Summary
Full Decision
ARBITRAL DECISION
Arbitrator Raquel Franco, designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the sole arbitral tribunal constituted on 26 January 2017, decides as follows:
I. REPORT
1) Procedural Framework
On 07-11-2016, the company "A…, S.A.", NIPC…, submitted a request for constitution of a sole arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority is the Respondent.
The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority on 28-11-2016.
In accordance with the provisions of subsection a) of article 6(2) and subsection b) of article 11(1) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrator of the sole arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period and notified the parties of this designation on 11-01-2017.
Thus, in accordance with the provision of subsection c) of article 11(1) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 26-01-2017, followed by the pertinent legal procedures.
2) Summary of Arguments Invoked by the Claimant
The request of the Claimant concerns the decision of the Tax and Customs Authority – Large Taxpayers Unit (UGC) – which was notified to it on 18.08.2017 and which dismissed the ex officio review request no. …2016…, relating to corporate income tax (IRC) for 2012, submitted by it on 24 March 2016.
The grounds of the request are as follows:
The Claimant – previously named B…, S.A. – was the parent company of a group of companies taxed under the Special Tax Regime for Groups of Companies (RETGS), hereinafter referred to as Group C… (or Group) in the tax period of 2012.
The scope of Group C… to which RETGS was applied in the said tax periods was composed of the following companies:
a. The Claimant, as parent company of the Group;
b. D…, S.A., with NIPC…;
c. E…, S.A., with NIPC…;
d. F…, S.A., with NIPC…;
e. G…, S.A., with NIPC…;
f. H…, S.A., with NIPC…, which joined the fiscal group on 1 January 2012.
The RETGS Group, dominated by the Claimant, carried out its activity in 2012 in the real estate sector through the purchase and sale of real property, leasing, promotion of real estate projects and related activities.
The Claimant submitted the IRC Group Form 22 declaration for the tax period of 2012 on 31 May 2013.
According to the information made available in the Claimant's area on the AT website, the total amount of Special Installment Payments (PEC) effectively paid and capable of deduction at that date in the tax period of 2011, which was entered in field 356 of table 10 of the IRC Group Form declaration, amounted to €99,395.20.
The Claimant submitted a request for ex officio review of the self-assessed corporate income tax (IRC) act requesting the deduction of PEC against autonomous taxation for the tax period of 2011, which was dismissed.
In the event that the said ex officio review request had been granted, as the Claimant expected, the amount of PEC paid in 2008 capable of deduction in the tax period of 2012 would have been reduced to €32,063.24 (thirty-two thousand and sixty-three euros and twenty-four cents), which would have represented a PEC deduction against autonomous taxation for the tax period of 2011 of €2,185.16 (two thousand, one hundred and eighty-five euros and sixteen cents) and from which would have resulted a final PEC amount capable of deduction of €97,210.04 (ninety-seven thousand, two hundred and ten euros and four cents; €99,395.20 – €2,185.16) in the tax period of 2012.
As that request was not granted, the amount of €99,395.20 remained available for deduction from the IRC collection for the tax period of 2012, for which reason it was entered in field 356 of table 10 of the IRC Group Form 22 declaration.
Further in accordance with the information made available in the IRC Group Form 22 declaration for the tax period of 2012, the amount settled by the Claimant as autonomous taxation amounted to €4,621.33.
This amount was effectively paid by the Claimant, as is evident from the refund processed by AT of only €5,933.34 (see field 368 of table 10 of the IRC Group Form 22 declaration).
On this matter, subsection a) of article 90(1) of the IRC Code, as worded at the date to which the facts relate, provided that the assessment of the tax "is based on the taxable matter" ascertained in the IRC Form 22 declaration referred to in article 120 of the same Code.
Additionally, article 90(2) of the IRC Code provided that "to the amount ascertained" in accordance with (1) "the following deductions are made, in the order indicated:
a) the deduction corresponding to international double taxation;
b) the deduction relating to tax benefits;
c) the deduction relating to special installment payments referred to in article 106;
d) the deduction relating to withholding taxes not capable of compensation or refund in accordance with the applicable legislation."
Having regard to the provision of article 90 of the IRC Code and the tax rules regulating each of the deductions provided for in article 90(2), the Claimant considers that the amount relating to "tax credits" arising from Special Installment Payments made should be deducted from the IRC collection, which includes in full the IRC collection stricto sensu, state surcharge tax and autonomous taxation.
From this perspective, the Claimant notes that the amount paid as Special Installment Payments and capable of deduction in the 2011 period may and should be deducted from the total IRC collection formed by autonomous taxation for the same period and identified above, for which reason the Claimant considers that it is owed by AT a total of €9,556.72, equivalent to the deduction of the amount of Special Installment Payments paid up to the absolute extent of the collection (constituted entirely in this period by autonomous taxation).
The Claimant also notes that the amount paid as Special Installment Payments and capable of deduction in the 2012 period may and should be deducted from the total IRC collection formed by autonomous taxation for the same period and identified above, for which reason the Claimant considers that it is owed by AT a total of €4,621.33, equivalent to the deduction of the amount of Special Installment Payments paid up to the absolute extent of the collection (constituted entirely in this period by autonomous taxation).
In this way, the Claimant considers that:
(i) It should be reimbursed by AT for tax paid in excess with reference to the tax period of 2011, in the total amount of €9,556.72.
(ii) It should be reimbursed by AT for tax paid in excess with reference to the tax period of 2012, in the total amount of €4,621.33.
It should be clarified from the outset that, although the Claimant, throughout the presentation, alludes to the tax of 2011 and 2012, requesting the return of both, in reality the final request only refers to the tax of 2012 and the value of the request only contemplates the value of the tax of 2012. Moreover, it could not be otherwise since the act of dismissal contested by AT refers only to the IRC of 2012. It is, therefore, on this fiscal year and on this tax that the arbitral decision will focus.
3) Summary of the Counter-Arguments of the Tax Authority
The Tax Authority begins by invoking the exception of material incompetence of the arbitral tribunal arising from the fact that the request for arbitral pronouncement was formulated following the dismissal of the ex officio review request. In summary, it alleges the following:
The request for arbitral pronouncement sub judice is formulated following the dismissal of a request for ex officio review of a self-assessed corporate income tax (IRC) act relating to the year 2012, formulated in circumstances at a time when the deadline for gracious review referred to in article 131 of the Code of Tax Procedure and Process had already expired.
Given the provisions of articles 2(1), subsection a) and 4(1), both of RJAT, and articles 1 and 2, subsection a), both of Administrative Rule no. 112-A/2011, of 22 March, there exists the exception of material incompetence – a circumstance which requires determination of the dismissal of the defendant entity from the proceedings in accordance with articles 576(1) and (2) and 577, subsection a) of the Civil Procedure Code, pursuant to article 29(1), subsections a) and e) of RJAT.
In accordance with article 2, subsection a) of Administrative Rule no. 112-A/2011, of 22 March, the Tax Authority is bound by arbitral claims that have as their object the consideration of claims relating to taxes whose administration is entrusted to it, referred to in article 2(1) of RJAT, "with the exception of claims relating to the declaration of illegality of self-assessed withholding tax acts and installment payment acts that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process."
Now, as already mentioned, the request for arbitral pronouncement sub judice is directed, albeit indirectly, to the declaration of illegality of a self-assessed tax act, in this case IRC; however, the claim was formulated without having submitted an administrative challenge in accordance with articles 131 to 133 of the Code of Tax Procedure and Process, and the review of self-assessed tax acts is only admitted in arbitral proceedings if, at a prior moment, the same have been challenged administratively in accordance with article 131 of the CPPT.
That is, from the wording given to the cited legal provision, it is evident that the legislator chose to restrict the knowledge in arbitral jurisdiction to claims that, being related to the declaration of illegality of assessment/self-assessed acts, have been preceded by the gracious review provided for in article 131 of the CPPT.
When referring to recourse to the administrative procedure, it is only intended to refer to the means provided for in articles 131 to 133 of the CPPT, bearing in mind the literal element and, consequently, inescapable, of article 2, subsection a) of Administrative Rule no. 112-A/2011.
Having reached this point, from a simple reading of article 2, subsection a), of Administrative Rule no. 112/2011, of 22 March, the express requirement of prior submission of a gracious review is inferred as a way to open the arbitral procedure for consideration of the present dispute.
In this sense, Jorge Lopes de Sousa understands (Code of Tax Procedure and Process, Annotated and Commented, Volume II, Áreas Editora, 6th Edition, 2011, page 420):
"However, in accordance with the provision of art. 2, subsection a), of Administrative Rule no. 112-A/2011, of 22 March, with respect to withholding tax acts, the Tax Administration only bound itself to the jurisdiction of arbitral tribunals if the request for declaration of illegality of a withholding tax act was preceded by recourse to the administrative procedure, that is, by gracious review. Therefore, if the taxpayer wishes to opt for the arbitral procedure, it must always make use of gracious review."
The Tax Authority also cites the position held in the Arbitral Award rendered in process no. 51/2012-T, where, in summary, the following was decided:
"Such material incompetence is reinforced in the case of tax arbitration, since a simple reading of article 2, subsection a) of Administrative Rule 112-A/2011, of 22 March, Rule published in accordance with the provision of article 4 of Decree-Law no. 10/2011, of 20 January, expressly requires the said prior administrative procedure as a way to open the arbitral procedure for consideration of the dispute.
In this way, it is unquestionable the incompetence in reason of the subject matter (and not of the procedural means) of the tax arbitral tribunal. (…) Concluding: the arbitrability of a dispute relating to the claims referred to in article 2 (object of binding) of Administrative Rule no. 112-A/2011, of 22 March, is only recognized if, previously, a gracious review was submitted (and not in any other venue, in particular, through a process of review of a taxable act, which, constituting an available guarantee of taxpayers, has, however, its own specificities)."
The Tax Authority further clarifies that Administrative Rule no. 112-A/2011 was approved and published already after extensive and profuse case law that reaffirmed that, given the administrative nature of the ex officio review procedure, it is capable of being equated to the provisions of articles 131 to 133 of the CPPT for purposes of subsequent challenge of the respective dismissal decision; however, such equation is legally prohibited in arbitral proceedings, being excluded from the material competence of arbitral tribunals the consideration of claims relating to the declaration of illegality of self-assessed acts, withholding tax acts and installment payment acts, that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the CPPT, not including, as is evident, the ex officio review procedure designed in article 78 of the General Tax Law – and if the legislator did not provide for, in article 2 of that Administrative Rule, the ex officio review procedure as equatable to recourse to the administrative procedure, particularly to gracious review, for purposes of accessing the request for arbitral pronouncement, it was, certainly, because it did not intend to do so.
Finally, the Tax Authority refers to the arbitral decision rendered in the arbitral process that took place under no. 236/2013-T:
"As to the purported "deficient" wording of article 2, subsection a) of the Administrative Rule, it should be said further that, regardless of the merits of broad arbitrability of tax acts, the fact is that:
(a) there is, in fact, an error of agreement in using the past participle "precedidos" in masculine plural when it should be in feminine plural, to agree with "pretensões". Such grammatical lapse, however, does not prejudice or affect the understanding of the next part of the text that is truly at issue here;
(b) the expression "recourse to the administrative procedure" constitutes a broad generic formula that in itself may encompass all means by which the taxpayer may defend its rights before resorting to courts. It is a broad formula but not wrong or liable to induce error. Moreover, the Administration (Ministries of Justice and Finance) specified hereinafter, quite precisely, which provisions are at issue by indicating them in a clear exhaustive and not exemplary enumeration;
(c) we thus have the generic designation "administrative procedure" and a specific characterization: "in accordance with articles 131 to 133 of the Code of Tax Procedure and Process". We are faced with a technique that respects logical-legal discourse, in perfect consonance with article 9(3) of the Civil Code.
(d) for the interpreter to seek to add to this member of the sentence "… and of article 78 of the General Tax Law", which is manifestly not there, constitutes a violation of the fundamental principles of legal hermeneutics applicable both to legal norms and to legal acts."
In summary, the Tax Authority considers that, by virtue of what is established in article 2, subsection a) of Administrative Rule no. 112-A/2011, disputes that have as their object the declaration of illegality of withholding tax acts, as occurs in the situation sub judice, are excluded from the material competence of arbitral tribunals if they are not preceded by gracious review in accordance with article 132 of the CPPT, regardless of whether this is mandatory in accordance with the cited provision or whether the taxpayer has opted (sibi imputat) for ex officio review.
Furthermore, in the situation at hand the alleged "self-assessed act" was not effectuated in accordance with generic instructions issued by the Tax Authority, for which reason the mandatory precedence of gracious review was always required in accordance with the provision of article 131(1) of the CPPT.
Wherefore in these terms access to arbitral judicial protection is, with even greater reason, barred (which is defended without conceding), since here gracious review would always be mandatory in accordance with article 131 of the CPPT, as required in article 2, subsection a) of Administrative Rule no. 112-A/2011.
The Tax Authority further reinforces the same position saying that the understanding that disputes that have as their object the declaration of illegality of withholding tax acts, as occurs in the situation sub judice, are excluded from the material competence of arbitral tribunals if they are not preceded by gracious review in accordance with article 132 of the CPPT, is equally required by force of constitutional principles of the rule of law and separation of powers (cf. articles 2 and 111, both of the Constitution), as well as of legality (cf. articles 3(2) and 266(2), both of the Constitution), as a corollary of the principle of indisponibility of tax credits inherent in article 30(2) of the General Tax Law, which bind the legislator and all activities of the Tax Authority.
In response to the position of the Tax Authority, the Claimant came to argue that such understanding would mean a limitation to the constitutional principle of challengeability of acts harmful to rights or legally protected interests, provided for in article 268(4) of the Constitution, and that excluding arbitral jurisdiction because the means used was not effectively a gracious review would constitute a limitation to the principle of effective judicial protection, provided for in article 20 of the Constitution.
The Claimant also cites extensive case law, both from arbitral jurisdiction and from judicial jurisdiction, to the effect that ex officio review is equatable to gracious review and, also, to the effect that a decision on a request for ex officio review is an administrative act in tax matters for purposes of its challenge in arbitral proceedings.
II. Analysis of the Exception of Material Incompetence of the Tribunal
Having presented the position of both Parties, this Arbitral Tribunal considers that it should begin by determining, precisely, whether the present dispute falls within its material competence, as defined in article 2, subsection a) of Administrative Rule no. 112-A/2011.
Indeed, there have been understandings in both senses defended, both by the Claimant and by the Tax Authority. In summary terms, we can say that some understand that subsection a) of article 2 of the said Administrative Rule should be read to mean that the exception concerns acts "that have not been preceded by recourse to the administrative procedure", and that other acts beyond those expressly referred to by reference to articles 131 to 133 of the Code of Tax Procedure and Process cannot be excluded, while others understand that the legislator first generically stated what it intended to say "self-assessed acts, withholding tax acts and installment payment acts that have not been preceded by recourse to the administrative procedure" and then closed that generic reference with the concrete reference to articles 131 to 133 of the Code of Tax Procedure and Process.
On our part, we agree with the defenders of the second interpretation.
Articles 1 and 2 of the said Administrative Rule should be read together:
• Article 1 establishes the general rule – binding to CAAD of the services of the Ministry of Finance and Public Administration "General Directorate of Taxes (DGCI)"; and "General Directorate of Customs and Special Consumption Taxes (DGAIEC)";
• Article 2 establishes that the said services are bound to the jurisdiction of arbitral tribunals operating under CAAD if the object of the request for arbitral pronouncement is the consideration of claims relating to taxes whose administration is entrusted to them referred to in article 2(1) of Decree-Law no. 10/2011, of 20 January,
• Establishing, however, article 2, the following exceptions:
a) Claims relating to the declaration of illegality of self-assessed acts, withholding tax acts and installment payment acts that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process;
b) Claims relating to acts of determination of taxable matter and acts of determination of tax matter, both by indirect methods, including the decision of the review procedure;
c) Claims relating to customs duties on importation and other indirect taxes levied on goods subject to import duties; and
d) Claims relating to tariff classification, origin and customs value of goods and tariff contingents, or whose resolution depends on laboratory analysis or diligences to be carried out by another Member State within the scope of administrative cooperation in customs matters.
In accordance with subsection a) of article 2 of the said Administrative Rule, all claims connected with acts of "self-assessment, withholding tax or installment payments" are, therefore, expressly excluded, admitting only those claims that have been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process.
It is objectively indisputable that subsection a) of article 2 of Administrative Rule no. 112-A/2011 does not refer to the ex officio review procedure, which is provided for in article 78 of the General Tax Law.
Should it be considered, through interpretation, that prior recourse to that procedure also enables the subsequent challenge of the self-assessed act before the arbitral tribunals? It does not appear so to us.
Subsection a) of article 2 of Administrative Rule no. 112-A/2011, in introducing the said exception, uses the broad expression (the "recourse to the administrative procedure") and then specifies it by restricting it in a manner that appears to us to be exhaustive ("in accordance with articles 131 to 133 of the Code of Administrative Procedure") – a technique that respects logical-legal discourse, in perfect consonance with article 9(3) of the Civil Code, as has already been highlighted in the award rendered in process no. 236/2013-T.
The normative text does not thus permit finding in it a minimum of verbal correspondence, even if imperfectly expressed, with the possibility that, in any of the three situations referred to in it (self-assessment, withholding tax and installment payments), one could dispense with recourse to gracious review (and not to any other form of gracious challenge of the act in question) for arbitration of the tax claim, even though on it there has been some act of second instance and, therefore, there has been, in casu, a reconsideration of the tax act scrutinized by the Tax Authority, following a request for ex officio review formulated by the taxpayer.
This conclusion is, in our view, independent of whether it is considered that ex officio review at the initiative of the taxpayer is equatable, or not, to gracious review for purposes of judicial challenge. The clarity of the provision in question, emanating after extensive doctrinal and case law debate regarding the equation, or not, between ex officio review at the request of the taxpayer and gracious review, does not authorize, in our view, a different conclusion.
Resorting here to the words used in the arbitral award rendered in process no. 236/2013-T, "given so crystalline a formulation, it is not seen how the interpreter can reach a different conclusion, in particular to broaden the scope of the Tax Authority's submission to an option of the taxpayer, a submission which the legislator intended to be concretely delimited by the will of the Tax Authority itself, a clear reservation of the Administration as to its self-binding." In the same sense, with very pertinent argumentation, goes also the decision rendered in process no. 51/2012–T, which understood that "considering the voluntary nature of arbitration" the interpretation of the binding of the Tax Authority "cannot, in any case, result in a restriction of the sphere of freedom of the Tax Authority, as a party, to establish the limits of its binding. It would only not be so if its position implied the total frustration of the objective intended with the institution of tax arbitration, which is not the case", highlighting that then, as now, "the Tribunal does not pronounce on the doctrinal construction on which the equation of the ex officio review procedure, at the initiative of the taxpayer, to the gracious review procedure is based, for purposes of judicial challenge. It simply understands that from the principle of the establishment of the arbitral procedure as a means of resolving tax disputes as an alternative to the judicial challenge process, does not automatically follow the extension of the Tax Authority's binding to all situations in which, doctrinally and/or in case law, it is considered admissible for such challenge." This indeed follows from the terms in which tax arbitration was created, applying to a much narrower range of situations than judicial challenge.
Concluding, it does not appear to us possible to submit to arbitration the dispute relating to claims referred to in article 2 of Administrative Rule no. 112-A/2011, of 22 March, that has not been preceded by gracious review. Thus, we understand it to be indisputable the incompetence, in reason of the subject matter, of this Tax Arbitral Tribunal, in accordance with articles 2(1), subsection a) and 4(1), both of RJAT and articles 1 and 2, subsection a), of Administrative Rule no. 112-A/2011, which constitutes a dilatory exception preventing the knowledge of the merits of the case, in accordance with the provision of article 576(1) and (2) of the CPC pursuant to article 2, subsection e) of the CPPT and article 29(1), subsections a) and e) of RJAT, which bars the knowledge of the request and the dismissal of the Tax Authority from the proceedings, in accordance with articles 576(2) and 577, subsection a) of the CPC, pursuant to article 29(1), subsections a) and e) of RJAT.
Thus the knowledge of the merits issue is prejudiced.
III. Decision
In consonance with what is set forth above, this Arbitral Tribunal decides:
a) To find the dilatory exception of incompetence of this tribunal in reason of the subject matter invoked by the Respondent to be well-founded;
b) To dismiss the Respondent from the proceedings (in accordance with articles 96 and 278 of the Civil Procedure Code);
c) To condemn the Claimant for the costs of the proceedings.
Value: in accordance with the provision of article 315(2) of the CPC, combined with subsection a) of article 97-A(1) of the CPPT and with article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €4,621.33.
Costs: in accordance with the provision of article 22(4) of RJAT and in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00, to be borne by the Claimant in accordance with articles 12(2) and 22(4), both of RJAT, and article 4(4) of the said Regulations.
To be recorded and notified.
Lisbon, 19 July 2017
The Arbitrator,
Raquel Franco
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