CAAD 302/2016: SIFIDE II, RFAI, CFEI vs Autonomous Taxation IRC

Process: 302/2016-T

Date: March 28, 2017

Tax Type: IRC

Summary

CAAD Process 302/2016-T addresses a fundamental IRC dispute concerning whether tax benefits under SIFIDE II (Research & Development Tax Incentives), RFAI (Investment Support Tax Regime), and CFEI (Extraordinary Investment Tax Credit) can be deducted from autonomous taxation collections. The claimant, a Portuguese SGPS company, challenged an IRC self-assessment for fiscal year 2014, contesting €511,240.12 in autonomous taxation on corporate expenses. The core legal issue centers on interpreting Article 90 of the IRC Code, which governs tax collection calculations. The claimant argued that statutory language permitting deductions 'from the amount ascertained in accordance with Article 90' encompasses both general IRC collection and autonomous taxation components. The Tax Authority contended these benefits apply only to standard IRC collection, not autonomous taxation rates imposed on specific expense categories. The arbitration tribunal, constituted under Decree-Law 10/2011, comprised three arbiters who examined whether the legal framework for these tax incentives—designed to promote research, development, and investment—extends to reducing autonomous taxation burdens. The claimant sought annulment of the implicit rejection of their administrative complaint, reimbursement of the disputed amount, and compensatory interest calculated from September 1, 2015. Subsidiarily, they argued that if Article 90 excludes autonomous taxation, the assessment lacks legal foundation and should be annulled entirely. This decision has significant implications for Portuguese corporations claiming R&D and investment tax credits while subject to autonomous taxation on vehicles, entertainment, and other controlled expenses.

Full Decision

DECISION OF THE ARBITRAL TRIBUNAL OF THE ADMINISTRATIVE ARBITRATION CENTER (CAAD)

The Arbitral Judges José Manuel Cardoso da Costa, President, João Taborda da Gama and João Menezes Leitão hereby resolve:

I. Report

A) Constitution of the Arbitration and Procedural Development

On 1 June 2016, A…, SGPS, legal entity number …, with registered office at Rua…, number …, …, Floor…, …, …-… … (hereinafter, the Group) filed with the Administrative Arbitration Center (CAAD) a request for the constitution of an arbitral tribunal, with a view to arbitral pronouncement, in accordance with article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter LFTA), with the Tax and Customs Authority (hereinafter TCA) as respondent.

The Claimant requests that in such pronouncement:

– it be declared that the implicit rejection of the administrative complaint against the self-assessment of Corporate Income Tax (hereinafter, simply CIT) hereinafter identified is unlawful and be annulled, such complaint being filed on the grounds of the illegality of the part of that assessment produced by the autonomous taxation rates, and the part referred to;

– it be declared that such self-assessment is unlawful – namely, the self-assessment of CIT which the Claimant carried out and whose return was filed on 9 June 2015, with reference to the tax year 2014 – in the part corresponding to the application of the autonomous taxation rates, in the amount of € 511,240.12;

– consequently, the Claimant be recognised as having the right to reimbursement of this amount and, likewise, the right to compensatory interest for the payment of unduly assessed tax, calculated, until full reimbursement, from 1 September 2015;

– subsidiarily, and should it be understood that article 90 of the CIT Code does not apply to the collection of tax attributable to autonomous taxation, it be declared unlawful (with consequent annulment) of the assessment corresponding to such autonomous taxation, for absence of legal basis.

Attached 14 documents.

The Claimant designated as Arbiter Dr. João Taborda da Gama and the Respondent designated Dr. João Menezes Leitão; whereupon, at their request, the Distinguished President of the Deontological Council of CAAD, in exercise of the powers set out in article 6, paragraph 2, subparagraph b), of the LFTA, designated as President Arbiter Dr. José Manuel Cardoso da Costa. All accepted their designation in accordance with the legal provisions.

On 18 August 2016, the parties were duly notified of the designation of the arbiters, and neither manifested an intention to challenge this designation (article 11, paragraph 1, subparagraphs a) and b), of the LFTA and articles 6 and 7 of the Deontological Code).

Thus, in accordance with the provision in subparagraph c) of paragraph 1 of article 11 of the LFTA, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 26 August 2016 – which on the same date was communicated to the Parties.

The Parties are represented in this proceeding, respectively, by Dr. B…, attorney with offices in Lisbon, agent of the Claimant, A…, and by Drs. C… and D…, legal advisors designated by the Respondent, the Tax and Customs Authority.
When notified to do so, the TCA, on 18 October 2016, submitted its reply, arguing that the present request for arbitral pronouncement should be judged as lacking merit, with its absolution from all claims.

Simultaneously, the TCA attached the administrative file relating to the subject matter of the arbitration.

By arbitral order of 21 November 2016 – given the fact that the Claimant had listed witnesses only as a precautionary measure, since it considered that the relevant facts of the case were documentarily proven, and given, likewise, that the TCA had not expressed any different understanding – the holding of the meeting provided for in article 18 of the LFTA was dispensed with and the Parties were notified to file submissions.

Both did so in a timely manner: the Claimant, already on 23 November and the Respondent on 13 December, both of the year 2016.

Thereafter, the case was ready for decision.

The deadline for rendering the latter would have expired on 27 February of the present year 2017 (articles 15 and 21 of the LFTA). Given, however, that this deadline was extended by two months, by order of 16 of the same month, the decision will be rendered and notified in due time.

B) Subject Matter of the Arbitration and Positions of the Parties

The subject matter of the present arbitration is summarised as follows, in the following legal issue: whether the tax benefits, in the form of a deduction from the tax collected, in the context of CIT, which the Group (in this case) enjoyed, under three tax incentive regimes – the SIFIDE II, RFAI and CFEI regimes – could still be applied to the part of the CIT collection ascertained on the basis of the rules of the so-called "autonomous taxation," or rather, whether the tax credit into which these benefits translate could (or can) be deducted from that part of the CIT collection.
Such a question arises – or arises primarily – in light of the following legal provisions:

As to SIFIDE II (System of Tax Incentives for Research and Business Development), article 36, paragraph 1, of the Tax Code for Investment, republished by Decree-Law no. 82/2013, of 17 June, in the wording of article 211 of Law no. 83-C/2013, of 31 December:

"1 – Corporate income tax subjects resident in Portuguese territory who carry on, as their principal activity, 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 ascertained in accordance with article 90 of the Corporate Income Tax Code, and up to its limit, the amount corresponding to research and development expenses, in the part that has not been subject to non-repayable financial participation of the State, carried out in tax periods beginning between 1 January 2013 and 31 December 2020, in a twofold percentage:

a) ……

b) ……"

As to RFAI (Tax Regime for Investment Support), article 28, paragraph 1, subparagraph a), also of the Tax Code for Investment:

"1 – To Corporate income tax subjects resident in Portuguese territory or who have a permanent establishment therein, who carry on as their principal activity an activity of a commercial, industrial or agricultural nature covered by paragraph 1 of the preceding article who make, in the tax years 2013 to 2107, investments considered relevant, the following tax benefits are granted:

a) Deduction from the CIT collection, and up to the limit of 50% thereof, of the following amounts, for investments made in regions eligible for support from incentives with regional purpose:

i) … …

ii) … …"

As to CFEI (Extraordinary Tax Credit for Investment), articles 2 and 3, paragraphs 1 and 5, of Law no. 49/2013, of 16 July:

"Article 2

The following may benefit from CFEI: Corporate income tax subjects who carry on as their principal activity an activity of a commercial, industrial or agricultural nature and cumulatively meet the following conditions:

a) ……

b) ……

c) ……

Article 3

1 – The tax benefit to be granted to the Corporate income tax subjects referred to in the preceding article corresponds to a deduction from the CIT collection of 20% of investment expenditures in assets used in operations, which are made between 1 June 2013 and 31 December 2013.

……

…….

5 – When the special taxation regime for groups of companies applies, the deduction provided for in paragraph 1:

a) Is made from the amount ascertained in accordance with subparagraph a) of paragraph 1 of article 90 of the Corporate Income Tax Code, on the basis of the group's taxable income;

b) ……"

It is also important to note, for a complete picture of the situation, that, although these benefits are to be applied, in principle, in the tax period in which the expense or investment was made, nevertheless, and as to all of them, the legislator (in provisions of similar content for each one) provided for the circumstance that, "due to insufficient collection" or if the deduction limit is reached, the deduction could not be made in that period, providing that, then, the deduction could still be made in assessments relating to a certain number of subsequent tax years: now, five, in the case of RFAI, and six, in the case of SIFIDE II (paragraph 4 of article 36 and paragraph 3 of article 28 of the Tax Code for Investment); and also five, in the case of CFEI (paragraph 6 still of article 3 of Law no. 49/2013). (There is nothing surprising, then, particularly as to the CFEI deduction, that one seeks to effect it – returning to the case sub judice – in the CIT assessment relating to the tax year 2014).

For its part, with respect to the Corporate Income Tax Code, the provisions of articles 89 and 90 are of interest, which read as follows (insofar as now relevant):

"Article 89

1 – The assessment of CIT is made:

a) By the taxpayer itself, in the returns referred to in articles 120 and 122;

b) … …"

"Article 90

1 – The assessment of CIT is carried out as follows:

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

b) ……

c) ……

2 – From the amount ascertained in accordance with the preceding paragraph, the following deductions are made, in the order indicated:

a) That corresponding to international legal double taxation;

b) That corresponding to international economic double taxation;

c) That relating to tax benefits;

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

e) That relating to withholdings at source not susceptible to compensation or reimbursement under applicable legislation.

3 - ……

4 - ……

5 - ……

6 – When the special taxation regime for groups of companies applies, the deductions referred to in paragraph 2 relating to each of the companies are made from the amount ascertained in relation to the group, in accordance with paragraph 1.

.........

........."

On the other hand, what is in issue is the provision of article 88, which establishes autonomous taxation rates applying to certain expenses or charges of companies. It does not appear necessary, nor appropriate, to transcribe the provision here in full, it being sufficient to say that, among such expenses or charges, are the following (more detailed indication is also dispensed with): "undocumented expenses" (paragraphs 1 and 2), "charges relating to light passenger vehicles, motorcycles and scooters" (paragraphs 3 to 6), "deductible charges relating to business entertainment expenses" (paragraph 7), "expenses corresponding to amounts paid or owed, in any capacity, to natural or legal persons resident outside Portuguese territory and subject therein to a clearly more favourable tax regime" (paragraph 8), "deductible charges relating to travel allowances and compensation for travel in the employee's own vehicle" (paragraph 9), "profits distributed by entities subject to CIT to taxpayers who benefit from total or partial exemption (paragraph 10) and also expenses and charges paid to managers, administrators or operators, whether upon the cessation of functions, as "indemnifications or compensations not relating to the achievement of previously defined productivity objectives", or as "bonuses and other variable remuneration" exceeding certain limits (paragraph 13).

And it is further stated, in the provision now in question, that the rates established therein "are increased by 10 percentage points for taxpayers who present a tax loss in the period to which any of the tax facts" listed therein relate (paragraph 14).

Being these the provisions of the Corporate Income Tax Code that are directly relevant to the case, it is important to add – also as a normative indication relevant therein – that, as such legislation contains no other regime for the assessment of the tax other than that regulated in articles 89 and 90 (and following), it is that regime that, simultaneously and in the same procedure, must be applied to the assessment, both of the part of the collection resulting from the application of the common rate to the taxpayer's profit (articles 3 and 87), and of the part of the collection resulting from the application of the autonomous taxation rates – both, in the case (which is the rule) of self-assessment of CIT, forming part of the "periodic tax return" (annual, also as a rule) referred to in article 89, to the filing of which taxpayers are obliged in accordance with article 120 of the Code. This, moreover, is what is reflected in Form 22 of the CIT, intended for the filing of such return.

But, if these are the provisions of the Corporate Income Tax Code to be considered in the first instance, there must now be added to them paragraph 21 of article 88, introduced by article 133 of Law no. 7-A/2016, of 30 March, of the following tenor: "The assessment of autonomous taxation in PIT is made in accordance with the provisions of article 89 and is based on the values and rates that result from the preceding paragraphs, and no deductions are made from the total amount ascertained."

And it is important to note what is provided, as to the same, in article 135 of that Law, namely, that such a provision (the new paragraph 21 of article 88) has an interpretive nature.

In light of the legal provisions previously listed, the understanding of the Claimant Group – as already apparent from the summary that was given at the outset, from the conclusions of its request – is that the tax credits, into which the tax benefits in question translate, may be deducted even from the part of the CIT collection resulting from the application of the autonomous taxation rates.

Seeking to synthesise, the Claimant argues, to support its understanding:

a) The CIT collection comprises, without need for any additional specification, the collection of autonomous taxation. Having been understood, in a practically unanimous manner, that this was so for the purposes of the former article 45, paragraph 1, subparagraph a), of the Corporate Income Tax Code – that is (making explicit now), so that, although the provision did not then expressly say so, it could not be considered as a deductible charge for the purpose of determining taxable profit in CIT – it cannot be otherwise for the purposes of article 90, paragraph 1, and paragraph 2, subparagraphs c) and d) [in the current numbering, which is what will be used here];

b) On the other hand, the provisions of the legal instruments that grant the tax benefits in question expressly provide for them as a deduction from the amount ascertained in accordance with article 90 of the Corporate Income Tax Code (SIFIDE II) or from the CIT collection (RFAI and CFEI), without more;

c) In the sense that the autonomous taxation provided for in the corresponding Code forms part of CIT, extensive arbitral case law has pronounced [which the Claimant exhaustively cites and from which it transcribes lengthy excerpts, already in its Initial Request]. According to that case law – this is what emerges from it – such taxation, or at least that which may be in issue in the proceedings, does not correspond to a different tax and aims to tax still the income of legal entities, being a substitute or complement to the non-deductibility of certain costs [from their revenues or gains]: thus, [or should have been] applicable to the corresponding collection the rule of the former article 45, paragraph 1, subparagraph a), of the Code and even, in general (it was written in one of the decisions that form part of the case law referred to), the rules of the CIT Code that do not conflict with its special form of incidence and applicable rates;

d) But not only that: in sequence and in line with such an understanding, arbitral case law has already similarly understood that also to the part of the CIT collection resulting from autonomous taxation is applicable the provision of subparagraph b) of paragraph 2 of article 90 of the Code – that is, the deduction of tax benefits (and, in particular, those now in question). And, if some initial decisions in that sense were followed by others following a different approach, the latter have not lacked dissenting votes;

e) It is incongruous the Respondent's contention, AT, to consider the collection of autonomous taxation, at times as forming part of the CIT collection (for the purpose of its non-deductibility in the ascertainment of the taxable income of that same tax, and, therefore, when this increases revenue), at times not (for the purpose of not allowing tax benefits to be deducted from it, and, therefore, when revenue would decrease);

f) The alleged objective of combating tax evasion, which the TCA has associated with autonomous taxation, cannot prevail against the conclusion that clearly results from the law – there being that in none of the other cases in which the Code establishes anti-evasion measures (much more evident and more significant in terms of revenue than the most common autonomous taxation) the corresponding collection ceases to be what it is: CIT collection, for the purposes, also, of interaction with tax benefits in that context;

g) Further, if it were to be understood, with the TCA, that in article 88 of the CIT Code everything pertinent to autonomous taxation is contained, without article 90 of the Code being applicable to it, then the applicable rule for the corresponding assessment would be lacking – since that provision only states its subject, tax base and rate. Whence that assessment – precisely for lack of a rule that governs it – would then be unlawful, either by virtue of article 8, paragraph 2, of the General Tax Law (hereinafter, GTL), or by virtue of article 103, paragraph 3, of the Constitution of the Republic.

And, then, having specifically in view what came to be provided in Law no. 7-A/2016 (Budget Law for 2016) and what was referred to above, the Claimant further sustains the following, still seeking to synthesise:

h) First and foremost – and echoing the understanding followed in the decision given in case no. 673/2015-T, of this Centre, and later resumed in other decisions – if it were to be understood that Law no. 7-A/2016 [or rather, its article 135, at the point in question] intended to eliminate, totally or partially, the favourable tax effects, provided for in the law in force at the moment when they occurred, of the legal recognition of the tax benefits in question, then such law [or rather, that provision of it] would be unconstitutional, for violation of the principle of trust, inherent in the principle of democratic rule of law. Independently of that, however:

i) Considered in quantitative terms, the arbitral case law known at the time of the legislative intervention in question points to the need to attribute the character of an innovative law to the addition of paragraph 21 to article 88 of the Corporate Income Tax Code, in which that intervention was embodied, in the part in which it came to exclude the possibility of any deduction from the overall amount of autonomous taxation ascertained. In effect, in that case law it was systematically and generally recognised that autonomous taxation was CIT; and, on the other hand, it was largely majority in terms of the possibility of deducting from the part of the collection relating to such taxation the tax benefits now in question (this was understood unanimously in four arbitral decisions on that question, in which eight different arbiters participated, with the decision only being different in another, and even there with a dissenting vote, and in a single arbiter's decision). On the other hand:

j) Taking into account the "context of imprecision of the provision" of article 135 of Law no. 7-A/2016 – which speaks of "new wording", inter alia, of paragraph 21 of article 88 of the Corporate Income Tax Code, when therein we are faced with a new provision – it can and should be understood that the interpretive character which it [the said article 135] attributes to this provision can only refer to its first part, that is [making explicit] to that which orders the application to the assessment of autonomous taxation of article 89 of that Code. In any case:

l) The common regime for the application in time of interpretive provisions, contained in article 13 of the Civil Code, a regime according to which such provisions have retroactive effect, is currently inapplicable in the field of tax law – since article 12 of the GTL, which is a special law, combined with article 103, paragraph 3, of the Constitution prohibits the retroactivity of taxation;

m) But, even if it were, the fact is that the principle of retroactive applicability of interpretive provisions can only apply to those that are so substantively, to those that are contained "materially within the limits of interpretation", and not to those that are so only formally and are configured, in reality, as "new" provisions. Now, failing to identify (anywhere in Law no. 7-A/2016) the provision that the 2nd part of paragraph 21 of article 88 aims to "interpret", it could only be paragraph 2 of article 90 of the Corporate Income Tax Code, in which, however, no ambiguity is detected (or, if it existed, no ambiguity that was not equally shared by its paragraph 1 and the preceding article 89, since all refer to CIT, without any reservation, and relate to the same phase of its assessment): that part of the provision in question cannot be recognised, therefore, as having an authentically interpretive nature. Otherwise, there would be a contradiction between it and the 1st part of the same provision – since they would be "simultaneously interpretive", but "in opposite directions", of articles 89 and 90 of the Corporate Income Tax Code (which would be a "logical and systemic impossibility"). Truly interpretive nature – and moreover knowing the case law already referred to – has necessarily and really, then, only the 1st part of the disposition. In any case:

n) Even if – contrary to what must be held, more than as a "reasonable doubt", rather as a "reasonable certainty" – the provision of the 2nd part of paragraph 1 of article 88 could be considered as "materially" interpretive, and it were sought, thus, to assign it the retroactive scope prescribed in article 13 of the Civil Code, such would be opposed, in the final analysis, by the principle of article 103, paragraph 3, of the Constitution, which came to establish, at that level, the prohibition of "retroactive tax law". In effect – and in accordance with what was understood in Constitutional Court Decision no. 172/00 (and found subsequent support in doctrine) – that prohibition has the scope of preventing the attribution of retroactive effect even to authentically interpretive tax provisions: it is that [transcribing from the decision referred to] "the interpretive law, even though authentic, by seeking to have force for the period prior to its enactment, in accordance with article 13 of the Civil Code, alters the context of self-binding of the organs applying the Law and, consequently, affects the security of the addressees of the norms protected by a (constitutional) prohibition of retroactivity", and it is certain that [it continues] to that prohibition there cannot fail to be inherent a "strong sense [...] of protection of security";

o) Thus, if it were to be understood – contrary to what was alleged before – that article 135 of Law no. 7-A/2016 attributed interpretive character (whether "authentic" or not) also to the 2nd part of paragraph 21, introduced by it, of article 88 of the Corporate Income Tax Code, conferring on that segment of the norm retroactive effect, if it were to be understood this way, the same provision (the said article 135) will incur material unconstitutionality, for violation of the principle of the prohibition of retroactivity in tax matters, established in article 103, paragraph 3, of the Constitution of the Republic.

That is – it is the point where the Claimant wants to arrive, although it has not made it explicit: the "retroactive" application to the CIT assessment impugned by it in the present proceedings, and relating to the year 2014, of the provision of the 2nd part of paragraph 21 of article 28 of the Personal Income Tax Code, on the basis of the "interpretive" character attributed to that provision by article 135 of Law no. 7-A/2016, translates itself, in the final analysis, into a situation of material unconstitutionality, materialised in this legal disposition.

The Respondent, TCA, naturally takes a position opposed to that of the Claimant on the question in issue. The reasons and arguments which it invokes for this can be summarised as follows:

a) Autonomous taxation – having begun by applying to certain expenses, with the objective of discouraging them, and having subsequently progressively expanded to other situations – assumes, within the framework of CIT, a specific place and nature, which is not confused with the common incidence of that tax, on the profit of companies. In arbitral case law pronouncement, it is even said that such a form of taxation, "although formally inserted in the CIT" and although "the amount it allows to collect is assessed within its scope", "respects an imposition that is materially distinct from the taxation in this schedule";

b) The existence of such taxation implies that within CIT we encounter two different types of taxable income, to which different rates apply and which give rise to two distinct calculations for the ascertainment of the tax;

c) The thesis sustained by the Claimant – based on the arbitral decisions it invokes – is based on a mere literal interpretation of the law, which disregards its teleological and rational elements and, in particular, the objectives attached to autonomous taxation. Now:

d) The nature and objectives of these imply another exercise of interpretation, requiring the differentiation of the norms of CIT that, inherent in the structure of this, but incompatible with the objectives of autonomous taxation, cannot be applied to the latter. The case law itself has been recognising this;

e) This is the case with the provision of paragraph 2 of article 90 of the Corporate Income Tax Code, since, the amount of tax ascertained in accordance with subparagraph a) of paragraph 1 of that article not having a unitary character and integrating values calculated according to different rules, it (that same provision) will only be applicable to the part of the collection to which it has direct correspondence – and that is not the one resulting from autonomous taxation. In effect:

f) This happens, first of all, with the deduction relating to payments on account, as understood by the TCA and peacefully accepted by doctrine and by taxpayers in general. As necessarily happens, in a similar manner, with the deduction of tax credits to eliminate international double taxation, since (and articles 91 and 91-A make this clear) such credits can only uniquely relate to the taxation of "income" or "profits" abroad (and "in the taxable income of [...] autonomous taxation there are no revenues of external source");

g) Moreover, that this is so – that the deductions of paragraph 2 of article 90 are not attributable to the amount of the collection corresponding to autonomous taxation – is something that finds explicit support in paragraph 5 of the same article, which provides that, in the case of entities subject to the transparent taxation regime provided for in article 6, the deductions are attributed to the respective partners or members, being effected from the amount ascertained on the basis of taxable income determined for each: in effect, on the one hand, being such entities those that are subject to autonomous taxation (article 12), and, on the other hand, the partners or members of them having to integrate in the ascertainment of their taxable profit the values (of profit or loss) coming from those entities, being thus, what the provision (of paragraph 5) "indicates, in an entirely clear manner", is that, as to the partners or members of entities subject to transparent taxation, the deductions, being effected from the amount of tax resulting from taxable income that is attributed to them in accordance with article 6, are not from the amount relating to autonomous taxation. Now, matters proceeding thus in transparent taxation situations, it would be incongruous if they proceeded differently in other situations, that is [this is how it is formulated], for the deductions that "directly concern [the] taxpayers" [it is said "to those" taxpayers, but it is clear that the reference can only have in mind those not subject to the transparent taxation regime];

h) Also, then, as to the deduction relating to tax benefits, in particular those consisting of investment incentives, it must be understood that it can only relate to the tax assessed on the basis of taxable income determined according to the rules of chapter III and the rates of article 87 of the Code, and not equally to that resulting from autonomous taxation. Specifically as to this deduction:

i) On the one hand, investment tax benefits "have underlying the philosophy that the benefit constitutes a prize whose breadth varies with the profitability of investments", whereby "there is an indissoluble link between the amount of the tax credit [corresponding] and the part of the collection calculated on taxable income based on profit". Otherwise [that is, extending the deduction to the part of the collection relating to autonomous taxation] there will be an incongruity and a subversion of the articulation between the objectives of the benefits and the magnitude represented by profit;

j) On the other hand, the autonomous taxation regime has a dissuasive function of the realisation of certain types of expenses, so that it is not seen how the legislator would consent that this objective could be neutralised, through the deduction of tax incentives from the respective collection: to admit such a possibility (accepting in the limit that the deduction could be made [e.g.] on the volume of "undocumented expenses") would be equivalent to "[completely subverting] the function of those taxation forms in the prevention or avoidance of fiscally and socially undesired behaviour";

l) Moreover, with respect to the CFEI deduction, the law itself provides a "clarifying response" (in the sense sustained) for the case of "groups of companies", by referring, in subparagraph a) of paragraph 5 of article 3 of Law no. 49/2013, to the group's taxable income [cfr. supra, no. 8]. This taxable income can only be that referred to in paragraph 1 of article 69 of the Corporate Income Tax Code, which, in its calculation, "obeys, among others, the special rules provided for in articles 70 and 71, where no interference from autonomous taxation is detected, which, moreover, are determined autonomously by each company belonging to the group".

Meanwhile, and concerning the legislative intervention carried out, with respect to the matter in question, by Law no. 7-A/2016, the Respondent says, also in summary:

m) If there were doubts about the controversial question, they were dispelled by the interpretive character attributed by article 135 of Law no. 7-A/2016 to paragraph 21 of article 88 of the Corporate Income Tax Code;

n) That provision positivised what was the understanding of doctrine and taxpayers in general. But, despite that widespread understanding, the question was raised, from 2014 onwards, in 3 arbitral proceedings – cases no. 603/2014, no. 697/2014 and no. 769/2014 – and in the first and last it was decided in the sense defended by the now Claimant and, in the second, in the sense of the Respondent's understanding;

o) The question, then, was (and still is) controversial in arbitral case law. One cannot claim otherwise – and conclude, by that, by the unnecessity "of the interpretive character" of paragraph 21 of article 88, "transforming it into a retroactive interpretation of law, which, everyone agrees, is constitutionally prohibited", or that is [in another formulation], "sustain that [that provision, added] with an interpretive character, is not truly interpretative, but rather retroactive, as such unlawful and unconstitutional". And the Claimant cannot "insist", in that respect, on a "recurrently dominant [jurisprudential] current", since this does not correspond to reality;

p) Moreover, "there is evident notorious inflection of case law" that in this matter has been occurring in arbitral case law, with the decisions given in cases no. 722/2015, no. 785/2015 and no. 727/2015 – all unanimously accepting the position of the Respondent (in the same sense were also the dissenting votes in cases no. 749/2015 and no. 5/2016). And, as was said in two of those decisions, one would always have to understand, independently of what was now provided in paragraph 21 of article 88 and of the nature and scope of that provision, that the deductions in question were not applicable to the part of the CIT collection emerging from autonomous taxation – with it being stated in the first of them that "the legislator, in adding [that] paragraph 21 to article 88 of the Corporate Income Tax Code with the content mentioned, merely limited itself to accepting and reinforcing the normative sense that already resulted from the existing norms";

q) Having regard to all the aforesaid, the legal construction, to the contrary, of the Claimant – and without disrespect to the arbitral case law it invokes – translates itself into an "abrogating interpretation disguised as a legislative impulse", of the provisions on autonomous taxation, "and may constitute, in ultimate analysis, a violation of the principle of separation of powers".

Thus, attempting to summarise, is how the Parties have presented and sustained their positions on the controversial question in the Initial Request and in the Reply.

In developed submissions, the Parties resumed their theses and positions, insisting more broadly in the defence of some points, but without adding anything radically new to the framing of the question to be decided.

It will be said, in any case, that the Claimant particularly emphasises the incoherence that it considers it would represent, in its view, to claim that autonomous taxation within CIT translates into a specific tax event and then not consider the corresponding collections deductible in the calculation of taxable income of that tax; it insists on the preponderance of the number of arbitral decisions rendered in the sense of the thesis it defends; it further places special emphasis on analysing and refuting the arguments on which the TCA bases its contrary thesis; and, with respect to the intervention of Law no. 7-A/2016, it emphasises in particular the applicability, from the outset, of the constitutional prohibition of article 103, paragraph 3, (prohibition of retroactivity) to the matter in question and, then, the requirements that, in any case, must be fulfilled so that a provision is recognised as having a true interpretive character, as well as the fact that even that character does not remove retroactive effect from such a provision.

It is on this last point – the interpretive character of paragraph 21 of article 88, introduced by Law no. 7-A/2016 – that the Respondent, for its part, particularly focuses attention, reiterating that it was enacted in an effective context of judicial controversy, (which it explains again), and without it being relevant to make any "accounting" of that controversy (that is, without it being legitimate to draw any conclusion from such accounting). But it does not fail, moreover, to insist on the distinct nature of autonomous taxation in relation to common taxation [let us say so] in CIT and, likewise, on the fact that the deductibility of tax credits for investment (referring especially to SIFIDE) from the part of the CIT collection resulting from that taxation is contrary, as it alleges, to the sense of it and may lead, in the limit, not only to its distortion, but to its "annulment".

II. Grounds

II.I. The Facts

In light of the documents attached by the Claimant to the Initial Petition, the following facts are established:

a) The Claimant Group filed on 9 June 2015 the CIT return Form 22, for assessment (self-assessment) and collection of that tax, relating to the tax year 2014 of the Group, Form in which an amount of autonomous taxation in CIT of € 511,240.12 was ascertained (Doc. no. 1);

b) At the end of the tax year 2014, the Group had (or still had) available for use the following amounts of tax credits, in the context of investment tax benefits: SIFIDE - € 116,222.39; RFAI - € 829,253.99; CFEI - € 1,421,281.08 (Docs. nos. 3 to 6);

c) The total amount of these benefits was, therefore, much higher than the amount of assessed autonomous taxation;

d) On the same date previously indicated, the legal conditions necessary for the Group to be able to use the mentioned tax benefits, in the context of CIT, were met (Docs. no. 1, with respect to the non-application of indirect methods in the ascertainment of taxable profit, and nos. 7 and 8);

e) The said Form 22 and the TCA's computer system do not allow the amount of tax benefits such as SIFIDE, RFAI and CFEI to be reflected in the collection of autonomous taxation – that is, deducted from that collection – (cfr. Doc. no. 1);

f) The Group was not able to deduct (and did not deduct) in and up to the amount of autonomous taxation, ascertained in the self-assessment of CIT relating to the tax year 2014, the amount of tax credits to which it was entitled (or still had the right to), at the end of that tax year, in the context of SIFIDE, RFAI and CFEI (cfr. Docs. nos. 1 and 9);

g) In view of this, the Group filed, on 3 November 2015, an administrative complaint against the same assessment, on the grounds of illegality, embodied in the impossibility of effecting the mentioned deduction (Doc. no. 2);

h) After the legally established four-month deadline for doing so had elapsed, there was no decision on that administrative complaint, so its implicit rejection must be presumed as of 3 March 2016 (article 57, paragraphs 1 and 5, of the GTL).

II.II. The Law

As emerges from the Report which precedes, the question which is the subject matter of the present case, and which has already been identified, is not new in the arbitral case law of this Centre. The response it has received therein is far from uniform – and this, whether before or after the intervention that Law for 2016 (Law no. 7-A/2016) came to have in the matter.

Before this intervention, they decided in the sense advocated by the Claimant – that is, in the sense that the amount of investment tax benefits was deductible from the part of the CIT collection attributable to autonomous taxation – the decisions given in cases no. 769/2014-T, of 8/4/2015, no. 2019/2015-T, of 5/10/2015 and nos. 369/2015-T and 370/2015-T, both of 25/1/2016; to the contrary, the decision given in case no. 697/2014-T, of 13/5/2015. In the first two and the last of these decisions, the SIFIDE benefit was in issue; in the two others, the RFAI benefit: for the sense and scope of this case law it is, however, irrelevant which benefit is in issue.

In brief, it can be said that the basic argument on which the decisions that followed the first approach rest is that autonomous taxation is included in CIT and in the same assessment thereof (the assessment now provided for in articles 89 and 90 of the Code), since the law does not expressly exclude them from its scope, nor does it provide for them a specific assessment procedure: they therefore form part of the CIT collection; given that the provisions establishing the benefits provide for their deduction from the "collection" of CIT (or, as in the case of SIFIDE, from the "amount ascertained in accordance with article 90 of the CIT Code"), it must be understood that it is the entire CIT collection, without distinctions, that such provisions refer to. But to this argument is added another, seeking to counter what would be extracted (or will be extracted) from the objectives of autonomous taxation: it is that, being tax benefits – in the definition given to them by article 2, paragraph 1, of the corresponding Status (hereinafter, TBS) – "exceptional measures established for the protection of public extrafiscal interests relevant that are superior to that of the taxation which they prevent", this means that, where they are consecrated, the interest underlying them prevails, legislatively, over the interest of obtaining revenue. And (it was said in one of the decisions) not only that: being benefits that aim to provide an incentive for investment, they represent even a "public promise", whose breach involves, at the end, a violation of the principle of trust, characteristic of rule of law.

In the decision in which a contrary approach was followed, one proceeds, conversely, from the conception that autonomous taxation does not constitute CIT "in a strict sense" (it is taxation of another nature, which does not share the periodic nature of that tax). It is recognised, however, that they are "intertwined" in this tax, constituting an "instrumental reality", accessory to it, and translating themselves into specific anti-abuse norms, aiming to safeguard the general balances of the tax system and the balances of CIT: for this reason (because of this intertwining and this its objective) they are not deductible for the purpose of ascertaining taxable profit in CIT – as already had to be understood within the framework of the former article 45, paragraph 1, subparagraph a), of the Code and as, today, the homologous provision of its article 23-A has come expressly to say. And "it is thus that" – it is concluded without more in the decision – there is no illegality in the non-deduction of the tax credit then in issue (of SIFIDE, as was referred to) from the part of the CIT collection emerging from autonomous taxation.

Subsequently to the addition of paragraph 21 to article 88 of the Corporate Income Tax Code, carried out, with "interpretive character", by Law no. 7-A/2016, cases, in the first of the senses previously considered (deductibility of benefits from the part in question of the collection), are the arbitral decisions given in cases nos. 637/2015 and 673/2015, of 28/4/2016, no. 784/2015, of 13/5/2016, no. 740/2015, of 16/5/2016, no. 749/2015, of 15/7/2016 and no. 5/2016, of 27/7/2016; and cases in the contrary sense are the decisions given in cases no. 722/2015, of 28/6/2015, no. 785/2015, of 31/7/2016, no. 727/2015, of 7/10/2016 and no. 174/2016, of 19/11/2016. In issue in these various decisions were, as the cases had it, whether the SIFIDE and RFAI benefits, or also the CFEI benefit – what, as was said before, is practically indifferent to what is relevant here.

Also in summary, it will be said (dispensing with reference to arguments or counter-arguments in detail) that the first decisions begin by resuming basically the line of argument that came from the preceding case law in the same sense (initiated with the decision of case no. 769/2014-T), perhaps now more elaborate: thus, proceeding from the premise that the CIT assessment and the corresponding collection are unitary and encompass autonomous taxation, it is said that by simple "declarative" interpretation of the norms that created the benefits one concludes they must equally be deducted from the part of the collection relating to those taxation forms – whereby only by "restrictive" interpretation of those norms could one conclude to the contrary. Precisely, such an interpretation, not only would have to overcome the principle of non-restrictive interpretation of exceptional norms, but would be contrary to the ratio legis of the provisions in question – a ratio that clearly points to the prevalence of the public interest of the benefit over that of revenue collection (as article 2, paragraph 1, of the TBS, transcribed above) and to the non-reduction of the universe of their beneficiaries, underscored, in the case, by the relevance of the benefits in question and by the departure that the legislator made, as to them, from the application of the rule of article 92 of the Corporate Income Tax Code.

And, having said this, as to, for its part, what is provided in the new paragraph 21 of article 88 of the Code and its interpretive character, it is argued that it is irrelevant to the case, with the consideration that in the legislative intervention, which promoted the addition of that provision, no indication is found that it intended to encompass equally "special" norms, as are those establishing the benefits – whereby the rule that general law does not repeal special law will have to apply here. But it is added that, if not, then the interpretive character of the provision would have the consequence of the elimination [retroactively] of the favourable tax effects provided for in the law in force at the moment (that of the period for use of the benefits) when taxpayers adopted the corresponding behaviour: now, this would imply a violation of the constitutional principle of trust, inherent in the principle of democratic rule of law. [The argumentative development of the decision of case no. 673/2015 followed, with that of the remaining decisions, when it did not simply resume it, converging with it. But it must be noted that, as to the second limb of the argument – that relating to the new paragraph 21 of article 88 of the Corporate Income Tax Code – one of the decisions (that of case no. 749/2015) merely "denies" the interpretive scope of the provision; and another (that of the decision in case 637/2015) purely and simply ignores the question].

As to, now, the decisions in which judgment was rendered favourably to the TCA – and, therefore, in the sense of the non-deductibility of tax benefits from the part of the CIT collection proceeding from autonomous taxation – the reasoning thereof is not uniform, but in all there is underscored, with greater or lesser emphasis, the "specificity" of autonomous taxation within CIT. The point is especially developed in the decision relating to case no. 722/2015, in which the conception is very directly assumed (with appeal, in particular, to case law of the Constitutional Court), according to which autonomous taxation is a tax on expenditure, not on income, applying to each expenditure in itself, that is, to a tax fact that is "instantaneous" (and without the circumstance that its ascertainment encompasses the annual aggregate of expenses transforming it into a "periodic tax"). Similarly, but with much less development, also in the decisions given in cases nos. 727/2015 and 785/2015 it is considered that autonomous taxation is not CIT "in a strict sense". Already in the decision given in case no. 174/2016 this conceptual or dogmatic aspect of the qualification of autonomous taxation as CIT or not is devalued: the Court confines itself to recognising that, by force of autonomous taxation (which meanwhile it considers in its own internal distinction, according to its different incidence and purpose), CIT is a "complex and multifaceted reality", in sum, "a dual system", but "the same" system – a system or a tax regime "where two forms of imposition converge" of different roots and nature, but where the taxation "marginal" (autonomous taxation), although "subtracted in large part from the logic, nature and principles of CIT", "only makes sense in the context of taxation in the context of [the latter]".

From here, in two of the decisions in issue (those of cases nos. 727/2015 and 785/2015) it is understood that from the norms that enshrine the benefits one extracts, without more, that these can only refer to the collection attributable to taxable profit [cited, as to SIFIDE, subparagraph a) of article 5 of the instrument that created it, corresponding today to subparagraph a) of article 37 of the TCI, and, as to CFEI, in particular, the provision of article 3, paragraph 5, of the same instrument, relating to groups of companies] – and one concludes that, thus, "there exists an express legal impediment in the Corporate Income Tax Code for the credits [therefrom] to be deducted from autonomous taxation".

In the other two decisions, the question is analysed much more thoroughly and under other angles. Thus, and very much in summary: in the decision relating to case no. 722/2015, the essential part of the argument, against the deductibility of benefits from the collection of autonomous taxation, resides in the dissuasive and anti-abuse nature of the latter and in the mischaracterisation of that nature that such deductibility would signify, when, in the limit, the latter could even lead to the complete elimination of that collection; in the decision given in case no. 174/2016, beginning by recognising that, considered article 90 of the Corporate Income Tax Code in purely literal and semantic terms, another conclusion could not be drawn except that of the deductibility of benefits to the entire CIT collection, one descends next to the ratio legis of the provision (or of the provisions pertaining to the question) in order to – proceeding from various topics of the CIT regime, on the one hand, and from the nature and certain aspects of autonomous taxation (or of some of them), therein included its anti-abuse purpose, on the other – to conclude, straightaway, to the contrary.

Meanwhile, the consideration also is not identical in which these four decisions had the addition of paragraph 21 to article 88 of the Corporate Income Tax Code, carried out, with an interpretive character, by the Budget Law for 2016: in two of them (still those given in the cited cases nos. 727 and 785), the point is not even addressed; in the decision rendered in case no. 722/2015, there is expressly emphasised the unnecessity of the invocation of that provision to establish the conclusion of the decision – and, consistently, it is said that such provision merely enshrined the "interpretive sense" that should already have been adopted previously; finally, in the decision of case no. 174/2016, arriving equally at the decision independently of the provision in question, the question of its interpretive character, relative to article 90, paragraph 2, of the Corporate Income Tax Code, is, however, addressed ex professo, and it is considered that the presuppositions that allow real and validly to recognise that its character are verified, in the case – whereby always thereby, and in the final analysis, one would have to conclude by the non-deductibility of benefits to autonomous taxation.

Having said this – having exposed the argument developed by the Parties to sustain their respective viewpoints and having evidenced, in its grounds, the jurisprudential divergence that has been occurring relative to the question in issue – how is one to decide?

Having duly weighed that divergent argument and that divergent grounds, this Tribunal understands – what it hereby announces in advance – that the reason is on the side of the Respondent, TCA, whereby the Claimant Group's request must fail in toto. This understanding will be justified forthwith, highlighting what is essential in it.

Thus, one will begin by saying – in that aspect following the initial approach of the decision given in case no. 174/2016 – that it is deemed unnecessary, for the purpose here in view, to enter into the conceptual theme of the qualification of autonomous taxation, within CIT, that is, the question of whether we are still faced therein with that tax (which is a periodic tax on income), or faced with a different imposition, especially on expenditure (and configuring itself as a tax of a single obligation, though with annual aggregated collection). That will be more a dogmatic question in the domain of "taxation" (the science and technique of taxation), rather than properly (and, if in any measure, not for the point now in question) a "legal" question – moreover being, to say the least, an extremely controversial question (particularly – and if posed, despite all, on a legal plane – as to the qualification of autonomous taxation as a "single obligation tax", adopted in the remaining decisions that before, and most recently, were considered, as well as in some doctrine).

It is enough to recognise – and this is, without doubt, relevant – that in the same legal-formal or legal-structural figure of CIT one encounters today two sources (or causes) of taxation, of a distinct nature: one, the traditional, and which is reducible, broadly, to the occurrence of "taxable profit", translated into the difference between revenues realised and expenses and charges incurred by the taxpayer in the development of his activity during the period (articles 3 and 15 of the respective Code); and another (if one wishes, peripheral or marginal), which is directly reducible to certain expenses incurred or charges assumed by the taxpayer throughout the period, all as is discriminated in article 88 of the same instrument (to which are added the profits distributed by it to beneficiaries found in the conditions referred to in paragraph 11 of that provision).

And to such a degree is it, legal-formally or legal-structurally, the same tax figure – and, with this, one proceeds to a second cardinal point – that, if the two sources or causes of taxation imply "substantive" assessments distinct (being different, in each one, the taxable income and the rate or rates), these are going to merge into a single legal act of assessment, which gives rise to a global collection – in whose payment obligation the taxpayer is also unitarily constituted. That this is so, emerges unequivocally from articles 89 and 90 of the Corporate Income Tax Code – the only ones that govern the (normal) assessment of this tax. This is now expressly stated in paragraph 21 of article 88 of the same Code, in its first part: but before that one could not understand otherwise – as was unanimously accepted (see all the case law referred to above).

Now, being thus, a first conclusion can already be established – and will be that the legality and legitimacy of the assessment of autonomous taxation, because having its title in the cited provisions, will always be assured – whether or not deductible, from the part of the CIT collection which concerns them, the tax benefits in question in this case (or any other amounts). Whence it results that the subsidiary request formulated by the Claimant will always fail – what is already stated, without need to return to the point.

It is that the problem is not really in the "procedure", per se, of the assessment of autonomous taxation: it is only in knowing whether, that procedure being integrated in that of the global or unitary assessment of CIT, it is, nevertheless, admissible (legally admissible) that, in that unitary procedure, the deduction relating to tax benefits (or others) can be made from the part of the collection relating to those assessments.

Now then: as emerges from what has been said, to such a conclusion one certainly cannot arrive by simple "declarative" interpretation, whether of the legal provisions that enshrine the tax benefits now in question, or of the provision of subparagraph c) of paragraph 2 of article 90 of the Corporate Income Tax Code: it is indisputable that, the former speaking (or using equivalent formulation) and the latter referring to the "collection" of CIT, certainly a purely literal and semantic reading of them can only lead to the conclusion that it is the entire collection of that tax that is encompassed by them (by those provisions). This is what is expressly already recognised in the aforesaid decision of case no. 174/2016 – and it is not different, naturally, the assumption on which first all the arbitral case law (listed above) that goes in the sense of the deductibility of the benefits in question also to the part of the CIT collection emerging from autonomous taxation is based.

The point, therefore, is (or was) in knowing – this, considering matters before, or independently, of Law no. 7-A/2016 having added paragraph 21 to article 88 of the Corporate Income Tax Code (since, before that provision, no other expressly removed the indicated result) – whether the cited provisions should not (or should not have been) be the object of a "restrictive" interpretation, such that in them would be seen only the "common" part (so to speak) of the CIT collection referred to, that is, that corresponding to taxable profit ascertained.

Having the matter thus posed – and thus they cannot (or could not) fail to be posed, since the interpretation of law cannot be satisfied with the simple consideration of its "literal" element – everything is (or was) in knowing whether any obstacle arises (or arose) to such restrictive interpretation, making it wholly impossible; or whether, conversely, some or various circumstances, of a systematic or teleological nature, rather favour (or favoured) it and even impose (or imposed) it. Now, this Tribunal understands that the response should indeed go in the direction of the second of the two alternatives enunciated, and, this, having regard to the topics that are developed hereafter, as succinctly as possible.

a) In the first place, it will be important to say that, from the fact that the provisions enshrining tax benefits may or should be considered "exceptional" norms, or, at the least "special" norms, nothing can, in limine, be concluded against the possibility of their restrictive interpretation. In effect – and lacking, from the outset, any doctrinal orientation that has ever, in general, excluded that possibility as to exceptional norms – neither can there be found argument for, in the matter in question, holding such a form of interpretation (or then, and at least, finding argument against it) in article 10 of the TBS, according to which the norms establishing those benefits "are not susceptible of analogical application, but admit extensive interpretation": it is that the directive established therein is situated truly in its first part, in the prohibition of analogy, and not also in the second, or that is, in any deontological indication of favouring extensive interpretation in that matter. At the end and for the rest, that provision does nothing more than (in advance) reflect or translate, in the specific domain of tax benefits, what the GTL has come generically to provide on the interpretation of tax law (article 11, paragraph 1 and paragraph 4), subordinating it to the general principles of legal interpretation, but prohibiting analogy in matters "encompassed in the reservation of law of the National Assembly", that is, in the substantive domain of what is usually called the "essential elements of the tax" (in which precisely also those benefits are included).

On the other hand: it is certain that one can say that the restriction of the literal scope of a norm establishing a tax benefit carries with it or translates itself, substantively, into an extension of the tax obligation; only that, neither can this constitute an obstacle to such restriction, given the circumstance that extensive interpretation of tax norms is not barred – as today expressly results from the provision of the GTL just cited and as has long been the dominant orientation (permit me to recall, to all, J.M. Cardoso da Costa, Course in Tax Law, 2nd ed., Coimbra, 1970, pp. 201 ff.).

b) In the second place – and we arrive, at this point, at an argument that has been nuclear in the case law (ut supra, nos. 13 and 14) that follows the thesis that tax benefits cannot fail to be deductible even to the part of the CIT collection relating to autonomous taxation – neither is it judged that it can truly prevail, against the possibility of a restrictive interpretation of the norms creating such benefits, the invocation of what is provided in paragraph 1 of article 2 of the TBS.

There it is said – repeating and recalling what was already transcribed above – that what are considered as tax benefits are "exceptional measures established for the protection of public extrafiscal interests relevant that are superior to that of the taxation which they prevent". This, however, is no more than a "definitional", "qualificatory" and "reassuptive" statement, in which the criterion that presides (or should preside) over the creation of tax benefits is made explicit: from it there is to be extracted, therefore, no indication, as to the interpretation of the legal provisions that create the latter.

Making concrete: without doubt that from the legal statement in question it follows that it must be understood that the legislator, where he instituted a tax benefit, gave prevalence to another public interest (e.g., of an economic order) over the tax interest (the interest in obtaining revenue through the collection of taxes) – and that, therefore, that is what he did precisely in instituting the SIFIDE, RFAI and CFEI benefits (whose significant importance cannot be called into question and is not disputed); simply, it does not follow from that (or that cannot also serve as a foundation for) that, in a situation where the result of a purely declarative interpretation of the norm creating the benefit confronts itself with other interpretative elements (especially of a systematic and teleological order) that point to a restrictive interpretation, necessary prevalence is given to that first interpretation. Everything must depend on the relative weight of all the interpretative elements in presence.

c) Now what occurs in the case – in the understanding of this Tribunal – is that, having weighed the diverse interpretative elements occurring therein, and there being no dogmatic reasons that prevent a restrictive interpretation of such provisions, reasons appear, or, at least, one reason, that decisively impose (or imposed) an interpretation of that kind (or with that result) of the norms establishing the tax benefits in question and of the provision of subparagraph c) of paragraph 2 of article 90 of the Corporate Income Tax Code.

In that sense, it is not deemed entirely impertinent to invoke the fact that one is here faced with tax benefits which, relating to the realisation of investments by companies, have to do with the incentive for the development of their activity and the increase of their productive and economic-financial results, or that is, and consequently, of their profit – whereby (it will be said) their incidence (of such benefits) will aim directly at the tax relief of that profit and, therefore, the CIT collection that immediately concerns it.

One will not place, in this consideration, however, a decisive weight. On the one hand, because autonomous taxation does not cease to constitute (at least, certainly, to a certain extent or to a certain point) a "substitute" taxation of the taxation of profit; and, on the other hand, because to it could be opposed that the restrictive approach thus propounded would involve a reduction of the impact of the benefit and even of the universe of beneficiaries (already they could not be companies without profit), in an economic-financial context in which perhaps one would wish for the benefits to have the greatest possible impact and coverage.

But there is another consideration, and that one truly decisive – even because, in face of it, and given its link to the "systematic" nature of autonomous taxation, the counter-argument just evoked will no longer be able to assume determinative relevance. That consideration is – naturally – the one that has to do with the nature and purpose of the autonomous taxation institution.

These aim at the objective of countering practices, either propitious to illegitimate tax evasion, or susceptible of distorting the logic of taxation in CIT and even of the system in general of income taxation – which means that they come to have an anti-abuse and minimum taxation nature (to state it in general terms). Now, it is not seen how really this is compatible with the deduction of tax benefits from the corresponding collection: there would be something contradictory there, since such deduction would necessarily come to call into question the logic (the "substantive" logic and not any mere "formal" logic) of the same taxation and to prevent them from realising the principal objective of each one.

The point is the subject of extensive development in the decision given in case no. 722/2015 – in it (and highlighting) being written in particular: "…the [autonomous taxation] configure anti-abuse norms directed to rationalise specific behaviour of taxpayers in face of the tax duty […] […]. Consequently […] […] it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that impregnates them". And further ahead: "the collection of autonomous taxation […] cannot […] permit the deduction of tax benefits, under penalty of mischaracterisation of the principles that specifically are sought to be pursued".

It is this same understanding that is subscribed to here – in it residing the decisive reason for excluding the deductibility of the tax benefits in question, globally encompassed by subparagraph c) of paragraph 2 of article 90 of the Corporate Income Tax Code, to the part of the collection of that tax emerging from autonomous taxation.

In summary: the collection of CIT encompassing amounts of tax proceeding from two diverse sources, the nature and reason for being of one of those sources (that of autonomous taxation) imposes (or imposed) that one interpret restrictively the provision just mentioned, and the provisions creating the tax benefits that remit to it, in the sense that they encompass solely the part of the collection of such tax that reports to the taxation emerging from the other, and first, of those sources, namely, the profit produced by the taxpayer.

Behold, in what is set out above, what the Tribunal understands to be truly determinative, to conclude in the sense that has just been enunciated.

Being thus, it does not appear necessary – and it would be superfluous – to enter into the analysis of other arguments, but truly secondary, that, whether in the procedural documents produced by the Parties, whether in the case law considered above, have nonetheless not failed to be invoked (as, moreover, note was given) in the sense of one or the other of the two theses in presence, in the question sub judice. One therefore dispenses with, without more, such analysis.

As results from what precedes and began by being warned (ut supra, no. 17, in fine), it has not been dealt with, in what has been said up to now, the scope that for the decision of the case in question will have come to assume, meanwhile, the addition that Law no. 7-A/2016 made to article 88 of the Corporate Income Tax Code, by adding to it paragraph 21, with an interpretive character. It shall not fail, however, still to be addressed, that other side of the matter.

a) Thus, and in that respect, it will have to begin by referring to the impossibility of accompanying the understanding – first accepted in the arbitral decision given in case no. 673/2015 – according to which the provision in question purely and simply did not affect the norms relating to tax benefits SIFIDE, RFAI and CFEI, by being these "special norms", which continued therefore, in accordance with the known rule lex generalis non derrogat legi speciali, to prevail in face of the general norm (now that of paragraph 21 of article 88 of the Corporate Income Tax Code).

It is that it is not seen what other objective could have been that of the legislator, in making clear that to the amount assessed of autonomous taxation no deductions are made (as is now read in the cited provision), except precisely that of preventing that amount from being reached by the deductions provided for in paragraph 2 of article 90 of the Code – among them, that of subparagraph c), relating to tax benefits. Now, this subparagraph, by referring generically to the deduction of benefits, remits, necessarily, to the norms (certainly "special"), and to all, that enshrine tax benefits translated in deductions from collection – it remits to them and reassumes them, so that, having the legislator defined and delimited more precisely its scope and reach, that delimitation will at the end of the day operate itself through or within the scope of those other norms.

b) It must be said next that neither can the thesis, defended by the Claimant Group in the present case, be accepted, that the interpretive scope attributed by article 135 of Law no. 7-A/2016 to the provision now in question can only refer to its first part – this, under penalty of contradiction.

It is not seen where the latter can be. In the new paragraph 21 of article 88 of the Personal Income Tax Code came two different things: one, that the assessment of autonomous taxation operated through the sole assessment procedure provided for in the Code, which was that of article 89 (and following); another, that in that procedure no deduction would be made from the amount assessed attributable to that taxation. Where is the impossibility of attributing interpretive effect – naturally diverse in its scope – to these two also diverse dimensions of the provision?

Moreover, if a need for interpretation existed, it was not in the first of those dimensions (which was indisputed): as is known the corresponding context, it would be, yes, in the second. But it is well understood that, motivated to intervene to clarify that aspect of the question, the legislator found it appropriate to make a global clarification – encompassing the two aspects of it.

c) Having said this, the problem that, in face of the new paragraph 21 of article 88 of the Corporate Income Tax Code and its interpretive character, arises, in cases (like that of the instant matter) of taxation relating to years previous to its entry into force, is that of knowing whether such character or nature of the provision permits and even imposes its application – retroactively, therefore – even in those cases.

The positioning of the question – extensively debated in the procedural documents produced by both Parties – is known: it is a matter of knowing whether, in the domain of tax law, that is, in the domain of the "essential elements of taxes", the rule, established in article 13 of the Civil Code, can still prevail, and to what extent, according to which "the interpretive law integrates itself in the interpreted law", saving what is there provided (broadly, situations already consumed, e.g., by force of res judicata), which means that, outside that saving, it will have retroactive effect. And the question arises, today, from the circumstance that the Constitution of the Republic has come to enshrine, in its article 103, paragraph 3, the prohibition of taxes of a "retroactive nature", a prohibition that the GTL retook in its article 12, paragraph 1.

d) Now then: in the response to such a problem one will not be able to fail to attend primarily to the terms in which the Constitutional Court itself has delimited the terms of the prohibition of retroactivity in tax matters.

Now, the case law of the Constitutional Court is far from making a strict and radical understanding of that prohibition, essentially distinguishing between situations of authentic retroactivity, which the Constitution will forbid, and situations of mere retrospectivity, which will no longer be encompassed by the constitutional prohibition – unless there occurs therein a violation intolerable to the principle of trust (since – and that is another aspect of the same case law – always such a principle will have to prevail, independently of that express constitutional prohibition).

Simply, if it is thus in general, the Court, in its Decision no. 172/2000 (invoked by the Claimant, as was said at the time), came to assume, albeit in a manner not unanimous, an extremely restrictive position, with respect to the specific point of the attribution of retroactive effect to "interpretive" tax norms – considering that, even when it is a matter of true interpretation (and not of a provision "innovative", disguised under that appearance), always therein there occurs an element of unacceptable retroactivity (it is not stated exactly thus, but that is what is at issue), translated into the circumstance that the organ applying the law is prevented from opting for an alternative interpretation, which affects the security of the addressees of the norms (which the Constitution wants to protect, in the matter in question, in a degree or strong sense). In the logic of this decision, we shall have, therefore, that, in the domain of tax assessment provisions, the Constitution opposes the prevailing of the directive of article 13, paragraph 1, of the Civil Code, even if it is a matter of effective "interpretive law".

The truth, however, is that – as far as is known – in the case law of the Constitutional Court the question has not been revisited, so the approach just referred to has not come to be reaffirmed, at least for now.

Be that as it may, and reexamining the problem, it is not believed that such an approach should prevail – what a non-constitutional judge will have all the greater "freedom" to understand and to assume, precisely because it (that approach) is not based on case law that is continued, consolidated and uniform.

It is that, from the fact that a "truly" interpretive provision deprives the law applier of the possibility of opting for an alternative interpretation, it does not necessarily follow that an affectation of the trust of the addressees thereof, as serious as may be believed – if one indeed always occurs some affectation of such trust: now, only this consideration (that not the withdrawal of decision-making freedom from the law applier, especially the judge) could justify the radical exclusion of the "retroactive" effect of such a provision.

Recall, to that purpose, what doctrine (the doctrine opportunely cited by the Claimant, and which has its expression par excellence in the teaching of Baptista Machado) requires for one to be faced with an authentic law or interpretive provision: it is necessary, first, that it come to decide a question of law that is controversial or uncertain; and it is necessary, next, that it enshrine one of the possible understandings of the interpreted provision, that is, an understanding to which case law could have arrived, by its own means.

But, if that is yes, then what firm credit of trust can the addressee of a certain interpretation of a provision have, if it is controversial? And what serious frustration of his trust occurs, if the legislator puts an end to the doubt or interpretive uncertainty by embracing one possible interpretation (though another) of the provision – and this, above all, when that interpretation has already had acceptance in case law?

Aye, why one does not accompany the approach of the Constitutional Court's Decision no. 172/2000 (meanwhile reflected also in some doctrine), in the sense of excluding, by principle, in the domain of the essential elements of taxes, the retroactive effect of authentically interpretive norms.

e) It remains to transpose what has just been considered to the case sub judice – transposition which, given what has been said above and the result to which one arrived therein, does not appear particularly arduous.

In effect, it cannot be questioned that the question of knowing whether tax benefits (particularly the investment incentives in question in the present case) were deductible from the part of the CIT collection emerging from autonomous taxation was configured as a controversial question – with diverse understandings on the matter between taxpayers (or some taxpayers) and the tax Administration and even already in arbitral case law (there being to be emphasised, in that latter respect, that the quantitative terms of the case law discrepancy are always to be held as irrelevant); on the other hand, it is equally unquestionable that, in putting an end to that controversy, with the interpretive norm of the second part of paragraph 21 of article 88 of the Corporate Income Tax Code, the legislator enshrined one of the interpretations of subparagraph c) of paragraph 2 of article 90 of the same Code (and of the specific legal provisions establishing the SIFIDE, RFAI and CFEI benefits) not only possible, but already accepted by part of the case law.

Assuming the provision, therefore, a truly interpretive nature – and it not being possible to be said that it came to affect unexpectedly and intolerably the trust of the interested parties – hence why it is understood that it will always be applicable in the case sub judice – without thereby violating the constitutional prohibition of retroactive taxation, established in article 103, paragraph 3, of the Constitution.

III. Decision

On the grounds set out above:

a) The arbitral Request of A…, SGPS, for the impugning of the self-assessment which it made, of the CIT relating to the tax year 2014 and of the rejection of the administrative complaint which it filed against the same assessment, is judged to lack merit, the assessment not being declared unlawful;

b) The Claimant's request for the assessment of compensatory interest, relating to the payment of the part of the collection impugned, is judged to lack merit, as a consequence;

c) The subsidiary request, formulated by the Claimant, is judged to lack merit, the assessment relating to autonomous taxation incorporated in the act of assessment referred to in subparagraph a) above not being declared unlawful;

d) The value of the proceedings is fixed, according to the value of the request, at € 511,240.12 (five hundred and eleven thousand two hundred and forty euros and twelve cents), there being no occasion to establish the amount of costs and the respective responsibility, by force of what is provided in articles 22, paragraph 4, and 12, paragraph 3, of the LFTA.

Lisbon and Administrative Arbitration Centre, 28 March 2017.

The Arbiters,

José Manuel Cardoso da Costa

(with annexed statement of vote)

João Taborda da Gama

(dissenting as per annexed statement)

João Menezes Leitão

Statement of Vote

As I was then a member of the Constitutional Court and in that capacity participated in the discussion and voting of that Court's Decision no. 172/2000, cited in the text, it behoves me to clarify that, however, I did so in dissent – first and foremost because I understood that to the situation addressed in that same decision was not (yet) applicable, in accordance with the principles that should govern the application of the Constitution in time, the express rule of the prohibition of retroactive taxes, contained in its article 103, paragraph 3.

Thus, dispensed as I was from entering into the theme, I did not then pronounce myself on the question of the reflexes of such constitutional prohibition in the context of the effectiveness in time of "interpretive norms" relating to essential elements of taxes – having confined myself to recognising that this was a question with relevance. Hence that the present occasion ends up being the first (in any forum, jurisdictional or other) in which I take a position on it – what I do, as is seen, in a sense divergent from that decision. That is: understanding that from the express prohibition of retroactivity in tax matters, which is contained in the constitutional text from the 1997 Revision onwards, the consequence should not be drawn of the exclusion, absolutely and without more, of interpretive norms in that matter, with the "retroactive" effect that will be in principle associated with them, provided that such norms embody a true interpretation.

I can, nevertheless, and in thesis, allowing for a case-by-case analysis, admit that in some case one should conclude by such exclusion, when the principle of legal trust is intolerably called into question. I do not judge, however, that this is the case in the instant matter.

Statement of Vote

I voted in dissent in the present decision by disagreeing with its reasoning and with the decision, referring the reasons of my disagreement, from among the many that enshrine the position in which I see myself, to those two decisions that I subscribed to: the decision given in Case no. 740/2015, of 16.05.2016, and the decision in Case no. 360/2016, of 16.02.2017.

Having regard to the relevance that the application of an interpretive norm with retroactive effect took in the present decision, I cannot fail to add a brief note which the question requires.

The application of article 88, paragraph 21 of the Corporate Income Tax Code to the present case consists in the application of a legal provision to facts that occurred before its entry into force, something that is constitutionally inadmissible in light of what is now provided in article 103 of the Constitution of the Portuguese Republic which expressly establishes a prohibition of retroactivity in tax matters.

If in general it is methodologically highly debatable the articulation between interpretive norms and the very idea of separation of powers, as well as their methodological foundation, I do not see how, after the constitutional prohibition of tax retroactivity, the conduct of the legislator to purport to dispose with the force of law on the sense of a source of law from its creation can have acceptance, fixing one of those senses and setting aside others (which, moreover, in the case, continue to merit majority jurisprudential recognition).

To admit interpretive tax norms with retroactive effect not only violates the express constitutional prohibition of retroactivity in tax matters but distorts the terms of a principle of tax justice and of tax equality in the context of the current conformation of the tax legal relationship, based on the duties of cooperation of taxpayers. In effect, and all the more in a context of structural intense budgetary pressure, to legitimise the use of interpretive-retroactive tax norms cannot fail to function as an incentive to the budgetary legislator to, and knowing the role of law and of fact of the Administration and of Government in the making of tax laws, under cover of elaborate general doctrinal distinctions on what are (so-called) norms...

[truncated as per original]

Frequently Asked Questions

Automatically Created

Can SIFIDE II, RFAI, and CFEI tax benefits be applied to reduce autonomous taxation (tributação autónoma) under Portuguese IRC?

The central legal question in CAAD Process 302/2016-T is whether SIFIDE II, RFAI, and CFEI tax benefits can reduce autonomous taxation under IRC. These benefits provide deductions 'from the amount ascertained in accordance with Article 90 of the IRC Code.' The claimant argued this language encompasses autonomous taxation, while the Tax Authority maintained these credits apply only to general IRC collection, excluding autonomous taxation on specific corporate expenses like vehicles and representation costs.

What is the legal basis for challenging autonomous taxation on corporate expenses in Portugal?

The legal basis for challenging autonomous taxation involves filing an administrative complaint (reclamação graciosa) against the IRC self-assessment within the statutory deadline. Upon implicit or explicit rejection, taxpayers may initiate arbitration proceedings with CAAD under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011). Challenges typically assert that autonomous taxation was incorrectly calculated, lacks legal foundation, or unlawfully prevents application of legitimately earned tax credits and benefits, violating constitutional principles of tax equity and legal certainty.

How does Article 90 of the Portuguese IRC Code apply to autonomous taxation collections?

Article 90 of the Portuguese IRC Code establishes the methodology for calculating final tax collection. Tax incentive regimes (SIFIDE II, RFAI, CFEI) explicitly reference Article 90, stating benefits are 'deducted from the amount ascertained in accordance with Article 90' and 'up to its limit.' The dispute concerns whether Article 90's 'amount' includes only standard IRC or also autonomous taxation collections. CFEI specifically references 'subparagraph a) of paragraph 1 of article 90,' suggesting the legislature contemplated different collection components when structuring these deduction mechanisms.

What is the procedure for filing an arbitration claim with CAAD against an IRC self-assessment?

To file a CAAD arbitration claim against an IRC self-assessment, taxpayers must: (1) first file an administrative complaint (reclamação graciosa) with the Tax Authority; (2) upon rejection or after the legal deadline for response, submit a written arbitration request to CAAD identifying the contested tax assessment; (3) designate an arbiter; (4) attach supporting documentation; (5) pay applicable fees. The Tax Authority then designates its arbiter, CAAD's President appoints the presiding arbiter, and the three-member tribunal is constituted to adjudicate the tax dispute under RJAT procedures.

Is a taxpayer entitled to a refund and compensatory interest when autonomous taxation is unlawfully applied?

Yes, when autonomous taxation is determined to be unlawfully applied, Portuguese taxpayers are entitled to full reimbursement of amounts unduly paid plus compensatory interest (juros indemnizatórios). Interest is calculated from the date of payment until complete reimbursement, compensating taxpayers for the State's retention of funds lacking legal basis. In this case, the claimant requested compensatory interest from September 1, 2015, following the May 31, 2015 payment deadline for 2014 IRC, continuing until the unlawfully assessed €511,240.12 is fully refunded.

Autonomous Taxation (IRC) vs SIFIDE II, RFAI & CFEI Tax Benefits: CAAD Case 302/2016-T Ruling

Table of Contents

Summary

Full Decision

DECISION OF THE ARBITRAL TRIBUNAL OF THE ADMINISTRATIVE ARBITRATION CENTER (CAAD)

I. Report

A) Constitution of the Arbitration and Procedural Development

B) Subject Matter of the Arbitration and Positions of the Parties

II. Grounds

II.I. The Facts

II.II. The Law

III. Decision

Statement of Vote

Statement of Vote

Frequently Asked Questions

Tags

FRESH Legal Group

Table of Contents

Autonomous Taxation (IRC) vs SIFIDE II, RFAI & CFEI Tax Benefits: CAAD Case 302/2016-T Ruling

Table of Contents

Summary

Full Decision

DECISION OF THE ARBITRAL TRIBUNAL OF THE ADMINISTRATIVE ARBITRATION CENTER (CAAD)

I. Report

A) Constitution of the Arbitration and Procedural Development

B) Subject Matter of the Arbitration and Positions of the Parties

II. Grounds

II.I. The Facts

II.II. The Law

III. Decision

Statement of Vote

Statement of Vote

Frequently Asked Questions

Tags

FRESH Legal Group

Related Articles

Table of Contents