IRC Exemption for Religious Congregations as IPSS: CAAD Arbitral Decision 547/2015-T

ARBITRAL DECISION

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Rui Rodrigues and Dr. Augusto Vieira, designated by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-11-2015, agree as follows:

1. Report

A… – …, NIPC …, hereinafter referred to as the "Claimant", submitted a request for constitution of the arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT).

The Tax and Customs Authority is named as Respondent.

The Claimant requests recognition that it benefits from corporate income tax exemption, revocation of the decision of 30-04-2015 of the Head of Services of the Corporate Income Tax Services Directorate, which dismissed the hierarchical appeal filed by the Claimant against the decision on the administrative claim, annulment of the act of assessment of corporate income tax for the year 2011, bearing number 2014 … (compensation number 2014 …), with all legal consequences, including payment of compensatory interest.

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 07-09-2015.

In accordance with the provisions of subparagraph (a) of paragraph 2 of article 6 and subparagraph (b) of paragraph 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable deadline.

On 22-10-2015 the parties were duly notified of this designation and did not express any intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs (a) and (b), of RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in conformity with the provision of subparagraph (c) of paragraph 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, the Arbitral Tribunal was constituted on 06-11-2015.

The Tax and Customs Authority filed a response in which it raised exceptions of procedural defect, lack of passive standing and lack of jurisdiction of the Arbitral Tribunal and defended the unfoundedness of the claims.

By order of 19-01-2016, it was decided that the proceedings would continue with written submissions.

The Parties submitted written arguments.

The Arbitral Tribunal was duly constituted.

The Parties are duly represented, possess legal capacity and standing, and the Claimant has legitimate standing (articles 4 and 10, paragraph 2, of the same statute and article 1 of Regulation No. 112-A/2011, of 22 March).

The proceedings do not suffer from any defects and exceptions were raised.

2. Exception of Lack of Material Jurisdiction of the Arbitral Tribunal

The exception of lack of jurisdiction is subject to priority examination, as results from the provision of article 13 of the Code of Procedure in Administrative Courts (CPTA), applicable to tax arbitration proceedings by virtue of the provision of article 29, paragraph 1, subparagraph (c), of RJAT.

The Tax and Customs Authority considers that "it results with crystalline clarity from paragraph 1 of article 2 of RJAT that the examination of any questions relating to the recognition of tax exemptions falls outside the jurisdiction of tax arbitration, since this matter is reserved to the jurisdiction of administrative and tax courts" and that "even if in judicial courts it is admitted that in judicial impugnation proceedings there may be examination of matters that constitute severable acts, which is debatable, these arguments do not apply in Arbitral Tribunal proceedings".

The jurisdiction of arbitral tribunals functioning at CAAD is defined, in the first place, by article 2, paragraph 1, of RJAT, which establishes as follows:

1 - The jurisdiction of arbitral tribunals comprises the examination of the following claims:

a) Declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payments on account;

b) Declaration of illegality of acts of determination of taxable matter when it does not give rise to assessment of any tax, of acts of determination of taxable income and of acts of determination of patrimonial values;

In the second place, the jurisdiction of arbitral tribunals functioning at CAAD is limited by the undertaking of the Tax and Customs Authority which, in accordance with article 4, paragraph 1, of RJAT, was defined by Regulation No. 112-A/2011, of 12 March, which establishes as follows, insofar as relevant:

The services and entities referred to in the preceding article undertake to submit to the jurisdiction of arbitral tribunals functioning at CAAD that have as their object the examination of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of article 2 of Decree-Law No. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to declaration of illegality of acts of self-assessment, withholding at source and payments on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Tax Procedure and Process Code;

b) Claims relating to acts of determination of taxable income and acts of determination of taxable matter, both by indirect methods, including the decision on the revision procedure;

c) Claims relating to customs duties on imports and other indirect taxes levied on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff contingents, or whose resolution depends on laboratory analysis or proceedings to be carried out by another Member State within the scope of administrative cooperation in customs matters.

As can be seen, only in relation to customs matters is the definition of jurisdiction made taking into account the type of taxes to which the claims relate. And as regards these, the Tax and Customs Authority only undertook to submit to jurisdiction regarding taxes administered by it.

As for the rest, jurisdiction is defined solely having regard to the type of acts that are the subject of impugnation, there being, namely, no prohibition on examination of matters relating to tax exemptions or any other questions of legality relating to acts of the types referred to in article 2 of RJAT. A tax assessment that departs from disregard of an exemption remains a tax assessment act. And examination of the legality or illegality of such disregard is, therefore, examination of a claim relating to declaration of illegality of acts of assessment.

In the case at hand, an act of corporate income tax assessment is being impugned, which falls within subparagraph (a) of paragraph 1 of article 2 of RJAT, and whose examination is not excluded by any of the provisions of said Regulation.

Moreover, an administrative claim was filed against the assessment act, and it is from the decision dismissing it that a hierarchical appeal was filed, which was also dismissed, as the Tax and Customs Authority understood that the assessment does not suffer from illegality.

In arbitration proceedings, any illegality can, as a rule, be imputed to assessment acts, as results from article 99 of CPPT, subsidiarily applicable.

This will not be the case only in situations where the law provides for autonomous impugnability of administrative acts that are prerequisites of assessment acts, as may occur with acts recognizing tax exemptions, which, in cases of non-automatic exemptions, assume the nature of severable acts for purposes of contentious impugnation.

However, in this case, the exemption that the Claimant understands was improperly disregarded by the Tax and Customs Authority when issuing the corporate income tax assessment act is an exemption of automatic recognition, as results from subparagraph (b) of paragraph 1 of article 10 of CIRC, combined with its paragraph 2, in which recognition of exemption is only referred to in situations falling within subparagraph (c) of said paragraph 1. Indeed, there is no controversy between the Parties regarding the automatic nature of the exemption that the Claimant claims to benefit from.

As the assessment act is harmful to the interests of the Claimant, which argues that it is illegal for not applying an automatic exemption that it claims to benefit from, its contentious impugnability must be ensured on the basis of any illegality, as results from the principle of effective judicial protection, enshrined in articles 20, paragraph 1, and 268, paragraph 4, of the Constitution of the Portuguese Republic.

On the other hand, the question of whether the assessment act is legal in not recognizing an exemption relates to the legality of the assessment, and thus should be examined in tax courts in judicial impugnation proceedings, as results from subparagraph (a) of paragraph 1 of article 97 of CPPT.

Thus, it is concluded that what is at issue is not declaring, with general effects, whether the Claimant should be treated as a private institution of social solidarity and has the right to an exemption, but only whether the specific corporate income tax assessment for the year 2011 is illegal for not having applied an exemption that the Claimant may benefit from in that year.

For this reason, the thesis of the Tax and Customs Authority that "it is entirely outside the jurisdiction of this Singular Arbitral Tribunal and of CAAD itself to issue any judgment on the question of the legal equivalence of the Claimant to a Private Institution of Social Solidarity" has no legal support, since the limits of jurisdiction defined in article 2, paragraph 1 of RJAT are based exclusively on the type of acts and not on the type of illegality questions imputed to them and to enjoy the tax benefit provided for in subparagraph (b) of paragraph 1 of article 10 of CIRC no administrative act recognizing the exemption or recognizing the Claimant's equivalence to IPSS is necessary.

What is asked of the arbitral tribunal is to determine whether the impugned assessment is illegal for not having applied an exemption that the Claimant claims to benefit from and this matter clearly falls within the jurisdiction of arbitral tribunals functioning at CAAD.

In this context, neither can the reference made by the Tax and Customs Authority be understood regarding the relative reservation of legislative jurisdiction of the Assembly of the Republic to legislate on the organization and jurisdiction of courts, since what is at issue is the interpretation of article 2 of RJAT, which was issued in exercise of a legislative authorization contained in article 124 of Law No. 3-B/2010, of 28 April, in which there is no reference to any limitation of jurisdiction of arbitral tribunals regarding illegality questions of assessments related to tax benefits.

Moreover, it is manifest that with said legislative authorization it was intended to extend the jurisdiction of arbitral tribunals functioning at CAAD to all questions that may be subject to judicial impugnation proceedings and it cannot be doubted that, in proceedings of this type, it may be examined whether the Taxpayer has the right to automatic tax benefits related to the legality of assessment acts, as can be seen from the uniform jurisprudence of the Supreme Administrative Court, of which the following decisions are examples, all rendered in judicial impugnation proceedings:

– of 30-05-2012, case No. 0949/11;

– of 3-7-2013, case No. 765/13;

– of 17-12-2014, case No. 01085/13;

– of 11-11-2015, case No. 968/13;

– of 18-11-2015, case No. 1067/15;

– of 18-11-2015, case No. 575/15;

– of 16-12-2015, case No. 01345/15.

For this reason, the exception of lack of material jurisdiction raised by the Tax and Customs Authority is dismissed.

3. Exception of Procedural Defect

The Tax and Customs Authority states that there is a procedural defect because "what is in question here is the regime of real property transfer tax exemption and whether the legal prerequisites are met in this case" and "this 'cessation of exemption' procedure being prejudicial in relation to the 'act of assessment' itself does not, however, confuse with the act of determination of taxable matter" (articles 6 and 7 of the Response).

There is manifest error by the Tax and Customs Authority, since in this proceeding no real property transfer tax exemption or its cessation is at issue, nor any act of determination of taxable matter.

In any event, as to the essential point that the Tax and Customs Authority defends regarding this exception, which is that special administrative action, and not the request for arbitral decision, is the appropriate procedural means to carry out the examination of the matter at issue, reference has already been made regarding the question that arbitration proceedings (like judicial impugnation proceedings) are the appropriate means to examine all questions of legality of assessment acts, including the non-application of rules providing for tax benefits, when automatic.

Moreover, specifically regarding a situation substantially identical to that of the present proceeding, reference may be made to the decision of the Supreme Administrative Court of 18-01-2012, rendered in case No. 0725/11, in an appeal filed in judicial impugnation proceedings.

For this reason, for the reasons stated and in harmony with the jurisprudence cited, this exception is dismissed.

4. Exception of Lack of Passive Standing of the Tax and Customs Authority

The Tax and Customs Authority considers that there is lack of passive standing because "the recognition of the status of 'IPSS' or of 'entity legally equivalent to IPSS' is a matter of exclusive competence of the Ministry of Solidarity, Employment and Social Security and its services [see article 2/2-m) of Regulatory Decree 36/2012, of 27 March, article 5, subparagraphs k), l) and m) of Regulation 105/2013, of 13 March, and subparagraphs d), e) and f) of Order No. 6147/2013, published in the Official Gazette, 2nd Series, No. 90, of 2013-05-10]" and "considering that the automatic operation of the exemption evident in article 10/1-b), 2nd part, of CIRC presupposes, first and foremost, an administrative decision recognizing the status of 'IPSS' or of 'entity legally equivalent to IPSS' to the Claimant".

Subparagraph m) of paragraph 2 of article 2 of Regulatory Decree No. 36/2012 establishes that it falls to the Directorate-General of Social Security to "propose norms integrating the legal status of private institutions of social solidarity, including mutual associations, ensure their registration and propose norms applicable to other entities with social support activities".

Subparagraphs k), l) and m) of article 5 of Regulation No. 105/2013, of 13 March, establish that it falls to the Directorate of Social Action and Institutional Affairs to "propose the recognition of social solidarity foundations, express opinions on the legality of the bylaws and of legal-institutional acts subject to registration relating to private institutions of social solidarity and to equivalent institutions", "carry out formal analysis of registration processes and proceed with the implementation of their registrations in accordance with applicable legislation" and "proceed with the organization and updating of files of private institutions of social solidarity and of legally equivalent institutions".

Order No. 6147/2013, issued by a Director-General, is addressed to the respective services and has no external normative effect.

In any event, it is not apparent how it can be concluded on the basis of those norms that it falls to that General Directorate to carry out recognitions of the status of Private Institution of Social Solidarity for purposes of tax exemptions.

But, even if it were so provided, this would be irrelevant to assessing the passive standing to intervene in tax arbitration proceedings, since these are non-legislative nature instruments which, by virtue of the principle of hierarchy of norms, cannot set aside the application of norms of legislative nature instruments (article 112, paragraph 5, of the Constitution of the Portuguese Republic).

And, as is obvious, there are legislative norms that define passive standing to intervene in tax arbitration proceedings.

Indeed, the standing to intervene in tax arbitration proceedings always belongs to the "highest-ranking official of the tax administration service", as results from articles 11, paragraph 3, 13, paragraphs 1 and 2, 17, paragraph 1, and 20, paragraph 2, of RJAT and is in harmony with the provision of article 9, paragraphs 1 and 4, of CPPT.

There is no legal support whatsoever for attributing passive standing in tax arbitration proceedings to any other entity.

Moreover, given that claims for annulment of an assessment act and of the decision on a hierarchical appeal issued by the Tax and Customs Authority are being filed, in addition to a claim for compensatory interest also directed to the Tax and Customs Authority, it is manifest that this entity has the interest in contradicting that constitutes the basis for passive standing (article 30, paragraph 1, of the Code of Civil Procedure).

Thus, this exception is dismissed.

5. Matter of Fact

5.1. Proven Facts

The following facts are considered proven:

a) On 27-02-2014, the Tax and Customs Authority issued the corporate income tax assessment and compensatory and default interest No. 2014 …, a copy of which is attached as document No. 1 to the request for arbitral decision, the contents of which are reproduced, with a total value of €165,486.26;

b) The Claimant, understanding that it was exempt from corporate income tax, filed an administrative claim against that assessment act (Document No. 2 attached to the request for arbitral decision, the contents of which are reproduced);

c) The administrative claim was dismissed by order of 31-10-2014, issued by the Head of the Administrative Justice Division of the Finance Directorate of … (Document No. 3 attached to the request for arbitral decision, the contents of which are reproduced);

d) On 04-12-2014, the Claimant filed a hierarchical appeal against the decision dismissing the administrative claim (document No. 4 attached to the request for arbitral decision, the contents of which are reproduced);

e) The hierarchical appeal was dismissed by order of 30-04-2015, issued by the Head of Services of the Corporate Income Tax Services Directorate, which order was notified to the now Claimant on 28-05-2015 (Document No. 5 attached to the request for arbitral decision, the contents of which are reproduced);

f) The decision dismissing the hierarchical appeal expressed agreement with a memorandum the contents of which are reproduced, in which the following is stated, among other things:

I - ADMINISTRATIVE CLAIM

The claimant, having been notified of the 2011 assessment, filed a response thereto alleging, in summary, that it is exempt from corporate income tax, in accordance with subparagraph b) of paragraph 1 of article 10 of the Corporate Income Tax Code (CIRC) regarding the activity carried out at establishment "B…", because it is an entity equivalent to a Private Institution of Social Solidarity (IPSS) in accordance with articles 10, paragraph 2, 12 and 26, paragraph 5 of the Concordat and paragraph 1, subparagraphs e) and f) of article 1 and article 40 of the IPSS Statute, as per Decree-Law No. 119/83, of 25 February.

To support its administrative claim it sets forth arguments summarized as follows:

a) The claimant is a canonically erected religious congregation that carries out, in addition to religious activity, activities of social character, namely in the areas of education and health, the latter carried out particularly at an establishment of the Congregation, called "B…";

b) Believing that it was covered by the exemption of article 10 of CIRC, it requested the issuance of a certificate proving its exemption;

c) However, it was notified of the dismissal of that request, by order of the Deputy Director-General of Taxes, of 21 February 2011, against which it filed a hierarchical appeal on 28 March 2011.

It alleges that, in accordance with article 40 of CPPT, whenever represented by judicial counsel, decisions on procedures instituted must be notified to judicial counsel and for this reason, counsel awaits notification of the decision rendered regarding the hierarchical appeal filed, which it has already requested in accordance with the attached request.

d) The claimant further states that the Finance Directorate notified it of the assessment for the year 2011, requiring payment of a corporate income tax amount of €165,486.26, which would be due for the exercise of its social activities, particularly in the health area, activity carried out at establishment "B…".

e) The claimant considers that it is exempt from corporate income tax and will therefore make use of all legal and procedural instruments to assert its right to that exemption.

It states that under subparagraph b) of paragraph 1 of article 10 of CIRC entities that are IPSS and related entities, as well as legal entities legally equivalent to them, are exempt from corporate income tax. It also mentions the Concordat of 18 May 2004, concluded between the Portuguese Republic and the Holy See, which entered into force on 1 January 2005 and which introduced changes to the existing tax regime.

It states that all income received by religious entities may benefit from corporate income tax exemption, by virtue of the provision of article 10 of this tax code, provided that such entities qualify as:

a) Legal entities of administrative public utility;

b) IPSS and related entities, as well as legal entities legally equivalent to them;

c) Legal entities of mere public utility that pursue, exclusively or predominantly, scientific or cultural purposes, charity, assistance, beneficence, social solidarity or environmental protection.

f) The claimant's first Constitutions predate the first Concordat concluded with the Holy See, dating from 1874, in which it is recognized as to its purposes as a charitable association by virtue of the social purposes of education and health that it pursues.

This characteristic was maintained with the approval of its Bylaws in ….1937 and subsequently with the conclusion of the 1940 Concordat and its participation on 06 November 1940 to the Civil Government of … in which it appears as having the purpose "to dedicate itself to health assistance to the sick and other services of charity and social assistance".

g) The congregation, having been canonically erected, constituted and reported to the competent entity, on a date prior to that of the entry into force of the Concordat, has its personality recognized by the State under article 10, paragraph 2, of the Concordat;

h) Moreover, as it pursues, in addition to religious purposes, activities of assistance and solidarity, namely in the areas of education and promotion and protection of health, without profit motive, the claimant is equivalent to an IPSS, in accordance with the provisions of articles 12 and 26, paragraph 5 of the Concordat;

i) As a religious organization that proposes to exercise and that does exercise activities such as protection and promotion of health, as well as in the area of education and professional training of citizens, it is equally equivalent to an IPSS, in accordance with the provisions of article 1, paragraph 1, subparagraphs e) and f) and article 40 of Decree-Law No. 119/83, of 25 February, which approved the IPSS Statute;

j) Indeed, from its genesis the claimant develops activities of social character, namely in the area of education and health, at a time much earlier than Decree-Law No. 119/83, and for this reason it is necessary to conclude that it came to be considered an IPSS, regardless of the form it adopted, by virtue of the provision of cited articles 1, subparagraph e) and 94, paragraph 5 of the Legal Statute of IPSS;

k) Not being legally an IPSS, the claimant understands that it is, for all purposes, equivalent to an IPSS, in accordance with article 10, paragraph 2, 12 and 26, paragraph 5 of the Concordat and paragraph 1, subparagraphs e) and f) of article 1 and article 40 of the IPSS Statute, as per Decree-Law No. 119/83, of 25 February;

l) The same conclusion is corroborated by the Supreme Administrative Court (STA) in its Decision of 18 January 2012 (Case No. 725/11);

m) It considers that, in accordance with article 40 of Decree-Law No. 119/83, of 25 February, entities equivalent to IPSS are religious entities that pursue the purposes of IPSS referred to in article 1 of that statute and that, despite being subject to the statute provided therein, are not obliged to proceed with the registration provided for IPSS.

Being the claimant a religious entity, it is only required to make the communication referred to in article 45, communication already long since made.

n) It further alleges that the General Directorate of Health has already considered its equivalence to an IPSS established and that equivalence to IPSS does not occur only by virtue of specific legislations such as that which applies to People's Houses and Social Solidarity Cooperatives, as the Finance Directorate has, in its opinion, wrongly argued.

o) The claimant then transcribes some parts of the decision of 7 January of the STA, as well as decision No. 725/11, of 18 December and also a paragraph from the book "Private Institutions of Social Solidarity", Almedina, by Licínio Lopes, pages 185-191, to conclude that it is a canonical legal entity equivalent to IPSS and thus automatically exempt from corporate income tax, in accordance with subparagraph b) of paragraph 1 of article 10 of CIRC.

p) Given the foregoing, it considers that the assessment in question is vitiated by violation of law, since it was carried out in clear violation of subparagraph b) of paragraph 1 of article 10 of CIRC, requesting for this reason, annulment thereof.

It equally requests that suspensive effect be granted to the administrative claim, for which reason it submits a bank guarantee.

Upon examination of the administrative claim, the Finance Directorate of … - Administrative Justice Division prepared the Draft Decision - Proc. … - REC … (pages 92 to 95) for dismissal, with the grounds summarized as follows:

a) Despite the claimant alleging that it is exempt from corporate income tax, in accordance with subparagraph b) of paragraph 1 of article 10 of CIRC, regarding the activity carried out at establishment "B…", because it is an entity legally equivalent to IPSS in accordance with articles 40 and 45 of Decree-Law No. 119/83, of 25 February, the Services argue that that decree-law does not equivalent religious organizations and institutions to IPSS but rather subjects them to the regime established in the IPSS Statute;

b) The Services further state that subjection to the regime established in the IPSS Statute also implies that IPSS be registered in accordance with article 7 of Decree-Law No. 119/83, of 25 February;

c) Under Regulation 139/2007, of 29 January, it is the responsibility of the Directorate-General of Social Security (DGSS) to register Private Institutions of Social Solidarity;

d) This registration, in addition to recognition of the public utility of the institutions, aims to verify whether the requirements provided in said regulation are met, without which registration of the entities is refused.

e) In relation to canonically erected institutions, since there are no other procedures to which they are subject, they are covered by the mandatory registration provided in article 7 of Decree-Law No. 119/83, if they wish to acquire the status of IPSS or if they wish to be entities legally equivalent and consequently enjoy the tax exemptions granted by law to such entities;

f) The recognition provided for in article 45 of Decree-Law No. 119/83, of 25 February, should not be confused with the registration referred to in article 7 of the same statute, through which and in accordance with article 8, entities automatically acquire the status of legal entities of public utility, since recognition concerns their legal personality.

g) The then claimant had already requested the exemption provided for in article 10 of CIRC, the Corporate Income Tax Services Directorate having dismissed the request, by order of 21.02.2011, of the Deputy Director-General, considering that the claimant did not have the status of IPSS nor of entity legally equivalent to it, nor any of the other statuses required by article 10 of CIRC, thus not meeting all the requirements to be able to benefit from the exemption provided therein.

h) Subsequently, the claimant filed a hierarchical appeal against the decision dismissing the request for exemption, insisting on equivalence to IPSS by virtue of article 40 of Decree-Law No. 119/83, of 25.02, which was also dismissed, by order of 08.08.2012 of the Legal Deputy of the Director-General, on the ground that by that legal provision religious organizations are not equivalent to IPSS and that only with registration do institutions covered by that statute acquire the status of legal entities of public utility and that in the case of institutions pursuing objectives in the area of promotion and protection of health and that fall within Decree-Law No. 119/83, of 25.02, registration is effected in accordance with regulation No. 466/86, of 25.08.

The General Directorate, which in accordance with Regulation No. 466/86, of 25.08, is the competent entity to carry out registration, was contacted and confirmed that the appellant does not have the status of IPSS nor entity legally equivalent to it.

For this reason and for not meeting any of the other requirements established in article 10 of CIRC, the request for exemption was dismissed.

i) With regard to the STA decision mentioned by the appellant, it was noted that it applies to the case judged, the understanding of which does not constitute a general obligation for the Services.

j) The Services further argued that, the claimant not having presented to the case evidence that permits a different conclusion, the act now claimed should be maintained.

Notified to exercise the right to be heard provided for in article 60 of the General Tax Law (LGT), the claimant in its statement reiterated the request already made and continues not to present sufficient evidence to alter the direction of the draft order, whereby the decision to dismiss was converted into final.

IV - HIERARCHICAL APPEAL

On the Request

Dissatisfied with the decision on the administrative claim, A… contests it, presenting the same arguments presented in the administrative claim, in the request for issuance of the exemption certificate and subsequent hierarchical appeal, as well as in the administrative claim and hierarchical appeal against the corporate income tax assessment for the tax period 2009 which, as a matter of procedural economy, we will not repeat, referring to the reading of the petition attached to the case file.

The appellant concludes its petition stating that "the reasoning of the decision now being impugned does not analyze the legal provisions that shape the framework of the Congregation, limiting itself only to invoke a purported registration that it clearly knows does not exist and, moreover, notes that the decisions cited apply only to the cases judged, without even perceiving that the matter in question, in abstract terms, is exactly the same, thus deserving the same treatment."

It further alleges that, "in concluding that, despite all the submission made and documentation attached to these proceedings, the appellant does not demonstrate that it is exempt from corporate income tax, in the activity in question, when it is evident exactly the opposite, the decision does nothing more than violate the provision of subparagraph b), of paragraph 1 of article 10 of CIRC, by not applying it to the concrete case"

Finally, it requests annulment of the corporate income tax assessment for the year 2011.

Examination of the Appeal by DSIRC

In this hierarchical appeal proceeding the appellant seeks revocation of the decision dismissing the administrative claim against the corporate income tax assessment for the tax period 2011 in its social activity - education and health - and naturally annulment of the assessment carried out.

It should be noted that the appellant requests annulment of said assessment on the ground of its illegality given that it considers that the corporate income tax exemption should have been granted to it.

However, the fact is that the request for recognition of corporate income tax exemption under article 10 of CIRC was dismissed, by order of 21.02.2011, of the Deputy Director-General of Taxes. Subsequently, in hierarchical appeal, that request was also dismissed, by order of 08.08.2012, of the Legal Deputy of the Director-General.

This means that, the corporate income tax exemption not having been granted, we can conclude that for all legal purposes, the appellant is subject to corporate income tax regarding income from activity carried out at establishment "B…" which consists in the provision of health services.

Thus, we cannot consider that the corporate income tax assessment for the tax period 2011 carried out by the Tax and Customs Authority (AT) suffers from any error or defect, since the Services simply complied with what is required of them.

Indeed, the appellant, regarding the assessment, presents no other defect limiting itself to contesting the fact that the exemption was not granted to it, seeking in this way, to obtain not only annulment of the assessment but also grant of its exemption request.

Now, in this procedure what is at issue is the legality of the assessment, and it is regarding this aspect that we must make a pronouncement, even though the same arguments presented when the exemption request was dismissed have been repeated in the preceding procedure (administrative claim), regarding non-recognition of the exemption.

As has been said, what the appellant puts into question is the corporate income tax assessment for the tax period 2011, regarding which no illegalities whatsoever are apparent and for this very reason there are no reasons to proceed with annulment thereof, it being proposed in consequence dismissal of this appeal.

V - RIGHT TO BE HEARD

Considering that in hierarchical appeal no new facts were invoked on which the taxpayer had not had opportunity to express itself, at this stage of the procedure the hearing is dispensed with, in view of the provision of paragraph 3 of article 60 of LGT.

g) On 18-06-2007, the Claimant submitted to the Tax and Customs Authority a request for exemption from corporate income tax, in accordance with article 10 of CIRC for the "B…" (document No. 4, page 30, attached to the request for arbitral decision, the contents of which are reproduced);

h) Regarding the request referred to in the preceding subparagraph, the Tax and Customs Authority issued a memorandum a copy of which is attached as document No. 4, pages 30-31, to the request for arbitral decision, the contents of which are reproduced, in which, among other things, it is stated that "given the documentation attached to the present case, it appears that this is an entity equivalent to a Private Institution of Social Solidarity (article 40 and 45 of decree-law No. 119/83, of 25 Feb) in accordance with office … of …-…-99 issued by the Ministry of Health – General Directorate of Health, falling within the provision of article 10, paragraph 1, subparagraph b), of CIRC, and given the new wording thereof the request does not require ministerial recognition, the exemption being of automatic character" and proposes dismissal of the exemption request;

i) Regarding the memorandum referred to in the preceding subparagraph an order was issued on 08-11-2007, by the Deputy Chief of the Finance Services of … … (…) (document No. 4, page 29, attached to the request for arbitral decision, the contents of which are reproduced);

j) On 14-07-2007, the Claimant submitted to the Tax and Customs Authority the request a copy of which is attached as document No. 4, page 16, to the request for arbitral decision, the contents of which are reproduced, in which it requested the issuance of a certificate proving the corporate income tax exemption for activity carried out at establishment "B…";

k) On 20-09-2010, the Directorate-General of Social Security sent to the Tax and Customs Authority the office a copy of which is attached as document No. 6 to the Response, the contents of which are reproduced, in which, among other things, the following is stated:

It is my duty to inform you in response to the aforementioned office that this Directorate-General has no record of registration of "A…" as a private institution of social solidarity, whereby it is presumed never to have made the communication referred to in article 45 of the IPSS Statute, approved by Decree-Law No. 119/83, of 25 February, that is, that institution never acquired legal personality in the civil legal order.

No documentation relating to "B…", an establishment of that institution, was detected either.

Further information is provided, regarding the questions posed in the cited office, as follows:

There is no legal provision that grants equivalence to IPSS to organizations of the Catholic Church, these being subject, in case they are subsumable to what is provided in article 40 of the cited Statute, to what is provided in articles 45 and following of said statute.

Canonically erected institutions that wish to be IPSS are equally subject to the Registration Regulation, approved by Regulation No. 139/2007, of 29 January. The same applies also to non-Catholic religious organizations.

Regarding IPSS in the area of Health that pursue exclusively or mainly the purposes of promotion and protection of health it has been understood that the reference made to the former Registration Regulation, approved by Regulation No. 778/83, of 23 July, provided for in Regulation No. 466/86, of 25 August, should now be understood as made to the current Regulation, approved by Regulation No. 139/2007, of 29 January.

It is also informed that subject to registration are only acts relating to institutions (and not to their establishments) provided for in article 5 of the cited Registration Regulation that is in force.

l) The issuance of the certificate requested by the Claimant was dismissed by order of 21-02-2011, of Deputy Director-General of Taxes, following which the Claimant filed a hierarchical appeal to the Director-General of Taxes (document No. 4, pages 20 to 25, attached to the request for arbitral decision, the contents of which are reproduced);

m) On 10-08-2001, the Director of Administrative Services of the Patriarchate of Lisbon issued the certificate a copy of which is attached as document No. 4, page 26, to the request for arbitral decision, the contents of which are reproduced, in which it is stated, among other things, that "the communication referred to in articles III and IV of the Concordat between the Holy See and the Portuguese Republic was made to the Civil Government of Porto on 19 November 1940, whereby the aforementioned A… enjoys legal personality also in the civil forum";

n) On 27-07-1999, the Director of Services of the Directorate-General of Health sent to the Director of B… the office contained in document No. 4, page 17, attached to the request for arbitral decision, the contents of which are reproduced, in which it is stated, among other things, as follows:

SUBJECT

B…

Legal framework - Equivalence to IPSS

B…, property of A…, … canonically erected institution — falls within the framework established in the Statute of Private Institutions of Social Solidarity (articles 40 and 45, of Decree-Law 119/83, of 25 February).

In this manner, B… is covered by paragraph 2, of Base XXXVIII, of Law No. 48/90, of 24 August and consequently is not subject to licensing, but rather "to the guiding and inspection power of the competent services of the Ministry of Health", being thus framed by the regulations defined in Regulatory Decree No. 63/94, of 2 November, regarding the practice of good operation and quality of healthcare provided.

o) The Bylaws of C… are reproduced, a copy of which is attached as document No. 4, pages 49-58, to the request for arbitral decision;

p) The Claimant carries out assistance activity at "B…" without profit motive, being this activity to which the assessment that is the object of this proceeding relates;

q) The Claimant does not appear on the list of Private Institutions of Social Solidarity existing at the Directorate-General of Social Security (documents Nos. 1, 2 and 4, attached to the Response, the contents of which are reproduced);

r) The "Procedures Manual" of the Directorate-General of Social Security contained in document No. 3 attached to the Response is reproduced;

s) On 17-08-2015 the Claimant filed with the Administrative Circuit Court of ..., case No. .../15. ... a special administrative action requesting annulment of the order of 24-04-2015 of the Head of Corporate Income Tax Services, which summarily rejected the hierarchical appeal filed by the Claimant on 29-12-2014 (article 55 of the Response, not contested);

t) On 29-04-2014, the Claimant provided a bank guarantee in the amount of €165,486.26, relating to the administrative claim regarding compensation No. 2014 … (document No. 2, page 80, attached to the request for arbitral decision, the contents of which are reproduced);

u) On 17-08-2015, the Claimant submitted the request for arbitral decision that gave rise to the present proceeding.

5.2. Unproven Facts

5.2.1. The Tax and Customs Authority states in article 55 of the Response that "on 17.08.2015 the Claimant filed with the Administrative Circuit Court of ..., case No. .../15. ... a special administrative action requesting annulment of the order of 24.04.2015 of the Head of Corporate Income Tax Services, which summarily rejected the hierarchical appeal filed by the Claimant on 29.12.2014".

The Tax and Customs Authority presented no document proving either that the Claimant filed the action referred to or that an "order of 24.04.2015 of the Head of Corporate Income Tax Services, which summarily rejected the hierarchical appeal filed by the Claimant on 29.12.2014" was issued.

In fact, what is contained in the case file is that, by order of 30-04-2015, a hierarchical appeal filed on 04-12-2014 was dismissed.

For this reason, it is not considered proven what the Tax and Customs Authority states in that article 55 of the Response.

5.2.2. It was not proven that the Claimant paid the amount assessed, but rather that it provided a guarantee.

5.3. Reasoning for the Establishment of the Matter of Fact

The proven facts are based on documents submitted by the Claimant and by the Tax and Customs Authority.

Regarding the exercise by the Claimant, without profit motive, of assistance activity at "B…", it is considered proven by such being affirmed by the Claimant in both the administrative claim and the hierarchical appeal and in the present proceeding and this affirmation not being contested by the Tax and Customs Authority.

6. Matter of Law

6.1. Positions of the Parties

The Claimant concludes its request for arbitral decision as follows:

– the now Claimant seeks, with this action, to have revoked the decision of 30 April 2015, rendered by the Head of the Corporate Income Tax Services Directorate, which dismissed the hierarchical appeal filed on 4 December 2014, on the ground that that decision is vitiated by violation of law, and, in consequence, to have annulled the corporate income tax assessment act for 2011;

– this is because, in fact, the now Claimant was and is exempt from payment of that tax, by virtue of the provision of subparagraph b) of paragraph 1 of article 10 of the Corporate Income Tax Code;

– indeed, as it pursues, in addition to religious purposes, purposes of assistance and solidarity, the claimant is (namely for tax purposes) equivalent to an IPSS, in accordance with the provisions of articles 12 and 24, paragraph 5 of the Concordat;

– the Claimant, being a religious institution that proposes to exercise activities such as protection and promotion of health or education and professional training of citizens, is, in this context, equivalent to IPSS in accordance with the provisions of articles 1, paragraph 1, subparagraphs d) and e) and article 40 of Decree-Law No. 119/83, of 25 February, which approved the Statute of Private Institutions of Social Solidarity;

– in this manner, the now Claimant, while not being legally an IPSS, is, for all purposes (namely tax), equivalent to an IPSS when it exercises such activities, in accordance with articles 10, paragraph 2, 12 and 24, paragraph 5 of the Concordat and 1, paragraph 1, subparagraphs d) and e) and article 40 of the Statute of Private Institutions of Social Solidarity;

– and being so, to the Claimant, a canonical legal entity equivalent to IPSS, when it exercises those activities, the automatic corporate income tax exemption provided for in subparagraph b), of paragraph 1, of article 10 of the Corporate Income Tax Code applies;

– in not understanding in this manner, the Respondent did nothing more than violate this same provision, invalidating the act carried out by it on 30 April 2015, through the Head of the Corporate Income Tax Services Directorate, which dismissed the hierarchical appeal filed on 4 December 2014;

– invalidity which already resulted from the fact that the Respondent decided in error as to the factual premises, having accepted the incorrect understanding according to which the AT had already decided, with effect, the appeal filed against dismissal of the request for an exemption certificate, which had not yet occurred, and having considered that it would be from grant of that certificate request that the corporate income tax exemption that the Appellant invokes would result, when, in fact, that exemption results automatically from the law;

– it thus follows that the object of the action aims at annulment of the act dismissing the hierarchical appeal filed by the Claimant on 4 December 2014 and, in consequence, the corporate income tax assessment act for 2011, for non-observance of the legal corporate income tax exemption provided for in subparagraph b), of paragraph 1, of article 10 of the Corporate Income Tax Code from which the Claimant benefits, thus following the decision already taken by this Tribunal in the case that proceeded according to process 98/2015 - T.

The Tax and Customs Authority understands, in summary,

– private institutions of social solidarity are subject to mandatory registration, in accordance with paragraph 2 of article 32 of Law No. 4/2007, of 16 January (Social Security Framework Law);

– registration of IPSS is regulated by Regulation No. 139/2007, of 29 January;

– article 40 of the Statute of IPSS, approved by Decree-Law No. 119/83 of 25 February, establishes that "religious organizations and institutions that, in addition to religious purposes, propose to exercise activities fitting within article 1 are, regarding the exercise of these activities, subject to the regime established in this Statute with the current wording", whereby it is applicable thereto the provision of Regulation No. 139/2007 which requires registration of canonically erected institutions;

– Regulatory Decree No. 36/2012, of 27 March, and the Manual of Procedures and processing of IPSS registration cases in the area of social action of 2015 approved by DGSS also require registration of those institutions;

– the Claimant did not request its registration with the competent entity and it is not dispensed with either by the Statute of Private Institutions of Social Solidarity or by the Concordat;

– what the State recognizes to canonical legal entities is civil legal personality and that, for that reason, these "enjoy the rights and benefits attributed to private legal entities with the same purposes and are subject to the tax regime applicable to the respective activity" (article 10, paragraph 5, article 12 and article 26 of the Concordat);

– there is no legal provision that grants the canonically erected entities recognition of the status of entity legally equivalent to IPSS;

– article 10 of the Concordat only recognizes legal personality to religious entities, in the manner provided therein, not conferring upon them any equivalence to Legal Entities of Mere Public Utility or Private Institutions of Social Solidarity;

– the Claimant does not constitute "entity equivalent to IPSS", as it does not appear on the list of institutions registered as such or as "IPSS" and therein are registered canonical institutions;

– the verification does not belong to the interpreter of tax law, but rather and first to the service legally competent to examine matters relating to Social Security Law;

– religious entities recognized under article 10 of the Concordat concluded between the Holy See and the Portuguese State and provided for in articles 12 and 26, paragraph 5 of that same statute may benefit from corporate income tax exemption under article 10 of CIRC, provided that the respective prerequisites are verified, notably that they have the legal nature, that is, Legal Entity of Administrative Public Utility, Legal Entity of Mere Public Utility, Private Institution of Social Solidarity and related entities, or legal entities legally equivalent to them;

– the filing of an exemption request has no suspensive effects on the tax procedure, whereby no error in the factual premises is verified and article 109 of the Code of Administrative Procedure permits presumption of dismissal of that request;

– the Appellant did not proceed with its registration with the Directorate-General of Social Security to which it is legally obliged, nor does it invoke which provision excludes it from compliance with that legal obligation;

– under penalty of violation of the principle of equality and impartiality in relation to all other entities legally equivalent to IPSS, canonically erected entities must also request their registration with DGSS in order to assess the objectives and purposes it pursues which is the predominant activity, among other elements;

– the law is very clear in establishing in article 51 of the IPSS Statute that the provisions on the institutes of religious organizations or institutions (articles 40 and following of that statute) are applicable to institutes of organizations or institutions of the Catholic Church;

– the Claimant confuses the legal personality of equivalence to IPSS which correspond to differentiated realities, and while one is satisfied with simple written communication the other requires registration with an administrative entity;

– the Concordat is very clear in prescribing in its article 26/5 that canonical legal entities (as is the case of the Claimant) "when they also develop activities with purposes other than religious, thus considered by Portuguese law, such as, among others, those of social solidarity, education and culture, beyond commercial and profitable ones, are subject to the tax regime applicable to the respective activity";

– it is the Concordat itself that establishes the non-existence of any special regime for entities such as the Claimant, rather remitting the matter to national law [article 7 of the IPSS Statute ex vi of article 10/2-b) of CIRC];

– if the interpretation conveyed by the claimant comes to prevail there occurs violation of the principle of separation of powers as the Arbitral Tribunal would have invaded an area of competencies specifically assigned to the Government, in accordance with article 202, subparagraphs d) and g), of the Constitution;

– the law granting equivalence to IPSS being illegal is the application of analogy in the personal scope for so that several entities that the legislator initially did not contemplate in the scope of the normative provision are covered by the scope of application of the provision;

– it results from the provision of paragraph 4 of article 11 of LGT that the prohibition of integration by analogy in tax law comprises the provisions covered by the reservation of formal law, where are comprised tax benefits, as provided in paragraph 2 of article 103 and subparagraph i) of paragraph 1 of article 165 of the Constitution of the Portuguese Republic, and also article 8, paragraph 1 of LGT;

– an interpretation of that legal provision that is satisfied with a simple analogy reasoning to be able to conclude that the Claimant is an entity legally equivalent to IPSS constitutes an interpretation contrary to the Constitution, more concretely to the principle of legality in its formal law reserve aspect;

– if the interpretation conveyed by the Claimant is accepted, then the same shows itself contrary to the Constitution, in that such interpretation results in a clear violation of the principle of equality (article 13 of the Constitution);

– the interpretation proposed by the Claimant (according to which it is not subject to the registration provided for in article 7 of the IPSS Statute) is an interpretation defending differentiated and unjustified treatment (in its favor, let it be understood), in relation to other taxpayers, namely religious institutes of religions other than that of the Catholic Church and social solidarity foundations, as these two are subject to such prior registration for purposes of the exemption provided for in article 10/2-b) of CIRC.

6.2. Examination of the Question of the Application to the Claimant of the Exemption Provided for in Article 10, Paragraph 1, Subparagraph b), of CIRC

The essential question that is the object of this proceeding is whether the Claimant benefited from corporate income tax exemption, under the provision of article 10, paragraph 1, subparagraph b), of CIRC, regarding the year 2011.

The wording of this subparagraph, in force in the year 2011, contained in the republication effected by Decree-Law No. 159/2009, of 13 July, was as follows:

1 – Are exempt from corporate income tax:

(...)

b) Private institutions of social solidarity and related entities, as well as legal entities legally equivalent to them;

This is an automatic exemption, whereby it is not subject to recognition, this being a point on which the Parties agree.

The Parties also agree regarding the fact that the Claimant is not a private institution of social solidarity, whereby the framing of the Claimant in this provision can only result from being a legal entity legally equivalent to a private institution of social solidarity.

On the other hand, equivalence to a private institution of social solidarity must result from law, as is apparent from the reference to "legally equivalent", whereby concluding whether or not equivalence exists is a problem to be solved through interpretation and application of law, independently of any administrative decision.

The thesis defended by the Tax and Customs Authority, which underlies the impugned assessment, rests on the understanding that the Claimant, to be considered an entity legally equivalent to a private institution of social solidarity, had to be registered as such, by virtue of the provision of paragraph 2 of article 32 of the Social Security Framework Law (Law No. 4/2007, of 16 January), articles 2 and 29 of Regulation No. 139/2007, of 29 January, article 40 of the Statute of IPSS, approved by Decree-Law No. 119/83 of 25 February, Regulatory Decree No. 36/2012, of 27 March, and the Manual of Procedures and processing of IPSS registration cases in the area of social action of 2015 approved by the Directorate-General of Social Security.

As is obvious, given that Regulatory Decree No. 36/2012 and the Manual of Procedures are subsequent to the year 2011, to which the impugned assessment relates, no judgment on the necessity of registration for the Claimant to benefit, in the year 2011, from the exemption provided for in subparagraph b) of paragraph 2 of article 10 of CIRC can rest thereon.

Thus, regarding corporate income tax of the year 2011, the necessity of registration, faced with the provisions invoked by the Tax and Customs Authority, can only have legal support in paragraph 2 of article 32 of the Social Security Framework Law (Law No. 4/2007, of 16 January), and article 40 of the Statute of IPSS, approved by Decree-Law No. 119/83 of 25 February.

Article 32, paragraph 2, of the Social Security Framework Law establishes that "private institutions of social solidarity and other institutions of recognized public interest without profit character, enshrined in paragraph 5 of article 63 of the Constitution, are subject to mandatory registration".

Article 40 of the Statute of Private Institutions of Social Solidarity, in the initial wording, in force in 2011, establishes that "religious organizations and institutions that, in addition to religious purposes, propose activities fitting within article 1 are, regarding the exercise of those activities, subject to the regime established in this Statute".

Article 2 of Regulation No. 139/2007 indicates the purposes of registration of private institutions of social solidarity.

Article 29 of this Regulation establishes as follows:

Article 29

Registration of Canonically Erected Institutions

1 - Acts of registration relating to canonically erected institutions comply with the provision of this regulation with the adaptations contained in the following paragraphs.

2 - For purposes of recognition of legal personality, in accordance with article 45 of the Statute of Private Institutions of Social Solidarity, communication of the canonical erection of institutions pursuing exclusively or mainly objectives in the scope of social security is made by the competent Diocesan Ordinary to the CDSS of the area of the seat of the institutions.

3 - Institutions that have acquired legal personality in accordance with the preceding paragraph must request their registration and submit the documents referred to in article 19 with the exception of a copy of the act of constitution.

4 - The provision in subparagraph a) of article 14 does not apply to alterations to the bylaws of canonically erected institutions that are approved by the competent ecclesiastical authority.

From this provision of Regulation No. 139/2007 results the obligation of registration for canonically erected institutions, which is the case of the Claimant.

However, as is stated in subparagraph m) of the matter of fact established, "the communication referred to in articles III and IV of the Concordat between the Holy See and the Portuguese Republic was made to the Civil Government of … on 19 November 1940", prior to the revision of the Concordat between the Portuguese Republic and the Holy See, signed on 18 May 2004 in the Vatican City, approved by Resolution of the Assembly of the Republic No. 74/2004, of 30 September, published in the Official Gazette, I Series, of 16-11-2004, whereby it is necessary to consider what it establishes regarding the effects of that communication.

Articles 3 and 4 of the initial version of the Concordat, of 1940, established that "recognition by the State of the legal personality of associations, corporations or religious institutes, canonically erected, results from simple written communication to the competent Authority made by the Bishop of the diocese where they have their seat, or by their legitimate representative" and that "the associations or organizations referred to in the preceding article" if "they also propose purposes of assistance and charity in fulfillment of statutory duties (…) are, in the respective part, subject to the regime instituted by Portuguese law for these associations or corporations, which shall become effective through the competent Ordinary and which can never be more burdensome than the regime established for legal entities of the same nature".

In the case at hand, the written communication referred to was made, whereby the legal personality of the Claimant was recognized by the State, long before the revision of the Concordat which occurred in 2004.

Paragraphs 2 and 3 of article 10 of the Concordat, in the 2004 version, establish as follows:

2 - The State recognizes the legal personality of the legal entities referred to in articles 1, 8 and 9 in their respective terms, as well as that of the remaining canonical legal entities, including institutes of consecrated life and societies of apostolic life canonically erected, that have been constituted and communicated to the competent authority by the bishop of the diocese where they have their seat, or by their legitimate representative, up to the date of entry into force of this Concordat.

3 - Civil legal personality of canonical legal entities, with the exception of those referred to in articles 1, 8 and 9, when they are constituted or communicated after the entry into force of this Concordat, is recognized through registration in a proper registry of the State by virtue of an authentic document issued by the competent ecclesiastical authority of where their erection, purposes, identification, representative bodies and their competencies are apparent.

As results from this paragraph 3, only for canonical legal entities that are constituted or communicated after its entry into force is recognition made through registration in a proper registry.

For the Claimant, whose legal personality had already been recognized before 2004, it continued to be recognized, independently of registration, by virtue of paragraph 2 of this article 10.

In accordance with article 12 of the Concordat, "canonical legal entities, recognized in accordance with article 10, which, in addition to religious purposes, pursue purposes of assistance and solidarity, develop their respective activity in accordance with the legal regime instituted by Portuguese law and enjoy the rights and benefits attributed to private legal entities with purposes of the same nature".

In the same line, article 26, paragraph 5, of the Concordat states that "canonical legal entities, referred to in the preceding paragraphs, when they also develop activities with purposes other than religious, thus considered by Portuguese law, such as, among others, those of social solidarity, education and culture, beyond commercial and profitable ones, are subject to the tax regime applicable to the respective activity".

These articles 12 and 26, paragraph 5, are clearly provisions that equivalent canonical legal entities developing activities of assistance and social solidarity to private institutions of social solidarity for tax purposes (among others).

For this reason, the Claimant, which was recognized in accordance with article 10, paragraph 2, of the Concordat and, in addition to religious purposes, pursues purposes of assistance (health), enjoys the benefits attributed to private legal entities with purposes of the same nature, namely private institutions of social solidarity, which, in accordance with article 1, paragraph 1, subparagraph e), of the Statute of Private Institutions of Social Solidarity approved by Decree-Law No. 119/83, of 25 February, include private institutions without profit purpose that develop the provision of healthcare services.

Regarding canonical legal entities communicated before the entry into force of the Concordat that develop activities of assistance and solidarity, neither the aforementioned article 12 nor paragraph 5 of article 26 of the Concordat make their equivalence to private legal entities with purposes of the same nature, for purposes of enjoyment of tax benefits, dependent on registration, but only on recognition in accordance with article 10, paragraph 2, of the Concordat.

On the other hand, the reference made in article 26, paragraph 5, to the "tax regime" relates to provisions of tax nature and not to provisions on the registration of legal entities, which, as results from article 10, paragraph 3, of the Concordat is only necessary for canonical legal entities that are constituted or communicated after the entry into force of the Concordat.

Still furthermore, from paragraph 2 of article 10 of the Concordat results that for canonical legal entities that have been constituted and communicated to the competent authority by the bishop of the diocese where they have their seat, or by their legitimate representative, up to the date of entry into force of the Concordat, recognition is made by the State by virtue of that provision itself, not depending on any administrative act of recognition.

As can be seen, it is not necessary to resort to analogy to conclude the equivalence of the Claimant to a private institution of social solidarity, for purposes of article 10, paragraph 2, subparagraph b), of CIRC, as it results linearly from these provisions of the Concordat.

In accordance with the provision of paragraph 2 of article 8 of the Constitution of the Portuguese Republic "the provisions contained in regularly ratified or approved international conventions are in force in the domestic legal order after their official publication and as long as they bind internationally the Portuguese State".

The 2004 Concordat constitutes an internationally ratified convention, whereby that article 8, paragraph 2, assures its validity as long as the Concordat binds the Portuguese State.

In light of this provision, the Concordat regime prevails over Portuguese domestic law, since, as its validity is constitutionally guaranteed as long as the Portuguese State is bound thereby, no provision of domestic law can validly revoke the Concordat. ( [1] )

Thus, given that the Claimant was recognized in accordance with article 10 of the Concordat and came to enjoy the rights and benefits attributed to private legal entities with purposes of the same nature, it must be concluded that it still enjoyed these rights and benefits in 2011, as there was no alteration of the Concordat since 2004, nor was there any change in its situation regarding the pursuit of purposes of assistance.

Consequently, the impugned assessment is illegal for violation of article 10, paragraph 1, subparagraph b), of CIRC, combined with articles 10, paragraph 2, 12, and 26, paragraph 5, of the Concordat and with article 1, paragraph 1, subparagraph e), of the Statute of Private Institutions of Social Solidarity, approved by Decree-Law No. 119/83, of 25 February.

As the assessment is illegal, the decision on the administrative claim and the decision on the hierarchical appeal which maintained it are also illegal, as they suffer from the same illegality.

6.3. Constitutional Issues Raised by the Tax and Customs Authority

The Tax and Customs Authority raises some constitutional issues, stating, namely that "if the interpretation conveyed by the claimant prevails there occurs violation of the principle of separation of powers as the Arbitral Tribunal would have invaded an area of competencies specifically assigned to the Government, in accordance with article 202, subparagraphs d) and g), of the Constitution" and that the regime that results for the Claimant from the Concordat, referred to above, implies violation of the "principle of equality and impartiality in relation to all other entities legally equivalent to IPSS".

As to the first point, there is manifest misunderstanding by the Tax and Customs Authority regarding the principle of separation of powers, as arbitral tribunals, in applying the law, are exercising a power that is attributed to them by the Constitution, namely by its articles 202 and 209, paragraph 2.

In the exercise of these powers it obviously falls to arbitral tribunals to interpret and apply the law and, for this reason, it cannot be conceived that the interpretation they make thereof could imply violation of the principle of separation of powers, as it is the realization of its application.

On the other hand, the interpretation of the law and the control of the legality of assessment acts, harmful to the interests of taxpayers, is manifestly an activity of a jurisdictional nature, in light of articles 20, paragraph 1, 203 and 268, paragraph 4, of the Constitution of the Portuguese Republic, whereby neither can it be understood how the Tax and Customs Authority can argue that in exercising this activity arbitral tribunals are "invading an area of competencies specifically assigned to the Government", which, precisely by virtue of the principle of separation of powers, has no competencies of a jurisdictional nature.

In any event, as clearly results from the cited provisions of the Concordat, regarding canonical legal entities communicated before the Concordat, there is not even any competence of the administrative authorities or of the Government for their recognition or registration as private institutions of social solidarity, as recognition was made by the Assembly of the Republic itself, through approval of those provisions.

Regarding the principle of impartiality, the Tax and Customs Authority does not explain in what manner it could be violated, nor is it apparent that it could be.

As to the principle of equality, set forth in article 13 of the Constitution of the Portuguese Republic, it does not require that the law give equal treatment to all situations, rather implying that those in equal situations be treated equally and those in unequal situations be treated unequally, in a manner as not to create arbitrary and unreasonable discriminations, as they lack sufficient material foundation. The principle of equality does not prohibit that law establishes distinctions, but only distinctions lacking objective and rational justification. ( [2] )

Regarding canonical legal entities communicated up to the date of entry into force of the Concordat it is manifest that special treatment distinct from that given to the remaining entities and to the generality of private institutions of social solidarity is given.

However, it is well-known that this special legal regime was recognized by the Concordat in light of the special situation that manifestly generate the "profound historical relations between the Catholic Church and Portugal" (Preamble of the Concordat) which were embodied, namely, in the transfer to the ownership of the State of "temples, episcopal palaces and parochial residences with their grounds, seminaries with their enclosures, houses of religious institutes, vestments, furnishings and other objects affixed to Catholic worship and religion" (article 6 of the Concordat in the 1940 version).

Thus, in these special relations lies the explanation for the attribution of a special status to canonical legal entities, namely in matters of tax benefits, which prevents the distinct treatment legally recognized to them regarding the necessity of registration from being incompatible with the principle of equality.

Indeed, in those cases where there already was a communication of the existence of the canonical legal entity made by an ecclesiastical entity, there is a situation distinct from that of any entity regarding which there was no communication, whereby also from this perspective the distinct treatment does not offend the principle of equality.

7. Questions of Prejudicial Knowledge

Proceeding the request for arbitral decision regarding the aforementioned defect, which assures effective protection of the rights of the Claimant, becomes prejudicial, as useless, the knowledge of the defect that the Claimant imputes to the assessment for the same having been issued before a hierarchical appeal it filed was decided.

8. Compensatory Interest and Compensation for Undue Guarantee

8.1. Compensatory Interest

The Claimant states in article 72 of the request for arbitral decision as follows:

In light of the foregoing it is unequivocal that the grant of this request for arbitral decision must also determine, the restitution to the Claimant of compensatory interest calculated at the legal rate, corresponding to the cost and interest borne and to be borne by the claimant, as a result of the bank guarantee provided on 29/04/2014 and counted up to the date of issuance of the respective credit note, in accordance with paragraph 5 of article 61 of CPPT.

It was not proven that the Claimant paid the amount assessed, but rather that it provided a guarantee in the administrative claim.

Article 43, paragraph 1, of LGT establishes that "compensatory interest is due when it is determined, in an administrative claim or judicial impugnation, that there was error attributable to the services as a result of which the tax debt was paid in an amount greater than legally due".

As results from the literal wording of this provision, the right to compensatory interest depends on "payment of the tax debt in an amount greater than legally due".

For this reason, as the Claimant did not pay the assessed debt, it cannot have the right to compensatory interest.

8.2. Compensation for Guarantee Provided

It can be inferred, however, from the fact that the Claimant understands, in article 72 of the request for arbitral decision, that compensatory interest should correspond to "the cost and interest borne and to be borne by the claimant, as a result of the bank guarantee provided on 29/04/2014", that it is this compensation that the Claimant will seek, arguing that it should be effected through compensatory interest.

However, the determination of compensation for unduly provided guarantee does not correspond to the amount of compensatory interest, only being able to not exceed it, as is inferred from article 53, paragraphs 1 and 3, of LGT.

In any event, as a claim for compensation for undue guarantee was not explicitly formulated and the damages suffered by the Claimant with the provision of guarantee were not indicated, there was no necessary exercise of the right to be heard by the Tax and Customs Authority regarding such a claim, whereby knowledge thereof cannot be taken without prejudice to indemnificatory rights that the Claimant may have, to be examined within the scope of execution of judgment, in accordance with article 24, paragraph 1, of RJAT.

9. Decision

In accordance with the foregoing, the members of this Arbitral Tribunal agree to:

a) Dismiss the exceptions of lack of material jurisdiction, procedural defect and lack of passive standing of the Tax and Customs Authority;

b) Grant the claims for annulment of assessment No. 2014 … (compensation No. 2014 …) and the order of 30-04-2015, which dismissed the hierarchical appeal filed against the decision on the administrative claim filed against that assessment;

c) Annul the assessment and the order referred to;

d) Dismiss the claim for judgment condemning the Tax and Customs Authority to pay compensatory interest;

e) Decline to hear any eventual right of the Claimant to compensation for undue guarantee.

10. Value of the Proceeding

In accordance with the provision of article 305, paragraph 2, of the Code of Civil Procedure and article 97-A, paragraph 1, subparagraph a), of CPPT and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €165,486.26.

11. Costs

In accordance with article 22, paragraph 4, of RJAT, the amount of costs is fixed at €3,672.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.

Lisbon, 17 February 2016

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Rui Rodrigues)

(Augusto Vieira)

[1] In the sense of the supremacy of conventional international law over domestic law the Tax Litigation Section of the Supreme Administrative Court has decided, as can be seen from decisions of 01-07-2015, rendered in case No. 0188/15, 17-06-2015, rendered in case No. 0187/15, and of 25-06-2015, rendered in case No. 0464/15, in which it was understood that "in accordance with article 8, paragraph 2, of the Constitution of the Portuguese Republic, provisions of international conventions, when duly adopted by the Portuguese State and published in legal form, prevail over domestic law, in everything that may conflict with it, reason for which courts must refuse application of law or legal provision that violates an international treaty to which Portugal has bound itself", in the wake of GOMES CANOTILHO and VITAL MOREIRA, Constitution of the Portuguese Republic Annotated, 4th edition, page 261.

In the same line, decisions of the Administrative Litigation Section of the Supreme Administrative Court may be seen from 24-04-2002, rendered in case No. 0159/02; of 10-07-2002, rendered in case No. 0160/02; of 05-02-2009, rendered in case No. 491/08.

Although there are doctrinal and jurisprudential divergences, the supremacy of conventional international law over domestic law has been predominantly recognized, as is stated, among many, in the decision of the Constitutional Court No. 242/2009, of 12-05-2009, rendered in case No. 250/09.

[2] Essentially in this sense, among others, the following decisions of the Constitutional Court may be seen:

– No. 143/88, of 16-6-1988, rendered in case No. 319/87, published in the Bulletin of the Ministry of Justice No. 378, page 183;

– No. 149/88, of 29-6-1988, rendered in case No. 282/86, published in the Bulletin of the Ministry of Justice No. 378, page 192;

– No. 118/90, of 18-4-90, rendered in case No. 613/88, published in the Bulletin of the Ministry of Justice No. 396, page 123;

– No. 169/90, and 30-5-1990, rendered in case No. 1/89, published in the Bulletin of the Ministry of Justice No. 397, page 90;

– No. 186/90, of 6-6-1990, rendered in case No. 533/88, published in the Bulletin of the Ministry of Justice No. 398, page 81;

– No. 155/92, of 23-4-1992, rendered in case No. 204/90, published in the Bulletin of the Ministry of Justice No. 416, page 295;

– No. 335/94, of 18-4-1994, rendered in case No. 61/93, published in the Bulletin of the Ministry of Justice No. 436, page 129;

– No. 468/96, of 14-3-1996, rendered in case No. 87/95, published in the Bulletin of the Ministry of Justice No. 455, page 152;

– No. 1057/96, of 16-10-1996, rendered in case No. 347/91, published in the Bulletin of the Ministry of Justice No. 460, page 284;

– No. 128/99, of 3-3-1999, rendered in case No. 140/97, published in the Bulletin of the Ministry of Justice No. 485, page 26.