Summary
Full Decision
The Arbitrator Marisa Almeida Araújo, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form this Singular Arbitral Tribunal, hereby renders the following,
ARBITRAL DECISION
I – REPORT
A..., LDA., (hereinafter referred to as the "Claimant"), with registered office at Rua ..., ..., ...-... …, holder of the Single Registration Number at the Commercial Registry and Legal Entity Identification Office ... came, under Article 2, paragraph 1, letter a) and Articles 10 and et seq. of the Legal Regime for Tax Arbitration, as provided in Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter abbreviated as "LRTA") and Articles 1 and 2 of Order No. 112-A/2011, of 22 March, to file a request for arbitral decision to have declared the illegality, and consequent annulment, of the Corporate Income Tax (IRC) assessment act numbered 2017... and its respective demonstration of interest assessment numbered 2017..., with all legal consequences, namely, the reimbursement to the Claimant of the amount paid on this account, plus compensatory interest.
The Respondent is the Tax and Customs Authority (hereinafter referred to as "TA" or "Respondent").
The request for constitution of the arbitral tribunal was accepted by His Excellency the President of the Administrative Arbitration Centre (CAAD) on 14/03/2018 and automatically notified to the Respondent in accordance with regulatory procedures.
Pursuant to the provisions of letter a) of paragraph 2 of Article 6 and letter b) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of CAAD designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the assignment within the legal period.
On 04/05/2018, the Parties were duly notified, and neither, within the legal timeframe and procedures, manifested an intention to refuse the designation of the arbitrator (Article 11, paragraph 1, letters a) and b) of the Legal Regime for Tax Arbitration (LRTA), in conjunction with Articles 6 and 7 of the Deontological Code).
In accordance with the provisions of letter c), paragraph 1, Article 11 of the LRTA, the Arbitral Tribunal was constituted on 24/05/2018.
Duly notified, the Tax and Customs Authority filed a response in which it contested the admissibility of the claim and attached a copy of the administrative file.
Considering the defence by exception by the TA, the principle of adversarial procedure was observed, with the Claimant responding on 06/07/2018.
The hearing referred to in Article 18 of the LRTA was dispensed with and, considering the position of the parties already expressed in their respective pleadings, the absence of any evidence other than the documentary evidence attached to the file, and there being no other matter to address or adversarial procedure to exercise, the parties' closing arguments were also dispensed with, thereby observing the principle of formal adequacy.
The Claimant supported its claim, briefly, by arguing that,
In November 2017, the Claimant was notified of the IRC assessment No. 2017..., accompanied by its respective demonstration of interest assessment No. 2017..., issued in reference to the year 2013, in the total amount of EUR 448.28 and with payment due by 11 December 2017, with the amount being paid by the Claimant.
The IRC assessment was issued by the TA following a tax inspection procedure credited by Internal Service Order No. OI2016..., resulting from the inspection report that the corrections made in respect of IRC for the year 2013 of the Claimant resulted from the "Change of taxation regime for "Groups of Companies" income to "General" with the company being taxed on fiscal results obtained".
In the year 2013, company B... was taxed under the RETGS (Special Regime for Taxation of Groups of Companies), which comprised, in that year, the following companies:
... C... SGPS, S.A. (parent company)
... D..., S.A.
... E..., S.A.
... F..., SGPS, S.A.
... A..., Lda.
... G..., Lda.
... H..., S.A.
In the report of the aforementioned tax inspection procedure, the TA concludes, according to the Claimant, that "Thus, and inasmuch as company C... SGPS posted fiscal losses in the three periods prior to the beginning of application of the regime, it does not meet the conditions to be considered the parent company of the tax group, by violation of the provisions of letter c) of paragraph 4 of Article 69 of the IRC Code".
According to the Claimant, the reasoning presented by the TA underlying the issuance to the Claimant of the aforementioned assessment is tainted with a defect of violation of law, since the Claimant is brought into a discussion that is not its own and which – moreover – is still ongoing, between the TA and the company regarding which the compliance with a given requirement is being questioned: C... SGPS, S.A.
The facts invoked by the TA to justify the performance of the act in relation to the Claimant – the existence of fiscal losses in the three periods prior to the beginning of application of the regime – are related to another company (C... SGPS, S.A.), not the Claimant.
According to the Claimant, despite being confronted with an assessment act issued directly against it, the Claimant cannot prove the actual fulfillment of the prerequisites upon which the application of RETGS depends, lacking legitimacy – both in fact and in law – to discuss whether the parent company met or did not meet the requirements to be part of RETGS in the year in question.
Since those prerequisites concern another company – the parent company C... SGPS, S.A. – and the legal regime applicable to the concrete case requires that such proof be made by that parent company.
As a consequence, the assessment issued to the Claimant for an alleged failure to meet, by another entity, a requirement which, in practical (and legal) terms can only be proven by that other company, places it in a situation of defenselessness regarding the merits of the question, with the Claimant submitting that there is a violation of the right to effective judicial protection, constitutionally enshrined in Article 20, paragraph 1, of the Constitution of the Portuguese Republic, and in the case at hand, the specific dimension of the "prohibition of defenselessness" is at issue.
The situation affects, according to the Claimant, the confidence it places in the legal system regulating the means of defense of its rights, a confidence that is further protected by the principle of the democratic rule of law enshrined in Article 2 of the Constitution of the Portuguese Republic.
Concluding in this way, the Claimant submits that the assessment issued, in the manner and with the grounds with which it was issued, frontally violates the principle of prohibition of defenselessness, which it herein invokes and should determine the annulment of the same assessment, in accordance with legal provisions, thereby determining, in consequence, the return to the Claimant of the amount thus wrongfully paid on this account, plus compensatory interest, in accordance with the provisions of Article 43 of the LGT (General Tax Law).
For its part, the Respondent supports its position, briefly, by arguing that,
The Respondent defends itself by exception and by impugnation.
As regards the matter of exception, the Respondent alleges the lack of legitimacy of the Claimant, since, according to it, under the terms of RETGS, the right to exercise the option for that special taxation regime is a right conferred upon the parent company of the Group, as the holder thereof, and so to every right corresponds an appropriate legal action for its protection, and in the case of the present Claimant, because it has no right to exercise the option upon which the application of RETGS depends, it is also not a holder of any right to take legal action with a view to obtaining its respective protection.
According to the Respondent, the entity that has legitimacy to challenge the correction made to the taxation regime of the Group is the parent company of the Group and not each and every one of the subsidiary companies, among them the present Claimant.
The inclusion of the Claimant in RETGS did not depend on its will, but rather on a right of option exercised unilaterally by the parent company of the Group, and so likewise, the cessation of that RETGS, due to the lack of its respective legal prerequisites, can only be contested litigiously by the parent company of the Group that exercised the corresponding right of option.
If the Claimant, as a subsidiary company of the Group, did not have a legal mechanism that would give it the possibility to oppose the option for RETGS for purposes of determining its taxable matter in IRC, neither does it fall to the Claimant, according to the Respondent, to react against the correction that the TA deems should be made to that framework, it being incumbent upon the parent company to adopt the mechanisms it deems convenient and appropriate to oppose that decision, if it disagrees with it.
Until this dispute between the TA and the parent company is resolved, it is necessary to carry out the correction to the taxation regime of the income and exercise the right to assess the tax, when it exists, in respect of each and every company of the Group, there being no, according to the TA, any legal basis for suspending the assessment of the tax that falls within the legal sphere of the parent company, by force of the change to the taxation regime in IRC, nor is there any basis for not assessing the tax that appears to be owed, by force of that correction, in the legal sphere of the subsidiary companies.
The fact that the parent company has reacted against that decision does not prevent the TA from proceeding with all assessments that result from the correction to the taxation regime in IRC, whether in the sphere of the parent company or in the sphere of the remaining companies of the Group, there being no rule that suspends the right to assess tax.
We are, therefore, according to the Respondent, before an assessment act consequent to the correction made to RETGS, a correction that can only be contested, before the TA and before the Courts, by the parent company of the Group, because it is this company that holds the right to exercise the respective option and, consequently, the legitimacy to challenge it.
Consequently, should the alleged claim of the parent company for annulment of that correction be deemed admissible, it will be in the context of the TA's implementation of the decision or judgment, as the case may be, that the decision that existed before that correction will be restored, with the consequent return of the tax wrongfully paid.
Concluding, thereby, the TA submits the lack of legitimacy of the Claimant to challenge the correction made.
The joinder of the parent company has no legal support whatsoever, since neither is it a question of a situation of necessary joinder of parties, given that the only company with legitimacy to discuss the contested correction is the one that holds the right to exercise the option. In these terms, the exception of lack of legitimacy of the Claimant should be deemed admissible, with the consequent dismissal of the Respondent from the proceedings.
Subsidiarily, the Respondent raises the lack of interest in bringing the action, since the present arbitral action is not susceptible to producing any positive effects on the legal sphere of the Claimant.
Since the correction in question, according to what the Claimant advances, is pending decision by way of the reaction already triggered by the parent company, it must necessarily be concluded, according to the Respondent, that there is no interest whatsoever in suspending the present arbitral proceedings until that dispute is decided.
For if it is decided in favor of the parent company, the implementation of the corresponding judgment necessarily implies the restoration of the legal and tax situation of all companies of the Group, here including the Claimant.
From this it results, subsidiarily, the lack of interest in bringing the action, since the interest that objectively the Claimant has in the contested assessment being annulled is an interest that is already safeguarded by the possible pending action brought by the parent company of the Group with a view to annulling the correction made by the TA to the taxation regime of the Group.
By impugnation, the Respondent argues that the IRC assessment now contested is an act consequent to the correction of the taxation regime in which the company was classified, there being no legal basis whatsoever that would prevent its assessment.
It was incumbent upon the TA to carry out the respective assessment, under penalty of the statutory limitation of the right to assess, there being no legal basis for suspending the assessment of the tax that falls within the legal sphere of the parent company, by force of the change to the taxation regime in IRC.
Nor is there, according to the TA, any basis for not assessing the tax that appears to be owed, by force of that correction, in the legal sphere of the subsidiary companies.
For this reason, it concludes for the inadmissibility of the request for arbitral decision.
As regards the matter of exception invoked by the Respondent, the Claimant came to respond, alleging, briefly, the following,
The tax-legal relationship materialized in the additional assessment at issue in the present proceedings is established between the TA – as the active subject of that relationship – and here the Claimant – as its respective passive subject. Wherefore, according to the Claimant, in view of the impugned act and the substantive relationship here at issue, it is an actively legitimate party in the present tax arbitral proceedings – cf. Article 9 of the Code of Tax Procedure and Process, applicable ex vi Article 29, paragraph 1, letter a), of the Legal Regime for Arbitration in Tax Matters.
Concluding by the total inadmissibility of the exception of lack of procedural legitimacy raised by the TA.
As regards interest in bringing the action, the Claimant alleges that it is the legal entity that, under the terms of the law, is bound to the performance or satisfaction of the tax obligation arising from the assessment here put in question and not the parent company or any other entity.
It is against the Claimant, consequently, that, in case of non-payment of the amount in question, the TA institutes the competent tax enforcement proceedings and it is against its assets that, in case of non-payment of the assessment in question, coercive collection acts are carried out.
Concluding for the Claimant's interest in bringing the action, and thus rendering the exception invoked by the TA inadmissible.
II – SANATION
The Parties have standing and capacity to sue, are duly represented, the tribunal is competent and the claim is not time-barred, in accordance with the provisions of Articles 4 and 10 of the LRTA and Article 1 of Order No. 112-A/2011, of 22 March.
A dilatory exception has been raised which must be examined since its eventual admissibility precludes the tribunal from knowing the merits of the cause, thus being a preliminary matter.
The Respondent raises the illegitimacy of the Claimant as well as the latter's lack of interest in bringing the action. Adversarial procedure was observed as to this matter.
It is necessary to assess,
Procedural legitimacy constitutes a specific position of whoever is a party to a suit, in the face of a given conflict of interests, assessing this quality for whoever shows to have an interest in judicial protection.
In the present case, what appears, and independent of the question on the merits, is that as regards the procedural relationship, the Claimant figures in the tax-legal relationship at issue as a passive subject and thus has, as regards it, procedural legitimacy.
In this way, and without further consideration, we conclude that the Claimant is a legitimately-positioned party in the present tax arbitral proceedings (Articles 9 of the Code of Tax Procedure and Process, applicable ex vi Article 29, paragraph 1, letter a), of the Legal Regime for Arbitration in Tax Matters).
Given the foregoing, we conclude for the procedural legitimacy of the parties.
As regards interest in bringing the action.
Procedural interest consists of the necessity of using a process, expressing an idea of necessity or objective situation of need for judicial protection (Remédio Marques, Declarative Action in Light of the Revised Code, 2nd Ed., Coimbra Publisher, p. 393).
Beyond procedural legitimacy, a party demonstrates procedural interest when it is necessary, indispensable, justified, reasonable and current that the matter be resolved through the judicial process.
In the concrete case, for purposes of establishing the procedural relationship, the tax-legal relationship has as its passive subject the Claimant, upon whom the legal effects of the performance, or non-performance, of the tax obligation arising from the assessment here put in question will fall, and not the parent company or any other entity.
In this way, one can only conclude that the Claimant has a situation of objective need, justified and reasonable to resort to court, independent of the tax-legal relationship of the parent company.
Given the foregoing, it is considered that the Claimant has interest in bringing the action.
The exception having been decided, with all prerequisites being verified and there being no procedural defects to examine, it is now necessary to address the merits of the cause.
III – MERITS
SUBSTANTIVE FACTS
Facts Proven and Not Proven
It falls to the tribunal to select the facts that matter for the decision of the cause and to distinguish the proven matter from the unproven (in accordance with Article 123, paragraph 2, of the CPPT and Article 607, paragraph 3 of the CPC, applicable ex vi Article 29, paragraph 1, letters a) and e), of the LRTA).
Thus, the facts pertinent to the judgment of the cause are chosen and tailored based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (in accordance with the former Article 511, paragraph 1, of the CPC, corresponding to the present Article 596, applicable ex vi Article 29, paragraph 1, letter e), of the LRTA).
Thus, having regard to the positions assumed by the parties, the documentary evidence attached to the file, the following facts listed below were considered proven, with relevance to the decision.
In November 2017, the Claimant was notified of the IRC assessment No. 2017..., accompanied by its respective demonstration of interest assessment No. 2017..., issued in reference to the year 2013, in the total amount of EUR 448.28 and with payment due by 11 December 2017, with the amount being paid by the Claimant on 7 December 2017 – cf. Docs. Nos. 1 and 3 attached with the initial petition.
The IRC assessment was issued by the TA following a tax inspection procedure credited by Internal Service Order No. OI2016..., resulting from the inspection report that the corrections made in respect of IRC for the year 2013 of the Claimant resulted from the "Change of taxation regime for "Groups of Companies" income to "General" with the company being taxed on fiscal results obtained" – cf. Administrative file attached to the proceedings.
In the year 2013, the Claimant was taxed under RETGS, which comprised, in that year, the following companies:
... C... SGPS, S.A. (parent company)
... D..., S.A.
... E..., S.A.
... F..., SGPS, S.A.
... A..., Lda.
... G..., Lda.
... H..., S.A.
Cf. Administrative file attached to the proceedings.
The Claimant was notified, for the exercise of the right to be heard, of the project of corrections of the inspection report, dated 21/08/2017, a right which it exercised on 06/09/2017, in accordance with documents attached with the administrative file.
The Claimant was subsequently notified of the corrections resulting from the inspection action on 18/10/2017 with the report/conclusions relating to the aforementioned service order.
From the report of the tax inspection procedure, the TA concludes that "insofar as company C... SGPS posted fiscal losses in the three periods prior to the beginning of application of the regime, it does not meet the conditions to be considered the parent company of the tax group, by violation of the provisions of letter c) of paragraph 4 of Article 69 of the IRC Code". Cf. Doc. No. 2 attached with the initial petition and administrative file.
The Claimant filed a request for arbitral decision on 12 March 2018.
No other facts with relevance to the decision of the cause were proven, considering the possible legal solutions.
There are no facts given as not proven.
Motivation as to the Substantive Facts
The proven facts, which are not subject to controversy, are based on the documents attached by the Claimant with the request for arbitral decision and the administrative file attached by the Respondent.
2. MATTER OF LAW
2.1. Principal Questions
From what is petitioned by the Claimant, the following substantive questions to be addressed in this proceeding result, which we list below:
The violation of the right to effective judicial protection constitutionally enshrined in Article 20, paragraph 1, of the Constitution of the Portuguese Republic, in the context designated as the "prohibition of defenselessness".
The right to compensatory interest.
It is necessary to decide,
The violation of the "prohibition of defenselessness"
Gonçalo Avelãs Nunes describes as "(…) the principal reason that justifies and recommends the choice of joint taxation of the group of companies in respect of corporate income tax results from the principle of neutrality in the taxation of income from business activity" (Taxation of Groups of Companies by Consolidated Profit in respect of IRC - Contribution toward a New Dogmatic and Legal Framework for its Regime, 2011, pp 54 et seq.).
The regime of joint taxation of groups of companies in respect of IRC offers advantages, in particular, in what concerns the ability to promote "the adoption of the corporate form that best meets the productive needs of the market, by eliminating the disadvantages of non-neutrality of separate taxation", constituting "a useful, valid and appropriate instrument to support the restructuring of companies and the promotion of competitiveness" (op. cit., p. 59).
The tax legislator thus places this regime within the reach of groups of companies, once the legally-required prerequisites are met, allowing the parent company to opt for this type of special regime for determining the taxable matter in relation to all companies of the group (Article 69 of the IRC Code).
Under the terms of Article 70 of the IRC Code, once the option for the fiscal regime is exercised "in respect of each of the taxation periods covered by the application of the special regime, the taxable profit of the group is calculated by the parent company, through the algebraic sum of the taxable profits and fiscal losses determined in the individual periodic declarations of each of the companies belonging to the group, corrected, if appropriate, by the effect of the application of the option provided for in paragraph 5 of Article 67".
As results from the decision of CAAD rendered in the context of proceeding No. 116/2017-T (consulted at www.caad.org.pt) "(…) it is incumbent upon the parent company to file the periodic income declaration relating to the taxable profit of the group determined in accordance with Article 70 (Article 120, paragraph 6, of the IRC Code). (…) where there is a single tax return and there are corrections/alterations to the fiscal results declared by the companies belonging to the group, the taxable profit of the latter must be adjusted accordingly with such corrections/alterations. In fact, both from its theoretical justification and from the legal framework of the respective regime, there results an autonomy of the taxable profit in relation to the individual profits of each subsidiary company.
It thus constitutes a prerequisite in law and fact of the fiscal regime that the parent company has control over the activity and over the profits of the subsidiary companies. On the other hand, notwithstanding that the subsidiary companies maintain their individuality and declarative obligations, they are, truly, a long arm of the parent company, as was established in the Judgment rendered in Arbitral Proceeding No. 10/2012-T".
The Claimant, confronted with an assessment act issued directly against it, and reacting against the same, alleges that it cannot prove the actual fulfillment of the prerequisites upon which the application of RETGS depends, since it lacks legitimacy – both in fact and in law – to discuss whether the parent company met or did not meet the requirements to be part of RETGS in the year in question. Since, according to the position of the Claimant, those prerequisites concern another company – the parent company C... SGPS, S.A., and on the other hand, the legal regime applicable to the concrete case requires that such proof be made by that parent company.
What has, in the view of the Claimant, the assessment issued for an alleged failure to meet, by another entity, a requirement which, in practical (and legal) terms can only be proven by that other company, placing the Claimant in a situation of defenselessness regarding the merits of the question.
Notwithstanding the allegation, it does not stand reason on this point, considering this theoretical-legal basis and the factuality given as proven, we consider that there is no violation whatsoever of the right to effective judicial protection, in any aspect.
On one hand, there is no rule that provides for an autonomous decision on the cessation of RETGS, in an autonomous procedure. What, considering the aforementioned as regards the regime and basis of RETGS and its special character, in the context of the legal regime, since it does not concern third parties properly speaking but companies that would be integrated in a group that opted for RETGS, it is unequivocal that the vicissitudes of the applicability, or non-applicability, of that regime, are also reflected at the group level, particularly through the parent company.
In this way, we are not – and even though the Claimant was notified of the conclusions of the service order – in a situation of legal relationships between third parties.
As results from the Judgment of the Central Administrative Court South, of 23-02-2017, Proc. 05493/12 "(…) the legal and fiscal regime of the group of companies is founded on the so-called theory of unity, in which it is argued in favor of considering, for fiscal purposes, the group of companies as a fictitious legal unit, with the integrated companies ceasing to be different legal subjects, the fruit of the economic unity that brings them together. In that sense, the taxable matter must be calculated jointly, giving rise to a single assessment and eliminating double taxation, with the respective taxable base being determined using two types of operations, namely: a) the elimination of internal operations carried out within the group, with only those carried out with third-party entities being relevant; b) the compensation of losses of the various companies making up the group".
But, beyond that, if on one hand we are not dealing with third parties properly speaking, between the Claimant and the parent company, in the context mentioned, underlying the joint taxation regime, there cannot fail to operate a principle of enhanced collaboration between the parent company and the subsidiaries that is the prerequisite of the regime.
In this way, the material legitimacy of the Claimant would always be safeguarded considering the configuration of the substantive relationship at issue.
On the other hand, and concluding in the same way, there would be nothing limiting the exercise of the right to effective judicial protection that the Claimant alleges to be at issue, since nothing seems to prevent the assessment of the applicable regime from being made in the assessment procedure and the decision of cessation, which would be implicit, which would be challenged with the assessment, in accordance with the principle of unitary challenge under Article 54 of the CPPT.
Thus, for the reasons described, we find no violation of effective judicial protection, in particular as regards the prohibition of defenselessness, and the Claimant's claim is thus inadmissible.
Considering the decision on the merits, the examination of the other questions raised is prejudiced, being unnecessary [Article 130 of the Code of Civil Procedure (CPC)].
IV – DECISION
It is hereby decided by this Arbitral Tribunal:
The request for arbitral decision is declared inadmissible.
The Claimant is condemned to pay the costs of the proceeding.
V – VALUE OF THE PROCEEDING
In accordance with the provisions of Article 306, paragraph 2 of the CPC, Article 97-A, paragraph 1, letter a) of the CPPT and Article 3, paragraph 2, of the Regulations of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 448.28.
VI – COSTS
Under the terms of Article 22, paragraph 4 of the LRTA, the amount of costs is fixed at € 306.00, in accordance with Table I attached to the Regulations of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.
Notify accordingly.
Lisbon, 1 October 2018
The Arbitrator,
Marisa Almeida Araújo
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