State Surcharge (Derrama Estadual) in the Azores: IRC Ruling on Regional Tax Applicability

ARBITRAL DECISION

CLAIMANT: A... (PORTUGAL) CONFECÇÕES, S.A., legal entity no. ..., with registered office at Av, ...no. ... 2nd floor ... - ... Lisbon

RESPONDENT: Tax Authority and Customs Authority (hereinafter designated TA) represented by Dr. ... and by Dr. ..., as per the appointment order of the General Director of the TA, dated 13-8-2014.

I – REPORT

The CLAIMANT filed a request for arbitral pronouncement, under the terms set forth in paragraph a) of no. 1 of article 2, and in paragraph a) of no. 1 of article 10 of the Legal Regime of Arbitration in Tax Matters (RJAT) and no. 2 of article 102 of the Code of Tax Procedure and Process (CPPT), wherein it refers as the factual matter subject of dispute:

The legality of the tax act of self-assessment of Corporate Income Tax of 03 July 2012, bearing no. 2012..., for the fiscal year 2011, with the amount to be refunded of EUR. 516.646,16, following the order issued, by delegation of powers, by the Excellent Chief of Division of the Division of Tax Management and Assistance of the Large Taxpayers Unit, of 05 May 2014, which expressly dismissed the Administrative Complaint previously filed, covered by the terms set forth in articles 68 and 131 both of the CPPT, and on the same subject matter, which was filed at the Tax Service of Lisbon 10 and registered with no. ...

The Claimant ultimately petitions that this Arbitral Tribunal pronounce

By the annulment of the tax act, on grounds of lack of legal foundation, in the part and amount subject of the request and order the refund of the state levy collected in excess in the amount of 8.915,48€:

Alternatively, by ordering the refund of the amount of 1.796,43 € due to the non-existence in the legal order of the Autonomous Region of the Azores of a rule of incidence that provides for the application of the state levy in that territory, annulling the tax act under challenge on grounds of lack of legal foundation for such purpose;

Lastly, condemning the TA to payment of indemnificatory interest, pursuant to articles 43 and 100 of the General Tax Law (LGT) and 61 of the CPPT, given that there is error solely and exclusively attributable to the TA, and from which resulted the refund of Corporate Income Tax in an amount lower than that due, equivalent to payment of a tax debt in an amount higher than that legally due.

These requests, the order of which the Claimant, on 21/11/2014, sustaining there to be a mere deficiency in the identification thereof, came to request alteration, in order to reflect the various grounds invoked throughout the request, whereby the request currently contained in paragraph A) shall now be incorporated in paragraph B), whereas the one currently incorporated in paragraph B) shall now be incorporated in paragraph A), maintaining the reference to the condemnation of the TA in the payment of the indemnificatory interest petitioned, whereby in light of what is now petitioned this Arbitral Tribunal is requested to pronounce:

By ordering the refund of the amount of 1.796,43 € due to the non-existence in the legal order of the Autonomous Region of the Azores of a rule of incidence that provides for the application of the state levy in that territory, annulling the tax act under challenge on grounds of lack of legal foundation for such purpose;

Alternatively, by the annulment of the tax act, on grounds of lack of legal foundation, in the part and amount subject of the request and order the refund of the state levy collected in excess in the amount of 8.915,48€:

Lastly, condemning the TA to payment of indemnificatory interest, pursuant to articles 43 and 100 of the LGT and 61 of the CPPT, given that there is error solely and exclusively attributable to the TA, and from which resulted the refund of Corporate Income Tax in an amount lower than that due, equivalent to payment of a tax debt in an amount higher than that legally due.

The CLAIMANT filed a Request for Constitution of the Arbitral Tribunal on 05-08-2014, which was accepted by the Excellent President of the CAAD on 07-08-2014, leading to notification of the TA, in compliance with no. 3 of art. 10 of the Legal Regime of Arbitration in Tax Matters (hereinafter RJAT).

As the CLAIMANT opted not to designate an arbitrator, pursuant to the terms set forth in no. 1 of article 6 of the RJAT, the undersigned was designated sole arbitrator by the Deontological Board of the Center for Administrative Arbitration, on 24-09-2014, appointment which was timely accepted and notified to the parties who did not object to said designation.

The Sole Arbitral Tribunal was constituted on 09-10-2014, combining the terms set forth in paragraph c), of no. 1, with no. 8 of article 11, of the RJAT, whereby on 09-10-2014 the TA was notified to, pursuant to the terms and for the purposes of the provisions of nos. 1 and 2 of article 17 of the RJAT, submit its Answer and the corresponding administrative file;

In Answer the TA, on 11-11-2014, comes to present defense by exception and challenge, raising, as regards the former, the nullity of the proceedings due to eptness of the initial petition (6 to 23) on account of the unintelligibility of the indication of the request (no. 22).

Having been scheduled on 20-11-2014 the meeting provided for in art. 18 of the RJAT, the same took place on 28-11-2014, of which minutes were drawn up, wherein is recorded the fixing of the date of 04-04-2015 for pronouncement of the arbitral decision.

As recorded in said minutes, the Claimant came on 21-11-2014 to pronounce itself in writing as to the exceptions;

Which prompted a new pronouncement from the TA, on 09-01-2015, regarding the verification of the exception of nullity of proceedings already raised due to eptness of the initial petition.

II – PRELIMINARY QUESTION

The TA raises the exception of nullity of proceedings due to eptness of the initial petition. For its appraisal it is important to understand the position of the parties. Thus, we have:

II.A - POSITION OF THE TA

The TA raises the exception of nullity of proceedings due to eptness of the initial petition, alleging, in summary, and with relevance to the appraisal, the following:

The Claimant presented two subsidiary requests pursuant to no. 1 of art. 554 of the Code of Civil Procedure (CPC) as it uses the expression "should the tribunal not so consider" when it deduces the requests, ultimately (cf. § 18).

But in the formulation of the request, ultimately – and despite what is declared particularly in art. 50 of its petition -, the Claimant inverts the order of precedence of the requests aforementioned" (cf. § 15).

"The truth is that from the reading of the petition in its entirety it is not possible to discern which will be the eventual principal request and which will be the hypothetical subsidiary request" (cf. § 19).

To which the TA adds, the clear identification of the principal and subsidiary request falls to the Claimant, not to the Respondent nor to the Tribunal, whereby the petition should determine: a) which is the request to be decided and; b) which is the request to be taken into consideration in case of dismissal of the first request (cf. § 21). Whereby,

Not having done so the petition is inept due to unintelligibility of the request, which generates nullity of the proceedings, pursuant to no. 1 and paragraph a) of no. 2 of art. 186 of the CPC, which is subject to official notice, in accordance with the terms set forth in article 196 of the CPC, both applicable ex vi paragraph e) of no. 1 of article 29 of the RJAT (cf. § 22).

Being that, nullity of the proceedings constituting a dilatory exception bars knowledge of the merits of the case, determining the dismissal of the respondent from the instance in light of the terms of articles 278, no. 1 and 576, nos. 1 and 2 and 577, paragraph b) of the CPC applicable ex vi paragraph e) of no. 1 of article 29 of the RJAT (cf. § 23).

II.B - POSITION OF THE CLAIMANT

As recorded in the minutes of the meeting held pursuant to art. 18 of the RJAT, the Claimant came on 21-11-2014 to pronounce itself in writing as to the exception of nullity of proceedings due to eptness of the initial petition, alleging, in summary, and with relevance to the appraisal, the following:

That there is a mere deficiency (cf. § 8) in the identification of the order of the requests formulated by the Claimant in the request for arbitral pronouncement (cf. § 33).

In order for the petition to be inept it is necessary that there be verified a contradiction so grave and insuperable between the request and the cause of action that impedes not only the Tribunal, but also the opposing party from interpreting and contesting what is stated in the Initial Petition (cf. § 11), preventing it from exercising the right to be heard (cf. § 12).

"As results from the answer presented by the TA, and in particular from what is stated in its articles 24 to 74, it contests, in express form, and point by point, the reasons of fact and law invoked by the Claimant, even petitioning, ultimately, the dismissal of the request for arbitral pronouncement, absolving the TA of all requests formulated (cf. § 20). Whereby,

The TA interpreted and understood conveniently what was alleged by the Claimant in its Request for Arbitral Pronouncement (cf. § 22) which allowed it to contest adequately (cf. § 23).

To which the Claimant adds, citing further examples of comprehension of the request for arbitral pronouncement by the TA, to conclude that the TA understood perfectly the sense of the cause of action and the requests emerging therefrom and mentioned in the Request for Arbitral Pronouncement as it was able to counter its arguments, presenting, for such purpose, its defense, all relating to the facts stated in the aforementioned Request (cf. § 29).

Being that what is relevant is that the TA invoke a putative eptness of the Initial Petition, and at the same time contest the action brought by the Claimant, refuting the reasons of fact and law invoked, whereby the exception based on art. 186, no. 2 paragraph a) of the CPC shall not proceed, thus the nullity of the proceedings and the consequent dismissal of the TA from the instance shall not be verified (cf. § 18).

The Claimant concludes, the TA shall have cured, pursuant to the terms and for the purposes of the provisions of article 186 no. 3 of the CPC, applicable ex vi the terms of art. 29 no. 1 paragraph e) of the RJAT, the imputed defect (cf. § 32). To which,

The Claimant came to request the alteration of the requests, as already indicated above (§ I.2 of this Arbitral Decision).

II.C - TA'S RESPONSE TO THE OPPOSITION TO THE EXCEPTION

At the stage of final pleadings the TA came to respond to the opposition to the exception raised by the Claimant, reiterating what already results from the Answer, and alleging ex novo, in summary, and with relevance to the appraisal, the following:

It is not the individualized and segregated comprehension of each one of the requests that is at issue. What renders the petition inept is the indeterminacy of the nature of each one of the requests – which are identified at times as principal, at times as subsidiary – and the lack of coherence that results therefrom for the petition globally considered (cf. § 1 of pg. 5).

Pronouncing itself again on the existence of a dilatory exception that bars knowledge of the merits of the case and the dismissal of the TA from the instance, having regard to the terms of articles 278, no. 1, 576, nos. 1 and 2 and 577, paragraph b) of the CPC, applicable ex vi article 29, no. 1 paragraph e) of the RJAT.

II.D - APPRAISAL AND DECISION OF THE QUESTION OF NULLITY DUE TO EPTNESS OF THE INITIAL PETITION

The Respondent raises the question of eptness of the initial petition, alleging that the Claimant presented two subsidiary requests pursuant to no. 1 of art. 554 of the CPC as it uses the expression "should the tribunal not so consider" when it deduces the requests, ultimately (cf. § 18).

Independently of the appraisal of the raised exception it is important to appraise whether the requests are effectively subsidiary.

Now, having regard to the exposition of the facts and the interpretation that the Claimant makes of applicable law - in particular the rule of art. 87-A of the Corporate Income Tax Code (CIRC) -, it is a matter, not of subsidiary requests, but of cumulative requests. Let us see. It is petitioned that the Tribunal pronounce itself on:

The non-existence in the legal order of the Autonomous Region of the Azores of a rule of incidence that provides for the application of the state levy in that territory, annulling the tax act under challenge due to lack of legal foundation for such purpose;

And as a second request,

By the annulment of the tax act, on grounds of lack of legal foundation, in the part and amount subject of the request and order the refund of the state levy collected in excess in the amount of 8.915,48€.

Now, the said excess collection results from the arithmetic operations of calculation of the Total State Levy, minus the value which, according to the arguments advanced should be deducted from taxable income by the proportion of the participation of the Claimant's facilities in the Azores, but also in Madeira. Now,

If these were subsidiary requests, pursuant to art. 554 of the CPC, having regard to the principal request, the subsidiary request would be disregarded, thus the raised error in calculation of the State Levy, collected, by failure to consider the proportionality of the production of the Claimant's facilities located in the Autonomous Region of Madeira would not be appraised.

Indeed, art. 554, no. 1 of the CPC determines:

A request is said to be subsidiary when it is presented to the tribunal to be taken into consideration only in the case of non-proceeding of a prior request.

Thus, although Claimant and Respondent do not pronounce themselves on the consideration of the requests as cumulative, the structure of the Initial Petition is clear in raising the need to appraise the eventual erroneous quantification of the State Levy (cf. § 2 and ss; 51 to 63), not only in the RAA, but also in the RAM, to which,

If it were a subsidiary request, the proceeding with the contention deduced in the first place would suffice to not appraise the second request, which, if granted is of manifest interest to the Claimant, as in determining the value of the second request it takes into account the difference in taxation resulting from the lack of taxation which would result, in its judgment, from a zero value of state levy in the RAA, but also from a zero value of state levy in the RAM (See the table that it presents in § 60 of the Initial Petition; and § 22; 29, of the Final Pleadings);

It is worth noting that if the question were not formulated with respect to the RAM, but only to the RAA, then we would have a subsidiary request as if the solution were for the proceeding with the first the second would have an unnecessary appraisal. However, even disregarding the first, i.e., considering there to be taxation in State Levy in the RAA, it would have interest to appraise whether there would or would not be erroneous determination of its value in the RAA.

Already with the proceeding with the first request it would foreclose the hypothesis of appraisal of the second insofar as the eventual erroneous determination of the value of the State Levy in what concerns the RAM, whereby this second request, in this part, is cumulative to the first request, not subsidiary.

Only thus can the request be read in harmony with the cause of action, being on this presupposition that it is appraised, pursuant to the RJAT:

Article 3

Joinder of requests, joinder of plaintiffs and judicial challenge

1 — The joinder of requests even if relating to different acts and the joinder of plaintiffs are admissible when the proceeding of the requests depends essentially on the appraisal of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.

The aforementioned presuppositions being verified, as:

The circumstances of fact are the same – the "tax act of self-assessment of Corporate Income Tax of 03 July 2012";

Being at issue the interpretation and application of the same principles or rules of law, as what is at issue is the interpretation given to art. 87-A of the CIRC, in coordination with the Law of Finances of the Autonomous Regions (LFRA), as it seeks to know if it is applicable in the Autonomous Region of the Azores, in accordance with the rules of articles 53, 54 and 56 of the LFRA; and, on the other hand, if in its application the criteria for distribution of revenues set out in no. 2 of art. 20 of the LFRA should be taken into account;

In any case, the Respondent does not cease to question whether the second request shall be subsidiary, and on the other hand does not manifest certainty as to whether it shall be, when:

In § 14 of the Answer and § (iv) of the Final Pleadings it states it appears the Claimant has deduced a second (and subsidiary?) request. And,

In § 18 of the Answer and pg. 2, in fine, of the Final Pleadings it states although it appears to be reasonably certain to affirm that the Claimant deduces a principal request and a subsidiary request;

Now, that interrogative and this apparent reasonable certainty give expression to the aforementioned, as in fact although it appears to be a subsidiary request it is not.

For its part the Claimant, in response to the exception raised by the respondent, merely refers to the two requests, raises inversion of their order, but does not affirm them to be subsidiary requests.

In any case, having regard to the terms in which the TA comes to deduce its defense by exception, there shall be a need to perceive whether or not there is a divergence so insuperable between the request and the cause of action that leads to eptness of the request for constitution of the arbitral tribunal.

Having regard to the procedural principles enshrined in art. 16 of the RJAT, in particular the principle of the right to be heard, which was exercised, as well as the principle of cooperation and procedural good faith, this tribunal understands that the exception of eptness of the initial petition is not verified in as much as:

The Claimant such as recorded in the minutes of the meeting of art. 18 of the RJAT and pursuant to the terms of paragraph c) of no. 1, came to correct the initial pleading - requesting the alteration of the order of the requests, giving the necessary coherence to the petition globally considered -, thus also complying with hearing the Claimant, pursuant to art. 186 no. 3 of the CPC, to which,

Having the TA, both in the Answer and in the Final Pleadings, demonstrated it to be possible to contest and challenge specifically each one of the subsidiary requests, thus, pursuant to art. 186 no. 3 of the CPC it demonstrated having interpreted the initial petition conveniently.

Whereby we must conclude that the existence of the dilatory exception of eptness of the initial petition that bars knowledge of the merits of the case and the dismissal of the TA from the instance is not verified, whereby

Thus the dilatory exception of eptness of the initial petition, raised by the TA, does not proceed, a fact which determines the need for appraisal of the merits of the request, cf. provided for in art. 608, no. 2 of the CPC, ex vi, art. 29, no. 1 paragraph e) of the RJAT.

Having regard to what precedes, and it being verified that the appraisal of the requests, not as subsidiary, but as cumulative, do not raise, in this case, other procedural questions beyond those referred to, as well as the determination of the value of the case, to be appraised ultimately, it now behoves to proceed to the appraisal of the question of merits.

III – CURE OF DEFECTS

The tribunal is materially competent and is regularly constituted, pursuant to the terms of articles 2, no. 1, paragraph a), 5, no. 2 and 6, no. 1 of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to the terms of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any defects that would invalidate it.

Whereby it shall proceed to the appraisal of the merits decision

IV – APPRAISAL OF THE MERITS OF THE REQUEST

The request for constitution of the Arbitral Tribunal is based on the legality of the tax act of self-assessment of Corporate Income Tax of 03 July 2012, bearing no. 2012..., for the fiscal year 2011, with the amount to be refunded of EUR. 516.646,16, following the order issued, by delegation of powers, by the Excellent Chief of Division of the Division of Tax Management and Assistance of the Large Taxpayers Unit, of 05 May 2014, which expressly dismissed the Administrative Complaint previously filed, covered by the terms set forth in articles 68 and 131 both of the CPPT, and on the same subject matter, which was filed at the Tax Service of Lisbon 10 and registered with no. ...2014....

IV.A - MATTERS OF FACT

The relevant factual matter, considered proven, for appraising the merits of the request is the following:

The claimant is a commercial joint-stock company with registered office in Portuguese territory;

It adopted a taxation period not coinciding with the calendar year, being that it runs from 01 February to 31 January of the subsequent year,

Having with reference to the fiscal year 2011 submitted by electronic means on 29 June 2012 the respective Model 22 declaration of Corporate Income Tax;

Having calculated a tax recovery of 516.664,12 €, of which there was a refund, corrected by 4 cents, to 516.664,16 €, and carried out by means of a check issued by the TA bearing no. ..., dated 13 August 2012, following notification of the Corporate Income Tax assessment,

However, resulting from said tax act of assessment there was calculated the amount of 132.316,66 € as a matter of State Levy, pursuant to art. 87-A of the CIRC;

Not agreeing the Claimant filed an administrative complaint on 05 March 2014;

Having been notified of the draft decision of dismissal, on 09 April 2014;

It did not exercise the right to be heard;

And the draft became final, and notification to the Claimant by official letter of 07-05-2014;

The TA founding the dismissal in these terms:

There is subjection to State Levy of the taxable income attributable to the Claimant's facilities located in the Autonomous Region of the Azores;

There is no error in the determination of the amount of the State Levy as there is no occasion for application of the method of calculation usable in proportional distribution of Corporate Income Tax revenues by the Autonomous Regions, pursuant to no. 2 of art. 20 of the LFRA

There are no facts not proven.

IV.B – THE REQUEST AND THE POSITION OF THE PARTIES

The Claimant sustains the request for constitution of the Arbitral Tribunal (§§ 21 and ff.) and the alternative requests, ultimately, alleging, in summary, and with relevance to the appraisal, the following:

There is no rule in the legal order of the Autonomous Region of the Azores of incidence that provides for the application of the State Levy in that territory, whereby in that territorial space the Claimant cannot be taxed;

There is an error in the determination of the amount of the State Levy and consequent violation of the terms set forth in article 87-A of the CIRC, in as much as the value of the state levy could never incide on the income attributable to activities developed in the Autonomous Region of the Azores and Madeira, but rather should be determined proportionally between the volume of business relating to facilities located in the Autonomous Regions and the total volume of business (cf. § 21 of the Initial Petition);

IV.C – POSITION OF THE CLAIMANT

The Claimant seeks to substantiate the two grounds in the following terms:

As to the absence in the legal order of the Autonomous Region of the Azores of a rule of incidence that provides for the application of the State Levy in that territory:

The Autonomous Regions have their own tax-making power pursuant to legal and constitutional terms, whereby in its exercise the Autonomous Region of the Azores could have adapted the State Levy provided for in art. 87-A of the CIRC to the Region, to which, not having done so, the State cannot proceed with the collection of state levy in the RAA (cf. §§ 23 to 49); as,

This was the procedure that occurred in the Autonomous Region of Madeira, through regional legislative decree no. 14/2010/M, of 5 August, which "approved" the Regional Levy, going towards what is provided for in paragraph f) of art. 37 of the Statute of Political-Administrative Regime of the Autonomous Region of Madeira which grants to the Regional Legislative Assembly (cf. §§ 31, 40 and 41):

"The power to create and regulate taxes, defining their incidence, the rate, tax benefits and taxpayers' guarantees (…)"

The power to adapt taxes of national scope to the region-specific circumstances, in matters of incidence, rate, tax benefits and taxpayers' guarantees (…)".

The Claimant pointing out, It is the case, however, that the same did not occur in the RAA! (cf. § 42), as the regional regulatory decree no. 2/2020/A that provides for budgetary execution for the RAA did not come to insert any provisions as regards the creation of an eventual regional levy, contrary to what occurred in the RAM, nor as regards the eventual adaptation of the national system to the specificity of that region with the same occurring in the year 2011 (cf. § 43).

To which the Claimant draws as conclusions (cf. §§ 44 to 49) that if the RAM created the Regional Levy so too could the RAA have done so whereby if it did not do so this leads the Claimant to "conclude that it was not the will of the legislator that the state levy have application in the RAA";

To which it adds that not having been created the regional levy nor having been made any adaptation of the national fiscal system to the regional specificities (§46) "the said gap sustains the pretension that state levy can never, be collected on the taxable income imputed to activities developed in the RAA by entities with registered office or effective management in the RAA (…) or still that developed by entities with registered office in continental territory, are imputed to branches, agencies, offices, installations or any forms of permanent representation without legal personality located in the RAA, once there was not created ex novo any regional levy in the RAA".

As to the erroneous determination of the amount of the state levy in as much as it should be determined proportionally between the volume of business relating to facilities located in the Autonomous Regions and the total volume of business:

Sustaining this understanding (cf. §§ 35 to 37; 50 to 63 of the Initial Petition) in the fact that the Law of Finances of the Autonomous Regions (LFRA) establishes a mechanism for distribution of the revenues obtained in each circumscription, in particular through art. 20, no. 1, paragraph b) and no. 2, which determine the following:

Article 20 - Corporate Income Tax

1 — Constitutes revenue of each Autonomous Region the tax on the income of legal entities:

(…)

b) Owed by legal entities or equivalent that have their registered office or effective management in Portuguese territory and possess branches, agencies, offices, installations or any forms of permanent representation without their own legal personality in more than one circumscription, pursuant to the terms referred to in no. 2 of this article;

(…)

2 — Regarding the tax referred to in paragraph b) of the preceding number, the revenues of each circumscription are determined by the proportion between the annual volume of business of the fiscal year corresponding to the facilities located in each Autonomous Region and the annual total volume of business of the fiscal year.

As a result of this legal provision there is occasion for completion of Annex C to the Model 22 declaration, which allows individualization of the volume of business corresponding to the facilities located in the autonomous regions of the Azores and Madeira (cf. §§ 53 to 55);

Whereby the imputation of taxable income, as well as the respective taxable matter to each Autonomous Region is carried out before the application of the corresponding rate of tax, equivalent to an unfolding of the calculation of the tax in 3 individual calculations, one for each circumscription in which the taxpayer is present (cf. §§ 56 and 57);

To which it concludes (cf. §§ 58 to 60) that "it is not understood why the same understanding is not followed for the determination of the state levy" and that if there were an individualized calculation of the State Levy for each Autonomous Region, based on the volumes of business verified in each region, the conclusion would be reached that the state levy was calculated in excess in the amount of 8915, 48€.

This because (cf. § 61) "whether in the RAA or in the RAM, the taxable income that is imputed to them does not exceed the limit of 2,000,000 Euros, which translates into non-application of the 2.5% rate provided at the time".

IV.D – POSITION OF THE RESPONDENT

The Tax Authority and Customs Authority substantiates the challenge of the two grounds of the claimant in the following terms:

As to the absence in the legal order of the Autonomous Region of the Azores of a rule of incidence that provides for the application of the state levy in that territory (cf. §§ 28 to 50):

The constitutional realization of the Autonomous Regions' own tax-making power, in particular through no. 2 of art. 53 of the LFRA grants them the power to:

"Create taxes, in force only in the respective Autonomous Regions, defining their incidence, the rate, assessment, collection, tax benefits and taxpayers' guarantees";

"Adapt taxes of national scope to region-specific circumstances, in matters of incidence, rate, tax benefits and taxpayers' guarantees, within the limits set forth in law and pursuant to the following articles".

Being that as to the power of creation of regional taxes, nos. 1 and 2 of art. 54 of the LFRA provided that taxes may be created only in force in the Autonomous Regions provided that they do not incide on subject matter of incidence provided for in any of the taxes of national scope, even if exempt and not subject, or that could integrate that incidence, and that from their application result no obstacles to commerce with different points in national territory (CF. § 32).

Being that the power of adaptation to regional specificities, provided for in art. 56 of the LFRA is concretized in three areas: (i) reduction of the rates of Personal Income Tax, Corporate Income Tax, VAT and special consumption taxes; (ii) granting of deductions from the tax; (iii) granting of tax benefits.

The Respondent further referring to the Statute of the Political-Administrative Regime of the Autonomous Region of the Azores (cf. §§ 35 and ff.) recognizes that this Autonomous Region has the power to adapt national laws to the region's specificities, however, such power that may, or may not, be exercised, as per the choice of the regional legislator, but, adds,

Being certain that the eventual non-exercise of such power by the regional legislator could never have as a consequence the derogation of the national tax law approved by the Parliament in the exercise of its legislative competence (cf. § 39).

The State Levy was created by law that defined its incidence and rate, pursuant to the terms of the Constitution (art. 103) and the General Tax Law (art. 8), whereby the fact that the regional legislator did not adapt the tax of state levy to the RAA does not derogate its application to profits obtained there in accordance with the subjective and objective incidence determined by art. 87-A of the CIRC (cf. § 40 to 43).

As Parliament holds an exclusive and non-shared nor limited power for the production of tax provisions that are in force throughout national territory, not derogable by the regional legislator, whose legislative capacity in tax matters subsumes itself to the creation of new taxes related to regional specificities and to the adaptation of national taxes to the same specificities (cf. § 44 to 46), thus,

If the Autonomous Region of the Azores did not adapt the state levy to the region's specificities, such non-exercise of a constitutional right cannot be understood, while negative exercise, as a removal of the incidence of state levy from the taxable profits attributable to the Claimant's facilities, as such interpretation would be manifestly unconstitutional by violation of the principles of tax legality and the exclusive competence of Parliament to legislate on the creation of taxes and the fiscal system enshrined in articles 103 and 165 of the Constitution (cf. § 48 to 50).

As to the erroneous determination of the amount of the state levy in as much as it should be determined proportionally between the volume of business relating to facilities located in the Autonomous Regions and the total volume of business (cf. §§ 50 to 73) alleges in summary the Respondent:

What the combined provisions of articles 227, par. j), art. 2 of the LFRA and no. 1 of art. 18 of the LFRA, intend to establish is the participation of the Autonomous Regions in the tax revenues relating to the taxes that should belong to them, as well as other revenues that are attributed to them by law (cf. § 55). Thus,

What the referred provisions of par. b) of no. 1 of Article 20 of the LFRA, with no. 2 of the same article, establish is on the operations of determination of the tax revenues attributed to the Autonomous Regions, which is determined on the basis of the proportion between the annual volume of business of the fiscal year corresponding to the facilities located in each Autonomous Region and the annual total volume of business of the fiscal year (cf. § 56, 59, 60). Being that,

This calculation has no relation whatsoever with the tax of state levy, namely with the definition of its objective incidence (cf. § 61), further referring the Respondent that the Claimant's understanding confuses the operations of calculation of the determination of the tax revenues attributed to the Autonomous Regions with the definition (upstream) of the objective incidence of the state levy (cf. § 69).

To conclude that there is no error whatsoever in the determination of the state levy owed by the Claimant,

Thus pronouncing itself for the dismissal of the request, also on this matter and,

Consequently, by the pronouncement that no request should proceed, pronounces itself the TA also for the dismissal of the request for condemnation in indemnificatory interest.

In the final pleadings, Claimant and Respondent sustain, in substance, what they had already previously alleged as the foundation of their respective positions.

IV.E – APPRAISAL AND DECISION OF THE QUESTION OF MERITS

Summarily, the petitioned, subsidiarily, is sustained in the following:

The Claimant invokes that the RAM proceeded with the adaptation of the state levy and the RAA did not, there being thus, in this RA no taxation as regards state levy.

It further invokes that there is an erroneous determination of the tax to be paid, whether in the RAA, or in the RAM, as one should have present the rule of distribution of the revenues of Corporate Income Tax inherent in no. 2 of art. 20 of the LFRA.

Let us see whether either of these requests may proceed:

As to the first

In order to reach a conclusion we shall have to resort to the rules of legal interpretation, as if the Claimant makes one interpretation of what is set forth in art. 87-A of the CIRC and further legislation invoked (particularly the LFRA) and the TA another, divergent, there is a need to interpret the provisions in question.

In matters of interpretation article 9 (Interpretation of law) of the Civil Code determines the following:

1. The interpretation should not confine itself to the letter of the law, but reconstruct from the texts the legislative thought, having especially in account 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.

2. However, the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter.

3. In the fixing of the sense and scope of the law, the interpreter shall presume that the legislator enshrined the most correct solutions and knew how to express its thought in adequate terms.

Now, from among the various elements of legal interpretation, the interpreter must resort to, in addition to the grammatical element, or text of the law, also the spirit of the law, to which we arrive through various other sub-elements, such as the systematic element, the historical element (emphasis here, to the occasio legis) and the teleological element.

However, the starting point is the text of the law, as determined in no. 2 of art. 9 transcribed, as

However, the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter.

As to the text of the law, let us thus look at the terms of no. 1 of article 87-A, State Levy, added[1] by Law no. 12-A/2010, of 30 June, to the Corporate Income Tax Code:

1 - On the part of the taxable income exceeding (euro) 2,000,000 subject and not exempt from corporate income tax calculated by taxpayers resident in Portuguese territory who exercise, as their principal activity, a commercial, industrial or agricultural activity and by non-residents with stable establishment in Portuguese territory, there is a surtax of 2.5%.

We thus verified that what this art. 87-A came to establish, in its no. 1 are the rules of incidence, subjective and objective, the scope of territorial application, and the respective rate.

From the preparatory works, of the preamble of the Bill no. 26/XI/1[2], which was the basis of Law no. 12-A/2010, of 30 June, emerges the reference to:

An additional taxation on Corporate Income Tax, applying a surtax corresponding to a levy of 2.5 percentage points to companies whose taxable income exceeds 2 million euros.

It is important to note the terms employed in the text of the law and in the preparatory works, whereby, where there was A surtax corresponding to a levy of 2.5 percentage points, in the Bill no. 26/XI/1, there came to be An additional rate of 2.5%, in art. 87-A,

It is understood that the legislator used the expression additional rate in the final version in the same sense that, in the same socioeconomic context, there was an increase – an additional – of the VAT rate, of 1% with respect to all rates; to the increase, progressive, selective and directed, of the rates of Personal Income Tax, which grow 1% in the first three brackets of Personal Income Tax, where two-thirds of Portuguese household aggregates are grouped, and with an increase of 1.5% in the fourth bracket and beyond. Being that,

Thus it also occurred with the introduction of a levy, on Corporate Income Tax, which is directed, uniquely and exclusively, to large companies with taxable profits exceeding 2 million euros, a measure that encompasses, in essence, a set of some 1300 legal entities (cf., infra § 2.17).

This explains that this element – historical (occasio legis) – by reference to the moment or circumstances in which the law was created, does not constitute the existence of exceptional regimes, of non-incidence in function of territoriality, or of exemption.

Rather, the historical moment – more accurately, the historical circumstances, of scarcity of resources and public treasury funds for the fulfillment of the State's current obligations – were determinative that the taxpayers – natural and legal persons – that were endowed with special contributive capacity, then defined, be called upon to pay an additional tax in function of that contributive capacity, on various taxes, which,

Led to the creation of the State Levy and to the fixing as the threshold of objective incidence the part of the taxable income exceeding (euro) 2,000,000 subject and not exempt from corporate income tax;

For the understanding of the historical moment - where the purpose of capturing tax revenue in a period of economic-financial great weakness of public accounts is expressed - it is also important to analyze the preamble of Law no. 12-A/2010, of 30 June, which approves the State Levy, added to the code of corporate income tax, which emphasizes:

Approves a set of additional budgetary consolidation measures aimed at strengthening and accelerating the reduction of excessive deficit and controlling the growth of public debt provided for in the Stability and Growth Program (PEC).

Measures of great urgency, apparent also in the date of approval of the statute – the middle of the fiscal year – when if there were not this urgency the legislator could have opted to approve the same in the Law that approved the State Budget for the year 2011, urgency further reinforced by the entry into force of the statute on the day following its publication[3].

This inference also results from the preparatory works and from parliamentary debates, at the stage of approval on general matters and in detail of Law no. 12-A/2010, of 30 June, as well as from other parliamentary debates[4], wherein reference is made to the state levy, for two reasons:

For the non-existence of any reference to any scope of optional application of the state levy, in the sense that its assessment be left to the discretion of the RA (or of the municipalities);

For the reference to the call for contribution of all legal entities, provided that they meet the rules of subjective and objective incidence – a given volume of taxable income -, as then stated by the Secretary of State for Tax Affairs: — then it is important that this effort be distributed equitably and that it be especially those taxpayers that most have who are called to pay greater tax.

It is expressive an excerpt from a parliamentary debate in which reference is made to the so-called state levy[5], in the socioeconomic context of a crisis in public finances:

Thus it was also that the rate of 45% of Personal Income Tax was approved in this House, reinforcing the progressivity of a tax that already has a strong redistributive component and that saw the light of day in publication in the Official Gazette.

Certainly the Government will not stop there in its efforts and will bring to the proposal for the State Budget for 2011 the other measures that appear in the PEC, a proposal that will arrive at this House, as is well known, in the coming months.

More recently, in the pursuit of this fiscal policy responding to the crisis, the Government introduced, brought to this House and were already subject to voting, in the last week, additional measures aimed at responding to the need to carry out an additional budgetary consolidation, still in the course of the year 2010. Thus it was with the increase of VAT, of 1% with respect to all rates, restoring, from then on, the normal rate of 21%; thus it was with the increase, progressive, selective and directed, of the rates of Personal Income Tax, which grow 1% in the first three brackets of Personal Income Tax, where two-thirds of Portuguese household aggregates are grouped, and with an increase of 1.5% in the fourth bracket and beyond, allocated, in any case, in 7/12 for the fiscal year 2010. Thus it also occurred with the introduction of a levy, on Corporate Income Tax, which is directed, uniquely and exclusively, to large companies with taxable profits exceeding 2 million euros, a measure that encompasses, in essence, a set of some 1300 legal entities.

With these measures responding to the crisis, the Government has sought, throughout this year, to construct an energetic, coherent and effective fiscal policy responding to the difficult circumstance that the Country is going through, a policy that is based on two essential concerns: in the first place, a concern of urgency, because we have the awareness that we must act quickly and we must demonstrate that we have the capacity and ability and gather the political consensus necessary to advance with consolidation measures in tax matters, however unpopular they may sometimes seem; and, in the second place, a concern of solidarity, because the hour has come — and without question it has come — for all of us to make an additional effort in tax matters,»

Mr. Bernardino Soares (PCP): — All, semicolon!

The Secretary of State for Tax Affairs: — » then it is important that this effort be distributed equitably and that it be especially those taxpayers that most have who are called to pay greater tax.

Also for this reason of solidarity, the Government opted to anticipate, already for 2010, the taxation of stock capital gains and the bracket of 45% of Personal Income Tax. It was also for reasons of solidarity that a progressive and selective increase of the Personal Income Tax brackets was constructed. For these reasons the new state levy was constructed, looking only at large companies.

In another legislative session[6]:

In the first place, justice in the distribution of charges; justice recognized in the increase to 45% of the maximum rate of Personal Income Tax; justice in the taxation of capital gains; justice in a differentiation of the new rates in matters of Personal Income Tax; justice in treating small and medium enterprises in a privileged manner, by excluding them from taxation of the new state levy in matters of Corporate Income Tax.

Let us look at what we could consider a "parallel place" in legal interpretation, the terms of the (now) repealed[7] Law of Local Finances - Law no. 2/2007, of 15 January[8] -, which established in its article 14 - Levy:

1 — The municipalities may deliberate to levy annually a levy, up to a maximum limit of 1.5% on the taxable income subject and not exempt from corporate income tax (IRC), which corresponds to the proportion of the income generated in its geographic area by taxpayers resident in Portuguese territory who exercise, as their principal activity, an activity of a commercial, industrial or agricultural nature and non-residents with stable establishment in that territory.

Now, if the municipal levy is of discretionary fixing by the municipalities[9], distinctly, there is nothing that permits the inference that the legislator created a State Levy of discretionary fixing by the Autonomous Regions.

The reason for this difference is supported in the fact that in the case of the Municipal Levy the active subject of the tax is each municipality that proceeds with its assessment;

In the case of the State Levy this constitutes a state tax, that is, a tax whose active subject is the State, whereby it is not at the discretion of any other active subjects of tax legal relations;

Tax which was assessed by the State, on taxpayers resident in Portuguese territory who exercise, as their principal activity, a commercial, industrial or agricultural activity and by non-residents with stable establishment in Portuguese territory,

Moreover, the principle of territoriality ­– which emerges from the application of tax law in space, inherent in art. 13 of the General Tax Law –, in its aspect or positive sense, means that Portuguese tax laws apply to Portuguese territory[10], even to taxpayers of tax who are not nationals. Now

The Territory – art. 5 of the Constitution – encompasses the territory historically defined on the European continent and the archipelagos of the Azores and Madeira.

Whereby, when in an addition to the Corporate Income Tax Code, by Law no. 12-A/2010, of 30 June, there was established in no. 1 of article 87-A, that the State Levy has as taxpayers residents in Portuguese territory who exercise, as their principal activity, a commercial, industrial or agricultural activity and non-residents with stable establishment in Portuguese territory,

There is nothing that permits the interpretation that the installations (cf. § 3 of the Initial Petition) of the Claimant located in the Autonomous Region of the Azores be considered as not located in Portuguese territory.

Whereby the same are subject to the state tax, with incidence throughout Portuguese territory.

Thus lacking is the leap in reasoning apparent in the affirmation (cf. §§ 44 to 49), further contradictory, that if the RAM created the Regional Levy so too could the RAA have done so whereby if it did not do so this leads the Claimant to "conclude that it was not the will of the legislator that the state levy have application in the RAA";

Contradictory, this leap in reasoning, as the Claimant (§46) to what it had before designated lack of will of the regional legislator of the Azores subsequently approaches saying that "the said gap sustains the pretension that state levy can never, be collected on the taxable income imputed to activities developed in the RAA by entities with registered office or effective management in the RAA (…).

Indeed, either there is will not to legislate – whereby in the argument of the Claimant, by lack of law, there would be no tax – or there is a gap. Now, if it is certain that there was no legislative will – meaning, in the sense of the exercise of adaptation competencies, then there is no gap, given the very unity of the legal system, imposing the application throughout national territory of the State Levy.

As indeed results from what on this matter is established in the LFRA:

Article 53

Tax-making Powers

(…)

2 — The regional legislative competence, in tax matters, is exercised by the Legislative Assemblies of the Autonomous Regions, by means of legislative decree, and comprises the following powers:

a) The power to create and regulate taxes, in force only in the respective Autonomous Regions, defining their incidence, the rate, assessment, collection, tax benefits and taxpayers' guarantees, pursuant to the terms of this law;

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

(…)

SECTION II

Legislative and Regulatory Tax-Making Competencies

Article 54 Taxes in force only in the Autonomous Regions

1 — The Legislative Assemblies of the Autonomous Regions, by means of regional legislative decree, may create taxes in force only in the respective Autonomous Region provided that the same observe the principles enshrined in this law, do not incide on subject matter of incidence provided for in any of the taxes of national scope, even if exempt or not subject, or, it not being the case, could be susceptible to integrate that incidence and from their application no obstacles result to the exchange of goods and services between different points in national territory.

2 — The taxes referred to in the preceding number lapse in the case of subsequently created similar ones of national scope.

By this – may create taxes in force only in the respective Autonomous Region provided that the same (…) do not incide on subject matter of incidence provided for in any of the taxes of national scope, even if exempt or not subject - the argument lacking that the regional levy of the RAM is its own tax of the Autonomous Region of Madeira, as it contradicts what is set forth in nos. 1 and 2: because if it were creating before (and it did not) it would have lapsed; having the Regional Legislative Assembly of Madeira legislated on the Regional Levy subsequent to the creation of the State Levy, only of an adaptation can it be a matter, given that it could never incide, as a regional tax on subject matter of incidence provided for in any of the taxes of national scope. Thus,

Rather a state tax is the matter, which in Madeira acquired the nomenclature "regional levy", within the scope of the adaptation competence provided in par. b) of no. 2 of art. 53 of the LFRA, which comes substantiated in art. 56, in these terms:

Article 56

Adaptation of the National Fiscal System to Regional Specificities

1 — Without prejudice to what is provided for in national tax legislation to be in force only in the Autonomous Regions, the adaptation of the national fiscal system to regional specificities observes what is provided for in this law and corresponding legislation.

2 — The Legislative Assemblies of the Autonomous Regions may, pursuant to the law, reduce the national rates of taxes on income (Personal Income Tax and Corporate Income Tax) and of the value added tax, up to the limit of 30%, and of special consumption taxes, in accordance with applicable legislation.

3 — The Legislative Assemblies may also determine the application in the Autonomous Regions of the reduced rates of Corporate Income Tax defined in national legislation, pursuant to the terms and conditions that come to be set in regional legislative decree.

4 — The Legislative Assemblies of the Autonomous Regions may grant deductions from the tax relating to commercial, industrial and agricultural profits reinvested by taxpayers.

5 — The Legislative Assemblies of the Autonomous Regions may grant increases in the percentages and limits of expenses deductible from Personal Income Tax collections, pursuant to the terms of the Personal Income Tax Code, relating to expenses with environmental equipment, with own permanent housing and with health, support for the elderly and education.

6 — The Legislative Assemblies of the Autonomous Regions may, further, grant deductions from Personal Income Tax collections, defining their limits, of expenses incurred with health, support for the elderly, education, airplane travel in national territory for patients and possible accompanying persons and for students of the Autonomous Regions displaced in other islands or in the continent.

7 — The Legislative Assemblies of the Autonomous Regions may authorize the Regional Governments to grant temporary and conditional tax benefits relating to taxes of national and regional scope, in contractual regime, applicable to projects of significant investments, pursuant to article 39 of the Statute of Tax Benefits and applicable legislation, with the necessary adaptations.

8 — The Legislative Assemblies may further increase, up to 30%, the limits of tax benefits relating to job creation, provided for in the Statute of Tax Benefits.

9 — The legal regime of the International Business Center of Madeira and the Free Trade Zone of Santa Maria is regulated by what is provided for in the Statute of Tax Benefits and applicable legislation.

Now, if it is not seen, in any of these numbers, what the logical leap is that permits us to draw from the so-called Regional Levy that the same constitutes a new tax, distinct from the State Levy, neither is it glimpsed in any of the numbers of art. 56 of the LFRA, that the regional levy of the RAM is only possible by means of the labor of adaptation legislation.

Nor either, that the lack of identical labor of the Regional Legislative Assembly of the Azores, by non-exercise, leads to the oblation of taxation, as the unity of the legal system – clearly inherent in the LFRA -, which permit the RA to create and adapt taxes to regional specificities do not permit not to apply national taxes;

Having here arrived, and having regard to what is provided for:

In art. 87-A of the CIRC which establishes that the State Levy incides on taxpayers resident in Portuguese territory who exercise, as their principal activity, a commercial, industrial or agricultural activity and by non-residents with stable establishment in Portuguese territory,

In art. 5 of the Constitution - Territory – encompasses the territory historically defined on the European continent and the archipelagos of the Azores and Madeira.

In the principle of territoriality ­– which emerges from the application of tax law in space, inherent in art. 13 of the General Tax Law –, in its aspect or positive sense, means that Portuguese tax laws apply to Portuguese territory, even to taxpayers of tax who are not nationals.

In what is provided for in no. 3 of art. 9 of the Civil Code,

In the fixing of the sense and scope of the law, the interpreter shall presume that the legislator enshrined the most correct solutions and knew how to express its thought in adequate terms.

This tribunal must conclude that the state levy has incidence throughout national territory – as results in clear form from the letter of the law, but also from its spirit -, understanding that the terms of no. 1 of art. 87-A of the CIRC were fixed in a clear manner, having the legislator expressed its thought in adequate terms, when in the scope of territorial application it determined that the state levy incides on taxpayers resident in Portuguese territory and non-residents with stable establishment in Portuguese territory. Thus,

On this matter there is no reason to diverge from what, on the state levy and regional levy, by reference to the Autonomous Regions, is expressed in the Final Report of the Commission for the Reform of Corporate Income Tax – 2013[11], in particular on the said regional levy of the RAM, being said there:

The rates of Corporate Income Tax practiced in the Autonomous Regions are added to the municipal levy, in general terms, as well as the state levy, which adopts, in Madeira, the nomenclature "regional levy" (p. 23).

There is not, thus, any interpretive support, whether in the text of the law, whether in the preparatory works, whether in parliamentary debates, whether in "parallel places" that could lead us to exclude from the scope of the subjective and objective incidence any taxpayers - legal entities -, who exercise, as their principal activity, a commercial, industrial or agricultural activity and by non-residents with stable establishment in the Autonomous Region of the Azores, when the legislator referred, only to Portuguese territory;

Thus the request of the Claimant to this Arbitral Tribunal, that it order the refund of the amount of 1.796,43 € due to the non-existence in the legal order of the Autonomous Region of the Azores of a rule of incidence that provides for the application of the state levy in that territory, and that it annul the tax act under challenge does not proceed;

It behoves to appraise the request on the matter of calculation of said tax, which, if it should proceed will have repercussions on the revenue collected by the TA whether in the Azores as in Madeira.

Having regard to the reasons advanced by the Claimant, that the calculation of the tax should be based on the formula of allocation of revenue between the State and the Autonomous Regions, it is important to see whether the same has any legislative support.

What was set forth above applies here regarding legal interpretation, preparatory works, ratio legis and text of the law. Indeed,

In order for the request directed to this Arbitral Tribunal to proceed we shall have to find at any point in the text of the law any support for the interpretation that the Claimant makes of it, by means of the interpretive elements of which the interpreter can avail itself. Let us see then:

Let us look at the article in question of the LFRA[12]:

Article 20 - Corporate Income Tax

1 — Constitutes revenue of each Autonomous Region the tax on the income of legal entities:

(…)

b) Owed by legal entities or equivalent that have their registered office or effective management in Portuguese territory and possess branches, agencies, offices, installations or any forms of permanent representation without their own legal personality in more than one circumscription, pursuant to the terms referred to in no. 2 of this article;

(…)

2 — Regarding the tax referred to in paragraph b) of the preceding number, the revenues of each circumscription are determined by the proportion between the annual volume of business of the fiscal year corresponding to the facilities located in each Autonomous Region and the annual total volume of business of the fiscal year.

It results from no. 2 of art. 20, combined with paragraph b) of no. 1 of the same article that what is aimed at is not to determine the quantum of tax owed by legal entities or equivalent that have their registered office or effective management in Portuguese territory (and possess branches, agencies, offices, installations or any forms of permanent representation without their own legal personality in more than one circumscription), rather yes,

It aims to determine the quantum of revenue to be collected by each autonomous region, in function of the productivity of said branches, agencies, offices, installations or any forms of permanent representation without their own legal personality in more than one circumscription, which shall be determined in function of the

Proportion between the annual volume of business of the fiscal year corresponding to the facilities located in each Autonomous Region and the annual total volume of business of the fiscal year.

Further, the argument of the Claimant could serve the Autonomous Regions[13] – a political question that does not fall to this Arbitral Tribunal to appraise - as a manner of raising with the State the distribution of the State Levy collected proportionally to the taxable income of the Claimant in each Region, not to determine the (non) incidence.

On the other hand, the argument of the Claimant would lead to the non-taxation in state levy of all those legal entities that in light of the existence of a taxable income that would meet the objective criteria, would see it distributed by various branches – installations, as the claimant refers -, some in the Azores and others in Madeira, whereas those that are situated only in one of the Regions or in the Continent would always be taxed, even if with inferior taxable income; e.g., in this case, the Claimant sustains in §§ 60 of the Request for Arbitral Pronouncement that it would not be taxed on State Levy neither in the Azores nor in Madeira.

Now, if the Claimant had had its registered office in Madeira it would already be taxed; and equally if only in the Continent, in a solution without fiscal justice, with the possibility of another legal entity with inferior taxable income being taxed if it had its registered office in the RAM or in the Continent.

In such terms,

The invocation of the provision of no. 2 of art. 20 of the LFRA does not obtain minimum support in the text of the law, which aims only to establish mechanisms of financial equalization between the State and the Autonomous Regions, as a manner of determining the revenue collected by each Autonomous Region, having as a basis a ratio of the taxable income attributable to the productivity achieved in each region.

Thus, each RA collects a percentage of Corporate Income Tax of the legal entity, at the general rate, or at a different rate – the regional rate of Corporate Income Tax – if determined by the regional legislative power, pursuant to the LFRA (art 56).

An identical mechanism could be established for the State Levy. It could, but it was not. However, if it were, it would not support the thesis of the Claimant, as it would only serve, to its benefit – if there were distinct rates of state levy - to determine an eventual application of a lower rate of State Levy, proportional to the taxable income generated in the RA, not to remove the rule of objective incidence applicable to the same legal entity.

There is, thus, a leap in reasoning in the invocation of the provision of no. 2 of art. 20 of the LFRA that this tribunal does not subscribe to. For that provision serves to distribute revenues and as a consequence of that criterion to tax at a lower rate of Corporate Income Tax the legal entities, not to exempt them from the tax or to remove them from the rule of incidence. Thus,

If identical provision were in the matter of State Levy, the criterion of proportionality would serve for this:

It would not be determinative, for purposes of objective incidence, of the taxable income of the legal entity, whereby, if exceeding 2,000,000 Euros, there would always be subjection to State Levy;

The determination of the taxable income attributable to each region would serve to determine the proportion in the total taxable income and thus calculate the state levy which would constitute revenue of each Region;

If eventually there were different rates of State Levy in one or both autonomous regions – similar to what can be established as regards the rates of Corporate Income Tax, in accordance with art. 56, no. 2 of the LFRA -, it would be determinative of the proportion of the taxable income corresponding to each region so that it be taxed at that distinct rate.

This is, as regards Corporate Income Tax, the existing mechanism. Whereby its "similar" application could only have this implication. Not the one that the Claimant from the same seeks to draw. We see no foothold neither in the letter nor in the spirit of the law (20/2 of the LFRA) that permits that logical leap, whereby we do not subscribe to it.

Thus the request of the Claimant to this Arbitral Tribunal that it decide by the annulment of the tax act, on grounds of lack of legal foundation, in the part and amount subject of the request and order the refund of the state levy collected in excess in the amount of 8.915,48€ does not proceed.

V - QUESTION OF PREJUDICIAL KNOWLEDGE - APPRAISAL OF THE REQUEST FOR INDEMNIFICATORY INTEREST

As this request is dependent on the proceeding of any of the preceding requests, these not proceeding, this also does not proceed, there being no condemnation of the TA in the payment of indemnificatory interest.

VI - QUESTION OF THE VALUE OF THE CASE

In the minutes of the meeting held on the day 28/11/2014, the Respondent came to raise the question of the need for reduction of the value of the request, still appearing in the same that the Tribunal remits to final, in the arbitral decision, the fixing of the value of the request.

It behoves thus to appraise the question in light of the applicable provisions, being these art. 12 of the RJAT, which remits to the Regulation of Costs in Processes of Tax Arbitration, which mandates that attention be paid to the determination of the value of the case pursuant to art. 97-A of the CPPT, being that this determines the application of the CPC, as subsidiary law, pursuant to the terms provided for in art. 2, par. e).

Pursuant to no. 2, of art. 297 of the CPC, in the general criteria for the determination of the value of the case, cumulating in the same action various requests, the value is the amount corresponding to the sum of the values of all of them, which shall be fixed at € 10.711,91 (ten thousand, seven hundred and eleven euros and ninety-one cents).

VII - DECISION

In light of what precedes, it is decided:

To judge totally without merit the requests;

To judge the knowledge of the question of the condemnation of the TA in indemnificatory interest as prejudicially barred.

VIII - VALUE OF THE CASE

€ 10.711,91 (ten thousand, seven hundred and eleven euros and ninety-one cents).

IX – COSTS

Pursuant to the terms of the Regulation of Costs in Processes of Tax Arbitration, the costs are fixed at € 918,00 (nine hundred and eighteen euros and zero cents)[14]

Lisbon, 01 April 2015

Text prepared on computer, pursuant to art. 131, no. 5 of the CPC, ex vi, art. 29 no. 1 paragraph e) of the RJAT, with blank verso of each page, the spelling being that prior to the last spelling accord.

The Arbitrator

Henrique Curado

[1] Articles 87-A, 104-A and 105-A were added to the CIRC, all of them relating to the state levy, with the objective of determining the rules of incidence – subjective and objective – as well as Payment of the state levy and Calculation of the additional payment on account.

[2] Available at: http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=35339

[3] Article 20 (Entry into force): 1 - This law enters into force on the day following its publication (…).

[4] It can be seen in the debate on general matters: "(…) additional taxation on Corporate Income Tax, applying a surtax corresponding to a levy of 2.5 percentage points to taxable income exceeding 2 million euros", available at:

http://app.parlamento.pt/DARPages/DAR_FS.aspx?Tipo=DAR+I+série&tp=D&Numero=64&Legislatura=XI&SessaoLegislativa=1&Data=2010-06-04&Paginas=44-71&PagIni=0&PagFim=0&Observacoes=&Suplemento=.&PagActual=1&PagGrupoActual=0&TipoLink=0&pagFinalDiarioSupl=&idpag=521869&idint=&iddeb=&idact=

[5] Available at: http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l11sl1n69-0010&type=texto&q=derrama estadual&sm=p

[6] Available at: http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l11sl1n64-0053&type=texto&q=derrama estadual&sm=p

[7] By Law no. 73/2013, of 03 September - Financial Regime of Local Government Entities and Intermunicipal Entities (which also repealed Decree-Law no. 38/2008, of 7 March, amended by Decree-Law no. 120/2012, of 19 June), Law no. 73/2013 thereafter rectified by Rectification no. 46-B/2013, of 01/11 and updated by Law no. 82-D/2014, of 31/12.

[8] Which had repealed Law no. 42/98, of 6 August.

[9] Being that there are municipalities that, as a measure of competitiveness, opt not to levy it. Such is the case of the majority of municipalities in Madeira: in 2013, of the 11 municipalities of the Autonomous Region, only Santa Cruz and Porto Santo had municipal levy, as referred to by the Commission for the Reform of Corporate Income Tax (note 17, pg. 23).

[10] Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law Annotated, Almedina, 2012, in annotation to art. 13.

[11] Commission for the Reform of Corporate Income Tax – 2013, Final Report - A reform of Corporate Income Tax oriented towards competitiveness, growth and employment (http://www.otoc.pt/fotos/editor2/relatorioirc.pdf).

[12] Organic Law no. 1/2010 of 29 March, which proceeds to the Alteration and republication of Organic Law no. 1/2007, of 19 February.

[13] As a merely theoretical reasoning, as no legislative support is seen for such.

[14] The value of the costs is not altered in function of the alteration of the value of the case, given the fixing of costs by brackets, in accordance with the Regulation of Costs in Processes of Tax Arbitration