IRC Tax Assessment Expiry: Personal Notification Rules in Group Taxation (CAAD 625/2015-T)

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Maria Manuela do Nascimento Roseiro and Pedro Nuno Ramos Roque, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Court, agree as follows:

I – REPORT

On 1 October 2015, "A..., SGPS, S.A.", holder of tax identification number ..., with registered office at Rua ..., n.º..., in Porto, filed a request for constitution of an arbitral tribunal, in accordance with the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, with the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated as RJAT), seeking the declaration of illegality of the Corporate Income Tax (IRC) assessment act no. 2013..., as well as the assessments of the respective compensatory interest accrued under nos. 2013... and 2013..., and also the statement of account settlement contained in the compensation no. 2013... .

To support its request, the Applicant alleges, in summary:

i. that there is expiry of the right to assess;

ii. that the Tax Authority's reasoning is not clear, being even obscure, since it is not perceptible to a normal recipient, of the bonus pater familiae type, since it is not possible to understand the factual and legal grounds that led the Tax Authority to conclude on the non-deductibility of the expenses;

iii. that the Tax Authority's refusal to deduct expenses, properly accounted for and documented, is unlawful, whereby the corresponding amounts should be accepted as a fiscal cost of the fiscal year, in accordance with Article 23, no. 1, of the IRC Code, whereby the rejection of the administrative appeal as well as the 2009 IRC assessment under adjudication, as well as the underlying compensatory interest assessments, are affected by illegality due to breach of the Constitution and the Law and error on the factual grounds on which they rest;

iv. that the assessment resulting from inspection actions on each of the subsidiary companies affects interests and rights registered in their respective legal sphere without having been notified to them, whereby the Applicant believes that the act cannot be consolidated in the legal order nor in the sphere of the subsidiary companies under penalty of violation of the constitutional principle of effective judicial protection provided for in Article 268 of the CRP (Constitutional Law).

On 2 October 2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Applicant did not proceed with the appointment of an arbitrator, whereby, in accordance with the provisions of paragraph a) of no. 2 of Article 6 and paragraph a) of no. 1 of Article 11 of the RJAT, the President of the Ethics Council of the CAAD appointed the signatories as arbitrators of the collective arbitral court, who communicated acceptance of the office within the applicable deadline.

On 23 November 2015, the parties were notified of these appointments and did not manifest any intention to refuse any of them.

In accordance with the provisions of paragraph c) of no. 1 of Article 11 of the RJAT, the collective Arbitral Court was constituted on 10 December 2015.

On 1 February 2016, the Respondent, duly notified for this purpose, presented its response defending itself solely by impugnation.

On 13 May 2016, the meeting referred to in Article 18 of the RJAT took place, which continued on 24 May 2016 and during which witnesses presented by the Applicant were examined, and the deadline set in Article 21/1 of the RJAT was extended by 2 months, in accordance with no. 2 of the same article.

Having been granted a deadline for the presentation of written submissions, these were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

The deadline set in Article 21/1 of the RJAT was extended by a further 2 months, in accordance with no. 2 of the same article.

8 October 2016 was set as the date for the pronouncement of the final decision.

The Arbitral Court has material jurisdiction and is regularly constituted, in accordance with Articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the RJAT.

The parties have standing and legal capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Order no. 112-A/2011, of 22 March.

The proceedings are not affected by any nullities.

All matters having been considered, it is necessary to pronounce:

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

1. The Applicant, as the parent company of a group of companies constituted, in 2009, by itself and by the 19 subsidiary companies identified in the table below, opted, for IRC purposes, for the Special Tax Regime for Groups of Companies (RETGS) provided for in Articles 69, 70 and 71, all of the IRC Code (former Articles 63, 64 and 65).

2. In the course of inspection actions carried out on the subsidiary companies, corrections to their taxable profits were ascertained, which had as a consequence the correction of the group's taxable profit calculated in the parent company, through the algebraic sum of the taxable profits and tax losses ascertained in the individual sphere of the subsidiary companies, in compliance with the applicable rules within the RETGS.

3. The IRC assessments and compensatory interest assessments in question in the present arbitral action result from the conclusions reached in the tax inspection procedure, accredited by Service Order no. OI2013..., in the scope of which technical corrections were made to the Periodic Statement of IRC Income (Form 22) submitted by the Applicant on behalf of and relating to the tax group with the RETGS option, for the fiscal period of 2009.

4. The corrections to the group's taxable profit amounted to €7,348,278.46, whereby the fiscal results contained in the group's form 22 increased from €6,685,611.82 (declared value) to €14,033,890.28 (corrected value).

5. The Applicant, in light of the projected decision to reject the administrative appeal, was notified to exercise the right of hearing, which it did, in a timely manner.

6. The assessments which are the subject of the present arbitral tax proceedings were sent and delivered, on 21/12/2013, in the electronic mail box VIA CTT.

7. Nevertheless, the Finance Service of Porto ... proceeded, on 27/12/2013, to personal notification, in accordance with nos. 5 and 6 of Article 38 of the CPPT, of those same assessment acts.

8. On that same day, at the address located at Rua ..., n.º..., in Porto, a certificate of notification of the tax acts in question was signed by U..., appearing, in the said certificate, in the space reserved for identification of the notified person, that person's name followed by the mention, in brackets, "official".

9. The said U... was, throughout 2013, a dependent employee of the company "G... HOLDING SA".

10. The headquarters of the Applicant and of the company, its subsidiary, "G... HOLDING SA", was, at the time, common to both companies, being located at Rua ..., ..., ...-... Porto.

11. The notification of the Applicant effected through VIA CTT was received on 7 January 2014.

12. The Applicant filed, in a timely manner, an administrative appeal, to which number ...2014... (IRC/2009) (.../2014) was assigned.

13. The Applicant provided a bank guarantee, dated 27 April 2014, in order to suspend the tax enforcement proceedings underlying the debts in question.

14. The Applicant was notified of the draft rejection of the Administrative Appeal, and presented, in a timely manner, its respective Right of Hearing.

15. By order dated 18/06/2015, notified to the Applicant on 7 July 2015, the administrative appeal filed was rejected.

16. The external inspection procedure accredited by Service Order no. OI2011... relating to "K...SA", began, in accordance with the provisions of no. 3 of Article 51 of the RCPIT (current RCPITA), on 04/09/2012 with the signing of that credential, having exceeded the 6-month deadline.

17. The external inspection procedure accredited by Service Order no. OI2012..., relating to "Q...", began on 18/07/2013 and was concluded on 25/11/2013.

18. The external inspection procedure accredited by Service Order no. OI2013..., relating to "T... SA", began on 18/02/2013 and was concluded on 14/06/2013.

A.2. Facts established as not proven

1. That U... was, on 27/12/2013, an employee of the Applicant.

2. That the legal representatives of the Respondent or any of its employees had knowledge of the notification act of 27/12/2013, carried out in respect of U..., before 01/01/2014.

A.3. Justification of the proven and not proven facts

With respect to factual matters, the Court need not pronounce itself on everything alleged by the parties, and it is rather the duty of the Court to select the facts that matter to the decision and to distinguish proven from unproven matters (see Article 123, no. 2, of the CPPT and Article 607, no. 3 of the CPC, applicable ex vi Article 29, no. 1, paragraphs a) and e), of the RJAT).

In this manner, the facts relevant to the judgment of the case are selected and outlined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law (see former Article 511, no. 1, of the CPC, corresponding to current Article 596, applicable ex vi Article 29, no. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the records, the facts listed above were considered proven, with relevance to the decision.

The facts established as not proven are due to evidence to the contrary produced, in the case of the first, it having been verified, as the Tax Authority itself recognizes (see Articles 31 and 33 of the response), that U... was an official of the company "G... SA", and to the absence of evidence in this respect, in the case of the second.

B. THE LAW

As a first question, and preceding in the order of knowledge of the various defects attributed to the tax acts subject of the present arbitral action, the Applicant argues the expiry of the right to assess, because this was notified to it beyond the deadline set in Article 45/1 of the General Tax Law.

At issue is, in the case sub iudice, to ascertain whether the notification made to a person who was not an official of the notified party, but who was at the location of its headquarters, and was an official of a company that was part of the group of companies headed by it, has, or does not have, the effect of interrupting the deadline of the said Article 45/1 of the General Tax Law, producing effects in the legal sphere of the Applicant.

In this regard, the following is the legal framework relevant to the case:

• Article 38 of the CPPT:

"5 - Notifications shall be personal in cases provided for by law or when the entity carrying them out deems it necessary.

6 - Personal notifications shall be subject to the rules on personal service of process."

• Article 41 of the CPPT:

"1 - Collective persons and companies shall be served or notified in their electronic mail box or in the person of one of their administrators or managers, at their headquarters, at the residence of these or at any place where they are located.

2 - Where service or notification cannot be effected in the person of the representative due to such person not being found by the official, service or notification shall be effected in the person of any employee, capable of transmitting the terms of the act, who is located at the place where the administration of the collective person or company normally functions."

• Article 223 of the Civil Procedure Code:

"1 - Incapable persons, uncertain persons, collective persons, companies, autonomous patrimonies and condominiums shall be served or notified in the person of their legal representatives, without prejudice to the provisions of Article 19... (...)

3 - Collective persons and companies shall furthermore be considered personally served or notified in the person of any employee located at the headquarters or place where administration normally functions."

• Article 231 of the Civil Procedure Code:

"1 - If postal service is unsuccessful, service shall be effected by personal contact of the court officer with the person being served."

• Article 246 of the Civil Procedure Code:

"1 - In everything not specially regulated in the present subsection, service on collective persons shall be subject to the provisions of the preceding subsection, with the necessary adaptations."

As appears from the proven facts, the Tax Authority proceeded with two notifications of the assessments sub iudice:

• one, on 21/12/2013, through the electronic mail box VIA CTT of the Applicant, which notification was received on 07/01/2014;

• another, on 27/12/2013, in the person of U..., a dependent employee of the company "G... HOLDING SA", which company is part of the group of companies headed by the Applicant, and which has its headquarters at the same location as the Applicant.

It is with respect to this latter notification that doubts arise concerning the effects that it may have in the legal sphere of the Applicant.

In accordance with Article 41/1 of the CPPT, "Collective persons and companies shall be served or notified in their electronic mail box or in the person of one of their administrators or managers, at their headquarters, at the residence of these or at any place where they are located.", with no. 2 of the same rule further providing that "Where service or notification cannot be effected in the person of the representative due to such person not being found by the official, service or notification shall be effected in the person of any employee, capable of transmitting the terms of the act, who is located at the place where the administration of the collective person or company normally functions.".

This rule is consistent with the regime of the Civil Procedure Code, whose Article 223 provides, in its no. 1, inter alia, that "companies (...) shall be served or notified in the person of their legal representatives", and in its no. 3 that "Collective persons and companies shall furthermore be considered personally served or notified in the person of any employee located at the headquarters or place where administration normally functions.".

Both rules result in the rule (the legal preference) being that collective persons shall be notified in the persons of their legal representatives. Subsidiarily, such rules permit that collective persons shall be notified in the person of any employee located at the place where the administration of the collective person normally functions.

In the case, and in addition to notification via CTT, in accordance with the first part of Article 41/1 of the CPPT, the Tax Authority, using the prerogative of Article 38/5 of the same Code, chose to also proceed with a personal contact notification.

Note that, from the outset, if personal contact notification is at issue, the rules of the Civil Procedure Code peculiar to postal service shall be inapplicable, notably, those of Article 228, in particular no. 2, which provides for the possibility of the letter being delivered to any person at the residence or place of work of the person being served who declares they are in a position to promptly deliver it to the person being served.

Rather, if personal contact notification is at issue, it shall be effected by direct contact with the person being served, as Article 231/1 of the Civil Procedure Code requires, in force of Article 241/1 of the same code, it being that, in force of the provisions of the already cited Articles 41/2 of the CPPT and 223/3 of the Civil Procedure Code, collective persons shall be considered represented by their administrators or managers and, subsidiarily, by any employee located at the place where administration or management normally functions.

Specifically, there is no doubt that the notification made on 27/12/2013 was not made in the person of any administrator of the Applicant, nor is there, also, any doubt that it was made at the place where administration normally functions.

It is verified, as appears from the factual matter established as proven, that the person who received that notification of 27/12/2013 was not an employee[1] of the Applicant.

Given such facts, and the provisions of the above-referred Articles 41 of the CPPT, and 223, 231/1 and 241/1 of the Civil Procedure Code, it cannot be concluded that the Applicant was notified on 27/12/2013.

The circumstance alleged by the Tax Authority, and proven, that the person notified had the status of employee of a company forming part of the group headed by the Applicant, shall not stand in the way of the aforementioned conclusion. In effect, and the Tax Authority itself is aware of this (see Article 46 of the Response), "By legal requirement (...), only the Applicant, within the sphere of the group of companies, could be, as was, the recipient of the impugned assessments because only it is the "de facto passive subject" and the principal responsible for the group's financial obligations".

Nor shall the circumstance, equally alleged by the Tax Authority and established as proven, that the person notified affixed their signature, even in a certificate in which appeared, after their name, the mention "official". In effect, as nothing has been ascertained concerning the specific circumstances in which the signing of the said certificate occurred, and therefore nothing can be concluded in this respect, the fact is that, even if the person in question in fact misled the Tax Authority official who proceeded with the notification, falsely arrogating themselves a quality they did not possess, there is no rule in our legal system that would allow the Applicant to be bound to such fraudulent conduct of someone who, objectively, is a third party to it, and such a hypothetical occurrence could, at most, constitute a basis for a claim for liability of the injured party – in this case the Tax Authority – with respect to the author of such fraud.

In essence, that imagined situation, of the person actually notified fraudulently passing themselves off as someone with quality to represent the person intended to be notified, would amount to a situation of representation without authority, and, in this regard, Article 260 of the Civil Code states that "If a person directs a statement in the name of another to a third party, the latter may require that the representative, within a reasonable period, provide proof of their authority, under penalty of the statement having no effect", and Article 268/1 of the same Code prescribes that "A transaction entered into by a person, without authority to represent, in the name of another is ineffective as regards the latter, unless ratified by the latter.", rules from which emerges a general principle, according to which anyone who contacts a person who presents themselves as being able to perform acts with effects in the legal sphere of third parties, has the burden of ensuring the real quality of such person, under penalty of, if such quality does not exist, the acts performed being ineffective as regards the putatively represented party.

The above-reached conclusion that the Applicant cannot be considered notified by the notification of 27/12/2013 does not collide – it is judged – with what was decided in the Court of Audit judgment of 29/10/2014, handed down in case 00726/11[2], cited by the Tax Authority, not least because in the situation judged there notification was effected by postal means (whereas in the present records notification is by personal contact), which justifies, for example, the reasoning of the decision, inter alia, in no. 6 of Article 45 of the General Tax Law (which governs postal registered notification, not personal contact), and further because in that case a question concerning the formal regularity of notification was at issue (simple registered letter instead of registered letter with acknowledgment of receipt), and in the present records notification made to a third party, who is not the taxpayer, is at issue.

Also because a question of formal regularity of notification is not at issue, the question of the application in the present case of the doctrine of the Court of Audit judgment of 05-03-2015, handed down in case 03578/09[3], equally invoked by the Tax Authority, cannot be raised.

Rather, it should be a case of application of what was decided in the Court of Audit - Northern judgment of 10-01-2008, handed down in case 00028/03[4], cited by the Applicant, where one can read, inter alia, that "Notification of a company's assessment in the person of a third party, who does not form part of the company's staff; if a self-employed professional and independent worker, not an employee of that company, does not fall within the provision of Article 41 of the CPPT.".

Thus, the Respondent not being considered notified by the notification made by the Tax Authority on 27/11/2013, in the person of U..., nor the arrival at the latter's knowledge of the content of such notification before 01/01/2014 being proven, taking into account the expiry deadline of Article 45/1 of the General Tax Law and the date of the tax fact (31/12/2009), it must be concluded that the said expiry deadline has run, since, contrary to what is argued by the Respondent, the inspection procedures on the companies of the group headed by the Applicant are, by lack of rule permitting it, incapable of causing that deadline to be suspended.

In effect, from the outset, the Respondent did not demonstrate, even, that the service orders of those inspection procedures were notified to the Applicant, a fact indispensable for the first of the requirements of Article 46/1 of the General Tax Law to be fulfilled. Furthermore, as appears from Article 49 of the RCPIT, notification of the service order of the inspection procedure is only addressed to the passive subject or tax obligor (and not to third parties, even in a group relationship), whereby, for purposes of Article 46/1 of the General Tax Law it must be understood that only such notification suspends the expiry deadline, and only as regards the recipient of such notification.

Moreover, the Respondent itself acknowledges (Article 45 of the Response) that "in compliance with those tax rules, the Tax Inspection Services of the Finance Directorate of Porto proceeded to issue Service Order no. OI2013... in order to inform the Applicant of the corrections made in the individual sphere of each of the subsidiary companies (including the parent company in its individual sphere) and, moreover, through the issuance of that Service Order, to promote the additional IRC assessment of the 2009 tax period which subsequently occurred through the preparation of the "CORRECTION DOCUMENT" no. ... of 16/12/2013".

Thus, given that the deadline set in Article 45/1 of the General Tax Law has run and the assessment act has not been notified to the Applicant within it, and no suspensive cause of the said deadline is apparent, it must be concluded that the right to assess has expired.

As was written in the Supreme Court of Audit judgment of 17/12/2014, handed down in case 01875/13[5], "the expiry of the right to assess renders the impugned tax act invalid, entails its voidability, and constitutes a defect generating illegality of the act, which embodies the performance of a tax act affected by a defect of breach of law.", the arbitral request shall proceed, annulling the tax acts subject of the present arbitral action.

The Applicant also petitions for recognition of the right to indemnification for costs incurred with the guarantee provided.

The arbitral decision on the merit of the claim that no appeal or impugnation be available binds the tax administration from the end of the deadline set for appeal or impugnation, it being required to, in the exact terms of the success of the arbitral decision in favor of the passive subject and until the end of the deadline set for voluntary execution of sentences of tax courts, restore the situation that would exist if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for this purpose, as expressly appears from paragraph b) of Article 24 of the RJAT.

In the same rule "the legislator made clear that the effects provided for there are "without prejudice to other effects provided for in the Tax Procedure and Process Code". It is considered in this regard that the legislator is here referring to all effects that flow from the CPPT, for the passive subject, and which are applicable after the consolidation in the legal order of a certain tax legal situation, resulting from a final decision whether gracious or judicial."[6]

Notwithstanding the judicial impugnation process being essentially a process of mere annulment, indemnification of the Tax Administration for undue guarantee can be pronounced in it, as appears from Article 171 of the CPPT.

As was stated in the decision handed down in Case no. 28/2013-T[7] "it is unequivocal that the judicial impugnation process encompasses the possibility of conviction for payment of undue guarantee and is even, in principle, the appropriate procedural means to formulate such claim, which is justified by obvious reasons of procedural economy, since the right to indemnification for undue guarantee depends on what is decided on the legality or illegality of the assessment act. The request for constitution of an arbitral tribunal has as a corollary that it shall be in the arbitral process that the "legality of the exigible debt" is to be discussed, whereby, as appears from the express tenor of that no. 1 of the said Article 171 of the CPPT, the arbitral process is also the appropriate one to assess the request for indemnification for undue guarantee."

It is concluded, thus, that this court is competent to assess the claim for indemnification for undue guarantee provided.

The regime of the right to indemnification for undue guarantee is contained in Article 53 of the General Tax Law, which provides as follows:

"1. The debtor who, to suspend enforcement, offers a bank guarantee or equivalent shall be indemnified wholly or in part for the losses resulting from its provision, where it has been maintained for a period exceeding three years in proportion to success in administrative appeal, impugnation or opposition to enforcement that have as their object the debt guaranteed.

1. The deadline referred to in the preceding number does not apply when it is verified, in administrative appeal or judicial impugnation, that there was error attributable to the services in the assessment of the tax.

2. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed amount of the compensatory interest rate provided for in the present law and may be requested in the administrative appeal or judicial impugnation process itself, or autonomously.

3. Indemnification for provision of undue guarantee shall be paid by abatement to the tax revenue of the year in which payment is made."

In the case, the arbitral request proceeds due to verification of the expiry of the Tax Authority's right to assess.

As follows from the transcribed rule, the right to indemnification for undue guarantee only exists if the latter is maintained for a period exceeding 3 years, unless there is verification that there was error attributable to the services in the assessment of the tax.

In the case, the Applicant provided a bank guarantee, dated 27-04-2014, whereby 3 years have not yet passed.

With respect to error attributable to the services, it was written in the Court of Audit judgment of 12-02-2015, handed down in case 01610/13[8]:

"In the case, however, the situation is not one of simple failure to notify the assessment, but is one of expiry of the right to assess due to failure to notify within the legal deadline for the exercise of that right (see Article 45, no. 1, of the General Tax Law); that is, from the fact that notification was not validly effected within the deadline that the law sets for this purpose was derived as a consequence the loss of the right to assess the tax.

However, if it is true that the failure to notify within the expiry deadline extinguished the right to assess the tax (and in that respect the judgment became final), the declaration of that expiry does not mean any judgment on the validity of the underlying material tax relationship.

As is known, expiry, legally speaking, is mere legal fact that relates to time and that determines the impossibility of exercising a right in a specific case (Expiry and limitation have in common the fact that they are legal figures related to the acquisition or loss of subjective situations by mere passage of time: the first is associated with rights or consolidated legal situations, being its field of election subjective rights per se; the second relates to legal situations in formation and to powers, whose exercise is subject to short deadlines. In brief terms, we can say that limitation determines the extinction of a right and expiry the impossibility of exercising it in a specific case (See Expiry in Administrative Law: Brief Considerations, Studies in Tribute to Counselor José Manuel Cardoso da Costa, 2005, Coimbra University Press).). This means that the judicial decision, in the terms in which it was handed down, limited itself to drawing the legal effects of the passage of time without notification having been effected, which does not imply any judgment on the validity of the underlying material tax relationship and, consequently, does not allow one to conclude for the existence of an error on the factual or legal grounds.".

And, further ahead, in the same Judgment:

"This does not mean that the Taxpayer, if believing themselves harmed in their property rights cannot judicially demand the reparation to which they believe themselves entitled, which is assured to them not only by the Constitution of the Republic (see Article 22), but by ordinary law (Law no. 67/2007, of 31 December, a statute in whose Article 9 any illegality is made equivalent to unlawfulness). However, to obtain such reparation the Taxpayer shall have to make, in appropriate proceedings, the demonstration of the existence of the right to such indemnification, in light of the general rules of non-contractual civil liability, as any other person who is harmed in their rights by acts of others, there being no constitutional or legal rule that imposes that, in all cases of annulment of administrative acts, damages be presumed, as is implicit in the rules that provide for the attribution of compensatory interest (In this sense, JORGE LOPES DE SOUSA, op. cit., volume I, annotation 5 to Article 61, p. 532/533..)".

The request relating to indemnification for provision of undue guarantee should therefore be rejected.

C. DECISION

Therefore, this Arbitral Court decides to uphold the arbitral request filed and, in consequence:

a) Annul the tax acts which are the subject of the present tax arbitral action; and

b) Condemn the Respondent in the costs of the proceedings, in the amount of €11,628.00.

D. Value of the proceedings

The value of the proceedings is set at €815,451.40, in accordance with Article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable in force of paragraphs a) and b) of no. 1 of Article 29 of the RJAT and no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is set at €11,628.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely successful, in accordance with Articles 12, no. 2, and 22, no. 4, both of the RJAT, and Article 4, no. 4, of the said Regulation.

Let notification be made.

Lisbon, 8 October 2016

The President Arbitrator

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(Maria Manuela do Nascimento Roseiro – dissenting, with dissenting opinion)

The Arbitrator Member

(Pedro Nuno Ramos Roque)

Dissenting Opinion

In light of the factual circumstances identifiable in the records, I disagreed with the legal interpretation adopted by my esteemed Colleagues in the present case.

Basing my vote:

1. What is at issue is the assessment of the legality of the IRC assessment resulting from technical corrections to the Periodic Statement of IRC Income (Form 22), submitted by the Applicant as parent company of a fiscal group, with the RETGS option. The group is constituted by the Applicant and nineteen subsidiary companies. The corrections to the group's taxable profit derive from corrections made with respect to the Applicant and six of the subsidiary companies following tax inspections, some internal, others external.

In all cases Final Reports were prepared duly notified to the respective companies, for exercise of prior hearing. Their respective responses were analyzed in the final Reports which established the corrections that subsequently formed the basis of the assessment in question in the proceedings. The Report concerning the effect on the group of the corrections relating to each of the grouped companies, was notified to the Applicant for exercise of prior hearing, through letter no. …/…, of 23 August 2013, and, without the right of hearing having been exercised, was transformed into Final Tax Inspection Report, dated 13 December 2013, subject to a decision on 16 December 2013.

1. The corrections in question gave rise to assessment no. 2013..., of 18 December 2013, which, together with the interest assessments, the statement of account settlement and declaration of compensation, was sent to the Applicant via electronic mail box VIA CTT on 21 December 2013. Furthermore, the Finance Service of Porto ... proceeded, on 27 December 2013, in accordance with nos. 5 and 6 of Article 38 of the CPPT, to personal notification at the headquarters of the Applicant, existing a certificate of notification in the person of U..., who signed it, identified as an official of the Applicant (PA, p. 111).

The Applicant alleges that in 2013 it had only one employee, V..., who was on holiday at the time of notification of the assessment effected at the headquarters and that the person who received the said notification, U..., is not its representative or employee, having merely placed the notification in the care of the assistant to the Board of Directors of A..., who was on holiday during that period, as indeed happens every year between Christmas and the beginning of the new year (Applicant's allegations) and the Administration only came to know of the situation on 7 January 2014.

It was confirmed in the records that, during 2013, U... was an administrative employee of "G... HOLDING SA" (one of the subsidiary companies that in 2009 formed part of the group of companies of which the Applicant is the parent), and had headquarters at the same location as this – Rua ..., ..., ...-... Porto.

1. The use by the Respondent not only of electronic transmission of the assessment but also of notification effected by personal contact, through an official of the Applicant, is permitted by law. Article 38, no. 5, of the CPPT permits its use not only in cases where it is provided for by law, but also "when the entity effecting it deems it necessary". This means that "personal notification, which is effected like personal service of process referred to here, is that which is effected through direct contact with the person being notified or that which is effected in a person other than the person being notified, charged with transmitting the content of the act, which in cases expressly provided for by law, is equated to personal service, it being presumed, absent proof to the contrary, that the person being served had timely knowledge of it (…)" [9].

2. It seems worth emphasizing that personal contact notification does not represent a devaluation compared to registered mail with acknowledgment of receipt, provided for in no. 1 of Article 38 of the CPPT (as the most solemn means of notification of tax acts) – its non-use in the first instance results from proving to be more expensive but its use is even to be presumed more suitable for contacting the recipient.

That is, the provision that "notifications are made compulsorily by registered mail" aims to prevent the use of less suitable means and should be interpreted restrictively, not ruling out the possibility of using personal service of process rules provided for in nos. 5 and 6. This type of notification can take the form of personal contact, through an official, with the person being served, as well as service with notice at a specific time or through posting with subsequent notice.[10]

1. It is presumed that the person being served had timely knowledge of the notification even when the notice is signed by a third party, admitting, however, proof of non-delivery (Article 233 – current 225 – no.2, c), and no. 4 of the CPC). [11] In truth, the fact that the CPC provides, in case of failure of personal service by contact of the court officer (current Article 231), the steps referred to in Articles 232 and 233 should be interpreted together with no. 4 of Article 225 [12] and other rules of the CPC and CPPT.

Article 41 (in nos. 1 and 2) of the CPPT provides that "Collective persons and companies shall be served or notified in their electronic mail box or in the person of one of their administrators or managers, at their headquarters, at the residence of these or at any place where they are located.", and that "Where service or notification cannot be effected in the person of the representative due to such person not being found by the official, service or notification shall be effected in the person of any employee, capable of transmitting the terms of the act, who is located at the place where the administration of the collective person or company normally functions". (underlined)

Just as from Article 223 (before 231) of the CPC results that service and notification of collective persons and companies shall be made in the person of their legal representatives, but "shall furthermore be considered personally served or notified in the person of any employee located at the headquarters or place where administration normally functions" (see nos. 1 and 3 of the article, underlined)[13].

From what is said above (point 4.) it should always be understood that personal contact notification can coexist with another form of personal notification as the notifying entity deems it useful or necessary.

1. As to the invocation of lack of status as employee of the Applicant of the person who received the personal notification made by an official of the Respondent, it appears from the records that the same has a employment relationship with one of the subsidiary companies of the group of companies in question, covered by the corrections that form the basis of the assessment, and with headquarters at the same location as the Applicant, which may indicate that the human resources serving the companies of the group do not function in a separate manner. That conviction can be objectively reinforced by the fact that the location where the headquarters of the Applicant, parent company of a group of 19 companies, functions, had its door open at the time notification was effected (a time close to Christmas).

2. Moreover, in this particular aspect, it seems to me justified to apply to the case the doctrine established in the judgment handed down by the Supreme Court of Audit, on 2 July 2003, in case no. 344/03, considering that it was indeed incumbent on the company to ensure even at this time a means of being able to receive any notification, not only of postal correspondence but of any communication brought personally by an official mandated for this purpose. All the more so when we conclude above that personal contact notification is not "a less" but "a more" compared to postal notification. Now the person maintained by the company(ies) of the group at the common headquarters and who signed the notification as employee of the Applicant will have placed the correspondence at the location assigned to the administration of the Applicant, it not being attributable to the Respondent that, apparently, all employees and managers of the Applicant, parent company of the group of companies subject to the tax corrections, were on holiday from at least 27 December until 7 January.[14] Moreover, I do not consider that the Applicant has succeeded in proving that the employee, although formally linked only to one of the companies of the group, did not also work for the Applicant – as it admitted by placing its signature on the notification (and did not appear to deny it in the examination of witnesses).

3. Furthermore, I also consider that, should there have been any irregularity, the notification came to the knowledge of the Applicant, producing effects, in particular as a notice to pay the tax (Supreme Court of Audit judgment of 29/10/2014, case 0726/11). That is, because when it is a matter of assessing the expiry of the right to assess, notification aims only at ensuring that the act was performed within the deadline for exercise of that right, the notification effected would be sufficient to demonstrate the performance of the act within the deadline for expiry of the right to assess, in accordance with Article 45, no. 6, of the General Tax Law (see SCA judgment cited, case 0726/11)[15]. And the argument that rejects the application of the doctrine of the said judgment to the present case does not convince us, on the grounds that in that case notification was effected by postal means whereas in the case of the records it is notification by personal contact. Because, as seen above, personal contact notification is an even more suitable means than postal notification, it being not understood how the first would satisfy the duty of communication (or attempt at such) of the tax assessment act and the personal displacement of a Tax Authority official to the company's headquarters would not.

4. I also believe that, since the assessment under discussion in the records results from corrections made possible by elements collected in external inspections concerning various companies of the Group, there would be – should the viewpoint already expressed on the validity of notification not prevail – reason to consider their effect on the suspension of the expiry deadline. It appears to be habitual practice that internal inspections of the parent company prompt external inspections of the subsidiary companies which subsequently have as an effect corrections reflected in assessment of additional tax to be notified to the parent, it being justified to suspend the expiry deadline while those external inspection procedures are ongoing. Notifications of the beginning of inspection are made to the companies subject to inspection to prepare for it and to clearly mark the beginning of the suspensive deadline, it seeming that their express notification to the parent company is not justified. Indeed, the Applicant does not appear to have raised that question, but rather the need for the subsidiary companies to also be notified of the assessment ultimately, there being at least the presumption that such knowledge exists.

5. In summary, I consider that in light of the factual situation and combining the different rules applicable to the case, the present decision seems to me to adopt an interpretation of the rules relating to notification that is excessively restrictive, which conflicts with their legal purpose, whereby I would have considered the invocation of expiry to be without merit and would have assessed the Request on the other invoked illegalities of the assessment.

8 October 2016

Manuela Roseiro

[1] In the sense of a strict interpretation of the concept of employee, one can contrast the tenor of the rules of Articles 41/2 of the CPPT and 223/2 of the Civil Procedure Code, with the tenor of the rules of Articles 228/2 of the Civil Procedure Code (which refers to any person) and Article 40/2 of the RCPIT (which refers to employee or collaborator).

[2] Available at www.dgsi.pt.

[3] Idem.

[4] Idem.

[5] Available at www.dgsi.pt.

[6] Carla Castelo Trindade – Legal Regime of Arbitration in Tax Matters – Annotated, Coimbra, 2016, p. 122.

[7] Available at www.caad.org.pt.

[8] Idem.

[9] Jorge Lopes de Sousa, CPPT Annotated, vol. I, p. 373 and p. 401. The Author refers to Article 233, no. 2, paragraph c) and 4 of the CPC (today equivalent to Article 225).

[10] We follow closely Jorge Lopes de Sousa, op. cit. I vol. p. 374.

[11] Jorge Lopes de Sousa, ibidem, pp. 373 and 402.

[12] "In cases expressly provided for by law, it is equated to personal service of process that effected in a person other than the person being served, charged with transmitting the content of the act, it being presumed, absent proof to the contrary, that the person being served had timely knowledge of it".

[13] No. 3 was added to the previous Article 231 of the CPC by Decree-Law no. 329-A/95, of 1/12 (Reform of the Civil Procedure Code authorized by Law no. 33/95, of 18/08), it being stated in the preamble of the need to facilitate notification of collective persons – see pp. 7780 (11) and (12).

[14] Also pertinent to us seem the considerations made in the Judgment of the Constitutional Court no. 130/02 (although handed down regarding a different situation, when Decree-Law no. 7/96, of 7/2 eliminated the acknowledgment of receipt in the notification by registered mail of the assessment then provided for in no. 2 of Article 87 of the IRC): "In effect, independent of whether one considers the assessment of the tax in question as a receptive act, that is, that, when brought to the knowledge of the taxpayer, is only considered perfected after notification (thus, José Manuel M. Cardoso da Costa, Course in Tax Law, 2nd ed., Coimbra, 1972, p. 418), the fact is that, integrating the notification act in a pending procedure, in course before the Tax Administration, the taxpayer's tax domicile, necessarily fixed, removes, in terms of plausibility, the risk of occasional absence – moreover being a collective entity – and, in any case, the interested party always has the possibility of refuting the presumption of timely receipt of the letter, demonstrating that this, without fault on their part, was not received at the installations of the respective headquarters (irrelevant, obviously, the allegation, occurring in the concrete case, of change of headquarters, in any case not timely communicated to the Tax Administration)."

[15] There it was concluded: "The fact that, before an irregular notification (the registered letter was sent and received, but without obeying the formality legally imposed, in particular the acknowledgment of receipt), it was not established as proven that the act being notified was actually brought to the knowledge of its recipient – which determined the revocation of the sentence that considered the right to impugn the same act expired – does not prevent the notification from being considered sufficient to demonstrate the performance of the act within the deadline for expiry of the right to assess (see Article 45, no. 6, of the General Tax Law), and one cannot argue to the contrary with a supposed violation of the claim being final". (Summary, point II).