Process: 501/2017-T

Date: March 2, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitration case 501/2017-T addresses a critical question regarding the interaction between the RFAI investment tax credit regime and Article 92(1) of the Portuguese Corporate Income Tax Code (CIRC). The claimant company sought to deduct €197,976.33 in unused RFAI tax benefits from fiscal years 2010-2012 against its IRC liability for 2013-2014. The central legal dispute concerns whether Article 92's limitation on tax benefit deductions creates an 'insufficiency of tax collection' that permits carryforward under Article 3(3) of the RFAI regime. The claimant argued that the Article 92 ceiling should apply only in the years 2010-2012, and that benefits not utilized due to this limitation constitute unused amounts eligible for carryforward to subsequent tax periods within the statutory time limit. The Tax Authority rejected this interpretation, maintaining that RFAI benefits must be deducted from the tax liability remaining after applying Article 92 limitations, effectively preventing carryforward of amounts restricted by the minimum taxation rule. The arbitral tribunal must determine whether RFAI deductions apply before or after Article 92's minimum effective tax rate mechanism, with significant implications for investment tax incentive effectiveness and corporate tax planning. This case highlights tensions between fiscal consolidation policies (maintaining minimum tax collection) and investment stimulus measures, raising constitutional questions regarding legal certainty, equality, and ability to pay principles in Portuguese tax law.

Full Decision

ARBITRAL DECISION

The arbitrators Maria Fernanda dos Santos Maçãs (arbitrator president), Jaime Carvalho Esteves and Paulo Jorge Nogueira da Costa, agree as follows:

REPORT

On 11 September 2017, the company A…, S.A., taxpayer no.…, with registered office at Rua …, n.º…, …, …-… … ("Claimant"), filed a request for arbitral pronouncement with the intervention of the collective arbitral tribunal, in accordance with articles 2.º, no. 1, subsection a), and 10.º, no. 1, subsection a), of the Legal Framework for Arbitration in Tax Matters ("LFATM").

The Respondent is the TAX AND CUSTOMS AUTHORITY ("Respondent Entity").

In the request for arbitral pronouncement, the Claimant petitioned the Arbitral Tribunal for the annulment of the decision dismissing the hierarchical appeal filed by it, submitted following the issuance of the decision dismissing the administrative complaint relating to the self-assessments of Corporate Income Tax ("IRC") for the fiscal years 2013 and 2014.

The request for constitution of the Arbitral Tribunal was accepted on 11 September 2017 by His Excellency the President of CAAD, following which the notification of the Respondent Entity was promoted.

Pursuant to article 6.º, no. 2, subsection a), of the LFATM, the Signatories were designated by the President of the Ethics Council of CAAD to constitute the present collective Arbitral Tribunal, with their respective appointments having been accepted in accordance with the legally provided terms.

On 8 November 2017, the Parties were notified of this designation and did not express a wish to refuse it, in accordance with the combined terms of article 11.º, no. 1, subsections a) and b), of the LFATM, and articles 6.º and 7.º of the Ethics Code of CAAD.

The Arbitral Tribunal was constituted on 28 November 2017, in conformity with article 11.º, no. 1, subsection c), of the LFATM.

To support the request for arbitral pronouncement, the Claimant alleges, in summary, the following:

In the context of an internal review of procedures, A… concluded that the amount of tax assessed by reference to the fiscal years 2013 and 2014 is incorrect, since it does not include the deduction of the tax benefit relating to RFAI available for use (as it was not actually used in previous fiscal years) in the total amount of EUR 197,976.33 (which results from: EUR 37,300.61 relating to the amount of benefit not used in 2010, EUR 77,855.66 relating to the amount of benefit not used in 2011 and EUR 82,819.95 relating to the amount of benefit not used in 2012);

The Claimant considers that the amounts of RFAI that were not actually used in the fiscal years 2010 to 2012, due to insufficiency of tax collection (namely, as a result of the application of the provision in article 92º of the IRC Code), may be deducted from the tax collection of the fiscal years 2013 and 2014, insofar as the respective carry-forward period had not yet expired in these fiscal years;

The limitation imposed by article 92º of the IRC Code should be applied to the tax benefit relating to RFAI by reference to the fiscal years 2010 to 2012, ceasing to be applied from fiscal year 2013 onwards;

The tax benefit relating to RFAI not used in the fiscal years 2010, 2011 and 2012, by virtue of the limitation imposed by article 92º of the IRC Code, must be carried forward to the following fiscal years, due to insufficiency of tax collection for the integral deduction of the amount available in those fiscal years;

This is the only logical and valid interpretation in harmony with the ratio legis of that regulation, which allows the combination of both regimes, complementing them and permitting their rational application, insofar as it does not violate the application of article 92º of the IRC Code in the fiscal years 2010, 2011 and 2012, since it guarantees the effective rate of taxation advocated, for example, in the State Budget Report for 2011, but also ensures compliance with the provision in no. 3 of article 3.º of the RFAI, that is, the possibility of carrying forward this tax benefit to the following fiscal years, whenever tax collection proves insufficient for its integral deduction;

This is also a solution that finds correspondence not only in the logical element but also in the letter of the law (see no. 2 of article 9º of the Civil Code), insofar as article 92º of the IRC Code imposes a limitation on the tax collection available for the use of tax benefits, which translates into a true "insufficiency of tax collection" for purposes of the use and carry-forward of the tax benefit relating to RFAI, in accordance with no. 3 of article 3º of the RFAI;

This shall furthermore be the only solution that permits effective use of the tax benefit by the taxpayer, being presumed, under the terms of no. 3 of article 9º of the Civil Code, that the legislative intention of no. 3 of article 3º of the RFAI is to permit effective use of the tax benefit, either in the fiscal year in which it is determined or in subsequent fiscal years;

The limitation imposed by article 92º of the IRC Code does not prevent the use in future fiscal years of the amount of RFAI not used as a result of that legal provision, but merely limits its use in that same fiscal year;

The understanding of the Tax Authority, insofar as it does not permit the carry-forward of the tax benefit relating to RFAI not used as a result of the mechanism of article 92º of the IRC Code, violates the principles provided for in the Constitution of the Republic, namely the principle of legal certainty (article 2.º), the principle of equality (article 13.º) and the principle of tax capacity (no. 2 of article 104.º).

As a result, the Claimant requested the restitution of the amounts of EUR 174,922.05 and EUR 32,867.71, respectively relating to the fiscal years 2013 and 2014, plus indemnity and default interest until full and complete payment.

The Respondent submits the lack of merit of the request for arbitral pronouncement, with the grounds contained in the opinion and conclusion of the Information n.º I2017…, which accompanies the decision dismissing the hierarchical appeal, given as reproduced by the Respondent in its Reply, and which are summarized below:

On 16 January 2018, the Respondent Entity filed its reply and also attached the administrative file.

On that same date, the Arbitral Tribunal waived the holding of the meeting provided for in article 18.º of the LFATM and notified the Parties to submit written submissions.

On 31 January and 15 February 2018, respectively, the Claimant and the Respondent Entity submitted their written submissions.

CASE MANAGEMENT

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2.º, no. 1, subsection a), 5.º and 6.º, of the LFATM.

The Parties have standing and legal capacity, are entitled to participate and are regularly represented, in accordance with articles 4.º and 10.º of the LFATM and 1.º of Portaria no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities, no exceptions were raised, and there are no obstacles to the consideration of the merits of the case, imposing thereby the need to decide.

SUBJECT MATTER OF THE ARBITRAL PRONOUNCEMENT

The thema decidendum subject to arbitral pronouncement consists of the determination of the meaning and scope of the provision in article 92.º, no. 1, of the CIRC in its articulation with the regime provided for in articles 3.º, nos. 1 and 3, of the RFAI.

In concrete terms, it is necessary to determine whether the tax benefit relating to RFAI should be deducted from the initial tax collection (before the application of article 92.º, no. 1, of the CIRC) or from the available tax collection (after the application of article 92.º, no. 1, of the CIRC), and thereby determine the remaining amount capable of being carried forward in subsequent fiscal years under article 3.º, no. 3, of the RFAI.

On the other hand, it is necessary to verify whether the registration in the IRC Form 22 of the entirety of the tax benefit prevents its deduction in subsequent fiscal years if in that first fiscal year there was insufficient tax collection.

FACTUAL MATTERS

Established Facts

The following facts are considered established:

The Claimant is a taxpayer classified under the general tax regime for IRC purposes;

On 24 May 2011, the Claimant filed its periodic income return statement ("IRC Form 22") for the fiscal year 2010 (cf. document no. 9 attached to the request for arbitral pronouncement);

On 11 May 2012, the Claimant filed its IRC Form 22 for the fiscal year 2011 (cf. document no. 11 attached to the request for arbitral pronouncement);

On 2 May 2013, the Claimant filed its IRC Form 22 for the fiscal year 2012 (cf. document no. 13 attached to the request for arbitral pronouncement);

On 12 March 2014, the Claimant filed amended IRC Forms 22 for the fiscal years 2010 and 2011 (cf. documents nos. 10 and 12 attached to the request for arbitral pronouncement);

These statements reflect the following values:

Fiscal year 2010: EUR 850,519.66, as tax collection [field 351/schedule 10]; EUR 212,629.91, as RFAI of the fiscal year [field 355/schedule 10]; EUR 39,926.83, as the result of the assessment [field 371/schedule 10];

Fiscal year 2011: EUR 463,473.07, as tax collection [field 351/schedule 10]; EUR 115,868.27, as RFAI of the fiscal year [field 355/schedule 10]; EUR 80,127.50, as the result of the assessment [field 371/schedule 10];

On 4 April 2014, the Claimant filed an amended IRC Form 22 for the fiscal year 2012 (cf. document no. 14 attached to the request for arbitral pronouncement);

This statement reflects the following values:

Fiscal year 2012: EUR 899,624.27, as tax collection [field 351/schedule 10]; EUR 162,511.21, as RFAI of the fiscal year [field 355/schedule 10]; EUR 84,331.96, as the result of the assessment [field 371/schedule 10];

On 8 May 2014, the Claimant filed its IRC Form 22 relating to the fiscal year 2013 (cf. document no. 1 attached to the request for arbitral pronouncement);

On 15 January 2015, the Claimant filed an amended IRC Form 22 relating to the fiscal year 2013 (cf. document no. 2 attached to the request for arbitral pronouncement);

On 6 May 2015, the Claimant filed its IRC Form 22 relating to the fiscal year 2014 (cf. document no. 3 attached to the request for arbitral pronouncement);

On 19 February 2016, the Claimant filed an amended IRC Form 22 relating to the fiscal year 2014 (cf. document no. 4 attached to the request for arbitral pronouncement);

On 15 March 2016, the Claimant filed an administrative complaint regarding the self-assessments of IRC for the fiscal years 2013 and 2014 for, among other reasons, not having used, through deduction from tax collection, the remaining tax benefit relating to RFAI from the fiscal years 2010 to 2012 (cf. document no. 5 attached to the request for arbitral pronouncement);

According to the calculations it made, such tax benefit amounts to the total sum of EUR 197,976.33: being EUR 37,300.61 relating to the fiscal year 2010; EUR 77,855.66 relating to the fiscal year 2011; EUR 82,819.95 relating to the fiscal year 2012;

On 23 June 2016, the Claimant was notified of the decision dismissing the administrative complaint (cf. document no. 6 attached to the request for arbitral pronouncement);

On 25 July 2016, the Claimant filed a hierarchical appeal against that decision (cf. document no. 7 attached to the request for arbitral pronouncement);

On 4 July 2017, the Claimant was notified of the decision dismissing the hierarchical appeal (cf. document no. 8 attached to the request for arbitral pronouncement);

On 11 September 2017, the Claimant filed a request for arbitral pronouncement which gave rise to the present proceedings.

Unproven Facts

There are no facts relevant to the decision that have not been proven.

C) Substantiation of the Factual Decision

The facts were established based on the documents, the contents of which are considered to be fully reproduced herein, attached to the request for arbitral pronouncement and to the administrative file.

MATTERS OF LAW

§1. Question to be Decided

In the case sub judice, this tribunal is called upon to rule on the legality of the tax acts of express dismissal of the hierarchical appeal n.º …2016… filed following the partial acceptance of the administrative complaint n.º …2016…against the tax acts of self-assessment of IRC, by reference to the taxation periods of 2013 and 2014.

In this context, the Claimant believes that, as a result of the application of article 92.º, no. 1, of the IRC Code ("CIRC"), the available tax collection of the fiscal years 2010, 2011 and 2012 proved insufficient for the integral deduction of the tax benefit relating to the Tax Incentive Regime for Investment ("RFAI").

Nonetheless, given the provision in article 3.º, no. 3, of the RFAI, the Claimant considers itself entitled to deduct from the tax collection of the fiscal years 2013 and 2014, through carry-forward, the remaining tax benefit from those fiscal years relating to the RFAI.

The Respondent Entity disagrees with this position, considering that the tax benefit in question was fully deducted by the Claimant from the tax collection of the fiscal years 2010, 2011 and 2012, for this purpose having regard to the initial tax collection (prior to the application of article 92.º, no. 1, of the CIRC).

The Claimant seeks the annulment of the self-assessments of IRC for the fiscal years 2013 and 2014 for being subject to an error resulting from the circumstance that the tax benefit relating to RFAI from the fiscal years 2010 to 2012 was not deducted from the tax collection of the fiscal years 2013 and 2014.

Thus, the question of law to be resolved consists in the interpretation of the meaning and scope of the provision in article 92.º, no. 1, of the CIRC in its articulation with the regime provided for in articles 3.º, nos. 1 and 3, of the RFAI.

§2. Application of Law to the Case Sub Judice

By reference to the fiscal year 2010, no. 1 of article 92.º of the CIRC provided the following:

"For entities that carry out, as their principal activity, an activity of a commercial, industrial or agricultural nature, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90º, net of the deductions provided for in subsections a) and b) of no. 2 of the same article, cannot be less than 75% of the amount that would be determined if the taxpayer did not benefit from tax incentives, the regimes provided for in no. 13 of article 43º and article 75º".

With respect to the fiscal year 2011, the wording of no. 1 of article 92.º of the CIRC in force was as follows:

"For entities that carry out, as their principal activity, an activity of a commercial, industrial or agricultural nature, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90º, net of the deductions provided for in subsections a) and b) of no. 2 of the same article, cannot be less than 90% of the amount that would be determined if the taxpayer did not benefit from tax incentives and the regimes provided for in no. 13 of article 43º and article 75º".

Until 31 December 2010, no. 2 of article 92.º of the CIRC listed exhaustively the tax benefits that should be considered for purposes of calculating the result of the assessment, among them the tax benefit relating to the RFAI. From fiscal year 2011 onwards, all tax benefits that were not expressly excluded were considered in that calculation, in accordance with the wording of no. 2 of article 92.º of the CIRC introduced by Law no. 55-A/2010, of 31 December.

With respect to the fiscal years 2011 and 2012, the tax benefit relating to the RFAI was not provided for in no. 2 of article 92.º of the CIRC, and thus should be considered for purposes of calculating the result of the assessment.

However, as stated in the Arbitral Award issued in the context of proceedings no. 693/2014-T, and reaffirmed in the Arbitral Award issued in the context of proceedings no. 311/2016-T, "this conclusion [that the tax benefit in the matter of IRC provided for in the RFAI was subordinate, in the years in question, to the global limit of deductions from tax collection then provided for in no. 1 of article 92.º of the CIRC] is not sufficient to resolve the question, since the possibility of carry-forward of the RFAI tax benefit does not necessarily affect the limit of article 92.º, no. 1. It is sufficient that, in the year in question, the amount of the tax benefit be used which, added to the remaining tax benefits and regimes provided therein, does not exceed the limit of 25% [in this case, 10%] of the collection, so as to allow the tax assessed not to be less than 75% [in this case, 90%] of what would be determined if the taxpayer did not benefit from tax incentives and the regimes provided for in no. 13 of article 43.º and article 75.º.

If to achieve the objectives of ensuring that, in each year, the tax collected does not result in less than a certain percentage of that which would be due if there were no deductions relating to tax incentives (excepting those listed in no. 2 of art.º 90) it suffices that the deduction from tax collection does not exceed 25% [in this case, 10%] of the collection.

Accordingly, no obstacle arises from article 92.º, no. 1, of the CIRC to the carry-forward of deductible amounts, provided that, in each year, the minimum limit of tax assessed that is intended is not exceeded".

But it is also necessary to consider the provision in article 3.º of the RFAI, the no. 1 of which, in the wording in force in the fiscal years 2010 to 2012, provided for the granting of a tax benefit by "Deduction from IRC tax collection, and up to 25% thereof, of the following amounts, for investments made in regions eligible for support under the auspices of incentives with regional purpose:

i) 20% of the relevant investment, in respect of investment up to the amount of (euro) 5,000,000;

ii) 10% of the relevant investment, in respect of investment of value exceeding (euro) 5,000,000".

No. 2 of article 3.º of the RFAI provided that the deduction provided for in the preceding number should be made in the taxation period in which the benefit was determined. However, no. 3 of the same article provided that "[w]hen the deduction referred to in the preceding number cannot be made integrally due to insufficiency of collection, the amount still not deducted may be made, under the same conditions, in the assessments of the four following fiscal years".

On the articulation between the provision in article 92.º, no. 1, of the CIRC and the regime provided for in articles 3.º, nos. 1 and 3, of the RFAI there is already abundant arbitral jurisprudence, in particular that issued in the context of proceedings nos. 693/2014-T, 702/2014-T, 369/2015-T, 370/2015-T, 285/2016-T and 311/2016-T, in relation to which this tribunal sees no reason to diverge.

Thus, the grounds expressed in the already-referenced Arbitral Award issued in the context of proceedings no. 693/2014-T, and reaffirmed in the Arbitral Award issued in the context of proceedings no. 311/2016-T, are accepted when therein it is stated as follows:

"It is manifest that this rule [contained in no. 3 of article 3.º of the RFAI] has underlying a legislative intention that the tax benefits in support of investment be enjoyed by taxpayers, in a reasonable measure, which will be the four years subsequent to that in which the investment occurs.

This possibility of deduction in the four subsequent periods constitutes an important guarantee for the taxpayer, by increasing the possibilities for the latter to enjoy the tax benefit integrally, freeing it from the contingency of there being no sufficient collection for integral deduction in the year of the investment, the possibility of carry-forward should be considered as an important or even decisive factor to motivate investment decisions.

It being presumed that the legislator established the most appropriate solution (article 9.º, no. 3, of the Civil Code) to achieve the intended objective of encouraging investment, the reference to the possibility of carry-forward in case of insufficiency of collection should not be interpreted with the scope of hindering taxpayers from enjoying the tax benefit, since the purpose of the rule is precisely the opposite, to increase the possibilities for taxpayers to be able to effectively enjoy the benefit, which is legislatively understood to be a fair counterpart to the investment.

Thus being, in a teleological interpretation, which allows finding in the law a way to ensure the objectives aimed at legislatively and not jeopardizing them, the possibility of deduction should exist in the generality of situations in which the IRC collection available for enjoying the tax benefit is not sufficient for its integral enjoyment, which is none other than an interpretation with correspondence in the letter of the law, since from article 92.º, no. 1, of the CIRC results a reduction of the collection available for enjoying tax benefits in IRC. And, therefore, when this available collection is insufficient for deducting the totality of the tax benefit resulting from the investment, we shall be faced with a situation of "insufficiency of collection" for purposes of article 3.º, no. 3, of the RFAI.

Accordingly, it is concluded that the position defended by the Claimant finds in the letter of the law, even by merely declaratory interpretation, verbal correspondence in the letter of article 3.º, no. 3, of the RFAI, sufficiently expressed, as required by article 9.º, no. 2, of the Civil Code. Furthermore, even if an extensive interpretation were necessary, it would be permitted by article 10.º of the Tax Incentives Statute, since it is clear that the legislative intention underlying no. 3 of article 3.º of the RFAI is to permit the taxpayer to use the tax benefit to which it is entitled in subsequent years, up to the limit of four, when it cannot use it in previous years.

On the other hand, this interpretation is the one that ensures evaluative congruity of the legal system, since it would not be coherent to admit in article 3.º, no. 1, subsection a), of the RFAI a deduction from IRC collection of up to 25% and, at the same time, permanently restrict the benefit by way of article 92.º, no. 1, of the CIRC.

Therefore, if it is true that concerns with the consolidation of public finances may justify that, in each year, the achievement of minimum IRC revenue is superimposed on the tax benefit, those concerns can no longer explain that there be no possibility of using the tax benefit in one of the four subsequent years, if such use in any of them would not affect that consolidation.

It is thus concluded that the tax benefit resulting from the RFAI in the matter of IRC may only be used insofar as it does not jeopardize the limit provided for in article 92.º, no. 1, of the CIRC, but there is no legal obstacle to the part that is not used in the year of the investment being able to be used for deduction from IRC collection in the subsequent years, up to the limit provided for in no. 3 of article 3.º of the RFAI.

Therefore, in the case at hand, the limit provided for in article 92.º, no. 1, of the CIRC not permitting the deduction from tax collection of the total amount of the investment made which benefits from the RFAI regime, this did not have to impute all that investment to that year, remaining without the right to deduction in the part in which that limit would be exceeded, being able to use the faculty provided for in no. 3 of article 3.º of the RFAI".

With respect to the question that pertains to determining whether the tax benefit relating to the RFAI should be deducted from the initial IRC collection (before the application of article 92.º, no. 1, of the CIRC) or from the available collection (after the application of article 92.º, no. 1, of the CIRC), the jurisprudence mentioned above is unanimous in considering that the relevant collection is the available collection (after the application of article 92.º, no. 1, of the CIRC), under penalty of the taxpayer seeing the possibilities of enjoying the tax benefit in question diminished, which would constitute a disincentive contrary to the granting of the benefit itself. In this context, it would not be systemically coherent to admit in article 3.º, no. 1, subsection a), of the RFAI a deduction from IRC collection of up to 25% and, at the same time, permanently restrict this benefit by way of the application of article 92.º, no. 1, of the CIRC.

Indeed, the limitation imposed by article 92.º, no. 1, of the CIRC leads to the reduction of the available collection of the fiscal year, thereby restricting the deductions to be made in that fiscal year. In this manner, by virtue of article 3.º, no. 3, of the RFAI, the taxpayer should be able to deduct from the tax collection of the four subsequent fiscal years the tax benefit relating to the RFAI that could not be deducted as a result of the said reduction of collection.

Another question is the one that pertains to knowing whether the registration in the IRC Form 22 declaration of the entirety of the tax benefit prevents its deduction in subsequent fiscal years if in that first fiscal year there is no sufficient collection.

It is the understanding of this tribunal that the registration in the IRC Form 22 declaration, in the field of deductions from tax collection, of the entirety of the tax benefit relating to the RFAI, should not have the effect of preventing the use of the benefit in subsequent fiscal years if in that fiscal year there is no sufficient collection for the intended deduction.

When completing its IRC Form 22 declaration, the taxpayer merely expresses its intention to deduct the said benefit from tax collection. If, by chance, in that fiscal year, a practical impossibility of deduction occurs (resulting from the lack of collection), this cannot be preventive of its subsequent use. To admit otherwise would be to fail to consider the coherent insertion of the institute in the tax system and to confer primacy to a merely formal question over a material question.

This interpretation, in the sense of the admission of the carry-forward of the tax benefit relating to the RFAI, also presents itself as the most in conformity with the Constitution, in particular with the principles of protection of confidence and equality.

It is thus concluded, with the grounds exposed, by the merit of the request for declaration of illegality and annulment of the final decision relating to the administrative complaint n.º …2016…, in the part in which it dismisses the request for consideration of the carry-forward of the tax benefit relating to the RFAI in the fiscal years 2013 and 2014.

From this arises the right of the Claimant to the reimbursement of the tax unduly paid, by virtue of articles 24.º, no. 1, subsection b), of the LFATM and 100.º of the LGT, in order to reestablish the situation that would exist if the tax act object of the arbitral decision had not been carried out.

In addition to the said reimbursement, article 43.º, no. 1, of the LGT provides that "indemnity interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services from which resulted the payment of the tax debt in an amount exceeding that legally due".

Given that it has been demonstrated, in the case sub judice, that the act of partial dismissal of the administrative complaint is subject to an error regarding the legal assumptions attributable to the Respondent, it is concluded that indemnity interest is due, counted from the date of partial dismissal of the administrative complaint until the moment of full payment of the amounts legally due.

On the other hand, it is concluded that default interest is not due, since this, if due, shall only be owed under the terms of article 43.º, no. 5, of the LGT, which manifestly exceeds the scope of the proceedings in question, being a matter to be resolved in the context of execution of judgment.

DECISION

The present Tribunal accordingly agrees as follows:

i) To find the request for declaration of illegality of the tax acts of express dismissal of the hierarchical appeal n.º …2016…, filed following the partial acceptance of the administrative complaint n.º …2016…, deduced against the acts of self-assessment of IRC, to be well founded in the part in which it dismisses the request for consideration of the carry-forward of the tax benefit relating to the RFAI in the fiscal years 2013 and 2014, with all legal consequences;

ii) To find illegal the mentioned act of express dismissal of the hierarchical appeal and, in this sequence, the tax acts of self-assessment of IRC relating to the fiscal years 2013 and 2014;

iii) To condemn the Respondent to payment of indemnity interest, counted from the date of partial dismissal of the administrative complaint until the moment of full payment of the amounts legally due;

iv) To absolve the Respondent of the request for condemnation to payment of default interest.

VALUE OF THE CASE

In accordance with the provision in article 306.º, no. 2, of the CPC and 97.º-A, no. 1, subsection a), of the CPPT and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 207,789.76.

VIII. COSTS

Pursuant to article 22.º, no. 4, of the LFATM, the amount of costs is set at €4,284.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify the parties.

Lisbon, 02 March 2018

Fernanda Maçãs (Arbitrator-President)

Jaime Esteves (Arbitrator Member)

Paulo Nogueira da Costa (Arbitrator Member)

Text prepared by computer, in accordance with the provision in article 131.º, no. 5, of the CPC, applicable by referral of article 29.º, no. 1, subsection e), of the LFATM.

Frequently Asked Questions

Automatically Created

What is the RFAI investment tax credit and how does it apply to corporate income tax (IRC) in Portugal?
RFAI (Regime Fiscal de Apoio ao Investimento) is a Portuguese investment tax credit regime that allows companies to deduct a percentage of qualifying investment expenditures from their Corporate Income Tax (IRC) liability. The benefit is calculated based on eligible investments and can be used to reduce the final tax due. Under Article 3(1) of the RFAI, the tax benefit is deducted from the IRC collection, and Article 3(3) provides that unused amounts due to insufficient tax liability can be carried forward to subsequent fiscal years within the statutory limitation period.
Can unused RFAI tax benefits from prior years be carried forward and deducted in subsequent tax periods?
Under Article 3(3) of the RFAI regime, unused tax benefits can be carried forward to subsequent fiscal years when tax collection is insufficient for their full deduction. However, the disputed issue is whether amounts not used due to Article 92(1) CIRC limitations constitute 'insufficiency of tax collection' for carryforward purposes. The Tax Authority's position prevents carryforward of RFAI amounts restricted by Article 92's minimum taxation rule, while taxpayers argue that any limitation preventing full use creates insufficiency that triggers carryforward rights under the RFAI legislation.
How does Article 92 of the IRC Code limit the deduction of tax benefits like the RFAI against the tax liability?
Article 92(1) of the IRC Code establishes a minimum effective taxation rule that limits the total deductions of tax benefits (including RFAI) from the tax liability. This provision ensures that companies pay a minimum effective tax rate regardless of available tax incentives. For fiscal years 2010-2012, Article 92 imposed significant restrictions on benefit deductions to guarantee minimum tax collection, effectively creating a ceiling on how much of the calculated tax liability could be reduced through tax benefits, thereby preventing full utilization of otherwise eligible RFAI credits in those years.
What was the outcome of CAAD arbitration process 501/2017-T regarding the RFAI deduction carryforward?
The text excerpt does not include the final decision of the arbitral tribunal in case 501/2017-T. The document presents the claimant's request for annulment of the Tax Authority's decision denying the carryforward of €197,976.33 in RFAI benefits from 2010-2012 to fiscal years 2013-2014, and outlines both parties' arguments. The tribunal must decide whether Article 92's limitation creates 'insufficiency of tax collection' allowing RFAI carryforward, or whether benefits restricted by Article 92 are definitively lost and cannot be carried forward to subsequent periods.
What is the procedure for challenging an IRC self-assessment through a CAAD arbitral tribunal in Portugal?
To challenge an IRC self-assessment through CAAD (Centro de Arbitragem Administrativa), taxpayers must first file an administrative complaint (reclamação graciosa) with the Tax Authority. If this is denied, they can file a hierarchical appeal (recurso hierárquico). After exhausting administrative remedies, taxpayers can request arbitration under the Legal Framework for Arbitration in Tax Matters (RJAT). The request must be filed within 90 days of notification of the final administrative decision, specifying the contested act and legal grounds. CAAD's President designates arbitrators, and the tribunal is constituted to decide the dispute, offering an alternative to judicial courts for tax litigation.