Process: 6/2016-T

Date: September 22, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 6/2016-T) concerns the statute of limitations (caducidade) for additional IRC (Corporate Income Tax) assessments related to de minimis aid rules. The claimant company challenged an additional IRC assessment of €33,233.87 for tax year 2011, arising from exceeding the €500,000 de minimis threshold when claiming the inland location tax benefit (benefício fiscal de interioridade) under Article 43(1) of the Tax Benefits Statute. The company declared accumulated de minimis aid of €537,921.36 over three years (2009-2011) in field 905 of Table 09 of the Modelo 22 tax return but failed to report the excess amount in field 906 and field 372 as required. The company argued the assessment violated the statute of limitations under Article 45(2) of the General Tax Law (LGT), claiming the error was evident from the declaration itself and required no external documentation to detect. The company contended that tax authorities could identify the excess merely by examining Table 09 and consulting Annexes D from prior years 2009-2010. The Tax Authority countered that this was not an evident error detectable through simple examination, as determining the correct amounts required analyzing Form 22 declarations and IES statements across multiple years, applying different tax rates (25% standard rate and 12.5% reduced rate for amounts up to €12,500). The company itself admitted during the hearing that it had incorrectly calculated the benefit amounts by only considering the 25% rate. The Tax Authority recalculated the benefit amounts as €42,940.12 (2009), €243,860.07 (2010), and €246,433.68 (2011), totaling €533,233.87, with the excess of €33,233.87 subject to regularization. The central legal question is whether Article 45(2) LGT's shorter statute of limitations applies to errors evident in declarations or whether the standard assessment period governs this correction.

Full Decision

ARBITRAL DECISION

Arbitrator Raquel Franco, designated by the Ethics Council of the Administrative Arbitration Centre (CAAD) to form the singular arbitral tribunal constituted on 04 April 2016, decides as follows:

I. STATEMENT OF FACTS

  1. On 08.01.2016, the company "A…– SGPS S.A.", NIPC … filed a request for constitution of a singular arbitral tribunal, in accordance with and for the purposes of the provisions of articles 2.º and 10.º of Decree-Law no. 10/2011, of 20 January (Legal Regime of Tax Arbitration, hereinafter, "LRTA"), with the Tax and Customs Authority (hereinafter, "TCA") being requested.

  2. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the TCA on 28.01.2016.

  3. Following the other procedural formalities provided for, the arbitral tribunal was constituted on 04.04.2016, in accordance with the provisions of sub-paragraph c) of no. 1 of article 11.º of Decree-Law no. 10/2011, of 20 January, in its current wording.

  4. In the present arbitral proceedings, the Claimant requests that the Arbitral Tribunal declare the illegality of the additional corporate income tax (CIT) assessment no. 2015…, relating to the year 2011, resulting from a correction to the tax declared in the financial year in question in the total amount of € 33,233.87, plus compensatory interest in the amount of € 4,304.92 and default interest in the amount of € 281.59, totalling € 37,820.38.

  5. The Claimant bases its claim, in summary, on the following grounds:

By meeting the conditions specifically provided for in Commission Regulation (EC) no. 1998/2006 concerning the application of articles 87.º and 88.º of the Treaty to de minimis aid, the limit for which, in the financial year 2011, amounted to €500,000.00 per beneficiary, this value being accumulated over a period of three consecutive financial years, the Claimant declared its intention to benefit from the inland location tax benefit provided for in no. 1 of article 43.º of the Tax Benefits Statute, regulated by Decree-law no. 55/2008, of 28 March, and by Ordinance no. 170/2002, of 28 February, both in the Income Statement Form 22 (field 245 of Table 08), and in Annex D, filling in, for this purpose, Table 09 relating to the demonstration of tax incentives subject to the de minimis rule, as well as field 905 with the accumulated value of € 537,921.36. Through negligence, the Claimant did not mention in field 906 of Table 09 and, consequently, in field 372 of Table 10, the value of the excess in relation to the limit of € 500,000, which it calculated at €37,921.36.

The control of the assessment carried out by the Corporate Income Tax Service Department (DSIRC) established that the Claimant had exceeded that limit without having proceeded to its correction, and the Finance Directorate of … was requested to carry out the necessary procedures for the correction of the excess, namely with the calculation of the amount of tax in arrears, which came to be calculated at € 33,233.87 and not € 37,921.36 (the declared value).

However, the Claimant considers that the additional assessment is affected by illegality, as it is affected by statute of limitations under no. 2 of article 45.º of the LGT, since the correction proposed results only from an error evident in the declaration and the Tax Inspection did not have any need to resort to documentation external to the declaration itself to carry out the correction. The correction in question results solely from the analysis of the same declaration based on the values entered in Table 09 and consultation of Annexes D relating to the years 2009 and 2010, without the TCA having had to resort to any measures to obtain external elements that would lead to the quantification of the correction challenged here.

It thus considers that it is "amply proven that the correction proposed falls within the expression contained in no. 2 of article 45.º of the LGT: error evident in the declaration of the taxable person", also invoking in support of its thesis the arbitral decision delivered in case no. 9/2011-T, of 2012-03-22.

  1. In its Response, the TCA invoked, in summary, the following:

The Claimant was subject to an internal inspection action, since, in the course of assessment control, the DSIRC established that the limit of the inland location tax benefit had been exceeded, in the context of CIT, in 2011, namely the rate reduction benefit provided for in no. 1 of article 43.º of the Tax Benefits Statute.

The Claimant entered in fields 901, 902, 904 and 905 of Table 09 of Annex D of Form 22 declaration the accumulated value of tax incentives of € 537,921.36, corresponding to amounts of € 44,502.62 in 2009, € 245,422.57 in 2010 and € 247,996.17 in 2011, also declaring, in field 906, as the value of CIT to be regularized the amount of € 0.00. The Claimant did not enter any amount in field 372 of table 10 of Form 22 declaration.

Having established that the Claimant had exceeded the limit of the inland location tax benefit in the financial year 2011 without carrying out its correction, the DSIRC requested the Finance Directorate of … to carry out the necessary procedures for the correction of the excess. In order to determine the value of the correction of tax benefits, the Tax Inspection proceeded to analyze Form 22 declarations of the years 2009, 2010 and 2011, quantifying the taxable amount value of each of those years in accordance with the tables contained in the RIT.

The Tax Inspection also analyzed the annual statements of accounting and fiscal information (IES) of the years 2009 and 2010, namely table 08 of annex F – Tax Benefits, in which the tax incentives subject to the de minimis rule are indicated and the total of incentives and the CIT to be regularized is determined.

The analysis of Form 22 declarations of the years 2009, 2010 and 2011 and of the annual statements of accounting and fiscal information (IES) of the years 2009 and 2010 made it possible for the Tax Inspection to correct the amounts declared by the Claimant, in accordance with the calculations presented in points 4.1, 4.2 and 4.3 of chapter III of the RIT, proceeding to the quantification of the amounts to be entered in fields 901, 902, 904 and 905 of Table 09 of Annex D of Form 22 declaration, as well as in field 372 of table 10 as follows: "the value of the benefit in each year was €42,940.12, in 2009, € 243,860.07, in 2010 and €246,433.68, in 2011, accumulating a benefit in the three-year period of €533,233.87, with the limit being €500,000.00, the amount to be corrected is that which exceeds this limit (€33,233.87)" (cf. ff. 37 and 44 of the administrative file).

The Claimant was notified to exercise the right to a hearing on the correction proposed in the amount of € 33,233.87, and, in the exercise of the right to a hearing on the draft correction in the amount of € 33,233.87, admitted that this is the correct amount and not the values declared by it in fields 901, 902, 904 and 905 of table 09 of annex D of the Form 22 income declaration of the CIT, having justified the divergence in values by admitting that the differences relate to the fact that it had considered for the calculation of the limit only the maximum rate of 25%, without taking into account the rate of 12.5% which should apply to the portion of the taxable amount up to the limit of € 12,500.00.

For the Respondent, such statements are sufficient to prove the understanding that there was no error evident in Form 22 declaration that could be detected through simple examination of the declared elements. It invokes, for this purpose, the words of Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, who say that, in the provision of no. 2 of article 45.º of the LGT, an error is covered "detectable through simple analysis of the declaration" (cf. General Tax Law, Commented and Annotated, Vislis Publishers, 3rd Edition, 2003, p. 208). It also invokes Lima Guerreiro in the sense that this involves "an error that the TCA may detect by a mere examination of the coherence of its elements, without resorting to any other external documentation, even when this is in the possession of the tax administration, and obtained by internal or external inspection or by any other means." (General Tax Law, Annotated, Rei dos Livros, Note 2 to art. 45.º, p. 214).

The Respondent further emphasizes: (i) the error made by the Claimant in article 20.º of the arbitral request by confusing "documents that the Tax Authority has in its possession" with the expression "mere examination of the coherence of its elements" contained in the quoted excerpt from the Annotated LGT, which refers, unquestionably, to internal elements of Form 22 declaration itself; (ii) that the contradiction in which the Claimant falls is evident when it claims that the correction results from an error evident in the declaration, but asserting that the recalculation for less resulted from "operations also anchored in the Annexes and Declarations relating to the years 2009 and 2010 in the possession of the TCA"; (iii) that the Claimant confuses the concept of internal element of the declaration itself with the distinction between merely internal and external inspection action, which refers only to the place where the inspection procedure is carried out, in accordance with article 13.º of the RCPITA; and (iv) that, in this case, it was a matter of assessing the requirements of a tax benefit, namely determining the value of the correction of tax benefits, and that the calculation of that amount would not be possible without resorting to the information reflected in the income declarations of the years 2009, 2010 and 2011, to collect from them the value of the taxable amount of each of those years, and to the annual statements of accounting and fiscal information (IES) of the years 2009 and 2010.

The Respondent also maintains that the decision of CAAD delivered in case no. 9/2011-T cannot be invoked, due to manifest dissimilarity between the factual situations in question. In fact, in that action the decision of the TCA was to make alterations to a 2007 tax year Form 3 IRS declaration, because the departments detected inaccuracies in the declaration caused by the failure to fill in field 403 of Table 4 in Annex B, where the amount of € 10,820.00 should have been entered, a value that only appeared in table 7, field 701, of the same annex.

Finally, it invokes the case law of the Administrative Supreme Court (STA), namely that contained in the Judgment delivered in case no. 01001/09, of 28-04-2010, in which that court states: "However, from the start, in the questioned 2002 IRS declaration there is no apparent error, namely any divergence between what was declared and the real intention of the taxable person. (…) But, even if we were to conclude, as does the judgment, for the existence of an error in that 2002 declaration, the same could not be considered as merely an error evident in it since its correction would not pass through mere analysis of that declaration, in light of the elements contained therein, but rather through comparison with elements from other declarations, in this case those of 2003 and 2004. Nor would we be, in that case, faced with mere error evident in the declaration, contrary to what the appealed judgment concluded.(…)"

  1. Subsequent Procedural Steps

By order delivered on 12.07.2016, the Tribunal dispensed the parties from the meeting provided for in article 18.º of the LRTA and invited them to present optional final pleadings. The Respondent exercised such faculty by summarizing the arguments already presented in its Response.

III. CASE MANAGEMENT

  1. The Tribunal is competent and is regularly constituted, in accordance with articles 2.º, no. 1, sub-paragraph a), 5.º and 6.º, all of the LRTA.

  2. The parties have legal standing and capacity, are legitimate and are properly represented, in accordance with articles 4.º and 10.º of the LRTA and article 1.º of Ordinance no. 112-A/2011, of 22 March.

  3. The proceedings are not affected by defects that would invalidate them.

IV. FACTUAL MATTERS

IV.1. Established Facts

Before entering into the appreciation of the questions, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence and the administrative file attached to the records and also taking into account the facts alleged, is established as follows:

  • In the Form 22 declaration relating to the financial year 2011, the Claimant filled in field 245 of Table 08 and Table 09 of Annex D relating to the demonstration of tax incentives subject to the de minimis rule, and also field 905 with the accumulated value of € 537,921.30, thereby declaring its intention to benefit, in the financial year 2011, from the inland location tax benefit;

  • The Claimant did not mention in field 906 of Table 09 or in field 372 of Table 10, the value of the excess in relation to the limit of € 500,000, which it calculated at € 37,921.36.

  • The Claimant was subject to an internal inspection action because the DSIRC had established that the limit of the inland location tax benefit had been exceeded in the context of CIT in 2011.

  • The Tax Inspection proceeded to analyze Form 22 declarations of the financial years 2009, 2010 and 2011, quantifying the value of the taxable amount of each of those years in accordance with the tables contained in the RIT.

  • The Tax Inspection also analyzed the IES of the years 2009 and 2010, namely table 08 of annex F – Tax Benefits, in which the tax incentives subject to the de minimis rule are indicated and the total of incentives and the CIT to be regularized is determined (cf. f. 42 of the administrative file).

  • The Tax Inspection corrected the amounts declared by the Claimant, in accordance with the calculations presented in points 4.1, 4.2 and 4.3 of chapter III of the RIT, proceeding to the quantification of the amounts to be entered in fields 901, 902, 904 and 905 of Table 09 of Annex D of Form 22 declaration, as well as in field 372 of table 10 as follows: "the value of the benefit in each year was €42,940.12, in 2009, € 243,860.07, in 2010 and €246,433.68, in 2011, accumulating a benefit in the three-year period of €533,233.87, with the limit being €500,000.00, the amount to be corrected is that which exceeds this limit (€33,233.87)" (cf. ff. 37 and 44 of the administrative file).

  • The Claimant was notified to exercise the right to a hearing on the correction proposed in the amount of € 33,233.87.

  • The Claimant admitted that the amount set out in the draft decision is the correct amount (cf. f. 26 of the administrative file).

  • The corrections made in the course of the inspection action led to the issuance of assessment no. 2015….

  • The assessment referred to in the previous item was notified to the taxable person on 03.11.2015 (cf. document 1 attached with the request for arbitral decision).

IV.2. Facts Not Established

There are no facts relevant to the decision of the case that have been considered as not established.

V. ISSUE TO BE DECIDED

The substantive issue in the present proceedings consists of determining whether the correction of data declared in the Form 22 of CIT through the use of elements contained in the same declaration, as well as others contained in declarations from previous years and, further, elements contained in the IES of that financial year and previous financial years, constitutes a situation in which, at the origin of the correction, there is an "error evident in the declaration of the taxable person" for the purposes of counting the statute of limitations period provided for in article 45.º, no. 2, of the LGT.

VI. LEGAL REASONING

At the date to which the facts in the present proceedings relate, the following wording of numbers 1 and 2 of article 45.º of the LGT was in force:

"1 - The right to assess taxes lapses if the assessment is not validly notified to the taxpayer within four years, when the law does not set another period.

2 - In cases of error evident in the declaration of the taxable person or use of indirect methods due to the application to the taxable person's tax situation of the objective activity indicators provided for in this law, the statute of limitations period referred to in the previous number is three years."

In the present case, it came about that the Claimant, when filling in the income declaration for the period 2011, declared its intention to benefit from the inland location tax benefit provided for in no. 1 of article 43.º of the Tax Benefits Statute, having, for this purpose, filled in field 245 of Table 08 of Form 22 Declaration and Table 09 of Annex D, and also field 905 with the accumulated value of € 537,921.36. However, the Claimant did not mention in field 906 of Table 09 and, consequently, in field 372 of Table 10, the value of the excess in relation to the limit of € 500,000, which it calculated at €37,921.36.

The negligence of the Claimant in filling in the declaration and its respective annexes led the TCA, in the course of assessment control, to carry out certain types of measures aimed at determining what the amount of the excess benefit was in relation to the maximum amount of € 500,000.00 in the aggregate for the three financial years of 2009, 2010 and 2011 and, having established that amount, to determine its correction.

The only issue dividing the Parties is whether the measures on which the calculation of the tax due by the TCA depended went beyond the mere comparison of the declaration completed by the taxable person or whether, on the other hand, the calculation of the tax arose purely and simply from the error evident in the declaration itself.

According to the factual matters established as proved, the Claimant filled in the total accumulated amount of the tax benefit (from which it appeared that the same exceeded the value of € 500,000.00), but did not declare the amount of the excess and, therefore, of the correction. This could result in the existence of an error evident from the declaration itself, insofar as it would be incoherent to indicate a value greater than € 500,000.00, this being the value from which there would have to be a correction, and not indicate the value of the correction. However, it came to be established subsequently, through the measures carried out by the TCA, that the total accumulated value of the tax benefit in the three-year period in question calculated by the Claimant was not even correct, whereby the value of the correction was not € 37,921.36, but rather € 33,233.87 (being this the value that should have been indicated by the taxable person in table 10, field 372 (correction of tax benefits) of the Form 22 income declaration of the CIT of the year 2011.

Now, in my best judgment, this value does not result from an error evident in the declaration of the taxable person, just as the correction of the tax assessed does not pass through mere analysis of the Form 22 declaration of CIT of the year 2011. On the contrary, to calculate the amount of tax owed, the TCA had to analyze the declarations relating to the financial years 2009 and 2010, as well as the IES of the three financial years of 2009, 2010 and 2011. Consequently, it cannot be said that we are faced with an error evident in the declaration and, consequently, the statute of limitations period for the right to assess is not 3 years, in accordance with no. 2 of article 45.º of the LGT, but rather 4 years, in accordance with no. 1 of article 45.º of the LGT, whereby, having the assessment challenged been notified to the Claimant on 03.11.2015, the same is not affected by illegality due to statute of limitations.

VII. DECISION

In accordance with the foregoing, the request for declaration of illegality of the assessment challenged on the grounds of statute of limitations is judged unfounded.

Value: in accordance with the provisions of article 97.º-A, no. 1, sub-paragraph a), of the Code of Tax Procedure and Process (CPPT) and article 3.º, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the case is assigned the value of € 37,820.38.

Costs: in accordance with the provisions of article 22.º, no. 4, of the LRTA and in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,836.00, to be borne by the Claimant.

Let it be recorded and notified.

Lisbon, 22 September 2016

The Arbitrator,

Raquel Franco

Frequently Asked Questions

Automatically Created

What is caducidade (expiry) in the context of Portuguese IRC corporate tax assessments?
Caducidade in Portuguese IRC corporate tax assessments refers to the expiration or statute of limitations period during which tax authorities can issue additional tax assessments. Under Article 45 of the General Tax Law (LGT), the standard limitation period is four years from the start of the year following the tax year in question. However, Article 45(2) LGT establishes a shorter limitation period for corrections of errors that are evident in the taxpayer's declaration itself—these must be made within the normal assessment deadline. An error is considered 'evident' when it can be detected through simple analysis of the declared elements without requiring external documentation or complex calculations. This distinction is crucial because it determines whether tax authorities can still legally issue an assessment.
How does the CAAD tax arbitration tribunal handle disputes over additional IRC tax liquidations?
The CAAD (Centro de Arbitragem Administrativa) tax arbitration tribunal handles disputes over additional IRC liquidations through a streamlined arbitral process established by Decree-Law 10/2011. Taxpayers file a request for constitution of an arbitral tribunal, which is automatically notified to the Tax and Customs Authority (AT). The tribunal is constituted within specific timeframes, and both parties present their arguments—the taxpayer challenging the legality of the assessment and the Tax Authority defending it. The tribunal examines whether the assessment complies with substantive and procedural tax law requirements, including issues of statute of limitations, correct application of tax rates, proper calculation of tax benefits, and compliance with EU regulations. The arbitrators issue binding decisions that can declare assessments illegal and order their cancellation or uphold the Tax Authority's position.
What are the de minimis aid rules under EU Regulation 1998/2006 and how do they affect IRC tax benefits in Portugal?
De minimis aid rules under EU Regulation 1998/2006 establish a ceiling on the total amount of minor state aid that can be granted to a single beneficiary over a rolling three-year period without triggering full EU state aid notification requirements. For the 2011 tax year referenced in this case, the limit was €500,000 per beneficiary accumulated over three consecutive financial years. In Portugal, certain IRC tax benefits, including the inland location tax benefit (benefício de interioridade) under Article 43 of the Tax Benefits Statute, are classified as de minimis aid. Taxpayers claiming these benefits must report the accumulated amounts in Table 09 of Annex D of the Modelo 22 IRC return (fields 901-905) and must declare any excess over the €500,000 limit in field 906 and regularize it in field 372 of Table 10, effectively forgoing the benefit amount that exceeds the threshold.
Can a taxpayer challenge an additional IRC assessment resulting from exceeding the interioridade tax benefit limit?
Yes, a taxpayer can challenge an additional IRC assessment resulting from exceeding the interioridade tax benefit limit through administrative appeals or, as in this case, through tax arbitration at CAAD. Common grounds for challenge include: (1) arguing the assessment is time-barred under caducidade rules (statute of limitations), particularly if the error was evident in the declaration under Article 45(2) LGT; (2) contesting the calculation methodology used by tax authorities to determine the excess amount; (3) disputing whether the benefit actually qualifies as de minimis aid; or (4) challenging procedural irregularities in the assessment process. However, the success of such challenges depends on the specific circumstances—if the taxpayer admitted the correct calculation during the hearing process or if tax authorities needed to perform complex calculations using external documentation, arguments based on evident error may fail.
What happens when a company fails to report excess amounts above the €500,000 de minimis threshold in the Modelo 22 tax return?
When a company fails to report excess amounts above the €500,000 de minimis threshold in the Modelo 22 tax return, the Tax Authority can issue an additional IRC assessment to correct the underpayment. In this case, the DSIRC (Serviço de Inspeção Tributária de IRC) detected during assessment control that the company had exceeded the limit. The process involves: (1) Tax Inspection analyzing the taxpayer's declarations across the relevant three-year period and any supporting documentation (IES statements); (2) calculating the correct benefit amounts for each year, considering applicable tax rates (including the 12.5% rate for amounts up to €12,500 and the 25% standard rate); (3) determining the total accumulated benefit and the excess over €500,000; (4) notifying the taxpayer of the proposed correction and granting the right to a hearing; and (5) issuing an additional assessment for the excess amount plus compensatory and default interest. The taxpayer may face penalties for the omission, and the key legal question becomes whether the statute of limitations bars the assessment if the error was evident in the original declaration.