Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Pedro Carvalho (President Arbitrator), Rui Ferreira Rodrigues and José Nunes Barata, designated by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide as follows:
I – REPORT
On 21 October 2017, A…, S.A., NIPC…, with registered office at …, …, filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter abbreviated as RJAT), seeking a declaration of illegality of the additional assessment act No. 2017…, dated 12-10-2017, relating to Corporate Income Tax (IRC) for the year 2013, in the total amount of tax and compensatory interest of €71,503.34.
To support its petition, the Claimant alleges, in summary, violation of the principle of legality, with the limitations arising from the principles of equality, proportionality, justice, impartiality and good faith, with the consequent defect of violation of law.
On 23-10-2017, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).
The Claimant did not appoint an arbitrator, wherefore, pursuant to the provisions of article 6(2)(a) and article 11(1)(a) of the RJAT, the President of the Ethics Council of the CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable time period.
On 15-12-2017, the parties were notified of such appointments and did not manifest any intention to refuse any of them.
In accordance with the provisions of article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 08-01-2018.
On 14-02-2018, the Respondent, duly notified for that purpose, filed its answer defending itself by way of challenge.
On 14-03-2018, the hearing referred to in article 18 of the RJAT was held, where a witness presented by the Claimant was examined.
A time period was granted for the presentation of written arguments, which were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.
A time period of 30 days was fixed for the delivery of a final decision, following the presentation of arguments by the Respondent, which time period was extended until the end of the time period referred to in article 21(1) of the RJAT.
The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to articles 2(1)(a), 5 and 6(1) of the RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.
The proceedings do not suffer from any nullities.
Thus, there is no obstacle to the consideration of the case.
In view of all the above, it falls to deliver:
II. DECISION
A. FACTUAL MATTERS
A.1. Facts Established as Proved
The additional assessment subject to the present arbitral action stems from the tax inspection procedure conducted by the tax inspection services of the Finance Directorate of …, in compliance with Service Order No. OI2017….
The inspection procedure had the purpose of controlling the Special Taxation Regime for Groups of Companies (RETGS), having focused on the fiscal year 2013.
The Claimant, during the period in question, had share capital of €62,500.00, of which company B… SGPS, SA (NIPC…), held 89.8% and company C…, SA (NIPC…) held 10%.
Company B… SGPS, SA was, at the same date, held 100% by D… SGPS, SA, and indirectly this company held 99.78% of the Claimant.
From 01/01/2013, the Claimant began to be taxed in accordance with the RETGS.
From the Inspection Report (RIT), it appears, among other things, that:
"B) Scope of the Group Consolidation
B.1) Characterization of the Dominant Company
The dominant company, as already mentioned, is D…, SGPS, SA, NIPC…, constituted by a company deed of 01/04/2009, with the corporate purpose of 'management of shareholdings in other companies as an indirect form of exercising economic activities and the accessory and complementary activities of this purpose that are permitted by applicable legislation', with registered office in Shopping Centre …, in ….
It has share capital of €50,000.00, held by the following shareholders:
It is a company with registered office and effective management in Portuguese territory that 'is not considered dominated by any other company resident in Portuguese territory that meets the requirements to be qualified as dominant', since it is held by individual shareholders, nor renounced 'the application of the regime in the three years prior, with reference' to 01/01/2013. Therefore, the requirements established in articles 69(3)(c) and (d) of the IRC Code are met.
B.2) Characterization of Dominated Companies
'(...) In the Annual Tax Return submitted by the dominated companies that are part of the fiscal scope in 2013 and hold shareholdings, as identified below:
-
Annual Tax Return No. … of B…, SGPS, SA
-
Annual Tax Return No. … of A…, SA
-
Annual Tax Return No. … of C…, SA - Annual Tax Return No. … of E…, SA
In the publications of the Justice Portal, available at https://publicacoes.mj.pt/Pesquisa.aspx, which form the basis of the Certificate from the Commercial Registry of the companies. Based on the shareholding percentages indicated by the different companies in the Annual Tax Return, an organizational chart was prepared as shown in figure 1, so as to facilitate the determination of the shareholdings held by the dominant company in each of the dominated companies.
Given the rule stated in article 69(6) of the IRC Code and the percentages indicated in the previous figure, the determination was made of the total shareholding percentage of the dominant company in the seven dominated companies, which appears in the following table. Such shareholdings have been held by the dominant company since 2009.
In summary:
D… SGPS is considered dominant of the companies taxed under RETGS identified in the previous table, in light of the requirements of article 69(2) of the IRC Code insofar as:
-
On 01/01/2013, it held more than 90% of the share capital of the companies that make up the group, a shareholding held for more than one year;
-
For the companies identified with numbers 1, 3, 4 and 5, the shareholding level required by article 69(2) was obtained indirectly through companies that meet the legally required conditions to be part of the group, as provided for in article 69(4)(f);
-
According to information contained in box "05063-A – Entities in which the reporting company participates" of the Annual Tax Return, the percentage of voting rights equals the shareholding in the share capital, whereby D… SGPS also had more than 50% of the voting rights in the companies in which it participates.
B.3) Verification of the Remaining Requirements Established in Article 69 of the IRC Code
For the existence of a group of companies intending to benefit from RETGS, article 69 of the IRC Code establishes, on the one hand, requirements applicable only to the dominant company and, on the other hand, cumulative requirements applicable to all companies.
The requirements applicable to the dominant company are provided for in articles 69(3)(b), (c) and (d) of the aforementioned article and are listed in table 4, concluding that all of them are met.
Regarding the requirements applicable to both the dominant company and the dominated companies, which are stated in table 5, all of them are also confirmed.
(...)
In conclusion:
All legal prerequisites upon which the formulation of the option for the application of RETGS depends are verified, with reference to 01/01/2013, for all companies that are part of the fiscal scope.
B.4) Verification of Impediments to the Inclusion of Companies in RETGS
Having verified the requirements applicable to companies taxed under RETGS, which constitute the legal prerequisites upon which the formulation of the option for the application of this regime depends, it becomes necessary to analyze the impediments to the inclusion of companies within the scope thereof, which appear in article 69(4) of the IRC Code, and which we now analyze. It should be noted that the impediments described in table 6, in addition to applying to all companies (dominant and dominated), are grounds for exclusion whether they occur at the beginning or during the application of the regime.
It should be noted that, regarding the inactivity of companies, for the purposes of applying RETGS (article 69(4)(a)), the understanding advocated by the IRC Services Directorate (DSIRC) has been that companies are considered inactive those whose tax declarations have zero values. In addition to the impediments identified in table 6, regarding which it was concluded that they do not apply to any company, there is still the need to analyze what is established in article 69(4)(c), which restricts the entry of a company into the scope of RETGS, when it has recorded tax losses in the three taxation periods prior to the beginning of the application of the regime, requiring, in the case of dominated companies, that the dominant company hold the participation required by article 69(2) of the IRC Code for more than two years.
Given that, on the date of the beginning of the regime (01/01/2013), all dominated companies were held by the dominant company for more than two years, the impediment in question does not arise, regardless of the taxable results of the periods 2010, 2011 and 2012. With respect to the dominant company, it also did not declare tax losses in the periods 2010, 2011 and 2012.
In conclusion:
There is no impediment to the inclusion in the regime for any of the companies that were part of the fiscal scope in 2013. (...)
B.5) Analysis of Companies that are part of the Economic Group and are not part of the Fiscal Group
Having confirmed all the requirements and analyzed the facts preventing inclusion for companies integrated into the fiscal scope in 2013, it was also ascertained whether there were any others that could be integrated, since, having made the choice for RETGS, all companies in which the dominant company holds the participation set forth in article 69(2) of the IRC Code, which meet the remaining requirements contained in that provision, must be included in the fiscal scope. The analysis of information gathered from the different sources of information consulted, namely the Annual Tax Return and Certificates from the Commercial Registry of the various companies, as well as the AT system, in particular "Tax Management – Integrated View of the Taxpayer – Queries – Search by NIF or Name", with respect to "Relations among Passive Subjects", allowed us to ascertain that, in addition to the companies identified in figure 1, there are others that were not included in the fiscal group, but in which the dominant company holds shareholdings, making it necessary to ascertain the reason(s) for their non-inclusion within the scope of RETGS. These are the nine that are listed below, which are partially held by D… SGPS.
Given the provisions of the IRC Code previously cited, it is appropriate for us to note, with respect to the shareholdings in the previous table, that, regarding the companies identified in 1, 5, 6, 7, 8 and 9, their shareholdings were acquired in 2012, and therefore could not be part of the fiscal scope on 01/01/2013, insofar as the dominant company did not hold the shareholding for more than one year, as required by article 69(3)(b) of the IRC Code. For the remaining companies whose shareholdings have been held since 2009, or more than two years with reference to 01/01/2013, it is noted that:
» The companies identified as 2 and 3, (F…, Lda and G…, Lda) are held indirectly at less than 90%, so the requirement of the shareholding percentage set forth in article 69(2) of the IRC Code is not met;
Regarding company H…, Lda (identified as 4), the dominant company has held, since 25/07/2009, a direct shareholding of 98%, that is, higher than that required by the IRC Code to be considered dominated, and thus the requirements of article 69(2) and article 69(3)(b) of the IRC Code are met; regarding the remaining requirements and impediments, note that:
-
Article 69(3)(a) of the IRC Code is met since the company has registered office and effective management in Portuguese territory, is subject to the general regime of taxation in IRC and is subject to the normal IRC rate at a higher level;
-
Regarding the impediments provided for in article 69(4) of the IRC Code, it should be noted that: the company is not inactive, since in the period prior to the choice for RETGS it submitted the Annual Tax Return and Model 22 declaring amounts different from zero, nor was it dissolved [article 69(4)(a)]; it has no special recovery or bankruptcy proceedings initiated [article 69(4)(b)]; is held for more than two years [article 69(4)(c)] and has the form of a limited liability company [article 69(4)(g)].
Wherefore, since company H…, Lda is held by the dominant company in a shareholding higher than that set forth in article 69(2) of the IRC Code, the remaining requirements contained in the same provision are met, and there are no facts preventing its inclusion within the scope of RETGS, it should have been included in the fiscal scope of the group.
B.6) Analysis of the Causes of Termination of the Fiscal Group
The RETGS may cease to apply when certain facts occur that the legislator sanctioned with termination, which are apparent in the aforementioned article 69(8) of the IRC Code. Given the analysis of the requirements and impediments to the application of RETGS to the group headed by D… SGPS previously set out, it was concluded, at the end of the previous point, that the fiscal scope of the group in the period of 2013 is not correct, insofar as it should include company H…, Lda., which met all the conditions provided for in article 69 of the IRC Code. To analyze the repercussions of the anomaly detected in the application of RETGS, it should be taken into account that, article 69(8)(d) of the IRC Code, in force at the date of the facts, provides that RETGS ceases to apply when "alterations occur in the composition of the group, in particular with the entry of new companies that satisfy the legally required requirements without their inclusion within the scope of the regime and the respective communication to the General Tax Authority in the terms and within the period provided for in article 69(7)", and, pursuant to article 69(9)(b) of the IRC Code, the effects of termination refer to the end of the taxation period prior to the one in which the inclusion of the company should have been communicated.
Therefore,
Not having the dominant company carried out the inclusion within the scope of RETGS, and the respective communication, of company H…, Lda, in the terms and within the period provided for in article 69(7) of the IRC Code, it determines the termination of the application of RETGS to the group, with effect as of 31/12/2012, and, consequently, the taxation of each of the companies individually, based on their income declarations, in which tax was determined as if RETGS were not applicable.
III.2. Determination of the Tax Result of A…
Article 120(6)(b) of the IRC Code provides that when RETGS is applicable, "each of the companies in the group (…) must send its periodic income declaration in which tax is determined as if that regime were not applicable." In compliance with this legal provision, A… sent, on 27/05/2014, the income declaration (Model 22) to which the number … was attributed, indicating as the taxation regime RETGS (field 8 of box 4), which must be changed to the general regime. Consequently, the amounts declared in this declaration, indicated in the following table, are those relevant for the purposes of taxation in the context of IRC for the passive subject.
The Claimant was notified of the draft inspection report as well as for the exercise of the right to be heard, through Office No. … of 30 May 2017, by registered mail (RD…PT).
It exercised the right to be heard in writing, which was received at the Finance Directorate of ... on 21 June 2017.
In response to the exercise of the right to be heard, the inspection services based the maintenance of the tax corrections with the following arguments:
"Although all the considerations and allegations of the Claimant are made in a generic manner and the Claimant does not specify in any situation the violation of any constitutional principle in the tax procedure in question, it is considered important to also make some considerations that we judge pertinent for the assessment of the action of the tax administration in the tax procedure under analysis. First and foremost, note that, in the context of inspection, the public interest is assessed not only through the pursuit of the objective of tax revenue collection, but also through tax equality and justice, which in this procedure was given priority. Were it not so, we would be faced with discriminatory action, which does not occur, since all companies known to be part of the economic group were analyzed in light of the legal conditions for the application of RETGS, regardless of their size, the activity they conduct or the result they present. It should also be added that this is a procedure in which the clarification of the facts for the discovery of material truth, instruction and decision thereof was all carried out internally through consultation of the declarations of the different companies and the collection of information contained in pages of public and official internet information, such as the Justice Portal, since it was considered that this was the most appropriate form, not least because, as the Claimant itself argues, it is less burdensome for the taxpayer. Moreover, by obligation to the legal conformity of the acts of the administration, the inspection procedure was carried out in accordance with the terms and limits provided for in the law and the decision in which it culminated also resulted from the application of the law, that is, from the correct framework of RETGS, insofar as, in the case in question, it is the declarative method that is at the basis of the tax and therefore it was the taxpayer who interpreted and applied the law that was at the basis of the determination of IRC to be paid to the State, it being up to the administration to control this interpretation and application, which if it did not exist would hopelessly frustrate the objectives and values of tax justice and equality. Up to the beginning of page 17 of the Claimant's Arguments (DA), the Claimant continues with considerations relating to the principles that should guide the tax administration, which are always made in a generic manner and not directed to the concrete tax reality under consideration in the draft report, as the Claimant itself acknowledges on page 17 of the petition by stating: 'Given the principles listed, let us look at the case under analysis: Within the scope of dispatch No. DI2016…, the company D… SGPS provided the requested clarifications and attached the necessary documents, expressly stating in the petition, a copy of which is attached (Doc. 1), that company H…, Lda. was an inoperative company and in the process of liquidation. Now, faced with such information, instead of seeking to know the reason or reasons why such allegation was made, the inspector immediately concluded that that company should be part of the fiscal scope of the group and since it did not, RETGS should be immediately terminated, derogating all those aforementioned principles.'
Regarding this specific point, we should note:
-
The present inspection procedure was carried out in compliance with Internal Service Order No. OI2017…, opened on 08/05/2017, and resulted from an inspection procedure conducted under the Internal Service Order No. OI2017…, on the group headed by holding company D…, SGPS, SA, NIPC …;
-
The inspection procedure conducted on the group (OI2017…) had as its origin dispatch No. DI2017…, which was opened to proceed with the analysis of the gracious complaint presented by the dominant company, requesting the correction of the IRC assessment of the period 2014, from which arose the need to verify compliance with the tax obligations inherent in the conditions for applying RETGS and analysis of the correct determination of the tax result of the group, in accordance with the legal provisions contained in articles 69 to 71 of the IRC Code in the period 2013;
-
Wherefore, the diligences and elements gathered within the scope of dispatch No. DI2016… should not be brought to bear in the context of the present inspection procedure, as they were not in the course thereof, as appears from the draft report, to which reference is made;
-
On which terms, 'the conclusion that that company should be part of the fiscal scope of the group' results solely from the application of the law, specifically from the provision of article 69 of the IRC Code, insofar as:
» The company has registered office and effective management in Portuguese territory, is subject to the general regime of taxation in IRC and is subject to the normal IRC rate at a higher level (article 69(3)(a) of the IRC Code);
» Regarding the impediments provided for in article 69(4) of the IRC Code, the company:
Was not dissolved, nor is it inactive ([article 69(4)(a)];
No special recovery or bankruptcy proceedings have been initiated [article 69(4)(b)];
Is held for more than two years [article 69(4)(c)];
Is subject to the normal IRC rate at a higher level [article 69(4)(d)];
Has a taxation period coinciding with that of the dominant company [article 69(4)(e)];
Is held directly by the dominant company since 25/07/2009, in a shareholding of 98%, that is, higher than that set forth in article 69(2) of the IRC Code [article 69(4)(f)];
Has the nature of a limited liability company [article 69(4)(g)]
» Regarding the inactivity for more than one year, to which article 69(4)(a) of the IRC Code refers, the same is assessed documentarily by the tax declarations submitted by the company regarding the period 2012 (period prior to the choice for RETGS), noting that Annual Tax Return No. …-'74, submitted on 26/06/2013, does not have zero values, quite the contrary, in the income statement that comprises it, income of €6,965.75 and expenses of €14,071.17 were declared and in the balance sheet the assets total €113,874.27 and liabilities total €266,465.71;
» Wherefore it was concluded that company H…, Lda should have been included in the fiscal scope of the group, insofar as when the dominant company chooses RETGS it must do so in relation to all companies in the group (article 69(1) of the IRC Code) that meet the legally established requirements;
- As for the conclusion of 'RETGS ceasing immediately', once again we limited ourselves to applying the law, as it derives from the analysis of the facts apparent in article 69(8) of the IRC Code, which the legislator sanctioned with termination, providing in article 69(8)(d) that RETGS ceases to apply when 'alterations occur in the composition of the group, in particular with the entry of new companies that satisfy the legally required requirements without their inclusion within the scope of the regime and the respective communication to the General Tax Authority in the terms and within the period provided for in article 69(7)', and, pursuant to article 69(9)(b) of the IRC Code, the effects of termination refer to the end of the taxation period prior to the one in which the inclusion of the company should have been communicated.
From the above, we conclude that the inspection procedure followed the principles, widely listed by the Claimant in the Claimant's Arguments, to the extent that it is up to the Tax Administration, through the power of inspection vested in it, to control whether the tax facts, given the tax legal order, in the first place, were declared and, in the second place, were correctly framed and the correct rules of incidence were applied to them, wherefore the principle of legality imposes that the basis and limit of the activity of tax inspection is the law, as stated at the beginning of page 18 of the Claimant's Arguments: '(…) by virtue of the provision in article 266 of the Constitution, the activity of the administration must be carried out in subordination to the Constitution and the law and must respect the rights and legitimate interests of citizens and the principles of equality, proportionality, justice and good faith.' The reference to the principles to which the tax administration must obey, which, as already mentioned, continued until the beginning of page 17 of the Claimant's Arguments, continues on pages 18 to 20, in which a brief allusion is made to the specific case, as follows:
'And in the case the AT did not seek to know the reasons why that company was excluded from the group based on the reason alleged of its inoperativeness/inactivity.' Indeed, obtaining proof is an essential starting point for identifying the facts and real elements that served as the basis for the proposed corrections. In compliance with the principle of proportionality enshrined in article 7 of the RCPITA and article 46 of the CPPT, all necessary elements being available for the pursuit and conclusion of the inspection acts, as widely referred to in the draft report, to which reference is made, no further clarifications were requested from the passive subject, as they proved unnecessary. The Claimant continues (end of page 20 and page 21) analyzing the meaning of 'activity' in the Universal Dictionary of the Portuguese Language, Texto Editora, Lisbon, 1995, which, as clearly appears from the statements above, is not what is relevant for the purposes of applying article 69(4)(a) of the IRC Code. It can be read at the end of page 21 that 'The activity of a company, in the sense that costs necessary for it would only arise from it, could never be assimilated to productive activity, in the context in which the latter is expressed in the set of operations for the transformation or production of goods and services.' Now, despite being, once again, a generic statement, which does not specify what are for the Claimant 'necessary costs' nor in what way the same applies to the present procedure, it can be affirmed that the same does not apply at all to the specific case, since in the Annual Tax Return of the company in question not only costs are declared, but also 'Other income and gains' (Field A5015) in the amount of €6,965.75. The allusions to what should be considered as the activity of companies continue until page 27, but they are always made in a generic manner, and sometimes, it would be said, somewhat out of context, as where it is read 'This set of operations encompasses, in the view of this tribunal, the acts of management of assets and liabilities (…).' Now, the Claimant's Arguments were presented by lawyer I…, it not being discernible to which tribunal these allegations refer, which do not bring relevant matter to the proceedings. From the third paragraph on page 27, we begin to have references to accounting regulations, namely the definition of an asset, which, the Claimant alleges, 'makes it very clear that if an entity possesses a resource controlled by it (tangible, intangible, biological, financial or otherwise) from which future economic benefits are expected, such an element will constitute an asset that should be recorded in the balance sheet. It is thus on the basis of these elements that the activity of companies develops, which, obviously, can present various facets or aspects of realization (e.g., productive, commercial, financial, administrative) depending on the nature of the assets that sustain it.' Although the Claimant's Arguments do not specify the generic considerations previously mentioned, taking into account the context, it is emphasized that, according to the values declared by H…, Lda in Annual Tax Return No. …, submitted on 26/06/2013, namely in the balance sheet that comprises it, assets total €113,874.27, which include equipment, amounts receivable and cash. The Claimant's Arguments proceed with the transcription of paragraphs 52 and 54 to 56 of the conceptual framework of the System of Accounting Normalization (SNC), relating to future economic benefits incorporated in an asset and the form of some types of assets, proceeding with the presentation of the SNC chart of accounts regarding class 4. Page 31 continues with generic allusions about assets but never making the connection to the situation that was the subject of the inspection procedure. It is in the third paragraph on page 33 that the Claimant refers to company H…, Lda, stating that: 'That said, it is true that company H…, Lda, upon the constitution of the group was inactive for more than one year, since it had no operations resulting from the use of its assets, in particular its assets and the management of its liabilities, that is, it did not fulfill its economic purpose: the search (immediate or deferred) for an economic surplus (profit) and, consequently, it was inactive, and could not be part of the group. Had it been part of the group, it would be grounds for termination and not the opposite, as proposed in the draft.' As widely already stated in the draft report, to which reference is made, the company previously referred to has share capital of €5,000.00, held 98% by the dominant company since 25/07/2009, and declared in the period 2012 assets and liabilities in the balance sheet and income and expenses in the income statement that comprise its Annual Tax Return, wherefore it is not considered inactive for more than one year, on the date the application of RETGS began. For that reason, and because all other requirements contained in article 69 of the IRC Code are met in relation to it, it should have been part of the fiscal scope of the group. Since that did not happen, the application of that regime ceases, with effect as of 01/01/2012, as a consequence of what is stipulated in article 69(8) of the IRC Code. They further request 'the examination of the certified accountant of the group, J…'. Regarding the witness testimony requested, we are of the view that the Claimant's request should not be granted, taking into account that the tax procedure follows the written form (article 54(3) of the General Tax Law). The right to be heard is exercised by the taxpayer, which may express itself in writing or orally (article 60(6) of the General Tax Law), being in this case its statements reduced to writing, as determined by article 55(b) and article 60(3), both of the RCPITA. On which terms, the Claimant's allegations did not bring new elements capable of altering the corrections previously proposed in the draft report, so the position stated therein is to be maintained, wherefore the preparation of the correction document was carried out and the respective notice of facts was instituted."
From that inspection procedure, which resulted in the end of the application of RETGS, due to non-compliance with the legal requirements for its benefit, with the consequent taxation under the general IRC regime, the Claimant was notified of the additional IRC assessment 2017…, as well as of the assessment of the corresponding compensatory interest, relating to the taxation period of the year 2013, with a payment deadline of 23-11-2017.
The Claimant did not proceed to payment of the determined tax.
A.2. Facts Established as Not Proved
1- That company H…, Lda., upon the constitution of the group that was part of the Claimant, was inactive for more than one year.
A.3. Reasoning of the Factual Matters Proved and Not Proved
Regarding the factual matters, the Tribunal does not have to pronounce itself on everything that was alleged by the parties, and it falls to it, rather, the duty to select the facts that matter for the decision and to discriminate between the proved and unproved matters (cf. article 123(2) of the CPPT and article 607(3) of the CPC, applicable ex vi article 29(1)(a) and (e) of the RJAT).
Thus, the facts relevant to the judgment of the case are chosen and delineated in function of their legal relevance, which is established in attention to the various plausible solutions of the question(s) of Law (cf. previous article 511(1) of the CPC, corresponding to current article 596, applicable ex vi article 29(1)(e) of the RJAT).
Thus, having regard to the positions assumed by the parties, in light of article 110(7) of the CPPT, the documentary evidence and the proceedings file joined to the records, as well as the witness testimony produced, the facts listed above were considered proved, with relevance for the decision, taking into account that, as was written in the Decision of the South Administrative Court of 26-06-2014, rendered in proceedings 07148/13, 'the probative value of the tax inspection report (…) may have probative force if the assertions contained therein are not challenged'.
The fact established as not proved results from insufficient proof thereof, combined with elements of proof in the opposite sense, namely documentary evidence (accounting documents) and witness testimony, which point to the conclusion that company B… had some activity, albeit minimal.
No statements made by the parties were established as either proved or not proved, and presented as facts, consisting of strictly conclusive assertions, incapable of proof, whose truthfulness must be assessed in relation to the concrete factual matters above established.
B. LAW
As appears from the report and the factual matters that precede, the correction made by the AT is based on the termination of the application of RETGS, due to non-compliance with the legal requirements for its benefit, with the consequent taxation under the general IRC regime, a decision against which the Claimant objects, alleging a defect of violation of law.
As expressly appears from the Inspection Report, the termination of the application of RETGS to all companies integrated into the group was determined by application of the provisions of article 69(8)(d) and article 69(9)(b) of the applicable IRC Code, and it can be read there, among other things, that:
"Not having the dominant company carried out the inclusion within the scope of RETGS, and the respective communication, of company H…, Lda, in the terms and within the period provided for in article 69(7) of the IRC Code, it determines the termination of the application of RETGS to the group, with effect as of 31/12/2012, and, consequently, the taxation of each of the companies individually, based on their income declarations, in which tax was determined as if RETGS were not applicable."
And, further on:
"Given the analysis of the requirements and impediments to the application of RETGS to the group headed by B… SGPS previously set out, it was concluded, at the end of the previous point, that the fiscal scope of the group, in the period of 2013, is not correct, insofar as it should include company H…, Lda., which met all the conditions provided for in article 69 of the IRC Code. To analyze the repercussions of the anomaly detected in the application of RETGS, it should be taken into account that article 69(8)(d) of the IRC Code, in force at the date of the facts, provides that RETGS ceases to apply when 'alterations occur in the composition of the group, in particular with the entry of new companies that satisfy the legally required requirements without their inclusion within the scope of the regime and the respective communication to the General Tax Authority in the terms and within the period provided for in article 69(7)', and, pursuant to article 69(9)(b) of the IRC Code, the effects of termination refer to the end of the taxation period prior to the one in which the inclusion of the company should have been communicated.'
That is to say, and in summary, the AT does not question the existence of a group of companies for RETGS purposes, nor that the Claimant meets all the conditions to be part of that group.
What it does question is that the group was properly delimited when it was constituted by the dominant company, considering that company B… should have been included therein.
Let us examine.
Article 69(8)(d) and article 69(9)(b) of the applicable IRC Code provide that:
"8 - The special taxation regime for groups of companies ceases to apply when: (...)
d) Alterations occur in the composition of the group, in particular with the entry of new companies that satisfy the legally required requirements without their inclusion within the scope of the regime and the respective communication to the General Tax Authority in the terms and within the period provided for in article 69(7);
9 - The effects of renunciation or termination of this regime refer to: (...)
b) The end of the taxation period prior to the one in which the inclusion of new companies should have been communicated pursuant to article 69(8)(d) or the end of the taxation period prior to the one in which the continuation of the regime should have been communicated pursuant to article 69(8)(e);"
As appears from article 69(1) of the applicable IRC Code, in the economy of the provision in question, adherence to RETGS is conditioned solely by the option in that sense, manifested by the dominant company.
From the legal regime in question, there does not appear, it is considered, to result any conditionalism or burden associated with such option, with the exception of the existence of a group of companies, as configured by article 69(2). Thus, with the existence of such a group, and the manifestation of such option by the dominant company, the prerequisites for the application of RETGS would be met, that is, for the taxation of the group, according to the rules of the special regime fixed in law.
As was written in the Decision of the Superior Administrative Court of 12-03-2014, rendered in proceedings 0256/12, "one thing are the requirements for the existence of a group of companies and another is the determination of the companies that can be part of such a group of companies, that is, of which companies are eligible for the purposes of configuring the scope of the Group of Companies that makes the choice for RETGS."
In legal terms, the only prerequisite (in the sense that its absence prevents the application of the regime) is the existence of a group of companies. Thus, upon verification of that existence, and having the dominant company made the choice for taxation according to RETGS, the legal conditions for the application of such a regime would be met.
The requirement to indicate the companies that are part of the group, unless proven otherwise, does not result from the law, being a requirement of the AT, which, being legitimate, given the interests of inspection and control that assist that Authority, should not have its correctness considered a sine qua non condition for the application of the regime in question, specifically, and insofar as it matters for the case, in the sense that, there being effectively a group of companies (as legally defined), the choice for RETGS be invalid or ineffective, in the event of an incorrect or incomplete determination (for more or for less), by the dominant company, of the scope of the group, when manifesting the choice for taxation according to RETGS.
Such a consequence, always saving better judgment, cannot be drawn, as the AT has done, from article 69(8), inasmuch as, from the outset, the said article 69(8) refers to the termination of the regime, and a legal situation that has been validly constituted can only terminate.
Indeed, a legal situation that suffers from some defect when it is constituted does not come to be constituted, so one cannot, strictly speaking, in those cases speak of termination thereof.
From a technical-legal point of view, as is well-known, when a given legal situation is constituted, the so-called constitutive facts (prerequisites for its constitution) are relevant, and the preventing facts (which prevent the effect of the constitutive facts), and the facts capable of causing a legal situation to terminate are the so-called extinctive facts, by definition supervenient to the constitution of the aforementioned legal situation.
In the present case, the constitutive facts would be the existence of a group of companies and the choice for RETGS, made by the dominant company, with no impeditive facts to the right to apply that regime being apparent, and it being considered that article 69(8) will address extinctive facts of such right.
Possibly, this conclusion might not be necessary if it were concluded that the non-application of RETGS, in such cases, corresponded to a relevant interest of the AT, that is, if the application of RETGS to the group properly delimited in legal terms, and its non-application to the company(ies) possibly improperly communicated as being part thereof, would entail some consideration worthy of attention for the AT. However, such will not be the case. The inspection procedure having been initiated and there being a need to proceed with corrections, it will be functionally indifferent for the AT to issue a corrective assessment for the remaining group, and self-initiated assessments for companies that have been improperly communicated as being part thereof, or to issue individual assessments for all companies involved, and indeed, this latter solution will tend to consume more AT resources, and to give rise to more systematic disturbance, via the multiplication of litigation, given that it necessarily implies the issuance of a greater number of assessment acts.
In the specific case, being at issue the non-communication as being part of the scope of RETGS, of a company that the AT understands should be included in the scope thereof, it is manifest that the multiplication of individual assessments, instead of the annulment of the individual assessment of the company that, perhaps, should, in legal terms, be part of the fiscal group, accompanied by the reformulation of the assessment thereof, overburdens much more the administrative and judicial tax system.
Also from a point of view of necessity/proportionality, it would be, to say the least, highly questionable to consider that in function of a situation that may derive from an oversight or divergences of legal qualification (it being possible that this be the case), a taxpayer is deprived of the right to be taxed according to RETGS, for having filled in incorrectly, possibly, as was mentioned, due to an oversight or divergence of legal qualification, the model of declaration of alterations required by the AT, possibly even to its own detriment.
It is true that these latter considerations of a material nature could, in large part, be transposable to situations in which, having RETGS been in force, the taxpayer does not properly communicate the inclusion or exclusion of a company that should be part of or cease to be part of the group. Indeed, there too it may be considered, in the same terms, that such termination does not correspond to any consideration worthy of attention of the AT, and to question the proportionality and necessity of such termination, when the situation can likewise derive from an oversight or divergences of legal qualification. However, in that situation we would be faced with clear and express law, in addition to being able to consider that what is at issue there is a consequence of a sanctionary nature in face of non-compliance with the duty enshrined in article 69(7)(b) of the Code in question, which, contrary to what was pointed out by the AT, cannot be at issue in the situation sub iudice, since, being the constitution of the group of companies for tax purposes, there is no specific obligation of delimitation of the scope of the group, contrary to what happens in the course of the application of RETGS, via article 69(7)(b) of the IRC Code in question, but only, as was seen, the need to properly manifest the choice for the application of that Regime, and the objective existence of a group of companies, as defined in law, so the taxpayer should not be sanctioned for the violation of a duty that the law does not impose.
Moreover, in light of all that was referred to, and taking into account that article 69(8) was amended by Law No. 82-C/2014, of 31 December, ceasing to provide that the untimely communication of the inclusion of companies in the group entails the termination of RETGS, the provision of article 69(8), in the part in question, should be interpreted restrictively, and one should not endorse a position that, not having a conclusive literal basis, embraces situations hardly justifiable, such as, for example, the situation of a group of companies that, in its constitution, due to an oversight or divergence of legal qualification does not include in the scope of the group indicated a company whose inclusion, in the concrete case, would be fiscally favorable to it, and that, by virtue of that, sees the intended application of RETGS ruled out.
A note, still, on article 69(8)(b) in question, which although it may give some literal support to the interpretation that sustains its application when the group of companies is constituted, should be considered apparent, in that the complete text of the provision states: "Should there be any of the situations provided for in article 69(4) and the respective company is not excluded from the group to which the regime is being or is intended to be applied", reinforcing, the use of the expression 'excluded', the understanding that the sanction in question derives from the violation of the duty to exclude the company from the scope of the group, and not from the violation of the putative duty not to include it in the scope of the group to be created.
On the other hand, in the specific case we are faced with article 69(8)(d) of the aforementioned article 69(8), which is clear in its legal statement, in the sense that it refers to "alterations in the composition of the group, in particular with the entry of new companies that satisfy the legally required requirements without their inclusion within the scope of the regime and the respective communication to the General Tax Authority in the terms and within the period provided for in article 69(7)".
In the case, it is evident that we are not faced with:
— alterations in the composition of the group, since the concept of alteration presupposes an already constituted situation, which does not occur, since the AT invalidates, ab initio, the constitution of the fiscal group;
— the entry of new companies, for the same order of reasons, that is, the entry of new companies implies the existence of an already constituted group, which does not occur;
— the possibility of inclusion of the company, which equally presupposes the prior existence of a group, where the latter can be included;
— the possibility of carrying out the communication in the terms and within the periods provided for in article 69(7), which is also only provided for in the exercises subsequent to that in which the application of RETGS begins.
Moreover, if there were any doubt about the meaning of the aforementioned article 69(8), the same would, it is believed, be clarified by the provision of article 69(9), and it is the provision of article 69(9)(b) itself, also applied in the proceedings by the AT, that refers to 'termination' or 'renunciation', referring the effects thereof to "The end of the taxation period prior to the one in which the inclusion of new companies should have been communicated", and it is logically inconceivable that a situation terminates on a date prior to that of its constitution.
In the sense referred to, concludes Gonçalo Avelãs Nunes, in a work cited by the Respondent, that:
"Any manner of exit from the group should have no relevance if it occurs in the first year of integration, with everything proceeding, for all legal purposes, as if the company in question had never been integrated into the group. (...) The exit of one or more companies from the group should not, by itself, imply the termination of the taxation of the group by RTLC, unless in two cases: a) when the company that exits is the dominant company; b) when there remains one company (even if it is the dominant company) as a result of the exit of some companies from the group. If the group is maintained, it makes no sense that the exit of a particular dominated company, (...) for having it ceased to meet the eligibility requirements, obliges the group to cease being taxed by RTLC. For the simple and most decisive reason that such exit in no way alters the fiscally relevant characteristics of the group itself and does not prejudice the foundations that determine taxation by RTLC. The institution of the contrary rule – the termination of taxation of the group by RTLC as a result of the mere exit of a company from the group – would signify an absolutely unnecessary and disproportionate regime, which would introduce a degree of insecurity absolutely inadequate and illegitimate with respect to the regime of taxation applicable to companies making up the group. On the other hand, the exit from the group, insofar as it is framed by an adequate legal regime, is not capable of prejudicing the interests of the Tax Authority worthy of protection."
It is thus concluded, and in light of all that was set forth, that article 69(8) of the IRC Code in question does not apply to situations in which, as is the case, the constitution of a group of companies is at issue, and in such situations the corrections to be made by the AT should be based on the exclusion or inclusion in the group for RETGS purposes of the companies that, in legal terms, should be part of it, taxing, according to the rules of that Regime, the group thus formed, and, autonomously, the companies that in each case, given the correct application of Law, cannot be part of it.
In doing so, and as a consequence of the reasoning set forth, the Administration would not be substituting itself for the legislator, but rather properly fulfilling the legislative command, nor would the conclusion drawn be impeded by the circumstance that, according to article 69(11) of the IRC Code in question, the duty to verify and prove compliance with the requirements for applying RETGS rests with the dominant company, first and foremost because such requirements are, as was also seen, the existence of a group and the timely manifestation of the choice for taxation according to that regime, and then because the matter now under consideration is located downstream thereof, being the matter of knowing, demonstrated that a fiscal group exists and that the choice for RETGS was made in a timely manner, what are the consequences of an incorrect completion of the declaration of alterations in which the said choice was exercised.
Thus, verifying an error of law in the application to the specific case of article 69(8)(b) of the applicable IRC Code, and consequent violation of law, the tax act sub iudice shall be annulable, and in this respect the arbitral petition should be upheld.
Given what was decided, the consideration of the remaining questions subsidiarily raised by the Claimant is foreclosed, as well as of the exception argued by the Respondent, which refers thereto.
C. DECISION
On these terms, this Arbitral Tribunal decides to render the arbitral petition entirely well-founded and, in consequence:
— Annul the additional assessment act No. 2017…, dated 12-10-2017, relating to Corporate Income Tax (IRC) for the year 2013, in the total amount of tax and compensatory interest of €71,503.34;
— Condemn the Respondent to pay the costs of the proceedings, in the amount of €2,448.00.
D. Value of the Proceedings
The value of the proceedings is fixed at €71,503.34, pursuant to article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of article 29(1)(a) and (b) of the RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The amount of the arbitration fee is fixed at €2,448.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the AT, since the petition was entirely well-founded, pursuant to articles 12(2) and 22(4) of the RJAT, and article 4(4) of the aforementioned Regulation.
Notification is ordered.
Lisbon, 4 July 2018
The President Arbitrator
(José Pedro Carvalho)
The Arbitrator Member
(Rui Ferreira Rodrigues)
The Arbitrator Member
(José Nunes Barata)
Frequently Asked Questions
Automatically Created