Process: 609/2014-T

Date: January 30, 2015

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision addresses a dispute concerning the Derrama Estadual (State Surcharge) under Article 87-A of the IRC Code. Company A, S.A., a retail clothing company, challenged an IRC self-assessment from July 2012 relating to fiscal year 2011, contesting €127,591.49 in State Surcharge. The company adopted a non-standard taxation period from February 1 to January 31 under Article 8(2) of the IRC Code to align with its Spanish parent company's reporting requirements. The central legal question involved whether State Surcharge applies to taxable profits attributable to activities developed in the Autonomous Region of Azores, where no regional surcharge provision existed at the time. The company argued the State Surcharge could not lawfully apply in the Azores' territory, citing constitutional provisions on regional tax autonomy and the Political-Administrative Statutes of the Autonomous Regions. The Tax Authority raised a preliminary exception of defectiveness due to alleged unintelligibility of the request, claiming the main and subsidiary requests were indiscernible. After failed administrative review, the company filed for tax arbitration at CAAD on August 4, 2014. The sole arbitrator was appointed, and the tribunal was constituted on October 9, 2014. The case presents important questions about territorial application of State Surcharge, regional tax autonomy, calculation methods for non-standard fiscal periods, and procedural requirements for challenging IRC self-assessments through tax arbitration.

Full Decision

ARBITRAL DECISION

1. REPORT

  1. A, S.A. (hereinafter referred to as Claimant), taxpayer number ..., with registered office at Avenue ... Lisbon, submitted on 4 August 2014, under the provisions of Article 104 of the Code of Tax Procedure and Process pursuant to Article 29 No. 1, paragraph a) of the Legal Regime of Tax Arbitration (hereinafter referred to as LRTA) a request for constitution of an arbitral pronouncement, in accordance with the provisions of paragraph a) of No. 1 of Article 2 of the LRTA, against which the Tax and Customs Authority (hereinafter referred to as TCA or Respondent) is required for the purposes of annulment of a self-assessed Corporate Income Tax (IRC), dated 3 July 2012, with the number 2012 ..., relating to the year 2011.

  2. The request for constitution of the Arbitral Tribunal was accepted by the Honourable President of CAAD on 7 August 2014, and immediately notified to the Respondent in accordance with legal requirements.

  3. In accordance with and for the purposes of the provisions of paragraph a) of No. 2 of Article 6 of the LRTA by decision of the Honourable President of the Ethics Council, duly communicated to the parties, within the prescribed periods, Dr. José Coutinho Pires was appointed as arbitrator, who communicated to the Ethics Council and to the Centre for Administrative Arbitration his acceptance of the appointment within the period stipulated in Article 4 of the Ethics Code of the Centre for Administrative Arbitration.

  4. The Sole Arbitral Tribunal was constituted on 9 October 2014, in accordance with the requirement of paragraph c) of No. 1 of Article 11 of the LRTA.

  5. By order issued on 3 December 2014, duly notified to the parties, the holding of the meeting referred to in Article 18 of the LRTA was dispensed with.

  1. To substantiate its request, the Claimant alleged, in summary and with relevance:

    i. It is a joint-stock commercial company with registered office in national territory, engaging, as results from its corporate purpose, in the retail sale of clothing for men, women and children,

    ii. It is true, however, that, contrary to the overwhelming majority of IRC taxpayers, (...) it does not adopt the normal taxation period coinciding with the calendar year, therefore from 1 January to 31 December, as, as a rule, is provided for in Article 8 No. 1 of the IRC Code,

    iii. (...) for reasons of reporting its financial information to the Parent Company in Spain, it adopted, in accordance with and for the purposes provided for in Article 8 No. 2 of the IRC Code, a taxation period running from 01 February to 31 January of the following year (...)

    iv. With reference to the fiscal year 2011, and as provided for in Articles 117 No. 1 paragraph b) and 120 No. 2 both of the IRC Code (...) it submitted, by electronic means, on 29 June 2012, its respective Model 22 IRC Declaration,

    v. (...) from the tax act of assessment, an amount of EUR 127,591.49 was determined as State Surcharge, in accordance with and for the purposes provided for in Article 87-A of the IRC Code,

    vi. (...) from such act, it reacted through an administrative review which received a refusal.

    vii. The Claimant further makes various and abundant considerations about the tax power of the Autonomous Regions, and their comparison with the provisions of the Constitution of the Portuguese Republic, the Political-Administrative Statutes of the Autonomous Regions of the Azores and Madeira, and their Finance Laws,

    viii. Concluding that the value of the State Surcharge, provided for in Article 87-A of the CIRC, could never apply to the profit attributable to activities developed in the Autonomous Region of the Azores.

    ix. Culminating in the request for "the return of the amount of €2,086.53 due to the non-existence in the legal system of the Autonomous Region of the Azores of a rule of scope that provides for the application of state surcharge in that territory" or, alternatively "the return of the state surcharge collected in excess (...) in the amount of EUR 9,600.72" [1],

    x. Also formulating the request for compensatory interest under the provisions of Articles 43 and 100 of the LGT and 61 of the CPPT.

  2. The TCA, in its response and immediately, raises the dilatory exception of defectiveness of the initial petition, due to unintelligibility of the request, and as to the matter impugned it maintained a position contrary to that presented by the Claimant, in accordance with the position already assumed in the administrative review.

  3. With regard to the said exception, it alleges in summary that: taking as a basis the "identification of the request" formulated by the Claimant under Articles 2 to 5 of its request for arbitral pronouncement, from its comparison with what is set forth under Articles 49, 62 and 63 and with the request formulated finally, it was concluded "that (...) it is not possible to discern which will be the eventual main request and which will be the hypothetical subsidiary request".

    8.1. One would be faced with the nullity of the process due to defectiveness of the initial petition, under the provisions of No. 1 and paragraph a) of No. 2 of Article 186 of the Code of Civil Procedure, pursuant to paragraph e) of No. 1 of the LRTA, that is,

    8.2. In the face of a situation of unintelligibility of the request that leads to the defectiveness of the initial petition which is subject to official knowledge.

    8.3. For this purpose, the Respondent also argues – in very brief summary - that in the initial IDENTIFICATION OF THE REQUEST the Claimant intends to identify as illegal the self-assessment in question, due to the inapplicability of Article 87-A of the CIRC to the Autonomous Regions of the Azores and Madeira, in order to,

    8.4. Later announce that "(...) intends to discuss the issue here contested, concerning the legitimacy of collection of state surcharge in the AAR and its calculation, in general terms",

    8.5. Furthermore ahead to argue "(...) that State Surcharge should not have been collected on the taxable profit attributable to its activities developed in the AAR",

  4. Having, by way of challenge, maintained a position contrary to that presented by the Claimant regarding the application of the general rule of Article 87-A of the CIRC, in accordance with the position already assumed in the administrative review, bringing its point of view, in very brief summary, to the fact that: the taxable profit attributable to the Claimant's facilities located in the Autonomous Region of the Azores is subject to the state surcharge, under the conditions provided for in Article 87-A of the CIRC and that, the lack of provision (at the time) of a regional surcharge in the RAR budget does not prevent such application.

  5. Proceeding for this purpose to an analysis of autonomous tax powers under the Constitution of the Republic, the Finance Law of the Autonomous Regions and the Political-Administrative Statute of the Azores.

  6. The Claimant came to respond to the exception raised by the Respondent, under the protection of Article 16 a) of the LRTA, having thereby argued for the non-existence of any defects regarding its request for arbitral pronouncement, further concluding with the request to alter the order of the requests then formulated.

  7. The parties also, under the provisions of Article 18 of the LRTA, submitted written submissions, where, fundamentally, they defended the positions they had already expressed in their pleadings.

  8. The Arbitral Tribunal is materially competent and is properly constituted, in accordance with the provisions of Articles 2 No. 1 paragraph a), 5 and 6 No. 1 of the LRTA.

  9. The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with the provisions of Articles 4 and 10 of the LRTA and Article 1 of Ordinance No. 112-A/2011, of 22 March.

  10. There is, in this way, no obstacle to the consideration of the merits of the case.

All having been considered, it is necessary to pronounce.

II - DECISION

A. ON THE EXCEPTION

The exception raised by the Respondent which, as it could prevent the consideration of the request and the judgment on the merits of the subject matter of the process, must be considered and decided as a preliminary matter is the following:

  • defectiveness of the initial petition

As already mentioned, TCA argues that the request for arbitral pronouncement is affected by unintelligibility, that such circumstance is determinative of the defectiveness of the initial petition, in view of the applicable paragraph a) of No. 2 of Article 186 of the Code of Civil Procedure, whereby and consequently the Respondent should be absolved of the instance under the normative of Articles 278 No. 1, paragraph e), 576 Nos 1 and 2 and 557 paragraph b) of said legal instrument pursuant to Article 29 No. 1 paragraph e) of the LRTA.

The Claimant, in the exercise of the right to be heard, came to respond to the exception raised by the Tax and Customs Authority, also in the terms already noted, arguing that there is no defect determinative of the defectiveness of the initial petition, culminating with the request to alter the order of the requests formulated in its initial petition.

Let us see then:

In accordance with the provisions of Article 186 of the Code of Civil Procedure (as amended by Law No. 41/2013, of 26 June) it is "null any process when the initial petition is defective", with its No. 2 specifying the circumstances in which such defectiveness occurs, namely and to the extent relevant in the present proceedings, the petition shall be defective, in accordance with its paragraph a) "when the indication of the request or the cause of action is lacking or is unintelligible".

Such nullity which in accordance with what is provided for in Article 196 of the applicable Code of Civil Procedure is subject to official knowledge.

The question of defectiveness of the initial petition, by virtue of the cause indicated (or by virtue of the others arising from the remaining paragraphs of No. 2 of Article 186 of the Code of Civil Procedure), deeply and extensively dealt with by doctrine and case law, has underlying it the principle of procedural economy in so far as "there is no point in proceeding with the action, subjecting the defendant to inconvenience and expense, if by simple reading of the petition the judge is persuaded that he cannot consider the merits of the case or that the plaintiff's claim cannot succeed" [2]

The requests formulated by the Claimant in its initial pleading, as well as the contribution arising from the response to the dilatory exception, in the sense of altering their order, while not, with all due respect, a model of technical perfection, nevertheless appear sufficiently explicit to allow any "reasonable declarant placed in the position of the actual declarant" (Article 236 of the Civil Code) or a diligent father of a family to understand the contours of the disputed substantive relationship.

Indeed No. 3 of Article 186 of the Code of Civil Procedure excludes the admissibility of defectiveness of the initial petition when, notwithstanding the defect of lack or unintelligibility of the request or the cause of action being raised, the defendant in the response has interpreted the initial petition conveniently.

Now,

In the present proceedings the Respondent interpreted conveniently and in a laborious manner, it must be said, the claim of the claimant, whereby, and without need for further considerations, the unintelligibility of the request is not verified, leading us more to understand that we are faced with a lack of total clarity, thus making the exception of defectiveness invoked by the TCA inadmissible.

B. MATTERS OF FACT

B.1. Facts found proven

  1. The present Claimant is a joint-stock commercial company that operates commercially under the designation "A, S.A." with tax number ... and registered office and tax domicile at Av. ... in Lisbon.

  2. It exercises its commercial activity within the scope of retail sale of clothing for adults (CAE ...).

  3. For tax purposes it is registered with the locally competent peripheral service, in this case the 10th Finance Service of Lisbon, being subject to IRC in accordance with what is provided for in No. 1 of Article 2, and Articles 3 and 5 of the CIRC.

  4. Having adopted a taxation period not coinciding with the calendar year commencing on 01 February.

  5. On 2012-06-29 it proceeded to deliver the Model 22 IRC Declaration for the fiscal year 2011, the same having originated the assessment No. 2012 ... dated 2012-07-03 which defined an amount of state surcharge to be paid in total of 127,591.50 €.

  6. The amount of the surcharge referred to in the previous number was calculated on the basis of the taxable profit of the Claimant, on the basis of the sales volume achieved in the territory of the mainland and the regions of Madeira and the Azores.

  7. The Claimant came to express its disagreement with such assessment, having presented for this purpose on 2014-03-05 an administrative review, under the provisions of Articles 68 and 131 of the Code of Tax Procedure and Process.

  8. The administrative review in question was the subject of an order of refusal notified to the Claimant through official letter No. ..., of 7 May 2014.

  9. On 04 August 2014, the Claimant submitted its request for arbitral pronouncement with the CAAD.

B.2. Facts found not proven

With relevance to the decision, there are no facts that should be considered as not proven.

B.3. Reasoning of the matters of fact found proven and not proven

With regard to matters of fact the Tribunal does not have to pronounce on everything that was alleged by the parties, it being incumbent on it, rather, the duty to select the facts that matter for the decision and to distinguish the matter proven from that not proven [(see Article 123 No. 2 of the CPPT and Articles 607 of the CPC [3], applicable pursuant to Article 29, No. 1, paragraph a) and e) of the LRTA)].

In this way, the facts relevant to the judgment of the case are chosen and cut out according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of law (see Article 596 of the CPC, applicable pursuant to Article 29, No. 1, paragraph e) of the LRTA).

Thus, taking into account the positions assumed by the parties, the documentary evidence attached to the record, and the PA appended, it is considered proven, with relevance for the decision the above listed facts, recognized and accepted by the parties.

C. ON THE LAW

The thema decidendum that arises in the present proceedings (since the factual basis thereof is not challenged by the parties) comes down to knowing whether the state surcharge provided for in Article 87-A of the Code of Corporate Income Tax (CIRC) applies to the taxable profit generated by the Claimant's facilities located in the Autonomous Region of the Azores (RAA) and whether it is legitimate for IRC taxpayers with registered office on the Mainland and owners of facilities in the Autonomous Region of the Azores to determine the objective incidence of the state surcharge, by reference to the taxable profit attributable to each of the autonomous regions, determined under conditions similar to those arising from Annex C of the Model 22 IRC Declaration, for the purposes of determining the collection.

It will be necessary, before entering into the substantive question, some, albeit brief considerations, on (i) the tax power of the autonomous regions and (ii) the state surcharge, introduced into the Portuguese tax legal system by Law No. 12-A/2010, of 30 June.

(i) The tax power of the autonomous regions

According to Article 227 of the Constitution of the Portuguese Republic (CRP) the autonomous regions of the Azores and Madeira exercise "their own tax power, in accordance with the law" having also the power to "adapt the national tax system to regional specificities, in accordance with the law - framework for the Administration of the Republic", also providing "in accordance with the statutes and the finance law of the autonomous regions of the tax revenues collected or generated therein, as well as a share in the tax revenues of the State", established this "in accordance with a principle that ensures effective national solidarity, and other revenues that are attributed to it and to devote them to its expenses".

The tax powers of the autonomous regions listed are clear, which derive from paragraphs i) and j) of No. 1 of Article 227 of the CRP.

One would be, according to J.L. Saldanha Sanches [4] before "an adaptation tax power, or derivative power, its own tax power, a right to certain revenues and a right to political participation".

The exercise of own tax power – paragraph i) of No. 1 of Article 227 of the CRP, in the aspect of the possibility of creating regional taxes leads us to the Law of Finances of the Autonomous Regions (LFAR) approved by Organic Law No. 1/2007, of 19 February and amended by Organic Law No. 1/2010, of 29 March [5].

There indeed, and with relevance it was stated:

Article 53

Tax competencies

(...)

2 – Regional legislative competence in tax matters is exercised by the Legislative Assemblies of the Autonomous Regions, through legislative decree, and comprises the following powers:

a) The power to create and regulate taxes, valid only in the respective Autonomous Regions, defining their respective scope, rate, assessment, collection, tax benefits and guarantees of taxpayers, in accordance with this law;

b) The power to adapt national scope taxes to regional specificities, in matters of scope, rate, tax benefits and guarantees of taxpayers, within the limits set by law and in accordance with the following articles.

Thus enshrining Article 55 of the LFAR the possibility of autonomous regions imposing "surcharges, up to the limit of 10% on the collection of taxes in force (...)".

As to the power to "adapt the national tax system to regional specificities", its normative framework was based on Article 56 of the LFAR and, to the extent relevant, it provided for the possibility of "reducing national tax rates on income (IRS) and (IRC) and value added tax, up to the limit of 30%, and special consumption taxes, in accordance with current legislation" (No. 2); (...) "determining the application in the Autonomous Regions of reduced IRC rates defined in national legislation, in the terms and conditions to be fixed in regional legislative decree", and also under its No. 4, it provided that the Legislative Assemblies of the Autonomous Regions could "grant deductions to the collection relating to commercial, industrial and agricultural profits reinvested by taxpayers".

If in a first analysis, which is far from exhaustive, one could conclude in the sense of great autonomy as regards the exercise in a broad sense of own tax power of the autonomous regions, it nonetheless finds the same, naturally, limits. Such limits of an internal and constitutional nature, as well as those arising from the community legal order.

Among the first the prevalence of national tax norms, will determine, right from the start, that "the tax power of the Regions is, therefore, limited to a constitutionally attributed right over taxes collected in the Region, to the creation of new taxes related to a specific interest of the regions, if such new tax has some reason to be that can be considered as drawn from some particularity existing in the territory of the Regions, and to the non-derogatory adaptation of the national tax system (without the possibility of this tax law to come to revoke or derogate the general laws of the Republic in tax matters" [6].

Now,

As noted, No. 2 to Article 53 of the LFAR transcribed above, by providing for the possibility of creating taxes exclusive to autonomous regions and the power of adaptation to them regarding national scope taxes, does not determine either their mandatory creation or their adaptability to the autonomous regions.

One would be faced with options of a political nature of a fiscal and financial character that will be the responsibility of regional legislators, in perfect harmony, moreover, with what occurs in the context of municipal surcharges.

What cannot occur, in our understanding, and here subscribing to the position favored by the Respondent, is that "the eventual non-exercise of that power by the regional legislator could never have as a consequence the derogation of the national tax law approved by the Assembly of the Republic in the exercise of its legislative competence".

This being the case:

(ii) The state surcharge, introduced into the Portuguese tax legal system by Law No. 12-A/2010, of 30 June

The state surcharge was created within the framework of the Stability and Growth Program (PEC) of 2010, with a view (as is drawn from it) to "budgetary consolidation which aims to establish the reduction of excessive deficit and the control of public debt growth" introduced (in addition to others of a cross-cutting nature) fiscal measures, in the scope of income tax for legal persons, with its Article 2 proceeding to the addition of several articles of the CIRC and to the extent relevant in this respect, to the addition of Article 87-A in the following sense:

"Article 87-A

State Surcharge

  1. On the part of taxable profit in excess of (euro) 2,000,000 subject to and not exempt from income tax on legal persons determined by taxpayers resident in Portuguese territory who exercise, as a main activity, a commercial, industrial or agricultural activity and by non-residents with a permanent establishment in Portuguese territory, an additional rate of 2.5% applies.

  2. When the special regime for taxation of groups of companies is applicable, the rate referred to in the previous number applies to the taxable profit determined in the individual periodic declaration of each of the companies in the group, including that of the parent company.

  3. The taxpayers referred to in the previous numbers must proceed to the assessment of the additional surcharge in the periodic income declaration referred to in Article 120".

Also proceeding to the addition of Article 104-A of the CIRC relating to the manner of payment of the state surcharge in the following sense:

"Article 104-A

Payment of the state surcharge

  1. Entities that exercise, as a main activity, a commercial, industrial or agricultural activity and non-residents with permanent establishments must proceed to the payment of the state surcharge in the following terms:

    a) In three additional payments on account, in accordance with the rules established in paragraph a) of No. 1 of Article 104;

    b) Until the last day of the deadline fixed for the sending of the periodic income declaration referred to in Article 120, for the difference existing between the total value of the state surcharge calculated there and the amounts paid on account in accordance with Article 105-A;

    c) Until the day of sending the substitute declaration referred to in Article 122, for the difference existing between the total value of the state surcharge calculated there and the amounts already paid.

  2. There is a right to reimbursement to the taxpayer, by the respective difference, when the value of the state surcharge determined in the declaration is lower than the value of additional payments on account.

  3. The rules of payment of state surcharge not referred to in this article apply to the rules for payment of income tax on legal persons with the necessary adaptations".

The provisions in question, and in view of Article 20 No. 1 of Law No. 12-A/2010, of 30 June, entered into force on the day immediately following its publication, namely on 01 July 2010, with the normative not providing any provision relating to the temporal validity of the measures in question, with Article 87-A of the CIRC remaining in force with the amendments that were introduced to it by the budget laws of 2012 and 2013, respectively Law No. 64-B/2011, of 30 December and Law No. 66-B/2012, of 31 December and more recently by Law No. 2/2014, of 16 January.

Although not the subject of analysis in the present proceedings of the legal nature of the state surcharge, nonetheless and even if synoptically, the following observations: we consider that given the typology of taxes that is usually accommodated by our doctrine, doubts do not seem to have been raised as to the accommodation of surcharges (state and municipal) as general, ordinary and direct taxes, real and allegedly of a periodic character, this as far as the state surcharge is concerned, (to be taken into account the justification that underlay its creation as mentioned above).

As to the dichotomy (principal/accessory) or trichotomy (principal/accessory/dependent) if the question assumed any relevance with respect to the municipal surcharge in its regime prior to Law No. 2/2007, of 15 January, which until then seemed to converge as to its accessory character relative to income tax for legal persons, it ceased to assume from then on such nature of accessoriness since it clearly ceased to attend to either the taxable material, or the collection of IRC itself as prerequisites for its applicability.

Doctrine seems to converge in the sense that we are before an "addition" to the IRC, by virtue of, among others, the fact that it came to be calculated from taxable profit, and no longer from the collection.

The surcharges, reasoning that applies indiscriminately whether for the municipal ones or for the state surcharge that concerns us, now have as to their relationship with income tax for legal persons an absolutely restricted relationship, only for the purposes of its calculation for reasons of simplicity and operationality.

If as far as the municipal surcharge is concerned, following the 2007 redaction, to the Finance Law of the Municipalities it could be stated that from then on it assumed an autonomous character relative to the IRC only resorting to the rules of this for the purposes of determining taxable profit, we are of the opinion that the same appears to be the case relative to the state surcharge introduced by Law No. 12-A/2010, of 30 June.

On the other hand, and having regard to the redaction of the normative in question at the time (Article 87-A of the CIRC), no other criterion can be found than not being its incidence on taxable profit in the part exceeding two million euros and not exempt from IRC.

In determining taxable profit for the purposes of incidence thereon of the "additional rate of 2.5%" no specific or particularized criterion is envisaged as to its determination.

Already as to the subjective incidence of the surcharge the said normative determines that it applies to "taxpayers resident in Portuguese territory who exercise, as a main activity, a commercial, industrial or agricultural activity and non-residents with permanent establishments in Portuguese territory" as is defined by No. 1 of Article 2 of the CIRC.

The (time) redaction of Article 87-A of the CIRC does not appear to raise doubts as to what has just been stated: "on the part of taxable profit in excess of (euro) 2,000,000 subject to and not exempt from income tax for legal persons determined by taxpayers resident in Portuguese territory who exercise, as a main activity, a commercial, industrial or agricultural activity and non-residents with permanent establishments in Portuguese territory, an additional rate of 2.5% applies".

Thus worth saying, that the basis of objective incidence of the surcharge is the taxable profit determined by taxpayers subject to and not exempt from IRC, without any segregation or distinction, as to the territorial circumscription of their facilities, contrary to what indeed occurs in Annex C of the Model 22 IRC Declaration where a value of taxable profit attributable to each of them is determined.

Such declaration is aimed at operations for determining the revenues attributed to the Autonomous Regions, for the purposes of applying regional rates to the taxable material attributable to them, is determined on the basis of the proportion between the total annual sales volume of a given fiscal year, corresponding to the facilities located in each autonomous region and the total annual sales volume for the same period.

There being no relationship with the objective incidence of the state surcharge, which indeed, given the redaction then given to Article 87-A of the CIRC takes as its basis the totality of the taxable profit of the taxpayer subject to it without distinction or exclusion based on the "location" of the taxable profit.

In this way, and without need for any other considerations it is understood to maintain the assessment in question, relating to the state surcharge which applied to the global taxable profit of the Claimant, with reference to the year 2011, determined under the conditions provided for in Article 87-A of the CIRC in the redaction given at the time by Law No. 12-A/2010, of 30 June.

D. DECISION

The Arbitral Tribunal hereby decides as follows:

a. To judge the alleged exception of defectiveness of the initial petition formulated by the Respondent as inadmissible,

b. To judge the requests formulated by the Claimant as inadmissible, as to the illegality of the self-assessment with reference to the year 2011, maintaining the impugned tax act, and consequently inadmissible the request formulated relating to compensatory interest.

c. To condemn the Claimant to pay the costs of the process.

E. VALUE OF THE PROCESS

In harmony with the provisions of Article 306 of the Code of Civil Procedure, approved by Law No. 41/2013, of 26 June, 97-A No. 1 paragraph a) of the Code of Tax Procedure and Process, and Article 3 No. 2 of the Rules of Costs in Tax Arbitration Proceedings, the value of the process is fixed at 9,600.72 €.

F. COSTS

At the expense of the claimant, in accordance with the provisions of Articles 2 and 4 of the Rules of Costs in Tax Arbitration Proceedings and 12, No. 2 and 22, No. 4 of the LRTA.

NOTIFICATION ORDERED

Text prepared by computer, in accordance with the provisions of Article 131 of the Code of Civil Procedure, applicable by reference to Article 29 No. 1 of the Legal Regime of Tax Arbitration, with blank lines and reviewed by the arbitrator.

The redaction of this decision follows the spelling prior to the Spelling Agreement of 1990.

Lisbon, thirty January two thousand and fifteen

The Arbitrator

(José Coutinho Pires)

[1] Alteration of the order of the requests as a result of the Claimant's response to the dilatory exception of defectiveness of the initial petition raised by the Respondent.

[2] Antunes Varela, J. Miguel Bezerra and Sampaio and Nora, in Manual de Processo Civil, Coimbra Editora, 1984, p. 246.

[3] As amended by Law No. 41/2013, of 26 June.

[4] Manual de Direito Fiscal, 3rd edition, Coimbra Editora, 2007, pages 99 et seq.

[5] Subsequently repealed by Organic Law No. 2/2013, of 2 September.

[6] Work and author cited, page 106.

Frequently Asked Questions

Automatically Created

What is the Derrama Estadual (State Surcharge) under Article 87-A of the Portuguese IRC Code?
The Derrama Estadual (State Surcharge) under Article 87-A of the Portuguese IRC Code is an additional tax levied on corporate taxable profits beyond the standard IRC rate. Introduced as a supplementary revenue measure, it applies to companies' taxable income and is calculated based on specific thresholds defined in Article 87-A. In this case, the Tax Authority assessed €127,591.49 in State Surcharge for fiscal year 2011. The surcharge represents a significant compliance obligation for IRC taxpayers, particularly those with operations across multiple jurisdictions including Portugal's Autonomous Regions where questions of territorial applicability arise.
How does adopting a non-standard tax period under Article 8(2) of the IRC Code affect the calculation of Derrama Estadual?
Adopting a non-standard tax period under Article 8(2) of the IRC Code affects the calculation and timing of Derrama Estadual obligations. While Article 8(1) establishes the calendar year (January 1 to December 31) as the default taxation period, Article 8(2) permits companies to adopt alternative periods for justified reasons, such as alignment with foreign parent company reporting requirements. In this case, Company A adopted a February 1 to January 31 fiscal year, meaning its 2011 tax year ran from February 1, 2011 to January 31, 2012. This affects when the IRC Declaration (Model 22) must be filed under Articles 117(1)(b) and 120(2) of the IRC Code, and consequently impacts the State Surcharge calculation period and payment deadlines. The company filed its declaration on June 29, 2012, following the non-standard period closure.
Can a taxpayer challenge an IRC self-assessment (autoliquidação) through tax arbitration at CAAD?
Yes, taxpayers can challenge IRC self-assessments (autoliquidações) through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under Article 2(1)(a) of the RJAT (Legal Regime of Tax Arbitration) and Article 104 of the Tax Procedure Code (CPPT), taxpayers have the right to request arbitral pronouncement for annulment of tax acts, including self-assessments. The procedure requires: (1) prior exhaustion of administrative review remedies; (2) submission of arbitration request identifying the contested act and legal grounds; (3) acceptance by CAAD's President; (4) notification to the Tax Authority; (5) appointment of arbitrator(s) by the Ethics Council; (6) constitution of the Arbitral Tribunal; and (7) submission of pleadings and written submissions under Article 18 of RJAT. In this case, the request was filed August 4, 2014, accepted August 7, 2014, and the tribunal constituted October 9, 2014, demonstrating the relatively expedited arbitration timeline compared to judicial proceedings.
What procedural steps are required to file an arbitration request under the RJAT for IRC disputes?
CAAD handles disputes involving Derrama Estadual applied to non-calendar fiscal years by accepting jurisdiction and examining both procedural compliance and substantive legal issues. The tribunal verifies the taxpayer properly adopted the alternative tax period under Article 8(2) of the IRC Code and filed the IRC Declaration (Model 22) within statutory deadlines under Articles 117 and 120. CAAD then analyzes the State Surcharge calculation methodology, territorial applicability questions (particularly regarding Autonomous Regions), and constitutional issues concerning regional tax autonomy. In this case, CAAD addressed: (1) whether the non-standard February-January tax year was properly established; (2) whether Article 87-A applies to profits from Azores operations given the absence of regional surcharge legislation; (3) the interaction between state and regional tax powers under the Constitution, Finance Law of Autonomous Regions, and Political-Administrative Statutes; and (4) calculation discrepancies allegedly resulting in €2,086.53 or alternatively €9,600.72 in improper charges. The tribunal also ruled on preliminary procedural exceptions regarding petition intelligibility.
How does CAAD handle disputes involving Derrama Estadual applied to fiscal years not aligned with the calendar year?
To file an arbitration request under RJAT for IRC disputes, taxpayers must follow these procedural steps: (1) First exhaust administrative remedies by filing a review request (pedido de revisão) with the Tax Authority, as required before accessing arbitration; (2) Prepare the arbitration request under Article 2(1)(a) of RJAT and Article 104 of CPPT, clearly identifying the contested tax act (including assessment number and date), factual background, legal grounds for challenge, and specific relief requested (main and subsidiary requests if applicable); (3) Submit the request to CAAD with proper legal representation; (4) Upon acceptance by CAAD's President, the Tax Authority is notified and has opportunity to respond under Article 16 of RJAT; (5) An arbitrator is appointed by the Ethics Council President under Article 6(2)(a) of RJAT; (6) The Arbitral Tribunal is constituted per Article 11 of RJAT; (7) Parties may submit written submissions under Article 18; (8) The tribunal may dispense with oral hearings if appropriate; and (9) A final decision is issued. The process typically takes several months from filing to decision, offering a faster alternative to judicial tax litigation while maintaining rigorous procedural safeguards and substantive legal analysis.