CAAD 242/2018-T: SIFIDE Tax Credits Deduction Against Autonomous Taxation in IRC

ARBITRAL DECISION

The Arbitrators Counsellor Maria Fernanda dos Santos Maças (Arbitrator President), João Taborda da Gama and Carla Castelo Trindade, designated at the Administrative Arbitration Centre to form an Arbitral Tribunal:

I – REPORT

A..., S.A., taxpayer no...., with registered office at ..., ..., ...-..., ..., municipality of ..., in its capacity as the holding company of the Special Tax Treatment Regime for Groups of Companies ("RETGS") of group B..., filed a request for constitution of an arbitral tribunal, pursuant to 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 administrative appeals submitted against corporate income tax (IRC) assessment acts relating to the fiscal years 2015 and 2016, in the part in which they do not permit the deduction from IRC collection of the autonomous taxation rates of tax benefits determined under the System of Fiscal Incentives for Research and Development Enterprise (SIFIDE) in the amount of € 655,761.20.

The request is based on the following grounds:

The Applicant holds tax credits determined in the fiscal years 2009 and following within the scope of SIFIDE that have never been deducted due to insufficient collection.

In the fiscal years 2015 and 2016, it was not possible to deduct the tax credits in the part referring to IRC collection produced by autonomous taxation, resulting in the unduly paid amount of €544,678.71 and €111,082.49, respectively.

From the Applicant's perspective, the amounts paid as autonomous taxation should have been entirely offset with the available SIFIDE values, namely the allocation of the 2009 credit to the 2015 fiscal year and the 2010 credit to the 2016 fiscal year.

The Applicant understands that the collection to be considered for purposes of processing the IRC assessment should also include municipal surcharge (derrama) and Autonomous Taxation, regardless of the restrictions imposed by the Tax Authority's IT system when completing Form 22.

The Applicant considers that the deductibility of tax benefits from the amount determined pursuant to article 90 of the IRC Code does not require the existence of taxable profit, only requiring that there be IRC collection, which may exist even without taxable profit, due to autonomous taxation.

Regarding the norm of article 88, no. 21, of the IRC Code, introduced by Law no. 7-A/2016, of 30 March, it does not prevent the deduction from IRC collection of autonomous taxation, since, by its innovative and non-interpretative nature, it is not understood to apply to facts that occurred before its entry into force, namely to the fiscal year 2015, nor to the period between 1 January and 30 March 2016.

The Applicant further considers that the tax benefit created by SIFIDE, by its exceptional nature, cannot be subject to a restrictive interpretation in light of article 10 of the Tax Benefits Statute. Therefore, it is not possible to circumvent, through the effect of statutory interpretation, the legislative intention to grant a tax advantage to the taxpayer and interpret the law in a manner that restricts the enjoyment of the tax benefits in question, as this would undermine the credibility of "legislative promises" in tax matters and would be contrary to the principle of legitimate expectation and consequently to the Rule of Law.

Consequently, the Applicant requests the declaration of illegality of the decision rejecting the administrative appeals and the partial annulment of the IRC assessment for 2015 and 2016 in the part in which it did not permit the deduction from collection produced by autonomous taxation of the tax benefit.

1. The Tax Authority, in its reply, considers that the inclusion of autonomous taxation in the IRC Code, by its nature, purpose and autonomous character, due to the special configuration given to the material and temporal aspects of the taxable events, has as its logical corollary the application of the general norms specific to that tax that do not conflict with its special form of incidence, conferring a dualistic nature to the normative system of the tax that is embodied in the separate determination of the respective collections according to different rules.

2. There being thus place for two distinct calculations, which, although processed under paragraph a) of no. 1 of article 90, are effected based on the application of different rates to the respective taxable bases which are similarly determined according to specific rules.

3. The assessment of IRC is carried out through the application of the rates of article 87 to the taxable base determined pursuant to chapter III of the Code, whereas regarding the assessment of autonomous taxation, various collections are determined according to the rates provided for in article 87, resulting from the provisions of articles 88 and 89, depending on the diversity of the facts that give rise to the assessment of autonomous taxation, and accordingly one cannot speak of a unitary system of IRC taxation.

4. And in that sense the amount determined pursuant to paragraph a) of article 90 of the IRC Code comprises values calculated according to different rules, to which different purposes are associated, wherefore the deductions provided for in no. 2 of that article may only be effected from the part of IRC collection with which there is direct correspondence.

5. Otherwise, the deduction of tax benefits from the collection resulting from autonomous taxation would have a contradictory effect, allowing the realization of fiscal incentive objectives to come to eliminate autonomous taxation in relation to expenses that the legislator intends to discourage.

6. It concludes for the lack of merit of the request.

7. In submissions, the parties reiterated their previous positions.

8. On 10-05-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

9. The Applicant proceeded to appoint an arbitrator, having designated Dr. João Taborda da Gama, pursuant to article 11, no. 2 of the RJAT. Pursuant to no. 3 of the same article, the Respondent appointed as arbitrator Dr. Carla Castelo Trindade.

10. The arbitrators appointed by the parties were designated and accepted their responsibilities.

11. By order of 20-07-2018, and following the request submitted by the arbitrators appointed by the parties for the appointment of the arbitrator-president by the Ethics Council, an arbitrator-president was appointed, pursuant to article 6, no. 2, paragraph b) of Decree-Law no. 10/2011, of 20 January, who, within the applicable time period, also accepted the responsibility.

12. On 20-07-2018, the parties were notified of the aforementioned appointments and did not express the will to challenge any of them.

13. In accordance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 09-08-2018.

14. On 01-10-2018, the Respondent, duly notified for that purpose, presented its reply defending itself through objection.

15. Given that in the arbitral proceedings the general procedural principles of procedural economy and prohibition of useless acts apply, pursuant to paragraphs c) and e) of article 16 of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with, as well as the presentation by the parties.

16. The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the RJAT.

17. The parties have legal personality and capacity, have standing and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Thus, there is no obstacle to the hearing of the case.

Everything considered, it is necessary to issue

II. DECISION

A. MATTERS OF FACT

With regard to the matters of fact, the Tribunal does not have to pronounce on everything alleged by the parties; rather, it has the duty to select the facts that are relevant to the decision and to distinguish the proven facts from those that are not proven (see article 123, no. 2 of the CPPT and article 607, no. 3 of the CPC, applicable pursuant to article 29, no. 1, paragraphs a) and e), of the RJAT).

In this manner, the facts relevant to the judgment of the case are selected and determined based on their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (see previous article 511, no. 1 of the CPC, corresponding to current article 596, applicable pursuant to article 29, no. 1, paragraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, in light of article 110, no. 7 of the CPPT, the documentary evidence and the administrative proceedings attached to the file, the following facts were considered proven, with relevance to the decision:

• The Applicant is a company that is part of and leads group B...;

• In its capacity as the holding company of group B..., the Applicant bears responsibility for the payment of the tax, pursuant to current article 115 of the IRC Code;

• The Applicant holds tax credits determined in the fiscal years 2009 and following within the scope of SIFIDE that have never been deducted due to insufficient collection;

• The Applicant filed IRC Form 22 for the fiscal years 2015 and 2016, proceeding to assess autonomous taxation in the amount of € 655,761.20;

• In the fiscal year 2015, the Applicant determined a total collection amount of € 960,149.46 from which it was not possible to deduct tax credits in the part referring to IRC collection produced by autonomous taxation, resulting in the unduly paid amount of € 544,678.71;

• The Applicant had available in the fiscal year 2015 a balance of tax credits relating to the fiscal years 2009 to 2015 not yet expired, within the scope of SIFIDE of € 79,693,282.94, plus € 8,557,598.74 from the current year;

• In the fiscal year 2016, the Applicant determined a total collection amount of € 287,200.52 from which it was not possible to deduct tax credits in the part referring to IRC collection produced by autonomous taxation, resulting in the unduly paid amount of € 111,082.49;

• In fiscal year 2016, the Applicant had tax credits relating to fiscal years 2010 to 2015 in the total amount of € 79,037,892.00;

• From the Applicant's perspective, the amounts paid as autonomous taxation should have been entirely offset with the available SIFIDE values, namely the allocation of the 2009 credit to the 2015 fiscal year and the 2010 credit to the 2016 fiscal year;

• The Applicant filed administrative appeals against the autonomous taxation assessment for the aforementioned fiscal years 2015 and 2016, which were examined and rejected under case numbers ...2017... and ...2017....

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

B. ON THE LAW

The Tribunal does not agree with the thesis defended by the Applicant, starting with the fact that it results from a legal interpretation that does not take into account the teleological and rational elements of autonomous taxation and IRC when it claims that it follows from article 4, no. 1 of the respective SIFIDE statute, combined with article 90 of the IRC Code, that the calculation of autonomous taxation is effected pursuant to article 90 of the IRC Code and therefore tax benefits can be deducted from the amount to be paid for autonomous taxation.

To understand what is being said and, consequently, why the Applicant's request is denied, we begin by briefly explaining the structural and dogmatic distinction between IRC and autonomous taxation. All in order to subsequently conclude that in the calculation of autonomous taxation no deductions are permitted and the assessment of autonomous taxation is effected pursuant to articles 88 and 89 of the IRC Code using solely no. 1 of article 90 of the Code for purposes of the assessment procedure. Never pursuant to no. 2 and following of article 90 of the Code, since these contain instruments applicable solely to IRC.

Then we will proceed to analyze the SIFIDE regime to conclude that investment support regimes that are implemented through deductions from IRC collection refer to IRC collection strictly speaking, for whose determination autonomous taxation does not contribute.

Let us examine this.

Starting with the (fundamental) divergence regarding the nature of autonomous taxation.

Here, this Tribunal agrees with the uniform and reiterated position of both the jurisprudence of the Constitutional Court and the Supreme Administrative Court and of Doctrine.

Autonomous taxation is a tax on expenditure different and distinct from IRC which, indisputably, is a tax on income. This is without disputing whether autonomous taxation has or does not have nature – similarities – with IRC. Because regardless of possible similarities, there is no doubt that they are different taxes.

This jurisprudence began seven years ago in the Constitutional Court with the dissenting opinion of Esteemed Counsellor Vítor Gomes, appended to Decision no. 204/2010. In Decision no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Decision no. 18/11, moving closer to the then dissenting opinion of Counsellor Vítor Gomes.

This jurisprudence was later reaffirmed by the Plenary, in Decision no. 617/2012, case no. 150/12, of 31/1/2013 and, recently, in Decision no. 197/2016, issued in case no. 465/2015.

The Supreme Administrative Court has proceeded in the same direction, as will be confirmed, among others, in Decision of 21/3/2012, case 830/11, of 21/3/2012.

Doctrine also follows this position.

From Sérgio Vasques, in footnote 60, page 342, of his Manual de Direito Fiscal, Almedina, 2015, to Rui Morais in Apontamentos ao IRC, Almedina, 2009, pp. 202-203, passing through Professor Casalta Nabais in his Direito Fiscal, 8th ed., Almedina, Coimbra, 2015, p. 542 and by Professor Ana Paula Dourado in Direito Fiscal, Lições, 2015, pp. 237 et seq. All reiterate the position already endorsed by Portuguese courts. Autonomous taxation and IRC are different taxes.

This understanding has been followed in various decisions, notably the arbitral decision issued by the collective presided over by Counsellor Carlos Alberto Cadilha in case no. 7/2018-T of 3 July 2018: "Autonomous taxation, although regulated normatively under the income tax regime, is materially distinct from IRC taxation, in that it does not directly apply to the taxable profit of the company, but to certain expenses that constitute, in themselves, a new taxable event (which refers not to the perception of income but to the realization of expenses)".

This thesis was transposed into law unequivocally by the legislator himself when in the redaction introduced to article 23-A, no. 1, paragraph a) of the IRC Code by Law no. 2/2014, of 16 January, it is stated that "IRC, including autonomous taxation, is not deductible for purposes of determining taxable profit". What sense would it make to clearly state in the law that autonomous taxation and IRC are not deductible from taxable profit if autonomous taxation were part of IRC? If that were the case, Double Taxation Avoidance Agreements would have autonomous taxation included where IRC is referred to, which, as is known, does not occur. That is moreover the reason why Portugal has been including autonomous taxation in the list of taxes covered. Thus, in light of what has been said, it can be concluded simply that if the fiscal legislator understood that IRC included autonomous taxation, it would not have needed to distinguish the two realities, since that IRC would already necessarily include autonomous taxation.

And it is not because autonomous taxation is inserted in the IRC Code that the two realities should be confused.

Recall that autonomous taxation was introduced by article 4 of Decree-Law no. 192/90, of 9 June, not having been immediately inserted in the IRC Code. The legislator only 10 years after the emergence of autonomous taxation decided to introduce it into the IRC Code through Law no. 30-G/2000 of 29 December. What the legislator sought with this systematization was an anesthetic effect, since, notwithstanding autonomous taxation being assessed independently from IRC, it is self-assessed together with the IRC return, through Form 22. On this matter, the Constitutional Court considered, in Decisions nos. 18/2009 and 85/2010, that autonomous taxation could be inserted in any other code or independent statute.

And the realities are different from the start because the objectives are different.

In IRC, the aim is to tax income under scrutiny of taxpaying capacity.

Autonomous taxation, meanwhile, has had, at least originally, two very different objectives always under the legitimation of the principle of tax equality.

The first was to tax in the business sphere what cannot be taxed in the personal income tax (IRS) context, and the second was to discourage the realization of certain expenses or certain behaviors. On this matter, Professor Saldanha Sanches even stated that "In this type of taxation, the legislator seeks to respond to the notoriously difficult question of the tax regime found in the intersection zone of the personal and business spheres", adding further that in the "designation of 'autonomous taxation', very diverse realities are hidden (...)" (Manual de Direito Fiscal, 3rd edition (2007), Coimbra Editora, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation "(…) fulfills, in essence, two functions: on one hand, to prevent erosion of the tax base in IRC, by imposing taxation on expenses that may be deducted by IRC taxpayers, but which, if deducted, transform themselves into an increase in taxation, thus intending to serve as a disincentive for such expenses; other types of autonomous taxation aim, purely and simply, to penalize behaviors presumptively evasive or fraudulent of taxpayers, constituting an anti-abuse mechanism."

In this sense, the arbitral decision issued by the collective presided over by Counsellor Carlos Alberto Cadilha in case no. 641/2017-T: "autonomous taxation rates have the nature of anti-abuse norms and are intended to discourage certain special situations aimed at obtaining a reduction in the tax burden through the deduction of costs that are presumed not to be determined by a business cause".

Autonomous taxation targets only certain expenses specified in the tax law, and not the taxation of business income that has been earned in that economic period; they aim to tax an asset advantage obtained, generally through the realization of these expenses and that results, consequently, in the reduction of taxable profit. IRC, for its part, aims to tax the actual income of the taxpayer taking into account their taxpaying capacity.

It should be recalled that it is unanimously accepted both by case law and by doctrine that autonomous tax rates (and personal income tax rates) are a single-obligation tax distinct from IRC itself (and personal income tax), which are successive-formation taxes. It should also be recalled that the autonomy of autonomous rates results from their possessing a taxable event radically distinct from IRS/IRC, from obeying their own assessment rules, and from serving very specific purposes.

The legislator has been expanding the scope of autonomous taxation, having come to include expenses relating to indemnities paid to managers, administrators or partners when they cease their functions, and likewise expenses relating to bonuses and other variable remuneration paid to managers, administrators or partners when these exceed certain thresholds. Which is justified as a way of ensuring "a fairer distribution of tax burdens and progressive moralization of companies' remuneration policies".

Indeed, the purposes of autonomous taxation are today varied but, in what is most important, it should be emphasized, they serve to guarantee tax equality guaranteeing the imposition of tax on values which, being expenses in the business sphere, prefigure income in the sphere of third parties and preventing abusive planning through recourse to tax havens. These objectives are of supreme importance for guaranteeing the fair distribution of income and wealth to which article 103, no. 1 of the CRP appeals.

In light of what has been said, if there are reasons that justify the admission of general deductions from the collection of the tax (IRC), permitted by law due to the principle of taxation of real and effective income as an element revealing taxpaying capacity, the same does not occur in relation to the collection due by autonomous taxation. Deduction from collection is a reality of IRC (and of IRS) as a tax legitimated by the principle of taxpaying capacity. In autonomous taxation, these are not the concerns and elements shaping the tax. It would even be illogical and, arguably, contrary to the principle of tax equality, to permit the deduction of expenses when such deduction, in practice, would destroy the anti-abuse sense that characterizes them and that is reduced to the discouragement of deviant behaviors that their establishment represses or eliminates.

In summary, autonomous taxation, which applies to certain expenses, operates differently from what constitutes the essential purpose of IRC, which taxes income, and, notwithstanding the systematic insertion and functional connection to IRC, the truth is that they are collected within the process of assessment of this tax without, however, losing their characterization and their own dogmatic root.

Let us now examine the theoretical substratum and look at the law.

The law says nothing about whether what is in article 90 of the IRC Code, under the heading "Procedure and Form of Assessment", applies to both realities – IRC and autonomous taxation – or to only one and which. However, in the understanding of this Tribunal, a teleological and systematic interpretation of the law makes clear that no. 1 of article 90 – which contains the assessment procedure – applies both to IRC and to autonomous taxation. Whereas no. 2 of the same article – which contains the form of assessment – refers to cases of taxable base referred to in article 15 of the IRC Code, that is, to IRC.

To better understand this conclusion, it will be necessary to understand that it was established in former no. 6 of article 109 of the IRC Code, current article 117, that the obligation to file the periodic income return covers entities exempt from IRC, when they are subject to autonomous taxation. And for certain purposes – namely for purposes of the deductions provided for in no. 2 of article 90 of the IRC Code or the calculation of installment payments or still the Result of the Assessment (article 92) – it fell upon the interpreter and the law applicant the task of identifying the relevant part of IRC collection. This by extracting from the applicable standards a useful sense, literally possible, that allows a coherent solution consistent with the nature and functions assigned to each component of the tax. Well, it is here that care must be taken.

When it comes to the deductions provided for in no. 2 of article 90 of the IRC Code, the Applicant seems to argue that the expression "amount determined pursuant to the preceding number" should be understood as encompassing the sum of the amount of IRC determined on the taxable base determined according to the rules of chapter III and at the rates provided for in article 87 of the same Code, and the amount of autonomous taxation calculated based on the rules provided for in article 88. Now, the result of this interpretation would imply from the start and in a very simple way that in the calculation basis for installment payments defined in no. 1 of article 105 of the IRC Code, and in terms identical to those used in no. 2 of article 90, autonomous taxation were included. Indeed, for the calculation basis of installment payments only IRC determined based on taxable base as determined according to the rules of chapter III and rates of article 87 of the respective Code is considered. And here there is no disagreement either in Doctrine or in case law. It should be emphasized that the coherence and appropriateness of this understanding is rooted in the very nature of installment payments of the finally due tax, which, according to the definition in article 33 of the General Tax Law, are "monetary payments made in advance by taxpayers during the period of formation of the taxable event", constituting a "(...) form of bringing the moment of collection closer to that of income perception so as to remedy situations in which such approximation cannot be effected through withholding at source". Therefore, it only makes sense to conclude that the respective calculation basis corresponds to the amount of IRC collection resulting from taxable base that is identified with the profit/income of the taxpayer's fiscal year.

Here, this Tribunal follows what the Respondent argues, insisting that the only (and consistent) interpretation of the expression "amount determined pursuant to the preceding number" with the nature of the deductions referred to in the paragraphs of no. 2 of article 90 of the IRC Code, relating to:

• credits for international legal and economic double taxation (current paragraphs a) and b));

• tax benefits (current paragraph c));

• special installment payment (current paragraph d));

• and withholding at source (current paragraph e)).

In reality, it is noted that the common feature of all the realities reflected in the deductions referred to in no. 2 of article 90 of the IRC Code lies in the fact that they concern income or expenses incorporated into the taxable base determined based on the taxpayer's profit or advance payments of the tax, being therefore entirely foreign to the realities that integrate the taxable events of autonomous taxation.

And it is said thus because for this Tribunal it is clear that the assessment to which the legislator intended to refer in no. 2 is to the taxable base referred to in article 15 of the IRC Code. Or put differently, the "original sin", never well resolved it is true, lies in the fact that (one must) understand, interpreting teleologically and systematically the law, that no. 1 of article 90 applies to autonomous taxation, a situation that persists even with the most recent amendment that merely established that there will be no deduction from the amount of the assessment resulting from autonomous taxation.

Thus, in the calculation of autonomous taxation, no deductions are permitted and the assessment of autonomous taxation is effected pursuant to articles 88 and 89 of the IRC Code and no. 1 of article 90 of the Code. Never pursuant to no. 2. The provision of no. 2 of article 90 applies to the sole tax whose operation and theoretical-constitutional substratum allows its application – IRC. The assessment procedure provided for in no. 1 of article 90 of the IRC Code also applies to autonomous taxation. However, saying this does not mean accepting that the same applies to no. 2 of the same article. No. This provision applies solely to IRC.

Having established this, we must now look at the SIFIDE regime to conclude then what was stated above, that is, that investment support regimes that are implemented through deductions from IRC collection refer to IRC collection strictly speaking, for whose determination autonomous taxation does not contribute. It does not contribute nor could it contribute because although article 4, no. 1 of the respective statute refers to the amount of tax determined pursuant to article 90 of the IRC Code, it is referring to the amounts determined pursuant to no. 2 of article 90 of the IRC Code. And in these we have, as we know, cases of taxable base referred to in article 15 of the same Code, i.e. IRC.

To reinforce this position, one must look at the Report of the Working Group established by Dispatch no. 130/97-XIII of the Ministry of Finance where it can be read that the tax credit or deduction from collection constitutes one of the modalities, among those provided for in no. 2 of article 2 of the EBF, that have been adopted especially in fiscal incentive measures for investment. And there are fundamentally two reasons: one, linked to the operationality of the benefit through transparency and simplicity of the calculation of associated fiscal cost, which, as is known, represents foregone fiscal revenue (from IRC); and another, which concerns the philosophy underlying the benefits, that is, their indexation to the profitability of investment according to which "the deduction of a certain percentage of an investment from the collection of a tax on profits only takes effect if there is profit, which rewards investment profitability" (Reevaluation of Tax Benefits in Cadernos de Ciência e Técnica Fiscal, no. 180, 1998, pp. 46-47).

SIFIDE II allows companies to obtain a tax benefit, under IRC, proportional to the expenditure on investment in research and development (at the level of processes, products and organizational) that they can demonstrate, in the part that has not been the subject of state financial support on a grant basis (See Law no. 55-A/2010 of 31 December, Decree-Law no. 82/2013 of 17 June and Law no. 83-C/2013 of 31 December). Concretely, the benefit to be obtained with SIFIDE II is translated into the possibility of deducting from the IRC collection determined in the fiscal year, an amount of tax credit that results from the sum of the following items: Base rate: 32.5% of expenses made in the fiscal year; Incremental rate: 50% of the increase in expenses made in the fiscal year compared to the simple arithmetic average of expenses made in the two preceding fiscal years, up to the limit of € 1,500,000, or that is and in summary: the values that reflect the tax benefit under SIFIDE are deducted "from the amounts determined pursuant to article 90 of the IRC Code, and up to their concurrence" and in the assessment relating to the period of taxation in which the qualifying expenses are made and that, in the absence or insufficiency of collection determined in those terms, the expenses that cannot be deducted in the year in which they are made "may be deducted up to the 6th immediate following year".

That is, the legislator of the SIFIDE regime, in making that express reference to the amount determined pursuant to article 90 of the IRC Code, is referring to IRC collection proper, for whose determination autonomous taxation does not contribute, precisely because it does not enter into the determination of either taxable profit or taxable base, and, as a consequence, does not contribute to the IRC assessed.

It is clear that, notwithstanding the SIFIDE article referring to article 90 as a whole, it refers to the amount determined pursuant to no. 2 of article 90, and this only applies, as is already known, to IRC.

The deduction relating to tax benefits (paragraph b) of no. 2 of article 90), when it comes to investment benefits – as is the case with SIFIDE – has underlying the philosophy that the benefit constitutes a reward whose amplitude varies with the profitability of investments, since the higher the profit/taxable base of IRC the greater will be the capacity to effect the deduction. And this is the logic of the SIFIDE tax benefit that justifies and legitimates the derogation to the principle of tax equality.

Thus, there is no conceptual error nor any contradiction between what has just been set out and the fact that the SIFIDE regime establishes that these are implemented through deductions from the collection of amounts determined pursuant to article 90 of the IRC Code, i.e., of IRC. It is because in the understanding of this tribunal, both autonomous taxation and IRC are assessed pursuant to no. 1 of article 90 of the IRC Code. However, of the two realities, the only one that is capable of deduction from collection – that is, of implementation of the benefit – is, both for literal reasons (because no. 2 of article 90 applies solely to IRC) and for material reasons (the benefit only takes effect if there is profit so as to reward investment profitability), the IRC collection which as we have seen is different and distinct from autonomous taxation. The result of autonomous taxation, determined in an autonomous/independent/separate manner does not contribute to IRC collection; on the contrary, it must increase IRC assessed for purposes of determining the amount to be paid or recovered, which constitutes a very different result. It should be noted in this regard that autonomous taxation is already due (increased) in the case of taxpayers who present tax losses.

In light of all that has been set out, and especially given the nature and reason for being of autonomous taxation, it is not possible to admit the deduction of tax benefits from autonomous taxation collection, under penalty of violation of the principle of tax equality.

Admitting this possibility leads to a taxpayer being able to effect a deduction for SIFIDE or other tax benefits from the amount of autonomous taxation related to undocumented expenses, completely subverting the function of such taxation in the prevention or avoidance of fiscally and socially undesired behaviors.

Indeed, given that the autonomous taxation regime has, especially, a function of discouraging abusive behaviors, this Tribunal does not see what logical reason that discouragement could then vanish in favor of a tax benefit. It is not clear how behaviors such as relations with tax havens can be disregarded and benefited from tax incentives for investment as this decision points out: This result is at least paradoxical. It would be to admit that tax credits resulting from incentive or tax benefit could neutralize the sanctionary effect of autonomous taxation, perverting the very concept of tax benefit and the principles of taxpaying capacity and fair distribution of the tax burden.

Because here it must also be recalled that tax benefits are absolutely exceptional norms in the tax system, in that they contain a derogation from the principle of tax equality, resulting from article 13 of the CRP. They can only survive, therefore, a constitutional validity judgment if the derogation they bring to the principle of equality is shown to be necessary, adequate and proportionate to the protection of the extra-fiscal purposes at stake, which does not occur in this case.

Such an interpretation of the IRC Code norms not only obscures the taxable event and procedure of autonomous taxation rates that are very specific, but above all, such an interpretation of the IRC Code norms assigns to the SIFIDE rules and tax benefits in general a constitutional dignity that they do not possess in confrontation with the principle of tax equality. Interpreted in this way, the IRC Code and SIFIDE norms, it seems manifest that the injury they bring to article 13 of the CRP does not appear to be necessary, adequate, or proportionate to the objective of promotion of science that is underlying SIFIDE.

Thus, the Tribunal does not perform a restrictive interpretation of article 4 of SIFIDE II but only a teleological and systematic interpretation of what is provided for both in SIFIDE and in the IRC Code so as to save the regime from the test of constitutional conformity, namely as it concretely concerns the violation of the principle of tax equality. Because we can never forget that the norms that discipline benefits such as SIFIDE possess exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality is necessary, adequate and proportionate to the extra-fiscal purpose that underlies them.

It is therefore not worthwhile to enter into the discussion, as it is beside the point, of knowing whether we are or are not dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of fiscal revenues. Clearly yes, otherwise the SIFIDE regime would not have been approved. The question is what fiscal revenue was ceded based on investment? Revenues derived from a tax that permits deductions and that obeys the principle of taxpaying capacity and that rewards those who invest, but those who generate tax admitting that those who obtain greater profit can invest more. Or what was intended (and was admitted) was to cede revenue derived from a tax on expenditure that under the reach of the principle of tax equality obliges those who have deviant behaviors – such as payment with allowances or representation expenses, or even payments to entities resident in tax havens – to cease to pay this tax by virtue of having investment expenses?

There is no doubt that it was the former.

So much so that the amendment introduced by the State Budget Law for 2018 altered the wording of article 88 of the IRC Code to the effect that no deductions are effected from the amount due for autonomous taxation even though these come from special legislation such as SIFIDE. Now, even without resorting to the interpretative character given by the legislator again to no. 21 of article 88 of the IRC Code, it is clear that the legislator – which recall, is always the same, the Parliament – intended to clarify what already resulted from the law.

And up to here, if there was no sign, neither in Law no. 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that with the addition to article 88 of the IRC Code of a general rule prohibiting deductions from the global amount determined for autonomous taxation, it was intended to interpret restrictively the expression "deduct from the amount determined pursuant to article 90 of the IRC Code" contained in a special norm of a separate statute, such as SIFIDE II, it is now clear with the new wording of no. 21 of the article that no deductions are permitted from autonomous taxation collection even though these come from special legislation.

In the thesis endorsed by this Tribunal, the legislator, in adding this no. 21 to article 88 of the IRC Code, with the content mentioned, merely adopted and reinforced the interpretative sense that already resulted from the existing norms.

Given all that has been set out, it is concluded, in this way, for the illegality of the deductibility of SIFIDE from autonomous taxation collection, without need to resort to the interpretative character given especially to article 135 of Law no. 7-A/2016, of 30 March (State Budget for 2016), to no. 21 of article 88 of the IRC Code, according to which "the assessment of autonomous taxation in IRC is effected pursuant to the provisions of article 89 and is based on the values and rates that result from the provisions of the preceding numbers, with no deductions being effected from the global amount determined."

Finally, not applying in the case at hand the norms whose constitutionality is questioned, it ceases to make sense the invoked material unconstitutionalities raised by the Applicant, especially by violation of the principle of non-retroactivity of the law, prohibited by article 103, no. 3 of the CRP.

Thus, for the reasons set forth, this Tribunal denies merit to the arbitral request for declaration of illegality of IRC self-assessment, in the part produced by autonomous taxation, with its consequent maintenance in the legal order.

***

C. DECISION

For which reason this Tribunal Arbitral judges the arbitral requests filed to lack merit and, in consequence, maintains the tax acts that are the subject of the present arbitral action.

D. Value of the Process

The value of the process is fixed at € 655,761.20, pursuant to article 97-A, no. 1, a) of the Code of Procedure and Tax Process, applicable pursuant to paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Let it be notified.

Lisbon, 10 January 2019

The Arbitrator President

(Counsellor Maria Fernanda dos Santos Maçãs)

The Arbitrator Member

(João Taborda da Gama –
Dissenting. Would have judged the requests to have merit, pursuant to, among others, the decision in Case no. 428/2017-T, which I signed, and for whose reasoning I refer)

The Arbitrator Member

(Carla Castelo Trindade)