SIFIDE Tax Credit Deduction Against Autonomous Taxation in IRC: CAAD Case 193/2017-T

CAAD TAX ARBITRATION DECISION - ENGLISH TRANSLATION

The arbitrators José Baeta de Queiroz, Manuel Pires and João Taborda da Gama hereby decide:

I. REPORT

A…, S.A., hereinafter referred to as "A…" or "claimant," legal entity no. …, with registered office at …, …, … … - … Sintra, with share capital of € 86,962,868.00, being within the jurisdiction of the local ancillary office of the Tax Service of Sintra …, came, on 22-03-2017, in its capacity as the dominant company and responsible for self-assessment of Corporate Income Tax ("CIT") for the tax group (Tax Group B…) to which, in the taxation period of 2012, the Special Regime for Taxation of Groups of Companies ("RETGS") was applicable, and which was composed, in the said taxation period, by itself and by the companies: C…, S.A. (now designated, D…, S.A.); E…, Lda.; F…, S.A.; G…, S.A. (now designated, H…, S.A.); I…, S.A. (now designated, J…, S.A.); K…, S.A.; L… , S.A.; M…, Lda.; and N…, S.A., invoking articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20/01 (RJAT), and articles 1 and 2 of Ordinance no. 112-A/2011 of 22/03, to request the constitution of an arbitral tribunal, submitting the following claim:

"The claimant now requests that there be declared both the illegality of the (partial) dismissal of the request for official review, and the partial illegality of the self-assessment act identified above (cf. Docs. nos. 1 and 3) – and that it be consequently annulled – pursuant to article 2, no. 1, paragraph a), of Decree-Law no. 10/2011, more specifically with respect to the portion of the said self-assessment act that reflects the non-deduction from the CIT collection produced by the autonomous taxation rates of SIFIDE, which resulted in an amount of tax improperly assessed in the year 2012 in the amount of € 507,058.70, or alternatively, insofar as it reflects improper autonomous taxation in the same amount of € 507,058.70".

Pursuant to the option to designate an arbitrator provided for in paragraph b) of no. 2 of article 6 of the RJAT and in compliance with the provisions of paragraph g) of no. 2 of article 10 and no. 2 of article 11, equally of the RJAT, the Claimant designated João Taborda da Gama as Arbitrator.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 30-03-2017.

Pursuant to the provisions of paragraph b) of no. 2 of article 6 and no. 3 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, and within the deadline provided for in no. 1 of article 13 of the RJAT, the head of the Tax Administration service designated Manuel Pires as Arbitrator.

In accordance with the provisions of nos. 5 and 6 of article 11 of the RJAT, the President of the CAAD notified the Claimant of the designation of the Arbitrator by the head of the Tax Administration service and notified the arbitrators designated by the parties to designate the third arbitrator who would assume the position of presiding arbitrator.

On 31-05-2017, and in conformity with the provisions of paragraph b) of no. 2 of article 6 of the RJAT, the Arbitrators designated by the parties requested the Deontological Council to designate the third arbitrator, who would assume the functions of President.

The Deontological Council designated as presiding arbitrator, on 31-05-2017, José Baeta de Queiroz, who accepted the designation within the applicable legal period.

Pursuant to the provisions and for the purposes of no. 7 of article 11 of the RJAT, the President of the CAAD informed the parties of this designation on 31-05-2017.

Thus, in conformity with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, upon the expiration of the deadline provided for in no. 1 of article 13 of the RJAT, the collective arbitral tribunal is constituted on 16-06-2017.

Notified for this purpose, the Tax Authority responded, presenting exceptions and objections, and submitted the relevant administrative file.

The meeting referred to in article 18 of the RJAT was dispensed with, as it was deemed unnecessary, and the parties were invited to submit written arguments, which they did.

The tribunal designated 16-11-2017 for delivery of the decision, which was subsequently postponed to 15-12-2017.

II. PROCEDURAL MATTERS

It is necessary to first decide whether the tribunal is competent, a competence that the Respondent contests, on the grounds that the Claimant's claim was filed following a request for official review.

The Claimant opposes this position by arguing, in summary, that, in cases of self-assessment, the law is satisfied with the submission of the matter to the Tax Authority, whether it be by way of gracious complaint or by request for official review.

On this subject there is already considerable CAAD case law, although not all in the same direction.

We have aligned ourselves with the position defended by the Claimant, with the grounds which, by transcription, are derived from the decision rendered on 20/10/2016 in case 134/2017-T:

"The Respondent argues, in its response, that the binding of the Tax Administration to the Arbitral Tribunal depends, in cases of self-assessment – as is the case here – on prior recourse to the administrative route by the means provided for in articles 131 to 133 of the Tax Procedure and Process Code.

The Claimant, not challenging this rule and having not denied that it had not filed any prior complaint, defends itself by way of the alleged equivalence of the request for official review of the tax act, as this was the means it chose to challenge through the administrative route the acts impugned here.

This, then, and it is simple, in our view, is the vexata quaestio: is the enumeration provided for in the RJAT, when referring to prior administrative contentious remedies as being those provided for in articles 131 to 133 of the CPPT, exhaustive, or does this rule admit that the challenge was preceded by other means of gracious recourse, other than these?

Let us see:

By virtue of the referral in no. 1 of article 4 of the RJAT, the binding of the Tax Authority to the jurisdiction of Arbitral Tribunals constituted under that law depends on the provisions of Ordinance no. 112-A/2011, particularly with regard to the type and maximum value of the disputes covered.

Article 2, paragraph a) of Ordinance 112-A/2011 provides that the binding of the Tax Authority to the aforesaid jurisdiction has as its object the appreciation of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of article 2 of the RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative route pursuant to articles 131 to 133 of the Tax Procedure and Process Code".

However, it is not apparent, among the reasons advanced by the Respondent, any substantive reason why, given the conditioning circumstances and specific characteristics of each of the gracious remedies in question, the legality of self-assessment acts should not be cognizable in arbitral proceedings, in the same terms as tax courts are bound. Moreover, even a strictly literal interpretation, provided it is properly contextualized, would not lead to the result advocated by the Respondent.

Indeed, the expression used by the rule in question is parallel to the rule itself of article 131/1 of the CPPT, which should be understood as a concretization of the peacefully recognized legislative intent that the tax arbitral process constitute an alternative procedural means to the process of judicial challenge.

The rule of paragraph a) of article 2 of Ordinance 112-A/2011, of 22 March, should also be understood as explained by the circumstance that, in its absence – and in light of the tenor of article 2 of the RJAT – it would appear possible to challenge directly self-assessment acts without prior administrative pronouncement.

In other words, taking into account that under the RJAT there was not configured as necessary any prior administrative intervention before the arbitral challenge of a self-assessment, the tenor of the Ordinance must be interpreted as equating – on this matter – the tax arbitral process to the process of judicial challenge and not, as would result from the position sustained by the Respondent, go from 80 to 8, taking a broader challengeability than possible in Tax Courts, and transmuting it into a more restricted one.

Thus, no reason is seen for interpreting one and the other rule differently, all the more so since the letter of the rule of Ordinance 112-A/2011, of 22 March, ends up being less restrictive than that of the CPPT, in that it does not integrate the expression "mandatorily", nor does it refer to "gracious complaint", but to "administrative route".

Therefore, it is possible to read the very letter of the law in the sense that only the appreciation of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative route in terms compatible with articles 131 to 133 of the CPPT is removed from the scope of tax arbitral jurisdiction.

And it is this reading that is subscribed to, following the Decision rendered in case 48/2012-T of the CAAD and subsequent arbitral case law, particularly in cases 670/2015 and 122/2016, not conceiving, insofar as the interpretation carried out is contained in the letter of the law, that therefrom can result the violation of any constitutional provision, especially the articles 2, 3, no. 2, 111 and 266, no. 2, all of the Constitution of the Portuguese Republic (CRP)".

Thus, and in light of all the foregoing, which we endorse, the Respondent having no merit in this matter, the exception of incompetence of the Arbitral Tribunal is declared without merit.

The Tribunal was regularly constituted, the parties have legal personality and capacity, show themselves to be legitimate and are properly represented.

There are no further exceptions to decide, nor nullities or questions that constitute an obstacle to the appreciation of the merits of the case.

III. FACTUAL MATTERS

On 30 May 2013 the Claimant submitted the CIT declaration Form 22 for the Group, relating to the year 2012, having calculated autonomous taxation in CIT for the same year 2012 in the amount of € 507,058.70 (doc. no. 1 of the Claim).

The amount of SIFIDE available in the year 2012 amounted to a total of € 671,472.15 (doc. no. 4 of the Claim).

At that time, the Tax Authority's computer system did not allow the Claimant to deduct, for purposes of calculating the CIT owed, to the CIT resulting from the autonomous taxation calculated, the SIFIDE.

The Claimant submitted on 23.12.2016 a request for official review, requesting such deduction.

The Claimant was notified of the partial approval of the official review request on 23.12.2016 (doc. no. 2 of the Claim), with the Tax Authority agreeing with the deduction of SIFIDE from the value of the CIT assessed as state surtax, but not with the deduction of such tax benefit from the collection of autonomous taxation.

Basis for Proven Facts

The tribunal formed its conviction based on examination of the documents attached to the case, whose authenticity and veracity were not challenged.

Unproven Facts

With relevance to the decision of the case, no fact remained unproven.

IV. GROUNDS OF THE CLAIM

The Claimant alleges that it submitted the CIT declaration Form 22 for its Tax Group relating to the year 2012, having at that moment proceeded to the self-assessment of autonomous taxation in CIT, in the amount € 507,058.70.

It filed a request for official review, which was denied with respect to the deduction of SIFIDE from the CIT collection produced by autonomous taxation rates.

It challenges this denial and the aforesaid CIT self-assessment act of the Group, insofar as it did not admit the non-deduction from the portion of the CIT collection produced by the autonomous taxation rates of the benefit under SIFIDE, which resulted in improperly assessed tax in the year 2012 in the said amount, or, alternatively, insofar as the assessment of autonomous taxation is improper.

Now, the CIT collection provided for in (in force until 2013) article 45, no. 1, paragraph a), of the CIT Code, comprises autonomous taxation in CIT, and the collection provided for in article 90, no. 1, and no. 2, paragraphs b) and c), of the CIT Code, in the wording in force in 2012. Whence the denial of deduction of SIFIDE from the CIT collection of autonomous taxation violates paragraphs b) and c) of no. 2 of article 90 of the CIT Code (previously to 2010 article 83).

If it is understood that in that article 90 of the CIT Code the collection of CIT resulting from autonomous taxation (determined pursuant to article 88) is not included, but only the collection of CIT resulting from taxable profit (determined pursuant to article 87), it would have to be concluded that the assessment of the autonomous taxation itself is, in itself, illegal, by virtue of either article 8, no. 2, paragraph a), of the General Tax Law, or article 103, no. 3, of the Constitution of the Portuguese Republic.

If it is understood to be impossible to deduct fiscal benefits for use against amounts due by way of autonomous taxation, their assessment has no basis in the norm for assessment of CIT enshrined in article 90 of the CIT Code, then it requests, by way of subsidiary claim, that the self-assessment of the taxation period of 2012 be annulled, in the portion corresponding to autonomous taxation, on the grounds that the same was assessed and collected without legal basis for the purpose.

The State Budget Law for 2016 (Law no. 7-A/2016, of 30 March) reiterated that article 89 of the CIT Code applied also to the assessment of autonomous taxation (part 1 of the new no. 21 of article 88 of the CIT Code). Inexplicably, it did not reiterate expressly that article 90 of the CIT Code also applies to the assessment of autonomous taxation, which, given the tenor of its no. 1, which specifies what had been announced in the preceding article 89, the Claimant does not understand.

The legislator in the State Budget Law 2016 chose to exclude the application of part of the provisions of article 90 of the CIT Code to the CIT collection from the collection of autonomous taxation in CIT (part 2 of the new no. 21 of article 88 of the CIT Code).

In contradiction with what is suggested by the text of article 135 of the State Budget Law 2016, with respect to no. 21 of article 88 of the CIT Code, the State Budget Law 2016 did not merely alter a pre-existing wording. No. 21 is entirely a new provision.

It argues that the legislator, when conferring interpretative character "to the wording given by this law to no. 21 of article 88 of the CIT Code", article 135 of the State Budget Law 2016 wishes to refer to part 1, and not to part 2 of the said no. 21.

The regime for the application of laws in time provided for in the Civil Code (which includes its article 13), does not apply with respect to matters that have a special regime for that purpose, in obedience to distinct principles, as is the case (currently) of taxes: cf. article 12 of the General Tax Law and article 103, no. 3, of the Constitution.

Whence the conclusion that the attribution of interpretative nature to a tax rule does not by itself trigger the application of the regime for the application of laws in time provided for in the Civil Code.

Both article 89 and article 90, nos. 1 and 2, of the CIT Code, refer to CIT, all CIT. Both parts, 1 and 2, of the new no. 21 of article 88 of the CIT Code, cannot be simultaneously interpretative of what articles 89 and 90 of the CIT Code provide, in opposite senses - in the sense that the CIT of article 89 also includes autonomous taxation (part 1 of no. 21 of article 88), and in the opposite sense that the CIT of article 90, at least of its no. 2, does not include autonomous taxation. Only part 1 has interpretative nature. Part 2 of the new no. 21 of article 88 of the CIT Code has innovative character.

If it is understood (i) that article 135 of the State Budget Law 2016 (Law no. 7-A/2016, of 30 March) also conferred interpretative nature to part 2 of the new no. 21 of article 88 of the CIT Code, that is, also to the normative segment "with no deductions being made to the global amount [of autonomous taxation in CIT] calculated", introduced by the same State Budget Law 2016 (by its article 133), (ii) and that this would result in the application of article 13 of the Civil Code as it provides for the retroactive application of interpretative laws, if one is then faced with a material unconstitutionality of the said article 135 of the State Budget Law 2016, by violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3 of the Constitution, whether or not (and it understands not) one has concluded to be faced with a materially interpretative law, and also by violation, of the principle of separation of powers and the principle of independence of the judiciary.

Violation, also, of articles 2 (democratic rule of law state, and separation and interdependence of powers, whereby as to this last aspect the case is concerned with the perspective of interdependence – and consequently denial of excesses and occupation of space that does not belong to it – of the political-legislative power vis-à-vis the judicial power), 111, no. 1 (separation and interdependence of organs of sovereignty, which is also a substantive limit of revision – article 288, paragraph j), of the Constitution), and 203 (independence of courts, another substantive limit of revision – article 288, paragraph m)), all of the Constitution.

Finally the Claimant understands that, given that tax has been paid in an amount superior to that legally due, declared that the illegality of the (self-)assessment in the portion petitioned, it has the right not only to the respective refund, but, also, under article 43 of the General Tax Law ("General Tax Law"), to compensatory interest, calculated on € 507,058.70, counted from 1 September 2013. It invokes that the error from which the (self-)assessment suffers results from error of the Services regarding the legal assumptions that conditioned informatically the completion of the declarations (Form 22) of self-assessment, aggravated even by the denial of the request for official review.

GROUNDS OF THE TAX AND CUSTOMS AUTHORITY

The Tax Authority contradicts the grounds alleged by the Claimant, reaffirming the position assumed at the time of the decision on the request for official review.

In addition to the development of the arguments set forth in the response, the grounds of the Tax Authority's position are, naturally and necessarily, those contained in the dispatch denying the request for official review, transcribed in the factual matters.

The Tax Authority notes that "The computer system cannot permit or enshrine what the law does not provide, i.e., the system and computer applications of the Tax Authority should be a mere reflection of the legal provisions in force at each moment".

It further adds that compensatory interest would never be owed from the date indicated by the Claimant, but only from the denial of the request for official review.

V. THE LAW

1.1. Autonomous Taxation and CIT Collection

The question submitted to the appreciation of the Arbitral Tribunal is whether the Claimant has the right to proceed with the deduction, also to the CIT collection produced by the application of autonomous taxation rates, of the SIFIDE tax credit if, affirmatively, the self-assessment of CIT for the year 2012 is illegal.

Submitted to the Tribunal is also, by way of subsidiary claim, should the Tribunal give a negative response to the first question, the question of the possible illegality and consequent annulment of the assessment of autonomous taxation, due to absence of legal basis for its assessment.

The Tribunal is also called upon to rule on the right to compensatory interest on the sums paid in consequence of the self-assessment in question.

It is necessary, therefore, to decide on the merits of the request for an arbitral decision on the CIT assessment sub judice and of the possible right of the Claimant to compensatory interest.

We will follow in this decision very closely what was decided in cases no. 749/2015-T, of 15 July 2016, and no. 360/2016-T, of 16 February 2017, which were presided over by the same arbitrator who also acts in that capacity here.

Let us proceed:

The regime of autonomous taxation in force in the year 2012 is the result of numerous legislative amendments.

The subjection of certain expenses to autonomous taxation arose with Decree-Law no. 192/90, of 2 June, in a context of penalizing the taxation of confidential or undocumented expenses incurred by companies.

Subsequently, autonomous taxation was included in the CIT Code, through Law no. 30-G/2000, of 29 December, which came to integrate the provision of autonomous taxation in the instrument that regulates CIT.

Since then, the regime of autonomous taxation has been undergoing a process of progressive expansion, in part dictated by the apparent continuous intention to increase tax revenue through this mechanism.

Taking into account article 88 of the CIT Code, autonomous taxation applies, broadly speaking, to the following circumstances: undocumented expenses; vehicle expenses; representation expenses; allowances; amounts paid to non-residents; profits distributed by entities subject to CIT to taxpayers who benefit from exemption; costs or charges relating to indemnifications or any compensation due not related to the contractual relationship; and also costs or charges relating to bonuses and other variable remuneration paid to managers, directors or managing partners.

The State Budget Law for 2014 introduced some changes in the provision of autonomous taxation which, however, were not only not particularly relevant but also offer no contribution to the present discussion.

Article 23-A, no. 1, paragraph a), of the CIT Code, in the wording of Law no. 2/2014, of 16 January, leaves no room for any reasonable doubt. In truth, the wording of the said rule introduced by Law no. 2/2014, of 16 January, provides that "CIT, including autonomous taxation, and any other taxes that directly or indirectly affect profits" are not fiscally deductible. The positioning of the two commas in the letter of the law, one before and one after the expression "including autonomous taxation", contained in the current wording of the cited article 23-A, no. 1, paragraph a), of the CIT Code, eliminates the possibility of arguing that autonomous taxation is not (part of) CIT.

That is, in the current wording of article 23-A, no. 1, paragraph a) of the CIT Code, the legislator not only clarifies that autonomous taxation is part of CIT, whether as a tax in the strict sense or at least in terms of being part of the same unitary fiscal regime, but also that the same should receive the same treatment for purposes of computing taxable profit.

Indeed, this understanding corroborates what, at the time of the facts, resulted from the literal tenor of article 12 of the CIT Code, according to which "the companies and other entities to which, under article 6, the transparent taxation regime applies, are not taxed in CIT, except as to autonomous taxation", from which it is also concluded that autonomous taxation is CIT (is a part of CIT).

That is, and in summary, the legislator understood, and continues to understand, that autonomous taxation is part of CIT, whether as a tax in the strict sense or at least in terms of being part of the same unitary fiscal regime.

It should be noted, moreover, that the rule of article 45 of the CIT Code, in the wording in force at the time of the facts (and whose regime is now contained in article 23-A) is situated in a context of broad legislative discretion. That is, in the definition of what constitute deductible or non-deductible expenses for tax purposes, the tax legislator enjoys broad discretionary freedom. Therefore, it cannot be said that it is prohibited to the legislator, by the "nature" of autonomous taxation, to exclude it from deductible expenses for tax purposes.

It is understood, in this manner, that it will be legitimate for the legislator to include or exclude autonomous taxation from that category of deductible expenses for tax purposes, independent of the "nature" that doctrine or case law may ascribe to them.

The question, properly situated, will then be to determine what the intention of the legislator is, expressed in the legislative text, understood in its entirety.

And from this perspective, the conjunction of the tenor of article 12 of the CIT Code with article 45, no. 1, paragraph a) of the same, will leave no great doubts, as to the legislative understanding that autonomous taxation, if it does not constitute CIT in the strict sense, will certainly be part of the regime of that tax, and will be owed as such.

Moreover, not even the result, apparently so counterintuitive and striking, of being able to be owed payment of tax by way of the autonomous taxation which now occupies us, even in the case of non-existence of a (positive) income at the end of the taxation period, is a rare thing in the CIT regime. In fact, in some cases of withholding at source as a final matter, it may occur that the holder of the income subject to that withholding has had expenses exceeding the income. Also in the case of the operationality of some of the specific anti-abuse clauses (articles 63 to 67 of the CIT Code), by force of the consideration of costs, it may occur that taxpayers are taxed on a fictional taxable profit, insofar as there may be in question the disregard of costs, actually borne, but disregarded as abusive. It may thus occur that a taxpayer has to pay CIT, notwithstanding having actually suffered losses. Examples that may raise the question of their compatibility with the principle of taxation according to actual profit which cannot fail to be examined case by case.

Recognized here, evidently, are those characteristics which for some years now doctrine has been pointing to regarding the autonomous taxation in question, such as:

a) autonomous taxation only makes sense because the costs/expenses are, in most situations, relevant as negative components of the taxable profit of CIT and that is what motivates CIT taxpayers to report as high a value as possible of those costs to reduce the taxable income of CIT, the collection and, consequently, the tax to be paid;

b) it is a question of treating unfavorably those expenses which, by their nature, are easily diverted from private consumption to business purposes;

c) it is intended to discourage this type of expense in taxpayers that present negative results, but that continue to show consumption structures difficult to reconcile with the financial health of their companies;

d) to model the fiscal system so that it shows a certain balance, with a view to a better distribution of the effective tax burden among taxpayers and types of income;

e) to materialize the recognition that it is not easy to determine the exact measure of the component of some of these expenses that corresponds to private consumption.

Autonomous taxation is based on the presumption of the existence of income that may not be subject to taxation, not only under CIT but also under personal income tax. As explained in the decision of the Arbitral Tribunal rendered in the scope of Case no. 209/2013-T, which decided negatively on the question of the deductibility of autonomous taxation as a tax cost under CIT, "it is a form of, indirectly and through the expense, taxing income".

The portion of the CIT collection that comes from autonomous taxation is calculated from the elements of the tax defined in article 88 of the CIT Code inserted in 'Chapter IV – Rates'. This article delimits the taxable base of autonomous taxation, on the one hand, and, on the other hand, enumerates the rates of autonomous taxation, which are various, depending on the nature of the taxable base to which they apply; depending on the type of taxpayer (e.g., non-profit entity, exempt entities, entity that carries on a commercial, industrial or agricultural activity as its principal activity), and are also dependent on the taxpayer's own economic performance in relation to CIT, as they assume different percentages when a tax loss or tax profit is calculated. The collection that comes from autonomous taxation is a function of the taxable result, calculated from two expressions that are the product of the taxable base by a rate dependent on the taxable result: a higher rate when a tax loss is calculated and another, lower, when the taxable result is positive.

Thus, the collection proceeding from autonomous taxation cannot be determined instantaneously and immediately following the incurrence of the expense, as it depends on the result itself which is - contrary to what the Tax Authority contends and with support in the decision rendered in Arbitral Case no. 113/2015-T - of successive formation.

Also some expenses that do not coincide with the expenses that they extinguish and that are subject to autonomous taxation, namely depreciations, are of continuous formation.

Given all this, the essential question that interests us to resolve, is whether the assessment of autonomous taxation is "assessed under the terms of article 90 of the CIT Code", for, if it is, it will have to be concluded that the deductions provided for in no. 2 of article 90 of the CIT Code can also be made to the collection proceeding from autonomous taxation.

The rule in question is that of article 90 of the CIT Code, being paragraph a) the one that applies to assessment made by the taxpayer (self-assessment). This was the wording of the article on 31-12-2012:

"Article 90

Procedure and form of assessment

1 — The assessment of CIT takes place in the following terms:

a) When the assessment is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable income contained therein;

(…)

2 — To the amount ascertained under the preceding number the following deductions are made, in the order indicated:

a) The one corresponding to double international legal taxation;

b) The one relating to fiscal benefits;

c) The one relating to special payment on account referred to in article 106;

d) The one relating to withholdings at source not susceptible to offset or refund under applicable legislation.

3 — (Repealed).

4 — To the amount ascertained under no. 1, concerning the entities mentioned in no. 4 of article 120, only the deduction relating to withholdings at source when these are in the nature of tax on account of CIT is to be made.

5 — The deductions referred to in no. 2 concerning entities to which the transparent taxation regime established in article 6 applies are attributed to their respective partners or members under the terms established in no. 3 of that article and deducted to the amount ascertained on the basis of the taxable income which took into account the attribution provided for in the same article.

6 — When the special regime for taxation of groups of companies applies, the deductions referred to in no. 2 relating to each one of the companies are made to the amount ascertained concerning the group, under the terms of no. 1.

7 — From the deductions made under paragraphs a), b) and c) of no. 2 no negative value may result.

8— To the amount ascertained under paragraphs b) and c) of no. 1 only the deductions of which the fiscal administration has knowledge and which can be made under nos. 2 to 4 are to be made.

9— In cases where the provision of paragraph b) of no. 2 of article 79 applies, assessments are made annually on the basis of the taxable income determined provisionally, and, in relation to the assessment corresponding to the taxable income relating to the entire assessment period, the difference ascertained is to be collected or annulled.

10 — The assessment provided for in no. 1 may be corrected, if appropriate, within the period referred to in article 101, the differences ascertained being then collected or annulled".

Thus, article 90 of the CIT Code refers to the forms of assessment of CIT, by the taxpayer or by the Tax Administration, and aims at ascertaining the tax owed in all situations provided for in the Code, including additional assessment.

The CIT Code refers, in its current version, expressly, to autonomous taxation only in five articles, namely in article 12 (in excluding autonomous taxation from the CIT exemption applicable to companies covered by the transparent taxation regime), in article 23-A, no. 1 (in making explicit that autonomous taxation is not deductible for purposes of determining taxable profit), in article 88 (in establishing the rates and in delimiting the taxable base of autonomous taxation), in article 117, no. 6 (regarding the declarative obligation of CIT-exempt entities under article 9, when there is autonomous taxation) and in article 120, no. 9 (as to the periodic income declaration). There is no other explicit reference to autonomous taxation in the CIT Code.

Indeed, the current wording differs from that in force until 31-12-2012 only in the novelty of article 23-A, which establishes that certain expenses associated with autonomous taxation are not deductible for purposes of determining taxable profit, even when accounted for as expenses of the taxation period, with the wording of paragraph a) being clarifying: "CIT, including autonomous taxation, and any other taxes that directly or indirectly affect profits". That is, not only does the legislator express that CIT includes autonomous taxation, but there are no provisions in the CIT Code, specifically in the chapters dealing with scope (Chapter I), assessment (Chapter V) and payment (Chapter VI) of any other explicit references to autonomous taxation, from which it is necessary to conclude that they are subject, in a generic manner, to the other provisions provided for in the CIT Code.

There was no other article in the CIT Code, besides article 90, in which the process of assessment of autonomous taxation is distinguished from the remainder of CIT. And, in these terms, the assessment of both - autonomous taxation and remainder of CIT - is unitary and has the same legal basis.

Autonomous taxation did not result from a distinct process of tax assessment.

Understanding that autonomous taxation is (part of) CIT, it is understood that the assessment of CIT is unitary, including the part that proceeds from autonomous taxation. There is a unitary assessment of CIT that comprises two parts: the assessment of autonomous taxation and that of the remainder of CIT, each one with taxable base determined in its own way and with its own tax rates, but both assessed under the terms of article 90 of the CIT Code. Given a unitary assessment, it is concluded that the portion of the collection that proceeds from autonomous taxation is an integral part of the CIT collection.

On the contrary, there was no reference in any other article of the CIT Code to the assessment of autonomous taxation as a distinct process. To accept that the collection of autonomous taxation is not included in article 90 of the CIT Code would be to accept that there is a gap in the law and, being this a tax law, it does not permit integration.

In this sense, goes Decision no. 775/2015-T, of 28 June 2016, in saying that "to accept that the assessment of autonomous taxation is outside article 90 no. 1 of the CIT Code and, therefore, to exclude from its collection the deductibility of the PEC provided for in paragraph c) of no. 2 and of SIFIDE provided for in paragraph b) of no. 2, would require the taxpayer to pay a tax whose assessment is not made under the terms of the law, contrary to no. 3 of article 103 of the Constitution of the Portuguese Republic and the principle of tax legality which the General Tax Law, in its article 8, no. 2, paragraph a), establishes. If the Tax and Customs Authority assumed that the collection of autonomous taxation was calculated outside article 90 of the CIT Code, it should indicate on the basis of what rule of assessment it did so. There being no rule on assessment of autonomous taxation separate, it seems that it must be accepted that the collection of CIT comprises it, being included in article 90 no. 1 of the CIT Code, therefore the special payment on account referred to in paragraph c) of no. 2 and SIFIDE referred to in paragraph b) of no. 2 are deductible."

Note, moreover, that in the subsequent numbers of that article 90 of the CIT Code the legislator was concerned to enumerate several exceptions and limits to the rules of deductibility of no. 2. In no. 4, when it provides that "only the deduction relating to withholdings at source when these are in the nature of tax on account of CIT is to be made", which is revealing: it is understood that it is so, because it is in the CIT collection that it is intended to deduct them, or, in no. 7, when it prescribes that from the deductions to the collection a), b) and c) of no. 2 there may not result, in a general manner and without distinguishing the collection resulting from the application of autonomous taxation rates, a negative value.

In none of them and in no other provision is there a reference to any limitation of the deductibility of SIFIDE to the portion of the CIT collection that results from autonomous taxation, therefore it is necessary to conclude that the legislator did not wish to do so.

It should further be noted that, although article 90 was amended by Law no. 2/2014, of 16 January, which republished the CIT Code, what was said here not only endures but, from an interpretative point of view, is even reinforced, because the legislator added some limitations and exceptions to the deductions to the collection provided for in no. 2 and again did not refer to the portion of the collection that results from the application of autonomous taxation rates.

For this reason, article 90 of the CIT Code also applies to the assessment of the amount of autonomous taxation, which is calculated by the taxpayer or by the Tax Administration, there being no other provision that provides for different terms for its assessment. The autonomy of autonomous taxation is restricted to the applicable rates and the respective taxable base, but the ascertainment of its amount is effected under the terms of article 90 of the CIT Code.

The differences between the determination of the amount resulting from autonomous taxation and the collection resulting from taxable profit, are based on the determination of the taxable base and the rates, provided for in Chapters III and IV of the CIT Code, but not in the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation and to the remainder of the CIT collection.

For this reason, being article 90 inserted in this Chapter V, no legal basis is seen for making a distinction between the collection proceeding from autonomous taxation and the remainder of the CIT collection, on the grounds that the rates and the forms of determination of the taxable base are distinct.

And, as was said, there is no legal basis for affirming that, in the eventuality of having to effect several calculations in a declaration to determine the CIT, more than one self-assessment is effected.

For this reason, the expression "when the assessment is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable income contained therein", which appears in paragraph a) of no. 1 of article 90 of the CIT Code, encompasses in its literal tenor, the assessment of autonomous taxation, whose taxable base must be indicated in the said declarations, as results, including, from the very Form 22 declaration.

The collection is obtained by applying the rate to the respective taxable base, therefore, in the case of CIT, there being various rates applicable to various taxable bases, the global CIT collection will be constituted by the sum of all the results of these applications.

Furthermore, independent of the calculations to be effected, the self-assessment that the taxpayer or the Tax Authority must effect under articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c) and 120 or 122, is unitary and it is on its basis that the global CIT is calculated, whatever the taxable bases relating to each one of the types of taxation underlying it.

Moreover, in the eventual nature of anti-abuse rules that some autonomous taxation assumes, cannot be seen an explanation for its exclusion from the respective collection, for there is no legal basis for excluding the deductibility to the collection provided by corrections based on rules of an indisputably anti-abuse nature.

The purpose of autonomous taxation is dual. They aim to tax actual income, correcting for this purpose the taxable income to approximate it to that actual income and, at the same time, they seek to penalize taxpayers who through the realization of certain expenses end up reducing the taxable income.

As can be read in Decision no. 617/12 of the Constitutional Court, showing its dual nature, with an aggravated rate of autonomous taxation for certain special situations that are sought to be discouraged, creates a sort of presumption that these costs do not have a business purpose and, therefore, are subject to autonomous taxation. "In summary", says the Constitutional Court, "the cost is deductible, but autonomous taxation reduces its fiscal advantage, since, here, the base of incidence is not a net income, but, rather, a cost transformed – exceptionally – into an object of taxation."

Being that the legal regime of autonomous taxation in question only makes sense in the context of taxation under CIT. That is, disconnected from the legal regime of this tax, those, by complete lack of sense, will be wanting. Its existence, its purpose, its explanation, ultimately, its juridicity, is only understandable and acceptable within the framework of the legal regime of CIT. For, even if it were accepted that the taxable fact that is impositive is each one of the individual expenses legally typified, the fact is that these are not, qua tale, the final object of taxation, the reality that is intended to aggravate with the tax.

If it were so, all expenses provided for would have to be taxed, realized by all subjects and not merely by some of them.

That is, autonomous taxation is inseparable from the subjects of the tax on the respective income, and, more specifically, from the economic activity carried out by them, which is even more evident when thinking of the link that, although it has varied in successive legislative amendments, autonomous taxation had and still has some link with deductibility – and the actual deduction – of the taxed expenses. They are, in essence, special rules on the deductibility of certain costs.

This circumstance, it is believed, is elucidative of the interconnection existing between these and CIT (in this case), and justificative not only of their inclusion in the CIT Code, but, equally, of their integration, as of right, as part of the legal regime of CIT.

The autonomous taxation now in question are, as such, undoubtedly understood by the legislator as a form of preventing certain abusive actions, which the normal functioning of the taxation system was incapable of preventing or which would be more onerous or laborious for the tax administration or, perhaps, even for the taxpayer.

From this perspective, as referred to in the decision rendered by the Arbitral Tribunal in case no. 187/2013-T, autonomous taxation in question will then have underlying a presumption of partial business nature of the expenses on which it falls, as a function of the above-noted circumstance that such expenses are situated on a line that separates what is business expense, productive, from what is private expense, consumption, and which, notably, in many cases, the expense will even in reality have a dual nature (part business, part private).

Confronted with this difficulty, the legislator, instead of simply excluding its deductibility, or inverting the burden of proof of the relationship of the expenses in question with business activity, chose to enact the regime currently in force.

This presumption of partial business nature, should, in coherence, be considered as encompassed by the possibility of elision resulting from article 73 of the General Tax Law, whether by the taxpayer or by the Tax Administration, which appears to be in conformity with an adequate distribution of the burden of proof, insofar as falling on autonomous taxation in question on expenses whose relationship with the activity pursued may not be, prima facie, evident, the taxpayer will be the one better positioned to demonstrate that such requirement is verified in concreto. For its part, the Tax Administration itself, should it deem it and consider that the case justifies the inherent expenditure of resources, may always demonstrate that, with respect to the expenses in question, and even though autonomous taxation has fallen on them, the general requirement of article 23, no. 1 of the CIT Code is not verified, namely its indispensability for the realization of income subject to tax or for the maintenance of the source producing income.

Given all the foregoing, we consider that autonomous taxation in question form part of the CIT regime and that the respective assessment is effected under the terms of article 90 of the respective Code.

1.2. As to the Deductibility of the SIFIDE Tax Credit to the Amount Due by Autonomous Taxation

Given the framework carried out in the previous point, the first concrete question that arises in this context is whether the fiscal credits recognized to the claimant in the year 2012, under SIFIDE, can also be deducted from the collection produced by autonomous taxation rates that burden it in that fiscal year, insofar as they cannot be deducted from the remainder of the collection.

To answer this question it is important to note that, in the wording at the time of the facts, article 4 of the System of Fiscal Incentives for Business Research and Development (SIFIDE II), approved by article 133 of Law no. 55-A/2010, of 31 December (State Budget for 2011), provided that:

"1 - CIT taxpayers resident in Portuguese territory who carry on, principally or not, an activity of an agricultural, industrial, commercial and services nature and non-residents with a permanent establishment in that territory may deduct to the amount ascertained under article 90 of the CIT Code, and up to its amount, the value corresponding to expenditure on research and development, to the extent that it has not been the subject of financial participation by the State as a grant, incurred in the taxation periods from 1 January 2011 to 31 December 2015, in a dual percentage:. (…)

2 - For CIT taxpayers that are SMEs in accordance with the definition contained in article 2 of Decree-Law no. 372/2007, of 6 November, that have not yet completed two fiscal years and that have not benefited from the incremental rate fixed in paragraph b) of the preceding number, a 10% increase applies to the base rate fixed in paragraph a) of the preceding number.. 3 - The deduction is made, under the terms of article 90 of the CIT Code, in the assessment concerning the taxation period mentioned in the preceding number. . (…)"

Article 5 added:

"Only may benefit from the deduction referred to in article 4 CIT taxpayers that cumulatively meet the following conditions:

a) Their taxable profit is not determined by indirect methods;

b) They are not in debt to the State and to social security of any taxes or contributions, or have their payment duly secured."

In fact, that instrument does not state that the fiscal credits therefrom are deductible to every and any CIT collection, rather it defines the scope of the deduction alluded to, in its no. 1 of article 4, "to the amount ascertained under article 90 of the CIT Code, and up to its amount".

No. 3 of the same article confirms that it is to the amount ascertained under article 90 of the CIT Code that is relevant for the deduction, in saying that "the deduction is made, under the terms of article 90 of the CIT Code, in the assessment concerning the taxation period mentioned in the preceding number".

Thus, by mere declarative interpretation, it is concluded that the reference that in article 4, nos. 1 and 3 is made to "the deduction (…) under the terms of article 90 of the CIT Code (…)" as a form of materializing the fiscal benefit, encompasses, literally also the CIT collection resulting from autonomous taxation, which integrates the unitary CIT collection.

The fact that article 5 of the Regime excludes the benefit when taxable profit is determined by indirect methods and in autonomous taxation some situations are included that aim indirectly at the taxation of profits (namely, not giving relevance or demotivating facts susceptible of reducing them), has no relevance for this purpose, as the concept of "indirect methods" has a precise reach in tax law, which is specified in article 90 of the General Tax Law (besides special rules), referring to means of determining taxable profit, the use of which is not provided for in calculating the taxable base of autonomous taxation provided for in article 88 of the CIT Code.

On the other hand, if it is the necessity of making use of indirect methods that excludes the possibility of enjoying the benefit, it cannot justify this exclusion in relation to the collection of autonomous taxation, which is determined by direct methods.

Moreover, in the eventual nature of anti-abuse rules that some autonomous taxation assumes, cannot be seen an explanation for its exclusion from the respective collection from the scope of the deductibility of the SIFIDE benefit, for there is no legal basis for excluding the deductibility to the collection provided by corrections based on rules of an indisputably anti-abuse nature, such as, for example, those relating to transfer pricing or undercapitalization. When the legislator wishes to exclude deductibility it must say so expressly.

On the other hand, the fact that the deductibility of the SIFIDE fiscal benefit is limited to the collection of article 90 of the CIT Code, up to its amount, does not permit concluding that the fiscal credit is only deductible should there be taxable profit, for what that fact requires is that there be CIT collection, which may exist even without taxable profit, namely by virtue of autonomous taxation.

Thus, pointing the literal tenor of article 4 of SIFIDE in the sense that the deduction applies also to the CIT collection derived from autonomous taxation ascertained under article 90 of the CIT Code, only by way of a restrictive interpretation could the application of that fiscal benefit to the CIT collection provided by autonomous taxation be excluded.

The viability of a restrictive interpretation encounters, from the outset, an obstacle of a general nature, which is that rules that create fiscal benefits have the nature of exceptional rules, as results from the expressed tenor of article 2, no. 1, of the Statute of Fiscal Benefits (Statute of Fiscal Benefits), therefore, in the absence of special rule, they should be interpreted in their precise terms, as is pacified case law. In the case of fiscal benefits, there is explicitly provided the possibility of extensive interpretation (article 10 of the Statute of Fiscal Benefits), but not restrictive interpretation, therefore, as a rule, the fiscal benefit should not be interpreted with lesser breadth than that which, in a declarative interpretation, results from the tenor of the rule that provides for it.

In any event, restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text that betrays its thought, insofar as it says more than what it intended to say. Here also the ratio legis will have a decisive word. The interpreter should not let himself be drawn away by the apparent reach of the text, but should restrict it in terms of making it compatible with the legislative thought, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for the law ends there its reach ends)"[1].

As a basis for a restrictive interpretation one may venture the fact that some autonomous taxation aims to discourage certain behaviors of taxpayers susceptible of affecting the taxable profit, and, consequently, diminishing fiscal revenue, and its deterrent force will be attenuated with the possibility of the respective collection being subject to deductions. Therefore, it is necessary to appreciate whether there are reasons that justify a conclusion on the incompatibility of the sense of the text of article 90 of the CIT Code, with the ratio legis of that fiscal benefit. But, the deterrent of these behaviors is justified only by concerns of protecting fiscal revenue and the fiscal benefits granted, by definition, are "exceptional measures instituted for the protection of relevant extra-fiscal public interests superior to those of the taxation itself that impede them" (article 2, no. 1, of the Statute of Fiscal Benefits). And, in the case of the fiscal benefits of SIFIDE, the extra-fiscal reasons that justify their imposition over fiscal revenues are, in the legislative perspective, of enormous importance, as can be inferred from the justification in the Report on the State Budget for 2011: "II.2.2.4.4. System of Fiscal Incentives for Business Research and Development II (SIFIDE). Given that one of the strengths of competitiveness in Portugal lies in the commitment to technological capacity, scientific employment and the conditions for asserting itself in European space, the Proposal for the State Budget for 2011 proposes to renew SIFIDE (System of Fiscal Incentives for Business Research and Development), now in the SIFIDE version, to take effect in the periods 2011 to 2015, enabling the deduction to CIT collection for companies that invest in R&D (research and development capacity). Given the positive balance of fiscal incentives for business I&D, and also considering the evolution of the support system in other countries, it was decided to review and reintroduce for five more taxation periods this support system. The I&D of companies is a decisive fact not only of their own assertion as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in various recent international reports. It is in this context that, in the international panorama, the OECD has considered Portugal since 2001 as one of the three countries with the most significant progress in business I&D. Given that the current national system, compared to other systems that use deduction to collection and the distinction between base rate and incremental rate, is one of the most attractive and competitive."

Given that the research and development of companies is "a decisive fact not only of their own assertion as competitive structures, but of productivity and long-term economic growth", it is understood that preference was given to the incentive of the commitment to technological capacity, scientific employment and the conditions for asserting itself in European space, which, in the long run are returned to the attainment of greater fiscal revenues.

The importance that, in the legislative perspective, was recognized for this fiscal benefit provided for in SIFIDE, is also decisively confirmed by the fact that it is indicated as being especially excluded from the general limit to the relevance of fiscal benefits in CIT, which is indicated in article 92 of the CIT Code, in the wording at the time of the facts. For this reason, it is, also by this route, sure that one is faced with fiscal benefits whose justification is legislatively considered more relevant than the attainment of fiscal revenues, inferring from that article 92 that the legislative intention to incentivize investments in research and development provided for in SIFIDE is so firm that it goes to the point of not even establishing any limit to the deductibility of the CIT collection, despite this fiscal regime having been created and applied in a period of notorious difficulties for public finances.

Thus, no legal basis is seen, particularly in light of the legislative intention that it is possible to detect, to, on the basis of a restrictive interpretation, exclude the deductibility of the SIFIDE fiscal benefit to the collection of autonomous taxation that results directly from the letter of article 4, no. 1, of the respective instrument, combined with article 90 of the CIT Code.

As was said, in establishing a fiscal benefit by deduction to CIT collection, the legislator chose to forgo the fiscal revenue that this tax could provide, to the extent of the granting of the fiscal benefit. For this weighing of relative interests (fiscal revenue versus strong stimulation of investment) it is immaterial whether that revenue comes from calculations effected on the basis of article 87 or article 88 of the CIT Code. In fact, whatever the form of calculation of that fiscal revenue, one is faced with money whose collection the legislator considered to be less important than the pursuit of the economic purpose referred to. Of the two alternatives that appeared to the legislator regarding the incentive to investments provided for in SIFIDE, which were, on the one hand, to keep intact the revenues proceeding from CIT (including those from autonomous taxation) and not see incentivized investment in research and development and, on the other hand, to effect that incentive with loss of CIT revenues, the weighing that necessarily underlies SIFIDE is that of the option for the creation of the incentive with prejudice to the revenues. And, naturally, given that the creation of the incentive to investment is better, in the legislative perspective, than the collection of revenues, it is not seen how it can be relevant whether the CIT revenues that are foregone to effect the incentive proceed from the general taxation of CIT provided for in no. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of CIT revenues and the relative weighing that can be made of the conflicting interests is identical, whatever the forms of determining the amount of CIT that is foregone to create the incentive.

And, in the case of the SIFIDE fiscal benefit, the reasons of an extra-fiscal nature that justify the incentive with loss of revenue are very strong, as it is considered that the incentivized investments are a decisive factor in the future competitiveness of the country.

For this reason, it is sure that one is faced with fiscal benefit whose justification is legislatively considered more relevant than the attainment of fiscal revenues proceeding from CIT, whatever the basis of its calculation, for what is in question is always whether to forgo or not a certain sum of money to create an incentive to investment.

In this context, the nature of autonomous taxation and the legislatively adopted solutions, in general, regarding them, have no relevance to the appreciation of this question, as it must be appreciated in light of the specific interests that in its weighing clash.

In fact, what is in question is, exclusively, to determine the reach of SIFIDE, which establishes a regime of an exceptional nature, which aimed to pursue determined public interests, and not to contribute to the decision of any conceptual question on the nature of autonomous taxation, a matter on which there is seen neither in the text of the law, nor in the Report on the Budget for 2011, the slightest legislative concern.

For the foregoing, converging the literal and rational elements of the interpretation of article 4 of the SIFIDE Regime in the sense that the investment expenses provided for therein are deductible to "the amount ascertained under article 90 of the CIT Code, and up to its amount", it is to be concluded that they are deductible to the totality of that collection, which encompasses, besides that derived from the taxation of profits in each fiscal period, that which results from other positive components of the tax, specifically autonomous taxation, state surtax and CIT from previous taxation periods.

Thus, the deduction of SIFIDE to the CIT collection must be accepted, including necessarily therein the portion proceeding from autonomous taxation.

It is verified, however, that the computer system does not permit the deduction of SIFIDE to the portion of the CIT collection proceeding from autonomous taxation. The fact that the forms of determination of the taxable base and the rates of autonomous taxation in CIT are established separately and are different from those of the remainder of CIT does not appear to be sufficient reason, nor to have legal basis, for the existing computer solution.

1.4 The Wording Given to Article 88 of the CIT Code by Law no. 7-A/2016, of 30 March

Having reached here, it is necessary to analyze the question of no. 21 of article 88 of the CIT Code, introduced by the Law approving the State Budget for 2016 (Law 7-A/2016, of 30 March). In fact, various numbers were added to article 88 of the CIT Code by this Law, which refers to autonomous taxation, among them no. 21, according to which "The assessment of autonomous taxation in CIT is effected under the terms provided for in article 89 and is based on the values and rates that result from the provision in the preceding numbers, with no deductions being made to the global amount ascertained."

And, in article 135 of Law 7-A/2016, of 30 March, the legislator provides that "the wording given by this law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to nos. 20 and 21 of article 88 and to no. 8 of article 117 of the CIT Code has an interpretative nature."

The Tax Administration understands that the new wording of article 88 prevents the deduction, under the terms of article 90, of SIFIDE to the collection that results from autonomous taxation. Given that CIT assessments for the year 2012 are in question, it is thus important to analyze what effect that number and the interpretative character that is conferred by the legislator to its introduction in 2016 have on the facts at hand.

The principle of non-retroactivity prevails in our substantive codification, which is constitutionally enshrined as to tax law. It happens that an interpretative law is not, says article 13, no. 1, of the Civil Code, retroactive.

Under the terms prescribed there, for a new law – as is, in the case at hand, no. 21 of article 88 of the CIT Code - to be truly interpretative, two requirements are necessary: that the solution of the prior law be controversial or at least uncertain: and it is a fact that the decision that imposes itself on this Tribunal has a controversial character.

Necessary is, however, also that the solution defined by the new law situate itself within the framework of the controversy and be such that the judge or the interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of law. Therefore, if the judge or the interpreter, in the face of old texts, could not feel themselves authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative.

It is not sufficient, however, that the legislator expressly confer on the new law an interpretative character for it to apply to the controversial question that had arisen before the entry into force of the new law, putatively interpretative, for the judge to be obliged to apply it to the concrete case. It is necessary that the judge felt themselves authorized, in the face of the old text, to adopt the solution that the law now advocates. Interpretative rule, therefore, is a rule that alters no content or element of the interpreted rule, comes only to translate its meaning.

A rule that alters the sense, content or reach of the interpreted rule will not be interpreting, rather modifying the rule, creating a new rule, instituting new rights, duties and obligations.

Being certain that even the interpretative rule must respect acquired rights under the force of the interpreted rule, particularly on questions regarding which the prohibition of retroactivity is specially enshrined in the Constitution, as is the case in tax law, whose retroactivity is prohibited by no. 3 of article 103 of the Constitution.

In this context, the issuance by the legislator of an interpretative law, with retroactive effects, is only conceivable when, without any doubt, it confines itself to simply reproducing (= producing anew), albeit with another statement, the interpreted normative content, without modifying or limiting its sense or its reach. This, well it is understood, is a hypothesis of difficult conception, almost inconceivable, except on the theoretical plane, all the more so when it is considered that the content of a normative statement requires, in general, systematic interpretation, and cannot be defined in isolation[2].

In the case sub judice, for all that has been already made explicit above, it is understood that the text of the law in force at the time of the facts in question did not permit the conclusion that the deduction of SIFIDE from the portion of the CIT collection that resulted from autonomous taxation was prohibited.

This is because, as we said above, the legislator nowhere pointed to such a solution and, in article 90 of the CIT Code, did not distinguish, with respect to the possible deductions to the CIT collection, that which resulted from autonomous taxation from the remainder. And where the law does not distinguish it is not for the interpreter to distinguish.

We understand, therefore, that no. 21 of article 88 of the CIT Code does not have an interpretative character with respect to the question at issue, not applying to facts occurring before its entry into force, particularly to the facts and assessments sub judice.

The Constitutional Court recently reached this conclusion, with detailed reasoning, in Decision no. 267/2017, of 31 May, in which it states that "that which represented a certain case law understanding as to the admissibility of deductions to the global amount of the CIT collection, including therein the value of autonomous taxation – as upheld in the decisions of the CAAD rendered in the scope of cases nos. 769/2014-T, 163/2014-T, 219/2015-T and 370/2015 –, ceased to be admissible in light of the cited no. 21. Whence it is unequivocal the substantially retroactive character of that provision, understood as an interpretative law. Given the burdensome content for taxpayers of the new legal solution – inasmuch as it tends to aggravate the quantum owed under CIT –, the claim that it applies to fiscal years prior to the one in which its force began is shown to be flagrantly incompatible with the constitutional prohibition of retroactive taxes (cf. article 103, no. 3, of the Constitution)".

In these terms it is concluded that the CIT self-assessment act relating to the year 2012, in the measure corresponding to the non-deduction of part of the CIT collection, is affected by a vice of violation of law that justifies its annulment, the same occurring with the decision of the official review, insofar as it did not recognize this illegality.

It is thus prejudiced the analysis of the question raised by the Claimant as to the possible illegality and consequent annulment of the assessment of autonomous taxation, due to absence of legal basis for its assessment.

1.5. On Compensatory Interest

Finally, let us address the request formulated by the Claimant for refund of the sums that are here already judged to have been improperly (self-)assessed and paid in consequence of the self-assessment in question.

The Claimant further requests compensatory interest for the improper payment of CIT, from 1 September 2013, as to € 507,058.70.

In accordance with the provision of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim, of which no appeal or challenge lies, binds the Tax Administration from the end of the period provided for such appeal or challenge, and this must, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of sentences of tax courts, "reestablish the situation that would exist if the tax act subject of the arbitral decision had not been made, adopting the acts and operations necessary for the purpose in accordance with the provision of article 100 of the General Tax Law [applicable by virtue of the provision of paragraph a) of no. 1 of article 29 of the RJAT] which establishes, that "the tax administration is obliged, in case of total or partial merit of complaint, judicial challenge or appeal in favor of the taxpayer, to immediate and full restoration of the legality of the act or situation subject of the litigation, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in the CAAD, making no reference to judgments, it should be understood that the competencies include the powers that, in judicial challenge proceedings, are attributed to tax courts, this being the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as first directive, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".

Now, it is pacified that the judicial challenge process, despite being essentially an annulment process of tax acts, admits condemnation of the Tax Administration in the payment of compensatory interest, as results from the provision of article 43, no. 1, of the General Tax Law and article 61, no. 4 of the CPPT.

Thus, no. 5 of article 24 of the RJAT, in saying that "payment of interest, independent of its nature, is due, under the terms provided for in the General Tax Law and in the Tax Procedure and Process Code", should be understood as allowing the recognition of the right to compensatory interest in the arbitral process.

It is thus necessary to appreciate the request for refund of the amount improperly paid, plus compensatory interest.

In the case at hand, it is manifest that, following the illegality of the assessment acts, there is reason for refund of the tax paid, by virtue of the aforementioned articles 24, no. 1, paragraph b), of the RJAT and 100 of the General Tax Law, as this is essential to "reestablish the situation that would exist if the tax act subject of the arbitral decision had not been made".

As to interest, the substantive regime of the right to compensatory interest is regulated in article 43 of the General Tax Law, which establishes, as is relevant here, that "1 - Compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error imputable to the services resulting in payment of the tax debt in an amount superior to that legally due. 2 – It is also considered that there is error imputable to the services in cases in which, despite the assessment being made on the basis of the taxpayer's declaration, the taxpayer has followed, in its completion, the generic orientations of the tax administration, duly published."

Now, in the case at hand, the illegality of the self-assessments is entirely imputable to the Tax Authority, Respondent, in light of what was above given as proven regarding the structure of the CIT Form 22 declaration in the Tax Authority's computer system, an organization that is, naturally, of the total responsibility of this entity, and that did not permit the Claimant to effect the self-assessment in the terms that are here judged to be legal.

Moreover, the maintenance of the illegal situation, i.e., the decision of the official review, is also imputable to the Tax Administration, which denied it on its own initiative.

From the self-assessments in question, should the deduction of SIFIDE to the CIT collection associated with autonomous taxation have been considered, the Claimant would not have had to proceed to the payment of tax in the amounts referred to. Consequently, the Claimant has the right to compensatory interest petitioned, under the terms of article 43, no. 1, of the General Tax Law and article 61 of the CPPT, at the legal supplementary rate, under the terms of articles 43, nos. 1, and 35, no. 10 of the General Tax Law, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or any other ordinance that may alter the legal rate), from the date referred to until full payment.

V. DECISION

In light of the foregoing, judgment is rendered totally in favor of the Claimant's claims and, in consequence:

a) Annul, as illegal, the impugned self-assessment, as well as the decision on the request for official review;

b) Determine the refund to the Claimant of the assessed tax, plus compensatory interest, under the terms pointed out above.

c) Condemn the Respondent in the costs of the proceedings.

VI. VALUE OF THE PROCEEDINGS

The value of the proceedings is set at € 507,058.70, under the terms of article 97 of the Tax Procedure and Process Code.

Notify.

Lisbon, 15 December 2017.

The arbitrators

(José Baeta de Queiroz)

(João Taborda da Gama)

(Manuel Pires – dissenting, pursuant to declaration attached, which is part of this decision)

DISSENTING OPINION

I dissented in understanding that the material incompetence of the arbitral tribunal is verified. Art. 1 of Decree-Law no. 10/2011, of 20 January, established "arbitration as an alternative means of jurisdictional resolution of disputes in tax matters". However, "the binding of the tax administration to the jurisdiction of tribunals constituted under this law depends on an ordinance of the members of the government responsible for the areas of finance and justice, which establishes, particularly, the type and maximum value of the disputes covered" (art. 4 no. 1 of the cited Decree-Law). Whence it does not correspond to the law the simple option between adhering or not, generic and abstractly, to arbitration, but rather adhering to something with admissible limitations. In conformity, in Ordinance no. 112-A/2013, of 22 May, the binding of the now Tax Authority to the jurisdiction of arbitral tribunals was established (articles 1 and 2 preambles) "with the exception of (…) claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account, which have not been preceded by recourse to the administrative route under articles 131 to 133 of the Tax Procedure and Process Code" [cited article 2 paragraph a)]. The adhesion, thus "to this mechanism of alternative resolution of disputes" was "in the terms and conditions here [in the cited ordinance] established, given the specificity and value of the matters in question", being unable, thus, to invoke, without more, the fullness of the alternative character of arbitration with challenge, as there have been permitted and established limitations which must necessarily be taken into account, even more so because of their heightened relevance, in this case, because, notwithstanding being an exception the appreciation now in question, there operates the return to the possibility of competence, fulfilling something which, without it, would be outside the field of arbitration, that is, we are faced with an exception to the exception. The limitation in the case under judgment, is the precedence of the gracious complaint and not "recourse to the administrative route" in general referred to, but immediately limited. Otherwise why was something added to the recourse to such route? It would be a uselessness. And it is because there exists specificity and not generality that the idea that what was desired was any type of prior appreciation by the Administration of something, not yet considered by it, to be submitted to an entity outside its scope, is not acceptable, and it is not acceptable because there existed specificity established by the rule, there was a limitation of the route to be used. Indeed, the limitation is even more ostensive when the law authorizing arbitration refers within the scope of the possibilities of the object of the process, the "acts of total or partial denial of gracious complaints or of requests for review of tax acts, the administrative acts that entail the appreciation of the legality of assessment acts", a much broader wording than the one finally adopted. It is certain that for a long time the maxims in claris non fit interpretatio or ubi lex non distinguit nec nos distinguere debemus have been superseded, but the extension of the letter of the law, which would occur in this case, is only admissible for clear and determining reasons, which do not occur, as there are not even any reasons, given that the gracious complaint and the review (official) constitute distinct procedures both because of the initiative (articles 68 of the CPPT and 78 of the General Tax Law), and because of the objectives (idem), and because of the periods (articles 70 of the CPPT and 78 of the General Tax Law) and because of the decision-maker (articles 75 of the CPPT, 78 of the General Tax Law and 6 no. 4 of Decree-law no. 433/99), and because of the effects (articles 68 of the CPPT and 79 of the General Tax Law), being relevant, in the case under appreciation, the periods and the decision-maker. Therefore it is not immaterial the recourse to either of the two routes. As a result of what was written, it is not admissible, it would even be incongruous that the law included implicitly perfect equivalence, referring only to the complaint, having in mind the interpretation of the term in accordance with case law in the scope of judicial challenge whose relevant provision – article 131 of the CPPT – does not refer to the complaint following "recourse to the administrative route", wording with an explicit-limiting function (hence it is not seen where the "minimum of verbal correspondence, albeit imperfectly expressed", including in article 9 no. 2 of the Civil Code is to impose a different sense). Therefore, it is not sufficient, to sustain the contrary opinion, the referral to article 131 of the CPPT. There is not, thus, reason, to disregard the reservation formulated, wounding with such disregard, the freedom and the option made, freedom and option which legally and clearly led to a restricted alternative of the arbitral process as against challenge, to its alternative character, freedom recognized by the decree-law and simply concretized by the ordinance, hence it cannot be imputed to the latter any illegality of any degree. The contrary would be the expansion of the limited binding that clearly was allowed, binding not existing in the case of challenge, limitation that could even have been broader, given the provision in the decree-law under reference, and that, with the character adopted, does not make impossible "arbitration as an alternative means of the jurisdictional resolution of disputes in tax matters", as arbitration is possible, which did not occur before, nor is it equally invocable the extinction of the taxpayer's right, because it was not given the choice that may exist in other domains but not in this one, for the reasons here extensively referred to. To invoke a non-agreement of the sort of word ("preceded" instead of "preceded", because referred to claims) as something probative of the lack of rigor in the wording of the provision under analysis, leading to another deficiency (!) which would be the opposition of the complaint to the administrative route in general, an opposition which, according to the same opinion, would be unnecessary, is something that, by comparison made, does not involve extended commentary, given that the two cases are qualitatively quite diverse. The requirement is clear, there is no imperfection, not forgetting that "in determining the sense and reach of the law, the interpreter will presume that the legislator considered the solutions" [text truncated]