IRC Municipal Surcharge and Autonomous Taxation Deductibility – CAAD Case 306/2013-T

ARBITRATION DECISION

I - REPORT

1. On 26 December 2013, company A, S.A. requested the constitution of an arbitration tribunal, pursuant to the provisions of articles 2, no. 1, letter a) and 10, nos. 1 and 2, of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters) and of articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March.

2. The request for constitution of the arbitration tribunal was accepted by the Honorable President of CAAD and notified on 26 December 2013.

3. The Claimant seeks the pronouncement of the Arbitration Tribunal with a view to declaring the illegality of the self-assessment of IRC (Corporate Income Tax) and municipal surcharge relating to the fiscal year 2010, insofar as the part of the aforementioned self-assessment act reflects the non-deductibility of charges relating to autonomous taxation in the amount of € 7,406.98 and, consequently, to be recognized the right to reimbursement of the aforementioned amount and, likewise, the right to compensatory interest for the payment of the tax improperly assessed.

4. In the request for arbitration pronouncement, the Claimant chose not to designate an arbitrator. In accordance with letter a) of no. 2 of article 6 and letter b) of no. 1 of article 11 of the Legal Regime of Tax Arbitration, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD designated the undersigned as arbitrator of the single arbitration tribunal, having accepted in accordance with the legally provided terms.

5. On 24 April 2014, the Respondent, duly notified for that purpose, submitted its Response, where it defended itself by way of exception and by objection, and on the same date, remitted the tax administrative proceedings.

6. On 15 September 2014, the first meeting of the Tribunal took place at the headquarters of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, in accordance with the terms and purposes of article 18 of the Legal Regime of Tax Arbitration, and minutes thereof were drawn up, which are attached to the case file.

7. At that meeting, the Illustrious Counsel for the Claimants and the Illustrious Representative of the Respondent were notified to submit written submissions, as stated in the respective meeting minutes, which is hereby fully reproduced for the due legal purposes, which they subsequently did.

8. The position of law of the Claimant, in accordance with the provisions of the petition for constitution of the Arbitration Tribunal, may be summarized as follows:

Autonomous taxation is not IRC nor any other tax that directly or indirectly affects profits; rather it is possible to say that in the majority of cases it is, in technical terms, a tax on expenditure (the inverse of taxation on income or profit, as is the case with IRC, including its surtax known as state surcharge, or as is the case with municipal surcharge), a tax on charges borne by the company and representative of consumption (in a broad sense) of the company.

An analysis of both the incidence (in the overwhelming majority of cases, on expenses or charges) and the function of autonomous taxation reveals that they are not, do not have the nature of a tax on the income (profit) of the legal person that bears them and constitutes their passive subject.

Furthermore, autonomous taxation applies independently of the IRC (as a consequence, precisely, of this different nature and function in relation to IRC): they apply even (or equally) when there is exclusion from subjection to (non-application of) IRC, or exemption from IRC, and they apply to a different reality from that (profit) to which IRC applies, so that their fiscal deduction does not generate a vicious circle, as would be the case with a possible deduction of surcharges.

IRC does not remove this treatment, from the accounting perspective, of fiscal charges as costs or expenses: the rule in IRC is that taxes borne by an IRC taxpayer are deductible, to the same extent and on the same level as the generality of expenses or charges – cf. letter f) of no. 1 article 23 of the Corporate Income Tax Code (CIRC).

The rule in IRC is that taxes borne (including customs duties) are fiscally deductible, i.e., they enter into the accounts of the calculation of taxable profit, on the same level as other expenses or costs of the activity, in general (cited letter f) of no. 1 article 23 of the CIRC).

The exceptions to this state of affairs are precisely that, exceptions, and are provided for in letters a) and c) of no. 1 of the current article 45 (former 42) of the CIRC.

Not being, as it is not, a tax on income of any kind, including the IRC type, this fiscal charge which is autonomous taxation is deductible for IRC purposes in accordance with general terms, on the same level as the generality of fiscal charges.

What is important to emphasize again, in conclusion, is that autonomous taxation in no way affects profits (directly or indirectly), much less the profits of the IRC taxpayer, so that in no way can it be subsumed in letter a) of no. 1 of the current article 45 of the CIRC (formerly article 42 and, initially, article 41).

The doctrinal controversy that existed regarding the (non-)deductibility of municipal surcharge and the manner in which it was resolved also confirm that, with respect to charges relating to autonomous taxation, the exception provided for in letter a) of no. 1 of article 45 (formerly 42) of the CIRC does not apply to the tax rule of the deductibility of taxes.

Autonomous taxation is not taxation on the income of its respective passive subject, it is not IRC, surcharge or any other tax affecting its income. It is something very different (taxation on expenditure), it was already (thus it was born) outside the IRC code, and thus could perfectly return to being so since it in no way depends on IRC.

IRC affirms the deductibility of fiscal charges and nowhere in the CIRC (whether in article 45 or as an imposition arising from any legal principle) is this deductibility then excepted with respect to the (various) autonomous taxation.

Autonomous taxation exists even if there is no IRC, exists even if there are fiscal losses, and in the context of rates there is indeed an aggravation in autonomous taxation whenever there is no IRC (due to there being losses), which requires that IRC be calculated first and only then, separately, autonomous taxation be applied, which constitutes yet another manifestation of the distinct lives of these two taxes.

In the types of expenses at issue here (company vehicles, representation expenses and allowances for travel assistance) what distinctly recognizes them is rather the fact that they can serve both the business purposes of the company and the personal purposes of the company's employees who use them in practice, hence taxation in autonomous taxation in substitution for direct taxation in the personal sphere of workers.

The legislator created autonomous taxation with the objective of burdening the expenses in question with taxes instead of attempting to tax the potential beneficiary on a personal basis of the same (it being the case that the sum of the cost of this presumed income in kind – percentage of the expense presumed to have had personal use – with the tax charged to the company affecting the totality of the expense in question – autonomous taxation – represents, on the whole, the equivalent of a presumed gross income of the presumed beneficiary of part of the expense in question).

It is always necessary to remember the principle of legality: if the legislator did not expressly provide for the non-deductibility of autonomous taxation, the interpreter should not distinguish, except, at most, in cases duly justified, under the principle that the accessory must follow the principal (it being certain that if the expense is deductible – the principal – there is no reason why the tax on it incurred – the accessory or dependent – should not also be deductible), as opposed to proclaiming administratively this non-deductibility for all cases, fictionalizing that "one size – undocumented expenses non-deductible – fits all – remaining expenses, documented and deductible".

The part of the self-assessment of IRC and surcharge (IRC and municipal surcharge, assessed and paid in excess for not having deducted charges relating to autonomous taxation), amounts to € 7,406.98 and partially suffers from the defect of material violation of law.

Once the illegality of the self-assessment in the part referred to above is declared, the Claimant has the right not only to the respective reimbursement, but also, under article 43 of the General Tax Law (LGT), to compensatory interest, calculated on the amount of tax improperly paid, in the value of € 7,406.98 and counted, until complete reimbursement thereof, from the date of overpayment of the tax.

1. In the Response submitted, the Respondent came to defend itself by way of exception and by objection.

2. As to the exception, the Respondent invokes the untimeliness of the request for arbitration pronouncement on the grounds that the legally defined period for challenging assessment/self-assessment acts in arbitration has already passed based on the following:

i) Article 10 of the Legal Regime of Tax Arbitration establishes, as to assessment/self-assessment acts, that the period for presenting the request for arbitration pronouncement is 90 (ninety) days, referring, as to the moment the counting begins, to what is laid down in article 102, nos. 1 and 2 of the Tax Procedure and Process Code.

ii) From that provision, and with relevance for the case at hand, it is gathered that the stipulated period of 90 (ninety) days would have as its starting point the day following the end of the period for voluntary payment of the tax debt – cf. article 102, no. 1, letter a) of the Tax Procedure and Process Code.

iii) Having regard to the combined provisions of articles 104, no. 1, letter b) and 120, no. 1 of the Corporate Income Tax Code, the deadline for payment of the tax at issue occurred on 31 May 2011.

iv) Thus, the request for the constitution of the arbitration tribunal was presented on 26 December 2013. Therefore, the request made would be untimely and the Tribunal could not take cognizance of it.

v) Having exceeded the period for direct challenge of the tax self-assessment act (i.e., of the primary act), the "timeliness" of the request could only be based on the existence of some means of gracious challenge of the self-assessment act where a decision had been rendered denying/dismissing, in whole or in part, the claims formulated therein by the tax taxpayer (which would constitute a second-level act).

vi) The present arbitration claimant administratively challenged the self-assessment act and the Tax Administration dismissed/denied the revision of the act in the manner it had been requested.

vii) However, notwithstanding having made reference to and identified these circumstances, the Claimant did not formulate/specify to the Tribunal any request aimed at the annulment of what was decided in that context. Not having done so, there is no support that could establish the timeliness of the request and, consequently, the possibility of the Tribunal appreciating the request formulated regarding the self-assessment act.

viii) In summary, resulting from the initial request the direct challenge of the tax self-assessment act (IRC), the request made should be declared without merit, as untimely and, consequently, the Defendant Entity should be absolved of the instance – cf. letter e), of no. 1, of article 278 of the Code of Civil Procedure in effect, applicable ex vi article 29, no. 1, letter e) of Decree-Law no. 10/2011, of 20 January.

1. As to the merits, the Respondent begins by stating that neither the case law nor the authors cited, in abundance, by the Claimant pronounce in the sense that autonomous taxation is not, at least formally, IRC, nor do they advocate its deductibility from taxable profit, either by its exclusion from letter a) of no. 1 of article 45 of the CIRC, or by its inclusion in letter f) of no. 1 of article 23 of the CIRC.

2. The case law of the Constitutional Court cited by the Claimant (e.g. judgments no. 310/2012, 382/2012 and 617/2012) deals exclusively with the application of autonomous taxation rates, in the perspective of the prohibition of retroactivity, limiting itself to the question of the rules of application of law in time, but never suggesting that it is any "tax" distinct from the IRC, only emphasizing the distinct taxable facts on which the respective rates apply.

3. The case law of the Supreme Administrative Court cited by the Claimant addresses the question of the retroactive application of the change in autonomous taxation rates (judgments no. 0281/11 and no. 0757/11) and on the regime of tax transparency (judgment no. 0830/11) once again placing emphasis on the specificity of autonomous taxation in its form of calculation in relation to income taxation, without in any of the judgments concluding, as the Claimant intends, that they are not IRC and that it is not lawful to include them in letter a) of no. 1 of article 45 of the CIRC.

4. It cannot be denied that autonomous taxation formally fits within the IRC to be paid by the taxpayer. Hence, when the legislator refers to IRC charges, necessarily it is including, even if only on a literal level, autonomous taxation.

5. Autonomous taxation is a component of the IRC to be self-assessed and paid by taxpayers in accordance with the terms and periods respectively provided for in articles 89 and following (Assessment – Chapter V) and 104 and following (Payment – Chapter VI) of the Corporate Income Tax Code, which refer indifferently to both IRC on profit and to autonomous taxation in the context of IRC.

6. On the other hand, it should be noted that the question of the (non-)deductibility of autonomous taxation cannot be placed on the same level as the discussion that occurred in the past regarding the deductibility of municipal surcharges and which culminated in the solution embodied in the State Budget Law of 1996 (Law no. 10-B/96, of 23 March), to which an interpretative nature was conferred, and, further, in the judgment of the Plenary of the Supreme Administrative Court, of 06-05-2002, rendered in appeal by opposition of judgments in process no. 022155. Indeed, the autonomous taxation rates do not share with surcharges the characteristics that make them a distinct and special tax in relation to IRC. Unlike municipal surcharges, which in their original formulation were a local tax, levied by municipalities, whose revenues have a different allocation from IRC revenues, article 4 of Decree-Law no. 192/90, of 9 June, which instituted autonomous taxation rates in our country, provided that "confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by personal income tax taxpayers who possess or must possess organized accounts or by corporate income tax taxpayers not included in articles 8 and 9 of the respective Code are taxed autonomously in personal income tax or corporate income tax, as the case may be, at a rate of 10%, without prejudice to the provisions of letter h) of no. 1 of article 41 of the CIRC." That is, even if not formally included in the personal or corporate income tax codes, it was determined that the product of the application of these rates constituted an additional tax on income to be assessed and paid by the taxpayer.

7. From a formal point of view, autonomous taxation does not constitute a tax distinct from IRC, but rather consists of an addition to it. But also from a teleological, systematic and functional perspective, autonomous taxation must be considered an addition to IRC. Autonomous taxation, by its nature, is functionally interwoven with IRC. The reason for being of autonomous taxation is not found in the simple collection of more tax, but primarily aims to discourage recourse to the type of expenses it taxes, which, by their nature, are conducive to the payment of disguised income, and, in the final analysis even, to allow the recovery of some tax that ceased to be paid by the beneficiary of the income, transferring responsibility for this from the personal sphere to that of whoever pays this income. What gives them a clear anti-abuse nature, manifestly accessory/complementary to taxation according to the contribution capacity revealed by income, even if only apparently to the detriment of the taxation of actual income (read, based on accounts). In sum, with autonomous taxation what is intended is precisely to prevent an abusive use of certain expenses and distribution of dividends and in fraud of the rules aimed at reaching the actual income of taxpayers.

8. The anti-abuse function legitimizes autonomous taxation in light of the principle of contribution capacity. In view of this anti-abuse function with which autonomous taxation is invested, the assertion that those "have nothing to do with the function of IRC" is fallacious. On the contrary, they have everything to do with the function of IRC, which is to reach the contribution capacity revealed by actual income. In this respect, in that autonomous taxation aims to reduce the tax advantage achieved by the deduction from taxable profit of the costs on which it is levied and also to combat tax evasion which this type of expense, by its nature, promotes, it cannot itself through its deduction from taxable profit as a cost of the period constitute a factor in the reduction of this reduction of advantage intended and determined by the legislator.

9. No interpretative support sanctions a restrictive interpretation of article 45, no. 1, letter a) of the CIRC, in the sense of excluding autonomous taxation from it; on the contrary, this proves to be contrary to the teleology of the rule since autonomous taxation has an instrumental role in the calculation of IRC, has no autonomy in functional terms (only in the form of calculation: incidence and rate), and contrary to the very systematic coherence, in this regard proving incompatible with the provisions of article 88, no. 14 of the CIRC.

10. It concludes by requesting that the Respondent Entity be absolved of the instance - cf. letter e), of no. 1, of article 278 of the Code of Civil Procedure in effect, applicable ex vi article 29, no. 1, letter e) of the Legal Regime of Tax Arbitration, for the exception of untimeliness of the request made to be verified (leading to the declaration of illegality of the act and, consequently to its annulment) and subsidiarily that the request for arbitration pronouncement be judged without merit as unproven, and, consequently, the Respondent be absolved of all requests, all with the due and legal consequences.

11. The Claimant pronounced itself on the exception invoked by the Respondent in the response, in summary, as follows:

What the Legal Regime of Tax Arbitration did in the context of arbitral tax procedure was: (i) what is attacked is the tax act, because it is this that is injurious; (ii) the administrative act that dismisses the request for annulment of the tax act is merely confirmatory, therefore adds nothing, therefore is not challengeable; and (iii) the attempt to resolve the dispute previously through the gracious means does not have to impair the faculty of discussing the legality of the injurious act in the courts: once the administrative (gracious) procedure is closed with refusal to annul the injurious act, the period opens (unequivocally, under the terms of the Legal Regime of Tax Arbitration) to submit an arbitration claim against that same injurious act.

It is inexplicable to sustain, in light of the unequivocal legal data contained in the Legal Regime of Tax Arbitration, that the taxpayer cannot avail itself of the period of presentation of a request for arbitration pronouncement of 90 days counted from the dismissal of a gracious complaint, provided for in this article 10, no. 1, of the Legal Regime of Tax Arbitration, on the pretext that the arbitration request could not primarily concern the tax/injurious act.

The understanding of the Tax Administration constitutes a gross violation of the law particularly serious, in that it has the effect of annihilating the exercise of a constitutionally enshrined right: that of effective judicial protection (cf. articles 20, no. 1, and 268, no. 4, of the Constitution). Hence it results that this understanding is unconstitutional, for violating both the constitutional principle of access to the courts for protection of rights, provided for in articles 20, no. 1, and 268, no. 4, of the Constitution, and the constitutional principle of protection of trust (which is derived from article 2 of the Constitution – rule of law).

With the annulment of the tax act, all acts without autonomous existence by reference to this, such as all administrative acts dismissing requests for annulment of the tax acts, become irrelevant by definition: the administrative dismissal of the request for annulment of the tax act becomes without object on which it can project its efficacy, the decision imposing itself in the legal order, by authority with competence to do so, which annulled the act.

1. In its submissions, the Claimant focuses on addressing the arbitration decision rendered in process no. 246/2013-T and the themes contained in the Response of the Tax Administration and, finally, makes a brief reference to certain statements and considerations around the accounting perspective made in the arbitration decision rendered in process no. 255/2013-T, which would be summarized as follows:

There is no reason, until 2013 inclusive, de jure constituto, to characterize autonomous taxation as IRC for purposes of article 45, no. 1, letter a), of the CIRC (wording in effect until 2013), or, more generally, for purposes of other rules that address exclusively IRC/taxation of the income of its respective passive subject (to use the legal terminology – cf. article 1 of the CIRC). Autonomous taxation is not IRC de jure constituto nor, consequently, do the substantive rules applicable to IRC apply to it as a starting point (except express provision to the contrary) (among which letter a) of no. 1 of article 45 of the CIRC).

In sum, and contrary to IRC, autonomous taxation never aims to tax the income of its respective passive subject (and only that is IRC – cf. article 1 of the CIRC), the income of the company on which it is levied, IRC that in some cases operates by withholding at source as definitive (withholding at source at liberatory rates), as seen above. To tax the income of the company IRC is used, and when one wants to increase the taxation of income one increases its rate, creates surtaxes (state surcharge) affecting the same object (income, evidently) and (a technique increasingly in fashion these days), denies the deductibility of costs (artificial increase of taxable profit), a denial which only in 2014 was extended to autonomous taxation (but not also to the majority of the expenses on which it is levied, which for now continue to be governed by the general rule of deductibility of charges borne by a company in the exercise of its activity).

IRC and autonomous taxation have distinct regimes and legal natures, not to be confused. Hence also the necessary conclusion that is subject to unconstitutionality, for violation of article 103, no. 3, of the Constitution (prohibition of retroactivity of tax law), and for violation of the principle of protection of trust inherent in the principle of the rule of law (cf. article 2 of the Constitution), the interpretation of the norm contained in letter a) of no. 1 of article 23-A of the CIRC, introduced by Law no. 2/2014, of 16 January, in the sense that the equation made therein of autonomous taxation to IRC would apply to fiscal years prior to 2014, on the grounds of having, allegedly, a materially interpretative nature of the previous rule it replaced (the norm contained in letter a) of no. 1 of article 45 of the CIRC, and before 2010, article 42) and which did not make such an equation.

The reason for being that is at the basis of the non-deductibility of IRC for the purposes of measurement of the base (profit or income of the legal person) on which it is levied is exactly the same as that of municipal surcharge: both of these taxes constitute a set that aims to tax the company's profit, therefore they should not themselves be deducted (if nothing is said to the contrary) for purposes of calculating the profit of the company on which they will be levied. None of this occurs with autonomous taxation: they are neither an addition (as was the case with surcharge until 2007) nor an additional (surcharge after 2007) to IRC, since they are not determined based on the collection of IRC or its base (taxable profit). In a word, they do not directly or indirectly affect the profit or income of the company.

The tax law confirms positively the deductibility of fiscal charges in general for IRC purposes (article 23, no. 1, letter f), of the CIRC), whose deductibility in the context of IRC can therefore only be prevented (the deductibility benefits from a double confirmation: interpretative logical rule, and express confirmation by the tax law) when expressly provided (cf. some of the letters of article 42, until 2010, article 45 between 2010 and 2013, and article 23-A since 2014, of the CIRC), which only happened with autonomous taxation for 2014 onwards. The increase in the rate of autonomous taxation in case of the existence of fiscal losses in the context of IRC in no way alters its deductibility as a starting point, and confirmed on arrival (article 23, no. 1, letter f), of the CIRC), in the context of IRC.

The effect that the Tax Administration seeks in the context of IRC (non-deductibility of the charge with tax distinct from IRC/with tax that does not tax profit) of the fact that another tax (autonomous taxation) chooses the calculation of fiscal losses in IRC as a determining factor of the application of an additional rate in that other tax is, furthermore, violating the principle of proportionality, of equality, of contribution capacity and of taxation, fundamentally, of actual income.

In the Arbitration Decision rendered in process no. 255/2013-T the matter of exception (identical to that discussed here) was judged without merit, the fact that the conclusion reached there on the merits of the case did not collect unanimity and, finally, the fact that NCRFs are invoked which say nothing or fail to say anything about the opposition (or assimilation) between IRC and autonomous taxation. The fact that the principles and the conceptual structure of the Accounting Standards for Entities are invoked as supposedly pointing (without at any moment explaining or demonstrating why) to the unitary treatment of IRC and autonomous taxation. To this latter point it should be noted that the accounting principle of the prevalence of substance over form points precisely in the opposite direction: being autonomous taxation a tax substance distinct from IRC (and with function or objective distinct from that, which is that of IRC, to tax the income of its respective passive subject) should not be put in the bag specifically designed for taxes on the income of its respective passive subject (and neither even in formal terms do they arrive at being IRC – they are, they have, the distinct name of "autonomous taxation").

1. The Respondent, in its submissions, set forth the conclusions that we transcribe as follows:

To date, there are eight arbitration decisions (187/2013-T, 209/2013-T and 246/2013-T, 255/2013-T) which conclude in the sense that autonomous taxation affecting charges deductible in IRC are part of said regime, being therefore due under this tax, falling within the provisions of article 45, no. 1, letter a) of the CIRC, wording introduced by Law no. 55-A/2010, of 31 December, not constituting deductible charges for purposes of determining taxable profit, "the present arbitration action should therefore be dismissed".

To the grounds contained in the mentioned arbitration decisions is added that the value resulting from the application of autonomous taxation, contained in article 88 of the CIRC, is not, and has never been, capable of being deducted for purposes of calculating the taxable profit of legal persons.

To the same extent that other taxes borne by taxpayers are not deductible from taxable profit, neither are taxes levied on expenses from which the legislator and, above all, the law excluded from deductibility.

In reality, formally, autonomous taxation is IRC, presenting itself as a component, an addition to it.

In parallel, from the reading of Judgments 617/2012 and 85/2013, rendered in Constitutional court, it is not gathered that autonomous taxation is, in fact, a tax distinct from IRC, which, immediately, justifies its non-deductibility in the calculation of taxable profit, in the terms provided for in article 45/1, a) of the CIRC.

Both the legislator and the law, in article 12 of the CIRC, consider autonomous taxation a component of IRC.

In this sense, autonomous taxation should be paid by taxpayers in accordance with the terms and periods respectively provided for in articles 89 and following and 104 and following of the CIRC, which, moreover, refer, in an indifferent manner, to both IRC on profit and to autonomous taxation in the context of IRC.

The new wording of article 23-A/1 letter a), introduced by Law no. 2/2014, of 16 January, has a manifest clarifying scope for the future as to the following fact: autonomous taxation is a component included in the charges borne under IRC.

Indeed, this clarifying scope follows the line (1) of the only possible interpretation of the previous article 45, no. 1, letter a) of the CIRC which, even before the introduction of that new wording, existed, as well as follows the line (2) of thought (and will) of the legislator that until then had been developing, namely that the charges of autonomous taxation are not deductible for purposes of calculating the taxable profit of companies.

What the legislator intended was only to remove doubts that may occur in the future, so it is pointless to state that it is an innovative law, since, contrary to what the Claimant argues, such normative introduction follows the line of reasoning of the previous article 45, no. 1, letter a) of the CIRC.

The interpretation of the norm contained in article 23-A, no. 1, letter a) of the CIRC, wording introduced by Law no. 2/2014, of 16 January, does not suffer from unconstitutionality, given that articles 2 and 103, no. 3 of the Constitution have not been violated.

From a teleological, systematic as well as functional perspective, autonomous taxation is a genuine addition to IRC, and this because, by the nature of things, a tax cannot be deductible to itself.

Since always, the intention manifested by the legislator was that of non-deductibility of autonomous taxation, precisely because its objective was to avoid a certain effect of a vicious circle, that is, the permission that the tax would allow itself to be deducted to itself, thus preventing the hollowing out of the core of article 88 of the CIRC.

Autonomous taxation is functionally interwoven with IRC, it being the case that, in parallel, there is a rule (88/14 of the CIRC) that makes the rate of autonomous taxation dependent on the circumstance of the taxpayer presenting or not a fiscal loss.

Indeed, permitting the concurrence for the calculation of the taxable profit of the Claimant would lead to the effect that the very liquidation of autonomous taxation would reduce, consequently, the liquidation of IRC to be paid, in direct confrontation with its immediate purpose, namely the discouragement of the use of certain goods and services of mixed use.

Autonomous taxation assumes a clear anti-abuse nature, since with it is intended to prevent an abusive use of certain expenses and distribution of dividends and in fraud of the rules aimed at reaching the actual income of taxpayers, pursuing, in this way, the objective of reaching the contribution capacity revealed by actual income.

II - CASE MANAGEMENT

1. The arbitration tribunal is materially competent and is regularly constituted, in accordance with the terms of articles 2, no. 1, letter a), 5, no. 2, and 6, no. 1 of the Legal Regime of Tax Arbitration.

2. The parties have legal personality and capacity, are entitled and are duly represented, in accordance with the terms of articles 4 and 10 of the Legal Regime of Tax Arbitration and of article 1 of Ordinance no. 112-A/2011 of 22 March.

3. The proceedings do not suffer from any defects that would render it invalid.

4. In these terms, nothing prevents the appreciation of the case.

III - FACTS

Proven Facts:

1. Based on the tax administrative proceedings and on the documentary evidence attached to the case file and with interest for the cause, the following facts are considered proven:

The Claimant proceeded to the self-assessment of IRC and consequent surcharge relating to the fiscal year 2010 through timely submission of the Model 22 IRC declaration.

In the aforementioned self-assessment of IRC for fiscal year 2010, the Claimant also proceeded to the self-assessment of autonomous taxation provided for in article 88 of the CIRC, in a total of finally € 27,950.87 – cf. field 365, of table 10, of Doc. no. 1 – which correspond to (cf. table 11 of Doc. nos. 1 and Doc. no. 3):

i) autonomous taxation on vehicle expenses, which generated the amount of € 9,464.09;

ii) autonomous taxation on representation expenses, which generated the amount of € 1,862.81;

iii) autonomous taxation on travel allowances and compensation for travel in the worker's own vehicle, which generated the amount of € 301.91;

iv) autonomous taxation on confidential or undocumented expenses, which generated the amount of € 16,322.05.

The autonomous taxation for fiscal year 2010 has been fully paid (Doc. no. 4).

The Claimant did not deduct, for purposes of calculating the taxable profit for fiscal year 2010, the charge incurred with the aforementioned autonomous taxation, rather treating them as if they were IRC or municipal surcharge (Doc. no. 5).

The quantification of the tax at issue in this case (fiscal impact resulting from not having deducted the charge with autonomous taxation in the calculation of IRC and the consequent Municipal Surcharge) is as follows:

a) IRC resulting from the application of base rate of 25%, in the value of € 6,987.72 (€ 27,950.87 x 25%);

b) consequent municipal surcharge in the amount of € 419.26 (€ 27,950.87 x 1.5%);

c) in a total of € 7,406.98.

On 30 May 2013, the Claimant presented, to the Financial Director of Lisbon, a gracious complaint against the aforementioned self-assessment of IRC and consequent municipal surcharge relating to fiscal year 2010 (cf. tax administrative proceedings).

In accordance with the provisions of article 57, no. 5, of the General Tax Law, tacit dismissal of the gracious complaint was formed on 30 September 2013.

1. The facts previously stated comprise uncontested matter and documented in the case file.

Unproven Facts:

1. There are no facts relevant to the decision that have not been proven.

IV - LAW

1. In light of what has been written so far, the issues to be appreciated in the present proceedings are as follows:

i) The exception of untimeliness invoked by the Respondent;

ii) The merits of the claim, that is, to know whether the deductibility of the amounts paid as autonomous taxation for purposes of calculating taxable profit should be accepted; and

iii) The recognition of the right to compensatory interest claimed by the Claimant.

i) Dilatory exception of untimeliness invoked by the Respondent:

1. One will begin by appreciating the timeliness of the request for arbitration pronouncement.

2. This issue, because it constitutes a dilatory exception, if judged to be well-founded, will prevent the appreciation of the remaining issues.

3. The Claimant in the petition for constitution of the Arbitration Tribunal identifies expressly verbis the request for arbitration pronouncement as follows:

"The present claimant seeks that the partial illegality of the aforementioned self-assessment act be declared (cf. Doc. no. 1) – and that it be consequently annulled in that part – in accordance with article 2, no. 1, letter a), of Decree-Law no. 10/2011, more specifically insofar as the part of the aforementioned self-assessment act reflects the non-deduction of charges relating to autonomous taxation, to which corresponds an amount of tax improperly assessed in the value of € 7,406.98.

In this sense, that self-assessment act should be declared illegal and annulled in that part, inasmuch as it suffers from a defect of illegality, in the terms and with the grounds that we propose to demonstrate below."

1. To conclude, the Claimant expresses the following:

"In these terms, the partial illegality of the self-assessment of IRC and municipal surcharge of A relating to fiscal year 2010 should be declared, as regards the amount of € 7,406.98, in light of the manifest illegality of the assessment in this part, with all legal consequences, namely the reimbursement to the claimant of this amount, plus compensatory interest at the legal rate counted from 31 May 2011 until complete reimbursement".

1. In light of this, it will be said from now that the exception invoked by the Respondent is without merit.

2. Indeed, in accordance with article 2 of Decree-Law no. 10/2011, of 20 January:

Article 2
Competence of arbitration tribunals and applicable law

1 - The competence of arbitration tribunals includes the appreciation of the following claims:

a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account;

b) The declaration of illegality of acts of determination of taxable matter when they do not give rise to the assessment of any tax, of acts of determination of taxable matter and of acts of fixation of patrimonial values.

1. Following the Claimant in this part, it is agreed that "it is only of tax acts (or acts on which tax acts depend – tax acts in the broad sense –, such as those of determination of taxable matter or of fixation of patrimonial values) that, in a closed list, the rule defining the competence of arbitration tribunals speaks, such that the object of the proceedings that take place therein are and must be, exclusively and necessarily, tax acts.

2. And it has competence, in the exact terms of this article 2, to appreciate (only) claims for declaration of illegality of tax acts and similar, within the closed list of this article 2".

3. That is, "the referral to article 102 of the Tax Procedure and Process Code has as its sole and exclusive function to regulate the initial term (or dies ad quo) of the period within which it is possible to present an arbitration request (the question, distinct, of the object and arbitration request, is expressly regulated by other norms contained in the Legal Regime of Tax Arbitration itself, namely its article 2)".

4. That is, the object of arbitration appreciation is the tax act and not the act of dismissal of the gracious challenge of the tax act.

5. And from this it follows moderately that the request for arbitration pronouncement must concern the (il)legality of the questioned tax act and not the gracious revision procedure.

6. What characterizes the legality or illegality of the tax act concerns its formation and not the appreciation of a request for administrative revision which by the nature of things is always posterior to it.

7. It is further added that this understanding is what best fits with respect for the principle of effective judicial protection, established in article 268, no. 4, of the Constitution and of access to justice - article 7, of the Code of Administrative Procedure and Process.

8. In these terms and without need for further consideration, it is decided that the exception of untimeliness of the request for arbitration pronouncement, invoked by the Respondent, is without merit.

ii) Merits of the claim:

1. The issue of merit of the claim raised in the present proceedings consists of knowing whether the amounts paid as autonomous taxation by an IRC taxpayer should be considered a deductible charge for purposes of calculating the taxable profit on which that tax is levied.

2. The grounds for this issue, contained in the arbitration decisions rendered in processes no. 187/2013-T and 36/2014-T will be closely followed here.

3. Thus, autonomous taxation encompasses a diverse set of situations that can be reduced to three types: (i) Autonomous taxation of certain income (ii) Autonomous taxation of certain deductible charges (iii) Autonomous taxation of non-deductible expenses.

4. In the present proceedings autonomous taxation of certain deductible charges is at issue.

5. It is important to note that, at the date of the tax event, article 45, no. 1, letter a), of the Corporate Income Tax Code stated the following:

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

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

1. Given the general rule of deductibility of charges and due to the absence of express reference to autonomous taxation in the wording of letter a) of no. 1 of article 45 of the Corporate Income Tax Code, it will be important to know whether autonomous taxation was or was not included in the exception of non-deductibility provided for in the cited rule, since

2. The amendment to the Corporate Income Tax Code meanwhile made by Law no. 2/2014, of 16 January, repealed article 45 and now establishes in article 23-A of the said Code, the following (insofar as it matters here):

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

a) IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits".

1. This Tribunal understands that autonomous taxation was not included in the exception of non-deductibility provided for in the cited rule.

Let us see why:

1. Autonomous taxation is not dissociable from IRC.

2. Indeed, one thing is the type of taxable fact that underlies a certain imposition.

3. Different will be the title under which such imposition is due, the cause of the tax obligation.

4. And in the case of autonomous taxation in the context of IRC, that cause, the title under which the tax is demanded, is still IRC.

5. Note that the legal regime of autonomous taxation in question only makes sense in the context of taxation in the context of IRC.

6. If disconnected from the regime of this tax, autonomous taxation would lack meaning; its existence, its purpose, its explanation, ultimately, its juridicity, is only comprehensible and acceptable within the legal framework of the regime of IRC.

7. Indeed, the autonomous taxation in question here is systematically inserted in IRC and not in any tax on expenditure, nor does it constitute a new type of tax.

8. That is, although it may be accepted that the taxable fact imposing will be each of the individual expenses legally typified, the fact is that these, qua tale, are not the final object of the taxation, the reality that is intended to be burdened with the tax.

9. If that were the case, all expenses incurred by all subjects would be taxed, and not only by some of them.

10. That is, autonomous taxation of the kind found here in appreciation is densely linked to the subjects of the tax on income respective and, more specifically, to the economic activity carried out by them.

11. This aspect becomes even more evident if one attends to another fundamental given: the circumstance that autonomous taxation which now occupies us only applies to deductible expenses.

12. This circumstance, it is believed, is elucidative of the interlocking that exists between those and IRC (in the case), and justificatory not only of its systematic inclusion in the code of that tax, but also of its integration, of full right, as part of the legal regime of IRC.

13. Indeed, not only are only the expenses incurred by IRC taxpayers that are subject to imposition of autonomous taxation in such a framework, but such expenses will only be so if those subjects choose them as deductible expenses in the calculation of the taxable matter of such tax.

14. The picture thus drawn distinguishes itself substantially from what would be a tax affecting certain expenses, objectively considered, it appearing that the quality and the choice of the taxpayer have here a relevance, if not greater, at least identical to the expense that determines the tax imposition.

15. And it may always be said that if the IRC taxpayer chooses not to deduct from taxable profit for purposes of that tax the charges corresponding to the expenses subject to autonomous taxation, he will not have to bear this, which will be demonstrative of what was pointed out above, that is, that the cause of autonomous taxation still lies, and ultimately, in the regime of IRC.

16. To this is added the fact that the wording of article 45 of the Corporate Income Tax Code is situated in a context of broad legislative discretion, that is, in the definition of what are deductible or non-deductible charges for tax purposes, the tax legislator enjoys broad freedom of implementation.

17. Hence, it is not possible to say that it is forbidden to the legislator, by the "nature" of autonomous taxation, to exclude it from deductible charges for tax purposes.

18. The Tribunal understands that it is legitimate for the legislator to include or exclude the autonomous taxation in question here from deductible charges for tax purposes, regardless of the "nature" that doctrine or case law attributes to them.

19. The question, properly situated, will then be to determine what the intention of the legislator is, expressed in the legislative text, understood as a whole.

20. And under this prism, the combination of the wording of article 12 of the Corporate Income Tax Code with article 45, no. 1, letter a) of the same Code, does not raise great doubts, as to the legislative understanding that autonomous taxation, if not constituting IRC strictly speaking, certainly integrates the regime of that tax, and will be due under that title.

21. Equally, no obstacle in principle exists that the legislator isolate certain types of income and burden them with specific, or differentiated rates, as occurs, for example, in the cases provided for in no. 4 of the current Corporate Income Tax Code.

22. And no obstacle in principle occurs that the tax in question be due, assessed and paid, not as a function of a period (more or less long) of taxation, but by force of the occurrence of instantaneous facts, as already occurs, for example, in the cases of withholding at source with a definitive character (cf. article 94, no. 3, of the Corporate Income Tax Code).

23. Moreover, not even the result, apparently so counterintuitive and striking, of being able to be due the payment of tax via the autonomous taxation which now occupies us, even in the case of non-existence of a (positive) income at the end of the taxation period, is avis rara in the regime of IRC.

24. Furthermore, autonomous taxation constituted a way to prevent certain abusive actions, which the normal functioning of the taxation system was unable to prevent, and others, including more burdensome for the taxpayer, were possible to have been enacted - but here the broad freedom of design of the legislator came in.

25. This anti-abuse character of autonomous taxation will be not only coherent with its anti-systemic nature (as happens with all norms of the kind), but with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the case law that cites it.

26. In this prism, autonomous taxation in question here will then have materially underlying a presumption of "partial" entrepreneurship of the expenses on which it is levied, based on the above-mentioned circumstance that such expenses are situated in a gray area that separates what is entrepreneurial, productive expense from what is private expense, consumption, it being notorious that, in many cases, the expense will even in reality have a dual nature (part entrepreneurial, part private).

27. Faced with this difficulty, the legislator, instead of simply removing its deductibility, or inverting the burden of proof of the entrepreneurship of the expenses in question (imposing, for example, the demonstration that "do not have an abnormal character or an exaggerated amount", as it does in article 65, no. 1, of the Corporate Income Tax Code), opted for enshrining the currently existing regime, which, nevertheless, has precisely the same foundation, the same purpose and the same type of result as other forms used in other typical situations of the regime (in the case) of IRC.

28. This presumption of "partial entrepreneurship" should, in coherence, be considered as embraced by the possibility of elision arising from article 73 of the General Tax Law, whether by the taxpayer or by the tax administration.

29. What appears, moreover, to conform to a proportional and adequate distribution of the burden of proof, in that, affecting autonomous taxation in question on expenses of entrepreneurship not evident as a starting point, it will be the taxpayer who is best positioned to demonstrate that such requirement was verified in concreto.

30. For its part, the tax administration itself, should it so choose and consider that the case justifies the inherent expenditure of resources, may always demonstrate that, with respect to the expenses in question, and even though autonomous taxation has applied to them, the general requirement of article 23, no. 1, of the Corporate Income Tax Code is not verified, namely its indispensability for the realization of income subject to tax or for the maintenance of the productive source.

31. Thus, and in sum, the autonomous taxation whose charge the Claimant seeks to subtract from its taxable profit may be viewed as a consensual anti-abuse rule, in which the legislator proposes to the taxpayer one of three alternatives, namely:

a) Not deduct the expense;

b) Deduct the expense but pay the autonomous taxation, dispensing itself and the tax administration of discussing the question of the entrepreneurship of the expense;

c) Demonstrate the full entrepreneurship of the expense, and deduct it fully, not bearing the autonomous taxation.

1. Moreover, the recognition of this presumptive nature will, beyond all else, be a safeguard of its constitutionality, in that the possibility of its full deduction by the taxpayer is guaranteed, or its non-deduction, depending on which side the presumption underlying them is, in each case, rebutted.

2. The fact that article 23-A of the Corporate Income Tax Code, introduced by Law no. 2/2014, of 16 January, came to expressly establish the non-deductibility of autonomous taxation in the context of IRC does not mean that the same conclusion could not already be drawn from the previous legal regime (article 45 of the CIRC) and as such be applicable to legal situations constituted under the old law.

3. In sum, the legislator understood, and now, expressly, continues to understand that autonomous taxation integrates IRC, if not as a tax strictly speaking, at least in terms of being part of the same unitary tax regime.

4. In these terms, the Arbitration Tribunal understands that the autonomous taxation contained in the present proceedings was covered by the provisions of letter a) of no. 1 of article 45 of the CIRC, in the wording in effect until 31 December 2013 and that, consequently, the amounts paid by the Claimant with reference to those autonomous taxation do not constitute deductible charges for purposes of calculating taxable profit, the request for declaration of partial illegality of the self-assessment of IRC relating to fiscal year 2010 being without merit.

iii) Recognition of the right to compensatory interest in favor of the Claimant:

1. The Claimant came to request that it be recognized the right to compensatory interest.

2. Article 43, no. 1, of the General Tax Law provides that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due".

3. And no. 2 of the same rule provides that error attributable to the services (in casu, of the Respondent) is considered to exist "in the cases where, although the assessment is made on the basis of the taxpayer's declaration, the taxpayer has followed, in its completion, the generic guidance of the tax administration, duly published".

4. And article 24, no. 5, of the Legal Regime of Tax Arbitration, establishes that "payment of interest is due, regardless of its nature, in accordance with the provisions of the General Tax Law and the Tax Procedure and Process Code".

5. However, in the present proceedings the invoked partial illegality of the self-assessment act is not verified, so the request of the Claimant for compensatory interest is without merit.

V - DECISION:

In accordance with what has been set forth above, this Arbitration Tribunal decides:

1. To judge without merit the invoked exception of untimeliness of the request for arbitration pronouncement;

2. To judge without merit the request for arbitration pronouncement and thus not to declare the illegality of the self-assessment of IRC and municipal surcharge relating to fiscal year 2010, insofar as the part of the aforementioned self-assessment act reflects the non-deduction of charges relating to autonomous taxation in the amount of € 7,406.98;

3. To judge without merit the request for recognition of the right to compensatory interest in favor of the Claimant.

The value of the case is set at € 7,406.98, in accordance with article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable by force of letters a) and b) of no. 1 of article 29 of the Legal Regime of Tax Arbitration and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is set at € 612.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid entirely by the Claimant, in accordance with article 22, no. 4, of the Legal Regime of Tax Arbitration, given that the request was entirely without merit.

Notify.

Lisbon, 24 November 2014 (only on this date, due to continued illness).

The Arbitrator,

José António Martins Alfaro

The wording of this decision is governed by the spelling prior to the Agreement.