Process: 28/2019-T

Date: September 9, 2019

Tax Type: General

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 28/2019-T) addresses whether SIFIDE (Sistema de Incentivos Fiscais em Investigação e Desenvolvimento Empresarial) tax credits can be deducted from IRC autonomous taxation liabilities for tax years 2015 and 2016. The petitioner company held €554,815.33 in SIFIDE credits but was unable to deduct these from autonomous taxation amounts of €62,546.55 (2015) and €62,891.29 (2016) due to technical impossibilities in the IRC declaration form. The central legal question revolves around Law 7-A/2016 of March 30, 2016, which introduced Article 88(21) to the IRC Code, explicitly prohibiting such deductions. The petitioner argued this provision should apply prospectively only, while the Tax Authority contended it had interpretative retroactive effect. The petitioner challenged the constitutionality of Article 135 of Law 7-A/2016, which attributed interpretative character to Article 88(21), arguing it violated principles of legal certainty and legitimate expectations by precluding deductions for prior tax years. The company had presented tax losses and nil tax liability base in both years, making SIFIDE credits unusable against regular IRC but potentially applicable against autonomous taxation. After administrative review rejection, the company sought arbitral resolution. This case is significant for Portuguese tax law as it clarifies the temporal application of tax benefit limitations and the distinction between interpretative and innovative legislative provisions affecting corporate taxpayers' ability to optimize R&D tax incentives against autonomous taxation regimes.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), João Marques Pinto and João Menezes Leitão, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Court, agree on the following:

I – REPORT

  1. On 14 January 2019, A..., S.A., Tax Number ..., with headquarters at Rua ..., municipality of ..., district of Évora, filed a petition for the constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the acts of self-assessment of Corporate Income Tax (IRC), relating to the tax years 2015 and 2016, to the extent corresponding to the non-deduction from the IRC tax liability of the amounts produced by autonomous taxation rates relating to tax incentive benefits in IRC, namely the benefits determined under the System of Tax Incentives for Research and Development Enterprise (SIFIDE), as well as of the decision to reject the administrative review (reclamação graciosa) that had such acts as its subject matter.

  2. To support its petition, the Petitioner argues, in summary, that the SIFIDE tax benefits should be deducted from the tax liability of autonomous taxations because:

    i. until the entry into force of Law no. 7-A/2016, of 30 March, there was no special procedure for calculating the IRC resulting from autonomous taxations, so the calculation should comply with the provisions of article 90 of the IRC Code;

    ii. only after the entry into force of Law no. 7-A/2016, of 30 March, which added number 21 to article 88 of the IRC Code (to which an interpretative nature was attributed), the deduction of SIFIDE from the tax liability produced by autonomous taxations would be prohibited;

    iii. article 135 of Law no. 7-A/2016 is materially unconstitutional insofar as, due to the merely interpretative character it attributes to the second part of number 21 of article 88 of the IRC Code, it precludes the possibility of deduction from the total amount resulting from autonomous taxations assessed in a given tax year in IRC, of deductions permitted in tax years prior to 2016.

  3. On 15-01-2019, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

  4. The Petitioner did not appoint an arbitrator, so, under the provisions of subparagraph a) of number 2 of article 6 and subparagraph a) of number 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

  5. On 06-03-2019, the parties were notified of these appointments and did not manifest any intention to challenge any of them.

  6. In accordance with the provisions of subparagraph c) of number 1 of article 11 of the RJAT, the collective Arbitral Court was constituted on 26-03-2019.

  7. On 06-05-2019, the Respondent, duly notified for this purpose, presented its defence by way of objection.

  8. Under the provisions of subparagraphs c) and e) of article 16, and number 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

  9. Having been granted a period for the presentation of written submissions, these were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

  10. It was indicated that the final decision would be notified by the end of the period provided for in article 21/1 of the RJAT.

  11. The Arbitral Court is materially competent and is properly constituted, in accordance with articles 2, number 1, subparagraph a), 5 and 6, number 2, subparagraph a), of the RJAT.

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

The proceedings are not affected by any nullities.

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

All things considered, it is necessary to deliver:

II. DECISION

A. MATTERS OF FACT

A.1. Facts Established as Proven

  1. The Petitioner is a company whose corporate purpose is the execution of projects in the area of lighting and electronics and consultancy activities in the same areas and commercialization of related articles and accessories, as well as development and innovation of new products.

  2. On 31-08-2016, the Petitioner filed the IRC tax return Form 22 for the tax year 2015.

  3. Within the scope of that assessment, the Petitioner presented tax losses in the order of €1,012,086.87 and declared €62,546.55 as autonomous taxations.

  4. In that assessment, an IRC tax liability with a nil base was determined, and accordingly no credits for tax benefits were deducted, and tax payable was determined in the total amount of €62,546.55, from which the amount of €130.19 of IRC to be recovered from withholdings at source was deducted.

  5. On 31-08-2016, the Petitioner proceeded to pay the IRC assessment relating to the tax year 2015.

  6. On 20-10-2017, the Petitioner filed the IRC tax return Form 22 for the tax year 2016.

  7. Within the scope of that assessment, the Petitioner presented tax losses in the order of €958,354.26 and declared €62,891.92 as autonomous taxations.

  8. In that assessment, an IRC tax liability with a nil base was determined, and accordingly no credits for tax benefits were deducted, and tax payable was determined in the total amount of €62,891.29.

  9. On 20-10-2017, the Petitioner proceeded to pay the IRC assessment for the tax year 2016.

  10. In the tax years 2015 and 2016, the Petitioner held SIFIDE credits available for use in the amount of €554,815.33.

  11. Due to technical impossibility in filling out the IRC Declaration, the Petitioner was unable, in the tax years 2015 and 2016, to deduct the amounts of SIFIDE credit it held from the IRC tax liability relating to autonomous taxations.

  12. In 2015 and 2016, the Petitioner's tax and social security situation was regularized.

  13. In 2015 and 2016, the Petitioner's profit was not determined using indirect methods.

  14. On 06-04-2018, the Petitioner filed an administrative review against the IRC self-assessment acts relating to the tax years 2015 and 2016, requesting the revision of the IRC assessment acts, deducting from the tax liability the tax benefits resulting from SIFIDE in the amount of €62,546.55 and €62,891.29, respectively, corresponding to the autonomous taxation determined, as well as the refund of the amounts paid as tax, plus compensatory interest.

  15. On 12-09-2018, the Petitioner was notified of the draft rejection of the administrative review and was given the opportunity to exercise the right to be heard, under article 60 of the General Tax Law (LGT).

  16. The Petitioner exercised the right to be heard.

  17. On 16-10-2018, the Petitioner was notified of the final decision to reject the administrative review.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of the Established and Non-Established Matters of Fact

Regarding matters of fact, the Court does not need to pronounce on all that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish between proven and unproven matters (see article 123, number 2, of the Code of Tax Procedure and Process (CPPT) and article 607, number 3 of the Code of Civil Procedure (CPC), applicable by force of article 29, number 1, subparagraphs a) and e), of the RJAT).

In this manner, the pertinent facts for judging the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) at issue (see article 511, number 1, of the former CPC, corresponding to article 596 of the current CPC, applicable by force of article 29, number 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the record, the facts listed above have been considered proven, with relevance to the decision.

No pronouncement has been made as to whether statements made by the parties and presented as facts, consisting of strictly conclusive assertions incapable of proof and whose truthfulness must be assessed in relation to the concrete matters of fact consolidated above, have been proven or not proven.

B. LAW

The main question to be decided in these proceedings, as summarized by the Petitioner and undoubtedly of some complexity in its resolution, is nevertheless simple in its formulation, and concerns the question of whether or not the Petitioner has the right to proceed with the deduction, also from the IRC tax liability produced by the application of autonomous taxation rates, of the aforementioned credits relating to SIFIDE available in its sphere.

The issues underlying autonomous taxations have been, in this as in other matters, the subject of acrimonious dispute between taxpayers and the Tax Authority, a situation that is undoubtedly not unrelated to the very nature, indeed anti-systemic, that such taxations have, within the framework of income taxes, where they originated.

Related to these issues may be seen, for example, the decisions in arbitral proceedings no. 174/2016-T, 122/2016-T, 34/2016-T, 567/2016-T, 60/2017-T, 61/2017-T, 65/2017-T, 99/2017-T, 433/2017-T, 474/2017-T and 45/2018-T, among many others.

Indeed, the discussion that erupted with the new autonomous taxation rates introduced by Law no. 64/2008, of 5 December, and initially focused on the nature of the taxable event underlying such taxation, opened a profound exploratory path regarding the nature of autonomous taxations and their relationship with income taxes, in particular the IRC, which covered the issues of the deductibility of the amount of autonomous taxations from the IRC tax liability, and the nature, presumptive or not, of autonomous taxations on deductible expenses, without there having been, to date, a definitive, doctrinally sustained and coherent legislative intervention to clarify the proper framework of such taxations in the structure of the income tax from which they emerge. Instead, disconnected and circumstantial legislative interventions have succeeded one another, which contribute nothing, on the contrary, to the clarification of the nature and function of such taxations.

In this framework, casuistic jurisprudential decisions succeed equally casuistic legislative interventions, generating a climate of uncertainty and instability where taxpayers and the Tax Authority have no alternative but to pursue the applicable law through perpetual litigation, placing on the judicial interpreter the ungracious task of, in the tangle of norms generated, serving the possible justice.

Let us see, then.

When one speaks of autonomous taxations, as is the case here, it is convenient from the outset to bear in mind that a disparate set of situations is at issue, which will include, at least, three distinct types, namely:

  • Autonomous taxation of certain income (e.g., article 72 of the current Personal Income Tax Code (CIRS), and, it is believed, that provided for in the current number 11 of article 88 of the IRC Code);

  • Autonomous taxation of certain deductible expenses (e.g., numbers 7 and 9 of article 88 of the current IRC Code);

  • Autonomous taxation of other expenses regardless of their deductibility (e.g., numbers 1 and 2 of article 88 of the current IRC Code).

From the perspective of the functionality/purpose/foundation of autonomous taxations on expenses (excluding, therefore, autonomous taxation of income), several types have also been identified, such as:

  • Discouraging certain taxpayer behaviors tending to be associated with fraud or tax evasion situations, as occurs, for example, with autonomous taxations on undocumented expenses or payments to entities subject to privileged tax regimes;

  • Combating the erosion of the taxable base, as occurs, in general, with autonomous taxations on deductible expenses;

  • Discouraging certain expenditures presumed to be non-business in origin, as occurs with autonomous taxations on vehicle expenses, allowances, or representation expenses;

  • Taxation of disguised distribution of income to third parties, not taxed in their sphere (fringe benefits), as occurs with autonomous taxations on vehicle expenses, allowances, or representation expenses;

  • Penalization for incurring certain expenses that do not affect the taxable base, nor have underlying any distribution of untaxed income to third parties or fraudulent or evasive potential, but which the legislator may have considered luxurious or sumptuary, as occurs with autonomous taxations on certain payments to managers, administrators or partners (current article 88/13 of the IRC Code), as well as autonomous taxation on vehicle expenses to the extent that it exceeds the normal IRC rate.

These data become important because in themselves they evidence the disparity and heterogeneity of situations subject to autonomous taxations, and the futility of, in jurisprudential terms, synthesizing and seeking a proper and unitary legal nature common to all situations.

In this manner, the discussion should focus on the concrete question raised by the Petitioner and seek a duly founded answer to the narrow terms of what is at issue in these proceedings, which will be to determine whether or not it is possible for the Petitioner to deduct from the portion of the IRC tax liability produced by autonomous taxation rates, available IRC tax benefits.

Properly framed in these terms, the question to be resolved in these proceedings must also bear in mind that the fundamental reference for the answer to be given to it will be that formulated in article 9 of the Civil Code, according to which the legislative intent must be reconstituted from the texts, which must have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

In this framework, the goal of the present decision will be, not to theorize on the legal nature of autonomous taxations in general, or of any of its various types, but rather to ascertain whether the legislative intent, with a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, was or was not, at the date of the taxable event in question in these proceedings, to permit the use of deduction from the portion of the IRC tax liability produced by autonomous taxation rates, of available IRC tax incentive benefits.

It is futile, it is believed, to seek a conceptualist basis, based on a dogmatic definition of monolithic concepts of IRC and Autonomous Taxations, drawn from rules extraneous to the matter to be decided, professing a "scholastic ontologism" that seeks to "deduce purely logically, from higher abstract concepts, others, progressively more concrete and full of content", a methodology that has been superseded.

What will be sought, in this manner, is merely to ascertain what solution, given the constituted law, duly interpreted, appears to be appropriate for the concrete case, not taking the answer given to the question to be decided as a finished, exact evidence with an extreme degree of accuracy and exactitude, but merely as that which, reflectively, presented itself to its signatories as the legally better one.

The basis of the Petitioner's claim is literally simple and straightforward and results from the finding that, where autonomous taxations are assessed in accordance with article 90, number 1 of the IRC Code, such assessment will be subject to the deductions provided for in its number 2, as well as, in the case and specifically, in article 4 of Law no. 55-A/2010.

The following is the content of the applicable normative provisions:

  • Article 90 of the IRC Code:

"1 - The assessment of IRC proceeds as follows:

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

b) In the absence of submission of the declaration referred to in article 120, the assessment is made by 30 November of the following year to which it relates or, in the case provided for in number 2 of that article, by the end of the 6th month following the deadline for submission of the declaration mentioned therein and is based on the annual value of the minimum monthly remuneration or, when higher, the total of the taxable matter of the fiscal year closest that is determined;

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

2 - To the amount determined under the preceding number, the following deductions are made, in the order indicated:

a) That corresponding to double international taxation;

b) That relating to tax benefits;

c) That relating to special payment on account referred to in article 106;

d) That relating to withholdings at source not susceptible to compensation or refund under applicable legislation."

  • Article 4 of Law no. 55-A/2010:

"1 - IRC taxpayers resident in Portuguese territory who exercise, as their main activity or not, an activity of an agricultural, industrial, commercial or service nature and non-residents with a permanent establishment in that territory may deduct from the amount determined under article 90 of the IRC Code, and up to its limit, the value corresponding to expenses with research and development, in the part that has not been the subject of financial contribution from the State as an outright grant, incurred in the periods of taxation from 1 January 2011 to 31 December 2015, in a dual percentage:

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

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

2 - For IRC taxpayers who are SMEs according to the definition contained in article 2 of Decree-Law no. 372/2007, of 6 November, who have not yet completed two fiscal years and have not benefited from the incremental rate fixed in subparagraph b) of the preceding number, an increase of 10% applies to the basic rate fixed in subparagraph a) of the preceding number.

3 - The deduction is made, under article 90 of the IRC Code, in the assessment relating to the period of taxation mentioned in the preceding number."

From a semantic-literal point of view, accepting the presupposition – which is now accepted – that the assessment of autonomous taxations is made in accordance with number 1 of article 90 of the IRC Code transcribed, no other meaning is possible to derive from the letter of the law than that presented by the Petitioner, and by all the arbitral jurisprudence on which it relies, making, in that restricted perspective, the conclusion condensed in its main arbitral petition irrefutable.

Hence, the Petitioner and the convergent positions with that sustained by the same, from a general point of view, do not undertake any relevant effort in systematically-axiologically validating their understanding (being that, when such occurs, it happens from a casuistic point of view, anchoring itself, above all, in the concrete type of deduction to autonomous taxation that is intended to be validated, or in certain types thereof).

Rather, such positions dedicate themselves, essentially, to refuting the argument that is being presented in the opposite direction, closing themselves in the linear understanding that can be synthesized in the following syllogism:

a) The SIFIDE credit can be deducted from the IRC tax liability;

b) Autonomous taxation is IRC;

c) Therefore, the SIFIDE credit can be deducted from the IRC tax liability generated by autonomous taxations.

It happens that legal reading, by legal (and also logical-rational) imperative, does not limit itself, nor should it limit itself, to the text of the norms as a semantic-grammatical reality, but should rather place itself on an axiological-rational plane, anchored in all elements of legal interpretation.

Hence, in order to obtain what is the legally most correct reading of the text, it is necessary to perform certain tests at the level of the systematic structure in which the norm to be interpreted is framed, so as to validate, in relation thereto, and in light of the criteria of rationality, congruence and reasonableness that necessarily guide that normative structure, the interpretation literally suggested.

Thus, and from the outset, a first relevant fact cannot be overlooked, namely that in articles 89 and 90, number 1 of the IRC Code, two forms of taxation converge, relating to the same tax but radically distinct, namely, traditional IRC, or stricto sensu, and autonomous taxations.

The nature of autonomous taxations, as mentioned earlier, has been the subject of broad discussion in recent doctrine and jurisprudence.

One school of thought has looked at them as a tax on expenditure, which would tax certain types of expenses, in a manner completely disconnected from income, to the point where some even argue that they constitute a tax in their own right, which would only casually be integrated into the IRS and IRC codes.

Nevertheless, the understanding that autonomous taxations on deductible expenses still integrate the regime of the taxes regulated by the codes in which they are integrated, aimed, even if in a convoluted manner, at the income taxed by those taxes, has obtained recurrent acceptance in CAAD jurisprudence.

Indeed, and as has been written elsewhere, "the complexity generated by successive alterations in the architecture of the IRC Code has led (...) to an atypical regulatory structure in which one can discern a core corresponding to what might be called IRC tout court (or in the strict sense), which the Petitioner seeks to have exhaust everything designated as IRC, and a periphery that integrates 'marginal' regulations, withdrawn, in large part, from the logic, nature and principles of IRC tout court, but which, nevertheless, still find themselves in the 'gravitational field' thereof.

"And it is in the process of realizing this difficult-to-define zone that all the decisions analyzed (...) operate, and they cannot be properly understood unless it is also understood that, in fact, what all the decisions in question are doing is determining what consequences the 'gravitation' around the core of IRC bring for the matters addressed in each of them."

In this sense, "within the hermeneutic framework outlined above, (...) by force of the historical evolution of its legal regime, a type of IRC has been established that integrates a hard core (...) and a group of adjacent norms that shares part of the logic and regime thereof, but which in many respects diverges from them." And, further on, "from consideration of the legislative text, statically and in its historical evolution, it follows that the legislator understood, and continues to understand, that autonomous taxations integrate the IRC, if not as a tax stricto sensu, at least in terms of being part of the same unitary fiscal regime."

This is because "the legal regime of the autonomous taxations at issue in these proceedings only makes sense in the context of taxation under IRC. That is, disconnected from the legal regime of this tax, they would lack their principal reference for meaning. Their existence, their purpose, their explanation, ultimately, their juridicity, can only be properly understood and accepted within the legal regime of IRC."

Hence, it is not understood that "the definition of IRC contained in articles 1 and 3 of the IRC Code" is "really superseded by a new definition of transversal/general application", such being an epistemological posture proper to a conceptualism that has been summarily rejected.

On the contrary: it is the recognition of what, given the current legal framework, is imposed as most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and the recognition of its regime as a complex and multifaceted reality, irreducible to a definition of that sort, which only a fundamentally abstractionist conceptualism could presuppose."

Therefore, "Everything that has been said shows that the evolution of the legal regime of IRC has transformed it into a complex and multifaceted reality, at the most diverse levels, which is reflected, in the matter that concerns us in these proceedings, in that 'dual nature' of which Professor Saldanha Sanches spoke in the passage cited in the Constitutional Court (TC) Decision 617/2012.

"The recognition of this duality of nature does not, however, prejudice, as is understood to underlie both the citation in question and the jurisprudence that cites it, that the system, despite being dual, is still the same. In other words, it only makes sense to speak of a dual-natured 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, given all that has been said, is not what occurs. And, in this case, the system will be the regime of IRC, which, operating now by profit, now by expenses, aims at and pursues the purposes proper to that tax, including, evidently, the collection of revenue for the State."

Finally, "In conclusion, given all that has been expounded, and in favor of conceptual rigor, it will further be said that there is a leaning toward the understanding that autonomous taxations, as they currently exist, may be configured as a 'hybrid' tax, levied on the income of natural and legal persons, and not on consumption or expenditure, as they do not present the principal characteristics of this form of taxation."

What has just been said echoes, to some extent, in the jurisprudence that has been produced by the Constitutional Court (TC), as occurs with TC Decision 197/2016, of 13-04-2016.

Indeed, recognizing that the matter of autonomous taxations is "regulated normatively under the heading of income tax", the TC confirms that such matter "is materially distinct from taxation in IRC", and that "we are (...) faced with distinct taxable events that are subject to differentiated tax treatment", even going so far as to affirm that "IRC and autonomous taxation are distinct taxes" and that such taxation "has nothing to do with the taxation of income and profits", statements that must be read, it is believed, with a grain of salt, by framing them within the limitations that contextualize them, referring them to the existence of a "base of incidence" consisting of "certain expenses that constitute autonomous taxable events", and the "subjection to specific rates", thus understanding that autonomous taxation "has nothing to do with the taxation of income and profits attributable to the economic activity of the company" (which does not mean that it is unrelated to income and profits in general), and that the distinction between autonomous taxation and IRC, being profound and marked, should be limited to what is necessary to safeguard the specificity thereof at the level of its respective teleology, base of incidence and specific rates, without prejudicing its integration into the same normative structure.

Indeed, it is believed that the TC is not arguing that autonomous taxation constitutes a tax on expenditure stricto sensu, completely unrelated and distinct from IRC, lest it be contradicted not only by the systematics of fiscal law and, expressly, by the legislator itself, but also irremediably condemn autonomous taxations to formal unconstitutionality, by violation of subparagraph i) of article 165, number 1 of the Portuguese Constitution (CRP), insofar as the authorizing laws for the creation thereof did not license the creation of a new tax on expenditure.

The TC will be aware that autonomous taxation will be, at least, a compensatory taxation of IRC which, because it is such, is IRC (in the broad sense) also.

The Supreme Court of Administrative Justice (STA) itself, disagreeing, from a principle perspective, with the characterization, has already also recognized that "the legislator (rightly or wrongly and, in our view, wrongly) has always considered them as IRC, including their legal regime within the scope of the respective code (at least since the aforementioned Law no. 30-G/2000, of 29 December)".

Nevertheless, and without prejudice to what has been expounded, one cannot, in the examination of the matter at issue, overlook the (emphatically affirmed by the TC) profound formal and teleological distinction between autonomous taxation in IRC and general taxation in that tax (IRC stricto sensu).

In summary: it has already been detected earlier, on one hand, the futility of seeking a unitary concept of IRC that coherently accommodates the regime of autonomous taxations, and that, on the other, the methodologically most fruitful way of generating legally appropriate solutions for the problem at issue is to understand the current IRC regime as the product of a historically explained evolution that led to the construction of a structure of a dual or hybrid nature, comprising a principal nucleus corresponding to traditional IRC, and an adjacent part, connected to that and forming part of the same overall regulatory reality, with its own specificities which result in a departure, in various and substantial respects, from the principal regime, in terms that general principles and solutions, notwithstanding sometimes applying, at other times contradict, and as such are inapplicable, to the proper nature of such "adjacent regulation" that is embodied in the so-called autonomous taxations.

Being that, as is already well known, such proper or specific nature, based on a logic alien to the principal structure of traditional IRC, will be characterized, essentially, by the notes sufficiently recognized as proper to autonomous taxations, namely, both as to their form of imposition (the instantaneous character of their taxable event and the circumstance that this consists of an expense), and as to their anti-systemic ratio (the fact that some of the autonomous taxations in IRC have a component directly aimed at the income of natural persons and/or a punitive component, as well as an anti-abuse purpose).

Here one arrives, it is believed, at the perception of the logical deficiency contained in the syllogism expounded earlier, on which the position contended by the Petitioner is based.

Indeed, it will be true that:

a) The SIFIDE credit can be deducted from the IRC tax liability; and that

b) Autonomous taxation is IRC.

However, as has been expounded, it is considered that the integration of autonomous taxations into IRC (that is, as materially forming part of the legal regime of IRC) is only viable in a context that recognizes in it a system with a dual nature, which may conveniently be designated as IRC in the broad sense, integrating a basic system corresponding to traditional or stricto sensu IRC, and a peripheral system, autonomous, which while still forming part of the same overall system, has its own functional and axiological specificities, which result in the departure from the application of the norms proper to that basic system, whenever such is justified in light of the coherence of the system itself (the reasons justifying its autonomy).

As the Respondent summarizes, "the integration of autonomous taxations into the IRC Code (and the Personal Income Tax Code), conferred a dualistic nature, in certain respects, to the regulatory system of this tax, which was embodied, namely, in the framework of subparagraph a) of number 1 of article 90 of the IRC Code, in separate determinations of the respective tax liabilities, by virtue of their being subject to different rules. And that, because, in one case, it is the application of the rate(s) of article 87 of the IRC Code to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is the application of the rates to the values of the taxable matters relating to the different realities contemplated in article 88 of the IRC Code."

This understanding has, moreover, already had some jurisprudential acceptance, it having been considered that the "autonomous taxation determined independently of the I.R.C. that is due in each fiscal year, by not being directly related to the achievement of a positive result, and therefore susceptible to taxation."

Hence, the syllogism formulated, in light of the understanding that was expounded, has its logical coherence undermined by the disregard of what has been pointed out, since the concept of IRC used in its premises is not the same.

In other words, yes, autonomous taxation is IRC, but only in a broad sense, constituting a peripheral system of income taxation of legal persons, with its own teleology and mechanics, which justify, in certain situations, its autonomy, in relation to the aforementioned stricto sensu IRC system.

Hence, given that – it is repeated, in light of the understanding that was expounded – the concept of IRC is not the same in both premises (the first premise is valid in the stricto sensu IRC system, and the second in the broad sense IRC system), the logical validity of the syllogism presented is compromised, from which it does not necessarily follow that the conclusion is false but solely the inability of the premises in question to sustain its validity.

Thus, and concluding here, one cannot, it is believed, in the path of the solution to be obtained for the question to be decided, overlook that, notwithstanding that autonomous taxations and traditionalstricto sensu IRC do indeed converge in the form of assessment regulated in articles 89 and 90, number 1 of the applicable IRC Code, they come, upstream, from profoundly distinct geographies, a fact that cannot fail to be duly weighed and taken into account in the solutions to be found downstream, namely, and for what interests the case, with respect to the reading to be made of the provision of article 90, number 2 of the said Code, as well as of the parallel provision of article 4 of Law no. 55-A/2010.

Proceeding downstream along the interpretive path in course, one will proceed to assess the consequences of limiting that hermeneutic process to the literal layer of the object under interpretation.

As the Respondent entity correctly points out in its reply, the understanding according to which from the lack of distinction, at the level of the text of number 1 of article 90 of the applicable IRC Code, there follows that, at the level of such rule, no distinction should be made taking into account the differences, upstream, of the tax that in those terms is assessed, would imply that on the basis for calculating payments on account due in IRC, would also be included the values relating to autonomous taxations, and not merely those relating to stricto sensu IRC.

Indeed, number 1 of article 105 of the IRC Code provides that: "Payments on account are calculated based on the tax assessed under number 1 of article 90 (…)".

Now, understanding that the regulatory content of article 90, number 1 of the applicable IRC Code precludes any distinction, for the purposes of other rules that refer to it, between the tax assessed as autonomous taxation and the tax assessed as stricto sensu IRC, one would have, coherently and in the same terms, to conclude that payments on account would be due based on the sum of both amounts, and such a solution cannot – it is believed – be held to conform to the spirit of a reasonable legislator.

Indeed – and without payments on account being the thema decidendum of the present proceedings – without requiring great depth in this analysis, it will always be said that such payments, as is recognized doctrinally and jurisprudentially, are based on an intention to advance the taxation that will be due finally, taking into account the taxable profit of the previous year.

In this sense, for example, it was written in the STA Decision of 07-03-2007, rendered in proceedings 0877/06, that (emphasis added):

"From the legal definition of 'payment on account' there is derived an inevitable, necessary and essential imbrication between 'payment on account' and 'tax due finally'.

In such a way that the 'title' (word of the law) of 'payment on account' is the 'tax due finally'.

Which means that 'payment on account' is, in the very terms of the law, an advance payment made on account of the tax due finally, in the period of formation of the taxable event.

Which further means that 'payment on account' must be assessed with reference to the accounting situation of the company at the end of the period to which the payment on account refers.

Which definitely means that, if no monetary amount is to be (in advance) paid on account of the tax due finally, in the concerning period of formation of the taxable event (to which the 'payment on account' refers) – especially due to the non-existence of taxable profit revealed by the accounting at that time –, that 'payment on account' has no substantive foundation. (…)

And, thus, if there is no taxable profit, there is no tax due."

Now, (at least some) autonomous taxations, as has also been indicated elsewhere, do not bear directly on income, doing so in a merely mediate or indirect manner, such being the justification for, notwithstanding such taxations integrating the broad sense IRC regime, operating via expense and, consequently, being due even if the taxpayer does not present taxable profit.

Thus being, as it is believed to be the case, it is devoid of sense that to taxpayers who do not present taxable profit, a payment on account is required based on tax assessed on expenses it has incurred and which have been subject to autonomous taxation.

This is corroborated by the distinct nature of the taxable event underlying stricto sensu IRC and autonomous taxations. Indeed, the former being a taxable event of continuing nature and the latter a taxable event of instantaneous nature, only with respect to the former can it make sense to discern an advance of tax (payment on account), and not as to the latter whose practice generates, immediately, a tax obligation.

However, and now returning to the concrete case, the same literal reading on which the Petitioner's claim essentially rests would, it is believed, lead ineluctably to the conclusion that, by parity of reasoning, if the provisions of number 1 of article 105 of the IRC Code were to be considered, the IRC tax liability to be considered would include the autonomous taxation liability, given that such rule provides (as succinctly as article 90/2 of the IRC Code or article 4 of Law no. 55-A/2010) that: "Payments on account are calculated based on the tax assessed under number 1 of article 90 (…)".

Now, as this is not in question in the case sub iudice, one can speculate that, certainly, if, in coherence, the Petitioner had considered that for the purposes of the aforementioned article 105/1 of the applicable IRC Code it included the autonomous taxation liability, it would not fail to draw attention to the fact that it had done so, that is, to have calculated payments on account that it may have borne based, also, on that liability, stressing the consequent injustice that would be to have been bearing such payments, considering that article 105/1 of the IRC Code encompassed the autonomous taxation liability, and one did not interpret, in parallel, article 90/2 of the same law and article 4 of Law no. 55-A/2010 in the same manner.

Being – evidently – this an argument insuperably speculative, and, as such incapable of serving as a basis, per se, for legally founded solutions, such does not prevent it from being a factor for consideration, evidencing, on one hand, the structural instability of the insertion of autonomous taxations into IRC, as it was operated, and, on the other, the regulatory interconnection and the breadth of systematic perspective essential to the assessment of the solutions proposed for the legal problem to be decided.

Indeed, it is understood that under a systematic perspective, the position adopted with respect to the matter to be decided, at least if in the sense contended by the Petitioner and adopted by the jurisprudence supporting it, cannot fail to have an impact on the position to be adopted with respect to the interpretation of the aforementioned article 105/1 of the IRC Code, since, as was pointed out earlier, the literal character of the regimes is, precisely, the same.

Thus, from this point of view, one must consider, independently of what may have been the practice of either the Tax Authority or the Petitioner, not only whether it makes sense that the provision of article 105/1 of the IRC Code requires that the autonomous taxation liability be included in the calculation of payments on account, as well as the circumstance, earlier pointed out, that the STA has already pronounced itself to the effect that in the face of the "absence of taxable profit (…[the]…) 'payment on account' has no substantive foundation".

In the hermeneutic course in progress, consideration must equally be given to the provision of number 5 of article 90 of the applicable IRC Code, which provides that:

"The deductions referred to in number 2 relating to entities to which the transparent fiscal treatment regime established in article 6 applies are imputed to the respective partners or members in the terms established in number 3 of that article and deducted from the amount determined based on the taxable matter that has taken into account the imputation provided for in that same article."

This rule directly refers to article 6 of the same Code, which prescribes, in what is relevant for the case, that:

"1 - There is imputed to the partners, integrating itself, in accordance with the legislation that may be applicable, in their taxable income for the purposes of Personal Income Tax or IRC, as the case may be, the taxable matter, determined in accordance with this Code, of the following companies, with registered office or effective management in Portuguese territory, even if there has been no distribution of profits:

a) Civil companies not constituted in commercial form;

b) Professional partnerships;

c) Simple asset management partnerships, the majority of whose capital belongs, directly or indirectly, for more than 183 days of the fiscal year, to a family group, or whose capital belongs, on any day of the fiscal year, to no more than five partners and none of them is a legal person under public law. (…)

3 - The imputation referred to in the preceding numbers is made to the partners or members in accordance with what results from the constitutional documents of the entities mentioned therein or, in the absence of elements, in equal shares."

Fundamental in the framing of this question is further the content of article 12 of the same Code, which refers to:

"Companies and other entities to which, under article 6, the transparent fiscal treatment regime applies are not subject to IRC, except as to autonomous taxations."

Not being, also, the issue of entities subject to transparent fiscal treatment regime the subject of the present case, it will always be said, in summary, that from the literal reading on which the Petitioner's claim rests, that is, that autonomous taxations integrate, without limitations and for all purposes, the IRC tax liability, it would always result in one of two equally unacceptable situations, namely:

  • that the entities referred to in article 6, number 1 of the IRC Code, would be obliged to bear the expenses with autonomous taxations twice: (i) once in the sphere of the company, in accordance with article 12 of the IRC Code, which expressly provides for it, and (ii) another time under the combined provisions of numbers 1 and 3 of article 6 of the IRC Code, which requires that "the taxable matter, determined in accordance with this Code" relating to such entities is imputed to the partners;

  • or that, if not so, that is, if by way of some type of interpretation the expression "taxable matter, determined in accordance with this Code", excluding autonomous taxations from it, from the combination of the aforementioned provisions of number 5 of article 90, article 6 and article 12, with the interpretation sustained by the Petitioner for number 1 of article 90, it would result that IRC taxpayers subject to the transparent fiscal treatment regime would be prevented, by way of the aforementioned article 90, number 5, from deducting from the amounts assessed as autonomous taxation, the deductions provided for in number 2 of the same article, since these latter amounts would be borne by the company, while the deductions would only be available to the partners, thus unjustifiably discriminating IRC taxpayers subject to the transparent fiscal treatment regime from the rest, who, in the thesis of the Petitioner, would have the faculty of making the deductions provided for in number 2 of article 90 operate on the amounts assessed, under number 1 of the same article, as autonomous taxation.

Being certain that, fiscally transparent companies are an atypical situation under IRC, they are companies precisely not subject to IRC on profit/income, but subject to IRC as to autonomous taxations, it cannot fail to be noted not only that, on one hand, autonomous taxations are, themselves also, an atypical situation under income taxes (including IRC), as that, on the other, it is evident the aforementioned and developed duality of IRC (they are companies precisely not subject to IRC on profit/income [stricto sensu IRC], but subject to IRC as to autonomous taxations [broad sense IRC]).

Once more, we are here in a perspective of weighing the implications in the regulatory structure of IRC of the interpretations proposed for the rule(s) applicable to the situation sub iudice, it not being, evidently, a structuring argument, but rather a secondary one, of the solution that is to be drawn.

Having reached this point, it is necessary to explore somewhat further the limits of the literality of the rules at the epicenter of the present dispute – articles 90, numbers 1 and 2 of the applicable IRC Code – and of the repercussions thereof in the broader framework of the relationship between traditional IRC and autonomous taxations in that tax.

As expounded above, in the set of autonomous taxations, even if restricted to those that integrate the broad sense IRC regime, various situations of disparate origin and teleology converge.

Thus, in summary and by way of example, there are found autonomous taxations that aim, individually or concurrently, to discourage certain economically unfavorable behaviors (e.g., excessive remuneration to managers), to tax the so-called fringe benefits (allowances; vehicle expenses), to mitigate the fiscal impact of expenses of dubious full-business character (idem), to discourage behaviors with high fraud potential (payments to entities subject to clearly more favorable fiscal regime) or to penalize behaviors that foster the so-called parallel economy (taxation of confidential expenses), or that are considered by the legislator as sumptuary.

The literality of the interpretation proposed by the Petitioner mingles, in the narrow confines of the letter of the law, all those situations – in that all of them will be assessed under article 90, number 1 of the applicable IRC Code, from which it necessarily follows that to the liability of all of them, the solution propounded by the Petitioner will apply, that is, to all of them – without any perceptible exception, much less justified or, even, insofar as can be conceived, justifiable – all the deductions provided for in article 4 of Law no. 55-A/2010 would be applicable, as well as in number 2 of article 90 of the IRC Code in question.

Now, it has already been pointed out earlier, and on other occasions, the vain glory of enclosing, in a unitary substantive concept, all autonomous taxations, even those that only occur within IRC, given their teleological and functional disparity. And, here, emerges one of the principal weaknesses of the argumentative structure in which the Petitioner's position is lodged, underlying also the arbitral jurisprudence cited by it: that of being based on a postulate of unity of IRC and autonomous taxations, taking the whole for the part that, concretely, integrates the matter to be decided, on one hand, and on an exclusive assessment of the type of deduction provided for in number 2 of article 90 of the applicable IRC Code that concretely is in question in the case sub iudice.

That is: the position sustained by the Petitioner, as well as those that corroborate it, do not at any time take care to frame the assessments carried out by it and to validate the application of the interpretation proposed by it to the entirety of autonomous taxations and of the deductions provided for in article 4 of Law no. 55-A/2010 and in number 2 of the applicable article 90, as well as to assess the implications of the application of the thesis in question to all possible deductions to all liabilities of all autonomous taxations abstractly encompassed by such thesis, beyond which, as has already been pointed out, they abstain from assessing, in a broader perspective, the systematic consequences of the acceptance of the essentially literal reading that they propose for the combination of the provisions of numbers 1 and 2 of article 90 of the IRC Code.

The fissure in the structure supporting the Petitioner's position, as well as those that sustain it, opens itself thus, in the face of this finding, in two distinct directions: (i) on one hand, the reading proposed by the Petitioner for the provision of article 90, number 2 of the applicable IRC Code does not distinguish, nor does it allow to distinguish, between autonomous taxations relating to deductible expenses and other types of autonomous taxation; (ii) on the other hand, from the proven matters of fact it does not result that the autonomous taxations at issue in the present proceedings do not relate to distinct types of autonomous taxations, such as, for example, autonomous taxations relating to undocumented expenses, to bonuses and other variable remuneration of managers, administrators or partners, or to payments to entities subject to a clearly more favorable fiscal regime.

All the argument relating to the nature of autonomous taxations, as taxing income of entities subject thereto, is insufficient for the decision of the matter sub iudice, because it does not even demonstrate that exclusively autonomous taxations with the characteristics on which that argument rests are in question.

The argumentative structure presented by the Petitioner in support of its claim thus harbors within itself the potential to conceal claims in which it is sought to proceed with deductions under article 4 of Law no. 55-A/2010 and number 2 of the applicable article 90 of the IRC Code, to autonomous taxations with respect to which it is not valid to consider the nature of autonomous taxations, as still taxing the income of entities subject thereto, such as those mentioned, relating to confidential expenses, payments to entities subject to privileged fiscal regimes or relating to management compensation.

Now, this type of result cannot be held to be intended by a reasonable legislator, given the entire systematics of IRC in the broad sense, including autonomous taxations. Indeed, it is not believed to be sustainable that, having gone where, legally, the legislator of the IRC Code went, aimed at, for example, combating the parallel economy or transactions with the so-called (incorrectly) "tax havens", it was its intention that the respective autonomous taxation burden could be lightened by means of the deductions provided for either in article 4 of Law no. 55-A/2010, or in number 2 of article 90 of the IRC Code.

The entropy generated by the position that the Petitioner seeks to assert in these proceedings will not stop here, however.

Indeed, and even restricting the question to autonomous taxations on deductible expenses in IRC, such a position would result in a direct violation of the principle of equality.

Indeed, as all the jurisprudence abundantly cited by the parties denotes, autonomous taxations relating to deductible expenses have underlying a presumption of "partial" or non-integral "business nature", as, moreover, was recently recognized by the Southern Administrative Court of Appeal (TCA-Sul) in the Decision of 03-03-2018, rendered in proceedings 1294/14.0BELRS. That is, such expenses will, presumably, contain a business purpose, which allows their deduction, but with such purpose will concur others, which, if exclusive, would preclude their deductibility.

Such presumptive character will justify that when the taxpayer succeeds in rebutting the said presumption, the expenses maintain their deductible character, without being subject to autonomous taxation.

Now, in this restricted field of autonomous taxations on deductible expenses, the position sustained by the Petitioner would result in a qualified inequality (in that more than treating as equal the unequal, or the unequal as equal, it would treat the unequal as unequal, in the inverse measure of the inequality), since in a situation in which a taxpayer declared deductible expenses that would normally be subject to autonomous taxation, but which, in concrete, would not be so because the material presuppositions thereof did not verify (that is, because of the rebutting of the presumption underlying it), as was the case, for example, with the situation in arbitral proceedings 628/2014-T, and in which that same taxpayer presented a tax loss, could not proceed with any deduction under article 90, number 2 of the IRC Code, while another taxpayer, in the same situation (tax loss), but who assumed (implicitly or explicitly) the character of partial business nature of the same type of expenses, thus being burdened with the corresponding autonomous taxation, could, in the thesis underlying the Petitioner's position, avail himself of the deductions provided for in that same article.

That is, and in summary: between two taxpayers in a situation distinct before the IRC fiscal system, one that incurred in expenses of wholly business nature, and another that incurred in the same expenses but for purposes (real or presumedly) partially foreign to business nature, the second would obtain from the fiscal system, in the matter that concerns us, more lenient treatment, by way of behavior less conforming to the teleology thereof.

Being true that the principle of legal and fiscal equality is not an absolute principle, as it admits situations of discrimination, it is also true that these situations must correspond to discriminations founded on institutionalized values, generically accepted and received in the order of values instituted.

Now, in the case, in which two companies in the situation described above are objectively in a differentiated situation and which should, therefore, merit differentiated fiscal treatment, in the sense of the difference, it occurs, in the face of the thesis underlying the Petitioner's position, precisely the opposite.

Within the decision topics to be considered, there should also be mention of the entry into force of the wording of number 21 of article 88 of the IRC Code, introduced by the Law that approved the State Budget for 2016 (Law no. 7-A/2016, of 30 March), which came to state that:

"The assessment of autonomous taxations in IRC is carried out in accordance with 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 made to the total amount determined."

This rule is the subject of article 135 of the aforementioned Law that approved the State Budget for 2016, which refers to:

"The wording given by the present law to number 6 of article 51, to number 15 of article 83, to number 1 of article 84, to numbers 20 and 21 of article 88 and to number 8 of article 117 of the IRC Code has an interpretative nature."

As is well known, the question was raised whether number 21 of article 88 of the IRC Code, introduced by the State Budget for 2016, has (as the law itself says) or does not have an interpretative nature, as well as of the constitutionality of such nature, and such questions were superseded by the Constitutional Court Decision that judged article 135 of Law no. 7-A/2016, of 30 March, to be unconstitutional.

Nevertheless, the TC itself recognizes, in its Decision no. 107/2018, that:

"The Constitutional Court did not 'endorse' any interpretation of the law regarding the deduction of special payments on account from the amounts of autonomous taxations that form part of the IRC tax liability. It did not do so, first of all, because it is not within its competence to determine the meaning of the law, but only to assess the constitutionality of the law with the meaning fixed by the courts below. From this it follows that the fact that a certain interpretation of the law is unconstitutional, in the judgment of the Constitutional Court, does not imply adherence to any alternative interpretation of the law, nor even the judgment that such interpretation, if it were to occur, is not unconstitutional; it means only that the interpretation that is the subject of the appeal – and only that one – is unconstitutional. In any case, in Decision no. 267/2017, the Constitutional Court did not judge the provision of number 21 of article 88 of the IRC Code – under which special payments on account cannot be deducted from the amounts of autonomous taxations – to be unconstitutional, but the provision of article 135 of Law no. 7-A/2016, of 30 March, which attributes to it an interpretative nature (and, by that route, under the general rules, retroactive effect). The constitutionality of the solution enshrined in number 21 of article 88 was not, in that or in the present appeal, in question. More: what the Court judged unconstitutional was the legal imposition of a certain meaning, which in no way prevents the same meaning from being reached through the judicial interpretation of the law, that is, not because the legislator imposed it, but because the court in the case deems that to be the correct interpretation of the law."

On the other hand, the legislative amendment in question continues to have interest for the matter now in question, since the legislator in the State Budget Law for 2016 chose to exclude the application of part of the provisions of article 90 of the IRC Code for IRC tax liability, from the autonomous taxation liability in IRC, confirming that there exists no conceptual or principled obstacle to arriving, by means of interpretation, at that same result.

Moreover, from the IRC Code itself, in the wording in force at the date of the taxable events, it already resulted that the regime of that tax presupposed such differentiation at the level of the aforementioned article 90, in the sense that to the autonomous taxation liability no deduction was, by principle, admissible, resulting from the provision of number 12 of article 88, introduced by Decree-Law no. 192/2005, of 7/11, which provides that:

"From the amount of tax determined, in accordance with the provision of the preceding number, the tax that may have been withheld at source is deducted, and in that case the withheld tax cannot be deducted under number 2 of article 90."

The autonomous taxation in question, unless better advised, should be understood as being due by the entity that earns the profits, since if it were a question of the autonomous taxation of the entity that distributes profits, the question of the deduction of withholding at source from the autonomous taxation in question would never arise, since the withholdings at source referred to in article 90/2 of the IRC Code should be considered withholdings on income earned by the entity owing IRC, and not on income paid and withholdings carried out by it, and in any case, the question of withholding at source on distributed profits being deducted from the liability (whether IRC or autonomous taxations) would never arise, because such amount is withheld from the exempt entity, not being, consequently, borne by the entity that distributes the profits and not being, therefore, always subject to better advice, the withholding at source susceptible of constituting any penalty for the entity that distributes the profits.

Such circumstance that the autonomous taxation now in question should be considered due by the entity that earns the profits, and not by that which distributes them, will not prejudice its nature as autonomous taxation, and it will be to such autonomous taxation liability, assessed and paid by the exempt entity that did not retain the holdings for one year, and that earned dividends therefrom, that the withheld tax may be deducted – exceptionally – the withheld tax, being, precisely, the meaning of the provision that, in that case, the withheld tax cannot be deducted under article 90/2, the evidence that the deductions provided for in this article do not apply to the autonomous taxation liability, since if it were not so, the provision of article 88/12 would be a uselessness in a dual sense, given that:

a. the deduction of tax withheld at source from the autonomous taxation liability in question already resulted from the aforementioned article 90/2, so it would make no sense to affirm it in article 88/12;

b. if the tax withheld at source were to be deducted from the autonomous taxation liability, under article 90/2, it could never be deducted twice (for the same reason that it cannot be deducted twice from the IRC liability), so the provision of article 88/12 that, by deducting the tax withheld at source from the autonomous taxation liability, the same cannot be deducted under article 90/2 would also be, itself, a uselessness.

Thus, the aforementioned rule, by providing that to the amount of tax resulting from autonomous taxation, in the situations provided for in number 11, of 25% on profits distributed by IRC-subject entities to taxpayers benefiting from exemption, the tax that may have been withheld at source may be deducted, will have implicit the understanding that, by rule, to the autonomous taxation liability, deductions were not admissible, namely those provided for in article 90/2 of the IRC Code, which already provided for the possibility of deduction of withholdings at source from the IRC liability referred to in number 1 of the same rule.

That is: if, as certain jurisprudence already contends, it resulted from the combination of numbers 1 and 2 of article 90 of the IRC Code that withholdings at source were deductible from the autonomous taxation liability, including that provided for in number 11, the rule of the aforementioned number 12 of article 88, in the part in which it allowed precisely such deduction, was a useless rule, doing nothing more than reaffirming, without any sense, the general rule.

More: the rule in question, of number 12 of article 88, introduced by Decree-Law no. 192/2005, of 7/11, makes it a point to affirm that, if the deduction of the withholdings at source there mentioned is operated on the autonomous taxation, the withheld tax cannot "be deducted under number 2 of article 90", evidencing, it is believed, with sufficient perceptibility, that the deductions possible under the aforementioned article 90/2 were not already applicable to the liability resulting from autonomous taxations.

Indeed, the second part of the provision of number 12 of article 88 under analysis aims to prevent a duplication of deduction of the withholdings encompassed by it, which only makes sense if one is to consider, as will be seen below, that from the application of the provision of article 90/1 of the IRC Code there does not result a monolithic IRC liability, but that the aforementioned division between the autonomous taxation liability in IRC and the general IRC liability was maintained in that rule, and that article 90/2 applied only to the latter, and not to the former.

Otherwise, also this second part of article 88/12 of the IRC Code would wholly lack meaning, since if, within article 90/1 of the IRC Code, the autonomous taxation liability in IRC were to merge in a single IRC liability, as the Petitioner contends and the jurisprudence it relies on defends, it would be evident that there could never be a double deduction of withholdings at source to a same, and single, liability.

That is, and in summary, the legislator's choice to, in the State Budget Law for 2016, exclude the application of part of the provisions of article 90 of the IRC Code for IRC tax liability, from the autonomous taxation liability in IRC, was already implicit in the Code of such tax, at the level of article 88/12, from which it already resulted, in the terms expounded, that:

  • by rule, the autonomous taxation liability did not admit deductions; and

  • article 90/2 of the IRC Code (and, consequently, article 4 of Law no. 55-A/2010) was not applicable to the autonomous taxation liability.

Summarizing what has been expounded above, it is verified, from the outset, that the interpretation sustained by the Petitioner is based, essentially, on the literal content of the provisions of numbers 1 and 2 of article 90 of the applicable IRC Code, with no substantial foundation discernible that justifies the solution in question, especially since the arguments on which such a position rests restrict themselves, essentially, to autonomous taxations on deductible expenses and to the concrete deductions in question (SIFIDE benefit), being that, on one hand, nothing is proven with respect to, in the concrete case, being in question solely autonomous taxations of that type (and not of others), and, on the other, from the interpretation proposed it would always follow that all the deductions provided for in article 4 of Law no. 55-A/2010 and in article 90, number 2 of the applicable IRC Code in question would apply to all types of autonomous taxations, including, for example, those relating to payments to entities subject to clearly more favorable taxation regimes, those relating to confidential expenses or compensation to managers, and none of the substantial arguments on which the Petitioner's position rests allow the justification that such occurs.

On the other hand, as has been seen, while it is true that article 90, number 1 of the applicable IRC Code does not distinguish between the assessment of autonomous taxations and the assessment of traditional or stricto sensu IRC (on taxable profit), the truth is that, upstream, the procedure and nature of the two types of tax imposition is substantially distinct, as has been seen and as the jurisprudence of the Constitutional Court on the matter provides abundant account, a situation to which one cannot, it is believed, fail to pay attention in the matter sub iudice.

Moreover, as has also been seen, the ratification of the interpretation that sustains the Petitioner's prayer, would be, downstream, a generator of marked turbulence in the regulatory structure of IRC, namely with respect to the regimes of special payment on account and of companies subject to the transparent fiscal treatment regime.

Moreover, as has also been analyzed, the adherence to the literality of the provisions of article 90, numbers 1 and 2, propounded by the Petitioner, would result – it is believed – in an affront to the principle of fiscal equality, beyond which, it is constitutionally imposed.

Finally, and as has just been seen, at the level of article 88/12 of the applicable IRC Code, it already resulted, in the terms expounded, that:

  • by rule, the autonomous taxation liability did not admit deductions; and

  • article 90/2 of the IRC Code, and consequently article 4 of Law no. 55-A/2010, was not applicable to the autonomous taxation liability.

For all this, it is believed that in the strict combination of the text of the two rules, the legislator said more than what it intended, a situation that, moreover, resulted not from negligence coeval with the wording of such rules, but rather from the historical evolution of the regulatory regime of IRC and, concretely, from the gradual introduction in that of the regime relating to autonomous taxations, without such being reflected, coherently, in the content of article 90, number 2 of the same Code.

This mismatch is, moreover, patent in the provision of number 21 of article 88 of the IRC Code, introduced by Law no. 7-A/2016, of 30 March, which, by providing that no "deductions are made to the total amount determined" of autonomous taxations, does not even except number 12 of the same article which provides, precisely, for the possibility of deductions to the autonomous taxation referred to therein.

We are, thus, faced with a situation described by the Illustrious Master Professor Doctor Baptista Machado, in which: "Sometimes, although rarely, it will be necessary to go further and sacrifice, still in obedience to the legislative intent, part of a normative formula, or even the entirety of the rule. These are abortive legislative formulas or actual oversights. When the normative formula is so poorly conceived that it does not even allude with minimum clarity to the hypotheses it intends to encompass

Frequently Asked Questions

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Can SIFIDE tax credits be deducted from the IRC autonomous taxation (tributações autónomas) amount?
Prior to Law 7-A/2016, there was legal uncertainty regarding whether SIFIDE tax credits could be deducted from IRC autonomous taxation amounts. The petitioner argued that Article 90 of the IRC Code should apply, allowing such deductions. However, Law 7-A/2016 introduced Article 88(21) to the IRC Code, explicitly prohibiting the deduction of tax benefits, including SIFIDE credits, from autonomous taxation liabilities. The arbitral tribunal's decision would determine whether this prohibition applied retroactively to tax years 2015 and 2016.
What was the impact of Law 7-A/2016 on deducting tax benefits from autonomous taxation in Portugal?
Law 7-A/2016 significantly impacted the treatment of tax benefits and autonomous taxation by introducing Article 88(21) to the IRC Code, which expressly prohibits deducting tax benefits from the IRC amount resulting from autonomous taxation. Article 135 of Law 7-A/2016 attributed an interpretative character to this provision, suggesting retroactive application. This created controversy as taxpayers who had relied on previous interpretation allowing such deductions for years before 2016 faced potential denial of benefit usage, raising constitutional questions about legitimate expectations and legal certainty.
Is Article 88(21) of the Portuguese IRC Code, introduced by Law 7-A/2016, considered an interpretive or innovative provision?
The classification of Article 88(21) as interpretative or innovative is central to this dispute. The Tax Authority, through Article 135 of Law 7-A/2016, characterized it as interpretative, implying it merely clarified existing law and should apply retroactively. The petitioner contested this characterization, arguing it was an innovative provision that changed the legal framework and should only apply prospectively from 2016 onwards. This distinction is critical because interpretative provisions apply retroactively in Portuguese law, while innovative provisions generally do not, affecting taxpayers' rights to use SIFIDE credits for prior tax years.
Can taxpayers file a gracious complaint (reclamação graciosa) to challenge IRC self-assessments that denied SIFIDE deductions against autonomous taxation?
Yes, Portuguese taxpayers can file a reclamação graciosa (administrative review or gracious complaint) to challenge IRC self-assessments that denied SIFIDE deductions against autonomous taxation. In this case, the petitioner filed an administrative review on April 6, 2018, against IRC self-assessments for 2015 and 2016, requesting revision to deduct SIFIDE benefits from autonomous taxation liabilities and refund of amounts paid plus compensatory interest. After exercising the right to be heard, the petitioner received final rejection on October 16, 2018, which then enabled pursuit of arbitral proceedings under RJAT.
Is the retroactive application of Article 88(21) of the IRC Code to tax years before 2016 unconstitutional under Portuguese law?
The petitioner challenged the constitutionality of Article 135 of Law 7-A/2016, which attributed interpretative character to Article 88(21) of the IRC Code. The argument centered on violation of constitutional principles including legal certainty, protection of legitimate expectations, and prohibition of retroactive taxation. By characterizing the provision as interpretative, the law precluded deductions of SIFIDE credits from autonomous taxation for tax years prior to 2016, affecting taxpayers who had relied on previous legal understanding. The tribunal's assessment of this constitutional challenge would determine whether the retroactive application violated fundamental taxpayer rights under Portuguese constitutional law.