Summary
Full Decision
ARBITRAL TAX JURISPRUDENCE
Case Number: 564/2018-T
Date of Decision: 2019-09-20
Tax Type: IRC
Value of Claim: € 95,179.00
Subject Matter: IRC – RFAI - CFEI
PDF Version
CAAD: Tax Arbitration
Case Number: 546/2018-T
Subject Matter: IRC/2013 – RFAI - CFEI.
ARBITRAL DECISION
The Arbitrators José Poças Falcão (President Arbitrator), Jorge Carita and Rita Guerra Alves (adjunct arbitrators) designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form this Collective Arbitral Tribunal, hereby agree as follows:
I – REPORT
On 13 November 2018, A..., S.A., Tax Number (NIPC) ..., with registered office at Rua ... – ..., ..., hereinafter designated as "Claimant", requested the constitution of an arbitral tribunal and filed a request for arbitral pronouncement, in accordance with subparagraph a) of paragraph 1 of article 2 and subparagraph a) of paragraph 1 of article 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), with a view to the declaration of illegality of the decision for partial acceptance of the administrative claim regarding the self-assessment of Corporate Income Tax (IRC), for the fiscal year 2013, insofar as it does not recognize the total amount of € 95,179.00 (ninety-five thousand, one hundred seventy-nine euros), of which € 5,472.34 corresponds to the employment creation tax benefit; € 71,252.58 relates to the investment tax benefit provided for in the Tax Regime for Investment Support (RFAI) and € 18,454.08 referring to the tax benefit enshrined by the Extraordinary Investment Tax Credit (CFEI) as eligible, and subsequently, the declaration of illegality and partial annulment of the impugned tax self-assessment act and the recognition of the right to compensatory interest.
The Claimant is represented, in the scope of these proceedings, by its representative, Dr. D..., and the Defendant, the Tax and Customs Authority (hereinafter designated as AT) is represented by legal specialists, Dr. B... and Dr. C....
Once the formal regularity of the petition presented was verified, in accordance with the provisions of subparagraph a) of paragraph 2 of article 6 of the RJAT and as the Claimant did not proceed to appoint an arbitrator, the signatories were designated by the President of the Deontological Council of the CAAD, having accepted their office within the legally stipulated period.
This tribunal was constituted on 24 January 2019, at the CAAD headquarters, located at Av. Duque de Loulé, No. 72 A, in Lisbon, in accordance with the communication of the collective arbitral tribunal which is attached to these proceedings.
In the arbitral proceedings, the AT, pursuant to the provisions of article 13 of the RJAT, partially revoked the tax act examined in these proceedings, namely regarding the tax benefit referring to employment creation, in the amount of € 5,472.34 and regarding the tax benefit relating to the extraordinary investment tax credit in the amount of € 10,336.00. In view of this partial revocation, the AT maintained the corrections relating to the tax benefits of the RFAI, in the amount of € 71,252.58, and those relating to the CFEI, in the amount of € 8,118.08.
On 15 January 2019, the Claimant, after having been notified of the partial revocation of the tax act whose legality it raised in these proceedings, submitted a petition in which it manifests its acceptance of that same partial revocation – concerning the issue of job creation in the amount of € 5,472.34 and regarding the tax benefit relating to the extraordinary investment tax credit in the amount of € 10,336.00, requesting, however, the continuation of the proceedings regarding consideration of the question of the right to recognition of the RFAI benefit (section II.2 of the arbitral petition), in the amount of € 71,252.58; of the question of the right to recognition of the CFEI benefit in the part not accepted by the Defendant, in the amount of € 8,118.08, namely regarding investments related to "Tool Advance No. 1665 (TECNIMOL) and "Comsol Multiphysics Software (ADDLINK) (section II.3 of the arbitral petition) and the question of the right to compensatory interest.
On 22 January 2019, the Defendant submitted a petition in which, on the one hand, it informs the proceedings of the partial revocation referred to in item 5 above of the tax act examined in these proceedings and, on the other, requests that the Arbitral Tribunal set the value of the action in accordance with it.
On 11 March 2019, after being notified for this purpose, the Defendant submitted its answer, in which it argues for the inadmissibility of the request for constitution of the arbitral tribunal.
On 18 March 2019, in view of the position adopted by the Defendant in the answer it submitted regarding the production of witness evidence requested by the Claimant, the latter was notified, by order, to appear in the proceedings to state whether it maintains interest in the production of witness evidence and, if so, which specific facts among those alleged it considers controversial and capable of being proven by witness testimony.
In response to the order indicated in item 9 above, the Claimant, on 27 March 2019, submitted a petition in which it manifests its interest in the examination of witnesses and indicates the facts in relation to which such examination should focus.
On 26 April 2019, the Tribunal, by order, notified the parties of the scheduling for 22 May 2019, at 2:15 p.m. of the meeting provided for in article 18 of the RJAT and examination of witnesses.
On 22 May 2019, the meeting provided for in article 18 of the RJAT took place, in which, once proceedings began, the Tribunal issued an order for the parties to pronounce themselves, within the period of 5 consecutive days, beginning with the Claimant on the question raised in the petition submitted by the Defendant, referred to in item 7 above, relating to the attribution/setting of the value of the case.
At that same meeting, the Tribunal determined that the examination of the witnesses listed by the Claimant should be limited only to the facts contained in articles 44, 45, 64, 71, 75, 77, and 88 of the request for arbitral pronouncement. Furthermore, the Tribunal informed that the period for any submission of written arguments and for the issuance of the arbitral decision would be set at an opportune time.
On 27 and 31 May 2019, the Claimant and Defendant submitted, respectively, a petition in response to the order issued at the meeting identified in item 12 above, in which they manifest their positions regarding the question of setting the value of the case.
On 19 June 2019, the Tribunal issued an order, setting the value of the case at € 91,212.19 (ninety-one thousand, two hundred twelve euros and nineteen cents), which, in view of the disagreement of arbitrator Jorge Carita, was the subject of a dissenting opinion, as he considered that the value of the case should have been set at an amount below € 60,000.00, thereby calling into question the competence of the Collective Tribunal.
In that order, the Tribunal, on the one hand, notified the Claimant and Defendant to, in that order and in successive manner, submit written arguments within the period of 20 days, on the other hand, it also determined, pursuant to the provisions of paragraph 1 of article 21 of the RJAT, the extension of the period referred to in paragraph 1 of that provision, for two months, thus setting 6 September 2019 for the purpose of issuing the arbitral decision, in accordance with the provisions of paragraph 2 of article 18 of the RJAT, and finally warned the Claimant that it should proceed to pay the subsequent arbitral fee, in accordance with paragraph 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, and communicate such payment to the CAAD.
In this sequence, on 9 and 11 July 2019, the Claimant and Defendant submitted, respectively, their written arguments.
II. The Claimant sustains its petition, in summary, as follows:
The Claimant supports its petition for declaration of illegality of the decision for partial acceptance of the administrative claim regarding the self-assessment of Corporate Income Tax (IRC), for the fiscal year 2013, in the part that does not recognize the tax benefits relating to the Tax Regime for Investment Support (RFAI) in the amount of € 71,252.58 (seventy-one thousand, two hundred fifty-two euros and fifty-eight cents) and the Extraordinary Investment Tax Credit (CFEI), in the amount of € 8,118.08 (eight thousand, one hundred eighteen euros and eight cents) and, consequently, the declaration of illegality and partial annulment of the impugned tax self-assessment act and the recognition of the right to compensatory interest, in error regarding the factual and legal assumptions, on the grounds that it fulfills the necessary requirements for the recognition of said tax benefits, namely, because it maintained the jobs created within this investment regime – benefit for purposes of the RFAI – and because the expenses incurred by the Claimant with (i) Tool Advance No. 1665 (TECNIMOL) and (ii) Comsol Multiphysics Software (ADDLINK) are perfectly within the scope of the CFEI, the first, because it was carried out during the period provided for this purpose, and the second, because it constitutes an investment expense pursuant to the provisions of paragraph 2 of article 4 of the CFEI Law (Law No. 49/2013 of 16 July) and are, therefore, both eligible for purposes of this tax benefit.
Finally, it requests the payment of compensatory interest, in accordance with the provisions of paragraph 1 of article 43 of the General Tax Law.
III. In its Answer the Defendant invoked, in summary, the following:
The Defendant rebuts the arguments of the Claimant, arguing that the cumulative requirements for the application of the tax benefit of either the RFAI or the CFEI are not met, inasmuch as:
Regarding the RFAI, the Defendant argues that "(…) there is no complete fulfillment of the cumulative conditions for access to the tax benefit associated with the RFAI (…) from the outset, the requirement relating to the maintenance of jobs created by the investment"; because the Claimant has not provided proof of this fact, namely "[t]he eligibility of the investments that the Claimant states it has made and which allegedly result in a deduction from the tax assessment in the amount of € 71,252.58, as RFAI."
Regarding the requirements to benefit from the CFEI, on the one hand, the Defendant understands that, concerning Tool Advance No. 1665 (Tecnimol), it is an advance and the expense associated with the investment which was not carried out between 1 June and 31 December 2013; as regards Comsol Multiphysics software (ADDLINK), the AT considers that the software in question does not constitute industrial property expenses or an asset of exclusive use, in accordance with CFEI legislation, and therefore, summarily, considers that they do not fall within the scope of eligible investment to substantiate tax benefits, arguing, thus, for the inadmissibility of this request for arbitral pronouncement".
Concluding, finally, the Defendant, to the inadmissibility of the request for arbitral pronouncement.
IV. Sanitation
The Tribunal is competent and is properly constituted, in accordance with subparagraph a) of paragraph 1 of article 2 and articles 5 and 6, all of the RJAT.
The parties have legal personality and capacity, show themselves to be legitimate, are properly represented and the proceedings are not affected by any nullities.
V. Matter of Fact
For the conviction of the Arbitral Tribunal, regarding the proven facts, the documents attached to the proceedings, the testimony of witness X…, financial director of the Claimant and with direct knowledge of the facts in question, entirely credible and coherent, as well as the administrative file, were relevant.
Furthermore, it should be noted that the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather, it is its duty to select the facts that matter for the decision and to distinguish proven matter from unproven matter, all in accordance with article 123, paragraph 2, of the Code of Tax Procedure and Process (CPPT) and article 607, paragraphs 3 and 4 of the Code of Civil Procedure (CPC), applicable by force of article 29, paragraph 1, subparagraphs a) and e), of the RJAT.
Thus, the facts relevant to the judgment of the case are selected and defined in accordance with their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (cf. article 511, paragraph 1, of the previous CPC, corresponding to article 596 of the current CPC).
Thus, taking into account the positions adopted by the parties in their respective pleadings (request for constitution of arbitration and arguments of the Claimant and Answer of the Defendant), the documentary evidence attached to the proceedings and the witness evidence produced at the meeting held, the following facts with relevance for the decision are considered proven:
Proven Facts
With interest for the decision, the following facts are given as proven:
The Claimant is, as of the fiscal year 2013, a taxpayer subject to Corporate Income Tax (IRC) which exercises its activity in the areas of manufacturing industries, being registered with Economic Activity Classification (CAE 27510-Manufacturing of household appliances") – cf. administrative file and agreement of the parties -;
The Claimant, in the fiscal year 2013, had properly organized accounting, in accordance with accounting normalization and other legal provisions in force for its field of activity; its taxable profit is not determined by indirect methods; it is not a debtor to the State and Social Security of any contributions, taxes or quotas; it does not qualify as a company in difficulty pursuant to the communication of the European Commission, published in the Official Journal of the European Union, No. C 244, of 1 October 2004; it carried out various relevant investments that resulted in the creation of jobs and their maintenance until the end of the deduction period - cf. administrative file and agreement of the parties -;
On 31 December 2013, the number of effective employees of the Claimant amounted to 166, a figure higher when compared with the average number of employees of that entity in the 12 months preceding - cf. witness testimony; -
The investment carried out by the Claimant, in the fiscal year 2013, resulted in the creation of jobs, which were maintained – cf. documents No. 7 and 8 attached with the request for pronouncement, witness testimony and documentary evidence presented at the meeting of 22 May 2019 -;
The entirety of the investment associated with tool No. 1665 was definitively realized on 25 July 2013, with the invoicing of the remaining value of the order (that is, the remaining 70% of the total value of the order) – cf. administrative file and witness testimony -
On 28 May 2014, the Claimant proceeded to submit the Income Tax Return (IRC) Form 22, for the fiscal year 2013, to which the number ... was assigned, and from which resulted, in the assessment of Corporate Income Tax (IRC) to be self-assessed, the amount of € 570,829.10 (five hundred seventy thousand, eight hundred twenty-nine euros and ten cents); - cf. document No. 1 attached with the request for pronouncement -;
In the said IRC Form 22 income tax return, the Claimant considered, in field 355 of Table 10 (Tax Benefits), the amount of € 145,073.64, as CFEI– cf. document No. 1 attached with the request for pronouncement -;
The Claimant calculated a total amount of eligible investment during the period of 1 June to 31 December 2013 of € 962,137.63, which corresponds to the tax credit of € 192,427.53, as opposed to € 145,073.64 declared in the Form 22 income tax return, since, by oversight, the Claimant did not consider for the calculation of this benefit the expenses with investments subsidized by financial incentives. – cf. witness testimony and documentary evidence presented at the meeting of 22 May 2019 -
On 30 May 2016, the Claimant submitted an administrative claim regarding the self-assessment of IRC for the fiscal year 2013, because it had omitted from it the value of the tax benefit calculated as the Tax Regime for Investment Support (RFAI) and, partially, the value of the additional tax benefit calculated as the Extraordinary Investment Tax Credit (CFEI); - cf. document No. 2 attached with the request for pronouncement -;
Subsequently, the Claimant was notified, via official letter dated 29 May 2018, from the Finance Directorate of ..., of the draft decision to the effect of partial rejection of the Administrative Claim referred to in C. above, and to the extent it wished, to exercise the right to prior hearing that is its under article 60 of the General Tax Law (LGT); - cf. document No. 3 attached with the request for pronouncement -;
In this sequence, the Claimant exercised the right to prior hearing that was available to it; - cf. document No. 4 attached with the request for pronouncement; -
On 15 August 2018, the Claimant was notified, via registered mail, of the final decision on the administrative claim referred to in C. above – cf document No. 5 attached with the request for pronouncement -;
On 13 November 2018, the Claimant submitted the request for constitution of the present arbitral tribunal.
Unproven Facts
As mentioned, regarding the factual matter given as established, the tribunal does not have to pronounce on everything that was alleged by the parties, but rather, it is its duty to select the facts that matter for the decision and to distinguish proven matter from unproven matter such as provided for in article 123, paragraph 2, of the CPPT and article 607, paragraphs 2, 3 and 4 of the Code of Civil Procedure, applicable by force of article 29, paragraph 1, subparagraphs a) and e), of the RJAT.
Thus, the facts relevant to the judgment of the case were, as mentioned above, selected and defined in accordance with their legal relevance, there being no other alleged factuality that is relevant for the correct composition of the procedural dispute.
VI- On the Law
Taking into account the positions of the parties adopted in the pleadings submitted, the central question to be resolved by this Arbitral Tribunal consists in assessing the legality of the demonstration of assessment of IRC, relating to the employment creation tax benefit of the Tax Regime for Investment Support (RFAI) and the Extraordinary Investment Tax Credit (CFEI).
Given the factual foundation, it is first necessary to analyze the tax benefit provided for in the RFAI, that is, whether the Claimant complied with the legally foreseen requirements, namely and concretely whether it complied with the requirement of maintenance of jobs created by the investment.
Starting with the analysis of the tax and fiscal legal framework relevant to the present case, the tax benefit provided for in article 19 of the EBF (employment creation for young people), in the wording applicable to the tax fact sub iudice, has the following content:
"1 - For the determination of taxable profit of Corporate Income Tax (IRC) taxpayers and Income Tax (IRS) taxpayers with organized accounting, the expenses corresponding to the net creation of jobs for young people and for long-term unemployed persons, hired by indefinite term labor contracts, are considered at 150% of their respective amount, accounted as an exercise cost.
2 - For purposes of the aforementioned number, the following are considered:
a) 'Young people' workers aged over 16 and under 35 years, inclusive, assessed on the date of celebration of the labor contract, with the exception of young people under 23 years of age who have not completed secondary education, and who are not attending an education-training offer that allows raising the level of schooling or professional qualification to ensure completion of that level of education; (As amended by Law No.10/2009-10/03)
b) 'Long-term unemployed' workers available for work, under Decree-Law No. 220/2006 of 3 November, who are unemployed and registered at employment centers for more than 9 months, without prejudice to contracts for a fixed term for periods of less than 6 months having been concluded during that period, whose total duration does not exceed 12 months;(As amended by Law No.10/2009-10/03)
c) "Expenses" the amounts borne by the employing entity with the worker, as fixed remuneration and contributions to social security charged to the same entity;
d) "Net creation of jobs" the positive difference, in a given fiscal year, between the number of eligible hirings in accordance with No. 1 and the number of departures of workers who, on the date of their admission, were in the same conditions.
3 - The maximum amount of the annual increase, per job, is the equivalent of 14 times the guaranteed minimum monthly remuneration.
4 - For purposes of determining net job creation, workers who are part of the family group of the respective employing entity are not considered.
5 - The increase referred to in No. 1 applies for a period of five years from the beginning of the validity of the labor contract, being non-cumulative, either with other tax benefits of the same nature, or with other employment support incentives provided for in other laws, when applicable to the same worker or job.
6 - The regime provided for in No. 1 can only be granted once per worker hired in that entity or another entity with which there are special relationships under article 63 of the IRC Code. (As amended by Law No.55-A/2010 -31/12)"
Thus, for the fulfillment and obtaining of the tax benefit it becomes necessary to verify a set of cumulative conditions, of which we highlight, for the present dispute, the following:
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that they are workers hired by indefinite term labor contracts;
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that the workers are aged over 16 and under 35 years;
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that there is net job creation, corresponding to the difference between eligible entries and departures.
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the number of departures of workers who, on the date of their admission, were in the same conditions
It is also necessary to verify the fulfillment of the cumulative conditions provided for in article 27, paragraph 3 of the CFI, which are transcribed below:
May benefit from the tax incentives provided for in this regime the Corporate Income Tax (IRC) taxpayers who cumulatively fulfill the following conditions:
a) Have properly organized accounting, in accordance with accounting normalization and other legal provisions in force for their respective sector of activity;
b) Their taxable profit is not determined by indirect methods;
c) Maintain in the enterprise and in the region for a minimum period of five years the assets subject to investment;
d) Are not debtors to the State and social security of any contributions, taxes or quotas or have the payment of their debts properly assured;
Having set out the above, when the normative provisions are combined, it is verified that the resulting norm goes in the direction that "the expenses corresponding to the positive difference between the number of eligible hirings in accordance with No. 1 and the number of departures of workers who, on the date of their admission, were in the same conditions".
It thus results that the positive difference between the number of hirings of eligible workers has as its underlying objective of the tax benefit the net creation of employment.
In this regard, see the jurisprudence of the CAAD, which will be followed closely, in Case 57/2017-T, in which the Arbitrators José Pedro Carvalho, Leonardo Marques dos Santos and Álvaro José da Silva, decided in the following sense:
"Once the two normative segments highlighted are combined, it is verified that the resulting norm goes in the direction that "the expenses corresponding to the positive difference between the number of eligible hirings in accordance with No. 1 and the number of departures of workers who, on the date of their admission, were in the same conditions, are considered at 150% of their respective amount, accounted as an exercise cost."
This statement makes it immediately clear that the relevance of expenses for consideration at 150% of their respective amount is gauged according to a difference in numbers (and not of a specific group of workers) of hirings (and not of specific contracts) eligible (and not elected). The fact that the law uses a numerical criterion "positive difference" in no way calls into question the extrafiscal objective of creating new jobs or of facilitating insertion or reinsertion into the labor world, revealing only a concern with a global and objective accounting that does not have as reference each worker, i.e., a subjective accounting. All these notes point sufficiently clearly in the direction that for purposes of calculating the remaining period of the tax benefit, it can be admitted that the workers selected for the tax benefit of net job creation be replaced by other workers, provided that they are equally eligible, but that, ab initio, were not selected to have their respective expenses increased.
In fact, the tenor of the normative regime in question shows that the relevance lies in the difference between the number of hirings and the number of departures of eligible workers, and not between the number of hired workers and the number of departures of the same, as is inherent to the interpretation supported by the AT, being irrelevant, in the perspective of such a regime, that the procedures of the administrative organization for processing the benefit pass through the individualization of workers to be considered for this purpose.
This understanding is not hindered by the circumstance that in No. 5 of article 19 in question, it is stated that the increase applies "for a period of five years from the beginning of the validity of the labor contract".
Thus, firstly, the norm in question does not deal with defining the assumptions for enjoyment of the tax benefit in question, but only with determining how to count the period of duration of the same.
On the other hand, the referred norm is part of a group of provisions of the regime in question which, occasionally, give relevance to the workers that concretely make up the number taken into account for the benefit in question, as occurs with the exclusion of "workers who are part of the family group of the respective employing entity", and the non-cumulativity with other tax benefits of the same nature and other employment support incentives provided for in other laws, where applicable to the same worker.
These dispositions, which would justify, precisely, that from the point of view of administrative control the necessity of individualization of the workers to which the benefit enjoyed concretely refers be imposed, point rather in the direction that, to the extent that the legislator considered such individualization relevant, it expressed it duly, which, as has been seen, does not occur in the formulation of the assumptions necessary for such enjoyment.
It also seems impressive the fact that in paragraphs 1 to 4 of article 19 of the EBF the law refers globally to "jobs", only alluding to "labor contract" to specify the type of labor relationship (i.e., indefinite term). Thus, once more, without prejudice to being able to invoke, in the sense of an individualized analysis (contract by contract), the fact that No. 5 of article 19 of the EBF establishes that the period of five years is counted "from the beginning of the validity of the labor contract", it will always be to be mentioned that, not only the unnamed and collective reference to "jobs" is preponderant and majority throughout the entire article, but the starting point for counting the five-year period would always have to be based on a specific contract. The count could not have as its starting point "a" - any - labor contract, but rather "the" eligible labor contract, which may subsequently be replaced by a new labor contract, also eligible.
The understanding that "the replacement of a worker already bound to the R., by another whose labor contract ceases, does not constitute an actual increase in the number of workers, nor of jobs, assumptions of the granting of the benefit – that is, does not meet the assumption of 'net creation of jobs'" is also not accepted. In fact, the judgment of verification or non-verification of an actual increase in the number of workers must necessarily be made in light of the legal criterion, that is, according to the difference between the number of eligible hirings in accordance with No. 1 and the number of departures of workers who, on the date of their admission, were in the same conditions, and not, obviously, according to other criteria, such as the number of workers who at the time of replacement were employed.
The argument that the understanding referred to contradicts the protection of an extrafiscal public interest – that of an increase in durable and stable employability, as the Defendant alleges, is also not accepted, since the said public interest is duly assured with the net increase, in accordance with the terms prescribed by subparagraph e) of No. 2 of article 19, of the number of indefinite term labor contracts, since, furthermore, the specific regime of such contracts prevents the employing entity, beneficiary of the tax benefit in question, from freely terminating such contracts, which will only be terminated due to objective causes and/or causes imputable to the worker, circumstances which, obviously, escape the domain of the said entity.
This circumstance, moreover, militates in favor of the interpretation now proposed, to the extent that escaping, as a rule, the will of the entity beneficiary of the benefit the situations of termination of the labor contracts on which that depends, it would be inappropriate that, with the termination of a contract determined by reasons alien to the beneficiary (casual or imputable to third parties), the same would be deprived of the benefit, even in the case where it ensured, in accordance with the legal terms, the net increase of jobs justifying that benefit.
Thus, and in light of all of the above, considering that for purposes of the tax benefit to which article 19 of the EBF refers, the expenses corresponding to the positive difference between the number of eligible hirings in accordance with No. 1 and the number of departures of workers who, on the date of their admission, were in the same conditions are relevant, thus admitting the replacement of workers selected for the tax benefit in question by other workers, equally eligible but who, ab initio, were not selected, the tax act subject of this present arbitral action will be affected by error regarding the legal assumptions, and must, as such, be annulled in that part, the arbitral petition formulated being appropriate to the same extent."
Let us then see whether the requirements for net job creation and maintenance are met, in accordance with the terms and conditions listed.
Resorting to the documentary and witness evidence presented, namely the examination of the financial director, employee of the Claimant, who testified with direct knowledge of the facts, in a secure manner, aided by the Unique Reports relating to the years 2013 to 2018, it follows that the Claimant made relevant investment, which resulted in the creation of jobs and their maintenance until the end of the deduction period, complying with the criteria listed in article 19 of the EBF and article 27 of the CFI.
Given the evidence produced, there is complete fulfillment of the cumulative conditions for access to the tax benefit associated with the RFAI, namely the maintenance of jobs created by the investment and consequently has the right to a deduction from the tax assessment in the amount of € 71,252.58, as RFAI;
In these terms, no doubts remain that the assessment now impugned, in the part that disregards the value relating to the tax benefit stipulated in article 19 of the EBF and article 27 of the CFI, is affected by error regarding the legal assumptions, and must, as such, be annulled in that part, the arbitral petition formulated being appropriate to the same extent, as to this point.
Let us next consider the second question submitted to the appreciation of this tribunal, relating to the verification of expenses eligible for purposes of the Extraordinary Investment Tax Credit, as concerns Tool Advance No. 1665 (Tecnimol) and Comsol Multiphysics software (ADDLINK), whether they fall within the scope of eligible investment to substantiate tax benefits.
Pursuant to article 4 of the CFEI, established by Law No. 49/2013 of 16 July, the following are legally eligible investment expenses:
"1 - For purposes of this regime, investment expenses in assets affected by the business are considered those relating to tangible fixed assets and biological assets that are not consumable, acquired in new condition and that enter into operation or use until the end of the tax period that begins on or after 1 January 2014.
2 - The following are also eligible investment expenses in intangible assets subject to depreciation made in the periods referred to in Nos. 1 and 4 of article 3, namely:
a) Expenses with development projects;
b) Expenses with elements of industrial property, such as patents, trademarks, licenses, production processes, models or other assimilated rights, acquired for valuable consideration and whose exclusive use is recognized for a limited period of time.
3 - Investment expenses corresponding to additions to assets verified in the periods referred to in Nos. 1 and 4 of article 3 are considered eligible investment expenses and, likewise, those which, not relating to advances, result in additions to investments in progress initiated in those periods.
4 - For purposes of the aforementioned number, additions to assets that result from transfers of investments in progress are not considered.
5 - For purposes of No. 1, investment expenses in assets capable of use in the personal sphere are excluded, being considered as such:
a) Light passenger vehicles or mixed, pleasure boats and touring aircraft, except when such assets are affected to the operation of public transport service or are intended for rental or the transfer of their use or enjoyment in the exercise of the normal activity of the taxpayer;
b) Furniture and comfort or decoration items, except when affected to productive or administrative activity;
c) Those incurred with the construction, acquisition, repair and enlargement of any buildings, except when affected to productive or administrative activities.
6 - Investment expenses in assets affected by activities within the scope of concession or public-private partnership agreements concluded with public sector entities are also excluded from this regime.
7 - Land is considered not to be an asset acquired in new condition, for purposes of No. 1.
8 - Additionally, expenses relating to intangible assets are not considered eligible, whenever they are acquired as a result of acts or legal transactions of the taxpayer beneficiary with entities with which it is in a situation of special relationships, under the terms defined in No. 4 of article 63 of the IRC Code.
9 - The assets underlying eligible expenses must be held and accounted for in accordance with the rules that determined their eligibility for a minimum period of five years or, when shorter, during their respective minimum useful life, determined under Regulatory Decree No. 25/2009 of 14 September, amended by Law No. 64-B/2011 of 30 December, or until the period in which their physical withdrawal, dismantling, abandonment or rendering unusable occurs, observing the rules provided for in article 38 of the IRC Code."
Considering what has been set out in the cited normative provision, the types of expenses listed in cited No. 2, eligible are expenses with development projects and with elements of industrial property.
However, No. 2 subparagraph b) of article 4 identifies a set of elements of industrial property, admissible "such as patents, trademarks, licenses, production processes, models or other assimilated rights"
The expression used by the legislator "such as" raises no doubt about the purely exemplary nature of the enumeration.
However, the legislator, also in subparagraph b), establishes the following criteria: to be acquired for valuable consideration and whose exclusive use is recognized for a limited period of time.
In these terms, it is thus necessary to analyze whether the expenses declared by the taxpayers are eligible for purposes of the benefit.
Having made this analysis, namely in light of the principles and rules regarding burden of proof, it is demonstrated, as will be better substantiated below, that the aforementioned investment complies with the requirements listed in the CFEI.
Thus and preliminarily, it follows from article 74, No. 1 of the LGT that: "the burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them." and, in accordance with article 342, No. 1 of the CC, "he who invokes a right bears the burden of proof of the facts constitutive of the alleged right." (our emphasis)
It is further added that on the question of burden of proof, there is extensive jurisprudence, sustaining that it falls to the AT to prove the verification of the legal assumptions binding and legitimizing its action and that it falls to the taxpayer to prove the facts that operate as support for the claims and rights it invokes. (see Arbitral Case No. 236/2014-T of 4 May 2015).
In this sense, the Supreme Administrative Court Judgment of 26.2.2014, case No. 0951/11: "In cases where the correction of the declared taxable matter results from the fact that the AT has considered that certain expenses cannot be included in the acquisition value to be considered in the calculation of capital gains because they relate to assets that were not transferred (reason why, through the process generally referred to as 'arithmetic corrections', it purged such expenses from the acquisition value), it falls to the AT to prove that the legal assumptions legitimizing its action in the direction of the correction of taxable profit are verified (that is, to demonstrate the facts that led it to conclude that those expenses do not refer to the transferred assets), only subsequently falling to the taxpayer the burden of proof of the existence of the facts it alleged as the basis of its right to see such amounts deducted negatively in the calculation of capital gains."
Said Judgment is clarifying as to the distribution of the burden of proof, to which reference is made: "It must, therefore, respond to the question – merely of law, as we have already stated, and, therefore, encompassed within the scope of the cognition powers of this Supreme Court – of knowing to whom the burden of proof of such fact falls, against whom should the question be decided of whether or not the said improvements were transmitted. (…) Thus, it is necessary to recall, briefly and synthetically, the rules of distribution of the burden of proof: in principle, it falls to the AT the burden of proof of the verification of the (binding) legal assumptions of its action, namely if aggressive (positive and unfavorable) and, in return, it falls to the administered party to present sufficient proof of the illegality of the act, when such assumptions are shown to be verified, solution now fixed by art. 74, No. 1 ("The burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them".), of the LGT and which at the time should already be considered applicable because corresponding to the general rule of art. 342 of the Civil Code (CC), whereby whoever invokes a right has the burden of proof of the constitutive facts, it falling to the counter-party to prove the facts which are inhibiting, modifying or extinguishing. But this will not always be the case. The burden of proof will vary depending on the type of administrative act in question, and the question of its respective distribution must be decided "in accordance with the position occupied by the parties in the proceedings and with the type of legal relationship which constitutes its object and, in consequence, in the domain of contentious annulment, with the type of act being annulled, such as the law characterizes or defines its constitutive elements" (Cf., by all, the following judgment of the Contentious Tax Section of the Supreme Administrative Court: – of 17 April 2002, issued in the proceedings with No. 26.635, published in the Appendix to the Official Journal of 8 March 2004. (…) To proceed with the rectification of declarations (and consequent assessment of additional taxes considered in default), the AT, namely when it understands that costs or benefits were declared that do not correspond to reality (those because nonexistent or higher than actual, these because lower than actual), must substantiate its judgment formally and substantively, and judicial review may extend to both aspects of the substantiation (the formal and the material). (…) Thus, in the case before us, we can advance the following conclusions, in accordance with jurisprudence long established in tax courts: because the additional IRC assessment is based on the non-recognition by the AT of a portion of the acquisition value (that relating to expenses declared with the performance of improvements), it falls to the AT to prove that the legal assumptions legitimizing its action are verified, that is, to demonstrate the existence of serious indications that the transmission of the improvements whose value is included in the acquisition value did not occur; having done so, the burden of proof falls on the Taxpayer of the existence of such transmission, which it alleged as the basis of its right to see such costs deducted negatively in the calculation of capital gains and, consequently, in its taxable matter; in this case, it will not be sufficient for the Taxpayer to create doubt as to its truthfulness, even if founded, since in this case art. 121 of the CPT is not applicable; in fact, the burden established in this legal provision against the AT (that doubt about the existence and quantification of the tax fact should be decided against the AT: in dubio contra Fisco) only exists when it is the AT that is asserting the existence of the tax facts and their respective quantification and not when, as in the present case, it is the Taxpayer who must demonstrate the existence of the facts on which its right is based to see certain costs deducted negatively in the calculation of capital gains and, consequently, of its taxable profit. That is why we have said that the AT needs only to demonstrate the verification of the 'fact-indices' (objective and credible indications) which, combined with one another and appraised in light of the rules of experience, allowed it to conclude that the transmission in question did not occur. If it does so, the administrative decision to disregard the expenses in question as part of the acquisition value to be used in the calculation of capital gains will be materially substantiated and, consequently, the presumption of truthfulness of the records, established at the time in art. 78 of the CPT, will be rebutted. It is this same article that states that the presumption established in it may be rebutted, namely, by the verification of "other founded indications that it does not reflect the actual taxable matter of the taxpayer" (That is, although we are dealing with a legal presumption, for it to be rebutted there is no need for proof to the contrary – unlike what, generally, is required regarding such presumptions (cf. art. 350, No. 2, of the CC), since art. 78, in fine, of the CPT establishes, with a special character, a different regime for rebutting the presumption.)."
It concludes in the sense that: "In cases where the correction of the declared taxable matter results from the fact that the AT has considered that certain expenses cannot be included in the acquisition value to be considered in the calculation of capital gains because they relate to assets that were not transferred (reason why, through the process generally referred to as 'arithmetic corrections', it purged such expenses from the acquisition value), it falls to the AT to prove that the legal assumptions legitimizing its action in the direction of the correction of taxable profit are verified (that is, to demonstrate the facts that led it to conclude that those expenses do not refer to the transferred assets), only subsequently falling to the taxpayer the burden of proof of the existence of the facts that it alleged as the basis of its right to see such amounts deducted negatively in the calculation of capital gains. It is sufficient for the AT to demonstrate the verification of the 'fact-indices' (objective and credible indications) which, combined with one another and appraised in light of the rules of experience, allowed it to conclude that the assets to which the expenses in question relate were not transferred and, thus, that the administrative decision to disregard such expenses in the calculation of capital gains is materially substantiated and to rebut the presumption of truthfulness of the records (at the time provided for in art. 78 of the CPT). Having made this demonstration, it then falls to the taxpayer to demonstrate that such assets were actually transferred, it not being sufficient for it to create doubt in this regard (art. 121 of the CPT fails to apply here) since it is not the AT that is invoking the existence of an undeclared tax fact or attributing to a tax fact a dimension different from that declared, in which case doubt would be decided against it, but rather it is the taxpayer that invokes its right to see deducted negatively in the calculation of capital gains the expenses that it says relate to transferred assets, reason why the doubt in this regard is unfavorable to it."
Still within the scope of jurisprudence, although on a different subject, but of relevance for the substantiation of this present arbitral decision, it was decided in the Arbitral Judgment, Case 236/1014-T of 4 May 2015, the following:
"In consequence, it falls to the Tax Administration the burden of proof of the verification of the legal assumptions binding and legitimizing its action, for which it must prove the facts constitutive of which the administrative-tax decision legally depends with certain content and in a certain sense. For its part, it falls to the taxpayer to prove the facts that operate as support for the claims and rights it invokes." (…) "As such, in accordance with the provisions of No. 1 of art. 74 of the LGT, it falls to the Claimant the demonstration of the bases and factual situations on which the adjustments, disregards and regularizations are sustained, which by it were promoted and whose tax relevance and consistency it affirms, thus falling on the Claimant the burden of clarifying, proving and documenting the operations in question and their justification.". (our bold)
(…) In this sequence, it should also be noted that it follows from article 75, No. 1 of the LGT that the declarations of taxpayers, presented in accordance with the terms provided for in the law, as well as the data and calculations entered in their accounting or records, when organized in accordance with commercial and tax legislation, are presumed to be true. However, this presumption ceases namely if those declarations, accounting or records, or their supporting data, present omissions, errors and inaccuracies or if founded indications are collected that they do not reflect or prevent the knowledge of the actual taxable matter of the taxpayer (art. 75, No. 2, sub. a) of the LGT). It is also to be recalled that, pursuant to No. 3 of art. 75 of the LGT, "[t]he evidentiary force of the computerized data of taxpayers depends, unless otherwise provided by special law, on the provision of documentation relating to their analysis, programming and execution and the possibility of the tax administration to confirm them". (…) Now, whenever sub. a) of No. 2 of art. 75 of the LGT applies, "it will be on the taxpayer that the burden of proof of the facts declared or entered in its accounting or records about which there are evidentiary doubts falls", so "doubts that in the judicial proceedings subsist regarding the factual matter cannot be considered founded doubts" for the purposes of No. 1 of art. 100 of the CPPT (see thus Jorge Lopes de Sousa, Code of Tax Procedure and Process annotated and commented, vol. II, 6th ed, 2011, p. 133).
Hence it is incumbent on the Claimant the effective demonstration of the facts entered and of the reasons on the basis of the adjustments made in the accounting, it not being sufficient to merely have doubt about the viability of their justification, since the provisions of No. 1 of art. 110 of the CPPT have their crucial application when it is the Tax Administration that is asserting the existence of the tax facts and their respective quantification (cf., thus, the judgment of the Supreme Administrative Court of 26.2.2014, case No. 0951/11). Thus, the evidence produced must ensure, with the required certainty, that the regularizations and adjustments made possess sufficient consistency and materiality in light of the justifications that govern them."
In any case, regarding the statements of the Claimant, there exists the presumption of truthfulness and good faith, a basic principle established in article 75 of the LGT, which provides: "The declarations of taxpayers presented in accordance with the terms provided for in the law, as well as the data and calculations entered in their accounting or records, when organized in accordance with commercial and tax legislation, are presumed to be true and made in good faith, without prejudice to other requirements on which the deductibility of expenses depends. (As amended by Law No. 80-C/2013 of 31 December)".
The rebuttal of the presumption occurs when: "the declarations, accounting or records reveal omissions (article 75, No. 2 subparagraph a) and when the taxpayer fails to comply with the duties incumbent on it regarding clarification of its tax situation (article 75, No. 2 subparagraph b).
In light of the foregoing, it was incumbent on the Claimant to prove the nature, the characteristics of the expenses by it declared and on the Tribunal to assess whether the same are eligible for purposes of the CFEI.
Reporting to the present case, and regarding the requirements to benefit from the CFEI, as concerns Tool Advance No. 1665 (Tecnimol), it was demonstrated that this is an advance; however the Claimant failed to demonstrate that the expense associated with the investment was incurred between 1 June and 31 December 2013; on the other hand, as regards Comsol Multiphysics software (ADDLINK), the Claimant also failed to demonstrate that the software in question constitutes industrial property expenses or an asset of exclusive use.
For this reason, in accordance with CFEI legislation, such expenses do not fall within the scope of eligible investment to substantiate tax benefits.
Thus, it was not possible for the Tribunal to establish the correspondence between the expenses incurred and the requirements listed in article 4 of the CFEI, because the Claimant failed to demonstrate that the expenses by it declared are subsumed within the expenses with development projects and the expenses with elements of industrial property.
The burden of proof falling on the Claimant, it failed to demonstrate that the amounts and expenses listed in its declarations meet the requirements of article 4 of the CFEI to be considered legally eligible as expenses.
Thus the present tribunal decides that these expenses are not accepted as eligible expenses under the CFEI.
In these terms, in the part relating to the tax benefit of the Extraordinary Investment Tax Credit, the request for arbitral pronouncement will be rejected.
Pursuant to articles 608, No. 2, 663, No. 2 and 679 of the Code of Civil Procedure by application of article 29 of the RJAMT, this Arbitral Tribunal is not obliged to assess all arguments alleged in the initial petition by the Claimant nor in the answer given by the Defendant, when the decision is foreclosed by the solution already given and which translates into the legality of the assessment.
VII - COMPENSATORY INTEREST
The Claimant requests the refund of tax unduly and demonstrably paid with compensatory interest, at the legal rate, pursuant to art. 43-1 of the LGT.
In accordance with the provisions of subparagraph b) of art. 24 of the RJAT, the arbitral decision on the merits of the claim for which there is no appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, said administration being obliged to, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of sentences of tax judicial courts, "restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose", which is in accordance with the provision of art. 100 of the LGT [applicable by force of the provisions of subparagraph a) of No. 1 of art. 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of an administrative claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject of the dispute, comprising the payment of compensatory interest, if applicable, from the end of the period for execution of the decision".
Although art. 2, No. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in the CAAD, making no reference to condemnatory decisions, should be understood, as moreover has been pacifically understood, that included in its competencies are the powers that in a judicial challenge proceeding are attributed to tax tribunals, being this the interpretation that is in accordance with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first directive, that "the tax arbitration process should constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
The judicial challenge process, although it is essentially an annulment process for tax acts, admits the conviction of the Tax Administration in the payment of compensatory interest, as is deduced from art. 43, No. 1, of the LGT, which establishes that "compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there was an error attributable to the services resulting in the payment of the tax debt in an amount greater than legally due" and from art. 61, No. 4 of the CPPT (in the wording given by Law No. 55-A/2010 of 31 December, which corresponds to No. 2 in the original wording), which states that "if the decision that recognized the right to compensatory interest is judicial, the payment period is counted from the beginning of the period for its voluntary execution".
Thus, No. 5 of art. 24 of the RJAT by stating that "the payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process" should be understood as allowing the recognition of the right to compensatory interest in the arbitral proceedings.
In the case at hand, it is manifest that, following the terms set out above, of partial illegality of the self-assessment act, there is place for the refund of tax, by force of the aforementioned arts. 24, No. 1, subparagraph b), of the RJAT and 100 of the LGT, since such is essential to "restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out", in the part corresponding to the correction that was considered illegal.
As regards compensatory interest, it is also clear that the illegality of the act is attributable to the Tax and Customs Authority, which, on its own initiative, carried it out without legal support as the Tribunal recognizes.
There is a defect of violation of substantive law, consisting of an error regarding the legal assumptions, attributable to the Tax Administration.
Consequently, the Claimant has the right to compensatory interest, in accordance with article 43, No. 1, of the LGT and article 61 of the CPPT, calculated on the amount it paid unduly.
Thus, the Tax and Customs Authority must execute this judgment, pursuant to art. 24, No. 1, of the RJAT, determining the amount to be refunded to the Claimant and calculating the respective compensatory interest, at the legal supplementary rate of civil debts, in accordance with arts. 35, No. 10, and 43, Nos. 1 and 5, of the LGT, 61, of the CPPT, 559 of the Civil Code and Ministerial Order No. 291/2003 of 8 April (or subsequent legislation).
Compensatory interest is due on the amount unduly paid in excess and calculated from the date of such payment until the date of processing of the credit note, in which it shall be included (art. 61, No. 5, of the CPPT).
VIII - DECISION
In accordance with the foregoing, this Arbitral Tribunal agrees in finding the petition partially admissible and, in consequence, decides:
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To declare, in the terms set out above, the partial illegality, due to error regarding the factual and legal assumptions, of the decision for partial acceptance of the administrative claim regarding the self-assessment of IRC for the year 2013, in the part in which it disregarded the amount of €71,252.58 relating to RFAI;
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To declare the partial illegality of the IRC self-assessment act for the fiscal year 2013, embodied in Declaration No. ..., in the part relating to the RFAI disregarded (€71,252.58);
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To annul, consequently and partially, the aforementioned IRC assessment;
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To order the Tax and Customs Authority to refund the Claimant the amount of the assessment paid in excess and in the payment of compensatory interest, in the terms set out above;
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To order the Tax and Customs Authority to pay the costs of the proceedings.
Value of the Proceedings
In accordance with the provisions of art. 306, No. 2, of the CPC and 97-A, No. 1, subparagraph a), of the CPPT and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 95,179.00
Costs
Pursuant to art. 22, No. 4, of the RJAT, the amount of the costs is fixed at € 2,754.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Defendant Tax and Customs Authority, as previously decided.
Notify the parties accordingly.
Lisbon, 20 September 2019
The Collective Arbitral Tribunal
José Poças Falcão
(President)
Jorge Carita
(Adjunct)
Rita Guerra Alves
(Adjunct)
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