Autonomous Taxation Deductions and SIFIDE Tax Benefits in IRC – CAAD Case 174/2016-T

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), Rui Ferreira Rodrigues and Henrique Nogueira Nunes, appointed by the Ethical Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide:

I – REPORT

On 21 March 2016, A…, S.A., with registered office at …, …-… …, corporate entity no. …, presented a request for constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the act dismissing the gracious complaint it had presented, with reference to the self-assessment act of Corporate Income Tax (IRC) for the tax year 2012.

To support its request, the Requesting Party alleges, in summary, that both the dismissal of the gracious complaint and the self-assessment of IRC (including its autonomous taxation rates) suffer from a material defect of violation of law, in that, as a principal claim, the deduction from the IRC collection corresponding to the autonomous taxation rates of the tax benefit in IRC, in the form of a deduction from the collection, which is the SIFIDE (System of Tax Incentives for Research and Business Development), should not be prevented. Alternatively, should it be understood that article 90 of the Corporate Income Tax Code (CIRC) does not apply to autonomous taxation, the illegality of the autonomous taxation assessments should be declared (and consequently annulled) for absence of legal basis for their enforcement (article 8, no. 2, paragraph a), of the General Tax Law, and article 103, no. 3, of the Portuguese Constitution), with the consequent reimbursement of the same amount of € 685,761.62 and the payment of compensatory interest also counted from 1 September 2013, or as a further subsidiary claim, should it be understood that none of the foregoing grounds is valid, the act of self-assessment of IRC, including autonomous taxation, for the tax year 2012, should be annulled, to the extent of:

i. the annulment of fiscal losses for 2012 in the amount of € 2,739,998.35 by withdrawal of the deduction of expenses, charges and costs subject to autonomous taxation in the tax year 2012, and

ii. the annulment of autonomous taxation for the tax year 2012, in the amount (already purged of autonomous taxation on undocumented expenses) of € 673,953.41, with the remaining legal consequences, namely the restitution to the Requesting Party of this latter sum plus compensatory interest at the legal rate counted from 27 September 2015.

On 21-03-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Requesting Party did not proceed to appoint an arbitrator, therefore, pursuant to paragraph a) of no. 2 of article 6 and paragraph a) of no. 1 of article 11 of the RJAT, the President of the Ethical Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable timeframe.

On 18-05-2016, the parties were notified of these appointments and expressed no intention to refuse any of them.

In accordance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 03-06-2016.

On 12-07-2016, the Respondent, duly notified for that purpose, presented its response defending itself solely by means of an objection.

Considering that in arbitral proceedings the general procedural principles of procedural economy and prohibition of useless acts apply, pursuant to paragraphs 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.

Given that a time period was granted for the presentation of written submissions, these were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

A deadline of 30 days was set for the rendering of the final decision, after the presentation of submissions by the Tax Authority, a deadline which was extended by an additional 30 days.

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

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

The proceedings do not contain any defects of nullity.

Therefore, there is no obstacle to the consideration of the merits of the case.

Everything having been considered, it is necessary to render a decision.

II. DECISION

A. FACTUAL MATTERS

A.1. Facts established as proven

1. The Requesting Party was in 2012 the dominant company of a group of companies (Group B…) subject to the special taxation regime for groups of companies (RETGS) as provided and regulated in article 69 et seq. of the Corporate Income Tax Code.

2. The Requesting Party filed on 31 May 2013 its aggregate IRC declaration Form 22 for the tax year 2012, having at that moment proceeded with the self-assessment of said tax (including the consequent surcharge), and on 29 May 2014 it presented further amendments to that self-assessment by means of submission of a replacement declaration.

3. The amount of IRC, including autonomous taxation, and the consequent surcharge, self-assessed, is paid.

4. The Requesting Party intended to record the value relating to autonomous taxation rates in IRC, deducted from within the collection resulting from the application of these rates, from the amounts of tax benefit recognized to the companies of the tax group under the System of Tax Incentives for Research and Business Development (SIFIDE), in the form of a tax credit deductible from the IRC collection, which it failed to achieve because the Tax Authority's computer system revealed anomalies substantiated in the flagging of discrepancies ("errors") which prevented the recording of the values the Requesting Party intended.

5. The Requesting Party's Tax Group presented SIFIDE available for use of € 6,373,147.25, in the tax year 2012, available for deduction from the IRC collection, in accordance with the following table:

[Table content preserved as in original]

1. In that same tax year, the Requesting Party calculated autonomous taxation in the amount of € 685,761.62, in accordance with the following table:

[Table content preserved as in original]

1. The Tax Authority did not calculate the taxable profit of Tax Group B… and its respective companies by indirect methods, it having been calculated in normal terms, via submission of declaration form 22.

2. The companies forming part of the group at the origin of SIFIDE are not and were not then entities owing the State and social security any taxes or contributions.

3. In the context of the gracious complaint, the Tax Authority dismissed what was requested by the Requesting Party, namely that the SIFIDE tax benefit of which it enjoyed be deducted from the amount assessed as autonomous taxation.

A.2. Facts established as not proven

With relevance for the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the factual matters proven and not proven

With regard to the factual matters, the Tribunal need not pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish the proven matter from the unproven (cf. article 123, no. 2, of the Code of Tax Procedure and Process (CPPT) and article 607, no. 3 of the Code of Civil Procedure (CPC), applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are chosen and determined according to their legal relevance, which is established having regard to the various plausible solutions of the question(s) of Law (cf. former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable by virtue of article 29, no. 1, paragraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the case, the facts listed above were considered proven, with relevance for the decision.

B. ON THE LAW

The principal question to be decided in the present case, although undoubtedly complex in its resolution, is, however, simple in its formulation, and concerns whether or not it is possible to deduct from part of the IRC collection produced by autonomous taxation rates the available tax incentives in the context of IRC.

The issues underlying autonomous taxation have been the subject of heated litigation between taxpayers and the Tax Authority, a situation to which the very nature, anti-systemic in fact, of those taxation forms is surely not unrelated, in the framework of income taxes, where they originated.

Indeed, the discussion that began with the new autonomous taxation rates introduced by Law no. 64/2008, of 5 December, and initially focused on the nature of the taxable fact underlying that type of taxation, opened a deep exploratory path regarding the nature of autonomous taxation and its relationship with income taxes, in particular IRC, which involved the issues of the deductibility of the value of autonomous taxation from the IRC collection, and the nature, presumptive or otherwise, of autonomous taxation on deductible expenses, without to date there having been a clarifying legislative intervention, doctrinally supported and coherent, with the purpose of clarifying the proper framing of the taxation in question in the framework of income taxation from which it emerges.

Within this framework, case-by-case judicial decisions succeed equally case-by-case legislative interventions, generating a picture of uncertainty and instability in which taxpayers and the Tax Authority have no other way to seek the applicable Law than through perpetuated litigation, devolving on the judicial interpreter the ungrateful task of, in the tangled regulatory framework generated, serving the possible Justice.

Let us examine this, then.

When one speaks of autonomous taxation, as is the case, it is convenient from the outset to have 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., nos. 3, 5 and 6 of the Personal Income Tax Code);

• Autonomous taxation of certain deductible charges (e.g., nos. 3 and 4 of article 88 of the CIRC);

• Autonomous taxation of other charges regardless of their respective deductibility (e.g., articles 1 and 2 of article 88 of the CIRC).

This fact becomes important in that it demonstrates, in itself, the disparity and heterogeneity of the situations subject to autonomous taxation, and the futility of attempting to synthesize at this point and to seek a proper and unitary legal nature common to all situations.

In this manner, the discussion should focus on the concrete issue raised by the Requesting Party and seek a duly founded response for the restricted terms of what is at issue in the case, which will then be whether or not it is possible to deduct from part of the IRC collection produced by autonomous taxation rates the available tax incentives in the context of IRC.

Properly framed in these terms, the issue to be resolved in the case, it will still be necessary to have in mind that the fundamental reference for the response to be given to it will be that formulated in article 9 of the Civil Code, according to which the legislative thought should be reconstituted from the texts, which has in the letter of the law a minimum of verbal correspondence, although imperfectly expressed.

Within this framework, the objective of the present decision will not be to theorize about the legal nature of autonomous taxation in general, or of any of its various types, but rather to ascertain whether the legislative thought, with a minimum of verbal correspondence in the letter of the law, although imperfectly expressed, was or was not, at the time of the taxable fact in question in the case, possible to deduct from part of the IRC collection produced by autonomous taxation rates the available tax incentives in the context of IRC.

It will be futile, it is believed, to seek a conceptualist basis, based on a dogmatic definition of monolithic concepts of IRC and Autonomous Taxation, withdrawn from regulation foreign to the matter to be decided, professing a "scholastic ontologism" that seeks "to deduce in a purely logical manner, from abstract superior concepts, others, increasingly concrete and full of content"[1], methodologically superseded, seeking a final unitary concept of Autonomous Taxation, aggregating legal realities of disparate nature and teleology, and which serves as a validating source for all solutions to the various issues that the matter in question raises.

Rather, it will be sought merely to ascertain which solution, in light of constituted law, duly interpreted, appears appropriate for the concrete case, not taking the response given to the question to be decided as a finished, exact piece of evidence with an extreme degree of rigor and exactitude, but rather merely as that which, reflectively, presented itself to its subscribers as the legally better one[2].

On the matter sub iudice, the Requesting Party considers that "jurisprudence has understood, in a practically unanimous manner, that the IRC collection provided for in (in force until 2013) article 45, no. 1, paragraph a), of the CIRC, comprises, without need for any additional specification, the collection of autonomous taxation in IRC", therefore "it must also be understood that the IRC collection provided for in the same code 'a few meters further ahead' (article 90, no. 1, and no. 2, paragraph b), of the CIRC, in the wording in force in 2013) also encompasses the collection of autonomous taxation in IRC", concluding that "the denial of the deduction of SIFIDE credits from the IRC collection of autonomous taxation violates paragraph b) of no. 2 of article 90 of the CIRC (before 2010, article 83; and from 2014 it became paragraph c) of said no. 2 of article 90 of the CIRC)".

The Requesting Party invokes, in its favor, the arbitral decisions rendered in proceedings no. 769/2014-T and no. 219/2015-T, as well as the dissenting opinion filed in proceeding no. 697/2014-T, in addition to other decisions in related tax proceedings, such as the decisions of arbitral tribunals that considered that autonomous taxation is IRC, from which is drawn as a consequence that norms directed to IRC such as the one concerning the non-consideration of the IRC collection for the computation of taxable profit in IRC apply to them, requesting "that, consistently, it be concluded that the IRC collection constituted by these autonomous taxation rates be available, alongside the remainder of the IRC collection, in the operation of deductions from the collection provided for in article 90 of the CIRC, among which is the deduction of SIFIDE".

The basis of the Requesting Party's claim is literally simple and linear and results from the finding that, when the assessment of autonomous taxation is made in accordance with article 90/1 of the applicable CIRC, to such assessment the deductions provided for in its no. 2 will be applied.

Indeed, this is the content of the regulatory provisions in question:

"1 - The assessment of IRC proceeds as follows:

a) When the assessment is to be made 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 presentation of the declaration referred to in article 120, the assessment is effected by 30 November of the year following that to which it relates or, in the case provided for in no. 2 of said article, by the end of the 6th month following the end of the deadline for presentation of the declaration mentioned there and is based on the annual amount of the minimum monthly remuneration or, when greater, the totality of the taxable matter of the closest tax year which is determined;

c) In the absence of assessment under the foregoing paragraphs, it is based on the elements available to the tax administration.

2 - To the amount determined under the foregoing 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 the special payment on account referred to in article 106;

d) That relating to withholdings at source not subject to compensation or refund in accordance with applicable legislation."

From a semantic-literal point of view, accepting the presupposition – which is now accepted – that the assessment of autonomous taxation is made in accordance with no. 1 of the quoted article 90, no other reading is possible to be made than that presented by the Requesting Party, and the conclusion condensed in its principal arbitral request is irrefutable.

However, legal reading, by legal (and also logical-rational) imperative, is not confined to, nor should it be confined to, the text of the norms as a semantic-grammatical reality, but rather should 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 framework in which the norm to be interpreted fits, so as to validate, in light of the same, and in the light of the criteria of rationality, congruence and reasonableness which necessarily guide that normative structure, the reading literally suggested.

Thus, and first of all, as the Respondent Party very well points out, "the assessment of autonomous taxation is effected based on articles 89 and 90 no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax:

(1) in one case the assessment operates, through the application of the rates of article 87 to the taxable matter determined in accordance with the rules of chapter III of the Code and

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

That is, at the outset, one cannot overlook an initial relevant fact, which is that in articles 89 and 90/1 of the CIRC, there converges the assessment of two forms of taxation – relating to the same tax – that are radically distinct, namely, traditional IRC, or stricto sensu, and autonomous taxation.

Indeed, and as has been written elsewhere[3], "the complexity generated by the successive alterations in the architecture of the CIRC has led (...) to an atypical regulatory framework, in which one may discern a core corresponding to what may be called IRC tout court (or in the strict sense), which the Requesting Party seeks to have exhaust everything that is designated by IRC, and a periphery that integrates "marginal" regulations, withdrawn, in large part, from the logic, nature and principles of IRC tout court, but which, nonetheless, still situate themselves in the "gravitational field" of that core.

And it is in the process of implementation of this zone of difficult definition that all the decisions analyzed (...) operate, and they cannot be properly understood without understanding that, in fact, what all the decisions in question are doing is ascertaining which 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 force of the historical evolution of its respective legal regime, there was constituted a type of IRC that integrates a hard core (...) and a group of adjacent norms, which shares part of the logic and regime of that core, but which in many respects diverges from the same". And, further on, "from the 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 a tax stricto sensu, at least in terms of being part of the same unitary tax regime".

This is because "the legal regime of autonomous taxation in question in the present case only makes sense in the context of taxation in the context of IRC. That is, disconnected from the legal regime of this tax, they will lack their principal point of reference for meaning. Their existence, their purpose, their explanation, in short, their juridicity, is only properly understood 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 the CIRC" is "really superseded by a new definition of transversal/general application", such being an epistemological stance proper to conceptualism that is summarily repudiated.

On the contrary: it is the recognition of what, in light of the current legal framework, is imposed as the most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and the recognition of its regime as a complex and multifaceted reality, irreducible to a definition of such character, which only fundamentalist abstractionist conceptualism could presuppose."

Therefore, "All that has been said evidences 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 that occupies us in the present case, in such "dual nature" of which Prof. Saldanha Sanches spoke in the passage cited in the Constitutional Court Decision 617/2012.

The recognition of this duality of nature does not prejudice, however, as appears to be implicit both in the citation in question and in the jurisprudence that cites it, that it be considered that the system, despite being dual, is the same[4]. 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, will not be the case. And, in this case, the system will be the regime of IRC, which operating either by profit or by expenses, seeks and pursues the proper purposes of that tax, including, evidently, the raising of revenue for the State."

Finally, "By way of conclusion, in light of all that has been expounded, and in favor of conceptual rigor, it may further be said that it inclines toward the understanding that autonomous taxation, as it currently exists, may be configured as a "hybrid" tax[5], impacting on the income of individuals and legal entities, and not on consumption or expense, as it does not present the principal characteristics of this form of taxation".

That is, it has already been detected elsewhere, on the one hand, the futility of seeking a unitary concept of IRC that coherently accommodates the regime of autonomous taxation, and that, on the other, the methodologically more fruitful path for generating juridically adequate solutions to the issue in question passes through understanding the current IRC regime as the product of a historically explained evolution that led to the construction of a structure of dual or hybrid nature, comprising a main nucleus corresponding to traditional IRC, and an adjacent part, connected with that and forming part of the same global reality, with specificities proper from which results a departure, in several and substantial respects, from the main regime, in terms that the general principles and solutions, nonetheless, sometimes apply, other times are contradictory, and as such inapplicable, with the proper nature of that such "adjacent norm" that is embodied in what are called autonomous taxation.

It being that, as is already well known, that proper or specific nature, based on a logic foreign to the main framework of traditional IRC, will be characterized, essentially, by the notes sufficiently recognized as proper to autonomous taxation, namely, both as to its form of imposition (the instantaneous character of its respective taxable fact and the circumstance that it consists of an expense), and as to its anti-systemic ratio (the fact that some of the autonomous taxation has a facet directed directly at the income of individuals and/or a sanctionary facet, as well as an anti-abuse purpose).

Thus, and concluding here, it cannot be believed that, in following the path of the solution to be obtained for the question to be decided, it may be overlooked that, notwithstanding that autonomous taxation and IRC stricto sensu (or traditional) indeed converge in the form of assessment regulated in articles 89 and 90/1 of the applicable CIRC, they proceed, at the outset, from profoundly distinct geographies, a fact that cannot fail to be duly weighed and taken into account in the solutions to be found downstream, namely, and for what matters to the case, with respect to the reading to be made of the norm of article 90/2 of said Code.

Proceeding downstream in the interpretive path, it is necessary to ascertain the consequences of the limitation of that process to the literal layer of the interpretive object under analysis.

As the Respondent Party correctly points out in its response, the understanding proposed by the Requesting Party, according to which the lack of distinction, at the level of the text of no. 1 of article 90 of the applicable CIRC, results in that, at the level of such norm, no distinction should be made taking into account the differences, at the outset, of the tax which in those terms is assessed, would imply that in the basis for calculating the installment payments due in IRC, the values relating to autonomous taxation would also be included, and not merely those relating to IRC stricto sensu.

Indeed, no. 1 of article 105 of the Corporate Income Tax Code provides that "Installment payments are calculated based on the tax assessed in accordance with no. 1 of article 90 (…)".

Now, understanding that the content of the norm of article 90/1 of the CIRC in question forbids any distinction, for purposes of other norms that refer to it, between the tax assessed by way of autonomous taxation and the tax assessed by way of IRC stricto sensu, one would, consistently and in the same terms, have to conclude that installment payments would be due based on the sum of both values.

Now, such a solution cannot – it is believed – be considered as conforming to the spirit of a reasonable legislator.

Indeed – and installment payments are not thema decidendum of the present proceeding – without justifying great depth in this analysis, it will always be said that installment payments, as is recognized both doctrinally and jurisprudentially, are based on an intention to advance the taxation that will be due finally, based on the taxable profit of the prior year.

In this sense, for example, it was written in the Supreme Administrative Court Decision of 07-03-2007, rendered in proceeding 0877/06[6], that (our emphasis):

"From the legal definition of 'installment payment' one draws an inevitable, necessary and essential connection between 'installment payment' and 'tax due finally'.

In such manner that the 'title' (word of the law) of the 'installment payment' is the 'tax due finally'.

Which means that the 'installment payment' is, in the very terms of the law, an advance pecuniary delivery, made, on account of the tax due finally, in the period of formation of the taxable fact.

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

Which decidedly means that, if no pecuniary amount is to be (in advance) delivered on account of the tax due finally, in the relevant period of formation of the taxable fact (to which the 'installment payment' refers) – notably because of the non-existence of taxable profit revealed by the accounting at that time –, that 'installment payment' has no substantive foundation. (...)

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

Now, (at least some) autonomous taxation, as has also been indicated elsewhere[7], does not impact directly on income, doing so in merely mediate fashion, this being the justification for, notwithstanding that they integrate the IRC regime in the broad sense, they operate via expense and, consequently, are due even though the taxpayer presents a loss (as is the case with the Requesting Party herein).

Being so, as is believed, it will be devoid of sense that taxpayers who do not present taxable profit be required to make installment payments based on tax assessed on expenses they incurred and which were subject to autonomous taxation.

This very point is corroborated by the distinct nature of the taxable fact underlying IRC stricto sensu and autonomous taxation. Indeed, being the first a taxable fact of continuing nature and the second a taxable fact of instantaneous nature, it is only relative to the first that it may make sense to discern an advance of tax (installment payment), and no longer with respect to the second whose conduct generates, immediately, an obligation of tax.

In the hermeneutic process underway, consideration must also be given to the norm of no. 5 of article 90 in question, which provides that:

"The deductions referred to in no. 2 relating to entities to which the fiscal transparency regime established in article 6 is applicable are imputed to their respective partners or members in the terms established in no. 3 of that article and deducted from the amount determined based on the taxable matter which has taken into account the imputation provided for in that article".

This norm directly refers to article 6 of the same Code, which provides, insofar as relevant to the case, that:

"1 - The taxable matter determined in accordance with this Code is imputed to the partners, being integrated, under the terms of the applicable legislation, in their taxable income for purposes of Personal Income Tax or Corporate Income Tax, as the case may be, of the following companies, with registered office or effective management in Portuguese territory, even if there has been no distribution of profits:

a) Civil companies not constituted in commercial form;

b) Professional companies;

c) Asset administration companies, the majority of whose capital is owned, directly or indirectly, for more than 183 days of the fiscal year, by a family group, or whose capital is owned, on any day of the fiscal year, by not more than five partners, none of which is a legal entity governed by public law. (...)

3 - The imputation referred to in the foregoing numbers is made to the partners or members in the terms resulting from the constitutive act of the entities mentioned therein or, in the absence of elements, in equal parts."

Fundamental in framing this question is the content of article 12 of the same Code, which states that:

"Companies and other entities to which, under the terms of article 6, the fiscal transparency regime is applicable are not taxed in IRC, except for autonomous taxation".

It not being, once more, the theme of entities subject to fiscal transparency regime, the object of the present case, synthetically it will always be said, first, that from the reading on which the Requesting Party's claim is based, namely, that autonomous taxation integrates, without limitations and for all purposes, the taxable matter of IRC, there would always result one of two situations, equally unacceptable, namely:

• that the entities referred to in article 6/1 of the CIRC would be obligated to bear the costs of autonomous taxation doubly: once in the sphere of the company, in the terms of article 12 of the CIRC, which expressly provides for it, and another time in the terms combined with nos. 1 and 3 of article 6, which imposes that the "taxable matter, determined in accordance with this Code" relating to such entities is imputed to the partners;

• or that, thus not being, that is, if by way of some type of interpretation the expression "taxable matter, determined in accordance with this Code" were restricted, purging it of autonomous taxation, from the combination of the above-transcribed norms of no. 5 of article 90, of article 6 and of article 12, with the interpretation sustained by the Requesting Party for no. 1 of article 90, it would result that the subjects of IRC taxation subject to the fiscal transparency regime would be prevented, by way of said article 90/5, from deducting from the amounts assessed by way of autonomous taxation the deductions provided for in no. 2 of that article, in that these latter amounts would be borne by the company, whereas the deductions would be available only to the partners, thus unjustifiably discriminating against the subjects of IRC taxation subject to the fiscal transparency regime from the remainder, who, in the thesis of the Requesting Party, would have the discretion to apply the deductions provided for in no. 2 of article 90 to the amounts assessed, in the terms of no. 1 of that article, by way of autonomous taxation.

Here arrived, it is necessary to explore somewhat further the limits of the literalness of the norm at the epicenter of the present dispute – articles 90/1 and 2 of the applicable CIRC – and its repercussions in the broader framework of the relationship between traditional IRC and autonomous taxation in that tax.

As set out above, in the set of autonomous taxation, although restricted to those integrating the IRC regime in the broad sense, several situations of origin and disparate teleology converge.

Thus, by way of example, there are autonomous taxation that seek, singly or concurrently, to discourage certain economically undesirable behaviors (e.g., excessive remuneration of managers), to tax what are called fringe benefits (allowances; vehicle expenses), to mitigate the fiscal repercussion of expenses of entirely dubious business character (idem), to discourage behaviors with high fraud potential (payments to entities subject to a clearly more favorable tax regime) or to penalize behaviors that foster what is called the parallel economy (taxation of confidential expenses).

The literalness of the interpretation proposed by the Requesting Party conflates, in the narrow confines of the letter of the law, all such situations – in that all of them will be assessed in accordance with article 90/1 of the applicable CIRC.

Now, already before, and on other occasions, the futility of enclosing, in a unitary concept, all autonomous taxation, even those that only occur within the scope of IRC, has been pointed out, given their teleological and functional disparity. And, here, there emerges one of the principal weaknesses of the argumentative framework in which the position of the Requesting Party resides: that of resting on a postulate of uniqueness of autonomous taxation in IRC, characterized by those being "still taxation on income/profit, in the capacity of substitute for the prohibition of deduction of certain expenses from taxable profit".

Now, that, among others, is a characteristic recognized in certain types of autonomous taxation: autonomous taxation relating to deductible expenses.

The fissure in the framework supporting the position of the Requesting Party opens, in light of this finding, in two distinct directions: on the one hand, the reading proposed by the Requesting Party for the norm of article 90/1 of the applicable CIRC does not distinguish, nor permit distinction, between autonomous taxation relating to deductible charges and other types of autonomous taxation, such as those relating to confidential expenses; on the other hand, from the proven factual matter results that the autonomous taxation in the present case relates to distinct types of autonomous taxation, namely, autonomous taxation on deductible charges, autonomous taxation relating to undocumented expenses and autonomous taxation relating to bonuses and other variable remuneration.

From what has just been said, it results, first, that all the argumentation woven by the Requesting Party regarding the nature of autonomous taxation, as still taxing income is inconsequential for the decision of the matter sub iudice, in that it only covers a part of autonomous taxation where such characteristics are recognized.

On the other hand, it also results that the argumentative framework presented by the Requesting Party in support of its claim harbors within itself the potential to shelter claims – which, indeed, in light of the facts established as proven, is partly the case of the Requesting Party – in which it is sought to make deductions in accordance with no. 2 of article 90 of the applicable CIRC to autonomous taxation relating, for example, to confidential expenses or payments to entities subject to a clearly more favorable tax regime.

Now, this type of claim cannot be considered as intended by a reasonable legislator, in light of all the systematics of IRC in the broad sense, including autonomous taxation. Indeed, it will not be sustainable that, having gone where, juridically, the legislator of the CIRC went, having in view, for example, the combat against the parallel economy or transactions with the so-called (incorrectly[8]) "tax havens", it was their intention that the respective burden of autonomous taxation could be alleviated by means of the deductions provided for in no. 2 of article 90 of the CIRC.

The systemic entropy generated by the position that the Requesting Party seeks to assert in the case will not stop here, however.

Indeed, and even restricting, as the Requesting Party does, the question to autonomous taxation on deductible charges in IRC, such a position would result in a direct violation of the principle of equality.

Indeed, as all the jurisprudence abundantly cited by the parties denotes, autonomous taxation relating to deductible charges has underlying it a presumption of "partial business character". That is, such expenses will contain, presumably, a business purpose, which permits their deduction, but with such purpose will concur others, which, if they were exclusive, would exclude their deductibility[9].

Such presumptive character will justify that when the taxpayer succeeds in rebutting the said presumption, the expenses maintain their deductible character, without subjection to autonomous taxation[10].

Now, in this narrow field of autonomous taxation on deductible expenses, that and where the Requesting Party centers, moreover, the discussion, the position sustained by that would result in a qualified inequality (in that more than treating the unequal as equal, or the unequal as equal, it treats the unequal as unequal, in the inverse measure of the inequality), in that in a situation in which a taxpayer, in which deductible charges that normally would be subject to autonomous taxation, are not so because the material presuppositions of this (that is, because of rebuttal of the underlying presumption) are not met, as was the case, for example, of the situation in the arbitral proceeding 628/2014T, and who presents a fiscal loss, cannot proceed to any deduction in accordance with article 90/2 of the CIRC, whereas another taxpayer, in the same situation (fiscal loss), but who assumes (implicitly or explicitly) the character of partial business purpose of the same type of charges, finding himself as a result burdened with the corresponding autonomous taxation, could, in the thesis of the Requesting Party, have recourse to the deductions provided for in that same article.

That is, and in summary: between two taxpayers in distinct situations before the IRC tax system, one who incurs in expenses of wholly business character, and another who incurs in the same expenses but for purposes (real or presumptively) partially foreign to business character, the second would obtain from the tax system, in the matter that occupies us, more lenient treatment, by way of conduct less conforming to the teleology of that system.

Now, as is well known, the principle of equality is one of the basic constitutive principles of tax law, and nothing, at least in light of the criterion of the reasonable legislator, permits the conclusion that, in the regime under analysis, the legislator wished to confront in direct fashion that principle, dispensing a benefit in function of a factor contradictory with the teleology of the system.

Indeed, in the fiscal sphere, the principle of equality is nothing more than a specific expression of the general principle of equality of citizens before the law, provided for in article 13 of the Portuguese Constitution, which comprises a double facet of formal equality (equality before the law, general and abstract), and a facet of substantive equality (prohibiting arbitrary discrimination), being that the principle in question may be viewed on two distinct planes, namely:

• That of horizontal equality – according to which equal income, capital or consumption should correspond to equal measure of tax;

• That of vertical equality – according to which different income, capital or consumption should correspond to different tax.

There results, therefore, from the general principle of equality the prohibition of arbitrary discrimination, extensible to tax law under penalty of violation of the very idea of the Rule of Law, the prohibition of all forms of taxation (or exemption) discriminatory or arbitrary, unacceptable in light of the values of juridical and substantive equality.

The idea of generality of taxation, to be sure, does not prevent the establishment of differentiated taxation regimes, nor the establishment of exemptions, relief or aggravations of taxation, provided that they are based on values and purposes of public order that are superior to those that determined the creation of the tax itself. That is, differentiation based on perceived values is not prevented, but discrimination based on realities not permitted by the fundamental order itself is prevented.

It being true that the principle of juridical and fiscal equality is not an absolute principle, for it admits situations of discrimination, it is also true that these situations must correspond to discriminations based on institutionalized values, generically accepted and welcomed in the order of values instituted.

Now, in the case, in which two companies in the above-described situation find themselves objectively in a differentiated situation and which should, therefore, merit differentiated fiscal treatment, in the sense of the difference, it occurs, in light of the thesis of the Requesting Party, precisely the opposite.

In this manner, there should always intervene in the case a factor of interpretation in conformity with the Constitution of the norms in question, maxime of article 90/2 of the CIRC.

Within the decision-making topics to be considered, there should finally be made a mention to the entry into force of the new wording of no. 21 of article 88 of the CIRC, introduced by the Law that approved the State Budget for 2016 (Law no. 7-A/2016, of 30 March), which came to say that:

"The assessment of autonomous taxation in IRC is effected in accordance with the provisions of article 89 and is based on the values and rates resulting from the foregoing numbers, no deductions being made to the overall amount determined."

This norm is the subject of article 135 of the aforementioned Law that approved the 2016 State Budget, which states 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 nos. 20 and 21 of article 88 and to no. 8 of article 117 of the Corporate Income Tax Code has interpretive nature".

There is thus raised the question as to whether no. 21 of article 88 of the CIRC, introduced by the 2016 State Budget, has (as the law itself says), or not, interpretive nature.

Conceding that one is, without doubt, in a borderline situation, it will tend to grant the norm in question the character that the law which expressly creates it expressly confers upon it.

Indeed, and as the Requesting Party itself recognizes, following the doctrine of the illustrious Master Prof. Dr. Baptista Machado, for a law to be interpretive it is necessary that:

a. there be a controversial or uncertain question in the law in force;

b. that the legislator consecrate an interpretive solution that resolves the uncertainty to which the interpreter or judge would arrive based on the normative prior to the legislative alteration.

Now, differently from the Requesting Party, the application made of these principles goes, precisely, in the direction that the Law in question be, in fact, of interpretive nature.

Indeed, contrary to what the Requesting Party alleges, prior to the entry into force of the law in question (no. 21 of article 88 of the CIRC), the question of whether or not the deductions provided for in article 90/2 of the CIRC to the amounts assessed in accordance with no. 1, relating to autonomous taxation, were possible, was a controversial question, so much so that there were several disputes between the Tax Authority and taxpayers in this respect, a public and notorious fact, and even known to the Requesting Party (and, naturally, the Respondent).

Indeed, for a question to be controversial, it is not necessary, as the Requesting Party seems to presuppose, and it will not even be the case, that there be a divergence among judicial decisions, it being sufficient that there be distinct application of the controversial law by any legal operator, and the controversy possibly being of an essentially doctrinal nature.

On the other hand, and with respect to the second of the requisites enumerated, differently from what the Requesting Party seeks to presuppose, it is not considered that the solution given by the legislator must necessarily be one of those proposed by those involved in the controversy, nor much less that it must adhere to the grounds of those. Indeed, the interpretive intervention of the legislator is not intervention in a party proceeding, in which it arbitrates in favor of one or the other of those involved in the controversy. Rather, such interpretive intervention is objective – that is, it is placed before the Law as it was and as it became – and is the clarification of the legislator's own will.

Hence, in order for a law to be considered interpretive, beyond the existence of a controversy in the terms set out above, it is necessary only that the solution be one of the objectively possible, within the framework of the Law existing prior to the interpretive intervention, regardless of whether, in one or the other case, or even in all, it is one sustained by those involved in the controversy.

That is: for the law to be interpretive, it is sufficient that the solution given corresponds to one possible to be given, already in light of the legal text prior to such Law.

Now, as will be seen below, that is what occurs in the case.

Summing up what has been said above, it is verified, first, that the interpretation sustained by the Requesting Party rests, essentially, on the literal content of the norms of nos. 1 and 2 of article 90 of the applicable CIRC, with no substantial foundation appearing to justify the solution in question, all the more so in that the arguments that the Requesting Party advances in that sense are strictly relating to autonomous taxation on deductible charges, in that, on the one hand, nothing is proved respecting, in the concrete case, only such type of autonomous taxation being at issue (and not others), and, on the other hand, from the interpretation proposed there would always result that the deductions provided for in article 90/2 of the CIRC in question would be made to all types of autonomous taxation, including, for example, those relating to payments to entities subject to clearly more favorable taxation regimes and those relating to confidential expenses, and none of the substantial arguments presented by the Requesting Party permit justifying that such occurs.

On the other hand, as was seen, if it is true that article 90/1 of the CIRC in question does not distinguish between the assessment of autonomous taxation and the assessment of IRC stricto sensu (on taxable profit), the truth is that, at the outset, the procedure and nature of the two types of tax imposition is substantially distinct.

It further follows that, as was also seen, the ratification of the interpretation sustaining the petition of the Requesting Party would be generative of notable turbulence in the normative framework of IRC, particularly with respect to the regime of the special payment on account and of companies subject to the fiscal transparency regime.

Finally, as was also analyzed, adherence to the literalness of the precepts of article 90/1 and 2, advocated by the Requesting Party, would result – it is believed – in a trampling of the principle of tax equality, moreover, constitutionally imposed.

For all of this, it is believed that in the combination of the text of the two norms, the legislator said more than what it intended, a situation which, moreover, resulted not from coeval negligence in the drafting of such norms, but rather from the evolution of the regulatory regime of IRC and, concretely, from the gradual introduction therein of the regime relating to autonomous taxation.

We are thus facing a situation described by the Illustrious Master Prof. Doctor Baptista Machado, in which "Sometimes, although rarely, it will be necessary to go further still and to sacrifice, in obedience still to the legislative thought, part of a normative formula, or even the totality of the norm. These are aborted legislative formulas or genuine lapses. When the normative formula is so poorly inspired that it does not even allude with minimal clarity to the hypotheses it seeks to embrace and, taken literally, embraces others that are decidedly not in the spirit of the law, corrective interpretation may be spoken of. The interpreter will resort to such form of interpretation, to be sure, only when it is through that sole means that it is possible to achieve the end sought by the legislator. Revocatory or abrogating interpretation will take place only when between two legal dispositions there exists an insuperable contradiction"[11].

Indeed, the normative formula of article 90/2 of the applicable CIRC, taken literally, as the Requesting Party does, embraces hypotheses that, as was seen, are decidedly not in the spirit of the law. In the case, as has already been mentioned, not due to poor inspiration of the norm itself, but of the very reforms that were introducing autonomous taxation in IRC.

In this manner, it becomes necessary to interpret correctively the norm of article 90/2 of the applicable CIRC, so as to restrict the reference it makes to no. 1 of the same norm, in the reference it makes to "To the amount determined in accordance with the foregoing number", limiting it to the amount of the IRC collection calculated by the application of the rates of article 87 to the taxable matter determined in accordance with the rules of chapter III of the Code, and no longer thus to the amounts determined by way of autonomous taxation, thereby restoring to the norm its original sense, which was what corresponded to its textual wording prior to the introduction of autonomous taxation in the CIRC.

Notwithstanding that it is a type of interpretation frankly exceptional, as good doctrine holds, it will always be noted that, in the case, the interpreter is faced with the alternative of opting for it, or for another type of interpretation still more exceptional, that is, revocatory or abrogating interpretation of the norm of article 135 of the Law that approved the 2016 State Budget, and which conferred interpretive character on the addition of no. 21 to article 88 of the CIRC.

That is: between a corrective interpretation and an abrogating interpretation, one opts, moreover, for all else that has been said, for the first.

Here arrived, it is necessary to return, precisely, to the thematic of the interpretive character – or not – of the addition of no. 21 of article 88 of the CIRC, proclaimed by article 135 of the Law that approved the 2016 State Budget.

Before anything else, note that once more there is evidenced here the lack of legislative dexterity, a symptom of a legislative activity merely reactive which, case-by-case, seeks to address the problems that it itself generates.

Indeed, it is evident that the addition of no. 21 to article 88 of the CIRC does not have – in itself – interpretive nature, in that with respect to article 88 no dispute was raised, in the matter added, that would be necessary to address. The controversy, as has just been seen, resided in no. 2 of article 90, and it is with respect to the interpretation of this, as results from the introduction of no. 21 of article 88, that the alteration to the CIRC introduced by Law no. 7-A/2016, of 30 March, is interpretive. In other words, it is with respect to the normative content of article 90/2 that the Law that approved the 2016 State Budget is interpretive, in that it imposes that the same be read prior to its entry into force in the same manner that it came – without doubt – to be read after that same entry into force.

In this manner, and if one did not arrive at the above-referenced conclusion, according to which a corrective interpretation of article 90/2 of the applicable CIRC is the juridically most adequate solution for the case, one would always arrive at the same conclusion by way of the interpretive character of the alteration to the CIRC introduced by Law no. 7-A/2016, of 30 March, in that if there existed a prior controversy and such is one of the possible solutions, and the one that results from the Law that expressly assumes itself as interpretive, always would be such solution that would be necessary to assume.

It is concluded, in light of all the foregoing, that the principal arbitral request should not succeed.

As a first subsidiary request, the Requesting Party seeks that the self-assessment of the Fiscal Group for the tax period 2012, in the portion corresponding to autonomous taxation, be annulled, on the ground that it was assessed and collected without legal basis therefor, should it be understood that its assessment does not have its framing in the IRC assessment norm established in article 90 of the Corporate Income Tax Code, in that in that case it was assessed and collected without legal basis therefor (cf. both article 8, no. 2, paragraph a), of the General Tax Law, and article 103, no. 3, of the Constitution).

Now, as results from what was said above, it is understood and considered that the assessment of autonomous taxation occurred based on no. 1 of article 90 of the applicable CIRC, so that evidently it was given with legal basis therefor, such request thus not succeeding, and there thus being no verification of any violation of the provision of article 103/3 of the Portuguese Constitution.

Also subsidiarily, should autonomous taxation here at issue not be annulled by reason of the success of the principal request or the first subsidiary request – the Requesting Party comes, in the exercise of an option it understands to be legally attributed to it, to seek that there be added to the taxable profit of 2012/subtracted from the fiscal losses of 2012, the amount corresponding to the expenses, costs and charges subject to autonomous taxation in that tax year 2012, with the exception of undocumented expenses (which already are added to taxable profit of 2012/subtracted from fiscal losses of 2012), an amount that comes to € 2,739,998.35, with the consequent reduction in that amount of the fiscal losses determined in the self-assessment of that tax year.

Saving due respect, it appears that both the Requesting Party and the Respondent (the latter, moreover, in terms urbanely little felicitous) denote a fundamental lack of understanding with respect to what has been said in this matter.

Indeed, properly understood the texts in their entirety, there is no knowledge of having been recognized to autonomous taxation, neither those relating to deductible expenses nor, much less, in general, an intrinsic optional character.

In that the matter has already been explained very clearly, citation is made here of the decision of arbitral proceeding 94/2014T, already mentioned, where it may be read:

"Thus, and first, it should be borne in mind that accounting is not a closed and mechanical/automatic regulatory system, quite the contrary, always containing a margin of discretion of the respective subject, based on unavoidable value judgments of diverse character (technical, juridical, economic, management), explaining itself, moreover, in this manner the purpose of normalizing its regulation. Indeed, accounting norms may establish '(…) true discretion in the Kelsenian sense, i.e., an intentional indeterminacy, as happens for example, when the accounting norm establishes several alternative methods for the valuation of inventories (…)'[12].

In this manner, it does not appear correct the understanding that will be prevented (that it will be prohibited, or unlawful) the non-deduction from taxable profit of an expense that, being so, would be subject to autonomous taxation. (...)

On the other hand, it has been recurrently recognized, at the jurisprudential level, a space of "autonomy" and "freedom of management of the taxpayer"[13], in which it will be inadmissible the intrusion of the Tax Authority, and where will be included the "judgment on the opportunity and convenience of expenses", which "is exclusive of the businessman". And, if it is true that this consideration has reported to the classification of expenses as necessary, by identity, if not majority, of reason, it will be necessary to understand as encompassing, precisely, the judgment of non-necessity of those.

That is, if the businessman, in the exercise of the "judgment on the opportunity and convenience of expenses", deems them as not necessary to the maintenance of the productive source, such cannot, save better opinion, be disputed by the Tax Authority, if only by reason of the absence of the general presupposition (of the proceeding but applicable to the procedure) of lack of standing to act[14].

It is not here being sustained, evidently, (...), that autonomous taxation is optional. Rather, what will be (in a certain sense, at least) is the classification or not of a determined charge as deductible, in that the same presupposes its necessity for the maintenance of the productive source, and such judgment is incumbent on the taxpayer. Recall – once more – that here, as in the decision criticized by the Requesting Party, only autonomous taxation on deductible expenses is assessed, (...).

Nor is it the case here, equally, to suggest that "expenses" may be "omitted" (...). Indeed, the accounting of a determined charge as non-deductible implies, precisely, its relevance in the accounting, which is, precisely, the opposite of its omission! Besides, it could not be otherwise, considering that tax norms must be applied within the principle of formal connection.[15]

The recognition of this presumptive nature of the autonomous taxation at issue in the present case, in the terms above suggested, will be, moreover, a safeguard of its constitutionality, in that there will be guaranteed both the possibility of its full deduction by the taxpayer, and its non-deduction, depending on which side of the presumption underlying them is, concretely and in each case, rebutted."

That is, and so that it be once more very clear. It is not considered that the non-deductibility, or deductibility with subjection to autonomous taxation, of deductible expenses subject to autonomous taxation is, itself, optional or discretionary. Rather, such deductibility or non-deductibility will result from the Law, according to whether its respective presuppositions are met or not.

Thus, expenses in matters that, if deductible, are susceptible to autonomous taxation, will be subject thereto, if they fulfill the general requirements of article 23 of the CIRC, and the taxpayer does not rebut the presumption of business character underlying them and which guarantees their constitutionality.

On the other hand, expenses in those same matters that do not comply with the requirements of article 23 of the CIRC will not be deductible and, consequently, will not be subject to autonomous taxation, in that this impacts, expressly, in the matter at hand, on deductible expenses.

What occurs, and here appears to situate the genesis of the confusion generated is that, according to what doctrine and jurisprudence have generally understood, the accounting judgment of non-business character, and consequent deductibility, of determined accounted expenses, is a judgment proper and discretionary of the taxpayer, which the Tax Authority will very hardly be able to question, if it is able.

In this manner, if the taxpayer declares as non-deductible determined expenses that, if deductible, would be subject to autonomous taxation, and possesses the due accounting support of such declaration, the expenses in question, not deducted, will not be subject to autonomous taxation.

Now, in the case, that is not what occurs: the Requesting Party accounted for and declared the expenses in question as deductible. Hence its autonomous taxation is, unquestionably, in conformity with the law.

Had the Requesting Party understood, as appears to be the case, that the expenses it declared and recorded in its accounting as deductible were, indeed, expenses not necessary to obtain or ensure income subject to IRC, it should have recorded them, and declared them, as such, refraining from subjecting them to autonomous taxation.

Not having done so, and in light of the factual matter given as proven, there will be nothing more to do than to declare the legality of the autonomous taxation assessed by the Requesting Party itself, such part of the arbitral request thus not succeeding.

Concluding, the Requesting Party invokes in its submissions that the defense of the Tax Authority in arbitral proceedings will constitute a posteriori substantiation of the challenged act.

As is known, jurisprudence has been established to the effect that:

"In contention of mere legality, as is the case of the judicial challenge proceeding, the tribunal must remain within the formulation of the judgment on the legality of the challenged act as it occurred, assessing its respective legality in light of the contextual substantiation forming part of the act itself, being prevented from assessing reasons of fact and law that do not appear in that substantiation, whether these be elected by it or invoked a posteriori during the contentious appeal."[16]

Now, it is manifest that the substantiation of the present decision, and the basis of the defense of the Tax Authority in arbitral proceedings, notoriously diverge from the substantiation of the act dismissing the gracious complaint presented by the Requesting Party.

Such is not, save due respect, in the case, a reason for annulment of such act.

Indeed, and first, it has been peacefully understood, also, that:

"In matters of law, the tribunal is not bound by the allegations of the parties, nor even with respect to the juridical qualification of the facts effected by them, and enjoys freedom in the inquiry, interpretation and application of Law (article 664 of the Code of Civil Procedure)."[17]

On the other hand, and as has also been jurisprudence:

"Notwithstanding the implications that the declaration of substantiation may eventually have on the substance of the decision, it is necessary to distinguish the formal aspect, the one that matters in compliance with the imperative of substantiation, from the material aspect, which in the structure of the act respects above all the existence of the real presuppositions that support the decision of substance."

That is, the formal substantiation, impressed on the fulfillment of the imperative of substantiation, may be right or wrong, contending only with the validity of the act if, and to the extent, that it crystallizes the factual and juridical presuppositions of the act and these are non-conforming to law, constituting itself an error of fact and/or law.

Finally, article 2 of the RJAT takes as the reference for the competence of arbitral tribunals primary acts ("acts of tax assessment, self-assessment, withholding at source and installment payment"), with secondary acts being only relevant as references for the timeliness of the challengeable claim, as results from article 10/1/a) of that Regime, where it is imposed that requests for constitution of an arbitral tribunal be presented within 90 days, counted from the facts provided for in nos. 1 and 2 of article 102 of the Code of Tax Procedure and Process.

Hence in the first instance, what is being scrutinized in the present proceeding is the legality of the Requesting Party's self-assessment act of IRC (direct object of the competence of arbitral tribunals), the legality of the secondary act of gracious complaint – whose main function is to guarantee the timeliness of the Requesting Party for arbitral challenge of the primary act – being merely reflex or derivative of the legality of that.

Thus, the eventual annulment of the act dismissing the gracious complaint, due to wrong substantiation, when – as is the case – conclusion is reached regarding the non-verification of the illegalities argued with respect to the primary act, would always result in a useless act, and as such prohibited, in that, bound by res judicata, the Tax Authority would do nothing more in the new act than necessarily confirm what was decided in arbitral proceedings.

Hence there is, also, this allegation to not succeed.

C. DECISION

For these reasons this Arbitral Tribunal decides to judge the arbitral requests formulated as not succeeding and, in consequence, to maintain the tax acts object of the present arbitral action and to condemn the Requesting Party in the costs of the proceeding, set out below, taking into account that already paid.

D. Case Value

The case value is set at € 685,761.62, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is set at € 10,098.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Requesting Party, in that the request was totally unsuccessful, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the said Regulation.

Let notification be made.

Lisbon

19 November 2016

The Arbitrator President

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(Rui Ferreira Rodrigues)

The Arbitrator Member

(Henrique Nogueira Nunes)

[1] Arthur Kaufman, "Philosophy of Law", 3rd Edition, Calouste Gulbenkian Foundation, p. 44.

[2] "It is precisely in pedantically exact arguments, thought with an extreme degree of rigor and exactitude, that we frequently have the impression that something, in some way, does not make sense"; idem, p. 89.

[3] Cf. for all the arbitral decision of proceeding 94/2014T, available at www.caad.org.pt.

[4] Hence the reference to IRC in the strict/broad sense, reflecting such duality.

[5] Integrating the system of dual nature, already alluded to above.

[6] Available at www.dgsi.pt.

[7] "(...) one will always, in last analysis, be having in view an income, present or future, which the legislator tolerates taxing less (by force of the consideration of the deducted expense), in exchange for immediate taxation, when the expense is incurred, seeking then, in this perspective, the autonomous taxation to which we refer, although mediately, the income of the taxpayer.

Such taxation will be, from this point of view, a form (roundabout, to be sure) of, indirectly and through expense, still taxing income (effective or potential/future) of legal entities." (cf. arbitral decision 94/2016T, already cited).

[8] Save better opinion, the expression "tax haven" will be an incorrect translation of the English expression "tax haven", it being that "haven" means "shelter", and not "paradise", which might be a possible translation of "heaven".

[9] That is: for example, the charge with a light passenger motor vehicle that is in the service of a company, but occasionally, in actual or presumed fashion, is the subject of private use by an employee or third party, will be the subject of autonomous taxation.

[10] Cf. in this sense, for example, the arbitral decisions in proceedings 628/2014T and 704/2015T (the latter, to date, not yet published).

[11] Introduction to Law and the Legitimizing Discourse, Almedina, 20th reprint, 2012, p. 186.

[12] Cf. Nina Aguiar, "Tax Law and Discretionary Accounting Judgments" in SNC and Value Judgments – a critical and multidisciplinary perspective, Almedina, June 2013, p. 302.

[13] Cf., for example, Decision of the Supreme Administrative Court of 30-11-2011, rendered in proceeding 0107/11.

[14] Note that we are here speaking of documented expenses. Undocumented ones, by their very nature, whose analysis escapes the scope of the present decision, will be justifying different treatment.

[15] Under this principle, tax norms do not replace accounting norms nor do they disconnect the calculation of taxable profit from accounting profit, although they lead to a different result. Thus, even if a charge is not tax-deductible, if that charge has accounting relevance, it must be accounted for in conformity with the accounting regulatory system in force in the jurisdiction under analysis. Now, in Portuguese tax law in terms of IRC, in article 17, no. 3, a reference is established to the "accounting regulation in force" and, in no. 1 of the same norm, a rule of formal connection between accounting and tax norms. Indeed, the Portuguese formula of the principle of formal connection approaches very closely that which exists in Spanish and Italian law.

[16] Cf. by way of example, Decision of the Supreme Administrative Court of 26-02-2104, rendered in proceeding 0951/11, available at www.dgsi.pt.

[17] Cf. Decision of the Supreme Administrative Court of 05-06-2013, rendered in proceeding 0433/13, available at www.dgsi.pt.