CAAD 192/2017-T: Deduction of Special Payment on Account and SIFIDE from Autonomous Taxation in IRC

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), João Taborda da Gama and Manuel Pires, designated at the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:

I – REPORT

On 22 March 2017, A…, S.A., NIPC…, with registered office at …, …, … … - … …, submitted 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 of Arbitration in Tax Matters (RJAT), with the wording introduced by Article 228 of Law No. 66-B/2012 of 31 December, seeking the declaration of illegality of the act of rejection of the ex officio review request submitted by the Claimant which had as its object the act of self-assessment of Corporate Income Tax (IRC) of Fiscal Group B… relating to the 2011 fiscal year, insofar as it corresponded to the non-deduction from the IRC tax collection of the portion produced by autonomous taxation rates on credits calculated under the System of Tax Incentives for Research & Development Business (SIFIDE) and the special payment on account made in connection with IRC, and of the decision of partial rejection of the ex officio review request which had that as its object, in the total amount of € 372,965.68.

To support its request, the Claimant alleges, in summary, that the special payment on account and the tax benefits of SIFIDE should be deducted from the collection of autonomous taxation because: (i) they can be deducted from the IRC collection calculated in accordance with Article 90 of the IRC Code; (ii) the collection of autonomous taxation is considered as IRC collection, being an integral part of this tax; (iii) the liquidation rules provided for in Article 90 of the IRC Code are applicable to autonomous taxation; and (iv) the Claimant's understanding follows the jurisprudence of CAAD which has already pronounced on this matter.

Alternatively, and in the event that it is understood that the liquidation of autonomous taxation is not effected under Article 90(1) of the applicable IRC Code, the Claimant requests that the illegality of the liquidation of autonomous taxation be declared (and consequently annulled) for lack of legal basis for its implementation, with the consequent reimbursement of the amount of €654,474.79, and the payment of compensatory interest calculated from 31 May 2012 for €83,479.32 and from 1 September 2012 for the remaining €595,058.00.

On 23-03-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant proceeded to nominate an arbitrator, designating Dr. João Taborda da Gama, in accordance with Article 11(2) of the RJAT. Under Article 11(3) of the same, the Defendant indicated as arbitrator Professor Dr. Manuel Pires.

The arbitrators designated by the parties were appointed and accepted their respective duties. In accordance with Article 6(2)(b) of the RJAT and Article 5 of the Regulation for Selection and Designation of Arbitrators in Tax Matters, the present Rapporteur was appointed to preside over this Arbitral Tribunal, who, within the applicable deadline, also accepted the duty.

On 17-04-2017, the parties were notified of this last appointment and did not manifest any intention to reject it.

In accordance with the provision in Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 16-06-2016.

On 05-09-2017, the Defendant, duly notified for this purpose, submitted its response defending itself both by exception and by opposition.

The Claimant was afforded the opportunity to exercise the right to be heard regarding the matter of exception, which it did in writing.

Given that procedural principles of procedural economy and prohibition of useless acts apply in arbitral proceedings, under the provisions of Articles 16(c) and (e) of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

Having been granted a deadline for the submission of written pleadings, these were presented by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.

A deadline of 45 days was set for the delivery of the final decision, following the submission of pleadings by the Tax Authority, which deadline was extended for a further 30 days.

In accordance with Article 21(2) of the RJAT, the deadline referred to in Article 21 of the same was extended, and compliance was given to the provision in Article 11(3) of the Code of Ethics, in the wording in force since 02-10-2017.

The Arbitral Tribunal is materially competent and regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, have legal standing, and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Order No. 112-A/2011 of 22 March.

The proceedings do not suffer from any nullities.

Thus, there is no obstacle to the examination of the case.

Having examined everything, it is appropriate to render

II. DECISION

A. FACTS

A.1. Facts Established as Proven

The Claimant was, in 2011, the dominant company and responsible for the self-assessment of Corporate Income Tax (IRC) of the fiscal group (Fiscal Group B…) to which, in the 2011 tax period, the Special Regime for Taxation of Groups of Companies (RETGS) was applicable, and which was composed, in that tax period, by itself and by the companies:

• C…, S.A. (currently designated D…, S.A.);

• E…, Lda;

• F…, S.A.;

• G…, S.A. (currently designated H…, S.A.);

• I…, S.A. (currently designated K…, S.A.); and,

• J…, S.A. (J…).

On 31 May 2012, the Claimant submitted the IRC Declaration Form 22 of its Fiscal Group relating to the 2011 fiscal year, as per Doc. No. 1 attached hereto, in accordance with which a tax collection of € 94,011.52 was calculated, to which was deducted, up to its limit, the amount of credit calculated under the System of Tax Incentives for Research & Development Business (SIFIDE), and a tax payable amount of € 83,479.32 was calculated, having calculated an amount of autonomous taxation in IRC of € 678,537.32.

To the tax resulting from the application of autonomous taxation rates in IRC, the Tax Authority's computer system flagged divergences ("errors") that prevented the Claimant from entering the amount relative to the said autonomous taxation rates in IRC, deducted, within the amount resulting from the application of these rates, (i) either the amounts of tax benefit recognized to the companies of the fiscal group under SIFIDE, (ii) or the amounts relative to the special payment on account made in the fiscal year.

This resulted in an excess of tax paid by reference to the fiscal year in question, as well as the non-reimbursement of an amount to which the claimant believed it was entitled.

The amount of SIFIDE, assigned/obtained, available for use at the end of the 2011 fiscal year amounted to € 397,781.32.

Of that amount assigned by the SIFIDE Certifying Commission for the 2011 fiscal year, the portion of € 94,011.52 was deducted up to the limit of the tax collection for the period, at the time of self-assessment relating to the 2011 fiscal year, and the portion of € 8,754.92 was accepted as deductible up to the limit of the tax assessed as state supplementary tax in that same fiscal year, as a result of the partial approval of the ex officio review request.

Regarding special payments on account (PEC), an accumulated amount remained to be deducted from the IRC tax collection, in the 2011 fiscal year, which amounts to € 77,950.00.

The Claimant understood, therefore, that it had credits for offset against the IRC tax collection, as well as PECs, in the total amount of € 372,965.68, which is less than the collection of autonomous taxation in IRC for the 2011 fiscal year, which amounted to € 678,537.32, and that this offset against the collection of autonomous taxation in IRC was not permitted by the Tax Authority's computer system.

The Claimant, in a timely manner, submitted an ex officio review request of the tax act of self-assessment of IRC of its Fiscal Group relating to the 2011 fiscal year.

Following the submission of said ex officio review request, the claimant was notified of its partial approval on 23-12-2016, whereby the Tax Authority and Customs Authority (AT) agreed with the deduction of SIFIDE up to the limit of the amount assessed as state supplementary tax, but not with the deduction of that tax benefit against the collection of autonomous taxation, nor with the deduction of special payments on account against the collection of autonomous taxation.

In its decision, the AT came to accept that the collection of state supplementary tax, under Information No. 929/2013 of the DSIRC, should be considered as IRC "in the calculation of deductions to be considered in the income declaration, relating to tax benefits", whereby the deduction of SIFIDE up to the limit of that collection (€ 8,754.92) would be acceptable.

With regard to the deduction of the remaining portion of SIFIDE and as well as the amount calculated and not deducted as special payments on account made in that fiscal year, against the collection of autonomous taxation, the AT rejected the claimant's request, considering that "it would be contrary to the spirit of the system to allow that, by force of the deductions referred to in Article 90(2) of the IRC Code, to be withdrawn from autonomous taxation that anti-abuse character that presided over its implementation in the IRC system".

The Tax Authority did not determine the taxable profit of Fiscal Group B… and its respective companies by indirect methods.

Neither the claimant, nor the companies integrating the group at the origin of SIFIDE were, at the relevant moment, entities owing to the State and social security any taxes or contributions.

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. Reasoning of the Proven and Not Proven Facts

Regarding the facts, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven facts from the unproven ones (cf. Article 123(2) of the Tax Code of Procedure and Process and Article 607(3) of the Code of Civil Procedure, applicable by virtue of Article 29(1)(a) and (e) of the RJAT).

Thus, the relevant facts for the judgment of the case are chosen and delineated based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. former Article 511(1) of the Code of Civil Procedure, corresponding to the current Article 596, applicable by virtue of Article 29(1)(e) of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110(7) of the Tax Code of Procedure and Process, the documentary evidence and the administrative process attached to the record, the facts listed above were considered as proven, with relevance for the decision.

B. ON THE LAW

a. On the matter of exception.

Prior to discussing the merits of the case, the Tax Authority raises the issue of the material incompetence of the arbitral tribunal resulting from the circumstance that the request for arbitral pronouncement was formulated following the rejection of an ex officio review request.

The Defendant argues, therefore, that the request for arbitral pronouncement sub judice is formulated following the rejection of an ex officio review request of a self-assessment act of Corporate Income Tax (IRC) relating to the year 2010, in circumstances at a time when the deadline for gracious objection referred to in Article 131 of the Tax Code of Procedure and Process had already elapsed, whereby, in light of the provisions of Articles 2(1)(a) and 4(1), both of the RJAT, and in Articles 1 and 2(a), both of Order No. 112-A/2011 of 22 March, the material incompetence of this Arbitral Tribunal to examine and decide the request would be verified.

The Tax Authority bases its understanding essentially on the provision of Article 2(a) of Order 112-A/2011 of 22 March, which excludes from the disputes cognizable by arbitral tribunals operating at CAAD, "claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative procedure in accordance with Articles 131 to 133 of the Tax Code of Procedure and Process".

The Defendant understands, in light of this rule, that it should be understood in the literal sense in which it reads it, proscribing from the scope of tax arbitral jurisdiction claims relating to the declaration of illegality of self-assessment acts that have not been preceded by objection in accordance with the aforementioned provisions of the Tax Code of Procedure and Process.

The entire argument of the Defendant in this matter, however, ultimately amounts to sustaining that it was the legislator's intention to restrict the competence of tax arbitral jurisdiction, regarding the examination of illegalities of self-assessment acts, solely to situations in which there exists an objection filed in accordance with Articles 131 to 133 of the Tax Code of Procedure and Process, since that is what, in its reading, the text of the rule being interpreted says.

While all due respect is acknowledged, no substantial reason is discerned among those offered by the Defendant that explains the reasonableness of the understanding it sustains. Effectively, no substantial reason is apparent – and the Defendant presents nothing in that sense – for why, given the conditionalities and specificities proper to each of the gracious remedies in question, in the same terms as tax tribunals are bound, the legality of self-assessment acts subject to an ex officio review request, presented beyond the deadline for gracious objection, should not be examinable in arbitral proceedings.

On the other hand, even a literalist reading of the rule in question, provided it is properly contextualized, does not inevitably lead to the result defended by the Defendant in the proceedings.

In effect, the expression used by the rule in Article 2(a) of Order 112-A/2011 of 22 March is parallel to the rule itself of Article 131(1) of the Tax Code of Procedure and Process, which should be understood as a concretization of the assumed, and peacefully recognized, legislative intention that the tax arbitral process constitute an alternative procedural means to the judicial challenge process.

The rule in question should also be understood as explained by the circumstance that, in its absence – and in light of the content of Article 2 of the RJAT – it would be possible to directly challenge self-assessment acts, without prior administrative pronouncement.

That is, given that in light of the RJAT it was not necessary to have any prior administrative intervention for the arbitral challenge of a self-assessment, the content of the Order should be interpreted as equating – in this matter – the tax arbitral process to the judicial challenge process and not, as would result from the position sustained by the Defendant, to go from 80 to 8, taking an attackability more broad than possible in the Tax Courts, and transmuting it into one more restricted.

Thus, there is no reason – and, once again, the Defendant provides no support in that sense – to interpret differently one and the other rule, particularly since the letter of the rule in Order 112-A/2011 of 22 March ultimately proves to be less restrictive than that of the Tax Code of Procedure and Process, insofar as it does not integrate the expression "mandatorily", nor does it refer to "gracious objection" but to "administrative procedure". Hence it is possible to have a reading of the very letter of the law that understands that only excluded from the scope of tax arbitral jurisdiction is the examination of claims relating to the declaration of illegality of self-assessment, withholding at source and payment on account acts that have not been preceded by recourse to the administrative procedure in terms compatible with Articles 131 to 133 of the Tax Code of Procedure and Process, and it is certain that all the jurisprudence of the Tax Courts has been to the effect that it is compatible with the aforementioned rules to challenge the self-assessment acts in question provided they are preceded by an ex officio review request of the tax act.

And this is the reading that is subscribed to, following the Decision rendered in process 48/2012T of CAAD, and subsequent arbitral jurisprudence, as well as the doctrine that has been formed, and it is not apparent, insofar as the interpretation effected is contained in the letter of the law, that a violation of any constitutional provision may result from it, especially the Articles 2, 3(2), 111 and 266(2), all of the Constitution of the Portuguese Republic (CRP).

In the same sense, the Decision of the South Administrative Court of 27-04-2017, rendered in process 08599/15, cited by the Claimant, concluded that "Article 2, paragraph a) of Order No. 112-A/2011 enables the submission of requests for arbitral pronouncement regarding self-assessment acts that have been preceded by an ex officio review request."

Thus, and in light of all the above, as the Defendant is not right in this matter, the exception of incompetence of the Arbitral Tribunal should be judged as unfounded.

*

b. on the merits of the case.

The main issue to be decided in the present proceedings, being undoubtedly of some complexity in its resolution, is, however, simple in its formulation, and concerns, as explicitly formulated by the Claimant, knowing whether or not the Claimant's Fiscal Group has the right to proceed with the deduction, also from the IRC collection produced by the application of autonomous taxation rates, of the said credits relating to SIFIDE and special payments on account available.

The perspective of approaching the problem posed is fully subscribed to, as formulated by the Claimant, when it states that "As a starting point, given the system function (seeking balance), ordering function, of law" one must take into account in the interpretation "on one point of the system (...) what was decided on another point of the system", with the caveat, equally formulated by the Claimant, that "there may be particularities relevant only to this point of the system (...), which require a different decision, precisely because only in this way the ordering function (which creates order) of law will be realized: to treat the different as different."

Diverging from the Claimant, it is judged, however, that what must be decided is not whether "for purposes of deductions from the collection of tax benefits (the realities in question in this proceeding), autonomous taxation is not IRC", but whether the IRC regime, viewed from the systematic perspective from which we depart, and summarized above, points toward the deductibility of tax benefits from the IRC collection generated by autonomous taxation.

Hence it is concluded that "If this particularity exists, there will be no incoherence from the system's perspective in deciding" for the non-deductibility of tax benefits from the IRC collection generated by autonomous taxation.

The problem underlying autonomous taxation has been, in this as in other matters, the subject of heated litigation between taxpayers and the Tax Authority, a situation to which the peculiar, even anti-systemic, nature of which those are clothed, within the framework of income taxes, where they germinated, will not be entirely foreign.

Effectively, the discussion that erupted with the new autonomous taxation rates introduced by Law No. 64/2008 of 5 December, and initially focused on the nature of the taxable fact underlying that type of taxation, opened a deep exploratory path on the nature of autonomous taxation and its relationship with income taxes, especially the IRC, which passed through the problems of the deductibility of the value of autonomous taxation from the IRC collection, and the nature, presumptive or not, of autonomous taxation on deductible expenses, without, to date, there having been a definitive, doctrinally supported and coherent legislative intervention, in the sense of clarifying the proper framework of the taxation in question, in the building of income tax from which they emerge, instead succeeding in disconnected and circumstantial legislative interventions, which in no way contribute, on the contrary, to the clarification of the nature and function of such taxation.

In this framework, jurisprudential decisions casuistically succeed legislative interventions equally casuistically, generating a framework of uncertainty and instability where taxpayers and the Tax Authority have no other way of seeking the applicable law than perpetuated litigation, devolving upon the judicial interpreter the ungrateful task of, in the tangled normative framework generated, serving possible Justice.

Let us examine this, then.

*

When we speak of autonomous taxation, as is the case, it is convenient to first bear in mind that we are dealing with a diverse set of situations, which will encompass, at least, three distinct types, namely:

Autonomous taxation of certain income (e.g.: Article 72 of the current Personal Income Tax Code, and, it is believed, that provided in the current number 11 of Article 88 of the IRC Code);

Autonomous taxation of certain deductible charges (e.g.: number 7 of Article 88 of the current IRC Code);

Autonomous taxation of other charges regardless of their respective deductibility (e.g.: numbers 1 and 2 of Article 88 of the current IRC Code).

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

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

combating the erosion of the tax base, as generally happens with autonomous taxation on deductible expenses;

discouraging certain spending of presumptively non-business nature, as happens with autonomous taxation on vehicle expenses, travel allowances, or representation expenses;

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

penalizing the making of certain expenses, which do not affect the tax base, nor have underlying any distribution of non-taxed income to third parties, or fraudulent or evasive potential, but which the legislator, perhaps, considered luxurious or sumptuary, as happens with autonomous taxation on certain payments to managers, administrators or partners (current Article 88(13) of the IRC Code), as well as autonomous taxation on vehicle expenses insofar as it exceeds the normal IRC rate.

These facts become important because, by themselves, they demonstrate the disparity and heterogeneity of situations subject to autonomous taxation, and the futility of, in jurisprudential proceedings, synthesizing and seeking a proper and unitary legal nature, common to all situations.

Thus, the discussion should be centered on the specific question posed by the Claimant and seek a properly founded response, for the restricted terms of what is at stake in the proceedings, which will be to know whether it is, or is not, possible to deduct from the portion of IRC collection produced by autonomous taxation rates, payments on account and tax benefits, under IRC, available.

Properly framed, in these terms, the question to be resolved in the proceedings, it should still be borne in mind that the fundamental reference for the answer to be given to it will be that formulated in Article 9 of the Civil Code, according to which the legislative intent should be reconstructed, from the texts, which has in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

In this framework, the aim of this decision will not be to theorize on the legal nature of autonomous taxation in general, or of any of its various types, but rather to ascertain whether the legislative intent, with a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, was or was not, at the date of the taxable fact in question in the proceedings, in the sense of it being possible to use the deduction from the portion of IRC collection produced by autonomous taxation rates, of payments on account and tax incentives, under IRC, available.

It will be futile, it is believed, to seek a conceptualist basis, anchored in a dogmatic definition of monolithic concepts of IRC and Autonomous Taxation, taken from rules foreign to the matter to be decided, professing a "scholastic ontologism" that seeks to "deduce purely logically, from superior abstract concepts, others, increasingly concrete and full of content", methodologically surpassed.

What will be sought, thus, is merely to ascertain what the solution that, in light of the constituted law, properly interpreted, appears to be due to the concrete case, not taking the answer given to the question to be decided as a finished, exact, and extremely accurate and rigorous evidence, but, merely, as that which, reflexively, presented itself to its subscribers as the, juridically, better one.

*

The basis of the Claimant's claim is literally simple and linear and results from the finding that, if the liquidation of autonomous taxation is made in accordance with Article 90(1) of the IRC Code, the deductions provided for in its number 2 will be applied to such liquidation.

Indeed, the following is the content of the rules in question:

"1 - The liquidation of IRC is carried out in the following terms:

a) When liquidation 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 submission of the declaration referred to in Article 120, liquidation is effected by November 30 of the following year to which it relates or, in the case provided for in number 2 of that article, until the end of the 6th month following the deadline for submission of the declaration mentioned there and is based on the value of the annual minimum monthly remuneration or, where higher, the total taxable matter of the nearest fiscal year that is determined;

c) In the absence of liquidation in accordance with the preceding paragraphs, it is based on the elements at the disposal of the tax administration.

2 - To the amount calculated in accordance with the previous 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 withholding at source not susceptible to compensation or reimbursement under applicable legislation."

The Claimant invokes in its favor, basing its argument essentially on what is stated therein, arbitral decisions in CAAD proceedings, enumerated by it in point 16 of its pleadings, namely proceedings No. 769/2014-T, 219/2015-T, 369/2015-T, 370/2015-T, in the sense of the claim being well-founded, and No. 697/2014-T and 113/2015-T, in the sense of the claim being unfounded (decisions all rendered before the 2016 State Budget Law) and proceedings No. 637/2015-T, 673/2015-T, 740/2015-T, 749/2015-T, 784/2015-T, 5/2016-T, 31/2016-T, 360/2016-T, 530/2016-T, 630/2016-T, 576/2016-T, in the sense of the claim being well-founded, and No. 722/2015-T, 727/2015-T, 785/2015-T, 302/2016-T, 587/2016-T (decisions these rendered after the 2016 State Budget Law).

From a semantic-literal perspective, accepting the premise – which is now accepted – that the liquidation of autonomous taxation is made in accordance with number 1 of Article 90 transcribed, no other sense can be extracted from the letter of the law than that presented by the Claimant, and by all the arbitral jurisprudence it cites, being, in that restricted perspective, irrefutable the conclusion condensed in its principal arbitral request.

Hence the Claimant and the positions converging with that sustained by it, from a general perspective, do not undertake any relevant effort in the sense of systematically-axiologically validating their understanding (and, when such occurs, it is from a casuistic perspective, anchoring itself, above all, in the specific type of deduction to autonomous taxation that it is sought to validate, or in certain types of it).

Rather, such positions dedicate themselves, essentially, to refuting the argument being presented in the opposite sense, closing themselves in the linear understanding, synthesized by the Claimant (cf. point 64 of the pleadings), as regards the case, in the following syllogism:

Special payment on account is IRC, it is an advance on account of IRC and its offset against IRC collection is provided for;

Autonomous taxation is IRC;

Therefore special payment on account can be offset against the IRC collection generated by autonomous taxation.

It happens that legal reading, by legal (and also logical-rational) imperative, does not restrict itself, nor should it restrict itself, to the text of the rules as semantic-grammatical reality, but should rather place itself 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 conduct certain tests at the level of the systematic structure where the rule to be interpreted is situated, in order to validate, in light of the same, and in light of the criteria of rationality, congruence and reasonableness that necessarily guide that normative structure, the interpretation literally suggested.

Thus, and first and foremost, as the Defendant points out very well, "the liquidation of autonomous taxation is effected on the basis of Articles 89 and 90(1) of the IRC Code but, applying different rules for the calculation of the tax:

(1) in one case liquidation operates, through the application of the rates of Article 87 to the taxable matter calculated in accordance with the rules of Chapter III of the Code and

(2) in the other case, several tax collections are calculated depending on the diversity of facts that give rise to autonomous taxation."

That is, upstream, we cannot disregard a first relevant fact, which is that in Articles 89 and 90(1) of the IRC Code, the liquidation of two forms of taxation converges, relating to the same tax but radically distinct, namely, traditional IRC, or stricto sensu, and autonomous taxation.

And let it not be said, as the Claimant does, that "Here it is not a matter of knowing what rules apply to the process upstream of calculation of the primary collection, (...) which is that resulting from the application of a given rate to a given taxable matter in obedience to certain rules (distinct for base IRC, state supplementary tax and autonomous taxation)".

Indeed, within the hermeneutic perspective adopted by the Claimant itself, "there may be particularities relevant only to this point of the system (...), which require a different decision, precisely because only in this way the ordering function (which creates order) of law will be realized: to treat the different as different."

And this is precisely what is at stake: to examine the system as a whole, in order to realize "the function of the ordering system (which creates order)", which is only possible, precisely, by considering the particularities proper to it both upstream and downstream.

And such particularities, externalized in the "rules apply to the process upstream of calculation of the primary collection", naturally have a justification and foundation that it is important to know and evaluate, in order to understand their meanings and function in the global system in which they are integrated and to ensure, insofar as possible, their complete realization.

Now the nature of autonomous taxation, which justifies and results, precisely, from those "rules apply to the process upstream of calculation of the primary collection", has been the subject of extensive discussion in recent doctrine and jurisprudence.

One trend has viewed them as a tax on expenditure, which would tax certain types of spending, in a manner completely disconnected from income, such that there are even those who argue that they constitute a proper tax, which would merely casually be integrated into the codes of Personal Income Tax and IRC.

Nevertheless, the understanding that autonomous taxation on deductible charges integrates, still, the regime of the taxes regulated by the codes in which they are integrated, aiming, albeit in a roundabout way, at the income taxed by those, has obtained recurring acceptance in the jurisprudence of CAAD.

Indeed, and as has been had the opportunity to write elsewhere, "the complexity generated by successive alterations in the architecture of the IRC Code led (...) to an atypical normative building, in which one can discern a core corresponding to what could be called IRC tout court (or in the strict sense), which the Claimant intends to exhaust everything designated by IRC, and a periphery integrating "marginal" regulations, subtracted, largely, from the logic, nature and principles of IRC tout court, but which, nevertheless, still sits in the "gravitational field" of that.

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

In this sense, "within the hermeneutic framework drawn above, (...) by force of the historical evolution of its legal regime, there was constituted a type of IRC that integrates a hard core (...) and a group of adjacent rules, which partakes of part of the logic and regime of that, 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 proceedings only makes sense in the context of taxation under IRC. That is, disconnected from the legal regime of this tax, they will lack their principal reference of meaning. Their existence, their purpose, their explanation, ultimately, their juridicity, is only properly understandable and acceptable within the framework of the legal regime of IRC."

Hence it is not understood that "the definition of IRC contained in Articles 1 and 3 of the IRC Code" is "really surpassed by a new definition of transversal/general application", being that a position epistemologically proper to a conceptualism that, preliminarily, is 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 that kind, which only a fundamentally abstractionist conceptualism will be able to presuppose."

For this reason, "Everything that has been said so far demonstrates 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 concerns us in these proceedings, in that "dual nature" of which Prof. Saldanha Sanches spoke in the passage cited in Decision 617/2012 of the Constitutional Court.

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

Finally, "By way of conclusion, in light of all that has been said, and in favor of conceptual rigor, it will still be said that there is a tendency to understand that autonomous taxation, as it currently exists, may be configured as a "hybrid" tax, affecting the income of natural and legal persons, and not on consumption or expenditure, as they do not present the main characteristics of this form of taxation."

What has just been said echoes, in some way, in the jurisprudence being produced by the Constitutional Court, as happens with Decision 197/2016 of 13-04-2016.

Indeed, recognizing that the matter of autonomous taxation is "regulated normatively in the context of income tax", the same Court confirms that it "is materially distinct from taxation under IRC", and that "we are (...) before distinct taxable facts and which are subject to differentiated tax treatment", even going so far as to affirm that "IRC and autonomous taxation are distinct taxes" and that such taxation "has nothing to do with the taxation of income and profits", assertions which must be read, it is believed, cum grano salis, contextualizing them in the limitations that contextualize them, relating them to the existence of a "tax base" consisting of "certain expenses that constitute autonomous taxable facts", and subject to "specific rates", thus understanding that autonomous taxation "has nothing to do with the taxation of income and profits attributable to the company's economic activity" (which does not mean that it is foreign to income and profits in general), and that the distinction between autonomous taxation and IRC, being profound and marked, should be limited to what is necessary to safeguard the specificity of that at the level of its teleology, tax base and specific rates, without prejudicing its integration into the same normative structure.

Indeed, it is believed that the Constitutional Court is not defending that autonomous taxation constitutes a tax on expenditure stricto sensu, completely foreign and distinct from IRC, on pain of not only being contradicted by the systematics of the tax law and expressly by the legislator himself, but also of condemning autonomous taxation irremediably to formal unconstitutionality, by violation of the provision in Article 165(1)(i) of the CRP, insofar as the authorizing laws for the creation of these did not license the creation of a new tax on expenditure.

As, with expertise, the Claimant synthesizes, the Constitutional Court will bear in mind that autonomous taxation will be, at least, a compensatory taxation of IRC that, because it is, is IRC (in the broad sense) as well.

Nevertheless, and without prejudice to what has been said, one cannot, in the examination of the matter in question, disregard the (emphatically affirmed by the Constitutional Court) profound distinction formal and teleological between autonomous taxation in IRC and general taxation in this tax (IRC stricto sensu).

In sum: it has previously been detected, on the one hand, the futility of seeking a unitary concept of IRC that coherently accommodates the regime of autonomous taxation, and that, on the other hand, the methodologically more productive way of generating juridically adequate solutions for the problem in question is to understand the current IRC regime as a product of historically explained evolution that led to the building of a structure of dual or hybrid nature, comprising a main nucleus corresponding to traditional IRC, and an adjacent part, connected to it and being part of the same global normative reality, with its own specificities from which results a departure, in various and substantial respects, from the main regime, such that the general principles and solutions, nevertheless, sometimes apply, other times contradict themselves, and as such, are inapplicable, with the proper nature of that such "adjacent normation" which is embodied in the designated autonomous taxation.

And, as is already well known, that proper or specific nature, based on a logic foreign to the main building of traditional IRC, will be characterized, essentially, by the notes abundantly recognized as proper to autonomous taxation, namely, both as to its form of taxation (the instantaneous character of its taxable fact and the circumstance that it consists of an expense), as to its anti-systemic ratio (the fact that some autonomous taxation has a component directly directed to the income of natural persons and/or a sanctioning component, as well as an anti-abuse purpose).

Here is arrived at, it is believed, the perception of the semantic fallacy contained in the syllogism set out above, on which is based the position argued by the Claimant and those that sustain it.

Indeed, it is true that:

Special payment on account is IRC, it is an advance on account of IRC and its offset against IRC collection is provided for;

Autonomous taxation is IRC;

Therefore special payment on account can be offset against the IRC collection generated by autonomous taxation.

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

Now, the syllogism formulated, in light of the understanding that has been expounded, has its logical coherence undermined by the disregard of what has been pointed out above, since the concept of IRC, used in its respective premises, is not the same.

In other words, yes, special payment on account is IRC, it is an advance on account of IRC and its offset against IRC collection is provided for, but it is (integrates, is part of) IRC stricto sensu, of the system of taxation of the income of legal persons conceived, designed and executed outside the teleology and proper nature of autonomous taxation.

And yes, autonomous taxation is IRC, but only in a broad sense, constituting a peripheral system of taxation of the income of legal persons, with its own teleology and mechanics, which justify, in certain situations, its autonomy, in relation to said IRC stricto sensu system.

Hence that it not being – it is repeated, in light of the understanding that has been expounded – the concept of IRC the same in both premises (the first premise is validated in the IRC stricto sensu system, and the second in the IRC system in a broad sense) the logical validity of the presented syllogism is compromised, not resulting from it, obviously, the falsity of the conclusion but, solely, the capacity of the premises in question to sustain its validity.

Thus, and concluding here, one cannot, it is believed, in the wake of the solution to be obtained for the question to be decided, fail to note that, despite converging, indeed, in the form of liquidation regulated in Articles 89 and 90(1) of the applicable IRC Code, autonomous taxation and IRC stricto sensu (or traditional), they come, upstream, from profoundly distinct geographies, a fact that cannot fail to be properly weighed and taken into account, in the solutions to be found downstream, namely, and for what concerns the case, as regards the reading to be made of the rule of Article 90(2) of the said Code.

*

Following the hermeneutic path in course downstream, we will proceed to assess the consequences of limiting that hermeneutic process to the literal layer of the object of interpretation in analysis.

As the Defendant correctly points out in its response, the understanding proposed by the Claimant, according to which from the lack of distinction, at the level of the text of number 1 of Article 90 of the applicable IRC Code, results that, at the level of that rule, no distinction should be made taking into account the differences, upstream, of the tax that in those terms is liquidated, would imply that in the basis of calculating the payments on account due under IRC, the values relating to autonomous taxation would also be included, and not merely those relating to IRC stricto sensu.

Indeed, number 1 of Article 105 of the IRC Code provides that: "Payments on account are calculated based on the tax liquidated in accordance with number 1 of Article 90 (…)".

Now, if one were to understand that the normative content of Article 90(1) of the IRC Code in question precludes any distinction, for purposes of other rules that refer to it, between the tax liquidated as autonomous taxation and the tax liquidated as IRC stricto sensu, one would have to, coherently and in the same terms, conclude that payments on account would be due based on the sum of both values, and such a solution could not – it is believed – be considered to accord with the spirit of a reasonable legislator.

Indeed – and payments on account not being the subject matter of the present proceeding – without extensive analysis being justified in this examination, it will always be said that that type of payment, as is doctrinally and jurisprudentially recognized, are based on an intention of advance payment of taxation that will be due finally, taking into account the taxable profit of the previous year.

In this sense, for example, the Decision of the Supreme Administrative Court of 07-03-2007, rendered in process 0877/06, stated (emphasis ours):

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

Such that the 'title' (word of the law) of the 'payment on account' is the 'tax due finally.'

Which means that the 'payment on account' is, in the terms of the law itself, a pecuniary transfer anticipated, made, on account of the tax due finally, in the period of formation of the taxable fact.

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

Which definitively means that, if no pecuniary amount is to be (anticipatorily) transferred on account of the tax due finally, in the concerning period of formation of the taxable fact (to which the 'payment on account' refers) – particularly due to the absence of taxable profit revealed by the accounting, at that time –, that 'payment on account' has no substantive foundation. (...)

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

Now, (at least some) of autonomous taxation, as has also been indicated elsewhere, do not fall directly on income, but do so in a merely mediate way, which is the justification for, despite them integrating the IRC regime broadly construed, operating by way of expense and, consequently, being due even if the taxpayer does not present taxable profit.

Thus being, as it is believed to be, it will be devoid of sense to require of taxpayers who do not present taxable profit, payment on account based on tax liquidated on expenses they incurred and which were subject to autonomous taxation.

This very fact is corroborated by the distinct nature of the taxable fact underlying IRC stricto sensu and autonomous taxation. Indeed, with the first being a taxable fact of continuous nature and the second a taxable fact of instantaneous nature, it will only make sense for the first to distinguish an advance of tax (payment on account), and not for the second whose practice immediately generates a tax obligation.

Nevertheless, and now returning to the concrete case, the same literal reading on which the Claimant's claim essentially rests would, it is believed, inexorably lead to, by parity of reasoning, it being held that, for purposes of number 1 of Article 105 of the IRC Code, the IRC collection to be considered would include the collection of autonomous taxation, since that rule provides (as lapidarily as Article 90(2) of the IRC Code) that: "Payments on account are calculated based on the tax liquidated in accordance with number 1 of Article 90 (…)".

Now, this not being the subject matter of the case sub iudice, one can speculate that, surely, if, in coherence, the Claimant had considered that for purposes of Article 105(1) of the applicable IRC Code the collection of autonomous taxation was included, it would not fail to call attention to the fact of having done so, that is, of having calculated payments on account that it incurred (cf. p. 2 et seq. of doc. 5 attached with the Initial Petition) based, also, on that collection, emphasizing the consequent injustice that would be to have been bearing such payments, considering that Article 105(1) of the IRC Code encompassed the collection of autonomous taxation, and not to interpret, parallelly, Article 90(2) of the same statute, in the same way, and that regarding this matter, the Claimant merely considers that it will be "irrelevant what has been or has not been the practice commanded by the Tax Authority", not denying (nor confirming, it is true), that it has followed such practice.

Being – evidently – this an argument insuperably speculative, and, as such, unsuitable to serve as the basis, of itself, for juridically founded solutions, this does not prevent it from being a factor of consideration, evidencing, on the one hand, the structural instability of the insertion of autonomous taxation into IRC, as it was operated, and, on the other, the normative interconnection and the breadth of systematic perspective indispensable to the assessment of the solutions proposed for the legal problem to be decided.

What is thus at stake, is not the consideration of a "practice commanded by the Tax Authority", but, once again, within the hermeneutic perspective adopted by the Claimant itself, to verify whether there are "particularities relevant only to this point of the system (...), which require a different decision, precisely because only in this way the ordering function (which creates order) of law will be realized: to treat the different as different," that is, to realize "the function of ordering the system (which creates order)", considering the particularities proper to it, both upstream and, now and in the case, downstream.

Indeed, it is understood that from a systematic perspective, the position adopted regarding the matter to be decided, at least if in the sense argued by the Claimant, and adopted by the jurisprudence that sustains it, cannot fail to have an impact on the position adopted regarding the interpretation of said Article 105(1) of the IRC Code, since, as was pointed out above, the literalness of the regimes is, precisely, the same.

Thus, from this point of view it will be necessary to consider, independently of what has been the practice either of the Tax Authority or of the Claimant, not only whether it makes sense for the rule of Article 105(1) of the IRC Code to impose that the collection of autonomous taxation enters into the calculation of payments on account, but also the circumstance, pointed out above, that the Supreme Administrative Court has already pronounced itself to the effect that in the face of the "absence of taxable profit (...[the]...) 'payment on account' has no substantive foundation."

*

In the hermeneutic path in course, it will also be necessary to consider the rule of number 5 of Article 90 of the applicable IRC Code in question, which provides that:

"The deductions referred to in number 2 relating to entities to which the tax transparency regime established in Article 6 is applicable are imputed to the respective partners or members in accordance with the terms established in number 3 of that article and deducted from the amount calculated based on the taxable matter that has taken into account the imputation provided for in the same article."

This rule directly refers to Article 6 of the same Code, which prescribes, regarding what is relevant for the case, that:

"1 - Is imputed to the partners, integrating itself, under the terms of the applicable legislation, in their taxable income for purposes of Personal Income Tax or IRC, as appropriate, the taxable matter, determined in accordance with this Code, of the following companies, with registered office or actual management in Portuguese territory, even if there has been no distribution of profits:

a) Civil companies not constituted under commercial form;

b) Professional partnerships;

c) Property management companies, whose majority of the capital stock belongs, directly or indirectly, for more than 183 days of the fiscal year, to a family group, or whose capital stock belongs, on any day of the fiscal year, to a number of partners not exceeding five and none of them is a legal person of public law. (...)

3 - The imputation referred to in the preceding numbers is made to the partners or members in accordance with the terms resulting from the constitutive act of the entities mentioned there or, in the absence of elements, in equal portions."

Fundamental in the framing of this question is further 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 tax transparency regime is applicable are not taxed under IRC, except as regards autonomous taxation."

Not being, also, the matter of entities subject to the tax transparency regime the object of the present case, summarily it will always be said, first of all, that from the literal reading on which the Claimant's claim rests, that is, that autonomous taxation integrates, without limitations and for all purposes, IRC collection, there would always result one of two situations, equally unacceptable, namely:

that entities referred to in Article 6(1) of the IRC Code would be obliged to bear the burden of autonomous taxation doubly: (i) once in the sphere of the company, under the terms of Article 12 of the IRC Code, which expressly provides for it, and (ii) another time under the combined terms of numbers 1 and 3 of Article 6 of the IRC Code, which imposes that the "taxable matter, determined in accordance with this Code" regarding such entities is imputed to the partners;

or that, thus, being not the case, that is, if by some type of interpretation the expression "taxable matter, determined in accordance with this Code" would be restricted, purging autonomous taxation from it, from the combination of the above transcribed rules of number 5 of Article 90, of Article 6 and of Article 12, with the interpretation sustained by the Claimant for number 1 of Article 90, there would result that legal persons subject to the tax transparency regime would be prevented, by way of said Article 90(5), from deducting from the amounts liquidated as autonomous taxation, the deductions provided for in number 2 of the same article, since these latter amounts would be borne by the company, while the deductions would be only afforded to the partners, thus unjustifiably discriminating tax subjects under IRC subject to the tax transparency regime, from the rest, who, in the Claimant's thesis, would have the faculty of making the deductions provided for in number 2 of Article 90 operate, against the amounts liquidated, under the terms of number 1 of the same article, as autonomous taxation.

It being certain that, as the Claimant states, "tax transparent companies are an atypical situation under IRC, they are companies precisely not subject to IRC on profit/income, but subject to IRC as regards autonomous taxation," one cannot fail to note not only that, on the one hand, autonomous taxation are, themselves also, an atypical situation under income taxes (including IRC), as that, on the other hand, the Claimant ends up evidencing the above-mentioned and developed duality of IRC ("they are companies precisely not subject to IRC on profit/income [IRC stricto sensu], but subject to IRC as regards autonomous taxation [IRC broadly construed]").

Once again, we are here in a perspective of assessing the implications (of the "ripple effects") in the normative structure of IRC, of the interpretations proposed for the rule(s) applicable to the situation sub iudice, not being, evidently, a structuring argument, but rather an accessory one, to the solution that is to be drawn.

*

Having arrived here, it is necessary to explore a little more the limits of the literalness of the rules at the epicenter of this dispute – Article 90(1) and (2) of the applicable IRC Code – and their repercussions in the broader framework of the relationship between traditional IRC and autonomous taxation in that tax.

As has been stated above, in the aggregate of autonomous taxation, even if restricted to those that integrate the IRC regime in a broad sense, several situations of disparate origin and teleology converge.

Thus, synthetically and by way of example, there are autonomous taxation that aim, singly or concurrently, to discourage certain economically undesirable behaviors (e.g.: excessive remuneration to managers), to tax the so-called fringe benefits (travel allowances; vehicle expenses), to mitigate the fiscal impact of expenses of dubious full business character (idem), to discourage behaviors with high fraud potential (payments to entities subject to clearly more favorable tax regimes) or to penalize behaviors that foster the parallel economy (taxation of confidential expenses), or that are considered by the legislator as sumptuary.

The literalness of the interpretation proposed by the Claimant miscigenates, in the narrow confines of the letter of the law, all those situations – since they will all be liquidated under Article 90(1) of the applicable IRC Code, from which necessarily results, that the collection of all of them, the solution proposed by the Claimant will apply, that is, to all of them – without any perceptible exception, much less justified, or even, so far as can be conceived, justifiable – all the deductions provided for in number 2 of Article 90 of the IRC Code in question would be applicable.

Now, already above, and on other occasions, has been pointed out the vain glory of closing, in a substantive unitary concept, all autonomous taxation, even those that only occur within the scope of IRC, given their teleological and functional disparity. And, here, emerges one of the main weaknesses of the argumentative structure where the position of the Claimant resides, underlying also the arbitral jurisprudence cited by it: that of resting on a postulate of unity of IRC and autonomous taxation, taking the whole for the part that, concretely, integrates the matter to be decided, on the one hand, and in an exclusive assessment of the type of deduction provided for in number 2 of Article 90 of the applicable IRC Code, that is concretely at stake in the case sub iudice.

That is: the position sustained by the Claimant, as well as those that corroborate it, do not at any point undertake to frame the assessments made by it and validate the application of the interpretation proposed by it to the entirety of autonomous taxation and the deductions provided for in number 2 of Article 90 applicable, as well as to assess the implications of the application of the thesis in question, to all possible deductions to all collections of all autonomous taxation abstractly encompassed by such thesis, beyond which, as has already been pointed out, to refrain from examining, in a broader perspective, the consequences of the systemic impact of adopting the essentially literal reading that they propose for the combination of the rules of numbers 1 and 2 of Article 90 of the IRC Code.

The fissure in the structure underlining the position of the Claimant, as well as those that sustain it, thus opens itself, in light of this finding, in two distinct directions: (i) on the one hand, the reading proposed by the Claimant for the rule of Article 90(2) of the applicable IRC Code does not distinguish, nor does it permit distinction, between autonomous taxation relating to deductible charges and other types of autonomous taxation; (ii) on the other hand, from the facts proved does not result that the autonomous taxation in question in these proceedings do not respect distinct types of autonomous taxation, such as, for example, autonomous taxation relating to undocumented expenses, bonuses and other variable remuneration of managers, administrators or partners, or payments to entities subject to a clearly more favorable tax regime.

Synthesizing with words of the Claimant, the current in which this is inserted sustains that autonomous taxation "shares the objective, purpose, spirit of IRC of ensuring the taxation of real income", an assertion that is, manifestly, not valid for all types of autonomous taxation.

Indeed, how could it be affirmed, for example, that autonomous taxation at 70%, contained in number 2 of Article 88, and even that of 50% provided for in number 1, aims to "ensure the taxation of real income"? The same would be said, in a manner equally, if not more, evident, regarding autonomous taxation of 35% (which may reach 45% under number 14), provided for in number 13 of the same Article 88.

Hence results, then, that all the argumentation presented by the Claimant, and by the essential of the arbitral jurisprudence that sustains it, regarding the nature of autonomous taxation, as taxation still of the income of entities subject to it, is insufficient for the decision of the matter sub iudice, since it is not even demonstrated that exclusively autonomous taxation are at stake in which the characteristics on which such argumentation rests are recognized.

The argumentative structure presented by the Claimant in support of its claim thus harbors within itself the potential to accommodate claims, in which it is sought to make deductions in accordance with number 2 of Article 90 of the applicable IRC Code, to autonomous taxation regarding which the consideration of the nature of autonomous taxation, as taxation still of the income of entities subject to it, is not valid, such as those mentioned, relating to confidential expenses, payments to entities subject to privileged tax regimes or relating to manager compensation.

Now, this type of result cannot be considered as intended by a reasonable legislator, given the entire systematics of IRC in a broad sense, including autonomous taxation. Indeed, it will not be sustainable that, having gone where, juridically, the legislator of the IRC Code went, in view, for example, of combating the parallel economy or transactions with the so-called (incorrectly) "tax havens", it was his intention that the respective burden of autonomous taxation could be alleviated by means of the deductions provided for in number 2 of Article 90 of the IRC Code.

*

The proceeding will not stop here, however, with the systemic entropy generated by the position the Claimant intends to assert in the proceedings.

Indeed, and even restricting the question to autonomous taxation on deductible charges in IRC, such position would result in 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 a presumption of "partial" or not full "business character". That is, such expenses will presumably contain a business purpose, which permits their deduction, but such purpose will compete with others that, if they were exclusive, would exclude their deductibility.

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

Now, in this restricted field of autonomous taxation on deductible expenses, the position sustained by the Claimant would result in a qualified inequality (insofar as more than treating as equal the unequal, or the unequal as equal, it would treat the unequal as unequal, in the inverse direction of the inequality), since in a situation in which a taxpayer declared deductible charges that would normally be subject to autonomous taxation, but which, in concrete terms, would not be so because the substantive presuppositions of this are not verified (that is, by rebuttal of the presumption underlying it), as was the case, for example, in the situation covered in arbitral proceeding 628/2014-T, and in which that same taxpayer presented a tax loss, it could not proceed with any deduction, in accordance with Article 90(2) of the IRC Code, whereas another taxpayer, in the same situation (tax loss), but who assumed (implicitly or explicitly), the partially business character of the same type of charges, thereby being burdened with the corresponding autonomous taxation, could, in the thesis underlying the position of the Claimant, avail itself of the deductions provided for in that same article.

That is, and in summary: between two taxpayers in different situations before the IRC tax system, one that incurred expenses of wholly business nature, and another that incurred in the same expenses but for purposes (really or presumptively) partially foreign to business character, the second would obtain from the tax system, in the matter concerning us, a more lenient treatment, by way of behavior less conforming to the teleology of that.

Being true that the principle of legal and tax equality is not an absolute principle, as it admits situations of discrimination, it is also true that these situations must correspond to discriminations founded on institutionalized values, generically accepted and embraced in the instituted order of values.

Now, in the case, where two companies in the situation above described find themselves objectively in a differentiated situation and which should, therefore, merit differentiated tax treatment, in the sense of difference, occurs, in light of the thesis underlying the position of the Claimant, precisely the opposite.

*

Among the decision topics to consider, there should also be a mention of the entry into force of the new wording of number 21 of Article 88 of the IRC Code, 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 liquidation of autonomous taxation in IRC is effected in accordance with the provision of Article 89 and is based on the values and rates that result from the provisions of the preceding numbers, with no deductions made to the total amount calculated."

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

"The wording given by the present law to number 6 of Article 51, to number 15 of Article 83, to number 1 of Article 84, to numbers 20 and 21 of Article 88 and to number 8 of Article 117 of the IRC Code is of an interpretative nature."

As is well known, the question was raised as to whether number 21 of Article 88 of the IRC Code, introduced by the 2016 State Budget, is (as the law itself says), or not, interpretative in nature, as well as the constitutionality of such a nature, and such questions were surpassed by the Decision of the Constitutional Court which ruled unconstitutional the said Article 135 of Law No. 7-A/2016 of 30 March.

Nevertheless, the legislative amendment in question continues to be of interest for the matter now in question, since, as the Claimant states, "the legislator in the 2016 State Budget opt by excluding the application of part of the provision in Article 90 of the IRC Code for IRC collection, from the collection of autonomous taxation in IRC", confirming that there is no conceptual or principled obstacle to arriving, by way of interpretation, at that same result.

For that matter, from the IRC Code itself, in the wording in force at the date of the taxable facts, it already resulted that the regime of that tax presupposed such differentiation at the level of said Article 90, in the sense that to the collection of autonomous taxation no deduction was admissible, as a rule, resulting from the provision of number 12 of Article 88, introduced by Decree-Law No. 192/2005 of 7/11, which provides that:

"To the amount of the tax determined, in accordance with the provision of the preceding number, the tax that may have been withheld at source is deducted, not being able in that case the tax withheld to be deducted under number 2 of Article 90."

Said rule, by providing that to the amount of tax resulting from autonomous taxation, in the situations provided for in number 11, of 25% on profits distributed by entities subject to IRC to tax subjects who benefit from exemption, the tax that may have been withheld at source can be deducted, will have, unless better advised, implicitly the understanding that, as a rule, to the collection of autonomous taxation, deductions were not admissible, in particular those provided for in Article 90(2) of the IRC Code, which already provided the possibility of deducting withholding at source from the IRC collection to which number 1 of the same rule referred.

That is: if, as the Claimant defends and the jurisprudence in which it sustains itself does, already resulted from the combination of numbers 1 and 2 of Article 90 of the IRC Code that withholding at source was deductible from the collection of autonomous taxation, including that provided for in said number 11, the rule of said number 12 of Article 88, to the extent it permitted precisely such deduction, was a useless rule, doing nothing more than reaffirm, without any sense, the general rule.

More: the rule in question, of number 12 of Article 88, introduced by Decree-Law No. 192/2005 of 7/11, makes a point of affirming that, if the deduction of withholding at source mentioned there is operated against autonomous taxation, the "tax withheld cannot be deducted under number 2 of Article 90," evidencing, it is believed, sufficiently perceptibly, that the deductions possible under that referred to Article 90(2) were not already applicable to the collection resulting from autonomous taxation.

Indeed, the 2nd part of the rule of number 12 of Article 88 in analysis aims to avoid a duplication of deduction of withholding at source encompassed by it, which only makes sense if one perspectives, as will be seen infra, that from the application of the rule of Article 90(1) of the IRC Code does not result – contrary to what the Claimant sustains – a monolithic collection of IRC, but that the said scission between the collection of autonomous taxation in IRC and the general collection of IRC remained in that rule, and that Article 90(2) only applied to the latter, and not to that.

Not being so, also this second part of Article 88(12) of the IRC Code would entirely lack sense, since if, within the scope of Article 90(1) of the IRC Code, the collection of autonomous taxation in IRC merged into a single IRC collection, as the Claimant intends and the jurisprudence in which it is praised defends, it would be evident that there could never be double deduction of withholding at source to one same, and sole, collection.

That is, and in summary, the legislator's option, pointed out by the Claimant, of "in the 2016 State Budget (...) excluding the application of part of the provision in Article 90 of the IRC Code for IRC collection, from the collection of autonomous taxation in IRC", was already implicit in the Code of such tax, at the level of Article 88(12), from which resulted already, in accordance with the terms set out, that:

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

Article 90(2) of the IRC Code was not applicable to the collection of autonomous taxation.

*

Summarizing what has been said above, it is verified, first of all, that the interpretation sustained by the Claimant rests, essentially, on the literal tenor of the rules of numbers 1 and 2 of Article 90 of the applicable IRC Code, no substantial foundation being discerned to justify the solution in question, particularly since the arguments on which such a position rests restrict themselves, essentially, to autonomous taxation on deductible charges and to the concrete deductions in question (SIFIDE benefit and special payment on account), whereas, on the one hand, nothing is proven with respect to, in the concrete case, being exclusively autonomous taxation of that type (and not of others), and, on the other hand, from the interpretation proposed it would always result that all deductions provided for in Article 90(2) of the IRC Code 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, those relating to confidential expenses or manager compensation, and none of the substantial arguments on which the Claimant's position rests permits justification that such should occur.

On the other hand, as has been seen, if it is true that Article 90(1) of the IRC Code in question does not distinguish between the liquidation of autonomous taxation and the liquidation of traditional or stricto sensu IRC (on taxable profit), the truth is that, upstream, the procedure and the nature of the two types of tax imposition are substantially distinct, as has been seen and as the constitutional jurisprudence in the matter gives abundant account, a situation to which one cannot, it is believed, fail to attend in the matter sub iudice.

Add to this that, as has also been seen, the ratification of the interpretation sustaining the Claimant's request would be, downstream, a generator of considerable turbulence in the normative structure of IRC, particularly as regards the regimes of special payment on account, and of companies subject to the tax transparency regime.

Add to this further that, as has also been analyzed, adherence to the literalness of the provisions of Article 90(1) and (2), advocated by the Claimant, would result – it is believed – in a trampling of the principle of tax equality, beyond which, it is constitutionally imposed.

Finally, and as has just been seen above, at the level of Article 88(12) of the applicable IRC Code, already resulted, in accordance with the terms set out, that:

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

Article 90(2) of the IRC Code was not applicable to the collection of autonomous taxation.

For all this, it is judged that in the strict combination of the text of the two rules, the legislator said more than what it intended, a situation which, for that matter, resulted not from contemporaneous negligence in the drafting of such rules, but, rather, from the historical evolution of the normative regime of IRC and, concretely, from the gradual introduction therein of the regime relating to autonomous taxation, without the same being reflected, coherently, in the tenor of Article 90(2) of the same Code.

This discord is, moreover, patent in the rule of number 21 of Article 88 of the IRC Code, introduced by Law No. 7-A/2016 of 30 March, which, by providing that no "deductions are made to the total amount calculated" of autonomous taxation, does not reserve number 12 of the same article which precisely provides for the possibility of deductions to the autonomous taxation to which it refers.

We are, thus, before a situation described by the Distinguished Master Prof. Dr. Baptista Machado, in which: "Sometimes, though rarely, it will be necessary to go further and sacrifice, in obedience still to the legislative intent, part of a normative formula, or even the entirety of the rule. These are aborted legislative formulas or genuine lapses. When the normative formula is so poorly inspired that it does not even allude with minimum clarity to the hypotheses it intends to cover and, taken to the letter, covers others that are decidedly not in the spirit of the law, one may speak of corrective interpretation. The interpreter will resort to such a form of interpretation, of course, only when it is the only way to achieve the end intended by the legislator."

Indeed, the normative formula of Article 90(2) of the applicable IRC Code, taken to the letter, as the Claimant does, encompasses hypotheses, as has been seen, that are decidedly not in the spirit of the law nor conform to the specificities and proper nature of the various autonomous taxation. In the case, as has been stated already, not due to poor inspiration of the rule itself, but of the successive reforms that historically introduced autonomous taxation into IRC, without the same being reflected, correspondingly, in the wording of Article 90(2) of such Code.

On the other hand, systematically examined, such a formula, reduced to its literalness, and generating grave and insuperable incoherences, as has been seen, beyond which, as has been seen, the applicable IRC Code already had, in the rule of number 12 of Article 88, literal evidences that the rule of Article 90(2) of the same Code would not, as a rule, be applicable to the collection of autonomous taxation, carried out in number 1 of the article.

Thus, taking into account the rational, historical and systematic understanding of the rule in question, it becomes necessary to interpretively correct the rule of Article 90(2) of the applicable IRC Code, in order to restrict the remission it makes to number 1 of the same rule, in the reference it makes "To the amount calculated in accordance with the preceding number", limiting it to the amount of the IRC collection calculated through the application of the rates of Article 87 to the taxable matter calculated in accordance with the rules of Chapter III of the Code, and not to the amounts calculated as autonomous taxation, thus restoring to the rule its original meaning, which was what corresponded to its textual wording before the introduction of autonomous taxation into the IRC Code.

It is admitted that one may question the goodness of the legislative option referred to, implicit until the introduction of number 21 of Article 88 of the IRC Code by Law No. 7-A/2016 of 30 March, and from then on explicit, as regards the inadmissibility of other types of deduction, beyond that provided for in number 12 of the same Article 88, to the collection of other types of autonomous taxation. Nevertheless, it is judged that such an option, now expressed in the referred Article 88(21) [continues...]