Summary
Full Decision
ARBITRAL DECISION
PARTIES
Claimant: A… S.A., NIPC…, with registered office at …, no. …, …, …-… Lisbon
Respondent: TAX AND CUSTOMS AUTHORITY (AT)
I. REPORT
a) On 14 October 2016, the Claimant submitted to CAAD a request for arbitral ruling (RAR), requesting, under the Legal Framework for Arbitration in Tax Matters (LFATM), the establishment of a singular arbitral tribunal (SAT).
THE REQUEST
b) The Claimant seeks the annulment of the decision issued by the Head of Management and Tax Assistance of the Large Taxpayers Unit, on 14 July 2016, which dismissed a gracious complaint no. …2016…, relating to the self-assessment of corporate income tax (IRC) for the year 2014 and seeking the annulment of the corporate income tax assessment statement no. 2015…, from which resulted an amount payable of 31,458.56 euros, consisting of 890.16 euros in default interest and 30,568.40 euros in compensatory interest.
c) Since the Claimant paid the amount assessed on 29 December 2015, it requests its reimbursement, plus indemnity interest.
GROUNDS FOR THE CLAIM
d) The Claimant invokes the illegality of the assessment challenged, alleging the defect of insufficient substantiation in violation of articles 103(2), 268(3) of the Constitution (CRP) and 77 of the General Tax Law (GTL), since no substantiation is contained in the notification.
e) It further alleges the violation of the essential legal formality of failure to notify, as provided in article 60(1)(a) of the GTL, for purposes of prior hearing.
f) It further contends the illegality of the assessment, for non-compliance with articles 35(1) and 35(6) of the GTL, since it argues that no fact attributable to it led to delay in the assessment or payment of the tax.
g) And it further alleges the illegality of the assessment of default interest in the amount of 890.16 euros, for non-compliance with article 44 of the GTL, in the reading set forth in AT circular no. 107/2009, since it argues that no fact attributable to it led to delay in the assessment or payment of the tax.
OF THE SINGULAR ARBITRAL TRIBUNAL (SAT)
h) The request for establishment of the SAT was accepted by the President of CAAD and automatically notified to AT on 28-10-2016.
i) By the CAAD Ethics Council, the undersigned was appointed as arbitrator, and the parties were notified thereof on 15-12-2016. The parties did not express their unwillingness to challenge the designation, in accordance with article 11(1)(a) and (b) of the LFATM and articles 6 and 7 of the Code of Ethics.
j) The Singular Arbitral Tribunal (SAT) has been duly constituted as of 02-01-2017 to consider and decide on the subject matter of this dispute (articles 2(1)(a) and 30(1) of the LFATM).
k) All these acts are documented in the communication constituting the Singular Arbitral Tribunal dated 02-01-2017, which is reproduced herein.
l) On 02-01-2017, AT was notified in accordance with and for the purposes of article 17-1 of the LFATM. It responded on 06.02.2017, submitting the Administrative Process (AP) consisting of seven computerized files designated as AP 1 with 51 pages, AP 2 with 5 pages, AP 3 with 22 pages, AP 4 with 15 pages, AP 5 with 3 pages, AP 6 with 31 pages and AP 7 with 11 pages.
m) On 06.03.2017, the parties' meeting provided for in article 18 of the LFATM took place with prior examination of the 3 witnesses presented by the Claimant: B… who testified on the matters contained in articles 41, 42 and 44 of the RAR; C… who testified on the matters contained in articles 41, 42 and 44 to 73, 98 to 100, 102, 104 and 109 of the RAR (the witness presented during his testimony a document which was attached to the process and is part of the record, with a period of 10 days granted for AT to comment); and D… who testified on the matters contained in articles 41, 42 and 44 to 73, 98 to 100, 102, 104 and 109 of the RAR.
n) At the meeting referred to in the previous paragraph, the parties were notified to submit written arguments within a period of 15 days, in writing and successively, with the Claimant arguing first and the Respondent thereafter.
o) On 16.03.2017, AT responded to the content of the document presented by witness C… during her testimony on 06.03.2017.
p) On 30.03.2017, the Claimant submitted its written arguments. On 26.04.2017, the Respondent filed its counter-arguments, maintaining its position as previously stated in its Response.
PROCEDURAL REQUIREMENTS
r) Legitimacy, capacity and representation – The parties are legitimate, have legal personality and procedural capacity and are represented (articles 4 and 10(2) of the LFATM and article 1 of Ordinance no. 112-A/2011 of 22 March).
s) Principle of contradiction – AT was notified in accordance with paragraph l) of this Report. All procedural documents and all documents attached to the process were made available to the respective counterparty in the CAAD Case Management System. Both parties were always notified of their attachment.
t) Dilatory exceptions – The arbitral procedure does not suffer from nullities and the request for arbitral ruling is timely as it was submitted within the prescribed period in article 10(1)(a) of the LFATM, as evidenced by the fact that the Claimant submitted the request for arbitral ruling on 14.10.2016 and the decision dismissing the gracious complaint was notified by letter dated 18.07.2016, which was received on 23.08.2016 (as per article 1 of the RAR). AT itself does not challenge the timeliness of the submission of the RAR, thereby implicitly accepting the period calculation carried out by the Claimant.
SUMMARY OF THE CLAIMANT'S POSITION
u) From the content of the RAR and the arguments, the Claimant questions the assessment of compensatory and default interest, as per paragraph b) of this Report, as it argues that it demonstrated conduct toward AT that does not allow fact or facts to be attributed to it (on grounds of intent or negligence) that could be considered to have led to delay in the assessment or payment of the tax (normative provision of articles 35(1) and 35(6) of the GTL and article 44 of the GTL).
v) In other words, it considers that there is no causal nexus between its conduct and the failure to receive timely payment of the tax liability, at the level of the 2014 IRC paid in 2015. It alleges the following:
w) It was part, for purposes of article 69 of the IRC Code, of a group of companies dominated by E… SGPS, S.A. (designated as E…);
x) Until the taxation period ending on 31 December 2013, that same group was dominated by another company, F…, SGPS, S.A., now designated as G… SGPS, S.A. (G…);
y) On 27 May 2014, E… (the current dominant company) expressed, through a communication – based on article 69(10) of the IRC Code – sent to the IRC Services Directorate, its option for the continuation of the application of the RETGS to the group of companies;
z) On 25 March 2015, E… (the current dominant company) submitted an additional request, seeking a response to the communication of 27 May 2014;
aa) The lack of response from AT to the request made by the current dominant company on 27 May 2014, before 31 May 2015, would ultimately prevent ascertaining which taxation regime would be applicable in the taxation period of 2014 to the various companies forming the current Group and in which the Claimant is included.
bb) Maintaining the registration in the Finance Portal as it was, with no response to the Request submitted, any submission of statements, either of Group containing the new dominant company, or individual statements by each dominated company, would not be validated by the system, which would refuse such statements, triggering an alert message and a central validation error;
cc) The response to the communication sent by E… regarding the option for the maintenance of RETGS would only be notified on 16 September 2015, by letter from the IRC Services Directorate no.…, dated 10 September and confirmed by Letter no.…, of 28 September, from the same Services Directorate;
dd) The content of AT's response would thus exclude the Claimant from the scope of the group, for purposes of RETGS, since the interest held by E… in the capital of the Claimant was acquired by G… only on 31 March 2014, which would necessarily result in non-compliance with the temporal requirement demanded by the tax administration in the latter, placing it instead under the general IRC regime;
ee) However, at an earlier time, the Claimant proceeded to submit, before the last day of May 2015, through electronic data transmission, an individual periodic income statement for the taxation period of 2014, identifying E… as the dominant company, in accordance with guidance transmitted during a meeting with AT services, and based on the taxable income determined therein. It proceeded to self-assess IRC with respect to the taxation period of 2014, with a total amount payable of €1,835,110.72;
ff) E… (the current dominant company) also submitted the Group Form 22 statement on 29 May 2015, in its capacity as the new dominant company, in consistency with its option for the continuation of RETGS to the group of companies previously dominated by G…;
gg) The procedure agreed between E… and AT at the meeting held on 25 May 2015 determined the inclusion of the Claimant in the group of companies subject to RETGS, as resulted from E…'s option for the continuation of RETGS in which the previous dominant company, G…, was previously included, with payment of IRC due by companies included in that group owed by E… as the new dominant company, in accordance with article 115 of the CIRC.
hh) Since AT only notified E… at the end of September 2015, determining the exclusion of the Claimant from the scope of the group, the Claimant submitted on 30 October 2015 a substitute income statement Form 22 for the taxation period of 2014, having proceeded on the same date to payment of the IRC amount due of 1,835,110.72;
ii) It notes that the argument that the Claimant would be excluded from the group of companies dominated by E…, regardless of AT's response to the request made on 27 May 2014, which is presumed to support the understanding of the IRC Services Directorate regarding AT's submissions concerning the non-initiation of misdemeanor proceedings for late submission of the Form 22 statement for the taxation period of 2014, was never invoked, communicated or discussed in the series of contacts maintained with the tax administration services and, in particular, at the meeting held on 25 May 2015.
jj) Concluding by recalling "that the request for the option of continuation of the application of RETGS submitted by E… was based on an extensive interpretation of the terms provided in article 69(10) of the IRC Code that envisaged the mere withdrawal of the dominant company from a group subject to RETGS and its replacement in that role by another company that was part of the same group, with the remaining composition of the group remaining unchanged".
kk) For the reasons described, the Claimant understands that there was no "voluntary action, directed at undue exploitation known or knowable by the taxpayer, relative to legitimate state revenues", and the assessment of interest for the submission of the substitute Form 22 statement on 30.10.2015 and payment on that date of the IRC tax is not in accordance with law (normative provision of articles 35(1) and 35(6) of the GTL and article 44 of the GTL).
ll) It further argues that the assessment act suffers from insufficient substantiation in disregard of the provision in article 77 of the GTL and articles 103(2) and 268(3) of the Constitution.
mm) And that the essential legal formality of prior hearing before assessment was omitted, in accordance with article 60(1)(a) of the GTL.
nn) Having the Claimant filed a gracious complaint against the assessment, initiated with no. …2016…, which was dismissed by decision of the Head of Division of Management and Tax Assistance of the Large Taxpayers Unit dated 14.07.2016, it seeks its annulment in addition to the reimbursement of the amount paid, plus indemnity interest.
SUMMARY OF THE RESPONDENT'S POSITION
oo) The Respondent states the following regarding the facts alleged by the Claimant, which it considers not conclusive (article 95 of the Response): "however, it cannot be granted as to what is alleged by the Claimant in point 71 of the request for arbitral ruling, in stating that "(…) the procedure agreed between E… and the tax administration at the meeting held on 25 May 2015 determined the inclusion of A… (Claimant) in the group of companies subject to RETGS in which G… previously figured as the dominant company."
pp) It further objects specifically to the reading of the facts that occurred, particularly what the Claimant expresses in articles 64, 65, 104, 107 and 108 of the RAR, namely, it does not accept that it would "… attribute to AT its exclusion from RETGS and consequent inclusion in the general regime, by force and on the occasion of the change of dominant company".
qq) Disagreeing with the Claimant's position, it clarifies that: "It is important … to identify two distinct situations. One first that has to do with the conditions for application of RETGS" "and another situation that relates to the regime for the deduction of tax losses from previous periods when there is a change of dominant company". "This distinction is important, since only the second situation requires a request to be submitted to AT, which will be responsible for verifying the existence of recognized economic interest for the deduction of losses".
rr) Since "with the extinction of the taxation unit constituted by the Group dominated by G…, SA, the possibility for the Claimant to integrate a new group of companies in the manner sought was also extinguished, since it does not meet the conditions for application of said regime", for the reason that "article 69(2)(b) determines that the option for the application of the special regime for taxation of groups of companies can only be formulated when, among other cumulative requirements, 'the dominant company holds the interest in the dominated company for more than one year, with reference to the date on which the regime begins to apply'".
ss) It sustains that the Claimant's position is without merit, defending the assertiveness of the decision adopted regarding the dismissal of the gracious complaint, in the following terms: "Now, it was up to E…, SA, as the new dominant company of the group, to verify the access conditions of all companies it would integrate, as the dependence on information provided was only to know whether the continuation of the application of RETGS with this new dominant company was accepted or not, since the access prerequisites of the dominated companies always had to be met". And concludes: "Thus, given that the tax assessment for the 2014 fiscal year was made after the deadline, due to a fact attributable to the Claimant, compensatory interest is due under article 102 of the IRC Code and article 35 of the GTL, as well as default interest under article 109 of the IRC Code and article 44 of the GTL, the same shall equally be due for the delay in payment of the self-assessed tax."
tt) And that this results from the request itself made to AT in 2014 by the dominant company of the Claimant, specifically points 75 to 77, namely: "75. In view of the foregoing, the Claimant comes, in accordance with article 69(10) of the IRC Code, to express its option for the continuation of the application of RETGS to the group of companies that until the taxation period ending on 31 December 2013 was dominated by G…". "76. Complementary to the option for the continuation of the application of RETGS to the group of companies listed above, the Claimant also reiterates the option expressed by G… in the Option Statement submitted on 28 March 2014 regarding the calculation of the limitation on the deductibility of net financing costs, as provided in article 67(5) of the CIRC". "77. Finally, insofar as the same group of companies presents tax losses carried forward determined in fiscal years 2011 and 2012, the Claimant attaches to this communication a request addressed to the Tax and Customs Authority requesting the maintenance of those losses, in accordance with article 71(3) of the IRC Code",
uu) "Strictly speaking, only one request was formulated. The request for deduction of losses in accordance with article 71(3) of the CIRC". "As for the rest, only the option for continuation of application of RETGS was communicated, as indeed results from the Law". "It is not the responsibility of, nor could it be the responsibility of, the tax administration to determine which companies may or may not be part of a specific group of companies". "That obligation, as article 69(12) of the CIRC requires, is within the sphere of the dominant company". "And since this is a requirement that flows from law, it is unclear why it would be expected that the Claimant would form a different interpretation by AT".
vv) It understands that there is no illegality in the assessment of compensatory interest, since "… AT's understanding referred solely and exclusively to the possibility of maintaining RETGS, even though there was a change of the dominant company", since " … AT never pronounced itself in the sense of agreeing with the possibility that the Claimant would meet the legal conditions set forth to benefit from RETGS in the taxation period of the year 2014", for the reason that "… given the wording of article 69(3) of the CIRC, it is considered that there is no basis for interpretation according to which the Claimant, with respect to the taxation period of the year 2014, met the legal conditions necessary to benefit from RETGS".
ww) Concluding: "… no other conclusion is possible than that compensatory interest is due by the Claimant since due to a fact attributable to it, the assessment of the tax due was delayed, in accordance with article 102 of the CIRC, as well as article 35(1) of the General Tax Law (GTL)".
xx) Regarding the alleged insufficiency of substantiation of the assessment act, it disagrees with the reading of law formulated by the Claimant, stating: "… with respect to the substantiation of administrative acts … the act is substantiated when, by the motivation adduced, it is capable of revealing to a normal recipient the facts and legal grounds that determine the decision, enabling him to react effectively through legal channels against the respective injury", citing several Supreme Administrative Court decisions in that sense.
yy) And it further states: "Now, it is demonstrated that the Claimant understood perfectly the sense and scope of the act, as results from the legal-argumentative exercise itself that it carried out both through the gracious complaint and through the present request for arbitral ruling".
zz) It concludes: "… if there were a situation of lack or insufficiency of substantiation – a hypothesis that would only be admissible in theory and without conceding – the Claimant could avail itself of the mechanism provided for in article 37 of the Code of Tax Procedure and Process (CTPP) and request the respective notification or issuance of the certificate in accordance". "Now, as the Claimant did not use that faculty conferred by law, it must be concluded that the acts referred to contained, as they effectively contain, all the elements necessary for their full understanding and that the alleged defect that they might have suffered was remedied".
aaa) Regarding the invoked illegality of assessment of default interest, it states: " … it hereby refers, and reproduces integrally for all legal purposes, to the substantiation and reasoning set forth in this response regarding compensatory interest".
bbb) Concluding that the Claimant: "… within the legally determined period, should have ensured compliance with its declarative obligations, so that through it, the assessment of the tax due could be carried out". "Consequently, not having the legally stipulated deadlines been met, default interest is due for the reasons already set forth".
ccc) Regarding the request for indemnity interest, should the RAR proceed, it states that: "Inasmuch as the arbitral process, as defined in the LFATM, provides merely a control of legality of the assessment challenged, it cannot determine that there was 'error attributable to the services'", "in the case at hand and as has been demonstrated, the situation that the law configures as 'error attributable to the services' does not exist, since ' ... the law did not provide for objective liability, but rather liability linked to the fault of the services'". "This fault (the 'attribution to the services') – on grounds of intent or negligence – must be alleged and proved, and does not result automatically from any illegality". "That is, the duty to indemnify does not result immediately and automatically from the annulment of the act, being due only when it is determined that there was error attributable to the services". "In the case at hand, there is no existence of any error attributable to the services in the issuance of the challenged assessment, so the requested payment of indemnity interest is unfounded and therefore fails".
ddd) It argues for the maintenance in the legal order of the tax act as being in compliance with law.
II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE
The assessment subject to disagreement concerns only default interest and compensatory interest, taking into account the submission of the substitute IRC Form 22 declaration on 30 October 2015 for the 2014 fiscal year, yet the Claimant submitted prior to the last day of May 2015 a first statement in its capacity as an entity dominated by E… (E…).
That is, the core of the question relates to the application to the facts that prove to be true of the regime of article 35 of the GTL (compensatory interest) and article 44 of the GTL (default interest).
Article 35 of the GTL states, to which article 102(1) of the IRC Code refers:
"1 - Compensatory interest is due when, due to a fact attributable to the taxpayer, the assessment of all or part of the tax due or the payment of tax payable in advance, withheld or to be withheld under substitute taxation is delayed.
2 - Compensatory interest is also due when the taxpayer, due to a fact attributable to it, has received a reimbursement in excess of that due.
3 - Compensatory interest is calculated day by day from the end of the period for filing the declaration, from the end of the period for payment of tax payable in advance or withheld or to be withheld, until the supply, correction or detection of the deficiency that caused the delay in assessment.
4 - For purposes of the preceding number, in case of inspection, the deficiency is considered supplied or corrected from the notice report.
5 - If the cause of compensatory interest is receipt of undue reimbursement, these are calculated from that date until the date of supply or correction of the deficiency that caused it.
6 - For purposes of this article, there is always considered to be delay in assessment when tax declarations are filed outside the legal deadlines.
7 - Compensatory interest is only due for a maximum period of 180 days in case of taxpayer error evident in the declaration or, in case of deficiency ascertained in a tax inspection action, up to 90 days after its conclusion.
8 - Compensatory interest is incorporated into the tax debt itself, with which it is jointly assessed.
9 - The assessment must always clearly show the principal amount of the obligation and the compensatory interest, clearly explaining the respective calculation and distinguishing them from other obligations owed.
10 - The rate of compensatory interest is equivalent to the rate of legal interest fixed in accordance with article 559(1) of the Civil Code.
Article 44 of the GTL states:
"1 - Default interest is due when the taxpayer does not pay the tax due within the legal deadline.
2 - Default interest applicable to tax debts is due until the date of payment of the debt.
3 - The rate of default interest is the one defined in general law for debts to the State and other public entities, except in the period between the date of the end of the period for spontaneous execution of a final court decision and the date of payment of the debt relative to the tax that should have been paid by a final court decision, in which a rate equivalent to double that shall apply.
4 - In the case the debt is paid within 30 days from the date of summons, default interest is calculated until the date of issuance thereof",
Regarding compensatory interest
What is at issue here is to determine, in light of the provisions of the rules governing the matter and taking into account the facts that may be established, whether:
The delay in the assessment and payment of IRC is due to "a fact attributable to the taxpayer", that is,
Whether the facts established are "plausibly justified" in the sense of excluding censure on grounds of intent or negligence in the conduct of the taxpayer that led, in this case, to the submission of the substitute declaration on 30.10.2015, it being certain that previously a first declaration was submitted within the legal deadline, both generating the same IRC tax payable, although by a different taxpayer (in the substitute Form 22 by the Claimant, dominated company, in the first declaration by E…, current dominant company).
Regarding default interest
The distinct nature of default interest, which accrues to compensatory interest, must be taken into account. Since compensatory interest is incorporated into the tax debt itself (article 35(8) of the GTL), in case of delay by the debtor, the respective default interest accrues on the total amount in debt (tax collection + compensatory interest) at the legal rate.
Thus, it must be determined, in light of the provision of the rules governing the matter of default interest and taking into account the facts that may be established, whether:
· Its assessment is due, since the legal rule has a different wording from the rule governing compensatory interest.
· If its assessment is due, whether it is affected by the defects alleged against it (lack of substantiation), as alleged in article 122 of the RAR: "… this assessment … is completely silent … from what moment does AT consider … are due … at what rate … and for what reason are they required".
***
Regarding compensatory interest, as referred to in note 6 to article 35 of the GTL, page 284, of the Annotated General Tax Law of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa: "The conduct of the taxpayer must be censurable on grounds of intent or negligence (Jorge Lopes de Sousa, Interest in Tax Relations, in Fundamental Problems of Tax Law, Lisbon, 1999, pages 147-8). In this sense, the Supreme Administrative Court has ruled. One should start from the presumption that guilt exists whenever the taxpayer's conduct falls within the hypothesis of any tax violation. Although one must inquire whether guilt is excluded or not in the specific case (Jorge Lopes de Sousa, cited work page 149). In this sense the Decisions of the Supreme Administrative Court of 04.03.98, issued in appeal no. 20651; of 13.05.98, issued in appeal no. 21721; of 23.09.98, issued in appeal no. 22,612 and of 05.05.99, issued in appeal no. 23,729.
"For the taxpayer to owe compensatory interest, an adequate causal nexus is required between its conduct and the failure to receive timely payment of the obligation, and the conduct of the taxpayer must be censurable on grounds of intent or negligence, and one must in any case inquire whether guilt is excluded or not in the specific case (As referred to on this matter by Councilor Jorge Lopes de Sousa, 'Interest in Tax Relations, in Fundamental Problems of Tax Law, Lisbon, 1999, pp. 146 et seq.) and the lack of culpability or reasonableness in terms of a normal or average taxpayer of the criterion adopted, in disagreement with the Tax Authority, even if erroneous, excludes guilt (according to Supreme Administrative Court decision of 18/2/98, appeal no. 22,325)" (according to Decision no. 1490/13, issued by the Supreme Administrative Court on 22 January 2014).
As, indeed, AT refers in the instructions on interest submitted by AT with the AP (part 6 and 7): citing Prof. Vaz Serra "… default interest constitutes presumed indemnification (regardless of actual damage), compensatory interest aims to compensate for damage effectively suffered by the injured party".
***
In the terms set out, the SAT will consider, based on the facts that prove to be true:
First, whether the requirements for application of articles 35 and 44 of the GTL are met in this particular case, distinguishing the situation of compensatory interest and that of default interest;
If it is concluded that they are met, it will then consider whether the alleged defects of lack of substantiation and violation of the essential legal formality of exercising the right to prior hearing occurred before notification of the assessment;
Finally, should the RAR proceed, the claimed right to indemnity interest must be considered.
III. PROVEN AND UNPROVEN FACTS.
REASONING
Regarding the facts, the Tribunal does not have to pronounce on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish proven from unproven facts (in accordance with article 123(2) of the CTPP and article 607(3) of the Civil Procedure Code, applicable under article 29(1)(a) and (e) of the LFATM).
In this manner, the pertinent facts for the judgment of the case are selected and defined according to their legal relevance, which is established with regard to the various plausible solutions of the question(s) of law (as per former article 511(1) of the Civil Procedure Code, corresponding to current article 596, applicable under article 29(1)(e) of the LFATM).
Thus, taking into account the positions assumed by the parties, the testimony of the witnesses and the documentary evidence attached, the following facts were considered proven, with relevance to the decision, indicating the respective documents (proof by documents) as substantiation.
Proven facts
In the fiscal year 2013, the Claimant here, A… SA (A…), NIPC…, was classified, for purposes of article 69 of the IRC Code, under the special regime for taxation of groups of companies (RETGS), with F…SGPS SA (F…) – current G… SGPS, SA – as the dominant company and it as one of the dominated companies – in accordance with articles 41 and 42 of the request for arbitral ruling (RAR) and articles 5 and 6 of AT's response.
In the fiscal year 2014, due to restructuring, the group came to be dominated by E… (E…) in place of F… SGPS SA (F…) – current G… SGPS, SA – in accordance with articles 41 and 42 of the request for arbitral ruling (RAR) and article 7 of AT's response.
On 27 May 2014, E… (the current dominant company) sent to the IRC Services Directorate of AT a request ending as follows under the heading "Regarding the option for continuation of RETGS: "75 – In view of the foregoing, the Claimant comes, in accordance with article 69(10) of the IRC Code, to express its option for the continuation of the application of RETGS to the group of companies that until the taxation period ending on 31 December 2013 was dominated by G…, whose composition, with reference to the taxation period of 2014, shall be the following: E… (dominant company); H…; I…; J…; K…; L…; M…; N…; O…; P…; Q…; R…; S…; T…; U…; V…; W…; X…; Y…; Z…; and AA…." "76 – Complementary to the option for the continuation of the application of RETGS to the group of companies listed above, the Claimant also reiterates the option expressed by G… in the Option Statement submitted on 28 March 2014 regarding the calculation of the limitation on the deductibility of net financing costs, as provided in article 67(5) of the IRC Code". "77 – Finally, insofar as the same group of companies presents tax losses carried forward determined in fiscal years 2011 and 2012, the Claimant attaches to this communication a request addressed to the Tax and Customs Authority requesting the maintenance of those losses, in accordance with article 71(3) of the IRC Code" – in accordance with article 44 of the RAR, document no. 3 attached with the RAR and article 8 of AT's response.
On 19 March 2015, witness C…, in the capacity of Certified Tax Advisor (CTA) of E…, sent an electronic communication to the IRC Services Directorate of AT, stating: "given that the deadline for communicating alterations to the scope of RETGS (end of March of each year) is approaching, E… SGPS SA (with NIF…) hereby requests that it be communicated urgently the decision that addressed the process with no. …/14, relating to the maintenance of RETGS with change of dominant company". To which the Head of the IRC Services Directorate responded by electronic communication on 23 March 2015: "In response to the email below, I inform you that the process is under review, with its communication expected shortly. In the event there are alterations to the group's scope that must be communicated to AT, by the end of the current month of March and that are dependent on the issuance of a decision in the context of this process, this will be duly taken into account, and the company will not be penalized for the delay in said communication" – in accordance with document submitted by witness C… at the time of her testimony attached to the minutes of witness examination of 06.03.2017 and implicit position of AT accepting the veracity of its content in accordance with the response submitted to CAAD's Case Management System on 16.03.2017.
On 25 March 2015, E… (the current dominant company) submitted a request to AT, alleging "following the lack of response from this Directorate to the communication of the option for the continuation of the application of the Special Regime for Taxation of Groups of Companies (RETGS)" and ends by requesting: "in view of the foregoing, the Claimant requests, under articles 61 et seq. of the Administrative Procedure Code and article 59 of the GTL, that it be communicated as soon as possible the decision of the IRC Services Directorate regarding the communication of the option for the continuation of the application of RETGS to the group of companies previously dominated by G…, complying with the principle of decision to which it is bound by imposition of article 56 of the GTL" – in accordance with article 45 of the RAR and document no. 4 attached with the RAR.
On 25 May 2015 a meeting occurred between representatives of E… (the current dominant company) and AT, addressing the matters referred to in 3. and 5. above – in accordance with article 50 of the RAR and testimony of witnesses C… and D….
Without alteration of the tax registry, companies that integrated the new group subject to RETGS, whether individually by each dominated company, or by group containing the new dominant company, if they submitted the Form 22 income statement prior to AT's decision on the request referred to in 3., would not be validated by the electronic submission system, triggering a central validation error – articles 56 and 57 of the RAR, point 4-XIII of the Claimant's arguments, points 29 and 30 of the Respondent's counter-arguments and testimony of C….
It was suggested at the meeting referred to in 6. that the various companies integrating the group should proceed with the submission of their individual Form 22 statements, assuming the continuity of the previous group of companies dominated by G…, a suggestion that the Claimant did not implement because it was a company that, since 05 May 2014, was no longer a direct shareholder of E… – in accordance with articles 54, 55, 57 and 58 of the RAR, points 29 to 32 of the Respondent's counter-arguments and testimony of D….
Before 31 May 2015, the Claimant and the new dominant company submitted individual periodic income statements with reference to the taxation period of 2014, identifying E… as the dominant company, with the Claimant self-assessing IRC in an amount payable of 1,835,110.72 euros – in accordance with articles 68, 69, 70 of the RAR and non-contestation of this fact by AT.
The Claimant did not pay the IRC referred to in the preceding number by 31.05.2015 since under article 115 of the IRC Code that payment would be owed by the dominant company – articles 71 and 72 of the RAR.
On 16 September 2015 the Claimant was notified, by letter from the IRC Services Directorate no.…, dated 10 September 2015, of the response to the request referred to in 3. and 5. above with the following content:
- In accordance with article 63 of the RAR and document no. 5 attached with the RAR.
As of 28 September 2015, the IRC Services Directorate sent to E… the letter... that states the following:
- in accordance with article 63 of the RAR and document no. 6 attached with the RAR.
On 30 October 2015 the Claimant submitted a substitute income statement Form 22 for the taxation period of 2014, having proceeded on the same date to payment of the self-assessed IRC amount of €1,835,110.72 – in accordance with article 74 of the RAR and documents nos. 7 and 8 attached with the RAR.
On an undetermined date the Respondent notified the Claimant of the IRC assessment statement no. 2015…, of 5 November 2015, relating to the 2014 fiscal year, through which compensatory interest and default interest were assessed in the total amount of €31,458.56 (being 890.16 euros of default interest and 30,568.40 euros of compensatory interest), an amount that the Claimant paid on 29 December 2015 – in accordance with articles 75 and 76 of the RAR and documents nos. 2 and 9 attached with the RAR.
On 11 May 2016 the Claimant filed a gracious complaint against the assessment referred to in the preceding number, initiated with no. …2016…, where a draft dismissal was prepared, notified to the Claimant by letter no. … of 2016-06-23 with the following grounds: «Now, it was up to E… SGPS, SA, as the new dominant company of the group, to verify the access conditions of all companies it would integrate, as the dependence on information provided was only to know whether the continuation of the application of RETGS with this new dominant company was accepted or not, since the access prerequisites of the dominated companies always had to be met. 26. Thus, given that the tax assessment for the 2014 fiscal year was made after the deadline, due to a fact attributable to the Claimant, compensatory interest is due under article 102 of the IRC Code and article 35 of the GTL, as well as default interest under article 109 of the IRC Code and article 44 of the GTL, the same shall equally be due for the delay in payment of the self-assessed tax.» – in accordance with AP pages 23 and 24, articles 13 to 16 of AT's response, second paragraph of the preamble of the RAR.
Following the exercise of the right to prior hearing and after analysis of the arguments raised by the then claimant, the draft decision on the complaint became final by decision of 2016-07-14 of the Head of Management and Tax Assistance of the Large Taxpayers Unit, the Claimant being notified on 23 August 2016 of this decision – article 1 of the RAR, document no. 1 attached with the RAR and article 17 of AT's response.
On 14 October 2016 the Claimant submitted to CAAD the present request for arbitral ruling (RAR) – entry record in CAAD's Case Management System of the request for arbitral ruling.
Unproven facts
There is no other alleged factuality that has not been considered proven and that is relevant to the composition of the dispute in proceedings.
The relevance of the witness testimony produced was limited (except regarding what is referred to in 4. and the proof of the occurrence of a meeting between AT officials and the current dominant entity of the Claimant). It essentially amounted to complementing the facts already demonstrated through the documents submitted by the parties, as results from the substantiation expressed above.
IV. ASSESSMENT OF QUESTIONS FOR THE SINGULAR ARBITRAL TRIBUNAL (SAT) TO RESOLVE
Regarding compensatory interest
Do the facts established in 7. to 12. of the settled facts, even if understood as causing the Claimant a mistaken reading of law, permit the conclusion that guilt is excluded, being sufficient for a judgment of lack of culpability or reasonableness of the conduct adopted, given what law determines?
As stated above "guilt is or is not excluded in the specific case".
As referred to in AT's own instructions on interest submitted with the process comprising AP 6 and 7:
"The requirement of compensatory interest depends on the delay in assessment being attributable to the taxpayer, as results from the provision of article 35(1) of the GTL. For this to occur, two requirements must occur cumulatively, namely:
1st - It is necessary that there be an adequate causal nexus between the taxpayer's conduct and the delay in assessment. That is, the taxpayer's conduct must be a condition of the delay and not be indifferent to its occurrence.
Thus, the taxpayer's responsibility for compensatory interest is extinguished from the moment there is a conduct or omission by the Tax Authority that causes the prolongation of the delay in assessment. (It is from this perspective that the first part of article 35(7) of the GTL should be interpreted, in establishing that compensatory interest is only due for a maximum period of 180 days in case of taxpayer error evident in the declaration. Since in this case it is the duty of the Tax Authority to carry out the assessment and detect and correct the taxpayer's error. In these cases, if the Tax Authority does not detect the error evident in the declaration and assesses based on it an amount less than what should be assessed, there will be no responsibility of the taxpayer for compensatory interest. — Jorge Lopes de Sousa, cited work page 545).
2nd - It will not be sufficient an objective connection between the delay and the taxpayer's conduct. It will also be necessary the cumulative verification of guilt in the taxpayer's conduct, on grounds of intent or negligence, and one must in any case inquire whether guilt is excluded or not in the specific case. Consequently, there will be no responsibility for compensatory interest when, despite the delay in assessment being caused by the taxpayer's conduct and his position being erroneous, he has acted in good faith and the error is excusable, because his position is reasonable.
Good faith is presumed under article 59(2) of the GTL, so the determination of guilt will be reduced, in most cases, to the assessment of the reasonableness of the interpretation of law made by the taxpayer.
One can therefore conclude that the right to compensatory interest depends on the conjunction of an objective element, the delay in assessment, and a subjective element, the guilt of the taxpayer".
From an objective point of view, there is no doubt that the tax was paid on the date indicated in 13. of the settled facts and not by the last day of May 2015, as the law provides.
From a subjective point of view, it is configured, first, that it should not be attributed to AT (without more), even in light of the delay in responding to the Claimant's request referred to in 3. and 5. of the settled facts (which will be valued in the circumstances of this particular case), the delay in assessment or delay in payment. And for the reason that, in fact, the question of what legal requirements the dominated companies must meet to integrate a particular scope of RETGS is up to the taxpayer.
AT's response referred to in 12. of the settled facts must be understood in two aspects: 1 - AT perceived that the taxpayer was incorrectly sizing the scope of the request it had made. 2 – it formulated that response, in a manner complementary to the foregoing, within the scope of the duty of mutual cooperation and good faith. Good faith which in relations between AT versus taxpayers is presumed always.
However, this finding does not resolve the fundamental question. It must be determined whether, in light of the facts established, the taxpayer acted or did not act with guilt.
It appears to us that the specific conduct of the taxpayer that is part of the set of proven facts should not fall within the concept of "facts attributable to the taxpayer" for purposes of article 102(2) of the IRC Code and article 35(1) of the GTL, much though it intended to see in the request made to AT a dimension that does not align with article 69(3)(b) of the IRC Code.
In fact, it is not every day that such a large restructuring of a large Portuguese company occurs, with so many dominated companies, and one could even question whether the outdatedness of tax law should be addressed to accommodate these phenomena (of mere change of the dominant company). It is reasonable that some dissonance or delay occurs in finding the most assertive paths.
If we understand correctly the position of the taxpayer in defending what it defends, it is based on this premise: the mere change, in substantive terms, of a dominant company of the group already integrated into RETGS by another dominant company should not bring into discussion the application of the regime of article 69(3)(b) of the IRC Code.
Note:
As per 4. of the settled facts, the Certified Tax Advisor of the dominant company showed diligence and concern in obtaining a timely response from AT. A response that, nearly a year after the request, had not been received. This delay somehow kept the taxpayer in a situation of error regarding the scope of the request made;
As per 5. of the settled facts, the taxpayer demonstrates diligence and concern regarding the delay in response to the request made (which it sizes as having the scope referred to in the preceding paragraph);
As per 6. of the settled facts, the taxpayer, in raising a meeting with AT officials, clearly showed that it intended to see the situation clarified and obtain a binding response. That is, it showed that it wanted to comply correctly with its declarative obligations and pay the IRC in the manner most appropriate to its tax regime, without conflicts with AT.
As per 7. and 8. of the settled facts, it appears that AT's response had, at least, a side effect (see nos. 3 and 4 of the response reproduced in 11. of the proven facts), that of allowing the alteration of the tax registry from the old to the current dominant company, in addition to registry alteration for companies that could not integrate the new scope for purposes of RETGS. The Claimant, in not submitting a Form 22 declaration by 31.05.2015 indicating the previous dominant company (but indicating the current dominant company), evidences that it was convinced that AT would accept (even if erroneously in light of article 69(3)(b) of the IRC Code) that it would continue to be integrated into the new RETGS scope.
As per 9. to 13. of the settled facts, it is to be withdrawn that, strictly speaking, the taxpayer submitted the Form 22 declaration within the correct deadline and self-assessed the IRC for the same value that it came to pay after submission of the substitute declaration, as soon as AT responded in accordance with points 11. and 12. of the settled facts. Its non-payment by 31 May 2015 is justified (and justifiable because prior assessment to the dominant company had to occur) by the fact that it is attributable to the dominant company under article 115 of the IRC Code.
Notwithstanding AT's reading of the response expressed in 12. of the settled facts made by the SAT, the notorious delay in AT's response to the Claimant's requests of May 2014 and reiterated in March 2015 must be noted here, as it is noted, to conclude the reasonableness of the taxpayer's conduct.
It appears to us that, taking into account the facts that occurred, it should be concluded that the Claimant acted in good faith and the error in which it was engaged is excusable, by having adopted a global reasonable and plausible position, acting with due diligence with a view to compliance with the Form 22 IRC declarative obligation, avoiding conflicts with AT, a declarative obligation whose difficulty of submission, only via electronic means, was at the origin of the submission of two IRC declarations, the first within the legal deadline and the substitute, the latter having been submitted and the tax paid as soon as AT explicitly warned it of the error in which it was engaged.
Thus, the request for arbitral ruling proceeds, in the part relating to the challenge of compensatory interest, since not all requirements provided in article 102(2) of the IRC Code and article 35(1) of the GTL are sufficiently met.
***
The assessment of other grounds adduced by the Claimant, of insufficient substantiation and violation of essential legal formality, intended to justify the request for annulment of the assessment and the decision dismissing the gracious complaint, is thereby prejudiced.
***
Regarding default interest
Unlike what is stated in article 35(1) of the GTL (and article 102(2) of the IRC Code), article 44 of the GTL does not make the assessment of default interest depend on the existence of "a fact attributable to the taxpayer", as occurs with the requirements for assessment of compensatory interest.
As referred to in AT's own instructions on interest submitted with the response (AP 6 and AP 7):
"Default interest is due in every situation in which taxpayer default occurs, that is, from the moment the legal deadline for voluntary payment of a tax ends, as stipulated in the aforementioned article 44(1) of the GTL, article 86(1) of the CTPP…".
"Thus, given the current legal regime, a delay of a single day, in the normal regime, will suffice to generate an interest obligation…" concluding with the "… its nature not exclusively reparatory, but also, compulsory of punctual payment of the tax obligation…".
Now, insofar as the default interest was calculated on the IRC paid on 30.10.2015 and not by the last day of May 2015, we do not see legal grounds to consider that its assessment is not in accordance with the legal provisions, and therefore, in this part the request for arbitral ruling is unfounded.
And neither do we see how the lack of substantiation of the assessment of this interest can be invoked (article 122 of the RAR) when it is certain that a gracious complaint occurred afterwards where the matter was thoroughly raised and discussed, showing that the Claimant understood perfectly the reason for its assessment.
"The formal defect of lack of substantiation does not occur if the applicant herself expressly reveals having understood perfectly the logical and legal process that led to the tax decision, recognizing having perceived the specific prerequisites taken into account by the author of the act and the reasons why the taxed amounts were reached, revealing the cognitive and evaluative path taken…", in Decision of the Supreme Administrative Court in case no. 0105/12 of 30-01-2013.
On the other hand, as the Respondent states, the Claimant could avail itself of the mechanism provided for in article 37 of the Code of Tax Procedure and Process (CTPP) and request the respective notification or issuance of a certificate in accordance.
Finally, citing what is referred to in the Response, as to ANTÓNIO LIMA GUERREIRO, in a note to article 77 of the GTL: «It has been uniform jurisprudence of the Supreme Administrative Court (followed from the Decision of 11 December 1991, appeal 11,897), that the failure to notify the substantiation does not affect the legality of the act. It is an element external to the act and not a requirement for its perfection. The failure to notify substantiation leads only to the consequence provided in article 37 of the CTPP, under which, if the notification does not contain all the requirements provided by law, the interested party may request notification of those that were omitted or the passage of a certificate containing them free of any payment, with only the period of complaint, appeal or judicial challenge counting from notification of the omitted facts or the passage of the certificate containing them.»
The assessment note distinguishes what is default interest and what is compensatory interest, distinguishing them from IRC collection.
However, having the request for arbitral ruling proceeded regarding the challenge of compensatory interest, the request for challenge of default interest must necessarily proceed to the extent that the same was calculated on the compensatory interest assessed and hereby annulled, since, as referred to, compensatory interest is incorporated into the tax debt itself (article 35(8) of the GTL), so that, in case of debtor default, the respective default interest accrues on the total amount in debt (tax collection + compensatory interest) at the legal rate.
Regarding the request for indemnity interest
The Claimant requests, in addition to the annulment of the IRC assessment, the reimbursement of what it paid, plus indemnity interest.
Article 43(1) of the GTL establishes that «indemnity interest is due when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount higher than legally due».
As results from the literal content of this rule, the right to indemnity interest depends on «payment of the tax debt in an amount higher than legally due» and the existence of "error attributable to the services".
As the Claimant refers, for the right to indemnity interest to be recognized, the following requirements must be verified:
a) error attributable to the services in the determination of the tax due;
b) that from said error results payment of tax in an amount higher than legally due;
c) that the error of the services be analyzed in the context of gracious complaint or judicial challenge.
Now, given the proven facts, it is not possible to attribute to AT an error that would allow its condemnation for payment of indemnity interest, since the issuance of the assessment here challenged arose from the objective fact that tax payment was made on 30.10.2015 and not by the last day of May 2015.
It should be noted that the determination of tax (self-assessment) in this case was carried out by the taxpayer, both in the first IRC declaration and in the substitute declaration.
It is necessary to reiterate here what was written above: "from a subjective point of view, it is configured … that it should not be attributed to AT … even in light of the delay in responding to the Claimant's request referred to in 3. and 5. of the settled facts, the delay in assessment or delay in payment. And for the reason that, in fact, the question of what legal requirements the dominated companies must meet to integrate a particular scope of RETGS is up to the taxpayer".
Therefore, the request for AT to be held liable for payment of indemnity interest fails.
V. OPERATIVE PART
In the terms and with the grounds set forth above:
1. The request for arbitral ruling is hereby partially granted regarding the annulment of the IRC assessment in question no. 2015…, from which resulted an amount payable of 30,568.40 euros of compensatory interest, annulling this assessment, since it is not in line with article 102(2) of the IRC Code and article 35(1) of the GTL;
2. Consequently, the request for arbitral ruling is hereby partially granted regarding the annulment of the IRC assessment in question no. 2015…, from which resulted an amount payable of 890.16 euros of default interest, to the extent that it results from its calculation on the compensatory interest added to the IRC collection;
3. The decision issued on 14 July 2016 in the gracious complaint process no. …2016…, by the Head of Management and Tax Assistance of the Large Taxpayers Unit, is hereby partially annulled, to the precise extent of the aforegoing partial grants;
4. The request for arbitral ruling is hereby partially denied regarding the annulment of the IRC assessment in question no. 2015…, from which resulted an amount payable of 890.16 euros of default interest, to the extent that default interest was calculated on the IRC collection, without addition of compensatory interest;
5. The amount paid to which paragraph 1. and the amount resulting from the correction of the assessment as referred to in paragraph 2. must consequently be refunded to the Claimant;
6. The request for AT to be held liable for payment of indemnity interest is hereby denied as not all requirements of article 43 of the GTL are verified.
Value of case: in accordance with article 3(2) of the Tax Arbitration Procedure Rules and Costs Regulation (and article 97-A(1)(a) of the CTPP), the case is assessed at the value of 31,458.56 euros.
Costs: in accordance with article 22(4) of the LFATM, the costs are fixed at €1,836.00 pursuant to Schedule I attached to the Tax Arbitration Procedure Rules and Costs Regulation, with 5/6 (€1,530.00) to be borne by the Respondent and 1/6 (€306.00) to be borne by the Claimant, taking into account their respective partial defeats.
Notify.
Lisbon, 1 May 2017
Singular Arbitral Tribunal (SAT),
Augusto Vieira
Text produced by computer in accordance with article 131(5) of the Civil Procedure Code, applicable by cross-reference in article 29 of the LFATM.
The preparation of this decision is governed by the spelling rules prior to the 1990 Orthographic Agreement.
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