Autonomous Taxation IRC Deductions: SIFIDE & CFEI Constitutional Ruling 216/2017-T

ARBITRAL DECISION

The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president, designated by the CAAD Deontological Council), Dr. João Taborda da Gama (designated by the Passive Subject) and Prof. Dr. Manuel Pires (designated by the Tax and Customs Authority) constituting the Arbitral Court, established on 16-06-2017, agree as follows:

1. REPORT

A…, S.A., hereinafter designated as "A…" or "Claimant", legal entity number…, with headquarters at …, Building…, … … - … Sintra, parent company and responsible for self-assessment of Corporate Income Tax ("IRC") for the tax group (Tax Group B…, for the tax year 2013, having filed, pursuant to articles 2.º, n.º 1, subparagraph a), and 10.º, n.ºs 1 and 2, of Decree-Law n.º 10/2011 of 20 January (hereinafter "RJAT"), and articles 1.º and 2.º of Administrative Regulation n.º 112-A/2011 of 22 March, a request for establishment of an Arbitral Court, with a view to declaration of illegality of self-assessment of IRC, including autonomous taxation rates, for the tax group B…, relating to the fiscal year 2013, concerning the amount of autonomous taxation rates in IRC of € 701.898,24, with its consequent annulment, by improper exclusion of deductions from the assessment, as well as declaration of illegality of the decision on the administrative appeal filed against such self-assessment.

The Claimant further requests reimbursement of the aforementioned amount, increased by compensatory interest at the legal rate accrued, until full reimbursement, from 30 May 2014 as to € 217.185,42 and from 1 September 2014 as to the remaining € 484.712,82.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The Claimant designated as Arbitrator Dr. João Taborda da Gama, pursuant to the provisions of article 6.º, n.º 2, subparagraph b), of the RJAT.

The request for establishment of the Arbitral Court was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 31-03-2017.

Pursuant to the provisions of subparagraph b) of n.º 2 of article 6.º and n.º 3 of the RJAT, and within the deadline provided in n.º 1 of article 13.º of the RJAT, the chief executive of the Tax Administration Department designated as Arbitrator Prof. Dr. Manuel Pires.

The arbitrators designated by the Parties submitted to the Deontological Council of the CAAD a request for designation of the Arbitrator President, as a result of which Counsellor Jorge Lopes de Sousa was designated, who accepted the designation.

On 31-05-2017 the parties were duly notified of this designation, having manifested no intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11.º n.º 1, subparagraphs a) and b) of the RJAT and articles 6.º and 7.º of the Deontological Code.

In conformity with the provisions of subparagraph c) of n.º 1 of article 11.º of the RJAT, the collective arbitral court was established on 16-06-2017.

The Tax and Customs Authority submitted a response, arguing for the dismissal of the request for arbitral pronouncement.

By order of 05-09-2017 the meeting provided for in article 18.º of the RJAT was dispensed with and it was decided that the proceedings should continue with successive written submissions.

The Parties submitted their pleadings.

The Arbitral Court is competent, the parties have legal standing and capacity, are legitimate and duly represented (articles 4.º and 10.º, n.º 2, of the same instrument and article 1.º of Administrative Regulation n.º 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there is no obstacle to consideration of the merits of the case.

2. FACTUAL MATTERS

2.1. Proven Facts

The following facts are considered proven:

In 2013, the Claimant was the parent company of a group of companies to which the Special Tax Regime for Groups of Companies ("RETGS") was applicable, and which was composed, in the aforementioned tax year, of itself and the following 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 J…, S.A.);
• K…, S.A. (K…);
• L…, S.A.;
• M…, Lda.; and
• N…, S.A..

On 29 May 2014, the now claimant submitted the IRC income return Form 22, with reference to the tax year 2013, of the Tax Group of companies of which it is the parent company, in which an IRC assessment of nil base was calculated, having thus not deducted any credits for tax benefits and having calculated tax payable in the total amount of € 217.185,42, as results from payment notice n.º 2014 …(documents n.ºs 1 and 2 attached to the request for arbitral pronouncement, whose contents are reproduced herein);

The claimant had available tax credits for use in 2013 that were not deducted, namely:

– credits under the System of Tax Incentives for Research & Business Development ("SIFIDE"), in the total amount of € 784.703,36, divided between credits calculated and not deducted in the tax year 2012 (€ 99.692,48) and credits calculated in the tax year 2013 (€ 685.010,88) (document n.º 3 attached to the request for arbitral pronouncement, whose contents are reproduced herein);

– the amount of € 1.083.572,98, under Extraordinary Tax Credit for Investment ("CFEI") calculated in the tax year 2013 (document n.º 4 attached to the request for arbitral pronouncement, whose contents are reproduced herein);

The Claimant maintains that the aforementioned credits may be deducted from the assessment of autonomous taxation rates in IRC calculated in that same year, in the amount of € 701.898,24 (documents n.ºs 1, 2 and 5 attached to the request for arbitral pronouncement, whose contents are reproduced herein)

On this basis, the Claimant filed on 30-05-2016 an administrative appeal of the tax act of self-assessment of IRC of its Tax Group relating to fiscal year 2013;

Following submission of that appeal, the Claimant delivered a replacement income return form 22 with reference to fiscal year 2013, in which a new amount of tax loss for the aforementioned period was calculated, but in which the nil assessment of base IRC and the amount of autonomous taxation rates in IRC were maintained (document n.º 6 attached to the request for arbitral pronouncement, whose contents are reproduced herein);

On 29-12-2016, the Claimant was notified of the dismissal of the administrative appeal (document n.º attached to the request for arbitral pronouncement, whose contents are reproduced herein);

The decision dismissing the administrative appeal manifests agreement with an information whose contents are reproduced herein, in which is stated, among other matters, the following:

2.3 Grounds for Appeal

Factual Matters

- On 29 May 2014, the Appellant submitted an IRC income return Form 22, with reference to the tax year 2013, of the Group of companies subject to the RETGS of which it is the parent company.

- In the tax year in question, the Group subject to the RETGS calculated a tax loss in the amount of € 1.908.107,86, having calculated an assessment to recover in the amount of € 499.468,36, as a result of deduction of withholdings at source (€ 6.676,36) and payments on account (€ 492.792,00).

- However, taking into account the total amount of municipal surcharge calculated (€ 30.010,54), additional payments on account made (€ 15.255,00) and autonomous taxation owed (€701.898,24), the Group ended up calculating a total amount of IRC payable in the total amount of € 217.185,42.

- Due to insufficiency of assessment, the following remained undeducted:

1. The amount of € 341.119,14, under SIFIDE, with reference to the tax years 2012 (€ 40.949,69) and 2013 (€ 300.169,45); and,

2. The amount of € 1.083.572,98, under Extraordinary Tax Credit for Investment (CFEI), calculated in the tax year 2013.

- As of the date of submission of the 2013 return and to date, the Tax Authority's information system was not prepared to consider the amount of autonomous taxation rates in the calculation of the deduction limits provided for in article 90º of the CIRC.

Legal Matters

- The Appellant maintains that the amounts paid as autonomous taxation rates constitute IRC, and should therefore be considered as assessment of that tax for purposes of deductions provided for in that article, with the following grounds:

1. Consensual understanding of the Tax Authority and jurisprudence, particularly the Arbitral Court, that autonomous taxation rates integrate the legal regime of IRC being due on this account and being therefore covered by the provision of subparagraph a) of n.º 1 of article 45, now article 23º-A, of the CIRC.

2. The IRC Services Directorate (DSIRC), in an Order issued on 4 October 2013, only excluded the possibility of deduction from autonomous taxation rates of amounts relating to credits for double international taxation, imposing no limitation with respect to deductions of amounts relating to tax benefits or special payments on account.

3. To the extent that the request for ruling placed to the DSERC also concerned the deduction of SIFIDE from autonomous taxation rates, and the latter indicated no limitations in this regard, merely chose to refer to and justify the situation in which its understanding was discordant, the Appellant concludes that it agrees with the deduction of SIFIDE from the amount of autonomous taxation rates (and, for the same reasons, of CFEI).

4. The IRC Code itself corroborates this understanding that autonomous taxation rates assessment is included in the IRC assessment "strictly speaking" (articles 12º and subparagraph a), n.º 1 of article 23º-A, both of the IRC).

5. In view of the above, the Appellant considers the request underlying this appeal to be justified, which corresponds, in summary, to the request for reimbursement of the amount of € 701.898,24.

On Compensatory Interest

- The Appellant requests that it be paid, pursuant to articles 43º and 100º, both of the LGT, the respective compensatory interest for payment of the tax obligation in an amount exceeding that legally owed.

- The non-deduction of the amount of SIFIDE and CFEI from the amount of autonomous taxation rates results from the functioning of the information system of the Tax General Directorate through which the Form 22 Income Return is submitted.

- In this manner, the requirements for payment of compensatory interest are met, which should be calculated on the amount of tax excessively paid by the Appellant.

2.3 Analysis

Question to be decided:

According to the terms petitioned by the Appellant, the question that must now be resolved is to ascertain whether it is possible to deduct the tax benefits SIFIDE and CFEI, in accordance with article 90º n.º 2 of the CIRC, from the amount of autonomous taxation rates calculated by the Group, adding, for this purpose, the amount thereof to the IRC assessment.

Legal Matters:

In addressing this question, it is necessary to follow the argumentative path presented by the Appellant. Thus:

- Autonomous taxation rates integrate the legal regime of IRC, being due on this account and being therefore covered by the provision of subparagraph a), of n.º 1 of article 45 (now article 23º-A) of the CIRC (exemplifying with several decisions of the Arbitral Court).

- Within an Order issued on 4 October 2013, the DSIRC only excluded the possibility of deduction from autonomous taxation rates of amounts relating to credits for double international taxation, imposing no limitation with respect to deductions of amounts relating to tax benefits.

- It is concluded that on the basis of the DSIRC's understanding as to the nature of autonomous taxation rates, it agrees with the deduction of SIFIDE and CFEI calculated in the same fiscal year, as well as those that could not have been deducted in prior periods due to insufficiency of assessment and are available for deduction, from the amount of autonomous taxation rates in question.

- The drafting given to subparagraph a) of n.º 1 of article 23º-A of the CIRC, by Law n.º 2/2014, of 16 January, has also attested that autonomous taxation rates assessment is included in the IRC assessment.

It is therefore important, before analyzing the question to be decided, to make some considerations on the arguments invoked by the Appellant:

- The DSIRC in Information n.º 1980/2013, of 4 October, analyzed the issue of deduction of credit for double international taxation from surcharges (municipal and state) and autonomous taxation rates, and it is not true that the DSIRC ruled favorably on deduction of SIFIDE and CFEI from autonomous taxation rates assessment. The position assumed by the DSIRC in this information resulted from the understanding that state surcharge constitutes an accessory tax to IRC and, as such, exists by reference to this principal tax. According to the principle acessorium sequitur principale, the existence of the accessory tax now depends on the existence of the principal tax, having the same regime as this. Now, autonomous taxation cannot be qualified as an accessory tax of corporate income tax, and the solution recommended by the DSIRC for state surcharge does not apply to it.

- As to the nature of autonomous taxation rates and their degree of connection with IRC, more specifically their non-deductibility for purposes of determining taxable profit, covered not only by the provision of subparagraph a) of n.º 1 of article 45º of the CIRC (implicitly) but now expressly in the drafting given to article 23º-A of the same legal instrument, by Law 2/2014, of 16 January, it should be noted:

1. Although autonomous taxation rates do not constitute IRC in the strict sense but are enmeshed with it (article 45º n.º 1 subparagraph a) and current article 23"-A, both of the CIRC), it is undeniable that autonomous taxation rates tax expenditure and not income, burden certain costs incurred by companies and are calculated in a manner entirely independent of IRC.

2. In autonomous taxation, the taxable event giving rise to the tax is instantaneous: it is exhausted in the act of realization of certain expenditure that is subject to taxation.

3. In fact, not only are only expenditures incurred by IRC taxpayers that are subject to autonomous taxation, but such expenditures are subject to it if those taxpayers elect them as deductible expenses in determining the taxable matter of such tax. That is, such taxation only intervenes because the taxpayer chooses to deduct it from their taxable profit in IRC.

4. The fact that the collection of the tax is effected at the end of a determined period does not transform it into a periodic tax, of successive formation, or of a lasting nature.

This operation of collection translates merely into aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expenditure, with no influence of the volume of expenditures incurred in determining the rate.

5. Thus, autonomous taxation rates that affect deductible charges in IRC are covered not only by subparagraph a) of n.º 1 of article 45 but also by the current article 23º-A, both of the CIRC, that is, expenditures with the payment of such autonomous taxation rates do not constitute deductible charges for purposes of determining taxable profit.

6. It thus follows that for autonomous taxation rates, notwithstanding their nature as IRC, only the norms in the CIRC intended for them are applicable and not those aimed at regulating the taxation of the aggregate income obtained in a determined year, covering matters such as incidence, determination of taxable matter, rate, collection and payment.

- With respect to the jurisprudence cited, it is not coherent, since from the same instance and on the same subject contradictory decisions have already been issued. It should be noted that, the Tax Authority being a hierarchically organized institution, it is not bound by judicial or Tax Arbitration decisions issued in proceedings other than those under scrutiny, as is the case here. Moreover, there is no legislation binding the Tax Authority to act differently from that effectuated.

- Having addressed this point, we shall now analyze the question to be decided, more precisely the interpretation of n.º 2 of article 90 of the CIRC and whether it is possible to deduct the amount of SIFIDE and CFEI from autonomous taxation rates.

- Article 90º n.º 1 subparagraph a) of the CIRC states that the collection of IRC is based on the taxable matter contained in the declarations referred to in articles 120º and 122º of the same instrument.

- And in its n.º 2 that: "To the amount calculated in accordance with the previous number the following deductions are made, in the order indicated:

a) The corresponding to double international legal taxation;

b) The corresponding to double international economic taxation;

c) The relating to tax benefits;

d) The relating to special payment on account referred to in article 106.º;

e) The relating to withholdings at source not susceptible of compensation or reimbursement in accordance with applicable legislation."

- Taxable matter is obtained by deduction from taxable profit of amounts corresponding to tax losses and tax benefits deductible from taxable profit (cf. article 15º n.º 1 subparagraph a) of the CIRC).

- For its part, taxable profit is "constituted by the algebraic sum of the net result of the period and the positive and negative changes in assets verified in the same period and not reflected in that result, determined on the basis of the accounts and eventually corrected in accordance with this Code" (cf. article 17º n.º 1 of the CIRC).

- It is from this assessment that n.º 2 of article 90 of the CIRC orders deductions relating to tax benefits to be made.

- Making the deductions provided for in n.º 2 of article 90º, more specifically the deduction of SIFIDE and CFEI, that could not be deducted in prior periods due to insufficiency of assessment and are still available for deduction, from the amount relating to autonomous taxation rates is a meaning that finds no support in the legal text, and therefore such interpretation cannot be accepted, as the article 9, n.ºs 2 and 3 of the Civil Code prescribe.

- It should be noted that the legislator in the CIRC refers expressly to autonomous taxation rates only in five articles, namely in article 12º, in article 23º-A n.º 1, in its current version, in article 88º, in article 117º n.º 6 and in article 120º n.º 9.

- There is no other express reference in the CIRC to autonomous taxation rates, namely in the chapters that address incidence, collection and payment.

- Article 88º itself of the CERC, inserted in "Chapter IV - Rates", refers specifically to autonomous taxation rates, defining concretely the type of expenditures subject to autonomous taxation and the rates to apply.

- As already mentioned, the birth of the tax obligation in autonomous taxation is materially distinct from the fact that generates tax imposition under IRC - while in one it results from an instantaneous fact, in the other it is via a continued fact, while in one certain types of expenditure are taxed, in the other income is taxed. Whence it follows that tax may be owed under autonomous taxation, independently of the existence of IRC assessment or even of taxable profit (Ex.: article 12º of the CIRC - fiscally transparent companies).

- The objective of autonomous taxation being to reduce the tax advantage achieved with the deduction from taxable profit of the costs on which it affects and to combat the tax evasion that some of these expenditures that, by their nature, could not itself, through consideration of its amount for purposes of deducting SIFIDE and CFEI tax benefits, constitute a factor in reducing this reduction of advantage intended and determined by the legislator.

2.4 Compensatory Interest

- It is further added that, as the prerequisites of n.º 1 of article 43.º of the LGT are not met in this case, the claimant has no right to compensatory interest.

Conclusion and Proposed Decision

In view of the above, it is my view that the present administrative appeal should be DISMISSED, and the interested party should be notified for purposes of exercising the right to be heard, in accordance with subparagraph b) of n.º 1 of article 60.º of the LGT.

Supplementary Information

Prior Hearing

In light of the factual and legal grounds mentioned above, a decision was issued on 2016/09/16 in the sense of dismissal of this request, by the Deputy Finance Director, in substitution and by delegation, and the Appellant was notified in accordance with and for the purposes of subparagraph b) of n.º 1 of article 60.º of the LGT, via postal mail. (cf. p. 32).

Since, to the present date, the Appellant has not exercised its right and the deadline for doing so has already passed, the draft decision in which dismissal of the petition is proposed should be confirmed and the interested party notified of the right to appeal administratively or to challenge the decision in court, in accordance with articles 66.º and 99.º of the CPPT.

Conclusion and Proposed Decision

In view of the above, in light of the factual and legal grounds, it is my view that the decision of dismissal should be maintained, converting the draft decision into a final decision.

The information system of the Tax and Customs Authority does not allow deduction of amounts of tax benefits from the assessment derived from autonomous taxation rates;

On 30-06-2014, the Claimant paid the aforementioned amount of € 217.185,42 calculated in the self-assessment relating to fiscal year 2013 (document n.º 15 attached to the request for arbitral pronouncement, whose contents are reproduced herein);

Companies L… SA, E… LDA, C… SA, A… SA, F… SA, N… SA, G… SA were not debtors to the Public Treasury of any taxes, tax obligations or legal increases and had their contributory situations regularized with the Social Security, in the periods of 2014 covered by the validity of the certificates contained in document n.º 9 attached to the request for arbitral pronouncement, whose contents are reproduced herein;

On 28-03-2017, the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

2.3. Justification for Determination of Factual Matters

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

As to the fact relating to the information system of the Tax and Customs Authority, it is accepted by the latter, which considers this to be the appropriate functioning (articles 119.º to 121.º of the response).

3. LEGAL MATTERS

The question that is the subject of the proceedings is whether expenditures for investment that benefit from SIFIDE and CFEI can be deducted from the amounts owed as autonomous taxation rates in IRC relating to fiscal year 2013.

3.1. Applicability of Articles 89.º and 90.º of the CIRC to the Calculation of Autonomous Taxation Rates

Articles 89.º and 90.º of the CIRC establish the following, in the version of Law n.º 2/2014, of 16 January, in force during 2014:

Article 89.º

Competence for Collection

The collection of IRC is effected:

a) By the taxpayer itself, in the declarations referred to in articles 120.º and 122.º;

b) By the Tax General Directorate, in the remaining cases.

Article 90.º

Procedure and Form of Collection

1 - The collection of IRC is processed in the following terms:

a) When collection is to be effected by the taxpayer in the declarations referred to in articles 120.º and 122.º, it is based on the taxable matter contained therein;

b) In the absence of submission of the declaration referred to in article 120.º, collection is effected by 30 November of the year following that to which it relates or, in the case provided for in n.º 2 of the said article, until the end of the 6th month following the end of the deadline for submission of the declaration mentioned therein and is based on the annual amount of minimum monthly remuneration or, when higher, the totality of the taxable matter of the nearest fiscal year determined;

c) In the absence of collection under the previous subparagraphs, it is based on the elements available to the tax administration.

2 – To the amount calculated in accordance with the previous number the following deductions are made, in the order indicated:

a) The corresponding to international double taxation;

b) The relating to tax benefits;

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

d) The relating to withholdings at source not susceptible of compensation or reimbursement in accordance with applicable legislation.

3 – (Repealed by Law n.º 3-B/2010)

4 - To the amount calculated in accordance with n.º 1, with respect to the entities mentioned in n.º 4 of article 120.º, only the deduction relating to withholdings at source is to be made when these have the nature of tax on account of IRC.

5 - The deductions referred to in n.º 2 relating to entities to which the tax transparency regime established in article 6.º applies are imputed to the respective partners or members in accordance with the terms established in n.º 3 of that article and deducted from the amount calculated on the basis of the taxable matter that took into account the imputation provided for in the same article.

6 - When the special tax regime for groups of companies is applicable, the deductions referred to in n.º 2 relating to each of the companies are effected in the amount calculated in relation to the group, in accordance with n.º 1.

7 – The deductions made under subparagraphs a), b) and c) of n.º 2 cannot result in a negative value.

8 - With respect to taxpayers covered by the simplified regime for determination of taxable matter, to the amount calculated in accordance with n.º 1 only the deductions provided for in subparagraphs a) and e) of n.º 2 are to be made.

9 - The deductions made under subparagraphs a) to d) of n.º 2 cannot result in a negative value.

10 - To the amount calculated in accordance with subparagraphs b) and c) of n.º 1 only those deductions are made of which the tax administration is aware and which can be made in accordance with n.ºs 2 to 4.

11 - In cases where the provision of subparagraph b) of n.º 2 of article 79.º applies, collections are made annually on the basis of the taxable matter determined with provisional character, and, in view of the collection corresponding to the taxable matter relating to the entire collection period, the difference ascertained must be collected or cancelled.

The aforementioned articles 89.º and 90.º of the CIRC, as well as other provisions of this Code, such as those relating to the declarations provided for in articles 120.º and 122.º, are applicable to autonomous taxation rates.

In fact, it is now settled, following numerous arbitral jurisprudence and positions assumed by the Tax and Customs Authority, that the tax levied on the basis of autonomous taxation rates provided for in the CIRC has the nature of IRC. Moreover, beyond jurisprudence, article 23.º-A n.º 1, subparagraph a), of the CIRC, in the version of Law n.º 2/2014, of 16 January, leaves today no margin for any reasonable doubt, corroborating what previously already resulted from the literal text of article 12.º of the same Code.

Now, article 90.º of the CIRC refers to the forms of collection of IRC, by the taxpayer or by the Tax Authority, applying to the calculation of the tax owed in all situations provided for in the Code, including additional collection (n.º 10).

For this reason, that article 90.º also applies to the collection of the amount of autonomous taxation rates, which is calculated by the taxpayer or by the Tax Authority, following the submission or non-submission of declarations, with no other provision providing for different terms for its collection.

Thus, the differences between the determination of the amount resulting from autonomous taxation rates and that resulting from taxable profit are limited to the determination of taxable matter and the applicable rates, which are those provided for in Chapters III and IV of the CIRC for IRC based on taxable profit and in article 88.º of the CIRC for IRC based on the taxable matter of autonomous taxation rates and their respective rates.

However, the forms of collection provided for in Chapter V of the same Code are of common application to autonomous taxation rates and to the remaining taxable matter of IRC.

Nevertheless, the circumstance that a self-assessment of IRC, effected in accordance with n.º 1 of article 90.º, may contain several partial calculations based on various rates applicable to certain taxable matters does not imply that there is more than one collection, as results from the very terms of that provision in making reference to "collection", in the singular, in all cases in which it is "made by the taxpayer in the declarations referred to in articles 120.º and 122.º", having "as basis the taxable matter contained therein" (whether that determined in accordance with the rules of articles 17.º and following or that determined in accordance with the various situations provided for in article 88.º).

Moreover, it is not only the collections provided for in article 88.º that may encompass various calculations of application of rates to certain taxable matters, for the same may occur in the situations provided for in n.ºs 4 to 6 of article 87.º. ([1])

In any case, whatever the calculations to be made, the self-assessment that the taxpayer or the Tax and Customs Authority must effect in accordance with articles 89.º, subparagraph a), 90.º, n.º 1, subparagraphs a), b) and c), and 120.º or 122.º is unitary, and it is on the basis of it that overall IRC is calculated, whatever the taxable matters relating to each type of taxation underlying it. ([2])

Moreover, if article 90.º were not applicable to the collection of autonomous taxation rates provided for in the CIRC, we would have to conclude that there would be no provision for their collection, which would amount to illegality, by violation of article 103.º, n.º 3, of the CRP, which requires that collection of taxes be made "in accordance with law".

Reference should also be made to the new provision of n.º 21 added to article 88.º of the CIRC by Law n.º 7-A/2016, of 30 March, regardless of whether or not it is qualifiable as truly interpretative ([3]), in no way alters this conclusion, for it therein establishes, as concerns the form of collection of autonomous taxation rates, that it "is effected in accordance with the terms provided for in article 89.º and is based on the values and rates that result from the provision of the previous numbers".

In fact, if it is true that this new provision comes to make explicit how the amounts of autonomous taxation rates are calculated (which already resulted from the very text of the various provisions of article 88.º) and that competence lies with the taxpayer or the Tax Authority, in accordance with article 89.º, it is also clear that it does not eliminate the need to use the procedure provided for in n.º 1 of article 90.º, particularly in the cases provided for in its subparagraph c) in which collection falls to the Tax and Customs Authority and is "based on the elements available to the tax administration", which will include the possibility of collecting on the basis of autonomous taxation rates, if the Tax and Customs Authority has elements proving their prerequisites.

For this reason, both before and after Law n.º 7-A/2016, of 30 March, article 90.º, n.º 1, of the CIRC is applicable to the collection of autonomous taxation rates.

Thus, the knowledge of the subsidiary request that the Claimant subordinates to the condition that it be understood that article 90.º of the CIRC is not applicable to autonomous taxation rates is already foreclosed.

3.2. Deductibility of Investment Expenditures Provided for in SIFIDE from the IRC Assessment Derived from Autonomous Taxation Rates

In 2013, the System of Tax Incentives for Research and Business Development II (SIFIDE II) was in force, which was approved by article 133.º of Law n.º 55-A/2010, of 31 December, and amended by article 163.º of Law n.º 64-B/2011, of 30 December.

This instrument establishes the following, in its articles 4.º and 5.º:

Article 4.º

Scope of Deduction

1 - IRC taxpayers resident in Portuguese territory who carry on, as their main activity, an activity of agricultural, industrial, commercial and service nature and non-residents with a permanent establishment in that territory may deduct from the amount calculated in accordance with article 90.º of the Corporate Income Tax Code, and up to its amount, the value corresponding to expenditures on research and development, in the part that has not been the object of financial assistance from the State on a non-returnable basis, incurred in the tax years from 1 January 2011 to 31 December 2015, in a dual percentage:

a) Base rate - 32.5% of expenditures incurred in that period;

b) Incremental rate - 50% of the increase in expenditures incurred in that period in relation to the simple arithmetic average of the two previous fiscal years, up to the limit of (euro) 1,500,000.

2 - For IRC taxpayers who are SMEs in accordance with the definition contained in article 2.º of Decree-Law n.º 372/2007, of 6 November, who have not yet completed two fiscal years and who have not benefited from the incremental rate set out in subparagraph b) of the previous number, a 10% increase is applied to the base rate set out in subparagraph a) of the previous number.

3 - The deduction is made, in accordance with article 90.º of the Corporate Income Tax Code, in the collection relating to the tax year mentioned in the previous number.

4 - Expenditures which, due to insufficiency of assessment, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the sixth subsequent fiscal year.

5 - For purposes of the provision of the previous numbers, when in the year of the beginning of enjoyment of the benefit there occurs a change of the tax year, the annual period that begins in that year should be considered.

6 - The incremental rate provided for in subparagraph b) of n.º 1 is increased by 20 percentage points for expenditures relating to the hiring of doctoral holders by companies for research and development activities, the limit provided for in the same subparagraph becoming (euro) 1,800,000.

7 - To taxpayers that reorganize, as a result of acts of concentration as defined in article 73.º of the Corporate Income Tax Code, the provision of n.º 3 of article 15.º of the Tax Benefits Statute applies.

Article 5.º

Conditions

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

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

b) They are not debtors to the State and to social security of any taxes or contributions, or have their payment properly assured.

In the case in question, the Tax and Customs Authority does not contest that the Claimant meets the subjective and objective requirements to be able to benefit from SIFIDE, having dismissed the administrative appeal on the grounds that the expenditures in question cannot be deducted from the amounts it paid under autonomous taxation rates, as the deduction can only be made from the IRC assessment resulting from the application of the IRC rate to taxable profit.

As referred to, article 90.º of the CIRC also relates to the collection of autonomous taxation rates.

And, as also stated, there is no legal support for asserting that, in the event that several calculations must be effected in a declaration to determine IRC, more than one self-assessment is effected.

The instrument that approved SIFIDE does not state that credits therefrom are deductible from any and all IRC assessment, rather defines the scope of the deduction alluding, in its n.º 1 of article 4.º, "to the amount calculated in accordance with article 90.º of the Corporate Income Tax Code, and up to its amount".

N.º 3 of the same article 4.º confirms that it is the amount that is calculated in accordance with article 90.º of the CIRC that is relevant to effectuate the deduction by stating that "the deduction is made, in accordance with article 90.º of the Corporate Income Tax Code, in the collection relating to the tax year mentioned in the previous number".

Thus, by mere declarative interpretation, it is concluded that article 4.º, n.º 1, of SIFIDE II, in establishing the deduction "to the amount calculated in accordance with article 90.º of the Corporate Income Tax Code, and up to its amount", implies deduction from the amount of autonomous taxation rates that are calculated in accordance with that article 90º.

The fact that article 5.º of SIFIDE II excludes the benefit when taxable profit is determined by indirect methods and autonomous taxation rates include situations in which indirect taxation of profits is aimed (namely, by not giving relevance or discouraging facts susceptible of reducing them) has no relevance for this purpose, as the concept of "indirect methods" has a precise scope in tax law, which is concretized in article 90.º of the LGT (in addition to special provisions), relating to means of determining taxable profit, whose use is not provided for in calculating the taxable matter of autonomous taxation rates provided for in article 88.º of the CIRC.

On the other hand, if it is the need to resort to indirect methods that precludes the possibility of benefiting from the benefit, this exclusion cannot be justified with respect to the assessment of autonomous taxation rates, which is determined by direct methods.

Moreover, even if one were to see, in the possible anti-abuse nature that some autonomous taxation rates assume ([4]) an explanation for their exclusion from the respective assessment from the scope of deductibility of SIFIDE II benefit, there is no legal support for excluding deductibility from the assessment provided by corrections based on norms of indisputably anti-abuse nature, such as, for example, those relating to transfer pricing or undercapitalization.

Moreover, the fact that the deductibility of SIFIDE II tax benefit is limited to the assessment of article 90º of the CIRC, up to its amount, does not permit the conclusion that the tax credit is only deductible if there is taxable profit, for what that fact requires is that there be IRC assessment, which may exist even without taxable profit, namely through autonomous taxation rates.

Thus, the literal text of article 4.º of SIFIDE II pointing to the fact that deduction applies also to the IRC assessment derived from autonomous taxation rates calculated in accordance with article 90.º of the CIRC, only through a restrictive interpretation can the application of the SIFIDE II tax benefit be excluded from the IRC assessment provided by autonomous taxation rates.

The viability of a restrictive interpretation encounters, from the outset, a general obstacle, namely that norms creating tax benefits have the nature of exceptional norms, as results from the express text of article 2.º, n.º 1, of the EBF, and that, in the absence of a special rule, they must be interpreted in their precise terms, as is settled jurisprudence. ([5]) In the case of tax benefits, the possibility of extensive interpretation is explicitly provided for (article 10.º of the EBF), but not of restrictive interpretation, and therefore, as a rule, the tax benefit should not be interpreted with less scope than that which, in a declarative interpretation, results from the text of the norm providing for it.

In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text that betrays his thought, to the extent that it says more than what was intended. Also here the ratio legis will have a decisive word. The interpreter should not be led astray by the apparent scope 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 rests is usually expressed thus: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, so does its scope)". ([6])

As a foundation for a restrictive interpretation, it could be ventured that some autonomous taxation rates aim to discourage certain taxpayer behavior susceptible of affecting taxable profit, and consequently, reducing tax revenue, and their deterrent force will be attenuated with the possibility of the respective assessment being the object of deductions.

But, the deterrent effect of such behavior is justified only by concerns of protection of tax revenue and tax benefits granted are, by definition, "exceptional measures instituted for the protection of relevant extrafiscal public interests that are superior to those of the taxation they impede" (article 2.º, n.º 1, of the EBF).

And, in the case of SIFIDE II tax benefits, the reasons of an extrafiscal nature that justify their overriding of tax revenue are, in the legislative perspective, of enormous importance, as is inferred from the justification in the Report of the State Budget for 2011:

II.2.2.4.4. System of Tax Incentives for Research and Business Development II (SIFIDE)

Given that one of the assets of competitiveness in Portugal lies in the investment in technological capacity, in scientific employment and in conditions for affirmation in the European space, the Proposed State Budget for 2011 proposes to renew SIFIDE (System of Tax Incentives for Research and Business Development), now in the version SIFIDE II, to be in force in the periods 2011 to 2015, enabling the deduction from IRC assessment for companies that invest in R&D (research and development capacity).

Given the positive balance of tax incentives to business R&D, and also considering the evolution of the support system of other countries, it was decided to review and reintroduce for another five tax years this support system. The R&D of companies is a decisive factor not only of their own affirmation as competitive structures, but also of productivity and long-term economic growth, a fact which is, moreover, expressly recognized in the Program of the XVIII Government, as well as in several recent international reports.

It is in this context that, in the international panorama, the OECD has considered Portugal since 2001 as one of three countries with the most significant advance in business R&D. Being the current national system, comparatively to other systems that use deduction from assessment and the distinction between base rate and incremental rate, one of the most attractive and competitive.

Given that the research and development of companies is "a decisive factor not only of their own affirmation as competitive structures, but also of productivity and long-term economic growth", it is understandable that preference has been given to incentivizing investment in technological capacity, in scientific employment and in conditions for affirmation in the European space, which, in the long term are directed toward obtaining greater tax revenue.

The importance that, in the legislative perspective, was recognized for this tax benefit provided for in SIFIDE II is decisively confirmed by the fact that it is indicated as being specially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in article 92.º of the CIRC.

It is therefore certain that one is dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenue, from which it follows that the legislative intention to incentivize investments in research and development provided for in SIFIDE II is so firm that it even goes to the point of establishing no limit whatsoever to deductibility from the IRC assessment, despite this tax regime having been created and applied in a period of notorious public finance difficulties.

Thus, no legal foundation is seen, particularly in light of the legislative intention that can be detected, to, on the basis of a restrictive interpretation, exclude the deductibility of SIFIDE II tax benefit from the assessment of autonomous taxation rates that results directly from the letter of article 4.º, n.º 1, of the respective instrument, combined with article 90.º of the CIRC.

Moreover, any eventual limitation of the application of the tax benefit to companies that presented taxable profit in 2013 would be a very strong restriction of its field of application, given that, as is a matter of public knowledge, the great majority of companies, in that year and in previous years, presented tax losses, although they paid IRC by other means.

In fact, according to the statistics published by the Tax and Customs Authority, in 2011 (the most recent year whose data would have been available when the Proposed State Budget for 2012 was presented, and therefore it is to be supposed that it was considered in the weighing of the scope of the tax benefit), more than half of IRC declarations presented negative net value and in the tax year 2011 only 26% of taxpayers presented IRC Levied (Table 7), and approximately 71% of taxpayers made IRC payments (Table 8), via Special Payment on Account, or other positive components of the tax (Autonomous Taxation Rates, Surcharge, State Surcharge, IRC from prior tax years, etc.). ([7])

For this reason, it is manifest that the applicability of the tax benefit to companies that, although presenting tax losses, paid IRC, including through autonomous taxation rates, greatly expanded the number of potentially benefiting companies and, consequently, is more consistent with the legislative intention underlying SIFIDE II than that advocated by the Tax and Customs Authority.

Moreover, as referred to, one cannot overlook that autonomous taxation rates aim to protect or increase tax revenue and that tax benefits granted are, by definition, "exceptional measures instituted for the protection of relevant extrafiscal public interests that are superior to those of the taxation they impede" (article 2.º, n.º 1, of the EBF).

That is, in the case at hand, in establishing a tax benefit by deduction from the IRC assessment, the legislator opted to forgo the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this weighing of the relative interests at stake (tax revenue versus strong stimulus to investment) it is indifferent whether that revenue comes from calculations made on the basis of article 87.º or article 88.º of the CIRC. In fact, whatever the form of calculation of that tax revenue, one is dealing with money whose collection the legislator considered to be less important than the pursuit of the referred economic purpose. Of the two alternatives that confronted the legislator regarding incentivizing the investments provided for in SIFIDE II, which were, on the one hand, to keep intact the revenue from IRC (including that from autonomous taxation rates) and not see investment incentivized and, on the other hand, to carry out this incentive with loss of IRC revenue, the weighing that necessarily underlies SIFIDE II is that of opting for creating the incentive with prejudice to revenues. And, naturally, given that the creation of the investment incentive is better, in the legislative perspective, than the collection of revenues, it is not clear how it could be relevant that the IRC revenues that are foregone to carry out the incentive come from general IRC taxation provided for in n.º 1 of article 87.º or from taxation at special rates provided for in n.ºs 4 to 6 of the same article, or from autonomous taxation rates provided for in article 88.º: in all cases, the alternative is the same between creating the incentive and collecting IRC revenues and the relative weighing that can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC that is foregone to create the incentive.

And, in the case of SIFIDE II tax benefit, the reasons of an extrafiscal nature that justify the incentive with loss of revenue are very strong, since it is considered that the incentivized investments are a decisive factor in the future competitiveness of the country, which is fundamental for the very increase in tax revenues.

For this reason, it is certain that one is dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenue from IRC, whatever the basis of its calculation, for what is always at issue is whether or not to forgo a certain amount of money to create an investment incentive.

In this context, the nature of autonomous taxation rates and the solutions legislatively adopted, in general, with respect to them, have no relevance whatsoever for the consideration of this question, as it must be considered in light of the specific interests that conflict in its weighing.

In fact, what is exclusively at issue is determining the scope of SIFIDE II, which establishes a regime of an exceptional nature, aimed at pursuing certain public interests, and not contributing to the resolution of any conceptual question regarding the nature of autonomous taxation rates, a matter on which neither the text of the law nor the Report of the Budget for 2011 gives any indication of the slightest legislative concern.

For the same reason that what is at issue is interpreting the scope of the special nature instrument that is SIFIDE II, no relevance can be attributed, for this purpose, to the provision of n.º 21 of article 88.º of the CIRC, added by Law n.º 7-A/2016, of 30 March, in the part in which it refers that no "deductions are made to the overall amount calculated", despite the purported interpretative nature attributed to it (which implies its unconstitutionality, by retroactivity, as understood by the Constitutional Court in decision n.º 267/2017, of 31-05-2017).

In fact, there is no indication, neither in Law n.º 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that by the addition to article 88.º of the CIRC of a general provision prohibiting deductions from the overall amount calculated of autonomous taxation rates, it was intended to interpret restrictively the expression "deduct from the amount calculated in accordance with article 90.º of the Corporate Income Tax Code" that appears in a special provision of an individual instrument, such as SIFIDE II.

And, absent an unequivocal intention to the contrary, the rule holds that general law does not alter special law (article 7.º, n.º 3, of the Civil Code), which is justified by the fact that "the general regime does not include consideration of the particular conditions that precisely justified the issuance of special law". ([8])

Moreover, the referred provisions of SIFIDE II were intended to incentivize IRC taxpayers to make investments in the period between 01-01-2011 and 31-12-2015, and therefore, the tax benefit being a quid pro quo for the adoption of legislatively desired and incentivized behavior, it would be incompatible with the constitutional principle of trust, inherent in the principle of democratic rule of law (article 2.º of the CRP), not to recognize such behavior the favorable tax effects provided for in the law in force at the moment such behavior occurred.

In fact, the interpretation of the law that is made here was something that taxpayers had reasonable grounds to expect, as is evidenced by the already abundant and predominant arbitral jurisprudence that adopts this interpretation.

For this reason, if hypothetically Law n.º 7-A/2016 intended to eliminate, wholly or partially, the favorable tax effects that SIFIDE II promised to taxpayers who, with justified trust, adopted the behavior provided for therein, it would be materially unconstitutional, by violation of that principle.

By the above, converging the literal and rational elements of interpretation of article 4.º of SIFIDE II in the sense that the investment expenditures provided for therein are deductible from "the amount calculated in accordance with article 90.º of the Corporate Income Tax Code, and up to its amount", it is to be concluded that they are deductible from the totality of that assessment, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that which results from special payment on account and other positive components of the tax, namely autonomous taxation rates, state surcharge and IRC from prior tax years.

Thus, the request for arbitral pronouncement on this issue proceeds, for it is illegal the self-assessment and the decision on the administrative appeal that confirmed it.

These illegalities justify the annulment of the self-assessment, in the part in question, and of the decision on the administrative appeal, in accordance with article 163.º, n.º 1, of the Administrative Procedure Code, subsidiarily applicable in accordance with article 2.º, subparagraph c), of the LGT.

3.3. Question of Deductibility of the CFEI Tax Benefit from the IRC Assessment Derived from Autonomous Taxation Rates

The reasons that lead to the conclusion that SIFIDE tax benefit is deductible from the IRC assessment derived from autonomous taxation rates also apply to CFEI.

The reason for being of the creation of the said tax benefit is evident and was expressly stated in the "Statement of Reasons" of Bill n.º 148/XII, which gave rise to Law n.º 49/2013:

Accordingly, contributing to the success of the Economic and Financial Adjustment Program for Portugal, and with the objective of promoting competitiveness and employment, the Government commits itself to a strategy aimed at strongly stimulating direct investment in Portugal, starting in 2013.

In this context, this bill introduces into the Portuguese legal order an Extraordinary Tax Credit for Investment (CFEI) with the objective of producing a strong impact on the level of business investment.

The CFEI corresponds to a deduction from IRC assessment in the amount of 20% of investment expenditures incurred, up to 70% of that assessment. The investment eligible for this tax credit must be carried out between 1 June 2013 and 31 December 2013 and may amount to 5,000,000.00 EUR, being deductible from the IRC assessment for the fiscal year, and for an additional period of up to five years, whenever that assessment is insufficient.

Eligible for this benefit are taxpayers who carry on, as their main activity, an activity of commercial, industrial or agricultural nature, have accounts regularly organized in accordance with accounting normalization and other legal provisions in force for the respective sector of activity, their taxable profit is not determined by indirect methods and have their tax and contributory situation regularized.

Obviously, the achievement of this legislative objective of "strongly stimulating direct investment in Portugal" and "producing a strong impact on the level of business investment" clearly points toward having intended to maximize and not limit the scope of the tax benefit.

Any eventual limitation of the application of the tax benefit to companies that did not present taxable profit would result in a very strong restriction of its field of application, given that, as is a matter of public knowledge, the great majority of companies, in 2012, presented tax losses, although they paid IRC by other means.

In fact, according to the statistics published by the Tax and Customs Authority, in 2012 (the most recent year whose data would have been available when Bill n.º 148/XII was presented and therefore is to be supposed to have been considered), more than half of IRC declarations presented negative net value and only 28% of taxpayers presented "IRC Levied", with approximately 70% of taxpayers making IRC payments (Table 8), via Special Payment on Account, or other positive components of the tax (Autonomous Taxation Rates, Surcharge, State Surcharge, IRC from prior tax years"). ([9])

For this reason, it is manifest that the applicability of the tax benefit to companies that, although presenting tax losses, paid IRC, including through autonomous taxation rates, greatly expanded the number of potentially benefiting companies and, consequently, is more consistent with the legislative intention underlying Law n.º 49/2013 than that advocated by the Tax and Customs Authority.

The discussion of the legislative initiative in the National Assembly confirms that there was no intention to approve a tax benefit from which only the minority of companies that paid IRC on the basis of the taxable profit for fiscal year 2013 could benefit.

In fact, the terms in which the measure was announced by the Secretary of State for Tax Affairs point to an unprecedented measure, of enormous impact and dimension:

"(...) this measure is primarily directed, as I have had the opportunity to say, toward small and medium enterprise investment. If that were not the case, the investment limit would not have been set at 5 million euros. The 5 million euro limit corresponds to the average annual investment value of approximately 97% of Portuguese companies. And it is, exactly, for these companies, for small and medium enterprises, that this investment incentive measure is directed;

"it is not the first time that an investment tax credit has been created in Portugal, others existed in the past, but none with the impact and dimension of this one". ([10])

The intended maximization of the tax incentive, seen as potentially incentivizing approximately 97% of companies, clearly pointed to its application to any IRC assessment and not just to the reduced minority that paid IRC levied on the basis of the taxable profit of each fiscal year, and therefore the solution of applying it to IRC assessments derived from autonomous taxation rates, in addition to being that which results linearly from the literal text of Law n.º 49/2013, is that which is in tune with the reason for being.

Moreover, also here one cannot overlook that autonomous taxation rates aim to protect or increase tax revenue and that tax benefits granted, by definition, are "exceptional measures instituted for the protection of relevant extrafiscal public interests that are superior to those of the taxation they impede" (article 2.º, n.º 1, of the EBF) and, in the case in question, in establishing a tax benefit by deduction from the IRC assessment, the legislator opted to forgo the tax revenue that this tax could provide, which he necessarily considered to be less important than the pursuit of the referred economic purpose.

And, in the case of CFEI tax benefit, the reasons of an extrafiscal nature that justify its overriding of tax revenue are, in the legislative perspective, of paramount importance, as is stated in the referred Statement of Reasons and is confirmed in the presentation of the bill in the National Assembly.

The importance that, in the legislative perspective, was recognized for this tax benefit provided for in CFEI is decisively confirmed by the fact that it is expressly excluded from the general limitation to the relevance of tax benefits in IRC, provided for in article 92.º of the CIRC (article 7.º of CFEI), which evidences that legislatively greater importance is given to the effectuation of the expenditures that justify the tax benefit than to IRC revenue.

For this reason, it is certain that one is dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenue from IRC, including that resulting from autonomous taxation.

In this context, the questions raised by the Tax and Customs Authority relating to the compatibility of the solution adopted by Law n.º 49/2013 with other legislative solutions have no relevance whatsoever for the consideration of this question, as it must be considered in light of the specific interests that conflict in its weighing.

In fact, also with respect to CFEI, what is exclusively at issue is determining the scope of Law n.º 49/2013, which is an instrument of exceptional nature, in light of its text and the interests it was aimed at pursuing, which did not have in view the elucidation of a conceptual question regarding the nature of autonomous taxation rates, a matter on which no legislative concern is detected either in the text of the Law or in its preparatory work.

Also with respect to CFEI, given that what is at issue is the interpretation and scope of the special nature instrument that is Law n.º 49/2013, no relevance can be attributed, for this purpose, to the provision of n.º 21 of article 88.º of the CIRC, added by Law n.º 7-A/2016, of 30 March, in the part in which it refers that no "deductions are made to the overall amount calculated", regardless of the voluntarist interpretative nature attributed to it (incompatible with the constitutional principle of prohibition of tax retroactivity, as understood by the Constitutional Court in decision n.º 267/2017, of 31 May 2017).

In fact, there is no indication, neither in Law n.º 7-A/2016, nor in the Budget Report, nor in its discussion, that by the addition to article 88.º of the CIRC of a general provision prohibiting deductions from the overall amount calculated of autonomous taxation rates, it was intended to interpret restrictively the expression "deduction from IRC assessment" that appears in a special provision of an individual instrument, specifically article 3.º, n.º 1, of Law n.º 49/2013.

And, as referred to, absent an unequivocal intention to the contrary, the rule holds that general law does not alter special law (article 7.º, n.º 3, of the Civil Code), which is justified by the fact that "the general regime does not include consideration of the particular conditions that precisely justified the issuance of special law".

Moreover, the referred provision of article 3.º, n.º 1, was intended to incentivize IRC taxpayers to carry out investments in the period between 01-06-2013 and 31-12-2013, and therefore, the tax benefit being a quid pro quo for the adoption of legislatively desired and incentivized behavior, it would be incompatible with the constitutional principle of trust, inherent in the principle of democratic rule of law (article 2.º of the CRP), not to recognize such behavior the favorable tax effects provided for in the law in force at the moment such behavior occurred.

For this reason, also with respect to CFEI, the possibility of deduction from the IRC assessment derived from autonomous taxation rates being something that taxpayers could reasonably expect, as is evidenced by predominant arbitral jurisprudence, if hypothetically Law n.º 7-A/2016 intended to eliminate, wholly or partially, the favorable tax effects that Law n.º 49/2013 established for taxpayers that adopted the behavior provided for therein, it would be materially unconstitutional, by violation of that principle of trust.

By the above, converging the literal and rational elements of interpretation of article 3.º, n.º 1, of Law n.º 49/2013 in the sense that the investment expenditures provided for in CFEI are deductible from "IRC assessment", it is to be concluded that they are deductible from the totality of that assessment, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that which results from special payment on account and other positive components of the tax, namely autonomous taxation rates, state surcharge and IRC from prior tax years.

Thus, the decision on the administrative appeal suffers from defect of violation of law, by error as to legal premises, embodied in erroneous interpretation of articles 3.º, n.º 1, of Law n.º 49/2013, 88.º (particularly n.º 21 of article 88.º of the CIRC, added by Law n.º 7-A/2016, of 30 March) and 90.º of the CIRC, as well as of 133.º of this Law n.º 7-A/2016, defect that justifies its annulment, in accordance with article 163.º, n.º 1, of the Administrative Procedure Code, subsidiarily applicable in accordance with article 2.º, subparagraph c), of the LGT.

3.4. Constitutional Questions Raised by the Tax and Customs Authority

The Tax and Customs Authority states in article 134.º of its Response the following:

"Whenever it is said that any interpretation that does not apply the provision contained in the State Budget Law for 2016, embodied in article 133.º, which added n.º 21 to article 88.º of the CIRC, with the effects provided for in article 135.º, both contained in the State Budget Law for 2016, published on 30.03.2016, entering into force the following day, in which it is recommended, with an interpretative character, that

"The collection of autonomous taxation rates in IRC is effected in accordance with the terms provided for in article 89.º and is based on the values and rates that result from the provision of the previous numbers, with no deductions being made to the overall amount calculated."

and that, consequently, permits deduction from the part of the IRC assessment produced by autonomous taxation rates of the tax benefits effectuated under IRC, in this case, SIFIDE/CFEI/RFAI, this decision is materially unconstitutional, by

a) violation of the principle of legality, inherent in article 103.º n.º 2 of the CRP,

b) violation of the principle of separation of powers, embodied in article 2 of the CRP,

c) violation of the principle of protection of trust provided for in article 2.º of the CRP,

d) violation of the principle of equality, in its positive formulation of taxable capacity, arising from article 13.º, n.º 2 and article 103.º, n.º 2, both of the CRP".

It is noted that the Tax and Customs Authority does not explain the reason or reasons why it understands that these principles are violated, limiting itself to alluding to them, and therefore it did not fulfill, as to these hypothetical questions, the burden of allegation indispensable for assurance of the right to be heard.

In any case, with the brevity that the insufficiency of allegation justifies, it can be said that it is not seen how the principle of legality could be violated, for legality has precisely the scope referred to above and, specifically, the general provision of n.º 21 to article 88.º of the CIRC, even when applied to prior situations, has no potential to repeal special norms, such as those of SIFIDE II and CFEI that provide for deduction from the IRC assessment, which includes that of autonomous taxation rates. Being this the adequate interpretation of the referred norms, what would be incompatible with the principle of legality would be to apply them with a scope different from that which results from the adequate interpretative rules.

As to the principle of separation of powers, the present decision is issued by a Court, and therefore has a jurisdictional character, and, in the exercise of jurisdictional power, it is the responsibility of the Courts to interpret and apply the laws. In this case, this Court interpreted all the norms in question, including n.º 21 of article 88.º of the CIRC, in the sense referred to and not otherwise. For this reason, the present arbitral decision is a concrete realization of the principle of separation of powers.

As concerns the principle of protection of trust, even if it is understood that its scope of protection extends to State Administration, it certainly does not encompass trust in that courts will adopt a certain interpretation, when jurisprudence is not settled.

As to the principle of equality, no comparable situation is identified to which a different treatment has been given. Moreover, autonomous taxation rates are not based on the taxable capacity of companies, for their autonomous nature is concretized, precisely, in the imposition of taxation with indifference to the existence of income, being exceptions to the principle of taxation of companies with incidence "fundamentally on their actual income" (article 104.º, n.º 2, of the CRP). For this reason, it is not seen how the principle of equality could be violated, and much less article 103.º, n.º 2, of the CRP, which refers to the formal requirements of tax laws.

By the above, there is no violation of the principles invoked.

4. REIMBURSEMENT OF AMOUNTS PAID AND COMPENSATORY INTEREST

The Claimant requests reimbursement of the amount of € 701.898,24 relating to the amount of autonomous taxation rates unduly paid and delivered to the State Treasury as a result of the non-deduction of SIFIDE and CFEI.

The Claimant further requests compensatory interest calculated on the amount to be reimbursed, accrued from 30 May 2014 as to € 217.185,42 and from 1 September 2014 as to the remaining € 484.712,82.

In accordance with the provision of subparagraph b) of article 24.º 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 deadline provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for voluntary execution of decisions of tax courts, "restore the situation that would have existed if the tax act that is the object of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in line with the provision of article 100.º of the LGT [applicable by virtue of the provision of subparagraph a) of n.º 1 of article 29.º of the RJAT] which establishes that "the tax administration is obliged, in the event of total or partial success of an appeal, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2.º, n.º 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral courts operating in the CAAD, making no reference to condemnatory decisions, it must be understood that the powers that, in judicial challenge proceedings, are attributed to tax courts are encompassed within its competencies, and this is the interpretation that is in tune with the meaning of the legislative authorization on which the Government based itself to approve the RJAT, in which it is proclaimed, as the first directive, that "the tax arbitration process must constitute an alternative processual means to judicial challenge proceedings and to actions for recognition of a right or legitimate interest in tax matters".

Judicial challenge proceedings, despite being essentially a process of annulment of tax acts, admit condemnation of the Tax Administration in payment of compensatory interest, as is inferred from article 43.º, n.º 1, of the LGT, in which it is established that "compensatory interest is due when it is determined, in administrative appeal or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally owed" and of article 61.º, n.º 4 of the CPPT (in the version given by Law n.º 55-A/2010, of 31 December, which corresponds to n.º 2 in the original version), which "if the decision that recognized the right to compensatory interest is judicial, the payment deadline is counted from the beginning of the voluntary execution deadline".

Thus, n.º 5 of article 24.º of the RJAT, in stating that "payment of interest, regardless of its nature, is due, in accordance with the terms provided for in general tax law and in the Tax Procedure and Process Code", must be understood as permitting recognition of the right to compensatory interest in arbitration proceedings.

It is therefore necessary to consider the request for reimbursement of the amount unduly paid, increased by compensatory interest.

The assessment of autonomous taxation rates was € 701.898,24 and the Claimant did not deduct the amount of € 784.703,36, relating to the application of SIFIDE, and € 1.083.572,98 of CFEI.

N.º 4 of article 4.º of SIFIDE establishes that "expenditures which, due to insufficiency of assessment, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the sixth subsequent fiscal year".

Article 3.º, n.º 6, of Law n.º 49/2013, relating to CFEI, establishes that "the amount that cannot be deducted in accordance with the previous numbers may be deducted, under the same conditions, in the five subsequent tax years".

Having already been three fiscal years after 2013 in which the amounts of SIFIDE and CFEI that were not deducted for fiscal year 2013 could have been deducted, it is not possible to decide whether or not there is a right of the Claimant to reimbursement of the amount of € 701.898,24, as this is a matter that calls for comprehensive information about the Claimant's tax situation, which can only be considered and decided in execution of judgment.

As to compensatory interest, the substantive regime is regulated in article 43.º of the LGT, which establishes, as is relevant here, the following:

Article 43.º

Undue Payment of the Tax Obligation

1 – Compensatory interest is due when it is determined, in administrative appeal or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally owed.

2 – It is also considered that there is error attributable to the services in the event that, although collection is effected on the basis of the taxpayer's declaration, this taxpayer followed, in its preparation, generic guidance of the tax administration, duly published.

The illegality of the decision on the administrative appeal, with respect to the question of deduction of SIFIDE and CFEI from the assessment of autonomous taxation rates, is attributable to the Tax Administration, which dismissed it on its own initiative.

As to the self-assessment, which was effected by the Claimant, the attribution of error to the Tax and Customs Authority derives from the configuration of the information system that was proved not to permit deduction of SIFIDE and CFEI from the IRC assessment derived from autonomous taxation rates.

In fact, the obligation to complete the form 22 declaration without deducting the amount of tax benefits from the assessment resulting from autonomous taxation rates is comparable to generic guidance of the tax administration that the taxpayer must comply with, a fortiori in relation to the situation provided for in n.º 2 of article 43.º of the LGT, by the absence of any alternative to such compliance.

Consequently, the Claimant has a right to compensatory interest, in accordance with articles 43.º, n.º 1, of the LGT, 61.º of the CPPT and 104.º, n.º 6, of the CIRC from 30-06-2014, calculated on the amount € 217.185,42 (the date on which payment was made) and from 01-09-2014 as to the remaining € 484.712,82, which until that date should have been reimbursed, in accordance with n.º 3 of this article 104.º of the CIRC.

Compensatory interest is due until reimbursement is effected or until the amount of € 701.898,24 has already been deducted, to the extent that it has been, if this has occurred.

Compensatory interest is due at the legal default rate, in accordance with articles 43.º, n.ºs 1, and 35.º, n.º 10 of the LGT, article 24.º, n.º 1, of the RJAT, article 61.º, n.ºs 3 and 4, of the CPPT, article 559.º of the Civil Code and Administrative Regulation n.º 291/2003, of 8 April (or other regulations that may alter the legal rate).

5. DECISION

In accordance with the above, the members of this Arbitral Court agree to:

Declare the request for arbitral pronouncement to be procedurally sound regarding the declaration of illegality of the non-deduction of the amount of SIFIDE and CFEI from the assessment resulting from autonomous taxation rates and annul the self-assessment, in the respective part, as well as the decision on the administrative appeal;

Declare the requests for reimbursement of amount and compensatory interest to be procedurally sound, in accordance with the terms defined in point 4 of this decision.

6. VALUE OF THE CASE

In accordance with the provision of article 305.º, n.º 2, of the CPC and 97.º-A, n.º 1, subparagraph a), of the CPPT and 3.º, n.º 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 701.898,24.

Lisbon, 06-11-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(João Taborda da Gama)

(Manuel Pires)
(Dissenting as per declaration attached)

DISSENTING OPINION

1. I hold that the request for arbitral pronouncement filed should be declared not procedurally sound, by virtue of the reasons indicated below:

1.1. It is important to note that, in the determination of IRC, rules different from those relating to general IRC taxation are applied in the calculation of autonomous taxation rates (articles 88º and 89º of the CIRC), as these are distinct realities in origin, purpose and functionality, hence one is not dealing with something unitary but with hybridity, resulting finally in a fusion, without loss of the individuality of the components, of its diverse reality, as by juxtaposition. The initial element of the interpretation of article 90º n.º 2 - the literal - does not enable, without more, the understanding of the possibility of operations being carried out to deduce the result of autonomous taxation rates, since from other provisions and their application (article 105º n.º 1 of the CIRC, with similar terminology, and, also noting the connection of deductions to profit, articles 90º n.º 5, 91º and 91º-A of the CIRC and Law n.º 49/2013, article 3º n.º 5 subparagraph a) combined with article 69º n.º 1 of the CIRC) it follows that autonomous taxation rates are not considered therein. And the same conclusion is reached through the teleological and systematic elements, taking into account the causes, grounds, purposes (namely, to avoid the hypertrophy of expenditures, limiting them, thereby artificially reducing taxable capacity, preservation of good business management through the need for business justification of expenditures either to avoid excessive expenditures or of mixed private-business nature either to combat tax evasion, for example, hidden distribution of profits or contribution to the parallel economy, promoting the elimination of opacity in favor of transparency, rationality of behaviors, avoiding inequality, distributing the tax burden more adequately, objectives, therefore, that cannot be postponed, even if the revenue-generating purpose might eventually be considered, but not elevated as something exclusive or nuclear, and therefore the corresponding norms are dissuasive, compensatory and anti-abuse) and results of autonomous taxation rates in harmony with the justification for deductions established in article 90º n.º 2 of the CIRC, in which any tax benefits operating by deduction from the assessment are understood, and consequently leading to the reduction of that assessment. Hence if in the case of a need to resort to the various elements of interpretation - they have long been surpassed, invoked or not, the maxims in claris non fit interpretatio and ubi lex non distinguit nec nos distinguere debemus - one is dealing with a case of restrictive interpretation, not prohibited even in relation to exceptional norms and not contradicted by Portuguese tax legislation (articles 11º of the LGT and 10º of the EBF) which sought only to clarify the controversial object: prohibition of analogy and admission of extensive interpretation. With the result obtained the legislative thought is respected, a reasonable legislator is taken into account [text appears to be truncated in the original]