CAAD 108/2019-T: SIFIDE Tax Credit Deduction Against Autonomous Taxation in IRC

ARBITRAL DECISION

The arbitrators Counsellor Maria Fernanda Maçãs (presiding arbitrator), Prof. Doctor Vasco Valdez and Dr. Carla Castelo Trindade (associate arbitrators), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Court, hereby agree as follows:

I. REPORT

1. A... SGPS, S.A., legal entity no. ..., with registered office in ..., lot ..., ..., ...-... Lisbon, with share capital of € 15,700,697, hereinafter designated as "A..." or "Applicant", covered by the local peripheral services of the Lisbon Tax Authority and parent company of Group B..., composed, in the fiscal year 2015, by itself and fourteen other companies subject to the Special Regime for Taxation of Groups of Companies ("RETGS"), filed a request for arbitral ruling pursuant to the terms and for the purposes of item a) of no. 1 of article 2 and nos. 1 and 2 of article 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters (hereinafter LRAT), of the decision dismissing the administrative appeal filed by the Deputy Director of the Lisbon Tax Authority on 16.11.2018, which had been filed against the self-assessment of autonomous taxation in CIT for the year 2015, in the amount of € 628,957.68.

2. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Respondent.

2.1. The Applicant did not proceed to nominate arbitrators, therefore, pursuant to the terms of item a) of no. 2 of article 6 of the LRAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, all of whom communicated acceptance of the assignment within the applicable deadline.

2.2. The parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrators, in accordance with the combined terms of article 11, no. 1, items a) and b), of the LRAT and articles 6 and 7 of the Code of Ethics.

2.3. Thus, in accordance with the provisions of item c) of no. 1 of article 11 of the LRAT, the Arbitral Court was constituted on 2 May 2019.

1. To support the request, the Applicant argues, in summary, the following:

A. In the calculation of the tax resulting from the application of the autonomous taxation rates in CIT, the AT's computer system reveals anomalies consisting of the indication of discrepancies ("errors") that prevented the Applicant from recording the value relating to the aforementioned autonomous taxation rates in CIT deducted, within the scope of CIT collection resulting from the application of these rates, of the amounts of tax benefit recognized to the companies of the fiscal group under SIFIDE, which resulted in an excess of tax paid by reference to the fiscal year 2015.

B. The amount of SIFIDE available in the fiscal year 2015 for use by the Applicant at the end of the fiscal year 2015, already after subtracting all consumption incurred to date, amounted to € 7,863,499.12, as certified by Declarations of the SIFIDE Certifying Commission;

C. This amount remained available at the end of the fiscal years 2016 and 2017.

D. Therefore, the Applicant's fiscal group has CIT credits to offset against its collection in an amount far exceeding the autonomous taxation collection in CIT for fiscal year 2015 (€ 628,957.68), and this offset is not permitted by the AT's computer system;

E. Even though the companies comprising the fiscal group at the origin of SIFIDE were not then (or now) entities owing the State and social security any taxes or contributions;

F. Thus, the CIT Model 22 income statement and its articulation with the programming of the AT's computer system prevents the deduction from collection related to the autonomous taxation rates in CIT, recorded in field 365 of section 10 of the Model 22 income statement, of the SIFIDE still to be deducted from CIT collection.

G. Since arbitral jurisprudence qualifies autonomous taxation as CIT, nothing in the law excludes the offset of CIT credits by SIFIDE also to the part of CIT collection produced by autonomous taxation.

H. In the same way that jurisprudence has understood, in an almost unanimous manner, that the CIT collection provided for in article 45, no. 1, item a), of the CIT Code (in force until 2013), comprises, without need for any additional specification, the collection of autonomous taxation in CIT, it should also be understood that the CIT collection provided for in the same Code in article 90, no. 1, and no. 2, items b) and c), in the numbering in force in 2013 covers also the collection of autonomous taxation in CIT.

I. Hence, the denial of the deduction of SIFIDE from CIT collection of autonomous taxation violates items b) and c) of no. 2 of article 90 of the CIT Code (prior to 2010, article 83; and since 2014 items c) and d) of the aforementioned no. 2 of article 90 of the CIRC).

J. As was decided in the arbitral awards rendered in proceedings nos. 769/2014-T, 219/2015-T, 369/2015-T, 370/2015-T, 637/2015-T, 673/2015-T, 740/2015-T, 784/2015-T, 744/2015-T, 775/2015-T, 5/2016-T, 31/2016-T, 576/2016-T and 385/2017-T, as well as affirmed in the dissenting opinion in proceedings no. 697/2014-T.

K. Indeed, the AT itself understands that autonomous taxation is CIT, in order to apply to the collection of autonomous taxation rules applicable to CIT collection, more specifically item a) of no. 1 of article 45 of the CIT Code (in the wording in force between 2010 and 2013; prior to 2010, article 42).

L. And regarding the possibility of offsetting tax credit for tax benefit (SIFIDE) against the collection of autonomous taxation, the CIT Services Directorate ("DSIRC") recently pronounced itself at the request of another taxpayer, having then excluded deductions from the collection of autonomous taxation only with respect to tax credits for international double taxation.

M. Furthermore, the AT's understanding when there is a fiscal group is that what is relevant in autonomous taxation is the perspective of the fiscal group as a whole, as opposed to the perspective of the companies that comprise it, individually considered.

N. To date there are (at least) thirty-nine (39) arbitral decisions concluding on the nature of CIT of autonomous taxation: those rendered in proceedings nos. 187/2013-T, 209/2013-T, 210/2013-T, 246/2013-T, 255/2013-T, 260/2013-T, 282/2013-T, 292/2013-T, 298/13-T, 6/2014-T, 36/2014-T, 37/2014-T, 59/2014-T, 79/2014-T, 80/2014-T, 93/2014-T, 94/2014-T, 163/2014-T, 166/2014-T, 167/2014-T and 211/2014-T, 659/2014-T, 697/2014-T and 769/2014-T, 113/2015-T, 219/2015-T, 369/2015-T, 370/2015-T, 535/2015-T, 637/2015-T, 673/2015-T, 740/2015-T, 744/2015-T, 749/2015-T, 781/2015-T, 784/2015-T, 775/2015-T, 5/2016-T and 578/2016-T.

O. And in proceedings no. 428/2017-T, in which the deduction of tax benefit credits available in fiscal year 2011 (SIFIDE) from the autonomous taxation collection assessed in the now Applicant's sphere in that same fiscal year was at issue, the decision was favorable to it.

P. For its part, the reasons invoked by the AT are unfounded:

a. That autonomous taxation is and is not CIT: being unanimously understood that autonomous taxation is CIT for purposes of article 45, no. 1, item a), as in force until 2013, to claim that it is not for purposes of article 90 of the CIT Code is contradictory;

b. That autonomous taxation is a form of "combating tax evasion": in other situations where this is the case, moreover by analogy (exclusion of costs actually incurred by the company for lacking the requirement of essentiality - article 23 of the CIT Code; additional CIT collection attributable to the list of non-deductibility provided for in article 23-A of the CIT Code, which includes transactions with entities resident in tax havens; additional collection resulting from corrections made in transfer pricing - article 63 of the CIT Code - or in real property transactions - article 64 of the CIT Code; increase in taxable income and any additional collection attributable thereto, as a result of the direct attribution of profits earned by companies domiciled in tax havens - article 66 of the CIT Code), there remains the possibility of using tax benefits;

c. That autonomous taxation is CIT, but the rule of article 90 of the CIT Code does not apply to it: it is that if there is no rule for the assessment of autonomous taxation, it is illegal in light of the provisions of article 8, no. 2, item a), of the General Tax Law ("Are also subject to the principle of tax legality: a) The assessment and collection of taxes, including periods of prescription and lapse;") and are unconstitutional in light of article 103, no. 3 of the Constitution: "No one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not made in accordance with law.";

d. That autonomous taxation does not apply to income and is not a periodic tax: the first assertion is contradictory with the position assumed by the AT in the matter of exclusion as a tax burden in the determination of taxable profit (there, for the AT – and for the courts – the collection of autonomous taxation is still a tax on income [CIT], because it aims to indirectly affect the income that ceased to be determined by the deduction of certain expenses); the second assertion is irrelevant, as nothing relevant derives therefrom for what is discussed;

e. The decision in proceedings no. 697/2014-T (which initiated the minority current favorable to the AT): in addition to the dissenting opinion attached to that proceeding, there were earlier decisions by the same presiding arbitrator with diametrically opposed positions (proceedings nos. 79/2014-T and 95/2014);

f. The amendment introduced to article 88 of the CIT Code (new no. 21) by the State Budget Law (LOE) for 2016 and which was given an interpretative nature (article 135 of that LOE): such allegedly interpretative rule was actually innovative; as the new no. 21 is partly interpretative and partly new, both parts, 1 and 2, of the new no. 21 of article 88 of the CIT Code cannot simultaneously be interpretative of what articles 89 and 90 of the CIT Code provide, in opposite senses. They cannot simultaneously be interpretative in the sense that the CIT of article 89 also includes autonomous taxation (part 1 of no. 21 of article 88), and in the opposite sense that the CIT of article 90, at least that of its no. 2, does not include autonomous taxation; in the new segment there were not even significant arbitral divergences: the intervention of the legislature did not aim to resolve a controversy: it aimed to exclude the strongly majoritarian jurisprudential current; the assignment by the legislature of retroactive effectiveness to a rule, by way of a declaration of its interpretative nature is constitutionally prohibited in Tax Law by no. 3 of article 103 of the Constitution; in the next segment, that the global amount resulting from autonomous taxation assessed in a given year in CIT cannot be deducted from the amounts paid as special installment payment in that same year was declared unconstitutional in Constitutional Court judgment no. 267/2017, of 31 May 2017, to the extent that it was intended to apply to fiscal years prior to 2016; (which was reiterated in Summary Decision no. 11/2018, confirmed in Constitutional Court judgment no. 107/2018); and is equally unconstitutional the addition, also declared "interpretative", which the 2018 State Budget Law introduced in the final part of no. 21 of article 88 of the CIT Code.

Q. It concludes by requesting payment of compensatory interest on € 628,957.68 which should have been reimbursed by 31 August 2016 (cf. article 104, no. 6, of the CIT Code), counted from 1 September 2016 until full reimbursement of that amount of tax (autonomous taxation in CIT) unduly paid.

1. In its reply, the Respondent argued, in summary, the following:

A. Autonomous taxation are, as stated in the arbitral decision of proceedings no. 80/2014-T "supplementary mechanisms of the central axis of CIT, which is to tax profits" and therefore apart from that general tax regime.

B. Its inclusion in the CIT Code did not remove its recognized dual nature, according to which the remaining rules of that Code do not always apply to it.

C. This duality is embodied, notably, in the framework of item a) of no. 1 of article 90 of the CIRC, in separate calculations of their respective collections, by force of compliance with different rules: in one case it is the application of the rate(s) of article 87 of the CIRC to taxable income determined according to the rules contained in chapter III of the Code; in another case, it is the application of the rates to the values of taxable income relating to the different realities contemplated in article 88 of the CIRC.

D. There are, therefore, two distinct calculations that, although processed, pursuant to item a) of no. 1 of article 90 of the CIRC, in the statements referred to in articles 120 and 122 of the same code, are made on the basis of different parameters, since each materializes in the application of its own rates, provided for in articles 87 or 88 of the CIRC, to the respective taxable income determined according to its own rules.

E. Hence it results that the amount calculated pursuant to item a) of no. 1 of article 90 does not have a unitary character, as it comprises values calculated according to different rules, to which are associated also different purposes, therefore the deductions provided for in the items of no. 2 can only be made to the part of CIT collection with which there is a direct correspondence, so as to maintain the coherence of the conceptual structure of the general tax regime.

F. The underlying teleological divergence requires, as was recognized in the decision of proceedings no. 113/2015-T, that an interpretative exercise be carried out in order to determine whether the regime of deductions from CIT collection, as an integral part of the general system of this tax and pre-existing the incorporation into its code of autonomous taxation, also extends to the (multiple) collections of this autonomous taxation.

G. Now, proceeding according to the Applicant's interpretation, then also payments on account, as provided for in no. 1 of article 105 of the CIT Code ("Payments on account are calculated on the basis of the tax assessed pursuant to no. 1 of article 90"), would have to be determined with the inclusion of autonomous taxation, which was never so understood.

H. The conclusion is that the calculation base does not include autonomous taxation because it corresponds to the amount of CIT collection resulting from taxable income that is identified with the profit/income for the fiscal year of the taxpayer – and this should be so both for purposes of no. 1 of article 105, as of no. 2 of article 90 of the CIT Code.

I. The decision of the Constitutional Court in Judgment no. 267/2017 is not opposed to this, as was indeed already understood in proceedings nos. 785/2015-T CAAD and 722/2015-T CAAD.

J. And having the Applicant's arguments already been presented in arbitral proceedings in Cases nos. 603/2014-T, 697/2014-T and 113/2015-T, all decided in favor of the Respondent, albeit the first two concerning the deduction from the collection of the part of CIT produced by autonomous taxation rates (and not to the amounts of special installment payment).

K. The deduction relating to tax benefits (item b) of no. 2 of article 90), when it concerns investment benefits – as is the case with SIFIDE – has underlying the philosophy that the benefit constitutes a prize whose scope varies with the profitability of investments, as the higher the profit/taxable income of CIT, the greater the capacity to make the deduction. There is, therefore, an inseparable link between the amount of the tax credit for investment and the part of CIT collection calculated on taxable income based on profit.

L. Article 4 (Scope of deduction) of SIFIDE provided that "CIT taxpayers resident in Portuguese territory who exercise, as a principal or secondary activity, an activity of an agricultural, industrial, commercial and service nature and non-residents with permanent establishment in that territory may deduct from the amount calculated pursuant to article 90 ° of the CIT Code, and up to its concurrence, the value corresponding to research and development expenses, in the part that has not been subject to financial participation of the State by way of grant, carried out in the taxation periods of 1 January 2011 to 31 December 2015 (…)".

M. Being the credit into which SIFIDE translates deducted only from the collection thus calculated, i.e., from the collection calculated on the basis of taxable income [it is what is provided in article 5, item a), of the law regulating SIFIDE, which expressly prevents that credits resulting therefrom are deducted when the taxable profit is determined by indirect methods].

N. Hence it results that the objectives and philosophy underlying investment tax benefits and, specifically, SIFIDE, are adulterated by admitting that the tax credit be exercised by deduction from the collections of autonomous taxation.

O. From which would result a double contradictory effect: the achievement of the objectives of a tax incentive aimed at the economic development of the country could, in the limit, eliminate the collection resulting from autonomous taxation and foster the incentive to behaviors translated into the realization of expenses that the legislature intended to disincentivize.

P. Supporting the aforementioned understanding is, among others, the arbitral decision rendered in proceedings no. 722/2015-T, which considered the deduction of SIFIDE from the collection of Autonomous Taxation unfounded, regardless of the interpretative character attributed to no. 21 of article 88 of the CIRC.

Q. When it comes to the deductions provided for in no. 2 of article 90 ° of the CIRC the Applicant understands that the expression "amount calculated pursuant to the previous number" should be understood as encompassing, among others, the amount of autonomous taxation, calculated on the basis of the rules provided for in article 88 ° – which would imply that in the calculation base of installment payments defined in no. 1 of article 105 of the CIT Code, and in terms identical to those used in no. 2 of article 90 °, autonomous taxation were included.

R. This is the only interpretation of the expression "amount calculated pursuant to the previous number" consistent with the nature of the deductions referred to in the items of no. 2 of article 90 ° of the CIT Code, relating to:

a. - tax credits for legal and economic international double taxation (current items a) and b));

b. - tax benefits (current item c));

c. - special installment payment (current item d)); and

d. - withholding at source (current item e)),

S. as all respect to income or expenses incorporated in taxable income determined on the basis of the profit of the taxpayer or advance payments of the tax, being therefore entirely alien to the realities that comprise the taxable events of autonomous taxation.

T. As the regime of autonomous taxation has mainly a dissuasive function regarding abusive behavior, this Court does not see what logical reason this dissuasion could thereafter dissipate in favor of a tax benefit, completely subverting the function of these taxes in preventing socially and fiscally undesirable behavior.

U. The interpretation of the law defended by the Applicant degrades the principle of tax equality to a lesser principle of the system and allows that companies that carry out confidential expenses, evasive remuneration practices or operations with offshore territories escape entirely the consequences that the law associates with them, as long as their activity involves significant expenses for research and development (R&D).

V. The rules that govern benefits such as SIFIDE possess an exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality is necessary, adequate and proportionate to the extrafiscal purpose underlying them.

W. Allowing the admissibility of deduction of tax benefits (or special installment payment) from the collection of autonomous taxation, as the Applicant claims, inexorably amputates autonomous taxation from what were the principles and purposes on which its creation by the legislature was based - cf. already decided exhaustively, among others, in proceedings nos. 113/2015-T; 535/2015-T; 639/2015-T; 535/2015-T; 670/2015-T; 722/2015-T; 736/2015-T; 745/2015-T; 746/2015-T; 750/2015-T; 751/2015-T; 752/2015-T; 767/2015-T; 769/2015-T; 780/2015-T; 781/2015-T; 784/2015-T; 784/2015-T; 174/2016-T, all corroborating the thesis defended by the Respondent.

X. To finally resolve the divergent interpretations that have been made, article 233 of Law no. 114/2017, of 29 December (State Budget Law for 2018), amended no. 21 of article 88 of the CIRC, now providing that

"The assessment of autonomous taxation in CIT is carried out pursuant to the terms provided for in article 89 ° and is based on the values and rates that result from the provisions of the preceding numbers, with no deductions being made from the global amount calculated, even if such deductions result from special legislation."

Y. Finally, it opposed the payment of compensatory interest, understanding that, as there was no error by the tax administration in defending the position assumed, it is not due.

1. By Order of 7 June 2019 the holding of the meeting provided for in article 18 of the LRAT was dispensed with, and the date of 2 November 2019 was set for the rendering of the arbitral decision.

2. The parties were notified to submit submissions, and the Applicant, in essence, reiterated its earlier arguments, invoking another arbitral decision (rendered in proceedings no. 319/2018-T) favorable to the deduction of tax benefit credits available in fiscal year 2014 (SIFIDE) from the autonomous taxation collection assessed in its sphere in that same fiscal year.

3. For its part, the AT reiterated its earlier arguments.

II. PRELIMINARY MATTERS

The arbitral tribunal was regularly constituted and is materially competent, as provided for in article 2, no. 1, item a) and 4, both of the LRAT.

The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same statute and articles 1 to 3 of Order no. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities.

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

III. ON THE MERITS

III. 1. Issues to be decided

• Whether or not the tax benefit calculated within the scope of the Tax Incentive System for Research and Development ("SIFIDE") applies to the part of CIT collection produced by the autonomous taxation rates;

Subsidiarily,

• Whether or not autonomous taxation applies to the Applicant.

III. 2. Established Facts

§1. The following facts are considered proven:

1. The Applicant A... SGPS, S.A., legal entity no. ..., is the parent company of the Fiscal Group B..., framed in the Special Regime for Taxation of Groups of Companies ("RETGS").

2. In fiscal year 2015, this group comprised, in addition to the Applicant, the following companies:

▪ C..., S.A. ("C..."), Tax ID...;

▪ D..., SGPS, S.A. ("D... SGPS"), Tax ID…;

▪ E..., S.A. ("E..."), Tax ID...;

▪ F..., S.A. ("F..."), Tax ID...;

▪ G..., S.A. ("G..."), Tax ID...;

▪ D..., S.A. ("D...") Tax ID ... (which in 2009 incorporated by merger the following companies: H..., S.A. Tax ID:...; I..., S.A., Tax ID:...; J..., S.A., Tax ID:...; K..., S.A., Tax ID: ... . And on 28 June 2011, this company changed its name to L..., S.A.);

▪ M..., SGPS, S.A. ("M..."), Tax ID…;

▪ N..., S.A. ("N..."), Tax ID...;

▪ O…, S.A. (":.."), Tax ID…;

▪ P..., S.A. ("P..."), Tax ID...;

▪ Q… Ltd., Tax ID ...;

▪ R..., Ltd., Tax ID ... (which joined the Fiscal Group B... effective from 01.01.2014);

▪ S..., S.A., Tax ID ... (which joined the Fiscal Group B... effective from 01.01.2014);

▪ T..., S.A., Tax ID ... (which joined the Fiscal Group B... effective from 01.01.2015)

1. On 31 May 2016, the Applicant filed the CIT Model 22 statement of its fiscal group for fiscal year 2015, having at that moment proceeded to self-assess autonomous taxation in CIT for that same year 2015, in the amount of € 628,957.68 (cf. field 365 of section 10 of the income statement).

2. The Applicant had an amount of SIFIDE available in fiscal year 2015 for use at the end of fiscal year 2015, already after deducting all consumption incurred to date (i.e., until the last Model 22 statement filed) of € 7,863,499.12, as certified by Declarations of the SIFIDE Certifying Commission.

3. As the AT's computer system did not allow it to record the value relating to the autonomous taxation rates in CIT offset, i.e., deducted, within the scope of CIT collection resulting from the application of these rates, of the amounts of tax benefit recognized to the companies of the fiscal group under SIFIDE, the Applicant filed, on 25 May 2018, an administrative appeal against said self-assessment relating to fiscal year 2015.

4. Consequently, the Applicant was notified, on 25 November 2018, of the dismissal of this appeal by order of the Deputy Director of the Lisbon Tax Authority, dated 16 November 2018.

5. The companies comprising the fiscal group at the origin of SIFIDE were not then (or now) entities owing the State and social security any taxes or contributions.

6. The Applicant proceeded to pay the self-assessment act better identified above, within the voluntary period provided for.

§2. Unproven Facts

With relevance to the decision, there are no facts that should be considered as unproven.

§3. Reasoning for the Determination of Facts

With respect to the factual matter, the Court does not need to pronounce itself on everything alleged by the parties; rather, it has the duty to select the facts that are important for the decision and to distinguish proven facts from unproven facts (cf. article 123, no. 2, of the CPTPT and article 607, no. 3 of the CPC, applicable ex vi article 29, no. 1, items a) and e), of the LRAT).

Thus, the facts pertinent to the judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (cf. former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable ex vi article 29, no. 1, item e), of the LRAT).

Therefore, taking into account the positions assumed by the parties, in light of article 110/7 of the CPTPT, the documentary and testimonial evidence, and the administrative file attached to the record, the following facts were considered proven, with relevance to the decision, those listed above.

Facts that were redundant or incompatible with the facts established as proven were not considered proven or unproven, nor were conclusive statements or legal assertions formulated by the parties.

The facts established as proven were so based on the documents submitted by the parties, on the agreement thereof, and on official information and other documentation in the administrative file.

III.3. MATTERS OF LAW

The Court does not endorse the thesis defended by the Applicant and primarily because it results from a legal interpretation that does not take into account the teleological and rational elements of the figures of autonomous taxation and CIT by admitting that article 4, no. 1 of the respective SIFIDE statute, combined with article 90 ° of the CIT Code, results that the calculation of autonomous taxation is carried out pursuant to article 90 of the CIT Code and therefore tax benefits can be deducted from the amount to be paid of autonomous taxation.

To understand what is being said and, consequently, the reason for the denial of the Applicant's request, we will begin by briefly explaining the structural and dogmatic distinction between the figures of CIT and autonomous taxation. All to then conclude that in the calculation of autonomous taxation no deductions are permitted, being the assessment of autonomous taxation carried out pursuant to articles 88 and 89 of the CIT Code resorting solely to no. 1 of article 90 of the CIT Code for purposes of the assessment procedure. Never to no. 2 and following of article 90 of the Code as these contain instruments applicable only to CIT.

Thereafter, we will advance to the analysis of the SIFIDE regime to conclude that the investment support regimes that are implemented in deductions from CIT collection refer to CIT collection strictly understood for which the determination autonomous taxation does not contribute.

Let us proceed.

Everything begins with the fundamental divergence relating to the nature of autonomous taxation.

Here this Court follows the uniform and reiterated position of both the jurisprudence of the Constitutional Court and the Supreme Administrative Court and of Doctrine.

Autonomous taxation is a tax on expenditure different and distinct from CIT which is, undoubtedly, a tax on income. This is without debating whether autonomous taxation has or does not have similarities with CIT. As regardless of possible similarities there is no doubt that they are different taxes.

This jurisprudence was initiated 7 years ago in the constitutional court with the dissenting vote of Hon. Counsellor Vítor Gomes, attached to Judgment no. 204/2010. In Judgment no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Judgment no. 18/11 approaching the then dissenting vote of Counsellor Vítor Gomes.

This jurisprudence was later reaffirmed by the Plenary, in Judgment no. 617/2012, proceedings no. 150/12, of 31/1/2013 and, recently, in Judgment no. 197/2016, rendered in proceedings no. 465/2015.

In the same sense has proceeded the Supreme Administrative Court as will be confirmed, among others, in Judgment of 21/3/2012, proceedings 830/11, of 21/3/2012.

Doctrine also follows this position.

From Sérgio Vasques, in footnote 60, page 342, of his Manual de Direito Fiscal Almedina, 2015, to Rui Morais in Notes to CIT, Almedina, 2009, pp. 202-203, through Professor Casalta Nabais in his Tax Law, 8th ed., Almedina, Coimbra, 2015, p. 542 and Professor Ana Paula Dourado in Tax Law, Lessons, 2015, pp. 237 et seq. All reiterate the position already supported by Portuguese courts. Autonomous taxation and CIT are different taxes.

This thesis was transposed into law, unequivocally, by the legislature itself when in the amendment made to article 23-A, no. 1, item a), of the CIT Code by Law no. 2/2014, of 16 January, it now provides that "are not deductible for purposes of determining taxable profit" "CIT, including autonomous taxation". What sense would it make to make clear in law that autonomous taxation and CIT are not deductible from taxable profit if autonomous taxation were part of CIT? If so, the Agreements to Avoid Double Taxation would have autonomous taxation included where CIT is referred to, which, as is known, does not occur. This is moreover the reason why Portugal has been including autonomous taxation in the list of taxes covered. Thus, in light of the foregoing, it can from now on be simply concluded that if the tax legislature understood that CIT included autonomous taxation it would not have had the need to distinguish the two realities, as that CIT would necessarily already include autonomous taxation.

And it is not because autonomous taxation is inserted in the CIT Code that the two realities should be confused.

Recall that autonomous taxation was introduced by article 4 of Decree-Law no. 192/90, of 9 June, not being immediately inserted into the CIT Code. The legislature only 10 years after the emergence of autonomous taxation decided to introduce it into the CIT Code through Law no. 30-G/2000 of 29 December. What the legislature sought with this systematic approach was an anesthetic effect, since, notwithstanding the fact that autonomous taxation are assessed independently of CIT, they are self-assessed jointly with the CIT statement, through model 22. On this question the Constitutional Court held, in Judgments nos. 18/2009 and 85/2010, that autonomous taxation could be inserted in any other code or autonomous statute.

And the realities are different from the outset because the objectives are different.

In CIT the aim is to tax income under scrutiny of the principle of capacity to pay.

Whereas autonomous taxation had, at least originally, two very different objectives always under the legitimation of the principle of tax equality.

The first was to tax in the business sphere what cannot be taxed in the personal income tax sphere, and the second to disincentivize the carrying out of certain expenses or certain behaviors. In this regard, Professor Saldanha Sanches even came to state that "In this type of taxation, the legislature seeks to respond to the admittedly difficult question of the tax regime that is found in the zone of intersection of the personal sphere and the business sphere" further adding that in the "designation of 'autonomous taxation', very diverse realities are hidden (...)" (Manual de Direito Fiscal, 3rd edition (2007), Coimbra Publisher, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation "(…) fulfill, in essence, two functions: on one hand, to prevent the erosion of the tax base in CIT, by imposing taxation on charges that may be deducted by CIT taxpayers, but which, being so, transform themselves into an increase in taxation, thus aiming to serve as a disincentive to spending on such charges; other types of autonomous taxation aim, purely and simply, to penalize presumptively evasive or fraudulent behavior of taxpayers, constituting an anti-abuse mechanism.".

Autonomous taxation thus aims to tax a patrimonial advantage obtained, typically through the incurrence of an expense and which translates, consequently, in the reduction of taxable profit. CIT, in turn, aims to tax the actual income of the taxpayer taking into account his capacity to pay.

It should be recalled that it is unanimously accepted both by jurisprudence and by doctrine that the autonomous tax rates of CIT (and PIT) are a single-obligation tax distinct from CIT and PIT themselves, which are successively formed taxes. It should also be recalled that the autonomy of the autonomous rates results from having a taxable event radically distinct from PIT/CIT, from being subject to their own assessment rules, and from serving very specific purposes.

Indeed, the purposes of autonomous taxation are today varied, but, in what they have of greatest importance, it is insisted, they serve to ensure tax equality by ensuring the subjection to tax of values that, being expenses in the business sphere, prefigure income in the sphere of third parties and preventing abusive planning through recourse to tax havens. These objectives are of superlative importance to ensure the fair distribution of income and wealth to which article 103, no. 1, Constitution appeals.

In light of the foregoing it is recalled what was said above: if there are reasons that justify the admission of general deductions from tax collection (CIT), permitted by law by force of the principle of taxation of actual and effective income as an element revealing capacity to pay, the same does not happen in relation to the collection due by autonomous taxation. Deduction from collection is a reality of CIT (and PIT) as a tax legitimized by the principle of capacity to pay. In autonomous taxation, these are not the concerns and the elements that inform the tax. It would even be illogical and, it is risked, contrary to the principle of tax equality, to permit the deduction of charges when such deduction, in practice, would destroy the anti-abuse sense that characterizes them and which summarizes itself to the dissuasion of deviant behaviors that their institution represses or resolves.

In sum, autonomous taxation, which applies to certain expenses, functions differently from what constitutes the essential scope of CIT, which taxes income, and, despite the systematic insertion and functional connection to CIT, the truth is that they are collected within the scope of the assessment process of this tax without, however, becoming mischaracterized and losing their own dogmatic roots.

Attending to the normative provisions nothing is said in the law whether what is in article 90 of the CIT Code, under the heading "Procedure and Form of assessment" applies to both realities – CIT and autonomous taxation – or to only one and which one. However, in the understanding of this Court from a teleological and systematic interpretation of the law it is clear that no. 1 of article 90 - which contains the assessment procedure - applies to both CIT and autonomous taxation. Already no. 2 of the same article – which contains the form of assessment – refers to the cases of taxable income referred to in article 15 of the CIRC, that is to CIT.

To better understand this conclusion it will be necessary to understand that it was established in former no. 6 of article 109 ° of the CIT Code, current article 117 °, that the obligation to file the periodic income statement covers entities exempt from CIT, when subject to autonomous taxation. And for certain purposes – namely for purposes of the deductions provided for in no. 2 of article 90 ° of the CIT Code or the calculation of installment payments or still of the Assessment Result (article 92 °) - it was then left to the care of the interpreter and of the applicator of the law the task of identifying the relevant part of CIT collection. This drawing from the applicable normatives a useful sense, literally possible, which permits a coherent solution and in accordance with the nature and functions attributed to each component of the tax. Well, it is here that caution must be exercised.

When it comes to the deductions provided for in no. 2 of article 90 ° of the CIT Code, the Applicant seems to argue that the expression "amount calculated pursuant to the previous number" should be understood as encompassing the sum of the amount of CIT, calculated on taxable income determined according to the rules of chapter III and at the rates provided for in article 87 ° of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in article 88 °. Now, the result of this interpretation would imply from the outset and in a very simple manner that in the calculation base of installment payments defined in no. 1 of article 105 of the CIT Code, and in terms identical to those used in no. 2 of article 90 °, autonomous taxation were included. Indeed, for the calculation base of installment payments only CIT calculated on the basis of taxable income determined according to the rules of chapter III and the rates of article 87 of the respective Code is considered. And here there is no disagreement either in Doctrine or in jurisprudence. For, it is to be noted that the coherence and adequacy of this understanding is grounded in the very nature of installment payments of the tax due ultimately, which, in accordance with the definition of article 33 ° of the GTL are "advance cash payments that are made by taxpayers in the period of formation of the taxable event", constituting a "(...) form of bringing the moment of collection closer to that of the perception of income so as to fill situations where such approximation cannot be effectively achieved through withholding at source". Therefore, it only makes sense to conclude that the respective calculation base corresponds to the amount of CIT collection resulting from taxable income that is identified with the profit/income for the fiscal year of the taxpayer.

Here, this Court follows what the Respondent argues insisting that the only (and consistent) interpretation of the expression "amount calculated pursuant to the previous number" with the nature of the deductions referred to in the items of no. 2 of article 90 ° of the CIT Code, relating to:

• tax credits for legal and economic international double taxation (current items a) and b));

• tax benefits (current item c));

• special installment payment (current item d));

• and withholding at source (current item e)).

In reality, it is noted that the common feature to all the realities reflected in the deductions referred to in no. 2 of article 90 ° of the CIT Code resides in the fact that they respect income or expenses incorporated in taxable income determined on the basis of the profit of the taxpayer or advance payments of the tax, being therefore entirely alien to the realities that comprise the taxable events of autonomous taxation.

To this Court it appears clear that in the calculation of autonomous taxation no deductions are permitted, being their respective assessment carried out pursuant to articles 88 and 89 of the CIT Code and no. 1 of article 90 of the CIRC. The legislature in no. 2 of article 90 of the CIRC refers to the taxable income contained in article 15 of the same rule. The fact that the assessment procedure provided for in no. 1 of article 90 of the CIT Code also applies to autonomous taxation does not directly and necessarily imply that the same occurs with no. 2 of said article 90 .

Having said this, we must now look at the SIFIDE and RFAI regimes to conclude what was said above, that is, that the investment support regimes that are implemented in deductions from CIT collection refer to CIT collection strictly understood for which the determination autonomous taxation does not contribute. They do not contribute nor could they contribute because even though article 4, no. 1 of the respective statute refers to the amount of tax calculated pursuant to article 90 of the CIT Code it is referring to the amounts calculated pursuant to no. 2 of article 90 of the CIT Code. And in these we have, as we know, the cases of taxable income referred to in article 15 of the same Code, i.e. CIT.

To reinforce this position, one must look at the Report of the Working Group established by Order no. 130/97-XIII of the Ministry of Finance where it can be read that the tax credit or deduction from collection constitutes one of the modes, among those provided for in no. 2 of article 2 ° of the EBF, that have been adopted especially in investment tax incentive measures. And there are fundamentally two reasons: one, linked to the operationality of the benefit through the transparency and simplicity of the calculation of the tax expense associated with it, which, as is known, represents the foregone (CIT) tax revenue; and another, which is related to the philosophy underlying benefits, that is, their indexation to the profitability of the investment according to which "the deduction of a certain percentage of an investment from the collection of a tax on profits only materializes if there is profit, which rewards the profitability of the investment" (Revaluation of Tax Benefits in Cadernos de Ciência e Técnica Fiscal, no. 180, 1998, pp. 46-47).

Now, in light of everything that has been said, and contrary to what is argued by the Applicant, there is no conceptual error nor any contradiction between what has just been expounded and the fact that the SIFIDE and RFAI regimes establish that the same are implemented in deductions from CIT collection of the amount calculated pursuant to article 90 °. This is because despite the SIFIDE article referring to article 90 ° as a whole, it refers to the amount calculated pursuant to no. 2 of article 90 °, and this only applies, as is already known, to CIT.

The deduction relating to tax benefits (item b) of no. 2 of article 90 °), when it concerns investment benefits - as is the case with SIFIDE -, has underlying the philosophy that the benefit constitutes a prize whose scope varies with the profitability of investments, as the higher the profit/taxable income of CIT the greater the capacity to make the deduction. And this is the logic of the SIFIDE tax benefit that justifies and legitimizes the derogation to the principle of tax equality.

SIFIDE II allows companies to obtain a tax benefit, in CIT, proportional to the investment expense in research and development (at the level of processes, products and organizational) that they can evidence, in the part that has not been subject to financial participation of the State by way of grant (Cf Law no. 55-A/2010 of 31 December, Decree-Law no. 82/2013 of 17 June and Law no. 83-C/2013 of 31 December). Specifically, the benefit to be obtained with SIFIDE II translates into the possibility of deducting from CIT collection assessed in the fiscal year, an amount of tax credit that results from the sum of the following items: Base rate: 32.5% of expenses incurred in the fiscal year; Incremental rate: 50% of the increase in expenses incurred in the fiscal year compared to the simple arithmetic average of expenses incurred in the two preceding fiscal years, up to the limit of € 1,500,000. That is, in summary: the values that translate the tax benefit in CIT from SIFIDE are deducted "from the amounts calculated pursuant to article 90 ° of the CIT Code, and up to its concurrence" and in the assessment relating to the taxation period in which the expenses eligible for this purpose are incurred and that, in the absence or insufficiency of collection calculated in those terms, the expenses that cannot be deducted in the fiscal year in which they are incurred "may be deducted up to the 6th immediate subsequent fiscal year".

That is, the legislature of the SIFIDE regime, by making this express reference to the amount calculated pursuant to article 90 ° of the CIT Code, is referring to CIT collection itself for which the determination autonomous taxation does not contribute precisely because they do not enter into the determination of neither taxable profit nor taxable income, and, as a consequence, do not contribute to the assessed CIT.

Thus, there is no conceptual error nor any contradiction between what has been expounded and the fact that the SIFIDE and RFAI regimes establish that the same are implemented in deductions from CIT collection of the amounts calculated pursuant to article 90 ° of the CIT Code, i.e. of CIT. This is because both autonomous taxation and CIT are assessed pursuant to no. 1 of article 90 ° of the CIT Code. However, of the two realities the only one that is capable of deduction from collection – that is of materialization of the benefit, both for literal reasons (because no. 2 of article 90 ° applies only to CIT) and for substantive reasons (the benefit only materializes if there is profit so as to reward the profitability of the investment), is CIT collection which as we have seen is different and distinct from autonomous taxation. The result of autonomous taxation, calculated in an autonomous/independent/separate manner does not contribute to CIT collection, on the contrary, it must accrue to the assessed CIT for purposes of determining the amount to be paid or recovered, which constitutes a result quite different. It should be noted in this regard that autonomous taxation (increased) is due in the case of taxpayers that present fiscal losses.

In light of all the foregoing, and attentive in particular to the nature and reason for being of autonomous taxation, it is not possible to admit the deduction of tax benefits from autonomous taxation collection, under penalty of violation of the principle of tax equality.

Admitting this possibility leads to a taxpayer being able to effect the deduction as SIFIDE (in the case) or other tax benefits such as RFAI to the amount of autonomous taxation incurred on undocumented expenses completely subverting the function of these taxes in preventing or avoiding socially and fiscally undesirable behavior.

Indeed, as the regime of autonomous taxation has mainly a dissuasive function regarding abusive behavior, this Court does not see what logical reason this dissuasion could thereafter dissipate in favor of a tax benefit. This Court does not see how behaviors such as those involving tax havens can be disregarded and benefited by virtue of tax incentives for investment as the present decision points out: This result is at the very least paradoxical.

For here, one must still recall that tax benefits are absolutely exceptional rules in the tax system, insofar as they enclose a derogation to the principle of tax equality, resulting from article 13 ° Constitution. They can therefore only survive a test of unconstitutionality if the derogation they bring to the principle of equality proves necessary, adequate and proportionate to the protection of the extrafiscal purposes at stake, which does not occur in this case.

Such an interpretation of the rules of the CIT Code not only obscures the taxable event and procedure for assessment very characteristic of autonomous tax rates, but above all, such an interpretation of the rules of the CIT Code attributes to the rules of SIFIDE and tax benefits in general a constitutional dignity that they do not possess in confrontation with the principle of tax equality. Interpreted the rules of the CIT Code and SIFIDE in this manner, it seems manifest that the injury they bring to article 13 ° of the Constitution does not prove necessary, adequate nor proportionate to the objective of promotion of science that underlies SIFIDE.

Thus, the Court does not carry out a restrictive interpretation of article 4 of SIFIDE II but only a teleological and systematic interpretation of what is provided for both in SIFIDE and in the CIT Code so as to save the regime from the test of constitutional conformity, namely in what specifically concerns the violation of the principle of tax equality. For we can never forget that the rules that govern benefits such as SIFIDE and RFAI possess an exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality proves necessary, adequate and proportionate to the extrafiscal purpose underlying them.

It is repeated, as recorded in the dissenting opinion, attached to Arbitral Decision no. 5/2016-T, "(…) there is no 'conceptual error nor any contradiction between what has been expounded and the fact that the SIFIDE and RFAI regimes establish that the same are implemented in deductions from CIT collection. By making this express reference the legislature is referring to CIT collection itself for which the determination autonomous taxation does not contribute, precisely because they do not enter into the determination of neither taxable profit nor taxable income, and, as a consequence, do not contribute to CIT collection, not even to assessed CIT or to CIT to be paid/recovered (cf. CASALTA NABAIS, Idem p. 541). The result of autonomous taxation, it is repeated, calculated in an autonomous manner, does not contribute to CIT collection, on the contrary, it must accrue to the assessed CIT for purposes of determining the amount to be paid or recovered, which constitutes a result quite different."

The arbitral understanding now followed is in line with new no. 21 of article 88 ° of the CIRC added by Law no. 7-A/2016, of 30 March, by establishing that to the amount calculated from autonomous taxation no "deductions are made".

Also in this case, the legislature merely adopted, clarifying it, a solution that the courts, with recourse to the applicable rules and by application of the criteria of legal hermeneutics were in a position to extract from the regime to apply, which is all this collective did, in the case at hand.

Now, even without resorting to the interpretative character given by the legislature again to no. 21 of article 88 ° of the CIT Code it is clear that the legislature – which it should be recalled, is always the same, the Assembly of the Republic –, wanted to clarify what moreover already resulted from the law.

In the thesis that this Court endorses, the legislature, by adding this no. 21 to article 88 ° of the CIRC with the content mentioned merely adopted and reinforced the interpretative sense that already resulted from the applicable rules.

Attentive to what has been expounded, it is concluded, in this manner, that the illegality of the deductibility of SIFIDE from autonomous taxation collection, without the need to resort to the interpretative character given in particular to article 135 of Law no. 7-A/2016, of 30 March (State Budget Law for 2016), to no. 21 of article 88 ° of the CIT Code, pursuant to which pursuant to which "the assessment of autonomous taxation in CIT is carried out pursuant to the terms provided for in article 89 ° and is based on the values and rates that result from the provisions of the preceding numbers, with no deductions being made from the global amount calculated."

Finally, as the rules whose unconstitutionality is being questioned are not applied in the case at hand, it ceases to make sense the invoked material unconstitutionalities raised by the Applicant, by violation of the principle of non-retroactivity of law, prohibited by article 103 °, n ° 3, of the Constitution, violation of the principles of separation of powers and independence of the judicial power, as well as violation of the principle of democratic rule of law, principle of separation and interdependence of bodies of sovereignty.

Thus, for the reasons exposed, this Court denies the arbitral request for a declaration of illegality of the self-assessment of CIT, in the part produced by autonomous taxation, with its consequent maintenance in the legal order.

It is equally adjudged unfounded the subsidiary request since, as was demonstrated above, the assessment of CIT relating to 2013, in the part in which it did not permit the deduction from collection produced by autonomous taxation of the tax benefit, now challenged, does not lack a legal basis.

The requests made by the Applicant regarding the refund of amounts paid and the payment of compensatory interest are equally prejudiced.

IV. DECISION

For these reasons, this Arbitral Court adjudges the arbitral requests made to be unfounded, and, consequently, upholds the tax acts that are the subject of the present arbitral action.

V. CASE VALUE

The case value is fixed at € 628,957.68, pursuant to article 97-A, no. 1, a), of the Code of Procedure and Tax Procedure, applicable by force of items a) and b) of no. 1 of article 29 of the LRAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

VI. COSTS

Pursuant to Table I attached to the RCPAT, costs are in the amount of € 9,486.00, at the charge of the Applicant, in accordance with the provisions of articles 12, no. 2, and 22, no. 4, of the LRAT, and article 4, no. 5, of the RCPAT.

Let notice be given.

Lisbon, 19 July 2019

The Presiding Arbitrator

(Counsellor Maria Fernanda dos Santos Maçãs)

The Associate Arbitrator

(Dr. Carla Castelo Trindade)

The Associate Arbitrator

(Prof. Doctor Vasco Valdez, dissenting as per attached dissenting opinion)

Dissenting Opinion

I dissented from the present arbitral decision, maintaining consistency with my favorable vote on the deductibility of SIFIDE (and RFAI) from autonomous taxation that I subscribed to in proceedings no. 497/2018-T, which I hereby reproduce in its entirety.

Furthermore, I refer equally to the dissenting opinion of Professor Dr. Maria do Rosário Anjos, in proceedings no. 406/2018-T, with which I fully agree.

Thus, and in summary, I understand that until the current wording given to no. 21 of article 88 ° of the CIRC, more specifically introduced through Law no. 114/2017, of 29 December, made to address the declaration of unconstitutionality rendered in Judgment no. 267/2017 of the Constitutional Court which had considered that an identical wording to the current one, but with an interpretative nature, was unconstitutional for violating the principle of non-retroactivity of tax law, there was no prohibition whatsoever that SIFIDE could be deducted from autonomous taxation. With the unconstitutionality eliminated, or that is to say, with the fact that the same applies as from 1.1.2018, it becomes clear that it will not be possible to effect deductions of SIFIDE credits or other legal instruments that, designedly, grant tax benefits to autonomous taxation assessed in each year.

Indeed, I find myself in this position as being the one that makes the most sense within the scope of measures that prevent tax evasion. Only that, in my view and without prejudice to better opinion, there was no express rule prohibiting such deduction until recently, so the interpretative route, however brilliant it may be (and this is the case of that developed by my esteemed Colleagues in the present arbitral decision), did not prove sufficient to exclude such deductibility and to consider that the same was illegal.

Lisbon, 12 July 2019

The Arbitrator

(Vasco Valdez)