Process: 662/2016-T

Date: July 20, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD arbitration case 662/2016-T addressed a critical IRC job creation tax benefit dispute under Article 19 of the Portuguese Tax Benefits Statute (EBF). The taxpayer company challenged the partial approval of its administrative appeal regarding IRC self-assessment for 2013, specifically contesting how the tax authority calculated employment cost increases (majoração) for workers hired mid-year on indefinite-term contracts. The central legal question focused on whether the statutory ceiling of 14 times the guaranteed minimum monthly remuneration must be prorated when employees work less than a full year. The applicant argued that Article 19(3) EBF establishes a 'maximum annual increase amount' without requiring proportional adjustments, supported by historical legislative analysis showing the 2002 amendment shifted from monthly to annual calculation methodology. The Tax Authority countered that proportional limitation is implicit because the benefit's duration-dependent nature (five-year period) demands consistent temporal application, warning that the applicant's interpretation creates unconstitutional inequality by arbitrarily favoring companies hiring outside January 1st. The case exemplifies complex interpretative challenges in Portuguese tax incentive legislation, particularly regarding benefits designed to encourage permanent employment of young workers and long-term unemployed persons. The dispute also raised questions about compensation interest liability when self-assessment errors occur. This decision provides important guidance for corporate groups calculating IRC deductions under employment incentive schemes and demonstrates CAAD's role in resolving technical tax benefit calculation disputes.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, S.A., as the parent company of group B…, taxpayer no.…, with registered office at …, no.…, … –…Lisbon, hereinafter referred to as the Applicant, filed on 02/11/2016 a request for arbitral pronouncement, in which it seeks the declaration of illegality of the act of self-assessment of Corporate Income Tax (IRC) for the tax year 2013, in the contested part, with the consequent annulment of the act of partial approval of the administrative appeal in the contested part and the condemnation of the Respondent to payment of compensation interest.

1.2. His Excellency the President of the Deontological Council of the Center for Administrative Arbitration (CAAD) appointed on 04/01/2017 as arbitrator, Francisco Nicolau Domingos.

1.3. On 20/01/2017 the arbitral tribunal was constituted.

1.4. In compliance with the provision of art. 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT) the Respondent was notified on 27/01/2017 to, if it so wished, submit a response, request the production of additional evidence and to forward the administrative file (PA).

1.5. On 24/02/2017 the Respondent submitted its response, in which it argues for the dismissal of all claims filed by the Applicant.

1.6. The tribunal determined on 01/06/2017 the notification of the Applicant to indicate the factual points of its pleading on which it intended to examine the witnesses listed.

1.7. The Applicant came before the court on 05/06/2017 to renounce the production of witness evidence.

1.8. The tribunal on 12/06/2017, in the face of the Applicant's renunciation of the production of witness evidence, decided to dispense with the holding of the meeting referred to in art. 18, no. 1 of the RJAT, on the grounds of the principle of autonomy of the arbitral tribunal in the conduct of the proceedings and in the determination of the rules to be observed with a view to obtaining, within a reasonable period, a pronouncement on the merits regarding the claims filed, cf. art. 16, al. c) of the RJAT, granted 5 days for the parties, if they so wished, to submit final written submissions and set a date for the rendering of the arbitral decision.

1.9. The parties did not submit final written submissions.

2. POSITIONS OF THE PARTIES

The Applicant considers that the decision of express and partial approval of the administrative appeal and of the self-assessment of IRC in the part relating to the tax benefit for job creation is illegal, due to error in the legal premises.

Specifically, it argues that the interpretation of art. 19 of the Tax Benefits Statute (EBF) should be constructed based on the following premises: i) the benefit enshrined by the legislator with the purpose of constituting an incentive to companies in the hiring of workers through indefinite-term contracts consists of the increase, for IRC purposes, of the cost that the company has with these workers; ii) that it is only legitimate to benefit from the benefit when resorting to indefinite-term contracting of young people or long-term unemployed; iii) only the net balance of new workers is relevant, that is, it requires that the number of workers entering the company's workforce in relation to those who leave it in the same period is greater (and who at the date they were hired were eligible for the purpose of the benefit) and iv) the increase in cost effected by this benefit presents a ceiling from which it becomes inoperative – 14 times the guaranteed minimum monthly remuneration – with the benefit being greater for those young people and long-term unemployed who will have more difficulty entering the labour market, since they will have lower salaries.

The disagreement between the Applicant and the Respondent is precisely in the interpretation of art. 19, no. 3 of the EBF, that is, in the amount of the benefit in the first and last year of application of the increase.

Indeed, when workers are not in the service of the employer for the full year, the Respondent understands that the increase in salary expenses should be compared with the limit defined by law weighted by the number of months of actual service. On the contrary, the Applicant understands that the normative reference to "maximum amount of annual increase" points in the opposite direction to that defended by the Respondent, since in the said article there is no allusion to the need to make a proportion, an omission that also occurs in art. 19, no. 1 of the EBF.

To support this position, it argues that the historical analysis of the normative provision equally points in the direction advocated by it, since, with the wording introduced in 2002, the increase was limited to the amount corresponding to 14 times the guaranteed minimum monthly remuneration, whereas in the previous text the monthly remuneration could not exceed 14 times the highest monthly minimum salary.

In summary, it argues that it is not clear how, from the letter of the law or its spirit, one can infer, by any interpretative criterion (other than the collection of tax revenue) that, in the first and last year of the benefit, for workers who do not begin duties on 1 January, there must be a sort of pro rata of the limit of 14 times the guaranteed minimum monthly remuneration.

It concludes by requesting the condemnation of the Respondent to payment of compensation interest, as it understands that, had the tax benefit been considered in its entirety, C…, S.A., D…, S.A. and E…, S.A. would have paid less municipal surtax and the first company less state surtax.

The Respondent in its response argues that, if the tax benefit of increased charges of employment contracts concluded depends on its duration, as is apparent from the law, such condition implies a proportional restriction of the maximum limit of the increase provided, in cases where the worker does not work the full year or, in cases where the five years of duration of the contract are completed before the end of the financial year. If it were not so, it would be permitted for companies benefiting from the benefit to enjoy the legal increase at the full amount of the limit, even when the respective employment contract had only a partial duration, and it is certain that the increase is always linked to the duration of the employment contract and to the 5-year period established by law.

It also states that, if the interpretation of art. 19, no. 3 of the EBF is that the limit of the increase operates in absolute terms and not in proportion in the years of start and end of the benefit (by reference to the 5-year duration of the benefit), it is affected by material unconstitutionality, due to violation of the principle of equality, in the dimension of the prohibition of arbitrariness. The unequal treatment lacks justification that materially legitimizes the positive discrimination of companies that create jobs with start dates different from the first year.

It concludes, as regards compensation interest, arguing that, if the determination of the tax is the responsibility of the Applicant, the error that determines payment can only be attributable to the Applicant. Consequently, as the main claim is dismissed, the claim for payment of compensation interest should also fail.

Thus, these are the matters that the tribunal must decide:

i) Whether the act of partial approval of the administrative appeal is illegal;

ii) Whether the interpretation defended in the proceedings by the Applicant violates the principle of equality;

iii) Whether there is grounds for the payment of compensation interest.

3. SANITATION

The proceedings do not suffer from defects; the arbitral tribunal is properly constituted and is materially competent to decide the claim, and consequently the conditions are met for the final decision to be rendered.

4. FACTS

4.1. Facts considered proven

4.1.1. The Applicant is the parent company of a corporate group taxed under IRC with source in the Special Tax Regime for Groups of Companies (RETGS).

4.1.2. In the tax year 2013, in addition to the Applicant, 27 companies listed below were part of the scope of the group taxed under RETGS: a) C…, S.A.; b) D…, S.A.; c) E…, S.A.; d) F…, Lda.; e) G…, S.A.; f) H…, S.A.; g) I…, S.A.; h) J…– SGPS, S.A.; i) K…, S.A.; j) L…, S.A.; l) M…, S.A.; m) N…, S.A.; n) O…, S.A.; o) P…, S.A.; p) Q…, S.A.; q) R… SGPS, S.A.; r) S…, Lda.; s) T…, S.A.; t) U…, S.A.; u) V…, S.A.; v) W…, S.A.; x) X…, S.A.; z) Y…, S.A.; aa) Z…, S.A.; bb) AA… SGPS, S.A.; cc) BB…, S.A. and dd) CC…, Lda..

4.1.3. The Applicant filed on 27/01/2016 a tax return model 22 for IRC as a replacement for the tax group, pursuant to the provision of art. 122, no. 1 of the Corporate Income Tax Code (CIRC), from which resulted a taxable profit of the group subject to RETGS in the amount of € 378,568,179.84.

4.1.4. The tax payable resulting from that self-assessment was € 39,395,341.63.

4.1.5. In C…, S.A., in the tax year 2013, there were 57 workers who met the requirements for the company to increase for tax purposes the costs of remuneration.

4.1.6. Of these workers, there were 10 who were no longer eligible for the benefit.

4.1.7. The total tax benefit considered in the self-assessment of IRC was in that year € 370,080.03, as it only increased the costs incurred with these workers in proportion to the number of months they were in the service of the company.

4.1.8. As C…, S.A. increased the costs incurred with these workers in proportion to the months they were in the service of the company, it deducted € 10,185.00 less.

4.1.9. In D…, S.A., in the tax year 2013, there were 493 workers who met the requirements for the company to increase for tax purposes the costs of remuneration.

4.1.10. Of these 493 workers, 57 workers joined the company's staff from February 2013 and 34 were no longer eligible for the benefit.

4.1.11. The total tax benefit considered in the self-assessment of IRC was in that year € 3,050,407.50, as it only increased the costs incurred with these workers in proportion to the number of months they were in the service of the company.

4.1.12. As D…, S.A. increased the costs incurred with these workers in proportion to the months they were in the service of the company, it deducted € 205,839.19 less.

4.1.13. In E…, S.A., in the tax year 2013, there were 12 workers who met the requirements for the company to increase for tax purposes the costs of remuneration.

4.1.14. Of these 12 workers, 4 joined the company's staff in different months of the year 2013.

4.1.15. The total tax benefit considered in the self-assessment of IRC was in that year € 66,202.50, as it only increased the costs incurred with these workers in proportion to the number of months they were in the service of the company.

4.1.16. As E…, S.A. increased the costs incurred with these workers in proportion to the months they were in the service of the company, it deducted € 9,720.85 less.

4.1.17. In F…, Lda. in the tax year 2013, there were 33 workers who met the requirements for the company to increase for tax purposes the costs of remuneration.

4.1.18. Of these 33 workers, 23 joined the company's staff in different months of the year 2013 and 3 were no longer eligible for the benefit.

4.1.19. The total tax benefit considered in the self-assessment of IRC was in that year € 119,390.83, as it only increased the costs incurred with these workers in proportion to the number of months they were in the service of the company.

4.1.20. As F…, Lda. increased the costs incurred with these workers in proportion to the months they were in the service of the company, it deducted € 18,306.76 less.

4.1.21. In G…, S.A., in the tax year 2013, there were 19 workers who met the requirements for the company to increase for tax purposes the costs of remuneration.

4.1.22. Of these 19 workers, 1 was no longer eligible for the benefit.

4.1.23. The total tax benefit considered in the self-assessment of IRC was in that year € 122,220.00, as it only increased the costs incurred with these workers in proportion to the number of months they were in the service of the company.

4.1.24. As G…, S.A., increased the costs incurred with these workers in proportion to the months they were in the service of the company, it deducted € 1,826.82 less.

4.1.25. The total amount that was not deducted by the companies identified above was € 245,878.62.

4.1.26. The Applicant filed an administrative appeal of the tax act of "self-assessment" relating to the tax period 2013 to which was assigned no. …2016….

4.1.27. The administrative appeal was partially approved by dispatch dated 19/07/2016 and notified to the Applicant on 04/08/2016.

4.1.28. The request for constitution of the tribunal and for arbitral pronouncement was filed on 02/11/2016.

4.2. Facts not considered proven

4.2.1. That the IRC assessed for the tax year 2013 has been paid.

There are no other facts with relevance to the arbitral decision that have not been given as proven.

4.3. Grounds for the facts considered proven

The facts given as proven have their origin in the documents used for each of the alleged facts and whose authenticity was not called into question.

4.4. Grounds for the facts not considered proven

No document was attached to the file that demonstrates unequivocally the payment of the tax.

5. MATTERS OF LAW

5.1. Issue of illegality of the partial approval dispatch due to error in legal premises

The disputed issue in these proceedings consists in determining whether the tax benefit provided for in art. 19 of the EBF should be adjusted proportionally, in the fixing of the maximum limit of the increase, in those hypotheses in which the employment contracts eligible in light of the said article cease or begin during the tax period.

The Applicant argues that the maximum limit of the increase relates to the annual amount, regardless of the period in which the employment contracts were in force; on the contrary, the Respondent argues that in quantifying this it should take into account the effective duration of the contracts in the year of admission and in the year of termination.

The issue is not settled in the case law itself, since, if in arbitral decision no. 212/2013-T, of 26/02/2014 in which Counsellor JORGE LOPES DE SOUSA acted as arbitrator-president, it was concluded that the legislator did not intend for a proportional increase to be calculated in relation to the period of duration of the employment contracts in the initial and final year[1].

In the opposite sense, in arbitral decision no. 129/2016-T, of 16/10/2016 in which Justice of the Peace JOSÉ PEDRO CARVALHO acted as arbitrator-president, it was understood that there is a violation of the principle of equality, observing that: "...accepting, as did the decision in case 212/2013-T, and as the Applicant intends, that the maximum limit for the increase established in no. 3 is applicable, tout court, to all years, especially, to the first and last year, when the admission of the worker eligible for the purpose of the tax benefit in question does not occur on the first day of the tax year of the employer, one would be generating a situation of inequality, among the beneficiaries of the tax benefit, without axiological basis to justify it and in a completely arbitrary manner.".

The tribunal states, ahead of time, that it identifies itself with the interpretation carried out in the two first decisions and whose reasoning it will follow closely.

Let us then examine the wording of art. 19 of the EBF, as of 31 December 2013:

"1 – For the determination of taxable profit of IRC taxpayers and of IRS taxpayers with organized accounting, the charges corresponding to net creation of jobs for young people and for long-term unemployed, admitted by indefinite-term employment contract, are considered at 150% of their respective amount, accounted for as an expense of the financial year.

2 - For the purposes of the provision in the preceding number, the following are considered:

a) "Young people" workers with age greater than 16 and less than 35 years, inclusive, verified on the date of conclusion of the employment contract, with the exception of young people under 23 years of age, who have not completed secondary education, and who are not attending an education-training offer that allows raising the level of schooling or professional qualification to ensure the completion of that level of education;

b) "Long-term unemployed" workers available for work, under the terms of Decree-Law no. 220/2006, of 3 November, who are unemployed and registered at employment centres for more than 9 months, without prejudice to the fact that, during that period, term contracts for a period of less than 6 months may have been concluded, whose combined duration does not exceed 12 months;

c) "Charges" the amounts borne by the employer with the worker, by way of fixed remuneration and contributions for social security borne by the same entity;

d) "Net creation of jobs" the positive difference, in a given financial year, between the number of eligible hiring in accordance with no. 1 and the number of departures of workers who, at the date of their respective admission, were in the same conditions.

3 - The maximum amount of annual increase, per job, is that corresponding to 14 times the guaranteed minimum monthly remuneration.

4 - For the purposes of the determination of net job creation, workers who are part of the family unit of the respective employer are not considered.

5 - The increase referred to in no. 1 applies during a period of five years from the beginning of the duration of the employment contract, and is not cumulative, either with other tax benefits of the same nature, or with other employment support incentives provided for in other legal instruments, when applicable to the same worker or job.

6 - The regime provided for in no. 1 may only be granted once per worker admitted to that entity or to another entity with which there are special relations under the terms of article 63 of the IRC Code.".

The starting point of the interpretive activity that the tribunal is obliged to undertake must consist in determining its premises.

In the field of tax benefits, the legislator is obliged to: "...use precise language in the rules that grant the benefits, using the concepts that it uses in the traditional sense.", decision of the Supreme Administrative Court rendered in the context of case no. 0152/10, of 05/05/2010 and in which Counsellor VALENTE TORRÃO was the rapporteur.

In the hermeneutic activity of the rules that establish tax benefits, it is also necessary to state that analogical integration is prohibited, but this allows extensive interpretation, as art. 10 of the EBF provides.

In truth, the principle of legality prevents the tax administration or a court from integrating a potential gap that may exist in a tax rule that provides for a tax benefit, although, strictly speaking, there are no gaps in this field. Situations not provided for as exempt from tax are excluded from the scope of the exemption rule.

In the case in question and using such premises, there is not found in the wording of art. 19, no. 3 of the EBF the obligation for the interpreter to make the adjustment of the increase, that is, that it be reduced proportionally to the period of duration of the eligible employment contracts in the initial and final year to which the five years described in art. 19, no. 5 of the EBF relate. On the contrary, the legislator in art. 19, no. 3 refers to the "maximum amount of annual increase".

Thus and assuming that the legislator used precise language, as taught to us by the case law cited above, there is no way to conclude that adjustment in the increase should be made based on the effective duration of the employment contracts.

This preliminary conclusion is reinforced by resorting to the historical element of interpretation when it is found that, with the 2003 State Budget[2], the maximum amount of the tax benefit (14 times the highest national minimum salary) to be considered ceased to relate to monthly charges per job and began to refer to the annual amount of the increase per job. Thus, with the legislative amendment, a substantial reduction in the benefit granted to companies was undertaken[3].

On the other hand, the legislative purpose that justifies the benefit is found in the stimulus to employment in which the legal relationship with the employer is endowed with stability and security, that is, the teleological element is compatible with either of the competing interpretations, but especially does not point to an interpretation that limits the scope of the tax benefit. And as is argued in arbitral decision no. 212/2013-T, of 26/02/2014 in which Counsellor JORGE LOPES DE SOUSA acted as arbitrator-president: "...the only reason that, abstractly, could explain other limitations on the increase, not expressly provided for, would be the maximization of tax revenue, and that reason does not hold when interpreting rules that provide for tax benefits, which are justified by extrafiscal reasons. In truth, underlying the establishment of the tax benefit cannot exist a legislative design to increase tax revenue, as one is faced with situations in which the law considers that to this fiscal interest must be overlaid "relevant extrafiscal public interests that are superior to taxation itself that prevent"...".

Still, it will be legitimate to question: will it be permissible to admit a restrictive interpretation of art. 19, no. 3 of the EBF?

It is understood that it will not, that is, grounds are seen to admit the maximum annual increase, regardless of the duration of the contract eligible for the tax benefit.

Art. 18, no. 1 of the CIRC provides that: "Income and expenses, as well as other positive or negative components of taxable profit, are attributable to the tax period in which they are obtained or borne, regardless of their receipt or payment, in accordance with the economic accrual regime.", that is, the determination of taxable profit is made in accordance with each tax period which, as a rule, coincides with the calendar year, after the end of the financial year, since the fact that triggers the tax occurs on the last day of the tax period, art. 8, no. 9 of the CIRC.

Consequently, it is by reference to the last day of the tax period that the taxpayer is obliged to determine the charges that are accounted for as costs of the respective financial year and that were borne with workers who meet the conditions of art. 19, no. 1 of the EBF.

Thus, this operation of determining taxable profit relating to each financial year is referred to the last day thereof and, as such, there is no need to consider the tax facts that occur thereafter, which will be considered in the determination of the taxable profit of another financial year – art. 18 of the CIRC.

The total amount that is accounted for as an expense of the financial year is increased, for tax purposes, by 50%, and this value of the increase must be expressly referred to in the model 22 declaration.

The determination of taxable profit carried out in accordance with the above exposed presupposes that, at the end of each financial year, the taxpayer has the possibility to determine the increase from which it can benefit, since it is this that should be included in the tax return.

In summary, the thesis of annual increase proportional to the duration of the employment contracts is rejected, and thus, the dispatch of partial approval of the administrative appeal is illegal, due to error in legal premises.

5.2. Issue of violation of the principle of equality

The Respondent, in its response, argues that the interpretation of the Applicant that the increase relates to the annual amount, regardless of the duration of the eligible employment contracts and that the limit of the increase operates in absolute terms and not in proportion in the years of start and end of the benefit is unconstitutional, due to violation of the principle of equality.

The provision of tax benefits, even if justified by the pursuit of ends of public interest, does not cease, on the normative level, to establish particular regimes of taxation and, as such, treats dissimilarly situations subject to the same tax. Although the promotion measures provided for aim to achieve ends or interests socially and economically valuable and, for this reason, do not translate into arbitrary discriminations without any legal basis.

Thus, if tax benefits already constitute a departure from the rules that ensure taxation according to capacity to contribute, the requirements of the constitutional principle of equality do not translate into an obstacle to the provision of fiscally privileged regimes.

Consequently, the issue of violation of the principle of equality should be placed in tax benefits that are founded on conduct rules whose compliance produces fiscal effects, regarding the conditions of access and not in relation to the contours in which they are provided.

The access to the tax benefit in question depends on the conduct of the taxpayer, who is free to choose to fulfill the conditions normatively established and thus benefit from this, or not comply with them and not enjoy the measure. And if the effects of the tax benefit change according to the moment in which its conditions are fulfilled, it will depend on the will of the taxpayer to opt for the fulfillment of these, in a way that allows them to optimize their effects.

Thus, in tax benefits dependent on the options of taxpayers there will not be discriminatory treatment offensive to the principle of equality by the rule that establishes these effects, but only if there is arbitrary distinction without any legal basis in the conditions of access.

Reverting such interpretation to the present proceedings, it is found that there is no arbitrary discrimination in the conditions of access to the tax benefit in question. The different effects that may arise in the increase are attributable to the choices of the taxpayer and not to a discriminatory law.

In summary, with the interpretation defended by the Applicant there is no discriminatory treatment violating the principle of equality provided for in art. 13 of the Constitution of the Portuguese Republic (CRP).

5.3. Issue of condemnation to payment of compensation interest

The Respondent, in this regard, argues that if the determination of the tax is the responsibility of the Applicant, the error that determines payment of the type of interest in question can only be attributable to the Applicant.

It is thus necessary to address the claim for condemnation to payment of compensation interest.

Art. 43, no. 1 of the General Tax Law (LGT) provides that: "Compensation interest is due when it is determined, in administrative appeal or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount higher than legally due". In other words, there are three requirements for the right to the said interest: i) existence of an error in a tax assessment act attributable to the services; ii) determination of such error in administrative appeal or judicial challenge proceedings and iii) payment of tax debt in an amount higher than legally due.

Thus, it is immediately possible to formulate an initial question: is it admissible to determine the payment of compensation interest in tax arbitral proceedings? The answer to the question is affirmative. Indeed, art. 24, no. 5 of the RJAT provides that: "Payment of interest, regardless of its nature, is due in accordance with the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process".

And facing the self-assessment, one could ask: is there an error attributable to the services in the present hypothesis?

Doctrine answers the question as follows: "In situations where the practice of the act that defines the tax debt falls to the taxpayer (as occurs, in particular, in the said cases of self-assessment, withholding at source and advance payments), as well as in those in which the act is practiced by the Tax Administration based on wrong information provided by the taxpayer and there is grounds for administrative challenge (administrative appeal or hierarchical appeal), the error will become attributable to the Tax Administration after the possible dismissal of the claim filed by the taxpayer, that is, from the moment when, for the first time, the Tax Administration takes a position on the situation of the taxpayer, having at its disposal the necessary elements to render a decision with correct premises.", JORGE LOPES DE SOUSA, Code of Tax Procedure and Process – annotated and commented, I volume, 6th edition, Áreas Editora, 2011, p. 537.

Consequently, the claim for condemnation to payment of compensation interest is dismissed, in so far as there is no sufficient proof in the file that the tax has been paid.

6. DECISION

In these terms and with the grounds described above, it is decided to judge:

i) that the claim for annulment of the decision of partial approval of the administrative appeal in the contested part is upheld;

ii) that the issue of unconstitutionality raised by the Respondent is dismissed;

iii) that the claim for condemnation to payment of compensation interest is dismissed.

It is further determined that notification be made to the Attorney General of the Republic, for the purposes described in art. 280, no. 5 of the CRCP.

7. VALUE OF THE CASE

The value of the case is fixed at € 15,287.56, in accordance with art. 97-A of the Code of Tax Procedure and Process (CPPT), applicable by virtue of the provision in art. 29, no. 1, al. a) of the RJAT and of art. 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne entirely by the Respondent, in the amount of € 918, cf. art. 22, no. 4 of the RJAT and Table I attached to the RCPAT.

Notify.

Lisbon, 20 July 2017

The arbitrator,

(Francisco Nicolau Domingos)

[1] This interpretive sense was also endorsed in arbitral decision no. 628/2016-T, of 06/04/2017 in which Counsellor JORGE LOPES DE SOUSA acted as arbitrator-president.

[2] Law no. 32-B/2002, of 30 December.

[3] At the time, the benefit was provided for in art. 17 of the EBF.

Frequently Asked Questions

Automatically Created

What is the job creation tax benefit under Article 19 of the Portuguese Tax Benefits Statute (EBF) for IRC purposes?
The job creation tax benefit under Article 19 EBF allows companies to increase their deductible employment costs (majoração) for IRC purposes when hiring workers on indefinite-term contracts. Specifically, the benefit applies to young workers and long-term unemployed individuals, permitting an enhanced deduction of salary expenses up to a ceiling of 14 times the guaranteed minimum monthly remuneration per worker. The incentive operates for five years from the contract start date and requires a net positive balance of new eligible workers (more hires than departures). The benefit effectively reduces taxable income by allowing greater-than-actual employment cost deductions, incentivizing permanent rather than fixed-term hiring.
Can a company claim IRC tax benefits for hiring employees on permanent contracts under Article 19 EBF?
Yes, companies can claim IRC tax benefits under Article 19 EBF for hiring employees on permanent (indefinite-term) contracts, but only when specific conditions are met. The hired workers must be either young people or long-term unemployed at the time of hiring. The company must demonstrate a net increase in its workforce of eligible workers (comparing entries versus exits during the period). The benefit applies for five consecutive years from each qualifying contract's commencement. Importantly, the enhanced cost deduction is capped at 14 times the guaranteed minimum monthly remuneration annually per worker, with the benefit being more valuable for lower-paid workers who face greater labor market entry barriers.
What are the legal requirements for the IRC job creation incentive regarding young workers and long-term unemployed?
The legal requirements for IRC job creation incentives under Article 19 EBF mandate: (1) employment contracts must be indefinite-term (permanent), not fixed-term arrangements; (2) workers must qualify as either young people or long-term unemployed at hiring date; (3) the company must achieve a net positive workforce increase - more eligible workers hired than departed during the relevant period; (4) the majoração (cost uplift) is limited to 14 times the guaranteed minimum monthly remuneration per worker annually; (5) the benefit duration is five years from each contract's start; and (6) only actual salary expenses qualify, with the benefit providing greater value for workers with lower remuneration, targeting those with harder labor market access.
How does the CAAD arbitration process work for challenging an IRC self-assessment and partial gracious complaint decision?
The CAAD arbitration process for challenging IRC self-assessments begins with filing an arbitration request, as occurred on 02/11/2016 in this case. The CAAD President appoints an arbitrator (appointed 04/01/2017), who constitutes the arbitral tribunal. The Tax Authority is notified to submit a response and forward the administrative file (PA) within statutory deadlines. Parties may request witness evidence and document production. The tribunal has autonomy to conduct proceedings efficiently under RJAT Article 16, including discretion to dispense with hearings when appropriate (as occurred here when the applicant renounced witness evidence). Parties may submit final written submissions before the tribunal issues its arbitral decision. This specialized administrative arbitration provides an alternative to traditional tax court litigation for resolving IRC disputes.
What role does the cost majoração (uplift) play in the IRC job creation benefit for companies hiring without fixed-term contracts?
The cost majoração (uplift) under Article 19 EBF's IRC job creation benefit allows companies to deduct more than their actual employment expenses for tax purposes, effectively creating a tax savings incentive. When hiring eligible workers on indefinite-term contracts, companies can increase their deductible salary costs beyond amounts actually paid, up to the statutory ceiling of 14 times the guaranteed minimum monthly remuneration per worker annually. This majoração mechanism reduces taxable IRC income, lowering the company's overall tax liability. The disputed issue in this case centered on whether this maximum limit must be prorated when workers are employed for less than a full year (first or last year of the five-year benefit period), with the applicant arguing no proportional reduction applies under Article 19(3) EBF's 'maximum annual increase' language.