IRC Autonomous Taxation as Deductible Expense: CAAD Ruling on Taxable Profit (242/2014-T)

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), João Marques Pinto and Elísio Brandão, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Court, hereby agree:

I – REPORT

On 7 March 2014, the commercial company A SGPS, S.A., legal entity number …, with registered office in … Porto Salvo, filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly referred to as RJAT), seeking a declaration of the illegality of the refusal of the official review request submitted and of the self-assessment act of Corporate Income Tax (IRC) and corresponding municipal tax (derrama) for the fiscal year 2008, subject to that request, to the extent corresponding to the non-deduction of fiscal charges with autonomous taxes for that same fiscal year, corresponding to an amount of tax paid of €106,859.50.

To support its request, the Applicant argues, in summary, that it proceeded to self-assess the IRC and derrama for the fiscal year 2008 and did not deduct the charges incurred with autonomous taxes, treating them as if they were IRC or municipal derrama, which it now considers incorrect and wishes to have corrected.

On 11 March, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant did not proceed to appoint an arbitrator; therefore, in accordance with the provisions of paragraph (a) of article 6, paragraph 2 and paragraph (b) of article 11, paragraph 1 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the mandate within the applicable period.

On 28 April 2014, the parties were notified of these appointments, having manifested no will to refuse any of them.

In accordance with the provisions of paragraph (c) of article 11, paragraph 1 of the RJAT, the collective Arbitral Tribunal was constituted on 14 May 2014.

On 12 June 2014, the Respondent, duly notified to that effect, presented its Reply, defending itself by exception and by contestation.

The Applicant, duly notified to that effect, pronounced itself in writing regarding the exceptions raised by the Respondent in its reply, arguing for their inadmissibility.

Subsequently, notified to that effect, both parties communicated that they waived the holding of the meeting referred to in article 18 of the RJAT and requested that a deadline be set for them to present written submissions. Accordingly, the holding of the first meeting of the Arbitral Tribunal, in accordance with article 18 of the RJAT, was dispensed with, given that none of the purposes legally assigned to it were present in this case, and the arbitral process is governed by the principles of procedural economy and prohibition of useless acts.

Subsequently, the Applicant and the Respondent presented, successively, their respective written submissions, in which they maintained and developed the positions previously assumed and defended in their pleadings.

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

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Administrative Regulation No. 112-A/2011 of 22 March.

The process is not vitiated by any nullities.

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

Accordingly, the following shall be pronounced:

II. DECISION

A. MATTER OF FACT

A.1. Facts Established as Proven

1. A SGPS, S.A. proceeded to self-assess the IRC for the fiscal year 2008, as well as the autonomous taxes provided for in article 88 of the Corporate Income Tax Code (CIRC), in a final total of €411,472.84.

2. Such autonomous taxes were paid in full by the Applicant.

3. The Applicant did not deduct, for the purposes of determining the taxable profit for the fiscal year 2008, the charges incurred with the identified autonomous taxes.

4. Accordingly, it did not recognize the charges with these taxes as fiscal charges in determining the taxable profit for IRC.

5. On 8 August 2013, the applicant filed a request for official review against the said self-assessment of IRC and consequent municipal tax for the fiscal year 2009.

6. The applicant chose not to exercise the right to prior hearing and was notified of the decision to refuse the official review request, by order issued on 2 December 2013 and received on 9 December 2013.

7. The request for the constitution of the arbitral tribunal was filed on 07.03.2014.

A.2. Facts Established as Not Proven

For purposes relevant to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of Proven and Not Proven Facts

Regarding the matter of fact, the Tribunal need not pronounce itself on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish proven facts from those not proven (cf. article 123, paragraph 2 of the Code of Procedure and Process in Tax Matters (CPPT) and article 607, paragraph 3 of the Code of Civil Procedure (CPC), applicable by virtue of article 29, paragraph 1, paragraphs (a) and (e) of the RJAT).

In this manner, the pertinent facts for the judgment of the case are selected and defined based on their legal relevance, which is established with regard to the various plausible solutions of the question(s) of law (cf. former article 511, paragraph 1 of the CPC, corresponding to current article 596, applicable by virtue of article 29, paragraph 1, paragraph (e) of the RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence and the administrative file joined to the record, the facts listed above were considered proven, for purposes relevant to the decision, being facts consensually recognized and accepted by the parties.

B. MATTERS OF LAW

As a preliminary matter before determining the merits of the request formulated by the Applicant, the Tax Authority (AT) raises questions regarding:

• The timeliness of the official review request in relation to the self-assessment for the fiscal year 2008;
• The susceptibility of appraisal of the review request by the respondent without violating the law and the constitution;
• The competence of this Arbitral Tribunal regarding the self-assessment act of IRC for the fiscal year 2008.

Let us examine each of these questions.[1]

The Tax Authority argues, in the first place, that the deadline provided for in paragraph 1 of article 78 of the General Tax Law (LGT) should not be applicable in this case, because there is no error attributable to the services, which is presupposed by such rule.

Article 78 of the LGT provides as follows:

"1 - The review of tax acts by the entity that performed them may be effected at the initiative of the taxpayer, within the administrative complaint period and on the basis of any illegality, or, at the initiative of the tax administration, within four years after assessment or at any time if the tax has not yet been paid, on the basis of error attributable to the services.

2 - Without prejudice to the legal burdens of complaint or contestation by the taxpayer, error in self-assessment is deemed, for the purposes of the preceding number, attributable to the services."

Saving the respect due to other opinions, it is understood that it follows (among other things) from the legislative purpose of the provision in question that the filing of an official review request is admissible in cases of self-assessment, beyond the two years provided for in article 131 of the CPPT, with the presumption of paragraph 2 applying in any case.

This understanding is the only one that fully ensures the useful effect of the provision in question, and, as such, the one most in accord with the hermeneutic principle of the reasonable legislator.

In fact, the spirit of paragraph 1 of article 78 of the LGT is precisely to permit the review referred to in the preceding paragraph, even in the case of self-assessments. Were it not for paragraph 2, which precisely and as pointed out in the citation made by the Tax Authority in its response (article 29) creates "a fiction that is in manifest discord with reality," it would not, in fact, be possible the review regulated in paragraph 1, in the case of self-assessments, because, precisely, "since it is the taxpayer who carries out the self-assessment, what is normal is that the errors are attributable to him, who did it, and not to the tax administration, which did not do it."

It was for this very reason that, conscious of such a circumstance, the legislator introduced the normative provision of paragraph 2 in question, because it saw – as is seen – no reason why, in the case of self-assessments, fewer means of protection of the rights and interests of taxpayers should be granted. On the other hand, it can hardly have been overlooked that, in such cases, taxpayers act in substitution of the Tax Administration, assuming a burden that would originally fall to it.

Finally, it is also noted that the purpose pursued by the rule of paragraph 2 of article 78 could have been equally pursued in another way from that adopted, which involves such a "fiction that is in manifest discord with reality." For this, it would have sufficed that, for example, it was provided that, in the case of self-assessment, review would be admissible in accordance with paragraph 1, even if the error were not attributable to the Tax Administration.

In this manner, and in accord with the citation referred to above, it is understood that "By this paragraph 2, it is concluded that the review of the tax act is possible in relation to all self-assessment acts, since it is fictionally presumed, for purposes of paragraph 1 of article 78, that the error is always attributable to the services and, on this basis, review is permitted within the legal period of four years after assessment or at any time if the tax has not been paid." (emphasis ours).

One may or may not agree with such a choice, but, it is thought, one cannot reasonably doubt that this was that of the legislator.

In this sense may be seen, for example, the Court of Audit (STA) decision of 14-12-2011, issued in process 0366/11,[2] whose summary reads:

"Although no administrative complaint against the self-assessment act was filed within the period provided for in article 131 of the CPPT, the interested party could still request the tax administration for official review of the act pursuant to paragraph 4 of article 78 of the LGT, since the law fictionally presumes that self-assessment errors are attributable to the administration and the latter cannot shirk from taking the initiative of review when requested to do so by the interested party, being even obliged to proceed with the conversion to this procedural means when it concludes that the complaint filed is untimely – article 52 of the CPPT."

In the same sense, of the admissibility of the request for official review of the tax act in the case of self-assessment, beyond the deadline of article 131 of the CPPT, see the STA decision of 29-05-2013, issued in process 0140/13, in whose summary it states, among other things, that:

"In accordance with article 78, paragraph 2 of the LGT, error in self-assessment is deemed attributable to the services, for purposes of the preceding number, so that, notwithstanding article 131 of the CPPT, the taxpayer may request the official appraisal of illegality committed in self-assessment."

And let it not be said, as the Tax Authority does in its response, that the understanding just subscribed results in a "systematic contradiction" with the deadlines of article 131 of the CPPT. In effect, such putative contradiction is merely the same situation that occurs with respect to the regime of the same article and the general deadlines for administrative and contentious contestation of assessment acts in general.

Thus, the first preliminary question to the determination of the merits, raised by the Tax Authority, should be dismissed, insofar as it is restricted, as the Tax Authority quite rightly points out and taking into account the jurisprudence on the matter, to "errors regarding the factual and legal presuppositions that lead the Applicant to an illegal definition of the tax legal relationship, not considering formal or procedural defects."

The Tax Authority also alleges that the constitutional questions raised in the official review request filed by the Applicant should not be considered susceptible of being examined in such a forum, because "the claim advanced by the Applicant collides frontally with the powers of the Respondent, its binding to law and the Constitution."

Regarding this matter, it should be said, preliminarily, that the circumstance properly pointed out that the administration is forbidden from disapplying the law on the grounds of unconstitutionality does not, generically, prevent that constitutional questions of that nature be raised before it and that, subsequently, independently of the prior confrontation of the administration with such questions, the same questions may be raised in judicial proceedings. This would be the case, for example, in ordinary situations of administrative complaint, and subsequent judicial contestation.

However, in the examination of the question in question, the specificity of the administrative means that opened the contentious route for the Applicant cannot be overlooked.

In effect, these are presented to the Tribunal following a request for official review of a tax act, directed to the Tax Administration, in accordance with article 78/1 of the LGT.

This means, as is peacefully recognized, is a means of self-control of the Tax Administration that permits that, within the deadlines stated therein, the latter may correct an error of its own, of fact or of law.

Through hermeneutic work gradually developed, taking into account the duty of objectivity and legality that binds the Administration in general, and the Tax Administration in particular, and with support from some normative segments of our tax legal order, the understanding, today uncontested, has been reached that the exercise of the power-duty of the Tax Administration to review illegal acts may be triggered by the taxpayer, and that the subsequent decision (or violation of the duty to decide) of the Tax Administration is contentiously reviewable.

However, it was equally understood that the opening of the contentious route thus operated is neither total nor unconditional, but is limited to the very conditioning legally imposed on the power to review tax acts by the Administration. Thus, and for example, taking into account the use of the expression "error attributable to the services," it has been understood that the Tax Administration may proceed with official review, pursuant to article 78/1 of the LGT, in cases of error regarding the factual and legal presuppositions, but not formal or procedural defects.[3]

Consequently, in the contentious phase subsequent to an official review request, only errors regarding the factual and legal presuppositions of the tax act under review may be examined, but not formal or procedural defects. That is, if the examination by the Tax Administration, following an official review request pursuant to article 78/1 of the LGT, of formal or procedural defects is not admissible, neither is it legitimate for the Tribunal to examine such defects.

Thus being, as it should be understood, that in such a forum, the Tribunal will be reviewing not the legality tout court of the tax act under review, but solely the legality that the Tax Administration was obliged to examine.

In summary, and as was written in the Decision issued in process 188/2013T of CAAD:[4]

"when, after the deadline for contesting a tax act has expired, the taxpayer resorts to an administrative remedy, the decision on that remedy is directly contestable. But the primary tax act does not become directly contestable once more by the mere fact of using an administrative remedy."

That is, the illegality that may be recognized in the primary act (mediate object of contestation) will necessarily have to be an illegality reflected in the secondary act (immediate object of contestation). In contentious proceedings, the Tribunal will be verifying whether, given the official review request of the taxpayer, the Tax Administration had, or did not have, the duty to review the act.

Now, in the case of constitutional questions, such a duty will not exist. In effect, since direct access of the Administration to the Constitution is forbidden, it is obviously forbidden to it to review tax acts on the grounds of unconstitutionality. Hence, in refusing to review such acts on that basis, the Tax Administration will not be violating any duty incumbent on it, but rather fulfilling its duty of obedience to legality.

One cannot lose sight of the fact that a request for official review of a tax act, in accordance with article 78/1 of the LGT, does not correspond to a right of the taxpayer, but rather constitutes merely an impetus for triggering a procedure that the Administration may/must trigger ex officio.

In this manner, and if the Tax Administration cannot officially review a tax act on the grounds of unconstitutionality, it is obvious that, at least absent a legal rule that unequivocally permits it, neither can it do so at the taxpayer's request. In fact, it would not be understood that the powers of official review, by the Tax Administration, of its own acts, should vary depending on whether or not there was a request from the taxpayer in that sense.

It is thus concluded that, in addition to the aforementioned procedural and formal defects, constitutional questions should also be considered excluded from the scope of official review of tax acts, and, consequently, from the contentious phase that may eventually follow.

What has just been stated does not conflict with the duty to disregard unconstitutional rules, imposed on the Courts by article 204 of the Constitution of the Portuguese Republic (CRP). In effect, this concerns the examination of a procedural presupposition, without the verification of which the merits cannot be examined. In fact, since it is understood that the tax act is not reviewable ex officio on the grounds of unconstitutionality, because this does not constitute "error attributable to the services," the respective official review request on that basis should be rejected, just as if it had been, for example, presented outside the deadline, or on the grounds of a formal defect.

Thus, since one is not examining the merits of the question, one is not applying any unconstitutional rule.

In this manner, and for the reasons indicated, the constitutional questions raised by the Applicant should be excluded from the object of the present process.

Finally, the Tax Authority understands that, being the object of the present judicial dispute a self-assessment act, and the dispute having been preceded by a request for official review, and not by an administrative complaint, this Arbitral Tribunal will not be competent for its examination.

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

The Tax Authority understands, in light of this rule, that it should be understood in its literal sense, excluding from the scope of tax arbitral jurisdiction claims relating to a declaration of illegality of self-assessment acts that have not been preceded by administrative complaints in accordance with the aforementioned rules of the CPPT.

All of the Tax Authority's argumentation on the matter ultimately reduces to arguing that it was the legislator's intention to restrict the competence of tax arbitral jurisdiction, in what concerns the examination of illegalities of self-assessment acts, solely to situations in which there exists a complaint filed in accordance with articles 131 to 133 of the Code of Procedure and Process in Tax Matters, because that is what the text of the rule being interpreted says.

Always saving the respect due, no substantial reason is discerned in all of the Tax Authority's argument that explains the rationality of the understanding it sustains. Indeed, no substantial reason is discerned – and the Tax Authority presents nothing in that sense – why, given the conditioning and specificities of each of the administrative means in question, the legality of self-assessment acts should not be cognizable in arbitral proceedings in the same terms in which tax tribunals are bound.

On the other hand, even a literalist reading of the rule in question, if properly contextualized, does not inexorably lead to the result defended by the Tax Authority in this action.

In effect, the expression employed by such rule is parallel to the very rule of article 131/1 of the CPPT, which should be understood as a concretization of the assumed, and peacefully recognized, legislative intention that the tax arbitral process constitutes an alternative procedural means to the judicial contestation process.

The rule of paragraph (a) of article 2 of Regulatory Ordinance 112-A/2011 of 22 March should also be understood as explained by the circumstance that, in its absence – and in light of the content of article 2 of the RJAT – it would be possible to directly contest self-assessment acts, without the precedence of prior administrative pronouncement. That is: given that the RJAT did not require any prior administrative intervention for the arbitral contestation of a self-assessment, the content of the ordinance should be interpreted as equating – in this matter – the tax arbitral process to the judicial contestation process and not, as would result from the position sustained by the Tax Authority, to reverse the situation, taking a broader contestability than possible in Tax Courts and transforming it into a more restricted one.

Thus, no reason is seen – and, once again, the Tax Authority provides no support in that sense – to interpret one and the other rule differently, particularly since, if the rule of Regulatory Ordinance 112-A/2011 of 22 March ends up being less restrictive than that of the CPPT, in that it does not include the expression "necessarily," nor does it refer to "administrative complaint" but to "administrative means." Hence, a reading of the very letter of the law is possible that is consistent with the meaning that only claims relating to a declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative means in terms compatible with articles 131 to 133 of the Code of Procedure and Process in Tax Matters are excluded from the scope of tax arbitral jurisdiction.

And this is the reading that is subscribed to, following the Decision issued in process 42/2012T of CAAD, and subsequent arbitral jurisprudence.

The objection of incompetence of the Arbitral Tribunal, invoked by the Tax Authority, should thus be dismissed.

Arriving here, it becomes possible, then, to address the substantive question submitted to this Arbitral Tribunal.

The Gordian knot of the matter in the present case lies in article 45/1(a) of the CIRC, in the wording in force at the date of the tax event, which provided that:

"The following charges are not deductible for the purposes of determining taxable profit, even when recorded as expenses of the taxation period:

(a) The IRC and any other taxes that directly or indirectly affect profits;"

Essentially, the question is to determine in casu whether the amounts incurred by the Applicant with autonomous taxes, assessed and paid in accordance with the CIRC, are or are not excluded from the determination of taxable profit, taxed in accordance with the same Code.

When one speaks of autonomous taxes, as is the case, it is convenient from the outset to keep in mind that one is dealing with a diverse set of situations, which will include, at least, three distinct types, namely:

• Autonomous taxation of certain income (e.g., paragraphs 3, 5 and 6 of the Personal Income Tax Code (CIRS));
• Autonomous taxation of certain deductible charges (e.g., paragraphs 3 and 4 of article 88 of the CIRC);
• Autonomous taxation of other charges regardless of their deductibility (e.g., articles 1 and 2 of article 88 of the CIRC).

This precision becomes important because, contrary to what the Applicant has attempted, it is understood that, given the disparity and heterogeneity of situations subject to autonomous taxes, it will be at this stage, not only unnecessary but even counterproductive, the effort to synthesize and seek a proper and unitary legal nature, common to all of those situations.

In the case at hand, note that the applicant does not specify the types of autonomous taxation concretely borne by it, focusing its argument, however, on jurisprudence and doctrinal constructions directed at autonomous taxation of fiscally deductible charges.

Given that the Applicant is taxed under IRC – and not Personal Income Tax – and that it makes no reference to confidential expenses or similar, nor maintains, in any way, that autonomous taxation on that type of expense should be deductible from taxable profit, the discussion shall be restricted to autonomous taxation of deductible charges and a properly grounded answer shall be sought to the question of whether the amounts paid under autonomous taxes on deductible expenses by an IRC taxpayer should be considered a deductible charge for the purposes of determining taxable profit subject to that tax.

Properly framed, in these terms, the question to be resolved in the present case, it remains to be recalled that the fundamental reference for the answer to be given thereto is formulated in article 9 of the Civil Code, according to which the legislative intention shall be reconstructed from the texts, which has at least a minimal verbal correspondence with the letter of the law, although imperfectly expressed.

In this framework, the objective of the present decision will not be to theorize about the legal nature of autonomous taxes in general, or of any of their various types, but rather to ascertain whether the legislative intention, with a minimum of verbal correspondence in the letter of the law, albeit imperfectly expressed, was, at the date of the tax event in question in the present case, to the effect that the amounts paid under autonomous taxes on deductible expenses incurred by an IRC taxpayer should be considered a deductible charge for the purposes of determining taxable profit subject to that tax.

Starting from the principle that the deductibility, or not, of the amounts incurred with autonomous taxes in question in the present case is, in fact, a matter of legislative policy, the question will then be whether, within the legal framework in force at the date of the tax facts sub iudice, such deductibility was or was not envisaged.

It is thus assumed from the outset that the methodological path followed here moves away from a markedly conceptualist basis, founded on a dogmatic definition of monolithic concepts of IRC and Autonomous Taxes, derived, in large part, from rules foreign to the matter to be decided, approaching what might be called "scholastic ontologism," which "considered it possible to deduce in purely logical fashion, from abstract superior concepts, others, increasingly more concrete and rich in content,"[5] evidenced in the recurrent insistence on the definition of IRC arising from articles 1 and 3 of the CIRC and, especially, in a unitary concept of Autonomous Taxes, aggregating legal realities of disparate nature and purpose.

Here, by contrast, the aim is merely to ascertain what solution, in light of constituted law, properly interpreted, appears appropriate to the concrete case, not taking the answer given to the question to be decided as a finished evidence, exact and with an extreme degree of rigor and exactness, but, merely, as that which, reflectively, presented itself to its subscribers as the legally better [one].[6]

In the examination of the matter in question in the present case, one must also bear in mind from the outset that the rule of article 45 of the CIRC is situated within a context of broad legislative discretion. That is, in defining what are deductible or non-deductible charges for tax purposes, the tax legislator enjoys broad discretionary power.

Hence, one cannot say that it is forbidden to the legislator, by the "nature" of autonomous taxes (and, concretely, of that which is peculiar to autonomous taxes arising from deductible expenses in IRC), whatever that may be, to exclude them from deductible charges for the purposes of the tax in question.

It is thus considered that it would be legitimate for the legislator to include or exclude the autonomous taxes in question from that category of deductible charges for purposes of IRC, regardless of the "nature" that doctrine or jurisprudence may perceive in them.

Thus, the question will be whether, up to 31.12.2013, by force of the understanding that autonomous taxes would be IRC, it is to be concluded that the legislator had already exercised its discretion to include charges with autonomous taxes among the non-deductible items for purposes of IRC.

Being so, it becomes already perceptible that the conceptual value of what, from a generic or doctrinal point of view, is IRC, or what is Autonomous Taxation (if a unitary concept of this is even possible), will be of little utility in the interpretive path to be followed, since, by nature, deductibility/non-deductibility of the corresponding charges will not result from them.

Another datum to bear in mind is that there is no principal objection to the legislator isolating certain types of income and taxing them with specific or differentiated rates, as occurs, for example, in the cases provided for in the various paragraphs of paragraph 4 of the current article 87 of the CIRC.

Similarly, there will be no principal objection to the tax in question being due, assessed and paid, not as a function of a period (more or less long) of taxation, but by force of the occurrence of instantaneous facts, as occurs, for example, in cases of withholding at source with definitive character (cf. article 94/3 of the CIRC).

This circumstance shows that the nature – instantaneous or continuous – of the impositive tax fact will not be decisive for any conclusion that may be drawn on the matter that now concerns us.

Finally, neither the result, apparently so counterintuitive and striking, that tax may be due by way of the autonomous taxes now in question, even in the absence of a (positive) taxable income at the end of the taxation period, is a rare phenomenon in the IRC regime.

Thus, and in some of the already pointed cases of withholding at source with definitive character, it may occur that the holder of income subject to that withholding has had expenses that exceed the income, yet being taxed by force of the aforementioned withholding.

Also in the case of the operationalization of some of the specific anti-abuse clauses (articles 63 to 67 of the CIRC), by force of the disregard of costs, it may occur that taxpayers are taxed on a fictitious taxable profit, insofar as the disregard of costs actually incurred but deemed abusive may be at issue. It may thus be the case that a taxpayer has to pay IRC, despite having actually incurred losses.

It should be said that this reference to situations of withholding at source with definitive character and to anti-abuse rules does not underlie an equating of them with the Autonomous Taxes sub iudice, nor even among themselves.

Rather, those situations are mere reflective topics on the question of the imposition of a tax obligation in situations of absence of income (profit), facilitating understanding of the analogical process of "approximation of the life situation to the rule" and "on the other hand, of the rule to the life situation."[7]

By this means it will then be shown that, the circumstance that Autonomous Taxes that are the object of these proceedings may impose a tax obligation even in situations of fiscal loss, despite, prima facie, being striking, should not, itself, be decisive in the argument underlying the final decision that must be taken on the matter.

Returning to the situation concretely at hand in the present case, it is verified that the Applicant supports its request, essentially, on the understanding according to which autonomous taxes relative to expenses with deductible charges in IRC apply to expense, and not to income.

Recognizing the matter in question as unequivocally complex, the result of a succession of legislative amendments in a context of economic degradation, it is understood that not only may things not be, necessarily, as the Applicant argues, but even that such framing may not be the most appropriate for the legal data.

In the examination of the question in question, one should, from the outset, bear in mind the jurisprudence formed over recent years regarding the constitutionality of the rule of article 5, paragraph 1, of Law No. 64/2008, of 5 December, in the part in which it made retroactive to 1 January 2008 the amendment to article 81, paragraph 3, paragraph (a) of the Corporate Income Tax Code, enshrined in article 1-A of the aforementioned legal instrument, which culminated with the respective declaration of unconstitutionality.

This jurisprudence, as is known, did not directly address the legal-tax nature of the autonomous taxes in question, but focused specifically on the question of determining the nature of the respective tax-impositive fact, that is, aimed to ascertain the concrete fact from which the birth of the legal tax obligation to bear the tax resulted, having concluded that such fact was the carrying out of certain expenses relative to charges identified in law – a fact of an instantaneous nature – and that, as such, the tax application to facts prior to the entry into force of the law would be contrary to the Constitution. This jurisprudence does not thus cover the question of the "nature" of autonomous taxes in IRC, but solely the determination of the nature of the tax fact (instantaneous or continuous) that underlies them.

It does not, however, mean that what has just been said signifies that from the jurisprudence in question subsidies cannot be drawn regarding the understanding that was somehow underlying the current jurisprudential line on the matter that now concerns us. One must not, however, lose sight of the fact that, as has been said, it was not that question that directly constituted the object of consideration of the courts, and any pretension in the said field should obtain support in the very textual argument of the decisions, taking into account their context, and not in the immediate decision-conclusive segment.

Now, viewed in this manner, it will be concluded, if not in the sense contrary to that conveyed by the Applicant, at least in the sense that the understanding sustained by it should not be considered as necessarily underlying the jurisprudence in question.

In effect, and from the outset, Constitutional Court Decision No. 617/2012, of 19-12-2012,[8] appears to adhere to the position of Prof. Saldanha Sanches on the matter, cited there, according to which:

"With this provision, the system reveals its dual nature, with an increased rate of autonomous taxation for certain special situations that are sought to be discouraged, such as the acquisition of vehicles for business purposes or vehicles that are deemed too expensive when losses exist. Here, a kind of presumption is created that these costs do not have a business purpose and, therefore, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since here the tax base is not a net income, but, rather, an expense transformed – exceptionally – into an object of taxation.";

Further in the same Decision one may also read that "As regards autonomous taxation in IRC, the tax-generating fact is the very carrying out of the expense" (emphasis ours), thus showing as underlying the idea that, notwithstanding the tax-generating fact being the carrying out of the expense, taxation still occurs within the scope of IRC!

Continuing, the Decision in question states that:

"For this reason, Sérgio Vasques (cf. Manual of Tax Law, Almedina, 2011, p. 293, note 470) draws attention to the circumstance that income taxes contemplate elements of single obligation, such as liberatory rates of Personal Income Tax or autonomous taxation rates of IRC."

Also in the second dissenting opinion in the same Decision it is written that:

"We are not here, strictly speaking, faced with a single obligation tax but with tax facts that, while affecting deductible expenses, are indissociably linked to the assessment and taxation of IRC" (emphasis ours).

Of course, already in Decision 18-2011 of the Constitutional Court, it could be read, in the dissenting opinion that was the forerunner of the jurisprudential reversal subsequently operated, that:

"Although formally inserted in the CIRC and the amount that it permits to collect is assessed within its scope and as IRC, the rule in question concerns a tax imposition that is materially distinct from taxation under this heading" (emphasis ours).

That is, and regardless of what is considered to be the underlying understanding regarding the nature of autonomous taxes on deductible expenses in IRC, it is concluded that in constitutional jurisprudence on the matter it was never the case that the amount collected by way of those autonomous taxes was a matter of IRC, from which it is concluded that this jurisprudence does not, from the outset, result in the charges incurred by those taxes being considered deductible costs for purposes of the said tax.

It is true that, still in the cited Decision 617/2012 of the Constitutional Court, it is stated that:

"In truth, although the taxation of certain charges is formally inserted in the Corporate Income Tax Code and the respective amount is assessed within the scope of that tax, such taxation is a tax imposition materially distinct from taxation in IRC."

However, and save for better opinion, the Constitutional Court is not here taking a position regarding the legal nature of the autonomous taxes now in question, understanding them as a tax distinct from IRC.

Because, from the outset, the Constitutional Court, it is thought deliberately, does not use the expression "tax," in expressing the distinction it makes, speaking instead of "tax imposition" and "taxation."

On the other hand, contextually understood, taking into account not only the passages already highlighted above, in particular the citation of Sérgio Vasques, as well as the framework and purpose for which the distinction in question is made, it should be concluded that the affirmation now commented on refers to the manner of imposition of the tax obligation to pay the amounts taxed under autonomous taxation, as being materially distinct from the ordinary manner of imposition of the tax obligation to pay IRC.

It will also be pertinent, in the matter now concerning us, to make a reference to jurisprudence of the Court of Audit (STA) relating to other questions than that immediately above addressed, but related to it, namely:

• The question regarding the scope of application of article 12 of the CIRC, prior to the amendment made by Law No. 109-B/2001, of 27 December;[9]
• The question regarding the applicability of rules relating to autonomous taxes affecting confidential expenses to an entity subject to tax on gambling.[10]

Before anything else, and regarding this matter, it should be said that it is understood that there is no opposition between the present decision and the said jurisprudence.

Because, from the outset, the legal questions decided are – patently – distinct, and, at most, some incompatibility may be verified between their respective theoretical foundations.

In effect, the questions that arise in the decisions in question are not those of knowing whether a certain rule applicable to IRC would also be applicable to autonomous taxes on expenses. This is, rather, the question that, conceptually, the Applicant abstracts from the decisions it analyzes. In fact, the questions that are decided in the STA decisions in question are those indicated above, whereas in the present decision, as has been said, what is sought is to know whether in 2008 the legislator had already exercised its discretion to include charges with autonomous taxes among the non-deductible items for purposes of IRC.

Thus, and returning now, with propriety, to the jurisprudence of the Court of Audit,[11] contradiction between decisions will only be verified when "opposition between expressed solutions exists and such opposition must exist regarding the decisions themselves and not in relation to their foundations [not even sufficing mere implicit pronouncement or mere collateral consideration, made in the context of the examination of a different question.]"

It is not, evidently, denied that some considerations made here and there, in the context of the already alluded process of "approximation of the life situation to the rule" and "on the other hand, of the rule to the life situation," are incompatible. But the decided in some and other decisions is not, precisely because the "life situation" appraised is not.

Furthermore, any judgment of decision contradiction will, in any case, be surmountable if we free ourselves from an aggressive aprioristic conceptualism and embrace a systemic understanding of applicable law in its entirety, understanding thus that the complexity generated by successive amendments in the architecture of the CIRC has led, as will be referred to below, to an atypical normative building, in which one may discern a core corresponding to what may be called IRC tout court (or in the strict sense), and a periphery that integrates "marginal" regulations, subtracted, in large part, from the logic, nature and principles of IRC tout court, but which, nonetheless, still situate themselves in the "gravitational field" of that.

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

Viewed in this manner, one cannot fail, moreover, to find a certain line of coherence between the decisions in question, which results, among other things, from the circumstance that the entities covered both by article 7 and by article 12 of the CIRC are IRC taxpayers, so that the legal regime of IRC – IRC in the broad sense – will apply to them, without prejudice to a substantial part, corresponding to IRC in the strict sense, coming to be removed by force of the specialty of the regimes to which they are subject (fiscal transparency/special gambling tax).

Thus, and from the outset, let it be verified that, in relation to the decision of process 0830/11 of the Court of Audit, it was concluded, precisely, in the sense in which the legislator came to provide. That is, the Court of Audit considered that the non-subjection to IRC of entities subject to the fiscal transparency regime did not cover autonomous taxes, precisely what was legally enshrined, within the logic that autonomous taxes still integrate the IRC regime.

Now, this will only be logically comprehensible within the hermeneutic framework outlined above, that is, that, by force of the historical evolution of its respective legal regime, a type of IRC was constituted that integrates a hard core – in which the judge of the Court of Audit considered, and rightly so, autonomous taxes did not integrate – and a group of adjacent rules that shares part of the logic and regime of that, but which in many respects diverges from them.

Similarly, and now as regards the matter of process 077/12, and with the particularity, which cannot be overlooked, of there being at issue autonomous taxes on confidential expenses, what was decided there may be understood in light of the aforementioned understanding, that is, that what the Court effectively did was to define that the non-applicability of the IRC regime to activities subject to special gambling tax is limited to IRC tout court, excluding autonomous taxes on confidential expenses, having, perhaps, underlying the understanding that the gambling tax will integrate, in some manner, a special income taxation regime (similarly, for example, to the former real estate tax), which does not prejudice the application of the general IRC regime in what with that special taxation is not incompatible.

Accepting then, as materially distinct, in the sense established by the Constitutional Court, as to the manner of tax imposition, taxation under autonomous taxes now in question, from that which occurs under IRC tout court (the former being by way of an instantaneous fact and the latter by way of a continuous fact), it is nonetheless understood that such autonomous taxes, affecting deductible charges, still occur within the scope and by title of IRC, just as, for example, autonomous taxes under Personal Income Tax (and the very liberatory rates which, save for better opinion, will themselves also integrate a kind of autonomous taxation[12]), notwithstanding that they may be based on instantaneous facts, are assessed and paid as Personal Income Tax, integrating the regime of that tax.

It is thus understood that one thing is the type of tax fact that underlies a certain imposition. Another thing is the title by which such imposition is due, in essence, the cause[13] of the tax obligation. And in the case of autonomous taxes under IRC, that cause, the title by which the tax is exacted, will still be IRC.

In this sense, one must bear in mind, among other things, that the legal regime of autonomous taxes in question in the present case only makes sense in the context of taxation under IRC. That is, disconnected from the legal regime of this tax, they will lack their principal reference of meaning. Their existence, their purpose, their explanation, in essence, their juridicity, is only properly comprehensible and acceptable within the framework of the legal regime of IRC.

In fact, autonomous taxes now being analyzed belong, systematically, to IRC, and not to VAT, IS, or to any new tax. Because, although it may be accepted that the impositive tax fact will be each of the singular charges legally typified, the fact is that these are not, qua tale, the final object of taxation, the reality that is intended to be taxed. If such were the case, they would obviously be taxed in all expenses incurred by all subjects, and not merely by some.[14]

That is, autonomous taxes of the kind now concerning us are strongly linked to the subjects of the income tax in question, and, more specifically, to the economic activity carried out by them.

This aspect becomes even more evident if one pays attention to another fundamental datum present from the beginning: the circumstance that autonomous taxes now in question only affect, at the date of this dispute, deductible expenses!

This circumstance, it is believed, is elucidative of the interweaving existing between those and IRC (in the case), and justificatory not only of their inclusion in the CIRC, but equally of their integration, as of right, as part of the legal regime of IRC.[15]

In fact, not only:

• Only charges carried out by IRC taxpayers are subject to the imposition of autonomous taxation in such framework;
• As such charges will only be so if those taxpayers elect them as deductible expenses in determining the taxable matter of such tax.

The framework thus traced is, it is considered, substantially distinct from what would be a tax affecting certain expenses, objectively considered, and it appears that the quality and option of the taxpayer have here a relevance, if not greater, at least identical to the charge that triggers the tax imposition.

For that matter, it may always be said that if the IRC taxpayer opts for not deducting from taxable profit for purposes of that tax the charges corresponding to expenses subject to autonomous taxation, it will not have to bear the latter, which will be demonstrative of what was pointed out above, that is, that the cause of autonomous taxes will still and ultimately radiate from the IRC regime.

In this framework, and returning to the question to be decided formulated ab initio, as being to determine what the legislator's intention is, expressed in the legislative text, understood as a whole, the conjunction of the content of article 12 of the CIRC with article 45/1(a) thereof, will leave little doubt regarding the legislative understanding that autonomous taxes, if they do not constitute IRC stricto sensu, will certainly integrate the regime of that tax, and will be due by that title.

It is thus considered that the legislative intention, with a minimum of verbal correspondence in the letter of the law, albeit imperfectly expressed, was, at the date of the tax event in question in the present case, to the effect that the amounts paid under autonomous taxes on deductible expenses incurred by an IRC taxpayer should not be considered a deductible charge for the purposes of determining taxable profit subject to that tax.

The correspondence of such intention in the legislative text is well apparent in the content of article 12 of the CIRC, in force already at the date of the tax event, which states that:

"Companies and other entities to which, in accordance with article 6, the fiscal transparency regime applies, are not taxed in IRC, except as regards autonomous taxes." (emphasis ours).

That is, in the perspective of the legal system, reflected in its text, autonomous taxes integrate the regime of, and are due by title of, IRC, which is why in the rule just transcribed the legislator expressly reserved their application. Hence, parallelly, if it were the legislator's intention to exclude autonomous taxes from the scope of paragraph (a) of paragraph 1 of article 45 of the CIRC, it would have said so expressly, since it would not make sense (would not be reasonable) that in one rule of the Code (article 12) the legislator understood that taxation in IRC encompasses autonomous taxes and in another (article 45) understood the opposite.

Let it be clarified that no assimilation whatsoever of autonomous taxes to IRC is proceeded with here, stating rather that the wording of the rule in question, in force at the date of the tax facts sub iudice, has underlying (or makes part of the evolutionary process of the construction of IRC in the terms already addressed above – in the strict sense and in the broad sense – as will happen in the rule that now concerns us, article 45/1(a) of the CIRC then in force), and, already now, in article 7 of the CIRC, properly interpreted and understood.

On the other hand, and reinforcing what has just been expounded, article 3 of the recent Law 2/2014 of 16 January, came to add article 23-A of the CIRC, which succeeds the former article 45 and to which, by what has just been said, should be conferred, in the matter now concerning us, an interpretive character, came to provide that:

"1 — The following charges are not deductible for the purposes of determining taxable profit, even when recorded as expenses of the taxation period:

(a) IRC, including autonomous taxes, and any other taxes that directly or indirectly affect profits;" (emphasis ours).

That is, and in summary, from the consideration of the legislative text in its entirety, statically and in its historical evolution, it results that the legislator understood, and continues to understand, that autonomous taxes integrate IRC, if not as a tax stricto sensu, at least in terms of being part of the same unitary tax regime, and should be given the same treatment regarding deductibility for purposes of calculating taxable profit.

This will not be opposed to by the provision of article 1 of the CIRC, which states that the tax in question "affects income obtained (…) in the taxation period."[16]

In effect, and from the outset, the rule in question should be understood as a programmatic or ordering rule, proclaiming a general (normal) sense or intentionality of the tax in question, but not having underlying any strictly typifying or delimiting intention regarding the operability of the same.

On the other hand, such a rule preexists the emergence of the current regime of autonomous taxes in IRC, so no decisive conclusion should be drawn from the maintenance of its wording in light of that phenomenon, except, perhaps, the legislator's lack of consideration of the overall system, when making punctual amendments to it.

In fact, the tax legislator has, in the recent past, changed the tax treatment related to autonomous taxes, without ever having changed the perspective of including them in income taxation. It should be noted to this end the introduction in a first phase of the non-deductibility of cost allowances and charges with compensation for displacement in own vehicle of the worker in the service of the employing entity in the cases developed in that provision, only to quickly transform the non-deductibility into generalized deductibility of those charges, replacing it with (one more) autonomous taxation. Another zigzag in the tax treatment in this regard relates to the replacement of the partial non-subjection (only on the portion of depreciation) to autonomous taxation when there is a written agreement with the worker or statutory body regarding the use of motor vehicles in relation to which the agreement provided for in paragraph (b) of paragraph 3 of article 2 of the Personal Income Tax Code has been celebrated, to, following the recent IRC Reform, such replacement to become total, that is, if such written agreement exists, there will be no autonomous taxation on any charges related to those vehicles. And before this amendment, there had been another (curiously only reflected in the IRC Code, and not in the Personal Income Tax Code, regarding autonomous taxation of motor vehicles related to some Category B charges) in the sense of expanding autonomous taxation under IRC to all charges made or borne, and not just deductible ones, as existed at the date of the event of which we are dealing.

In any case, it appears that it will not even be a matter of, in concreto, ratifying that conclusion, in that, as has been said, in the perspective of the legislator, autonomous taxes in question in the present case will integrate, effectively and unequivocally, the IRC regime, being due by title of that tax.

This does not mean that the definition of IRC contained in articles 1 and 3 of the CIRC is understood to be superseded by a new definition of general/transversal application, such epistemological stance being proper to a conceptualism which, preliminarily, was repudiated.

Conversely: it is a question of acknowledging that which, in light of the legal framework in force, is necessary as the most reasonable: the definitive abandonment of any definition of general/transversal application of IRC, and the recognition of its regime as a complex and multifaceted reality, irreducible to a definition of such nature, which only a fundamentalistically abstractionist conceptualism could presume.

All that has been said evidences that the evolution of the legal regime of IRC has transmuted it into a complex and multifaceted reality, at the most diverse levels, which is reflected, in the matter now concerning us in the present case, in that "dual nature" of which Prof. Saldanha Sanches spoke in the passage cited in Decision 617/2012 of the Constitutional Court.

The recognition of this duality of nature does not, however, prejudice, as it is understood to be underlying both the citation in question and the jurisprudence citing it, that it be considered that the system, despite being dual, is the same.[17] Put another way, it only makes sense to speak of a dual nature system if the system in question, globally considered, is still the same. Otherwise, one would speak not of a system of dual nature, but of two distinct systems, which, by all that has been said, is not what occurs. And, in casu, the system will be the IRC regime, which, operating now through profit, now through expenses, aims at and pursues the purposes proper to that tax, including, evidently, the collection of revenue for the State.

In this respect, it is understood that, in the current context, notwithstanding the undeniable finding that autonomous taxes have come to weigh significantly in the fiscal revenues of IRC, it cannot be concluded that those are essentially a revenue collection tax (purpose "essentially fiscal"), disproportionate and disconnected from taxpaying capacity. Effectively, in a context in which Personal Income Tax rates reach values significantly beyond 50%, for still middle-class income levels, autonomous taxes will, surely, not integrate the "eye of the hurricane" of such problems.

Notwithstanding, the said modus operandi by way of expense, typical of autonomous taxes now being analyzed, will still be susceptible to being materially connected with the income which, ultimately, legitimates IRC.

In effect, and as was highlighted above, the said taxes intervene, chiefly (at the date of the facts in question in the present case, integrally) in the autonomous taxes now in question, because the taxpayer opts for deducting the expenses on which they affect from its gains for IRC purposes. This circumstance will be materially explained by the existence of current profits that the taxpayer intends to see reduced, or by an expectation of future profits, which will likewise be reduced by force of the accounting of the charge corresponding to the expense subject to autonomous taxation.

Put differently: a taxpayer that has not, nor counts on coming to have, taxable profit in IRC, will not be affected by autonomous taxes in question in the present case,[18] since it may simply not deduct from its gains the expenses that trigger those. In such a situation, the taxpayer in question will have a smaller fiscal loss – which will be irrelevant to it, since the dimension of this will only have significance if and when the question of its offset against a taxable profit arises – but will not be subject to autonomous taxation.

In this manner, in one or the other case, one will always be, ultimately, in view of income, present or future, that the legislator tolerates being taxed less (by force of consideration of the deducted expense), in exchange for an immediate taxation, when the expense is realized, aiming then, in this perspective, the autonomous taxes to which we refer, albeit mediately, the income of the taxpayer.

Such taxes will be, under this point of view, a (convoluted, certainly) form of, indirectly and through expense, still taxing the income (effective or potential/future) of legal entities.

And it is because this is so that it is conferred on the taxpayer the option to account as a deductible charge the amount of the charge subject to autonomous taxation, bearing it, or not deducting it, being taxed on the resulting income, in "normal" terms.

This aspect, which conditions the event of the type of autonomous taxation in question in the present case to an option of the IRC taxpayer, further evidences that what is aimed at, at least directly or in the first instance, is not the income of the natural person putatively benefiting from the expenses or charges, since if it were, the autonomous taxation in question should operate independently of its eligibility as a deductible charge by the IRC taxpayer, as indeed happens with other types of autonomous taxation.

Autonomous taxes in question will also, under another point of view, integrate the list of specific anti-abuse rules, the similarity being apparent, for example, with the rule of the current article 65/1 of the CIRC, which provides that:

"Not deductible for the purposes of determining taxable profit are amounts paid or due, under any title, to natural or legal persons resident outside the Portuguese territory and there subject to a clearly more favorable tax regime, except if the taxpayer can prove that such charges correspond to operations effectively carried out and do not have an abnormal character or an exaggerated amount."

That is, in the cases to which the autonomous taxes in discussion refer, the legislator could have opted for a regime similar to that established in the transcribed rule, simply forbidding the respective deductibility, or conditioning it in the same terms as the above rule, or in others that it considered appropriate. Instead, it chose not to go so far, remaining the legal regime of IRC on the charges in question at a level short of that, by permitting the deductibility of the charges in question, in exchange for the immediate payment of a portion of the taxable profit that, present or in the future, will be affected by such deduction.

Notwithstanding, the similarity of the regimes will still be undeniable, as well as the concerns and purposes underlying them.

What has just been said thus underlies the finding that autonomous taxes, including those in question in the present case, owe much of their raison d'être to the circumstance that it will, objectively, be unviable to tax in full on a rigorous basis, under Personal Income Tax, in the actual beneficiaries of the expenses subject to those (which would amount to a taxation of fringe benefits as was conceived and applied in Australia and New Zealand). It is not ignored thus that autonomous taxes of the type that now concern us have a facet directed directly at the income of natural persons. As they have, for that matter, a sanctioning facet – in the sense of imposing unfavorable treatment – regarding the type of expenses that trigger them. However, these facets do not empty, nor, much less, render impossible, another facet, equally (if not more) relevant, inseparably interlinked with the income of legal entities.

It is thus understood that, by way of the impositions in question, what is also aimed at is, at least in the same measure, to discipline the use by companies of expenses that may be necessary, in a part, to the pursuit of normal activity, but which – based on a judgment of normalcy – will also be for the benefit of natural persons who end up enjoying them in their private and not professional capacity. Except that, the Tax Administration not having any "measuring stick" to make such separation, the legislator, for quite some time, has been opting for the introduction in the IRC Code of this part that already considered objectively, at the date of the present case (article 12 of the CIRC will be sufficiently enlightening about the legislator's spirit, as has been pointed out previously), an imposition, at minimum, similar to IRC, even if such disposition may be questioned (as well as the current wording, regarding inclusion in IRC of autonomous taxes in article 23-A of the IRC Code).

There are recognized here, thus, those characteristics that doctrine has been pointing out for some years to autonomous taxes in question as being:

a) Autonomous taxation only makes sense because costs/expenses are relevant as negative components of IRC taxable profit. It is this that motivates IRC taxpayers to report as high a value as possible of such expenses to reduce the taxable matter of IRC, the tax collection and, consequently, the tax to be paid;

b) It is intended to discourage that type of expense in taxpayers that present negative results but that, regardless, continue to evidence consumption structures little or not at all compatible with the financial health of their companies;

c) It is, in a more general thesis, to model the tax system so that it reveals a certain equilibrium with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) Certain expenses are viewed unfavorably in which, admittedly, it is not easy to determine the exact measure of the component that corresponds to private consumption, and regarding which the general practice of abuse in their reporting is known.

Better or worse, autonomous taxes now in question should thus be understood as a form of preventing certain abusive actions that the "normal" functioning of the taxation system was incapable of preventing, and other forms of combating such actions, including forms more burdensome for the taxpayer, were possible.

This anti-abuse character of autonomous taxes now in question will not only be coherent with its "anti-systemic" nature (as happens with all rules of that kind), as with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the jurisprudence citing it.

Under this prism,[19] autonomous taxes in analysis will then materially underlie a presumption of "partial" business purpose of the expenses on which they affect, based on the above-mentioned circumstance that such expenses are situated in a gray line that separates what is business expense, productive, from what is private expense, consumption, and that, notoriously, in many cases, the expense will effectively in reality have a dual nature (part business, part private).[20]

Confronted with this difficulty, the legislator, instead of simply removing its deductibility, or reversing the burden of proof of the business purpose of the expenses in question (imposing, for example, a showing that "it does not have an abnormal character or exaggerated amount," as it does in articles 65/1 and 88/8 of the CIRC[21]), opted for enshrining the currently prevailing regime, which, notwithstanding, has precisely the same foundation, the same purpose, and the same type of result as other forms used in other typical situations of the regime (in the case) of IRC.

This presumption of "partial business purpose" should, in coherence, be considered as covered by the possibility of waiver generically enshrined in article 73 of the General Tax Law, either by the taxpayer or by the Tax Administration, which appears, for that matter, consistent with a proportional and adequate distribution of the burden of proof, in that, affecting the autonomous taxes in question on expenses of business purpose not evident at the outset, it will be the taxpayer that will be better positioned to demonstrate that such requirement is verified in concreto.

For its part, the Tax Administration itself, should it understand and consider that the case justifies the inherent expenditure of resources, may always demonstrate that, regarding the expenses in question, and even though autonomous taxation has affected them, the general requirement of article 23/1 of the CIRC is not verified, namely its indispensability for the realization of income subject to tax or for the maintenance of the source of production.[22]

Thus, and in summary, autonomous taxes the charge of which the Applicant intends to see subtracted from its taxable profit, may be regarded as a kind of consensual anti-abuse rule, in which the legislator proposes to the taxpayer one of three alternatives, namely:

a) Not to deduct the expense;

b) To deduct but to pay autonomous taxation, relieving itself as well as the Tax Administration of discussing the question of the business purpose of the expense;

c) To prove the full business purpose of the expense, and to deduct it in full, not bearing the autonomous taxation.

And let it not be said that it will not be possible for the taxpayer to not deduct from its taxable profit an expense that, being so, would be subject to autonomous taxation.

Thus, and from the outset, it should be borne in mind that accounting is not a closed normative system of mechanical/automatic application, quite the opposite, containing always a margin of discretion of the respective subject, based on ineliminable judgments of various kinds (technical, legal, economic, management), being explained, moreover, in this way the normalizing vocation of its regulation. In fact, accounting rules may establish "(…) a true kelsenian discretion, i.e., an intentional indeterminacy, as happens for example when the accounting rule establishes various alternative methods for the valuation of inventories (…)."[23]

In this manner, it does not appear correct the understanding that it will be forbidden (that it will be prohibited, or unlawful) not to deduct from taxable profit an expense that, being so, would be subject to autonomous taxation. There is, from the outset, no rule from which this would result.

On the other hand, it has been recurrently recognized at the jurisprudential level, a space of "autonomy" and "freedom of management of the taxpayer,"[24] in which it will be inadmissible the intromission of the Tax Administration, and where will be included the "judgment on the opportunity and convenience of expenses," which "is exclusive to the entrepreneur." And if it is true that this consideration has related to the classification of expenses as necessary, by identity, if not majority, of reasoning, it should be understood as covering, precisely, the judgment of unnecessity thereof.

That is, if the entrepreneur, in the exercise of the "judgment on the opportunity and convenience of expenses," deems them as not necessary for the maintenance of the source of production, such cannot, save for better opinion, be disputed by the Tax Administration, if for no other reason for lack of the general presupposition (of the process but applicable to the procedure) of lack of standing to act.[25]

It is not here being sustained, evidently, that autonomous taxes are optional. Rather, what will be (in a certain sense, at least) is the classification or not of a certain charge as deductible, in that it presupposes its necessity for the maintenance of the source of production, and such judgment is incumbent on the taxpayer. Recall – once again – that here only autonomous taxation of deductible expenses is appraised.

Nor is it here a question of suggesting that "expenses may be omitted." In effect, the accounting of a certain charge as non-deductible implies, precisely, its relevance in accounting, which is precisely the opposite of its omission. Besides, it could not be otherwise, given that tax rules must be applied within the principle of formal connection.[26]

The recognition of this presumptive nature of autonomous taxes in question in the present case, in the terms above suggested, will, moreover, be a safeguard of their constitutionality, in that there will be guaranteed both the possibility of their full deduction by the taxpayer, and their non-deduction, depending on the side to which the presumption underlying them is, concretely and in each case, rebutted.

In conclusion, in light of all that has been expounded, and in favor of conceptual rigor, it will further be said that the inclination is toward the understanding that autonomous taxes, as they presently exist, may be configured as a "hybrid" tax,[27] affecting the income of natural and legal persons, and not consumption or expense, since they will not present the principal characteristics of this form of taxation. Taking into account that they also do not affect property, and since the Constitution of the Portuguese Republic does not provide for other types of taxation, the legislator had only two solutions left: taxation in Personal Income Tax, in Category A, in the person of the direct beneficiaries (which it already does in some cases) or in IRC (and, by extension, in Category B of Personal Income Tax). In the latter case, the legislator could act at two levels (separately or simultaneously): not to accept the deductibility of some expenses in full or in part and/or to tax them autonomously. Faced with the historical finding of a high number of IRC taxpayers with fiscal losses, the option for the generalization of autonomous taxes ended up imposing itself.

Also here, once again, no contradiction will be consummated. The circumstance that the legislator could opt for non-deductibility or partial deductibility of expenses which, instead, it decided to subject to autonomous taxation, not only does not contradict, but reinforces,[28] what has been said, which will be clear if one bears in mind the non-validity, in any way, of the concealment of expenses subject to the autonomous taxation in question. Thus, the possibility, recognized to the legislator of limiting or excluding the deductibility of charges in question, will not in any way collide with the autonomy of the entrepreneur in classifying as indispensable – or not – the expenses in which it incurs.[29] Simply, in the latter case, the faculty in question will be inoperative – since, indispensable or not, the expense will not be deductible – and in the former, it will have only part of its normal effect – if it classifies the expense as indispensable it will deduct it in part (if such classification is not validly disputed by the Tax Administration, evidently), whereas if it does not classify it as such, it will not deduct it, at all.

Considering then that autonomous taxes affecting deductible charges in IRC integrate the regime, and are due by title of, that tax, and, as such are covered by the provision of paragraph (a) of paragraph 1 of article 45 of the CIRC, charges with the payment of such autonomous taxes will not constitute deductible charges for the purposes of determining taxable profit, it is understood:

a) That there was no erroneous interpretation of articles 17, 23, paragraph 1 and 45, paragraph 1, paragraph (a) of the Corporate Income Tax Code;

b) That there is no double taxation and violation of the principle of system coherence;

c) That autonomous taxes in question are not, an indirect tax on consumption, so no question arises of violation of Community Law, concretely of the common system of Value Added Tax (VAT); and

d) There is no violation of the constitutional principle of taxation of companies by real income,

wherefore, the present arbitral action should be dismissed.

C. DECISION

For these reasons, it is decided in this Arbitral Tribunal:

a) To rule totally unfounded the request for arbitral pronouncement and, consequently, to maintain the contested tax act;

b) To condemn the Applicant to the costs of the process, in the amount of €3,060.00, taking into account what has already been paid.

D. Value of the Process

The value of the process is fixed at €108,859.50, in accordance with article 97-A, paragraph 1, (a) of the Code of Procedure and Process in Tax Matters, applicable by force of paragraphs (a) and (b) of article 29, paragraph 1 of the RJAT and of paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Processes.

E. Costs

The value of the arbitration fee is fixed at €3,060.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Processes, to be paid by the Applicant, since the request was entirely unfounded, in accordance with articles 12, paragraph 2 and 22, paragraph 4, both of the RJAT, and article 4, paragraph 4 of the cited Regulation.

Notify parties.

Lisbon

8 October 2014

The Presiding Arbitrator

(José Pedro Carvalho - Reporting Arbitrator)

The Arbitrator Member

(João Ramos Pinto)

The Arbitrator Member

(Elísio Brandão)

[1] Regarding the first and second questions, the decision in process 209/2013T of CAAD regarding identical questions is closely followed, whereas regarding the third question, the decision in process 94/2014T of CAAD regarding an identical question is also followed. Both of the aforementioned and followed Decisions were reported by the reporting arbitrator herein.

[2] Available at www.dgsi.pt, as is the remaining jurisprudence indicated without special mention.

[3] In this sense, cf. e.g. the Court of Audit decision of 27-06-2007, issued in process 080/07.

[4] Available at www.caad.org.pt.

[5] Arthur Kaufman, "Philosophy of Law," 3rd Edition, Calouste Gulbenkian Foundation, p. 44.

[6] "It is precisely in pedantically exact arguments, thought with an extreme degree of rigor and exactness, that we frequently have the impression that something, in some way, does not make sense."; idem, p. 89.

[7] Arthur Kaufman, op.cit., p. 186.

[8] Available at http://www.tribunalconstitucional.pt/tc/acordaos/20120617.html.

[9] Cf. Court of Audit decision of 21 March 2012, issued in process No. 0830/11, available at www.dgsi.pt.

[10] Cf. Court of Audit Decision of 12 April 2012, issued in process 077/12, available at www.dgsi.pt.

[11] See, for all, the recent Decision of 26/02/2014, issued in process 01936/13, available at www.dgsi.pt.

[12] In this respect, it is stressed as especially relevant regarding the regime thereof the autonomization of income subject to them, and corresponding rates, and the instantaneous nature of the respective tax fact. On the other hand, undeniably close appears the regime of autonomous taxation of gratuities under Personal Income Tax (article 72/2 of the 2010 Personal Income Tax Code), which presupposes income and affects its holder, with that of liberatory rates. Which, if for nothing else, highlights the vain glory of fabricating a unitary concept of autonomous taxes, and for it, to the uttermost, contending.

[13] In this regard, cf. Soares Martinez, "Tax Law," 7th Edition, Almedina, 1993, pp. 191 et seq.

[14] This aspect is particularly evident under Personal Income Tax, where the autonomous taxes provided for in article 73 of the respective Code only apply to "taxpayers who possess or must possess organized accounting within the exercise of business and professional activities." And even among these, "Excluded are (…) taxpayers to whom the simplified regime for determining taxable profit provided for in [... text truncated ...]