Summary
Full Decision
ARBITRAL DECISION
Parties
Claimant – A… SA, NIPC PT…, with registered office in…, P.O. Box…, …-…Setúbal.
Respondent – AUTORIDADE TRIBUTÁRIA E ADUANEIRA (Portuguese Tax and Customs Authority – AT).
I. REPORT
a) On 15-10-2015, the Claimant filed with CAAD a request seeking, under the Legal Framework for Arbitration in Tax Matters (RJAT), the constitution of a Collective Arbitral Tribunal (TAC).
THE REQUEST
b) The Claimant, parent company of a group of companies subject to the special taxation regime for groups of companies (RETGS) provided for (since the entry into force of Decree-Law no. 159/2009, of 13 July) in articles 69 et seq. of the Corporate Income Tax Code (CIRC), seeks to challenge the decision of the Large Taxpayers Unit of 17.08.2015 which rejected the gracious complaint it had filed against the self-assessments of Corporate Income Tax relating to the Corporate Income Tax for 2012 and 2013.
c) It alleges against the challenged act non-conformity with the law (with paragraph b) of no. 2 of article 90 of the CIRC and likewise with article 3, nos. 1 and 3, of the RFAI, created by the Supplementary Budget for 2009, article 13 of Law no. 10/2009, of 10 March, having been extended by the State Budgets for 2010, Law no. 3-B/2010, of 28 April, for 2011, Law no. 55-A/2010, of 31 December, for 2012, Law no. 64-B/2011, of 30 December, and for 2013, Law no. 66-B/2012, of 31 December).
d) Insofar as it denies the deduction from the part of the Corporate Income Tax collection produced by the autonomous taxation rates of the tax benefit established within the scope of the RFAI, of the amounts of 465,434.87 euros (2012) and 393,716.05 euros (2013).
e) And on the grounds that "the Corporate Income Tax collection provided for (in effect until 2013) in article 45, no. 1, paragraph a), of the CIRC, comprises, without any need for further specification, the collection of autonomous taxation in Corporate Income Tax".
f) It further argues that "… the declaration Model 22 of the Corporate Income Tax and its articulation with the programming of AT's computer system prevents the Fiscal Group here in question from deducting from the collection related to autonomous taxation rates in Corporate Income Tax, entered in field 365 of table 10 of the Model 22 declaration, … the tax benefit of deduction from the Corporate Income Tax collection, attributed to the companies integrating said Fiscal Group".
g) For which reason, besides requesting that the decision rejecting the gracious complaint be declared non-conforming with the law (and from the part of the self-assessments of Corporate Income Tax relating to autonomous taxation rates, for the tax years 2012 and 2013 of Group A… above-mentioned amounts) and raises the condemnation of AT to the reimbursement of the amounts unduly paid and the respective compensatory interest, counted from 01.09.2013 and from 01.09.2014, respectively.
OF THE COLLECTIVE ARBITRAL TRIBUNAL (TAC)
h) The request for constitution of the TAC was accepted by the President of CAAD, such acceptance being notified to AT on 23-10-2015.
i) By CAAD's Deontological Council, the signatories of this decision were appointed as arbitrators, the parties being notified thereof on 07-12-2015. The parties did not express willingness to refuse the appointment, in accordance with article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.
j) Whereby the TAC has been, since 07-12-2015, regularly constituted to appreciate and decide the subject matter of this dispute (articles 2, no. 1, paragraph a) and 30, no. 1, of the RJAT).
k) All these acts are documented in the communication of constitution of the TAC dated 23-12-2015, which is hereby reproduced.
l) On 23-12-2015 AT was notified in accordance with and for the purposes of article 17-1 of the RJAT. It responded on 01.02.2016 attaching the PA, composed of 2 computerized files designated PA and PA2 with 201 numbered pages from 2 to 203, containing the gracious complaint filed by the Claimant and the rejection decision adopted.
m) Since the Claimant had indicated 3 witnesses in the final part of the request for pronouncement, the Tribunal, by order of 03.02.2016, invited it to indicate whether it intended to hear them and, if so, to indicate the matter of fact to which they were to respond. Furthermore, it was invited, should it not wish to produce testimony evidence, to state whether it preferred oral or written arguments.
n) By request of 08.02.2016, the Claimant waived the production of testimony evidence and likewise oral or written arguments.
o) On 10.02.2016 the Respondent was notified to pronounce itself on whether it agreed with the Claimant's position regarding arguments. By request of 12.02.2016, the Respondent expressed its agreement with the Claimant's position.
PROCEDURAL REQUIREMENTS
a) Legitimacy, capacity and representation - The parties enjoy legal personality, judicial capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
b) Contradictory proceedings - AT was notified in accordance with item l) above. All procedural documents and all documents joined to the process were made available to the respective counterparty in CAAD's Process Management System. Their joining was always notified to both parties. The TAC ensured the parties the possibility of pronouncing themselves on all questions of law and fact raised in these proceedings (article 3, no. 3 of the CPC applicable by virtue of article 29-1-e) of the RJAT).
c) Dilatory exceptions - The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the prescribed period in paragraph a) of no. 1 of article 10 of the RJAT. In fact,
The Claimant was notified by official letter… dated 18.08.2015 (page no. 203 of PA), of the decision which rejected the gracious complaint necessary that it filed against the acts of self-assessment of Corporate Income Tax. It filed the request for pronouncement with CAAD on 15.10.2015.
SUMMARY OF THE CLAIMANT'S POSITION
d) The Claimant is the parent company of a group of companies subject to the special taxation regime for groups of companies (RETGS): B…(B…), C… (C…); D… and E….
e) And it raises to the TAC the question of whether the Fiscal Group has or does not have the right to proceed with the deduction, also from the Corporate Income Tax collection produced by the application of autonomous taxation rates, of said tax benefit for investment, granted to the group companies within the scope of the RFAI.
f) It argues that since the Fiscal Group has a value of RFAI still to be used in 2012 and 2013 of at least € 9,237,975.91 and € 10,123,364.91, respectively available for deduction from the collection of autonomous taxation rates in Corporate Income Tax,
g) It seeks that the autonomous taxation in the amount of € 465,434.87 (2012) in 2012 and € 393,716.05 in 2013 be accommodated to the functioning of the RFAI tax benefit.
h) Since the RFAI tax benefit has the following wording at the time of the facts: "To Corporate Income Tax taxpayers resident in Portuguese territory or that have therein a permanent establishment, whether they exercise as main activity a commercial… activity that perform … investments considered relevant, the following tax benefits are granted: a) Deduction from the Corporate Income Tax collection, and up to the limit of 25% of the same, …",
i) It bases its reasoning on the fact that the vast majority of tax courts and arbitral tribunals understand "that autonomous taxation is Corporate Income Tax, from which it follows as consequence that norms directed to Corporate Income Tax are applied to them such as the one referring to its non-consideration of the Corporate Income Tax collection for the calculation of taxable income in Corporate Income Tax (article 45, no. 1, paragraph a), of the Corporate Income Tax Code, in effect until 2013)",
j) It further bases its reasoning on a decision of the Corporate Income Tax Services Direction of 17.10.2013 - which it attaches to the process - where deductions from the collection of autonomous taxation are set aside only with respect to tax credits for international double taxation.
SUMMARY OF THE RESPONDENT'S POSITION
k) The Respondent contends that the Corporate Income Tax Code did not provide for the possibility of carrying out the deductions provided for in no. 2 of its article 90 to the amount due by way of autonomous taxation.
l) It argues what occurs with the transparent taxation regime in which the deductions provided for in no. 2 of article 90 of the Corporate Income Tax Code are imputed to the shareholders of the companies, in accordance with no. 5 of article 90 of the Corporate Income Tax Code, these companies being taxed only for autonomous taxation purposes in Corporate Income Tax in accordance with article 12 of the Corporate Income Tax Code.
m) It adds that account must be taken of the purpose underlying the existence of autonomous taxation rates, insofar as they aim to reduce the advantage achieved with the reduction of taxable income and prevent tax evasion that certain expenses promote.
n) It argues in the sense that the fact that "autonomous taxation" assumes the nature of Corporate Income Tax "does not imply that the same are subject to the entire legal bloc provided for in the CIRC", arguing that autonomous taxation rates apply to certain expenses and not to income.
o) Concluding that "…autonomous taxation are only applicable, in view of the aforesaid specificities, the norms in the CIRC addressed to them", namely article 90 of the Corporate Income Tax Code.
p) Manifests disagreement with the Claimant's position when it invokes the decision adopted in process CAAD 769/2014-T, which regarding the tax benefit denominated "SIFIDE" considered its deductibility from the Corporate Income Tax resulting from the application of autonomous taxation rates, alleging that there was at issue a benefit whose literal wording is different, since the law refers to the "amount determined in accordance with article 90 of the Corporate Income Tax Code, up to its concurrence", whereas the RFAI refers to deduction being "applied to the Corporate Income Tax collection".
q) And that furthermore, in the case of SIFIDE, the credit that embodies the tax benefit is only deductible if there occurs self-assessment of Corporate Income Tax (article 90 of the Corporate Income Tax Code), based on the tax base contained in the Model 22 declaration, but will not be when taxable income is determined by indirect methods (article 5, paragraph a) of the norm regulating SIFIDE).
r) It further protests regarding the meaning of the decision adopted in process CAAD 769/2014-T - which decided that the norms of article 90 of the Corporate Income Tax Code are applicable to the calculation of the amount of autonomous taxation – because it understands that the concept of "tax base" referred to in no. 1 of article 90 of the CIRC (in the definition of no. 1 of article 15 of the CIRC) was confused with the concept of "taxable base".
s) In the sense of defending the non-application of no. 2 of article 90 of the CIRC to the case of this process, it invokes the regime of no. 12 of article 88 of the CIRC (applicable to taxpayers exempt from Corporate Income Tax, totally or partially), concluding: "the amount possibly withheld at source, in the case provided for in no. 11 of article 88 of the CIRC, is deducted from the calculation of autonomous taxation by application of article 88, no. 12 of the CIRC and not by article 90, no. 2, paragraph d) of the CIRC", drawing the following inference "… if article 90 of the CIRC deals with the calculation of autonomous taxation, it is not understood why an operation integrating the calculation of this figure - the deduction of withholdings at source - is provided for in article 88 of the same Code".
t) Always in the sense of setting aside from the case the application of article 90 of the CIRC, it expresses another difficulty of application that "consists in the deduction of the credit for international double taxation from the amount calculated as autonomous taxation, which, as we have seen, is a logical consequence of the thesis presented by the Claimant", since " … in accordance with no. 1 of article 91 of the CIRC, the deduction of the credit for international double taxation only applies when, in the tax base, income obtained abroad has been included".
u) It further alleges another difficulty: "concerning no. 4 of article 90 of the CIRC, which relates to the deduction relating to withholdings at source that may benefit entities that do not have seat, nor effective management in Portuguese territory, and that therein obtain income not attributable to a permanent establishment, there is, equally, its inapplicability to autonomous taxation, insofar as the referred entities do not fall within the subjective scope of this taxation, as appears from the provision of articles 3, no. 1, paragraph d), 88, 120, nos. 4 and 5 of the CIRC".
v) It further invokes, in defense of its point of view, the succession of rewordings of the current norms contained in article 90 of the CIRC, compared to previous ones, concluding that "To admit the thesis defended by the Claimant, it would be justified, when the tax reform operated by Law no. 30-G/2000 or in subsequent amendments, to modify the wording of article 90 of the CIRC, with the aim of overcoming the difficulties/impossibilities of application referred to above, with the consequent adaptation of the norm to autonomous taxation, a situation that never occurred", for the reason that "Autonomous taxation, in accordance with its initial regulation, constituted as it were a substitute for the regime of non-deductibility previously provided for in the CIRC".
w) To conclude: "… contrary to the provision of article 12 and paragraph a) of no. 1 of article 23-A and nos. 1 and 2 of article 90 of the CIRC, there is no reference to autonomous taxation, which, in light of the dual nature of the system, raises founded objections as to the consideration of the value of autonomous taxation for the purposes of the deductions provided for in no. 2 of cited article 90", "Insofar as autonomous taxation corresponds to a way to prevent certain abusive situations, we have, therefore, to inquire about its consideration for the purpose of the referred deductions".
x) Finally, it appeals to the genesis of the creation of the RFAI regime, noting that "At the basis of the grant of such tax benefit is the realization of an investment", "Investment that is realized with a view to obtaining income taxed in Corporate Income Tax", that "… is not realized for the realization of an expense specifically provided for in the law taxed for autonomous taxation purposes", whereby "Understanding that the tax benefit in question corresponds only to the deduction from the Corporate Income Tax collection (not encompassing autonomous taxation) is based on the prior realization of an investment with a view to obtaining income", concluding: "what the legislator intended was the following: if the taxpayer realizes a certain investment, it will have the right to a tax benefit to the income it will obtain resulting from that investment".
y) It further advocates the incompatibility between the figure of autonomous taxation and the regime of article 90 of the Corporate Income Tax Code, starting from the fact that they emerged from article 4 of Decree-Law 192/90, of 09.09, a standalone diploma that did not enshrine any rules similar to those now contained in article 90 of the CIRC.
z) Regarding the difficulties cited in f) of this Report, it states that "the computer system cannot permit or enshrine what the law does not provide, i.e., AT's computer systems and applications should be a mere reflection of the legal precepts in effect at each moment"
a) It concludes by requesting the dismissal of the claims because the challenged act does not suffer from non-conformities with the law.
II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE
The essential question that arises is to ascertain whether the Fiscal Group has or does not have the right to proceed with the deduction, also from the Corporate Income Tax collection produced by the application of autonomous taxation rates, of the tax benefit for productive investment, granted to the group companies within the scope of the RFAI.
III. PROVEN AND UNPROVEN FACTUAL MATTERS AND GROUNDS
With relevance for the decision, these are the facts considered proven, indicating the respective documents (proof by documents) as grounds.
Proven Facts
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The Claimant was, in 2012 and 2013, the parent company of a group of companies - B… (B…), C… (C…), D… and E…- subject to the special taxation regime for groups of companies (RETGS) – Preamble of the request for pronouncement, overall position of AT in the decision on the gracious complaint from pages 182 to 202 of PA and documents numbered 1, 2 and 3 attached (Model 22 declarations) attached with the request for pronouncement.
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The Claimant, in its capacity as parent company of the referred Fiscal Group, proceeded with the filing of aggregated Corporate Income Tax declarations Model 22 relating to the tax years 2012 and 2013 (as to 2012: on 30.05.2013 the 1st declaration of the period and on 01.12.2014 the replacement declaration; as to 2013: on 30.05.2014 the 1st and only declaration of the period), having at those moments proceeded with the self-assessment of Corporate Income Tax – Article 2 of the request for pronouncement, overall position of AT in the Response and in the decision on the gracious complaint from pages 182 to 202 of PA and documents nos. 1 to 3 (Model 22 declarations) attached with the request for pronouncement.
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The self-assessed Corporate Income Tax comprised that resulting from the application of the normal rate of 25% to the tax base determined from taxable income, the municipal surtax and the state surtax and also the overall amount resulting from the application of autonomous taxation rates on charges and expenses (article 88-3, article 88-4, article 88-7, article 88-9 and article 88-13-b)) of the years 2012 and 2013 - Article 2 of the request for pronouncement, overall position of AT in the Response and in the decision on the gracious complaint from pages 182 to 202 of PA and also documents nos. 1 to 3 (Model 22 declarations) - tables 10 fields 347-B and 365; tables 11 fields 420, 421, 414, 415 and 424 - attached with the request for pronouncement.
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The value of the self-assessed Corporate Income Tax, including autonomous taxation and surtaxes is paid - documents nos. 1 to 3 (Model 22 declarations) – tables 10, fields 368 - attached with the request for pronouncement, since the Claimant has tax to recover.
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The declaration model contained in the computer system of the Tax Authority did not permit reflecting in the Model 22 declaration of the Fiscal Group A…, within the limits of the Corporate Income Tax collection, included autonomous taxation, the amounts of the tax benefit recognized to the companies under the Tax Investment Support Regime – articles 17 and 18 of the request for pronouncement and articles 140 to 142 of the response.
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In the replacement declaration filed for the tax year 2012, the Fiscal Group A… presented an undeducted RFAI balance of 5,620,824.79 euros - as per table 7, field 713 of Annex D of the Model 22 Declaration attached with the request for pronouncement as Document no. 2.
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In the declaration filed for the tax year 2013, the Fiscal Group A… presented an undeducted RFAI balance of 8,055,965.96 euros and a carryforward balance of 982,918.18 euros - as per table 7, field 713 of Annex D of the Model 22 Declaration attached with the request for pronouncement as Document no. 3.
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The autonomous taxation relating to the tax years is in the amount of € 465,434.87 in 2012 and € 393,716.05 in 2013 – as per tables 10, fields 365 of the Model 22 Declaration attached with the request for pronouncement with the designation of Document no. 2 and 3.
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The Claimant duly filed the administrative gracious complaint procedure no. …2015… against the tax self-assessment act of Corporate Income Tax relating to the taxation period corresponding to the calendar year 2012 and 2013, embodied in assessments no. 2014 … of 20.12.2014 and 2014 … of 25.08.2014, petitioning for its partial annulment, in the sense of deducting the amount attributed within the scope of the RFAI from the Corporate Income Tax collection, produced by autonomous taxation – as per document no. 22 attached with the request for pronouncement (pages numbered 180 and 181) and pages marked with numbers 180 and 181 of PA.
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The Claimant was notified, on 19 August 2015, of the order of dismissal of the gracious complaint authored by the Chief of Division of the Large Taxpayers Unit dated 17 August 2015, through official letter…, dated 18 August 2015 – article 4 of the request for pronouncement, document no. 4 attached with the request for pronouncement and pages 199 and 203 of PA.
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The companies that integrate Group A… that originated the RFAI tax benefit are not and were not then entities owing to the National Treasury and Social Security any taxes or contributions – as per fifth item of point 7, pages 182 of PA and Document no. 22 attached with the request for pronouncement, combined with the overall position adopted by AT in the response which did not refer to the factuality provided for in articles 8, 13 and 14 of the EBF.
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On 15-10-2015, the Claimant filed the present request for pronouncement with CAAD – entry registration in SGP of the request for pronouncement.
Unproven Facts
There is no other factuality alleged that has not been considered proven and that is relevant for the resolution of the processual dispute.
IV. APPRECIATION OF THE QUESTIONS FOR THE TRIBUNAL TO RESOLVE
The RFAI – Tax Investment Support Regime, at the time of the facts in this case, was a system of tax incentives for productive innovation investments that provide for job creation, translating into a tax benefit of 20% or 10% of the value of relevant investments made, for deduction up to 25% of the Corporate Income Tax collection.
The RFAI was created by article 13 of the Supplementary Budget Law for 2009 (Law no. 10/2009, of 10 March), having been extended by the State Budget Laws: for 2010 by Law no. 3-B/2010, of 28 April; for 2011 by Law no. 55-A/2010, of 31 December; for 2012 by Law no. 64-B/2011, of 30 December; and for 2013 by Law no. 66-B/2012, of 31 December. Today it is provided for in the Investment Tax Code.
At the time to which the Corporate Income Tax assessments in this case relate, it had the following wording:
Tax support regime for investment made in 2009 (RFAI)
The tax support regime for investment made in 2009 (RFAI 2009) is approved, which forms an integral part of the present law and which consists of the following articles:
Article 1
Object
A specific system of tax incentives for investment made in 2009 in certain sectors of activity is created, designated as tax support regime for investment made in 2009, hereinafter abbreviated as RFAI 2009, respecting Regulation (EC) no. 800/2008 of the Commission, of 6 August, which declares certain categories of aid compatible with the common market, in application of articles 87 and 88 of the Treaty ('General block exemption regulation').
Article 2
Scope of application and definitions
1 - The RFAI 2009 is applicable to Corporate Income Tax taxpayers that exercise, as main activity, an activity:
a) In the agricultural, forestry, agro-industrial, energy and tourism sectors and also in the extractive or processing industry, with the exception of the steel, shipbuilding and synthetic fibers sectors, as defined in article 2 of Regulation (EC) no. 800/2008 of the Commission, of 6 August;
b) Within the scope of next generation broadband networks.
2 - For the purposes of this regime, the following investments are considered as relevant provided that they are allocated to the company's operations:
a) Investment in tangible fixed assets, acquired in new condition, with the exception of:
i) Land, except where intended for the operation of mining concessions, natural mineral waters and spring waters, quarries, clay-pits and sand-pits in extractive industry projects;
ii) Construction, acquisition, repair and extension of any buildings, except if they are industrial installations or allocated to administrative activities;
iii) Light passenger vehicles or mixed-use vehicles;
iv) Furniture and comfort or decoration articles, except hotel equipment allocated to tourism operations;
v) Social equipment, with the exception of equipment the company is required to have by legal determination;
vi) Other investment goods not directly and necessarily associated with the productive activity exercised by the company;
b) Investment in intangible fixed assets, consisting of expenses with technology transfer, in particular through the acquisition of patent rights, licenses, know-how or technical knowledge not protected by patent.
3 - Corporate Income Tax taxpayers that cumulatively meet the following conditions may benefit from the tax incentives provided for in this regime:
a) Have regularly organized accounting, in accordance with accounting standardization and other legal provisions in effect for their respective sector of activity;
b) Their taxable income is not determined by indirect methods;
c) Maintain in the company and in the region for a minimum period of five years the goods that are the subject of the investment;
d) Are not debtors to the State and social security for any contributions, taxes or quotas or have the payment of their debts duly secured;
e) Are not considered companies in difficulty in accordance with the Commission communication - community guidelines on state aid for emergency aid and restructuring to companies in difficulty, published in the Official Journal of the European Union, no. C 244, of 1 October 2004;
f) Make relevant investment that provides for the creation of jobs and their maintenance until the end of the deduction period contained in nos. 2 and 3 of article 3
4 - In the case of Corporate Income Tax taxpayers that do not fall within the category of micro, small and medium-sized enterprises, as defined in annex i of Regulation (EC) no. 800/2008 of the Commission, of 6 August, the investment expenses referred to in paragraph b) of no. 2 cannot exceed 50% of relevant investments.
5 - Investment made in 2009 is considered to be the corresponding additions verified in that financial year of tangible fixed assets and also that, having the nature of tangible assets and not concerning advances, translates into additions to work-in-progress fixed assets.
6 - For the purposes of the previous number, additions of tangible fixed assets are not considered that result from transfers of work-in-progress fixed assets carried forward from previous financial years, except if they are advances.
Article 3
Tax incentives
1 - To Corporate Income Tax taxpayers resident in Portuguese territory or that have therein a permanent establishment, that exercise as main activity a commercial, industrial or agricultural activity covered by no. 1 of the preceding article that make, in 2009, investments considered relevant, the following tax benefits are granted:
a) Deduction from the Corporate Income Tax collection, and up to the limit of 25% of the same, of the following amounts, for investments made in regions eligible for support within the scope of incentives with regional purpose:
i) 20% of relevant investment, for investment up to the amount of (euro) 5,000,000;
ii) 10% of relevant investment, for investment of amount exceeding (euro) 5,000,000;
c) Exemption from municipal property tax, for a period up to five years, with respect to real estate of its property that constitute relevant investment;
d) Exemption from municipal tax on onerous transmission of real estate with respect to acquisitions of real estate that constitute relevant investment;
e) Exemption from stamp duty with respect to acquisitions of real estate that constitute relevant investment.
2 - The deduction referred to in paragraph a) of the preceding number is made in the assessment relating to the taxation period that begins in 2009.
3 - When the deduction referred to in the preceding number cannot be made in full due to insufficient collection, the amount still not deducted may be, under the same conditions, in the assessments of the four following financial years.
4 - For the purposes of the provision in paragraphs b) and c) of no. 1, the exemptions provided therein are conditioned on recognition, by the competent municipal assembly, of the interest of the investment to the region.
5 - The overall amount of tax incentives granted in accordance with the preceding numbers cannot exceed the value resulting from the application of the maximum limits applicable to investment with regional purpose for the period 2007-2013, in effect in the region in which the investment is made, contained in article 7
Article 4
Ancillary Obligations
1 - The deduction provided for in paragraph a) of no. 1 of the preceding article is justified by a document to integrate the tax documentation process referred to in article 121 of the Corporate Income Tax Code, which identifies in detail the relevant investments, the respective amount and other elements considered relevant.
2 - From the tax documentation process relating to the exercise of the deduction must also contain a document that shows the calculation of the tax benefit, as well as a supporting document that the condition referred to in paragraph d) of no. 3 of article 2 is met, with reference to the month preceding that of filing the periodic income declaration.
3 - The accounting of Corporate Income Tax taxpayers benefiting from the regime provided for in this law must show the tax that ceases to be paid as a result of the deduction referred to in the preceding article, by mention of the corresponding value in the annex to the balance sheet and income statement relating to the financial year in which the deduction is made.
Article 5
Non-compliance
In the event of non-compliance with the provision in paragraph c) of no. 3 of article 2, the tax that ceased to be assessed as a result of this regime is added to the Corporate Income Tax relating to the financial year in which the taxpayer disposed of the goods that were the subject of the investment, increased by the corresponding compensatory interest increased by 5 percentage points.
Article 6
Exclusivity of Tax Benefits
The tax benefits provided for in this law are not cumulative, with respect to the same investment, with any other tax benefits of the same nature provided for in other laws.
Article 7
Maximum limits applicable to aid for investment with regional purpose
1 - In accordance with the national map of state aid with regional purpose for the period 1 January 2007 to 31 December 2013, approved by the European Commission on 7 July 2007, the maximum limits applicable to tax benefits granted within the scope of RFAI 2009 are the following:
In the first place, it is important to note that the parties do not question in this process any of the limitations, restrictions or conditions to the functioning of this benefit, particularly those noted in the text of the law reproduced above, namely:
ü The limitation of the body of paragraph a) of no. 1 of article 3 of the RFAI;
ü That of the two sub-paragraphs of paragraph a) of no. 1 of article 3 of the RFAI;
ü That of no. 3 of article 3 of the RFAI;
ü That of paragraph c) of no. 3 of article 2 of the RFAI;
ü That of article 7 of the RFAI;
ü Others, such as that of no. 1 of article 4 and paragraph d) of no. 3 article 2, both of the RFAI.
These are situations not invoked by the parties regarding which the TAC is even prevented from pronouncing itself, under penalty of excessive pronouncement.
The question that the parties place before the Tribunal is reduced to ascertaining whether the Fiscal Group has or does not have the right to proceed with the deduction, also from the Corporate Income Tax collection produced by the application of autonomous taxation rates, of the tax benefit for productive investment, granted to the group companies within the scope of the RFAI, in the part in which it did not deduct it from the remaining Corporate Income Tax collection.
Using AT's terminology, the subject under discussion (what was under discussion in the gracious complaint) is: "…to ascertain whether the amount paid as autonomous taxation should be understood as an integral part of the Corporate Income Tax collection, for the purposes of deducting the amount attributed within the scope of the RFAI" (see point 13 of page 184 of information 151/AIR2/2015 – Document 22 attached with the request for pronouncement and page numbered 184 of PA).
Or, in other words, what is at issue is to find the most assertive reading of the law, departing from its literal element, which enshrines the deduction of investments considered relevant "… from the Corporate Income Tax collection … made in the assessment relating to the taxation period … (and existing) … insufficient collection … in the assessments of the four following financial years",
in the sense of concluding or not in favor of the point of view here advocated by the Claimant and indicated above.
We will follow the decision adopted in process CAAD 769/2014-T, to which we adhere, given the great similarity of questions that are the subject of analysis, with safeguard of the different wording of the legal precepts in question: SIFIDE versus RFAI, it being certain that in Annex D of Model 22, both are processed in an identical manner, expressing itself regarding both in table 07: "DEDUCTIONS FROM COLLECTION (to be deducted in field 355 of table 10 of the declaration)".
Departing from the letter of the law that creates the RFAI, we verify that the tax benefit functions:
By deduction from the "Corporate Income Tax collection"
Deduction that is made in the "assessment" relating to the taxation period;
And in the case of insufficient "Corporate Income Tax collection" in the "assessments" of the 4 following financial years.
It is verified from the simple reading of the declaration models (Model 22) that AT only considers as "collection" the amount of Corporate Income Tax determined from the taxable income of companies, as can be derived from the reading of table 10, fields 351 and 378 of the models in effect as of 2016 and those in effect at the time of the assessments here in question in table 10 field 361, distinguishing what it considers to be "Corporate Income Tax collection" from what it considers to be the "Corporate Income Tax payable", obtained from this, inclusive, through the addition of Corporate Income Tax assessed on the various tax bases subject to autonomous taxation rates.
It appears to us that the question can be resolved through declarative interpretation, since the letter of the law reasonably shapes its spirit, in view of the terms used by the legislator that have in tax law a well-defined meaning. Indeed,
Both constitute "Corporate Income Tax collection" the amount of Corporate Income Tax assessed
from taxable income of companies (net accounting profit + costs not accepted fiscally + tax credit to deduct from collection + positive patrimonial variations - gains to reinvest in the next two years - profits distributed in accordance with art. 48 no. 1 of the CIRC - negative patrimonial variations - bonuses for account of the result of this financial year), determining the tax base (by deduction of losses and benefits) and applying to it the normal Corporate Income Tax rate (assessment), thus obtaining a Corporate Income Tax collection;
as from the various tax bases (tax base) on which the various autonomous taxation rates provided for in article 88 of the Corporate Income Tax Code apply, also obtaining Corporate Income Tax collections.
That is, it is immediately verified that article 88 of the Corporate Income Tax Code is inserted in the Chapter of the Corporate Income Tax Code that deals with Corporate Income Tax rates. CHAPTER IV of the Corporate Income Tax Code, under the heading "rates", comprises 3 articles:
Article 87, also under the heading "rates", establishes the rates to apply to the tax base, to determine the Corporate Income Tax collection based on the taxable income of taxpayers;
Article 87-A, under the heading "state surtax" establishes the rates to determine the state surtax collection based on the taxable income of taxpayers;
Article 88, under the heading "autonomous taxation rates" establishes the rates to determine various Corporate Income Tax collections based on the various tax bases indicated in its sub-paragraphs.
The very heading of article 88 of the Corporate Income Tax Code leaves no doubts. It is, in terms of terminological precision, "rates" of autonomous taxation (as numbers 14 and 15 of the norm clearly confirm) and not autonomous taxation of the general regime itself of Corporate Income Tax.
What truly exists in the law are different rates of Corporate Income Tax taxation applicable to various tax bases, or in other words, different "tax base" understood this expression in the common tax law sense, as being the base value determined on which a rate applies, obtaining a collection, through the operation denominated assessment.
It will be relevant to also address the meaning of the expression "assessment" since no. 2 of article 3 of the RFAI refers that "the deduction … is made in the assessment relating to the taxation period …".
The procedure for Corporate Income Tax assessment is provided for in Article 90 of the Corporate Income Tax Code. This procedure is also applicable to the assessment when made by the taxpayer through declarations (self-assessment), whether regarding Corporate Income Tax to be determined based on the taxable income of companies, or regarding Corporate Income Tax to be determined based on the various expenses, charges or costs subject to the various autonomous taxation rates. It is also applicable in situations in which the taxpayer fails to fulfill the obligation to declare self-assessment.
Upon verifying the meaning of the expression "collection" we arrive at the same conclusion. A "collection" only arises after a "tax base" is determined on which a "rate" applies. Tax base x Tax rate = Collection. And this operation occurs both in the tax process tending to obtain Corporate Income Tax assessment from the taxable income of companies, as in the tax process tending to obtain Corporate Income Tax assessment from the various situations subject to the application (charges, expenses, profits distributed to exempt entities, expenses or compensation to managers) of the various autonomous taxation rates.
Having reached this point, reproducing the part to which we adhere of the decision of CAAD referred to above:
"There are autonomous taxation provided for in the CIRC (article 88 of the CIRC) and autonomous taxation provided for in the CIRS (article 73 of the CIRS).
The collection provided by them constitutes collection of the respective tax, being subject to the generality of norms provided for in the referred codes, potentially applicable.
As to Corporate Income Tax, in addition to the unanimity of jurisprudence, article 23-A no. 1, paragraph a), of the CIRC, in the wording of Law no. 2/2014, of 16 January, leaves no room for any reasonable doubt, corroborating what already previously resulted from the literal tenor of article 12 of the same Code".
Also in the case of the RFAI, "the solution to this conceptual question of the nature of the collection arising from autonomous taxation provided for in the CIRC does not permit resolving the question of whether credits arising from this tax regime can be deducted from this same collection".
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"The differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable income, rests on the determination of the tax base and the rates, provided for in Chapters III and IV of the CIRC, but not in the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation and to the remaining tax base of Corporate Income Tax".
Now, if the collection resulting from the application of autonomous taxation rates is collection of the respective tax, as results from the unanimity of jurisprudence and article 23-A no. 1, paragraph a), of the Corporate Income Tax Code, then it clearly results that the expression "Corporate Income Tax collection" contained in paragraph a) of no. 1 of article 3 of the legal regime of the RFAI, comprises the collection provided by the application of autonomous taxation rates to the various tax bases provided for in the law.
The question placed by AT is thus answered, which was at the basis of the dismissal of the gracious complaint, namely: "the question that it is necessary to appreciate in the present proceedings is to ascertain whether the amount paid as autonomous taxation should be understood as an integral part of the Corporate Income Tax collection, for the purposes of deducting the amount attributed within the scope of the RFAI"
That is, paragraph b) of no. 2 of article 90 of the Corporate Income Tax Code permits deducting from the Corporate Income Tax determined in accordance with paragraph a) of no. 1 of article 90 of the Corporate Income Tax Code, which includes the determination of Corporate Income Tax resulting from the application of autonomous taxation rates provided for in article 88 of the Corporate Income Tax Code, the tax benefits, as is the case with the RFAI. And in the case of the RFAI without any of the limitations that are not those of the special regime itself that regulates this benefit, as clearly results from paragraph e) of no. 2 of article 92 of the Corporate Income Tax Code.
It appears to us that AT has a restrictive reading of the norm that confers the tax benefit here in discussion, compared to its literal element. We do not see legal basis for such a reading of the law, even being tax benefits, whose norms may even be subject to extensive interpretation (article 10 of the EBF).
Let us return to the partial adherence of the decision of CAAD adopted in the process above indicated, replacing the expression SIFIDE with RFAI and the different applicable legal norms, to address what was referred by AT in v), w) and y) of the Report: "… one cannot see, in the possible nature of anti-abuse norms that some autonomous taxation assumes, an explanation for its removal from the respective collection from the scope of deductibility of the benefit …, since there is no legal support to set aside the deductibility from the collection provided by corrections based on norms of an indisputably anti-abuse nature, such as, for example, those relating to transfer pricing or undercapitalization.
Also, it is not perceived how it can be relevant, to set aside the deductibility of the benefit from the overall Corporate Income Tax collection, the hypothetical finding of, at the time when the CIRC was drawn up, the respective collection always resulting from the application of the rate to taxable income, determined and corrected in accordance with the Code. Indeed, as mentioned, it is clear that this is not so at the time when the RFAI was drawn up and it is article 3 no. 1 paragraph a) of this diploma that defines the collection relevant for application of the tax benefit".
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"And, in the case of the tax benefits of the RFAI, the reasons of an extrafiscal nature that justify their imposition on tax revenues are, from the legislative perspective, of enormous importance, as inferred from the fact that these benefits are indicated as being specially excluded from the general limit to the relevance of tax benefits in Corporate Income Tax, which is indicated in article 92 of the CIRC.
For this reason, it is certain that we are faced with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, inferring from that article 92 that the legislative intention to encourage investments … provided for in the RFAI is so firm that it goes to the point of not even establishing any limit to the deductibility of the Corporate Income Tax collection, despite this tax regime having been created and applied in a period of notorious difficulties of public finances.
For this reason, no legal foundation is seen, namely in light of the legislative intention that is possible to detect, to set aside the deductibility of the tax benefit of the RFAI from the collection of autonomous taxation that results directly from the letter of article 3, no. 1, paragraph a) and no. 2 of the respective diploma…"
On the other hand, it does not seem to us that one can invoke as the basis for the non-application of no. 2 of article 90 of the CIRC to the case of this process, the regime of no. 12 of article 88 of the CIRC (applicable to taxpayers exempt from Corporate Income Tax, totally or partially).
Indeed, the regime of entities exempt totally or partially from Corporate Income Tax to which reference is made in numbers 11 and 12 of article 88 of the Corporate Income Tax Code, must be seen in light of no. 6 of article 117 of the Corporate Income Tax Code. The provision of no. 11 of article 88 of the Corporate Income Tax Code (as that of 2 of article 88 of the Corporate Income Tax Code) aim to specially penalize entities exempt from Corporate Income Tax that wish to improperly benefit from the tax benefits that the law grants them.
Also, it does not seem to be a decisive argument, to prevent the non-application, to the case of this process, of the regime of article 90 of the Corporate Income Tax Code, what is alleged in the sense that it is a logical consequence of the point of view defended by the Claimant that, were it so, the deduction of the credit for international double taxation from the amount assessed as autonomous taxation should also occur.
Now, as the expression itself induces, this tax credit only makes sense if taxpayers declare income earned abroad and as to the company's activity exercised abroad that generated that income. It would be impossible for there to exist expenses or charges carried out in Portugal that could be taxed here, since the territorial scope of Corporate Income Tax seems only to encompass income and not the carrying out of expenses (no. 1 of article 4 of the Corporate Income Tax Code).
Identical reasoning will serve to verify that the regime of no. 4 of article 90 of the Corporate Income Tax Code does not prevent what was concluded above, since such entities will carry out in the country where they have seat or effective management, the expenses and charges referred to in article 88 of the CIRC, but not in Portugal.
Also, the appeal made to the genesis of the creation of the RFAI regime will not prevent the application to the case of paragraph c) of no. 2 of article 90 of the Corporate Income Tax Code to the Corporate Income Tax collection produced by the application of autonomous taxation rates, referring that "at the basis of the grant of such tax benefit is the realization of an investment", "investment that is realized with a view to obtaining income taxed in Corporate Income Tax", that "… is not realized for the realization of an expense specifically provided for in the law taxed for autonomous taxation purposes", whereby "understanding that the tax benefit in question corresponds only to the deduction from the Corporate Income Tax collection (not encompassing autonomous taxation) is based on the prior realization of an investment with a view to obtaining income", concluding that "what the legislator intended was the following: if the taxpayer realizes a certain investment, it will have the right to a tax benefit to the income that will obtain resulting from that investment".
In truth it will not be strictly what results, or is supposed to result, from the RFAI regime.
In accordance with paragraph f) of no. 3 of article 2 of the RFAI: "Corporate Income Tax taxpayers may benefit from the tax incentives provided for in this regime that cumulatively meet the following conditions:
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Make relevant investment that provides for the creation of jobs and their maintenance until the end of the deduction period … " (4 years).
Now, the creation and maintenance of jobs being one of the "sine qua non" purposes of the functioning of the RFAI, this increase and maintenance of jobs will certainly allow the company to realize more expenses with vehicles (nos. 3 and 5 of article 88 of the Corporate Income Tax Code), representation expenses, allowances and travel expenses in own vehicle (nos. 7 and 8 of article 88 of the Corporate Income Tax Code).
And that these expenses are high in the case of the Fiscal Group in question is derived from the simple reading of fields 11 of the Model 22 declarations attached with the designation of Documents nos. 1 to 3 to the request for pronouncement.
Indeed from the type of eligible investments for the RFAI, eg: "Investment in tangible fixed assets in new condition" and "Investment in intangible fixed assets, consisting of expenses with technology transfer in particular through the acquisition of patent rights, licenses, know-how or technical knowledge not protected by patent", will certainly enhance the creation and maintenance of a high type of jobs capable of allowing further realization of expenses and costs that constitute the tax base subject to autonomous taxation rates in Corporate Income Tax.
It will not, therefore, be sustainable to point out as the sole purpose of the RFAI the potential to enhance the increase of (taxable) profit of companies, through the possibility of the increase of their income generating more taxation in Corporate Income Tax proper, beyond the extrafiscal purposes of increase and maintenance of employment levels, modernization and competitiveness of the economy.
Reimbursement of amounts paid and compensatory interest
The Claimant further requests the reimbursement of the amounts of € 465,434.87 and € 393,716.05, which it paid, corresponding to the amounts of Corporate Income Tax by way of the application of autonomous taxation rates on which the RFAI tax benefit can be deducted.
It further requests interest calculated on € 465,434.87 and € 393,716.05, counted from the end of the date for official reimbursement of tax, that is, from 1 September 2013 and 1 September 2014, respectively (article 104, no. 3, of the Corporate Income Tax Code), until full reimbursement of said amount.
In accordance with the provision of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, this should, in the exact terms of the procedural success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of decisions of judicial tax courts, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been acted upon, adopting the necessary acts and operations for that purpose", which is in line with the provision of article 100 of the LGT (applicable by virtue of the provision in paragraph a) of no. 1 of article 29 of the RJAT) which establishes that "the tax administration is obliged, in case of total or partial procedural success of a complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject of the litigation, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".
Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals that function in CAAD, making no reference to condemnatory decisions, it should be understood that the competence includes the powers that, in judicial challenge proceedings, are attributed to tax courts, this being the interpretation that is in line with the meaning of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first guideline, that "the tax arbitration process should constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
The judicial challenge process, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as inferred from article 43, no. 1, of the LGT, which establishes that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due" and article 61, no. 4 of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which "if the decision that recognized the right to compensatory interest is judicial, the payment period runs from the beginning of the period of its spontaneous execution".
Thus, no. 5 of article 24 of the RJAT, when it says that "payment of interest is due, regardless of its nature, in accordance with the provisions of general tax law and the Code of Procedure and Tax Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitration process.
It is therefore necessary to appreciate the request for reimbursement of the amount unduly paid, plus compensatory interest.
In the case at hand, it is clear that, as a consequence of the illegality of the assessment acts, there is a place for reimbursement of the tax paid, by virtue of the referred articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been acted upon".
The substantive regime of the right to compensatory interest is regulated in article 43 of the LGT, which establishes, in what here concerns, the following:
Article 43
Undue payment of the tax debt
1 – Compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due.
2 – There is also considered to be error attributable to the services in the cases in which, despite the assessment being made based on the declaration of the taxpayer, this one has followed, in its completion, the generic guidelines of the tax administration, duly published.
The illegality of the gracious complaint decision is attributable to the Tax Administration, which rejected it on its own initiative.
With regard to self-assessments, which were made by the Claimant, it is to be understood that the error that affects it is attributable to the Tax Administration, by the fact that it has been proven that the structure of the Model 22 declaration of Corporate Income Tax did not permit the Claimant to make the self-assessment by deducting the RFAI tax benefit from the amount of autonomous taxation.
On the other hand, having resulted from the self-assessment tax to recover (fields 368 of the declarations whose copies constitute documents nos. 1, 2 and 3, attached with the request for arbitral pronouncement), it should be understood that the payment is made from the date of filing of the first declaration of the period and should be reimbursed until 31-08-2013 and 31-08-2014, respectively those filed in May 2013 and in May 2014, in accordance with article 104, no. 3, of the CIRC, in the wording then in effect.
Consequently, the Claimant has the right to compensatory interest, in accordance with articles 43, no. 1, of the LGT and 61 of the CPPT, from 01-09-2013 as to the amount of € 465,434.87 and from 01-09-2014 as to the amount of € 393,716.05.
Compensatory interest is due on the referred amounts, at the legal default rate, in accordance with articles 43, nos. 1, and 35, no. 10 of the LGT, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or other or others that alter the legal rate), from the dates indicated above and until full reimbursement.
V. OPERATIVE PART
By which this Arbitral Tribunal agrees to rule that the request for arbitral pronouncement is justified and consequently:
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Declare the illegality of the order of 17-08-2015, of the Chief of the Division of Management and Tax Assistance of the Large Taxpayers Unit and annul it in the part in which it rejected the Claimant's claim to deduct RFAI credits from the amounts € 465,434.87 (2012) and € 393,716.05 (2013) relating to the collection of autonomous taxation in Corporate Income Tax of the respective financial years;
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Declare the illegality of the self-assessments and annul them in the part in which RFAI credits were not deducted from the amounts of € 465,434.87 (2012) and € 393,716.05 (2013) relating to the collections of autonomous taxation in Corporate Income Tax;
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Condemn the Portuguese Tax and Customs Authority to reimburse the Claimant the amount of € 859,150.92;
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Condemn the Portuguese Tax and Customs Authority to pay the Claimant compensatory interest calculated at the legal default rate, from 31-08-2013 and 31-08-2014, exclusive, on the amounts of € 465,434.87 and € 393,716.05, respectively and until full reimbursement.
Value of the case: in accordance with the provision of article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and paragraph a) of no. 1 of article 97-A of the CPPT), the case is valued at 859,150.92 euros.
Costs: in accordance with the provision of article 22, no. 4, of the RJAT, the amount of costs is fixed at € 12,240.00 according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Respondent.
Notify.
Lisbon, 28 April 2016
The Arbitrators,
(José Baeta Queiroz)
(Óscar Barros)
(Augusto Vieira)
Text prepared by computer in accordance with the provision of article 131, no. 5, of the CPC, applicable by referral of article 29 of the RJAT.
The wording of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.
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