CAAD Case 127/2019-T: IRC Special Payment on Account and Autonomous Taxation Deductibility

TAX ARBITRATION JURISPRUDENCE

Case No. 127/2019-T

Decision Date: 2019-09-30

CIT

Value of Claim: € 20,204.94

Subject Matter: CIT – Special Payment on Account; Autonomous Taxation - Deductibility

ARBITRAL DECISION

I – REPORT

1. On February 22, 2019, A..., Lda., formerly designated B..., Lda., with registered office in ..., ... and ..., ..., ..., ...-... Algés, holder of the sole identification number for legal persons and registration number ... (hereinafter Claimant), filed a petition for the constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2, No. 1, subparagraph a), and 10, No. 1, subparagraph a), and No. 2, of Decree-Law No. 10/2011, of January 20, which approved the Legal Regime for Arbitration in Tax Matters (hereinafter, abbreviatedly referred to as LRAT), with the amendments introduced by Articles 228 and 229 of Law No. 66-B/2012, of December 31 and by Articles 9 of Law No. 118/2019, of September 17 and 17 of Law No. 119/2019, of September 18, with a view to this tribunal's pronouncement regarding:

• Assessment of the legality of the dispatch of the Head of the Administrative Justice Division of the Finance Directorate of Lisbon, under delegation of competences, of November 22, 2018, which dismissed the administrative appeal No. ...2018..., concerning the self-assessment of Corporate Income Tax ("CIT") for the fiscal year 2015, with the consequent annulment.

• Assessment of the legality of the self-assessment of CIT for the fiscal year 2015, contained in the Model 22 declaration filed on May 31, 2016 and identified by No. ..., in the amount of € 20,204.94, with the consequent annulment.

• Condemnation of the Tax and Customs Authority (TA) to refund the tax payment unduly paid by the Claimant, increased by compensatory interest owed under Article 43 of the General Tax Law (GTL).

1. The petition for constitution of an arbitral tribunal was accepted by the President of CAAD and followed its normal procedure with notification to the TA on February 25, 2019.

2. The Claimant did not proceed to appoint an arbitrator, so, pursuant to Article 6, No. 2, subparagraph a) and Article 11, No. 1, subparagraph a) of the LRAT, the President of the Deontological Council of CAAD appointed the signatory as arbitrator of the Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

3.1. On April 16, 2019, the Parties were notified of this appointment and did not express their intention to challenge the appointment of arbitrators, in accordance with the combined provisions of Article 11, No. 1, subparagraphs b) and c), of the LRAT and Articles 6 and 7 of CAAD's Deontological Code.

3.2. Thus, in accordance with Article 11, No. 1, subparagraph c) of the LRAT, the Arbitral Tribunal was constituted on May 8, 2019.

1. In the arbitral petition, in essence, the Claimant alleges that:

a) Abstracting from the debate surrounding the nature of autonomous taxation, the determination of its respective amount follows the procedure provided for CIT, that is, the provisions of Article 90 of the CIT Code.

b) That is, to the collection arising from autonomous taxation may be deducted the amounts identified in No. 2, among which is the Special Payment on Account (SPA) – cf. Article 90, No. 2, subparagraph d) of the CIT Code.

c) Proof of this is the attribution of an interpretive character to No. 21 of Article 88 of the CIT Code, added by Law No. 7-A/2016, of March 30.

d) For the legislator, the determination of the quantum of autonomous taxation follows the same procedure that is provided for CIT properly.

e) To subtract the assessment of autonomous taxation from the regime of Article 90 of the CIT Code, including with respect to deductions from the collection regulated by No. 2, would mean, on the one hand, introducing a duality of assessment regimes that was not desired by the legislator.

f) It is sufficient to note that for approximately two decades autonomous taxation has been inserted in the CIT Code and to date there has been no legislative movement to remove it from the unitary tax assessment regime.

g) The legislator did exactly the opposite by clarifying that the procedure for assessing autonomous taxation in CIT is that of the tax.

h) On the other hand, with the hypothetical subtraction of autonomous taxation from the regime of Article 90 of the CIT Code one would be recognizing the absence of a legal vacuum and, consequently, that we would be faced with a tax whose assessment was not made in accordance with the law.

i) When, in 2016, the legislator adds a 2nd part to No. 21 of Article 88 of the CIT Code to prohibit any deductions from the collection of autonomous taxation, it is, strictly speaking, recognizing that its assessment follows the regime provided in Article 90 of the same Code.

j) If it were not to exclude the possibility of deducting from the collection of autonomous taxation the amounts listed in No. 2 of Article 90 of the CIT Code and to tailor the assessment of autonomous taxation to the general CIT assessment regime, there would be no need, nor any other reasonable reason to add this segment to the law.

k) The provisions of Article 90 of the CIT Code as a whole would simply apply.

l) The uniform jurisprudence of Arbitral Tribunals goes in the direction of deductibility from the collection of autonomous taxation in CIT of tax benefits referred to in subparagraph c) of No. 2 of Article 90 of the CIT Code, such as SIFIDE (System of Tax Incentives for Research and Business Development), CFEI (Extraordinary Fiscal Credit for Investment) and RFAI (Tax Regime for Support to Investment).

m) Indeed, the legislator has at no time established a special regime, different from the general regime of Article 90 of the CIT Code, for the determination of the quantum of autonomous taxation.

1. By oversight, the Respondent did not submit a Reply.

2. By dispatch of July 31, 2019, the Parties were notified of the Arbitral Tribunal's decision to dispense with the holding of the meeting referred to in Article 18 of the LRAT, and were invited to submit written arguments, with September 30, 2019 being set as the deadline for the pronouncement of the arbitral decision.

3. The Parties submitted written arguments.

II – PRELIMINARY RULING

The Arbitral Tribunal was regularly constituted and is competent ratione materiae, given the configuration of the object of the proceedings (cf. Articles 2, No. 1, subparagraph a) and 5 of the LRAT).

The petition for arbitral pronouncement is timely, having been filed within the period provided for in Article 10, No. 1, subparagraph a), of the LRAT.

The parties enjoy legal personality and capacity, have legitimacy and are regularly represented (cf. Articles 4 and 10, No. 2 of the LRAT and Article 1 of Ordinance No. 112-A/2011, of March 22).

The proceedings do not suffer from nullities.

III – REASONING

III-1. FACTS

§1. Proven Facts

With relevance to the decision to be rendered in the present proceedings, the following facts are considered proven:

a) The Claimant is a society governed by Portuguese law that engages in the import, commercialization and distribution of clothing;

b) As a CIT taxpayer, the Claimant submitted, on May 31, 2016, the Model 22 CIT declaration for the fiscal year 2015, having determined a tax loss of € 1,801,945.70;

c) The only amount payable in this fiscal year was € 20,204.94 and concerned exclusively autonomous taxation in CIT, an amount that was reflected in the CIT assessment statement No. 2016..., of June 24, 2016, relating to fiscal year 2015;

d) In fiscal year 2015, the Claimant had an amount of SPA made in previous fiscal years and not deducted from the collection thereof available for deduction:

e) After submitting the Model 22 declaration for fiscal year 2015 on May 31, 2016, the Claimant ascertained that it contained an error;

f) Specifically, that it had not deducted from the amount determined as autonomous taxation the value of the available SPA for deduction;

g) The Claimant filed, on May 30, 2018, an administrative appeal against the self-assessment of CIT for fiscal year 2015;

h) By letter from the Tax Justice Division of the Finance Directorate of Lisbon, of October 16, 2018, the Claimant was notified to make representations, if it so wished, on the draft dismissal of the administrative appeal;

i) The draft dismissal was converted into a final decision by dispatch of the Head of the Administrative Justice Division of the Finance Directorate of Lisbon, under delegation of competences, dated November 22, 2018.

§2. Unproven Facts

With relevance to the assessment and decision of the case, there are no unproven facts of significance.

§3. Reasoning of Proven Facts

The facts pertinent to the judgment of the case were selected and delimited in function of their legal relevance, in light of the plausible solutions to the legal questions, pursuant to the combined application of Articles 123, No. 2, of the Code of Tax Procedure and Process (CTPP), 596, No. 1 and 607, No. 3, of the Code of Civil Procedure (CCP), applicable by virtue of Article 29, No. 1, subparagraphs a) and e), of the LRAT.

Regarding the factual matter proven, the conviction of the Arbitral Tribunal was founded on the facts articulated by the Parties, whose correspondence to reality was not disputed, in the critical analysis of documentary evidence contained in the record, including the administrative file.

III-2. LAW

III.2.1. Analysis of Questions

It is important to recall, preliminarily, what has been understood by jurisprudence for years, namely, that courts do not have to assess all arguments formulated by the parties (cf. inter alia, Judgment of the Plenary of the 2nd Section of the SAC, of June 7, 95, rec 5239, in OR – Appendix of March 31, 97, pages 36-40 and Judgment SAC – 2nd Sec – of April 23, 97, OR/AP of October 9, 97, p. 1094).

This jurisprudential understanding is currently supported by Articles 607, No. 2 and 3, of the CCP and 123, 1st part, of the CTPP, which impose only on the judge (or Court) that, after identifying the parties and the object of the dispute and enumerating the questions to be decided, substantiate the decision by discriminating between proven and unproven facts and indicating, interpreting and applying the corresponding rules for its final conclusion (decision).

The LRAT also endorses this understanding when in Article 22, No. 2, it provides that "(...) the provisions of Article 123, first part, of the CTPP, regarding the judicial sentence are applicable to the arbitral decision (...)".

The object of the dispute amounts, in other words and essentially, to the assessment of the question of (non-)consideration of the collection arising from autonomous taxation for purposes of the limit of deductions provided for in Article 90 of the CIT Code (taxation period of 2015).

Specifically, the Claimant defends its alleged right to deduct the amounts paid as SPA from the CIT collection produced by autonomous taxation in fiscal year 2015.

The questions that are the subject of the present proceedings are, in the first place, whether the amounts paid as SPA that the Claimant has made are deductible from the amounts due as autonomous taxation.

The assessment will therefore begin with the question of the application of Article 90 of the CIT Code to the assessment of autonomous taxation, as the solution to this question determines the assessment of the question of the deductibility of SPA from the collection of such autonomous taxation.

III.2.2. On the Application of Article 90 of the CIT Code to Autonomous Taxation

It should be noted from the outset that the essential question is not whether autonomous taxation is or is not CIT, as it is clear that the assessment of autonomous taxation is made on the basis of Articles 89 and 90, No. 1 of the CIT Code but, in fact, applying different rules for calculating the tax:

(1) in one case the assessment operates through the application of the rates in Article 87 to the taxable base determined according to the rules of Chapter III of the Code and

(2) in the other case, various collections are determined according to the diversity of the facts that give rise to autonomous taxation.

From this it follows that the amount determined pursuant to subparagraph a) of No. 1 of Article 90 does not have a unitary character, as it encompasses values calculated according to different rules, to which are associated also differentiated purposes, so the deductions provided for in the subparagraphs of No. 2 can only be made to the part of the CIT collection with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard regime of the tax.

It is concluded from this, if it is understood correctly, that there is not even true controversy between the parties regarding the application of Article 90 of the CIT Code to the assessment of autonomous taxation, the divergence being limited to the manner of proceeding with the assessment, as the TA understands, if we understand correctly, that various collections are determined according to the diversity of the facts that give rise to autonomous taxation and the deductions provided for in the subparagraphs of No. 2 can only be made to the part of the CIT collection with which there exists a direct correspondence, understanding that it is not verified in relation to the CIT collection resulting from autonomous taxation.

In any case, the aforementioned Articles 89 and 90 of the CIT Code, as well as other provisions of this Code, such as those relating to the declarations provided for in Articles 120 and 122, are applicable to autonomous taxation.

From the outset – it is reaffirmed – it is today settled, following numerous arbitral jurisprudence (much of it cited by the Claimant itself) and the positions adopted by the TA, that the tax levied on the basis of autonomous taxation provided for in the CIT Code has the nature of CIT.

Moreover, in addition to the unanimity of jurisprudence, Article 23-A, No. 1, subparagraph a), of the CIT Code, as amended by Law No. 2/2014, of January 16, leaves today no room for any reasonable doubt, corroborating what had already previously resulted from the literal wording of Article 12 of the same Code.

Now, Article 90 of the CIT Code refers to the forms of assessment of CIT, by the taxpayer or the TA, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (No. 10).

Therefore, Article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or the TA, following the filing or non-filing of declarations, there being no other provision that provides for different terms for its assessment.

Thus, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are restricted to the determination of the taxable base and the applicable rates, which are those provided for in Chapters III and IV of the CIT Code for CIT based on taxable profit and in Article 88 of the CIT Code for CIT based on the taxable base of autonomous taxation and its respective rates.

But the forms of assessment provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remainder of the CIT taxable base.

However, the fact that a CIT self-assessment made pursuant to No. 1 of Article 90 of the CIT Code may contain several partial calculations based on various rates applicable to certain taxable bases, does not imply that there is more than one assessment, as results from the very terms of that rule when referring to "assessment," in the singular, in all cases in which it is "made by the taxpayer in the declarations referred to in Articles 120 and 122," having "as its base the taxable base contained therein" (whether determined on the basis of the rules of Articles 17 et seq. or determined on the basis of the various situations provided in Article 88 of the CIT Code).

Moreover, it is not only the assessments provided for in Article 88 of the CIT Code that may encompass various calculations of application of rates to certain taxable bases, as the same may occur in the situations provided for in Nos. 4 to 6 of Article 87 of the CIT Code.

In any case, whatever calculations must be made, the self-assessment that the taxpayer or the TA must make pursuant to Articles 89, subparagraph a), 90, No. 1, subparagraphs a), b) and c), and 120 or 122 of the CIT Code is unitary, and based on it the global CIT is calculated, whatever the taxable bases relating to each of the types of taxation that underlie it.

Moreover, if Article 90 of the CIT Code did not apply to the assessment of autonomous taxation, we would have to conclude that there would be no rule providing for its assessment, which would amount to illegality, by violation of Article 103, No. 3, of the Constitution of the Portuguese Republic (CPR), which requires that the assessment of taxes be made "in accordance with the law."

It should also be noted that the rule in No. 21 added to Article 88 of the CIT Code by Law No. 7-A/2016, of March 30, regardless of whether it is truly interpretive, in no way alters this conclusion, as it establishes, with respect to the manner of assessment of autonomous taxation, that it "is made in accordance with the terms provided in Article 89 and is based on the values and rates that result from the provisions of the preceding numbers."

Indeed, if it is certain that this new rule serves to clarify how the amounts of autonomous taxation are calculated (which already resulted from the text of the various provisions of Article 88 of the CIT Code itself) and that the competence belongs to the taxpayer or the TA, pursuant to Article 89 of the CIT Code, it is also clear that the necessity to use the procedure provided for in No. 1 of Article 90 is not precluded, particularly in the cases provided for in its subparagraph c) in which the assessment falls to the TA, on the basis of "elements available to the tax administration," which appears unquestionable that will cover the possibility of assessing based on autonomous taxation, if the TA has elements that prove its conditions.

Therefore, both before and after Law No. 7-A/2016, of March 30, Article 90, No. 1, of the CIT Code is applicable, in the terms referred to, to the assessment of autonomous taxation, that is, with determination in an autonomous and distinct manner from that processed pursuant to the aforementioned Article 90 of the CIT Code.

III.2.3. Nature of Autonomous Taxation and its Degree of Connection with CIT

It is necessary to go back to the year 1990 to find the legislator's first intervention in the sense of subjecting certain expenses to autonomous taxation, which occurred with the publication of Decree-Law No. 192/90, of June 9, whose Article 4 provided that "undisclosed or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by personal income tax taxpayers who have or should have organized accounting or by CIT taxpayers not covered by Articles 8 and 9 of the respective Code are taxed autonomously in PIT or CIT, as applicable, at a rate of 10%, without prejudice to the provision of subparagraph h) of No. 1 of Article 41 of the CIT Code."

This rule was subject to several subsequent amendments that successively increased the rate of taxation provided therein.

With this type of taxation the aim was, on the one hand, to encourage taxpayers subject to it to reduce as much as possible expenses that negatively affect tax revenue and, on the other hand, to prevent that through such expenses, companies would proceed to the disguised distribution of profits, especially dividends that would thus only be subject to CIT as company profits, as well as to combat tax fraud and evasion that such expenses cause not only in relation to PIT or CIT, but also in relation to the corresponding contributions, both of employers and workers, to Social Security.

SALDANHA SANCHES (Manual of Tax Law, 3rd Edition, Coimbra Publisher, 2007, p. 407), regarding the autonomous taxation provided for in Article 81, No. 3, of the CIT Code, wrote the following: "(...) In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime for expenses that are in the intersection zone of the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for purely tax reasons or the hidden distribution of profits. The rule presents a characteristic similar to what we will find in the legal sanction against undocumented costs, with an increase in the rate when the situation of the taxpayer does not correspond to a situation of tax normality. If there is no profit in the taxpayer's declaration, the cost may be the subject of a negative valuation: for example, we have a rate of 15% applied when the taxpayer had losses in the last two years and purchased a light passenger vehicle for more than € 40,000 (Article 81, No. 4).

With this provision, the system demonstrates its dual nature, with an aggravated rate of autonomous taxation for certain special situations that are sought to be discouraged, such as the acquisition of vehicles for business purposes or vehicles in principle too costly when there are losses. Here, a kind of presumption is created that these costs do not have a business reason and, therefore, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since here the tax base is not a net income but a cost transformed – exceptionally – into a subject of taxation (...)" [emphasis added].

Unlike what happens in the taxation of income under PIT and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer falls), in the case each expense incurred is taxed, considered in itself, and subject to a certain rate, autonomous taxation being determined independently of the CIT due in each fiscal year, because it is not directly related to the obtaining of a positive result, and therefore subject to taxation.

Thus, in the case of CIT, we are faced with an annual tax, in which each income received is not taxed separately, but rather the aggregation of all income obtained in a given year, the law considering that the fact generating the tax is verified on the last day of the taxation period (cf. Article 8, No. 9, of the CIT Code).

As for autonomous taxation in CIT, the fact generating the tax is the realization of the expense itself, not a complex fact of successive formation over a year, but an instantaneous tax fact.

This characteristic of autonomous taxation thus directs us to the distinction between periodic taxes (whose generating fact occurs in a successive manner, by the passage of a certain period of time, as a rule annual, and tends to repeat over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single-obligation taxes (whose generating fact occurs instantaneously, appears isolated in time, generating on the taxpayer a single obligation of payment).

In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of a certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various taxation rates to the various acts of expense realization considered, will come to be made at the end of a certain taxation period). But the fact that the assessment of the tax is made at the end of a certain period does not transform it into a periodic tax, of successive formation or of lasting character. This operation of assessment translates only into aggregation, for purposes of collection, of the set of operations subject to such autonomous taxation, the rate of which applies to each expense, with no influence of the volume of expenses incurred on the determination of the rate.

In this case we are faced with a single-obligation duty, applying to operations that are produced and exhausted instantaneously, in which the fact generating the duty appears isolated in time, originating for the taxpayer an obligation of payment with a sporadic character. That is, the rates of autonomous taxation here in question do not refer to a period of time but to a moment: that of the isolated operation subject to the rate, without prejudice to the fact that the determination of the amount due by the economic agents subject to said "rate" is made periodically, at a given moment, jointly with other similar operations, without the joint assessment influencing its result.

For this reason, SERGIO VASQUES (Manual of Tax Law, Almedina, 2011, p. 293, note 470) draws attention to the circumstance that income taxes contemplate single-obligation elements, such as liberatory rates of PIT or autonomous taxation rates of CIT.

Autonomous taxation, according to its initial regulation, constituted as a substitute for the non-deductibility regime previously provided for in the CIT Code.

Indeed, at its genesis was the non-acceptance for tax purposes of a percentage of certain expenses, autonomous taxation being an alternative and more effective way of correcting costs whenever dealing with areas more prone to tax evasion (allowances, representation expenses, vehicle expenses, etc.).

Thus, it would not be reasonable, rather contrary to the reason that led the legislator to autonomously tax such expenses, that through their deduction from taxable profit as expenses, the foundation for the existence of autonomous taxation would be eliminated.

Arbitral jurisprudence has decided that autonomous taxation belongs, as a rule, systematically, to CIT, and not to VAT, to PIT, or to any other tax in the Portuguese tax system. This is the case, among others, of arbitral proceedings No. 166/2014-T, No. 246/2013-T, No. 260/2013-T, No. 282/2013-T, No. 6/2014-T, No. 36/2014-T and No. 697/2014-T.

They are therefore strongly linked to the taxpayers of the respective income tax, and more specifically to the economic and business activity carried out by them. What autonomous taxation is about is indeed taxing certain expenses or charges (costs), viewed in their relation to the general idea of actual and effective profit and income taxation.

Indeed, it seems to us beyond doubt that the autonomous taxation mechanism of the set of realities provided for in Article 88 of the CIT Code aims, primarily, to safeguard the general balances of the tax system itself, the specific balances of CIT and the revenue of the tax itself. That is, it aims to prevent that through the significant recognition of charges such as those provided for in Article 88, distortions are not introduced affecting the system and the expectation of what should be the "normal" revenue of the tax is not disappointed. In the case, as is equally well-known, what is in question is discouraging the realization/recognition of such expenses, from the outset because, by their nature and purposes, they can be more easily diverted to consumption that, in essence, is private or corresponds to charges that continue to have, also, as specific and ultimate purpose, the avoidance of the tax. Realities that present some degree of censurability since, while not directly violating the law, they generate significant and important imbalances on the general idea of justice, on the fundamental duty to contribute in proportion to one's assets, of equality, of sacrifice, of the proportionality of the tax measure in the face of possible manifestations of wealth, of the taxation of actual income and justice.

Functioning in a manner different from what constitutes the essential scope of CIT – which taxes income – autonomous taxation, it is reaffirmed, taxes certain expenses or specific charges – and constitutes an instrumental reality, accessory to that tax, to the extent that it is in function of it that they were instituted and are therefore capable of being recognized as having an instrumentality or accessoriness of purposes, rooted in the safeguarding of the objectives of the tax itself in which they are manifested.

It is thus held that autonomous taxation does not constitute CIT in the strict sense but is intertwined with it (CIT), being obliged to be contained in the "other taxes" of which we are informed by the final part of subparagraph a) of No. 1 of Article 45 of the CIT Code [then effective version and current Article 23-A, No. 1, subparagraph a), of the CIT Code].

As was considered in the judgment of the Constitutional Court in recourse of an arbitral tax decision, "(...) autonomous taxation, although regulated normatively in the context of income tax, is materially distinct from taxation in CIT, in that it does not apply directly to the taxable profit of the company, but to certain expenses which constitute, in themselves, a new tax fact (which refers not to the perception of income but to the realization of expenses). And in this way, autonomous taxation has inherent the idea of discouraging a practice that, in addition to affecting equality in the distribution of public charges, may involve situations of less tax transparency, and is explained by a legislative intention to stimulate companies to reduce as much as possible expenses that negatively affect tax revenue (...)" [cf. Judgment No. 197/2016 of the Constitutional Court, in OR, 2nd Series, No. 99, of May 23, 2016].

Revelations of this functional connection, and within the framework of the legislator's overall intention, emerge, for example, from the discipline of Article 12 of the CIT Code regarding entities subject to the fiscal transparency regime, by not taxing them in CIT, "except as regards autonomous taxation," a relationship that also manifests itself in the face of No. 14 of Article 88 of the CIT Code, in the sense that the rates of autonomous taxation take into account the fact that the taxpayer shows or not tax loss.

"Although formally inserted in the CIT Code and the amount it allows to collect is assessed within its scope and as CIT, the rule in question concerns a tax imposition that is materially distinct from taxation in this tax schedule, (…). Indeed, we are faced with autonomous taxation, as the very letter of the rule says. And this makes all the difference. It is not a question of taxing an income at the end of the taxation period, but certain types of expenses in themselves, for the understandable reasons of tax policy that the judgment points out.

Thus, the fact revealing tax capacity that is sought to be achieved is the simple realization of such expense, at a certain moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not he will have taxable income in CIT at the end of the period, it being irrelevant that this portion of tax will only be assessed at a later moment and jointly with the CIT (...)" [vote of the Judge of the Constitutional Court Vítor Gomes in the Judgment of that Court rendered in Process No. 2014/2010. This understanding was subsequently confirmed or reiterated by the Judgment of the Plenary of the CC No. 617/2012 - Process No. 150/12, of 31/1/2013 and in the Judgment No. 197/2016 - Process No. 465/2015, in addition to the cited Judgment No. 197/2016].

It was equally recognized by the jurisprudence of the SAC (2nd section, Process 830/11, of 21-03-2012) "that under the designation of autonomous taxation very diverse realities are hidden, including, pursuant to No. 1 of the (then) Article 81 of the CIT Code, undisclosed or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in the cases of expenses incurred by taxpayers totally or partially exempt, or who do not exercise, as principal activity, commercial, industrial or agricultural activities (No. 2 of [then] Article 81) and which are not considered as cost in calculating the income taxable in CIT.

It should be noted, however, that representation expenses and those related to light vehicles, pursuant to the provision of the (then) Article 81, No. 3 of the CIT Code and allowances are linked to business activity and "essential" so that they are fiscally accepted in some cases albeit within certain limits.

In turn, the Constitutional Court, in its Judgment No. 18/11, tells us that there are facts subject to autonomous taxation, which correspond to "costs demonstrably essential to the realization of revenues" and that therefore the prohibition of retroactive application of new law does not apply, as such costs would have been incurred regardless of the applicable tax regime: this means that autonomous taxation also falls on costs that correspond to the nucleus of the concept of actual income, net income and compliance with accounting obligations. This argument of the Constitutional Court, regarding the retroactive application of tax law to autonomous taxation (and this matter of the application of law in time does not fall within the object of this decision), interests us only to emphasize that the Court recognizes that this regime constitutes a limitation to the taxation of actual income (which is guaranteed by Article 104, No. 2 of the CPR).

In judgment No. 310/12, of June 20 (Rapporteur Justice João Cura Mariano), the Constitutional Court reformulates the doctrine of Judgment No. 18/11 of the same Court, approaching the dissenting vote of Justice Vítor Gomes and the Judgment of the SAC No. 830/11, as follows: "(...) Unlike what happens in the taxation of income under PIT and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer falls), in the case each expense incurred is taxed, considered in itself, and subject to a certain rate, autonomous taxation being determined independently of the CIT due in each fiscal year, because it is not directly related to the obtaining of a positive result, and therefore subject to taxation. [emphasis added].

Thus, in the case of CIT, we are faced with an annual tax, in which each income received is not taxed separately, but rather the aggregation of all income obtained in a given year, the law considering that the fact generating the tax is verified on the last day of the taxation period (cf. Article 8, No. 9, of the CIT Code). As for autonomous taxation in CIT, the fact generating the tax is the realization of the expense itself, not a complex fact of successive formation over a year, but an instantaneous tax fact. This characteristic of autonomous taxation thus directs us to the distinction between periodic taxes (whose generating fact occurs in a successive manner, by the passage of a certain period of time, as a rule annual, and tends to repeat over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single-obligation taxes (whose generating fact occurs instantaneously, appears isolated in time, generating on the taxpayer a single obligation of payment). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of a certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various taxation rates to the various acts of expense realization considered, will come to be made at the end of a certain taxation period). But the fact that the assessment of the tax is made at the end of a certain period does not transform it into a periodic tax, of successive formation or of lasting character. This operation of assessment translates only into aggregation, for purposes of collection, of the set of operations subject to such autonomous taxation, the rate of which applies to each expense, with no influence of the volume of expenses incurred on the determination of the rate (...)"

Analyzed, furthermore, under another perspective, it will be necessary to consider autonomous taxation in the context of specific anti-abuse norms and their similarity with the regime provided for under No. 1 of Article 65 of the CIT Code, as amended in 2011 ("amounts paid or owed, in any capacity, to natural or legal persons resident outside Portuguese territory and therein subject to a clearly more favorable tax regime are not deductible for purposes of determining taxable profit, unless the taxpayer can prove that such charges correspond to effectively carried out operations and do not have an abnormal character or an exaggerated amount").

Aiming at autonomous taxation to reduce the tax advantage achieved with the deduction from taxable profit of the costs on which it applies and also to combat tax evasion that this type of expense, by its nature, fosters, it cannot itself through its deduction from taxable profit as a cost of the fiscal year constitute a factor in reducing this decrease in advantage sought and determined by the legislator.

In conclusion: autonomous taxation, which applies to charges deductible in CIT, is integrated in the regime and is owed as title of this tax, the charges involving payment of such autonomous taxation not constituting deductible costs for purposes of determining taxable profit.

This understanding was also clarified by Article 3 of Law No. 2/2014, of January 16, which added Article 23-A to the CIT Code (while its Article 13 repealed Article 45.

Not subsisting doubts as to the interpretive character of the rule in question, according to the rules of legal hermeneutics, in practice, such rule comes to express what the legislator has always understood and continues to understand, namely that the charges arising from the cost associated with autonomous taxation do not have relevance for purposes of determining taxable profit.

III.2.4. Special Payment on Account of CIT Finally Due

The genesis and evolution of SPA develop in three stages, namely (i) the regime from its birth to the year 2000; (ii) the regime applicable to fiscal years 2001 and 2002; and the subsequent regime that has been in force until today.

In its initial version SPA was presented as a tool for system improvement, which was and is very much based on taxpayers' declaration of income. Its introduction into the tax system was simultaneous with the reduction of the general CIT rate by two percentage points. The occurrence of both facts is not coincidental; on the one hand, the rate applicable to taxpaying taxpayers was reduced; through SPA the special payment of an amount as tax was promoted, albeit provisionally, by taxpayers who, despite continuing to develop their activity year after year, persisted in declaring negative or zero income, escaping effective taxation. It is thus as a measure to combat "evasive practices of concealment of income or inflation of costs" that the SPA was justified in the preamble to Decree-Law No. 44/98, of March 3, which instituted it.

The provisional character of the payment of the tax resided after all in the possibility of deducting the amounts paid as SPA from the CIT determined according to general terms, set in Article 71 of the then-current CIT Code (of which autonomous taxation did not yet form part), although such deduction was only possible if despite this operation the value of the tax payable was positive (Article 71, No. 6 of the CIT Code [1998]). With no CIT payable under the general terms, the value of the SPA satisfied could be carried forward to the following fiscal year (Article 74-A, No. 1 of the CIT Code) or reimbursed later (Article 74-A, No. 2 of the CIT Code). An attempt was thus made to ensure that the generality of taxpayers satisfied an amount on account of the CIT, provisionally calculated on the volume of business of the previous fiscal year (Article 83-A of the CIT Code). In essence, it was feigned that all companies would, as a tendency, have a taxable profit calculated according to general parameters, equivalent to 1% of their volume of business in the previous year, settling the account later if this were not the case.

As is well noted in the Arbitral Decision rendered in Process No. 722/2015-T of CAAD, which we follow closely here, the CIT reform undertaken in 2000-2001 through Law No. 30-G/2000, of December 29, reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained in activity and imposed that the carry-forward of the amounts satisfied be made only until the fourth subsequent fiscal year (Article 74-A, No. 1 of the CIT Code [2001]). From this restrictive rule results, for the first time, the possibility of the SPA becoming a minimum collection [in this sense, TERESA GIL, Special Payment on Account, Magazine Fisco, Year XIV, (March 2003), No. 107-108, p. 12] when it was not possible to deduct the amounts satisfied, by exhaustion of the carry-forward period. In summary, it is possible to affirm that the changes introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had animated the introduction of the SPA. Although at this time the "autonomous taxation" was introduced into the CIT Code, no mechanism of articulation between the two instruments was provided.

The third configuration of the SPA is introduced by Law No. 32-B/2002, of December 30, which in its Article 27 introduced a new regime of SPA deductibility in Article 87, No. 3, of the CIT Code, restoring the possibility of reimbursement of amounts delivered as special payment on account and not deducted in the annual CIT settlement. The character of a measure for pursuing tax evasion was maintained here as well, although the strictly characterized as minimum collection was eased, though not abolished completely, in light of the tight conditioning imposed for reimbursement.

Article 104 of the CIT Code (as amended by Decree-Law No. 292/2009, of October 13) provides that: "Entities that engage, as principal activity, in commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, shall proceed to payment of the tax as follows:

a) In three advance payments, maturing in July, September and December 15 of the year to which the taxable profit relates or, in the cases of Nos. 2 and 3 of Article 8, in the 7th month, in the 9th month and on the 15th day of the 12th month of the respective taxation period;"

And Article 106 of the CIT Code (as amended by Law No. 66-B/2012, of December 31) provides: "Without prejudice to the provision of subparagraph a) of No. 1 of Article 104, the taxpayers mentioned therein are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates or, in the case of their adopting a taxation period not coinciding with the calendar year, in the 3rd and 10th months of the respective taxation period."

From the foregoing results the obligation, for CIT taxpayers, to make advance payments of the CIT that will be due finally. As is known, the technique of advance payments consists, generally, of a mere mechanism of anticipation of the tax that may be due finally. It is, as is pacifically accepted and well emphasized in the Arbitral Decision rendered in Process No. 722/2015-T of CAAD, and in others, "a means that has advantages for the State as it allows it to anticipate the receipt of the tax, while ensuring its collection at the moment or as income is produced, without prejudice to the final determination and with observance of the determination of what is owed according to the general method of taxation by actual profit."

It is true that the raison d'être of advance payments and special payment on account, starting from this common trunk – since undoubtedly both are the product of a tax technique by which the final tax collection is anticipated – diverges, as they nonetheless present (in the second case) somewhat differentiated justifications. While the raison d'être of advance payments is exhausted, in our view, in the foundations above evidenced, already the special payment on account, not losing sight of this purpose, has yet another that has been added to it. Indeed, as well noted in the Arbitral Decision Process No. 113/2015-T, "in doctrine and jurisprudence the SPA regime has always been seen as a system to prevent tax evasion and to guarantee the payment of tax by all companies in activity." It is also that which results from the scholarly work developed by the Constitutional Court. From its judgment No. 494/2009, it results that the SPA, in the form given to it in the CIT Code, is also "indissolubly linked to the fight against tax evasion and fraud," seeking to ensure that the income manifested by taxpayers "correspond[s] to the actually earned taxable income." [cf. Judgment of the Constitutional Court (plenary) No. 494/2009 of 29-09-2009, process No. 150/12].

The aforementioned Judgment No. 494/2009 of the Constitutional Court identifies multiple scientific works that pronounced themselves in the same sense, as is the case of TERESA GIL (cf. ob. and loc. cit.), which gave an account of the circumstances surrounding the introduction of the SPA, namely the difficulties in the application of the principle of taxation by actual profit, observed in light of the "divergence that exists between the profits actually obtained and those declared by companies and therefore subject to taxation."

As has been said, and at this point, we make our own the synthesis invoked in the aforementioned Arbitral Decision, in which the current SPA regime is thus characterized by (i) having an indissoluble connection to the fight against tax evasion and fraud; (ii) having been introduced in the CIT Code in March 1998, before the autonomous taxation rates which only became part of its system in the 2000-2001 reform; (iii) in the conception of the SPA its deduction from the collection was provided for in the CIT assessment calculated on actual profit; (iv) the recovery of the credit resulting from the SPA is subordinated to conditions of obtaining profitability ratios specific to companies in the business sector in which they operate or to the justification of the credit situation by inspection action carried out at the request of the taxpayer (Article 87, No. 3 of the CIT Code).

A subsequent question is whether these special reasons are of a kind to allow the deduction from the collection of autonomous taxation either of tax benefits to which the taxpayer is entitled, or of the SPA itself. As for the former we have already pronounced ourselves above in the sense of such impossibility. As for the SPA the fact is that it is nothing more than an advance payment of CIT that will (presumably) be due finally by the taxpayer, albeit with some special characteristics. And therefore it is CIT for all legal purposes, there being, however, special rules for its reimbursement.

Unlike autonomous taxation, which is collection owed by reason of behaviors that the law wishes to discourage and therefore penalizes the recognition of certain expenses for the reasons indicated, in the SPA what is in question is to ensure that an advance is made as title of CIT and without prejudice to its deduction from the general collection of the tax, determined as an effect of the strictly defined assessment operation, of a certain measure of the tax.

Now, as well noted in the Arbitral Decision Process No. 13/2015-T, "the SPA became part of the CIT system whose assessment was conceived to determine the tax directly applicable to the declared income. When there is a tax loss the taxpayer still has to bear the SPA; that was indeed the reason for its introduction. If a given company has successive tax losses, it will systematically bear tax, as the system doubts its ability to function in a permanently deficient situation, requiring it to provisionally satisfy (on account) a certain value. It may be reimbursed if it proves that this situation is common in its business sector or if the TA verifies the regularity of its declarations. This was the balance that the CIT Code required to maintain a system based on declarations made by taxpayers."

Already the tax resulting from autonomous taxation is based solely on pursuing tax evasion through income transfer and has a dissuasive and compensatory effect. If the deduction of the SPA from the collection resulting from autonomous taxation is permitted, the purposes of the system in which the rule of Article 83, No. 2, subparagraph e) of the CIT Code is inserted will be thwarted, as the product of the special payment on account that should remain "stationary" in the ownership of the TA will be affected to the extinction of the debt of the taxpayer resulting from autonomous taxation, thus easing the intended pressure to avoid "declarative" tax evasion. There is indeed an irreconcilable conflict between the rationale of the SPA – combating evasion or pressure to correct declarations – and the allocation of its credits to the satisfaction of other obligations than those resulting from the determination of CIT calculated on the taxable result.

In practical terms the possibility of deduction of the SPA from autonomous taxation would imply that even if a given company were eternally in a position of loss, no tax on its actual income would have to be borne, as long as it applied the SPA to the satisfaction of autonomous taxation. Moreover the very autonomous taxation (cf. Judgment of the Constitutional Court No. 617/2012, cited) would lose its anti-abuse character, coming to be confused after all with the tax calculated on taxable profit. Now these are not the objectives of the system of taxation of the income of legal persons and the best interpretation of the rule contained in Article 83, No. 2, subparagraph e) of the CIT Code is not decidedly that which permits the deduction of special payments on account from the collection resulting from the application of autonomous taxation rates.

In sum, weighty reasons, derived from the purposes that were legislatively sought to be achieved with the creation of the SPA, justify a restrictive interpretation of Articles 90, No. 1, and 93, No. 3, of the CIT Code, in particular of the reference made in the latter to "the amount determined in the declaration referred to in Article 120 of the CIT Code."

It should be noted that this understanding of Arbitral Jurisprudence is, once again, in harmony with the new No. 21 of Article 88 of the CIT Code added, as we have seen, by Law No. 7-A/2016, of March 30, in establishing that to the amount determined from autonomous taxation no "deductions are made."

Also in this case, the legislator merely adopted, clarifying it, a solution that courts, through recourse to the applicable rules and by applying the criteria of legal hermeneutics, were in a position to extract from the regime to apply, which is what this collective did, in the case at issue.

Indeed, although Article 135 attributes, as has already been said, an interpretive nature to No. 21 of Article 88 of the CIT Code, which combined with Article 13 of the Civil Code leads to its retroactive application, as was demonstrated from the argument set forth above, the solution found by this Arbitral Tribunal did not require making application of this new rule.

In the same sense goes the Arbitral Decision No. 673/2015-T cited above, where to this effect it was likewise concluded, among other things, that the solution already resulted from the literal wording of Article 93, No. 1, of the CIT Code, "(...) without exceeding the limits normally imposed on the interpretation and application of law, since restrictive interpretation is admissible when there are weighty reasons to conclude that the scope of the legal text betrays the legislative intent or it is necessary to optimize the harmonization of conflicting interests that two rules seek to protect."

Assessed the facts and the Claimant's claim in the sense of seeing deducted from the part of the CIT collection produced by autonomous taxation rates the SPA made in respect of CIT, in light of all that has been set forth, such claim cannot fail to be rejected.

IV - DECISION

By this Arbitral Tribunal it is decided:

a) That the claim for a declaration of illegality and annulment of the act dismissing the aforementioned administrative appeal, which refused the annulment of the CIT self-assessment for fiscal year 2015, is rejected;

b) That the claim for a declaration of illegality of such self-assessment in the part corresponding to amounts of € 20,204.94 is rejected;

c) That the claim for recognition of the Claimant's right to reimbursement of such amounts and, likewise, the right to compensatory interest is determined to be moot.

V - VALUE OF PROCEEDINGS

The value of the proceedings is set at € 20,204.94 (twenty thousand, two hundred and four euros and ninety-four cents), pursuant to Articles 299, No. 1 and 259, No. 1, of the CCP, applicable by virtue of Article 29, No. 1, subparagraph e) of the LRAT, and likewise Article 97-A, No. 1, a), of the CTPP, applicable by virtue of subparagraphs a) and b) of No. 1 of Article 29 of the LRAT and No. 2 of Article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

VI - COSTS

Pursuant to Article 22, No. 4, of the LRAT, and in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, the amount of costs is set at € 1,224.00 (one thousand two hundred and twenty-four euros), to be borne by the Claimant.

Notify accordingly.

Lisbon, September 30, 2019

The Arbitrator,

(Hélder Faustino)