Process: 693/2014-T

Date: April 1, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This arbitral award from the Portuguese Tax Arbitration Center (CAAD) addresses Process 693/2014-T concerning Corporate Income Tax (IRC) benefits under the RFAI (Tax Support Regime for Investment) created by Law 10/2009. The claimant, a parent company of a fiscal group taxed under the Special Regime for Taxation of Groups of Companies (RETGS), challenged a tax assessment for fiscal year 2011. The company had filed a replacement Form 22 declaration claiming RFAI tax benefits totaling €1,216,791.14 as allocation for the period, with €900,714.52 claimed as deduction and €316,076.62 as balance to carry forward. Following a tax inspection under Service Order OI2013, the Tax and Customs Authority adjusted the RFAI benefits, allowing the full €1,216,791.14 as deduction from tax liability—effectively increasing the deduction by €316,076.62 in favor of the taxpayer. This adjustment resulted in a compensation statement showing €223,167.30 and final tax collection of €146,389.83. The claimant filed an administrative appeal (reclamação graciosa) which was dismissed by the Large Taxpayers Unit on August 20, 2014. Subsequently, the company initiated tax arbitration proceedings on September 24, 2014, seeking annulment of the administrative appeal decision and recognition of the RFAI tax credit totaling €993,623.83, with €223,167.61 to carry forward to subsequent periods. The arbitral tribunal, constituted on December 12, 2014, comprised three arbitrators and had jurisdiction under Articles 2(1)(a) and 10(1)(a) of the Legal Regime for Tax Arbitration (RJAT) to decide disputes concerning tax benefits and IRC assessments.

Full Decision

ARBITRAL AWARD

CAAD: Tax Arbitration

Case No. 693/2014-T

Subject Matter: Corporate Income Tax, tax benefits, RFAI, jurisdiction of the arbitral tribunal

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Henrique Nogueira Nunes and Dr. Nuno Pombo, appointed by the Ethics Council of the Administrative Arbitration Center to constitute the Arbitral Tribunal, constituted on 12-12-2014, agree as follows:

1. Report

A… – …, S.A., a commercial joint-stock company with registered office at Avenue …, …, …, … Vila Nova de Gaia, Tax Identification Number …, filed a petition for constitution of a collective arbitral tribunal, in accordance with the provisions of Articles 2, No. 1, paragraph a), 5, No. 3, paragraph a), 6, No. 2, paragraph a), 10, No. 1, paragraph a), all of the Legal Regime for Tax Arbitration (RJAT), in which the TAX AND CUSTOMS AUTHORITY is the Respondent.

The Claimant seeks the annulment of the decision dismissing the administrative appeal filed against the tax act embodied in the Corporate Income Tax (IRC) assessment No. 2014 …, in the account adjustment statement No. 2014 … and in the compensation statement No. 2014 …, all relating to the fiscal year 2011 and the recognition and effective utilization of a tax credit under the RFAI (created by Law No. 10/2009, of March 10) which should amount to € 993,623.83, with the amount of € 223,167.61 carrying forward to potential deduction in subsequent tax periods.

The petition for constitution of the arbitral tribunal was accepted by the President of CAAD on 26-09-2014 and notified to the Tax and Customs Authority on 06-10-2014.

In accordance with the provisions of paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of the RJAT, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable deadline.

On 26-11-2014 the parties were duly notified of this appointment, and neither manifested any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of Article 11, No. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Ethics Code.

In accordance with the provision of paragraph c) of No. 1 of Article 11 of the RJAT, the collective arbitral tribunal was constituted on 12-12-2014.

The Tax and Customs Authority responded, arguing for the dismissal of the present arbitral action.

By order of 12-02-2015, the meeting provided for in Article 18 of the RJAT was dispensed with and it was decided that the case would proceed with written submissions.

The parties submitted written arguments.

The parties have legal personality and capacity, are entitled to participate, and are duly represented (Articles 4 and 10, No. 2, of the same statute and Article 1 of Regulation No. 112-A/2011, of March 22).

The case is free of defects and there is no obstacle to the examination of the merits of the case.

2. Matters of Fact

2.1. Established Facts

The following facts are considered established:

a) The Claimant is the parent company of the fiscal group A…, which is taxed for purposes of the Corporate Income Tax in accordance with the Special Regime for Taxation of Groups of Companies (RETGS), provided for in Article 69 of the Corporate Income Tax Code (see pages 5 of the Tax Inspection Report, hereinafter TIR);

b) With reference to the tax period of 2011, the fiscal consolidation scope comprised the Claimant, parent company, and the subsidiary companies, among others, B…, S.A., holder of the Unique Tax Identification Number and registration in the Commercial Registry Office of Vila Nova de Gaia … (hereinafter simply referred to as "B…");

c) With respect to the tax period of 2011, the Claimant, parent company, submitted, on 30-05-2013, a replacement declaration form 22, determining the taxable profit of Group A (declaration contained in the 2nd part of the administrative file, the contents of which are taken as reproduced);

d) Under Service Order No. OI2013…, of October 10, 2013, the Claimant was subject to a partial scope tax inspection audit of Corporate Income Tax for the fiscal year 2011, with the objective of verifying compliance with tax obligations inherent to the Special Regime for Taxation of Groups of Companies, and to reflect in the taxable profit of the group the corrections made by the Tax and Customs Authority, associated with the utilization of tax benefits (see pages 5 of the TIR);

e) Within the scope of the tax inspection, the declaration form 22 No. …-…-… dated May 30, 2013 was analyzed, in which the Claimant determined a taxable profit of the group of € 38,075,994.22 and a tax liability of € 9,517,436.06 (see pages 5 and 9 of the TIR);

f) The Claimant entered in Annex D of declaration form 22, relating to the Tax Support Regime for Investment (RFAI), the amount € 1,216,791.14 in the field designated "allocation of the period", the amount of € 900,714.52 as "deduction of the period" and the amount of € 316,076.62 in the field relating to the "balance carried forward" (see pages 8 of the Inspection Report, hereinafter TIR and declaration attached to the administrative file);

g) The Claimant made, in field 357 of declaration form 22, deductions from tax liability in the total amount of € 1,075,002.59, determining a Corporate Income Tax assessment (field 358) in the amount of € 8,442,433.47;

h) With respect to the tax benefit relating to SIFIDE II (Fiscal Incentive System for Research and Corporate Development II), the Claimant considered as allocation of the period the amount of € 172,569.11, declaring the entire amount as deduction from the tax liability of the period and nil the balance carried forward (table on pages 9 of the TIR and declaration form 22, attached to the administrative file);

i) With respect to the tax benefits relating to RFAI, the Tax and Customs Authority understood that the amount susceptible to deduction from the tax liability amounted to € 1,216,791.14, and thus, as the Claimant had considered as deduction from the tax liability the amount of € 900,714.52, it made an adjustment in favor of the Claimant, increasing the deduction from the tax liability of the period 2011 by € 316,076.62, invoking Article 3 of the RFAI and paragraph b) of No. 2 of Article 90 of the Corporate Income Tax Code (CIRC) (see pages 11 of the TIR);

j) Following the correction made, the Tax and Customs Authority, invoking Article 92 of the Corporate Income Tax Code, corrected the calculation of the assessment result in the amount of € 223,167.30 (TIR, page 14);

k) The Tax and Customs Authority issued the Corporate Income Tax assessment No. 2014 …, the account adjustment statement No. 2014 … and the compensation statement No. 2014 …, all relating to the fiscal year 2011, determining the amount of tax to be collected of € 146,389.83;

l) The Claimant filed an administrative appeal against the assessment referred to in the preceding paragraph;

m) With respect to the administrative appeal, a draft decision No. …/2014 was prepared in the Large Taxpayers Unit, a copy of which is attached to the initial petition as document No. 2, the contents of which are taken as reproduced;

n) Following the exercise of the right of reply by the Claimant, a Decision No. …/2014 was prepared in the Large Taxpayers Unit, a copy of which was attached to the initial petition as document No. 1, the contents of which are taken as reproduced;

o) By order of 20-08-2014, issued by the Head of Division of the Large Taxpayers Unit, the administrative appeal was dismissed;

p) The decision dismissing the administrative appeal was notified to the Claimant by letter issued on 21-08-2014 (see document No. 1 attached to the initial petition, the contents of which are taken as reproduced);

q) On 24-09-2014, the Claimant filed the petition for constitution of the arbitral tribunal that gave rise to the present case.

2.2. Unestablished Facts

There are no facts relevant to the resolution of the case that have not been established.

2.3. Grounds for Determination of Matters of Fact

The determination of the matters of fact is based on the administrative file and the documents attached to the initial petition, there being no controversy over the established facts.

3. Matters of Law

3.1. Powers of Cognition of Arbitral Tribunals

The Claimant concludes its request for arbitral determination asking that the tax act be annulled "and the recognition and effective utilization of a tax credit under the RFAI be admitted, which should amount to € 993,623.83, with the amount of € 223,167.61 carrying forward to potential deduction in subsequent tax periods".

The legislative authorization on which the Government based the approval of the RJAT was granted by Article 124 of Law No. 3-B/2010, of April 28, providing in its No. 2 and in paragraph a) of No. 4 the possibility of tax arbitration covering what in tax litigation is the field of application of an action for recognition of a right or legitimate interest.

However, Decree-Law No. 10/2011, of January 20 (RJAT) only included within the scope of tax arbitration the competence to review the legality of acts of the types referred to in its Article 2, No. 1, which are inherent to judicial challenge procedures.

For this reason, arbitral tribunals functioning in the CAAD have powers of cognition limited to those that tax tribunals can exercise in the judicial challenge procedure (which has been understood to include the declaration of illegality of acts and the determination of interest on damages and indemnification for undue guarantees), but do not include those that can be exercised in tax tribunals in enforcement proceedings of judgments and in actions for recognition of a right or legitimate interest.

Thus, it is manifest that this Arbitral Tribunal does not have the powers of cognition to rule on the request for "recognition and effective utilization of a tax credit under the RFAI which should amount to € 993,623.83, with the amount of € 223,167.61 carrying forward to potential deduction in subsequent tax periods".

Therefore, this request is not admitted.

3.2. Question of the Legality of the Correction Underlying the Assessment Act

The Claimant considered, in the fiscal year 2011, as an effective deduction from the tax liability, under the tax benefits relating to RFAI, the amount of 900,714.52 euros.

The Tax and Customs Authority understood that the amount susceptible to deduction from the tax liability in that period is 1,216,791.14 euros, and thus made an adjustment in favor of the Claimant in the amount deducted in the period of 316,076.62 euros, invoking Article 3 of the RFAI and paragraph b) of No. 2 of Article 90 of the Corporate Income Tax Code (CIRC).

In the present case, the Claimant argues that "it determined a tax credit amount relating to RFAI corresponding to € 1,216,791.14, having recognized as deduction from the tax liability the amount of € 900,714.52" and that "there is carried forward to potential deduction in subsequent tax periods the amount of € 316,076.62, a solution which appears to be the only one that is compatible with the legal regime in force as well as with the spirit of the norms that regulate it".

The Tax and Customs Authority understands that the deduction of the RFAI should be made as soon as there is sufficient tax liability in the first period in which it is determined and respecting the time limit defined by law, and the taxpayer cannot choose the period in which such deduction is made (…), and therefore makes an adjustment in favor of the taxpayer in the amount deducted in the period of 316,076.62 euros.

Article 92 of the Corporate Income Tax Code, in the wording introduced by Law No. 55-A/2010, of December 31, in force in 2011, establishes the following:

Article 92

Result of the Assessment

1 - For entities that exercise, as their principal activity, a commercial, industrial or agricultural activity, as well as non-residents with permanent establishment in Portuguese territory, the tax assessed in accordance with No. 1 of Article 90, net of deductions provided for in paragraphs a) and b) of No. 2 of the same article, cannot be less than 90% of the amount that would be determined if the taxpayer did not benefit from tax benefits and the regimes provided for in No. 13 of Article 43 and in Article 75.

2 - The following are excluded from the provision of the preceding paragraph:

a) Those that have a contractual nature;

b) The system of fiscal incentives for research and corporate development II (SIFIDE II);

c) Tax benefits in the free trade zones provided for in Articles 33 and following of the Tax Benefits Statute and those that operate through a rate reduction;

d) Those provided for in Articles 19, 32, 32-A and 42 of the Tax Benefits Statute.

Law No. 10/2009, of March 10, created the budgetary program designated as Initiative for Investment and Employment and, within its scope, created the tax support regime for investment made in 2009 (RFAI 2009).[1]

This regime was maintained in force in 2010 by Article 116 of Law No. 3-B/2010, of April 28, in 2011 by Article 134 of Law No. 55-A/2010, of December 31, and in 2012 by Article 162 of Law No. 64-B/2011, of December 30.

In its Article 3, the RFAI 2009 establishes the following, insofar as relevant:

Article 3

Tax Incentives

1 - To Corporate Income Tax taxpayers resident in Portuguese territory or having a permanent establishment therein, who exercise as their principal activity a commercial, industrial or agricultural activity covered by No. 1 of the preceding article and who make, in 2009, investments considered relevant, the following tax benefits are granted:

a) Deduction from the tax liability of Corporate Income Tax, and up to 25% thereof, of the following amounts, for investments made in regions eligible for support under incentives with a regional purpose:

i) 20% of the relevant investment, for investment up to the amount of €5,000,000;

ii) 10% of the relevant investment, for investment exceeding the amount of €5,000,000;

(...)

2 - The deduction referred to in paragraph a) of the preceding paragraph is made in the assessment relating to the tax period that begins in 2009.

3 - When the deduction referred to in the preceding paragraph cannot be made in full due to insufficient tax liability, the amount not yet deducted may be made, under the same conditions, in the assessments of the four following fiscal years.

It follows from these Nos. 2 and 3 that the deduction from the Corporate Income Tax liability of investments that meet the conditions required by paragraph a) of No. 1 must be made in the assessment relating to the tax period that begins in 2009 (No. 2) and only when it cannot be made in full in that fiscal year due to insufficient tax liability, can it be made within the four following fiscal years, under the same conditions (No. 3).

The limitation of the relevance of tax benefits to 10% of the amount that would be determined if these did not exist, which results from No. 1 of Article 92 of the Corporate Income Tax Code, in the wording of Law No. 55-A/2010, of December 31, is applicable to the tax benefit in Corporate Income Tax provided for in the RFAI, since it does not appear in the list of tax benefits excluded that is contained in No. 2 of the same article.

In fact, this list of tax benefits excluded from the limitation of No. 1 was reformulated in this same Law, ceasing to make reference to "benefits in the form of deduction from tax liability" that were part of it in the previous wording of No. 2 and that covered the tax benefit provided for in the RFAI relating to Corporate Income Tax.

On the other hand, one cannot doubt that Article 92, No. 1, of the Corporate Income Tax Code aims to limit the relevance of tax benefits granted by other norms, as this is precisely one of its functions, as is clearly evident from its text.

Furthermore, it is noted that in No. 1 of Article 92 of the Corporate Income Tax Code, a legislative evolution occurred in the direction of emphasizing the limitation of the relevance of tax benefits and other regimes provided therein that affect the Corporate Income Tax liability, as in the wording of Decree-Law No. 159/2009, of July 13, it ensured only 60% of the tax liability, a percentage that increased to 75% with Law No. 3-B/2010, of April 28, and to 90% with Law No. 55-A/2010, of December 31, with consequent reductions in the maximum limits of tax benefits. This aligns with the notorious concerns that existed at that time in reducing the public finances deficit, guaranteeing a certain level of tax revenue.

In any case, as noted, the elimination that the same Law No. 55-A/2010 made of the reference to "benefits in the form of deduction from tax liability" that appeared in the list of tax benefits excluded from the regime of No. 1, which appeared in No. 2 of the previous wording, cannot fail to be interpreted as not subjecting all tax benefits to the new limitation made in No. 1, this being the only interpretation that has in the letter of the law the minimum of verbal correspondence required by Article 9, No. 3, of the Civil Code.

In this context, in which, simultaneously, in the same Law No. 55-A/2010, the legislature maintains the RFAI (Article 134) and alters Article 92 of the Corporate Income Tax Code decreasing the general relevance of tax benefits in the matter of Corporate Income Tax (through a new higher minimum limit for the Corporate Income Tax liability) and reformulates the list of tax benefits excluded from such limitation in a way as to exclude the tax benefit of the RFAI, which was previously included therein, the legislative intention that is detected is to maintain in general the application of the RFAI regime, but, with respect to Corporate Income Tax, with the limitation provided for in No. 1 of Article 92.

In truth, the interpretation defended by the Claimant comes down, in practice, to including the tax benefit in question in the list of tax benefits excluded by No. 2 of Article 91, which is contrary to the legislative intention of removing from this the "benefits in the form of deduction from tax liability" that appeared in the previous wording thereof.

Moreover, the fact, referred to by the Claimant, that Decree-Law No. 82/2013, of June 17, added to No. 2 of Article 92 an express reference to the "tax support regime for investment (RFAI), provided for in the Tax Code of Investment", again excluding tax benefits of this type from the limitation provided for in No. 1 of Article 92, confirms that the previous wording did not allow considering this tax benefit included in the list of tax benefits excluded from the limitation of No. 1. In fact, apart from there being nothing in the text or in the Preamble of Decree-Law No. 82/2013 that allows one to see that the alteration to No. 2 of Article 92 of the Corporate Income Tax Code has an interpretive nature, the Preamble of that Decree-Law No. 82/2013 announces a change in economic and financial policy, with the Government assuming the commitment to promote the growth of the economy, in parallel with the previous primary concern of consolidation of public finances, as can be seen from the following excerpts:

"During 2013, the Government is committed to a reform of the functions of the State, which makes it possible to structurally reduce the weight of public expenditure, making it more sustainable, more equitable and more efficient.

In parallel, contributing to the success of the Economic and Financial Adjustment Program for Portugal, and with the objective of promoting the competitiveness, employment and internationalization of Portuguese companies, the Government commits itself to a strategy aimed at strongly stimulating direct investment in Portugal, whether national or foreign, or Portuguese investment abroad.

Thus, while continuing the effort of consolidation of the national public finances, the Government assumes the imperative of promoting the growth of the Portuguese economy, through the creation of attractive tax conditions to stimulate productive investment and job creation, already in 2013."

It is in harmony with this new government commitment to adopt "a strategy aimed at strongly stimulating direct investment in Portugal" that the tax benefit of the RFAI in the matter of Corporate Income Tax is expanded.

The legislative authorization on which the Government based Decree-Law No. 82/2013, which was granted by Article 244 of Law No. 66-B/2012, of December 31, confirms that, from the perspective of the Assembly of the Republic, the deduction from the Corporate Income Tax liability allowed with respect to the RFAI was limited by Article 92, No. 1, of the Corporate Income Tax Code, as it provides that there be reviewed "the current limit of the annual deduction from Corporate Income Tax liability, with a view to a percentage of deduction between 25% and 50%", which implies that it was previously understood that the percentage was lower.

Thus, it must be concluded that the tax benefit in the matter of Corporate Income Tax provided for in the RFAI was subject, in 2011, to the global limit of deductions from the tax liability provided for in No. 1 of Article 92 of the Corporate Income Tax Code.

However, this conclusion is not sufficient to resolve the question, as, as the Claimant argues, the possibility of carrying forward the RFAI tax benefit does not affect that limit of Article 92, No. 1, in the year 2011, which is unquestionably true, as only the amount of the tax benefit that, added to the other tax benefits and regimes provided therein, does not exceed the limit of 10% of the tax liability is deducted in that year, so as to allow the tax assessed not to be less than 90% of what would be determined if the taxpayer did not benefit from tax benefits and the regimes provided for in No. 13 of Article 43 and in Article 75.

That is, if to achieve the objectives of consolidation of public finances it is sufficient that the deduction from the tax liability does not exceed in each year 10% of the tax liability, there does not result from Article 92, No. 1, of the Corporate Income Tax Code any obstacle to the carrying forward of deductible amounts, provided that, in each year, the minimum limit of tax assessed that is intended is not exceeded.

Therefore, the obstacle to the carrying forward does not result from the regime of Article 92, No. 1, of the Corporate Income Tax Code, and can only be based on the reference that in No. 3 of Article 3 of the RFAI is made that "when the deduction referred to in the preceding paragraph cannot be made in full due to insufficient tax liability, the amount not yet deducted may be made, under the same conditions, in the assessments of the four following fiscal years".

It is manifest that this norm has underlying a legislative intention that tax benefits in support of investment be utilized by taxpayers, to a reasonable extent, which will be the four years subsequent to that in which the investment occurs, a period identical to that provided for in Article 45 of the General Tax Law for the consolidation of tax situations.

It is also certain that this possibility of deduction in the four subsequent periods constitutes an important guarantee for the taxpayer, by increasing the possibilities of the taxpayer benefiting fully from the tax benefit and, to that extent, freeing it from the contingency of there being insufficient tax liability for the full deduction in the year of the investment, the possibility of carrying forward must be considered as an important or even decisive factor for motivating investment decisions.

From this perspective, as it is to be presumed that the legislature established the most correct solution (Article 9, No. 3, of the Civil Code) to achieve the intended objective of encouraging investment, the reference to the possibility of carrying forward in case of insufficient tax liability should not be interpreted with the scope of making it difficult for taxpayers to benefit from the tax benefit, as the objective of the norm is precisely the opposite, to increase the possibilities of taxpayers being able to actually benefit from the benefit, which legislatively is understood to be a fair return on the investment.

Being so, in a teleological interpretation, which makes it possible to find in the law a way to ensure the objectives aimed at legislatively and not to prejudice them, the possibility of deduction should exist in the generality of situations in which the Corporate Income Tax liability available to benefit from the tax benefit is not sufficient for its full utilization, which is not without being an interpretation with correspondence in the letter of the law, as from Article 92, No. 1, of the Corporate Income Tax Code results a decrease of the liability available to benefit from tax benefits in Corporate Income Tax. And, therefore, when this available liability is insufficient to deduct the totality of the tax benefit resulting from the investment, there is a situation of "insufficient tax liability" for purposes of Article 3, No. 3, of the RFAI.

Thus, it is concluded that the position defended by the Claimant finds in the letter of the law, even by merely declarative interpretation, verbal correspondence in the letter of Article 3, No. 3, of the RFAI, even more than the insufficiently expressed minimum required by Article 9, No. 2, of the Civil Code. Besides, even if an extensive interpretation were necessary, it would be permitted by Article 10 of the Tax Benefits Statute, as it is clear that the legislative intention underlying No. 3 of Article 3 of the RFAI is to permit the taxpayer to utilize the tax benefit to which the taxpayer is entitled in subsequent years, up to the limit of four, when the taxpayer cannot utilize it in earlier years.

On the other hand, this interpretation is the one that ensures value congruence of the legal system, as it would not be coherent to admit in Article 3, No. 1, paragraph a), of the RFAI a deduction from the Corporate Income Tax liability of up to 25% and, at the same time, permanently restrict the benefit to 10% or less, through Article 92, No. 1, of the Corporate Income Tax Code.

Therefore, if it is true that concerns about consolidation of public finances can justify that, in each year, the obtaining of minimum Corporate Income Tax revenue be superimposed on the tax benefit, those concerns can no longer explain that there be no possibility of utilization of the tax benefit in one of the four subsequent years, if such utilization in any of them does not affect that consolidation.

It is thus concluded that the tax benefit resulting from the RFAI in the matter of Corporate Income Tax can only be utilized to the extent that it does not jeopardize the limit provided for in Article 92, No. 1, of the Corporate Income Tax Code, but there is no legal obstacle to the part that is not utilized in the year of the investment being able to be utilized for deduction from the Corporate Income Tax liability in subsequent years, up to the limit provided for in No. 3 of Article 3 of the RFAI.

Therefore, in the case at hand, as the 90% limit provided for in Article 92, No. 1, of the Corporate Income Tax Code does not permit the deduction from the tax liability of the total amount of the investment made in 2011 by the Claimant that benefits from the RFAI regime, the Claimant was not obliged to impute all of that investment to that year, being without the right to deduction in the part in which it would exceed that limit, but could utilize the faculty provided for in No. 3 of Article 3 of the RFAI.

For the foregoing, the correction made by the Tax and Customs Authority is marred by a vice of violation of law, due to erroneous interpretation of Article 3, No. 3, of the RFAI.

4. Questions of Prejudicial Knowledge

Being the request for arbitral determination to be judged well-founded for a vice of violation of law, which prevents the practice of a new act with the same import, the knowledge of the remaining questions raised by the Claimant is prejudiced, as it is useless.

5. Decision

In harmony with the foregoing, the members of this Arbitral Tribunal agree to:

a) Not admit the request for "recognition and effective utilization of a tax credit under the RFAI which should amount to € 993,623.83, with the amount of € 223,167.61 carrying forward to potential deduction in subsequent tax periods";

b) Judge well-founded the request for arbitral determination in the part relating to the annulment of the Corporate Income Tax assessment act No. 2014 …, the account adjustment statement No. 2014 … and the compensation statement No. 2014 …, all relating to the fiscal year 2011.

6. Value of the Case

In accordance with the provisions of Article 305, No. 2, of the Code of Civil Procedure and Article 97-A, No. 1, paragraph a), of the Code of Tax Procedure and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 146,389.83.

7. Costs

In accordance with Article 22, No. 4, of the RJAT, the amount of costs is fixed at € 3,060.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 01-04-2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Henrique Nogueira Nunes)

(Nuno Pombo)

[1] The RFAI 2009 was subsequently repealed by Decree-Law No. 82/2013, of June 17, and was in force in 2011.

Frequently Asked Questions

Automatically Created

What is the RFAI tax credit and how does it apply to corporate income tax (IRC) in Portugal?
The RFAI (Regime de Apoio Fiscal ao Investimento/Tax Support Regime for Investment) is a Portuguese tax incentive created by Law 10/2009 of March 10, designed to stimulate business investment. Under RFAI, companies can claim tax credits against their Corporate Income Tax (IRC) liability based on qualifying investment expenditures. The tax credit is calculated as a percentage of eligible investments in tangible fixed assets and can be deducted from IRC tax liability in the period of allocation. The regime applies to companies subject to IRC taxation in Portugal, including those taxed under the Special Regime for Taxation of Groups of Companies (RETGS). Article 3 of RFAI and Article 90(2)(b) of the Corporate Income Tax Code govern the application and calculation of these tax credits. Companies must declare RFAI benefits in Annex D of Form 22 (annual IRC tax return), specifying the allocation amount, deduction for the period, and any balance to carry forward.
Does the CAAD arbitral tribunal have jurisdiction to decide on RFAI fiscal benefit disputes?
Yes, the CAAD (Centro de Arbitragem Administrativa/Administrative Arbitration Center) arbitral tribunal has jurisdiction to decide disputes concerning RFAI fiscal benefits. Under Article 2(1)(a) of the Legal Regime for Tax Arbitration (RJAT), approved by Decree-Law 10/2011, tax arbitration covers disputes related to legality of tax acts, including those concerning fiscal benefits and Corporate Income Tax assessments. Article 10(1)(a) of RJAT specifically grants jurisdiction over challenges to tax assessments and decisions on administrative appeals. In this case, the tribunal's jurisdiction extends to reviewing the Tax Authority's decision dismissing the administrative appeal regarding RFAI tax credits and the underlying IRC assessment. The tribunal was constituted according to Article 11 of RJAT, with three arbitrators appointed by the CAAD Ethics Council, and both parties had proper legal standing and representation under Articles 4 and 10(2) of the RJAT.
How can a company challenge an IRC tax assessment through gracious complaint and tax arbitration?
Companies in Portugal can challenge IRC tax assessments through a two-tier process. First, they must file an administrative appeal (reclamação graciosa) with the Tax and Customs Authority within 120 days of notification of the assessment, as provided in Articles 68-78 of the General Tax Law (LGT). The administrative appeal is decided by the hierarchical superior of the entity that issued the contested act. If the administrative appeal is dismissed or partially granted, or if no decision is issued within the legal deadline, the taxpayer can then initiate tax arbitration proceedings. Under the RJAT, taxpayers must file a petition for constitution of an arbitral tribunal with CAAD, typically within 90 days of notification of the administrative appeal decision. The petition must identify the contested act, state the grounds for challenge, and specify the relief sought. Tax arbitration provides a faster alternative to judicial courts for resolving tax disputes, with arbitral awards having the same enforceability as court judgments.
What are the requirements for claiming RFAI investment tax credits under Law 10/2009 in Portugal?
To claim RFAI investment tax credits under Law 10/2009, Portuguese companies must meet several requirements. First, the company must be subject to Corporate Income Tax (IRC) and have its tax situation regularized. Second, the investments must consist of qualifying assets, primarily tangible fixed assets (ativos fixos tangíveis) acquired new and used in the company's productive activity in Portugal. Third, the investments must be realized during the period when RFAI is in force and properly documented with supporting invoices and accounting records. Fourth, the tax credit is calculated as a percentage of eligible investment amounts, subject to maximum limits per company. Fifth, companies must declare the RFAI benefit in Annex D of Form 22 (annual IRC return), specifying the allocation for the period, the deduction claimed, and any balance carried forward. The tax credit can only be deducted up to the amount of IRC tax liability for the period, as provided in Article 90(2)(b) of the IRC Code. Companies taxed under the group taxation regime (RETGS) claim RFAI benefits at the parent company level, consolidating qualifying investments from all group members.
Can unused RFAI tax credits be carried forward to subsequent taxation periods under Portuguese tax law?
Yes, unused RFAI tax credits can be carried forward to subsequent taxation periods under Portuguese tax law. When the RFAI tax credit allocated for a given period exceeds the Corporate Income Tax (IRC) liability for that period, the excess amount cannot be immediately deducted but is instead carried forward as a balance (saldo a reportar) to future tax periods. Article 90(2)(b) of the IRC Code establishes that tax benefits that constitute deductions from tax liability can only be utilized up to the amount of tax due for the period. The carry-forward mechanism ensures that companies with lower profitability or tax liability in the investment year can still benefit from RFAI credits when they generate sufficient taxable profits in subsequent years. Companies must track and declare carry-forward balances in Annex D of Form 22 each year. However, the carry-forward period may be subject to time limitations specified in the RFAI legislation. In this case, the claimant declared €316,076.62 as balance carried forward and sought recognition of €223,167.61 to carry forward to subsequent periods after Tax Authority adjustments.