Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Pedro Carvalho (President Arbitrator), Leonardo Marques dos Santos and Álvaro José da Silva, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree:
I – REPORT
On 16 January 2017, A..., legal entity no. …, with registered office at … Street, no. …, …-…, Sintra filed a request 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 act of rejection of the Hierarchical Appeal filed, relating to the additional Corporate Income Tax (IRC) assessment no. 2013…, for the tax year 2011, in the amount of €123,054.88.
To substantiate its request, the Applicant alleges, in summary:
i. violation of the duty to state reasons, in that, with respect to the correction of the Net Job Creation tax benefit, the Final Inspection Report does not specify which amounts are related to the conversion of employees to permanent contracts, nor which amounts refer to the replacement of workers;
ii. breach of essential formality, due to lack of notification to exercise the right to prior hearing concerning the decision rejecting the hierarchical appeal;
iii. violation of the principle of legality regarding the correction of capital gains with express intention to reinvest; and
iv. violation of the principle of equality as well as illegality with respect to the application of Article 19 of the EBF that led to corrections corresponding to net job creation.
On 18-01-2017, the request to constitute the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).
The Applicant did not appoint an arbitrator, and therefore, pursuant to the provisions of paragraph a) of Article 6(2) and paragraph a) of Article 11(1) of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline.
On 13-03-2017, the parties were notified of these appointments and did not express any wish to reject any of them.
In accordance with the provision of paragraph c) of Article 11(1) of the RJAT, the collective Arbitral Tribunal was constituted on 29-03-2016.
On 15-05-2016, the Respondent, duly notified for such purpose, filed its response defending itself solely through contestation.
Taking into account that none of the legally assigned purposes were present, pursuant to the provisions of paragraph c) of Article 16 and Article 19 of the RJAT, as well as the principles of procedural efficiency and prohibition of useless acts, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with;
The parties were given the opportunity to submit, if they wished, written submissions, which they did, commenting on the evidence produced and reiterating and developing their respective legal positions.
A deadline of 10 days following submission of submissions by the Respondent, or the end of the respective deadline, was set for delivery of the final decision, which deadline was extended by a further 30 days.
The Arbitral Tribunal is materially competent and is properly constituted, in accordance with paragraph a) of Article 2(1) and Article 5 and Article 6(1) of the RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with 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 nullities.
Thus, there is no obstacle to adjudication of the case.
All matters considered, it is now necessary to render judgment.
II. DECISION
A. FACTUAL MATTERS
A.1. Facts Found to be Proven
1- The now Applicant is a company operating in the food distribution sector, and is the owner of various stores located in several locations throughout the country.
2- Under service order no. OI2013…, the Applicant was subject to an inspection procedure to verify and confirm its tax status regarding Corporate Income Tax (IRC) and Value Added Tax (IVA).
3- Following the completion of inspection acts and after the preparation of the "Draft Report", the Tax Inspection Services (SIT) complied with the provisions of Articles 60 of the LGT and RCPIT, notifying the Applicant to exercise the right to prior hearing.
4- Following preparation of the Final Inspection Report, adjustments were determined to the taxable matter, as well as to the tax calculation that resulted in the additional assessment being the subject of the present arbitral action, which related to capital gains concerning the disposal of light passenger or mixed vehicles and to the amounts deducted as the tax benefit for net job creation.
5- In determining the capital gains and losses on 49 light passenger vehicles from fixed tangible assets, the AT considered that the Applicant, by deducting from the acquisition value the amount of depreciation considered for tax purposes, did not comply with the provision of Article 46(2) of the CIRC, which led to an adjustment of €167,215.76.
6- In determining the tax loss concerning one light passenger vehicle from fixed tangible assets, the AT considered that the Applicant did not take into account the provision of Article 45(1)(l) of the CIRC, and proceeded to increase taxable profit by €419.85.
7- Furthermore, the AT considered that the Applicant improperly deducted amounts referring to the increase of charges relating to net job creation, having not complied, in its view, with the requirements established in Article 19 of the EBF, which resulted in a correction of €1,024,597.95 to taxable profit.
8- For purposes of analysis of the increase deducted from taxable profit, the Applicant was notified personally on 09-05-2013 to submit the following elements:
a. Schedule serving as the basis for calculation of the deducted amount, itemized by employee and with an indication, in addition to the value of the charges subject to increase and the increase associated with them, of the name, Tax Identification Number (NIF), date of birth, date of effectiveness, date of termination and working hours;
b. In the case of the tax benefit covering workers hired or who acquired permanent status during the period subject to analysis, the employment contracts concluded between workers hired in 2011 and the taxpayer were further requested, as well as proof of transition to permanent contracts for employees who acquired permanent status during the 2011 period. For these workers, proof was further requested as referred to in paragraphs a) and b) of Article 19(2) of the EBF.
9- Furthermore, from the RIT it appears that:
a. "Thus, employees whose increase was disregarded for the reasons previously described are identified with "(a)" in the listing corresponding to Annex V of this report, with the amount unduly deducted by the taxpayer, as a consequence of the situation described, referring to the employees corresponding to the values entered in the "Correction 1" column of Annex V of this report and amounting to €848,780.03."
b. "according to the elements made available by the taxpayer, it was found that the same had not adjusted the maximum annual increase limit to the period of part-time work, whereby a recalculation of said limit was carried out, taking into account the part-time work period, and the values shown in the column "Maximum increase limit proportional to working hours (AT)" of Annex V of this report were obtained.";
c. "III.1.2. Capital gains with express intention to reinvestment
Article 46(1) of the CIRC relates to the concept of capital gains and losses, considering that these represent gains acquired or losses suffered concerning assets of the asset through their paid transfer, as well as those resulting from damage or permanent allocation of such assets to purposes unrelated to the activity carried on.
In turn, Article 46(2) supra-mentioned states that "capital gains and losses are given by the difference between the realization value (...) and the acquisition value deducted (...) of impairment losses and other value corrections provided for in Article 35, as well as of depreciation or amortization accepted for tax purposes (...)"
However, the instructions contained in Schedule 31, relating to the determination of capital gains and losses, state that in the case of light passenger or mixed vehicles that are not allocated to the operation of public transport services nor are intended to be leased in the normal course of the taxpayer's activity, the depreciation practiced in determining capital gain or loss is relevant for tax purposes.
In turn, account must also be taken of the provision in Circular no. 6/2011 of DSIRC, which establishes, in its point 32.1, that the calculation of capital gain or loss for tax purposes is carried out in accordance with the provision of Article 46(2) of the CIRC, and the depreciation practiced should be considered in the respective calculation formula.
In the 2011 period, the taxpayer determined, concerning the disposal of various assets from fixed tangible assets, a positive difference between capital gains (€73,866.38) and capital losses (€7,224.67), having entered in field 740 of table 07 of DRM22 the amount of €33,320.85 [(€73,866.38 - €7,224.67) x 50%], in accordance with the provision of Article 48(1) of the CIRC, by reason of having expressly manifested the intention to proceed with reinvestment of the realization value associated with them, reinvestment that was effected in the year 2011.
Following the analysis carried out on Schedule 31 of capital gains and losses, it was found that the taxpayer disposed of 49 vehicles from its fixed tangible assets, acquired in the years 2001 to 2008, whose acquisition values exceeded €29,927.87. Following these disposals, it determined on Schedule 31 a positive difference between capital gains (€29,728.03) and capital losses (€7,224.67) in the amount of €22,503.36, as shown in the calculations in Annex IV of this report. However, for the calculation carried out, and concerning each of the 49 vehicles disposed of, the depreciation accepted for tax purposes was taken into account in column 10 of the respective schedule instead of the accounting depreciation practiced, as is evident from the instructions contained in said schedule and as stipulated in Circular no. 6/2011 of DSIRC.
Now, paragraph e) of Article 34(1) of the CIRC, Article 11(1) of DR 25/2009, of 14/09 and Ordinance no. 467/2010, of 07/07, in establishing a limitation on the tax-depreciable value of light passenger or mixed vehicles (€29,928.87 in periods prior to 2010, €40,000.00 in the 2010 period and €30,000.00 in the 2011 period), impels that depreciation calculated on the limits so defined shall not contribute to the determination of taxable profit.
Indeed, if the purpose of the standard of paragraph e) of Article 34(1) of the CIRC is to limit depreciation of vehicles in excess of a certain value, it makes no sense to admit that, upon disposal of the asset, the Tax Authority annuls that normative scope by using, in calculating capital gains and losses for tax purposes, the depreciation fiscally accepted instead of that accounted for.
It follows therefrom that, upon disposal of these assets, in determining capital gains or losses for tax purposes, the values relevant are those of the actual acquisition cost (and not the limit value) and those of depreciation practiced in accounting (and not the respective maximum value recognized for tax purposes), as expressly clarified in the instructions for completing Schedule 31 of capital gains and losses and in the aforementioned Circular.
In the concrete situation, where 48 of the 49 vehicles are fully depreciated at the moment of their disposal, it is found that their accounting value is nil (which means that the asset was used by the Company during its entire useful life), whereby the value of the capital gain for tax purposes is exactly equal to that of the accounting capital gain, corresponding to the realization value.
Indeed, and in accordance with the values shown in Annex IV, if for the calculation of capital gain or loss for tax purposes we deduct from the acquisition value the amount of depreciation practiced and not that of depreciation accepted for tax purposes, we find that there is a positive difference between the capital gain determined concerning the disposal of the 48 fully depreciated vehicles (€359,290.00) and the capital loss for tax purposes of the non-fully depreciated vehicle (€2,355.14), in the amount of €356,934.86, and not €22,503.36, as had been determined by the taxpayer, recording, in this manner, a difference of €334,431.50 (€356,934.86 – €22,503.36).
Thus, the positive difference between the capital gains (€403,428.35) and capital losses (€2,355.14) determined on Schedule 31 amounts to €401,073.21, and not €66,641.71, the value determined by A..., whereby in field 740 of table 07 of DRM22 the amount of €200,536.60 (€401,073.21 x 50%) should have been entered.
Thus, in light of the foregoing, the legislation invoked and the calculations made, and taking into account that the taxpayer mentioned the intention to reinvest the realization value, in table 09 of Annex A of the IES, in accordance with the provision of Article 48 of the CIRC, a correction is made, for purposes of determining taxable profit, of the amount of €167,215.75 (€334,431.50 x 50%), corresponding to 50% of the difference between the capital gains and losses determined by the Tax Authority and the capital gains and losses determined by the taxpayer."
d. "It is therefore found that it is the date of hire (or transition) to a permanent contract that is relevant for purposes of determining net job creation in a given tax year and which permits entities subject to IRC to deduct at an increased rate the charges incurred with workers who generated it that were initially selected (only these specifically) for such purpose, over the five years following the start of said contract (one same contract/worker and one same job position), within the legally expressed limits.
e. Contrary to what is argued by the appellant, this tax benefit is temporally limited to a period of five years commencing on the date of the start of effectiveness of the employment contract as per Article 19(5) of the EBF. The mention "of the employment contract" inscribed in that standard clearly refers to the employment contract of a particular worker who, in addition to meeting the conditions of eligible entry, was nominally selected for purposes of defining net job creation in the relevant tax year. Only in this way is the objective pursued with the introduction of this tax benefit regarding the creation of stable and lasting employment achieved."
f. "That is to say, even if in subsequent tax years there is no net job creation, it is always possible to make the deduction until completing the five years of validity of the permanent contract, provided that the workers forming part of the net job creation remain employed by the company in those periods.
Should any of the entries (workers) eligible and selected "ab initio" by the entity subject to IRC for purposes of calculating the tax benefit under the conditions of Article 19 of the EBF cease their contractual relationship with the company during the five-year period following the start of the permanent contract, the possibility of increasing charges shall cease due to the obvious non-existence of a calculation base, given the non-existence of charges concerning that specific worker."
10- The Applicant submitted a request for ex officio review of the subsequent assessment act, which was the subject, on 12-10-2015, of a rejection decision with the grounds stated in Information no. …-…/2015.
11- Prior to the rejection decision referred to, the Applicant was notified to exercise its right to prior hearing.
12- The Applicant appealed hierarchically against the rejection referred to, through a petition filed on 13-11-2015, the appeal being partially upheld by decision of 10-10-2016, with the grounds of Information no. I2016…, of 09-05-2016.
13- Prior to the partial approval decision referred to, the Applicant was not notified to exercise its right to prior hearing.
A.2. Facts Found to be Unproven
With relevance to the decision, there are no facts that should be considered as unproven.
A.3. Substantiation of Proven and Unproven Factual Matters
With respect to factual matters, the Tribunal does not need to pronounce on everything alleged by the parties, but rather has the duty to select the facts that are important for the decision and to distinguish proven from unproven matters (cf. Article 123(2) of the CPPT and Article 607(3) of the Civil Procedure Code (CPC), applicable by virtue of Article 29(1), paragraphs a) and e), of the RJAT).
Thus, the facts relevant for adjudication of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (cf. Article 511(1) of the CPC, corresponding to current Article 596, applicable by virtue of paragraph e) of Article 29(1) of the RJAT).
Thus, taking into account the positions taken by the parties, in light of Article 110(7) of the CPPT, the documentary evidence and the record attached to the file, the facts listed above were considered proven, with relevance to the decision, bearing in mind that, as was written in the Decision of the TCA-South of 26-06-2014, rendered in process 07148/13[1], "the probative value of the tax inspection report (...) may have probative force if the assertions contained in it are not challenged".
B. LAW
The Applicant begins by arguing lack of statement of reasons of the tax act subject of the present arbitral action, in that "From the statement of reasons provided when the Final Inspection Report was delivered, the now APPLICANT could not determine with precision the quantum of rejection for two of the corrections made by the AT", specifically with respect to "the conversion of employees from fixed-term contracts to permanent contracts and the replacement of employees initially considered", since "the AT made the correction to the tax benefit for Net Job Creation without specifying (a) which amounts are related to the conversion of employees and (b) which amounts refer to the replacement of workers."
As is well known, and both parties recognize it, statement of reasons is a requirement of tax acts in general, being a constitutional requirement (Article 268 of the CRP) and legal requirement (Article 77 of the LGT).
Briefly, it can be said that it is now settled in Portuguese doctrine and case law that the required statement of reasons must have the following characteristics:
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Officiousness: must always proceed from the initiative of the administration, with ex officio statements of reasons not being admissible;
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Contemporaneity: must be coeval with the performance of the act, with deferred statements of reasons not being permitted;
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Clarity: must be comprehensible to an average recipient, avoiding polysemic or deeply technical concepts;
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Completeness: must contain all essential elements that were determinative of the decision taken. This characteristic unfolds into two requirements, namely: the duty of justification (legal standards and factuality – domain of legality) and of motivation (domain of discretion or opportunity, when evaluation is necessary).
Now, if statement of reasons is, in the terms referred to, necessary and mandatory, such cannot and should not be understood in an abstract and/or absolute manner, that is, the statement of reasons required of a concrete tax act should be that which functionally is necessary so that it does not present itself to the taxpayer as a pure demonstration of arbitrariness. This will be – it is thought – the touchstone of compliance with the duty to state reasons: when, before an average recipient placed in the position of the real recipient, the tax act presents itself, from a point of view of reasonableness, as a product of pure arbitrariness of the Administration, because the factual and/or legal reasons on which it rests are not discernible, the act will suffer from lack of statement of reasons.
In this same sense, the case law of the STA is oriented, which considers that "the required statement of reasons of law of the tax act will be sufficient with the reference to the relevant legal principles, to the applicable legal regime or to a determined normative framework, provided that, in any case, it can be concluded that those were known or knowable by a normal recipient placed in the concrete position of the real recipient."[2].
Article 77(1) of the LGT thus states: "The decision of procedure is always reasoned by means of a brief exposition of the facts and law reasons that motivated it, the statement of reasons being able to consist of a mere declaration of agreement with the grounds of earlier opinions, information or proposals, including those forming part of the tax inspection report.".
Descending to the concrete case, it is found that the assessment acts in question occurred following an inspection act and in compliance with the tax inspection report approved by decision, report in which the grounds of the assessments in question appear, which the Applicant, since the administrative complaint, has demonstrated to understand, taking, in a reasoned manner, the decision not to accept.
Specifically, and with respect to the doubt raised by the Applicant regarding its inability to determine with precision the quantum of rejection for the corrections made by the AT concerning the conversion of employees from fixed-term contracts to permanent contracts and the replacement of employees initially considered, it is found that from the inspection report it expressly appears that such calculations were based on the schedule made available by the Applicant concerning the calculation of the tax benefit in question and the listings of workers that constituted net job creation in 2006, with workers whose increase was disregarded for the reasons in question being identified with the letter "(a)" in the listing of Annex V to the RIT.
It is thus found that, although, as the Applicant refers, the RIT does not specify which amounts are related to the conversion of employees and which amounts refer to the replacement of workers, it provides those receiving it with sufficient data to carry out such calculations.
The circumstance, pointed out by the Applicant, that the numbers resulting from such calculations may differ between the RIT and the decision of the Hierarchical Appeal, does not prevent such conclusion, nor does the possibility that the Applicant may understand and demonstrate that, based on the elements indicated, the results should be different, or even that it is not possible to precisely determine each relevant amount.
Indeed, such situation will be reduced not to a lack of statement of reasons but to incorrect statement of reasons.
As was written in the Decision of the STA of 28-09-2011, rendered in process 0494/11:
"II - The statement of reasons of the tax assessment act is not obscure nor insufficient if it explains the reasons that led the Tax Authority to make the correction to the taxable matter declared (...)
III - The fact that, possibly, the substantial force of the grounds adduced in the reasoned discourse is insufficient or unfit, from a legal point of view, to support the correction made, is a matter that does not concern the formal statement of reasons of the act, but rather its substantive statement of reasons."
Thus, it is understood that, considering the concrete context in which the assessment act in question in the present proceedings was produced, it will be perceptible to an average recipient placed in the position of the real recipient that the grounds of those are those stated in the inspection report that preceded it, and it is certain that it appears even clearer that the Applicant understood exactly that, whereby the alleged vice of lack of statement of reasons should fail.
Also on the formal side, the Applicant argues the proven lack of notification to exercise the Right of Prior Hearing, concerning the decision of partial rejection of the Hierarchical Appeal it filed.
As Carla Castelo Trindade explains[3], "the vices peculiar to acts rejecting administrative complaints and hierarchical appeals or requests for review of the tax act are not arbitrable because they escape the substantive scope of tax arbitration. In other words, these rejection acts can only be "brought" to arbitral jurisdiction under the strict condition that they themselves have assessed the (il)legality of the tax act that the taxpayer, truly and actually, intends to challenge by arbitral means.". That is, "The object of the request for arbitral ruling shall then be the (il)legality of the first-instance tax act, regardless of whether the taxpayer points as the object of its arbitral action this (the first-instance act), or that of the second instance, this always provided that the second instance act assesses the (il)legality of the first-instance act.".
Without prejudice to the aforesaid regarding the competence issues described, it will always be said that, substantively, the Applicant is not correct.
Indeed, notwithstanding doctrine raising doubts of constitutionality concerning Article 60(3) of the LGT[4], which it is not necessary to develop here, it is necessary not to forget the exact terms in which the law permits the waiver of the right to hearing: "If the taxpayer has previously been heard in any of the phases of the procedure referred to in paragraphs b) to e) of Article 60(1), its hearing before assessment is waived, except in the event of invocation of new facts on which it has not yet pronounced itself" (emphasis added). Thus, even if the exercise of the Right of Prior Hearing would permit the Applicant to "in particular, invoke the lack of statement of reasons", and that "there are new elements in the Hierarchical Appeal", namely "a change in the values subject to correction by the AT in the scope of the Net Job Creation tax benefit", there would be no violation of the provision of Article 267(5) of the CRP and of Article 60 of the LGT.
Indeed, the vices or deficiencies peculiar to the act performed are, manifestly, not "new elements" and much less "new facts" as the law requires. The same applies to the consideration of lesser values for the correction relating to tax benefits, which results from a different consideration or evaluation of the same elements, in light of the arguments provided by the Applicant itself, and to the benefit of the latter.
Thus, and for all the foregoing, the arbitral request should also fail in this part.
The Applicant then contests the correction made by the AT, in the tax act sub judice, concerning capital gains with express intention to reinvestment, regarding which it was considered that the determination of capital gains concerning the disposal of light passenger or mixed vehicles had been made incorrectly.
In this regard, the AT understood that, for purposes of determining capital gains or losses for tax purposes, consideration should be given not to the amount of depreciation accepted for tax purposes but to the amount of depreciation practiced in accounting.
The said Authority essentially bases its understanding on the RIT and, by reference, on Circular no. 6/2011 of DSIRC, in the consideration that the legal intention would be "the non-recovery, upon sale, of the amount of depreciation practiced that, by force of the limitation of the depreciable value established by law, was not fiscally accepted in the period during which the asset was being depreciated.".
At issue is, in the first place, the application of Article 46(2) of the CIRC, which in the applicable wording prescribed:
"2 - Capital gains and losses are given by the difference between the realization value, net of charges inherent thereto, and the acquisition value deducted of impairment losses and other value corrections provided for in Article 35, as well as of depreciation or amortization accepted for tax purposes, without prejudice to the final part of Article 30(5)."
Not being at issue the application of the final part of Article 30(5), the question is whether the reference made in the normative transcribed to "depreciation or amortization accepted for tax purposes" should be understood in its literality, as the Applicant contends, or whether, as the AT considered, it should be interpreted correctively, as regards light passenger or mixed vehicles whose acquisition or revaluation value exceeds the limit provided for in Article 34(1)(e) of the CIRC, in the sense that in those cases attention should be given not to "depreciation or amortization accepted for tax purposes", as expressly mentioned, but to depreciation or amortization actually practiced in accounting by the taxpayer.
The answer to such question implies a due valuation of the literal element of interpretation, which results in a declarative interpretation (and not corrective) of the norm being interpreted.
Not being of interest now to develop the controversial question of the admissibility of corrective interpretation in the national legal order, nor the even more controversial question of the admissibility of corrective interpretation in the scope of tax law, it will always be confirmed that the ground invoked by the AT for the hermeneutics sustained by it is not even fit to underpin the conclusion drawn by it, in that it is not to be had as sufficiently intelligibly resulting from the legal order globally considered, that, in the words of the Illustrious Master Prof. Doctor Baptista Machado[5], the law "taken to the letter, encompasses other [hypotheses] that decidedly are not [in its] spirit", that we are truly before "aborted legislative formulas or true oversights" or that "the normative formula is so poorly inspired that it does not even manage to allude with minimum clarity to the hypotheses it intends to encompass and, taken to the letter, encompasses others that decidedly are not in the spirit of the law" and that, for this reason it becomes necessary "to go further and sacrifice, in obedience still to legislative thought, part of a normative formula".
It being true that, as the AT refers, the standard of Article 34(1)(e) of the CIRC limits, in the hypotheses encompassed by it, the value of depreciation fiscally accepted, and that the consideration of these for purposes of determining capital gains and losses, as expressly prescribed by Article 46(2) of the CIRC in question, may lead to situations in which the depreciation whose fiscal relevance was excluded by that first standard fiscally benefits the taxpayer, it is no less true that it cannot be affirmed that this is due to an oversight or ineptitude of the legislator.
In order to validate such conclusion, it is not sufficient, as the AT did, to verify that the effect of Article 34(1)(e) of the CIRC is not maintained in certain cases of literal application of Article 46(2) of the same Code, it being further necessary to verify what the ratio legis of that first standard is, and to demonstrate that the same is flagrantly emptied in those referred cases.
Now, in the case, that is not what happens.
The regime of Article 34(1)(e) of the CIRC has underlying it, in a line of continuity with the regime of autonomous taxation of charges with vehicles, the consideration that the use by companies of vehicles above a certain value does not have a justification wholly of a business character, being, essentially, in function of such judgment that the limitation of depreciation and reinstatement will be justified in the terms established there.
In cases encompassed by Article 46(2) of the CIRC, we are no longer in the field of use of vehicles by the IRC taxpayer, but in the scope of its disposal, which means that the standard in question operates, precisely, in the cases in which that party ceases to have availability in their sphere of the vehicle whose use the law has, in the scope of Article 34(1)(e), as not wholly justified from a business perspective. That is, put another way, in the hypotheses of operativity of Article 46(2) in question, the taxpayer is, precisely, acting in the sense intended by the legislator in the scope of the standard of Article 34(1)(e), disposing of the vehicle(s) whose acquisition and use the legislator intends to discourage.
On the other hand, the effects of the declarative interpretation of Article 46(2) of the CIRC do not completely overlap with the effects of Article 34(1)(e) of the same Code, since by force of the latter, as long as it does not proceed with the disposal of the vehicles encompassed by the corresponding regime, the taxpayer will present a higher taxable profit or a lower taxable loss than would exist if it were not for such regime, with all the consequences resulting therefrom.
Hence, being at issue situations that are distinct in relevant respects, it cannot be affirmed, as was pointed out above, that the literal content of Article 46(2) of the CIRC in question suffers from a true oversight or constitutes an aborted legislative formula, since the tenor of the same, although it may be had – such is the AT's perspective – as not corresponding to the wisest of legislators, is not incompatible with the standard of a reasonable legislator, in the terms generically understood in the context of current practices, with no violation of taxation based on actual profit being verified, all the more so as there is no demonstration of any circumstances pointing to or suggesting that the variations in patrimony of the Applicant resulting from the disposals in question are effectively greater than those that were corrected.
Thus, it is judged that the correction now under consideration is based on an error of law – due to incorrect interpretation of the provision of Article 46(2) of the applicable CIRC – and as such should be annulled, the arbitral request proceeding in this part.
The Applicant finally questions the corrections relating to the tax benefit for net job creation (CLPT), arguing, in sum, that:
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For purposes of calculating the remaining period of the tax benefit, it can be admitted that the workers selected for the Net Job Creation tax benefit be replaced by other workers, equally eligible but who, ab initio, were not selected to have their respective charges increased; and that
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The maximum amount of the annual increase, provided for in Article 19(3) of the EBF, should not be adjusted proportionally to the normal working period of each worker selected for the same, i.e., the increase for a part-time worker should not be proportionally reduced to its normal working period.
Let us examine each of these questions.
At issue is the tax benefit provided for in Article 19 of the EBF (job creation for young people), which in the wording applicable to the tax fact sub judice has the following tenor:
"1 — For the determination of taxable profit of taxpayers subject to IRC and of taxpayers subject to IRS with organized accounting, the charges corresponding to net job creation for young people and for long-term unemployed, hired by permanent employment contract, are considered at 150% of the respective amount, accounted for as an expense of the fiscal year.
2 - For purposes of the provision of the preceding number, the following are considered:
a) 'Young people' workers aged over 16 and under 35 years, inclusive, assessed on the date of conclusion of the employment contract, with the exception of young people under 23 years of age who have not completed secondary education and are not attending an education-training offer that permits raising the level of education or professional qualification to ensure the completion of said level of education;
b) 'Long-term unemployed' workers available for work, under the terms of Decree-Law no. 220/2006, of 3 November, who are unemployed and registered at employment centers for more than 9 months, without prejudice to the fact that temporary contracts may have been concluded during that period for a period of less than 6 months, whose combined duration does not exceed 12 months;
c) 'Charges' amounts borne by the employer concerning the worker, as remuneration and contributions to social security payable by the same entity;
d) 'Net job creation' the positive difference, in a given fiscal year, between the number of eligible hires under paragraph 1 and the number of exits of workers who, on the date of their hire, were in the same conditions.
3 — The maximum amount of the annual increase, per job position, is that corresponding to 14 times the guaranteed minimum monthly remuneration.
4 - For purposes of determining net job creation, workers who form part of the household of the respective employer are not considered.
5 — The increase referred to in paragraph 1 applies during a period of five years from the start of the validity of the employment contract, not being cumulative 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 position.".
Reviewing the applicable standard, it is found that the same provides, in what is relevant for the case, that:
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"the charges corresponding to net job creation (...), are considered at 150% of the respective amount, accounted for as an expense of the fiscal year.";
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"the following are considered: (...) 'Net job creation' the positive difference, in a given fiscal year, between the number of eligible hires under paragraph 1 and the number of exits of workers who, on the date of their hire, were in the same conditions.".
Combining the two normative segments highlighted, it is found that the standard resulting from such operation goes in the sense that "the charges corresponding to the positive difference between the number of eligible hires under paragraph 1 and the number of exits of workers who, on the date of their hire, were in the same conditions, are considered at 150% of the respective amount, accounted for as an expense of the fiscal year.".
This statement allows immediately to understand that the relevance of charges for consideration at 150% of the respective amount is assessed in function of a difference of numbers (and not of a concrete group of workers) of hires (and not of concrete contracts) eligible (and not elected). The fact that the law uses a numerical criterion "positive difference" does not in any way call into question the extra-fiscal objective of creating new job positions or facilitating insertion or reinsertion into the labor world, revealing only a concern with global and objective accounting that does not have each worker as reference, i.e., subjective accounting. All these notes point in a sufficiently clear manner in the sense that for purposes of calculating the remaining period of the tax benefit, it can be admitted that workers selected for the Net Job Creation tax benefit be replaced by other workers, provided they are equally eligible, but who, ab initio, were not selected to have their respective charges increased.
Indeed, the tenor of the normative regime in question shows that relevance is in the difference between the number of hires and the number of exits of eligible workers, and not between the number of hired workers and the number of exits of the same, as is underlying the interpretation seconded by the AT, being irrelevant, in the perspective of such regime, that the procedures of the administrative organization for processing the benefit pass through the individualization of workers relevant for the purpose.
The circumstance that in Article 19(5) in question it is stated that the increase applies "during a period of five years from the start of the validity of the employment contract" does not prevent the understanding set forth.
Thus, and in the first place, the standard in question does not deal with defining the requirements for enjoying the tax benefit in question, but only with determining how the deadline for the duration of the same is to be counted.
On the other hand, the said standard is part of a group of provisions of the regime in question that, pointedly, give relevance to the workers who concretely compose the number considered for the benefit in analysis, as happens with the exclusion of "workers who form part of the household of the respective employer", and of cumulation with other tax benefits of the same nature and other employment support incentives provided for in other laws, concerning the same worker.
These provisions, which would precisely justify that from the point of view of administrative control the need for individualization of the workers to which the benefit enjoyed concretely relates be imposed, point rather in the sense that, to the extent the legislator considered such individualization relevant, expressed it duly, which, as was seen, does not occur in the formulation of the requirements necessary for such enjoyment.
It also seems striking that in paragraphs 1 to 4 of Article 19 of the EBF the law globally refers to "job positions", only alluding to "employment contract" to specify the type of labor relationship (i.e., permanent). Thus, once more, without prejudice to the fact that it can be invoked, in the sense of an individualized analysis (contract by contract), the fact that Article 19(5) of the EBF establishes that the five-year period is counted "from the start of the validity of the employment contract", it will always be stated that, not only is the unnamed and collective reference to "job positions" preponderant and prevalent throughout the entire article, but the initial point of the counting of the five-year deadline would always have to be based on a specific contract. The counting could not have as its starting point "a" – any – employment contract, but rather "the" eligible employment contract, which can be subsequently replaced by a new employment contract, also eligible.
It is also not accepted the understanding that "the replacement of a worker already linked to R., by another who ceases their employment contract, does not constitute an actual increase in the number of workers, nor of job positions, requirements for the granting of the benefit – that is, does not meet the requirement of 'net job creation'". Indeed, the judgment of whether or not there is an actual increase in the number of workers must necessarily be made in light of the legal criterion, that is, in function of the difference between the number of eligible hires under paragraph 1 and the number of exits of workers who, on the date of their hire, were in the same conditions, and not, obviously, in function of other criteria, such as that of the number of workers who at the moment of replacement were employed.
It is also not accepted the argument that the aforesaid understanding contradicts the protection of an extra-fiscal public interest – that of increased durable and stable employability, as the Respondent alleges, since said public interest is duly ensured with the net increase, in the terms prescribed by Article 19(2)(e), of the number of permanent employment contracts, since, furthermore, the regime proper to such contracts prevents the employer, beneficiary of the tax benefit in discussion, from freely terminating such contracts, which shall only be terminated for objective causes and/or attributable to the worker, circumstances that, obviously, escape the domain of the said entity.
This circumstance, moreover, militates in favor of the interpretation now proposed, in that, escaping, as a rule, the will of the beneficiary entity of the benefit, the situations of termination of employment contracts on which the benefit depends, it would be inadequate that, upon termination of a contract determined by reasons unrelated to the beneficiary (casual or attributable to a third party), the same be deprived of the benefit, even in the case where it assured, in the terms of the law, the net increase of job positions justifying that.
Thus, and in light of all the foregoing, considering that for purposes of the tax benefit referred to in Article 19 of the EBF the relevant charges are those corresponding to the positive difference between the number of eligible hires under paragraph 1 and the number of exits of workers who, on the date of their hire, were in the same conditions, 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 the present arbitral action will suffer from error in the presuppositions of law and as such should be annulled, the arbitral request proceeding to the same extent.
Finally, to be resolved by this arbitral Tribunal is the question of whether the maximum amount of the annual increase, provided for in Article 19(3) of the EBF, should, or should not, be adjusted proportionally to the normal working period of each worker selected for the same, that is, whether the increase for a part-time worker should, or should not, be proportionally reduced in measure of its normal working period.
In relation to such question, the AT understood that the answer should be affirmative, that is, that being at issue the hiring of part-time workers, the maximum limit of the tax benefit in question should be reduced in the same proportion existing between the part-time hours in question and the full-time hours.
The Respondent argues, in sum, in such matter, that, in the terms of the law, the right to the increase of eligible charges is assessed on the basis, inter alia, and for purposes of calculating charges, of the indicator "minimum wage" and "guaranteed minimum monthly remuneration" determined by law, which has as its presupposition work on a full-time basis, which on the date relevant to the proceedings was 40 hours per week, whereby it must be concluded that the increase to which Article 19 alludes has in view the occupation of a full-time job position.
For the Respondent, the failure to adjust the amount of the guaranteed minimum monthly remuneration for purposes of Article 19(3) would result in a skewing of the amount of the benefit in favor of hiring part-time workers to the detriment of hiring full-time workers, which contradicts the objectives pursued with the application of the measure in question, in addition to which it would always result in unequal treatment between entities proceeding with full-time hiring and those hiring part-time.
With due respect, it is judged that the argumentation set forth contains an error of principle, resulting from assuming that the intention of the Law is to ensure the occupation of the worker's time and not their income.
Indeed, and always with due respect to other opinions, it is considered that from the point of view of the public interest, the value of job creation (and in the case, of stable employment), lies in the income that it ensures to the worker, and not in the volume of time that the latter occupies.
Said another way, a job will be all the more valuable from a tax perspective the higher the income it ensures to the worker, and not the larger the portion of the worker's time it absorbs.
Hence it is considered that for purposes of the tax benefit in question, what is relevant is the value actually paid to the worker (the charges actually incurred with this worker), and not the time that the latter has to work to obtain such value.
Such understanding, contrary to what the Respondent maintains, does not lead to any skewing, since, as can be seen, it will be indifferent, in the perspective of the tax benefit in question, whether hiring occurs on a part-time or full-time basis. Skewing would result, rather, from the adoption of what the Respondent proposes, which would translate into an incentive for full-time hiring, yes, but with low salaries, and into a disincentive for part-time hiring with higher salaries, as well as more qualified labor, it being necessary not to leave out of consideration that we are always and in all cases (full-time or part-time), before permanent employment contracts, whereby part-time contracts will always tend to see their hours extended, since between committing to new permanent employment contracts or extending the duration of existing contracts, the tendency of companies will, as a rule, be in the latter direction.
It is also not found, contrary to what the Respondent suggests, in reason of the understanding just set forth, any breach of the principle of equality in function of any relevant interest forming part of the legal regime in question.
Thus, proceeding with the example that comes in the record from the procedural phase[6], it will be added to the same, for better understanding, two other situations of workers hired with the same schedules but earning the national minimum wage.
In this manner, viewed in this more comprehensive perspective, it is found that, as the AT points out, in the perspective now subscribed, entities hiring workers at a salary of €1,000.00 per month will enjoy the same value of the benefit whether the worker is hired full-time or part-time.
However, the same occurs with entities hiring workers in the same terms with a salary, for example, of €10,000.00 per month. This is, in all cases, the operativity peculiar to the maximum limit of the tax benefit, which sets the maximum charge that the State is willing to bear to serve the interest pursued with it, and which as such does not contain any violation of the principle of equality.
Already taking into account the situations above added to the example, it is found that following the position subscribed to by the Respondent, entities hiring with minimum wage would enjoy the same benefit as entities hiring at a salary of €1,000.00.
Now, this situation is what would constitute an incentive for hiring with low wages (and consequently of less qualified labor) and inequality in the face of the values underlying the tax benefit in analysis, since entities creating employment with an equal value (paying the worker the same salary but requiring fewer hours of work) would have a smaller tax benefit than other entities (paying the worker the same salary but requiring more hours of work).
Thus, and in light of all the foregoing, it is considered that there is no ground for the interpretation underlying the correction now in question, made and applied by the AT, the same suffering from error in the presuppositions of law and as such should be annulled, the arbitral request also proceeding in this part.
As to the request for compensatory interest formulated by the Applicant, Article 43(1) of the LGT establishes that compensatory interest is owed when it is determined that there was error attributable to the services that results in payment of the tax liability in an amount greater than legally owed.
In the case, the errors affecting the assessment are attributable to the Tax Authority and Customs Authority, which performed the illegal assessment act on its own initiative.
The Applicant therefore has the right to be reimbursed of the amount it unduly paid (in accordance with the provision of Articles 100 of the LGT and Article 24(1) of the RJAT) and also to be indemnified for the unduly made payment through payment of compensatory interest by the Respondent, from the date of payment of the amount, until reimbursement, at the legal supplementary rate, in accordance with Articles 43(1) and 43(4) and Article 35(10) of the LGT, Article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.
C. DECISION
In these terms, this Arbitral Tribunal decides to find the arbitral request procedurally sound and, in consequence,
a) Annul the additional Corporate Income Tax (IRC) assessment no. 2013…, for the tax year 2011, in the amount of €123,054.88;
b) Determine the restitution to the Applicant of the tax improperly assessed and paid;
c) Condemn the Respondent to pay compensatory interest, in the terms discriminated above;
d) Condemn the Respondent to bear the costs of the proceedings, in the amount of €3,060.00.
D. Process Value
The process value is set at €123,054.88, in accordance with Article 97-A(1)(a) of the Code of Procedure and Tax Process, applicable by force of paragraphs a) and b) of Article 29(1) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The arbitration fee is set at €3,060.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely procedurally sound, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of said Regulation.
Notification ordered.
Lisbon 25 August 2017
The President Arbitrator
(José Pedro Carvalho - Rapporteur)
The Member Arbitrator
(Leonardo Marques dos Santos)
The Member Arbitrator
(Álvaro José da Silva)
[1] Available at www.dgsi.pt, as is the remaining jurisprudence cited without indication of source.
[2] Cf., for example, Decision of the STA of 08-06-2011, rendered in process 068/11.
[3] Legal Regime for Arbitration in Tax Matters - Annotated, Almedina, 2014, p. 70.
[4] Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law Annotated and Commented, 4th Edition, 2012, pp. 508-509.
[5] Introduction to Law and Legitimating Discourse, Almedina, 20th reprint, 2012, p. 186.
[6] Worker "A", who begins a permanent employment contract on a full-time basis (40 hours per week) on 01 March 2011, with annual charges subject to increase of €14,000.00 (€1,000.00/month), and workers "B" and "C" eligible and selected for purposes of the tax benefit, who begin a permanent employment contract on a part-time basis (20 hours per week/weekends), on 01 March 2011, with charges subject to increase of €7,000.00 each (€500.00/month).
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