Process: 219/2015-T

Date: October 5, 2015

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (219/2015-T) addresses whether SIFIDE (System of Tax Incentives for Business Research and Development) tax credits can be deducted from autonomous taxation charges under Portuguese Corporate Income Tax (IRC) law. The claimant, a holding company (SGPS) serving as parent of a corporate group under the special group taxation regime (Article 69 ff. CIRC), filed its 2011 consolidated IRC return self-assessing €698,546.41 in autonomous taxation. The company possessed substantial SIFIDE credits generated by group companies' research and development activities, available for use in fiscal year 2011. The taxpayer filed an administrative complaint seeking reimbursement, arguing that autonomous taxation constitutes part of IRC and therefore SIFIDE credits should be deductible against such charges. The Tax Authority dismissed the complaint, maintaining that its computer system correctly prevented such deduction. Following dismissal notification on January 2, 2015, the company initiated CAAD arbitration proceedings on March 27, 2015, requesting declaration of illegality of the dismissal decision, partial annulment of the IRC self-assessment, reimbursement of €698,546.41, plus compensatory interest at the legal rate from May 31, 2012. The arbitral tribunal, constituted on June 11, 2015, comprised three arbitrators appointed by CAAD's Deontological Council. Key factual findings established that group companies generating SIFIDE credits had no tax debts, profits were not determined by indirect methods, and the Tax Authority's declaration system structurally prevented SIFIDE deduction from autonomous taxation (field 365 of Form 22). The central legal question involves interpreting whether autonomous taxation rates, despite being calculated separately, remain sufficiently integrated within IRC structure to permit application of SIFIDE tax benefits, which Article 4 of SIFIDE II legislation governs regarding deduction scope.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 219/2015-T

Subject Matter: Corporate Income Tax, autonomous taxation, SIFIDE

The arbitrators Dr. Jorge Lopes de Sousa (president-arbitrator), Prof. Doctor Vasco Valdez and Dr. Maria Isabel Guerreiro, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 11-06-2015, agree as follows:

1. REPORT

A… - SGPS, S.A., hereinafter designated "A" or "Claimant", legal entity number …, with registered office at Building …, … …, Plot …, … …, Lisbon, in 2011 parent company of the Group constituted by the parent company and, among others, by companies B…, C… - …, S.A., and D…, S.A., subject to the special group taxation scheme provided for in (in the current numbering) Article 69 and following of the Corporate Income Tax Code, filed a petition for constitution of the collective arbitral tribunal, Articles 2, No. 1, letter a), and 10, Nos. 1 and 2, of Decree-Law No. 10/2011 of 20 January (hereinafter RJAT) and Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, in which the Tax and Customs Authority is the respondent.

The Claimant seeks that the illegality of the dismissal of the administrative complaint filed against the self-assessment of Corporate Income Tax, including autonomous taxation rates, relating to the fiscal year 2011 be declared, and likewise, the partial illegality of the self-assessment of Corporate Income Tax, including autonomous taxation rates, of the Claimant's fiscal group, relating to the fiscal year 2011, with respect to the amount of autonomous taxation in Corporate Income Tax of €698,546.41, with its consequent annulment in this part, in addition to reimbursement to the Claimant of this sum, increased by compensatory interest at the legal rate calculated from 31-05-2012 until full reimbursement.

The petition for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 30-03-2015.

Pursuant to the provisions of letter a) of No. 2 of Article 6 and letter b) of No. 1 of Article 11 of RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated their acceptance of the assignment within the applicable period.

On 26-05-2015 the parties were duly notified of this appointment, and did not manifest the intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of Article 11, No. 1, letters a) and b) of RJAT and Articles 6 and 7 of the Deontological Code.

In compliance with the provision set forth in letter c) of No. 1 of Article 11 of RJAT, the collective arbitral tribunal was constituted on 11-06-2015.

The Tax and Customs Authority responded, defending the lack of merit of the petition for arbitral pronouncement and its absolution from the petition.

By order of 15-07-2015, it was decided to dispense with the meeting provided for in Article 18 of RJAT and that the case proceed with written arguments.

The parties submitted written arguments.

The parties have legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10, No. 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The case is not affected by any nullities and there is no obstacle to the examination of the merits of the cause.

2. FACTUAL MATTER

2.1. Proven Facts

The following facts are deemed proven:

a) The Claimant was, in 2011, the parent company of a group of companies (the Group constituted by the parent company and, among others, by companies B…, C… - …, S.A., and D…, S.A.), subject to the special group taxation scheme;

b) The Claimant submitted on 31-05-2012 its aggregate Corporate Income Tax declaration Form 22 for the fiscal year 2011, having at that moment proceeded to self-assess autonomous taxation in Corporate Income Tax in the amount of €698,546.41 (document No. 1 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

c) The Tax and Customs Authority communicated to the Claimant the existence of errors in the aforementioned declaration relating to "the sum of the values of municipal business tax of the group companies" (document No. 2 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

d) The Claimant

e) The Claimant filed an administrative complaint regarding the self-assessment for the fiscal year 2011, requesting reimbursement of the amount of €698,546.41, corresponding to the autonomous taxation, alleging that they have the same nature as Corporate Income Tax and therefore the tax benefit relating to SIFIDE should be deducted (document No. 3 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

f) The administrative complaint was dismissed by order of 30-12-2014 of the Deputy Director of Finance of Lisbon (document No. 3 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

g) The decision dismissing the administrative complaint was notified to the Claimant on 02-01-2015;

h) The amount of Corporate Income Tax, including autonomous taxation, and the consequent municipal business tax, self-assessed, is paid (document No. 4 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

i) The amount of SIFIDE, allocated/obtained, available for use in the fiscal year 2011, is as indicated below, by reference to the following entities that are part of the fiscal group, and counting only the SIFIDE obtained from the fiscal year 2008 onwards (Document No. 5 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein, and the table in Article 19 of the petition for arbitral pronouncement, the correspondence of which to reality is not disputed by the Tax and Customs Authority):

[Table with SIFIDE amounts for C…, B…, and D…]

j) The taxable profit of the Claimant and of the group companies in the fiscal year 2011 was not determined by the Tax and Customs Authority using indirect methods (document No. 1 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

k) The companies that are part of the Claimant's group that gave rise to the SIFIDE tax benefit are not and were not then entities owing any taxes or contributions to the State and social security (document No. 12 attached with the petition for arbitral pronouncement, the contents of which are reproduced herein);

l) The Corporate Income Tax Form 22 declaration and the Tax Authority's computer system prevented the Claimant from deducting tax benefits from the collection derived from the application of autonomous taxation rates in Corporate Income Tax, recorded in field 365 of Table 10 of Form 22 declaration;

m) On 27-03-2015, the Claimant filed the petition for constitution of the arbitral tribunal that gave rise to the present case.

2.2. Unproven Facts

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

2.3. Rationale for the Determination of Factual Matters

The facts were deemed proven based on the documents attached with the petition for arbitral pronouncement and on the administrative proceedings, with no controversy regarding them.

Regarding the computer system, the Tax and Customs Authority does not dispute that it does not allow the deduction of SIFIDE credits from Corporate Income Tax collection; rather, it argues that this is the appropriate functioning (Articles 56 and 57 of the Response).

3. LEGAL MATTER

In 2011, the System of Tax Incentives for Business Research and Development II (SIFIDE II) was in effect, which was approved by Article 133 of Law No. 55-A/2010 of 31 December.

This statute establishes the following in its Articles 4 and 5:

Article 4

Scope of the deduction

1 - Taxpayers subject to Corporate Income Tax resident in Portuguese territory who carry out, as a main activity or otherwise, an activity of an agricultural, industrial, commercial or service nature and non-residents with a permanent establishment in that territory may deduct from the amount determined pursuant to Article 90 of the Corporate Income Tax Code, and to the extent of such amount, the value corresponding to research and development expenses, to the extent that it has not been the subject of non-repayable financial assistance from the State, incurred in the tax periods from 1 January 2011 to 31 December 2015, in a double percentage:

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

b) Incremental rate - 50% of the increase in expenses incurred in that period over the simple arithmetic average of the two preceding fiscal years, up to the limit of €1,500,000.

2 - For taxpayers subject to Corporate Income Tax that are SMEs in accordance with the definition in Article 2 of Decree-Law No. 372/2007 of 6 November, which have not yet completed two fiscal years and which have not benefited from the incremental rate set forth in letter b) of the preceding number, a 10% increase is applied to the base rate set forth in letter a) of the preceding number.

3 - The deduction is made pursuant to Article 90 of the Corporate Income Tax Code, in the assessment relating to the tax period mentioned in the preceding number.

4 - Expenses that, due to insufficient collection, cannot be deducted in the year in which they were incurred may be deducted up to the sixth immediately following year.

5 - For purposes of the foregoing, when in the year of commencement of enjoyment of the benefit there is a change in the tax period, the annual period that begins in that year must be considered.

6 - The incremental rate provided for in letter b) of No. 1 is increased by 20 percentage points for expenses relating to the hiring of doctorate holders by companies for research and development activities, with the limit provided in the same letter becoming €1,800,000.

7 - To taxpayers who are reorganized as a result of concentration transactions as defined in Article 73 of the Corporate Income Tax Code, the provisions of No. 3 of Article 15 of the Tax Benefits Statute apply.

Article 5

Conditions

Only those taxpayers subject to Corporate Income Tax meeting cumulatively the following conditions may benefit from the deduction referred to in Article 4:

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

b) They are not indebted to the State or social security for any taxes or contributions, or have their payment duly secured.

The Claimant argues, in summary, that if the collection of autonomous taxation is considered Corporate Income Tax collection, it is relevant for the deduction of SIFIDE tax credits.

The Tax and Customs Authority argues, in summary, that the amounts in which SIFIDE is expressed are deducted from the amounts determined pursuant to Article 90 of the Corporate Income Tax Code and that the collection referred to in this article, when the assessment is to be made by the taxpayer (the situation in the present case), is determined based on the taxable matter that appears in the declaration in which such assessment is expressed, that is, in the self-assessment, pursuant to Article 90, No. 1, letter a) of CIRC. The Tax and Customs Authority further argues that "illustrative of the circumstance that the credit in which SIFIDE is expressed is deducted, and only from, the collection thus determined, that is, the collection determined based on the taxable matter, is the provision in Article 5, letter a), of the law regulating SIFIDE, which prevents the credits arising from it from being deducted when taxable profit is determined using indirect methods" and that autonomous taxation is determined autonomously and distinctly from the determination carried out pursuant to Article 90 of CIRC.

The Tax and Customs Authority further states that "autonomous taxation, in accordance with its original regulation, constituted as it were a substitute for the non-deductibility regime previously provided for in CIRC". Being at its genesis "the fiscal non-acceptance of a percentage of certain expenses, with autonomous taxation constituting an alternative and more efficient form of correcting costs whenever it is an area more prone to tax evasion (allowances, representation expenses, vehicles, etc.)", therefore "it would not be reasonable, and indeed would be contrary to the reason that led the legislature to autonomously tax those expenses that, through their deduction from taxable profit as expenses, the basis for the existence of autonomous taxation would be eliminated", a situation that became clearer with the new letter a) of No. 1 of Article 23-A of CIRC.

The Tax and Customs Authority further notes that, contrary to the provisions of Article 12 and letter a) of No. 1 of Article 23-A of CIRC, in Nos. 1 and 2 of Article 90 there is no reference to autonomous taxation, which, in light of the dual nature of the system, raises well-founded objections as to considering the value of autonomous taxation for purposes of the deductions provided for in No. 2 of the cited Article 90" and that it would be contrary to the spirit of the system that determined autonomous taxation to allow that, through the deductions referred to in No. 2 of Article 90 of CIRC, the anti-abuse character that presided over the implementation of autonomous taxation in the Corporate Income Tax system be removed, or at least distorted.

The Tax and Customs Authority further states that "the creation of autonomous taxation has been (and continues to be) intimately linked to the purpose of, with its presence in the legal system, achieving greater tax justice, thus respecting (and giving more precise execution to) the principle of taxation of actual income and, equally, respecting the principles of equality and taxpaying capacity" and that it would be illogical "to admit that a tax benefit be deducted from the collection of autonomous taxation would lead to the same result as deducting, as expenses, the amounts paid in respect of autonomous taxation, for purposes of determining taxable profit", since, thus, "the intended taxation would be mitigated (or even eliminated), completely undoing the deterrent effect that the legislature intended to achieve with autonomous taxation: that of discouraging the performance of certain expenses that promote tax avoidance and of expanding the tax incidence base".

The Tax and Customs Authority further argues that "this is the only interpretation that is compatible with the constitutional principles of tax legality, equality in the distribution of the tax burden, the pursuit of satisfaction of the financial needs of the State and other public entities and taxation by actual profit, pursuant to Articles 13 and 103, Nos. 1 and 2 of the Constitution", therefore the interpretation defended by the Claimant would be unconstitutional.

Thus, the essential question that is the subject of the present case is whether the tax credits that, in the year 2011, were recognized to the Claimant under SIFIDE can be deducted from the collection produced by autonomous taxation that burdened that fiscal year.

There is autonomous taxation provided for in CIRC (Article 88 of CIRC) and autonomous taxation provided for in CIRS (Article 73 of CIRS).

The collection resulting from them constitutes collection of the respective tax and is subject to the generality of rules provided for in the referred codes, potentially applicable.

As for Corporate Income Tax, beyond the unanimity of jurisprudence, Article 23-A, No. 1, letter a), of CIRC, in the version of Law No. 2/2014 of 16 January, leaves no room for any reasonable doubt, corroborating what previously already resulted from the literal wording of Article 12 of the same Code.

But the solution of this conceptual question regarding the nature of the collection arising from autonomous taxation provided for in CIRC does not allow the resolution of the question of whether credits arising from SIFIDE can be deducted from that same collection.

In fact, the statute that approved SIFIDE does not state that the credits arising from it are deductible from any and all Corporate Income Tax collection; rather, it defines the scope of deduction by referring, in No. 1 of Article 4, "to the amount determined pursuant to Article 90 of the Corporate Income Tax Code, and to the extent thereof".

No. 3 of the same article confirms that it is to the amount determined pursuant to Article 90 of CIRC that is relevant for effecting the deduction by stating that "the deduction is made pursuant to Article 90 of the Corporate Income Tax Code, in the assessment relating to the tax period mentioned in the preceding number".

Thus, the question that needs to be resolved is, regardless of the nature of the tax to which autonomous taxation refers, whether the amount of autonomous taxation is "determined pursuant to Article 90 of CIRC", for if it is, it must be concluded that, to determine the deduction limit, the collection arising from autonomous taxation must be taken into account.

Article 90 of CIRC refers to the forms of assessment of Corporate Income Tax by the taxpayer or the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (No. 10).

Therefore, it also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or the Tax Administration pursuant to Article 90 of CIRC, there being no other provision that provides for different terms for its assessment. Its autonomy is restricted to the applicable rates and to the respective taxable matter, but the determination of its amount is carried out pursuant to Article 90.

The differences between the determination of the amount resulting from autonomous taxation and the amount resulting from taxable profit reside in the determination of the taxable matter and in the rates, provided for in Chapters III and IV of CIRC, 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 remaining taxable matter of Corporate Income Tax.

Therefore, since it is to Article 90, included in this Chapter V, that reference is made in Article 4, No. 1, of SIFIDE, no legal basis is seen for making a distinction between the collection arising from autonomous taxation and the remaining Corporate Income Tax collection based on the fact that the rates and the forms of determination of the taxable matter are distinct.

The fact that Article 5 of SIFIDE excludes the benefit when taxable profit is determined using indirect methods and that autonomous taxation includes situations in which indirect taxation of profits is intended (namely, by not giving relevance to or discouraging facts capable of reducing them) has no relevance for this purpose, since the concept of "indirect methods" has a precise scope in tax law, which is materialized in Article 90 of the General Tax Law (in addition to special rules), relating to means of determining taxable profit whose use is not provided for in calculating the taxable matter of autonomous taxation provided for in Article 88 of CIRC.

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

Furthermore, it cannot be seen in the possible anti-abuse nature of some autonomous taxation an explanation for their exclusion from their respective collection from the scope of deductibility of SIFIDE benefit, since there is no legal basis for excluding deductibility from the collection provided by corrections based on rules of an undisputed anti-abuse nature, such as those relating to transfer pricing or undercapitalization.

On the other hand, the fact that the deductibility of the SIFIDE tax benefit is limited to the collection of Article 90 of CIRC, to the extent thereof, does not allow the conclusion that the tax credit is only deductible if there is taxable profit, since what that fact requires is that there be Corporate Income Tax collection, which may exist even without taxable profit, namely due to autonomous taxation.

It is true that, as the Tax and Customs Authority notes, autonomous taxation aims to discourage certain taxpayer behaviors capable of affecting taxable profit and its deterrent force will be attenuated with the possibility that the respective collection may be subject to deductions.

But, it is also true that, as is implicit in that statement, these autonomous taxation measures aim solely to protect or increase tax revenues, and tax benefits granted are, by definition, "exceptional measures instituted for the protection of relevant extra-fiscal public interests that are superior to the taxation they prevent" (Article 2, No. 1, of the Tax Benefits Statute).

And, in the case of SIFIDE tax benefits, the extra-fiscal reasons that justify their override of tax revenues are, from a legislative perspective, of enormous importance, as inferred from the fact that these benefits are indicated as being specially excluded from the general limit to the relevance of tax benefits in Corporate Income Tax, which is indicated in Article 92 of CIRC.

Therefore, it is certain that one is dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, as inferred from that Article 92, that the legislative intention to encourage investments in research and development provided for in SIFIDE is so firm that it goes so far as not to establish any limit to the deductibility of Corporate Income Tax collection, despite this tax regime having been created and applied during a period of notorious difficulties for public finances.

Thus, no legal basis is seen, in particular in light of the legislative intention that can be detected, for excluding the deductibility of the SIFIDE tax benefit from the collection of autonomous taxation that results directly from the wording of Article 4, No. 1, of the respective statute, combined with Article 90 of CIRC.

As for the allegation of the Tax and Customs Authority about the unconstitutionality of this interpretation due to incompatibility "with the constitutional principles of tax legality, equality in the distribution of the tax burden, the pursuit of satisfaction of the financial needs of the State and other public entities and taxation by actual profit, pursuant to Articles 13 and 103, Nos. 1 and 2 of the Constitution", the Tax and Customs Authority does not explain why it understands that this incompatibility exists, nor is it apparent how it could exist.

In fact, as to the principle of tax legality, the legal interpretation is that defended by the Claimant, as has been stated, and the interpretation defended by the Tax and Customs Authority is illegal. Furthermore, the principle of legality encompasses the form of tax assessment, with its assessment only being able to be carried out "pursuant to law" [Articles 103, No. 3, of the Constitution and 8, No. 2, letter a) of the General Tax Law], so that, were Article 90 of CIRC not applicable to the assessment of autonomous taxation, it would have to be concluded that there would be no rule in CIRC regarding the form of assessment of this taxation, which would lead to the conclusion that its assessment would be affected by unconstitutionality due to violation of the principle of legality, which is not compatible with tax assessment without the terms in which it is carried out being provided for in law.

As for the principles of equality in the distribution of the tax burden, the pursuit of satisfaction of the financial needs of the State and other public entities and taxation by actual profit, it is also not apparent how they collide with the interpretation of the Claimant, since this is applicable to the generality of taxpayers in the same situation and tax benefits, if it is true that they diminish the tax burden, have justification in reasons of public interest that override the interests of taxation, as has been mentioned.

In these terms, it is concluded that the self-assessment of Corporate Income Tax of the Claimant's fiscal group for the fiscal year 2011, in the part in which no deduction was made of the amounts referring to SIFIDE from the amount of autonomous taxation rates, is affected by a defect of violation of law, which justifies its annulment, the same occurring with the decision of the administrative complaint, in the part in which it did not recognize this illegality.

4. REIMBURSEMENT OF AMOUNTS PAID AND COMPENSATORY INTEREST, CALCULATED FROM 31-05-2012

The Claimant further requests reimbursement of the amount of €698,546.41, which it paid, corresponding to the amount of autonomous taxation rates on which the SIFIDE tax benefit can be deducted.

The Claimant further requests compensatory interest for the wrongful payment of this amount from 31-05-2012, the date on which it made payment of the self-assessed amount.

In accordance with the provisions of letter b) of Article 24 of RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the Tax Administration from the end of the period provided for appeal or challenge, and this administration must, in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of judgments of tax courts, "restore the situation that would have existed had the tax act that is the subject matter of the arbitral decision not been performed, adopting the necessary acts and operations for that purpose", which is in keeping with the provision in Article 100 of the General Tax Law [applicable by virtue of the provision in letter a) of No. 1 of Article 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial substantiation of a complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject matter of the dispute, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision".

Although Article 2, No. 1, letters a) and b), of RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals operating in CAAD, making no reference to condemnatory decisions, it should be understood that their jurisdiction includes the powers that, in judicial challenge proceedings, are attributed to tax courts, and this is the interpretation that is in keeping with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as the first guideline, that "the tax arbitration procedure should constitute an alternative procedural means to judicial challenge proceedings and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge procedure, although essentially a procedure for the annulment of tax acts, admits the condemnation of the Tax Administration to pay compensatory interest, as is apparent from Article 43, No. 1, of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount greater than that legally due" and Article 61, No. 4 of CPPT (in the version given by Law No. 55-A/2010 of 31 December, which corresponds to No. 2 in the original version), which states that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period for its voluntary execution".

Thus, No. 5 of Article 24 of RJAT, in stating that "payment of interest, regardless of its nature, is due pursuant to the terms provided in the general tax law and the Code of Tax Procedure and Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitration procedure.

It is thus necessary to examine the request for reimbursement of the amount wrongfully paid, increased by compensatory interest.

In the case at hand, it is clear that, following the illegality of the assessment acts, there is grounds for reimbursement of the tax paid, by force of the aforementioned Articles 24, No. 1, letter b), of RJAT and 100 of the General Tax Law, since this is essential to "restore the situation that would have existed had the tax act that is the subject matter of the arbitral decision not been performed".

The substantive regime of the right to compensatory interest is regulated in Article 43 of the General Tax Law, which establishes, to the extent relevant here, the following:

Article 43

Wrongful payment of the tax obligation

1 – Compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount greater than that legally due.

2 – There is also deemed to be error attributable to the services in cases in which, despite the assessment being made based on the taxpayer's declaration, the taxpayer has followed, in its completion, the generic guidelines of the tax administration, duly published.

The illegality of the decision dismissing the administrative complaint is attributable to the Tax and Customs Authority, which dismissed it on its own initiative.

As for the self-assessment, which was carried out by the Claimant, it is to be understood that the error affecting it is attributable to the Tax and Customs Authority, due to the fact that it has been proven that the structure of the Corporate Income Tax Form 22 declaration did not allow the Claimant to carry out self-assessment by deducting the SIFIDE tax benefit from the amount of autonomous taxation.

Consequently, the Claimant is entitled to compensatory interest pursuant to Article 43, No. 1, of the General Tax Law and 61 of CPPT from 01-06-2012.

Compensatory interest is due on the amount of €698,546.41, at the legal default rate, pursuant to Articles 43, Nos. 1, and 35, No. 10 of the General Tax Law, Article 24, No. 1, of RJAT, Article 61, Nos. 3 and 4, of 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 01-06-2012 until full reimbursement.

4. DECISION

In these terms, this Arbitral Tribunal agrees to:

– Judge the petition for arbitral pronouncement to be substantiated;

– Declare the illegality of the order of 30-12-2014 of the Deputy Director of Finance of Lisbon that dismissed the administrative complaint and annul it;

– Declare the illegality of the self-assessment and annul it in the part in which the SIFIDE credit was not deducted from the amount of €698,546.41 corresponding to the collection of autonomous taxation in Corporate Income Tax;

– Condemn the Tax and Customs Authority to reimburse the Claimant in the amount of €698,546.41;

– Condemn the Tax and Customs Authority to pay the Claimant compensatory interest calculated on the amount of €698,546.41, from 01-06-2012 and until full reimbursement of the aforementioned amount, at the legal default rate.

5. VALUE OF THE CASE

Pursuant to the provisions of Article 305, No. 2, of CPC and 97-A, No. 1, letter a), of CPPT and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at €698,546.41.

6. COSTS

Pursuant to Article 22, No. 4, of RJAT, the amount of costs is fixed at €10,098.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 05-10-2015

The Arbitrators

(Jorge Lopes de Sousa)

(Vasco Valdez)

(Maria Isabel Guerreiro)

Frequently Asked Questions

Automatically Created

How does autonomous taxation (tributação autónoma) apply to corporate groups under the IRC special taxation regime?
Autonomous taxation (tributação autónoma) applies to corporate groups under the IRC special group taxation regime through consolidated filing by the parent company. Under Article 69 ff. of the Corporate Income Tax Code (CIRC), the parent company submits an aggregate Form 22 declaration covering all group entities. Autonomous taxation rates apply to specific expenses of group companies (typically company vehicles, entertainment expenses, and other enumerated categories), with amounts consolidated at the group level. The parent company bears responsibility for calculating, self-assessing, and paying the total autonomous taxation amount for the entire fiscal group, as demonstrated in this case where the SGPS parent company self-assessed €698,546.41 in autonomous taxation for fiscal year 2011 covering multiple group entities.
Can SIFIDE tax credits be used to offset autonomous taxation charges under Portuguese corporate tax law?
The central legal controversy in this case concerns whether SIFIDE tax credits can offset autonomous taxation charges under Portuguese IRC law. The taxpayer argues that autonomous taxation constitutes an integral component of Corporate Income Tax, making SIFIDE credits (generated from research and development expenditures) deductible against such charges under Article 4 of SIFIDE II legislation. The Tax Authority contends that autonomous taxation represents a separate charge not subject to SIFIDE deduction, with their computer system (Form 22, field 365) structurally preventing such offset. This interpretive dispute centers on whether autonomous taxation rates, despite separate calculation methodology, remain sufficiently within IRC's scope to permit application of tax benefits like SIFIDE, which generally allow deduction from 'Corporate Income Tax collection' without explicit exclusion of autonomous taxation components.
What is the procedure for challenging an IRC self-assessment through a CAAD arbitration tribunal?
The procedure for challenging IRC self-assessment through CAAD arbitration follows a mandatory two-stage process. First, taxpayers must file an administrative complaint (reclamação graciosa) with the Tax Authority challenging the self-assessment, as required before accessing arbitration. If dismissed, taxpayers may file a petition for constitution of arbitral tribunal at CAAD (Centre for Administrative Arbitration) within legal deadlines, pursuant to Articles 2 and 10 of Decree-Law 10/2011 and Ordinance 112-A/2011. CAAD's President accepts the petition and notifies the Tax Authority, which files a response. The Deontological Council appoints three arbitrators who constitute the tribunal. Proceedings may include oral hearings or proceed by written arguments. The tribunal issues a binding arbitral decision on the legality of the tax assessment and any reimbursement entitlement.
How are autonomous taxation rates calculated for company groups subject to the special group taxation regime?
Autonomous taxation rates for company groups under the special group taxation regime are calculated by aggregating applicable charges from all group entities and consolidated in the parent company's Form 22 IRC declaration. The rates apply to specific expense categories of individual group companies (such as passenger vehicles, representation expenses, and other enumerated items under CIRC provisions), with each group entity's autonomous taxation calculated according to applicable statutory rates for each expense category. The parent company sums these amounts across all group members to determine total autonomous taxation liability, reported in field 365 of Table 10 in Form 22. The Tax Authority may communicate errors in aggregation calculations, as occurred in this case regarding 'sum of municipal business tax of group companies,' requiring corrective submissions.
What are the conditions for obtaining reimbursement and compensatory interest after a successful CAAD arbitration claim?
Reimbursement and compensatory interest after successful CAAD arbitration require several conditions: (1) the arbitral tribunal must declare the tax assessment partially or wholly illegal and order its annulment; (2) the taxpayer must have actually paid the contested amount, as verified in this case through payment documentation; (3) reimbursement comprises the overpaid tax amount determined illegal by the tribunal; (4) compensatory interest (juros indemnizatórios) accrues at the legal rate from the payment date until full reimbursement, calculated from the self-assessment payment date (May 31, 2012 in this case) through complete refund; (5) group companies generating tax credits must have no outstanding tax debts to the State or Social Security; and (6) profits must not have been determined by indirect assessment methods, ensuring the assessment's factual basis remains valid.