CAAD 13/2018-T: Deduction of CFEI, PEC and Double Taxation Credit Against Autonomous Taxation in IRC

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Fernando Borges de Araújo and Raquel Franco, designated at the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:

I – REPORT

On 9 January 2018, A..., SGPS, S.A., NIPC..., with registered office at Rua..., no...., ...-... Porto, filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (RJAT), with the wording introduced by Article 228 of Law No. 66-B/2012 of 31 December, seeking a declaration of illegality of the self-assessment act for Corporate Income Tax (IRC) for the 2015 tax year, to the extent corresponding to the non-deduction from the collection of IRC produced by autonomous taxation rates for fiscal incentives, namely the tax benefits determined under the Extraordinary Fiscal Credit for Investment (CFEI), as well as Special Payment on Account (PEC) and tax credit for double international taxation, totalling € 949,985.36, and of the decision dismissing the administrative complaint to which such act was subject.

To support its petition, the Claimant alleges, in summary, that the tax credit for double international taxation, Special Payments on Account and tax benefits under CFEI may be deducted from the collection of autonomous taxation because: (i) the collection of autonomous taxation is considered as collection of IRC, such being an integral part of this tax; (ii) they may be deducted from the collection of IRC determined pursuant to Article 90 of the CIRC; (iii) the rules for settlement provided in Article 90 of the CIRC are applicable to autonomous taxation and (iv) the Claimant's understanding aligns with some of the CAAD case law that has already ruled on this matter.

On 10-01-2017, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant did not appoint an arbitrator, whereupon, pursuant to subparagraph a) of paragraph 2 of Article 6 and subparagraph a) of paragraph 1 of Article 11 of the RJAT, the President of the CAAD Deontological Council designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the charge within the applicable deadline.

On 28-02-2018, the parties were notified of these designations and did not express any intention to challenge any of them.

In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 20-03-2018.

On 30-04-2018, the Respondent, duly notified to that effect, filed its response defending itself by way of objection.

Given that in the arbitral proceeding the general procedural principles of procedural economy and prohibition of performance of useless acts apply, pursuant to the provisions of subparagraphs c) and e) of Article 16 of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, as well as the presentation of arguments by the parties.

A deadline of 60 days was also set for the pronouncement of final decision, which deadline was extended until the end of the deadline referred to in Article 21/1 of the RJAT.

The Arbitral Tribunal has material jurisdiction and is duly constituted, pursuant to Articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March.

The proceeding is not affected by nullities.

Thus, there is no impediment to consideration of the case.

Having considered everything, it behoves us to decide

II. DECISION

A. FACTS

A.1. Facts established as proven

The Claimant submitted the IRC Model 22 declaration for the 2015 tax year, having determined a final amount of autonomous IRC taxation of €904,353.50.

In the 2015 tax year, the Claimant made two Special Payments on Account (PEC), of equal amount: the first on 30-03-2015 and the second on 30-10-2015.

The said PEC were not deducted from the collection of autonomous taxation.

The amount of €76,727.94 was not deducted from the collection of autonomous taxation, relating to the Extraordinary Fiscal Credit for Investment (CFEI), carried over from the 2013 tax year, relating to the controlled companies: B..., S.A., C..., S.A., D..., S.A. and E..., S.A.

Furthermore, the balance corresponding to the tax credit for double international taxation, in the amount of €1,674,893.88, was not deducted from the collection of autonomous taxation.

The settlement of IRC at issue resulted in payment by self-assessment by the Claimant of the amount of €904,343.50, relating to autonomous taxation, which payment the Claimant made.

On 04-08-2017, the Claimant filed an administrative complaint against the aforementioned self-assessment tax act for the 2015 tax year.

On 19-09-2017, through letter no...., the Claimant was notified of the draft decision on the administrative complaint in which the AT proposed dismissal of said complaint.

Following submission of the said administrative complaint petition, the Claimant was notified of its dismissal on 10-10-2017.

A.2. Facts established as not proven

With regard to matters relevant to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of proven and unproven facts

With respect to the facts, the Tribunal need not rule on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and distinguish established facts from unproven ones (cf. Article 123, paragraph 2, of the CPPT and Article 607, paragraph 3 of the CPC, applicable pursuant to Article 29, paragraph 1, subparagraphs a) and e), of the RJAT).

Accordingly, the facts pertinent to adjudication of the case are selected and determined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. former Article 511, paragraph 1, of the CPC, corresponding to current Article 596, applicable pursuant to Article 29, paragraph 1, subparagraph e), of the RJAT).

Thus, having regard to the positions taken by the parties, in light of Article 110, paragraph 7 of the CPPT, the documentary evidence and the file attached to the record, the facts listed above were considered proven and relevant to the decision.

B. LAW

The principal question to be decided in the present proceedings, while undoubtedly of some complexity in its resolution, is nevertheless simple in its formulation and concerns whether or not it is possible to deduct from the portion of IRC collection produced by autonomous taxation rates, tax benefits available under IRC, as well as amounts paid as Special Payment on Account and tax credits for double international taxation.

The Claimant invokes in support thereof, basing its argument essentially on the reasoning set forth therein, decisions rendered in arbitral proceedings at CAAD, to which may be cited in support of the Claimant's position, the decisions in proceedings no. 769/2014-T, 369/2015-T and 503/2016-T and to the contrary those rendered in proceedings no. 209/2013-T and 166/2014-T.

The issue underlying autonomous taxation has been, in this as in other matters, the subject of heated contention between taxpayers and the Tax Authority, a situation to which the very nature, indeed anti-systemic, of autonomous taxation is not unrelated, within the framework of income taxes, where it originated.

Indeed, the discussion that erupted with the new autonomous taxation rates introduced by Law No. 64/2008 of 5 December, and initially focused on the nature of the tax event underlying such taxation, opened a deep exploratory path concerning the nature of autonomous taxation and its relationship with income taxes, in particular IRC, which addressed the issues of deductibility of the amount of autonomous taxation from IRC collection, and the nature, presumptive or otherwise, of autonomous taxation on deductible expenses, without to date there having been a definitive legislative intervention, doctrinally grounded and coherent, clarifying the proper framework of such taxation in the edifice of income tax from which it emerged; instead, disconnected and conjunctural legislative interventions have succeeded one another, which contribute nothing, on the contrary, to clarification of the nature and function of such taxation.

In this context, ad hoc jurisprudential decisions follow equally ad hoc legislative interventions, creating a framework of uncertainty and instability where taxpayers and the Tax Authority have no recourse but perpetuated litigation to ascertain applicable law, falling to the judicial interpreter the ungrateful task of, in the tangled normative framework generated, serving the possible justice.

Let us proceed then.

When speaking of autonomous taxation, as is the case, it is convenient from the outset to bear in mind that what is at issue is a set of disparate situations, which will encompass, at least, three distinct types, namely:

• Autonomous taxation of certain income (e.g., Article 72 of current CIRS, and, it is believed, that provided in current paragraph 11 of Article 88 of CIRC);

• Autonomous taxation of certain deductible expenses (e.g., paragraph 7 of Article 88 of current CIRC);

• Autonomous taxation of other expenses regardless of their deductibility (e.g., paragraphs 1 and 2 of Article 88 of current CIRC).

From the standpoint of the functionality/purpose/rationale of autonomous taxation on expenses (excluding, therefore autonomous taxation of income), several types have also been identified, such as:

• The discouragement of certain taxpayer behaviour tending to be associated with fraud or tax evasion situations, as happens, for example, with autonomous taxation on undocumented expenses or payments to entities subject to privileged tax regimes;

• The combat against erosion of the taxable base, as generally happens with autonomous taxation on deductible expenses;

• The discouragement of certain expenses presumed not to be business-related, as happens with autonomous taxation on vehicle expenses, daily allowances or representation expenses;

• Taxation of disguised distribution of income to third parties, not taxed in their sphere (fringe benefits), as happens with autonomous taxation on vehicle expenses, daily allowances or representation expenses;

• Penalisation for incurrence of certain expenses, which do not affect the taxable base, nor have any underlying untaxed distribution of income to third parties, or fraudulent or evasive potential, but which the legislator, perhaps, considered luxurious or sumptuary, as happens with autonomous taxation on certain payments to managers, administrators or proprietors (current Article 88/13 of CIRC), as well as autonomous taxation on vehicle expenses to the extent it exceeds the normal IRC rate.

These data become important because by themselves they evidence the disparity and heterogeneity of situations subject to autonomous taxation, and the futility of, in judicial review, synthesising and seeking a unitary legal nature common to all situations.

Thus, the discussion should be centred on the concrete question raised by the Claimant and a properly grounded answer sought for the narrow terms of what is at issue in the proceedings, which will be to determine whether or not it is possible to deduct from the portion of IRC collection produced by autonomous taxation rates, tax benefits available under IRC, as well as amounts paid as Special Payment on Account and tax credits for double international taxation.

Properly framed in these terms, the question to be resolved in the proceedings, it will still be necessary to bear in mind that the fundamental reference for answering it will be that formulated in Article 9 of the Civil Code, according to which the legislative thought must be reconstructed, from the texts, which has in the wording of the law a minimum of verbal correspondence, even if imperfectly expressed.

In this context, the purpose of the present decision will not be to theorise about the legal nature of autonomous taxation in general, or any of its various types, but rather to ascertain whether the legislative thought, with a minimum of verbal correspondence in the wording of the law, even if imperfectly expressed, was or was not, at the date of the tax event at issue in the proceedings, such as to permit use of deduction from the portion of IRC collection produced by autonomous taxation rates, of tax incentives available under IRC, as well as amounts paid as Special Payment on Account and tax credits for double international taxation.

It will be futile, it is believed, to seek a conceptualist basis, grounded in a dogmatic definition of monolithic concepts of IRC and Autonomous Taxation, drawn from standard-setting foreign to the matter to be decided, professing a "scholastic ontologism" that seeks "to deduce in purely logical fashion, from abstract superior concepts, others, ever more concrete and full of content", a methodologically outdated approach.

Rather, the aim will be merely to ascertain which solution, in light of the law properly interpreted, appears to be appropriate for the concrete case, not taking the answer given to the question at issue as an accomplished, exact certainty with an extreme degree of accuracy and exactitude, but merely as that which, reflectively, presented itself to the undersigned as the, juridically, better solution.

The basis of the Claimant's claim is literally simple and linear and results from the observation that, inasmuch as autonomous taxation is IRC and its settlement is effected pursuant to Article 90, paragraph 1 of CIRC, to such settlement there shall apply the deductions provided in its paragraph 2.

Indeed, the following is the content of the applicable rules:

"1 - The settlement of IRC proceeds as follows:

a) When the settlement is to be effected by the taxpayer in the declarations referred to in Articles 120 and 122, it is based on the taxable matter contained therein;

b) In the absence of submission of the declaration referred to in Article 120, the settlement is effected by 30 November of the following year or, in the case provided in paragraph 2 of the said article, by the end of the 6th month following the end of the deadline for submission of the declaration mentioned therein and is based on the annual minimum monthly remuneration or, where greater, the total taxable matter of the closest tax year that is determined;

c) In the absence of settlement pursuant to the preceding subparagraphs, it is based on the elements available to the tax administration.

2 - To the amount determined pursuant to the preceding paragraph, the following deductions are made, in the order indicated:

a) That corresponding to double international taxation;

b) That relating to tax benefits;

c) That relating to special payment on account referred to in Article 106;

d) That relating to withholding tax not susceptible to offset or reimbursement pursuant to applicable legislation."

From a semantic-literal standpoint, accepting the premise – which is now accepted – that the settlement of autonomous taxation is effected pursuant to paragraph 1 of Article 90 transcribed, no other meaning can be extracted from the letter of the law than that presented by the Claimant, and by all the arbitral case law in which it is supported.

It happens, however, that legal reading, by legal imperative (and also logical-rational) is not confined, nor should it be confined, to the text of the rules as a semantic-grammatical reality, but should instead be placed on an axiological-rational plane, anchored in all elements of legal interpretation.

Hence, in order to obtain what is the correct reading of the text, it is necessary to perform certain tests at the level of the systematic edifice where the rule to be interpreted fits, so as to validate, in light of the same, and in accordance with the criteria of rationality, congruity and reasonableness that necessarily guide that normative structure, the interpretation literally suggested.

Thus, and first and foremost, one cannot overlook, as the Respondent rightly points out, that "there is not a single settlement of IRC, but rather two determinations; that is, two distinct calculations which, although effected pursuant to subparagraph a) of paragraph 1 of Article 90 of CIRC, in the declarations referred to in Articles 120 and 122 of the same code, are effected on the basis of different parameters, inasmuch as each is materialised in the application of its own rates, provided in Articles 87 or 88 of CIRC, to their respective taxable matters determined equally according to their own rules". This means that from Articles 89 and 90, paragraph 1 of CIRC, there converge two forms of settlement relating to the same tax, but radically distinct, namely, traditional IRC, or stricto sensu, and autonomous taxation.

The nature of autonomous taxation has been the subject of broad discussion in recent doctrine and case law.

One line of thought has viewed them as a tax on expenditure, which would tax certain types of expenses, in a manner entirely disconnected from income, to the point that some have argued that they constitute a separate tax, which only coincidentally would be integrated into the IRS and IRC codes.

Notwithstanding, recurrent acceptance in CAAD case law has been given to the understanding that autonomous taxation on deductible expenses integrate the regime of the income taxes regulated by the codes in which they are integrated, aiming, albeit in a roundabout manner, at income taxed by those.

In fact, and as has been had occasion to write elsewhere, "the complexity generated by successive alterations in the architecture of CIRC have led (...) to an atypical normative edifice, in which one can discern a core corresponding to what might be called IRC tout court (or in the strict sense), which the Claimant wishes to exhaust everything designated as IRC, and a periphery that integrates "marginal" regulations, largely withdrawn from the logic, nature and principles of IRC tout court, but which, notwithstanding, still lie within the "gravitational field" of that core.

And it is in the process of concretising this zone of difficult definition that all the decisions analysed (...) operate, and cannot be properly understood without also understanding that, in fact, what all the decisions in question are doing is ascertaining what consequences the "gravitation" around the core of IRC brings for the matters addressed in each of them."

In that sense, "within the hermeneutic framework outlined above, (...) by virtue of the historical evolution of the respective legal regime, a type of IRC has been constituted that integrates a hard core (...) and a group of adjacent regulations, which shares part of the logic and regime of that, but in many aspects diverges from the same." And, further, "from consideration of the legislative text, statically and in its historical evolution, it results that the legislator understood, and continues to understand, that autonomous taxation integrates IRC, if not as an impost stricto sensu, at least in terms of forming part of the same unitary tax regime".

This is because "the legal regime of autonomous taxation at issue in the proceedings only makes sense in the context of taxation under IRC. That is, disconnected from the legal regime of this tax, they would lack their principal point of reference for meaning. Their existence, their purpose, their explanation, in short, their juridicality, is only properly understandable and acceptable within the framework of the legal regime of IRC."

Hence it is not understood that "the definition of IRC contained in Articles 1 and 3 of CIRC" is "really superseded by a new definition of transversal/general application", such being an epistemological stance characteristic of a conceptualism that, preliminarily, is repudiated.

On the contrary: it is a recognition of that which, in light of the applicable legal framework, is imposed as most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and recognition of the regime thereof as a complex and multifaceted reality, irreducible to a definition of that kind, which only a fundamentally abstractionist conceptualism might presume."

Thus, "All that has been said shows that the evolution of the legal regime of IRC has transmuted it into a complex and multifaceted reality, at the most diverse levels, which is reflected, in the matter at hand in these proceedings, in such "dual nature" of which Prof. Saldanha Sanches spoke in the passage cited in Decision 617/2012 of TC.

The recognition of this duality of nature does not, however, prejudice, as is understood to underlie both the citation at issue and the case law citing it, that it be considered that the system, despite being dual, is the same. In other words, it only makes sense to speak of a system of dual nature if the system in question, globally considered, is still the same. Otherwise one would speak not of a system of dual nature, but of two distinct systems, which, by all that has been said, is not what occurs. And, in the present case, the system will be the regime of IRC, which operating now by profit, now by expenses, aims at and pursues the purposes of that tax, including, evidently, collection of revenue for the State."

Finally, "In conclusion, in light of all that has been set forth, and in favour of conceptual accuracy, it shall further be said that there is a tendency toward the understanding that autonomous taxation, as it currently exists, might be configured as a "hybrid" tax, inciding on the income of natural persons and legal entities, and not on consumption or expenditure, inasmuch as it does not present the principal characteristics of that form of taxation".

The foregoing echoes, to some extent, in the case law being produced by the Constitutional Court (TC), as is the case with Decision 197/2016 of 13-04-2016.

Indeed, acknowledging that the matter of autonomous taxation is "normatively regulated under income tax", the same Court confirms that it is "materially distinct from taxation under IRC", and that "we are (...) faced with distinct tax events and which are subject to differentiated tax treatment", going even so far as to state that "IRC and autonomous taxation are distinct taxes" and that such taxation "has nothing to do with taxation of income and profits", statements which must be read, it is believed, cum grano salis, framing them within the limitations that contextualise them, relating them to the existence of a "tax base" consisting of "certain expenses that constitute autonomous tax events", and to "subjection to specific rates", thereby understanding that autonomous taxation "has nothing to do with taxation of income and profits imputable to the economic activity of the enterprise" (which does not mean it is unrelated to income and profits in general), and that the distinction between autonomous taxation and IRC, being deep and marked, should be limited to what is necessary to safeguard the specificity thereof at the level of its teleology, tax base and specific rates, without prejudicing integration in the same normative edifice.

Indeed, it is believed, the TC is not arguing that autonomous taxation constitutes a tax on expenditure stricto sensu, completely alien and distinct from IRC, lest it be contradicted not only by the systematics of fiscal law and, expressly, by the legislator himself, but also would irremediably condemn autonomous taxation to formal unconstitutionality, by violation of subparagraph i) of Article 165, paragraph 1 of the Constitution, inasmuch as the authorising laws for the creation thereof did not licence the creation of a new tax on expenditure.

Notwithstanding, and without prejudice to what has been set forth, one cannot, in consideration of the matter at hand, disregard the (emphatically affirmed by TC) profound distinction, formal and teleological, between autonomous taxation in IRC and general taxation under that tax (IRC stricto sensu).

In summary: it has previously been detected, on the one hand, the futility of seeking a unitary concept of IRC that coherently accommodates the regime of autonomous taxation, and, on the other, the methodologically most fruitful way of generating juridically adequate solutions for the issue at hand is by understanding the current regime of IRC as the product of a historically explained evolution that led to the construction of a structure of dual or hybrid nature, comprising a main core corresponding to traditional IRC, and an adjacent part, interconnected with that and forming part of the same overall normative reality, with specificities of its own from which results a departure, in various and substantial respects, from the main regime, such that the general principles and solutions, notwithstanding sometimes applying, in other instances contradict, and as such are inapplicable, with the proper nature of that "adjacent regulation" that is embodied in what are called autonomous taxation.

And, as is already well-known, that proper, or specific, nature, grounded in logic foreign to the edifice of traditional IRC, shall be characterised, essentially, by notes well-recognised as characteristic of autonomous taxation, designedly, both as to its form of imposition (the instantaneous character of its tax event and the fact that it consists of an expense), and as to its anti-systemic ratio (the fact that some autonomous taxation has a facet directed directly at income of natural persons and/or a sanctionary facet, as well as an anti-abuse purpose).

Thus, it is believed one cannot, in the course of the solution to be obtained for the question at issue, overlook that, notwithstanding autonomous taxation and IRC stricto sensu (or traditional) do indeed converge, in the form of settlement regulated in Articles 89 and 90, paragraph 1 of the applicable CIRC, they derive, upstream of profoundly distinct geographies, a fact which cannot fail to be duly weighed and taken into account, in the solutions to be found downstream, designedly and for what matters for the case, as regards the reading to be made of the rule of Article 90 of the said Code.

Thus, as has been set forth, it is considered that integration of autonomous taxation in IRC is only viable in a context that recognises therein a system of dual nature, which for convenience may be designated as IRC in the broad sense, integrating a base system corresponding to traditional, or stricto sensu, IRC and a peripheral, autonomous system, which while still part of the same overall system, has its own functional and axiological specificities, from which results departure from application of the rules peculiar to that base system, whenever such is justified in light of the coherence of the system itself (the reasons justifying its autonomy).

Pursuing the interpretive path in course downstream, we shall proceed to assess the consequential effects of the limitation of that hermeneutic process to the literal layer of the subject matter of interpretation under analysis.

As the Respondent rightly points out in its response, the understanding proposed by the Claimant, according to which the expression "amount determined pursuant to the preceding paragraph" should be understood as encompassing the sum of the amount of IRC determined on the taxable matter determined in accordance with the rules of Chapter III and at the rates provided in Article 87 of the same Code, and the amount of autonomous taxation calculated on the basis of the rules provided in Article 88, would imply that in the basis of calculation of advance payments due in IRC, the values relating to autonomous taxation would be included as well, and not merely those relating to IRC stricto sensu.

Indeed, paragraph 1 of Article 105 of the IRC Code provides that: "Advance payments are calculated on the basis of tax settled pursuant to paragraph 1 of Article 90 (…)".

Now, understanding that the normative content of Article 90, paragraph 1 of CIRC in question precludes any distinction, for purposes of other rules referring to it, between tax settled as autonomous taxation and tax settled as IRC stricto sensu, one would have, coherently and in the same terms, to conclude that advance payments would be due based on the sum of both amounts, and such solution could not – it is believed – be considered in conformance with the spirit of a reasonable legislator.

Indeed – and advance payments not being the thema decidendum of the present proceeding – without great depth being required in this analysis, it shall still be said that that type of payment, as is doctrinally and jurisprudentially recognised, is based on an intention to advance taxation that will be finally due, having regard to taxable profit of the previous year.

In this sense, for example, it was written in the STA Decision of 07-03-2007, rendered in proceeding 0877/06, that (emphasis ours):

"From the legal definition of 'advance payment' an inevitable, necessary and essential overlap is drawn between 'advance payment' and 'finally due tax'.

Such that the 'basis' (statutory language) of 'advance payment' is the 'finally due tax'.

Which means that 'advance payment' is, in the very terms of the law, a pecuniary payment anticipated, made, on account of finally due tax, in the period of formation of the tax event.

Which also means that 'advance payment' must be assessed with reference to the accounting situation of the enterprise at the end of the period to which the advance payment refers.

Which decidedly means that, if no pecuniary sum were to be (in advance) delivered on account of finally due tax, in the pertinent period of formation of the tax event (to which the 'advance payment' refers) – particularly due to non-existence of taxable profit disclosed by accounting at that time –, that 'advance payment' has no substantive foundation. (...)

And, thus, if there be no taxable profit, there is no tax due."

Now, (at least some) autonomous taxation, as has likewise been indicated elsewhere, does not incide directly on income, doing so in a merely mediate or indirect manner, this being the justification for, notwithstanding such integrating the regime of broad-sense IRC, operating by way of expense and, consequently, being due even when the taxpayer does not show taxable profit.

Thus being, as is believed to be the case, it would be devoid of sense that to taxpayers showing no taxable profit be required advance payment on the basis of tax settled on expenses incurred and subject to autonomous taxation.

This is further corroborated by the distinct nature of the tax event underlying IRC stricto sensu and autonomous taxation. Indeed, the former being a tax event of continuous nature and the latter a tax event of instantaneous nature, only as to the former could sense be made in envisioning an advance of tax (advance payment), and not as to the latter, whose performance immediately generates a tax obligation.

However, and turning now to the concrete case, the same literal reading on which the Claimant's claim essentially rests would, as the Respondent states, lead to "the advance payments set out in paragraph 1 of Article 105 of the IRC Code being based on autonomous taxation", inasmuch as that rule provides (as laconically as Article 90/2 of CIRC) that: "Advance payments are calculated on the basis of tax settled pursuant to paragraph 1 of Article 90 (…)".

Now, with such not being at issue in the case sub iudice, it can be speculated that, certainly, if, in coherence, the Claimant had considered that for purposes of the said Article 105/1 of the applicable CIRC the collection of autonomous taxation was included, it would not fail to call attention to the fact that it had done so, or, that it had calculated advance payments it might have borne based, also, on that collection, stressing the consequent injustice that it would be to have been bearing such payments, considering that Article 105/1 of CIRC encompassed the collection of autonomous taxation, and not interpreting, in parallel, Article 90/2 of the same statute, in the same manner.

Being – evidently – this an insurmountably speculative argument, and, as such incapable of serving as a basis, of itself, for juridically grounded solutions, such does not prevent it from being a factor of consideration, demonstrative, on the one hand, of the structural instability of the insertion of autonomous taxation in IRC as it was operated, and, on the other, of the normative interconnection and the systematic perspective necessary to assessment of the solutions proposed for the legal problem to be decided.

It is understood that from a systematic perspective, the position adopted regarding the matter at issue, at least if in the sense sought by the Claimant, and adopted by the case law sustaining it, cannot fail to have reflexive effect on the position adopted regarding interpretation of the said Article 105/1 of CIRC, inasmuch as, as was pointed out above, the literal nature of the regimes is, precisely, the same.

Thus, from this standpoint it will be necessary to weigh, independently of what the practice of either the AT or the Claimant may have been, not only if sense makes that the rule of Article 105/1 of CIRC impose that the collection of autonomous taxation enter into the computation of the calculation of advance payments, but the circumstance, pointed out above, that the STA has already ruled to the effect that faced with "non-existence of taxable profit (...[the]...) 'advance payment' has no substantive foundation".

In the hermeneutic course in progress, it will likewise be necessary to consider the rule of paragraph 5 of Article 90 of the applicable CIRC, which provides that:

"The deductions referred to in paragraph 2 relating to entities to which the tax transparency regime established in Article 6 applies are imputed to their respective partners or members pursuant to the terms established in paragraph 3 of that article and deducted from the amount determined on the basis of the taxable matter that took into account the imputation provided in the same article".

This rule directly refers to Article 6 of the same Code, which prescribes, insofar as relevant to the case:

"1 - The taxable matter determined pursuant to this Code is imputed to partners, and integrated, under the terms of the applicable legislation, in their taxable income for purposes of IRS or IRC, as the case may be, of the following entities, with registered office or effective direction in Portuguese territory, even if there has been no distribution of profits:

a) Civil partnerships not constituted in commercial form;

b) Professional partnerships;

c) Partnerships for simple administration of assets, the majority of whose capital is owned, directly or indirectly, for more than 183 days of the tax year, by a family group, or whose capital is owned, on any day of the tax year, by not more than five partners and none of them is a public legal entity. (...)

3 - The imputation referred to in the preceding paragraphs is made to the partners or members in accordance with the terms resulting from the constitutive act of the entities mentioned therein or, in the absence of provisions, equally."

Fundamental in framing this issue is further the content of Article 12 of the same Code, which states that:

"Entities to which, pursuant to Article 6, the tax transparency regime applies are not taxed in IRC, except as to autonomous taxation."

While, also, the subject of entities subject to tax transparency regime is not the object of the present case, it will still be said, in summary, that from the literal reading in which the Claimant's claim is grounded, that is, that autonomous taxation integrates, without limitations and for all purposes, the collection of IRC, there would always result one of two equally unacceptable situations, namely:

• that entities referred to in Article 6, paragraph 1 of CIRC would be obliged to bear twice the burdens of autonomous taxation: (i) once in the sphere of the partnership, pursuant to Article 12 of CIRC, which expressly provides for it, and (ii) again pursuant to the combined terms of paragraphs 1 and 3 of Article 6 of CIRC, which impose that the "taxable matter, determined pursuant to this Code" relating to such entities is imputed to partners;

• or that, thus, not being so, that is, if by way of some type of interpretation the expression "taxable matter, determined pursuant to this Code" were restricted, purging autonomous taxation therefrom, from the combination of the above-transcribed rules of paragraph 5 of Article 90, Article 6 and Article 12, with the interpretation sustained by the Claimant for paragraph 1 of Article 90, it would result that IRC taxpayers subject to the tax transparency regime would be prevented, by way of the said Article 90, paragraph 5, from deducting from the amounts settled as autonomous taxation, the deductions provided in paragraph 2 of the same article, inasmuch as the latter amounts would be borne by the partnership, while the deductions would be available only to partners, thereby unjustifiably discriminating IRC taxpayers subject to the tax transparency regime from the remainder, which, under the Claimant's thesis, would have the faculty of having the deductions provided in paragraph 2 of Article 90 apply to the amounts settled, pursuant to paragraph 1 of the same article, as autonomous taxation.

One cannot fail to note further that autonomous taxation is, itself also, like fiscally transparent partnerships, an atypical situation in income tax (including IRC).

Once again, we are here in a perspective of weighing the implications in the normative edifice of IRC of the interpretations proposed for the applicable rule(s) to the situation sub iudice, such not being, evidently, a structuring argument, but rather an accessory factor of the solution to be drawn.

Arriving here, it behoves us to explore somewhat further the limits of the literal nature of the rules at the epicentre of the present dispute – Article 90, paragraphs 1 and 2 of the applicable CIRC – and the repercussions thereof in the broader framework of the relationship between traditional IRC and autonomous taxation in that tax.

As was set forth above, in the set of autonomous taxation, albeit limited to that which integrates the regime of broad-sense IRC, converge various situations of disparate origin and teleology.

Thus, synthetically and by way of example, there are autonomous taxation provisions that aim, singly or concurrently, to discourage certain economically undesirable conduct (e.g., excessive remuneration to managers), to tax the so-called fringe benefits (daily allowances; vehicle expenses), to mitigate the tax impact of expenses of dubious complete business character (likewise), to discourage behaviour with high fraud potential (payments to entities subject to clearly more favourable tax regime) or to penalise conduct fostering the so-called shadow economy (taxation of confidential expenses), or that are viewed by the legislator as sumptuary.

The literal nature of the interpretation proposed by the Claimant miscegena, in the narrow views of the letter of the law, all those situations – inasmuch as all will be settled pursuant to Article 90, paragraph 1 of the applicable CIRC, from which it necessarily follows that to the collection of all of them, the solution advocated by the Claimant will apply, that is, to all of them – without exception discernible nor, much less justified or, even, so far as can be conceived, justifiable – all deductions provided in paragraph 2 of Article 90 of CIRC in question would apply.

Now, already above, and on other occasions, the vain aspiration has been noted of enclosing, in a unitary substantive concept, all autonomous taxation, even those occurring only within IRC, given their teleological and functional disparity. And, here, emerges one of the principal weaknesses of the argumentative edifice in which lodges the position of the Claimant, underlying also the arbitral case law cited by it: that of resting on a postulate of uniqueness of IRC and autonomous taxation, taking the whole for the part which, concretely, integrates the matter at issue, on the one hand, and in an exclusive assessment of the type of deduction provided in paragraph 2 of the applicable Article 90 of CIRC that concretely is at issue in the case sub iudice.

That is: the position sustained by the Claimant, as well as those that corroborate it, do not at any point take care to frame the assessments effected by it and validate the application of the interpretation proposed by it to the entirety of autonomous taxation and deductions provided in paragraph 2 of the applicable Article 90, nor to assess the implications of application of the thesis in question, to all possible deductions to all collections of all autonomous taxation abstractly encompassed by such thesis, beyond, as has been noted already, abstaining from appreciation, in a broader perspective, of the systemic consequences of acceptance of the essentially literal reading they propose for the combination of the rules of paragraphs 1 and 2 of Article 90 of CIRC.

The crack in the edifice substantiating the position of the Claimant, as well as those sustaining it, thus opens, faced with this observation, in two distinct directions: (i) on the one hand, the reading proposed by the Claimant for the rule of Article 90, paragraph 2 of the applicable CIRC does not distinguish, nor permit distinguishing, between autonomous taxation relating to deductible expenses and other types of autonomous taxation; (ii) on the other hand, from the established facts does not result that the autonomous taxation at issue in the present proceedings does not relate to distinct types of autonomous taxation, such as, for example, autonomous taxation relating to undocumented expenses, bonuses and other variable remuneration of managers, administrators or proprietors, or payments to entities subject to a clearly more favourable tax regime.

From what has been said results, from the outset, that all argument regarding the nature of autonomous taxation, as still taxing income of entities subject to it, is insufficient for the decision of the matter sub iudice, inasmuch as it is not even demonstrated that exclusively in question are autonomous taxation where the characteristics in which that argument is grounded are recognised.

Such a vision harbours in it, thus, the potential to shelter claims, in which the intent is to effect deductions pursuant to paragraph 2 of the applicable Article 90 of CIRC to autonomous taxation as to which the consideration of the nature of autonomous taxation, as still taxing income of entities subject to it, is not valid, such as those referred to, relating to confidential expenses, payments to entities subject to privileged tax regimes or relating to management compensation.

Now, this type of result cannot be taken as intended by a reasonable legislator, in light of the entirety of the systematics of IRC in broad sense, including autonomous taxation. Indeed, it will not be sustainable that, the legislator of CIRC having gone where, juridically, it went, having in view, for example, combating the shadow economy or transactions with the so-called (incorrectly) "tax havens", its intention was that the respective burden of autonomous taxation could be lightened by means of the deductions provided in paragraph 2 of Article 90 of CIRC.

Within the decisional topics to be considered, it will also be necessary to make mention of the entry into force of the new wording of paragraph 21 of Article 88 of CIRC, introduced by the Law approving the State Budget for 2016 (Law No. 7-A/2016 of 30 March), which came to state that:

"The settlement of autonomous taxation in IRC is effected pursuant to the provisions of Article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, with no deductions being made to the total amount determined."

This rule is the subject of Article 135 of the said Law approving the 2016 Budget, which states that:

"The wording given by this law to paragraph 6 of Article 51, paragraph 15 of Article 83, paragraph 1 of Article 84, paragraphs 20 and 21 of Article 88 and paragraph 8 of Article 117 of the IRC Code has an interpretative nature."

As is well-known, the question was raised whether paragraph 21 of Article 88 of CIRC, introduced by the 2016 Budget Law, has (as the law itself states) or does not have an interpretative nature, as well as the constitutionality of such nature, these issues having been superseded by the Decision of the Constitutional Court that found Article 135 of Law No. 7-A/2016 of 30 March to be unconstitutional.

Notwithstanding, the legislative amendment in question continues to have interest for the matter now at hand, inasmuch as the legislator in the 2016 Budget Law opted to exclude application of part of the provisions of Article 90 of the IRC Code for the collection of IRC, from the collection of autonomous taxation in IRC, confirming that there is no conceptual or principled obstacle to, by interpretative means, reaching that same result.

Indeed, from the IRC Code itself, in the wording applicable at the date of the tax events, it already resulted that the regime of that tax presumed such differentiation at the level of the said Article 90, to the effect that to the collection of autonomous taxation was not admissible, on principle, any deduction, resulting such from the provision of paragraph 12 of Article 88, introduced by Decree-Law No. 192/2005 of 7/11, which provides that:

"To the amount of tax determined, in accordance with the provision of the preceding paragraph, the tax that may have been withheld at source is deducted, and in that case the withheld tax cannot be deducted pursuant to paragraph 2 of Article 90."

The autonomous taxation in question, save for better opinion, should be understood as being due by the entity deriving the profits, inasmuch as if in question were the autonomous taxation of the entity distributing profits, never would the question arise of deduction of withholding at source from the collection of autonomous taxation in question, inasmuch as the withholdings at source to which Article 90/2 of CIRC refers should be considered withholdings on income derived by the entity owing IRC, and not income paid and withholdings effected by it, and in any case, never would the question arise of withholding at source on distributed profits being deducted from the collection (whether of IRC or autonomous taxation) inasmuch as such amount is withheld from the exempt entity, not being, therefore, borne by the entity distributing the profits, and not being therefore, always saving better opinion, the withholding at source susceptible of constituting any penalisation for the entity distributing the profits.

Such circumstance that the autonomous taxation now at issue should be considered due by the entity deriving the profits, and not that distributing them, will not prejudice its nature as autonomous taxation, and will be to that collection of autonomous taxation, settled and paid by the exempt entity that did not maintain the shareholdings for a year, and that derived dividends therefrom, that can exceptionally be deducted the withheld tax, being, precisely, the sense of the provision that, in that case, the withheld tax cannot be deducted pursuant to Article 90/2, the evidence that deductions provided in that article do not apply to the collection of autonomous taxation, inasmuch as if such were not so, the provision of Article 88/12 would be a uselessness in a dual sense, inasmuch as:

• deduction of withheld tax at source from the collection of autonomous taxation at issue already flowed from the said Article 90/2, so it would make no sense to affirm it in Article 88/12;

• if withheld tax at source were deducted from the collection of autonomous taxation, pursuant to Article 90/2, it could never be deducted twice (for the same reason it cannot be deducted twice from IRC collection), so also the provision of Article 88/12 that, deducting withheld tax at source from the collection of autonomous taxation, it cannot be deducted pursuant to Article 90/2 would also be, itself, a uselessness.

Thus, the said rule, by providing that to the amount of tax resulting from autonomous taxation, in the situations provided in paragraph 11, of 25% on profits distributed by entities subject to IRC to taxpayers benefiting from exemption, the tax that may have been withheld at source can be deducted, will have implicit the understanding that, as a rule, to the collection of autonomous taxation, deductions were not admissible, designedly those provided in Article 90/2 of CIRC, which already provided for the possibility of deduction of withholdings at source from the collection of IRC referred to in paragraph 1 of the same rule.

That is: if, as the Claimant argues and the case law in which it is sustained does, already resulted from the combination of paragraphs 1 and 2 of Article 90 of CIRC that withholdings at source were deductible from the collection of autonomous taxation, including that provided in the said paragraph 11, the rule of paragraph 12 of Article 88 of CIRC, in the part in which it permitted precisely such deduction, was a useless rule, doing nothing more than reaffirm, without any sense, the general rule.

More: the rule in question, of paragraph 12 of Article 88, introduced by Decree-Law No. 192/2005 of 7/11, takes pains to affirm that, should deduction of withholdings at source therein provided be effected from autonomous taxation, "the withheld tax cannot be deducted pursuant to paragraph 2 of Article 90", evidencing, it is believed, in sufficiently perceptible fashion, that the deductions possible pursuant to the said Article 90/2 were not already applicable to the collection resulting from autonomous taxation.

Indeed, the 2nd part of the rule of paragraph 12 of Article 88 under analysis aims to prevent duplication of deduction of withholdings at source encompassed by it, which only makes sense if it is viewed, as shall be seen infra, that from application of the rule of Article 90/1 of CIRC does not result – contrary to what the Claimant argues – a monolithic collection of IRC, but that the said division between the collection of autonomous taxation in IRC and the general collection of IRC was maintained in that rule, and that Article 90/2 applied only to the latter, and not to the former.

Unless it be thus, this second part of Article 88/12 of CIRC would also be entirely devoid of sense, inasmuch as if, within Article 90/1 of CIRC, the collection of autonomous taxation in IRC were merged into a single collection of IRC, as the Claimant claims and the case law it relies upon argues, it would be evident that there could never be double deduction of withholdings at source from one same, and unique, collection.

That is, and in summary, the legislator's option as to the limitation implicit in the last part of Article 88, paragraph 21 of CIRC, in the wording introduced to it by the 2016 Budget Law, was already implicit in the Code of such tax, at the level of Article 88/12, from which already resulted, in the terms set forth that:

• as a rule, the collection of autonomous taxation did not admit deductions; and

• Article 90/2 of CIRC was not applicable to the collection of autonomous taxation.

Summarising what has been said above, it is verified, from the outset, that the interpretation sustained by the Claimant rests, essentially, on the literal content of the rules of paragraphs 1 and 2 of Article 90 of the applicable CIRC, with no substantial foundation being discerned that justifies the solution in question, all the more so since the arguments on which such position rests restrict themselves, essentially, to autonomous taxation on deductible expenses and to the deductions concretely at issue (CFEI benefit, PEC and double taxation credit), such that, on the one hand, nothing proves that, in the concrete case, only autonomous taxation of that type is in question (and not others), and, on the other, from the proposed interpretation there would always follow that all deductions provided in Article 90, paragraph 2 of CIRC in question would apply to all types of autonomous taxation, including, for example, those relating to payments to entities subject to clearly more favourable taxation regimes, those relating to confidential expenses or compensation to proprietors, and none of the substantial arguments on which the Claimant's position rests permit justifying that such occur.

On the other hand, as was seen, while it is true that Article 90, paragraph 1 of CIRC in question does not distinguish between the settlement of autonomous taxation and the settlement of traditional or stricto sensu IRC (on taxable profit), the truth is that, upstream, the procedure and nature of the two types of tax imposition is substantially distinct, as was seen and as the constitutional case law on the matter amply confirms, a situation to which one cannot, it is believed, fail to attend in the matter sub iudice.

It further accrues that, as was also seen, ratification of the interpretation sustaining the Claimant's petition would, downstream, generate notable turbulence in the normative edifice of IRC, designedly as regards the regimes of advance payment and entities subject to the tax transparency regime.

Finally, and as was just seen, at the level of Article 88/12 of the applicable CIRC, it already resulted, in the terms set forth, that:

• as a rule, the collection of autonomous taxation did not admit deductions; and

• Article 90/2 of CIRC was not applicable to the collection of autonomous taxation.

For all this, it is believed that in the strict combination of the text of the two rules, the legislator said more than that which it intended, a situation which, moreover, resulted not from coeval carelessness in the wording of such rules, but rather from the historical evolution of the normative regime of IRC and, concretely, from the gradual introduction therein of the regime relating to autonomous taxation, without the same being reflected, coherently, in the content of Article 90, paragraph 2 of the same Code.

This discrepancy is, moreover, evident in the rule of paragraph 21 of Article 88 of CIRC, introduced by Law No. 7-A/2016 of 30 March, which, by providing that no "deductions are made to the total amount determined" of autonomous taxation, does not except paragraph 12 of the same article which provides, precisely, for the possibility of deductions from the autonomous taxation to which it refers.

We are, thus, faced with a situation described by the Illustrious Master Prof. Dr. Baptista Machado, in which: "At times, although rarely, it will be necessary to go further still and sacrifice, still in obedience to the legislative thought, part of a normative formula, or even the entirety of the rule. These are aborted legislative formulas or actual lapses. When the normative formula is so poorly conceived that it does not even refer with minimal clarity to the hypotheses it intends to encompass and, taken literally, encompasses others which decidedly are not in the spirit of the law, one may speak of corrective interpretation. The interpreter shall resort to such form of interpretation, clearly, only when by such means alone is it possible to achieve the end aimed at by the legislator."

Indeed, the normative formula of Article 90, paragraph 2 of the applicable CIRC, taken literally, as the Claimant does, encompasses hypotheses which, as was seen, are decidedly not in the spirit of the law nor are conformable with the specificities and proper nature of the diverse autonomous taxation. In the case, as has already been referred to, not due to poor conception of the rule itself, but of the successive reforms which historically introduced autonomous taxation in IRC, without the same being reflected, correspondingly, in the wording of Article 90, paragraph 2 of such Code.

On the other hand, systematically considered, such formula, reduced to its literal nature, is generative of grave and insurmountable incoherencies, as was seen, in addition to, as was also seen, the applicable CIRC having already, in the rule of paragraph 12 of Article 88, textual evidence that the rule of Article 90/2 of the same Code would not, as a rule, be applicable to the collection of autonomous taxation, realised in paragraph 1 of the article.

Thus, taking into account the rational, historical and systematic understanding of the rule in question, it becomes imperative to interpret correctively the rule of Article 90, paragraph 2 of the applicable CIRC, so as to restrict the referral it makes to paragraph 1 of the same rule, in the reference it makes "To the amount determined pursuant to the preceding paragraph", limiting it to the amount of IRC collection calculated by application of the rates of Article 87 to the taxable matter determined in accordance with the rules of Chapter III of the Code, and not to amounts determined as autonomous taxation, thus restoring to the rule its original sense, which was that corresponding to its textual wording before the introduction of autonomous taxation in CIRC.

It is admitted that the soundness of the legislative option referred to, implicit until the introduction of paragraph 21 of Article 88 of CIRC by Law No. 7-A/2016 of 30 March, and from then explicit, as regards the inadmissibility of other types of deduction, beyond that provided in paragraph 12 of the same Article 88, to the collection of other types of autonomous taxation, may be questioned. Notwithstanding, it is believed that such option, now expressed in the said Article 88/21 of CIRC, is contained still within the space of legislative discretion, not offending the fundamental content of any constitutional provision convocable to the case.

In light of the foregoing, and believing that, in light of the law applicable to the tax event at issue in the present arbitral action, deduction pursuant to paragraph 2 of Article 90 of CIRC from the collection of autonomous taxation effected pursuant to paragraph 1 of the same article was not admissible, the arbitral petition should be dismissed.

Note, to conclude, that the substantiation of the present decision, and the basis of the defence of the AT in arbitral proceedings, do not entirely coincide with the substantiation of the act deciding the administrative complaint filed by the Claimant.

Such is not, save respect due to other opinions, in the case, grounds for annulment of such act.

Indeed, from the outset, it has been peacefully understood, also, that:

"In matters of law, the court is not bound by the allegations of the parties, nor even as to the legal characterisation of the facts effected by them, and enjoys freedom in the investigation, interpretation and application of Law (Article 664 of CPC)."

On the other hand, and as has likewise been case law:

"Despite the implications which the declaration of substantiation may possibly have on the substance of the decision, distinction must be made between the formal aspect, that which matters in fulfilment of the imperative of substantiation, and the material aspect, which in the structure of the act relates above all to the existence of the real presuppositions supporting the underlying decision."

That is, the formal substantiation, impressed in fulfilment of the imperative of substantiation, may be right or wrong, contending only with the validity of the act if, and to the extent, in which it crystallises the factual and legal presuppositions thereof and such are non-conformable with law, consisting in an error of fact and/or law.

It further accrues that Article 2 of the RJAT takes as the reference for the jurisdiction of arbitral tribunals, primary acts ("acts of tax settlement, self-assessment, withholding at source and advance payment"), secondary acts being relevant only as references for the timeliness of the challenging claim, as results from Article 10, paragraph 1, subparagraph a) of that Regime, where it is imposed that petitions for constitution of arbitral tribunal be presented within 90 days, counted from the facts provided in paragraphs 1 and 2 of Article 102 of the Code of Procedure and Tax Process.

Hence, in the first instance, in the present proceeding the lawfulness of the Claimant's self-assessment act for IRC (direct subject of the jurisdiction of arbitral tribunals) is being examined, the lawfulness of the secondary act of administrative complaint – whose principal function is to guarantee the timeliness of the Claimant for challenging the primary act before arbitration – being merely reflexive or derived from the lawfulness of that.

Thus, possible annulment of the act deciding the administrative complaint, due to wrong substantiation, when – as is the case – it is concluded that the illegalities raised against the primary act are not verified, would always result in a useless act, and as such prohibited, inasmuch as, bound by res judicata, the Tax Authority could not do more in the new act than necessarily confirm what was decided in judicial proceedings, which moreover is reflected in the regime of paragraph 6 of Article 163 of the new Administrative Procedure Code, which is deemed applicable in that case.

C. DECISION

Accordingly, it is hereby decided by this Arbitral Tribunal to dismiss the arbitral petition filed and, consequently, to maintain the tax acts subject to the present arbitral action and to condemn the Claimant for the costs of the proceeding, as fixed below, taking into account what has already been paid.

D. Value of the Proceeding

The value of the proceeding is fixed at € 949,985.36, pursuant to Article 97-A, paragraph 1, a), of the Code of Procedure and Tax Process, applicable by virtue of subparagraphs a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 13,158.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, inasmuch as the petition was entirely dismissed, pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the said Regulation.

Notify accordingly.

Lisbon, 18 September 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Fernando Borges de Araújo)

The Arbitrator Member

(Raquel Franco)
(dissenting pursuant to attached dissenting opinion)

DISSENTING OPINION

I disagree with the thesis that prevailed on the grounds indicated below.

To answer the questions raised to this Arbitral Tribunal, which refer to the 2015 tax year, I believe, from the outset, it to be fundamental to know whether, regardless of the nature of the tax to which autonomous taxation refers, the respective amount is "determined pursuant to Article 90 of CIRC".

Article 90 of CIRC refers to the forms of settlement of IRC, by the taxpayer or by the AT, applying to the determination of the tax due in all situations provided for in the Code. Thus, it also applies to the settlement of the amount of autonomous taxation, inasmuch as there is no other provision prescribing different terms for its settlement. Its autonomy is restricted, moreover, to the applicable rates and their taxable matter – which does not justify, in my view, that a distinction should be made between the collection resulting from autonomous taxation and the remainder of IRC collection. Application of autonomous taxation rates is effected within the framework of settlement of IRC, the result determined integrates IRC collection, the payment made by the taxpayer is-made as IRC and in the determination of a possible refund pursuant to paragraph 2 of Article 104 of CIRC no distinction is made regarding autonomous taxation rates.

The argument that the anti-abuse nature of autonomous taxation justifies non-deductibility does not, in my view, hold, for the simple but decisive fact that such argument finds no support in any rule of the Portuguese tax-legal system. While the issue and dissuasive intent of practices is understood, therefrom one cannot, in my view, make the leap to the conclusion that the amount determined by application of autonomous taxation rates cannot be made subject to any deductions. Indeed, to understand that the taxpayer must be prejudiced twice (by application of the autonomous taxation rate and by exclusion of the right to deduction as regards the portion of collection resulting from application of autonomous taxation rates) without express legal provision is, in my view, excessive.

It seems to me, from analysis of the IRC Code, that the sum collected by means of such autonomous taxation is collected as IRC, consisting only of a manner of aggravation of collection by means of certain expenses incurred. Resorting to what is said, in this regard, in the Decision rendered in proceeding 775/2015-T, "(…) autonomous taxation are inseparable from the subjects of the respective income tax, and, more specifically, from the economic activity carried out by them, which is even more evident when one thinks of the connection that, although it has varied in successive legislative amendments, autonomous taxation had and still has some connection with deductibility – and actual deduction – of taxed expenses. This circumstance, it is believed, is elucidative of the imbrication existing between those and IRC (in the case), and justificatory not only of its inclusion in CIRC, but, equally, of its integration, fully, as part of the legal regime of IRC."

I also follow the Decision rendered in proceeding 5/2016-T in the segment in which it states that "instead of the qualification hardly explicable, and of meaning contrary to the various indices already made explicit, of "autonomous taxation" as a tax on expenditure grafted onto an income tax, it is understood that the figure of "autonomous taxation rates" consists of a technique for aggravation of IRC collection, which acts on expenses – a fundamental element in the determination of taxable profit –, and which configures a fiscal increase (or, an operation of meaning opposite to that of fiscal deduction)."

Considering – as is considered – that autonomous taxation integrates the regime of IRC, it then matters to know what is deductible from its collection. Now, on this aspect, once again resort is made to the words used in the Arbitral Decision rendered in proceeding 775-2015-T:

"Understanding that autonomous taxation is (part of) IRC, it is understood that the settlement of IRC is single, including the part resulting from autonomous taxation."

There is a single settlement of IRC which comprises two parts: the settlement of autonomous taxation and that of the remainder of IRC, each with taxable matter determined in its own manner and with its own taxation rates, but both settled pursuant to Article 90 of CIRC. Having a single settlement, it is concluded that the portion of collection resulting from autonomous taxation is an integral part of IRC collection.

On the contrary, there is no reference in any other article of CIRC to settlement of autonomous taxation as a distinct process. To accept that the collection of autonomous taxation is not included in Article 90 of CIRC would be to accept that there is a gap in the law and, being this a fiscal law, does not permit supplementation.

With no rule on settlement of autonomous taxation distinct from that which regulates general settlement of IRC, I believe it is to be accepted that IRC collection encompasses it, including itself in Article 90, paragraph 1 of CIRC and being, therefore, deductible, designedly the values which are at issue in the present proceeding. The absence of limits on deductibility of these realities from collection resulting from autonomous taxation also points in that direction – which the legislator could have done, just as it did in enunciating several exceptions and limits to the rules of deductibility of paragraph 2 of Article 90 of CIRC.

As to the amendment introduced by the Law approving the 2016 State Budget (Law 7-A/2016 of 30 March), in concrete, as respects the introduction of paragraph 21 of Article 88 of CIRC, I understand the following: several paragraphs were added by this Law to Article 88 of CIRC, which refers to autonomous taxation, among them paragraph 21, according to which "The settlement of autonomous taxation in IRC is effected pursuant to the provisions of Article 89 and is based on the values and rates resulting from the provision of the preceding paragraphs, with no deductions being made to the total amount determined." In Article 135 the legislator provides that "the wording given by this law to paragraph 6 of Article 51, paragraph 15 of Article 83, paragraph 1 of Article 84, paragraphs 20 and 21 of Article 88 and paragraph 8 of Article 117 of the IRC Code has an interpretative nature."

Article 90 was not amended, continuing to refer to IRC collection and, for all that set forth above, the collection resulting from application of the rules of Article 88 is IRC collection. What paragraph 21 of Article 88 came to prohibit is that, to this collection, any deductions be made until such time as, with the total collection of IRC determined, the deductions of Article 90 are made. As to the interpretative character, the Constitutional Court understood in Decision no. 267/2017 of 31-05-2017, that it implies its unconstitutionality, due to retroactive unfavourable effect on taxpayers. In the present case, with the tax period at issue corresponding to the year 2015, the amendment introduced by the State Budget Law for 2016