Autonomous Taxation in IRC and Special Payment on Account (PEC) Deduction – CAAD Case 113/2015-T

Arbitral Decision

The arbitral tribunal operating with a sole arbitrator constituted at the CAAD – Administrative Arbitration Centre pursuant to the legal regime established by Decree-Law No. 10/2011 of 20 January[1], to which was appointed by the respective Ethics Council, the arbitrator from the Centre's list Nuno Maldonado Sousa, hereby elaborates his arbitral decision.

1. Report

2. Constitution of the arbitral tribunal

A..., S.A., a legal entity number ..., with registered office at Rua..., ..., ..., ...-..., ... with share capital of €10,269,840.00, filed a request for constitution of the arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of the RJAT and articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, in which the Tax and Customs Authority[2] is the respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 19-02-2015 and was notified to the Tax Authority on 02-03-2015.

In accordance with the provisions of article 6, no. 1 and article 11, no. 1, para. b) of the RJAT, the Ethics Council appointed as arbitrator of the sole arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period, and notified the parties of this appointment on 15-04-2015. In accordance with the rule contained in article 11, no. 1, para. c) of the RJAT, the arbitral tribunal was constituted on 30-04-2015. On 30-10-2015 this arbitral tribunal extended the time limit for issuance and notification to the parties of the arbitral decision by 2 months, pursuant to article 21-2 of the RJAT.

3. The Applicant's request

In its Initial Petition the Applicant petitioned:

(i) The declaration of illegality of the self-assessment act of Corporate Income Tax relating to the financial year 2011, on the grounds that there was not deducted from the Corporate Income Tax collection produced by the autonomous taxation rates in the amount of €40,548.46, sums which it paid as special payment on account in the context of Corporate Income Tax;

(ii) The reimbursement of that tax improperly assessed and paid, plus interest accrued from 31-05-2012.

The Applicant bases its request on the conceptual construction it makes regarding autonomous taxation in Corporate Income Tax, which it considers to have the nature of true tax on corporate income, relying on the conception of the concept that has been established by the courts. The Applicant further bases its position on the interpretation it itself makes of information provided by the Tax Authority regarding questions with common substance.

In summary, the Applicant intends that the satisfaction of the Corporate Income Tax amount for the financial year 2011 be provided by the force of its special payments on account, which it made in the financial years 2007 and subsequent years (19º RI), and should not pay the amount determined in the self-assessment made using the Tax Authority's computer system, which does not provide for this operation.

4. The position of the Tax Authority

The Tax and Customs Authority presented its Response[3] sustaining the legality of the assessment and defending the lack of merit of the request and its grounds, understanding that the amounts constituting special payment on account are deducted from the amounts determined pursuant to article 90-1 of the CIRC and in this rule autonomous taxation rates are not included, the determination of which is also made separately. It adds that autonomous taxation rates should not be considered for the purposes of the deductions referred to in article 90-2 of the CIRC, as the Applicant intends. It concludes by defending its dismissal from the requests.

5. Procedure instruction and arguments

In a petition filed on 13-07-2015 the Tax Authority and the Applicant waived the holding of a meeting of the arbitral tribunal with the parties, foreseen in article 18 of the RJAT, as there was no controversy regarding the factual matter, making unnecessary the production of evidence other than the documentary evidence contained in the case file. The administrative file was attached by the Tax Authority on 20-07-2015.

The Applicant and the Tax Authority agreed in written form for the arguments, which they presented, reiterating the positions assumed in the pleadings.

6. Consolidation

The arbitral tribunal was regularly constituted and has competence ratione materiae pursuant to the rules of article 2, no. 1, para. a) of the RJAT.

The parties are holders of legal personality and capacity (that of the Tax Authority pursuant to the discipline contained in article 4, no. 1 of the RJAT and 10, no. 2 of the same statute and article 1, para. a) of Ordinance No. 112-A/2011 of 22 March), are legitimate and are regularly represented.

There are no nullities that vitiate the proceedings.

Thus, there is no obstacle to the tribunal's consideration of the merits of the case, and it is incumbent to decide.

7. Decision

8. Factual matter

8.1.1. Facts considered proven

The following facts were established in this case:

A. The Applicant submitted on 28 May 2012 its Corporate Income Tax declaration Form 22 relating to the financial year 2011. [2º and 14º RI; RI: doc. 1]

B. In the income declaration "Corporate Income Tax, form 22" for the financial year 2011 the Applicant determined a loss for tax purposes in the amount of €1,363,927.76 and determined autonomous taxation rates which were reflected in the total amount payable in the amount of €40,548.46. [15º RI; RI: doc. 1]

C. On 31-05-2012 the Applicant made payment of the amount determined in the self-assessment of Corporate Income Tax for the financial year 2011 in the amount of €40,548.46. [15º RI; RI: doc. 4]

D. The Applicant made special payments on account of Corporate Income Tax relating to the following financial years, in the amounts indicated: [16º RI; RI: doc. 6]

E. On 28 May 2014 the applicant filed an administrative appeal against the self-assessment of Corporate Income Tax relating to the financial year 2011 and on 4 December 2014 was notified of the dismissal of that appeal. [3º and 4º RI; RI: docs. 2 and 3]

8.1.2. Facts considered not proven

No other facts of interest to the decision of the case were alleged.

8.1.3. Reasoning of the proven factual matter

The tribunal's conviction was based on the documentary evidence contained in the case file and on the position taken regarding each fact by the parties in the pleadings, duly identified.

9. Legal matter

9.1.1. Fundamental issue: the deductibility of PEC in Corporate Income Tax resulting from autonomous taxation rates

The fundamental question to which this decision must respond is whether the sums paid as special payment on account can be deducted from the tax on corporate income resulting from the application of autonomous taxation rates.

By comparing the abundant case law referenced by the Applicant, there is indeed a guiding principle that must be highlighted and which coincides with what this arbitral tribunal adopts: the tax calculated by application of the autonomous taxation rates regulated in article 88 of the CIRC is also tax on corporate income, i.e., the tax on corporate income includes autonomous taxation rates. Should there be any doubt, the current wording of article 23-A CIRC would dispel it.

But if this recognition may be a starting point, the solution of the case sub judicio requires that one goes somewhat deeper and ascertains what is the regime applicable to Corporate Income Tax calculated through autonomous taxation rates. It is believed that this matter has also been dissected and clearly affirmed in the courts; the discipline of the tax calculated through autonomous taxation rates is that which governs the tax in general, save in situations where its application conflicts with the discipline that is specified for "autonomous taxation rates". The general regime of Corporate Income Tax is thus applicable to them, namely what is applicable to "time limits for filing of declarations, competence for assessment, credit privileges, means of challenge, etc."[4]. It is clear that it will be necessary to verify case by case which rules are applicable in practice and to ascertain any conflicts; this will be done hereinafter.

It is important first to determine what are these conflicts that result from the application of the general regime of Corporate Income Tax to the discipline of "autonomous taxation rates". As is known, the tax on corporate income was born inciding objectively on taxable profit, corresponding to this to the difference between net assets at the end and at the beginning of the taxation period (see §5 of the preamble to the CIRC). To determine this taxable profit, recourse was favoured to accounting, whose techniques and concepts were considered suitable means for this purpose. It is thus that in the original conceptual structure of Corporate Income Tax, the determination of taxable profit takes as its starting point the result of the financial year obtained through the technical rules of accounting, subsequently introducing some corrections of positive or negative significance, so that this final result corresponded to taxable profit, i.e., to the real income that was intended to be taxed (see §10 of the preamble to the CIRC). It is this guiding principle that has expression in article 17-1 of the CIRC which states that taxable profit "consists of the algebraic sum of the net result of the financial year and the positive and negative variations in assets verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected pursuant to this Code". These corrections "to be deducted" or "to be added" to the net result of the financial year determined by the accounting method, provided for in the CIRC, were of diverse nature. Among these corrections were not found "autonomous taxation rates".

The tax was then calculated by applying the general rate of 36.5% to the taxable profit of entities with effective management or permanent establishment in Portuguese territory (article 69 CIRC.1989). The assessment was made, in terms analogous to those currently in force, through the following steps (71-1 and 2 CIRC.1989): (i) determination of the taxable matter in the annual declaration, taking as its starting point the accounting result of the financial year, through the corrections "to be deducted" and "to be added"; (ii) determination of the tax due by application of the applicable rates; (iii) deductions corresponding to the economic double taxation of distributed profits and international double taxation and relating to the collection of municipal tax, to tax benefits and relating to withholdings at source. Of course, the treatment to be given to "autonomous taxation rates" was neither regulated nor could it regulate, which did not form part of the system, which was conceived in this simple structure: take as the starting point the accounting result (17-1 of the CIRC.1989), correct it so as to reflect the income that is intended to be taxed through rules qualitatively similar to those that applied in the official accounting plan then in force (article 18 et seq. CIRC.1989), apply the general rate (69-1 CIRC.1989) and to the product thus obtained make the deductions of the taxation that had been borne in some way or would have to be borne through another tax system (71-2 CIRC.1989).

It remains to be seen how "autonomous taxation rates" were inserted into this system.

The introduction in the complex of taxes on income of the application of autonomous taxation rates was made through Decree-Law No. 192/90 of 9 June, which stipulated that undisclosed or undocumented expenses should be taxed autonomously in Personal Income Tax and Corporate Income Tax, as the case may be, at a rate of 10%" (article 4 of the cited Decree-Law). To understand what this new rate constituted, it is necessary to note some peculiarities of the amendment: (i) article 25 of Law No. 101/89 of 29 December[5], which contains the respective legislative amendment, although bearing the heading Tax on Corporate Income (Corporate Income Tax) and in its no. 1 provides for amendments to the CIRC, conceived from the outset this new figure in an extraordinary manner relative to the structure provided for in the CIRC, choosing not to consider it ab initio as an amendment to the Code; (ii) although Decree-Law 192/90[6] justifies in its preamble the amendments it introduces to the CIRC, it presents no grounds for the new discipline it regulates in its article 4, to apply independently of the Code; (iii) the burden of undisclosed or undocumented expenses that come to be taxed autonomously in Corporate Income Tax at a rate of 10%, did not prejudice the treatment that the CIRC imposed for this type of expenses in its article 41-1-h).

All elements indicate that the introduction of the method of taxing expenses in Corporate Income Tax constituted initially an extraordinary measure, outside the conceptual structure of the Corporate Income Tax, created to honour the principle of taxation on balanced real income through codified corrections. Said autonomy of this rate thus appears with great intensity; although it is undeniably considered that its product is tax on corporate income, it is no longer the income that is directly taxed (as the Corporate Income Tax regulated) but rather expenses. The intent to combat the accounting of undisclosed expenses appears here quite evident, in contrast with the objectives proper to the CIRC.

The regime instituted by Decree-Law 192/90 was successively updated in the laws that approved the State Budgets in the chapter where direct taxes are addressed, under the heading "undisclosed or undocumented expenses" but no longer in subordination to the Corporate Income Tax, which is the subject of treatment in independent articles. These updates consisted of the progressive increase of the rate at which those expenses were taxed autonomously. The rates assumed were 25% in the period 1995-1996 (article 29 of Law No. 39-B/94 of 27 September[7]), 30% in 1997-1998 (article 31 of Law No. 52-C/96 of 27 December[8]) and 32% in 1999 and 2000 (article 31 of Law No. 87-B/98 of 31 December[9] for 32%). This first regime of "autonomous taxation rates" was ultimately repealed on 01-01-2001 (articles 7-11 and 21-2 of Law No. 30-G/2000 of 29 December).

As an approach to the first objective outlined - determining what are the conflicts that result from the application of the general regime of Corporate Income Tax to the discipline of "autonomous taxation rates" - one can take as a starting point that the general regime of Corporate Income Tax intended to tax the real income of legal entities; the regime of "autonomous taxation rates" in the period between 1990 and 2000 intended to prevent undisclosed and undocumented expenses. The system constituted by the rules of the CIRC is to be directed, prima facie, towards the said purpose. Now as "autonomous taxation rates" are entirely extraneous to the pursuit of the conceptual objective of the CIRC, it is necessary to conclude that there will be situations in which the general rules will not be suitable to regulate the situation, because they pursue a different purpose. It is precisely in these situations in which the pre-existing rules of the CIRC contribute to the determination of real income, that their inadequacy to govern the "autonomous taxation rates" will be verified. In these cases of dissonance there are those conflicts that are important to resolve.

These conflicts result and are resolved through normative interpretation. Fundamentally it will be necessary to resolve the apparent conflict when the legislative thinking underlying the norm of the general regime of the tax on one hand and the norm special that regulates autonomous taxation on the other hand is not reconcilable, i.e., from its application one will achieve a purpose not pursued by the norm in question.

This conflict in the purposes to be achieved by each of the norms is evident at the moment when the so-called "autonomous taxation rates" were introduced in the Portuguese tax system. In its genesis the taxation of undisclosed and undocumented expenses appears with total autonomy vis-à-vis the Corporate Income Tax – it is regulated outside the CIRC and will use only its formal rules that do not prejudice the ratio legis[10] of the norm of article 4 of Decree-Law 192/90, which was the combat against this type of expenses. It appears clear in light of these commands that in the period 1990-2000 it was not conceivable to use potential tax credits to satisfy the obligation to pay tax determined on this basis, under penalty of perverting the intent of the law.

In a second stage "autonomous taxation rates" were introduced in the 2001 reform of income taxation. This reform was undertaken through Law No. 30-G/2000 of 29 December, which through its article 5 introduced amendments to the Corporate Income Tax, especially at the level of exemptions of public legal entities (article 8), of fiscally deductible provisions (article 32), of costs with socially useful undertakings (article 38), of the enumeration of non-deductible expenses for tax purposes (article 41), of the concept of losses and gains and their reinvestment (articles 42 and 44), of the elimination of economic double taxation of distributed profits (article 45), of the deduction of fiscal losses (article 46), of transfer pricing (article 57) of the regime applicable to non-residents subject to a privileged tax regime (articles 57-A to 57-C), to the taxation of groups of companies (articles 59 to 60), of the concept of permanent establishment (article 4-A) and of the simplified regime for determination of taxable profit (article 46-A) and various declarative obligations, without introducing substantive changes to the philosophy of the Corporate Income Tax. In its general line of orientation the post-reform Corporate Income Tax maintained the principles that are at its genesis; start from the accounting result and correct it in accordance with the established rules, now perfected by the experience of 12 years, to reach taxable profit.

Regarding what has been examined, the Corporate Income Tax resulting from the reform came to contain in its article 69-A, with the heading "Autonomous taxation rate", where it regulated that undisclosed or undocumented expenses (no. 1) and representation expenses and charges relating to light passenger vehicles, leisure boats, tourist aircraft, motorcycles and motor scooters (no. 2), came to be taxed autonomously at the rates, respectively, of 50% and 20%. Regarding the past regime of Decree-Law 192/90 there is only to note (i) that the burden with the "autonomous taxation rate" came to cover also representation expenses and charges relating to leisure vehicles; (ii) that the value of the rate was updated; (ii) that the rules relating to the procedure and method of assessment did not undergo any adjustment to the introduction in the CIRC of this figure, although they were altered regarding the simplified regime for determination of taxable profit (article 71). It is not seen that the reform of the CIRC undertaken in 2000-2001 introduced any significant alteration in the code. It only introduced the mechanism for combating expenses considered undesirable that already appeared in extraordinary legislation, expanded slightly the spectrum of application but did not adapt in any way the assessment procedure. It is believed therefore that the characterization of the regime that already previously applied was maintained, continuing to have to be effected the interpretation of the norms so as to prevent effects contrary to the ratio legis.

The successive amendments to this article did not affect in any way the (dis)balance of the system, which was maintained until the date of the facts.

Note that both doctrine and case law have clearly stated the scope of autonomous taxation, in its formulation contained in the CIRC. Saldanha Sanches stated that through the method of autonomous taxation it is sought to avoid the transfer to the sphere of enterprises of expenses that have an underlying remunerative intent, so as to improve the tax treatment of income in the personal sphere, or to prevent costs from being accounted for that do not have a business purpose[11]. For its part, in the judgment of the Constitutional Court No. 617/2012[12] it is stated regarding "autonomous taxation rates" that:

With this type of taxation it was intended, on one hand, to incentivize the taxpayers subject to it to reduce as much as possible the expenses that negatively affect tax revenue and, on the other hand, to prevent that, through these expenses, the enterprises proceed to the concealed distribution of profits, especially of dividends that would thus only be subject to Corporate Income Tax as profits of the enterprise, as well as to combat fraud and tax evasion that such expenses cause not only in relation to Personal Income Tax or Corporate Income Tax, but also in relation to the corresponding contributions, both of employer entities and workers, to social security.

But more than asserting the ratio of the imposition of autonomous taxation rates, the reasoning of the cited judgment expresses well the way in which its calculation is understood, by contrast with the assessment of tax on income in accordance with the general rate:

Contrary to what happens in the taxation of income under Personal Income Tax and Corporate Income Tax, in which one taxes the set of income earned in a given year (which implies that only at the end of the same can one determine the tax rate, as well as the bracket in which the taxpayer falls), in this case one taxes each expense incurred, in itself considered, and subject to a given rate, autonomous taxation being determined independently of the Corporate Income Tax that is due in each financial year, by not being directly related to the obtaining of a positive result, and therefore subject to taxation.

The mentioned judgment further expresses clearly the way in which the instantaneous occurrence of the tax fact happens and the absence of periodic, lasting or successive character in its formation. Therefore it characterizes thus the assessment operation:

That assessment operation translates only into the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of expenses incurred in the determination of the rate.

It is believed that with the historical analysis, systematic framework and doctrinal and case law positions, the ratio legis of the norms that impose autonomously taxed tax and their perfect distinction from the objectives that animate the general structure of the CIRC have been demonstrated. Thus is traced the line in which the conflict begins; as soon as the interpretation of the norm in question leads to a result that distances the objectives that presided over its inclusion in the tax system. One has already seen what one and the other were.

It is recognized by all the actors that have to work with tax law in general and with Corporate Income Tax in particular, the lesser coherence of the coexistence of "autonomous taxation rates" with the general regime of the tax on corporate income. The Applicant gives abundant notice of this very thing. But recognized as that difficulty is, the law will always have to be applied, ascertaining its meaning through interpretation.

Let us now look at the regime of special payment on account, to which practice has attributed the diminutive "PEC".

The genesis and evolution of the PEC develop through three stages, namely (i) the regime that goes from its birth until the year 2000; (ii) the regime applicable to financial years 2001 and 2002; and the subsequent regime that applies today.

In its initial version the PEC was presented as a tool for improvement of the system, which was and is largely based on the declaration of income by taxpayers. Its introduction in the tax system was simultaneous with the reduction of the general Corporate Income Tax rate by two percentage points. The occurrence of the two facts is obviously not coincidence; on one hand the rate applicable to taxpayers paying tax was reduced; through the PEC there was promoted the special payment of a sum as tax, albeit on a provisional basis, by taxpayers who despite continuing to develop their activity year after year, persisted in declaring nil or negative income, escaping effective taxation. It is thus as a measure to combat "evasive practices of concealment of income or inflating of costs" that the PEC was justified in the preamble to Decree-Law No. 44/98, of 3 March which instituted it.

The provisional nature of the payment of the tax lay in fact in the possibility of deducting the sums paid as PEC from Corporate Income Tax determined in accordance with the general terms, fixed in article 71 of the then-current CIRC (of which autonomous taxation rates did not yet form a part), although that deduction was only possible if despite this operation the value of the tax payable was positive (71-6 CIRC.1998). With no Corporate Income Tax payable in accordance with the general terms, the value of the PEC satisfied could be carried forward to the following financial year (74-A-1) or reimbursed later (74-A-2). It was thus sought to ensure that the generality of taxpayers satisfied a value on account of Corporate Income Tax, calculated provisionally on the volume of turnover of the previous financial year (83-A). Fundamentally it was fictioned that all enterprises would by tendency have a taxable profit, calculated in accordance with the general parameters, equivalent to 1% of their volume of turnover of the previous year, subsequently settling the account if this was not the case.

The reform of the Corporate Income Tax undertaken in 2000-2001 through Law No. 30-G/2000 of 29 December reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained active and imposed that the carry-forward of the sums satisfied be made only until the fourth subsequent financial year (74-A-1 CIRC.2001). From this restrictive rule results for the first time the possibility of the PEC transforming into minimum tax[13], when it was not possible to deduct the sums satisfied, by exhaustion of the carry-forward period. In summary it is possible to affirm that the amendments introduced in this reform not only maintained but accentuated the emphasis on combat to tax evasion that had animated the introduction of the PEC. Although on this occasion "autonomous taxation rates" were introduced in the CIRC, no mechanism of coordination between the two instruments was provided for.

The third configuration of the PEC is introduced by Law No. 32-B/2002 of 30 December[14] which in its article 27 introduced a new regime of the deductibility of the PEC in article 87-3 of the CIRC[15], restoring the possibility of reimbursement of the sums handed over as special payment on account and not offset in the annual assessment of Corporate Income Tax. The character of a measure of pursuit of tax evasion was still maintained here, although the character of minimum tax has been lightened, without abolishing it completely, in view of the narrow conditions imposed for reimbursement.

In doctrine and in case law the regime of the PEC was always considered as a system to prevent tax evasion and to guarantee the payment of tax by all enterprises in activity. This line of orientation appears in the texts most inductive of the application of the regime in the courts, namely by the doctrinal work developed by the Constitutional Court. In this sense it can be seen in the reasoning of its judgment No. 494/2009[16], that the PEC in the form it was given in the CIRC, is "inextricably linked to the fight against evasion and tax fraud", seeking to ensure that the income declared by taxpayers "correspond[s] to the taxable income actually earned".

In doctrine[17] Teresa Gil[18] gave a well-founded account of the circumstances that surrounded the introduction of the PEC, namely of the difficulties in the application of the principle of taxation by real profit, verified in view of the "divergence that exists between the profits effectively obtained and those declared by enterprises and, therefore, subject to taxation". Although this author considers that the PEC is an insufficient measure to solve the problem of tax evasion of this type, preferring the establishment of minimum tax, she mentions that the PEC was after all the possible regime in view of the constitutional limits.

The current regime of the PEC is thus characterized by (i) having an inextricable link to the fight against evasion and tax fraud; (ii) it was introduced in the CIRC in March 1998, before the autonomous taxation rates which only came to form part of its systematics in the 2000-2001 reform; (iii) in the conception of the PEC there was provided for its deduction from the tax due in the assessment of Corporate Income Tax calculated on real income; (iv) the recovery of the credit resulting from the PEC is subordinated to conditions of obtaining profitability ratios proper to enterprises in the sector of activity in which they operate or to the justification of the credit situation by inspection action taken at the request of the taxpayer (87-3 CIRC). In summary, the credit for the sums handed over as special payment on account does not constitute an enforceable credit that Corporate Income Tax taxpayers may dispose of. In order for them to do so certain conditions must be met.

It is finally important to understand whether the credit resulting from special payment on account can be used to satisfy the obligation to pay the tax that emerges from the application of autonomous taxation rates to the tax facts on which they operate.

The Applicant maintains that such deduction is possible, basing itself on the characteristic of element of Corporate Income Tax that "autonomous taxation rates" have and on the wording of the norm that disciplines assessment (83-2-e CIRC[19]); in the use that it intends to make of information provided by the Tax Authority regarding tax credits for international double taxation; and in what it designates as "arbitral case law".

This tribunal will not consider in detail these last two arguments for easy-to-understand reasons. The consultation alluded to was not made to the Tax Authority by the Applicant, did not specifically refer to the situation sub judicio and the Tax Authority did not rule on the subject of this case. As for the case law of the courts – arbitral or judicial – there is only to note what has already been said: it is settled that the tax resulting from the application of autonomous taxation rates is also tax on corporate income. Already the deductibility of tax credits of this nature to that taxation has been the subject of decisions of different senses, as results from the argument of the Tax Authority, which also presents decisions favourable to its thesis.

It now falls to assess finally the basic argument which is that which results from the wording of the norm of article 83-2-e CIRC, which allows that to the amount of tax on corporate income determined deduction is made relating to the special payment on account effected.

There is in fact a conflict between the regime that regulates autonomous taxation and the deduction from the collection thereof of the PEC. Let us see the ratio of the norms in question.

The method of determination of the tax contained in the CIRC is based on the principle of incidence on taxable profit; autonomous taxation operates on expenses individually considered, whose rate is applicable to each expense, and "that assessment operation translates only into the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation[20]". It is unequivocal that the assessment system is not the suitable one for the determination of autonomous taxation rates. But will deducting the PEC from the cited "aggregation of the set of operations subject to autonomous taxation" lead to a result that is irreconcilable with the system in question? It is appropriate to inquire into this line.

As was seen, the PEC came to form part of the system of the Corporate Income Tax whose assessment sanctioned in article 83 was conceived to determine the tax directly inciding on the declared income. When there is a fiscal loss, the taxpayer must still bear the PEC; that was in fact the reason for its introduction. If a given enterprise has successive fiscal losses, it will systematically bear tax, as the system doubts its ability to function in a situation of permanent deficit, requiring it to satisfy provisionally (on account) a determined value. It may reimburse it if it proves that this situation is common in its sector of activity or if the Tax Authority verifies the regularity of its declarations. This was the balance that the CIRC required to maintain a system based on the declarations made by taxpayers.

Already the tax resulting from autonomous taxation is based solely on the pursuit of tax evasion through income transfer and has the dissuasive and compensatory effect.

If one were to permit the deduction of the PEC from the collection resulting from autonomous taxation, one would thwart the purposes of the system in which the norm of 83-2-e CIRC is inserted, as the product of special payment on account which should remain "stationary" in the ownership of the Public Treasury would be applied to the extinction of the taxpayer's debt resulting from autonomous taxation rates, thus lightening the intended pressure to prevent evasion "declarative" fraud. There is in fact an irreconcilable conflict between the ratio of the PEC – the combat to evasion or pressure for correction of declarations – and the application of its credits to the satisfaction of other obligations that are not those resulting from the determination of Corporate Income Tax calculated on the taxable result.

In practical terms the possibility of deduction of the PEC to autonomous taxation would imply that even if a given enterprise were eternally in a situation of loss, no tax on its real income would it have to bear, so long as it applied the PEC to the satisfaction of autonomous taxation rates. Moreover, the autonomous taxation rates themselves would lose their anti-abuse character, coming to confuse themselves after all with the tax calculated on taxable profit. Now these are not the objectives of the system of taxation of corporate income and the better interpretation of the norm contained in article 83-2-e CIRC is not that one which allows deducting special payments on account from the collection resulting from the application of autonomous taxation rates.

For the reasons set out the Applicant's claim necessarily lacks merit as the assessed amounts comply with legality, as they are based on correct interpretation of the cited norm.

9.1.2. Other requests

The obligation for reconstruction by the Tax Authority is subordinated to the very scope of merit (100 LGT) and the Applicant's request being without merit the requests for reimbursement of sums paid and for interest are prejudiced.

10. Decision

Considering the factual and legal elements collected and set out, this arbitral tribunal decides to judge the request for arbitral ruling to lack merit. Consequently the Tax Authority is absolved from the request.

By the decision rendered the examination of the requests for reimbursement of tax paid and of interest is prejudiced.

The Applicant is condemned to pay the costs, which are determined in the appropriate manner.

11. Value of the case

In accordance with the provision of article 306-2 of the CPC, ex-vi 29-1-e) of the RJAT and 97-A, no. 1-a) of the CPPT ex-vi 3-2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at €40,548.46.

12. Costs

The costs remain the responsibility of the party that caused them, being understood that the losing party caused them (527-1 and 2 CPC). In this case and considering the cited rule, responsibility for the costs is that of the Applicant, as the losing party.

Pursuant to article 22-4 of the RJAT and Table I appended to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs charged to the Applicant is fixed at €2,142.00.

Lisbon, 30 December 2015

The Arbitrator,

(Nuno Maldonado Sousa)

[1] In this decision designated by the abbreviated form of common use "RJAT" (Legal Regime of Arbitration in Tax Matters).

[2] In this decision designated by the abbreviated form "Tax Authority" as is widely used.

[3] In this document also designated this petition of the Tax Authority as "R-AT".

[4] To this effect the Judgment of 27-06-2014 of the Arbitral Tribunal constituted at the CAAD, case No. 59/2014-T [Jorge Lopes de Sousa], is illuminating, available at http://caad.org.pt, which traces the historical perspective of the framework of the so-called "autonomous taxation rates". According to the mention contained in the mentioned website, the decision had not become final at the date this sentence is prepared. Notwithstanding this circumstance, the doctrine referenced is adopted, regarding the nature and general regime of "autonomous taxation rates", which is considered to be correct.

[5] Approves the State Budget for 1990.

[6] In this document also referenced in this abbreviated form is Decree-Law No. 192/90 of 9 June.

[7] Approves the State Budget for 1995.

[8] Approves the State Budget for 1997.

[9] Approves the State Budget for 1999.

[10] The exposition that has been made cannot fail to bear in mind that the norms are ascertained through the interpretation of the law. It is appropriate to this point to say that it is believed that the ratio legis is the cornerstone of legal interpretation, in view of the provision of article 9-1 of the Civil Code which requires the interpreter to make the reconstruction of legislative thinking. Manuel de Andrade is followed in the definition of the concept, for whom, "inquiring into the ratio legis results in investigating what is the best solution – more just and more useful – among those that the law may accommodate" considering the "circumstances of the social environment and the prevailing legal sentiment"; see Manuel A. Domingues de Andrade - Essay on the theory of interpretation of laws. 4th ed., Coimbra: Arménio Amado Editor, 1963, p. 17, note 1. As for the normative provision of the ratio legis as a fundamental element of interpretation in the Portuguese legal order, José de Oliveira Ascensão is followed - The Law: Introduction and General Theory. 3rd ed., Lisbon: Calouste Gulbenkian Foundation, 1977, p. 329.

[11] José Luís Saldanha Sanches - Manual of Tax Law. 3rd ed., Coimbra Editor: Coimbra, 2007, p. 407.

[12] Judgment of the Constitutional Court (plenary) No. 617/2012 of 19-12-2012, case No. 150/12 [João Cura Mariano], available at < http://www.tribunalconstitucional.pt/tc/acordaos/20120617.html>.

[13] In this sense see Teresa Gil – "Special Payment on Account", Revista Fisco. Year XIV (March 2003), No. 107-108, p. 12.

[14] Approves the State Budget for 2003.

[15] Corresponds to article 74-A, in the wording prior to the revision of the provisions, effected by Decree-Law No. 198/2001 of 3 July.

[16] Judgment of the Constitutional Court (plenary) No. 494/2009 of 29-09-2009, case No. 150/12 [Vítor Gomes], available at < http://www.tribunalconstitucional.pt/tc/acordaos/20090494.html>.

[17] The cited judgment No. 494/2009 of the Constitutional Court identifies multiple scientific works that ruled in the same sense.

[18] Teresa Gil – "Special Payment on Account", Revista Fisco. Year XIV (March 2003), No. 107-108, pp. 11-21.

[19] Which corresponds in general terms to current article 90-2-d) CIRC.

[20] Cfr. judgment of the Constitutional Court No. 617/2012, cited.