Process: 95/2018-T

Date: December 28, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 95/2018-T addresses whether a Portuguese SGPS holding company can deduct 95% of dividends received from a Spanish EU subsidiary to eliminate economic double taxation under Article 46 of the IRC Code. The taxpayer, a dominant company in a tax consolidation group, challenged the tax authority's rejection of a €14,017,703.58 deduction for dividends received by C... SGPS from B... S.A. (Spain) in fiscal year 2001. The core legal issue involves whether Article 63 TFEU (freedom of capital movement) mandates equal treatment between dividends from Portuguese companies and those from EU member state companies. The Tax Authority denied the deduction, arguing that Article 46(5) of the IRC Code did not apply to non-resident EU subsidiaries at the material time, only to domestic dividends. The taxpayer invoked EU law principles prohibiting discriminatory restrictions on cross-border capital movements, citing CJEU jurisprudence. The case exemplifies conflicts between domestic tax law provisions and EU fundamental freedoms, particularly regarding participation exemption regimes for holding companies. The arbitral tribunal must determine whether denying the elimination of economic double taxation for EU-sourced dividends while allowing it for domestic dividends constitutes an unjustified restriction on the free movement of capital under the TFEU, and whether Portuguese SGPS companies should receive equivalent tax treatment regardless of whether their subsidiaries are resident or non-resident within the EU.

Full Decision

ARBITRAL DECISION

I – REPORT

On 12 March 2018, A..., S.A., Tax Identification Number ..., with registered office at Av. ..., no. ... – Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as LFTM), seeking the declaration of illegality of the self-assessment act for Corporate Income Tax ("CIT") relating to the fiscal year 2001, in the amount of €4,877,712.28, as well as the express rejection of the hierarchical appeal within the framework of process no. ...2012..., filed following the express rejection of the gracious complaint with no. ... (REG ...-GO; REG.../04), which had that act as its object.

To substantiate its request, the Applicant alleges, in summary, that the deduction should be admitted of income included in the tax base, corresponding to 95% of the profits distributed by B..., S.A. to C... SGPS, S.A. (i.e. €14,755,477.45 * 95% = €14,017,703.58), a company dominated by the Applicant, under the same conditions as were provided for profits distributed to SGPS by resident companies in Portugal, on the basis of the freedom of capital movement provided for in article 63 of the TFEU and to which corresponds, ultimately, the amount of €4,485,665.14 in CIT and €392,046.13 in municipal tax.

On 14-03-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Applicant did not proceed to appoint an arbitrator, so that, pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph a) of paragraph 1 of article 11 of the LFTM, the President of the Deontological Council of the CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable time frame.

On 04-05-2018, the parties were notified of these designations and did not manifest any intention to refuse any of them.

In accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the LFTM, the collective Arbitral Tribunal was constituted on 24-05-2018.

On 02-07-2018, the Respondent, duly notified for that purpose, submitted its response defending itself by way of objection.

Pursuant to the provisions of subparagraphs c) and e) of article 16, and paragraph 2 of article 29, both of the LFTM, the holding of the meeting referred to in article 18 of the LFTM was dispensed with.

Given that a time period was granted for the presentation of written submissions, the parties refrained from doing so.

It was indicated that the final decision would be notified by the end of the time limit set in article 21(1) of the LFTM.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1, of the LFTM.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the LFTM and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Thus, there is no obstacle to the examination of the case.

All considered, it behoves us to issue

II. DECISION

A. FACTUAL MATTER

A.1. Facts established as proven

The Applicant presented, in its capacity as dominant company of a group of companies, taxed under the Special Taxation Regime for Groups of Companies (RETGS), a gracious complaint against the self-assessment act for CIT no. 2002..., relating to the fiscal year 2001, in which it petitioned for various adjustments to taxable profit, namely the elimination of the economic double taxation of distributed profits, in the amount of €14,755,477.45.

The Applicant is a dominant company of a group of companies subject to the special regime for group taxation, which in fiscal year 2001 included the company C..., SGPS, S.A. (a company which subsequently changed its name to D... SGPS, S.A. and later to E... SGPS, S.A., with tax identification number ...).

The Applicant's claim, in the gracious complaint proceeding, consisted of obtaining a deduction, in the amount of €14,755,477.45, for purposes of determining the taxable income of C..., SGPS, S.A.

The aforesaid amount refers to dividends distributed by the Spanish company B..., SA, to the company C..., SGPS, S.A.

C..., SGPS, S.A. held, at the time, 3% of the capital stock of B..., S.A.

The aforesaid dividends contributed entirely to the determination of the taxable profit of C..., SGPS, S.A., and at the CIT level resulted in a tax payment of €4,721,752.78, to which was added the respective municipal tax – on that same amount – in a total amount of €412,681.19.

The profits of B..., S.A. were subject to taxation in Spain, at a rate of 35%.

B..., S.A. complied, at the time, with the requirements established in article 2 of Council Directive 90/435/CEE, of 23 July 1990.

The gracious complaint was the subject of a partially granting decision, dated 16 July 2012, with the request for elimination of the economic double taxation of distributed profits being denied, the Tax Authority Services considering that "the mechanism for elimination of the economic double taxation of profits distributed in 2001 was not applicable to dividends received from B..., in accordance with article 31 of the TBF (version at the time), whereby the dividends received by C... in that same fiscal year, in the amount of €14,755,477.45, and included in the tax base, could not have been deducted from taxable profit, as the provisions of paragraph 5 of article 46 of the CIRC, under the applicable legislation at the time, did not apply."

Following the partial grant decision of the gracious complaint, the Applicant filed, on 3 August 2012, a hierarchical appeal, in which it contests, among others, the part of the decision rejecting the request for elimination of the economic double taxation of distributed profits.

The hierarchical appeal was rejected, by decision dated 07-12-2017, containing, with respect to the request for elimination of the economic double taxation of distributed profits, the following reasoning:

"And in the analysis of the question then raised, it was correctly emphasized that it is not for the Tax Authority to assess the conformity of the provisions of internal law with the European Union Treaty, applying the provisions contained therein in derogation of national provisions or to accept, directly and automatically, the interpretive guidance emanating from the jurisprudence of the CJEU.

Furthermore, a similar divergence of situations occurs with respect to information no. 34/2009, with decision of the Director General of 2009-01-21, cited by the Applicant, where what is discussed there is the application of the provisions of paragraph 5 of article 46 of the CIRC to income from shareholdings in companies resident in another State of the European Union where the technical reserves of insurance companies, provided for in paragraph 2 of article 46 of the CIRC, have been applied, whereas what is discussed here is the application of the provisions of paragraph 5 of article 46 of the CIRC to dividends received by SGPS, distributed by companies resident in another State of the European Union.

Also, the decisions of the Court of Justice of the European Union cited by the Appellant do not concern legal situations that are directly comparable to the one described here, i.e. where the aforesaid provisions are at issue in the present case. From what has been stated thus far, it is concluded that the mechanism for elimination of the economic double taxation is not applicable to the dividends distributed by company B... in 2001, at issue here, as the provisions of paragraph 5 of article 46 of the CIRC (at the time) are not applicable as of the date of the facts by virtue of not being provided for in article 31 of the TBF (at the time), applicable to SGPS."

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of the proven and not proven factual matter

With respect to factual matter, the Tribunal need not rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven from the not proven factual matter (cf. article 123, paragraph 2, of the CPPT and article 607, paragraph 3 of the CPC, applicable by virtue of article 29, paragraph 1, subparagraphs a) and e), of the LFTM).

Thus, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal issue(s) (cf. former article 511, paragraph 1, of the CPC, corresponding to the current article 596, applicable by virtue of article 29, paragraph 1, subparagraph e), of the LFTM).

Thus, taking into account the positions assumed by the parties, in light of article 110(7) of the CPPT, the documentary evidence and the administrative file attached to the case, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties and presented as facts, consisting of strictly conclusive statements, incapable of proof and whose veracity must be assessed in relation to the specific factual matter consolidated above, were neither given as proven nor not proven.

B. LAW

As formulated by the Respondent, the fundamental issue to be decided in the case reduces to assessing the (partial) illegality of the self-assessment act, on the basis of the freedom of capital movement enshrined, at the time to which the facts under analysis refer, in article 56 of the Treaty establishing the European Communities (TEC), current article 63 of the Treaty on the Functioning of the European Union (TFEU).

However, contrary to what the Respondent suggests, the resolution of such an issue does not depend on determining whether article 31(1) of the TBF, as amended by Decree-Law no. 198/2001, of 3 July, which in matters of dividends received by SGPS referred to article 46(1) of the Code of CIT, without dependence on the requirements stipulated therein regarding the percentage of shareholding and the holding period, is applicable or whether the revised wording of the same provision of the TBF, given by article 45 of Law no. 109-B/2001, of 27 December (Budget Law 2002), which began to refer to paragraphs 1 and 5 of article 46 of the CIRC, is applicable, but rather whether that first wording was, or was not, in conformity with Community law, and, if the answer is negative, what consequences are to be drawn therefrom.

Article 46 of the CIRC provided, in the wording given by Decree-Law no. 198/2001, of 3 July:

"1 - For purposes of determining taxable profit of commercial companies or civil companies in commercial form, cooperatives and public enterprises, with registered office or effective management in Portuguese territory, the following are deducted: income included in the tax base corresponding to profits distributed by entities with registered office or effective management in the same territory, subject to and not exempt from CIT or subject to the tax referred to in article 7, in which the taxpayer holds directly a shareholding in the capital of not less than 25% and provided that this shareholding has remained continuously in its possession for the two years prior to the date when the profits are made available or, if held for a shorter period, provided that the shareholding is retained for the time necessary to complete that period. (...)

4 - The provision in paragraph 1 is equally applicable to shareholding companies, in accordance with the terms of their respective legislation, and to other types of companies, in accordance with the Tax Benefits Statute, as well as, in partnership, to the partner constituted as a commercial company or civil company in commercial form, cooperative or public enterprise, with registered office or effective management in Portuguese territory, regardless of the value of its contribution, with respect to income that has been effectively taxed, distributed by partners resident in the same territory."

And article 31 of the Tax Benefits Statute established, under the heading "Companies holding shareholdings (SGPS) and venture capital companies (VCC)" that:

"1 - SGPS and VCC are subject to the provisions of article 46(1) of the CIRC, without dependence on the requirements stipulated therein regarding the percentage of shareholding and the period for which this has remained in its possession".

As the Respondent states, paragraph 1 of article 46 of the Code of CIT contemplated only, in 2001, profits distributed by entities with registered office or effective management in the same territory, subject to and not exempt from CIT, whereby paragraph 1 of article 7 of Decree-Law no. 495/88 and, likewise, paragraph 1 of article 31 of the TBF, did not permit C..., S.A. to deduct from taxable profit the profits distributed by B....

In effect, the requirements of the general regime for elimination of the economic double taxation of distributed profits consisted, at the time, in the holding of a direct shareholding in the capital of the distributing company, not less than 25%, held for at least two years, and article 7 of Decree-Law no. 495/88, in paragraph 3 of article 45 of the Code of CIT provided that "The provision in paragraph 1 is equally applicable to shareholding companies, in accordance with the terms of their respective legislation (...)".

Thus, in accordance with the special national tax regime applicable to profits distributed to SGPS by their subsidiaries, between 01-01-1989 and 31-12-2001 (until the entry into force of Law no. 109-B/2001) – only profits distributed by subsidiary companies resident in Portuguese territory, regardless of the percentage of the shareholding and the respective holding period, benefited from the elimination of the economic double taxation, by virtue of the provisions of paragraph 1 of article 7 of Decree-Law no. 495/88, paragraph 3(4) of article 45 (46) of the Code of CIT and paragraph 1 of article 31 TBF (wording of Decree-Law no. 198/2001, of 3 July).

The question that arises is whether, and to what extent, such a regime, appropriately established by the Tax Authority, was in conformity with the Community law then in force.

That is what must be determined, and with respect to such a matter the Respondent contributes little, merely noting that "the legislator did not support the amendment introduced to article 31 of the TBF by Law no. 109-B/2001, on any ground of incompatibility with the TEC, in particular with article 56 (current 63) on the freedom of capital movement or the freedom of establishment".

Now, as the CJEU has very recently reaffirmed, matters of European law are not dependent on the framework established by national law, since "According to settled case-law of the Court of Justice, the terms of a provision of EU law which contains no express reference to the law of the Member States must normally be interpreted autonomously and uniformly"[1].

Consequently, the motivations of the Portuguese legislator in altering the provisions in question are irrelevant to assessing the conformity of the amended provisions with Community law, or, to put it differently, contrary to what the Respondent seems to conclude, the fact that the Portuguese legislator apparently did not consider the non-conformity of the amended provisions with Community law as motivation for its intervention does not mean that such non-conformity does not exist.

Now, Portugal, by virtue of a Community Directive, specifically Directive 90/435/CEE, of 23 July 1990 (presently replaced by Directive 2011/96/EU), adopted a set of provisions aimed at alleviating or eliminating double taxation between parent and subsidiary companies within the Community area, such that companies which had a shareholding of a certain percentage and for a certain period of time, when they distributed their dividends to the parent company, in the case resident in Portugal, these were not taxed or, in an initial version, were taxed only on the basis of 5% of the dividends that entered the tax base.

This legislation underwent various vicissitudes, but for what is relevant to the case, in the year of the facts, namely 2001, it completely exempted dividends provided that the parent company's shareholding in the subsidiary company (both resident in national territory) was 25% or more and the holding had occurred for more than 2 years. This resulted from paragraph 1 of article 45 of the CIRC.

This regime was also applied to shareholdings that Portuguese companies held, in identical terms, in companies resident in another Member State of the European Union, as clearly results from paragraph 5 of the aforementioned article 45 of the CIRC.

Moreover, in 2012, the regime was improved, so as to require a lower shareholding (10%) and a shorter holding period (1 year).

With respect to the case at hand, we were dealing with a shareholding of an SGPS in a Spanish company, a shareholding which, in the case at hand was 3% of C... SGPS in B....

Now, as seen, paragraph 4 of article 45 stated that "the provision in paragraph 1 is equally applicable to shareholding companies, in accordance with the terms of their respective legislation, and to other types of companies, in accordance with the Tax Benefits Statute(...)".

The legislation applicable at the time to SGPS was Decree-Law no. 495/88, of 30/12, containing the same article in which, as likewise seen, it was provided that:

"SGPS are subject to the provisions of paragraph 1 of article 45 of the CIRC, without dependence on the requirements stipulated therein regarding the percentage of shareholding and the period for which this has remained in its possession."

Nevertheless, looking strictly at what article 45, paragraph 1 provided, the same only refers to profits distributed by companies resident in Portugal to parent companies whose registered office or effective management is situated in national territory. The extension to companies situated in the European area was effected by virtue of paragraph 5 of the same article.

In a purely literal reading, two regimes are then obtained:

  • A general regime applicable to dividends distributed by companies resident in Portugal or in the European area to parent companies situated there (Community Directive);

  • A more favorable regime for SGPS (not imposed by the Directive) but which treats differently dividends of Portuguese companies distributed to SGPS (in a more favorable sense, without time limit and without the 25% threshold) and another for dividends of Community companies distributed to Portuguese SGPS which would benefit only from the so-called normal regime.

Now, in light of Community law and the requirements of non-discrimination and freedom of capital movement, it will not be possible to maintain that the reference to paragraph 1 of the article cited prevents its extension to paragraph 5, since it is paragraph 5 itself which provides that the provision in paragraph 1 is also applicable, that is, in this area. Paragraph 1 of article 45 must be viewed together with paragraph 5, which would eliminate, by way of interpretation, the obstacle to the privileged treatment in the distribution of dividends from Community companies to Portuguese SGPS and the conflict with Community law.

The contrary argument to this is that which results from the fact that this unfavorable treatment of Community companies was expressly eliminated by the Budget Law for 2012 (article 45, paragraph 1 of Law no. 109-B/2001, of 27 December), where a new article 31 of the TBF was established, which expressly began to state:

"SGPS and VCC are subject to the provisions of paragraphs 1 and 5 of article 46 of the CIRC(...)", this provision not having been given an interpretive character.

What is a fact, nonetheless, is that it is all too evident that an unjustified difference in treatment existed, and such unequal treatment does not appear to be compatible with Community Law.

Although addressing different aspects, as was discussed in the decision of the STA no. 0654/13, of 27-11-2013, where it is stated that "if the tax withheld in Portugal cannot be credited against the tax owing by the appellants (...), in any percentage, by virtue of the law (...) not permitting the deduction, offsetting or recovery of tax paid in Portugal upon the distribution of dividends (...) the violation of the aforementioned principles of non-discrimination and free capital movement will become unequivocal."

Also in the decisions of the STA of 09-04-2014, 14-05-2014 and 28-01-2015, rendered, respectively, in proceedings 01318/13, 01319/13 and 0890/13, it is stated that: "Having regard to the primacy of Community law and arising from CJEU case-law that (i) unequal treatments permitted by subparagraph a) of paragraph 1 of article 58 of the EEC Treaty must be distinguished from the discriminations prohibited by paragraph 3 of that same article and (ii) that, for a tax regulation to be considered compatible with the Treaty provisions on the free movement of capital, it is necessary that the difference in treatment concerns objectively non-comparable situations or is justified by overriding reasons of general interest".

Finally, the decision, also from the STA, of 31-05-2017, rendered in proceeding 0738/16, affirmed that "If, as a result of the interpretation of national legislation, it is permitted for a company resident in a Member State to effect a full or partial deduction of dividends received from its tax base when these are distributed by a company resident in the same Member State, but cannot proceed to this deduction when the distributing company is resident in a third country, such interpretation constitutes a restriction on capital movements between Member States and third countries, which is, in principle, prohibited by article 63 TFEU."

This decision rests directly on the CJEU's Secil decision (case C-464/14), where, among other things, it is stated that:

"Legislation such as that at issue in the main proceedings, according to which a company resident in a Member State can effect a full or partial deduction of dividends from its tax base when these are distributed by a company resident in the same Member State, but cannot proceed to such a deduction when the distributing company is resident in a third country, constitutes a restriction on capital movements between Member States and third countries, which, in principle, is prohibited by article 63 TFEU."

Now, in the case, it is the Respondent itself which, objecting to the Community jurisprudence cited by the Applicant, states that, in light of the applicable legal regime, "SGPS found themselves on equal terms with respect to investments in shareholdings of non-resident companies, whether from the European Community or from third countries."[2]

Thus, as it is, and bearing in mind that:

  • the situation was no longer the same if the investments in shareholdings were in companies resident in Portugal;

  • that the CJEU expressly affirms the non-conformity with article 63 of the TFEU of analogous legislation[3], regarding discriminations based on residence in third countries of dividend-distributing companies, by comparison to the same type of company, resident in national territory;

  • by a fortiori one must conclude to such same non-conformity, in the same type of legislation, regarding discriminations based on residence in Community companies of dividend-distributing companies, by comparison to the same type of company, resident in national territory, as occurs in the case.

In these terms, and without further considerations, the self-assessment which is the object of the present case and the consequent second-instance acts which examined it must be judged illegal due to violation of article 63 of the TFEU, specifically with respect to the requirements of non-discrimination and freedom of capital movement, whereby that self-assessment should be partially annulled, proceeding the arbitral request, with the other consequences flowing therefrom.

Beyond the annulment request, the Applicant formulated a request for payment of compensatory interest.

In the words of the Applicant, which refrained from "specifying the value of the compensatory interest as of the date of submission of the arbitral request." "The compensatory interest will, thus, be a consequence of the success of the action and consequent annulment of the act" and that "it is not necessary for a court or arbitral decision expressly to condemn the State to its payment".

In the words of the Respondent, "the condemnation of the Tax Authority to the payment of compensatory interest is a mere consequence of the arbitral decision which may be issued on the legality of the assessment act".

In light of such understandings, compensatory interest shall be owed, arising from the annulment of the tax acts, in accordance with and once the requirements of the corresponding provisions that provide for them are met, to be assessed, if necessary, in execution of judgment.

C. DECISION

In these terms, this Arbitral Tribunal decides to judge the arbitral request filed as entirely well-founded and, in consequence:

  • Annul the self-assessment act for Corporate Income Tax ("CIT") relating to the fiscal year 2001, in the amount of €4,877,712.28, as well as the express rejection of the hierarchical appeal within the framework of proceeding no. ...2012..., filed following the express rejection of the gracious complaint with no. ... (REG ...-GO; REG...), which had that act as its object, with all due and legal consequences, namely with respect to the payment of compensatory interest;

  • Condemn the Respondent to the costs of the proceedings fixed below.

D. Value of the proceedings

The value of the proceedings is fixed at €4,877,712.28, in accordance with article 97-A, paragraph 1, a), of the Code of Tax Procedure and Proceedings, applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of the LFTM and paragraph 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €61,506.00, in accordance with Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the Tax Authority, as the request was entirely well-founded, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the LFTM, and article 4, paragraph 4, of the cited Regulations.

Notified.

Lisbon, 28 December 2018

The Arbitrator President

(José Pedro Carvalho – with dissenting opinion regarding the value of the proceedings)

The Arbitrator Member

(Vasco Valdez)

The Arbitrator Member

(Alberto António Franco)

DISSENTING OPINION

Following the understanding of the Illustrious Counselor Jorge Lopes de Sousa, cited in the decision of the STA of 3 May 2018, rendered in proceeding no. 0250/17, I believe that in this decision, with respect to the calculation of the value of the proceedings, "we are faced with a departure that is difficult to justify from the rule, whose reasonableness is evident, that, in cases of cumulation of claims with autonomous value, all of them are considered for the determination of the value of the proceedings (a rule which is adopted in articles 306, paragraph 2, and 32, paragraph 7, of the ACPT)"[4].

And, even if debatable, there may be reasons to, taking up the question raised in the aforementioned STA decision, answer in the negative in the state tax tribunals to the question of whether, having been formulated by the appellant a request to annul the assessment act and a request for payment of compensatory interest, "For purposes of determining the value of the proceedings, should or should not the value of one and the other claim be added?", I believe there are weighty reasons to, within the scope of arbitral jurisdiction, answer such question affirmatively.

In my view, the request for compensatory interest constitutes an autonomous claim with its own economic value, which is certain and determinable (which is not contradicted by the STA decision indicated above), and the provisions for fixing the value of the proceedings in arbitral tribunals operating in the CAAD integrate a special and distinct regime from the provisions for fixing the value of the proceedings in state tax tribunals, and that, notwithstanding there being partial overlapping of the applicable provisions in both cases, these may, and should, be interpreted distinctly, in light of the different materiality underlying each of the jurisdictions.

Thus, I believe that the provisions to be applied for fixing the value of tax proceedings in the CAAD, which begin in article 3 of the Regulations on Costs in Tax Arbitration Proceedings, should be interpreted in light of the general criterion of correspondence between the value of the proceedings and the economic value of the claim(s) formulated, taking into account, essentially and in summary:

  • The respective responsibilities of the various actors in the arbitral tax jurisdiction operating in the CAAD;

  • The constraints and limitations of the arbitral tax tribunals operating in the CAAD, imposed by the Binding Ordinance, as a function of the value of the disputes.

In light of the foregoing, I would have fixed the value of the proceedings at the amount corresponding to the sum of the value of the assessment act whose legality was examined, with the value of the compensatory interest that should be assessed as accrued as of the date of submission of the arbitral request to the CAAD.

Lisbon, 28 December 2018

The Arbitrator President

(José Pedro Carvalho)

[1] Cf. Decision rendered in case C-295/17, available at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=207965&pageIndex=0&doclang=PT&mode=req&dir=&occ=first&part=1&cid=2416747.

[2] Cf. article 54 of the Response.

[3] In the case, of the same provision, in its wording in force in 2009.

[4] Emphasis ours.

Frequently Asked Questions

Automatically Created

What is the CAAD arbitral decision 95/2018-T about regarding IRC and SGPS taxation?
CAAD arbitral decision 95/2018-T concerns a dispute over IRC (Corporate Income Tax) treatment of dividends received by a Portuguese SGPS holding company from a Spanish subsidiary. The taxpayer sought to deduct €14,017,703.58 (95% of €14,755,477.45 in dividends from B... S.A. Spain) to eliminate economic double taxation, arguing that denying this deduction while allowing it for domestic dividends violates Article 63 TFEU on free movement of capital. The case addresses whether Article 46 of the IRC Code must be interpreted in conformity with EU law to grant SGPS companies equal tax treatment for EU-sourced dividends.
How does Article 63 TFEU (free movement of capital) apply to dividend distributions received by Portuguese SGPS holding companies from EU subsidiaries?
Article 63 TFEU prohibits restrictions on the movement of capital between EU member states. In this case, the taxpayer argues that treating dividends from Spanish subsidiaries less favorably than dividends from Portuguese subsidiaries constitutes a discriminatory restriction on capital movement. Portuguese SGPS companies could eliminate economic double taxation on domestic dividends through a 95% deduction under Article 46 IRC, but the Tax Authority denied this benefit for dividends from EU companies. The taxpayer contends this differential treatment violates EU law's non-discrimination principle and creates a fiscal barrier to cross-border investment within the single market.
Can a Portuguese SGPS deduct 95% of dividends received from a non-resident EU subsidiary under Article 46 of the IRC Code to eliminate economic double taxation?
Under the applicable 2001 legislation, Article 46(5) of the IRC Code allowed elimination of economic double taxation for dividends, but the Tax Authority interpreted this provision as applying only to domestic dividends. The taxpayer argues that EU law requires extending this 95% deduction to dividends from EU subsidiaries meeting the requirements of Directive 90/435/CEE (Parent-Subsidiary Directive). The Spanish company B... S.A. satisfied these requirements, and its profits were taxed in Spain at 35%. However, the Tax Authority maintained that Portuguese law did not provide for the deduction mechanism for non-resident EU companies, and it was not their role to apply EU Treaty provisions in derogation of national law without explicit legislative authorization.
What was the outcome of the hierarchical appeal and tax arbitration regarding the 2001 IRC self-assessment of €4,877,712.28?
The hierarchical appeal was rejected by decision dated December 7, 2017. The Tax Authority upheld its position that Article 46(5) of the IRC Code did not apply to dividends from non-resident EU companies in 2001. The authority stated it was not competent to assess conformity of domestic law with EU Treaty provisions or automatically apply CJEU interpretations in derogation of national legislation. Following this rejection, the taxpayer filed for arbitration before CAAD in March 2018, seeking a declaration of illegality of the self-assessment for IRC fiscal year 2001 amounting to €4,877,712.28. The arbitral tribunal was constituted on May 24, 2018, to determine whether the denial of the deduction violates EU fundamental freedoms.
How does EU law prevent discriminatory treatment of cross-border dividend distributions compared to domestic dividends for Portuguese holding companies (SGPS)?
EU law prevents discriminatory treatment through Article 63 TFEU and the non-discrimination principle inherent in the fundamental freedoms. If Portuguese SGPS holding companies receive a 95% deduction (elimination of economic double taxation) for dividends from domestic subsidiaries but are denied the same benefit for dividends from EU subsidiaries, this creates a fiscal disadvantage for cross-border investments. Such differential treatment may discourage Portuguese holding companies from investing in other EU member states, thereby restricting capital movement. CJEU jurisprudence consistently holds that member states cannot treat domestic and cross-border situations differently unless objective justifications exist. The taxpayer's argument relies on this principle, contending that equal fiscal treatment must apply regardless of whether dividends originate from Portuguese or other EU companies, provided the subsidiaries meet equivalent conditions under EU directives.