Process: 9/2016-T

Date: August 27, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision addresses Process 9/2016-T concerning the IRC tax benefit for companies in Portugal's interior regions (benefício fiscal à interioridade) under Article 43 of the EBF, repealed by Law 64-B/2011. The claimant, a company established in Viseu in 2011, contested an IRC assessment that applied the general 25% rate instead of the reduced 10% rate applicable to interior zones. The Tax Authority recalculated the company's IRC after a 2015 inspection, arguing the company failed to meet the 75% payroll concentration requirement in Article 2 of Decree-Law 55/2008. The claimant argued this payroll criterion merely distinguishes principal from accessory activities and should not require dependent workers for benefit eligibility. The company maintained it satisfied all geographic and operational requirements for the reduced rate. The Portuguese Tax Authority raised procedural defenses including ineptness of the petition, lack of arbitral tribunal competence, and untimeliness of the arbitral request. The CAAD arbitral tribunal was constituted in March 2016 to resolve disputes over the €1,132.24 assessment. Key legal issues included interpretation of the 75% salary mass criterion, whether companies without employees qualify for interior zone benefits, the tribunal's jurisdiction over repealed tax benefits, and compliance with RJAT procedural deadlines. This case exemplifies common disputes over regional tax incentives designed to promote economic development in Portugal's interior territories.

Full Decision

ARBITRATION DECISION

PARTIES

Claimant: A…, LDA., NIPC PT…, with registered office at Urbanization…, Lot…, …, …-… … .

Respondent: PORTUGUESE TAX AND CUSTOMS AUTHORITY (AT).

I. REPORT

a) On 12-01-2016, the Claimant filed a request with CAAD, seeking, pursuant to the Legal Regime of Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant requests the declaration of illegality of the IRC assessment of 12.08.2015, no. 2015…, with compensation number 2015…, and of the interest assessments nos. 2015 … and 2015…, in the total amount of 1,132.24 euros and likewise the consequent refund of the tax and compensatory interest wrongfully assessed for the tax period of 2011-02-03 to 2011-12-31.

c) An assessment that resulted from the calculation of IRC, not at the reduced rate provided for in paragraph b) of article 1 of article 43 of the EBF (ad valorem rate of 10%) but rather at the general rate of 25%, since it voluntarily replaced the Model 22 declaration of 2011 (filed in 2012) following the notification made to its TAC on 02.07.2015, of the commencement of a tax inspection for the control of tax benefits, with a view to correcting the tax without the tax benefit.

THE CAUSE OF ACTION

d) The Claimant invokes that it meets all the requirements provided for in articles 1 and 2 of article 43 of the EBF in force at the date of the facts (repealed by Law no. 64-B/2011, of 30.12) and of article 1 of Decree-Law no. 55/2008, of 26.03, since it commenced its activity on … on 03.02.2011.

e) And because it has its registered office and effective management in the geographical area of … and conducts its activity in the geographical area …, municipality of Viseu (a geographical area considered eligible for this benefit under the terms of Ordinance 1117/2009, of 30.09), it understands that in order to benefit from the tax benefit, it is not necessary to have recorded remuneration for dependent employment, and article 2 of Decree-Law no. 55/2008, of 26.03 is not applicable to it, contending that the criterion defined here by the legislator, of 75% of the payroll, serves only to establish a rule for distinguishing the principal activity from the accessory activity.

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

f) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 28-01-2016.

g) By the Deontological Council of CAAD, the signatory of this decision was appointed as arbitrator, with the parties being notified thereof on 10-02-2016. The parties did not manifest any will to refuse the designation, in accordance with article 11, article 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

h) The Singular Arbitral Tribunal (TAS) has been, since 28-03-2016, regularly constituted to examine and decide upon the subject matter of this dispute (articles 2, article 1, paragraph a) and 30, article 1 of the RJAT).

i) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 28-03-2016, which is hereby deemed reproduced.

j) On 29-03-2016 the AT was notified in accordance with and for the purposes of article 17-1 of the RJAT. It responded on 28.04.2016. It also filed the PA composed of 1 computerized file with 25 sheets with 25 written pages.

k) Since the Respondent invoked the ineptness of the PI, the exception of incompetence of the TAS and the untimeliness of the request for pronouncement, because the illustrious representative of the Claimant has professional domicile in …, the parties were invited, by dispatch of 13.05.2016, to pronounce themselves on the dispensation of the holding of the parties' meeting referred to in article 18 of the RJAT with the option of written arguments.

l) Both parties manifested agreement to the proposed conduct of the proceedings referred to above. By dispatch of 19.05.2016, written successive arguments were scheduled, conferring a period of 10 days on each party.

m) The Claimant presented its arguments on 31.05.2016. The Respondent presented its counter-arguments on 15.06.2016. The parties maintained, in essence, what they had stated in the context of the request and the response, with the Claimant arguing for the dismissal of the exceptions raised.

n) On 17.07.2016 the Claimant was invited to correct the request for pronouncement since it was considered that, by manifest oversight, it had not attached to the file, either the IRC declarations of the year it was impugning, or the assessment note, with reflection on the utility of the request. The AT was also notified to state whether it wished to exercise the right of contradiction with respect to the documents that the Claimant might present, since they would already be in its possession.

o) By petition of 25.07.2016, the Claimant came to: attach the assessment note of the fiscal year 2011, in substitution of the one already presented; clarify that it was regarding the year 2011 that the request was concerned and further alter the value of the economic utility to 1,132.24 euros.

p) The Respondent by petition of 27.07.2016 came to disagree about the possibility of correcting the Claimant's oversight, opposed the procedural handling during judicial recess and did not waive the right of contradiction, which it wished to exercise in accordance with the general terms of counting periods.

q) The Respondent by petition of 19.08.2016 came to exercise the right of contradiction regarding the correction of the Respondent's oversight and regarding the filing of documents. It presented on this date a new response, now considering the IRC assessment note, but maintaining in substance the defense presented on 28.04.2016.

PROCEDURAL REQUIREMENTS

r) Legitimacy, capacity and representation – The parties enjoy legal personality, judicial capacity, are legitimate parties and are represented (articles 4 and 10, article 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

s) Principle of contradiction - The Respondent was notified in accordance with paragraph j) of this Report. All procedural documents and all documents attached to the file were made available to the respective counterparty in the CAAD Case Management System. Their filing was always notified to both parties.

t) Dilatory exceptions - The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the time limit prescribed in paragraph a) of article 1 of article 10 of the RJAT, as results from the decision below in Part III of this decision.

SUMMARY OF THE CLAIMANT'S POSITION

u) The Claimant disagrees with the interpretation that the AT adopted in its inspection report, of article 2 of Decree-Law no. 55/2008, of 26.03 (which regulates the exemptive norms of article 43 of the EBF in the wording in force in 2011), in the sense of considering as a necessary requirement for benefiting from the tax benefit of article 43 - article 1, paragraphs a) and b) of the EBF the "obligation to exercise its principal activity in the beneficiary areas, by concentrating more than 75% of the payroll".

v) It further disagrees with the application in the AT's decision, to the case, of the definition of "payroll" contained in article 14, article 6 of Law 2/2007, of 16.01 (law of local finances).

w) It contends that the exemptive norms of article 43 - 1 – a) and b) of the EBF "do not condition the granting of the tax benefit on the creation of jobs", nor does article 2 of Decree-Law no. 55/2008, of 26.03 "establish as a condition of access for the beneficiary entities or their respective obligations to maintain a minimum number of jobs, in order to benefit from the benefit". And that the criterion "defined by the legislator of 75% of the payroll serves only to establish a rule for distinguishing the principal activity from the accessory activity".

x) And concludes that from the norm of article 43 - 1 – a) and b) of the EBF and from the norm of article 2 of Decree-Law no. 55/2008, of 26.03, it does not follow "that it is a mandatory condition for benefiting from the benefit that the taxpayer has in the beneficiary geographical area its registered office and effective management, and that it likewise has in that area 75% of the payroll, or even that it has payroll at all".

y) It understands that it meets the conditions established in article 43 and in its article 1, paragraphs a) and b) of the EBF, in so far as it has its registered office in … (an area eligible as a beneficiary area for purposes of applying the tax benefit of article 43 of the EBF, wording of 2011), exercises only a commercial activity of "specialized medical practice, outpatient clinic", made investments in assets of its active, therefore it cannot be prevented from benefiting from the rate reductions referred to in paragraphs a) and b) of article 43 of the EBF.

z) The IRC rate reduction applies even without recorded remuneration (in this case the managing partner who is not remunerated), not requiring to be an employer entity, this motivating a higher level of company profits and increased economic efficiency.

aa) With regard to job creation, it refers that it has external collaborators, doctors and nurses, who collaborate with it in surgeries, issuing green receipts.

bb) It invokes in its favor the interpretation of article 2 of DL 55/2008, of 26.03, in accordance with the breadth of the legislative authorization (AR legislative reserve) conferred for the creation of the benefit of article 43 of the EBF "not being able to … create new requirements or limit access to the benefit", as appears from CAAD decisions taken in cases no. 273/2013-T and no. 18/2015-T.

cc) In its arguments, it essentially maintained what it had stated in the request for pronouncement and defends the dismissal of the exceptions raised by the AT.

SUMMARY OF THE RESPONDENT'S POSITION

Ineptness of the PI

dd) It invokes the ineptness of the request for pronouncement because the Claimant states that it is impugning the IRC assessment of 2011 and attaches the Model 22 declarations of IRC for this period, but then attaches an assessment note for the fiscal year 2012.

Incompetence of the TAS to examine the request for declaration of illegality of the IRC self-assessment act

ee) The AT understands that because the Claimant, after notification of the commencement of the inspection procedure, presented the substitutive declaration of Model 22 for the fiscal year 2012, the assessment made to it is a self-assessment, therefore in accordance with article 131-1 of the CPPT, before the judicial remedy, the mandatory remedy of administrative appeal should occur.

ff) Therefore, in accordance with the Ordinance binding the AT to CAAD – article 2, paragraph a) of Ordinance 112-A/2011, of 22.03 – the TAS is not competent, given that the opportunity for the AT to pronounce itself, in the administrative appeal forum, on the alleged IRC self-assessment act has not occurred.

Untimeliness of presentation of the request for pronouncement

gg) The Respondent alleges that because the deadline for voluntary payment of the IRC assessment had as its limit date 12.10.2015 and because the Claimant presented the request for pronouncement at CAAD on 12.01.2016, given the content of paragraph a) of article 1 of article 10 of the RJAT which sets the time limit of 90 days to request the constitution of an arbitral tribunal, the time limit expired on 11 January 2016, resulting in untimeliness of presentation of the request for pronouncement, arguing for its acquittal from the proceedings.

Raising opposition

hh) Disagreeing with the Claimant's point of view, the Respondent argues for another reading of the law on the basis that this "tax incentive constitutes state aid with a framework at the community level in de minimis aid for purposes of articles 107 and 108 of the TFEU (former 87 and 88 of the EU Treaty)", therefore the European Commission had to be notified which deliberated on "19/09/2001 and in accordance with article 87 of the EU Treaty, not raise objections to its execution, by understanding that the conditions were satisfied for it to be considered compatible with the common market, in accordance with state aid N 223/01 – Portugal, relating to the regime of tax incentives to combat desertification and recovery of development in inland areas".

ii) Therefore, having the European Commission made the decision within the scope of the force of article 7 of Law 171/99, of 18.09, amended by article 54 of Law no. 30-C/2000, of 29 December, having been added to that article article 4 which provided the following: «It is considered that the principal activity is exercised in the beneficiary zones when the taxpayers have their registered office or effective management in those areas and more than 75% of the respective payroll is concentrated there», this amendment clarified, … the way of assessing the criterion relating to the exercise of «principal activity in the beneficiary areas.»

jj) The conditions being met for the applicability of the state aid measures contained in Law no. 171/99, Decree-Law no. 310/2001, of 10 May, was approved in compliance with the provisions of article 13 of Law no. 171/99, with a view to the regulation of the norms intended for its proper execution, whose preamble states the following: "Through Law no. 171/99, of 18 September, in the wording given by article 54 of Law no. 30-C/2000, of 29 December, several incentive measures were created for the accelerated recovery of Portuguese regions that suffer from inland problems. These incentives, because they are susceptible to being considered as state aid, were, prior to their respective application, notified to the European Commission. On the 19th of September, the European Commission, after having examined the measures contained in Law no. 171/99, of 18 September, in view of the guidelines on state aid for regional purposes (OJEC, C 74, of 10 March 1998) and the guidelines on employment aid (OJEC, C 334, of 12 December 1995), decided not to raise objections to its execution, provided that applicable community provisions are respected. The conditions are therefore met for the Government to proceed with the regulation of the norms necessary for the proper execution of Law no. 171/99, of 18 September, which, by virtue of its article 13, are approved by decree-law."

kk) Thus, having article 7 of Law no. 171/99, of 18 August, been transposed into the EBF, now becoming part of its article 39-B, added by Law no. 53-A/2006, of 29 December, and amended by Law no. 67-A/2007, of 31 December; having Decree-Law 310/2001, of 10 May (regulation of the norms intended for the proper execution of tax benefits for inland areas) been replaced by Decree-Law no. 55/2008, of 26 March, one must take into account the historical element of this regime of benefits.

ll) "It is Law no. 53-A/2006 that expressly determines that the tax benefits relating to inland areas provided for in article 39-B of the EBF are applicable the rules established by Decree-Law no. 310/2001, of 10.05, which was to be repealed by Decree-Law no. 55/2008, of 26.03", concludes the Respondent, in so far as for some time, the benefit of the EBF (article 39-B original wording) was regulated by the diploma of 2001 and not by that of 2008.

mm) It disagrees with the allegation that the implicit reading of the law carried out in the assessment calls into question the principle of violation of the AR legislative reserve, stating that "The right to the tax benefit set forth in article 43 of the EBF is dependent on the verification of prerequisites whose definition is not comprehended in the more general rule contained in this normative". "Thus, without the regulation that specifies and concretizes the remaining prerequisites on which the benefit set forth there depends in generic terms, it is also not admissible to speak of any right to a tax benefit, since the prerequisites on which that right depends have not yet been instituted".

nn) It considers that the benefit of article 43 - 1- a) and b) of the EBF is subordinate to the regime of "article 2, article 2 of Decree-Law no. 55/2008 which … «Considers that the principal activity is located in the beneficiary zones when the subjects have their registered office or effective management in those areas and more than 75% of the respective payroll is concentrated there.»

oo) It states: "it is clear from the applicable legal norms that companies may only benefit from such benefit if they exercise their principal activity in one of the beneficiary areas". "And it is only considered that they exercise their principal activity in one of those areas if: a) They have their registered office or effective management there; and b) They fix more than 75% of the respective payroll there".

pp) And that the definition of "payroll" is the one provided for by "article 14, article 6 of Law no. 2/2007 … : «Payroll is understood to mean the value of expenses incurred with personnel and recorded in the fiscal year as remuneration, salaries or wages."

qq) It invokes in favor of its reading of the law a judgment of the TAF of Viseu in case 9/12.1BEVIS and a CAAD decision Case 597/2014-T.

rr) In the petition of 19.08.2016 the AT maintained, in essence, what is referred to above and had already been alleged in the response.

ss) It argues for the upholding of the exceptions, with acquittal from the proceedings, or if not so understood, defends the dismissal of the request for pronouncement, with acquittal from the claims.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

The exceptions raised must be examined first:

  • Incompetence of the TAS;
  • Untimeliness of presentation of the request for pronouncement; and
  • Ineptness of the PI.

Subsequently, if the exceptions are dismissed, it will be examined whether the assessment in question suffers from any illegality that prevents its maintenance in the legal order.

What the AT considers – according to the tax inspection report (page 15) – is the following:

  • The Claimant does not meet the objective of creating employment and fixing people in the beneficiary areas, since it does not have employees (dependent workers);
  • And because it does not have dependent employees it does not "have payroll", and consequently does not meet the requirement required by paragraph d) of article 1 of Decree-Law no. 55/2008, of 26.03, that is, it does not locate its principal activity in the beneficiary areas, since to do so it should concentrate more than 75% of its payroll in those areas, as required by article 2 of Decree-Law no. 55/2008, of 26.03.

The main question that arises in this proceeding concerns the determination of whether the Claimant can or cannot benefit from the tax incentive enshrined in paragraph b) of article 1 of article 43 of the EBF, in the wording given by Decree-Law no. 108/2008, of 26 June.

The heart of the question will be to determine whether the regime of the final part of the norm contained in article 2 of Decree-Law 55/2008, of 26.03, aims only to clarify the content of the norm of paragraph d) of article 1 of Decree-Law 55/2008, of 26.03 which states: "locate their activity in the beneficiary areas" (which reproduces what is already referred to in paragraphs a) and b) of article 1 of article 43 of the EBF: " … entities whose principal activity is located in the beneficiary areas"), or if it constitutes another constitutive element of the tax benefit established in the current article 43 of the EBF given the content of the wording of the norm: "It is considered that the principal activity is located in the beneficiary zones when the subjects have their registered office or effective management in those areas and more than 75% of the respective payroll is concentrated there.»

Simultaneously, it may make sense to analyze whether, in this case, it should be appropriate to adopt the concept of "payroll" as encompassing only remuneration from dependent employment or whether other types of employment relationships should be taken into account, as in the case, in which there is clearly independent employment, associated with a network of independent service providers (doctors and nurses).

III. PROVEN AND UNPROVEN FACTS AND GROUNDS

Regarding the facts, the Tribunal does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to discriminate between proven and unproven facts (in accordance with article 123, article 2 of the CPPT and article 607, article 3 of the CPC, applicable by reference from article 29, article 1, paragraphs a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and carved out according to their legal relevance, which is established in attention to the various plausible solutions of the question(s) of law (in accordance with former article 511, article 1 of the CPC, corresponding to the current article 596, applicable by reference from article 29, article 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence and the PA attached to the file, the following facts were considered proven, with relevance to the decision, being uncontested by the parties, indicating the respective documents (proof by documents), as grounds.

The fact in paragraph 9) was considered proven, not on the basis of document no. 8 attached with the request for pronouncement, but taking into account that the AT did not contest the payment, by the Claimant, of the IRC assessed for 2012 (which is referred to in the document attached), nor any other, especially that of 2011 here in question.

Proven Facts

1) The Claimant proceeded to register at the Commercial Registration Office its constitution on 19.01.2011, having as registered office Urbanization…, lot…, …, … –… …, and as object "medical clinic, provision of services in the field of orthopedics and traumatology" – articles 3 and 4 of the request for pronouncement, document no. 1 attached with the request for pronouncement and points II.3.1 and II.3.2 of the tax inspection report – document no. 6 attached with the request for pronouncement.

2) The Claimant is registered with the Finance Office of …, code … (geographical area of…), since 2011.02.03 for the principal activity "activities of specialized medical practice, outpatient clinic", inserted in CAE …- point II.3.2 of the tax inspection report – document no. 6 attached with the request for pronouncement and article 3 of the request for pronouncement.

3) The Claimant has organized accounting, has its registered office and effective management in the geographical area of … and develops its principal activity in the area …, municipality of Viseu contained in Ordinance no. 1117/2009, of 30 September, considered a beneficiary territorial area of incentives to regions with inland problems in accordance with the provisions of articles 6 and 7 of Decree-Law no. 55/2008, of 26 March – articles 6, 7 and 8 of the request for pronouncement, point II.3.5 of the inspection report and absence of contest to these facts in the Response.

4) The Claimant delivered on 28.05.2012 the income declaration, Model 22, referring to the fiscal year 2011 (ID: …-… -…), by means of which the calculation was made, by applying to the taxable matter the reduced rate provided for in paragraph b), of article 1 of article 43 of the Tax Benefits Statute - article 10 of the request for pronouncement and document no. 2 attached with the request for pronouncement.

5) On 29.06.2015 the Claimant became aware through its Official Tax Advisor that against it, an internal inspection procedure had been instituted by the Finance Directorate of…, having been informed thereof by means of office no. … dated 30.06.2015, with reference to case no. OI2015… and received by the Claimant on 02.07.2015 – articles 12 and 13 of the request for pronouncement and documents nos. 3 and 4 attached with the request for pronouncement.

6) The Claimant proceeded to replace the declaration referred to in the previous number on 2015.08.05 (ID: …-…-…) – article 14 of the request for pronouncement, page 23 of the PA and document no. 5 attached with the request for pronouncement.

7) By office no. … dated 06.08.2015, the Claimant was notified of the result of the inspection action, in accordance with article 62 of the RCPITA, which states, in summary, that the Claimant does not meet the necessary requirements in order to be able to benefit from the reduced IRC rate, in so far as it does not have employees, therefore, does not create employment in the beneficiary areas (in this case …-…), nor does its principal activity sit in that same beneficiary area. – article 15 of the request for pronouncement, document no. 6 attached with the request for pronouncement and content of the PA attached by the Respondent with the response.

8) The Claimant was notified, on a date not specifically ascertained, of the IRC assessment of 12.08.2015, no. 2015…, compensation number 2015…, and interest assessment 2015 … and 2015…, in the total amount of 1,132.24 euros – article 16 of the request for pronouncement, documents attached with the Claimant's petition of 25.07.2016 and document no. 7 attached with the request for pronouncement.

9) The Claimant made the payment of the balance determined in accordance with the previous paragraph on a date not ascertained – article 17 of the request for pronouncement and tacit acceptance of this fact by the AT which did not contest it.

10) By petition of 25.07.2016 the Claimant attached the documents proving the demonstration of IRC assessment and Interest referred to in paragraph 8) above – in accordance with the Claimant's petition of 25.07.2016 and two attached documents.

11) The Claimant for the provision of medical services has external collaborators, doctors and nurses, residing in … who collaborate with it and proceed to issue green receipts – Article 42 of the request for pronouncement and tacit acceptance of this fact by the AT which did not contest it.

12) On 12-01-2016, the Claimant delivered at CAAD the present request for pronouncement – entry record in the SGP of the request for pronouncement.

Unproven Facts

There is no other factuality alleged that has not been considered proven and that is relevant for the composition of the procedural dispute.

IV. EXAMINATION OF THE QUESTIONS FOR THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE

Incompetence of the TAS

The AT understands that because the Claimant, after notification of the commencement of the inspection procedure, presented the substitutive declaration of Model 22 for the fiscal year 2012, the assessment made to it is a self-assessment, therefore in accordance with article 131-1 of the CPPT, before the judicial remedy, the mandatory remedy of administrative appeal should occur.

Therefore, in accordance with the Ordinance binding the AT to CAAD – article 2, paragraph a) of Ordinance 112-A/2011, of 22.03 – the TAS is not competent, given that the opportunity for the AT to pronounce itself, in the administrative appeal forum, on the alleged IRC self-assessment act has not occurred.

We do not find that it has reason. Indeed,

As results from the proven facts in 6) and 7) of Part III of this decision, the notification of the Inspection Report occurred by office no. … dated 06.08.2015. And the substitution of Model 22 occurred on 05.08.2015, after, on 29.06.2015, the Claimant "became aware through its Official Tax Advisor that against it, an internal inspection procedure had been instituted by the Finance Directorate of…, having been informed thereof by means of office no. … dated 30.06.2015, with reference to case no. OI2015… and received by the Claimant on 02.07.2015"

It is evident that such substitution was made only because the Claimant, as it alleges in article 14 of the request for pronouncement, wanted to avoid "subjecting itself to the consequences of greater severity". On the other hand, the notification of the Inspection Report constitutes a document equivalent to "generic guidance issued by the AT" and it is obvious that what separates the parties in this dispute are only and solely different readings of the law (as stated above in the summary of the parties' positions).

The Inspection Report itself (page 16) expresses that the Claimant "proceeded to regularize the omissions committed, having for such purpose replaced the income declaration Model 22 relating to the periods of 2011, 2012 and 2013, correcting the value of the tax".

Even if it is considered debatable that the inspection report is equivalent to "generic guidance issued by the AT", it must be considered that it is the note that the Tax Inspector sent to the TAC on 26.06.2015 and which appears as an annex to document no. 3 attached with the request for pronouncement.

On the other hand, no "self-assessment" of IRC occurred. The IRC assessment was made by the AT and not by the taxpayer and is dated 12.08.2015 (see paragraph 8) of the proven facts), after receipt of the inspection report which was sent by office of 06.08.2015.

Indeed, in the Model 22 substitution declaration, the Claimant only calculated the tax, without the benefit, but the assessment was made subsequently by the AT.

Therefore, in accordance with article 131-3 of the CPPT, the invocation of this exception is not justified, and it is judged to be dismissed.

Indeed, in this circumstance, the AT took an express position on the situation created by the taxpayer's act, that is, the delivery of the substitutive Model 22 for the fiscal year 2011 and consequent IRC assessment, in accordance with it, an operation carried out by the AT after the sending of the Inspection Report where it makes express reference to the taxpayer's act.

Untimeliness of presentation of the request for pronouncement

The Respondent alleges that because the deadline for voluntary payment of the IRC assessment had as its limit date 12.10.2015 and because the Claimant presented the request for pronouncement at CAAD on 12.01.2016, given the content of paragraph a) of article 1 of article 10 of the RJAT which sets the time limit of 90 days to request the constitution of an arbitral tribunal, the time limit expired on 11 January 2016, resulting in untimeliness of presentation of the request for pronouncement, arguing for its acquittal from the proceedings.

But, in fact, the 2011 IRC, as can be taken from document no. 7 attached as an annex to the request for pronouncement, indicates as the payment deadline the day 19.10.2015 and not the day 12.10.2015.

In this regard, it seems clear to us that the request, delivered at CAAD on 12.01.2016, was made within the legal time limit of 90 days.

Therefore, this exception can only be dismissed.

Ineptness of the request for pronouncement

The AT invokes the ineptness of the request for pronouncement because the Claimant states that it is impugning the IRC assessment of 2011 and attaches the Model 22 declarations of IRC for this period, but then attaches an assessment note for the fiscal year 2012 and requests the annulment of the IRC assessed when this latter fiscal year.

It seems to us that what actually occurred, in accordance with the dispatch of 17.07.2016, was an oversight on the part of the Claimant, which consisted in the confusion, which is recurrent even among legal professionals, between what is the year of the tax (the fiscal year) which corresponds to the tax period, the year of presentation of the Model 22 declaration (which is the year following that of the tax period, as in income tax) and the year of assessment, which in this case, since it resulted from a substitution of a declaration, does not correspond to the year of presentation of the income declaration.

In procedural terms, everything was resolved with the invitation to the Claimant to correct the request for pronouncement, which it did, attaching the IRC assessment note relating to the fiscal year 2011 and adapting the value of the economic utility to the request.

The inconsistency – which the TAS only configured when it was drafting the final decision – results clearly from the beginning of the request for pronouncement which indicates an assessment number and a value that is not in accordance with the Model 22 declaration (substitution) referred to in article 10 of the request for pronouncement, and with the collection note. In turn, the collection note was not in accordance with the "statement of account settlement" which constitutes document no. 7 attached with the request. The inconsistency affected the cause of action and the request.

There was no contradiction in the view of the TAS, between the request and the cause of action, at least not absolute and determining, if only by the simple fact that the inconsistency was cured in procedural terms, with the mere substitution of the IRC assessment note for the fiscal year 2011 and with the consequent correction of the value of the economic utility.

Moreover, the PA is essentially the Tax Inspection Report which evidences 3 alterations of IRC assessment of the Claimant: regarding the fiscal years 2011, 2012 and 2013. It was incumbent upon the TAS to prompt the party that committed the oversight to correct it, in the exercise of the powers-duties attributed to it by paragraph c) of article 1 of article 18 of the RJAT.

Even if such power-duty was not contained in the RJAT, there would always have to be taken into account the anti-formalist, "pro actione" and "in dubio pro favoritate instanciae" principles which require an interpretation of procedural norms that presents itself as the most favorable to access to justice and effective judicial protection (article 2-1 and article 7 of the CPTA).

Citing Alberto dos Reis, Commentary on the CPC, page 364: "If the claimant expressed its thought in inadequate terms, used technically defective language, but sufficiently made known the legal effect it intended to obtain, the petition will be an awkward and unfortunate document, but cannot be qualified as inept".

And according to the Supreme Court of Justice judgment, of 13.03.1994, in BMJ 135-377: "The nullity resulting from ineptness by … divergence between the cause of action and the request, is cured when, there having been no summary dismissal … the cause of action comes to be modified … in a way to become clear and harmonious with the request".

The pointed inconsistency of the request for pronouncement is thus cured, which in essence resulted from manifest oversight, which, in accordance with procedural and substantive law, only confers the right on the party in which it involuntarily incurred, to correct it (article 249 of the CC and article 146 of the CPC). This was the understanding that, in the context of this proceeding, we followed.

The defense of the point of view of the Tax Authority was not shaken by the said oversight (or in the words of Alberto dos Reis an "unfortunate document"), if only because, according to this proceeding, there are three cases on the same subject running at CAAD, including this one. The PA attached by the AT will be common to the three cases, in so far as it is the Inspection Report common to the fiscal years 2011, 2012 and 2013.

In these terms, the pointed oversight is considered rectified and the rectification of the object of this proceeding is decided to be accepted which refers to the assessment indicated in paragraph 8) of the proven facts, with effects from the date of presentation of the implicit release request from the oversight by the Claimant (on 25 July 2016), therefore the alleged exception of ineptness of the request for pronouncement is dismissed.

Substantive Issue

As to the substantive issue, it is written in article 43 of the EBF, in force at the date of the facts, under the heading "tax benefits relating to inland areas" (we underline in bold the provisions that are immediately at issue):

1 - To companies that exercise, directly and principally, an economic activity of an agricultural, commercial, industrial or services provision nature in the inland areas, hereinafter referred to as «beneficiary areas», the following tax benefits are granted:

a) The IRC rate provided for in article 1 of article 80 of the respective Code is reduced to 15%, for entities whose principal activity is located in the beneficiary areas;

b) In the case of establishment of new entities, whose principal activity is located in the beneficiary areas, the rate referred to in the previous number is reduced to 10% during the first five fiscal years of activity;

c) The write-backs and depreciation relating to investment expenditure up to (euro) 500,000, with the exclusion of those relating to the acquisition of land and light passenger vehicles, of IRC taxpayers who exercise their principal activity in the beneficiary areas may be deducted, for purposes of determining taxable profit, with an increase of 30%;

d) The mandatory social charges borne by the employer entity relating to the net creation of indefinite duration jobs in the beneficiary areas are deducted, for purposes of determining taxable profit, with an increase of 50%, a single time per worker admitted in that entity or in another entity with which there are special relationships, under article 58 of the IRC Code;

e) The tax losses determined in a given fiscal year in accordance with the IRC Code are deducted from taxable profits, if any, of one or more of the seven subsequent fiscal years.

2 - The conditions for enjoying the tax benefits provided for in the previous number are:

a) The determination of taxable profit is carried out using direct evaluation methods;

b) To have regularized tax status;

c) Not to have delayed salaries;

d) Not to result from a split carried out in the two years preceding the enjoyment of the benefits.

3 - The following acquisitions are exempt from payment of the municipal tax on onerous transfers of immovable property:

a) By young people, aged between 18 and 35 years, of a property or autonomous fraction of urban property located in the beneficiary areas, intended exclusively for first own and permanent dwelling, provided that the value on which the tax would apply does not exceed the maximum values of housing at controlled costs, increased by 50%;

b) Of properties or autonomous fractions of urban properties, provided they are located in the beneficiary areas and durably affected to the activity of companies.

4 - The exemptions provided for in the previous number only occur if the acquisitions are duly reported to the finance office of the area where the properties to be acquired are located, by declaration stating that the declarant has not previously benefited from an identical benefit.

5 - The exemptions provided for in article 3 are dependent on authorization from the deliberative body of the respective municipality.

6 - For purposes of this article, the beneficiary areas are defined in accordance with criteria that pay special attention to low population density, compensation index or fiscal shortage and inequality of social, economic and cultural opportunities.

7 - The definition of criteria and the definition of beneficiary territorial areas, in accordance with the previous number, as well as all regulatory norms necessary for the proper execution of this article, are established by an ordinance of the Minister of Finance.

8 - The tax benefits provided for in this article are not cumulative with other benefits of an identical nature, without prejudicing the option for another more favorable one".

In turn Decree-Law no. 55/2008, of 26.03 has the following wording (marking the part that is of interest here, where it refers to "article 39-B of the EBF" it should be understood as "article 43 of the EBF"):

With the addition of article 39-B to the Tax Benefits Statute by Law no. 53-A/2006, of 29 December, amended by Law no. 67-A/2007, of 31 December, several incentive measures were renewed for the accelerated recovery of Portuguese regions that suffer from inland problems, having been replaced the regime contained in Law no. 171/99, of 18 September, in the wording introduced by Law no. 55-B/2004, of 30 December.

The conditions are thus met for the Government to proceed with the regulation of the norms necessary for the proper execution of article 39-B of the Tax Benefits Statute.

In these terms, this decree-law disciplines the conditions of access of the beneficiary entities, the entities responsible for granting the incentives, the obligations to which the beneficiary entities are subject, as well as the consequences in case of non-compliance.

The National Association of Portuguese Municipalities was heard.

Thus:

In accordance with paragraph a) of article 1 of article 198 of the Constitution, the Government decrees the following:

CHAPTER I

Purpose and access conditions

Article 1

Purpose

This decree-law aims to establish the regulatory norms necessary for the proper execution of the incentive measures for the accelerated recovery of Portuguese regions that suffer from inland problems, under article 7 of article 39-B of the Tax Benefits Statute, approved by Decree-Law no. 215/89, of 1 July.

Article 2

Access conditions of beneficiary entities

1 - Without prejudice to the provisions of article 39-B of the Tax Benefits Statute, the beneficiary entities must meet the following access conditions:

a) To be legally constituted and to comply with the legal conditions necessary for the exercise of their activity;

b) To be in a regularized situation with respect to the tax administration, social security and the respective municipality;

c) To have organized accounting, in accordance with the Official Chart of Accounts;

d) To locate their principal activity in the beneficiary areas;

e) To undertake, in the cases of incentives provided for in paragraph c) of article 1 and in paragraph b) of article 3, both of article 39-B of the Tax Benefits Statute, to keep the investment made affected to their respective activity, as well as to maintain their geographical location, for a minimum period of five years counting from the date of complete execution of the investment;

f) To undertake, in the case of incentives provided for in paragraph d) of article 1 of article 39-B of the Tax Benefits Statute, to maintain the new jobs for a minimum period of five years counting from the date of their creation;

g) To inform the responsible entity referred to in article 3 of this decree-law of the attribution of any other incentive or the presentation of an application for the same purpose;

h) To obtain previously, in the case of the incentive provided for in paragraphs a) and b) of article 3 of article 39-B of the Tax Benefits Statute, the authorization referred to in article 5 of the same article.

2 - It is considered that the principal activity is located in the beneficiary zones when the subjects have their registered office or effective management in those areas and more than 75% of the respective payroll is concentrated there.

Article 3

Responsible entities

The responsible entities for granting the incentives, as well as for their inspection and control, are:

a) In the case of incentives provided for in paragraphs a), b), c) and e) of article 1 and in article 3 of article 39-B of the Tax Benefits Statute, the Directorate-General of Taxes;

b) In the case of the incentive provided for in paragraph d) of article 1 of article 39-B of the Tax Benefits Statute, the Directorate-General of Taxes, in coordination with the Institute of Social Security, I. P.

Article 4

Obligations of beneficiary entities

1 - The beneficiary entities are subject to the following obligations:

a) To maintain the regularized situation with respect to the tax administration, social security and the respective municipality;

b) To provide all elements related to the grant of the incentive that are requested by the responsible entity referred to in article 3;

c) To communicate to the responsible entity referred to in article 3 any alteration or occurrence that jeopardize the prerequisites underlying the grant of the incentive;

d) To maintain the legal conditions necessary for the exercise of their respective activity;

e) To maintain organized accounting in accordance with the Official Chart of Accounts;

f) To maintain in the company, duly organized, all documents capable of proving the statements made at the time of the grant of the incentive.

2 - In the case of incentives provided for in paragraph c) of article 1 and in paragraph b) of article 3 of article 39-B of the Tax Benefits Statute, the beneficiary entity likewise undertakes not to assign, lease, dispose of, affect to other activity or relocate the investment, in whole or in part, until five years counted from the date of complete execution of the investment.

3 - In the case of incentives provided in paragraph d) of article 1 of article 39-B of the Tax Benefits Statute, the beneficiary entity undertakes to maintain the jobs for a minimum period of five years counting from the date of their creation.

Article 5

Non-compliance

1 - The breach of any of the obligations defined in the previous article, as well as the provision of false information, implies the loss of the incentives enjoyed, with the beneficiary entities being obliged, within 30 days counting from the respective notification, to pay the amounts corresponding to the revenues not collected, increased by any compensatory interest calculated at the legal rate in force increased by 3 percentage points.

2 - With respect to the incentive provided for in paragraph c) of article 1 of article 39-B of the Tax Benefits Statute, if the breach referred to in article 2 above is found, the beneficiary entity must, in the income declaration relating to the fiscal year in which it occurs, add the corporate income tax that ceased to be collected, increased by the corresponding compensatory interest.

CHAPTER II

Determination of beneficiary territorial areas

Article 6

Beneficiary territorial areas

1 - For purposes of applying the incentive measures for the accelerated recovery of regions suffering from inland problems, defined in article 39-B of the Tax Benefits Statute, are considered as beneficiary territorial areas for facts verified in 2007 and 2008, those identified in Ordinance no. 1467-A/2001, of 31 December.

2 - For subsequent years, it is incumbent on the Minister of Finance, together with the members of Government responsible for the areas of local authorities and regional planning, to regulate by ordinance the beneficiary territorial areas, which will be identified based on the indicators defined in this decree-law, constructed with the latest statistical data made available by the National Statistics Institute.

Article 7

Criteria for determining the areas

1 - Beneficiary are the territorial areas corresponding to:

a) Municipalities selected in an integrated perspective of balanced regional development, taking into account in particular the following criteria:

i) The population density;

ii) The level of production and income;

iii) The level of purchasing power;

b) Parishes in municipalities not considered in the previous paragraph, whose resident population is located mainly in the territorial units Serra and Baixo Guadiana defined in the Regional Land Use Plan of the Algarve.

2 - The application of the criteria referred to in the previous number should ensure the contiguity of the beneficiary zone on the mainland of Portugal.

CHAPTER III

Final and transitional provisions

Article 8

Community provisions

1 - The provisions that prove necessary to ensure, throughout the implementation period, full compliance with the European Commission's decision regarding the incentives in question, in particular as regards their application to different economic activities, shall be subject to a joint ordinance by the members of the Government in the area of Finance and Labor and Social Solidarity.

2 - The incentive measures regulated by this decree-law are subject to the rules established by Ordinance no. 170/2002, of 28 February, until the approval of the ordinance referred to in the previous number.

Article 9

Repealing rule

Decree-Law no. 310/2001, of 10 December is repealed.

Article 10

Effective date

This decree-law takes effect from 1 January 2007.

*

In the first place, we must determine what type of tax benefit is at issue in this proceeding given the various types that the Tax Benefits Statute typifies.

It seems to us, to resolve the questions raised, that it is not necessary to resort to constitutional principles. Ordinary tax law provides a clear answer for resolving the issue or issues under discussion.

We are dealing with a matter that falls within the scope of article 1 of article 8 of the General Tax Law and not article 2 of article 8 of the General Tax Law.

This means that it does not seem lawful for the interpreter to reason, subsequently, as if we were not dealing with a "rate", albeit reduced, a matter of the legislative competence of the Assembly of the Republic. That is to say, it must be taken into account that, even if it is a tax benefit dependent on recognition, this recognition always has "merely declaratory effect, unless the law provides otherwise".

In other words, it is in the law (including laws of legislative authorization) emanating from the AR, that the extent of tax benefits must be found and not in any norms issued by the Government or the Tax Authority that aim only to regulate, understand "control", the normal functioning of tax benefits. But such norms can never have such an extent that, in practical terms, obstruct or reduce so much the benefit, that they place it in question. It is in this dimension that the diploma that regulates the tax benefit here in question should be read.

We are dealing with the tax benefit of paragraph b) of article 1 of article 43 of the EBF: "In the case of establishment of new entities, whose principal activity is located in the beneficiary areas, the rate referred to in the previous number is reduced to 10% during the first five fiscal years of activity".

Now, the benefit in question is a rate reduction (article 2 of article 2 of the EBF). An automatic rate reduction, that is, one that results directly and immediately from the law (article 1 of article 5 of the EBF), for the reason that the taxpayer, without further ado, places in its income declaration the reduced ad valorem IRC rate of 10% which applies to the taxable base and thus obtains a tax collection. And, with this operation reflected in its Model 22, it assesses the IRC collection. It is the taxpayer, in view of the law, in view of the content of article 43 of the EBF (since only this norm emanates from the AR, by legislative authorization to the Government), in respect of the principle of legality set out in article 1 of article 8 of the LGT, that directly applies the exemptive norm.

Naturally the taxpayer must take into account all the other norms and guidance that aim to control, regulate, prevent abuse, and in short ensure the best compliance and effectiveness of the exemptive norm, issued directly by the AR or by its duly delimited authorization.

Since the benefit in question is automatic, it results directly from the law emanated directly or indirectly from the Assembly of the Republic.

From the proven facts it results:

· The Claimant proceeded to register, at the Commercial Registration Office, its constitution on 19.01.2011, having as registered office Urbanization…, lot…, …, … –… …, and has as object: "medical clinic, provision of services in the field of orthopedics and traumatology".

· The Claimant is registered with the Finance Office of…, code … (geographical area of…), since 2011.02.03 for the principal activity "activities of specialized medical practice, outpatient clinic", inserted in CAE 86 220.

· The Claimant has organized accounting, has its registered office and effective management in the geographical area of … and develops its principal activity in the area …, municipality of Viseu contained in Ordinance no. 1117/2009, of 30 September, considered a beneficiary territorial area of incentives to regions with inland problems in accordance with the provisions of articles 6 and 7 of Decree-Law no. 55/2008, of 26 March.

In light of the facts considered established, it must now examine the grounds underlying the assessment now in question.

According to the content of the Inspection Report, this is the grounds underlying the IRC assessment here in question:

That is, what is at issue, according to the AT's position, is merely the non-compliance, by the Claimant, with the requirement of article 2 of Decree-Law no. 55/2008, of 26 March.

It seems to us that it is not justified. Indeed,

The norm of article 2 of Decree-Law no. 55/2008, of 26 March concerns the requirement of paragraph d) of article 1 of Decree-Law no. 55/2008, of 26 March which states that companies must locate their "principal activity in the beneficiary areas".

Now the AT does not place in question in this proceeding the following:

· The Claimant has its registered office and effective management in the geographical area of…;

· The Claimant develops its principal activity in the area …;

· The Claimant commenced its activity at the beginning of 2011 (establishment of "new activity");

· The Claimant meets the requirements of the body of article 1 and article 2, both of article 43 of the EBF and of paragraphs a) to c) of article 1 of Decree-Law no. 55/2008, of 26 March.

Nor does it place in question the requirement of paragraph d) of article 1 of Decree-Law no. 55/2008, of 26 March, in immediate terms. It only places it in question because the Claimant does not have "payroll", that is, dependent employment remuneration.

It seems evident to us that the norm of article 2 of Decree-Law no. 55/2008, of 26 March, as it is worded, aims only to clarify, for entities that develop activity in more than one area, that its principal activity is considered to be located in the one:

ü Where it has its registered office or effective management;

ü And provided that it concentrates more than 75% of its respective payroll there.

In the case, the AT does not place in question the prerequisite for the application of the norm: which would be to place in question that the Claimant does not exercise its principal activity only or essentially in the area considered eligible for the tax benefit.

On the other hand, we do not see how the benefit of the repealed article 43 of the EBF can be dependent on the creation of employment, understanding this objective only as integrated with the creation of dependent jobs (subordinate employment).

The AT refers in the Inspection Report (page 14) that "… in the transition of the inland benefits regime to the EBF, the spirit of the law remained unchanged".

It is debatable that the legislator, by not placing in the letter of the law this objective clearly and objectively (the requirement of creation solely of dependent employment relationships with a view to combating human desertification, encouraging the creation of stable jobs and the fixing of young people) did not intend to alter the previous regime. It is that the alleged spirit of the previous law does not seem to have in the wording of article 43 of the EBF a minimum of verbal correspondence, in the case of the exemptive norms here under discussion.

On the other hand, even if the norm of article 2 of Decree-Law no. 55/2008, of 26 March were applicable to entities that do not have dependent employees, the expression "payroll" as encompassing only remuneration from dependent subordinate employment is always debatable and seems to lead to an unacceptable and absurd situation, which would be the fact of disregarding the creation of independent jobs.

It is well known that today dependent employment relationships are increasingly unstable and the creation of independent jobs is surely a way of achieving the same objectives: combating human desertification, encouraging the creation of stable jobs and the fixing of young people.

Indeed, in the case, the Claimant has as object: "medical clinic, provision of services in the field of orthopedics and traumatology", its principal activity being: "… specialized medical practice, outpatient clinic". It has "external collaborators, doctors and nurses, residing in Viseu who collaborate with it".

This is a company that, par excellence, provides work to professionals listed in the table of activities of article 151 of the CIRS: doctors and nurses. Does the exercise of these activities in the geographical area in question not contribute to combating human desertification and to the fixing of young graduates in these areas?

By creating independent jobs can the Claimant create employment incentives as stable for doctors and nurses as if it created dependent jobs (given the current flexibility of labor law and economic and social instability), and can contribute, with equal intensity, to combating human desertification of the interior.

We must therefore conclude, under penalty of the reading of the law leading to a result that does not accord with the economic and social reality of the country, that the norm of article 2 of Decree-Law no. 55/2008, of 26 March, is not applicable to entities that, by nature, do not hire subordinate workers, as is the case here, and aims only to determine the location where the principal activity of those entities is located, which intend to benefit from these benefits, because they exercise it in more than one area, in addition to the eligible one.

In these terms, the request for pronouncement is successful, since the assessment carried out by the AT is not in accordance with paragraph b) of article 1 of article 43 of the EBF in force at the date of the impugned tax act.

Questions of deferred knowledge

In view of the request for arbitral pronouncement succeeding regarding the defect of illegality referred to, which ensures effective protection of the rights of the Claimant, knowledge of the remaining defects is deferred as useless, in particular that of the violation of constitutional principles.

V. OPERATIVE PART

On the grounds set forth above:

  • The exceptions of incompetence of the TAS, untimeliness of presentation of the request for pronouncement and ineptness of the request for pronouncement are judged to be dismissed;

  • The request for pronouncement is considered to be corrected, as of 25.07.2016 (date of the Claimant's petition) as encompassing the IRC for the fiscal year 2011;

  • The request for annulment of the IRC assessment of 12.08.2015, no. 2015…, compensation number 2015…, and interest assessment 2015 … and 2015…, in the total amount of 1,132.24 euros, is judged to be successful;

  • The assessment is annulled;

  • The request for condemnation of the AT to refund the amount of 1,132.24 euros (including IRC and interest) is judged to be successful, condemning the Respondent to proceed with the respective refund.

*

Value of the proceeding: in accordance with the provisions of article 3, article 2 of the Regulation of Costs in Tax Arbitration Proceedings (and paragraph a) of article 1 of article 97A of the CPPT), the value of 1,132.24 euros is fixed for the proceeding.

Costs: in accordance with the provisions of article 22, article 4 of the RJAT, the amount of costs is fixed at 306.00 € according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify.

Lisbon, 27 August 2016

Singular Arbitral Tribunal (TAS),
Augusto Vieira

Text drawn up by computer in accordance with the provisions of article 131, article 5 of the CPC, applicable by reference from article 29 of the RJAT.

The wording of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the IRC tax benefit for companies located in Portugal's interior regions under Article 43 of the EBF?
The IRC tax benefit for companies in Portugal's interior regions under Article 43 of the EBF (in force until repealed by Law 64-B/2011) provided substantially reduced corporate income tax rates to encourage economic development in less-developed geographic areas. Specifically, Article 43(1)(b) established a reduced IRC rate of 10% (compared to the general 25% rate) for qualifying companies with registered offices and effective management in eligible interior zones designated by ministerial ordinance, such as areas in Viseu municipality under Ordinance 1117/2009. The benefit aimed to incentivize business establishment and job creation in economically disadvantaged interior regions by offering significant tax relief on corporate profits.
Can a CAAD arbitral tribunal rule on disputes involving revoked tax benefits such as the interioridade benefit repealed by Law 64-B/2011?
Yes, CAAD arbitral tribunals maintain jurisdiction to rule on disputes involving tax benefits that have been revoked or repealed, provided the disputed tax assessment relates to periods when the benefit was still in force. In this case, although the interioridade benefit under Article 43 of the EBF was repealed by Law 64-B/2011 effective December 30, 2011, the arbitral tribunal accepted jurisdiction because the disputed IRC assessment concerned the 2011 tax year (February-December 2011) when the benefit was still legally valid. The principle of intertemporal law dictates that tax benefits applicable during the relevant tax period govern assessments for that period, regardless of subsequent legislative changes. The tribunal's competence depends on timely filing under RJAT procedures and proper subject matter jurisdiction over IRC assessments, not on whether the underlying legal provisions remain in force at the time of arbitration.
What are the requirements under Decree-Law 55/2008 for companies to qualify for the reduced 10% IRC rate in eligible interior zones?
Under Decree-Law 55/2008, Article 2, companies seeking the reduced 10% IRC rate for interior zones must meet specific requirements: (1) registered office and effective management located in eligible geographic areas designated by ministerial ordinance; (2) conduct their principal economic activity in these beneficiary territories; and (3) concentrate more than 75% of their total payroll (massa salarial) in the eligible zones. This 75% salary mass criterion, referenced in Article 14(6) of Law 2/2007 on local finances, serves to verify that the company's substantive operations genuinely occur in interior regions rather than merely maintaining nominal presence. The key dispute in this case centers on whether companies without dependent workers (i.e., no employee payroll) must satisfy this 75% requirement, or whether the criterion only applies when distinguishing principal from accessory activities for companies with employees.
What happens when a taxpayer's arbitral request is deemed untimely (intempestivo) under the RJAT procedural deadlines?
When a taxpayer's arbitral request is deemed untimely (intempestivo) under RJAT procedural deadlines, the arbitral tribunal must reject the petition on procedural grounds without examining the merits of the tax dispute. Article 10(1)(a) of the RJAT establishes strict deadlines for filing arbitration requests following notification of tax assessments or denial of administrative claims. Failure to file within these statutory periods constitutes a dilatory exception that prevents the tribunal from analyzing substantive tax issues. However, the tribunal in this case determined the request was timely filed within the prescribed RJAT deadline, rejecting the Tax Authority's untimeliness defense. Proper calculation of filing deadlines is crucial, as untimely requests result in definitive loss of arbitration rights, leaving taxpayers without this administrative remedy to challenge allegedly illegal tax assessments.
Does the 75% salary mass criterion in Article 2 of Decree-Law 55/2008 apply to all companies claiming the interior tax benefit, including those without dependent workers?
The application of the 75% salary mass criterion in Article 2 of Decree-Law 55/2008 to companies without dependent workers remains a contested interpretive issue in Portuguese tax law. The claimant argued this criterion serves solely to distinguish principal from accessory activities for companies with multiple operational locations, not as an absolute eligibility requirement. According to this interpretation, companies without employees (no remunerated dependent work) cannot calculate a payroll percentage, making the 75% test inapplicable and irrelevant to their benefit qualification. Conversely, the Tax Authority's position implied the payroll concentration requirement applies universally, potentially excluding companies without dependent workers from the interior tax benefit entirely. This interpretive question affects numerous small companies and self-employed professionals operating in interior zones without formal employees, determining whether they can access reduced IRC rates based solely on geographic location and activity criteria or must also demonstrate employee presence.