into the "full reconstitution of the situation that would exist if the illegality had not been committed" (article 100 of the LGT), namely through the practice of acts of the types indicated in article 24, no. 1, of the RJAT.

That is, insofar as an assessment act implements a jurisdictional decision, in compliance with the obligation to execute imposed on the Tax Administration by articles 100 of the LGT and 24, no. 1, of the RJAT, one is not faced with an activity of a declarative nature, but rather an executive one, so not all the rules foreseen for the tax procedure intended to declare the rights of taxpayers are applied to it.

Specifically, as to the grounds of the assessment act practiced in execution of judgment, not all elements of grounds indicated in article 77, no. 2, of the LGT are required, since, insofar as an assessment practiced in execution of judgment executes the executed decision, the grounds of this assessment are irrelevant, as it derives from the Constitution and the law (articles 205, no. 2, of the CRP, 100 of the LGT and 24, no. 1, of the RJAT), the obligation to execute what was decided in the precise terms in which it was decided, regardless of the understanding of the Tax and Customs Authority on the correction of what was decided, on which legal provisions sustain the sense of the decision and on the appropriate qualification of tax facts.

Thus, an assessment act practiced in execution of an annulling judgment, whose content is totally or partially determined by what was decided in the executed decision, only needs to be grounded if it has some innovative part, since only in relation to it is the will of the Administration relevant.

However, in light of the constitutional guarantee of the right to effective judicial protection (article 20, no. 1, of the CRP), it is indispensable that the new act contains the information necessary for the recipient to trigger the mechanisms of challenge, which, in the case in which a global value resulting from various items is determined, requires that the recipient be able to realize the reasons why each of them was included, besides the arithmetic operations necessary.

Thus, taking into account that, as to assessment acts practiced in execution of judgment, the grounds aim only to provide the taxpayer with the information necessary to exercise his right of contentious challenge (in a challenge proceeding or in a judgment execution proceeding), the sufficiency of the grounds, in light of its instrumental nature in relation to contentious assessment of the legality of the action of the Tax Administration, should be assessed in light of the concrete situation of the recipient of the act and the possibility or not of challenge with sufficient information.

For this reason, to assess the sufficiency of the grounds, one must attend to the concrete situation of the recipient, including having in mind the information they possess about the situation in question when notified and the manner in which they exercised their right of challenge, in line with what the Plenary of the Supreme Administrative Court understood, in the judgment of 11-11-1998, process no. 020168 [9] in which it decided that "the grounds of the act is to be considered sufficient when its recipient, particularly when alleging and concluding in the appeal filed against it, demonstrates having understood the determining reasons of that, with which it merely disagrees". [10]

Thus, concretely, in line with the aforementioned jurisprudence of the Supreme Administrative Court, the question of whether the contested assessment is sufficiently grounded does not consist in knowing whether it satisfies the requirements indicated in article 77, no. 2, of the LGT for decisions issued in procedures intended to declare the rights of taxpayers, but rather in ascertaining whether the informative elements provided by the assessment enabled a normal recipient, placed in the situation in which the Claimant found itself, particularly with the knowledge provided by prior procedural and processual interventions, to realize the reason why the Tax and Customs Authority inscribed in no. 15 of the contested assessment the value of €6,478,843.47 as "Assessment Result" (it is this sole point of the contested assessment that is questioned by the Claimant in the present proceeding).

In the case at issue, in which the question of the application of article 92 of the CIRC with the so-called "Assessment Result" had already been discussed by the Claimant, following the inspection, which was the subject of discussion in process no. 702/2014-T and is referred to in the arbitral petition that came to give rise to process no. 400/2015-T (article 11 of that arbitral petition, attached to this proceeding as document no. 7), it is manifest that the Claimant could not fail to realize that the value indicated in no. 15 of the contested assessment was based on the application of article 92 of the CIRC.

In fact, in the Tax Inspection Report to which reference is made and which is given as reproduced in the judgment issued in process no. 400/2015-T, it includes, among other things, a table, reproduced in subparagraph f) of the facts fixed there, in which the tax benefits by collection deduction and its limitation resulting from article 92 of the CIRC are indicated, a table which is repeated here:

And, in fact, the Claimant recognizes that it realized that the reference in the contested assessment to the value indicated as "Assessment Result" constituted application of article 92 of the CIRC, by saying even in article 32 of the arbitral petition that "the assessment result line (today numbered as 15) has to do with article 92 of the CIRC, this article itself also legally called 'assessment result', already she knew and always knew".

Thus, what the Claimant states not having realized is only "the concrete grounds in concreto (and real) increase, in the concrete amount of €4,194,063.35, of the said assessment result, in the aforementioned IRC assessment no. 2016…, of 11 April 2016, since the very article in no way provides for adjustments of 100% to the declared tax benefits".

The aforementioned value of €4,194,063.35 is the value of RFAI that was at issue in process no. 400/2015-T, as is verified by what the Claimant explains in article 19 of the arbitral petition that gave rise to that proceeding, a copy of which is contained in document no. 7 attached to the arbitral petition of the present proceeding. The remaining part of the value that was at issue in that process no. 400/2015-T concerned €245,586.10 of compensatory interests, as the Claimant also explained in that article 19.

Thus, in the context in which the notification was made, the Claimant knowing the Tax Inspection Report that was prepared in the tax inspection action referring to fiscal year 2011 (attached by the Claimant as document no. 8 with the arbitral petition and given as reproduced in the judgment issued in process no. 400/2015-T) and the arbitral decision issued in process no. 400/2015-T, it is to be concluded that it was perfectly possible for the Claimant to realize the reasons for that increase of €4,194,063.35 as "Assessment Result", in relation to the value that appeared in the prior assessment, no. 2015… .

In fact, the Claimant knew that the Tax and Customs Authority understood that the RFAI tax benefit was subject to the limit that results from article 92 of the CIRC (as it had argued in the Tax Inspection Report) and that the maximum limit of use of tax benefits by collection deduction, resulting from the application of article 92 of the CIRC, had already been reached even without the RFAI tax benefit which in process no. 400/2015-T was understood to be able to enjoy, as it was already referred to in that table the "undue impact of BF provided for in CIRC,92" in the amount of €2,086,114.61.

For this reason, thus, it was not difficult for the Claimant to realize the reasons why the value of the "Assessment Result" was increased to the extent that the value of the RFAI tax benefit increased.

In fact, if the Tax and Customs Authority understood that, already even without that RFAI tax benefit in the amount of €4,194,063.35, whose right came to be recognized to the Claimant in process no. 400/2015-T, the amount of tax benefits by collection deduction exceeded the limit allowed by article 92 of the CIRC, it is evident that any increase in tax benefits subject to that regime had to translate into an increase of the "undue impact of BF provided for in CIRC,92" (in the terminology used in that table), that is, an increase of the "Assessment Result" (in the terminology used in no. 15 of the contested assessment).

As concerns compensatory interests, it is verified that their amount was maintained by the contested assessment, in relation to assessment no. 2014…, being explicated in the "Compensatory Interest Assessment Demonstration" sent to the Claimant, which is referred to in subparagraph J) of the facts fixed.

The Claimant expresses not understanding why compensatory interests were maintained in the same amount, despite assessment no. 2014… having been annulled, in the part corresponding to those interests.

Effectively, what is contained in the records does not allow concluding that the Claimant was in a position to understand what the reason or reasons were why the Tax and Customs Authority understood that compensatory interests should be maintained, despite the annulment of the assessment in that part, decided in the judgment issued in process no. 400/2015-T.

For this reason, the contested assessment suffers from the defect of lack of grounds, in the part relating to the assessment of compensatory interests, which justifies its annulment in the respective part, in accordance with article 163, no. 1, of the Code of Administrative Procedure subsidiarily applicable under article 2, subparagraph c), of the LGT.

6.2. Question of Preterition of the Right of Prior Hearing

Article 60, no. 1, subparagraph a), of the General Tax Law makes concrete the right of participation of taxpayers in the formation of decisions affecting them, ensured by article 267, no. 5, of the CRP, establishing that there is "right of hearing before assessment".

No. 3 of that article 60 establishes that "having the taxpayer been previously heard in any of the phases of the proceeding referred to in subparagraphs b) to e) of no. 1, its hearing before assessment is dispensed, except in case of invocation of new facts on which it has not yet taken a position".

In the case at issue, the Claimant had opportunity to take a position, before the contested assessment, on the regime of article 92 of the CIRC, specifically in the scope of process no. 702/2014-T and the inspection proceeding that was the basis for assessment no. 2014… .

In execution of judgment, when no decision is issued on new matters, the possibility of participation of taxpayers in the formation of the executive decision of the judgment has already occurred before, in the very proceeding in which the executed decision is issued, so a new hearing would not be justified, as is concluded from the rule of no. 3 of article 60 of the LGT.

This is what occurs in the case at issue, since the Claimant had already taken a position in the tax proceeding on the question of the application of the "Assessment Result" regime, which was the only alteration to the prior assessment that the Tax and Customs Authority made in execution, besides the alteration of the amount of tax benefits, which results directly from the annulling decision.

Thus, having not occurred in execution of the judgment the formation of the will of the Tax Administration on any question not previously placed for the assessment of the Claimant, namely that of the application of the "Assessment Result" regime, there did not occur preterition of the right of hearing.

6.3. Question of the Prohibition of Supervenient Addition to the Conclusions and Corrections of an External Inspection

The Claimant argues, in summary, that the law does not provide, at any moment, the possibility of reanalyze, modify or promote additions, of text or numerical, formal or, let alone, informal and implicitly, to any finalized, concluded, closed inspection reports (and with them, closed also the inspection proceeding in question), nor does it provide for the possibility of practicing any additional acts that consist in the supervenient invocation of new titles to make corrections within the scope of the same facts subject to analysis in the previously concluded and closed inspection.

Specifically, the Claimant argues that the Tax and Customs Authority in the external inspection proceeding it conducted could have corrected the deduction from tax in the amount of €4,194,063.35, invoking cumulatively or subsidiarily - two (or more) grounds that it understood relevant: (i) the tax credit does not exist (in the TA's reading of RFAI) so this deduction is improper; and (ii) the assessment result rules (in the TA's reading, also, of them) do not permit this deduction. Or vice versa: (i) the assessment result rules do not permit it and (ii) in any case the tax credit does not exist.

The action of the Tax and Customs Authority was undertaken under the norms that require it to execute arbitral decisions spontaneously, namely article 100 of the LGT and article 24, no. 1, of the RJAT.

In executing arbitral decisions, the Tax and Customs Authority is not exercising the procedural power to issue decisions of an administrative and tax nature aiming at the pursuit of the public interests that it is legally and constitutionally obliged to pursue, but is rather giving compliance with the obligation to respect jurisdictional decisions, which imposes article 204 of the CRP and those norms of the LGT and RJAT.

Following the judicial annulling decision, the Administration may again have power to conform again the situation regulated by the annulled act, in cases in which renewal of the act is viable, without offense to the annulling judgment. However, those powers are no longer those of autonomous conformation of the legal situation it held when practicing the act, conferred for the discharge of its mission of pursuit of the public interest in accordance with its interpretation of legality, but rather dependent and limited powers that derive from the obligation to draw the legal consequences of the judicial annulling decision, which requires it to reconstitute the situation that would exist if the annulled act had not been practiced.

For this reason, no tax inspection proceeding relating to the execution of judgment needs to be instituted, nor any new assessment proceeding,[11] since the power/obligation it exercises when making a new assessment in spontaneous execution of judgment is granted to it by the jurisdictional decision to be executed.

In the scope of the execution of an annulling decision, it falls to the Tax and Customs Authority, among more, to "restore the situation that would exist if the tax act subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for that effect" and "to assess the tax obligations in accordance with the arbitral decision", so the Tax and Customs Authority can and must carry out all operations that are necessary to make such reconstitution concrete.

Thus, following a jurisdictional decision that annulled an assessment for improperly not recognizing to the taxpayer the right to a tax benefit, the Tax and Customs Authority is obliged to reconstitute the situation that would exist if it had been recognized from the beginning, with all the consequences that derive from that recognition.

For this reason, there being a legal provision that provides for a global limitation of the relevance of tax benefits, as occurs with article 92, no. 1, of the CIRC, the reconstitution of the situation that would exist if the tax benefit had been initially recognized, requires that it be ascertained also whether the limitation on tax benefits is or is not applicable, since if that initial recognition had occurred, this ascertainment should be undertaken.

The scope of this power/obligation is made explicit in article 173, no. 1, of the CPTA, applicable to tax arbitral proceedings by force of the provision of article 29, no. 1, subparagraph c), of the RJAT, in the part in which it requires the administration, in the scope of the obligation of reconstitution of the situation that would exist if the annulled act had not been practiced, the obligation to "give compliance with the obligations it did not comply with on the grounds of that act, by reference to the legal and factual situation existing at the moment it should have acted".

Thus, in the scope of the execution of judgment, the Tax and Customs Authority is not limited by what it decided or could have decided in the tax proceeding that preceded the annulled act, being repositioned juridically at the moment it should have practiced the act in accordance with the judgment, having to practice the new act as it should have practiced it initially without the illegality.

Having the obligation to practice in execution of the judgment issued in process no. 400/2015-T an assessment act in which the tax benefit of RFAI is recognized to the taxpayer to the extent that was decided in the arbitral judgment, the Tax and Customs Authority had the obligation to act in the execution of the judgment in the manner it should have acted if it had recognized that tax benefit to that extent at the moments it concluded the inspection proceeding and issued assessment no. 2014…, including deciding in execution, as it should decide in those prior moments, whether the conditions are met for relevance of that tax benefit in the year in question, in light of the regime of article 92 of the CIRC.[12]

For this reason, no supervenient addition to the conclusions and corrections of the external inspection occurred.

6.4. Expiration of the Right to Assess

The Claimant argues that the expiration of the right to assess occurred, for the IRC assessment contested relates to fiscal year 2011 and was issued on 11-04-2016 and notified on 16-05-2016, more than four years from the beginning of the expiration period started on 01-02-2012.

Article 101 of the CIRC establishes that "the assessment of IRC, even if additional, may only be made within the periods and terms provided for in articles 45 and 46 of the General Tax Law".

Article 45 of the LGT establishes that "the right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, when the law does not fix another" and that this period is counted "in periodic taxes, from the end of the year in which the tax fact occurred" (nos. 1 and 4).

Article 46 of the LGT provides for various situations of suspension of that period, including those derived from external inspection, so the end of the four-year legal expiration period may not coincide with what results from the linear application of the calendar.

However, in the case at issue, one is not faced with a situation to which these rules apply, as one is in the scope of execution of judgment, which has its own rules on the time during which execution acts can (and must) be practiced.

In fact, it results from no. 1 of article 24 of the RJAT that "until the end of the period provided for spontaneous execution of the judgments of the tax courts" the Tax and Customs Authority must practice the necessary acts to give execution to an arbitral decision favorable to the taxpayer.

And, among the acts that can and must be practiced in that period, are included, by force of the provision of subparagraphs b) and d) of no. 1 of article 24 of the RJAT, "restore the situation that would exist if the tax act subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for that effect" and "to assess the tax obligations in accordance with the arbitral decision".

Thus, during the period of spontaneous execution of the judgments of the tax courts, the Administration, following the annulment of the act, has a power/obligation of autonomous assessment different from that it had before practicing the assessment that was jurisdictionally annulled, as this power arises ex novo with the finality of the arbitral decision, has limitations deriving from the authority of the annulling decision and has its own period of time in which to be exercised.

During this period of spontaneous execution of judgments, the Tax Administration, when making a new assessment, is not exercising its autonomous power to practice tax acts, within the scope of the proper tax proceeding for that practice, being rather, by force of the provision of article 24, no. 1, subparagraphs b) and d), of the RJAT (and in line with article 100 of the LGT), exercising a power/obligation to execute the judgment that emanates from the annulling decision, a power to be exercised within the scope of the special proceeding of spontaneous execution of judgments, governed, in the first place, by its own rules, aiming at the restoration of the "situation that would exist if the tax act subject of the arbitral decision had not been practiced".

For this reason, the proceeding with a view to executing an arbitral decision has specific periods and rules of preclosure, which are not those applicable to the autonomous activity of the administration within the scope of tax proceedings for the assessment of taxes. [13]

That is, the Tax Administration, when executing arbitral decisions, is concretizing a power/obligation autonomous in relation to the general power/obligation of assessing taxes, is not conditioned by the temporal limitations that the law establishes for the exercise of this latter power/obligation, but rather by the temporal limits proper of the execution of judgments.

Thus, following contentiousness annulment of an assessment act, for a defect that does not prevent the renewal of the act, the Tax Administration may and should practice, within the period of spontaneous execution, a new assessment act cleared of the defect that was the grounds for annulment, regardless of the lapse or not of the expiration period that was valid for the exercise of the primitive autonomous power to practice the assessment act. But, only during that legal period of spontaneous execution is the Tax Administration invested by the annulling decision with the power to practice that act. There are no, here, expectations of legal security of the taxpayer that merit protection deriving from the lapse of the primitive expiration period of the right to assess, as this execution is a corollary of the decision of the arbitral proceeding in which it was a party and, for this reason, the eventual practice of a new assessment act during the period of spontaneous execution is something with which the taxpayer must count.

Establishing no. 1 of article 24 of the RJAT that the power/obligation to give execution to the arbitral decision must be exercised "until the end of the period provided for spontaneous execution of the judgments of the tax courts", it is this end that defines the expiration of the right to assess within the scope of execution of judgment. [14]

The period of spontaneous execution of arbitral decisions that are not limited to the obligation of payment of a sum of money, is 90 days, as results from the provision of article 175, nos. 1 and 3, of the CPTA, applicable by force of the provision of article 146, no. 1, of the CPPT.

It is a procedural period, as now clarified by no. 1 of article 175 of the CPTA, which is counted from the "end of the period provided for appeal or challenge", moment from which the Tax Administration is bound by the arbitral decision, as results from no. 1 of article 24 of the RJAT. As to the execution of arbitral decisions "norms on proceedings in administrative courts" apply (article 146, no. 1, of the CPPT), there will apply to the counting of the period the rules that apply to the execution of judgments in administrative courts, in which there is suspension of periods on Saturdays, Sundays and legal holidays, under article 87, subparagraph c), of the Code of Administrative Procedure.

In the case at issue, the arbitral decision issued in process no. 400/2015 was sent on 10-12-2015, so it is considered received on 14-12-2015 (first working day subsequent to the 3rd day), in accordance with the rule of article 39, no. 1, of the CPPT.

An appeal could have been filed to the Supreme Administrative Court within 30 days from that notification (under no. 3 of article 25 of the RJAT and no. 1 of article 152 of the CPTA).

Considering the suspension for judicial holidays (article 17-A of the RJAT), the 30-day period ended on 26-01-2016.

The procedural period of 90 days ended on 13-06-2016.

As the new assessment was issued on 11-04-2016 and notified on 16-05-2016, there did not occur exhaustion of the period during which the Tax Administration could practice the new act.

By the above, the expiration of the right to assess did not occur, so this defect attributed by the Claimant to the contested assessment is inadmissible.

7. REIMBURSEMENT OF THE AMOUNT OF €4,439,649.45 AND INDEMNIFYING INTEREST

The Claimant requests that it be recognized the right to reimbursement of this amount €4,439,649.45 (€4,194,063.35 in tax and €245,586.10 in compensatory interests).

It was not proven that the Claimant had paid any amount following the contested assessment, specifically of the new tax that the Claimant argues was created by assessment no. 2016… .

The only payment that the Claimant proved to have made occurred on 05-08-2014 and relates to assessment no. 2014… (document no. 14 attached to the arbitral petition), whose legality was assessed in process no. 400/2015-T, in the part of the RFAI tax benefit.

Not being at issue in the present proceeding to restore the situation that would exist if the illegality that justified the partial annulment decided in that proceeding had not occurred, is ruled out the possibility of assessing the question of whether that decision should or should not result, in execution of judgment, a right to reimbursement, a decision that, incidentally, the Claimant itself argues is perfectly executed.

In any case, there is no causal nexus between the contested assessment, no. 2016…, and the payment made in 2014, so from the annulment of this assessment no right to reimbursement can result, as it was not this which caused the payment to have been made.

On the other hand, as results from the assessment that was made of the defects attributed to the contested assessment, only the one relating to the grounds for the maintenance of compensatory interests in the contested assessment is considered admissible. It is a formal defect, which does not prevent, in execution of the present judgment, the renewal of the act with suppression of the defect, so from the admissibility of the arbitral petition based on this formal defect, a right to reimbursement does not necessarily result, as this is a question that depends on whether, in the execution of the present judgment, a new act of assessment is practiced and, if so, what are the effects in that new act of the annulment of that part of the contested assessment.

Thus, from the grounds stated above, and specifically for the reasons stated above,

THE TRIBUNAL ARBITRAL DECIDES:

1. To judge admissible the incompetence exception raised by the Tax and Customs Authority as to the merits;

2. To judge admissible the res judicata exception raised by the Tax and Customs Authority as to the merits;

3. To declare the competence of this Arbitral Tribunal and to reject the incompetence exception raised by the Tax and Customs Authority;

4. To reject the res judicata exception raised by the Tax and Customs Authority;

5. To judge partially admissible the request for arbitral pronouncement filed by A…, S.A., in the part relating to the defect of lack of grounds of the compensatory interest assessment;

6. To annul the assessment no. 2016…, in the part relating to the compensatory interest assessment, identified in the respective demonstration of compensatory interest assessment as "liquidação de juros compensatórios" (assessment of compensatory interests);

7. To declare that the Tax and Customs Authority must, in the execution of this judgment, practice the necessary acts with a view to the restoration of the legal situation arising from the annulment decided, including, if necessary, the practice of a new assessment act relating solely to the compensatory interests, in accordance with article 24 of the RJAT.