IRC Interiority Tax Benefit De Minimis Limit Dispute - CAAD Case 680/2017-T

ARBITRAL DECISION

The Arbitrators José Poças Falcão (Presiding Arbitrator), Nuno Cunha Rodrigues and Sílvia Oliveira (Arbitrators-Member), designated by the Ethics Council of the Centre for Administrative Arbitration (CAAD) to form the Collective Arbitral Tribunal, constituted on 6 March 2018, agree as follows:

I – REPORT

On 26 December 2017, the company A…, tax identification number…, with headquarters at… and …, …-… … (hereinafter only "Claimant"), filed a request for arbitral decision against the Tax and Customs Authority, hereinafter referred to as Respondent or AT in accordance with Decree-Law No. 10/2011, of 20 January (hereinafter "Tax Arbitration Regime" or "RJAT"), specifically under the provisions of Article 10, paragraph 1, letter a) and Regulation No. 112-A/2011, of 22 March, with a view to declaring the illegality of the additional assessment of corporate income tax (IRC) for the fiscal year 2012 and the assessment of compensatory interest, as well as the express rejection of the administrative claim that maintained it unchanged, requesting the Claimant to be reimbursed for the IRC and compensatory interest assessed and paid in excess, plus default interest.

The Claimant submitted its Income Declaration Forms Model 22 of IRC, with reference to the fiscal years 2010, 2011 and 2012, having declared, in Table 9 of Annex D, the following amounts relating to the tax benefit for regional development (interioridade):

In the Income Declaration Form Model 22 of IRC for 2012, the Claimant immediately regularized the amount of €119,279.24, whereby the accumulated value for the fiscal years 2010, 2011 and 2012 amounted to €500,000.00.

However, in 2016, the Tax Authority came to argue, in the course of a tax inspection procedure, that the Claimant would have incorrectly applied, in 2012, the de minimis rule that limited the relevance, in each year, of said tax benefit, with the limit being €200,000 and not €500,000.00 (as the Claimant contends), because it understood that the Claimant had been granted benefits for regional development that were subject to the limit of paragraph 2 of Article 2 of Regulation (EC) No. 1998/2006, of 15 December and paragraph 2 of Article 2 of Regulation No. 70/2011, of 9 February.

The Claimant considers that the fiscal year 2010 is covered by a temporary and exceptional regime authorized by the European Commission (Aid No. 13/2009) and set out in Regulations Nos. 184/2009, of 20 February and 70/2011, of 9 February, for which reason the limit of €200,000.00 (two hundred thousand euros) set in Article 2, paragraph 2, of Regulation (EC) No. 1998/2006 of the Commission of 15 December 2006 should only be considered for the fiscal years 2011 and 2012.

The Claimant did not appoint an arbitrator, whereby, under the provisions of Article 6, paragraph 2, letter a) of the RJAT, the undersigned were designated by His Excellency the President of the Ethics Council of the CAAD to integrate the present Collective Arbitral Tribunal, with the appointment being accepted within the timeframe and other legally provided terms.

On 14 February 2018, the parties were duly notified of this designation, having not expressed willingness to challenge the designation of the arbitrators, in accordance with the combined provisions of Article 11, paragraph 1, letters a) and b) of the RJAT and Articles 6 and 7 of the Ethics Code.

In accordance with the provisions of letter c) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Collective Arbitral Tribunal was constituted on 6 March 2018.

The Respondent in its reply reiterated that the total amount of de minimis aid for the year 2012 could not exceed, per entity, €200,000.00 during a period of three consecutive fiscal years, not agreeing with the grounds that fiscal years covered by the temporary regime (2010) and fiscal years covered by the normal regime (2011 and 2012) should be considered for determining the relevant period for analysis.

II – PRELIMINARY MATTERS

The request for arbitral decision is timely, as it was filed within the timeframe provided in letter a), paragraph 1 of Article 10 of the RJAT.[1]

The Arbitral Tribunal is competent and regularly constituted, in accordance with Articles 2, paragraph 1, letter a), and 30, paragraph 1, all of the RJAT.

The Parties have legal standing and legal capacity, are legitimately represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Regulation No. 112-A/2011, of 22 March.

There are no nullities or preliminary issues affecting the proceedings, whereby it is now necessary to proceed to examine the merits of the claim, beginning with the factual matters.

III – FACTUAL MATTERS

FACTS PROVEN

The following facts are established and proven as relevant for the assessment and decision of the issues raised:

• The Claimant is a company engaged in the production of renewable electricity through the operation of wind farms.

• The Claimant is subject to the general taxation regime for IRC purposes, adopting a taxation period coinciding with the calendar year.

• The Claimant submitted its Income Declaration Forms Model 22 of IRC, with reference to the fiscal years 2010, 2011 and 2012, having declared, in Table 9 of Annex D, the following amounts relating to the tax benefit for regional development:

  • €86,098.51 in fiscal year 2010,
  • €7,808.13 in fiscal year 2011, and
  • €525,372.60 in fiscal year 2012.

• In the Income Declaration Form Model 22 of IRC for 2012, the Claimant regularized the amount of €119,279.24, whereby the accumulated value for the fiscal years 2010, 2011 and 2012 amounted to €500,000.00.

• The Claimant was subject to an internal tax inspection procedure (OI 2016…, issued on 11/10/2016 by the Tax Inspection Services of the Finance Directorate of …), carried out by the said Tax Inspection Services, between 27/10/2016 and 25/11/2016, of partial scope, regarding the IRC for the fiscal year 2012, more specifically regarding the amount of the tax benefit for regional development declared by the now Claimant.

• In the context of the said inspection action, the Claimant was notified of Official Letter No.…, of 23/11/2016, from the Finance Service of …, relating to the Project of Corrections of the Inspection Report (notified on 28 November 2016), in order to make corrections to the Claimant's IRC in the amount of €300,000.00, relating to the reduction of the value considered under the de minimis rule, as well as to exercise, within 15 days, the respective right to a hearing.

• The Claimant, duly notified, did not exercise the right to a hearing.

• The Claimant was notified, on 21 December 2016, of Official Letter No.…, of 15/12/2016, from the Finance Service of …, regarding the Final Report of Conclusions of the Tax Inspection, in which the Tax Administration maintained the correction to the value of the tax benefit for regional development in the amount of €300,000.00.

• The Claimant was notified of the additional IRC assessment No. 2016…, in the amount of €299,999.99 and the compensatory interest assessment No. 2016…, in the amount of €42,509.58, as well as the respective statement of account correction No. 2016…, through which a total amount to be paid by the Claimant of €342,509.57 was determined, which was paid within the timeframe for voluntary payment, namely on 13/02/2017.

• On 10 April 2017, the Claimant submitted to the Finance Director of … an administrative claim (case No. …2017…) against the identified additional IRC assessment and interest, setting out the factual and legal grounds that should lead to the (partial) annulment of said assessment, regarding the portion relating to fiscal year 2010 (€86,098.51 of tax and the proportional interest), in accordance with the claim presented.

• The Claimant was notified, on 27 September 2017, of Official Letter No.…, of 25/09/2017, relating to the order dismissing the administrative claim presented, issued by the Chief of Division of the Finance Directorate of …, under a delegation of powers, supported by the decision proposal according to which it was understood that "(…) the inspection procedure concerned the IRC for the year 2012, whereby the total amount of de minimis aid could not exceed 200 thousand euros during a period of three consecutive fiscal years, that is, for each new grant of de minimis aid, the amount granted during the fiscal year in question must be determined, as well as during the two previous fiscal years" concluding that "(…) the correction made by the Tax Inspection (…) is in conformity with the provisions of (….) Community Regulation No. 1998/2006 of 15 December and Regulation No. 70/2011, of 9 February".

With respect to the facts proven, the conviction of the Arbitral Tribunal was based, in addition to the free assessment of the positions taken by the Parties (regarding facts), on the content of the documents attached to the case by both Parties and not contested.

FACTS NOT PROVEN

As relevant for the decision, there are no facts that should be considered as not proven.

QUESTION TO BE DECIDED

The correction sustained results from the fact that the Tax Administration concluded that in accordance with the de minimis rule provided in Regulation (EC) No. 1998/2006, of 15 December and in Regulation No. 70/2011, of 9 February, in calculating the maximum amount of said incentive in 2012, it would have had to take into account that already granted in 2010 and 2011, whereby, with the total benefit in those three fiscal years amounting to €619,279.24, the Claimant would still have to regularize €300,000.00, which would be added to the €119,279.24 already voluntarily regularized.

To the contrary, the Claimant understands that, in the context of verifying the maximum amount of de minimis aid that could be obtained in fiscal year 2012, only the allocations of the tax benefit for regional development determined for the fiscal years 2011 and 2012 should be considered, which, when accumulated, could not exceed €200,000.00.

In this context, the Claimant understands that, in addition to the amount relating to the regularization voluntarily made by the Claimant in 2012, the correction to be made amounts to €213,901.49, rather than the €300,000.00 advocated by the Tax Administration.

The central question sub judice therefore lies in determining whether, in the application, in 2012, of the de minimis rule provided in Regulation (EC) No. 1998/2006, of 15 December and in Regulation No. 70/2011, of 9 February, the period consisting of the fiscal years 2010, 2011 and 2012 should be taken into account, as the AT alleges, or, to the contrary, whether it should be understood that fiscal year 2010 is covered by a temporary and exceptional regime authorized by the European Commission (Aid No. 13/2009) and embodied in Regulation No. 184/2009, of 20 February.

OF THE LEGAL MATTERS

The central question to be decided consists in determining whether the limit of €500,000.00 per company, as a tax benefit for IRC relating to regional development provided in Article 43, paragraph 1, letter a), of the Statute of Tax Benefits (EBF), in the version in force in 2012, is applicable to the case sub judice for the period between fiscal years 2010 to 2012, or whether the limit of €200,000.00 is applicable to the fiscal years 2011 and 2012, with the Claimant benefiting, regarding fiscal year 2010, from the transitional regime that was in force, initially until 31 December 2010, subsequently extended until 31 December 2011, subject to certain conditions.

This is a question that has been analyzed, mutatis mutandis, previously in two decisions issued by the CAAD in cases No. 74/2013-T and 622/2016-T, which we shall follow closely here, with the necessary adjustments.

Let us see.

The answer to the question raised in the present proceedings determines that we analyze the provisions of Article 43, paragraph 1, letter a), of the EBF, in the version in force in 2012, under the heading "tax benefits relating to regional development", which provided that "companies that engage, directly and as a principal activity, in an economic activity of an agricultural, commercial, industrial or service provision nature in interior areas, hereinafter designated «beneficiary areas»" would be granted, among other tax benefits, a reduction to 15% of the IRC rate, provided in paragraph 1 of Article 80 of the respective Code, covering entities whose principal activity is located in beneficiary areas.

It is an automatic benefit within the meaning of paragraph 1 of Article 5 of the EBF, having been qualified as such by the Decision of the CAAD in Case 74/2013–T, of 8-12-2013.

The granting of this tax benefit to companies located in the interior of the country could – and can – be considered as State aid in light of the provisions of Article 107, paragraph 1 of the TFEU (Treaty on the Functioning of the European Union).

Consequently, paragraph 3 of Article 108 of the TFEU establishes the obligation to notify State aid to the European Commission for verification of its compatibility with the internal market according to the criteria of paragraph 1 of Article 107 of the TFEU.

Nevertheless, some aid may be exempt from the obligation to notify by virtue of Regulation (EC) No. 994/98 then in force because they are considered as de minimis aid, in accordance with the old Latin adage de minimis non curat praetor.

Indeed, the de minimis rule was established with the purpose of exempting subsidies of reduced amounts, setting a threshold below which the aid is not covered and is not subject to the prior notification procedure to the European Commission provided in paragraph 3 of Article 108 of the TFEU.

In this context, Article 2, paragraph 2, of Regulation (EC) No. 1998/2006 of the Commission, of 15 December 2006, came to determine that aid granted over a period of three years, corresponding to three fiscal years, and not exceeding a threshold of €200,000 was not considered State aid within the meaning of the old paragraph 1 of Article 87 of the EC Treaty (current paragraph 1 of Article 107 of the TFEU), not requiring prior notification to the Commission.

Indeed, in accordance with the provisions of Regulation EC No. 1998-2006, of 15 December 2006, in force between 1 January 2008 and 31 December 2013, aid granted to a company whose maximum amount did not exceed EUR 200,000 during a period of three consecutive fiscal years was considered de minimis aid.

In accordance with Article 2, paragraph 1 of said Regulation, "aid shall be considered not to fulfill all the criteria set out in paragraph 1 of Article 87 of the Treaty, and are therefore exempt from the obligation to notify provided in paragraph 3 of Article 88 of the Treaty, if they meet the conditions laid down in paragraphs 2 to 5."

According to paragraph 2 of said article, "the total amount of de minimis aid granted to an undertaking shall not exceed EUR 200,000 during a period of three financial years. (…). These thresholds shall apply regardless of the form of the de minimis aid or its objective and irrespective of whether the aid granted by the Member State is financed, in whole or in part, by Community resources. The period shall be determined on the basis of the financial years used by the undertaking in the Member State concerned. Where the total amount of aid granted under a de minimis aid measure exceeds this threshold, the aid amount, including any fraction not exceeding that threshold, shall not be able to benefit from the provisions of this regulation. In such a case, this regulation cannot be invoked in relation to such a measure, either at the moment of granting the aid or subsequently".

For the purposes of the above, in accordance with what is stated in paragraph 9 of the Preamble of that Regulation CE, "the years to be taken into account in this context are the financial years used for tax purposes by the undertaking in the Member State concerned", and "the relevant three-year period shall be assessed on a rolling basis, that is to say, for each new grant of de minimis aid, the total amount of de minimis aid granted during the financial year in question must be determined, as well as during the two preceding financial years. Aid granted by a Member State must be taken into account for this purpose, even when financed, in whole or in part, by Community resources. Aid exceeding the de minimis threshold must not be able to be split into smaller fractions in order for such fractions to be covered by the scope of this regulation".

Additionally, it is further stated in paragraph 10 of the Preamble of that Regulation CE that, "in accordance with the principles governing aid covered by the scope of paragraph 1 of Article 87 of the Treaty, de minimis aid shall be considered to be granted at the moment the undertaking is granted the right to receive the aid under the applicable national scheme".

Thus, the Commission has the duty to ensure compliance with the rules on State aid and, in particular, that aid granted under the de minimis rule respects the respective conditions.

In accordance with the principle of cooperation established in Article 10 of the Treaty, Member States must facilitate this cooperation by instituting the necessary mechanisms to ensure that the total amount of de minimis aid granted under this rule to the same undertaking does not exceed the limit provided during a period of three financial years.

Nevertheless, economic circumstances underwent significant changes, with the global crisis situation experienced at the end of the previous decade constituting a significant factor of disruption to the normal functioning of the Portuguese economy.

In this context, the «Communication from the European Commission — Temporary Community Framework for State aid measures to support access to financing during the current financial and economic crisis» (2009/C 16/01, of 22 January) was issued, against the backdrop of the impact of the financial crisis on the real economy and the need for temporary measures, and under the terms of which an exceptional temporary regime was authorized for de minimis aid granted, in the case, to Portugal.

It was thus presented "(…) the Plan for the Revival of the European Economy (…), intended to boost the recovery of the European economy, in order to overcome the current crisis. The Revitalization Plan is based on two main elements that reinforce each other. First, short-term measures to stimulate demand, preserve jobs and help restore confidence and, second, the implementation of «smart investments» to promote accelerated growth and long-term sustainable prosperity. The Revitalization Plan will intensify and accelerate the reforms already underway as part of the Lisbon Strategy. In this context, the Community's challenge is to avoid public interventions that would undermine the objective of less and more focused State aid. Nevertheless, under certain conditions, there is a need for new temporary State aid. The Revitalization Plan also includes other initiatives aimed at implementing the rules on State aid in a manner that ensures maximum flexibility to fight the crisis, while ensuring equal conditions in the market and avoiding undue restrictions on competition. This communication sets out the specific elements of a set of additional and temporary options available to Member States with regard to the granting of State aid (…)"

In these terms, in accordance with the general principles defined therein, it is stated that "under the provisions of paragraph 3, letter b), of Article 87 of the Treaty, the Commission may declare compatible with the common market aid intended to remedy a serious disturbance of the economy of a Member State", and that "(…) the Court of First Instance of the European Communities established that the disturbance in question must affect the economy of the Member State concerned as a whole and not merely that of one of its regions or parts of the territory. (…)".

"In this context, the Commission considers that, in addition to emergency support for the financial system, the current global crisis requires exceptional responses in terms of the policies pursued. All Member States will be affected by this crisis, although in different ways and to different degrees, and it is likely that unemployment will increase, demand will decline and budgetary situations will deteriorate. In light of the severity of the current financial crisis and its impact on the economy of Member States as a whole, the Commission considers that, during a limited period of time, the granting of certain categories of State aid to overcome these difficulties is justified, and such aid may be declared compatible with the common market on the basis of paragraph 3, letter b), of Article 87 of the Treaty" (emphasis ours).

According to the new measure then proposed, it is stated that "(…) taking into account the current economic situation, it is considered necessary to temporarily authorize the granting of a limited amount of aid, although it is covered by paragraph 1 of Article 87 of the Treaty, to the extent that it exceeds the threshold established in the de minimis Regulation" (emphasis ours).

Thus, it prescribed the use of the de minimis limit of €500,000 (section 4.2.2) in all aid schemes implemented or to be implemented under the de minimis rule provided in Regulation (EC) No. 1998/2006, of the Commission, of 15 December.

It was an exceptional possibility, it is reiterated, granted in the face of the times of economic and financial turbulence then experienced by some of the Member States.

To that end, the Portuguese authorities notified the European Commission, on 12 January 2009, of the new temporary regime which they intended to adopt to provide for the possibility of using the new de minimis limits.

The European Commission considered the presented regime compatible with the Treaties, having noted that it should be applied by means of an internal administrative act (in this case Regulation).

Regulation No. 184/2009 of 20 February was thus approved, which provided as follows in Article 1: "The aid granted under Regulation (EC) No. 1998/2006, of the Commission, of 15 December, relating to de minimis aid, shall have a limit of €500,000 per company, during a period of three financial years".

At the end of 2010, the European Commission, taking into account the signs of recovery that the European economy presented, communicated to the Member States that it did not intend to continue with the temporary exception regime, which implied a return to the accumulation limits provided in accordance with Regulation (EC) 1998-2006, of 15 December, having nevertheless provided for the possibility of Member States seeing approved the extension of the application of the maximum limit of accumulation of de minimis aid of €500,000, for applications submitted by beneficiaries until 31 December 2010.

Thus, given the persistence of a situation of acute economic crisis in our country, the Communication from the European Commission of 7 January 2011, C (2011) 63 final, was issued, relating to the matter «State aid SA.32122 (2010/N) - Portugal/Prolongation of the State aid scheme N13/2009 "Limited amounts of aid"

This communication formed the basis of Regulation No. 70/2011, of 09 February, which established the limit of de minimis aid granted between 1 January 2011 and 31 December 2011 and the respective conditions of application.

Article 1, paragraph 1 limited the de minimis aid granted between the two dates to the amount of €500,000 per company, although it accounted for all aid granted between 01 January 2008 and 31 December 2011, provided that the beneficiary had submitted, to the entity responsible for granting the aid, a complete request for aid by 31 December 2010 under State aid No. 13/2009.

For its part, paragraph 2, letter a) of the same Regulation No. 70/2011, of 09 February, provided that de minimis aid granted from 1 January 2011 whose aid requests had been submitted by beneficiaries after 31 December 2011 would again be subject to the limit of €200,000 during a period of three financial years.

Against this normative framework, the question arises as to whether the Claimant can see covered the tax benefits it had enjoyed in the year 2010, in the global amount of €86,098.51, within the limit of €500,000.00 as a result of the application of Regulation No. 184/2009, of 20 February, with the limit of €200,000.00, to the contrary, being applicable to the Claimant's fiscal years 2011 and 2012.

Following the orientation adopted by the Decisions of the CAAD in cases 74/2013–T and 622/2016-T, it should be understood that the interpretation of the Regulations sub judice – particularly Regulation No. 70/2011, of 20 February – should be carried out in accordance with the instrument of European Union law that it seeks to implement, namely the "Temporary Union Framework".

In this context, the said Communication from the European Commission of 07.01.2011 – which concerns the extension of State aid 13/2009 until 31.12.2011 as to the limit of €500,000 per company and during 3 financial years, (in derogation of the limit set in paragraph 2 of Article 2 of Regulation EEC 1998/2006, of the Commission, of 15.12), under the heading "State aid SA.32122 (2010N) Portugal, Prolongation of the State aid scheme N 132009 «Limited amounts of aid»" – states that this extension fulfills the requirements of point 2.2 of the "Temporary Union Framework" and is compatible with the European internal market (see at http://www.ifdr.pt).

What is at issue is the circumstance that the European Commission, faced with the scenario of serious national economic crisis, saw fit to temporarily derogate the limit of de minimis aid and raise its threshold from €200,000 to €500,000, considering that the situation of Portuguese companies justified it.

The recitals of the mentioned Communication from the Commission — Temporary Community Framework for State aid measures to support access to financing during the current financial and economic crisis (2009/C 16/01) demonstrate that the Commission was well aware of the broad dimension of the impact of the financial crisis on the real economy in its entirety, and the way in which it was affecting small and medium-sized enterprises and, by extension, employment and families, making it necessary, in its view, to take short-term measures to stimulate demand, preserve jobs, contribute to restoring confidence and implement "smart investments" to promote accelerated growth and long-term sustainable prosperity.

The central question in the present proceedings concerns determining whether, in the application, in 2012, of the de minimis rule provided in Regulation (EC) No. 1998/2006, of 15 December (whose limit goes up to €200,000) and in Regulation No. 184/2009, of 20 February (whose limit goes up to €500,000) the period consisting of all fiscal years 2010, 2011 and 2012 should be taken into account, in accordance with the general regime, as the Respondent alleges, or, to the contrary, whether it should be considered that fiscal year 2010 is covered by a temporary and exceptional regime authorized by the European Commission (Aid No. 13/2009) and embodied in Regulation No. 184/2009, of 20 February, with the remaining periods (2011 and 2012) covered by the ordinary regime resulting from the application of Regulation No. 1998/2006 (then in force), and should be treated separately.

Let us see:

The Regional Development Financial Institute, I.P., the entity that, in Portugal, holds responsibility for maintaining the Central Register of De Minimis Aid, issued the guidance contained in the «Manual of Support for Users of the Central Register of De Minimis Aid» in which the following is stated:

«Recently, the European Commission through the communication dated 29/02/2012 ref. D (2012)-020676 comes to transmit to the Portuguese authorities that it considers, for purposes of determining the accumulation of aid, and consequently, the calculation of the limit of such aid, that there should be a separation of the aid granted under SA N 13/2009 from the other de minimis aid granted under the de minimis regime.

The Commission understands that national authorities should treat the exception regime (Aid N 13/2009) and the de minimis regime [Reg. (EC) No. 1998/2006] as distinct aid schemes and as such aid should not be cumulative for purposes of assessing the limit of the aid.

In this context, aid between 2008 and 2010 under the authorized temporary framework, as well as aid granted in 2011 in respect of financing requests submitted by beneficiaries until the end of 2010 and decided in 2011, should not be considered in the calculation of aid for current assessment of the accumulation threshold of aid under Regulation (EC) No. 1998/2006.

Consequently, aid granted in 2011 for financing requests submitted in that same year, as well as all aid granted in 2012, are not accumulated with aid granted under the temporary regime, that is, aid granted from 2008 to 2010 and aid granted in 2011 for financing requests submitted in 2010» (emphasis ours)."

That is, it seems clear that, both for the European Commission and for the official entities with responsibilities in Portugal for maintaining records on State aid, the exception regime (Aid N 13/2009) that was at the origin of Regulation No. 184/2009, of 20 February, and the de minimis regime provided for in Regulation No. 1998/2006 should be treated as distinct aid schemes and, as such, aid should not be cumulative for purposes of assessing the limit of the aid.

Which means, in other words, that the temporary and exceptional regime authorized by the European Commission (Aid No. 13/2009) and embodied in Regulation No. 184/2009, of 20 February, and that which results from Regulation (EC) No. 1998/2006, of 15 December, constitute different regimes that cannot be evaluated together and should be separated in their application.

Consequently, it should be understood that, when Regulation No. 70/2011 of 9 February establishes in paragraph 2 of Article 1 that other de minimis aid granted from 1 January 2011 in accordance with Regulation (EC) No. 1998/2006, of the Commission, of 15 December, again have the limit provided therein, that is, the total amount of de minimis aid granted to an undertaking cannot exceed €200,000.00 during a period of three financial years, in calculating that limit the fiscal years to which the exceptional limit of €500,000.00 was applicable cannot be taken into account.

To fiscal year 2010 was applicable, as we have seen, the exceptional limit of €500,000.00 resulting from the application of Regulation No. 184/2009, of 20 February, in the manner described above.

This limit not being equally applicable, in the case, to fiscal year 2011 and, at all, to fiscal year 2012, since this is not permitted by the de minimis Regulation, nor does it result from the communication and interpretation made by the European Commission regarding the exceptional regime that was in force until 2011, in the context of verifying the maximum amount of de minimis aid that could be obtained by the Claimant in fiscal year 2012, only the allocations of the tax benefit for regional development determined for fiscal years 2011 and 2012 (in light of the de minimis Regulation) should be considered, which, when accumulated, cannot exceed €200,000.00.

As a consequence, the additional IRC assessment identified in the case should be partially annulled, regarding the portion relating to the restoration of the tax benefit for regional development, concerning fiscal year 2010, in the amount of €86,098.51, and the compensatory interest assessment that falls on that amount should likewise be annulled, as well as the decision to dismiss the administrative claim that maintained it.

Regarding the Reimbursement of Tax Paid with Default Interest

With regard to the payment of default interest, in accordance with the provisions of paragraph 5 of Article 24 of the RJAT "interest payment shall be due, regardless of its nature, in the terms provided in the general tax law and in the Code of Tax Procedure and Process", from which it follows that an arbitral decision is not limited to examining the legality of the tax act.

Similarly, in accordance with the provisions of Article 24, paragraph 1, letter b) of the RJAT, it should be understood that the request for default interest is a claim relating to tax acts (e.g., assessment), which aims to clarify/specify the content of the duty to "restore the situation that would exist if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose".

As Jorge Lopes de Sousa states "it falls within the competencies of the arbitral courts that function in the CAAD the determination of the effects of the arbitral decision that may be defined in a judicial review process, namely, the annulment of the acts whose declaration of illegality is requested, the condemnation of the Tax and Customs Authority to pay default interest (…)".

Thus, in tax arbitration proceedings, default interest may be awarded, in accordance with the provisions of Articles 43, paragraphs 1 and 2, and 100 of the LGT, when it is determined that there was an error attributable to the services from which results payment of the tax liability in an amount higher than legally due.

In these terms, the right to default interest will always depend on the verification of an error attributable to the Respondent's services, from which resulted a payment of tax liability in an amount higher than legally due.

Following the declaration of partial illegality of the IRC assessment act identified, and the declaration of illegality of the order to dismiss the administrative claim presented against said assessment, in accordance with the provisions of letter b), paragraph 1 of Article 24 of the RJAT (in accordance with what is established therein), "the arbitral decision on the merits of the claim, against which no appeal or challenge is possible, binds the tax administration as of the end of the timeframe for appeal or challenge, and the administration must restore the situation that would exist if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", whereby there must be a partial reimbursement of the amount paid by the Claimant, regarding the portion relating to the tax benefit for regional development of fiscal year 2010 (€86,098.51) and respective compensatory interest, as a means of achieving the reestablishment of the situation that would exist had the illegality not been committed.

Thus, having regard to what is established in Article 61 of the Code of Tax Procedure and Process (CPPT), with the requirements for the right to default interest being met (that is, the existence of an error attributable to the services from which results payment of the tax liability in an amount higher than legally due, as provided in paragraph 1 of Article 43 of the LGT), the Claimant shall have the right to default interest, at the legal rate, calculated on the amount wrongfully paid, within the scope of the IRC assessment that is the subject of the request for arbitral decision, which shall be counted in accordance with the provisions of paragraph 3 of Article 61 of the CPPT, that is, from the date of payment of the undue tax until the date of issuance of the respective credit note.

Regarding Responsibility for Payment of Arbitration Costs

In accordance with the provisions of Article 22, paragraph 4 of the RJAT, "the arbitral decision issued by the arbitral tribunal includes the determination of the amount and apportionment among the parties of the costs directly resulting from the arbitration proceedings".

Thus, in accordance with the provisions of Article 527, paragraph 1 of the CPC (by virtue of Article 29, paragraph 1, letter e) of the RJAT), it should be established that the Party that caused the costs shall be condemned in costs, or, if there is no clear winner in the action, whoever benefited from the proceedings.

In this context, paragraph 2 of said article clarifies the expression "caused", in accordance with the principle of defeat, understanding that the losing party causes costs to the proceedings, in proportion to the extent of its defeat.

In the case under analysis, having regard to what is stated above, the principle of proportionality imposes that full responsibility for costs be assigned to the Respondent, in accordance with the provisions of Article 12, paragraph 2 of the RJAT and Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings.

IV - DECISION

For these reasons, this Arbitral Tribunal decides as follows:

• The request for arbitral decision is upheld;

• Declare the partial illegality of the additional IRC assessment of the year 2012, in the amount of €86,098.51 corresponding to the allocation of the tax benefit for regional development of fiscal year 2010, as well as the consequent assessment of compensatory interest, to the extent that it falls on that amount;

• Declare the illegality of the order to dismiss the administrative claim presented;

• As a consequence, determine the reimbursement of the amounts wrongfully paid, plus default interest at the legal rate, counted in accordance with legal terms;

• Condemn the Respondent to payment of the costs of the present proceedings.

V - Value of the Proceedings

The value of the proceedings is fixed at €86,098.51, in accordance with Article 97-A, paragraph 1, a), of the Code of Tax Procedure and Process, applicable by virtue of letters a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

VI - Costs

The amount of the arbitration fee is fixed at €2,754.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was fully upheld, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the said Regulation.

Let notification be made.

Lisbon, 18 June 2018

The Presiding Arbitrator

(José Poças Falcão)

The Arbitrator-Member

(Nuno Cunha Rodrigues)

The Arbitrator-Member

(Sílvia Oliveira)

[1] In this context, taking into account that the request for arbitral decision includes the request for review of the order to dismiss an Administrative Claim (whose Official Letter is dated 29 September 2017, as a copy of the document attached to the case by the Claimant), filed in relation to the identified additional IRC assessment, as a way to be able to declare the illegality of said assessment, the decision on the Administrative Claim that involves examining the legality of an assessment act is covered by the provision of letter e) of paragraph 1 of Article 102 of the CPPT, in accordance with which the three-month timeframe is applicable, counted from the respective notification, for filing judicial review.

On the other hand, also taking into account the provision in Article 10, paragraph 1, letter a) of the RJAT [which establishes that the request for constitution of an arbitral tribunal must be filed "within 90 days, counted from the events provided in paragraphs 1 and 2 of Article 102 of the CPPT (…)"], as well as the date of filing the request for arbitral decision (26 December 2017), the arbitral claim is timely.