CAAD 223/2018-T: Autonomous Taxation Deductions for SIFIDE Benefits and Special Payments on Account in IRC

ARBITRATION AWARD

They agree in Arbitral Tribunal

I – Report

1. A... S.A., legal entity no. ..., with registered office at ..., ...-... ..., submitted a petition for constitution of an arbitral tribunal, pursuant to the provisions of Article 2, no. 1, paragraph a), and Articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to assess the legality of the rejection of the petition for official review concerning the Corporate Income Tax (IRC) assessments for 2013 and 2014, and the rejection of the gracious claim concerning the IRC assessment for 2015, and likewise, the IRC assessments relating to these three taxable periods, insofar as they do not admit the deduction from the tax collection of IRC produced by the autonomous taxation rates of tax benefits determined within the scope of the System of Tax Incentives for Research and Business Development (SIFIDE) and special advance payments (PEC).

The petition is grounded in the following terms.

In each of the financial years 2013, 2014 and 2015, the Claimant made two special advance payments in the unit amount of €35,000.00, totalling a global amount of €210,000.00, and in relation to these same taxable periods disposed of tax credits within the scope of SIFIDE in the amounts of €188,876.18, €44,508.04 and €47,478.31, respectively.

In the financial years 2013 and 2014, the Claimant determined an amount of tax payable, by way of autonomous taxation, of €25,889.00 and €41,190.47, and in the financial year 2015 determined an amount of tax of €17,928.97, referring to the sum of municipal surcharge determined (€1,609.98) with the amount due by way of autonomous taxation (€17,547.47).

In the self-assessment, the Claimant was prevented from deducting the amounts of tax benefits, as well as the special advance payments, implying that an excess of tax in the total amount of €84,626.94 had been determined.

However, autonomous taxation, although subject to a different calculation procedure as regards the taxable base and applicable rates, follow an identical tax assessment procedure pursuant to Article 90 of the IRC Code, namely, as regards deductions from the tax collection, which includes tax benefits and special advance payments (Article 90, no. 2, paragraphs c) and d), of the IRC Code).

Furthermore, the rule of Article 88, no. 21, of the IRC Code as amended by Law no. 7-A/2016, of 30/03, insofar as it determines, by virtue of its interpretative nature, that to the global amount resulting from autonomous taxation assessed in a given year under IRC, the values capable of deduction by way of special advance payment and/or tax benefits in that same year cannot be deducted, cannot fail to be considered unconstitutional, by virtue of a breach of the prohibition of tax retroactivity established in no. 3 of Article 103 of the Constitution.

It finally requests the declaration of illegality of the decision rejecting the petition for official review and of the decision rejecting the gracious claim, as well as of the tax acts of IRC assessments relating to the financial years 2013, 2014 and 2015, and consequently the reimbursement of the tax unduly paid and the condemnation of the Tax Authority to pay compensatory interest.

The Tax Authority, in its reply, invoked the exception of incompetence of the tribunal to assess decisions rejecting petitions for official review, considering that the binding to arbitral jurisdiction, pursuant to Article 2, no. 1, paragraph a), of Order 112-A/2011, of 22 March, is circumscribed to the "declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route pursuant to Articles 131 to 133 of the Code of Tax Procedure and Process".

In terms of appeal, it considers that although the inclusion of autonomous taxation in the IRC Code, by its nature and purpose, has as a logical corollary the application of the general rules specific to that tax which do not conflict with its special form of incidence, conferring a dualistic nature on the normative system of the tax which is embodied in the separate calculation of the respective tax collections in accordance with different rules.

There being thus place for two distinct calculations, which, although processed pursuant to paragraph a) of no. 1 of Article 90, are effectuated on the basis of the application of different rates to their respective taxable matters which are determined equally in accordance with specific rules.

The assessment of IRC is effected by way of the application of the rates of Article 87 to the taxable matter determined pursuant to Chapter III of the Code, whereas in relation to the assessment of autonomous taxation various tax collections are determined in accordance with the rates foreseen in Article 87, resulting from the provisions of Articles 88 and 89, depending on the diversity of the facts which give rise to the assessment of autonomous taxation, and consequently it is not possible to speak of a unitary system of IRC taxation.

And in that sense the "amount determined pursuant to the preceding number", to which no. 2 of Article 90 of the IRC Code refers, should be understood as encompassing the sum total of the amount of IRC determined in accordance with the rules of Chapter III of the Code by application of the rates foreseen in Article 87 and the amount of autonomous taxation, calculated on the basis of the rules foreseen in Article 88.

There is thus no place for the deduction of tax benefits from the tax collection resulting from autonomous taxation and, by parity of reasoning, special advance payments are not deductible insofar as they are configured as an instrument of guarantee of tax payment and which are associated with a function of combating tax evasion and fraud.

It concludes by the dismissal of the petition.

1. Testimonial evidence was not requested to be produced and, in the course of the proceedings, the meeting referred to in Article 18 of the RJAT was dispensed with.

In an autonomous petition, the Claimant, exercising the right to be heard as to the matter of the exception raised by the Tax Authority, made a statement to the effect of the dismissal of the preliminary question raised.

In arguments, the parties reiterated their previous positions.

1. The petition for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority in accordance with regulatory requirements.

Pursuant to the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the charge within the applicable period.

The parties were timely and duly notified of this appointment and manifested no will to refuse it, pursuant to the combined provisions of Article 11, no. 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of paragraph c) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 10 July 2018.

The arbitral tribunal was duly constituted and is materially competent, in accordance with the provisions of Articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties enjoy legal personality and capacity, are legitimate and are represented (Articles 4 and 10, no. 2, of the same diploma and 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

It falls to assess and decide.

II – Grounds

1. The matter of fact relevant to the decision of the case is the following:

• The Claimant made two special advance payments in the amount of €35,000.00 in the financial years 2013, 2014 and 2015, in a global amount of €210,000.00;

• And, in relation to these taxable periods, disposed of tax credits within the scope of the System of Tax Incentives for Research and Business Development (SIFIDE), in the amounts of €188,876.18, €44,508.04 and €47,478.31, respectively;

• In the financial year 2013, an amount of tax payable was determined, by way of autonomous taxation, of €25,889.00;

• In the financial year 2014, an amount of tax payable was determined, by way of autonomous taxation, of €41,190.47;

• In the financial year 2015, an amount of tax of €17,928.97 was determined, corresponding to municipal surcharge (€1,609.98) and autonomous taxation (€17,547.47), less withholding tax (€1,228.48);

• In the year 2013, the special advance payments, in the global amount of €70,000.00, and the tax credit arising from SIFIDE, in the amount of €188,876.18, were sufficient to compensate, through the deduction from IRC tax collection, the tax determined by way of autonomous taxation which amounted to €25,889.00;

• In the year 2014, the special advance payments, in the global amount of €70,000.00, and the tax credit arising from SIFIDE, in the amount of €44,508.04, were sufficient to compensate, through the deduction from IRC tax collection, the tax determined by way of autonomous taxation which amounted to €41,190.47;

• In the year 2015, the special advance payments, in the global amount of €70,000.00, and the tax credit arising from SIFIDE, in the amount of €47,478.31, were sufficient to compensate, through the deduction from IRC tax collection, the tax determined by way of autonomous taxation which amounted to €17,547.47;

• In these three taxable periods, by impossibility of deduction of the special advance payments and tax credits relating to the SIFIDE tax benefit, the total tax of €84,626.94 was determined, by way of autonomous taxation;

• The Claimant submitted a petition for official review of the IRC assessment acts relating to the taxable periods of 2013 and 2014, which was rejected by the head of division of the Large Taxpayers Unit, with delegation of powers, by order of 2 March 2018;

• The Claimant submitted a petition for gracious claim of the IRC assessment act relating to the financial year 2015, which was rejected by the head of division of the Large Taxpayers Unit, with delegation of powers, by order of 16 February 2018;

• The decision rejecting the petition for official review and the gracious claim was based on the non-deductibility from the autonomous taxation collection of credits resulting from special advance payments and SIFIDE tax benefits.

The Tribunal formed its conviction as to the facts proven on the basis of the documents attached to the petition and those contained in the administrative proceedings presented by the Tax Authority with its reply.

Matter of Law

Incompetence of the Arbitral Tribunal

1. The Tax Authority raises the question of the material incompetence of the arbitral tribunal by considering that decisions rejecting petitions for official review are excluded from the scope of tax arbitration.

At issue is the interpretation of the provisions of Article 2, no. 1, paragraph a), of Order 112-A/2011, of 22 March, a diploma which, in application of Article 4 of the Legal Framework for Tax Arbitration (RJAT), regulates the scope of binding of the tax administration to the arbitral tribunals that function at CAAD. Pursuant to that provision, the services and bodies that make up the Tax Administration are bound to arbitral jurisdiction regarding any of the types of claims identified in no. 1 of Article 2 of that Framework, with the exception of those relating to the "declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route pursuant to Articles 131 to 133 of the Code of Tax Procedure and Process".

In the understanding of the Respondent, the recourse to the administrative route to which the regulatory rule refers only encompasses any of the means of administrative appeal specifically provided for in the mentioned provisions of the CPPT, to which the procedures of official review cannot be equated. And, in that sense, referring the mentioned rule of Article 131 of the CPPT to the necessary administrative appeal of self-assessment acts, in the form of gracious claim, the assessment of a dispute resulting from the partial rejection of a petition for official review is not encompassed by tax arbitration.

The Tax Authority further qualifies as unconstitutional, by violation of the principles of the Rule of Law and the separation of powers, as well as of the right of access to justice and of legality, as a corollary the principle of indisponibility of tax credits, the normative interpretation according to which disputes relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route pursuant to Articles 131 of the CPPT are not excluded from the competence of arbitral tribunals.

The question is relevant to the case insofar as the Claimant filed a petition for official review regarding the assessments relating to the years 2013 and 2014 and only regarding the assessment relating to the year 2015 did it present a gracious claim, whereby the incompetence of the arbitral tribunal with the invoked ground could exclude from the scope of cognition the tax acts relating to those two taxable periods.

It is, however, a matter that was already decided in the negative by widely prevailing jurisprudence of arbitral tribunals (among many, the awards rendered in Cases no. 617/2015-T and 550/2017-T), which came to be ratified by the award of 27 April 2017 of the Central Administrative Court of the South (Case no. 08599/17), and there is no reason to alter that understanding.

Pursuant to Article 2, no. 1, of the RJAT, the competence of arbitral tribunals comprises, among other claims, the assessment of the declaration of illegality of acts of assessment of taxes, self-assessment, withholding tax and advance payment (paragraph a), even though the law makes the binding of the tax administration to arbitral jurisdiction dependent on an order of the Government members responsible for the areas of finance and justice, which should establish, namely, the type and maximum value of the disputes encompassed (Article 4, no. 1).

This latter provision was regulated by Order no. 112-A/2011 which, in its Article 2, defines as the object of the binding the assessment of the claims referred to in Article 2, no. 1, of the RJAT, with the exception – as far as now concerns – of the "claims relating to the declaration of illegality of self-assessment acts, withholding tax and advance payment that have not been preceded by recourse to the administrative route pursuant to Articles 131 to 133 of the Code of Tax Procedure and Process".

The mentioned provisions of Articles 131 to 133 of the CPPT aim to identify the situations in which, as regards self-assessment, tax substitution and advance payments, there is place for necessary administrative appeal. In the case of error in self-assessment, Article 131 specifies that judicial appeal "shall necessarily be preceded by a gracious claim addressed to the regional peripheral body of the tax administration, within the period of two years from the presentation of the return". That provision, as all others to which Order no. 112-A/2011 refers, has the unequivocal meaning of making the prior administrative appeal of the tax act a requirement, as a condition of access to the judicial route, and is in full consonance with the principle expressed in Article 185 of the CPA, according to which claims and administrative appeals are necessary or optional, depending on whether or not their prior use depends on the possibility of access to contentious means of appeal or condemnation to perform a due act (no. 1). The same provision clarifies that claims and appeals have an optional character, unless the law designates them as necessary (no. 2).

As everything leads to conclude, the necessary gracious claim provided for in the cited provisions of the CPPT constitutes a requirement of contentious challengeability of the tax act, being characterized as an atypical procedural precondition, which, as such, becomes applicable regardless of whether the judicial appeal comes to be deduced before an arbitral tribunal or a state court.

Moreover, the legal requirement of a necessary administrative appeal is aimed at obtaining, through a procedure of second instance, the reassessment of the legality of the appealed act, allowing the Administration to still take a definitive position on the question before the interested party can raise a judicial dispute. Thus it is understood that necessary administrative appeal automatically suspends the effects of the act (Article 189, no. 1, of the CPA) and that its use constitutes, for the individual, a procedural burden on which depends the guarantee of access to the contentious route.

It should further be noted that the law allows the taxpayer, on its own initiative, to request the revision of tax acts by the entity that practiced them within the period of administrative claim and on the grounds of any illegality (Article 78, no. 1, of the General Tax Law).

The petition for review constitutes equally a procedure of second instance, which has the same legal effect of the necessary claim to which Article 131 of the CPPT refers, insofar as it allows the Administration to recognize the existence of illegality in the practice of the tax act, and which may be deduced within the same period and trigger, in identical terms, in the case of rejection, the recourse to the contentious route.

By conferring on the interested party two alternative means of administrative reaction against the tax act with identical effects of law, there is no reason why the equivalence between these means cannot be established for the purpose of submitting the dispute to arbitration.

As has been clarified, the provision of Article 2, paragraph a), of Order no. 112-A/2011 is not aimed at restricting tax arbitration to the specific situations in which there has been place for gracious claim of the tax act. What is intended is to prevent the recourse to the arbitral tribunal from occurring when the procedural precondition of prior administrative appeal is not verified, when this is required, and to avoid, therefore, that the claim be deduced before arbitral jurisdiction still before a definitive pronouncement by the Administration.

But, as we have seen, this is not a specific conditionalism of the arbitrability of disputes in tax matters, but a procedural requirement relating to the judicial relief itself, meaning that it is not possible to deduce a petition for judicial appeal against the self-assessment act, in any jurisdiction, before such precondition is fulfilled.

In all this context, it becomes clear that there is no obstacle to the submission of a tax dispute to arbitration when the Administration has been able to pronounce itself, in a procedure of second instance, on the matter of the judicial appeal.

And in that direction also points the provision of no. 3 of Article 131 of the CPPT, when establishing that no prior claim takes place when the question is "exclusively a matter of law and the self-assessment has been effected in accordance with generic guidance issued by the tax administration", showing that the submission of a dispute to a tribunal does not depend on necessary administrative appeal when there has already been a definitive pronouncement on the legality of the legal situation created with the self-assessment act, even if that pronouncement amounts to mere issuance of generic instructions.

The Tax Authority further raises the question of the unconstitutionality of the rule of Article 2, paragraph a), of Order no. 112-A/2011, when interpreted to mean that disputes relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route pursuant to Articles 131 of the CPPT are not excluded from the competence of arbitral tribunals, attributing to it a breach of the principles of the Rule of Law and the separation of powers, as well as of the right of access to justice and of legality, as a corollary the principle of indisponibility of tax credits.

The invoked breach of the principles of the Rule of Law and the separation of powers and of the right of access to justice and of legality, by reference to Articles 2, 20, 202, 203 and 266, no. 3, of the Constitution, without any other development or clarification, suggests that the Respondent understands the submission of a dispute to an arbitral tribunal, outside the cases legally typified, as corresponding to the breach of jurisdiction reserve, with the consequent loss of characterization of the arbitral tribunal's own jurisdictional activity.

It is important to begin by noting, to that effect, that the Constitution, in its Article 202, established a reserve of competence for the exercise of the jurisdictional function in favor exclusively of tribunals, being able to distinguish therein between absolute jurisdiction reserve, constituted by those situations that are substantively jurisdictional and cannot be decided by administrative bodies or non-judicial entities, and relative jurisdiction reserve, integrated by those other situations in which the guarantee of justice is satisfied with the possibility of a re-examination by courts through a means of appeal or recourse to the tribunals.

As the Constitutional Court has emphasized, the existence of a jurisdiction reserve is still the corollary of the application of the principles of the separation and interdependence of powers: being the competence of the organs of sovereignty defined in the Constitution and these being required to observe the separation and interdependence therein established (Articles 110, no. 2, and 111, no. 1), it shall be concluded that the constitutional attribution of certain competence to a certain organ of sovereignty excludes the possibility of it being able to be legally attributed to any other, unless explicit or implicit constitutional authorization (Award no. 71/84).

Now, arbitral tribunals are one of the categories of tribunals expressly enshrined in the Constitution (Article 209, no. 2), and, as has been recognized by constitutional jurisprudence, although they are not state bodies nor fit within the definition of organs of sovereignty, "nor can they cease to be qualified as tribunals for other constitutional effects" (Awards nos. 230/86, 52/92 and 250/96). And while a category of constitutionally enshrined tribunals, they are subject to the same limits that impend on state tribunals, their decisions have a jurisdictional nature, and arbitrators are subjected to a status similar to that of judicial tribunals, being applicable to them the constitutional requirements of independence and impartiality as a way to ensure confidence in the objectivity of arbitral jurisdiction.

Moreover, as has been repeatedly stated, recourse to arbitration constitutes a fundamental right, which, as such, is covered by the provision of Article 20 of the Constitution, and the possibility of resolution of disputes through an arbitral tribunal chosen by the parties is itself a realization of the guarantee of access to law and courts and of the principle of effective judicial protection (see Fausto Quadros, "Mandatory, Obligatory, Forced Arbitration: Brief Note on the Interpretation of Article 182 of the Code of Procedure in Administrative Courts", p. 258, and Rui Medeiros, "Mandatory Arbitration and Constitution, in Studies in Memory of Counselor Artur Maurício, p. 1318, and, in identical terms, Constitutional Court Awards nos. 250/96 and 506/96).

And, on that plane, there is no reason to establish any differentiation in relation to mandatory arbitration, since the Constitution, when recognizing the possibility of the existence of arbitral tribunals, does not distinguish between voluntary and mandatory arbitral tribunals, legitimizing the understanding that such tribunals may be constituted by citizens in the exercise of autonomy of will, as they may also be created by the legislator itself for the judgment of a certain category of disputes, as a means of imposing on citizens the necessary recourse to that means of jurisdictional composition of conflicts (Awards nos. 52/92, 757/95 and 262/98).

Furthermore, as a result of the general principle of law resulting from Article 18, no. 1, of the Voluntary Arbitration Law (LAV), the arbitral tribunal may decide on its own competence, even if for that purpose it is necessary to assess the existence, validity or effectiveness of the arbitration agreement or its applicability to the specific case, and the arbitral tribunal's decision on its competence is only subject to the control of state courts via the petition for annulment (see Article 18, no. 9, of the LAV). And that same principle cannot fail to be applied even in cases where the list of matters on which the arbitral tribunal may pronounce itself is legally defined, as is the case with tax arbitration.

The challenge of an arbitral decision may also be based on the incompetence of the arbitral tribunal, on the grounds of undue pronouncement, when the arbitral award has pronounced on disputes that are not capable of arbitration in the face of the law (in this sense, the award of the Constitutional Court no. 177/2016, which ruled unconstitutional paragraph c) of no. 1 of Article 28 of the RJAT, in the normative interpretation that the concept of "undue pronouncement" does not encompass the challenge of the arbitral decision on the grounds of incompetence of the arbitral tribunal, by concurrent violation of Articles 20 and 209, no. 2, of the Constitution).

As is to be concluded, the arbitral tribunal, when deciding on its competence to assess a dispute submitted to it, is still exercising its jurisdictional function. And if the tribunal understands that it is competent to assess the question on the basis of a certain interpretation of a legal provision – in the case the provision of Article 131 of the CPPT – that interpretation, although capable of being appealed before a state court via an annulment petition, does not breach any of the constitutional principles invoked by the Claimant.

Substantive Questions

Deduction of Tax Benefits from the Collection of Autonomous Taxation

1. The questions to be decided are whether there is place, under IRC, for deduction from the collection produced by the autonomous taxation rates of tax benefits determined within the scope of the System of Tax Incentives for Research and Business Development (SIFIDE), as well as for the deduction of special advance payments.

The first of these questions has already been decided in the affirmative by the majority of arbitral jurisprudence, using as the principal argument the method of assessment of IRC even when autonomous taxation is at issue. The collection provided by autonomous taxation – it is asserted – constitutes a collection of IRC and the deduction of tax benefits is effected in relation to the amount determined pursuant to Article 90 of the IRC Code, which leads to the conclusion that the processing of the tax assessment, as results from the said Article 90, applies to all situations provided for in the Code, including as regards autonomous taxation. Departing from this central idea, it is concluded that the autonomy of this type of taxation is restricted to the applicable rates and to the respective taxable matter, there being no legal support, in the face of the provision of Article 90, to distinguish between the collection resulting from autonomous taxation and that resulting from income subject to IRC. That was the position adopted namely in cases 769/2014-T, 219/2015-T, 784/2015-T and 490/2017-T.

This position is not altered by the fact that, through the entry into force of Law no. 7-A/2016, of 30 March, no. 21 was added to Article 88 of the IRC Code, which provides that the assessment of autonomous taxation in IRC is effected pursuant to the provisions of Article 89 and is based on the values and rates resulting from the preceding numbers, with no deductions being effected to the global amount determined". For its part, Article 135 of the same Law established that "the wording given by the present law to no. 6 of Article 51, to no. 15 of Article 83, to no. 1 of Article 84, to nos. 20 and 21 of Article 88 and to no. 8 of Article 117 of the IRC Code has an interpretative nature".

Indeed, regarding this rule it should be emphasized what was written in the Award of CAAD no. 5/2016-T.

"From the analysis of this rule we can draw the following conclusions:

i) It does not alter the legal framework of SIFIDE nor of RFAI;

ii) It does not aim at the authentic interpretation of rules contained in SIFIDE nor in RFAI;

iii) The provision contained in SIFIDE of deductions "to the amount determined pursuant to Article 90 of the IRC Code" remains valid;

iv) The provision contained in RFAI of deductions "to IRC tax collection" remains valid;

v) The nature of the "autonomous taxation rates" is not altered;

vi) The procedure and method of assessment are not altered;

vii) Deductions to the amount of autonomous taxation determined are now expressly prohibited, which does not prevent deductions from being made to IRC collection (which includes the result of autonomous taxation) provided for in SIFIDE and RFAI.

(...).

In this manner, the rule contained in no. 21 of Article 88 of the IRC Code, to which an interpretative nature was attributed, does not prevent the deduction from IRC tax collection (i.e., from the whole of the collection determined by the application of Article 90 of the IRC Code) of amounts under SIFIDE and RFAI. Indeed, the interpreter and applier of the law may disagree with the legislator's choices, which it cannot do is alter the legislative solutions adopted. Now the legislator refers in RFAI to deduction "to IRC tax collection" and in SIFIDE refers to deduction "to the amount determined pursuant to Article 90 of the IRC Code", which in both cases is manifestly distinct from "deduction to the IRC taxable matter". The legislator could, both in RFAI and in SIFIDE, have adopted this solution; the fact is that it did not, and it is not up to the interpreter to correct the legislator's hand. As José de Oliveira Ascensão states, «[n]o matter how desirable an alteration of the normative system may appear, that alteration belongs to sources of law, not to the interpreter. The latter grasps the meaning of the source as it objectively presents itself at the current moment, does not present any other meaning to it. Well-founded reasons of security and defense against arbitrariness underpin this conclusion». In this manner, for the deductions provided for in RFAI and SIFIDE to cease to be made to IRC tax collection (to which autonomous taxation also contributes) the legislator, should it see fit, must alter the legal frameworks that provide for them".

Even if the rule were considered applicable to SIFIDE, it is posterior to the tax facts under analysis, so that, despite the law proclaiming itself as having an interpretative nature, its application to the specific case would imply the retroactive collection of taxes, which is prohibited by Article 103, no. 3, of the Constitution of the Portuguese Republic. Indeed, pursuant to Article 13 CC, the interpretative law is retroactive, applying to past facts (facta preterita) and only saving disputes already concluded (causae finitae). Now, tax laws can only apply to the future, given the constitutional establishment of the prohibition of tax retroactivity (Article 103, no. 3, of the Constitution). Article 12, no. 1, of the General Tax Law determines consequently that "tax rules apply to facts subsequent to their entry into force, and no retroactive taxes can be created".

It results, therefore, clearly, both from the rules contained in the legal instruments and from the understanding prevailing in jurisprudence, that the deduction of tax benefits from the collection of autonomous taxation of the Claimant would have to be admitted by the Tax Authority, whereby the petition for declaration of illegality of the self-assessment of IRC of the Claimant is grounded.

The arbitral petition thus shows itself to be grounded in this respect.

Deduction of Special Advance Payments from the Collection of Autonomous Taxation

Based essentially on the same order of considerations, the Claimant further sustains the illegality of the self-assessments of tax insofar as they do not admit the deduction of special advance payments from the collection of autonomous taxation.

In this respect it should be stressed what was stated to that effect in the award rendered in Case no. 134/2017-T, which is now reproduced.

"There is no other article in the IRC Code, besides Article 90, which distinguishes the process of assessment of autonomous taxation from the remainder of IRC. And, in these terms, the assessment of both – autonomous taxation and remainder of IRC – is unitary and has the same legal support.

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

It being understood that autonomous taxation is (part of) IRC, it is understood that IRC assessment is unitary, including the part that results from autonomous taxation.

There is a unitary IRC assessment which comprises two parts: the assessment of autonomous taxation and that of the remainder of IRC, each with taxable matter determined in its own manner and with its own taxation rates, but both assessed pursuant to Article 90 of the IRC Code. There being a unitary assessment, it is concluded that the part of the collection resulting from autonomous taxation is an integral part of IRC collection.

In contrast, there is no other article in the IRC Code that refers to the assessment of autonomous taxation as a distinct process. To accept that the collection of autonomous taxation is not included in Article 90 of the IRC Code would be to accept that there is a gap in the law and, being this a tax law, it does not allow for integration. And thus, the Tax and Customs Authority may have erred, by not allowing the deduction of the amounts relating to PEC that the Claimant had the right to deduct from the collection.

To accept that the assessment of autonomous taxation is outside Article 90, no. 1 of the IRC Code and, therefore, to exclude from its collection the deductibility of PEC provided for in paragraph c) of no. 2, would require the taxpayer to pay a tax whose assessment is not made pursuant to the law, contrary to no. 3 of Article 103 of the CRP and the principle of tax legality that the General Tax Law, in its Article 8, no. 2, paragraph a), establishes.

If the Tax and Customs Authority assumed that the collection of autonomous taxation was calculated outside Article 90 of the IRC Code, it should indicate the rule on the basis of which it made the assessment.

There being no separate rule on assessment of autonomous taxation, it seems it must be accepted that IRC collection encompasses it, including itself in Article 90, no. 1 of the IRC Code, and therefore the special advance payment referred to in paragraph c) of no. 2 is deductible.

Note moreover that in the following numbers of that Article 90, the legislator was concerned with enumerating several exceptions and limits to the rules of deductibility of number 2. In number 4, when it provides that "deduction relating to withholdings at source is only to be effected when these have the nature of tax on account of IRC", it is telling: it is understood that it is so, because it is in IRC collection that it is intended to deduct them, or, in number 7, when it prescribes that from the deductions to the collection a), b) and c) of no. 2 cannot result, in a general way and without distinguishing the collection resulting from the application of autonomous taxation rates, negative value.

In none of them – and this would be, undoubtedly, the correct place – and in no other rule is there a reference to any limitation to the deductibility of special advance payments to the part of IRC collection resulting from autonomous taxation, and therefore it is necessary to conclude that it did not wish to do so.

Note moreover that, although Article 90 was amended with Law no. 2/2014, of 16 January, which republished the IRC Code, what is said here not only endures but, from an interpretative perspective, is even reinforced, in that the legislator added some limitations and exceptions to the deductions to the collection provided for in number 2 and again did not refer to the part of the collection resulting from the application of autonomous taxation rates.

It is verified, however, that the information technology system does not allow the deduction of PEC to the part of IRC collection arising from autonomous taxation. The fact that the methods of determination of taxable matter and the rates of autonomous taxation of IRC are established separately and are different from those of the remainder of IRC does not seem to be sufficient reason, nor to have legal support, for the existing IT solution.

References to the provision of Article 16 of the IRC Code seem to add nothing to the resolution of the question at hand.

This article does not contain the elements that allow drawing up tax return form 22, choosing which lines appear in that return, nor the order in which they should be presented, nor how the various lines are related, that is, it does not allow fixing the formulas underlying the taxpayer's completion of the cells of the return that the Tax and Customs Authority through its services created in it.

We would have to look in other articles of the IRC Code for such elements that would allow drawing up the form and establishing the calculations that would lead to the knowledge of tax collection.

To consider that the assessment of autonomous taxation is outside the collection calculated by Article 90, no. 1 of the IRC Code is to accept that such understanding would be provided for in another legal provision and, as this does not exist, the assessment cannot but be effected within the framework of Article 90 of the IRC Code.

Thus, the deduction PEC to IRC collection must be accepted, necessarily including the portion arising from autonomous taxation".

Thus, and as was well decided in this award, it should be understood that from the rules of Articles 90, no. 2, paragraph d), and 93, no. 1, of the IRC Code it results that the deductions relating to special advance payment affect the amount of tax directly determined on declared income, naturally including costs that are subject to autonomous taxation.

In this respect the Claimant further refers to the rule of Article 88, no. 21, of the IRC Code, in the wording introduced by Article 134 of Law no. 7-A/2016, of 30 March, defending that it is not capable of retroactive application, despite the law having conferred an interpretative nature on it.

Indeed, and as we have had occasion to stress above, that rule is clearly unconstitutional, and the unconstitutionality of its application to special advance payments was already expressly declared by the Constitutional Court in Award 267/201, published in the Official Journal no. 133/2017, Series II of 2017-07-12.

Consequently, and pursuant to Article 204 of the Constitution, this Arbitral Tribunal is prevented from applying that rule, whereby it refuses its application.

For all this, the arbitral petition shows itself to be grounded also in this respect, and the reimbursement of the tax unduly paid by the Claimant should be decreed.

V – Petition for Compensatory Interest

In this regard, Article 43, no. 1 of the General Tax Law states that compensatory interest is due "when it is determined, in gracious claim or judicial appeal, that there was error attributable to the services from which results the payment of the tax debt in an amount greater than that legally due".

This right being recognized in arbitral proceedings, by virtue of Article 24, no. 5 of the RJAT.

Let us then see if it is possible to conclude by the existence of error attributable to the services of the Tax Authority.

It is verified, in the case at hand, that the self-assessment declaration was formulated by the Claimant itself and not directly by the Tax Authority, now Respondent.

However, it is to be taken into account that the Claimant, in the formulation of the said declaration, was limited by the IT services through which the declaration is formulated, services provided by the Tax Authority, and in relation to which the Claimant cannot effect any alteration.

Moreover, it is also clear that, there being prior gracious claim by the administrative route, and the Claimant having already presented the respective explanation as to the impossibility of the IT system to present the declaration in the correct terms, the Tax Authority should have corrected the error in question, which it did not, persisting in the same grounds.

We are, in this case, before negligence on the part of the Tax Authority, negligence which translates into an "error attributable to the services", as stated in Article 43 of the LGT.

Taking into account that established in Article 61 of the CPPT and there being verified the existence of error attributable to the services of the Tax Administration, from which resulted the payment of the tax debt in an amount greater than that legally due, it is understood that the Claimant has the right to compensatory interest at the legal rate, calculated on the amount of €104,369.01, which will be counted from the date of payment until the full reimbursement of that same amount.

VI – Decision

Thus it is decided:

• To hold fully grounded the arbitral petition for declaration of illegality of the self-assessments of IRC relating to the financial years 2013, 2014 and 2015;

• To condemn in consequence the Respondent to the reimbursement of the tax paid in the amount of €84,626.94.

• To condemn the Respondent to the payment of compensatory interest at the legal rate from the date of payment until full reimbursement of that amount.

Value of the Case

The Claimant indicated as the value of the case the amount of €84,626.94, which was not contested by the Respondent and corresponds to the value of the assessment that it was intended to challenge, whereby the value of the case is fixed at that amount.

Costs

Pursuant to Articles 12, no. 2, and 24, no. 4, of the RJAT, and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at €2,754.00, which is charged to the Respondent.

Notify.

Lisbon, 10 December 2018

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

(dissenting as to the substantive questions, on the basis of the grounds adopted in the awards rendered in Cases nos. 641/2017-T and 7/2018-T, of which I was the reporter)

The Arbitrator Member

Luís Menezes Leitão

The Arbitrator Member

João Taborda Gama