Summary
Full Decision
ARBITRAL DECISION
The Arbitrator Alexandre Andrade, designated by the Deontological Council of the Center for Administrative Arbitration (hereinafter referred to simply as CAAD) to form the Singular Arbitral Tribunal, constituted on 20 February 2018, decides as follows:
Report
A A…, S.A. (hereinafter referred to simply as Claimant), with registered office at …, …, … Floor, in Lisbon, Tax Number…, submitted a request for constitution of an Arbitral Tribunal, in accordance with Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to simply as RJAT), in which the TAX AND CUSTOMS AUTHORITY (hereinafter referred to simply as Respondent) is the respondent.
The Claimant intended for the legality of the decision dismissing the Gracious Appeal No. …2017… to be examined, having requested the annulment of the dismissal decision. A decision dismissing the Gracious Appeal which, in the "very words" of the Claimant (in the Request for Arbitral Pronouncement), upheld the legality of the additional Corporate Income Tax (IRC) assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25. The Claimant further intended to obtain condemnation of the Respondent to pay the respective indemnity interest.
The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 5 December 2017 and subsequently notified to the Respondent.
Pursuant to the provisions of No. 1 of Article 6 and subsection b) of No. 1 of Article 11 of the RJAT, the Deontological Council of CAAD designated the signatory as Arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable timeframe.
On 29 January 2018, both parties were duly notified of this designation and did not manifest an intention to challenge the arbitrator's appointment, in accordance with the combined provisions of subsections a) and b) of No. 1 of Article 11 of the RJAT and Articles 6 and 7 of the CAAD Deontological Code.
In compliance with the provision of subsection c) of No. 1 of Article 11 of the RJAT, the Singular Arbitral Tribunal was constituted on 20 February 2018.
On 20 February 2018, the Singular Arbitral Tribunal issued an Arbitral Order for notification to the Respondent to submit a Response, attach a copy of the Administrative File, and request, if desired, the production of additional evidence.
On 21 February 2018, the Respondent was notified to submit a Response, attach a copy of the Administrative File, and request, if desired, the production of additional evidence.
The Respondent submitted a Response on 3 April 2018, defending the lack of merits of the Request for Arbitral Pronouncement and the maintenance in the legal order of the disputed tax act, and, as a consequence, the absolution of the Respondent from the claim.
The Respondent submitted the Administrative File on 10 April 2018.
By Arbitral Order, dated 12 April 2018, the Singular Arbitral Tribunal requested the parties, in accordance with the Principle of Contradiction, ensured, in particular, through the faculty granted to the parties to pronounce themselves on any questions of fact or law raised in the case, to pronounce themselves on the value of the economic utility of the request. The Claimant and Respondent submitted a submission in response to the Singular Arbitral Tribunal's request.
By Arbitral Order, dated 14 May 2018, the Singular Arbitral Tribunal requested the parties, also in accordance with the Principle of Contradiction, ensured, in particular, through the faculty granted to the parties to pronounce themselves on any questions of fact or law raised in the case, to pronounce themselves on a potential situation of relative incompetence of the Singular Arbitral Tribunal on grounds of value. Only the Claimant submitted a submission in response to this request from the Singular Arbitral Tribunal.
In the same Arbitral Order, dated 14 May 2018, the Singular Arbitral Tribunal decided, in accordance with the Principle of Autonomy of the Arbitral Tribunal in conducting the case, expedition, simplification and procedural informality (No. 2 of Article 19 and No. 2 of Article 29, both of the RJAT), to waive the hearing provided for in Article 18 of the RJAT and for the case to proceed with submissions. The Singular Arbitral Tribunal set as the deadline for the Arbitral Decision 13 July 2018.
The parties submitted their submissions.
The parties have legal personality and legal capacity, are legitimate and are duly represented (Article 4 and No. 2 of Article 10, both of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).
The case does not suffer from nullities.
First and foremost, the question of potential (relative) incompetence of this Singular Arbitral Tribunal on grounds of value must be examined, since if this Singular Arbitral Tribunal does not have competence for the present Request for Arbitral Pronouncement, it will not be able to examine other issues. Pursuant to Article 13 of the Code of Procedure in Administrative Courts (hereinafter referred to simply as CPTA), applicable by virtue of subsection c) of No. 1 of Article 29 of the RJAT, the scope of administrative jurisdiction and the competence of administrative courts [...] is of public order and its examination takes precedence over any other matter.
Pursuant to No. 2 of Article 104 of the Civil Procedure Code (hereinafter referred to simply as CPC), applicable by subsection e) of No. 1 of Article 29 of the RJAT, any relative incompetence of the Tribunal on grounds of value is examined ex officio by the Tribunal.
2. Matter of Fact
Having examined the documentary evidence produced in the context of the present case, the Singular Arbitral Tribunal considers the following facts to be proven, with relevance to this Arbitral Decision:
A. The Claimant is a Portuguese company established in 1989, whose corporate purpose is, in addition to real estate management and promotion, construction, purchase, sale, resale and administration of real estate, the acquisition of other companies and their financing, as well as participation in complementary groupings of enterprises, consortia or other forms of association.
B. In terms of IRC, being the Claimant a resident entity, by virtue of the principal exercise of a commercial, industrial or agricultural activity, the Claimant is taxed under the general system and is part of the composition of the group in the situation of taxation under the RETGS, with B… SGPS, S.A. being the dominant company, with Tax Number… .
C. The Claimant was subject to an inspection action of general scope for the fiscal years 2012, 2013 and 2014. This inspection action was motivated by the existence of consecutive tax losses.
D. From the inspection action on the Claimant, relating to the fiscal year 2012, a corrected tax result of -€964,078.25 (negative value, duly marked with the "-" symbol) was established, which corresponds to the tax result declared by the Claimant, in the amount of -€1,829,583.07 (negative value, duly marked with the "-" symbol), less the corrections proposed to the taxable base (fiscal year 2012) in the amount of €865,504.82.
E. The Claimant was notified of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, in which is indicated: (i) the total amount payable of €6,183.80, including late-payment interest and compensatory interest (corresponding to autonomous taxations), and (ii) the corrected tax result of €964,078.25 (as identified in point D above).
F. The subject matter of the Request for Arbitral Pronouncement is the examination of the legality of the decision dismissing the Gracious Appeal with No. …2017…, by Order of the Assistant Director of the Finance Department, dated 31 August 2017 and notified to the Claimant on 6 September 2017.
G. The decision on the Gracious Appeal with No. …2017… upheld the legality of the additional IRC assessment No. 2016… (collection document No. 2016…), relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25 (tax losses).
H. The Claimant submitted the Gracious Appeal with No. …2017… and the Request for Arbitral Pronouncement on the understanding that: (i) With regard to the amount determined in the additional assessment now in question, in the form of autonomous taxations, in the amount of €5,513.70 [...], the same is not due, since that amount had already been assessed and paid by B…, S.G.P.S., S.A., in the context of the self-assessment then carried out under and for the purposes of the Special Tax Regime for Groups of Companies, which occurred on an individual basis in the sphere of the present Claimant; (ii) With regard to the corrected tax result of €964,078.25 [...], the same resulted from an incorrect interpretation of tax law by the Tax Inspection Services which, in the context of the Inspection Action corresponding to Service Order No. OI2015…/…/…, at the level of IRC for the fiscal years 2012, 2013 and 2014, which gave rise to the aforementioned assessment, concluded that, with reference to the fiscal year 2012, corrections should be made to the tax result in the amount of €865,504.82 [...], as they understood that the charges relating to loans contracted by the present Claimant intended to finance its subsidiary companies are not deductible for the purposes of Article 23, No. 1 of the IRC Code.
I. The Claimant submitted a Request for Arbitral Pronouncement for the examination of the legality of the decision dismissing the Gracious Appeal with No. …2017…, as well as, as a consequence, for the examination of the legality of the IRC assessment No. 2016…, requesting the condemnation of the Respondent to annul the decision dismissing the Gracious Appeal identified with No. …2017…, as well as, as a consequence, the annulment of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25.
There are no facts relevant to this Arbitral Decision that have not been proven.
The matter of fact was established by this Singular Arbitral Tribunal and its conviction was formed on the basis of the procedural papers and documents attached to the present case.
3. Examination of the Question of Incompetence (Relative)
Pursuant to No. 2 of Article 104 of the Civil Procedure Code (hereinafter referred to simply as CPC), applicable by subsection e) of No. 1 of Article 29 of the RJAT, any relative incompetence of the Tribunal on grounds of value is examined ex officio by the Tribunal.
Pursuant to subsections a) and b) of No. 2 of Article 5 of the RJAT, arbitral tribunals function with a singular arbitrator when: a) the value of the request for pronouncement does not exceed twice the value of the jurisdiction of the Central Administrative Court (i.e., when it does not exceed €60,000.00) and b) the taxpayer opts not to designate an arbitrator.
Pursuant to subsection e) of No. 2 of Article 10 of the RJAT, the request for constitution of an Arbitral Tribunal is made [...] which must contain: e) an indication of the value of the economic utility of the request.
The Claimant opted not to designate an arbitrator. The Claimant indicated, initially, in the Request for Arbitral Pronouncement, the value of €6,183.80 as the value of the economic utility of the request. A Singular Arbitral Tribunal was therefore constituted.
Because it is important for the foundation of this Arbitral Decision, points 27 to 37 of the Arbitral Decision (of CAAD), dated 15 February 2018, in case No. 322/2017-T, are reproduced here: 27. In light of the context above, and as a result, from the outset, of the (still recent) introduction of tax arbitration in the Portuguese legal environment, a prudent approach in the examination of these issues is essential to the proper functioning of this mechanism in the eventuality of an error in judgment that harms the interest of either party[1], subsequently subject to the limited possibilities of challenging and appealing arbitral decisions. 28. In this regard, and not by chance, see the provision of Article 5 of the RJAT in which the criteria underlying the composition of arbitral tribunals are defined, namely their functioning with a singular arbitrator or with the intervention of a panel of three arbitrators. 29. [...] singular tribunals function when the value of the request for pronouncement does not exceed twice the value of the jurisdiction of the Central Administrative Court (currently the value of the jurisdiction is €30,000) and the taxpayer opts not to designate an arbitrator. 30. On the other hand, arbitral tribunals function with the intervention of a panel of three arbitrators when the value of the pronouncement request exceeds the aforementioned limit of twice the value of the jurisdiction or when the taxpayer opts to designate an arbitrator (regardless of the value of the pronouncement request). 31. In this context, the value of the request (initially defined by the Claimant) is highlighted as a determining variable for the constitution of a panel tribunal, thus seeking to ensure the adequate protection of the rights and guarantees of the parties in dispute, by promoting the examination of the issue by a panel, not solely by a single arbitrator. 32. Indeed, this constitutes one of the main mechanisms within tax arbitration in order to ensure the necessary weighing and discussion of any decision to be rendered, particularly relevant when the value of the request assumes a potentially material character in the sphere of taxpayers, as defined in the aforementioned Article 5. 33. In fact, there are multiple references in Article 5 of the RJAT to the "value of the request," although there is no indication of how to determine it. 34. In this context, reference should be made to subsection e) of No. 2 of Article 10 of the RJAT, which makes reference to the "indication of the value of the economic utility of the request," as one of the requirements of the request for constitution of the arbitral tribunal to be submitted by the Claimant. 35. Indeed, the RJAT transfers to the Claimant the responsibility for the initial definition of the value of the economic utility of the request, although, naturally, subject to examination by the tribunal, as is the case here. 36. In this context, no other possible conclusion is apparent than that the reference in Article 10 is nothing more than a (albeit slightly) more detailed definition of the concept of the value of the request contained in Article 5. 37. In this regard, and as developed in learned arbitral decisions (see, by way of example, the decision rendered in case No. 151/2013T), the subsidiary legislation in relation to the RJAT for this purpose is the CPPT in which are found, in Article 97-A, the express rules for the determination of the value of the case, potentially applicable to all situations referred to in Article 2, No. 1 of the RJAT.
On 12 April 2018 this Singular Arbitral Tribunal issued an Arbitral Order (see reference in point 1. Report of this Arbitral Decision) where it requested the parties to pronounce themselves on the calculation of the value of the case associated with the present case, initially defined by the Claimant at €6,183.80.
In response to the Order produced (dated 12 April 2018), the Respondent replied, saying: 1. Under examination in the present arbitral proceedings is the legality of the IRC assessment with No. 2016…, relating to the year 2012, in the amount of €6,183.80. 2. This means that since the claim formulated is one of "condemnation of the AT to restitution of the amount of tax (...) in the amount of €5,513.70, plus payment of the respective indemnity interest," the economic utility of the same, configured by the value of the action, should correspond, according to the criterion for fixing the value of the case, provided in Article 297, No. 1 of the CPC, to that amount. 3. Thus, corresponding the economic utility of the request to the value of the case, limited hereby by the claim made by the Claimant, this will be €6,183.80.
Following the same Order (dated 12 April 2018), the Claimant replied saying: The subject matter of the present action is the examination of the legality of the decision dismissing the Gracious Appeal No. …2017… [...]. The aforementioned decision [...] upheld the legality of the additional IRC assessment number 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80 [...] and a corrected tax result of €964,078.25, [...] to which the collection document No. 2016... corresponds [...]. In this sense, subsection a) of No. 1 of Article 97 of the CPPT establishes, "The values to be considered, for the purposes of costs or other purposes provided by law, for actions occurring in tax courts, are as follows: (...) When the assessment is contested, that of the amount whose annulment is sought." Thus, corresponding the value of the assessment whose annulment is sought in the present case to the amount of €6,183.80 [...], this is the value of the economic utility of the request.
Following the responses of the parties to the Order of 12 April 2018, considering, on one hand, the value of the additional assessment whose annulment the Claimant requested, in the amount of €6,183.80 and, on the other, considering that the corrections to the tax result amounted to €865,504.82 and that the value of the corrected tax result, whose illegality the Claimant petitioned, was €964,078.25, this Singular Arbitral Tribunal, by Arbitral Order (see reference in point 1. Report of this Arbitral Decision), dated 14 May 2018, requested the parties to pronounce themselves on a potential situation of relative incompetence of the Singular Arbitral Tribunal on grounds of value.
This is what is examined here.
The Respondent did not pronounce itself.
The Claimant replied saying (among other grounds): The subject matter of the present action is the examination of the declaration of illegality of the additional Corporate Income Tax (IRC) assessment number 2016…, relating to the fiscal year 2012, in the value of €6,183.80 [...]. [...] the Claimant's request is limited to the annulment of the "decision dismissing the Gracious Appeal No. …2017…, with the consequent condemnation of the AT to restitution of the amount of tax unduly paid, in the amount of €5,513.70 [...], plus payment of the respective indemnity interest. In fact, the challenge to corrections to the tax result would be subject to the 30-day period referred to in subsection b) of No. 1 of Article 10, in conjunction with subsection b) of No. 1 of Article 2, both of the RJAT, which had clearly been exceeded, as of the date of submission of the request for constitution of the arbitral tribunal.
See,
The Claimant, in Article 1 of the Request for Arbitral Pronouncement (and in its response to the Arbitral Order dated 12 April 2018) states: The subject matter of the present action is the examination of the legality of the decision dismissing the Gracious Appeal No. …2017….
The Claimant, in the Gracious Appeal (Articles 32, 33 and 36 to 38), states: III. Of the Subject Matter of the Appeal, 32 The subject matter of the present gracious appeal is the tax act of IRC identified above, which established a total amount payable of €6,183.80 [...] and a corrected tax result of €964,078.25 [...]. 33 The aforementioned tax act is supported (only in part it should be noted, and as concerns the correction to the tax result) in the Tax Inspection Report [...]. 36 In this vein, the TIR concludes, with reference to the fiscal year 2012, that corrections should be made to the tax result, in the context of IRC, in the amount of €865,504.82 [...]. 37 However, disagreeing with the correction made by the TIS, regarding the fiscal year 2012, which gave rise to the assessment whose legality is now being challenged, the Appellant presents the present gracious appeal. 38 Which falls, specifically, on the point "III.1 Financing Costs of the TIR [...].
The Claimant also states in the Gracious Appeal (Articles 94 and 95): But, we shall then move to the examination of the substantive issue. B. On the deductibility of financial charges incurred in the interest of subsidiaries. As the TIS correctly point out, in the TIR, the central question "is whether the financial charges borne by A… are effectively a tax expense that can be framed within Article 23 of the IRC Code".
Concluding the Claimant's Gracious Appeal (Articles 186 and 187): In these terms, the Appellant contests the corrections in the Tax Inspection Report relating to interest not accepted for tax purposes, in the amount of €865,504.82 [...], relating to the fiscal year 2012. From the above, it follows that no correction should have been made by the TIS, and the financial charges borne by the Appellant are perfectly framed in subsection c) of Article 23 of the IRC Code.
The Claimant also states, in Article 10 of the Request for Arbitral Pronouncement: the subject matter of the present action is the examination of the legality of the decision dismissing the Gracious Appeal [...], as well as, as a consequence, the examination of the legality of the IRC assessment itself.
In Article 2 and Article 6, both of the Request for Arbitral Pronouncement, the Claimant states: the aforementioned decision (read: decision dismissing the Gracious Appeal) upheld the legality of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25 (Article 2) and thus, the subject matter of the present request for arbitral pronouncement is the decision dismissing the Gracious Appeal, which maintained in the legal order the IRC assessment act then appealed, whereby it is also the subject matter of the present request (Article 6).
As indicated in Article 3 of the Request for Arbitral Pronouncement, the Claimant submitted a Gracious Appeal (identified with No. …2017…) on the understanding that: (i) With regard to the amount determined in the additional assessment[2] now in question, in the form of autonomous taxations[3], in the amount of €5,513.70, the same is not due[4], since that amount had already been assessed and paid by B…, S.G.P.S., S.A. (B…), in the context of the self-assessment then carried out under and for the purposes of the Special Tax Regime for Groups of Companies (RETGS), which occurred on an individual basis in the sphere of the present Claimant, as is possible to verify through comparison with Field 367 of the Form 22 (DM22) relating to the fiscal year 2012 of A…; (ii) With regard to the corrected tax result of €964,078.25[5], the same resulted from an incorrect interpretation of tax law[6] by the Tax Inspection Services (TIS) which, in the context of the Inspection Action corresponding to Service Order No. OI2015…/…/…, at the level of IRC for the fiscal years 2012, 2013 and 2014, which gave rise to the aforementioned assessment[7], concluded that[8], with reference to the fiscal year 2012, corrections should be made to the tax result in the amount of €865,504.82[9], as they understood that the charges relating to loans contracted by the present Claimant intended to finance its subsidiary companies are not deductible for the purposes of Article 23, No. 1 of the IRC Code.
In Articles 46 and 47 of the Request for Arbitral Pronouncement, the Claimant states: As mentioned, regarding the alleged non-deductibility of financial charges, the order dismissing the Gracious Appeal, rendered [...], hence, on that point, the present request for pronouncement will rebut the arguments invoked by the TIS. Given the above, the present Claimant cannot conform with such decision to dismiss [...].
The Claimant individualized the "of Law," in the Request for Arbitral Pronouncement, in two distinct points. See. On one hand, it considers the From the duplication of collection of autonomous taxations, stating, (i) in Article 48 of the Request for Arbitral Pronouncement: as already explained above, regarding the amount determined as autonomous taxations, in the amount of €5,513.70, the Claimant understands that the same is not due, since that amount had already been assessed and paid by B…, in the context of the RETGS, with reference to the taxation period of 2012; (ii) in Article 79 of the Request for Arbitral Pronouncement: In fact, the autonomous taxations contained in the additional assessment now under examination are precisely the same autonomous taxations contained in the DM 22 of IRC of 2012, in the same amount of €5,513.70 and (iii) in Article 81 of the same Request for Arbitral Pronouncement: For which reason the Claimant requests [...] the annulment and consequent restoration of legality, namely by proceeding to return the amount of tax paid in excess. On the other, it considers the From the deductibility of financial charges relating to loans intended to finance the subsidiaries, stating, (i) in Article 106 of the Request for Arbitral Pronouncement: The crux of the issue at hand in the present case is to determine whether the financial charges borne by the present Claimant are covered by Article 23 of the IRC Code and (ii) in Article 180 of the same Request for Arbitral Pronouncement: From the above, it is unequivocal for the Claimant that the interest paid to B… as consideration for the funding provided, insofar as it was directed to address the shortfalls and/or financial needs of the Claimant's subsidiaries, constitutes a tax expense, deductible [...].
The Claimant, as stated in Article 187 of the Request for Arbitral Pronouncement, requests the condemnation of the AT[10] (read: Respondent) to annul the decision dismissing the Gracious Appeal identified with No. …2017…, as well as, as a consequence, the annulment of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80 (...), including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25 (...).
The Claimant, in the submissions (Article 8) explicitly states: there are two essential issues to be decided in this case[11]: (i) the existence of duplication of collection of autonomous taxations; (ii) the deductibility of financial charges relating to loans intended to finance the subsidiaries.
In the submissions, the Claimant individualized, as it did in the Request for Arbitral Pronouncement, the two points: (i) From the duplication of collection of autonomous taxations and (ii) From the deductibility of financial charges relating to loans intended to finance the subsidiaries.
As indicated by the Claimant in Articles 3 and 32 of the Request for Arbitral Pronouncement: [...] concluded that, with reference to the fiscal year 2012, corrections should be made to the tax result in the amount of €865,504.82 (Article 3 of the Request for Arbitral Pronouncement) and maintained the following corrections: interest not accepted for tax purposes - €865,504.82 (table of Article 32 of the Request for Arbitral Pronouncement).
The Respondent, in the Response (points 1 and 2) states: The Claimant brought the present arbitral action against the decision dismissing the gracious appeal No. …2017… submitted against the IRC assessment No. 2016…, relating to the fiscal year 2012. Requesting its annulment, alleging briefly that: 2.1. "The prerequisites of duplication of collection are met, basing the same on the illegality of the assessment of autonomous taxations"[12]; 2.2. "The financial charges intended to finance its subsidiary C…, S.A. are fiscally deductible[13], as they appear indispensable to the obtaining of future profits and even if not considered as such, as they are undoubtedly indispensable to the maintenance of the productive source (...) "being that "the activity of financing subsidiaries is still covered by the corporate purpose of the present Claimant, and undoubtedly, by its social scope, aiming, without a shadow of a doubt, at the maintenance of the productive source".
The Respondent also individualized in two points its defense "by impugnation" (Response of the Respondent) and its submissions. On one hand, Autonomous taxations, on the other Financial charges.
The Respondent also states, in the Response (points 24 and 25): From the factuality established in the inspection proceedings, the essential question sub judice in the present case is whether the financial charges resulting from the financing that the Claimant obtained and with which it financed its associates, not passing on the totality of these expenses to the benefiting entities, could be framed in Article 23 of the CIRC, or whether, on the contrary, the same did not meet the requirements for the admissibility of costs established in this provision[14]. And from the justification of the impugned act, which is hereby given in its entirety, it manifestly results that the Tax Administration could not accept as a tax cost the financial charges[15] relating to the financing of the Claimant's associated entities and that were not being used in its activity, as an autonomous entity.
The Respondent states, in the submissions, (points 1, 2 and 3): 1. The Claimant brought the present arbitral action against the decision dismissing the gracious appeal No. …2017… submitted against the IRC assessment No. 2016…, relating to the fiscal year 2012. 2. Requesting its annulment, alleging briefly that: 2.1. "The prerequisites of duplication of collection are met, basing the same on the illegality of the assessment of autonomous taxations"; 2.2. "The financial charges intended to finance its subsidiary C…, S.A. are fiscally deductible, as they appear indispensable to the obtaining of future profits and even if not considered as such, as they are undoubtedly indispensable to the maintenance of the productive source (...) " being that "the activity of financing subsidiaries is still covered by the corporate purpose of the present Claimant, and undoubtedly, by its social scope, aiming, without a shadow of a doubt, at the maintenance of the productive source". 3. The AT upholds the maintenance in the legal order of the acts impugned as it understands that the same constitute a correct application of law to the facts.
That is, in the case at hand, the Claimant wished to have examined and decided by this Singular Arbitral Tribunal two individual and perfectly defined situations, resulting from the dismissal of the Gracious Appeal. On one hand, the Claimant considers that the amount determined in the additional assessment, in the form of autonomous taxations, in the amount of €5,513.70, is not due and should be, having already been paid, refunded to the Claimant (plus interest). On the other, the Claimant considers that the corrected tax result of €964,078.25 resulted from an incorrect interpretation of tax law.
And, therefore, the Claimant states (in the Request for Arbitral Pronouncement) that the subject matter of the present action is the examination of the legality of the decision dismissing the Gracious Appeal [...], as well as, as a consequence, the examination of the legality of the IRC assessment itself.
As required by subsection e) of No. 2 of Article 10 of the RJAT, the request for constitution of an Arbitral Tribunal shall contain an indication of the value of the economic utility of the request.
Because it is important for the foundation of this Arbitral Decision, part of the Judgment of the Southern Central Administrative Court, dated 13 March 2014, in case No. 07125/13, is reproduced here: Pursuant to Article 296/1 of the CPC, "[to] every case shall be attributed a certain value, expressed in legal currency, which represents the immediate economic utility of the claim." Article 297/1 of the CPC provides that "[i]f the action seeks to obtain any certain sum of money, that is the value of the case, and no challenge or agreement to the contrary shall be admissible; if the action seeks to obtain a benefit other than a certain sum of money, the value of the case is the sum of money equivalent to that benefit." On the other hand, Article 32, No. 1 of the CPTA provides "[w]hen the action seeks to obtain payment of a certain sum, that is the value of the case"; pursuant to No. 2 of the provision, "[w]hen the action seeks to obtain a benefit other than the payment of a sum, the value of the case is the sum equivalent to that benefit".
In general terms, the rules for determining the value of the case, i.e., the rules for fixing the value of the case in tax proceedings, are those contained in Article 97-A of the Code of Tax Procedure and Process (hereinafter referred to simply as CPPT). Pursuant to subsections a) and b) of No. 1 of the aforementioned Article 97-A of the CPPT, the values to be considered, for the purposes of costs or other purposes provided by law, for actions occurring in tax courts, are as follows: a) When the assessment is contested, that of the amount whose annulment is sought; b) When the act fixing the taxable base is impugned, the contested value; [...].
As Jorge Lopes de Sousa teaches[16], in tax arbitration proceedings there is no jurisdiction limit, whereby the fixing of the value of the case is only relevant for the purposes of costs and to determine whether the case is judged by a Singular Arbitral Tribunal or a panel tribunal[17]. The value of the case should be indicated by the taxpayer in the request for constitution of the Arbitral Tribunal, corresponding to the economic utility of the request. Thus, when acts of assessment [...] are impugned, the value of the case is that of the amount whose annulment is sought, which corresponds to the economic utility of the request [...]. But the practical viability of application of a rule to a given legal situation constitutes, naturally, an indispensable requirement of its application, as natural impossibility is an insuperable obstacle to everything, including the application of any rule. Therefore, the aforementioned subsection e) of No. 2 of Article 10 must be interpreted restrictively, with the natural and forced limitation that the value of arbitral proceedings will be the economic utility of the request, when it is possible to determine the utility. There are disputes [...] that do not have determinable economic utility, as their definition depends on factors that are not known at the time the request for constitution of the Arbitral Tribunal is submitted, nor will they even be known until the end of the proceedings. Such impossibility of determining the economic utility of the dispute occurs in requests for a declaration of illegality of acts fixing the taxable base when this does not give rise to the assessment of any tax, in particular when the taxable base is negative (tax losses), as the losses established may never even be relevant to the performance of any act of assessment, as that relevance will depend on whether in any one or more of the taxation periods in which it will be legally permissible to carry forward the losses [...]. In these situations in which the utility of the request is not determinable, with the RJAT containing no criterion for determining the value of disputes, subsidiary legislation must be considered, in particular Article 97-A of the CPPT, which contains express rules for the determination of the value of the case, potentially applicable to all situations referred to in Article 2, No. 1 of the RJAT. In subsections b) and [...] it is established that the value to be considered when the act fixing the taxable base is impugned is the contested value.
The Opinion of the Team Leader, with which the Assistant Finance Director agreed, confirms the content of the Tax Inspection Report (hereinafter referred to simply as TIR). See: 2 – the corrections proposed to the taxable bases of IRC for the years 2012 [...], in the amounts of €865,504.82, [...].
That is, the TIR concluded with a corrected tax result in the amount of -€964,078.25 (negative value, duly marked with the "-" symbol), corresponding to a declared tax result in the amount of -€1,829,583.07 (negative value, duly marked with the "-" symbol), less the corrections proposed in the amount of €865,504.82.
The additional IRC assessment No. 2016…, relating to the fiscal year 2012, indicates, on one hand, the total amount payable of €6,183.80 (in the form of autonomous taxations) and, on the other, indicates the tax losses in the amount of €964,078.25 (losses considered after the aforementioned correction to the taxable base). It should be noted, in this regard, as already emphasized, that the tax losses before the correction proposed by the TIR (tax result declared by the Claimant) were -€1,829,583.07 (negative value, duly marked with the "-" symbol).
Pursuant to the already cited Judgment of the Southern Central Administrative Court, dated 13 March 2014, in case No. 07125/13: It provides, on the other hand, Article 97-A of the CPPT: "1. The values to be considered, for the purposes of costs or other purposes provided by law, for actions occurring in tax courts, are as follows: // a) When the assessment is contested, that of the amount whose annulment is sought; // b) When the act fixing the taxable base is impugned, the contested value". In the case under examination, judicial challenge of the tacit dismissal of the request for official revision of the 2008 IRC assessment is at issue. The request focuses on the annulment of the assessment in question; its ground lies in the defects charged to the determination of the taxable base by indirect methods, consisting of the failure to provide express justification, the failure to conduct prior hearing of the taxpayer, the lack of legal prerequisites for the application of indirect methods and error in quantifying the taxable base. The appealed order fixed the value of the case at €2,234,533.18, based on the provision of Article 97-A/1/b) of the CPPT. The objection raised by the appellant focuses both on the erroneous application to the case examined of the provision of Article 97-A/1 a) and b) of the CPPT, and on the erroneous quantification of the economic benefit to be obtained by the success of the action. Let us see. As regards the determination of the economic utility of the request, "[it] must be considered [that this] always is based on the cause of action that explains and delimits it[18]. The criterion of immediate economic utility of the claim does not abstract from it, whereby it is not considered in the abstract, but rather in comparison with the cause of action, for the determination of the value of the case". The cause of action consists of the constitutive fact of the legal situation which the claimant wishes to assert or deny, having the function of individualization and delimitation of the claim[19]. In the case under examination, judicial challenge brought against the silence, which was negatively determined, incidental to the request for official revision of the 2008 IRC assessment, with a view to the annulment of the aforementioned assessment, is at issue. The challenging intention at stake focuses on the alleged erroneous character of the act fixing the taxable base, pointing out to it the appellant the defects discriminated above. Thus, the cause of action of the challenging intention of the instant case focuses on the alleged erroneous fixing of the taxable base, by indirect methods. What the appellant questions is the fixing of the taxable base by indirect methods and the consequent disregard of the principle of declaration, that is, what is sought with this challenge is the restoration of the legal and tax situation that would exist were it not for the performance of the act fixing the taxable base by indirect methods declared illegal. The fixing of the taxable base by the TA, pursuant to Article 92/6 of the LGT, amounted to €0.00 (No. 3 of the evidentiary material), whereas the taxable base for which the appellant contends corresponds to that declared by it, that is, that corresponding to tax losses of €304,301.31 (Nos. 1 and 7 of the evidentiary material). Whence it follows that this latter amount corresponds to the economic benefit to be obtained by the success of this action, whereby the request focuses on the partial annulment of the impugned assessment insofar as it disregarded the declared tax losses of €304,301.31[20], this being the value of the action[21], pursuant to Article 97-A/1/a) of the CPPT.
In the very words of the Southern Central Administrative Court[22], the cause of action consists of the constitutive fact of the legal situation which the claimant wishes to assert or deny, having the function of individualization and delimitation of the claim.
In fact, as widely referred to above, the Claimant considered (wishing to assert that legal situation for its benefit, economic benefit to be obtained by the success of the action[23]), individualizing and delimiting for the purposes of the present Request for Arbitral Pronouncement, two issues. On one hand, the Claimant considered, requesting its annulment, the value of the additional assessment in the amount of €6,183.80. On the other, the Claimant considered, petitioning its illegality, also for the purposes of the present Request for Arbitral Pronouncement, the corrections to the tax result (which amount to €865,504.82) and the value of the corrected tax result.
And, therefore, the Claimant stated (in the Request for Arbitral Pronouncement) that the subject matter of the present action is the examination of the legality of the decision dismissing the Gracious Appeal [...], as well as, as a consequence, the examination of the legality of the IRC assessment itself, requesting the condemnation of the Respondent to annul the decision dismissing the Gracious Appeal identified with No. …2017…, as well as, as a consequence, the annulment of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25.
This Singular Arbitral Tribunal understands that the Claimant's request does not limit itself "only" to the annulment of the decision dismissing the Gracious Appeal, with the consequent condemnation of the Respondent to restitution of the amount of tax unduly paid, in the amount of €5,513.70, plus payment of the respective indemnity interest (as the Claimant indicates in its response to the Arbitral Order dated 14 May 2018, regarding "a potential situation of relative incompetence").
The Claimant's request is for condemnation of the Respondent to annul the decision dismissing the Gracious Appeal identified with No. …2017…, as well as, as a consequence, the annulment of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25.
That is, the Claimant requested of this Singular Arbitral Tribunal the examination and decision on two individual and perfectly defined situations, resulting from the dismissal of the Gracious Appeal: (i) on one hand, considers that the amount determined in the additional assessment in the form of autonomous taxations, in the amount of €5,513.70, is not due, (ii) on the other, considers that the corrected tax result of €964,078.25 resulted from an incorrect interpretation of tax law.
Because it is important for the foundation of this Arbitral Decision, points 43 to 45 and 47 to 52 of the already-mentioned Arbitral Decision (of CAAD), dated 15 February 2018, in case No. 322/2017-T, are reproduced here: 43. In fact, it is verified that the assessment in question results solely from the impact within the Municipal Surtax, there being no, therefore, any type of additional direct charge within IRC by way of adjustments made to the taxable result of the Claimant. 44. Indeed, and as a result of the context described, the present Tribunal understands that the consideration of the amount payable on account of an autonomous tax of the IRC for the purposes of determining the value of the request in the present case, without prejudice to its inclusion in the same assessment note, raises founded doubts with respect to ensuring the necessary balance in the definition of the value of the economic utility of this request for arbitral pronouncement. 45. Indeed, the jurisprudence and doctrine produced on this matter acknowledges the challenges associated with the interpretation of this issue, resulting from the various sources of law available, not always coherent with each other and which hinder the application of a systematic, simple and clear approach to the determination of the relevant value, first and foremost to determine the economic utility of the request and, as a consequence, the need for the same to be examined within a Panel Arbitral Tribunal. 47. See also the case in which the potential correction were tens of millions of euros, even if the assessment reflected a payment value of only €1 (as a result, for example, of the existence of tax losses), so that without a distinct value of economic utility being proven, would result therefrom potentially a value of the request equivalent to the amount payable, and the case would be examined by a singular arbitrator (no other option having existed), with clear prejudice to all mechanisms for the protection of the rights and guarantees of the parties involved. 48. Indeed, and again emphasizing the need to use the tax arbitration mechanism in a conscientious, prudent and responsible manner, it appears to the Tribunal that the value of the request, relevant for the purposes of the application of Article 5 of the RJAT, cannot correspond, in this case, to the value of the assessment paid by the Claimant in the amount of €6,858.91 when there are corrections subject to challenge totaling €817,389.93[24]. 49. In this regard, emphasis should also be placed on the need to assess the economic utility of a given request not on the basis of its mere immediate effect (which may be very reduced or even nonexistent), but also considering its potential future impact[25]. 50. In this context, the present tribunal acknowledges the limited doctrine and jurisprudence on the concept of the economic utility of the request relevant for this purpose, recognizing that in certain situations such may be susceptible to divergence of position. 51. Indeed, and as widely discussed previously, the present tribunal considers that the literal interpretation of the value of the assessment note of a tax for the determination of the value of the request would raise serious questions of inequity and a serious risk in the correct approach in the arbitral context [Serena Cabrita Neto and Carla Castelo Trindade in Tax Litigation, Volume II, Almedina, 2017], for example, in situations in which eventual corrections to a taxpayer's taxable result were examined by a Singular Arbitral Tribunal when, pursuant to the RJAT and the spirit of the legislator with the introduction of tax arbitration, such should be the subject of examination by a Panel Arbitral Tribunal (when the value of the request exceeds €60,000). 52. In this context, and in order not to empty of meaning the provisions of Articles 5 and 10 of the RJAT with respect to the value of the request (understand: economic utility of the request), the tribunal considers that should be considered[26], no additional information having been made available by the Claimant to the contrary, the amount of €817,389.93, corresponding to the sum of the corrections proposed by the Respondent in the tax inspection proceedings and subject to challenge in this request for arbitral pronouncement[27].
As referred to above, pursuant to subsections a) and b) of No. 2 of Article 5 of the RJAT, arbitral tribunals function with a singular arbitrator when: a) the value of the request for pronouncement does not exceed twice the value of the jurisdiction of the Central Administrative Court, i.e., when the value of the request for pronouncement does not exceed €60,000.00.
Having been requested by the Claimant the annulment of the decision dismissing the Gracious Appeal identified with No. …2017…, as well as, as a consequence, the annulment of the additional IRC assessment No. 2016…, relating to the fiscal year 2012, which established a total amount payable of €6,183.80, including late-payment interest and compensatory interest, and a corrected tax result of €964,078.25, this Tribunal was called upon to examine and decide, not only on the legality of the "total amount payable of €6,183.80" (in the form of autonomous taxations), but also on the legality of the corrections to the taxable base, relating to the fiscal year 2012, in the amount of €865,504.82, which gave rise to the correction of the tax result.
Considering, on one hand, the value of the additional assessment whose annulment the Claimant requests, in the amount of €6,183.80 and, on the other, considering that the corrections to the tax result amount to €865,504.82 and that the value of the corrected tax result, whose illegality the Claimant petitions, is €964,078.25, this Singular Arbitral Tribunal understands that for the purposes of the value of the case, the amount of €871,688.62 should be considered, corresponding to the sum of the amount of €6,183.80 (in the form of autonomous taxations) and the amount of €865,504.82 (corrections to the declared tax result).
4. Decision
It is hereby decided that this Singular Arbitral Tribunal declares itself incompetent on grounds of the value of the case, without prejudice to the provision of No. 3 of Article 24 of the RJAT.
5. Value of the Case
The value of the case is fixed at €871,688.62.
6. Costs
This Singular Arbitral Tribunal understands that the value to be considered for the purposes of determining the costs in the present Request for Arbitral Pronouncement is the value that motivated the constitution of this Singular Arbitral Tribunal, i.e., the value of €6,183.80, corresponding to the value initially indicated by the Claimant in the Request for Arbitral Pronouncement[28].
Pursuant to No. 4 of Article 22 of the RJAT, the amount of costs is fixed at €612.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant, since it is its responsibility to define and indicate the value of the request that gave rise to the constitution of this Singular Arbitral Tribunal.
Let it be notified.
Lisbon, 13 July 2018
Singular Arbitral Tribunal
The Arbitrator,
(Alexandre Andrade)
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