Process: 176/2016-T

Date: November 21, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 176/2016-T) addresses autonomous taxation under IRC for corporate groups under the special taxation regime (RETGS). The claimant, A… SGPS, challenged autonomous taxation self-assessments for fiscal years 2012 and 2013, contesting a 10 percentage point rate increase applied to group companies. The Tax Authority had applied article 88(14) of the IRC Code, interpreting that the rate increase applied when the group showed tax losses, even though individual subsidiary companies did not. The initial arbitral decision ruled the claim inadmissible, applying Law 7-A/2016 which gave interpretative effect to the provision. However, the Constitutional Court declared unconstitutional the retroactive application of this interpretative law, violating article 103(3) of the Portuguese Constitution prohibiting tax retroactivity. The Constitutional Court upheld that the 10-point increase applies only when the specific taxed company presents tax losses, not merely when the group does. Following this judgment, the arbitral tribunal reformed its decision, proceeding to examine the merits without considering the unconstitutional interpretative norm. The case involves EUR 127,669.55 (2012) and EUR 106,649.94 (2013) in contested autonomous taxation amounts. The claimant also sought compensatory interest from the payment dates. This landmark decision clarifies that autonomous taxation rate increases under RETGS must be applied at the individual company level, not at the consolidated group level, establishing important precedent for holding companies and corporate groups subject to IRC autonomous taxation regimes.

Full Decision

ARBITRATION DECISION

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Prof. Dr. Suzana Fernandes da Costa and Prof. Dr. Paulo Jorge Nogueira da Costa, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 03-06-2016, agree as follows:

Following the judgment delivered by the Constitutional Court, a new arbitral decision is hereby issued.

1. Report

A…, SGPS, S.A., legal entity no.…, with registered office at Street …, no.…, …-… Porto, hereinafter referred to as "A… SGPS" or "Claimant", which in 2012 and 2013 was the dominant company of a group, the B… group hereinafter, subject to the special tax regime for groups of companies, came, pursuant to articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), and articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, to file a request for constitution of a collective arbitral tribunal, in which the TAX AND CUSTOMS AUTHORITY is the respondent.

The Claimant seeks a declaration of the illegality of the rejection of the administrative review and the partial illegality of the self-assessments of autonomous taxation in the B… fiscal group relating to the fiscal years 2012 and 2013, regarding the amounts of € 127,669.55 and € 106,649.94, respectively, with their consequent annulment in these respects, with all legal consequences, namely reimbursement to the claimant of these amounts, plus compensatory interest at the legal rate, counted until full reimbursement, from 31 May 2013 as regards € 127,669.55 (fiscal year 2012), and as regards € 106,649.94 (fiscal year 2013) counted from 30 May 2014 for € 39,123.42, and from 1 September 2014 for the remaining € 67,526.52.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 23-03-2016.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.

On 18-05-2016 the parties were duly notified of this appointment, having manifested no intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

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

The Tax and Customs Authority replied, arguing for the inadmissibility of the request for arbitral judgment.

By order of 06-07-2016, the meeting provided for in article 18 of RJAT was dispensed with and it was decided that the proceedings would continue with successive written submissions.

The parties submitted their arguments.

The parties possess legal personality and capacity, are legitimate and are duly represented (arts. 4 and 10, no. 2, of the same legislation and art. 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not tainted by any nullities and there is no impediment to the examination of the merits of the case.

No exceptions have been raised and there is no impediment to the examination of the merits of the case.

By arbitral award of 21-09-2016, the request for arbitral judgment was ruled inadmissible, with the application of no. 20 of article 88 of CIRC in the wording of Law no. 7-A/2016, of 30 March, to which article 135 of the same Law attributed interpretative nature to no. 14 of article 88.

Upon appeal to the Constitutional Court, the latter decided:

a) to declare unconstitutional, for violation of the prohibition of retroactivity of taxes, enshrined in article 103, no. 3, of the Constitution, the normative segment of article 135 of Law no. 7-A/2016, of 30 March, which attributes interpretative nature to article 133 of the same legislation, insofar as it fixes the meaning of article 88, no. 14, of CIRC, in accordance with no. 20 of that article.

b) Not to declare unconstitutional the norm of article 88, no. 14, of CIRC, interpreted in the sense that the increase of ten percentage points applies in the case of companies subject to RETGS, in which the taxed company does not present a tax loss in the period to which the taxation relates, but the group of companies of which it is a part does.

Although the Constitutional Court's judgment makes no reference to the need to reform the arbitral decision, it follows from no. 2 of article 80 of the Organization, Functioning and Procedure of the Constitutional Court (Law no. 28/982, of 15 November), that "if the Constitutional Court grants the appeal, even if only partially, the case files shall be returned to the court from which they came, so that this court, as the case may be, shall reform the decision or cause it to be reformed in accordance with the judgment on the issue of unconstitutionality or illegality".

Thus, the arbitral decision shall be reformed, without regard to no. 20 of article 88 of CIRC and article 135 of Law no. 7-A/2016, of 30 March.

2. Statement of Facts

2.1. Established Facts

The following facts are established as proven:

a) The Claimant was in the years 2012 and 2013 the dominant company of a group of companies taxed under Corporate Income Tax within the framework of the special tax regime for groups of companies (RETGS).

b) On 30-05-2013 and 30-05-2014, the Claimant submitted declarations model 22 of the group relating to the fiscal year 2012, in which it entered the amount of € 539,873.24 in fields 365 of table 10, relating to autonomous taxation (documents nos. 1 and 3 attached to the request for arbitral judgment, whose contents are reproduced herein).

c) On 30-05-2014 and 27-5-2015, the Claimant submitted declarations model 22 of the group relating to the fiscal year 2013, in which it entered the amount of € 443,178.89 in fields 365 of table 10, relating to autonomous taxation (documents nos. 2 and 4 attached to the request for arbitral judgment, whose contents are reproduced herein).

d) Among the taxation amounts were autonomous taxes totaling € 347,676.36 (2012) and € 283,370.85 (2013), relating to the following companies forming part of its Fiscal Group (cf. Docs. nos. 7 and 8 attached hereto):

– C…;
– D…;
– E…;
– F…;
– G…;
– H…;
– I…;
– J…;
– K….

e) The amounts of Corporate Income Tax, including state surcharge and autonomous taxation, of € 250,938.45 for fiscal year 2012 and € 39,123.42 for fiscal year 2013 have been paid (Documents nos. 9 and 10 attached to the request for arbitral judgment, whose contents are reproduced herein).

f) The autonomous taxes relating to these companies were determined by applying to the expenses and charges constituting their taxable bases the respective legally provided rates, to which was further added the increase of ten percentage points provided for in article 88, no. 14, of CIRC, notwithstanding that none of these companies incurred tax losses in 2012 and 2013 (Documents nos. 7 and 8 attached to the request for arbitral judgment, whose contents are reproduced herein).

g) Without that (undue) rate increase of 10 percentage points, the autonomous taxes in question would have been only € 220,006.81 (2012) and € 176,720.92 (2013), and not € 347,676.36 (2012) and € 283,370.85 (2013).

h) The application of the increase in autonomous taxation rates for companies that did not incur tax losses reflected the Tax Authority's understanding regarding the application of the provisions of no. 14 of article 88 of the Corporate Income Tax Code in cases where the taxable persons form part of a group of companies subject to RETGS (document no. 13 attached to the request for arbitral judgment, whose content is reproduced herein).

i) The system of electronic data transmission through which the periodic Corporate Income Tax return is filed is parameterized in such a manner as to consider that the increase in autonomous taxation rates should be based on the tax result calculated by the group of companies subject to RETGS rather than the tax result calculated individually by each of the companies forming part thereof (article 21 of the request for arbitral judgment, not questioned).

j) On 29-05-2015, the Claimant submitted an administrative review of the said self-assessments relating to fiscal years 2012 and 2013.

k) The administrative review was rejected by order of 22-12-2015, issued by the Head of the Administrative and Contentious Justice Division of the Finance Directorate of Porto, who expresses agreement with an opinion, which is contained in document no. 5 attached to the request for arbitral judgment, whose content is reproduced herein, which refers to the substantiation of the draft decision, in which it states, among other things, the following:

"2. The reduction of autonomous taxation rates for companies in the group that individually calculated taxable profit, in fiscal years 2012 and 2013, in the amounts of € 127,659.55 and € 106,649.94

It is inherent in no. 1 of article 70 of CIRC that the group profit is calculated through the algebraic sum of taxable profits and tax losses determined in the periodic individual declarations of each of the companies belonging to the group.

This regime makes it possible for the group to be considered as a single taxable person for Corporate Income Tax purposes, making possible a savings of this tax through compensation between profits of some companies and losses of others.

In the present case, what is at issue is whether the autonomous taxation rates increased in accordance with the provisions of no. 14 of article 88 of CIRC, that is, if there is a tax loss, should this be assessed in relation to each of the companies that make up the fiscal group subject to RETGS, or taking into account the group results.

One should analyze the regime of autonomous taxes to understand whether they have the same nature as Corporate Income Tax and, therefore, whether this assessment is made taking into account group results, or whether, on the contrary, autonomous taxes do not have the same nature as Corporate Income Tax, with the assessment to be made in relation to each taxable person of autonomous taxes, disregarding the group results.

Law no. 3-B/2010 of 25 April added no. 13 to article 68 of CIRC, introducing the subjection to autonomous taxation, based on certain prerequisites, of expenses or charges relating to indemnities or any compensation, as well as bonuses and other variable remuneration, when managers, administrators or partners are involved.

Through subjection to autonomous taxation, certain business expenses "are themselves transformed into taxable facts".

Autonomous taxes are levied on the expense, with each act of expenditure constituting an autonomous taxable fact, to which the taxpayer is subject, regardless of whether or not they have taxable income under Corporate Income Tax at the end of the respective tax period.

The Court of Audit judgment 0281/2011, of 2011/06/07, understood that to each act of expense the rate in force on the date of its realization should be applied. "Autonomous taxes tax expense and not income, they are taxes that penalize certain charges incurred by companies and are calculated in a completely independent manner from Corporate Income Tax, not even being related to the obtaining of a positive result".

In autonomous taxes it is not a question of taxing income at the end of the tax period, but a certain type of expense in itself, based on certain reasons of tax policy.

"The manifestation of wealth on which this portion of taxation will be levied (the fact revealing taxable capacity that is intended to be achieved) is the mere realization of this expense, at a given moment. Each expense is, for that purpose, an autonomous taxable fact, to which the taxpayer is subject, whether or not they come to have taxable income in Corporate Income Tax at the end of the period.

Formally, autonomous taxes are Corporate Income Tax, presenting themselves as a component thereof, a complement, this being the view of both the legislator and CIRC itself in art. 12.

From reading Constitutional Court Judgments 617/12 and 85/12, it cannot be inferred that autonomous taxes are effectively a tax distinct from Corporate Income Tax, which in any case justifies their non-deductibility in determining taxable profit under Corporate Income Tax, as set out in paragraph a) of no. 1 of article 45 of CIRC.

Article 23-A, enacted by Law no. 2/2014, of 16 January, in paragraph a) of no. 1 prescribes "Corporate Income Tax, including autonomous taxes...", thus having a clarifying effect on the controversial issue that is the subject of the administrative review referred to above.

It has been the understanding of the Tax Authority that only the status of Corporate Income Tax taxable person and, therefore, the respective activities subject to the general regime of Corporate Income Tax, presume, in principle, the subjection to autonomous taxes".

Thus, since taxes have the same nature as Corporate Income Tax, the applicable rules must be the same in everything that is not specifically determined. This is the case with the regime applicable to groups of companies, which in autonomous taxation has no special rule.

The Tax Authority concludes in information no. 405/2012 that for purposes of no. 14 of article 88 of CIRC, the presentation of tax losses is assessed taking into account group results, given that this is the rule for Corporate Income Tax.

In the present case the group had tax losses, sharing the understanding of the Tax Authority, the request should be rejected as to the matter petitioned."

l) On 31-05-2013, the Claimant paid the amount of € 250,938.45, relating to the self-assessment for fiscal year 2012 (documents nos. 1 and 9 attached to the request for arbitral judgment, whose content is reproduced herein).

m) On 31-05-2014, the Claimant paid the amount of € 39,123.42, relating to the self-assessment of 2013 (document no. 10 attached to the request for arbitral judgment, whose content is reproduced herein).

n) On 21-03-2016, the Claimant filed the request for arbitral judgment that gave rise to the present proceedings.

2.2. Unestablished Facts

There are no facts relevant to the decision that have not been established as proven.

2.3. Justification for the Statement of Facts

The established facts are based on documents submitted by the Claimant and which are also contained in the administrative file.

The facts are not disputed.

3. Legal Issues

3.1. Issue to be Considered

Article 88 of CIRC provides for various autonomous taxes under Corporate Income Tax with their respective rates.

No. 14 thereof establishes the following:

"14 - The autonomous taxation rates provided for in the present article are increased by 10 percentage points as regards taxable persons that present a tax loss in the tax period to which any of the taxable facts referred to in the preceding numbers relate."

The issue that is the subject of the present proceedings is whether, when the special tax regime for groups of companies is applicable, the tax losses relevant to determining this increase in autonomous taxation rates are those of the groups or those of each of the individual entities that form part of them.

The Claimant understands that the tax losses of each of the group companies are relevant for this purpose, while the Tax and Customs Authority understands that it is the group's tax loss that determines the increase in the rates.

3.2. Examination of the Issue Without Regard to Law no. 7-A/2016, of 30 March

Prior to Law no. 7-A/2016, the issue was examined in the arbitral award of 01-09-2014, delivered in case no. 239/2014-T, in terms that are accepted herein.

Article 88 of CIRC establishes the following, in no. 14:

"Article 88

14 - The autonomous taxation rates provided for in the present article are increased by 10 percentage points as regards taxable persons that present a tax loss in the tax period to which any of the taxable facts referred to in the preceding numbers relate."

3.2.1. Autonomous Taxation as Taxation Under Corporate Income Tax

"In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed" (article 11, no. 1, of the General Tax Law), which constitutes a reference to article 9 of the Civil Code.

Article 9 of the Civil Code establishes the following:

"Article 9

Interpretation of Law

1 – The interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the conditions specific to the time of its application.

2 – However, the interpreter cannot consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3 – In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express its intent in adequate terms."

Thus, what must be done is to seek to reconstruct the legislative intent, based on the interpretative elements indicated in this article 9.

The starting point of interpretation is the letter of the law.

In the absence of other elements that would lead to the selection of a less immediate meaning of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, under the presumption (imposed by no. 3 of article 9 of the Civil Code, which stands until it is demonstrated to be incorrect) that the legislator knew how to express its intent in adequate terms.

In the original wording of CIRC, approved by Decree-Law no. 442-B/88, of 30 November, no express or implied reference was made to autonomous taxes within Corporate Income Tax.

Only with Law no. 101/89, of 29 December, which approved the State Budget for 1990, was a first reference made to autonomous taxes within Corporate Income Tax, through the legislative authorization contained in no. 3 of its article 15, which prescribes the following:

"Law no. 101/89, of 29 December

Article 15

3 - The Government is hereby authorized to impose autonomous taxation in Personal Income Tax or Corporate Income Tax, as the case may be, at a rate increased by 10% and without prejudice to the provisions of paragraph h) of no. 1 of article 41 of CIRC, on confidential or undocumented expenses incurred in the exercise of commercial, industrial or agricultural activities by Personal Income Tax taxpayers who possess or should possess organized accounts or by Corporate Income Tax taxpayers not covered by articles 8 and 9 of the respective Code."

Giving effect to this legislative authorization, the Government approved Decree-Law no. 192/90, of 9 June, which included, outside the Personal Income Tax and Corporate Income Tax codes, a rule on autonomous taxation establishing the following:

"Decree-Law no. 192/90, of 9 June

Article 4

Confidential or undocumented expenses incurred in the exercise of commercial, industrial or agricultural activities by Personal Income Tax taxpayers who possess or should possess organized accounts or by Corporate Income Tax taxpayers not covered by articles 8 and 9 of the respective Code are subject to autonomous taxation in Personal Income Tax or Corporate Income Tax, as the case may be, at a rate of 10% without prejudice to the provisions of paragraph h) of no. 1 of article 41 of CIRC."

As results from the literal content of this norm, reference is made to autonomous taxation in Personal Income Tax or Corporate Income Tax, not because they are a tax different from either of these, but rather because they are calculated by applying a rule different from the general taxation rules applicable to determining the amounts owed under those taxes.

But, for what is of interest here, since the autonomous taxation is under Corporate Income Tax, it follows linearly from this norm that the tax to be assessed and collected is considered Corporate Income Tax, whereby the norms applicable to Corporate Income Tax will apply to it, in what is not regulated here, everything that is provided for Corporate Income Tax and which is necessary to apply (for example, for purposes of deadlines for submitting declarations, competence for assessment, credit privileges, means of challenge, etc.).

Law no. 52-C/96, of 27 December, amended this article 4 of Decree-Law no. 192/90, but maintained the same reference to autonomous taxation under Corporate Income Tax, establishing the following:

"Law no. 52-C/96, of 27 December

1 - Confidential or undocumented expenses incurred by Personal Income Tax taxpayers who possess or should possess organized accounts in the exercise of commercial, industrial or agricultural activities, or by Corporate Income Tax taxpayers, are subject to autonomous taxation in Personal Income Tax or Corporate Income Tax, as the case may be, at a rate of 30%, without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the Corporate Income Tax Code."

Law no. 87-B/97, of 31 December, again amended no. 1 of article 4, giving it the following wording:

"Law no. 87-B/97, of 31 December

1 - Confidential or undocumented expenses incurred by Personal Income Tax taxpayers who possess or should possess organized accounts in the exercise of commercial, industrial or agricultural activities, or by Corporate Income Tax taxpayers, are subject to autonomous taxation in Personal Income Tax or Corporate Income Tax, as the case may be, at a rate of 32%, without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the Corporate Income Tax Code."

Law no. 3-B/2000, of 29 April, added a no. 3 to the same article 4, with the following wording:

"Law no. 3-B/2000, of 29 April

3 - Representation expenses and charges related to light passenger vehicles incurred by Personal Income Tax taxpayers who possess or should possess organized accounts in the exercise of commercial, industrial or agricultural activities, or by Corporate Income Tax taxpayers not exempt and who principally engage in commercial, industrial or agricultural activities, are subject to autonomous taxation in Personal Income Tax or Corporate Income Tax, as the case may be, at a rate of 6.4%."

Law no. 30-G/2000, of 29 December, repealed the said article 4, but included in CIRC a set of autonomous taxes, through the addition of an article 69-A with the following content:

"Article 69-A

Autonomous Taxation Rate

1 - Confidential or undocumented expenses are subject to autonomous taxation at a rate of 50%, without prejudice to the provisions of paragraph h) of no. 1 of article 41

2 - The rate referred to in the preceding number is raised to 70% in cases where such expenses are incurred by taxpayers that are totally or partially exempt, or that do not principally engage in commercial, industrial or agricultural activities.

3 - The following are subject to autonomous taxation at a rate corresponding to 20% of the highest normal rate: representation expenses and charges related to light passenger vehicles, recreational vessels, recreational aircraft, motorcycles and motorcars, incurred or borne by non-exempt taxpayers who principally engage in commercial, industrial or agricultural activities.

4 - Charges related to light passenger vehicles, recreational vessels, recreational aircraft, motorcycles and motorcars are considered to include, in particular, depreciations, rents or leases, insurance, maintenance and conservation expenses, fuels and taxes affecting their ownership or use.

5 - The following are excluded from the provisions of no. 3: charges related to light passenger vehicles, recreational vessels, recreational aircraft, motorcycles and motorcars, devoted to the operation of the public transport service, intended to be leased in the normal exercise of the taxpayer's activity, as well as depreciations related to vehicles with respect to which the agreement provided for in no. 8 of paragraph c) of no. 3 of article 2 of the Personal Income Tax Code has been concluded.

6 - Representation expenses are considered to include, in particular, charges incurred for receptions, meals, trips, excursions and entertainment offered in the country or abroad to clients or suppliers or to any other persons or entities.

7 - The following are subject to the regime of nos. 1 or 2, as the case may be, with the applicable rates being, respectively, 35% or 55%: expenses corresponding to amounts paid or owed, in any capacity, to individual or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, as defined pursuant to the Code, unless the taxpayer can prove that such charges correspond to actually performed operations and do not have an abnormal character or an exaggerated amount.

8 - The following are excluded from the provisions of no. 3: taxpayers to whom the regime provided for in article 46-A applies."

Although reference is not made herein expressly that these autonomous taxes are Corporate Income Tax, this results, on the one hand, from the inclusion of this article in CIRC (in parallel with the inclusion in the Personal Income Tax Code of a similar article 75-A); on the other hand, from the fact that nos. 1 to 3 of this article 69-A clearly aim to replace the previous nos. 1 and 3 of article 4 of Decree-Law no. 192/90.

It is true that the inclusion of these autonomous taxes directly affecting expenses and not on the income of legal persons in a Code intended primarily to establish the general regime for taxation of income of legal persons generates, at least apparently, a situation of distortion of the scope of the tax, which ceases to affect directly only profits to pass to affecting directly also certain expenses.

However, the Explanatory Memorandum contained in Bill no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxes, leaves no doubt that it is a deliberate and intentional amplification of the previously existing distortions, as it was understood that they were necessary, in short, to compensate for other distortions resulting from significant fraud and tax evasion and, thus, to increase the equity of the distribution of the tax burden among citizens and companies.

In fact, the said Bill states:

"The current income taxation model was established in 1988, based on Personal Income Tax and Corporate Income Tax, and corresponded to the adoption of solutions with identical bases to those common in OECD countries, which obviously is not the case to alter.

However, pragmatic reasons immediately determined some departures from the principles defined, which the practice of subsequent years came to aggravate in numerous situations.

Furthermore, the evolution of the country introduced changes in economic and social reality, in part as a result of the impact of the European Union and the dynamics of deepening the integration process, affecting the network of relationships and institutions that are the subject of tax laws.

There exists in Portuguese society a widespread feeling that the tax system does not equitably distribute the tax burden among citizens, with the burden falling most heavily on the most compliant, including employees, while tax evasion and fraud maintain a significant presence that frequently allows those earning the most profits to pay no taxes or bear them in terms far below what is required of them.

  1. For the foregoing, the Government, following the preparation of technical studies and reports prepared under the aegis of previous Governments, in particular the XIII Government, as well as the work carried out by the Tax Reform Coordination Structure (ECORFI), which was created in January 2000, beyond the debate that these issues have raised, understood that it was time to submit to Parliament a broad reform of the Portuguese tax system.

These measures are intended to fulfill a pact of tax justice with citizens, based on broadening the tax base, intensifying the fight against fraud and tax evasion, and reducing the tax burden of compliant taxpayers, within the framework of the general principles of equity, efficiency and simplicity that should frame the tax system."

Against this explanation, it becomes clear that, from the legislative perspective, autonomous taxes directly affecting certain expenses, within taxes that originally affected only income, are considered departures from the system of direct taxation of income that was envisioned with Corporate Income Tax.

But this explanation also makes clear that a value that was legislatively considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice for these forms of taxation, because they were in line with the principles of equity, efficiency and simplicity.

That is, it was understood that the system of taxing companies exclusively on the basis of taxable profit generated situations of tax inequity that it was intended to attenuate or eliminate by effecting a "broadening of the tax base", through the addition to direct taxation, which continues to be the essence of the system of taxation of companies, of situations of indirect taxation, through the application of the tax also to certain expenses that was understood to be causes of this inequity, because they were presumed to be connected with situations of "evasion and tax fraud" "that frequently allows those earning the most profits to pay no taxes or bear them in terms far below what is required of them".

With this legislative choice of "broadening the tax base" of Corporate Income Tax, its base of applicability was expanded in relation to that contained in article 3, but that is precisely what was intended, in light of the said Explanatory Memorandum.

Further amendments were subsequently introduced to the said article 69-A, by Law no. 32-B/2002, of 30 December, Law no. 107-B/2003, of 31 December, Law no. 55-B/2004, of 30 December, Decree-Law no. 192/95, of 7 November, Law no. 67-A/2007, of 31 December, Law no. 64/2008, of 5 December, Law no. 100/2009, of 7 September, Law no. 55-A/2010, of 31 December, Law no. 64-B/2011, of 30 December, and Law no. 2/2014, of 16 January, with a clear tendency toward the expansion of autonomous taxes, which shows that, repeatedly, the tax legislator demonstrated indifference with regard to the possible distortions of the system of taxation of companies that autonomous taxes may entail.

For that matter, the great concerns about the coherence of taxes that disturb the Claimant were never shared by our tax legislator, which, for a long time, has maintained a tax that it includes, under a common denomination, an amalgam of disconnected taxation situations, which is the Stamp Tax, only vaguely justified by the simplicity and efficiency of tax collection, and expressly acknowledges, in the said Bill, that, for pragmatic reasons, there were "departures from the principles defined, which the practice of subsequent years came to aggravate in numerous situations".

But this indirect taxation continues to be effected within the scope of Corporate Income Tax, as results from the inclusion of autonomous taxes in the respective Code, which has as a corollary the application of the general rules specific to this tax, which do not conflict with its special form of applicability.

Thus, while it is true that autonomous taxes constitute a different form of applying taxes to companies, which could consist of autonomous regulation or be arranged in the Stamp Tax Code, it is also true that the legislative choice to include such taxes in CIRC reveals an intention to consider such taxes as included in Corporate Income Tax, which may be justified because they are an indirect form, but, in the legislative perspective, equitable, simple and efficient, of taxing business income that escapes the regime of taxation with direct bearing on income.

It is concluded, therefore, that both in the light of article 4 of Decree-Law no. 192/90, of 9 June, in all its versions, where it referred to autonomous taxes as being "in Personal Income Tax or Corporate Income Tax" and not that another levy, as well as after their inclusion in CIRC, autonomous taxes that are the subject of taxation of legal persons are considered Corporate Income Tax, whereby the norms of CIRC that do not conflict with their special form of applicability and applicable rates will be applicable thereto.

In this light, Law no. 109-B/2001, of 27 December, by stating, in the wording given to article 12 of CIRC, that "companies and other entities to which, pursuant to article 6, the tax transparency regime is applicable are not taxed under Corporate Income Tax, except as regards autonomous taxes", clearly was based on the presumption, which resulted expressly from the various wordings of article 4 of Decree-Law no. 192/90 and the integration of autonomous taxes in CIRC effected by Law no. 30-G/2000, that these taxes were a form of taxation of legal persons under Corporate Income Tax, for this is the only justification for why in the new wording given to article 12 of CIRC express reference was made to the exclusion from Corporate Income Tax taxation of entities to which the tax transparency regime is applicable not extending to autonomous taxes.

This conclusion, which could already be securely drawn, at least from Law no. 109-B/2001, that autonomous taxes are included within the scope of Corporate Income Tax and the general rules of this tax are potentially applicable thereto, is confirmed by the new article 23-A, no. 1, of CIRC, in the wording introduced by Law no. 2/2014, of 16 January, by stating that "the following are not deductible for purposes of determining taxable profit" "Corporate Income Tax, including autonomous taxes".

In fact, it results from the express content of the said article 12 of CIRC that autonomous taxes are included in Corporate Income Tax, specifically for the purpose of barring the deduction from taxable profit of the amounts spent on their payment.

On the other hand, although this express reference to the inclusion of autonomous taxes was only inserted with this Law no. 2/2014, it is certain that such inclusion already existed previously, not least because this Law did not alter the scope of Corporate Income Tax, namely articles 1 and 3, to which the Claimant gives special relevance for determining what is Corporate Income Tax.

Thus, it must be concluded that the legislator repeatedly expressed its intention to tax under Corporate Income Tax the expenses incurred by legal persons for which autonomous taxation is provided for and that there is no textual support in the norms relating to these taxes for concluding that the expenses with payment of such taxes are not considered Corporate Income Tax.

3.2.2. Autonomous Taxation and the Special Tax Regime for Groups of Companies

From the previous finding that autonomous taxes are taxation under Corporate Income Tax does not necessarily follow that they are relevant within the scope of the special tax regime for groups of companies, for this regime does not constitute a general form of taxation under Corporate Income Tax.

In fact, as results from the provision of article 69, no. 1, of CIRC, in the wording given by Decree-Law no. 159/2009, of 13 July, the special nature of that regime relates to the "determination of the taxable matter in relation to all companies in the group".

Although this formula "determination of the taxable matter" is abstractly comprehensive of all types of taxable matter on which Corporate Income Tax is levied, article 70 of the same Code, relating to "determination of the group's taxable profit", specifies that "as to each of the tax periods covered by the application of the special regime, the group's taxable profit is calculated by the dominant company, through the algebraic sum of the taxable profits and tax losses determined in the periodic individual declarations of each of the companies belonging to the group".

Thus, it clearly results from this article 70 of CIRC that the applicability of the special tax regime for groups of companies is restricted to the determination of taxable profit and tax losses. On the other hand, even when this special regime is applicable, autonomous relevance continues to be given to the tax losses of each of the group's companies, as shown by article 71 of the same Code, by establishing various rules that constitute the "specific regime for deduction of tax losses".

Now, although autonomous taxes under Corporate Income Tax are considered Corporate Income Tax, it is manifest that their base of applicability is not taxable profit.

For this reason, it must be concluded that there is no legal basis for extending to the applicability and determination of rates of autonomous taxes the special tax regime for groups of companies, which is limited to the determination of taxable profit and tax losses of groups of companies for purposes of taxation under Corporate Income Tax, in the part in which it directly affects income.

Thus, the increase in the rates of autonomous taxes provided for in no. 14 of article 88 of CIRC occurs only when the company forming part of the group in relation to which the taxable fact that is the basis of autonomous taxes occurred presented a tax loss in the tax period to which these facts relate.

Consequently, the self-assessments relating to fiscal years 2012 and 2013 of the Claimant's fiscal group and the decision rejecting the administrative review that had them as object are tainted by the vice of violation of law, for misinterpretation of article 88, no. 14, of Corporate Income Tax Code, in understanding that what is relevant for purposes of the increase provided for in article 88, no. 14, of CIRC is the global loss of the group of companies and not that of each of the companies to which the autonomous taxes are attributed.

This vice justifies the annulment of the self-assessments, as regards the amounts of € 127,669.55 and € 106,649.94, relating to fiscal years 2012 and 2013, respectively, as well as the decision rejecting the administrative review, in accordance with the provision of article 163, no. 1, of the Code of Administrative Procedure subsidiarily applicable pursuant to article 2, paragraph c), of the General Tax Law.

4. Reimbursement of Amounts Paid and Compensatory Interest

On 31-05-2013, the Claimant paid the amount of € 250,938.45, relating to the self-assessment for fiscal year 2012, and on 31-05-2014, it paid the amount of € 39,123.42, relating to the self-assessment of 2013.

The Claimant requests reimbursement of these amounts, plus compensatory interest at the legal rate, counted until full reimbursement, from 31 May 2013 as regards € 127,669.55 (fiscal year 2012), and as regards € 106,649.94 (fiscal year 2013) counted from 30 May 2014 for € 39,123.42, and from 1 September 2014 for the remaining € 67,526.52.

Having paid the amounts of € 127,669.55 (fiscal year 2012) and € 39,123.42 (fiscal year 2013) without legal justification, the Claimant is entitled to be reimbursed thereof.

The Claimant should also be reimbursed by 30-08-2014 of € 67,526.52, which is the remaining portion of the amount unduly self-assessed of € 106,649.94 relating to fiscal year 2013 (article 104, no. 6, of CIRC).

Regarding compensatory interest, art. 43, nos. 1 and 2, of the General Tax Law establish that "compensatory interest is due when it is determined, in administrative review or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due" and that "it is also considered that there is error attributable to the services in cases where, although the assessment is made on the basis of the taxpayer's declaration, this followed, in its completion, generic guidance from the tax administration, duly published".

In the case at hand, it was the Claimant that effected the self-assessments, but, as has been established, the system of electronic data transmission through which the periodic Corporate Income Tax return model 22 is filed (articles 117, nos. 1, paragraph b), 2 and 3, and 120 of CIRC) is parameterized in such a manner as to consider that the increase in autonomous taxation rates should be based on the tax result calculated by the group of companies subject to RETGS rather than the tax result calculated individually by each of the companies forming part thereof.

Thus, it is necessary to conclude that the errors affecting the declarations and self-assessments resulting therefrom are exclusively attributable to the Tax Administration, whereby it must be concluded that error attributable to the services occurs for purposes of no. 1 of article 43 of the General Tax Law, as the situation is comparable, including a fortiori, to that provided for in no. 2 of article 43 of the General Tax Law, for the taxpayer is obliged to adopt the understanding of the Tax and Customs Authority.

Having paid the amounts of € 127,669.55 (fiscal year 2012) and € 39,123.42 (fiscal year 2013) without legal justification, the Claimant is entitled to compensatory interest calculated on each of those amounts from the dates on which they were paid, which are 01-6-2013 and 01-06-2014 respectively.

The Claimant should also be reimbursed by 30-08-2014 of € 67,526.52, which is the remaining portion of the amount unduly self-assessed of € 106,649.94 relating to fiscal year 2013 (article 104, no. 6, of CIRC), whereby they are entitled to compensatory interest calculated on that amount of € 67,526.52 from 01-09-2014.

Compensatory interest is due at the supplementary legal rate, in accordance with articles 43, nos. 1 and 4, and 35, no. 10, of the General Tax Law, 61, nos. 2, 3, 4 and 5, of the Code of Administrative Court Procedure, and article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

5. Decision

In accordance with the foregoing, the members of this Arbitral Tribunal agree to:

a) Declare the request for arbitral judgment well-founded.

b) Declare the partial illegality and annul the self-assessments of the Claimant's fiscal group relating to fiscal years 2012 and 2013, in the part relating to the amounts of € 127,669.55 (fiscal year 2012) and € 106,649.94 (fiscal year 2013).

c) Declare the illegality and annul the decision rejecting the administrative review and annul it.

d) Declare well-founded the request for reimbursement of the amounts of € 127,669.55 (fiscal year 2012) and € 106,649.94 (fiscal year 2013) and condemn the Tax and Customs Authority to pay to the Claimant, as reimbursement, the total amount of € 234,319.49.

e) Declare well-founded the request for compensatory interest and condemn the Tax and Customs Authority to pay it to the Claimant, until full reimbursement, in the following terms: calculated on the amount of € 127,669.55 from 01-06-2013; calculated on the amount of € 39,123.42 from 01-06-2014; and calculated on the amount € 67,526.52 from 01-09-2014.

6. Value of the Proceedings

In accordance with the provision of art. 305, no. 2, of the Code of Civil Procedure and 97-A, no. 1, paragraph a), of the Code of Administrative Court Procedure and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 234,319.49.

7. Costs

In accordance with art. 22, no. 4, of RJAT, the amount of costs is fixed at € 4,284.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 21-11-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Suzana Fernandes da Costa)

(Paulo Jorge Nogueira da Costa)

Frequently Asked Questions

Automatically Created

What are autonomous taxations (tributações autónomas) under Portuguese IRC and how do they apply to corporate groups?
Autonomous taxations (tributações autónomas) are IRC taxes applied to specific corporate expenses regardless of the company's taxable profit or loss. Under article 88 of the IRC Code, they apply at fixed rates to expenses like vehicle costs, entertainment, travel, and non-resident payments. For corporate groups under RETGS, these taxes are calculated at the subsidiary level but paid by the dominant company. Article 88(14) provides for a 10 percentage point rate increase when companies present tax losses. The Constitutional Court clarified in this case that for RETGS groups, this increase applies only when the individual subsidiary incurring the expense has a tax loss, not when merely the consolidated group shows losses. This interpretation prevents disproportionate taxation of profitable subsidiaries within groups that have aggregate losses, ensuring autonomous taxation remains linked to individual company performance rather than group consolidation results.
Can a holding company (SGPS) challenge IRC autonomous taxation self-assessments through CAAD arbitration?
Yes, holding companies (SGPS) can challenge IRC autonomous taxation self-assessments through CAAD arbitration. In Process 176/2016-T, A… SGPS, as the dominant company of a fiscal group under RETGS, successfully initiated arbitration under articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT). As the dominant company, the SGPS is responsible for filing consolidated tax returns and paying all IRC obligations of the group, including autonomous taxation assessed on subsidiary companies' expenses. This gives the SGPS standing and legitimate interest to contest autonomous taxation assessments, even when the underlying expenses were incurred by subsidiaries. The SGPS possessed legal personality, capacity, and legitimacy under article 10(2) of RJAT. The arbitral tribunal confirmed that no impediments existed to examining the merits, establishing that dominant companies in RETGS structures have full procedural rights to challenge autonomous taxation through administrative arbitration at CAAD.
What is the special taxation regime for groups of companies (RETGS) and how does it affect autonomous taxation in Portugal?
The special taxation regime for groups of companies (RETGS - Regime Especial de Tributação dos Grupos de Sociedades) is governed by articles 69-71 of the IRC Code. It allows corporate groups with a dominant company holding at least 75% of subsidiaries' capital to file consolidated tax returns. Under RETGS, profits and losses of group companies are aggregated, with the dominant company filing a single Model 22 declaration and paying consolidated IRC. For autonomous taxation, individual subsidiary expenses remain separately calculated under article 88, but the dominant company reports and pays these amounts in the consolidated return. The key issue in this case was whether article 88(14)'s 10 percentage point rate increase for companies with tax losses applies when individual subsidiaries are profitable but the consolidated group shows losses. The Constitutional Court determined the increase applies only when the specific subsidiary incurring the expense has individual tax losses, not based on consolidated group results. This interpretation preserves the principle that autonomous taxation targets individual company behaviors despite fiscal consolidation.
How did the Constitutional Court ruling impact the CAAD arbitral decision in process 176/2016-T on autonomous taxation?
The Constitutional Court ruling fundamentally reversed the CAAD arbitral decision in Process 176/2016-T. The initial arbitral award of September 21, 2016 ruled the claim inadmissible, applying article 88(20) of IRC as interpreted by article 135 of Law 7-A/2016, which gave retrospective interpretative effect clarifying that the 10-point rate increase applied at the group level. Upon appeal, the Constitutional Court declared unconstitutional the retroactive application of article 135, finding it violated article 103(3) of the Portuguese Constitution prohibiting tax retroactivity. The Court ruled that interpretative laws cannot retroactively impose heavier tax burdens for past periods. However, the Constitutional Court upheld article 88(14) itself, interpreting it to mean the rate increase applies only when the individually taxed company presents losses, not when merely the group does. Following article 80(2) of Law 28/982, the case returned to the arbitral tribunal to reform its decision in accordance with the constitutional judgment. The tribunal then proceeded to examine the merits without considering the unconstitutional interpretative provision, fundamentally changing the legal framework for analyzing autonomous taxation under RETGS.
Are taxpayers entitled to indemnity interest (juros indemnizatórios) when autonomous taxation self-assessments are partially annulled?
Yes, taxpayers are entitled to indemnity interest (juros indemnizatórios) when autonomous taxation self-assessments are partially annulled, as claimed in Process 176/2016-T. Under article 43 of the LGT (General Tax Law), when tax amounts are unduly paid and subsequently reimbursed following successful administrative or judicial challenges, the State must pay compensatory interest from the payment date until reimbursement. In this case, A… SGPS claimed EUR 127,669.55 (fiscal year 2012) and EUR 106,649.94 (fiscal year 2013) in excess autonomous taxation, seeking compensatory interest at the legal rate from the payment dates: May 31, 2013 for the 2012 amount, and from May 30, 2014 (EUR 39,123.42) and September 1, 2014 (EUR 67,526.52) for the 2013 amounts. These dates correspond to when the company paid the self-assessed amounts in its Model 22 declarations. The entitlement to indemnity interest is automatic upon annulment of illegal tax assessments and does not require proof of damages, serving to compensate taxpayers for the State's unlawful retention of funds and ensuring tax administration neutrality.