CAAD Ruling on IRC SIFIDE R&D Tax Credit Deduction and Fiscal Enforcement Suspension

Case No. 79/2013-T

Arbitral Decision

The arbitrators Dr. Jorge Manuel Lopes de Sousa (presiding arbitrator), Prof. Dr. Vasco Valdez and Prof. Dr. Jorge Bacelar Gouveia, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 14-6-2013, agree on the following:

1. Report

A..., S.A., NIPC ..., submitted a request for constitution of a collective 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 AUTHORITY AND CUSTOMS AUTHORITY is the Respondent, with a view to:

(i) Declaration of illegality of the acts of assessment of Corporate Income Tax (IRC) No. 2012 ..., and their respective assessments of compensatory interest and default interest Nos. 2012 ... and 2012 ..., relating to the fiscal year 2010, in the amount of € 2,016,845.35, with their consequent annulment;

(ii) Condemnation of the Respondent to payment of indemnificatory interest from the date of credit compensation to full payment;

(iii) Condemnation of the Respondent to account settlement that considers the reduction of the collection deduction of the benefit (SIFIDE) declared in excess in Form 22 of 2010, in the amount of € 266,640.69 and respective compensatory interest, counted until 24 July 2012, as this is the date of credit compensation.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax Authority and Customs Authority on 11-04-2013.

In accordance with the provisions of paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigning arbitrators, who communicated acceptance of the mandate within the applicable period.

On 28-05-2013, the parties were notified of this appointment, and did not manifest 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 Deontological Code.

Thus, in conformity with the provisions of paragraph c) of No. 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 14-06-2013.

The Tax Authority and Customs Authority (ATA) responded, raising exceptions of lack of competence of the Arbitral Tribunal ratione materiae and of res judicata, and defending the non-merit of the request for arbitral pronouncement.

The Claimant responded to the exceptions in writing.

On 26-09-2013, the meeting provided for in Article 18 of the RJAT took place, which was recorded by Dr. António Fontoura de Oliveira, legal advisor of the Administrative Arbitration Centre.

At that meeting, it was agreed that there was no need for witness evidence production, and 28-10-2013 was set as the date for the rendering of the arbitral decision.

The Claimant submitted arguments in which it formulated the following conclusions:

A. Regarding the exception of lack of competence of the Arbitral Tribunal ratione materiae raised by AT, Article 54 of the CPPT establishes as a corollary of tax proceedings the principle of unitary challenge, by which the interlocutory acts of the procedure may only be autonomously challengeable when one of the following conditions is verified: (i) they are immediately harmful; or (ii) there exists an express provision that requires the taxpayer to challenge them under penalty of consolidation in the legal order.

B. With regard to the cessation of the tax benefit, there is no specific provision that requires the taxpayer to autonomously challenge the cessation of the benefit (via special administrative action) under penalty of having their right of challenge foreclosed.

C. Since the challenge of the cessation of the tax benefit is an optional means, the Claimant, under the principle of unitary challenge, opted to contest the assessment;

D. The present request for pronouncement is therefore the appropriate means to assess the cessation of the benefit that gave rise to the assessment whose legality is now contested;

E. With regard to the lifting of the suspension of the fiscal execution process relating to the 2002 IRC assessment (question raised by the Public Treasury—erroneously—on equal footing with the question of the cessation of the tax benefit that gave rise to the present IRC assessment), Article 276 of the CPPT allows the taxpayer the possibility of reacting to an interlocutory act. At no point in the text of the article is there reference to the obligation, under penalty of consolidation of the act in the legal sphere, to object to interlocutory decisions issued by the execution body throughout the execution process;

F. Regarding the exception of res judicata: (i) there is no express provision that required the Claimant to autonomously challenge the acts; (ii) the tax procedure ended with the issuance of the assessment that is now being contested; and (iii) the rule in tax proceedings is unitary challenge—challenge of the assessment as a contentiously challengeable harmful act.

G. Since the reaction means available to the Claimant have not been exhausted, it cannot be considered that res judicata was established;

H. Regarding the existence or not of acts severable from the 2010 IRC assessment act, there was no obligation to autonomously challenge the cancellation of the tax benefit that gave rise to the additional 2010 IRC assessment.

I. The law (Article 54 of the CPPT), as a means of protecting the interests of taxpayers, provides for a possibility and not an obligation for the taxpayer to challenge certain interlocutory acts.

J. The obligation of autonomous challenge is restricted to situations where there is an express provision to that effect.

K. With regard to the cessation of the tax benefit, there is no specific provision that requires the taxpayer to autonomously challenge the cessation of the benefit (via special administrative action) under penalty of having their right of challenge foreclosed.

L. The Claimant, under the principle of unitary challenge, opted to contest the assessment.

M. Also by this route, the present request for pronouncement is the appropriate means to assess the cessation of the tax benefit that gave rise to the assessment whose legality is now being contested.

N. Article 276 of the CPPT constitutes a faculty conferred on the taxpayer to react to an interlocutory act, and not an obligation, under penalty of consolidation of the act in the legal sphere, to object to interlocutory decisions issued by the execution body throughout the execution process.

O. The lifting of the suspension of fiscal execution is not in itself an immediately harmful act, contrary to the determination of improper guarantee provision or attachment.

P. Even if it were understood, which is only granted by way of reasoning exercise, that the Claimant was obliged to object to the act of lifting the suspension of fiscal execution under Article 276 for being an immediately harmful act, when this became "immediately harmful" with the cancellation of the tax benefit on 6 February 2012, the ten-day period provided for in Article 277 had already passed.

Q. Following the line of reasoning of the Public Treasury, the cessation of the tax benefit itself when it occurred on 6 February 2012 could no longer be contested, let us see why: (i) the benefit ceased due to the existence of a tax debt whose fiscal execution process did not benefit from suspension; (ii) it so happens that the means of reaction against the improper lifting of the suspension of the fiscal execution process is 10 days from notification of the lifting (Article 277, No. 1 of the CPPT); (iii) the lifting of suspension occurred when the challenge relating to the additional 2002 IRC assessment was filed, that is in 2010; (iv) the disregard of the tax benefit occurred in February 2012;

R. According to the understanding of the Public Treasury, any and all right of the Claimant to contest the additional 2010 IRC assessment, issued in 2012, would be foreclosed by the lifting of the suspension of fiscal execution relating to an additional assessment of 2002 that occurred 2 years earlier.

S. That is, before the lifting of the suspension of the execution process became harmful, the period to object to said lifting had already elapsed.

T. The understanding defended by the Public Treasury is unacceptable from the perspective of protecting taxpayers' rights and frontally violates the principles of legality and good faith.

U. The success of the understanding advocated by AT would constitute a means of violating the principle of effective judicial protection, inherent in the Constitution of the Portuguese Republic, and would allow AT, through erratic behavior, to consolidate in the legal order a series of illegal conducts that would become unreviewable.

V. In the context of rejection of the gracious objection presented by the Claimant regarding the assessment whose annulment is now requested, AT invoked only the content of Circular Instruction No. 60,090, of 15 May 2012, issued by the Directorate of Tax and Credit Management and its binding nature thereto, and not the prior necessity of attacking any interlocutory acts of the procedure.

W. As to the legality of the 2010 IRC Assessment, Article 14 of the Tax Benefits Statute (EBF) establishes that "5 — In the case of permanent or temporary benefits dependent on recognition by the tax administration, the administrative act that granted them ceases to have effect in the following situations: b) the debt has not been the subject of a gracious objection, challenge or opposition with the provision of suitable guarantee, when required; and that 6 – (...) automatic benefits do not produce their effects in the year or tax period in which their assumptions occur (...)". (emphasis added);

X. The Claimant never fell within the above-stated provision. That is, there never was any tax debt owed or any uncontested or unguaranteed debt on the part of the Claimant because: (i) by not agreeing with the additional assessment No. ..., relating to 2000 IRC issued by the Services, it filed a gracious objection and provided suitable guarantee; and (ii) as the gracious objection was not decided within one year of its filing, the Claimant requested and obtained approval of the recognition of the lapsing of the guarantee provided; (iii) and subsequently filed the corresponding judicial challenge;

Y. From the combination of Articles 52 of the LGT, 169 and 183-A of the CPPT, we should conclude (as now also AT—Circular Instruction No. 60,094, of 12 March 2013) that: (i) the provision of guarantee when accompanied by presentation of a gracious objection or judicial challenge suspends the fiscal execution process; (ii) if the gracious objection is not decided within one year of its filing, the taxpayer may request its lapsing; and that (iii) regardless of the lifting of the guarantee due to lapsing, the fiscal execution process should remain suspended until final judgment.

Z. Considering that the Claimant (i) filed a gracious objection on 05 November 2003 and provided bank guarantee on 30 March 2004 to suspend the fiscal execution process relating to the additional assessment No. ..., relating to 2000 IRC, and (ii) was notified on 30 July 2007 by AT of the recognition of the lapsing of the guarantee provided, since the gracious objection was not decided within one year of the date of its filing; it is important to conclude that, having AT recognized the lapsing of the guarantee pending the gracious objection and the Claimant having timely filed judicial challenge following rejection of the gracious objection, the fiscal execution process should have remained suspended until final judgment in the case, as provided in Article 169, No. 1 of the CPPT.

AA. AT could not request the provision of a new guarantee, since the dispute subsists that began with the gracious objection, and recourse to the judicial phase is a continuation of that procedure.

BB. According to unanimous opinion of case law and doctrine (and now also administrative doctrine), the fiscal execution process should remain suspended until the end of the dispute, that is until the assessment act becomes final or unchallengeable. Such fact only occurs when all gracious and judicial instances are exhausted.

CC. AT's own Services changed their position on this matter, recognizing that "..., where lapsing of the guarantee occurs in the context of a gracious objection, it is not required of the taxpayer to provide a new guarantee, if the taxpayer continues the discussion of the legality of the debt through hierarchical appeal or judicial challenge, with the fiscal execution process remaining suspended until final decision is rendered by the tax administration (res judicata) or by the court (becoming final)", as results from the understanding expressed through Circular Instruction No. 60,094, of 12 March 2013.

DD. In this context, AT could not, when the Claimant filed the judicial challenge, have lifted the suspension of the fiscal execution process by considering due the amount of 1,342,991.33 €, relating to 2000 IRC, based on the absence of guarantee provision, since the said "dispute" had not reached its end, as it still has not.

EE. The cessation of tax benefits declared by the Services, allegedly under Articles 5 to 7 of Article 14 of the Tax Benefits Statute (EBF), based on the existence of the said 2000 IRC debt on the part of the Claimant, is illegal, since the 2000 IRC assessment is still being discussed at the 1st Organizational Unit of the Administrative and Tax Court of Sintra, Case No. .../....5BESNT.

FF. The Services, in disregarding the tax benefits declared by the Claimant in its Form 22 Return for 2010 and in issuing the consequent additional assessment, violated said legal principle (Article 169, No. 1 of the CPPT), as well as the principles of trust and legal certainty, pillars of tax law and of good relations between the Tax Administration and taxpayers.

GG. That is, AT's procedure lacks legal foundation, therefore the assessment act should be annulled for violation of law and erroneous reasoning, with a view to restoring tax legality.

HH. As to the legality of the Tax Credit resulting from the System of Tax Incentives for Business Research & Development, from the annulment of the 2010 IRC assessment, total reimbursement should not result because regarding the 2010 fiscal year the Claimant applied for SIFIDE with expenses in the amount of 1,127,620.02 €, to which it considered corresponded a SIFIDE benefit that amounted to 633,117.20 €, and this was the value that, together with values carried forward from prior years, was considered by the Claimant in the calculation of benefits it included in its Form 22 of 2010.

II. However, the value of the certified tax credit relating to 2010 fiscal year expenses was 366,476.51 €.

JJ. Therefore, and for purposes of procedural economy, the Claimant considers that this request for pronouncement, in which the annulment of the additional 2010 IRC assessment No. 2012 ... and the respective assessments of compensatory interest and default interest Nos. 2012 ... and 2012 ... are requested, is the appropriate and suitable means to proceed with the requested adjustment.

KK. However, given the fact that the fiscal execution body carried out a credit compensation between the amount to be reimbursed of 2011 IRC (€ 2,660,989.63) and the amount allegedly owed relating to 2010 IRC (fiscal execution process No. ... 2012 ... – € 2,051,792.08), the Claimant considers that the amount of € 266,640.69 relating to the benefit (SIFIDE) should be corrected, but that the tax is no longer owed by the Claimant, since the amount of credit compensation carried out improperly by the fiscal execution body in fiscal execution process No. ... 2012 ..., far exceeds the amount of € 266,640.69 relating to the benefit (SIFIDE) to be corrected in favor of AT.

LL. Since the additional assessment is illegal, compensatory interest or default interest are not owed.

MM. Considering further, as stated, that the additional 2010 IRC assessment No. 2012 ..., and the respective assessments of compensatory interest and default interest Nos. 2012 ... and 2012 ..., all in the amount of € 2,016,845.35, as shown in the account settlement demonstration No. 2012 ..., lack legal foundation and constitute a violation of law, the prerequisites are met for the payment of indemnificatory interest to the Claimant, at the rate of 4% per annum (Article 43, No. 4 and Article 35, No. 10 of the LGT, Ordinance 291/2003, of 8 April), counted from the date of credit compensation (24 July 2012) to full payment.

NN. Given the above, the additional 2010 IRC assessment and corresponding compensatory and default interest should be annulled, due to violation of law and erroneous reasoning, but the account settlement in the amount of € 278,884.25 should be considered, which includes the amount of € 266,640.69 and respective compensatory interest in the amount of € 12,243.56, counted until 24 July 2012, with the amount of € 1,772,907.83 (€ 2,051,792.08 - € 278,884.25) to be reimbursed to the Claimant, plus the amount of corresponding indemnificatory interest.

OO. Or if this is not understood, the additional assessments for 2010 IRC and corresponding compensatory and default interest should always be totally annulled, with the full amount to be reimbursed to the Claimant, plus the respective indemnificatory interest.

The Tax Authority and Customs Authority presented arguments in which it concluded as follows:

A – In the present arbitral proceeding, notwithstanding A's position of the Tribunal's competence on the grounds that this is a request for annulment of an IRC assessment act, the fact is that throughout the case no intrinsic vices of the assessment act are alleged, nor even of its assumptions or of acts that could be considered severable within the framework of the assessment procedure, even if the assessment is understood in broad terms, as encompassing the entire procedure related to it and not merely as simple application of the rate to the taxable matter.

B – Accordingly, the claim, as formatted by the Claimant, falls outside paragraph a) of No. 1 of Article 2 of the RJAT;

C – Likewise, the acts that the claimant, in essence, seeks to challenge in the present proceeding, under the guise of a purported challenge to an assessment act, are acts practiced in proceedings or procedures autonomous to the assessment procedure.

D – Acts of which the claimant was notified in a timely manner within the framework of their respective proceedings and regarding which the claimant had legal means of reaction to exercise within periods that the claimant allowed to lapse.

E – Resulting therefrom that the objective sought with the present arbitral proceeding is nothing more than an attempt to proceed with an improper retroactive legal revaluation of acts practiced by the tax administration. Acts that consolidated in the legal order as res judicata.

F – The concept of res judicata, which is distinct from the institute of res judicata in the strict sense, implies only that the act acquired a character of incontestability (See in this sense Judgment No. 032425 of 13-01-1994 of the Supreme Administrative Court, or Judgment No. 804/93 of the Constitutional Court).

G – Furthermore, also the cessation of the tax benefit, motivated by the existence of the (unguaranteed) debt was notified to the Claimant in accordance with document No. 10 attached to the case file, which sets forth the appropriate procedural means of reaction to the cessation of the benefit that the Claimant should have used, which it did not;

H – The non-use of the means of defense provided for in Article 276 of the CPPT for the decision of lifting of suspension of execution and the special administrative action, of annulment of administrative act, in accordance with Article 50 of the CPTA, applicable ex vi Article 97, No. 1, paragraph p) of the CPPT, having as purpose the jurisdictional verification of the cessation of the benefit, lead to the formation of res judicata as to the lifting of the suspension of fiscal execution and consequent tax situation to be regularized, and also with respect to the cessation of the benefit;

I – Given that the Claimant, did not challenge within the legal periods any of the acts of suspension of execution and cessation of tax benefit, res judicata was being formed, with regard to each of those acts;

In these terms, as a matter of law, and with the very learned supplementation of Your Excellency, the request for arbitral pronouncement should be judged unmeritorious, absolving the Respondent of the claim, as is proper law and justice.

On 23-10-2013, an arbitral award was rendered in which it was decided:

– to judge unmeritorious the requests for declaration of illegality and annulment of the 2010 IRC assessment No. 2012 ..., and the respective assessments of compensatory interest and default interest Nos. 2012 ... and 2012 ..., relating to the 2010 fiscal year, in the amount of € 2,016,845.35;

– to judge unmeritorious the request for condemnation of the Tax Authority and Customs Authority to pay indemnificatory interest;

– to consider the matter prejudiced regarding knowledge of the request for condemnation of the Tax Authority and Customs Authority to account settlement.

Essentially, the arbitral decision of non-merit of the principal request for declaration of illegality of IRC and compensatory interest assessments was based on the understanding that

– the administrative act that declared the cessation of tax benefits is an "act in tax matters, rendered in a procedure relating to tax benefits, which does not involve the appreciation of any assessment act and, therefore, the way to challenge it is through special administrative action, as results from the combination of paragraphs d) and p) of No. 1 of Article 97 of the CPPT with its No. 2 and with Article 191 of the Code of Procedure in Administrative Courts";

– the injurious nature of the act of cessation of tax benefits, which has as direct and immediate consequence the elimination of a right to tax benefits of which the Claimant was the holder, was evident and its consequence at the IRC assessment level was expressly referred to, therefore there is no acceptable justification for the Claimant not to have become aware of the injurious nature of such act to its legal sphere;

– the principle of unitary challenge, set forth in Article 54 of the CPPT, invoked by the Claimant, does not preclude the autonomous and immediate challengeability of acts of this type", which are "administrative acts" within the definition provided by Article 120 of the Code of Administrative Procedure;

– the "res judicata", invoked by the Tax Authority and Customs Authority, understood as inchallengability, after the expiration of the legal period for challenging through special administrative action, of that act of cessation of tax benefits, on the ground of vices generating mere voidability, does not constitute an absolute obstacle to the contentiousness challengeability of the IRC and compensatory interest assessment act, but establishes a limit to that challengeability, barring the door to appreciation in the challenge of these acts of the vices from which the act declaring the cessation of benefits suffered and which should have been alleged in its autonomous challenge;

– not imputing the Claimant to the IRC and compensatory interest assessment acts other vices than those relating to the earlier acts of lifting of suspension of the fiscal execution process, requirement of new guarantee, and cessation of benefits by its not being provided, it was concluded that "all these illegalities should have been imputed to the act of cessation of benefits, in autonomous challenge, as referred to, and cannot in the present proceeding, which has as object the legality of the assessment act that executed that cessation decision, assess whether this prior decision suffers or not from these vices", therefore the request for arbitral pronouncement had to be unmeritorious.

The Claimant appealed the arbitral decision to the Supreme Administrative Court, which was not admitted.

Subsequently, the Claimant appealed the arbitral decision to the Constitutional Court which, by judgment of 29-09-2015, decided:

a) To judge unconstitutional the interpretation of Article 54 of the Code of Tax Procedure and Process that, qualifying as a burden and not as a faculty of the taxpayer the judicial challenge of interlocutory acts immediately harmful to its rights, prevents the judicial challenge of final tax assessment decisions on the ground of vices thereof, by violation of the principle of effective judicial protection, inscribed in Article 268, No. 4, of the Constitution of the Portuguese Republic; and, consequently,

b) To grant the appeal, ordering the reform of the challenged decision in accordance with the judgment of unconstitutionality.

The arbitral tribunal was regularly constituted, the parties enjoy personality and judicial capacity and are legally qualified (Articles 4 and 10, No. 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceeding does not suffer from nullities.

On 03-04-2014, the proceeding was archived, therefore the Arbitral Tribunal was dissolved with the respective notification, in accordance with Article 23 of the RJAT, therefore the need for reconstitution or constitution of a new Arbitral Tribunal may be questioned.

However, since Article 80, No. 2, of Law No. 28/82, of 15 November, establishes that "if the Constitutional Court grants the appeal, even if only partially, the files are returned to the court from which they came, so that this one, as the case may be, reforms the decision or orders it to be reformed in accordance with the judgment on the question of unconstitutionality or illegality", it is understood that, in these situations, the renewal of the jurisdictional power of the dissolved Tribunal is automatically recognized.

2. Factual Matters

2.1. Facts Considered Proven

a) In 2003 the Claimant was subject to external inspection regarding the fiscal year 2000 (Article 7 of the request for arbitral pronouncement and 38 of the response);

b) Following that inspection, a correction was made to the calculation of Corporate Income Tax (IRC) (Articles 10 of the request for arbitral pronouncement and 38 of the response);

c) After the inspection action, an additional IRC assessment under No. ... was issued in the total amount of € 1,687,498.29, with final payment date of 5-11-2003 (document No. 4, attached to the request for arbitral pronouncement, and pages 24 of the document "PA1.pdf" attached to the response, the content of which is reproduced);

d) The Claimant partially agreed with the correction and made a payment of the sum of € 344,506.96 (Articles 9 of the request for arbitral pronouncement and 40 of the response), so € 1,342,991.33 remained unpaid;

e) With regard to the remaining amount, on 15-11-2003, the Claimant filed a gracious objection (gracious objection No. ......./03); (Articles 10 of the request for arbitral pronouncement and 41 of the response);

f) As the total debt was not paid voluntarily, the requirement of the remainder was continued, through the institution of the competent fiscal execution process, to which the number ... was assigned, for the IRC debt in default, resulting from the additional assessment; (Articles 10 of the request for arbitral pronouncement and 42 of the response);

g) On 30-03-2004, the Claimant provided a bank guarantee to the fiscal execution process, with a view to suspension of execution (Articles 11 of the request for arbitral pronouncement and 43 of the response);

h) On 24-06-2005, the Claimant, under Article 183-A of the CPPT, requested the lapsing of the bank guarantee, with the maintenance of the underlying effect, under Article 183-A of the CPPT; (Articles 11 of the request for arbitral pronouncement and 44 of the response);

i) On 30-07-2007, the request for recognition of the lapsing of the bank guarantee and indemnity for improper guarantee was granted (Articles 12 of the request for arbitral pronouncement and 45 of the response);

j) On 19-08-2010, the gracious objection filed against the assessment resulting from corrections of 2000 IRC was partially granted (Articles 13 of the request for arbitral pronouncement and 46 of the response and document No. 7 attached to the request for arbitral pronouncement, the content of which is reproduced);

k) On 30-08-2010, in disagreement with the partial rejection, the Claimant filed judicial challenge, which is being processed at the Administrative and Tax Court of Sintra with the number .../10....BESNT (Articles 14 of the request for arbitral pronouncement and 47 of the response and document No. 8 attached to the request for arbitral pronouncement, the content of which is reproduced);

l) On 28-09-2010, the Claimant filed a petition with the fiscal execution body (Tax Office of Cascais ...), requesting that the value of the bank guarantee be fixed for purposes of suspension of fiscal execution, following the filing of the corresponding judicial challenge (page 136 of the photocopy of gracious objection No. ... 2012 ...., contained in the administrative file, which constitutes page 208 of the document "PA1.pdf", attached to the response);

m) On that same date, the claimant was notified, through the instruction ... issued by registered letter with acknowledgment of receipt, of the decision of the fiscal execution body setting the value of € 2,374,379.79 to be provided as guarantee, with a view to suspension of the fiscal execution process, which was requested (pages 136 and 137 of the administrative file, pages 208-209 of the document "PA1.pdf", attached to the response);

n) The Claimant did not provide the guarantee referred to in the preceding paragraph (administrative file, page 211 of the document "PA1.pdf", attached to the response, the content of which is reproduced);

o) On 31-3-2011, the Claimant voluntarily paid € 1,840,120.47, the amount due in the said fiscal execution process No. ... 2004 ... (document No. 9, attached to the request for arbitral pronouncement, the content of which is reproduced);

p) On 6-2-2012, a notification was sent to the Claimant to exercise the right of hearing, under the terms set forth in document No. 10, attached to the request for arbitral pronouncement, the content of which is reproduced, in which the "amount in debt" is indicated as € 1,342,991.33 [which remained unpaid relating to assessment No. ..., referred to in paragraphs c) and d)] and in which the following is also stated:

"2. The failure to fulfill the duty of payment of tax debts may determine the non-production of effect of tax benefits, under the terms of Articles 5, 6 and 7 of Article 14 of the Tax Benefits Statute (EBF), except in cases where such debt(s) is/are contested, challenged, or opposed and suitable guarantee has been provided.

1. Consequently, the existence of the tax debts identified above, as of the date in reference, determines the non-production of effects of the tax benefits declared in the context of IRC in the periodic income tax return (Form 22) relating to the 2010 fiscal year, reflected in the following table, and the respective assessment should be corrected, under the terms of No. 10 of Article 83 of the IRC Code (CIRC)";

q) The Claimant did not exercise the right of hearing (Article 17 of the request for arbitral pronouncement);

r) Subsequently, the Claimant was notified of the instruction the copy of which is document No. 10 attached to the request for arbitral pronouncement, the content of which is reproduced, in which the following is also stated:

"You are hereby notified, under Article 36 of the Code of Tax Procedure and Process (CPPT), that, as the exercise of prior hearing has not been known at this time, the meaning and scope of the proposal for cessation of tax benefits (Article 14 of the Tax Benefits Statute - EBF), relating to the IRC assessment for the year/period of 2010, remains unchanged:

The present decision will determine the assessment that proves to be due together with respective compensatory interest.

If you wish, you may file with the competent Administrative and Tax Court, autonomous judicial challenge (special administrative action) under the terms of paragraph p) of No. 1 of Article 97 and No. 2 of the same normative provision, both of the Code of Tax Procedure and Process (CPPT), paragraph j) of Article 101 of the General Tax Law (LGT), and Article 46 of the Code of Procedure in Administrative Courts (CPTA) in the period(s) established in Article 58 of this latter statutory provision.

If you so wish, you may request clarifications from the Tax Office in the area of your domicile/registered office".

s) Subsequently, the Claimant was notified of the additional 2010 IRC assessment with the number 2012 ..., in the amount of € 1,931,901.05, the respective assessments of compensatory interest and default interest Nos. 2012 ... and 2012 ..., in the amounts of € 64,251.15 and € 20,693.15; and also of the account settlement demonstration No. 2012 ..., in the amount of € 2,016,845.35, acts of which the declaration of illegality is requested in the present proceeding (see documents Nos. 2 and 3, attached to the request for arbitral pronouncement, the contents of which are reproduced);

t) The Claimant filed, on 19-9-2012, a gracious objection to the assessment referred to in the preceding paragraph, to which the number ... 2012 ... was assigned (document No. 1 attached to the request for arbitral pronouncement, the content of which is reproduced);

u) On 15-5-2012, the Directorate of Tax and Credit Management issued Circular Instruction No. 60,090, which states, among other things, the following:

Under the previous wording of No. 1 of Article 183-A of the CPPT, revoked by Law No. 53-A/2006, of 29 December, the regime of lapsing of guarantee was applied, not only to gracious objection, but also to judicial challenge, hierarchical appeal or opposition to execution, pointing to the maximum period of one year for decision of the gracious objection, and three years for judgment in first instance of judicial proceedings.

The current wording of this provision restricts the scope of application of the rule to situations of filing of gracious objection. This allows the conclusion that the institute of lapsing of guarantee is intended, only, to return to the administration the costs of its own inefficiency.

Following this interpretation, if there is lapsing of guarantee pending the gracious objection and, subsequently, a hierarchical appeal is filed, AT should not request the provision of a new guarantee, since the dispute that began with the gracious objection subsists, and the hierarchical appeal is a continuation of that procedure.

Differently, this cannot occur in the case of (possible) judicial reaction to rejection of the taxpayer's claim at the administrative phase, because one moves from a "gracious dispute" to a "judicial dispute".

In fact, in this case, the delay in deciding the challenge cannot be attributed to the Administration, but to a sovereign body that is independent – the Court.

In these terms, after the recognition of the lapsing of guarantee, because the maximum period of one year for decision of the gracious objection was not complied with, the interested party can only benefit from suspension until the gracious decision of the dispute. If any judicial means of reaction is filed, new suspension of the fiscal execution process will only occur if the debtor provides suitable new guarantee, for the calculation of which default interest should be counted up to the date of filing of the new means of reaction, in accordance with No. 6 of Article 199 of the CPPT.

The suspension of execution should be maintained if suitable guarantee is provided within the period provided for in No. 8 of Article 169 of the CPPT and No. 10 of Article 199 of the CPPT (15 days after notification of the executed to provide new guarantee), or, if it is not provided, until the end of this period.

If the interested party does not proceed to provide suitable new guarantee within this period, the suspension should be immediately lifted. This will only be suspended again if and when suitable guarantee is provided, provided that some of the means of reaction provided for in No. 1 of Article 169 of the CPPT is still pending, in accordance with the final part of No. 6 of the same article. In this case, default interest should be counted up to the date of actual presentation of the guarantee, in agreement with what is referred to in iv) of point 1.

v) The gracious objection was rejected by decision of 28-12-2012, rendered by the Deputy Finance Director in substitution regime, under the terms stated on pages 225-234 of the document "PA1.pdf", attached to the response, the content of which is reproduced, which states, among other things, the following, as to the reasoning for rejection in the part relating to those assessments:

"A) Annulment of IRC assessments Nos.: 2012 ... and ... and 2012 ... and suspension of the fiscal execution process No. ... 2004 ..., until final judgment of the dispute:

In summary, the objector takes issue with the lifting of suspension of the fiscal execution process No. ... 2004 ... when the judicial challenge referred to in 7 was filed, because it cannot be considered that the debt to which that fiscal execution process relates was not guaranteed, given the wording of No. 1 of Article 169 of the CPPT, which establishes that execution remains suspended "until decision of the dispute in case of a gracious objection, judicial challenge or hierarchical appeal that have as object the legality of the debt subject to execution, (...) provided that guarantee has been constituted under Article 195 or provided under Article 199 or the attachment guarantees the full amount of the sum subject to execution and the accrued (...)" In its view, regardless of the lifting of the guarantee due to lapsing, under Article 183-A, No. 1 of the CPPT, the fiscal execution process should remain suspended until final decision in the dispute, and the case law of the Supreme Administrative Court has understood that the dispute is only considered ended when the assessment act becomes final, i.e., when the controversy between AT and the objector, generated by that act, is finally decided.

That is not, however, the understanding followed by AT.

This question was already analyzed in Circular Instruction No. 60,090, of 2012/05/15, issued by the Directorate of Tax and Credit Management.

In accordance with point 5 of the said Circular Instruction:

(Point 5 of Circular Instruction No. 60,090 is reproduced in the opinion, to which we refer)

Effectively, in accordance with No. 1 of Article 68-A of the LGT, AT "is bound by generic orientations contained in circulars, regulations or instruments of identical nature (...), aiming at the standardization of interpretation and application of tax rules."

Consequently, in accordance with this understanding, the objector lacks grounds. Thus, as of the date of filing of the judicial challenge of the rejection of gracious objection No. ... 2004 ... (judicial challenge No. .../....5BESNT), it cannot be considered that the debt that originated the fiscal execution process No. ... 2004 ..., was guaranteed. And this is so much the case that it was the objector herself who, on 2010/09/28, requested from the Tax Office of Cascais ..., that the value of the bank guarantee be fixed for her (page 135). However, that guarantee was never provided and the objector only proceeded to payment of the debt on 2011/09/03 (see doc. No. 8, pages 76 to 79 and page 137). Now, in accordance with the provisions of Articles 5, 6 and 7 of Article 14 of the EBF, the failure to fulfill the duty of payment of tax debts determines the non-production of effects of tax benefits except in cases where the debt is contested, challenged (as in the case being analyzed), or opposition has been filed and suitable guarantee has been provided. Not being able to consider that debt as guaranteed, the cessation of tax benefits was determined, in accordance with the provisions of the cited norm of the EBF, which gave rise to the additional assessment being objected to. Therefore, the same, contrary to what is sustained by the objector, does not suffer from the vice of violation of law."

w) On 12-3-2013, the Directorate of Tax and Credit Management issued Circular Instruction No. 60,094, which states, among other things, the following:

1. LAPSING OF GUARANTEE (ARTICLE 183-A OF THE CPPT)

The lapsing of guarantee, currently provided for in Article 183-A of the CPPT, only occurs in case of lack of diligence of the tax administration, by not having complied with the one-year period to render decision in the context of a gracious objection. If this failure is the responsibility of the objector, lapsing does not occur.

Lapsing occurs both in cases where it is a question of "guarantee provided" by the taxpayer, as well as guarantees constituted by the administration itself, under Article 195 of the CPPT (legal mortgage or lien). The meaning of the rule is to instill in the tax administration a rapid processing of the proceeding, therefore there is no reason to distinguish these guarantees for these purposes. From this regime of lapsing of guarantee shall be excluded the attachment, given the express revocation of No. 1 of Article 235 of the CPPT.

By establishing a period of immutability of the value of the guarantee, resulting from the citation of the executed, with the introduction of No. 13 of Article 169 of the CPPT, the legislator came to associate with fiscal execution the guaranty relationship constituted therein, being indifferent to the various mutations that may occur in the context of contentious matters.

Thus, from the combined analysis of the current wording of Article 169, with No. 1 of Article 183-A, both of the CPPT, we can conclude that the dispute will only end with a final decision (res judicata or finality of judgment). The effect of the lapsing of guarantee provided for in Article 183-A of the CPPT sanctions the slowness of AT in analyzing the gracious objection, with effects extended to the jurisdictional phase, if the taxpayer resorts to it.

Thus, where lapsing of guarantee occurs in the context of a gracious objection, it is not required of the taxpayer to provide a new guarantee, if the taxpayer continues the discussion of the legality of the debt through hierarchical appeal or judicial challenge, with the fiscal execution process remaining suspended until final decision is rendered by the tax administration (res judicata) or by the court (finality of judgment).

1. REVOCATION OF CIRCULAR INSTRUCTION NO. 60090

Circular Instruction No. 60090 of this Directorate of Tax and Credit Management, of 15-05-2012, is revoked.

x) On 30-5-2011, the Claimant filed the income tax return, Form 22, relating to the 2010 fiscal year, in which it declared a tax credit relating to SIFIDE, in the total amount of € 2,350,705.11, corresponding to the balance of the amount not deducted since 2007, the portion relating to the year 2010 amounting to € 633,117.20 (Article 72 of the request for arbitral pronouncement and document No. 13 attached to it, which are not challenged);

y) On 6-2-2012, the Claimant filed a substitute income tax return, Form 22, relating to the 2010 fiscal year, in which it declared a reduction in the value of benefits to the total amount of € 1,918,526.26, resulting from a reduction in final 2009 SIFIDE, in the amount of € 432,178.85 (document No. 14 attached to the request for arbitral pronouncement, the content of which is reproduced);

z) On 7-8-2012, the Claimant was notified of the final decision of the Certifying Commission granting to the company a tax credit relating to expenses of the fiscal year 2010, with a reduction of € 266,640.69, relative to the amount of € 633,117.20 initially declared by the Claimant in its Income Tax Return (Article 73 of the request for arbitral pronouncement, not challenged, and document No. 15 attached to it, the content of which is reproduced);

aa) On 24-7-2012, the account settlement demonstration No. 2012 ... (compensation No. 2012 ...) was made, which proceeded to the compensation within the fiscal execution process No. ... 2012 ..., between the amount to be reimbursed relating to IRC of the fiscal year 2011 (€ 2,660,989.63) and a debt relating to IRC of the fiscal year 2010 (€ 2,051,792.08) (page 178 of the document "PA1.pdf" attached to the response and document No. 16 attached to the request for arbitral pronouncement, the contents of which are reproduced);

bb) The Claimant presented in the gracious objection a request for adjustment to the value it considers to be owed following the annulment of the additional assessment No. 2012 ..., but the claim was not approved, with invocation of the following grounds:

The objector considers that the present gracious objection is the means of proceeding to the correction of the amount declared in excess relating to the calculation of IRC, since the tax resulting from that excess is paid through compensation and guaranteed through cash deposit, with a view to suspension of the fiscal execution process No. ... 2012 ....

With all due respect to the objector's opinion, it appears to us that it is not correct. Indeed, a gracious objection is not the appropriate means to make this claim. In any case, such claim always presupposes the annulment of the assessment objected to and, according to the above stated, that does not suffer from any illegality. Thus, the question that the objector seeks to have corrected is prejudiced by the rejection of the present gracious objection.

cc) On 10-4-2013, the Claimant filed the request for constitution of the arbitral tribunal that gave rise to the present proceeding.

2.2. Facts Considered Not Proven

There are no facts relevant to the decision that have not been proven.

2.3. Reasoning of the Proven Factual Matters

The proven facts are based on the documents indicated for each point, whose authenticity and correspondence to reality were not questioned.

3. Legal Matters

3.1. Question of the Tribunal's Lack of Competence Ratione Materiae

3.1.1. Position of the Tax Authority and Customs Authority

The Tax Authority and Customs Authority raises the question of the lack of competence ratione materiae of this Arbitral Tribunal, on the grounds that the legal fact from which the Claimant's right derives is the lifting of suspension of fiscal execution process No. ... 2004 ... and the subsequent cessation of tax benefit.

The Tax Authority and Customs Authority argues that the Claimant was notified of the lifting of suspension of that fiscal execution process and of the subsequent cessation of tax benefit, resulting from "failure to fulfill the duty to pay tax debts" (document No. 10 attached to the request for arbitral pronouncement) and did not challenge any of those decisions.

Thus, the Tax Authority and Customs Authority argues that, although the immediate object of the claim is the assessment, the Claimant, in a mediate manner, seeks to have the merits of those decisions reviewed, which is not allowed, as it violates the principles of legal certainty and equality.

Furthermore, the Arbitral Tribunal will be incompetent ratione materiae under Article 2, No. 1, paragraph a), of the RJAT.

3.1.2. Position of the Claimant

The Claimant argues, in summary, that the principle of unitary challenge, set forth in Article 54 of the CPPT, establishes the rule of challengeability of final acts of tax procedures, with the exceptions provided for in express law, which does not occur with regard to the decision of cessation of tax benefit.

The Claimant also states that the question of the cancellation of the tax benefit did not have to be the subject of an autonomous proceeding and that it had no obligation to autonomously challenge it, having opted to challenge the final assessment act, under the principle of unitary challenge.

The Claimant understands that the assessment originated in the cessation of tax benefit and not in the lifting of suspension of fiscal execution process and that it was notified of the intention of the Tax Authority and Customs Authority to proceed with the disregard of the tax benefit after the deadline for challenging the decision of lifting suspension, only with that disregard did that act become harmful, the Claimant having never previously considered the possibility that the lifting of suspension would bring any consequences relating to matters unrelated to 2002 IRC.

In the Claimant's view, the acceptance of this exception would be a violation of the principle of effective judicial protection, inherent in the Constitution of the Portuguese Republic, which would allow AT, through erratic behavior, to consolidate in the legal order a series of illegal conducts that would become unreviewable.

Regarding the exception of res judicata, the Claimant reaffirms that there is no express provision requiring the Claimant to autonomously challenge the acts of lifting suspension and cessation of tax benefit, and that the tax procedure ended with the assessment that is the subject of the present proceeding, with the principle of unitary challenge being applicable.

Finally, the Claimant expresses surprise at the response of the Tax Authority and Customs Authority, for in the rejection of the gracious objection it invoked only the content of Circular Instruction No. 60090 and its binding nature, never having invoked the foreclosure of the Claimant's right to contest the additional 2010 assessment, for not having contested the lifting of suspension of fiscal execution process or the cessation of tax benefit.

3.1.3. Decision on the Question of Lack of Competence

Article 2 of the RJAT limits the competence of arbitral tribunals functioning in CAAD to the appreciation of the following claims:

a) Declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source, and payment on account;

b) Declaration of illegality of acts of determination of the taxable matter when it does not give rise to assessment of any tax, of acts of determination of taxable income, and of acts of determination of asset values; (wording of Law No. 64-B/2011, of 30 December)

Article 2 of Ordinance No. 112-A/2011, of 22 March, which establishes the scope of the binding of the Tax Authority and Customs Authority to arbitral tribunals functioning in CAAD, provides for exceptions to these competencies, relating to certain acts of self-assessment, withholding at source, and payment on account, to acts of determination of taxable income and acts of determination of taxable matter, both by indirect methods, including the decision of the revision procedure and acts in customs matters, exceptions that do not occur in the matter at hand.

For this reason, the question of competence must be appreciated only in light of the RJAT.

From the references made in Article 10, No. 1, paragraph a), of the RJAT to hierarchical appeal and No. 2 of Article 102 of the CPPT (which refers to rejection of gracious objections), it is concluded that the competence of arbitral tribunals functioning in CAAD encompasses not only decisions that have as their direct and immediate object acts of the types referred to, but also decisions rendered in gracious objections and in hierarchical appeals filed against the decisions of these, which have only mediately as object acts of assessment of taxes, self-assessment, withholding at source, and payment on account.

Being thus, as in the matter at hand the declaration of illegality of acts of IRC assessment and consequent acts of assessment of compensatory interest and default interest and the decision of a gracious objection are at issue, it is concluded that this is within the competence defined in the RJAT for these arbitral tribunals.

On the other hand, defining the competence of these tribunals only by the type of acts whose illegality can be declared and not by the types of illegalities from which such acts may suffer, it must be concluded that included among these competencies is that of declaring any illegalities from which acts of those types may suffer, including illegalities of prior acts that acts of those types have as assumptions, when there is no obstacle of a procedural nature to this.

Different from the question of the limits of the competencies of the tribunals is the question of the limits on the challengeability of acts that may derive from the rules of tax proceedings, specifically those that may derive from the nature of severable acts or execution acts or unchallengeable acts. But these limitations do not produce lack of competence to appreciate illegalities of acts of those types, but rather limitations on the exercise of those competencies, which only arise because the competencies exist.

Thus, in the matter at hand, as declaration of illegality of assessment acts and decision of gracious objection is being requested, this is within the competence of arbitral tribunals functioning in CAAD.

Therefore, the preliminary question of lack of competence raised by the Tax Authority and Customs Authority is without merit.

3.2. Question of the Existence of Res Judicata

The second preliminary question raised by the Tax Authority and Customs Authority is that which it denominated as res judicata, which is based on the fact that the Claimant did not challenge the acts of lifting suspension of the fiscal execution process and cessation of tax benefit.

The acts referred to are connected with the assessment whose declaration of illegality is being requested, by the fact that it was following the lifting of suspension that the Tax Authority and Customs Authority concluded for the existence of exigible debts and it was the existence of these that justified the cessation of tax benefit, under Articles 14, Nos. 5, 6 and 7, of the Tax Benefits Statute (EBF), as is referred to in the notification of 6-2-2012, mentioned in paragraph p) of the fixed factual matter.

3.2.1. Lifting of Suspension of the Fiscal Execution Process

With regard to the failure to challenge the lifting of suspension in the fiscal execution process, it is not even proven that an explicit act to that effect was practiced and notified to the Claimant, since the documents attached to the administrative file do not reproduce it and pages 136 and 137 of the administrative file, which the Tax Authority and Customs Authority refers to on page 3 of its response as demonstrating such notification, merely reveal that the Claimant was notified to provide a new bank guarantee following the judicial challenge, subsequent to the gracious objection. If it is true that the provision of new guarantee was explicable by the understanding of the fiscal execution body that without it the fiscal execution process would proceed, it is also true that without a subsequent act which, following the failure to provide guarantee, determined the continuation of execution, it would remain in the situation of suspension.

It is not demonstrated that an explicit act of lifting of suspension was notified to the Claimant.

In any case, even if suspension of the fiscal execution process were lifted, the Tax Authority and Customs Authority could or could not come to declare cessation of tax benefit, therefore the Claimant did not have to consider the lifting as an act harmful to its legal sphere, at the level of that cessation. It suffices to see, to have no doubt that this is so, that if Circular Instruction No. 60,094, which revoked Circular Instruction No. 60,090, had been issued about two and a half months earlier, the Tax Authority and Customs Authority would not have declared the cessation of tax benefit, despite the lifting of suspension implicit in the notification to provide new guarantee.

And, naturally, in light of the constitutional right to effective judicial protection and to contentious challenge of all harmful administrative acts (Articles 20, No. 1, and 268, No. 4, of the Constitution of the Portuguese Republic), the foreclosure of rights of contentious challenge with respect to harmful effects of acts from which they did not necessarily result and regarding which it was not required that the recipient become aware, acting with appropriate diligence in the situation, is not acceptable.

Thus, the failure to challenge a hypothetical act of lifting suspension cannot have any effect at the level of foreclosure of the right of the Claimant to challenge the assessment acts whose declaration of illegality it requests in the present proceeding.

3.2.2. Non-challenge of the Act Declaring Cessation of Tax Benefit and Formation of Res Judicata

The act that declared the cessation of tax benefit is unquestionably the act that caused the alteration of the Claimant's taxable income on which the IRC assessment and consequent assessments of compensatory and default interest, whose declaration of illegality is being requested in the present proceeding, were based.

And, with respect to this assessment act, the fixed factual matter reveals that there is no reason for the Claimant not to have become aware of the harmfulness of the act declaring the cessation of its benefits and of its effects, since they were expressly announced, twice.

In fact, in the notification to exercise the right of hearing, indicated in paragraph p) of the fixed factual matter, it was stated that "the failure to fulfill the duty of payment of tax debts may determine the non-production of effect of tax benefits, under the terms of Articles 5, 6 and 7 of Article 14 of the Tax Benefits Statute (EBF), except in cases where such debt(s) is/are contested, challenged, or opposed and suitable guarantee has been provided" and that "the existence of the tax debts identified above, as of the date in reference, determines the non-production of effects of the tax benefits declared in the context of IRC in the periodic income tax return (Form 22), relating to the 2010 fiscal year, reflected in the following table, and the respective assessment should be corrected, under the terms of No. 10 of Article 83 of the IRC Code (CIRC)" (emphasis added).

The Claimant did not exercise the right of hearing and, subsequently, was notified of the decision of cessation of tax benefits, the Tax Authority and Customs Authority stating, as is referred to in paragraph r) of the fixed factual matter, that "the meaning and scope of the proposal for cessation of tax benefits (Article 14 of the Tax Benefits Statute - EBF), relating to the IRC assessment for the year/period of 2010, remains unchanged" and that "the present decision will determine the assessment that proves to be due together with respective compensatory interest" (emphasis added).

In that notification, the Claimant was also informed that it could, if it wished, "file with the competent Administrative and Tax Court, autonomous judicial challenge (special administrative action) under the terms of paragraph p) of No. 1 of Article 97 and No. 2 of the same normative provision, both of the Code of Tax Procedure and Process (CPPT), paragraph j) of Article 101 of the General Tax Law (LGT), and Article 46 of the Code of Procedure in Administrative Courts (CPTA) in the period(s) established in Article 58 of this latter statutory provision" (emphasis added).

The information provided by the Tax Authority and Customs Authority regarding the autonomous challengeability of the act declaring cessation of tax benefits is perfectly correct, since it is an act in tax matters, rendered in a procedure relating to tax benefits, which does not involve the appreciation of any assessment act and, therefore, the way to challenge it is through special administrative action, as results from the combination of paragraphs d) and p) of No. 1 of Article 97 of the CPPT with its No. 2 and with Article 191 of the Code of Procedure in Administrative Courts.

On the other hand, the injurious nature of the act of cessation of tax benefits, which has as direct and immediate consequence the elimination of a right to tax benefits of which the Claimant was the holder, was evident and its consequence at the IRC assessment level was expressly referred to, therefore there is no acceptable justification for the Claimant not to have become aware of the injurious nature of such act to its legal sphere.

The principle of unitary challenge does not preclude the autonomous and immediate challengeability of acts of this type, as is stated in Article 54 of the CPPT in these terms: "except when they are immediately harmful to the rights of the taxpayer or express provision to the contrary, interlocutory acts of the procedure are not susceptible to contentious challenge, without prejudice to being able to invoke in the challenge of the final decision any illegality previously committed".

However, the Constitutional Court, in the appeal filed by the Claimant, judged "unconstitutional the interpretation of Article 54 of the Code of Tax Procedure and Process that, qualifying as a burden and not as a faculty of the taxpayer the judicial challenge of interlocutory acts immediately harmful to its rights, prevents the judicial challenge of final tax assessment decisions on the ground of vices thereof, by violation of the principle of effective judicial protection, inscribed in Article 268, No. 4, of the Constitution of the Portuguese Republic".

Article 54 of the CPPT refers to "interlocutory acts of the procedure" and the acts of recognition or cessation of tax benefits are inserted in procedures different from those of assessment of the taxes that have them as assumption, therefore, to precisely understand the scope of the operative part of the Constitutional Court's decision, it is necessary to resort to its reasoning, in particular, what is referred to in point 18 thereof, which states the following:

1. In the present case, the position of AGT ([1]), sustained in the challenged decision, has as a consequence, as has already been noted, that the taxpayer who did not autonomously challenge the act of cessation of tax benefit, as he could have done, ceases to be able to challenge the assessment of the tax on the ground of vices of that act.

It cannot fail to be recognized that this is a very burdensome consequence for the taxpayer, allowing the consolidation in the legal order of acts that seriously prejudice him, as occurred in this case, with the impossibility of challenging the act of cessation of tax benefit, within the scope of the proceeding to challenge the act of assessment of the tax.

This prejudice caused to the taxpayer occurred in a legal context in which the principle of unitary challenge unquestionably prevails and in which the autonomous challenge of harmful or interlocutory acts practiced within the framework of the administrative tax procedure is configured by law as a faculty of the taxpayer, justified only in the context of reinforcing its guarantees.

The conclusion to be drawn can only be one: by preventing the challenge of the assessment act of the tax from being based on vices specific to the act of cessation of tax benefit, the interpretation that the challenged decision made of Article 54 of the CPPT destabilizes the situation of the taxpayer and seriously unprotects its rights, thereby offending the principle of effective judicial protection, inscribed in Article 268, No. 4, of the CRP.

As can be seen, the Constitutional Court understood that one finds oneself "in a legal context in which the principle of unitary challenge unquestionably prevails" and the act declaring cessation of tax benefit is an interlocutory act of the assessment procedure and, the autonomous challenge of which is a mere faculty, the Claimant can invoke vices of this act that it considers interlocutory when challenging the assessment act.

Being unequivocal the conclusion reached by the Constitutional Court regarding the possibility that the Claimant invoke vices of the act of cessation of tax benefits in the challenge of the assessment act, this understanding must be adopted, since the decision has binding force in the present proceeding (Article 2 of Law 28/82, of 15 November).

However, as arbitral decisions are made public and their repercussion frequently exceeds the scope of the proceedings in which they are rendered, it is convenient to clarify that the Arbitral Tribunal understands that acts that do not fall within the assessment procedure, as they are rendered in their own autonomous procedures, which culminate with an administrative act, are not interlocutory acts of the assessment procedure, as is the case with acts of recognition or granting and cessation or revocation of tax benefits, under the provisions of Articles 14, Nos. 4 to 7, of the Tax Benefits Statute, 54, No. 1, paragraph d), of the LGT, and 44, No. 1, paragraph d), of the CPPT.

Therefore, in light of what the Constitutional Court decided and the binding force that the law attributes to it, the pretension of the Tax Authority and Customs Authority that there be an obstacle to the appreciation in this proceeding, which has as object the assessment act practiced in an assessment procedure, of vices of the administrative act which, in another tax procedure, declared the cessation of tax benefit, is without merit.

3.3. Appreciation of the Merits of the Case

Examining the grounds invoked by the Claimant, it is noted that the illegalities imputed to the challenged assessment and the decision on the gracious objection consist, in summary, of:

– the application of an incorrect regime regarding the requirement of new guarantee and lifting of suspension of fiscal execution, after declaration of lapsing and filing of judicial challenge;

– the maintenance of this understanding by the Tax Authority and Customs Authority, based on a generic orientation, despite the fact that it had already been revoked by another, to the effect that such new guarantee is not required;

– the understanding of the Tax Authority and Customs Authority, resulting from the foregoing, that the Claimant's tax situation was not regularized on 31-12-2010 (because the debt subject to execution was neither guaranteed nor paid);

– the subsequent understanding that, because unguaranteed debts existed on 31-12-2010, tax benefits should cease, by virtue of the application of the provisions of Articles 5, 6 and 7 of Article 14 of the Tax Benefits Statute.

It is this that the Claimant summarizes in Article 52 of the request for arbitral pronouncement, stating that "it disagrees with the illegal procedures followed by AT in the lifting of suspension of the fiscal execution process and declaration of cessation of tax benefits, nor with the consequent additional 2010 IRC assessment, which thus cannot proceed, as it results from clear violation of law, nor does it agree with the arguments expressed in the decision of rejection" and specifies in the following articles:

– AT could not, when the Claimant filed the judicial challenge, have lifted suspension of the fiscal execution process by considering due the amount of € 1,342,991.33, relating to 2000 IRC, based on the absence of guarantee provision, since the said "dispute" had not reached its end, as it still has not (Article 63 of the request for arbitral pronouncement);

– therefore, the cessation of tax benefits declared by the Services, allegedly under Articles 5 to 7 of Article 14 of the Tax Benefits Statute (EBF), based on the existence of the said 2000 IRC debt on the part of the Claimant, is illegal, since the 2000 IRC assessment is still being discussed at the 1st Organizational Unit of the Administrative and Tax Court of Sintra, Case No. ....5BESNT (Article 64 of the request for arbitral pronouncement);

– for which reason the fiscal execution process was suspended on 31 December 2010 (Article 65 of the request for arbitral pronouncement);

– thus, the Services, in disregarding the tax benefits declared by the Claimant in its Form 22 Income Tax Return for 2010 and in issuing the consequent additional assessment, violated said legal principle (Article 169, No. 1 of the CPPT), as well as the principles of trust and legal certainty, pillars of tax law and of good relations between the Tax Administration and taxpayers (Article 66 of the request for arbitral pronouncement);

– the Claimant acted throughout this entire proceeding in good faith, complying with the law and limiting itself to using the means of defense at its disposal, notably the institute of lapsing of guarantee permitted by Article 183-A of the CPPT (Article 67 of the request for arbitral pronouncement);

– AT, as was demonstrated, violated the law in force at the time, which expressly stipulated that suspension of the fiscal execution process remained until decision of the dispute (Article 68 of the request for arbitral pronouncement);

– AT, in lifting suspension of the fiscal execution process No. ... 2004 ..., in considering cessation of the tax benefits declared in Form 22 of 2010 by the Claimant, and in issuing the note of additional assessment No. 2012 ... which is now being objected to, restricted where the legislator did not (Article 69 of the request for arbitral pronouncement);

– that is, AT's procedure lacks legal foundation, therefore the assessment act should be annulled for violation of law and erroneous reasoning, with a view to restoring tax legality (Article 70 of the request for arbitral pronouncement).

The violation of law occurs, from the outset, as to the alleged lifting of suspension, for, guarantee having been provided that lapsed due to non-compliance with the period provided for in Article 183-A of the CPPT for decision on the gracious objection, the suspensive effect of execution is maintained, without guarantee, as if it subsisted. In fact, the regime of lapsing of guarantee, in any of its modalities, presupposes that, after lapsing, execution continues suspended, as if the guarantee continued to be provided, for lapsing is provided for as a benefit for the taxpayer, justified by the delay in appreciation of its claim in gracious objection. One is thus faced with a special situation of suspension of fiscal execution, which adds to those referred to in Articles 169 and 170 of the CPPT and in other special rules.

On the other hand, Article 169, No. 1, of the CPPT establishes that the moment of termination of the suspensive effect derived from provision of guarantee is that of "decision of the dispute".

It should be understood that the dispute becomes decided, in the case of administrative challenge, when the so-called res judicata is formed ([2]) and, in the case of judicial proceeding, when the finality of the judicial decision occurs. ([3])

The circumstance that the gracious objection proceeding has ended does not eliminate the suspensive effect of the provision of guarantee if the decision on the gracious objection is judicially challenged, as results from Article 103, No. 5, of the CPPT, in establishing that "if there is guarantee provided under paragraph f) of Article 69, this is maintained, regardless of request or decision, without prejudice to there being possibility of notification for its increase".

Therefore, the lapsing of guarantee has an effect equivalent to that of its provision, at the level of suspensive effect of fiscal execution, it should be understood that this effect subsists until the moment in which "decision of the dispute" becomes final, which, in the case of timely filing of judicial challenge, will only occur with the finality of the decision that terminates it.

In the matter at hand, having been challenged at the Administrative and Tax Court of Sintra the decision on the gracious objection that has as object the challenged assessment, it must be concluded that, despite the lapsing of guarantee (due to non-compliance with the period provided for in Article 183-A of the CPPT) and non-provision of new guarantee, suspension of fiscal execution process No. ... should be maintained, as new guarantee was not required.

Being thus, the administrative act that decided cessation of tax benefit is illegal, based on non-payment of the amount that was subject of fiscal execution process No. ..., for cessation of tax benefits based on non-payment of tax debts, provided for in No. 5 of Article 14 of the Tax Benefits Statute, depends on the tax debt not having "been the subject of gracious objection, challenge, or opposition, with provision of suitable guarantee, when required", a situation that does not occur, for the debt in question was subject to judicial challenge and provision of guarantee was not required.

In these terms, it must be concluded that the act declaring cessation of tax benefit was illegal and, consequently, the assessment act that was subsequently practiced based on that cessation.

In these terms, the request for arbitral pronouncement must be judged meritorious, with respect to the declaration of illegality of the IRC and compensatory interest assessments.

3.4. Request for Indemnificatory Interest

The Claimant requests that reimbursement of the amount paid be determined plus indemnificatory interest from the date of compensation (24-07-2012) to full payment (Article 93 of the request for arbitral pronouncement and claim (ii)).

Article 43, Nos. 1 and 2, of the LGT establishes that "indemnificatory interest is owed when it is determined, in gracious objection or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due".

In the matter at hand, as the IRC and compensatory interest assessments are illegal and the Tax Authority and Customs Authority had the initiative of making them, it must be concluded that indemnificatory interest is owed because the error underlying the assessment is attributable to the Tax Authority and Customs Authority.

It is not clear in the proceedings what amount relating to the challenged assessment was paid, therefore, in accordance with the provision of Article 609, No. 2, of the Code of Civil Procedure, subsidiarily applicable by virtue of the provision of Article 29, No. 1, paragraph e), of the RJAT, the amount of indemnificatory interest should be determined in execution of the present decision, in accordance with Article 24, No. 1, paragraph b), of the RJAT and Article 100 of the LGT.

The indemnificatory interest should be calculated based on the amount improperly paid, at the legal supplementary rate, counted from the date the payment or compensation was made, to full reimbursement, under the terms of Articles 43, Nos. 1 and 4, and 35, No. 10, of the LGT, 61, Nos. 2, 3, 4 and 5, of the CPPT, and Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.

The request for indemnificatory interest formulated by the Claimant is thus meritorious.

3.5. Question of Compensation Resulting from Alteration of Tax Credit from the System of Tax Incentives for Business Research & Development

What the Claimant raises regarding this question is a compensation that it seeks to be made in the event the request for declaration of illegality of the IRC and compensatory and default interest assessments proceeds.

The competencies of the arbitral tribunals functioning in CAAD are restricted to declaration of illegality of acts of the types provided for in Article 2 of the RJAT and, as has been understood, to practice of the acts that can be practiced in judicial challenge proceeding, specifically declaration of rights to reimbursement of sums improperly paid, to indemnificatory interest, and to indemnity for improper guarantee.

All other questions relating to execution of the awards should be appreciated, in the first instance, by the Tax Authority and Customs Authority, in compliance with the provision of Article 24, No. 1, of the RJAT.

In these terms, knowledge of the question raised is declined.

4. Decision

In these terms, the arbitrators agree in this Arbitral Tribunal:

– to judge meritorious the requests for declaration of illegality and annulment of the 2010 IRC assessment No. 2012 ..., and the respective assessments of compensatory interest and default interest Nos. 2012 ... and 2012 ..., relating to the 2010 fiscal year, in the amount of € 2,016,845.35;

– to judge meritorious the request for condemnation of the Tax Authority and Customs Authority to pay indemnificatory interest, the amount of which should be determined in execution of the present decision;

– to decline knowledge of the request for condemnation of the Tax Authority and Customs Authority to account settlement.

5. Value of the Proceeding

In accordance with the provision of Article 306, No. 2, of the Code of Civil Procedure and 97-A, No. 1, paragraph a), of the CPPT and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 1,772,907.83.

6. Costs

In accordance with Article 22, No. 4, of the RJAT, the amount of costs is fixed at € 23,256.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Authority.

Lisbon, 20-10-2015

The Arbitrators

(Jorge Lopes de Sousa)

(Vasco Valdez)

(Jorge Bacelar Gouveia)