IRC Autonomous Taxation: Deduction of SIFIDE Tax Benefits from Autonomous Tax Assessment (CAAD 603/2014-T)

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 603/2014-T

Subject Matter: Corporate Income Tax (CIT); autonomous taxation; deduction of tax benefits; material jurisdiction of the Arbitral Tribunal.

The arbitrators José Poças Falcão (arbitrator-president), Manuel Pires and Ricardo Rodrigues Pereira, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, agree as follows:

I. REPORT

1. On 1 August 2014, the commercial company A… – …, SGPS, S.A., Tax ID No. …, with registered office at Avenue …, No. …, Lisbon (hereinafter, Claimant), submitted 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 Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LFATM), seeking the declaration of illegality and annulment of the act of partial rejection of the application for official review which it presented regarding the act of self-assessment of Corporate Income Tax (CIT) for the fiscal year 2010 and, likewise, the declaration of partial illegality and consequent annulment of that same act of self-assessment of CIT, in the part in which it reflects "the non-deduction from the part of the CIT collection produced by the rates of autonomous taxation of tax incentives available for this purpose in CIT, which resulted in an amount of improperly assessed tax in fiscal year 2010 in the amount of €95,145.83".

The Defendant is the Tax Authority and Customs Service (hereinafter, Defendant or Tax Authority).

The Claimant submitted 13 (thirteen) documents and listed 2 (two) witnesses, without requesting the production of any other evidence.

In essence and in brief summary, the Claimant alleged the following:

As the holding company of Group B…, subject to the special tax regime for groups of companies, provided for in Articles 69 et seq. of the CIT Code, the Claimant timely submitted its consolidated CIT return Model 22, for the fiscal year 2010, and at that time proceeded to self-assess the autonomous taxation in CIT for that same year.

However, with respect to the tax resulting from the application of the autonomous taxation rates in CIT, the Tax Authority's computer system reveals anomalies manifested in the indication of discrepancies ("errors") that prevent the Claimant from entering the value relating to the aforementioned autonomous taxation rates in CIT deducted, within the amount of the CIT collection resulting from the application of these rates, from the amount of the tax benefit recognised to one of the companies in Group B…, C… – …, S.A., under the System of Tax Incentives for Business Research and Development (SIFIDE), in the modality of tax credit deductible from the CIT collection, in the amount of €165,913.90, which resulted in an excess of tax paid by reference to the fiscal year 2010.

Thus, the CIT return Model 22 and its articulation with the programming of the Tax Authority's computer system prevent Group B… from deducting from the collection related to the autonomous taxation rates in CIT, entered in field 356 of table 10 of return Model 22, the tax benefit of deduction from the CIT collection, attributed to one of the companies in the same Group (C…, S.A.).

With respect to the aforementioned company C…, S.A., the Tax Authority has not determined, nor did it determine, its taxable income by indirect methods, and further, this company is not and was not then a debtor to the State and Social Security of any taxes or contributions.

Subsequently, the Claimant submitted, to the Large Taxpayers Unit, an application for official review of the aforementioned self-assessment of CIT for fiscal year 2010, which was partially rejected. Indeed, as a result of this application for official review, the Tax Authority corrected the illegal result imposed by the programming of its computer system regarding the deduction of tax incentives in CIT to another one of its components – the collection produced by the state surcharge rate –, as a consequence of which €70,768.07 of the aforementioned incentive of €165,913.90 is already applied (deducted) from the state surcharge collection for 2010.

There remain, thus, for application (deduction) from the collection of autonomous taxation in CIT, €95,145.83, an application this refused by the Tax Authority.

Having regard to the overwhelming arbitral jurisprudence that qualifies autonomous taxation as CIT, the Claimant sees nothing in the law that excludes the deduction of that tax incentive also from the part of the CIT collection produced by autonomous taxation.

On another matter, since the Claimant understands that it paid tax in an amount superior to that legally due, the Claimant claims not only the reimbursement of what it paid in excess, but also the payment of compensatory interest.

That compensatory interest should, in the Claimant's view, be calculated at the legal rate on the amount of improperly assessed tax, in the total amount of €95,145.83, counted as to €90,979.65 from the date of that excess tax payment, that is, from 9 September 2011, and counted as to the remaining €4,166.18 from the end of the period for official reimbursement of the tax, that is, from 1 September 2011, until full reimbursement of the aforementioned amounts.

In conclusive summary, the Claimant alleges that both the partial rejection of the aforementioned application for official review and the self-assessment of CIT (including its autonomous taxation rates) for fiscal year 2010 are vitiated by a material defect of violation of law, since the deduction from the part of the CIT collection corresponding to the autonomous taxation rates of the tax benefit in CIT, in the modality of deduction from the collection, which is the SIFIDE, should not be prevented.

In this respect, the Claimant understands that it should:

"a) be declared the illegality and annulled the rejection of the application for official review in so far as it refused the annulment of the illegal part (…) of the self-assessment of CIT in the part produced by the autonomous taxation rates, of fiscal year 2010, thereby violating the principle of legality;

b) be declared the partial illegality of this self-assessment (and be consequently annulled), in the part corresponding to the amount of €95,145.83;

c) be, consequently, recognised the right to reimbursement of this amount and, likewise, the right to compensatory interest for payment of improperly assessed tax, counted from 9 September 2011 as to €90,979.65 and counted from 1 September 2011 as to the remaining €4,166.18."

The Claimant concludes its request for arbitral pronouncement with the formulation of the following request:

"… there should be declared the illegality of the partial rejection of the application for official review above better identified and, likewise, the partial illegality of the self-assessment of CIT, including autonomous taxation rates, of fiscal group B…, for fiscal year 2010, in respect to the amount of autonomous taxation rates in CIT of €95,145.83, with its consequent annulment in this part, in view of the manifest illegality of the assessment in this part, with all legal consequences, namely the reimbursement to the Claimant of this amount, increased by compensatory interest at the legal rate counted from 9 September 2011 as to €90,979.65 and counted from 1 September 2011 as to the remaining €4,166.18, until full reimbursement."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the Tax Authority on 5 August 2014.

2. The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to the provisions of subparagraph a) of Article 6(2) and subparagraph a) of Article 11(1) of the LFATM, the President of the Deontological Council of the CAAD appointed as arbitrators of the collective Arbitral Tribunal Dr. José Poças Falcão (arbitrator-president), Professor Dr. Manuel Pires and Dr. Ricardo Rodrigues Pereira (arbitrators-members), who communicated their acceptance of the appointment within the applicable period.

3. On 19 September 2014, the parties were duly notified of this appointment, and neither manifested the intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of Article 11(1), subparagraphs b) and c) of the LFATM and Articles 6 and 7 of the Deontological Code of the CAAD.

4. Thus, in conformity with the provision in subparagraph c) of Article 11(1) of the LFATM, the collective Arbitral Tribunal was constituted on 6 October 2014.

5. On 11 November 2014, the Defendant, duly notified for this purpose, submitted its Reply in which, in addition to raising the exception of material incompetence of the Arbitral Tribunal, with its consequent dismissal from the proceedings, it specifically impugned the arguments advanced by the Claimant and concluded for the lack of merit of the present action, with its consequent dismissal of the claim.

The Defendant did not submit documents, nor did it request the production of any other evidence.

At the same time, the Defendant submitted to the record the respective administrative file (hereinafter, abbreviated as AF).

In essence and also briefly, it is important to extract the most relevant arguments on which the Defendant grounded its defence:

The Tax Authority began by raising the exception of material incompetence of the Arbitral Tribunal to hear and decide the request formulated by the Claimant, having regard to the provisions of Articles 2(1)(a) and 4(1) of the LFATM, and Articles 1 and 2(a), both of Ordinance No. 112-A/2011, of 22 March.

In the Defendant's view, the situation at issue required the mandatory precedence of a gracious remedy as provided for in Article 131(1) of the Tax Procedure and Process Code. Because, having regard to the wording given to subparagraph a) of Article 2 of Ordinance No. 112-A/2011, of 22 March, it is apparent that the legislator chose to restrict the knowledge in arbitral jurisdiction to claims that, being related to the declaration of illegality of acts of self-assessment, have been necessarily preceded by the gracious remedy provided for in Article 131 of the Tax Procedure and Process Code.

Furthermore, the Defendant affirms that the understanding professed by it imposes itself by virtue of the constitutional principles of the rule of law and separation of powers (Articles 2 and 111 of the Constitution), as well as legality (Articles 3(2) and 266(2) of the Constitution), as a corollary of the principle of indisposability of tax credits provided for in Article 30(2) of the General Tax Law, which bind the legislator and all activity of the Tax Authority.

In this framework, the Defendant petitions finally as follows: "The Tribunal should declare that the exception of absolute incompetence is verified by violation of the rules of material competence, the Defendant being dismissed from the proceedings in accordance with the provisions of Article 2, subparagraph a) of Ordinance No. 112-A/2011, of 22 March, Articles 96(a), 99(1)(a) and 577(a) of the Code of Civil Procedure, applicable ex vi Article 29(1)(e) of the LFATM".

By way of counter-argument, the Tax Authority came to state that, upon examination of the legal norms governing SIFIDE, it results that the amounts in which that tax incentive translates are deducted "from the amounts determined in accordance with Article 83 of the CIT Code, up to its concurrence" and in the assessment relating to the period of taxation in which the eligible expenses are incurred for this purpose. In the absence or insufficiency of collection, determined in these terms, expenses that cannot be deducted in the year in which they are incurred "may be deducted up to the 6th immediately following year".

Now, the collection to which Article 83 of the CIT Code referred, current Article 90, when the assessment must be made by the taxpayer, is determined on the basis of the taxable matter contained in that assessment/self-assessment, and the credit in which SIFIDE translates is deducted, and only, from the collection thus determined.

On the other hand, autonomous taxation is determined in an autonomous and distinct manner from the determination carried out in accordance with Article 90 of the CIT Code, and that taxation taxes expense and not income, that is, they are taxes that penalise certain charges incurred by companies and are determined in a completely independent manner from CIT. In this respect, it would be contrary to the spirit of the system to permit that, by way of the deductions referred to in Article 90(2) of the CIT Code, the anti-abusive character that presided over the implementation of autonomous taxation in the CIT system be removed or distorted.

Thus, autonomous taxation should not be considered for the purposes of the deductions referred to in Article 90(2) of the CIT Code.

It is, thus, the Defendant's understanding that the request for partial annulment of the act of self-assessment of CIT for fiscal year 2010, formulated by the Claimant, should be judged to lack merit.

Since the main claim should lack merit, the claim for compensatory interest must also lack merit. However, even if the merits of the claim for payment of compensatory interest were to be accepted, its calculation would always have as its starting date the date of notification of the decision rejecting the application for official review and, never, the dates indicated by the Claimant.

1. On 13 November 2014, an order was issued directing notification of the Claimant to, within 10 (ten) days, come before the record to pronounce itself regarding the matter of exception alleged by the Defendant.

In that sequence, on 19 November 2014, the Claimant submitted to the record its written pronouncement regarding the exception of material incompetence of the Arbitral Tribunal, in which it argued for its lack of merit.

1. On 19 February 2015, an order was issued in which, among other matters, the holding of the meeting provided for in Article 18 of the LFATM was dispensed with, as well as the examination of the witnesses listed by the Claimant and the presentation of arguments.

II. SANATIO (PROCEDURAL COMPLIANCE)

The Arbitral Tribunal was regularly constituted.

The proceedings are free from nullities.

The parties enjoy legal personality and capacity, are duly represented and are legitimate.

The Defendant raises the exception of material incompetence of the Arbitral Tribunal to hear and decide the present proceedings, for the knowledge and decision of which it becomes, however, necessary to previously establish the factual matter proven and not proven, which is done hereinafter, after which a decision will be rendered.

There are no other exceptions or preliminary matters that need to be addressed.

III. GROUNDS

III.1. ON THE FACTS

§1. FACTS PROVEN

Regarding the factual matter, it is important, first of all, to emphasise 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 discriminate between the proven and unproven matter (see Article 123(2) of the Tax Procedure and Process Code and Articles 607(3) and (4) of the Code of Civil Procedure, applicable ex vi Article 29(1)(a) and (e) of the LFATM). In this way, the facts pertinent to the judgment of the case are chosen and delineated in function of their legal relevance, which is established having regard to the various plausible solutions of the legal question(s).

In this framework, having regard, in particular, to the positions assumed by the parties, the documentary evidence produced and the administrative file attached to the record, the following facts with relevance for the decision are considered proven:

1. The Claimant is the holding company of a group of companies – Group B… – subject to the special tax regime for groups of companies provided for and regulated in Articles 69 et seq. of the CIT Code – see Article 14 of the initial petition (factuality accepted by agreement).

2. The Claimant filed on 31 May 2011 its consolidated CIT return Model 22 for fiscal year 2010, and at that time proceeded to self-assess the aforementioned tax – see Article 15 of the initial petition and document No. 1 attached to the initial petition (factuality accepted by agreement).

3. The amounts of CIT, including autonomous taxation, and respective surcharge, self-assessed – in the total amount of €90,979.65 – are paid – see Article 16 of the initial petition and document No. 4 attached to the initial petition (factuality accepted by agreement).

4. In the year 2010, the commercial company "C… – …, S.A.", Tax ID No. …, with registered office at Estate …, …, …, …, was part of Group B… – see Article 18 of the initial petition (factuality accepted by agreement).

5. The Certifying Commission for Tax Incentives for Business Research and Development (SIFIDE) issued a written statement, dated … of … of 2011, in which it recommended the attribution to the company "C… – …, S.A." of a tax credit of €165,913.90, by virtue of that company having carried out Research and Development (R&D) activities in the years 2008, 2009 and 2010, with eligible expenses – see Article 18 of the initial petition and document No. 5 attached to the initial petition (factuality accepted by agreement).

6. In the aforementioned consolidated CIT return Model 22 for fiscal year 2010, the Claimant was unable to enter the value relating to the autonomous taxation rates in CIT, deducted, within the amount of the CIT collection resulting from those rates, from the amount of the tax benefit recognised to the company "C… – …, S.A.", under the System of Tax Incentives for Business Research and Development (SIFIDE), in the modality of tax credit deductible from the CIT collection, in the amount of €165,913.90 – see Article 18 of the initial petition and document No. 5 attached to the initial petition (factuality accepted by agreement).

7. The factuality referred to in the preceding point was due to the Tax Authority's computer system, which prevented the deduction from the collection related to the autonomous taxation rates in CIT, entered in field 365 of table 10 of return Model 22, of the aforementioned tax benefit of deduction from the CIT collection, attributed to the company "C… – …, S.A." – see Article 25 of the initial petition (factuality accepted by agreement).

8. With respect to fiscal year 2010, the taxable income of the company "C… – …, S.A." was determined via the submission of the CIT return Model 22 – see Article 22 of the initial petition and document No. 6 attached to the initial petition (factuality accepted by agreement).

9. In May 2011, the company "C… – …, S.A." had its tax situation regularised, as it was not a debtor to the Public Treasury of any taxes or tax obligations and respective interest, the same holding true with respect to its contributory situation with Social Security – see Article 23 of the initial petition and documents Nos. 7 and 8 attached to the initial petition (factuality accepted by agreement).

10. On 30 April 2014, the Claimant sent, by registered mail (in accordance with postal registry No. RD…PT) with acknowledgement of receipt, to the Large Taxpayers Unit of the Tax Authority, an application for official review of the tax act of self-assessment for fiscal year 2010, which concluded as follows [see Article 3 of the initial petition, document No. 2 attached to the initial petition and AF attached to the record (files AF1.pdf and AF2.pdf) (factuality accepted by agreement)]:

"…[requests] the official review of the act of self-assessment of CIT, including its surcharge "state surcharge", of fiscal year 2010, (…), in view of the manifest illegality, with respect to an amount of €70,768.07, and likewise the official review of the self-assessment of autonomous taxation in CIT of the same year and for the same reason (deduction of tax credit under SIFIDE), in view of the manifest illegality with respect to an amount of €90,979.65, in a total of €165,913.90, with the further legal consequences, namely the restitution to the Claimant of this amount improperly paid increased by compensatory interest at the legal rate counted from 9 September 2011 as to €90,979.65 and from 1 September 2011 as to €74,934.25, until full reimbursement."

1. The Claimant was notified by office memorandum No. …, of 06.06.2014, from the Division of Tax Management and Assistance of the Large Taxpayers Unit of the Tax Authority, sent by registered mail (in accordance with postal registry No. RM…PT), of the draft decision of the aforementioned application for official review – to which was assigned by the respective Tax Authority services the number …/OR/LTU/2014 – and to exercise, if it wished, its right of participation, in the modality of prior hearing, in written form – see document No. 11 attached to the initial petition and AF attached to the record (file AF2.pdf) (factuality accepted by agreement).

2. The aforementioned draft decision is given as fully reproduced herein, containing, among other matters, the following [see document No. 11 attached to the initial petition and AF attached to the record (file AF2.pdf)]:

"10. (…) the applicant requests that the self-assessment [of CIT] to which it proceeded with reference to the period of taxation of 2010 be reviewed, through the consideration as deductible from the state surcharge collection and from the autonomous taxation collection of the tax credit relating to SIFIDE attributed to the group company C…, SA, in the amount of €165,913.90, whose acceptability was not admitted by the Tax Authority's computer program inherent to the processing of the periodic income declaration, model 22.

(…)

1. Let us then begin by analysing the first of the requested deductions.

(…)

1. Thus, (…) it must be admitted that the alleged error committed in the self-assessment exists, configuring it as an error attributable to the services, and in that sequence the obligation of the Tax Authority, in accordance with paragraphs 1 and 2 of Article 78 of the General Tax Law, to proceed with the official review of the tax act of self-assessment, considering deductible from the state surcharge collection the amount of €70,768.07 as tax credit relating to the System of Tax Incentives for Business Research and Development (SIFIDE), with all legal consequences.

2. As for the consideration of the deduction of the tax benefit in question from the autonomous taxation collection, we do not believe that the situation can be understood in the same terms.

(…)

1. Notwithstanding the systematic insertion in the CIT Code and the absence of any distinct tax legal relationship with respect to CIT, in view of the identity of the active and passive subjects of the tax relationship and of the recipient of the revenue (State), the autonomous taxation collection generated by expenses subject to it should not be considered for the purposes of determining the amount up to which the deduction relating to the tax credit within the scope of SIFIDE can occur.

2. To taxpayers, with reference to expenses subject to autonomous taxation, legal provision is made for the option of considering them fiscally non-deductible, not subjecting them in that way to autonomous taxation, or, of considering them relevant for the purposes of determining taxable income, bearing, in this case, the taxation in question.

3. The non-consideration as a fiscal cost of expenses subject to autonomous taxation or the payment thereof has as its purpose to prevent abusive actions, as they involve expenses easily diverted to private consumption, taxpayers always being able to prove their business character and in that context make them as negative components in the determination of taxable income and not subject them to autonomous taxation.

4. The legislative intent in the taxation in question is always to encourage companies to reduce as much as possible the expenses with expenses subject to it, an objective that would be clearly contradicted, if not even encouraged, with the possibility of deducting tax benefits from this taxation.

(…)

1. Notwithstanding the title by which autonomous taxation is owed to be CIT, it is necessary, however, to have regard to the type of tax facts that are at its basis, that is, the realities that it is intended to subject to this taxation, and which permit a determination of the taxation in a completely independent manner from CIT.

2. The operation of assessment underlying autonomous taxation in no way influences nor is influenced by the assessment of CIT.

3. It is not the aggregation for purposes of collection that will dictate the possibility of deduction of tax benefits.

4. Moreover, autonomous taxation could be determined and collected as the expenses subject to it were being incurred, as an alternative to its determination at the end of each period of taxation, as occurs currently.

(…)

1. The understanding of the applicant cannot, in any way, be accepted.

2. Although autonomous taxation is formally inserted in the CIT Code and its respective assessment is carried out within the scope of this tax, one is dealing with materially distinct taxation. Whereas the latter is imposed, as an exception, on the realisation of certain expenses, CIT is imposed on income relating to a certain period of taxation.

3. As a cellular reality connected with expense, the amounts paid under autonomous taxation in no way influence the importance to be determined in the strict scope of the income tax, within which it is possible to effect tax benefits, always taken as exceptional measures to regular taxation."

§V. CONCLUSION

In accordance with all the above stated, (…) it appears to us that it is appropriate to partially grant the request contained in the record (…), with all legal consequences, accepting as deductible from the state surcharge collection the tax benefit relating to SIFIDE, in the amount of €70,768.07."

1. On 16.06.2014, the Claimant sent its written pronouncement on the aforementioned draft decision, by registered mail (in accordance with postal registry No. RD … PT) with acknowledgement of receipt, to the Division of Tax Management and Assistance of the Large Taxpayers Unit of the Tax Authority – see document No. 12 attached to the initial petition and AF attached to the record (file AF2.pdf) (factuality accepted by agreement).

2. The aforementioned application for official review was partially granted by order issued, by subdelegation, by the Chief of the Division of Tax Management and Assistance of the Large Taxpayers Unit of the Tax Authority, dated 25.06.2014, the respective decision being given as fully reproduced herein, which contains, among other matters, the following [see document No. 3 attached to the initial petition and AF attached to the record (file AF2.pdf)]:

"6. Thus, upon examination of the content of the initial petition, as well as of the request through which the right of participation was manifested, the grounds of fact and law that supported the decision previously drafted are maintained, which, consequently, must be converted into final, considering deductible from the state surcharge collection the amount of €70,768.07, as tax credit relating to the System of Tax Incentives for Business Research and Development (SIFIDE).

§II. CONCLUSION

In accordance with the above stated and upon examination of all elements of the record, in particular our prior "Draft decision" and the procedural documents submitted by the Applicant, here Claimant, in particular the initial petition and its request for right of hearing, (…), it appears to us that it is appropriate to partially grant the application for official review of the tax act of self-assessment [of CIT] of 2010 contained in the record, (…), with all its legal consequences."

1. The partial grant of that application for official review was notified to the Claimant by office memorandum No. … from the Division of Tax Management and Assistance of the Large Taxpayers Unit of the Tax Authority, of 26.06.2014, sent by registered mail (in accordance with postal registry No. RM … PT) – see Article 4 of the initial petition, document No. 3 attached to the initial petition and AF attached to the record (file AF2.pdf) (factuality accepted by agreement).

2. The Claimant was notified of that partial grant on 27.06.2014 – see Article 4 of the initial petition and document No. 3 attached to the initial petition (factuality accepted by agreement).

3. With respect to the aforementioned tax benefit recognised to the company "C… – …, S.A." arising from SIFIDE, in the total of €165,913.90, the amount of €95,145.83 can still be deducted fiscally – see Article 20 of the initial petition, document No. 3 attached to the initial petition and AF attached to the record (file AF2.pdf) (factuality accepted by agreement).

4. On 1 August 2014, the Claimant submitted the application for constitution of an arbitral tribunal that gave rise to the present proceedings – see computer system of procedural management of the CAAD.

§2. FACTS NOT PROVEN

With relevance for the examination and decision of the case, there are no facts that have not been proven.

§3. MOTIVATION REGARDING THE FACTUAL MATTER

As for the proven factual matter, the Tribunal's conviction was based on the statements made in the pleadings, in the points indicated, in which the adherence thereof to reality was not contested, in the documents attached to the record, referenced in relation to each of the points, whose correspondence to reality was not questioned and in the administrative file attached to the record.

III.2. ON THE LAW

The questions to be examined and decided are the following:

i) The exception of material incompetence of the arbitral tribunal;

ii) The deduction of tax benefits from the autonomous taxation collection in CIT.

III.2.1. ON THE EXCEPTION OF MATERIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL

The Defendant, in its Reply, alleges that having regard to the provisions of Articles 2(1)(a) and 4(1) of the LFATM, and Articles 1 and 2(a) of Ordinance No. 112-A/2011, of 22 March, the exception of material incompetence of the Arbitral Tribunal to hear and decide the present proceedings is verified.

It is the Defendant's understanding that, having regard to the wording given to subparagraph a) of Article 2 of Ordinance No. 112-A/2011, of 22 March, the legislator restricted knowledge in arbitral jurisdiction to claims that, being related to the declaration of illegality of acts of self-assessment, have necessarily been preceded by the gracious remedy provided for in Article 131 of the Tax Procedure and Process Code. Thus, in the situation at issue, the mandatory precedence of a gracious remedy was required as provided for in Article 131(1) of the Tax Procedure and Process Code.

Furthermore, the Defendant alleges that the understanding professed by it imposes itself by virtue of the constitutional principles of the rule of law and separation of powers (Articles 2 and 111 of the Constitution), as well as legality (Articles 3(2) and 266(2) of the Constitution), as a corollary of the principle of indisposability of tax credits provided for in Article 30(2) of the General Tax Law, which bind the legislator and all activity of the Tax Authority.

It is necessary to examine and decide.

Similar to what was already decided in other decisions rendered by arbitral tribunals constituted under the aegis of the CAAD (see, for example, the decisions of 09/11/2012 and 22/04/2014 rendered, respectively, in case No. 51/2012-T and in case No. 236/2013-T) – without disregarding, however, the existence of contrary understandings (see, for example, the decisions of 23/20/2012, 06/12/2013 and 28/03/2014 rendered, respectively, in case No. 73/2012-T, in case No. 117/2013-T and in case No. 245/2013-T) – we also understand that should not be considered included in the range of competencies attributed to the arbitral tribunals functioning in the CAAD, the examination of acts of rejection of applications for official review of acts of self-assessment.

The competence of arbitral tribunals constituted under the aegis of the CAAD is, from the outset, limited to the matters indicated in Article 2(1) of Decree-Law No. 10/2011, of 20 January (LFATM), which provides as follows:

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

a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account;

b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable matter and of acts of determination of property values.

The competence of arbitral tribunals functioning in the CAAD is further limited by the terms in which the Tax Authority was bound to that jurisdiction by Ordinance No. 112-A/2011, of 22 March, having regard to the provision in Article 4(1) of the LFATM, which establishes as follows:

1 - The binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered.

Thus, the resolution of the question of the competence of arbitral tribunals constituted under the aegis of the CAAD depends essentially on the terms of that binding of the Tax Authority, because, even if one is dealing with a situation that can be framed in Article 2(1) of the LFATM, if it is not within the scope of that binding, the possibility of the dispute being jurisdictionally decided by these arbitral tribunals will be excluded. That is, the competence of Arbitral Tribunals is subject to two filters: the Decree Law and the Ordinance mentioned, hence competence being disciplined in two circles, a larger one delimited by that Decree Law, and a smaller one, by the Ordinance, it thus not being sufficient to consider the provision of the Decree Law which is indeed legally restricted by the Ordinance by virtue of the possibility established therein. (Article 4(1))

In this manner, in the concrete case, we must turn our attention to Article 2(a) of Ordinance No. 112-A/2011, of 22 March, a norm from which the following results:

The services and bodies referred to in the preceding article [DGCI and DGAIEC, today Tax Authority] bind themselves to the jurisdiction of arbitral tribunals functioning in the CAAD that have as their object the examination of claims relating to taxes whose administration is incumbent upon them referred to in Article 2(1) of Decree-Law No. 10/2011, of 20 January, with the exception of the following:

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

For the determination of the Tribunal's competence to examine and decide the present proceedings, it is important to emphasise and interpret the following segment of the aforementioned norm: recourse to administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code.

In the pursuit of this interpretative activity we must, thus, in the situation at issue, have regard to the provision in Article 131 of the Tax Procedure and Process Code, in the currently relevant wording, which reads as follows:

1 - In case of error in self-assessment, the challenge shall necessarily be preceded by a gracious remedy directed to the highest ranking official of the regional peripheral body of the tax administration, within the period of 2 years after the submission of the declaration.

2 - In case of express or tacit rejection of the gracious remedy, the taxpayer may challenge, within the period of 30 days, the assessment that it effected, counted, respectively, from the notification of the rejection or from the formation of the presumption of tacit rejection.

3 - Notwithstanding the provisions of the preceding paragraphs, when its grounds are exclusively a matter of law and the self-assessment was effected in accordance with generic guidelines issued by the tax administration, the period for challenge does not depend on a prior gracious remedy, and the challenge must be submitted within the period of Article 102(1).

In the concrete case, the declaration of illegality and annulment of the act of partial rejection of the application for official review which the Claimant presented regarding the act of self-assessment of Corporate Income Tax relating to fiscal year 2010 is petitioned, and likewise, the declaration of illegality and partial annulment of that same act of self-assessment of CIT, in the part in which it reflects "the non-deduction from the part of the CIT collection produced by the rates of autonomous taxation of tax incentives available for this purpose in CIT, which resulted in an amount of improperly assessed tax in fiscal year 2010 in the amount of €95,145.83".

As results from the proven factual matter, the Claimant did not submit any gracious remedy.

However, as also results from the proven factual matter, the Claimant submitted an application for official review of the act of self-assessment of CIT for fiscal year 2010, which was partially rejected.

Thus, with a view to elucidating the question of the competence of this arbitral tribunal, it is important to verify whether the declaration of illegality and subsequent annulment of acts of rejection of applications for review of the tax act, provided for in Article 78 of the General Tax Law, is encompassed by the scope of competencies of arbitral tribunals functioning in the CAAD, as it is delimited by Article 2 of the LFATM.

As was written in the arbitral award in case No. 51/2012-T:

"Without addressing, for now, the problem in light of the nature of the arbitral process, in theory two interpretations are admissible, namely:

a) in referring to Articles 131 and 132 of the Tax Procedure and Process Code, the Tax Authority intended only to prevent the taxpayer from being in a position to react directly, before arbitral jurisdiction, against acts of withholding at source, among others, without need of prior examination by the Tax Authority, thus opening the door to the equation, for purposes of challengeability, of the official review procedure to the gracious remedy procedure". And further on:

"It is not overlooked that this thesis reflects a broad view of the binding of the Tax Authority to arbitral jurisdiction, which contrasts with the second thesis, according to which:

b) in referring to Articles 131 and 132 of the Tax Procedure and Process Code, the Tax Authority intended truly to refer to the regime provided therein, thus requiring as a condition of its binding to the arbitral pronouncement in the matter of challenging the illegality of acts of withholding at source, among others, the precedence of the proper procedure of gracious remedy.

Unless we are mistaken, the Tribunal understands that the thesis of the CLAIMANT [the first] is not correct, which is demonstrated hereafter.

First, because the second thesis considered is more consonant with the voluntary and conventional nature of arbitration.

The application for review may be alternative to the remedy, may be supplementary, may even be in the review procedure that the taxpayer's claim has been examined, but considering the voluntary nature of arbitration, the interpretation adopted cannot, in any case, result in a restriction of the sphere of freedom of the Tax Authority, as a party, to establish the limits of its binding. It would only be otherwise if its position implied the total frustration of the objective intended with the institution of tax arbitration, which is not the case.

Note, from this angle, that the Tribunal does not pronounce on the doctrinal construction on which the equation of the official review procedure, by initiative of the taxpayer, to the gracious remedy procedure is based, for purposes of judicial challenge.

Simply, it understands that from the principle of the establishment of the arbitral procedure as a means of resolution of tax disputes alternative to the process of judicial challenge, does not automatically result the extension of the binding of the Tax Authority to all situations in which, doctrinally and/or jurisprudentially it is considered admissible to challenge.

In summary, the scope of the binding of the Tax Authority is limited to the terms in which it is expressed in Ordinance No. 112-A/2011, which, in the case subjudice, is the regime provided for in Article 132 of the Tax Procedure and Process Code, which requires prior gracious remedy, although, for purposes of challengeability of the act, the prevailing doctrine and a determined current of tax judicial tribunals may admit as an alternative the official review before. Indeed, the equation of tax arbitral tribunals to those is limited by the voluntary nature of the Tax Authority's adherence to arbitral jurisdiction.[1]"

And immediately thereafter:

"Concretising what has just been concluded:

Judicially petitioned the declaration of illegality of tax act (withholding at source of CIT)[2] not preceded by such petition of gracious remedy to the competent regional peripheral body of the Tax Authority within the period of 2 years from the end of the period for payment of the respective tax, the lack of this requirement entails the material incompetence of the Tribunal (state or arbitral) for examination of the petition.

Such material incompetence is reinforced in the case of tax arbitration because the simple reading of Article 2(a) of Ordinance No. 112-A/2011, of 22 March, ordinance published in accordance with the provision in Article 4(1) of Decree-Law No. 10/2011, of 20 January, expressly imposes the aforementioned prior administrative procedure as a way to open the arbitral path for examination of the dispute.

Thus it appears beyond question that there is incompetence ratione materiae (and not of procedural means) of the Tax Arbitral Tribunal.

And this conclusion is not altered even if the petition formulated (declaration of illegality of the tax act of improper withholding) could be viewed from the perspective of challenging the act of rejection of the application for official review of the CIT withheld at source, with the difference only that the material incompetence of the TA would result, at that point, from the circumstance that such an arbitral pronouncement is not encompassed in the list provided for in Article 2-1, of the LFATM (DL 10/2011)". And further on:

"Now if it is true that the taxpayer who has not submitted a timely gracious remedy is not, ipso facto, prevented from requesting the review of the act of withholding under Article 78 of the General Tax Law, within the conditionality provided therein, and challenging judicially the decision that rejects the application for review (Article 95(2)(d) of the General Tax Law) (JORGE DE SOUSA, Tax Procedure and Process Code – II Volume, Áreas Publisher – 6th Ed./2011, p. 422), it does not also appear questionable to state that '(…) the Tax Authority only bound itself to the jurisdiction of arbitral tribunals if the petition for declaration of illegality of act of withholding at source had been preceded by recourse to administrative procedure, that is, by gracious remedy (…). Therefore, if the taxpayer wishes to opt for the arbitral path, it will always have to make use of the gracious remedy (…)' (idem, ibidem, p. 420).

Even if the interpretation that recourse to administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code can be understood as reported to cases in which such recourse is mandatory (See Article 131(3), by contrapositive, and 132(6) of the Tax Procedure and Process Code) is possibly acceptable, the truth is that, in arbitral jurisdiction, the Tax Authority defined the terms of its binding by subordinating it to the fulfilment of the condition of prior gracious remedy relating to the tax act challenged.

As already affirmed by the Supreme Tax Court (Award No. 0402/06, of 12-7-2006 – Rapporteur: Jorge de Sousa[3]) '(…) The formulation of an application for official review of the tax act may take place with respect to acts of withholding at source, independently of whether the taxpayer has deduced a gracious remedy in accordance with Article 152 of the Tax Procedure Code (or 132 of the Tax Procedure and Process Code), as this is necessary only for purposes of deduction of judicial challenge (…)' (emphasis ours).

Concluding: the arbitrability of a dispute relating to the claims to which Article 2 (object of binding) of Ordinance No. 112-A/2011, of 22 March, refers, is only recognised if, previously, a gracious remedy has been submitted (and not in any other venue, in particular, in a process of review of a tax act, which, being an available guarantee of taxpayers, has, however, its own specificities[4]).

It is true that the CLAIMANT raises, as a preliminary matter, the verification of the requirements of official review and that were not recognised by the Tax Authority (See above, Articles 22 et seq., of the application for constitution of the Tribunal).

Now the truth is that such an examination goes beyond, on the one hand, as was seen, the scope of the material competence of the Arbitral Tribunal and, on the other, proves to be irrelevant or, from another perspective, prejudiced by the understanding that official review of the assessment or withholding[5] (by initiative of the taxpayer) and gracious remedy, are procedures of different[6] nature and not equivalent for the purpose of challenging the act of withholding at source.

It is not, in particular, indifferent for the taxpayer to challenge or not acts of assessment within their respective periods as, '(…) in case of annulment in challenging process, judicial or administrative, any illegality may be invoked and there is right to compensatory interest from the date of improper payment until the issuance of the credit note (Articles 43(1) of the General Tax Law and 61(3) of the Tax Procedure and Process Code), while in cases of official review of the assessment (not at the request of the taxpayer, within the period of administrative remedy) there is only right to compensatory interest in accordance with Article 43(3) of the General Tax Law and annulment can only be grounded in error attributable to the services and duplication of collection (Articles 78(1) and (6) of the General Tax Law). (…) Essentially, the regime of Article 78 of the General Tax Law, when the application is formulated beyond the periods of administrative and contentious challenge, amounts to a means of restitution of what was improperly paid, with revocation and cessation for the future of the effects of the assessment act and not a means of annulment, with retroactive destruction of the effects of the act (…)."[7]

One can, on the other hand, affirm that, in review the examination is made by the author of the act, while in the remedy it is made, in its general regime, by the hierarchical superior – and, therefore, with increased guarantees on the part of the Administration that the matter is examined properly before being submitted to the Tribunal (whether Arbitral Tribunal whether state Tax Tribunal).

It is true that, in both cases, there is prior examination by the Tax Administration, but the care that this has for a more "severe" analysis, so as to be able to confirm or correct what was decided, have greater possibility of succeeding – moreover, also for the taxpayer (if it chose review, sibi imputat) – in the remedy than in the review. Thus it is not indifferent and, therefore, also from this perspective, the equivalence for purposes of compliance with the requirement provided for in Articles 131 to 133 of the Tax Procedure and Process Code and 2(a) of Ordinance No. 112-A/2011, of 22 March is not acceptable.

In any case – it is reaffirmed – it is not within the scope of competencies of Tax Arbitral Tribunals to examine acts of rejection of applications for review of a tax act."

We conclude, thus, that excluded from the scope of application of Article 2(1)(a) of the LFATM are cases in which the remedy provided for in Articles 131 to 133 of the Tax Procedure and Process Code has not previously been used. Moreover, the same conclusion is well explicit also in the decision rendered in the aforementioned case No. 236/2013-T of the CAAD:

"Subparagraph a) of Article 2 of Ordinance No. 112-A/2011, in introducing the exception referred to, thus restoring the field of arbitration, contains a broad expression (the "recourse to administrative procedure") and an immediate restrictive and exhaustive concretisation (carried out "in accordance with Articles 131 to 133 of the Tax Procedure and Process Code"). The normative text thus does not allow finding therein a minimum of verbal correspondence, even if imperfectly expressed, with the possibility that, in any one of the three situations therein referred to (self-assessment, withholding at source and payments on account), one could dispense with recourse to the gracious remedy, stricto sensu, for arbitration of the tax claim, even if there has been some act of second degree thereon and, therefore, there has been, in this case, a re-examination of the tax act challenged by the Tax Authority, as a consequence of an application for official review formulated by the taxpayer.

And such conclusion is reached independently and without prejudice to the position that is adopted on the equation of official review, by initiative of the taxpayer, to the gracious remedy procedure, for purposes of judicial challenge. This is due to the aforementioned clarity of the provision of binding, having regard to the double negation contained therein: certain acts are not included in the object of binding (subjection), except if preceded by gracious remedy ("preceded by… in accordance with...", the law tells us). In the face of such a crystalline formulation, it is not seen how the interpreter can reach a different conclusion, in particular to extend the scope of subjection of the Tax Authority to an option of the taxpayer, subjection that the legislator intended to be concretely delimited by the will of the Tax Authority itself, a clear reservation of the Administration in the matter of self-binding.

In the case of the Ordinance of binding, we can speak of a declaration of unilateral binding with a restrictive character to be interpreted in its strict terms. This because the Ordinance of binding expressly introduces a prior condition (consisting of the gracious remedy relating to the tax act challenged), in accordance with the legal provisions specifically indicated for access to tax arbitration. Thus is adopted the decision contained in the arbitral award rendered in Case No. 51/2012-T, of 2012-11-09, which understood that "considering the voluntary nature of arbitration" understood that the interpretation of the binding of the Tax Authority "cannot, in any case, result in a restriction of the sphere of freedom of the Tax Authority, as a party, to establish the limits of its binding. It would only be otherwise if its position implied the total frustration of the objective intended with the institution of tax arbitration, which is not the case", emphasising that then, as now, "the Tribunal does not pronounce on the doctrinal construction on which the equation of the official review procedure, by initiative of the taxpayer, to the gracious remedy procedure is based, for purposes of judicial challenge. Simply, it understands that from the principle of the establishment of the arbitral procedure as a means of resolution of tax disputes alternative to the process of judicial challenge, does not automatically result the extension of the binding of the Tax Authority to all situations in which, doctrinally and/or jurisprudentially it is considered admissible to challenge."

And further on:

"Concluding, it is not recognised that it is possible to submit to arbitration of the dispute relating to the claims to which Article 2 (object of binding) of Ordinance No. 112-A/2011, of 22 March, refers, which has not been preceded by a gracious remedy, as this is no longer viable, whereby it appears beyond question the incompetence, in reason of the matter, of this Tax Arbitral Tribunal.

Being a unilateral binding that implies a waiver of the common forum – the tax courts – the declaration would always be interpreted literally, that is, strictly, as are all acts of waiver, which corresponds to a general principle of law, broached, for example, in Article 237 of the Civil Code.

In conclusion:

We are dealing with a reservation of the administration as results from the aforementioned regulation.

The reservation of the administration means that the judicial power (through the ordinary courts or through arbitral tribunals) must strictly respect the decisions of the Administration.

In this case it is a matter of interpreting an ordinance (a generic administrative act) where the Administration (represented by the Minister of Justice and by the Minister of Finance) decides to bind itself to tax arbitral jurisdiction, in the terms aforementioned.

We are not, in this case, dealing with a simple interpretation of a regulatory norm (contained in an ordinance). It is rather the interpretation of a manifestation of will, although manifested in terms of a generic provision. Whereby, in this case, the powers and duties of the Administration must be respected, as they result from the regulation that led to the self-binding in its strict terms.

Article 9 of the Civil Code establishes, in Article 9(2), that the interpreter cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence.

Article 9(3) of this Code establishes that in establishing the meaning and scope of law, the interpreter shall presume that the legislator established the most correct solutions and was able to express its thinking in adequate terms. This provision excludes the possibility of corrective interpretation, because including therein Article 78 of the General Tax Law, a completely different legal instrument, constitutes an evident corrective interpretation.

In the same sense go Articles 236, 237 and 238 of the Civil Code, as well as the arbitral decision of 9-11-2011 rendered in Case No. 51/2012-T:

"The application for review may be alternative to the remedy, may be supplementary, may even be in the review procedure that the taxpayer's claim has been examined but considering the voluntary nature of arbitration, the interpretation adopted cannot, in any case, result in a restriction of the sphere of freedom of the Tax Authority, as a party, to establish the limits of its binding. It would only be otherwise if its position implied the total frustration of the objective intended with the institution of tax arbitration, which is not the case."

Thus from the binding of the Tax Authority to arbitration were expressly excepted the claims relating to declarations of illegality of self-assessment that have not been preceded by recourse to administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code.

Now, in the case, it cannot obviously be said that the prior recourse to administrative procedure occurred in accordance with the aforementioned Articles and, the aforementioned ordinance being equivalent, in some way, to the arbitration agreement, the expression "administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code" [which expresses the will of the Tax Authority, in particular, the terms in which it intended to bind itself] cannot be converted into the expression "administrative procedure" without any other specification or limitation. It could only not be so, as was transcribed above, if this position implied the total frustration of the objective intended with the institution of tax arbitration, which is not the case. It thus does not fall to the interpreter to enlarge the competence of the Arbitral Tribunal, in the face of the clear terms established, with full observance of law, by the entity that had the power to fix the limits of its binding. And let it not be said that the maxim in claris non fit interpretatio is being applied because to reach the conclusion, interpretation was made having regard to the respective elements.

In these terms, the exception of material incompetence of the Arbitral Tribunal to examine and decide the present proceedings is judged to be well-founded.

DECISION

As a consequence and in the wake of the foregoing it is decided:

a) To judge well-founded the exception of material incompetence of this Arbitral Tribunal to examine and decide the claim at issue in this dispute, dismissing the Tax Authority and Customs Service from the proceedings;

b) In light of the now declared material incompetence, to consider prejudiced not only the examination of the merits of the claim but also the examination of the other questions raised in the proceedings.

VALUE OF THE PROCEEDINGS:

In accordance with the provisions of Articles 97-A(1)(a) of the Tax Procedure and Process Code, 12 of the LFATM (DL 10/2011) and 3(2) of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceedings is established at €95,145.83 (ninety-five thousand one hundred and forty-five euros and eighty-three cents).

COSTS:

In accordance with Table I of the RCPAT, in the amount of €2,754.00 (two thousand seven hundred and fifty-four euros) calculated on the basis of the aforementioned value of the claim (Articles 6(2)(a) and 22(4) of the LFATM and 4(1) of the RCPAT) to be borne by the CLAIMANT.

This arbitral decision shall be notified to the parties and, in due time, the proceedings shall be filed away.

Lisbon and CAAD, 20 March 2015.

The arbitrators,

(José Poças Falcão)

(Manuel Pires)

(Ricardo Rodrigues Pereira)
[dissenting in accordance with the dissenting opinion attached]

DISSENTING OPINION

My disagreement regarding the decision to judge well-founded the exception of material incompetence of this Arbitral Tribunal to examine and decide the present proceedings, is grounded on the reasons I proceed to set forth.

1. The competence of arbitral tribunals constituted under the aegis of the CAAD is, primarily, limited to the matters indicated in Article 2(1) of Decree-Law No. 10/2011, of 20 January (LFATM), which provides as follows:

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

a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account;

b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable matter and of acts of determination of property values."

The competence of arbitral tribunals functioning in the CAAD is further limited by the terms in which the Tax Authority was bound to that jurisdiction by Ordinance No. 112-A/2011, of 22 March, having regard to the provision in Article 4(1) of the LFATM, which establishes as follows:

"1 - The binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered."

Thus, the resolution of the question of the competence of arbitral tribunals constituted under the aegis of the CAAD depends essentially on the terms of that binding of the Tax Authority, as, even if one is dealing with a situation that can be framed in Article 2 of the LFATM, if it is not within the scope of that binding the possibility of the dispute being jurisdictionally decided by these arbitral tribunals will be excluded.

In this manner, in the concrete case, we must turn our attention to Article 2(a) of Ordinance No. 112-A/2011, of 22 March, a norm from which the following results:

"The services and bodies referred to in the preceding article [DGCI and DGAIEC] bind themselves to the jurisdiction of arbitral tribunals functioning in the CAAD that have as their object the examination of claims relating to taxes whose administration is incumbent upon them referred to in Article 2(1) of Decree-Law No. 10/2011, of 20 January, with the exception of the following:

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

For the determination of the Tribunal's competence to examine and decide the present proceedings, we must, thus, in the situation at issue, have regard to the provision in Article 131 of the Tax Procedure and Process Code, which reads as follows:

"1 - In case of error in self-assessment, the challenge shall necessarily be preceded by a gracious remedy directed to the highest ranking official of the regional peripheral body of the tax administration, within the period of 2 years after the submission of the declaration.

2 - In case of express or tacit rejection of the gracious remedy, the taxpayer may challenge, within the period of 30 days, the assessment that it effected, counted, respectively, from the notification of the rejection or from the formation of the presumption of tacit rejection.

3 - Notwithstanding the provisions of the preceding paragraphs, when its grounds are exclusively a matter of law and the self-assessment was effected in accordance with generic guidelines issued by the tax administration, the period for challenge does not depend on a prior gracious remedy, and the challenge must be submitted within the period of Article 102(1)."

Having regard to the content of the aforementioned norms, we have that the "recourse to administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code" must be interpreted as referring to cases in which recourse to administrative procedure is mandatory, which must be effected through the gracious remedy, which is the administrative means indicated in Article 131 of the Tax Procedure and Process Code, to whose terms it refers.

1. In the concrete case, as results from the proven factual matter, the Claimant did not submit any gracious remedy. However, as also results from the proven factual matter, the Claimant submitted an application for official review of the act of self-assessment of CIT for fiscal year 2010, which was partially rejected.

Thus, in order to resolve the question of the competence of this Arbitral Tribunal, it is important to verify whether the declaration of illegality and subsequent annulment of acts of rejection of applications for review of the tax act (acts of second degree), provided for in Article 78 of the General Tax Law, is encompassed by the scope of competencies of arbitral tribunals functioning in the CAAD, as it is delimited by Article 2 of the LFATM.

As is well stated in the decision rendered in case No. 117/2013-T of the CAAD: "…the formula 'declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account', used in subparagraph a) of Article 2(1) of the LFATM does not restrict, in a merely declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In truth, the illegality of acts of assessment can be declared jurisdictionally as a corollary of the illegality of an act of second degree, which confirms an act of assessment, embodying its illegality.

The inclusion in the competencies of arbitral tribunals functioning in the CAAD of cases in which the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of acts of second degree, which are the immediate object of the challenging petition, results with certainty from the reference made in that norm to acts of self-assessment, of withholding at source and of payment on account, which are expressly referred to as included among the competencies of arbitral tribunals. Indeed, with respect to these acts it is imposed, as a rule, the necessary gracious remedy, in Articles 131 to 133 of the Tax Procedure and Process Code, whereby in these cases the immediate object of the challenging process is, as a rule, the act of second degree that examines the legality of the act of assessment, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the act of assessment. The reference made in subparagraph a) of Article 2(1) of the LFATM to Article 102(2) of the Tax Procedure and Process Code, in which the challenge of acts of rejection of gracious remedies is provided for, resolves any doubts that cases are encompassed in the competencies of arbitral tribunals functioning in the CAAD in which the declaration of illegality of the acts referred to in subparagraph a) of that Article 2 of the LFATM must be obtained as a consequence of the declaration of the illegality of acts of second degree.

Moreover, it was precisely in this sense that the Government, in Ordinance No. 112-A/2011, of 22 March, interpreted these competencies of arbitral tribunals functioning in the CAAD, in excluding from the scope of these competencies the 'claims relating to the declaration of illegality of acts of self-assessment, of withholding at source and of payment on account that have not been preceded by recourse to administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code', which has as its scope to restrict its binding to cases in which that recourse to administrative procedure has been used."

In this framework, are not excluded from the scope of application of subparagraph a) of Article 2(1) of the LFATM cases in which the declaration of illegality results from the illegality of an act of second degree.

1. In this manner, the express reference made in subparagraph a) of Article 2 of Ordinance No. 112-A/2011, of 22 March, to Article 131 of the Tax Procedure and Process Code, cannot be interpreted as signifying the exclusion of the possibility of examination, by arbitral tribunals functioning in the CAAD, of petitions of illegality of acts of rejection of applications for official review of acts of self-assessment.

As is well explained in the decision rendered in case No. 117/2013-T of the CAAD: "…the interpretation exclusively based on literal content that the Tax Authority and Customs Service defends in the present proceedings cannot be accepted, because in the interpretation of tax norms the rules and general principles of interpretation and application of laws are observed (Article 11(1) of the General Tax Law) and Article 9(1) expressly prohibits interpretations exclusively based on the literal content of norms by providing that 'interpretation must not be limited to the letter of the law', instead 'it must reconstruct from the texts the legislative thought, having especially in mind the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied'.

As for the correspondence between the interpretation and the letter of the law, 'a minimum of verbal correspondence, even if imperfectly expressed' is sufficient (Article 9(3) of the Civil Code) which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even acknowledging therein imperfection in the expression of the legislative intent.

Therefore, the letter of the law is not an obstacle to making a declarative interpretation, which clarifies the scope of the literal content, nor even an extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, it intended to say, that is, when it said imperfectly what it intended to say. In extensive interpretation 'it is the very evaluation of the norm (its "spirit") that leads to the discovery of the need to extend the text thereof to the hypothesis that it does not encompass', 'the expansive force of the very legal evaluation is capable of leading the provision of the norm to cover hypotheses of the same type not covered by the text'.

Extensive interpretation, thus, is imposed by the evaluative and axiological coherence of the legal system, erected by Article 9(1) of the Civil Code into a primordial interpretative criterion by way of the imposition of the observance of the principle of unity of the legal system."

Still as referred in the same decision: "It is manifest that the scope of the requirement of prior gracious remedy, necessary to open the contentious path of challenging acts of self-assessment, provided for in Article 131(1) of the Tax Procedure and Process Code, has as its sole justification the fact that with respect to that type of act there is no taking of position by the Tax Authority on the legality of the legal situation created with the act, a position that could even turn out to be favourable to the taxpayer, avoiding the need for recourse to the contentious path.

In truth, besides not envisaging any other justification for this requirement, the fact that an identical necessary gracious remedy is provided for challenging contentious acts of withholding at source and payments on account (in Articles 132(3) and 133(2) of the Tax Procedure and Process Code), which have in common with acts of self-assessment the circumstance that there is also no taking of position by the Tax Authority on the legality of the acts, confirms that this is the raison d'etre of that necessary gracious remedy.

Another unequivocal confirmation that this is the raison d'etre of the requirement of necessary gracious remedy is found in Article 131(3) of the Tax Procedure and Process Code (…). In truth, in situations of this type, there was a prior generic pronouncement by the Tax Authority on the legality of the legal situation created with the act of self-assessment and it is this fact that explains why the necessary gracious remedy ceases to be required.

Now, in cases in which an application for official review of a tax assessment act is formulated the Tax Authority is afforded, with this petition, an opportunity to pronounce itself on the merits of the claim of the taxpayer before the latter resorts to the jurisdictional path, whereby, in coherence with the solutions adopted in Articles 131(1) and (3) of the Tax Procedure and Process Code, it cannot be required that, cumulatively with the possibility of administrative examination within the scope of that official review procedure, a new administrative examination through gracious remedy be required."

1. On the other hand, it is meridianly clear that there was no legislative intent to prevent taxpayers from deducing applications for official review in cases of acts of self-assessment, as these are expressly referred to in Article 78(2) of the General Tax Law.

Thus, ensuring the review of the tax act "the possibility of examination of the claim of the taxpayer before access to the contentious path that is intended to be achieved with necessary administrative challenging, the most correct solution, because it is the most coherent with the legislative design of 'to reinforce the effective and efficient protection of the rights and legally protected interests of taxpayers' manifested in Article 124(2) of Law No. 3-B/2010, of 28 April, is the admissibility of the arbitral path for examination of the legality of acts of assessment previously examined in an official review procedure.

And, because it is the most correct solution, it must be presumed to have been normatively adopted (Article 9(3) of the Civil Code).

On the other hand, because that subparagraph a) of Article 2 of Ordinance No. 112-A/2011 contains an imperfect formula, but which contains a broad expression 'recourse to administrative procedure', which potentially also references the review of the tax act, there is found in the text the minimum of verbal correspondence, although imperfectly expressed, required by that Article 9(3) for the viability of the adoption of the interpretation that establishes the most correct solution."

1. In another respect, one cannot speak of 'voluntary and conventional nature' to characterise this type of arbitration, as this appears contrary to its effective legal nature. In this respect, the application of the interpretative rules of manifestations of will has no place here, since one is not dealing with a true arbitration agreement between taxpayers and the Tax Authority, that is, with voluntary and conventional arbitration.

Indeed, one cannot say that there was truly an adherence of the Tax Authority to tax arbitration and we cannot qualify Ordinance No. 112-A/2011 as a species of contractual proposal addressed to the set of taxpayers which, if accepted by a concrete and individualised taxpayer, would generate the conclusion of a true arbitration agreement.

Furthermore, tax arbitration embodies a legal regime (binding for the Tax Authority) of resolution of tax disputes, alternative to the tax judicial process, whereby it must, in this respect, be subject to the rules of interpretation of law, by virtue of the provision in Article 11(1) of the General Tax Law and Article 9 of the Civil Code.

Therefore, to be able to follow in the wake of the position that obtained judgment in this proceeding, it would be necessary to determine, by way of the interpretation of law – with necessary appeal to its ratio legis (fundamental for the resolution of the hermeneutic doubts generated by the application of law) –, why the legislator would have intended to subtract from the material competence of arbitral tribunals cases in which there was recourse to official review in situations involving errors in self-assessment. In other words, this thesis would only be convincing if it succeeded in clarifying why the legislator imposed prior recourse to the "administrative procedure" and that, having regard to this reason and because of it, the official review procedure would not count as such. What, with all due respect, does not appear to us to be the case.

1. In conclusion, subparagraph a) of Article 2 of Ordinance No. 112-A/2011, of 22 March, makes viable the submission of petitions for arbitral pronouncement regarding acts of self-assessment that have been preceded by an application for official review.

In these terms, I would therefore decide in the sense of the material competence of this Arbitral Tribunal to examine and decide the present proceedings and, consequently, would judge not well-founded the invoked exception of material incompetence of the Arbitral Tribunal and, thus, would address the merits of the claim.

Lisbon, 20 March 2015.

The Arbitrator,

(Ricardo Rodrigues Pereira)

[1] Depending on the nature of the act challenged, the voluntary submission of the Tax Authority to arbitration constitutes a restriction on the principle of indisposability of tax credit established in Article 30(2) of the General Tax Law.

[2] Or, possibly and from another perspective, of judicial challenge of the act of rejection of application for official review of CIT withheld at source.

[3] See http://www.dgsi.pt/jsta.nsf/OpenDatabase

[4] "(…) Review is always effected by the entity that effected the act (Article 78(1) of the General Tax Law) (…) This is a regime different from that provided for gracious remedy, regulated in Articles 68 to 77 of the Tax Procedure and Process Code, as in this the petition for annulment of the tax act is, as a rule, decided by the official of the regional peripheral body of the tax administration or by the chief official of the service, only being so by the official of the local peripheral body in cases of manifest simplicity (Articles 73(4) and 75 of this Code), independently of whether these are or are not the authors of the acts remedied (…) it is an administrative means of correction of errors of tax assessment acts, which is admitted as a complement to the means of administrative and contentious challenge of those acts, to be deduced within the respective normal periods, which aims at making it possible to correct injustices of taxation both in favour of the taxpayer and in favour of the administration (…)" (See the cited Award)

[5] The duty to proceed with official review of assessment acts constitutes the recognition, within the tax scope, of the duty to revoke illegal acts, a duty that is a corollary of the principles of justice, equality and legality, principles that the Tax Authority must observe in the totality of its activity and which impose, as a rule, that all errors of assessments that have led to the collection of tax in an amount superior to what would be legally due be officially corrected (See Awards of the Supreme Tax Court of 12-6-2006 (Case No. 402/06) and of 11-5-2005 (Case No. 319/05) and Articles 266(2) of the Constitution and 55 of the General Tax Law).

[6] See note 10

[7] See Award of the Supreme Tax Court of 11-5-2005, cited in the preceding note.