CAAD 111/2018-T: SIFIDE Tax Credits Deduction Against Autonomous Taxation in IRC – Ruling on Deductibility

ARBITRAL DECISION

The Arbitrators Councillor Maria Fernanda dos Santos Maças (Arbitrator President), João Taborda da Gama and Carla Castelo Trindade, appointed at the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:

I – REPORT

A... SGPS, S.A., taxpayer no. ..., with registered office in ..., ..., ..., ...-... Lisbon, in its capacity as the dominant company of the Special Tax Regime for Groups of Companies ("RETGS") of the fiscal group B..., filed a request for the constitution of an arbitral tribunal, pursuant to article 2, no. 1, paragraph a), and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to examine the legality of the rejection of the gracious appeal against the act of self-assessment of Corporate Income Tax (IRC), relating to the fiscal year 2013, insofar as they do not admit the deduction from the IRC tax collection produced by the autonomous taxation rates of fiscal benefits determined within the scope of the Fiscal Incentive System for Research and Business Development (SIFIDE) in the amount of € 610,499.28.

The request is based on the following grounds:

1. The Applicant held at the end of fiscal year 2013 fiscal credits within the scope of SIFIDE in the amount of € 4,378,295.90.

2. In fiscal year 2013 it was not possible to deduct fiscal credits in the part referring to the IRC tax collection produced by autonomous taxation, resulting in the undue payment of € 610,499.28.

From the applicant's perspective, the amounts paid under autonomous taxation should have been fully offset with the available SIFIDE values.

1. The applicant contends that the collection to be considered for the purposes of processing the IRC tax assessment should also include Autonomous Taxation, regardless of the restrictions imposed by the Tax Authority's information system when completing Model 22 Declaration.

As regards article 88 of the IRC Code, the applicant considers that this provision only refers to the taxpayer, the tax base and the rates to be applied in order to determine the IRC collection under autonomous taxation and contains no provisions relating to the competence, timing and processing of its assessment. Therefore, if the IRC collection resulting from autonomous taxation is not included in article 90, it would have to be concluded that its assessment is, in itself, illegal, by virtue of article 8, no. 2, paragraph a) of the General Tax Law and article 103, no. 3 of the Constitution of the Portuguese Republic.

Consequently, it requests the declaration of illegality of the decision rejecting the gracious appeal and the consequent partial annulment of the IRC assessment relating to 2013 in the part in which it did not allow the deduction from the collection produced by autonomous taxation of the fiscal benefit. It alternatively requests that, should it be understood that article 90 of the IRC Code does not apply to autonomous taxation, the illegality of the assessment of autonomous taxation should be declared (and consequently annulled) due to the absence of legal basis for its implementation (cf. article 8, no. 2, paragraph a), of the General Tax Law, and article 103, no. 3, of the Constitution), with the consequent reimbursement of the same amount and payment of compensation interest from the same date.

The Tax Authority, in its response, considers that the inclusion of autonomous taxation in the IRC Code, by its nature, purpose and autonomous character given the special configuration of the material and temporal aspects of the taxable events, has as a logical consequence the application of the general rules specific to that tax that are not inconsistent with its special form of incidence, conferring a dualistic nature on the normative system of the tax that is embodied in the separate determination of the respective tax collections in accordance with different rules.

There being thus grounds for two distinct calculations, which, although processed in accordance with paragraph a) of no. 1 of article 90, are effected based on the application of different rates to their respective taxable bases which are determined equally in accordance with specific rules.

The assessment of IRC is carried out by applying the rates of article 87 to the taxable basis determined in accordance with Chapter III of the Code, whereas in relation to the assessment of autonomous taxation, various collections are determined in accordance with the rates provided for in article 87, resulting from the provisions of articles 88 and 89, depending on the diversity of facts giving rise to the autonomous taxation assessment, and consequently, one cannot speak of a unitary system of IRC taxation.

And in that sense, the amount determined in accordance with paragraph a) of article 90 of the IRC Code comprises amounts calculated according to different rules, to which different purposes are associated, therefore the deductions provided for in no. 2 of that article can only be made to the part of the IRC collection with which there is direct correspondence.

Otherwise, the deduction of fiscal benefits from the collection resulting from autonomous taxation would have a contradictory effect, allowing the achievement of fiscal incentive objectives to eliminate autonomous taxation in relation to expenses that the legislator intends to discourage.

It concludes for the rejection of the request.

In submissions, the parties reiterated their previous positions.

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

The Applicant appointed an arbitrator, indicating Dr. João Taborda da Gama, in accordance with article 11/2 of the Arbitration Regulation on Taxation Matters (RJAT). Pursuant to no. 3 of the same article, the Respondent indicated as arbitrator Dr. Carla Castelo Trindade.

The arbitrators appointed by the parties were appointed and accepted their duties.

By order of 24-04-2018, and following the request submitted by the arbitrators appointed by the parties that the arbitrator-president be appointed by the Deontological Council, the arbitrator-president was appointed, in accordance with article 6, no. 2, paragraph b), of Decree-Law no. 10/2011, of 20 January, who, within the applicable time limit, also accepted the duty.

On 24-04-2018, the parties were notified of such appointments and did not manifest a desire to challenge any of them.

In accordance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 15-05-2018.

On 11-06-2018, the Respondent, duly notified for this purpose, submitted its response defending itself by way of objection.

Given that in arbitral proceedings the general procedural principles of procedural economy and prohibition of unnecessary acts apply, pursuant to paragraphs c) and e) of article 16 of the RJAT, the meeting referred to in article 18 of the RJAT was dispensed with, as well as the presentation by the parties.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the RJAT.

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

The process is not subject to any nullities.

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

All considered, it is fitting to render judgment.

II. DECISION

A. MATTERS OF FACT

With respect to the matters of fact, the Tribunal does not need to rule on everything alleged by the parties; rather, it is its duty to select the facts relevant to the decision and to distinguish between proven and unproven matters (cf. article 123, no. 2, of the Code of Tax Procedure and Process (CPPT) and article 607, no. 3 of the Civil Procedure Code (CPC), applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT).

Accordingly, the pertinent facts for the judgment of the case are selected and delimited according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable by virtue of article 29, no. 1, paragraph e), of the RJAT).

Therefore, taking into account the positions assumed by the parties, in light of article 110, no. 7 of the CPPT, the documentary evidence and the administrative proceedings attached to the case file, the following facts were considered proven, with relevance for the decision:

• The applicant is a company that integrates and leads the fiscal group B...;

• In its capacity as the dominant company of the group, the Applicant bears responsibility for payment of the tax, in accordance with the current article 115 of the IRC Code;

• The Applicant submitted IRC Model 22 declaration for fiscal year 2013, proceeding with the assessment of autonomous taxation in the amount of € 610,499.28;

• The Applicant held at the end of fiscal year 2013 fiscal credits within the scope of SIFIDE in the amount of € 4,378,295.90;

• From the applicant's perspective, the amounts paid under autonomous taxation should have been fully offset with the available SIFIDE values;

• The Applicant filed a gracious appeal against the assessment of autonomous taxation for the aforementioned fiscal year 2013.

The Tribunal formed its conviction as to the proven facts on the basis of the documents attached to the petition and those contained in the administrative proceedings presented by the Tax Authority with its response.

B. ON THE LAW

The Tribunal does not support the thesis defended by the Applicant 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 IRC, by admitting that it follows from article 4, no. 1 of the respective SIFIDE decree, combined with article 90 of the IRC Code, that the calculation of autonomous taxation is effected in accordance with article 90 of the IRC Code and therefore fiscal benefits can be deducted from the amount to be paid in autonomous taxation.

To understand what is said and, consequently, the reason for the rejection of the Applicant's request, we shall begin by briefly explaining the structural and dogmatic distinction between the figures of IRC and autonomous taxation. All to subsequently conclude that in the calculation of autonomous taxation no deductions are permitted and the assessment of autonomous taxation is effected in accordance with articles 88 and 89 of the IRC Code, using only no. 1 of article 90 of the Code for the purposes of the assessment procedure. Never in accordance with no. 2 and following articles of article 90 of the Code, inasmuch as these contain instruments applicable solely to IRC.

Subsequently, we shall proceed to the analysis of the SIFIDE regime to conclude that investment support schemes that are implemented through deductions from IRC collection relate to IRC collection in the strict sense, for whose determination autonomous taxation does not contribute.

Let us examine this.

Beginning with the (fundamental) divergence regarding the nature of autonomous taxation.

Here, this Tribunal supports the uniform and reiterated position both of the jurisprudence of the Constitutional Court and the Supreme Administrative Court and of Legal Doctrine.

Autonomous taxation is a tax on expenditure different and distinct from IRC, which is, indisputably, a tax on income. This is without discussing whether autonomous taxation has or does not have similar characteristics to IRC. The fact is that regardless of possible similarities, there is no doubt that they are different taxes.

This jurisprudence began seven years ago in the Constitutional Court with the dissenting vote of His Excellency Councillor Vítor Gomes, appended to Decision no. 204/2010. In Decision no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Decision no. 18/11, approaching the then dissenting vote of Councillor Vítor Gomes.

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

The Supreme Administrative Court has proceeded in the same direction, as will be confirmed, inter alia, in the Decision of 21/3/2012, case 830/11, of 21/3/2012.

Legal doctrine also supports this position.

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

This understanding has been followed in various decisions, notably the arbitral decision rendered by the collective presided over by Councillor Carlos Alberto Cadilha within the scope of case no. 7/2018-T of 3 July 2018: "Autonomous taxation, although regulated normatively in the context of a tax on income, is materially distinct from taxation in IRC, insofar as it does not directly affect the taxable profit of the company, but rather certain expenses that constitute, in themselves, a new taxable event (which refers not to the perception of income but to the carrying out of expenses)".

This thesis was transposed into law unequivocally by the legislator itself when the amendment introduced to article 23-A, no. 1, paragraph a), of the IRC Code by Law no. 2/2014, of 16 January, it states that "are not deductible for the purposes of determining taxable profit" "IRC, including autonomous taxation". What sense would it make to make clear in the law that autonomous taxation and IRC are not deductible from taxable profit if autonomous taxation were part of IRC? If that were the case, Double Taxation Avoidance Agreements would have autonomous taxation included where IRC is mentioned, which, as is known, does not happen. That is moreover the reason why Portugal has been including autonomous taxation in the list of taxes covered. Thus, in view of the above, it can be simply concluded that if the tax legislator understood that IRC included autonomous taxation, it would not have needed to distinguish the two realities, for that IRC would already necessarily include autonomous taxation.

And it is not by virtue of autonomous taxation being included in the IRC 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, and was not immediately included in the IRC Code. The legislator only 10 years after the emergence of autonomous taxation decided to introduce it into the IRC Code through Law no. 30-G/2000 of 29 December. What the legislator sought with this approach was an anesthetic effect, since, notwithstanding the fact that autonomous taxation is assessed independently of IRC, it is self-assessed together with the IRC declaration, through model 22. On this matter, the Constitutional Court held in Decisions nos. 18/2009 and 85/2010 that autonomous taxation could be included in any other code or autonomous decree.

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

In IRC, the aim is to tax income under the scrutiny of taxpaying capacity.

Already autonomous taxation had, at least originally, two quite different objectives always under the legitimacy of the principle of tax equality.

The first was to tax in the sphere of companies what could not be taxed in the context of Personal Income Tax and the second was to discourage the carrying out of certain expenses or certain behaviors. On this matter, Professor Saldanha Sanches even went so far as to state that "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime 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 [Manual of Tax Law], 3rd edition (2007), Coimbra Editora, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation "(…) fulfills, essentially, two functions: on the one hand, to avoid erosion of the tax base in the context of IRC, by imposing taxation on expenses that can be deducted by IRC taxpayers, but which, if deducted, transform themselves into an increase in taxation, intending, therefore, to serve as a disincentive to such expenditure; other types of autonomous taxation aim, purely and simply, to penalize presumptively evasive or fraudulent conduct of taxpayers, embodying an anti-abuse mechanism.".

In this sense, the arbitral decision rendered by the collective presided over by Councillor Carlos Alberto Cadilha within the scope of case no. 641/2017-T: "the autonomous taxation rates have the nature of anti-abuse rules and are designed to discourage certain special situations that aim to obtain a reduction of the tax burden through the deduction of costs that are presumed not to be determined by a business reason".

Autonomous taxation aims only at certain expenses typified in tax law, and not at the taxation of business income that has been earned in the respective economic period, aim therefore to tax a patrimonial advantage obtained, generally through the carrying out of such expenses and which consequently translates into a reduction of taxable profit. IRC aims, in turn, to tax the actual income of the taxpayer having regard to its taxpaying capacity.

It should be recalled that it is universally accepted both in jurisprudence and in doctrine that the autonomous rates of IRC (and Personal Income Tax) are a tax of single obligation distinct from IRC and Personal Income Tax themselves, taxes of successive formation. It should also be recalled that the autonomy of the autonomous rates results from their possession of a taxable event radically distinct from Personal Income Tax/IRC, their obedience to specific assessment rules and their service of very specific purposes.

The legislator has been expanding the scope of autonomous taxation, having come to include expenses relating to compensation paid to managers, administrators or directors when they cease functions, and likewise, expenses relating to bonuses and other variable remuneration paid to managers, administrators or directors when these exceed certain thresholds. What is shown to be justified as a way of ensuring "a more just distribution of tax burdens and progressive moralization of companies' remuneration policies".

Indeed, the purposes of autonomous taxation today are varied but, in what is most important about them, let it be insisted, they serve to guarantee tax equality by ensuring the subjection to tax of values that, being expense in the sphere of companies, prefigure income in the sphere of third parties and preventing abusive tax planning through recourse to tax havens. These objectives are of paramount importance for ensuring the just distribution of income and wealth which article 103, no. 1, Constitution appeals to.

In view of the foregoing, if there are reasons that justify the admission of general deductions from the tax collection (IRC), permitted by law by force of the principle of taxation of real and effective income as an element revealing taxpaying capacity, the same does not happen in relation to the collection due by autonomous taxation. Deduction from collection is a reality of IRC (and Personal Income Tax) as a tax legitimized by the principle of taxpaying capacity. In autonomous taxation, these are not the concerns and elements informing the tax. It would even be illogical and, one ventures to say, contrary to the principle of tax equality, to permit the deduction of expenses when such deduction, in practice, would destroy the anti-abuse sense that characterizes them and which amounts to the discouragement of deviant behaviors that its institution suppresses or prevents.

In summary, autonomous taxation, which falls on certain expenses, functions differently from what constitutes the essential purpose of IRC, which taxes income, and, notwithstanding the systematic inclusion and functional connection to IRC, the truth is that they are levied in the context of the IRC assessment process without, however, losing their character and abandoning their own dogmatic roots.

Having visited the theoretical substratum, let us now look at the law.

Nothing is stated in the law as to whether what is contained in article 90 of the IRC Code, under the heading "Procedure and Form of Assessment" applies to both realities – IRC and autonomous taxation – or to one only and which one. However, in the understanding of this Tribunal, a teleological and systematic interpretation of the law makes it clear that no. 1 of article 90 - which contains the assessment procedure - applies both to IRC and to autonomous taxation. Already no. 2 of the same article – which contains the form of assessment – refers to cases of the taxable basis referred to in article 15 of the IRC Code, that is, to IRC.

To better understand this conclusion it will be necessary to understand that it was established in the then no. 6 of article 109 of the IRC Code, current article 117, that the obligation to submit a periodic income declaration covers entities exempt from IRC, when they are subject to autonomous taxation. And for certain purposes – namely for the purposes of the deductions provided for in no. 2 of article 90 of the IRC Code or the calculation of advance payments or still the Result of Assessment (article 92) - it was left to the care of the interpreter and applicant of the law the task of identifying the relevant part of the IRC collection. This by extracting from applicable provisions 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 then, this is where caution must be exercised.

When it comes to the deductions provided for in no. 2 of article 90 of the IRC Code, it seems the Applicant contends that the expression "amount determined in accordance with the preceding number" should be understood as encompassing the sum of the amount of IRC, determined on the taxable basis 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 immediately and in a very simple way imply that in the calculation basis of advance payments defined in no. 1 of article 105 of the IRC Code, and in terms identical to those used in no. 2 of article 90, autonomous taxation would be included. Indeed, for the calculation basis of advance payments only IRC determined on the basis of the taxable basis 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 should be emphasized that the coherence and suitability of this understanding is grounded in the very nature of advance payments of the tax due in the end, which, in accordance with the definition of article 33 of the General Tax Law are "pecuniary advances 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 in which this bringing closer cannot be effectuated through source withholdings". Therefore, it only makes sense to conclude that the respective calculation basis corresponds to the amount of the IRC collection resulting from the taxable basis which is identified with the profit/income of the taxpayer's fiscal year.

Here, this Tribunal supports what the Respondent contends, insisting that the only (and consistent) interpretation of the expression "amount determined in accordance with the preceding number" with the nature of the deductions referred to in the paragraphs of no. 2 of article 90 of the IRC Code, relating to:

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

• fiscal benefits (current paragraph c));

• special advance payment (current paragraph d));

• and source withholdings (current paragraph e)).

In reality, it is noted that the common thread to all the realities reflected in the deductions referred to in no. 2 of article 90 of the IRC Code lies in the fact that they concern income or expenses incorporated in the taxable basis determined on the basis of the taxpayer's profit or advance tax payments, being, therefore, entirely unrelated to the realities that make up the taxable events of autonomous taxation.

And it is said thus because for this Tribunal it is clear that the assessment to which the legislator intended to refer in no. 2 is to the taxable basis referred to in article 15 of the IRC Code. Or stated otherwise, the "original sin", never well resolved it is true, lies in the fact that (having to) understand, interpreting teleologically and systematically the law, that no. 1 of article 90 applies to autonomous taxation, a situation that remains even with the most recent amendment which only established that there will be no deduction from the amount of assessment resulting from autonomous taxation.

Therefore, in the calculation of autonomous taxation no deductions are permitted and the assessment of autonomous taxation is effected in accordance with articles 88 and 89 of the IRC Code and no. 1 of article 90 of the Code. Never in accordance with no. 2. The provision of no. 2 of article 90 applies to the only tax whose operation and theoretical-constitutional substratum permits its application – IRC. The assessment procedure provided for in no. 1 of article 90 of the IRC Code also applies to autonomous taxation. However, saying this does not mean accepting that the same applies to no. 2 of the same article. No. This provision applies solely to IRC.

Given this, we must now look at the SIFIDE regime to conclude what was said above, that is, that investment support schemes that are implemented through deductions from IRC collection relate to IRC collection in the strict sense, for whose determination autonomous taxation does not contribute. It does not contribute nor could it contribute because although article 4, no. 1 of the respective decree, refers to the amount of tax determined in accordance with article 90 of the IRC Code, it is referring to amounts determined in accordance with no. 2 of article 90 of the IRC Code. And in these we have, as we know, cases of the taxable basis referred to in article 15 of the same Code, i.e. IRC.

To reinforce this position one must look at the Report of the Working Group constituted 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 modalities, among those provided for in no. 2 of article 2 of the Fiscal Benefits Statute, that have been adopted above all in fiscal incentive measures for investment. And there are fundamentally two reasons: one, linked to the operability of the benefit through the transparency and simplicity of calculating the tax expenditure associated with it, which, as is known, represents the (IRC) foregone fiscal revenue; and another, which is linked to the philosophy underlying the 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 is effectuated if there is profit, which rewards the profitability of the investment" (Reassessment of Fiscal Benefits in Cadernos de Ciência e Técnica Fiscal [Tax Science and Technique Papers], no. 180, 1998, pp. 46-47).

SIFIDE II allows companies to obtain a fiscal benefit, in the context of IRC, proportional to investment expenditure in research and development (at the level of processes, products and organizational) that they are able to evidence, in the part that has not been subject to financial participation of the State as a gift (See 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). Concretely, the benefit to be obtained with SIFIDE II translates into the possibility of deducting from the IRC collection determined 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, or that is to say in summary: the values that translate the fiscal benefit in the context of SIFIDE are deducted "from amounts determined in accordance with article 90 of the IRC 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 determined in such terms, the expenses that cannot be deducted in the fiscal year in which they are incurred "may be deducted up to the 6th immediate fiscal year".

That is, the legislator of the SIFIDE regime, in making this express reference to the amount determined in accordance with article 90 of the IRC Code, is referring to the IRC collection proper for whose determination autonomous taxation does not contribute precisely because they do not enter into the determination of either taxable profit or the taxable basis, and, as a consequence, do not contribute to the assessed IRC.

It is perceptible that, although the SIFIDE article refers to article 90 as a whole, it refers to the amount determined in accordance with no. 2 of article 90, and this only applies, as is already known, to IRC.

The deduction relating to fiscal benefits (paragraph b) of no. 2 of article 90), when it comes to investment benefits - as is the case with SIFIDE -, has underlying the philosophy that the benefit constitutes a reward whose amplitude varies with the profitability of investments, because the higher the profit/taxable basis of IRC, the greater the capacity to effectuate the deduction. And this is the logic of the SIFIDE fiscal benefit that justifies and legitimizes the derogation from the principle of tax equality.

Thus, there is no conceptual error nor any contradiction between what has just been stated and the fact that the SIFIDE regime establishes that these are implemented through deductions from the collection of amounts determined in accordance with article 90 of the IRC Code, i.e., IRC. It is because in the understanding of this tribunal both autonomous taxation and IRC are assessed in accordance with no. 1 of article 90 of the IRC Code. However, of the two realities, the only one that is capable of deduction from collection – that is, of implementation of the benefit is, both for literal reasons (because no. 2 of article 90 applies solely to IRC) and for material reasons (the benefit only materializes if there is profit so as to reward the profitability of investment), is the IRC collection which as we have seen is different and distinct from autonomous taxation. The result of autonomous taxation, determined autonomously/independently/separately, does not contribute to the IRC collection, on the contrary, it must increase the assessed IRC for the purposes of determining the amount to be paid or recovered, which embodies a quite different result. Note in this regard that autonomous taxation (aggravated) is owed from the start in the case of taxpayers who present fiscal losses.

In view of all the foregoing, and having particular regard to the nature and raison d'être of autonomous taxation, it is not possible to admit the deduction of fiscal benefits from autonomous taxation collection, under penalty of violating the principle of tax equality.

Admitting this possibility leads to a taxpayer being able to effectuate a deduction by way of SIFIDE or other fiscal benefits to the amount of autonomous taxation affecting expenses that are not documented, completely subverting the function of such taxation in the prevention or avoidance of fiscally and socially undesirable behaviors.

Indeed, given that the regime of autonomous taxation, especially, has a discouraging function of abusive behaviors, this Tribunal does not see what logical reason that discouragement could then dissipate in favor of a fiscal benefit. One does not see how behaviors such as relations with tax havens could be disregarded and taken advantage of in function of fiscal benefits for investment, which will happen if deduction from the autonomous taxation collection is permitted, fiscal incentives such as pointed out in the present decision: This result is at the very least paradoxical. It would be admitting that fiscal credits resulting from incentive or fiscal benefit could neutralize the sanctionary effect of autonomous taxation, distorting the very concept of fiscal benefit and the principles of taxpaying capacity and just apportionment of the tax burden.

For here there is yet to be recalled that fiscal benefits are absolutely exceptional rules in the tax system, insofar as they contain a derogation from the principle of tax equality, resulting from article 13 Constitution. They can only survive, therefore, a test of unconstitutionality if the derogation that they bring to the principle of equality proves necessary, adequate and proportionate to the protection of the extrafiscal purposes in play, which is not the case here.

Such an interpretation of the norms of the IRC Code not only obscures the taxable event and assessment procedure very particular to autonomous taxation rates, but above all, such an interpretation of the norms of the IRC Code attributes to the rules of SIFIDE and to fiscal benefits in general a constitutional dignity that they do not possess in confrontation with the principle of tax equality. The norms of the IRC Code and SIFIDE interpreted in this way, it seems manifest that the violation they bring to article 13 of the Constitution is not shown to be necessary, adequate or proportionate to the objective of promotion of science that underlies SIFIDE.

Thus, the Tribunal carries out not a restrictive interpretation of article 4 of SIFIDE II but only a teleological and systematic interpretation of what is provided both in SIFIDE and in the IRC Code in order to save the regime from the test of constitutional conformity, namely specifically with respect to the violation of the principle of tax equality. For we can never forget that the rules governing benefits such as SIFIDE have 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.

It is therefore not worth engaging in the discussion, for being irrelevant, of knowing whether we are or are not in the presence of a fiscal benefit whose justification is legislatively considered more relevant than the obtaining of fiscal revenues. Of course we are, otherwise the SIFIDE regime would not have been approved. The question is that of knowing what fiscal revenue was ceded in function of investment? Revenue arising from a tax that admits deductions and that obeys the principle of taxpaying capacity and that rewards whoever invests, but whoever generates tax admitting that whoever obtains more profit can invest more. Or what was intended (and admitted) was to cede revenue arising from a tax on expenditure that under the auspices of the principle of tax equality obliges whoever has deviant behaviors – such as payment with allowances or representation expenses, or even payments to entities resident in tax havens – stops paying that tax by virtue of having investment expenditure?

There is no doubt that it was the first.

So much so that the amendment introduced by the State Budget Law for 2018 amended the wording of article 88 of the IRC Code to the effect that no deductions are made from the amount due in autonomous taxation even if these arise from special legislation such as SIFIDE. Now, even without resorting to the interpretive character given by the legislator again to no. 21 of article 88 of the IRC Code, it is clear that the legislator – who recall it is always the same, the Parliament –, intended to elucidate what moreover already resulted from the law.

And until here, if there was no signal, neither in Law no. 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that with the addition in article 88 of the IRC Code of a general norm prohibiting deductions from the overall amount determined of autonomous taxation, it was intended to restrictively interpret the expression "deduct from the amount determined in accordance with article 90 of the IRC Code" which appears in a special norm of a separate decree, as is SIFIDE II, it is now clear with the new wording of no. 21 of the article that no deductions are permitted to the autonomous taxation collection even if these arise from special legislation.

In the thesis this Tribunal supports, the legislator, in adding this no. 21 to article 88 of the IRC Code, with the mentioned content, merely adopted and reinforced the interpretive sense that already resulted from the applicable norms.

Given the above, it is concluded in this way that the deductibility of SIFIDE from autonomous taxation collection is illegal, without need to resort to the interpretive character given in particular to article 135 of Law no. 7-A/2016, of 30 March (State Budget for 2016), to no. 21 of article 88 of the IRC Code, according to which the assessment of autonomous taxation in IRC is effected in accordance with the provisions of article 89 and is based on the values and rates that result from the provisions of the preceding numbers, and no deductions are made from the overall amount determined.

Finally, not being applied in the present case the norms whose unconstitutionality is being questioned, it ceases to make sense the invoked material unconstitutionalities raised by the Applicant, by violation of the principle of retroactivity of law, prohibited by article 103, no. 3, of the Constitution, violation of the principles of separation of powers and independence of the judiciary, as well as violation of the principle of democratic rule of law, principle of separation and interdependence of sovereign bodies.

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

It is also judged the alternative request to be without merit, inasmuch as, as was demonstrated above, the 2013 IRC assessment, in the part in which it did not allow the deduction from the collection produced by autonomous taxation of the fiscal benefit, now being challenged, does not lack a legal basis.

C. DECISION

Accordingly, this Arbitral Tribunal judges the arbitral requests made to be without merit and, consequently, maintains the tax acts subject to the present arbitral action.

D. Value of the Case

The value of the case is fixed at € 610,499.28, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Let it be notified.

Lisbon, 10 January 2019

The Arbitrator President

(Councillor Maria Fernanda dos Santos Maças)

The Arbitrator Member

(João Taborda da Gama –
Dissenting. I would have judged the requests with merit, in accordance with, in particular, the decision in Case no. 428/2017-T, which I subscribed to, and to whose reasoning I refer)

The Arbitrator Member

(Carla Castelo Trindade)