Process: 31/2016-T

Date: October 6, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 31/2016-T) examines whether SIFIDE tax credits can be deducted from autonomous taxation (tributação autónoma) assessed under Portuguese IRC. The claimant, A... SGPS, S.A., served as parent company of a tax group in 2012 subject to the special regime for taxation of groups of companies (RETGS) under Article 69 et seq. of the Corporate Income Tax Code. The company self-assessed €572,312.97 in autonomous taxation and subsequently filed a gracious complaint seeking reimbursement, arguing that SIFIDE benefits should reduce autonomous taxation since both constitute IRC obligations. The Tax Authority rejected this claim on October 28, 2015. The claimant possessed €2,496,295.20 in available SIFIDE credits from tax years 2008-2012, accumulated by group companies engaged in qualifying R&D activities. The AT's computer system technically prevented taxpayers from deducting tax benefits against autonomous taxation amounts entered in field 365 of Model 22 declarations. The claimant advanced two alternative legal arguments: primarily, that Article 90 CIRC permits SIFIDE deduction from autonomous taxation within consolidated groups; alternatively, if Article 90 does not apply, the autonomous taxation assessment lacks legal basis under Article 8(2)(a) of the General Tax Law and Article 103(3) of the Portuguese Constitution. The claim includes demands for compensatory interest calculated from May 31, 2013, until full reimbursement. This case raises fundamental questions about the scope of tax benefits, the legal nature of autonomous taxation as IRC, and whether legislative provisions governing tax groups extend to autonomous taxation calculations within RETGS regimes.

Full Decision

ARBITRAL DECISION

The arbitrators, José Baeta de Queiroz (President), Paulo Lourenço and Fernando de Jesus Amado dos Santos, designated by the Deontological Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, agree as follows:

  1. Report

A A…- SGPS, S.A. hereinafter designated "A…" or "Claimant", legal person number …, with registered office in Building …, …, Plot…, …/… …, Lisbon, with share capital of € 35,446,825.00, in 2012 parent company of a group (the B… tax group) subject to the special regime for taxation of groups of companies provided for in (in the current numbering) article 69 and following of the Corporate Income Tax Code (CIRC), covered by the local peripheral services of the Finance Service of Lisbon …, constituted by the parent company and, among others, by the companies C…, D… and E…, filed a request for constitution of a collective arbitral tribunal, pursuant to articles 2, n. 1, letter a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter RJAT) and 1 and 2 of Portaria no. 112-A/2011 of 22 March, in which the Tax and Customs Authority is the Respondent.

The Claimant seeks that there be declared the illegality of the rejection of the gracious complaint which it submitted regarding the self-assessment of IRC, including autonomous taxation rates, relating to the tax year 2012 and, likewise, the partial illegality of the self-assessment of IRC, including autonomous taxation rates, of the Claimant tax group, relating to the tax year 2012, with respect to the amount of autonomous taxation rates in IRC of € 572,312.97, with its consequent annulment in this part, in addition to reimbursement to the Claimant of this sum, increased by compensatory interest at the legal rate counted from 31-05-2013 until full reimbursement.

The Claimant further requests, in the alternative, that if it is considered that article 90 of the CIRC does not apply to autonomous taxation, then it should be declared the illegality of the assessment of autonomous taxation (and consequently be annulled) by absence of legal basis for its assessment (see articles 8, n. 2, letter a), of the General Tax Law (LGT) and 103 n. 3 of the Constitution of the Portuguese Republic (CRP), with the consequent reimbursement of the same amount and the payment of compensatory interest counted from the same date.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 25-01-2016.

In accordance with the provisions of letter a) of n. 2 of article 6 and letter b) of n. 1 of article 11 of RJAT, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.

On 21-03-2016 the parties were duly notified of this designation, and did not manifest any intention to refuse the designation of the arbitrators, in accordance with the joint provisions of articles 11 n. 1, letters a) and b) of RJAT and 6 and 7 of the Deontological Code.

In accordance with the provision of letter c) of n. 1 of article 11 of RJAT, the collective arbitral tribunal was constituted on 06-04-2016.

The Tax and Customs Authority replied on 10-05-2016, defending the lack of merit of the request for arbitral pronouncement and requesting its dismissal.

By order of 13-05-2016, it was decided to dispense with the meeting provided for in article 18 of RJAT and that the proceedings continue with arguments.

The parties presented arguments.

The parties have legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, n. 2, of the same statute and 1 of Portaria no. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities and no obstacle arises to the consideration of the merits of the case.

  1. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

a) The Claimant was, in 2012, the parent company of a group of companies constituted by the parent company and its subsidiaries among others; i) C… SA, taxpayer no.…, ii) D… SA, taxpayer no. … and iii) E… SA taxpayer no. …, subject to the special regime for taxation of groups of companies (RETGS);

b) The Claimant filed, on 31-05-2013, its aggregate IRC declaration Model 22 relating to the tax year 2012, having at that time proceeded to the self-assessment of autonomous taxation in IRC, in the amount of € 572,312.97 (document no. 1 attached with the request for arbitral pronouncement, the contents of which are reproduced); on 29-7-2013 proceeded to the respective replacement declaration (document no. 2 attached with the request for arbitral pronouncement) reducing the assessed amount of municipal and state surtax by approximately € 7,531.80;

c) The Claimant filed a gracious complaint concerning the self-assessment relating to the tax year 2012, in which it requested the reimbursement of the amount of € 572,312.97, corresponding to autonomous taxation, arguing that they have the same nature as IRC and, therefore, the tax benefit relating to SIFIDE should be deducted (documents no. 5 and 6, attached with the request for arbitral pronouncement, the contents of which are reproduced) and PEC in the amount of € 677,071.94 (documents no. 7.1 to 7.5) attached with the request for arbitral pronouncement, the contents of which are reproduced;

d) The gracious complaint was rejected by order of 28-10-2015, by the Finance Director of Lisbon (in replacement capacity) (document no. 3 attached with the request for arbitral pronouncement, the contents of which are reproduced);

e) The amount of IRC, including autonomous taxation, and the consequent surtax, self-assessed, has been paid (document no. 4 attached with the request for arbitral pronouncement, the contents of which are reproduced);

f) The amount of SIFIDE, assigned/obtained, available for use in the tax year 2012, is 2,496,295.20 relating to companies forming part of the tax group, and counting only SIFIDE obtained from the tax year between 2008 and 2012 in accordance with (document no. 5 attached with the request for arbitral pronouncement, the contents of which are reproduced, and mentioned in article 20 of the request for arbitral pronouncement, whose existence is not questioned by the Tax and Customs Authority):

g) The taxable profit of the Claimant and the companies of the group, in the tax year 2012, was not determined by the Tax and Customs Authority based on indirect methods (documents nos. 1 and 2 attached with the request for arbitral pronouncement, the contents of which are reproduced);

h) The companies forming part of the Claimant's group which gave rise to the SIFIDE tax benefit are not and were not then entities owing to the State and social security any taxes or contributions (document no. 11 attached with the request for arbitral pronouncement, the contents of which are reproduced);

i) The IRC Model 22 declaration and the AT computer system prevented the Claimant from deducting tax benefits to the collection resulting from the application of autonomous taxation rates in IRC, entered in field 365 of table 10 of the Model 22 declaration;

j) On 24-01-2016, the Claimant filed the request for constitution of the arbitral tribunal which gave rise to the present proceedings.

2.2. Unproven Facts

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

2.3. Grounds for Determination of Factual Matters

The facts were established as proven based on documents attached with the request for arbitral pronouncement and in the administrative proceedings, with no controversy about them.

  1. Matters of Law

The Claimant argues that it has the right to deduce tax benefits within the scope of SIFIDE to the IRC collection produced by autonomous taxation in the tax years 2012.

The AT computer system, through which IRC is self-assessed, does not allow taxpayers to deduce, for purposes of determining the IRC owed by them, to the tax resulting from autonomous taxation the amount of SIFIDE tax benefit as well as PECs.

The Claimant filed a gracious complaint regarding the self-assessment carried out based on model 22 declarations relating to the years 2012, arguing, in summary, that amounts could be deducted from the collection resulting from the assessment of autonomous taxation relating to the tax benefit from investments it made, provided for in SIFIDE as well as amounts delivered as PEC.

The Tax and Customs Authority rejected the gracious complaint.

The question which is the subject of the present request for arbitral pronouncement (RPA) is, thus, whether there are deductible from the collection generated by autonomous taxation, the amounts relating to the tax benefit from investments made under the SIFIDE tax benefit as well as the amounts of PEC.

The Claimant further formulates an alternative request, for the hypothesis that the non-deductibility of such deductions from the collection, as advocated by the Tax and Customs Authority, were to be accepted, requesting that the self-assessment of the taxation periods 2012 be annulled, in the portion corresponding to autonomous taxation, on the grounds that they were assessed and collected without legal basis for this purpose.

In view of such facts, consideration will thus begin with this question by analyzing the applicability of article 90 of the CIRC to the assessment of autonomous taxation, as the solution to this depends on the consideration of the question of the deductibility of SIFIDE and special payments on account from the collection of such autonomous taxation.

3.1. Question of the Application of Article 90 of the CIRC to Autonomous Taxation

Articles 89 and 90 of the CIRC establish the following, in the wording given by Law no. 3-B/2010, of 28 April:

Article 89

Competence for Assessment

The assessment of IRC is carried out:

a) By the taxpayer itself, in the declarations to which articles 120 and 122 refer;

b) By the Directorate-General of Taxes, in other cases.

Article 90

Procedure and Form of Assessment

1- The assessment of IRC is carried out in the following terms:

a. When the assessment is to be carried out by the taxpayer in the declarations to which articles 120 and 122 refer, it is based on the taxable matter contained therein;

b. In the absence of presentation of the declaration referred to in article 120, the assessment is carried out by 30 November of the following year to which it relates or, in the case provided for in n. 2 of that article, by the end of the 6th month following the term of the deadline for presentation of the declaration mentioned there and is based on the value of the annual minimum monthly remuneration or, when higher, the totality of the taxable matter of the closest tax year which is determined;

c. In the absence of assessment under the preceding letters, it is based on the elements which the tax administration has available.

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

a) That corresponding to double international taxation;

b) That relating to tax benefits;

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

d) That relating to source withholdings not subject to compensation or reimbursement under the applicable legislation.

3 – (Repealed by Law no. 3-B/10)

4 – To the amount determined under n. 1, relating to the entities mentioned in n. 4 of article 120, only the deduction relating to source withholdings is to be made when these have the nature of tax on account of IRC.

5 – The deductions referred to in n. 2 concerning entities to which the fiscal transparency regime established in article 6 applies are imputed to their respective shareholders or members in accordance with the terms established in n. 3 of that article and deducted from the amount determined based on the taxable matter which has taken into account the imputation provided for in the same article.

6 – When the special regime for taxation of groups of companies applies, the deductions referred to in n. 2 relating to each of the companies are made in the amount determined in relation to the group, under n. 1.

7 – From the deductions made under letters a), b) and c) of n. 2 no negative value may result.

8 – To the amount determined under letters b) and c) of n. 1 only the deductions of which the tax administration is aware and which can be made under nos. 2 to 4 are made.

9 – In cases in which the provision of letter b) of n. 2 of article 79 applies, assessments are made annually based on taxable matter determined on a provisional basis, and, in view of the assessment corresponding to taxable matter relating to the entire assessment period, the difference ascertained is to be collected or cancelled.

10 – The assessment provided for in n. 1 may be corrected, if appropriate, within the period to which article 101 refers, the differences ascertained then being collected or cancelled.

In view of such normative provision, it is verified that in the decision rejecting the gracious complaint, the Tax and Customs Authority considers that "in nos. 1 and 2 of article 90 of the CIRC there is no reference to autonomous taxation" and immediately concludes that, in the existence of any collection that is not of taxable matter, any deduction from such collection would be contrary to the spirit of the IRC system namely by deduction of SIFIDE tax benefits or PEC, and thus concludes against the deduction of these deductions from the collection.

However, in response to the present request for arbitral pronouncement, the Tax and Customs Authority recognizes that this interpretation is wrong, in stating in articles 38 and 39 of its Response the following:

"38

It is worth clarifying that the assessment of autonomous taxation is carried out based on articles 89 and 90 n. 1 of the IRC Code but, applying different rules for the calculation of the tax:

(1) in one case the assessment operates, by the application of the rates of article 87 to the taxable matter determined in accordance with the rules of chapter III of the Code and

(2) in the other case, various collections are determined according to the diversity of the facts which give rise to autonomous taxation.

39

Whereby it results that the amount determined under the terms of letter a) of n. 1 of article 90 does not have a unitary character, as it comprises values calculated according to different rules, to which different purposes are associated, whereby the deductions provided for in the letters of n. 2 can only be made to the part of the IRC collection with which there is a direct correspondence, so as to maintain the coherence of the conceptual structure of the special rule-regime of the tax".

It is thus concluded that there is not even any controversy between the parties as to the application of article 90 of the CIRC to the assessment of autonomous taxation, with the divergence being limited to the manner of proceeding with the assessment, as the Tax and Customs Authority considers that various collections are determined according to the diversity of the facts which give rise to autonomous taxation and the deductions provided for in the letters of n. 2 can only be made to the part of the IRC collection with which there is a direct correspondence, considering that it is not verified in relation to the IRC collection which results from autonomous taxation.

In any case, the aforementioned articles 89 and 90 of the CIRC, as well as other norms of this Code, such as those relating to declarations provided for in articles 120 and 122, are applicable to autonomous taxation.

From the outset, it is now settled, following numerous arbitral decisions and positions adopted by the Tax and Customs Authority, that the tax collected based on autonomous taxation provided for in the CIRC has the nature of IRC (see decisions such as 59/2014-T, 79/2014-T, 80/2014-T; 95/2014-T, 602/2015-T and many others within the scope of CAAD. Moreover, in addition to the unanimity of case law, article 23-A n. 1, letter a), of the CIRC, in the wording of Law no. 2/2014, of 16 January, leaves no room today for any reasonable doubt, corroborating what previously already resulted from the literal content of article 12 of the same Code.

Now, article 90 of the CIRC refers to the forms of assessment of IRC, by the taxpayer or by the Tax Administration, applying to the determination of tax due in all situations provided for in the Code, including additional assessment (n. 10).

Therefore, that article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, following the presentation or non-presentation of declarations, with no other provision providing for different terms for its assessment.

Thus, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are restricted to the determination of the taxable matter and the rates applicable, which are those provided for in Chapters III and IV of the CIRC for IRC based on taxable profit and in article 88 of the CIRC for IRC based on the taxable matter of autonomous taxation and the respective rates.

But the forms of assessment which are provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remaining IRC taxable matter.

However, the fact that a self-assessment of IRC, carried out under the terms of n. 1 of article 90, may contain several partial calculations based on several rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm by making reference to "assessment", in the singular, in all cases in which it is "carried out by the taxpayer in the declarations to which articles 120 and 122 refer", having "as its basis the taxable matter contained therein" (whether that determined based on the rules of articles 17 and following or that determined based on the various situations provided for in article 88).

Indeed, it is not only the assessments provided for in article 88 that may include several calculations of application of rates to certain taxable matters, as the same may occur in the situations provided for in nos. 4 to 6 of article 87 (1).

(1) N. 6 of article 87 of the CIRC was repealed by Law no. 55/2013, of 8 August, which is not relevant for this purpose of demonstrating that outside the scope of autonomous taxation there were and are partial calculations of IRC based on special rates applicable to certain taxable matters.

In any case, whatever calculations are to be made, the self-assessment which the taxpayer or the Tax and Customs Authority must carry out under the terms of articles 89, letter a), 90, n. 1, letters a), b) and c), and 120 or 122, is unitary, and it is on the basis of it that global IRC is calculated, whatever the taxable matters relating to each of the types of taxation which underlie it.

Indeed, as the Claimant properly refers when formulating its alternative request, if this article 90 were not applicable to the assessment of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no provision laying down its assessment, which would amount to illegality, by violation of article 103, n. 3, of the CRP, which requires that the assessment of taxes be made "in accordance with the law".

It may further be noted that the new norm of n. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of 30 March, independent of whether or not it is truly interpretative, in no way alters this conclusion, as it establishes, with regard to the form of assessment of autonomous taxation, that it "is carried out in accordance with the terms provided for in article 89 and is based on the values and rates which result from the provisions of the preceding numbers".

Indeed, if it is true that this new norm comes to clarify how the amounts of autonomous taxation are calculated (which already followed from the text itself of the various provisions of article 88) and that competence lies with the taxpayer or the Tax Administration, under the terms of article 89, it is also clear that it does not remove the need to use the procedure provided for in n. 1 of article 90, namely in the cases provided for in its letter c) in which assessment is the responsibility of the Tax and Customs Authority, on the basis of "elements which the tax administration has available", which appears to be unquestionable that they will include the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements which prove its assumptions. Therefore, both before and after Law no. 7-A/2016, of 30 March, article 90, n. 1, of the CIRC is applicable to the assessment of autonomous taxation.

3.2. Question of the Deductibility of Investment Expenditure Provided for in SIFIDE to Amounts Due by Way of Autonomous Taxation

In 2012, the System of Tax Incentives for Business Research and Development II (SIFIDE II) was in force, which was approved by article 133 of Law no. 55-A/2010, of 31 December, and amended by article 163 of Law no. 64-B/2011, of 30 December.

This statute establishes the following, in its articles 4 and 5:

Article 4

Scope of the Deduction

1 - Resident IRC taxpayers in Portuguese territory who carry on, as their principal activity, an activity of an agricultural, industrial, commercial and services nature and non-residents with permanent establishment in that territory may deduce from the amount determined under the terms of article 90 of the IRC Code, and up to its concurrence, the amount corresponding to expenditure on research and development, insofar as it has not been the subject of financial participation by the State on a no-loss basis, incurred in the taxation periods from 1 January 2011 to 31 December 2015, in a double percentage:

a) Base rate - 32.5 % of expenditure incurred in that period;

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

2 - ……….

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

4 - Expenditure which, by insufficiency of collection, cannot be deducted in the year in which it was incurred may be deducted until the sixth immediately following year.

5 - …

6 - …

7 - ...

Article 5

Conditions

Only IRC taxpayers who cumulatively meet the following conditions may benefit from the deduction referred to in article 4:

a) Their taxable profit is not determined by indirect methods;

b) They are not indebted to the State and social security for any taxes or contributions, or have their payment duly assured.

In the case at hand, the Tax and Customs Authority does not question that the Claimant meets the subjective and objective requirements to be able to benefit from SIFIDE, having rejected the gracious complaint on the grounds that the expenditure in question cannot be deducted from the amounts paid by way of autonomous taxation, as the deduction can only be made from IRC collection resulting from the application of the IRC rate to taxable profit.

As referred to, article 90 of the CIRC also refers to the assessment of autonomous taxation.

And, as was also stated, there is no legal support for asserting that, in the event that several calculations have to be made in a declaration to determine IRC, more than one self-assessment is carried out.

The statute which approved SIFIDE does not state that credits arising therefrom are deductible from any and all IRC collection, but rather defines the scope of the deduction by referring, in its n. 1 of article 4, "to the amount determined under the terms of article 90 of the IRC Code, and up to its concurrence".

N. 3 of the same article 4 confirms that it is the amount determined under the terms of article 90 of the CIRC that is relevant to implement the deduction by stating that "the deduction is made, in accordance with article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding number".

Thus, by mere declarative interpretation, it is concluded that article 4, n. 1, of SIFIDE II, by establishing the deduction "to the amount determined under the terms of article 90 of the IRC Code, and up to its concurrence", implies the deduction from the amount of autonomous taxation which are determined under the terms of that article 90.

The fact that article 5 of SIFIDE II excludes the benefit when taxable profit is determined by indirect methods and in autonomous taxation situations are included in which indirect taxation of profits is aimed (namely, by not giving relevance or discouraging facts susceptible of reducing them) has no relevance for this purpose, as the concept of "indirect methods" has a precise scope in tax law, which is implemented in article 90 of the LGT (in addition to special norms), relating to means of determining taxable profit, the use of which is not provided for in the calculation of the taxable matter of autonomous taxation provided for in article 88 of the CIRC.

On the other hand, if it is the necessity to make use of indirect methods which excludes the possibility of enjoying the benefit, one cannot justify this exclusion in relation to the collection of autonomous taxation, which is determined by direct methods.

Furthermore, one cannot see, in the possible nature of anti-abuse norms which some autonomous taxation assumes (2) an explanation for its exclusion from the respective collection of the scope of deductibility of the SIFIDE II benefit, as there is no legal support for excluding deductibility from the collection provided by corrections based on norms of a nature that is unquestionably anti-abuse, such as, for example, those relating to transfer pricing or thin capitalization.

On the other hand, the fact that the deductibility of the SIFIDE II tax benefit is limited to the collection of article 90 of the CIRC, up to its concurrence, does not permit the conclusion that the tax credit is only deductible if there is taxable profit, as what that fact requires is that there be IRC collection, which may exist even without taxable profit, namely due to autonomous taxation.

Thus, pointing to the literal content of article 4 of SIFIDE II in the sense that the deduction applies also to IRC collection derived from autonomous taxation determined under the terms of article 90 of the CIRC, only by way of a restrictive interpretation can the application of the tax benefit to IRC collection provided by autonomous taxation be excluded. The viability of a restrictive interpretation encounters, from the outset, an obstacle of a general nature, which is that the norms which create tax benefits have the nature of exceptional norms, as follows from the express content of article 2, n. 1, of the EBF, whereby, in the absence of special rule, they should be interpreted in their precise terms, as is settled case law. (3) In the case of tax benefits, the possibility of extensive interpretation is explicitly provided for (article 10 of the EBF), but not of restrictive interpretation, whereby, as a rule, the tax benefit should not be interpreted with less breadth than that which, in a declarative interpretation, results from the content of the norm which provides for it.

(2) Currently only in relation to some autonomous taxation can the nature of anti-abuse norms be found, as, as CASALTA NABAIS teaches, Tax Law, 7th edition, page 543, "it is, however, evident that the expansion and aggravation of which such autonomous taxation currently have a clear purpose of obtaining more tax revenues".

(3) In this sense, see the decision of the Supreme Administrative Court of 15-11-2000, case no. 025446, published in the Bulletin of the Ministry of Justice no. 501, pages 150-153, in which abundant case law of the Supreme Administrative Court and the Supreme Court of Justice is cited.

This Bulletin of the Ministry of Justice is available at:

http://www.gddc.pt/actividade-editorial/pdfs-publicacoes/BMJ501/501_Dir_Fiscal_a.pdf

(4) BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 186.

In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text which betrays its thought, in that it says more than what it intended to say. Also here the ratio legis will have a decisive word. The interpreter should not be dragged along by the apparent scope of the text, but should restrict it in order to make it compatible with the legislative thought, that is, with that ratio. The argument on which this type of interpretation rests is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, its scope ends)" (4).

As a ground for a restrictive interpretation, one could venture the fact that some autonomous taxation aim to discourage certain taxpayer conduct susceptible to affecting taxable profit, and, consequently, reducing tax revenue, and their deterrent force will be attenuated with the possibility that the respective collection could be subject to deductions.

But the deterrent of such conduct is justified only by concerns of protection of tax revenue and the tax benefits granted, by definition, are "exceptional measures instituted for the protection of relevant extra-fiscal public interests which are superior to those of taxation itself which they prevent" (article 2, n. 1, of the Statute of Tax Benefits (EBF).

And, in the case of SIFIDE II tax benefits, the reasons of an extra-fiscal nature which justify their supremacy over tax revenues are, in the legislative perspective, of enormous importance, as is inferred from the justification in the Report of the State Budget for 2011:

3.2.1-System of Tax Incentives for Business Research and Development II (SIFIDE)

Taking into account that one of the assets of competitiveness in Portugal passes through the commitment to technological capacity, scientific employment and conditions of assertion in European space, SIFIDE (System of Tax Incentives for Business Research and Development), now in the SIFIDE II version, to be in force in the periods 2011 to 2015, enables the deduction from IRC collection for companies that invest in R&D (research and development capacity).

As business research and development is "a decisive factor not only of its own assertion as competitive structures, but of productivity and long-term economic growth", it is understandable that preference has been given to encouraging commitment to technological capacity, scientific employment and conditions of assertion in European space, which, in the long term result in obtaining greater tax revenues.

The importance which, in the legislative perspective, was recognized for this tax benefit provided for in SIFIDE II, is decisively confirmed by the fact that it is indicated as being specially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in article 92 of the CIRC (resulting from the assessment).

Therefore, it is certain that we are dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, being inferred from that article 92 that the legislative intention to encourage investments in research and development provided for in SIFIDE II is so firm that it goes to the point of not even establishing any limit to the deductibility of IRC collection, despite this tax regime having been created and applied in a period of notorious difficulties for public finances.

Thus, no legal ground is seen, namely in light of the legislative intention which it is possible to detect, to, on the ground of a restrictive interpretation, exclude the deductibility of the SIFIDE II tax benefit to the collection of autonomous taxation which results directly from the letter of article 4, n. 1, of the respective statute, combined with article 90 of the CIRC.

On the other hand, a possible limitation of the application of the tax benefit to companies that presented taxable profit in 2012 would result in a very strong restriction of its scope of application, as, as is public fact, the great majority of companies, in that year and in previous ones, presented tax losses, although it paid IRC through other means.

In fact, according to statistics published by the Tax and Customs Authority, in the year 2011 (last year whose data would be available when the Proposal for the State Budget for 2012 was presented, so it is to be presumed that it was considered in the weighing of the scope of the tax benefit), more than half of IRC declarations presented negative net value and in the taxation period of 2011 only 26% of taxpayers presented assessed IRC (Table 7), and approximately 71% of taxpayers made IRC payments (Table 8), via Special Payment on Account, or other positive components of the tax (Autonomous Taxation, Surtax, State Surtax, IRC of previous taxation periods, etc.). (5).

Therefore, it is manifest that the applicability of the tax benefit to companies which, although they presented tax losses, paid IRC, including by way of autonomous taxation, greatly expanded the number of potentially eligible companies and, consequently, is more compatible with the legislative intention underlying SIFIDE II than that defended by the Tax and Customs Authority.

– Moreover, for several years now, only a minority of taxpayers paid IRC based on the taxable profit of their respective year, as can be seen in the statistical documents published at http://info.portaldasfinancas.gov.pt/pt/dgci/divulgacao/estatisticas/estatisticas_ir/:

(5) This text is available at: http://info.portaldasfinancas.gov.pt/NR/rdonlyres/70E81137-189A440E-AF11-88B4A6CC1C9A/0/Notas_Previas_IRC_20092011.pdf.

– 29% in the taxation period of 2010, in which approximately 76% of taxpayers made IRC payments via Special Payment on Account, or other positive components of the tax (Autonomous Taxation, Surtax, State Surtax, IRC of previous taxation periods, etc.);

– 31% in the taxation period of 2009, in which 77% of taxpayers made IRC payments via Special Payment on Account, Autonomous Taxation and IRC of prior years;

– 34% in the taxation period of 2008, in which 79% of taxpayers made IRC payments via Special Payment on Account, Autonomous Taxation and IRC of prior years;

– 36% in the taxation period of 2007, in which 80% of taxpayers made IRC payments via Special Payment on Account, Autonomous Taxation and IRC of prior years.

On the other hand, as was referred to, one cannot overlook the fact that autonomous taxation aims to protect or increase tax revenues and that the tax benefits granted are, by definition, "exceptional measures instituted for the protection of relevant extra-fiscal public interests which are superior to those of taxation itself which they prevent" (article 2, n. 1, of the EBF).

That is, in the case at hand, by establishing a tax benefit by deduction from IRC collection, the legislator chose to forego the tax revenue which this tax could provide, to the extent of the grant of the tax benefit. For this weighing of the relative interests at stake (tax revenue versus strong stimulus to investment) it is indifferent that that revenue comes from calculations made based on article 87 or article 88 of the CIRC. In fact, whatever the manner of calculation of that tax revenue, we are dealing with money whose collection the legislator considered to be less important than the pursuit of the referred economic purpose. Of the two alternatives which presented themselves to the legislator regarding the incentive to investments provided for in SIFIDE II, which were, on the one hand, to keep intact the revenues from IRC (including those from autonomous taxation) and not see investment incentivized and, on the other hand, to implement this incentive with loss of IRC revenues, the weighing which necessarily underlies SIFIDE II is that of the choice for the creation of the incentive to the detriment of revenues. And, naturally, as the creation of the investment incentive is better, in the legislative perspective, than the collection of revenues, it is not seen how it can be relevant that the IRC revenues that are lost to implement the incentive come from the general taxation of IRC provided for in n. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenues and the relative weighing which can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC which is foregone to create the incentive.

And, in the case of the SIFIDE II tax benefit, the reasons of an extra-fiscal nature which justify the incentive with loss of revenue are very strong, as it is considered that the investments incentivized are a decisive factor in the future competitiveness of the country.

Therefore, it is certain that we are dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues from IRC, whatever the basis of its calculation, as what is always at issue is whether or not to forego a certain sum of money to create an investment incentive.

In this context, the nature of autonomous taxation and the solutions legislatively adopted, in general, in relation to them, have no relevance whatsoever to the consideration of this question, as it must be considered in light of the specific interests which conflict in its weighing.

In fact, what is at issue is, exclusively, to determine the scope of SIFIDE II, which establishes a regime of exceptional nature, which aimed at pursuing certain public interests, and not to contribute to the decision of any conceptual question about the nature of autonomous taxation, a matter on which neither in the text of the law, nor in the Report of the Budget for 2011, is any legislative concern visible.

For the same reason that what is at issue is interpreting the scope of the statute of special nature which SIFIDE II is, no relevance can be attributed, for this purpose, to the norm of n. 21 of article 88 of the CIRC, added by Law no. 7-A/2016, of 30 March, in the part in which it states that no "deductions are made to the global amount determined", despite the alleged interpretative nature which was attributed to it.

In fact, there is no sign, neither in Law no. 7-A/2016, nor in the Report of the Budget for 2016, nor in its discussion, that with the addition to article 88 of the CIRC of a general norm prohibiting deductions to the global amount determined of autonomous taxation, it was intended to interpret restrictively the expression "deduce from the amount determined under the terms of article 90 of the IRC Code" which is contained in a special norm of a separate statute, such as SIFIDE II.

And, in the absence of an unequivocal intention to the contrary, the rule applies that general law does not alter special law (article 7, n. 3, of the Civil Code), which has the justification that "the general regime does not include consideration of the particular conditions which justified precisely the issuance of special law". (6)

Furthermore, the referred rules of SIFIDE II are intended to encourage IRC taxpayers to make investments in the period between 01-01-2011 and 31-12-2015, whereby, as the tax benefit is a counterpart to the adoption of the legislatively desired and encouraged conduct, it would be incompatible with the constitutional principle of confidence, inherent in the principle of the democratic rule of law (article 2 of the CRP), not to recognize to such conduct the favorable tax effects provided for in the law in force at the time they occurred. Therefore, if hypothetically Law no. 7-A/2016 intended to eliminate, wholly or partially, the favorable tax effects which SIFIDE II promised to taxpayers who, with justified confidence, adopted the conduct provided for therein, it would be materially unconstitutional, by violation of that principle.

(6) – OLIVEIRA ASCENSÃO, Law – Introduction and General Theory, page 260

In light of the above, the literal and rational elements of interpretation of article 4 of SIFIDE II converging in the sense that the investment expenditure provided for therein is deductible "from the amount determined under the terms of article 90 of the IRC Code, and up to its concurrence", it is to be concluded that it is deductible from the entirety of that collection, which encompasses, in addition, that derived from the taxation of profits in each fiscal period, of autonomous taxation, state surtax and IRC of previous taxation periods.

The request for arbitral pronouncement thus succeeds as to this question.

3.3. Question of the Deductibility to Amounts Due by Way of Autonomous Taxation of Amounts Paid by Way of Special Payments on Account

The arbitral request succeeding as regards the deductibility of investment expenditure provided for in SIFIDE to amounts due by way of autonomous taxation, we are faced with the following situation:

The collection of autonomous taxation is € 572,312.97;

The SIFIDE tax benefits available amount to 2,496,295.20; The available PECs total 667,071.94.

Now, considering that this tribunal, to the amount determined by the assessment of IRC, which includes autonomous taxation, deductions are made, before deductions relating to special payment on account, those relating to tax benefits, including SIFIDE, in accordance with what is established in letters c) and d) of n. 2 of article 90 of the CIRC, it happens that it is arithmetically impossible to deduce from the collection - € 572,312.97 – the € 2,496,295.20 of SIFIDE – nor, necessarily, the € 667,071.94 of PECs, if such deduction were legal, as the Claimant argues.

Which is to say that the consideration of the question relating to the deduction of PECs is prejudiced, as the decision as to autonomous taxation and benefits deriving from SIFIDE gives full satisfaction to the interest here defended by the Claimant.

  1. Reimbursement of Amounts Paid and Compensatory Interest, Counted from 31-05-2013

The Claimant further requests, the reimbursement of the sum of € 572,312.97, which it paid, corresponding to the amount of autonomous taxation rates to which the SIFIDE tax benefit can be deducted.

The Claimant further requests compensatory interest for the overpayment of that amount from 31-05-2013, the date on which it made the payment of the self-assessed sum.

In accordance with the provision in letter b) of n. 1 of article 24 of RJAT, the arbitral decision on the merits of the claim against which no appeal or challenge is available binds the Tax Administration from the end of the period set for appeal or challenge, and this, in the exact terms of the procedure of the arbitral decision in favor of the taxpayer and until the end of the period set for spontaneous execution of the decisions of the judicial tax courts, must "re-establish the situation that would exist if the tax act which is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for this purpose", which is in accordance with the provision of article 100 of the LGT [applicable by virtue of the provision in letter a) of n. 1 of article 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of a gracious complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full re-establishment of the legality of the act or situation which is the subject of the dispute, including the payment of compensatory interest, if appropriate, from the end of the period of execution of the decision".

Although article 2, n. 1, letters a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals which function in CAAD, not making reference to condemnatory decisions, it should be understood that the powers which, in a process of judicial challenge, are attributed to the tax courts are comprised within its competences, this being the interpretation which is in harmony with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as the first guideline, that "the arbitral tax process must constitute an alternative procedural means to the process of judicial challenge and to the action for the recognition of a right or legitimate interest in tax matters".

The process of judicial challenge, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as is inferred from article 43, n. 1, of the LGT, in which it is established that "compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than that legally due" and from article 61, n. 4 of CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds n. 2 in the initial wording), that "if the decision which recognized the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period for its spontaneous execution".

Thus, n. 5 of article 24 of RJAT, in stating that "payment of interest is due, regardless of its nature, under the terms provided for in general tax law and in the Code of Procedure and Tax Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitral process.

It is thus necessary to consider the request for reimbursement of the amount unduly paid, increased by compensatory interest.

In the case at hand, it is manifest that, following the illegality of the assessment acts, there is a right to reimbursement of the tax paid, by virtue of the aforementioned articles 24, n. 1, letter b), of RJAT and 100 of the LGT, as this is essential to "re-establish the situation that would exist if the tax act which is the subject of the arbitral decision had not been performed".

The substantive regime of the right to compensatory interest is regulated in article 43 of the LGT, which establishes, as is of interest here, the following:

Article 43

Overpayment of Tax Obligation

  1.         Compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than that legally due.

  2.         Error attributable to the services is also considered to exist in cases in which, despite the assessment being carried out on the basis of the taxpayer's declaration, the taxpayer, in completing it, followed the general guidance of the tax administration, duly published.

The illegality of the decision rejecting the gracious complaint is attributable to the Tax Administration, which rejected it on its own initiative.

As regards the self-assessment, which was carried out by the Claimant, it is to be understood that the error which affects it is attributable to the Tax Administration, on the ground that it has been proven that the structure of the IRC Model 22 declaration did not allow the Claimant to carry out the self-assessment by deducting the SIFIDE tax benefit from the amount of autonomous taxation.

Consequently, the Claimant has the right to compensatory interest, under the terms of articles 43, n. 1, of the LGT and 61 of CPPT from 01-06-2012.

Compensatory interest is due on the amount of € 572,312.97, at the legal default rate, under the terms of articles 43, nos. 1 and 35, n. 10 of the LGT, of article 24, n. 1, of RJAT, of article 61, nos. 3 and 4, of CPPT, of article 559 of the Civil Code and Portaria no. 291/2003, of 8 April (or such other or others which alter the legal rate), from 01-06-2013, until full reimbursement.

  1. Decision

Whereby this Arbitral Tribunal agrees to:

– Declare the request for arbitral pronouncement well-founded as to the request for declaration of illegality of the decision rejecting the gracious complaint, insofar as it concerns the Claimant's claim to deduct from the collection of autonomous taxation the available amount of SIFIDE;

– Declare the illegality of the self-assessment relating to the tax year 2012, insofar as it concerns the amount available of SIFIDE which was not deducted from the IRC collection resulting from autonomous taxation and annul the self-assessment in the respective part;

– Declare the request for arbitral pronouncement prejudiced as to the part relating to requests for declaration of illegality of assessments by non-deduction of special payments on account from the amounts of autonomous taxation;

– Condemn the Tax and Customs Authority to reimburse the Claimant of the amounts which it paid relating to SIFIDE which could have been deducted from the amounts of autonomous taxation and to pay compensatory interest to the Claimant, relating to that amount from the date of payment until its reimbursement.

  • Declare the alternative request prejudiced, for declaration of illegality of assessment of autonomous taxation should it come to be understood that to these autonomous taxation would not apply the provision of article 90 of the CIRC.
  1. Value of the Proceeding

In accordance with the provision in articles 305, n. 2, of CPC and 97-A, n. 1, letter a), of CPPT and 3, n. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT) the value of the proceeding is set at € 572,312.97.

  1. Costs

Under the terms of article 22, n. 4, of RJAT, the amount of costs is set at € 8,568.00 in accordance with Table I attached to RCPAT, at the expense of the Respondent.

Lisbon, 06-10-2016

The Arbitrators

José Baeta de Queiroz

(President)

Paulo Lourenço

Fernando de Jesus Amado dos Santos

(Text prepared by computer, in accordance with article 131 n. 5 of the Code of Civil Procedure, applicable by reference of article 29 n. 1 letter e) of the Regime of Tax Arbitration).

Frequently Asked Questions

Automatically Created

Can SIFIDE tax credits be applied to reduce autonomous taxation (tributação autónoma) under Portuguese IRC?
Under Portuguese tax law, the application of SIFIDE (Sistema de Incentivos Fiscais em Investigação e Desenvolvimento Empresarial) tax credits to autonomous taxation remains contentious. While SIFIDE constitutes a tax benefit deductible from IRC collection under Article 22 of the Tax Benefits Statute, autonomous taxation represents a special IRC levy on certain corporate expenses under Articles 88-89 of the CIRC. The central dispute concerns whether autonomous taxation, despite being classified as IRC, permits deduction of tax benefits. The Tax Authority's systems historically prevented such deductions in field 365 of Model 22 declarations, suggesting administrative interpretation that SIFIDE applies only to standard IRC calculated on taxable profits, not to autonomous taxation which operates as a minimum tax on specific expenses regardless of profitability.
What is the legal basis for autonomous taxation on corporate expenses under the Portuguese IRC Code?
Autonomous taxation (tributação autónoma) under Portuguese IRC law is established in Articles 88-89 of the CIRC as a separate taxation regime targeting specific corporate expenses. This system applies fixed percentage rates to enumerated expense categories including vehicle costs, entertainment expenses, travel allowances, and other deemed non-essential business expenditures. The legal basis derives from anti-abuse principles and minimum taxation policy, ensuring that companies contribute IRC even when reporting tax losses or minimal taxable profits. Autonomous taxation rates range from 10% to 35% depending on expense type and company characteristics. These levies constitute definitive IRC obligations, calculated independently from the company's taxable profit determination. Article 88(1) CIRC establishes that autonomous taxation applies 'without prejudice' to inclusion of underlying expenses in deductible costs, meaning expenses face both standard deductibility rules and autonomous taxation assessment simultaneously.
How does Article 90 of the CIRC apply to the settlement of autonomous taxation for corporate groups?
Article 90 of the CIRC regulates the settlement and payment of IRC within the special regime for taxation of groups of companies (RETGS). This provision establishes that the parent company (dominant entity) assumes responsibility for calculating, declaring, and paying the consolidated group's total IRC obligation. The critical interpretive question involves whether Article 90's consolidation mechanism extends to autonomous taxation assessed on group members' expenses. Proponents argue that since autonomous taxation constitutes IRC by legal definition, Article 90's comprehensive approach to group taxation necessitates consolidated treatment, allowing group-level tax benefits like SIFIDE to offset all IRC components including autonomous taxation. This interpretation aligns with RETGS principles of treating the group as a single taxable entity. The Tax Authority traditionally maintains a restrictive view, treating autonomous taxation as individual company obligations not subject to group-level consolidation or benefit deduction.
What are the grounds for challenging IRC autonomous taxation through CAAD tax arbitration in Portugal?
Challenging IRC autonomous taxation through CAAD (Centro de Arbitragem Administrativa) tax arbitration in Portugal requires establishing jurisdictional grounds under Decree-Law 10/2011. Taxpayers may contest autonomous taxation assessments or, as in Process 31/2016-T, challenge rejection of gracious complaints seeking reimbursement. Valid grounds include: (1) illegality of autonomous taxation assessment for lacking legal basis under Article 8(2)(a) of the General Tax Law; (2) violation of constitutional principles including legal certainty and ability to pay under Article 103(3) of the Portuguese Constitution; (3) misapplication of CIRC provisions governing tax benefits or group taxation regimes; (4) procedural irregularities in assessment or complaint procedures. Arbitration requests must be filed within 90 days of notification of the contested act per Article 10 RJAT. The process requires demonstrating direct legal interest, typically through payment of contested amounts (as shown by payment proof in this case) and exhaustion of administrative remedies.
Is a taxpayer entitled to compensatory interest (juros indemnizatórios) when autonomous taxation is unlawfully assessed?
Portuguese tax law provides taxpayers with entitlement to compensatory interest (juros indemnizatórios) when tax obligations are unlawfully assessed or lawfully due amounts are delayed in reimbursement beyond statutory deadlines. Article 43 of the General Tax Law establishes that compensatory interest accrues when: (1) the Tax Authority fails to reimburse within the legal timeframe; (2) judicial or arbitral decisions annul tax assessments; or (3) collection proves unlawful. The interest rate is legally determined and calculated from the payment date until full reimbursement. In autonomous taxation disputes where annulment is granted, taxpayers recover both the principal amount wrongly assessed and compensatory interest from the original payment date. This compensatory mechanism aims to restore taxpayers to their original economic position, recognizing that unlawful tax collection deprives them of capital use. The interest runs automatically upon favorable decision without requiring separate claim, though taxpayers should explicitly request it in arbitration petitions as demonstrated in Process 31/2016-T.