Summary
Full Decision
ARBITRAL DECISION
1. REPORT
1.1 A…, S.A., (hereinafter referred to as "Claimant"), a public company, unique identification number and registration …, with registered office at …, … …, …, …-… Lisbon, came, on 23 February 2017, under the terms of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (RJAT), to request the constitution of an Arbitral Tribunal.
1.2 The PORTUGUESE TAX AND CUSTOMS AUTHORITY is the Respondent in these proceedings.
1.3 The Ethics Council of the Centre for Administrative Arbitration (CAAD) designated the undersigned to form the Collective Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 28 April 2017.
1.4 The request for arbitral ruling has as its object the express dismissal of the requests for official revision of the self-assessment tax acts of PIT numbers …2016…, relating to 2011 and …2016…, relating to 2012, a decision of which the Claimant was notified on 22 December 2016.
The Claimant comes to react against such dismissal, continuing to maintain the illegality of the self-assessments of CIT, including autonomous taxation rates, due to improper exclusion of deductions from the collection relating to amounts paid as special payment on account.
The Claimant therefore believes that the Respondent is indebted to that total amount, relating to autonomous taxation, in the amount of 216,313.73€, equivalent to the deduction of the amount paid up to the absolute limit of the collection, as regards the period of 2011.
In the period of 2012, following the same understanding, it considers that it has the right to be reimbursed by the Respondent the sum of 41,885.82€, by effect of the full deduction of the PEC up to the absolute limit of the collection.
The Claimant requests that, as a consequence of the intended annulment of the assessments in dispute, the Respondent be condemned to reimburse it that amount plus indemnity interest at the legal rate counted from the date of the respective assessments until full and complete payment.
With respect to the error of the TA, which, in the understanding of the Claimant, sustains its right to interest, it alleges that the TA's computer system, through which CIT is self-assessed, does not allow taxpayers to deduct, for purposes of determining CIT owed by them, from the CIT resulting from autonomous taxation assessed, the PEC, i.e., that system does not allow, therefore, to deduct a portion of the advance payments made on account of CIT that will be due in final – the PEC – to a part of the CIT finally actually assessed – the autonomous taxation.
That is, that, intentionally or inadvertently, the IRC Model Declaration 22 and its articulation with the programming of the TA's computer system prevents deduction from the collection related to CIT autonomous taxation rates, entered in field 365 of table 10 of Model Declaration 22, the PEC still to be deducted from the collection of CIT, starting with the oldest ones, and that, in the case in question, the TA's computer system prevented the claimant from entering the value relating to those CIT autonomous taxation rates, purged, i.e., deducted, within the limits of the CIT collection resulting from the application of these rates, of the PEC still available (starting with the oldest) for offset against the CIT collection, which resulted in an overpayment of tax by reference to the tax years 2011 and 2012 at issue here, to the extent that accumulated PEC are more than sufficient to compensate, through their use, the collection of CIT autonomous taxation for the tax years 2011 and 2012 at issue here.
1.5 The PORTUGUESE TAX AND CUSTOMS AUTHORITY replied on 26 May 2017 and on the same date joined the administrative file to the proceedings.
It defended itself by exception, alleging that "considering the provisions of Articles 2, No. 1, paragraph a) and 4, No. 1, both of RJAT, and Articles 1 and 2, paragraph a), both of Ordinance No. 112-A/2011, of 22.03, the exception of material incompetence of this Arbitral Tribunal is verified to hear and decide the above request [Article 576, Nos. 1 and 2 of CPC as per Article 2, paragraph e) of TCPT and Article 29, No. 1, paragraphs a) and e) of RJAT, which prevents the hearing of the request and the absolution of the TA from the instance, under the terms of Articles 576, No. 2 and 577, paragraph a) of CPC, as per Article 29, No. 1, paragraphs a) and e) of RJAT".
As grounds for the alleged exception, it invokes the provision that expressly excludes from the scope of the TA's binding to the jurisdiction of the arbitral tribunals operating in the CAAD, the "claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative procedure in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process" and that the Claimant did not resort to these, rather to the official revision procedure provided for in Article 78 of the LGT and because the deadline to assess in the context of the gracious claim of the invoked illegality had been exhausted.
By impugning, it defended itself by invoking the grounds of the dismissal decisions in dispute.
1.6. Notified of the Tribunal's intention to dispense with the arbitral tribunal meeting provided for in Article 18 of RJAT, the parties did not come to object and presented their submissions, in which the Claimant replied to the exception invoked by the Respondent, maintaining that the equation of the request for official revision of the tax act to the request for gracious claim of self-assessment acts is manifest, for purposes of assessing the competence of this Tribunal.
The Respondent maintained, in its submissions, the positions already previously sustained.
1.7. On 20 June 2017, the Claimant joined to the proceedings the text of the Decision of the Constitutional Court 267/2017, which finds unconstitutional the norm of Article 135 of Law 7-A/2016, of 30 March. An order of the same date was issued admitting the joining.
2. DETERMINATION OF ISSUES
The issue of the competence of this Tribunal was raised, which is subject to prior knowledge and which it is necessary, therefore, to appreciate.
The Respondent maintains, in its reply, that the binding of the Tax Administration to the Arbitral Tribunal depends, in cases of self-assessment – as is the case in these proceedings – on prior recourse to the administrative procedure by the means provided for in Articles 131 to 133 of the Code of Procedure and Tax Process.
The Claimant, not challenging this norm and not having denied that it did not submit any prior claim, defends itself through the alleged equation of the request for official revision of the tax act, having been this the means it chose to attack through the administrative procedure the acts here impugned.
This, then, and it is simple, in our view, is the vexata quaestio: the enumeration provided for in RJAT, when referring to the prior administrative contentious means as being those provided for in Articles 131 to 133 of TCPT, is exhaustive, or does this norm admit that the impugnation was preceded by other means of gracious attack, other than these?
Let us see:
By force of the referral of No. 1 of Article 4 of RJAT, the binding of the TA to the jurisdiction of the Arbitral Tribunals constituted under that diploma is dependent on the provision of Ordinance No. 112-A/2011, designedly as regards the type and maximum value of the disputes covered.
Article 2, paragraph a) of Ordinance 112-A/2011 provides that the binding of the TA to the referred jurisdiction has as its object the appreciation of claims relating to taxes whose administration is incumbent upon it, referred to in No. 1 of Article 2 of RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative procedure in accordance with Articles 131 to 133 of the Code of Procedure and Tax Process".
However, it is not apparent, among the reasons advanced by the Respondent, a substantial reason why, given the conditions and specificities of each of the gracious means in question, the legality of self-assessment acts should not be cognizable in arbitral proceedings, in the same terms as the tax courts are bound. Indeed, even a strictly literal interpretation, provided it is properly contextualized, would not lead to the result advocated by the Respondent.
In fact, the expression used by the norm in question is parallel to the very norm of Article 131/1 of TCPT, which should be understood as a realization of the commonly recognized legislative intention that the tax arbitral process constitute an alternative procedural means to the judicial impugnation process.
The norm of paragraph a) of Article 2 of Ordinance 112-A/2011, of 22 March, should also be understood as being explained by the circumstance that, in its absence – and in view of the content of Article 2 of RJAT – it was possible to outline direct impugnation of self-assessment acts without precedence of prior administrative ruling.
That is, having in mind that in light of RJAT it was not necessary to configure any prior administrative intervention before the arbitral impugnation of a self-assessment, the content of the Ordinance should be interpreted as equating – in this matter – the tax arbitral process to the judicial impugnation process and not, as would result from the position sustained by the Respondent, go from 80 to 8, taking an impugnability broader than that possible in Tax Courts, and transmuting it into a more restrictive one.
Thus, no reason is seen for interpreting differently one and the other norm, especially since the letter of the norm of Ordinance 112-A/2011, of 22 March, ends up being less restrictive than that of TCPT, in that it does not integrate the expression "mandatorily", nor does it refer to "gracious claim", but to "administrative procedure".
Hence it is possible to read the very letter of the law in the sense that only excluded from the scope of tax arbitral jurisdiction is the knowledge of claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative procedure in terms compatible with Articles 131 to 133 of TCPT.
And this is the reading that is subscribed to, in the sequence of the Decision rendered in proceedings 48/2012-T of CAAD and subsequent arbitral jurisprudence, namely, in proceedings 670/2015 and 122/2016, it not being conceived, in that the interpretation made is contained within the letter of the law, that violation of any constitutional provision may result therefrom, much less, the indicated Articles 2, 3, No. 2, 111 and 266, No. 2, all of the Constitution of the Portuguese Republic (CRP).
Thus, and in view of all the foregoing, the Respondent not having right in this matter, the exception of incompetence of the Arbitral Tribunal is judged unfounded.
The Tribunal was regularly constituted, the parties have legal personality and capacity, show themselves legitimate and are regularly represented.
There are no further exceptions to decide, nor nullities or issues that constitute an obstacle to the appreciation of the merits of the case.
3. FACTS
With relevance to the decision on the merits, the Tribunal considers the following factuality proven:
1) The Claimant is a company with registered office and effective management in national territory, passive subject of CIT subject to the general taxation regime;
2) The Claimant submitted the CIT Model Declaration 22 for 2011 on 30.01.2013;
3) The Claimant submitted the CIT Model Declaration 22 for 2012 on 11.07.2013;
4) According to the information made available electronically by the Respondent, in the Claimant's area of the Finance Portal, the amount of special payments on account still subject to deduction in the taxation period of 2011 was 420,000.00€, relating to amounts paid and not deducted since 2007, under the terms of the table reproduced:
[Table content not fully readable in original]
5) In the taxation period of 2011 autonomous taxation was assessed by the Claimant in the amount of 216,313.73€;
6) This amount was effectively paid by the Claimant, in that the computer system does not allow the deduction of amounts relating to special payments on account to the collection determined that also results from amounts of autonomous taxation;
7) The Claimant, not conforming, reacted through the administrative procedure against this self-assessment act, through a request for revision of the tax act;
8) In the taxation period of 2012 autonomous taxation was assessed by the Claimant in the amount of 41,885.82€;
9) This amount was effectively paid by the Claimant, in that the computer system does not allow the deduction of amounts relating to special payments on account still available for deduction, to the collection determined that also results from amounts of autonomous taxation;
10) The Claimant, not conforming, reacted through a request for official revision of the tax act;
11) Both revision requests were dismissed.
Facts Not Proven
No facts with relevance to the appreciation of the merits of the case were found that were not proven.
Grounds of the Decision on the Facts
The conviction regarding the facts given as proven was based on the documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.
4. ISSUES TO BE DECIDED
The principal issue submitted to the appreciation of the Arbitral Tribunal is to assess whether the Claimant has the right to proceed with the deduction, also to the collection of CIT produced by the application of autonomous taxation rates, of the said PEC, being, if affirmative, illegal the (self-)assessments of CIT for the years 2011 and 2012.
Submitted to the Tribunal is also, on a subsidiary basis, should it give a negative answer to the first issue, the issue of the possible illegality and consequent annulment of the assessment of autonomous taxation, due to absence of legal basis for its assessment.
The Tribunal, should it give a positive answer to this issue, is also called upon to rule on the right to indemnity interest on the sums paid in consequence of the (self-)assessments in dispute.
It is therefore necessary to decide as to the merits of the request for arbitral decision of the CIT assessments sub judice and the possible right of the Claimant to indemnity interest.
Let us see:
In recent decades, profound reforms of corporate taxation have been carried out, both at the European and Portuguese levels. It is commonly recognized the weight that companies have in the economy of each country and, therefore, the trend has been to reduce the taxation of legal entity income.
In Portugal, companies are taxed fundamentally by their actual income, calculated under the terms provided for in CIRC.
Taxation regimes have important impact on business decisions, both present and future.
That consideration will be made taking into account the income tax, properly speaking, as well as autonomous taxation, which applies to certain expenses in the manner and to the extent that the legislator understood to be apt to pursue objectives of combating tax evasion.
The regime of autonomous taxation is the result of numerous legislative changes. The subjection of certain expenses to autonomous taxation emerged with Decree-Law No. 192/90, of 2 June, in a context of penalization of the taxation of confidential or undocumented expenses incurred by companies.
It was only with the 2001 tax reform that autonomous taxation was extended to representation expenses and expenses with vehicles and, later, to a very diverse set of situations under the terms that are today provided for in CIRC in Chapter IV relating to rates, together with the State Tax.
Taking into account Article 88 of CIRC, autonomous taxation applies, broadly speaking, to the following realities: undocumented expenses; vehicle charges; representation expenses; allowances; amounts paid to non-residents; profits distributed by entities subject to CIT to passive subjects who benefit from exemption; expenses or charges relating to indemnities or any compensation due not related to the contractual relationship; and also expenses or charges relating to bonuses and other variable remuneration paid to managers, administrators or managing partners.
At first glance, there seems to be no relationship between these expenses, neither as to object, nor as to beneficiary, of what we will refer to generically as expenses (with the only exception being, in fact, distributed profits).
The State Budget law for 2014 introduced some changes in the provision of autonomous taxation [1], which, however, were not only not especially relevant but offer no contribution to the present discussion.
There are autonomous taxation provided for in CIRC and autonomous taxation provided for in PRIT. As for CIT, which is at issue here, Article 23-A No. 1, paragraph a), of CIRC, in the wording of Law No. 2/2014, of 16 January, leaves no margin for any reasonable doubt, corroborating what already previously resulted from the literal content of Article 12 of the same Code.
The collection provided by them constitutes collection of the respective tax, being subject to the generality of norms provided for in the referred codes, potentially applicable.
Contrary to what is sometimes argued, autonomous taxation does not constitute, in its genesis, special taxes on consumption, each expense corresponding to a tax event, of instantaneous formation.
First, because such a conception would force, in CIT, that the respective constitutionality be appreciated in light of the principle of taxation by the actual income of companies and, on the other hand, because there is not here truly a manifestation of wealth that should be taxed, beyond the fact that many of the taxed expenses are also deductible, recognizing thus that they relate to the activity of the company and not to expenses that manifest tax capacity.
Autonomous taxation has as its foundation the presumption of the existence of income that ceased to be taxed, not only under CIT but also under PIT. As explained in the decision of the Arbitral Tribunal rendered No. 209/2013-T, which decided negatively as to the issue of deductibility of autonomous taxation as a tax cost under CIT, "it is a "(…) way of, indirectly and through the expense, taxing income".
The issue that is of interest to resolve is, regardless of the nature of the tax to which autonomous taxation refers, to know whether the amount of autonomous taxation is "assessed under the terms of Article 90 of CIRC", because, if it is, it will have to be concluded that, to determine the deduction limit, the collection from autonomous taxation is taken into account.
Article 90 of CIRC refers to the forms of assessment of CIT, by the passive subject or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (No. 10).
Therefore, it also applies to the assessment of the amount of autonomous taxation, which is assessed by the passive subject or by the Tax Administration under the terms of Article 90 of CIRC, there being no other provision that provides different terms for its assessment. Its autonomy is restricted to the applicable rates and the respective taxable matter, but the determination of its amount is effected under the terms of Article 90.
The differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit, rest on the determination of the taxable matter and the rates, provided for in Chapters III and IV of CIRC, but not on the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation and to the rest of the taxable matter of CIT.
Therefore, since Article 90 is inserted in this Chapter V, no legal support is seen for making a distinction between the collection from autonomous taxation and the rest of the CIT collection, due to the fact that the rates and the forms of determination of the taxable matter are different.
Moreover, it cannot be seen, in the possible nature of anti-abuse norms that some autonomous taxation assumes, an explanation for its exclusion from the respective collection, because there is no legal support for excluding the deductibility from the collection provided by corrections based on norms of an indisputably anti-abuse nature.
It is true that, as the Tax and Customs Authority states, autonomous taxation aims to discourage certain behaviors of taxpayers susceptible to affecting taxable profit and its deterrent force will be attenuated with the possibility that the respective collection could be subject to deductions.
CIRC refers, in its current version, expressly to autonomous taxation only in five articles, namely in Article 12 (when excluding autonomous taxation from the CIT exemption applicable to companies covered by the tax transparency regime), in Article 23-A, No. 1 (when explaining that autonomous taxation is not deductible for purposes of determining taxable profit), in Article 88 (when establishing the rates and delimiting the taxable matter of autonomous taxation), in Article 117 No. 6 (concerning the declaration obligation of entities exempt from CIT under Article 9, when there is place for autonomous taxation) and in Article 120 No. 9 (as to the periodic declaration of income). There is no other express reference to autonomous taxation in CIRC.
Indeed, the current wording differs from that in effect until 31.12.2013 only in the novelty of Article 23-A, which comes to establish that the following charges are not deductible for purposes of determining taxable profit, even when accounted as expenses of the taxation period certain charges, the wording of paragraph a) being clarifying: "CIT, including autonomous taxation, and any other taxes that directly or indirectly apply to profits".
That is, not only does the legislator express that CIT includes autonomous taxation, but there are no provisions in CIRC, designedly, in the chapters dealing with scope (Chapter I), assessment (Chapter V) and payment (Chapter VI) any other express references to autonomous taxation, from which it is necessary to conclude that they are subject, in a generic manner, to the remaining articles provided for in CIRC.
The part of the CIT collection that comes from autonomous taxation is calculated from the elements of the tax defined in Article 88 of CIRC inserted in 'Chapter IV – Rates'.
This article delimits the taxable matter of autonomous taxation, on the one hand, and, on the other hand, enumerates the rates of autonomous taxation, which are various, depending on the nature of the taxable matter to which they apply; because they depend on the type of passive subject (e.g., non-profit entity, exempt entities, entity that develops mainly a commercial, industrial or agricultural activity), and they are also dependent on the very economic performance of the passive subject of CIT, as they assume different percentages when a tax loss or tax profit is determined. The collection that comes from autonomous taxation is a function of the taxable result, calculated from two expressions which are the product of the taxable matter by a rate dependent on the taxable result: a higher rate when a tax loss is determined and another, lower, when the taxable result is positive.
Thus, the collection from autonomous taxation could not be determined instantaneously and immediately following the incurrence of the expense, because it depends on the very result which is – contrary to what the TA claims and with support in the decision rendered in Arbitral Proceedings 113/2015-T – of successive formation.
Also some expenses that do not coincide with the expenses that terminate are subject to autonomous taxation, namely depreciations, are of continuous formation.
From the current wording of Article 23-A, No. 1, paragraph a), of CIRC, which was given by Law No. 2/2014, of 16 January, it is concluded, by literal interpretation, that autonomous taxation is CIT (are a part of CIT).
In fact, the positioning of the two commas in the letter of the law, one before and the other after the expression "including autonomous taxation" contained in the current wording of the cited Article 23-A, No. 1, paragraph a), of CIRC, rules out the possibility of arguing that autonomous taxation is not (part of) CIT.
The same is concluded from the articulation of Article 12, when it provides that "the companies and other entities to which, under the terms of Article 6, the tax transparency regime is applicable, are not taxed in CIT, except as to autonomous taxation", by presenting autonomous taxation as a subset of CIT.
The purpose of autonomous taxation is dual. It aims to tax actual income, thus correcting taxable income to bring it closer to that income and, at the same time, seeks to penalize passive subjects who, through the realization of certain expenses, end up reducing taxable income.
But it is not the purpose, nature or scope of the tax that is the essential question here. What is of interest in this case to know, in our opinion, refers exclusively to the manner in which the assessment is made (of the part of the tax that comes from) autonomous taxation and to know whether they are included in No. 1 of Article 90 of CIRC, or whether they are outside it.
Recognizing the matter in question as unquestionably complex, the result of a succession of legislative changes in a context of economic degradation, through which the system, as can be read in Decision 617/12 of the Constitutional Court, shows its dual nature, with an aggravated rate of autonomous taxation for certain special situations that are sought to be discouraged, creating a kind of presumption that these costs do not have a business cause and, therefore, are subject to autonomous taxation. "In summary", says the CC, "the cost is deductible, but autonomous taxation reduces its tax advantage, since here, the base of application is not a net income, but, rather, a cost transformed – exceptionally – into an object of taxation."
The tax event is the very realization of the expense, that decision emphasizes, but taxation still occurs within the scope of CIT. It is not only in the case of autonomous taxation, incidentally, that income taxes contemplate elements of single obligation, as happens with liberatory rates of PIT, but we are not here, strictly speaking, faced with a single obligation tax, rather faced with tax events that, falling on deductible expenses, are inseparably linked to the determination and assessment of the tax.
The truth, therefore, is that, regardless of what is considered to be the understanding underlying the nature of autonomous taxation of expenses in CIT, it is never in question that the amount collected through those autonomous taxation is collected by virtue of CIT.
More: the legal regime of autonomous taxation in question only makes sense in the context of taxation under CIT. That is, disconnected from the legal regime of this tax, they will, completely, lack sense. Their existence, their purpose, their explanation, ultimately, their juridicity, is only understandable and acceptable within the framework of the legal regime of CIT. In fact, even if it were accepted that the tax event imposed is each of the singular legally typified expenses, the truth is that these, qua tale, are not the final object of taxation, the reality that is sought to be burdened with the tax.
If that were the case, all the provided expenses would have to be taxed, realized by all subjects and not only by some of them.
That is, autonomous taxation is 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 relationship that, although it has varied in successive legislative changes, autonomous taxation had and still has some connection with the deductibility – and the actual deduction – of the taxed expenses.
This circumstance, it is believed, is elucidative of the imbricating existing between those and CIT (in this case), and justifying not only their inclusion in CIRC, but, equally, their integration, of full right, as part of the legal regime of CIT.
In fact, not only are only the expenses realized by passive subjects of CIT that are subject to the imposition of autonomous taxation in such a framework, but such expenses will only be so, in general (without prejudice, it is reiterated, to the advances and setbacks legislative in this matter) if those subjects elect them as deductible expenses in the determination of the taxable matter of such tax [2].
Another argument that, for the legislator, autonomous taxation will integrate, effectively and unquestionably, the regime of CIT, being due by virtue of this tax is what results from Article 12 of CIRC, already in force at the time of the facts, which states that: "Companies and other entities to which, under the terms of Article 6, the tax transparency regime is applicable, are not taxed in CIT, except as to autonomous taxation."
On the other hand, and reinforcing what has been said, Article 3 of the recent Law 2/2014 of 16 January, came to add Article 23-A of CIRC, which succeeds the previous Article 45 and to which, for what has been said, interpretative character should be conferred, in the matter that concerns us, came to provide that:
"1 — The following charges are not deductible for purposes of determining taxable profit, even when accounted as expenses of the taxation period: a) CIT, including autonomous taxation, and any other taxes that directly or indirectly apply to profits".
That is, and in summary, the legislator understood, and continues to understand, that autonomous taxation integrates CIT, if not as a tax stricto sensu, at least in terms of being part of the same unitary fiscal regime.
One must, moreover, take into account that the norm of Article 45 of CIRC is situated in a context of broad legislative discretion. That is, in the definition of what are deductible or non-deductible charges for tax purposes, the tax legislator enjoys broad discretionary freedom. Hence it cannot be said that it is forbidden to the legislator, by the "nature" of autonomous taxation, to exclude them from deductible charges for tax purposes.
It is understood, in this way, that it will be legitimate for the legislator to include or exclude the autonomous taxation that concerns us from that category of deductible charges for tax purposes, regardless of the "nature" that doctrine or jurisprudence surprises in them.
The issue, properly situated, will then be to determine what the intention of the legislator is, expressed in the legislative text, understood as a whole.
And from this perspective, the combination of the content of Article 12 of CIRC with Article 45/1/a) of the same, will leave little doubt, as to the legislative understanding that autonomous taxation, if it does not constitute CIT stricto sensu, will certainly integrate the regime of that tax, and will be due by that title.
Moreover, no principle objection exists to the legislator isolating certain types of income and applying specific or differentiated rates to them, as occurs, for example, in the cases provided for in No. 4 of the current CIRC.
Equally, no principle objection exists to the tax in question being owed, assessed and paid, not as a function of a period (more or less long) of taxation, but by force of the occurrence of instantaneous facts, as already occurs, for example, in cases of withholding at source with definitive character (cf. Article 94/3 of CIRC).
For that matter, neither the result, apparently so counterintuitive and striking, of tax payment being due through autonomous taxation that now concerns us, even in the absence of income (positive) at the end of the taxation period, is a rare thing in the CIT regime.
In fact, in some of the already pointed cases of withholding at source in a definitive capacity, it may occur that the holder of the income subject to such withholding had expenses that exceed the income.
Also in the case of the operationalization of some of the specific anti-abuse clauses (Articles 63 to 67 of CIRC), by force of the consideration of costs, it may occur that passive subjects are taxed on a fictitious taxable profit, to the extent that cost disregard may be at issue, effectively supported, but disregarded as abusive. It may thus occur that a passive subject has to pay CIT, despite having actually had losses.
Everything that has been said shows that the evolution of the legal regime of CIT transformed it, transforming it into a complex and multifaceted reality, at the most diverse levels, which is reflected, in the matter that concerns us in these proceedings, in that duality of nature, which does not prejudice, however, that it be considered that the system, despite being dual, is the same.
In other words, it only makes sense to speak of a dual system if the system in question is still the same. Otherwise, one would speak not of a system of dual nature, but of two distinct systems, which, for all that has been said, will not be what occurs.
And, in this case, the system will be the CIT regime, which, operating now through income, now through expense, aims at and pursues the proper purposes of that tax, including, of course, the raising of revenue.
Recognized here, of course, are those characteristics that for some years now doctrine has been pointing out to autonomous taxation in question, such as:
a) autonomous taxation only makes sense because the costs/expenses are, in most situations, relevant as negative components of the taxable profit of CIT and it is this that motivates CIT passive subjects to report as high a value as possible of those expenses to reduce the taxable matter of CIT, the collection and, consequently, the tax to pay;
b) if it is a matter of treating unfavorably those expenses that, by their nature, are easily diverted from private consumption to business;
c) it is intended to discourage this type of expenses in passive subjects that present negative results, but that continue to show consumption structures difficult to reconcile with the financial health of their companies;
d) to model the tax system so that it reveals a certain balance with a view to a better distribution of the effective tax burden among taxpayers and types of income;
e) to materialize the recognition that it is not easy to determine the exact measure of the component of some of those expenses that corresponds to private consumption.
Autonomous taxation now in question are, as such, undoubtedly understood by the legislator as a way of obstructing certain abusive conduct, which the normal functioning of the taxation system was unable to prevent or which would be more burdensome or laborious for the tax administration or, even, possibly, for the taxpayer.
This anti-abuse character of autonomous taxation will be not only coherent with its "anti-systemic" nature (as happens with all norms of the kind), but with a presumptive nature.
In this perspective, as referred to in the decision rendered by the Arbitral Tribunal in proceedings 187/2013-T, autonomous taxation in analysis will then have underlying a presumption of partial business character of the expenses on which it applies, in function of the above mentioned circumstance that such expenses are situated in a gray area that separates what is business expense, productive, from what is private expense, consumption, being that, notoriously, in many cases, the expense will even in reality have a dual nature (part business, part private).
Confronted with this difficulty, the legislator, instead of simply excluding its deductibility, or reversing the burden of proof of the relationship of the expenses in question to the business activity, chose to establish the regime currently in force.
This presumption of partial business character should, in coherence, be considered as covered by the possibility of evasion resulting from Article 73 of the LGT, either by the taxpayer or by the Tax Administration, which appears consistent with an adequate distribution of the burden of proof, in that, falling autonomous taxation in question on expenses whose relationship with the pursued activity may not be, at the outset, evident, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in concrete.
For its part, the Tax Administration itself, should it see fit and consider that the case justifies the inherent expenditure of means, will always be able to demonstrate that, with respect to the expenses in question, and even though autonomous taxation has applied to them, the general requirement of Article 23/1 of CIRC is not met, namely its indispensability for the realization of the income subject to tax or for the maintenance of the income-producing source.
In light of all that has been said, we consider that autonomous taxation in dispute integrates the CIT regime.
Having arrived here, let us turn to the issue of knowing what is deductible from the collection resulting from autonomous taxation in CIT. The norm in dispute is that of Article 90 of CIRC, paragraph a) being the one that applies to assessment made by the passive subject (self-assessment).
This was the wording of the article resulting from Law No. 3-B/2010 and in effect until 31.12.2013:
1 — Assessment of CIT proceeds in the following terms
a) When the assessment must be made by the passive subject in the declarations referred to in Articles 120 and 122, it is based on the taxable matter contained therein;
(...)
2 — To the amount determined under the preceding number the following deductions are made, in the order indicated:
a) That corresponding to international double 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 at source not susceptible of compensation or reimbursement under the terms of applicable legislation.
3 - (Revoked by Law No. 3-B/2010-28/04, taking effect from January 2011, as regards the simplified regime - No. 2 of Article 92 of the referred law).
4 — To the amount determined under No. 1, regarding the entities mentioned in No. 4 of Article 120, only the deduction relating to withholding at source when it has the nature of tax on account of CIT is to be made.
5 — The deductions referred to in No. 2 regarding entities to which the tax transparency regime established in Article 6 is applicable are attributed to the respective members or partners under the terms established in No. 3 of that article and deducted from the amount determined on the basis of the taxable matter that took into account the attribution provided for in the same article.
6 — When the special taxation regime of groups of companies is applicable, the deductions referred to in No. 2 relating to each of the companies are made in the amount determined with respect to the group, under the terms of No. 1.
7 — From the deductions made under paragraphs a), b) and c) of No. 2 may not result in a negative value.
8 — To the amount determined under paragraphs b) and c) of No. 1 only are deductions made of which the tax administration has knowledge and which can be made under Nos. 2 to 4.
9 — In cases where the provision in paragraph b) of No. 2 of Article 79 is applicable, assessments are made annually on the basis of taxable matter determined provisionally, and, in view of the assessment corresponding to the taxable matter for the entire assessment period, the difference determined is collected or cancelled.
10 — The assessment provided for in No. 1 may be corrected, if applicable, within the deadline referred to in Article 101, collecting or canceling the differences determined.
There is no other article in CIRC, besides Article 90, that distinguishes the assessment process of autonomous taxation from the rest of CIT. And, in these terms, the assessment of both – autonomous taxation and the rest of CIT – is unitary and has the same legal support.
Autonomous taxation does not result from a distinct process of assessment of the tax.
Understood that autonomous taxation is (part of) CIT, it is understood that the assessment of CIT is unitary, including the part that comes from autonomous taxation.
There is a unitary assessment of CIT that has two parts: the assessment of autonomous taxation and that of the rest of CIT, each with taxable matter determined in its own way and with its own taxation rates, but both assessed under the terms of Article 90 of CIRC. Having a unitary assessment, it is concluded that the part of the collection that comes from autonomous taxation is an integral part of the CIT collection.
Conversely, there is found in any other article of CIRC the reference to the assessment 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 lacuna in the law and, being this a tax law, does not permit integration. And thus, the Tax and Customs Authority may have erred, by not allowing the deduction of amounts relating to the PEC that the Claimant had the right to deduct from the collection.
To accept that the assessment of autonomous taxation is outside Article 90 No. 1 of CIRC and, therefore, to exclude from its collection the deductibility of the PEC provided for in paragraph c) of No. 2, would be to force the taxpayer to pay a tax whose assessment is not made under the terms of the law, contrary to No. 3 of Article 103 of CRP and the principle of tax legality that the General Tax Law, in its Article 8, No. 2, paragraph a), establishes.
If the Tax and Customs Authority assumed that the collection of autonomous taxation was calculated outside Article 90 of CIRC, it should have indicated the norm on which it based the assessment.
There being no separate provision on assessment of autonomous taxation, it seems that it must be accepted that the CIT collection encompasses it, being included in Article 90 No. 1 of CIRC, the special payment on account referred to in paragraph c) of No. 2 being therefore deductible.
Note, incidentally, that in the following numbers of that Article 90 the legislator was concerned to enumerate various exceptions and limits to the rules of deductibility of number 2. In number 4, when it provides that "only the deduction relating to withholding at source when this has the nature of tax on account of CIT is to be made", the revealing nature is: it is understood that thus it is, because it is in the CIT collection that it is sought to deduct them, or, in number 7, when it prescribes that from the deductions from the collection a), b) and c) of No. 2 may not result, in a general manner and without distinguishing the collection resulting from the application of autonomous taxation rates, a negative value.
In none of them – and this would be, undoubtedly, the right place – and in no other norm is there reference to any limitation to the deductibility of special payments on account to the part of the CIT collection that results from autonomous taxation, it being therefore necessary to conclude that it did not wish to do so.
Note, incidentally, that, although Article 90 was amended with Law No. 2/2014, of 16 January, which republished CIRC, what has been said here not only persists but, from an interpretative point of view, emerges even reinforced, in that the legislator added some limitations and exceptions to the deductions from the collection provided for in number 2 and again did not refer to the part of the collection that results from the application of autonomous taxation rates.
It is verified, however, that the computer system does not allow the deduction of PEC from the part of the CIT collection coming from autonomous taxation. The fact that the forms of determination of the taxable matter and the rates of autonomous taxation of CIT are established separately and are different from those of the rest of CIT does not seem to be a sufficient reason, nor to have legal support, for the existing IT solution.
References to the provision of Article 16 of CIRC seem to add nothing to the resolution of the issue in question.
This article does not contain the elements that make it possible to design the model 22 declaration, choose which lines appear in that declaration, or the order in which they must be presented, or how the various lines are related, that is, it does not make it possible to fix the formulas underlying the filling by the taxpayer of the cells of the declaration that the Tax and Customs Authority through its services created in it.
We would have to look in other articles of CIRC for such elements that would make it possible to design the form and establish the calculations that would lead to the knowledge of the collection of the tax.
To consider that the assessment of autonomous taxation is outside the collection that is calculated by Article 90 No. 1 of CIRC, is to accept that such understanding would be provided for in another legal provision and, as this does not exist, the assessment cannot but be made within the scope of Article 90 of CIRC.
Thus, the deduction of PEC from the CIT collection must be accepted, necessarily including the portion coming from autonomous taxation.
We rely, in that regard, on what was decided by the Arbitral Tribunal constituted as well as the dissenting vote declaration rendered in Proceedings 697/2014-T.
Having arrived here, it is necessary to analyze the issue of No. 21 of Article 88 of CIRC, introduced by the Law that approved the State Budget for 2016 (Law 7-A/2016, of 30 March).
In fact, several numbers were added by this Law to Article 88 of CIRC, which refers to autonomous taxation, including number 21, according to which "The assessment of autonomous taxation in CIT is made under the terms provided for in Article 89 and is based on the values and rates that result from the provision in the preceding numbers, no deductions being made to the total amount determined."
And, in Article 135, the legislator provides that "the wording given by this law to No. 6 of Article 51, to No. 15 of Article 83, to No. 1 of Article 84, to numbers 20 and 21 of Article 88 and to No. 8 of Article 117 of the CIT Code has an interpretative nature."
The Tax Administration understands that the new wording of Article 88 prevents the deduction, under the terms of Article 90, of special payments on account to the collection that results from autonomous taxation.
Which, in our view, is not evident. Article 90 was not amended, continues to refer to CIT collection and, for all that has been said above, the collection that results from the application of the norms of Article 88 is CIT collection.
What number 21 of Article 88 prohibits is that, to this collection, any deductions be made until the moment when, with the global CIT collection determined, the deductions of Article 90 are made.
It is accepted that the legislator may indeed have wished to prohibit that the deductions of Article 90 be made to the part of the CIT collection that results from autonomous taxation, but if that was the case, it should have said so clearly, for which it would have been better to amend Article 90 and not Article 88.
Which leads us to conclude that, if the regime was not clear before the publication of Law 7-A/2016, of 30 March, it continues to not be.
However, it is not our place to analyze here more thoroughly the regime that currently results from the provision in number 21 of Article 88 of CIRC.
It is our place, that yes, because at issue are CIT assessments for the tax years 2011 and 2012, to analyze what effect that number and the interpretative character attributed by the legislator to its introduction in 2016 have on the facts in question.
In the national substantive codification, a principle of non-retroactivity prevails, which is constitutionally established as to tax law.
It happens that an interpretative law is not, Article 13, No. 1, of the Civil Code states, retroactive.
Under the terms prescribed there, for a new law – as in the case in question, number 21 of Article 88 of CIRC – to be truly interpretative two requirements are necessary: that the solution of the prior law be controversial or at least uncertain. And it is a fact that the decision imposed on this Tribunal is controversial in character.
Necessary is, however, also that the solution defined by the new law be situated within the framework of the controversy and be such that the judge or the interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of the law.
By which if the judge or the interpreter, in face of old texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative [3].
It is not enough that the legislator expressly confer on the new law interpretative character for it to apply to the controversial issue that had arisen before the entry into force of the new putatively interpretative law for the judge to be obliged to apply it to the concrete case.
It is necessary that the judge felt empowered, in face of the old text, to adopt the solution that the law now recommends.
Interpretative norm, therefore, is a norm that does not alter any content or element of the interpreted norm, merely translates its meaning.
A norm that alters the meaning, content or scope of the interpreted norm will not be interpreting, rather modifying the rule, creating a new norm, instituting new rights, duties and obligations.
Being certain that even the interpretative norm must respect the rights acquired under the vigor of the interpreted norm, particularly in questions regarding which the prohibition of retroactivity is especially established in the Constitution, as is the case in tax law, whose retroactivity is prohibited by No. 3 of Article 103 of CRP.
A conviction we have already expressed in a prior decision, but which we now see reinforced by Decision of the Constitutional Court 267/2017.
In this context, the issuance by the legislator of interpretative law, with retroactive effects, is only conceivable when without any doubt it is limited to simply reproduce (= produce anew), even if with another enunciation, the content of the norm interpreted, without modifying or limiting its meaning or its scope.
This, it is well understood, is a hypothesis of difficult conception, almost inconceivable, save on the theoretical plane, especially when one considers that the content of a normative enunciation requires, in general, systematic interpretation, not being able to be defined in isolation. To interpret a norm is to interpret an entire system: any exegesis commits, directly or obliquely, an application of the totality of Law [4].
In the case sub judice, for all that has already been explicitly stated above, it is understood that the text of the law in effect at the time of the facts in dispute did not permit concluding that the deduction of special payments on account from the part of the CIT collection that resulted from autonomous taxation was prohibited.
This is because, as we have said above, the legislator at no point pointed to that solution and, in Article 90 of CIRC, did not distinguish, as regards the deductions possible to CIT collection, that which resulted from autonomous taxation from the rest. And where the law does not distinguish, it is not for the interpreter to distinguish.
Indeed, as stated above, it is understood that that solution is still not, with sufficient clarity, the one that results from number 21 of Article 88 of CIRC and that, therefore, the doubt still persists.
The legislator, in fact, in Article 90, as to the possibility of the deductions there provided, continues to not distinguish, as regards the deductions possible to CIT collection, that which resulted from autonomous taxation from the rest. If that is what it intends to do with the new number 21 of Article 88, the wording is not clear and the article is systematically poorly inserted. The legislator could and should have been clearer as to the deductions it prohibits and the controversy to which it intended to put an end when it declares that it attributes interpretative character to this – among other – new norm.
We understand, therefore, that number 21 of Article 88 of CIRC does not have interpretative character as regards the issue under discussion, not applying to facts occurring before its entry into force, namely, to the facts and assessments sub judice.
It is thus concluded that the acts of self-assessment of CIT relating to the tax years 2011 and 2012, to the extent corresponding to the non-deduction of part of the CIT collection, suffer from the vice of violation of law, which justifies their annulment, the same occurring with the decision on the request for official revision, in the part in which it did not recognize that illegality.
The analysis of the issue raised by the Claimant as to the possible illegality and consequent annulment of the assessment of autonomous taxation, due to absence of legal basis for its assessment, is thus prejudiced.
Of Indemnity Interest
Finally, let us deal with the request formulated by the Claimant for reimbursement of the sums that are here judged to have been unduly (self-)assessed and paid and the alleged right of the Claimant to indemnity interest on those sums.
In accordance with the provision in paragraph b) of Article 24 of RJAT, the arbitral decision on the merits of the claim, which is not subject to appeal or impugnation, binds the Tax Administration as from the end of the deadline provided for appeal or impugnation, the latter being obliged, in the exact terms of the success of the arbitral decision in favor of the passive subject and until the end of the deadline provided for the voluntary execution of decisions of judicial tax courts, to "restore the situation that would have existed if the tax act that is the object of the arbitral decision had not been performed, adopting the acts and operations necessary for that effect in harmony with the provision of Article 100 of the LGT [applicable by force of the provision in paragraph a) of No. 1 of Article 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of a claim, judicial impugnation or appeal in favor of the passive subject, to the immediate and full restoration of the legality of the act or situation that is the object of the dispute, including the payment of indemnity interest, if applicable, as from the end of the deadline for execution of the decision".
Although Article 2, No. 1, paragraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in CAAD, making no reference to condemning decisions, it should be understood that their competencies include the powers that, in judicial impugnation proceedings, are attributed to tax courts, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which is proclaimed, as the first directive, that "the tax arbitral process must constitute an alternative procedural means to the judicial impugnation process and to the action for the recognition of a right or legitimate interest in tax matters".
Now, it is established that the judicial impugnation process, despite being essentially an annulment process of tax acts, admits the condemnation of the Tax Administration to the payment of indemnity interest, as results from the provision in Articles 43, No. 1, of the LGT and 61, No. 4 of TCPT.
Thus, No. 5 of Article 24 of RJAT, when it says that "payment of interest is due, regardless of its nature, under the terms provided for in the general tax law and in the Code of Procedure and Tax Process", should be understood as permitting the recognition of the right to indemnity interest in arbitral proceedings.
It is thus necessary to appreciate the request for reimbursement of the amount unduly paid, plus indemnity interest.
In the case in question, it is manifest that, as a consequence of the illegality of the assessment acts, there is place for reimbursement of the tax paid, by force of the referred Articles 24, No. 1, paragraph b), of RJAT and 100 of the LGT, because such is essential to "restore the situation that would have existed if the tax act that is the object of the arbitral decision had not been performed".
As to interest, the substantive regime of the right to indemnity interest is regulated in Article 43 of the LGT, which establishes, in what is of interest here, that "Indemnity interest is due when it is determined, in a gracious claim or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due. 2 – It is also considered that there is error attributable to the services in cases where, despite the assessment being made on the basis of the declaration of the taxpayer, the latter followed, in its filling, the generic guidelines of the tax administration, duly published."
Now, in the case in question, the illegality of the self-assessments is wholly attributable to the TA, Respondent, given what was above given as proven regarding the structure of the CIT Model Declaration 22 in the TA's computer system, an organization which is, naturally, of the total responsibility of the latter, which did not allow the Claimant to perform the self-assessment in the terms that are here judged to be legal.
Moreover, the maintenance of the illegal situation, i.e., the decision on the gracious claim, is also attributable to the Tax Administration, which dismissed it on its own initiative.
Having resulted from the self-assessments in dispute tax to be recovered, it should be understood that the payment was made from the date of presentation of each of those declarations.
Consequently, the Claimant has the right to indemnity interest, under the terms of Article 43, No. 1, of the LGT and 61 of TCPT, from 1 September 2013 as to 53,911.36€, and from 1 September 2014, as to 70,815.83€, at the legal substitutive rate, under the terms of Articles 43, Nos. 1, and 35, No. 10 of the LGT, of Article 24, No. 1, of RJAT, of Article 61, Nos. 3 and 4, of TCPT, of Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April (or any other that amends the legal rate), from those dates until full payment.
6. DECISION
In light of the foregoing, it is decided to fully uphold the principal requests of the Claimant and, in consequence:
- to annul, as illegal, the self-assessments in dispute;
- to condemn the Respondent to reimburse the Claimant in the amount of 258,199.55€ (two hundred and fifty-eight thousand one hundred and ninety-nine euros and fifty-five cents) and, further, to pay it indemnity interest at the legal substitutive rate, counted from the dates of each of the payments made by the Claimant until full and complete reimbursement.
* * *
The value of the proceedings is fixed at 258,199.55€ (two hundred and fifty-eight thousand one hundred and ninety-nine euros and fifty-five cents) in accordance with the provision in Articles 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, No. 1, paragraph a) of TCPT and 306 of the CPC.
The amount of costs is fixed at 4,896.00€ (four thousand eight hundred and ninety-six euros) under Article 22, No. 4 of RJAT and Table I attached to the RCPAT, to the charge of the Respondent, in accordance with the provision in Articles 12, No. 2 of RJAT and 4, No. 4 of RCPAT.
Let notification be made.
Lisbon, 14 July 2017,
The Arbitrators,
José Baeta de Queiroz
Luís Pereira da Silva
Eva Dias Costa
Text prepared by computer, under the terms of Article 131, No. 5 of the Code of Civil Procedure, applicable by referral of Article 29, No. 1, paragraph e) of RJAT.
Frequently Asked Questions
Automatically Created