CAAD 34/2016-T: Deduction of Special Payment on Account (PEC) from Autonomous Taxation under IRC

ARBITRAL DECISION

I - REPORT

On 06/04/2016, A… -SA, a legal entity no.…, with registered office at Street…, no.…, …-… Lisbon, under the auspices of Articles 2.º, no. 1, subparagraph a), and 10.º, nos 1 and 2, of Decree-Law no. 10/2011 of 20 January, and Articles 1.º and 2.º of Ordinance no. 112-A/2011 of 22 March, (Legal Framework for Arbitration in Tax Matters, hereinafter "LFRAMT", which currently has effect with the wording introduced by Article 228.º of Law no. 66-B/2012, of 31 December), requested the Constitution of an Arbitral Tribunal for pronouncement on the dismissal (albeit tacit) of the administrative review request which it submitted on 21/05/2013 and, consequently (and in final or ultimate terms), of the self-assessed Corporate Income Tax acts for the fiscal years 2012 and 2013, insofar as corresponding to the non-deduction from the Corporate Income Tax collection produced by autonomous taxation rates of the special advance payment made under Corporate Income Tax or, subsidiarily, insofar as the autonomous taxation assessment is unlawful.

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and, pursuant to the provisions of subparagraph a) of no. 2 of Article 6.º and subparagraph b) of no. 1 of Article 11.º of the LFRAMT, with the wording introduced by Article 228.º of Law no. 66-B/2012, of 31 December, the Ethics Council designated the undersigned as arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of such responsibility within the applicable timeframe.

On 21 March 2016, the parties were notified of such designation, and neither raised any objection.

The Arbitral Tribunal was constituted on 06 April 2016, in accordance with the provisions of subparagraph c) of no. 1 of Article 11.º of Decree-Law no. 10/2011, of 20 January, with the wording introduced by Article 228.º of Law no. 66-B/2012, of 31 December. The act subject to the pronouncement request of the Arbitral Tribunal is the dismissal of the administrative review request submitted on 27/05/2015 and, consequently (and in final or ultimate terms), of the self-assessed Corporate Income Tax acts for the fiscal years 2012 and 2013, insofar as corresponding to the non-deduction from the Corporate Income Tax collection produced by autonomous taxation rates of the special advance payment made under Corporate Income Tax or, subsidiarily, insofar as the autonomous taxation assessment is unlawful.

The Tax Authority submitted its reply on 10/05/2016.

By order of the Tribunal of 12/05/16, the meeting referred to in Article 18.º of the LFRAMT was dispensed with, and the parties were invited to submit written submissions, which both did within the fixed timeframe, the Claimant on 23/05/2016 and the Respondent on 07/06/2016.

II - PROCEDURAL EXAMINATION

The Arbitral Tribunal was regularly constituted.

The parties are duly represented, are legitimate, and enjoy legal personality and legal capacity (Articles 4.º and 10.º, no. 2, of the same instrument and Article 1.º of Ordinance no. 112-A/2011, of 22 March), notably regarding the legitimacy of the Claimant (which is not contested), which derives from the fact that it holds an interest legally protected since its legal sphere may be directly affected by what is decided in the present proceeding, a situation in which legitimacy is ensured by nos 1 and 4 of Article 9.º of the Code of Tax Procedural Law applicable to tax arbitral proceedings by force of the provision in Article 29.º, no. 1, subparagraph c), of the LFRAMT.

The proceeding does not suffer from nullities and no exceptions were raised, wherefore it is necessary to decide.

III - FACTUAL MATTERS

A - PROVEN FACTS

The following factual matters are established as proven, with relevance to the decision of the case:

• The claimant filed on 28 May 2013 the Corporate Income Tax return Form 22 for the fiscal year 2012, and on 27 May 2014 filed Form 22 for the fiscal year 2013.

• In those returns, a tax loss was entered in field 301, in both fiscal years, in the amount of € 666,473.74 and € 1,405,092.98, respectively.

• It calculated, through self-assessment, in those same returns, € 8,747.44 and € 7,901.86 as collection relating to autonomous taxation, respectively for 2012 and 2013.

• On 2014/05/07 and 2014/12/03 it submitted amended returns with reference to these same fiscal years, but from which no assessment resulted.

• The Corporate Income Tax Form 22 return and its articulation with the programming of the Tax Authority's computer system prevents the deduction from the collection related to autonomous taxation rates in Corporate Income Tax, entered in field 365 of section 10 of the return, of the value of special advance payments still to be deducted, starting with the oldest.

• In the context of special advance payments (SAP) there thus remained an accumulated amount to be deducted from the Corporate Income Tax collection that amounted in 2012 and 2013 to € 163,387.971 and € 167,548.922, respectively.

• Not in agreement with this conduct of the Tax Authority, the Claimant, on 27 May 2015, submitted an administrative review request against the aforementioned self-assessed amounts for the fiscal years 2012 and 2013, contending the unlawfulness of the self-assessment tax act by not permitting the deduction of the amount of special advance payments from the collection of autonomous taxation calculated from said returns.

• The Tax Authority did not accept the claimant's arguments and dismissed the administrative review request, the respective order having been notified on 29 October 2015.

B - UNPROVEN FACTS

No other facts relevant to the decision on the arbitral request were proven.

C - REASONING REGARDING FACTUAL MATTERS

The proven facts were based on critical analysis of the administrative file and other documents appended to the case record, whose authenticity and truthfulness were not disputed by either party, as well as the consensual positions thereof.

IV - LEGAL MATTERS

The Claimant seeks that the Tribunal declare "both the unlawfulness of the dismissal of the administrative review request and the partial unlawfulness of the aforementioned self-assessed acts and that they be consequently annulled, more specifically regarding the part of said self-assessed acts that reflects the non-deduction from the Corporate Income Tax collection produced by autonomous taxation rates of the special advance payment made under Corporate Income Tax, which resulted in an amount of tax unlawfully assessed of € 8,747.44 for 2012 and € 7,901.86 for 2013, or, subsidiarily, insofar as it reflects unlawful autonomous taxation, and that, consequently, the right to reimbursement of these amounts be recognized and, likewise, the right to compensatory interest on the payment of unlawfully assessed tax, reckoned, until full reimbursement, regarding € 7,918.77 (2012) from 30 May 2013, regarding the remaining € 828.67 of the 2012 fiscal year from 1 September 2013, regarding € 7,333.00 (2013) from 28 May 2014, and regarding the remaining € 568.86 of the 2013 fiscal year from 1 September 2014".

For the basis of its claims, the Claimant alleges, succinctly, the following:

1. The question that is sought to be clarified is whether the claimant has or does not have the right to proceed with the deduction of said special advance payments from the Corporate Income Tax collection produced by the application of autonomous taxation rates.

2. Given that, considering the overwhelming arbitral case law that today characterizes autonomous taxation as Corporate Income Tax, the claimant absolutely sees nothing in the law that excludes the deduction of these special advance payments also from the part of the Corporate Income Tax collection produced by autonomous taxation.

3. But in the year of submission of the Form 22 returns in question here, the Tax Authority's computer system did not yet think so.

4. And in the context of an administrative review request, the Tax Authority continued not to think so, sanctioning the outcome of its computer system, and contradicting its own prior opinion on this matter.

5. If this interpretation of the law is not accepted, the non-deduction of the SAP from the Corporate Income Tax collection resulting from autonomous taxation violates subparagraph c) of no. 2 of Article 90.º of the CITC (previously before 2010, Article 83.º, and from 2014 subparagraph d) of no. 2 of Article 90.º of the CITC).

6. However, case law has understood, in a practically unanimous manner, that the Corporate Income Tax collection provided for in Article 45.º, no. 1, subparagraph a), of the CITC (in effect until 2013), comprises, without need of any additional specification, the collection from autonomous taxation in Corporate Income Tax, whereby the Corporate Income Tax collection provided for in Article 90.º, no. 1, and no. 2, subparagraph c), of the CITC, in the wording in effect in 2013, also encompasses the collection from autonomous taxation in Corporate Income Tax.

7. In the various decisions rendered in arbitral tribunal proceedings cited by the Claimant, it was decided that the tax credits that have been recognized under SIFIDE may also be deducted from the collection produced by the autonomous taxation that burdened it in that fiscal year, to the extent that they cannot be deducted from the remaining Corporate Income Tax collection.

8. It should be further noted that, contrary to what has been stated by the Tax Authority, there is no reason to conclude that the reasoning and rationale of the decision in case no. 769/2014-T would only apply to SIFIDE, and not also necessarily to other amounts deductible from the Corporate Income Tax collection.

9. Indeed, if it is a fact that the SIFIDE regime itself, regarding the provision of the tax benefit of deduction from Corporate Income Tax collection, mentions "the amount calculated in accordance with Article 90.º of the CITC", it is necessary to ask whether there will be a difference for what is discussed here due to the fact that the normative provision of deduction of the SAP from the Corporate Income Tax collection (see Article 90.º, no. 2, of the CITC) does not express itself in the same manner. And the answer is no.

10. Indeed, even if the provision of deduction from the Corporate Income Tax collection expresses itself in terms of "deduction from Corporate Income Tax collection", as opposed to "deduction from the amount calculated in accordance with Article 90.º of the CITC", the practical end result is the same, since the amount calculated in accordance with Article 90.º of the CITC is nothing other than Corporate Income Tax.

11. Wherefore, being understood by the courts that autonomous taxation is Corporate Income Tax (and it is because what applies to it is Article 90.º of the CITC, directed exclusively to Corporate Income Tax and to no other tax), it is indifferent whether the provision of the benefit refers to what is calculated in application of Article 90.º of the CITC (therefore, indirectly, but necessarily, to Corporate Income Tax), as is the case with SIFIDE, or directly to Corporate Income Tax, as is the case with the SAP.

12. Hence, the denial of the deduction of the SAP from the Corporate Income Tax collection from autonomous taxation violates subparagraph c) of no. 2 of Article 90.º of the CITC (previously before 2010, Article 83.º; and from 2014 became subparagraph d) of said no. 2 of Article 90.º of the CITC).

13. Well or poorly, it has been systematically decided by tax courts, in this case in the form of arbitral tribunals, that autonomous taxation is Corporate Income Tax, from which it is derived as a consequence that norms directed to Corporate Income Tax apply to them, such as the provision regarding non-consideration of the Corporate Income Tax collection for the calculation of taxable profit in Corporate Income Tax (Article 45.º, no. 1, subparagraph a), of the Corporate Income Tax Code, in effect until 2013).

14. In fact, "arbitral case law based its conclusion on the idea – beginning by provisionally making a generalization by approximation – which follows, on which moreover the Tax Authority's Corporate Income Tax Department has relied and relies: autonomous taxation relating, at least, to expenses with vehicles, allowances and representation expenses (which are mostly in question here) are a substitute (or complement) for the non-deductibility of expenses in Corporate Income Tax, wherefore the nature of the collection produced by these autonomous taxation is Corporate Income Tax".

15. And it is on the basis of this conclusion, thus reasoned, that case law concluded that because the collection produced by these autonomous taxation is Corporate Income Tax collection, it was therefore subject to the regime provided for Corporate Income Tax collection in subparagraph a) of no. 1 of Article 45.º of the CITC (in the wording in effect until 2013): non-deductibility of this collection in the operation of calculating taxable profit.

16. For the very same reason, the claimant asks that, coherently, it be concluded that the Corporate Income Tax collection constituted by these autonomous taxation is available, alongside the remaining Corporate Income Tax collection, in the operation of the deductions from the collection provided for in Article 90.º of the CITC, among which is the deduction of the SAP.

17. If the request is accepted, the amounts unlawfully paid should be reimbursed, plus compensatory interest which is due because the requirements of Article 43.º of the General Tax Law are met.

Nevertheless, in the case law cited by the claimant, the issue of the deduction of the special advance payment from the collection of autonomous taxation is not expressly addressed in any case.

For its part, the Tax Authority, manifesting its disagreement with these conclusions of the Claimant, in its reply defends, essentially, the following:

• Both case law and doctrine have abundantly addressed the characterization of the figure of "autonomous taxation" in Corporate Income Tax (and in Personal Income Tax) and the legislative evolution verified from its creation, by Article 4.º of Decree-Law no. 192/90, of 09.06, until the present.

• The considerations resulting therefrom reveal that the figure of autonomous taxation has been instrumentalized for the pursuit of diverse objectives, ranging from the original purpose of preventing evasion and fraud practices – through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of taxation of benefits in the form of representation expenses or allocation of vehicles to employees and members of governing bodies, in the sphere of the respective beneficiaries – to the purpose of preventing the phenomenon known as "dividend washing" (see no. 11 of Article 88.º CITC) or of burdening, through tax, the payment of income considered excessive (see no. 13 of the same provision).

• It is recognized that the autonomous character of autonomous taxation, arising from the special configuration given to the material and temporal aspects of the taxable facts, imposes, in certain areas, the departure from or an adaptation of the general rules of application of Corporate Income Tax.

• The integration of autonomous taxation in the Corporate Income Tax Code (and the Personal Income Tax Code), conferred a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied, namely, in the context of subparagraph a) of no. 1 of Article 90.º of the CITC, in separate calculations of the respective collections, by force of them being subject to different rules.

• In one case, it is the application of the rate(s) of Article 87.º of the CITC to the taxable matter determined in accordance with the rules contained in Chapter III of the Code and, in another case, it is the application of the rates to the values of taxable matters relating to the different realities contemplated in Article 88.º of the CITC.

• That is, contrary to what is stated in point 9 of the dissenting vote attached to the arbitral decision rendered in case no. 697/2014-T, there is not a single Corporate Income Tax assessment, but rather two calculations;

• That is, two distinct calculations which, although processed, pursuant to subparagraph a) of no. 1 of Article 90.º of the CITC, in the returns referred to in Articles 120.º and 122.º of the same code, are made on the basis of different parameters, since each is materialized in the application of its own rates, provided for in Articles 87.º or 88.º of the CITC, to the respective taxable matters determined equally in accordance with own rules.

• The assessment of autonomous taxation is made on the basis of Articles 89.º and 90.º no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax: (i) in one case the assessment operates, through the application of the rates of Article 87.º to the taxable matter calculated in accordance with the rules of Chapter III of the Code and (ii) in the other case, various collections are calculated according to the diversity of facts that give rise to autonomous taxation.

• It falls to the interpreter and the applier of the law to determine – in light of the need, for certain purposes – namely the deductions provided for in no. 2 of Article 90.º of the CITC or the calculation of advance payments – to identify the relevant part of the Corporate Income Tax collection, extracting from the applicable rules a useful sense, literally possible, which permits a coherent solution consistent with the nature and functions attributed to each component of the tax.

• Given the nature of advance payments of the tax due finally, in accordance with the definition of Article 33.º of the General Tax Law, these are "the anticipatory monetary payments made by taxpayers in the period of formation of the taxable fact", constituting a "(…) form of bringing closer the moment of collection to the moment of perception of income so as to remedy situations in which such approximation cannot be effected through withholding at source".

• In good logic, it only makes sense to conclude that the basis of calculation of advance payments corresponds to the amount of the Corporate Income Tax collection resulting from the taxable matter which is identified with the profit/income of the taxpayer's fiscal year.

• The delimitation of the content of the expression used by the legislator in no. 2 of Article 90.º of the CITC, "the amount calculated in accordance with the preceding number", and in no. 1 of Article 105.º of the CITC, "tax assessed in accordance with no. 1 of Article 90.º", must be done in a coherent manner, being consequently attributed to it, in both provisions, a univocal sense.

• Which is to say that it corresponds to the amount of Corporate Income Tax calculated through the application of the rates of Article 87.º to the taxable matter determined on the basis of profit and the rates of Article 87.º of the Code.

• The interpretation of the expression "the amount calculated in accordance with the preceding number" is the only one consistent with the nature of the deductions referred to in the subparagraphs of no. 2 of Article 90.º of the Corporate Income Tax Code, relating to:

· credits of tax for international legal and economic double taxation;

· tax benefits;

· special advance payment;

· and withholding tax;

• In reality, the common feature to all the realities reflected in the deductions referred to in no. 2 of Article 90.º of the CITC resides in the fact that they relate to income or expenses incorporated in the taxable matter determined on the basis of the profit of the taxpayer or anticipatory payments of the tax, being therefore entirely foreign to the realities that integrate the taxable facts of autonomous taxation.

• By simple consequence of the preceding considerations that led to the conclusion that the deductions referred to in subparagraphs a) and b) of no. 2 of Article 90.º of the Corporate Income Tax Code are made to the "amount calculated in accordance with the preceding number", understood as the amount of Corporate Income Tax calculated on the basis of the taxable matter determined in accordance with the rules contained in Chapter III and the rates of Article 87.º of the same Code, and descending to the specific case, it is possible to extend such conclusion to the deduction relating to special advance payments.

• It is sufficient for this purpose to invoke the provision of no. 7 of the same provision, according to which "From the deductions made pursuant to subparagraphs a), b) and c) of no. 2 no negative value can result".

• In any case, it is also possible to reach the same conclusion if one considers the nature of the special advance payment (SAP), defined as being an advance delivered to the State on account of the tax due finally, which may be paid in two installments (Article 106.º, no. 1, CITC) and the calculation of which takes as its starting point the volume of business of the taxpayer relating to the previous taxation period (no. 2).

• Although the SAP is distinguished, in terms of calculation rules, from advance payments – as these have as the basis of calculation the tax assessed in accordance with no. 1 of Article 90.º of the CITC, relating to the immediately preceding taxation period (no. 5 of Article 105.º CITC) – it should be noted that these regimes have in common the nature of an advance payment of Corporate Income Tax;

• All the more so as it can be stated that, in certain circumstances, they even self-exclude, because from the amount resulting from the calculation of the SAP, the advance payments made in the preceding taxation period are deducted.

• The institution of the SAP, by Decree-Law no. 44/98, of 03.03, which added Article 83.ºA to the Corporate Income Tax Code, was inscribed in a set of fiscal policy measures directed against tax evasion and fraud, whose motivation is explained in the Preamble of this instrument, as follows: "(…). Statistics show that the income of legal entities subject to taxation in Corporate Income Tax is frequently, and without any plausible reason, subject to collection much lower than actual. Evasive practices of concealment of income or exaggeration of expenses are manifestly generators of serious distortions of the principles of equity and tax justice and economic efficiency itself and harmful to the stability of tax revenues. They result in an unfair distribution of the tax burden, all the more felt as many Corporate Income Tax taxpayers, during successive years, contributed little or nothing to the State Budget, continuing, nevertheless, to enjoy, sometimes in a privileged manner, the economic and social rights provided for in the Constitution. In this context, the present instrument establishes a special advance payment, through a new mechanism, on the income of 1998 and subsequent years, for legal entities subject to Corporate Income Tax. The formula used for its calculation and the mechanism employed permit bringing the moment of income production closer to the moment of its taxation."

• Thus the legal nature of the SAP, revealed by its configuration as "an instrument or guarantee of payment of the tax on account of which it is required, and not as an imposition in itself" (see Judgment of the Constitutional Court no. 494/2009, of 29/09/2009), as well as by the function associated with it in combating tax evasion and fraud, links indissolubly this payment to the amount of Corporate Income Tax calculated on the taxable matter determined on the basis of profit (Chapter III of the Code).

• Being therefore manifestly devoid of any basis the intention of the now Claimant for deduction of the amount borne in respect of special advance payment from the collection produced by autonomous taxation in the year 2012 and 2013.

The parties subsequently submitted written submissions, highlighting, in essence, the same theses they defended, one in the Initial Petition and the other in the Reply, with no new argument or fact being added, except what relates to the amendment introduced to the CITC by the State Budget for 2016, with the addition of no. 21 to Article 88.º of the CITC, as well as its Article 135.º which establishes that "The wording given by the present law to no. 6 of Article 51.º, to no. 15 of Article 83.º, to no. 1 of Article 84.º, to nos 20 and 21 of Article 88.º and to no. 8 of Article 117.º of the Corporate Income Tax Code has an interpretative nature."

V - THE REQUEST

The subject matter of the present request is the arbitral pronouncement on the legal possibility of deducting the amount of special advance payments (SAP), from the value of the collection of autonomous taxation calculated in the self-assessment of Corporate Income Tax of a given fiscal year.

That is, "is the amount of Corporate Income Tax advanced as special advance payment deductible from the collection of autonomous taxation in Corporate Income Tax"?

The issue of deductions from the collection assessed in the assessment of autonomous taxation has already been addressed in various decisions rendered at CAAD for some time, mainly regarding the deduction of tax benefits and the deduction of special advance payments in Corporate Income Tax from the collection of autonomous taxation.

The established case law has been consistent in the sense that the amounts relating to tax benefits, such as SIFIDE or CFEI, are deductible from the collection of autonomous taxation, given their legal nature resulting from what is established in Article 2.º of the Tax Benefits Statute, since these are "exceptional character measures established for the protection of relevant extrafiscal public interests that are superior to those of the very taxation that prevent them". As regards the SAP, the direction of arbitral decisions initially had the same sense, but, for some time now, the jurisprudential guidance points to the fact that there is no illegality in the self-assessment in which the value of the SAP borne in the same fiscal year could not be deducted from the collection of autonomous taxation.

The undersigned arbitrator has already taken a position on the matter in cases 670/2015-T, 750/2015-T and 779/2015-T, following the thesis that maintains that SAP are not deductible from the value of the collection of autonomous taxation assessed in a given fiscal year. The first of those decisions included a dissenting vote.

The most recent arguments set forth in Judgments no. 113/2015-T, 535/2015-T and 673/2015-T weighed decisively in my personal conviction.

In fact, nowadays, both the Tax Authority and the Claimant understand that, in line, moreover, with the cited arbitral case law, the assessment of Corporate Income Tax resulting from Article 90.º unequivocally includes autonomous taxation, if only because otherwise "there would be no norm that provided for its assessment, which would lead to illegality, by violation of Article 103.º, no. 3, of the Constitution of the Portuguese Republic, which requires that the assessment of taxes be made 'in accordance with the law'". However, although it came to be admitted that autonomous taxation is Corporate Income Tax, the Tax Authority has been contending that, even if the assessment thereof is included in the scope of Article 90.º, one must consider that such assessment corresponds to two calculations, one of which arises from the application of the normal Corporate Income Tax rate to the income generated during the fiscal year, and that only to the part of the Corporate Income Tax collection relating to this calculation is the special advance payment deductible.

For its part, conversely, the claimant contends that, even if two Corporate Income Tax calculations exist, the two collections resulting converge to a single amount of Corporate Income Tax collection, and that there is no legal impediment to the deduction of the special advance payment from that assessed amount.

However, with due respect, this will not be the decisive argument to find the solution to this question, since, conversely, we also do not encounter any legal provision that expressly provides for such deduction.

The answer must therefore be sought in the pertinent analysis of the ratio legis of each of these legal figures, that of autonomous taxation and that of special advance payment, a matter which CAAD case law has treated in quite developed theoretical terms, and we will follow closely the various decisions already rendered in this sense.

Autonomous taxation does not impose on the taxpayer's income, but rather on certain miscellaneous expenses, which constitute autonomous taxable facts subject to different rates according to their nature (Administrative Court Judgment no. 830/01, of 21/03/2012), which the legislator understood should be done in an equally autonomous manner, with autonomous taxation being calculated independently of the Corporate Income Tax that is due in each fiscal year, by not being related to obtaining a positive result, and therefore liable to taxation (Constitutional Court Judgment 310/12, of 20/6). Autonomous taxation is, therefore, an anti-abuse measure and a fiscal evasion deterrent.

The SAP, for its part, is an advance delivery on account of tax relating to the normal activity of the taxpayer, calculated on the basis of the volume of business relating to the previous taxation period, and the payments are made during the period of formation of the taxable fact. This form of payment of Corporate Income Tax is also related to fraud and fiscal evasion, that is, here the relevant matter will be a possible diminution of volume of business or profit, guaranteeing to the State a sort of minimum collection.

In line with this reasoning it is understood that, although both special advance payment and autonomous taxation pursue the same objective of combating fiscal evasion, they aim to prevent two distinct taxpayer behaviors: the first prevents the non-declaration of continuous income that is presumed to exist, since only thus is the continuity of activity understood; the latter find justification as dissuasive and compensatory measures for the transfer of income from the personal sphere or the consideration of expenses without business cause. And thus it is understood that it is argued that, with both behaviors coexisting, the two figures of combating evasion must also coexist: a company that does not declare income bears special advance payment; a company that overburdens expenses so as to minimize Personal Income Tax (or to decrease/increase its taxable profit/loss) bears autonomous taxation; a company that practices both behaviors bears both special advance payment and autonomous taxation.

Therefore, autonomous taxation aims to "... prevent that through the significant reporting of charges as provided for in Article 88.º, distortions affecting the system are not introduced and the expectation about what should be the 'normal' revenue of the tax is distorted. In this case, as is equally well-known, what is at issue is to discourage the realization/reporting of such expenses, if only because, by their nature and purposes, they may be more easily subject to diversion to consumption that, in essence, is private or corresponds to charges that do not cease to have, also, as a specific and ultimate purpose, the avoidance of tax. These are realities which, as has been previously pointed out, present some measure of censurability since, not directly violating the law, they generate significant imbalances regarding the general idea of justice, regarding the fundamental duty to contribute in proportion to one's means, equality, sacrifice, proportionality of the measure of tax in face of possible manifestations of wealth, taxation of real income and justice.

Operating in a manner different from what constitutes the essential scope of Corporate Income Tax – which taxes income – autonomous taxation, it is reaffirmed, taxes certain specific expenses or charges – and constitutes an instrumental, accessory reality of that tax, to the extent that it is in function thereof that they were instituted and are therefore capable of being recognized as having an instrumentality or accessoriness of purposes, rooted in the safeguarding of the purposes of the tax itself in which they manifest themselves.

"It is thus certain that autonomous taxation does not constitute Corporate Income Tax in the strict sense, but are found embedded in it (Corporate Income Tax), and must be contained in the "other taxes" of which we are apprised by the final part of subparagraph a) of no. 1 of Article 45.º of the CITC (wording in effect in 2013).

Revelations of this functional connection, and in the context of the legislator's overall intention, stand out, for example, from the discipline of Article 12.º of the CITC regarding entities subject to the transparent taxation regime, by not taxing them in Corporate Income Tax, "except as regards autonomous taxation", a relationship that equally manifests itself in face of no. 14 of Article 88.º of the CITC, in the sense that the autonomous taxation rates take into account the fact that the taxpayer presents or does not present a tax loss.

Analyzed further under another angle, it will be necessary to consider autonomous taxation in the context of specific anti-abuse norms and its similarity with the regime provided for under no. 1 of Article 65.º of the CITC, ("the amounts paid or owed, on any ground, to natural or legal persons resident outside Portuguese territory and there subject to a clearly more favorable tax regime are not deductible for purposes of taxable profit, unless the taxpayer can prove that such charges correspond to operations actually performed and do not have an abnormal character or an exaggerated amount")"

Aiming autonomous taxation at reducing the tax advantage achieved with the deduction to taxable profit of the costs on which it imposes and furthermore to combat fiscal evasion that this type of expense, by its nature, enhances, it cannot itself, through its deduction to taxable profit as an expense of the fiscal year, constitute a factor in reducing that diminution of advantage intended and determined by the legislator. (Judgment 535/2015-T).

In the aforementioned judgment which we endorse, we permit ourselves to cite the reasoning for the option, invoking the theses of Judgment 113/2015-T of CAAD, regarding the legal nature of the figures in question, that is, "(…) the SAP became part of the system of Corporate Income Tax whose assessment established in Article 83.º was conceived to assess the tax directly impacting the declared income. When there is a tax loss, the taxpayer nonetheless must bear the SAP; that was indeed the reason for its introduction. If a given company has successive tax losses, it will systematically bear tax, since the system doubts its possibility of functioning in a permanently deficit situation, requiring it to satisfy provisionally (on account) a determined amount. It may have it reimbursed if it proves that this situation is common in its business sector or if the Tax Authority verifies the regularity of its returns. This was the balance that the CITC required to maintain a system based on the returns made by taxpayers. Already the tax resulting from autonomous taxation is based solely on the pursuit of fiscal evasion through income transfer and has the dissuasive and compensatory effect.

If the deduction of the SAP from the collection resulting from autonomous taxation is permitted, the purposes of the system in which the norm of Article 83.º, no. 2, of the CITC is inserted will be frustrated, because the product of the special advance payment that should remain "stationary" in the ownership of the Public Treasury will be affected to the extinction of the taxpayer's debt resulting from autonomous taxation, thus lightening the intended pressure to avoid "declarative" fiscal evasion. There is indeed an irreconcilable conflict between the rationale of the SAP – the combating of fiscal evasion or pressure for correction of returns – and the allocation of its credits to the satisfaction of other obligations that are not those resulting from the calculation of Corporate Income Tax calculated on the taxable result."

Therefore, since doubt exists about the deductibility or not of the SAP from the collection of autonomous taxation calculated in a manner distinct and separate from the normal collection of the fiscal year, in the wording of Article 90.º of the CITC, we understand that the matter will have been further clarified with the publication of the Budget Law for 2016.

"The new no. 21 of Article 88.º of the CITC added by Law no. 7-A/2016, of 30 March, aligns with this arbitral understanding, because it comes to establish expressly that to the amount calculated from autonomous taxation no 'deductions whatsoever' are 'made'.

On the other hand, Article 135.º of Law no. 7-A/2016, of 30 March, in attributing an 'interpretative' nature to that new no. 21.º of Article 88.º, combined with Article 13.º of the Civil Code (which is the only norm that defines the concept of interpretative law), has inherent therein a legislative intention to apply the new regime to prior situations in which there are no "effects already produced by fulfillment of the obligation, by judgment become final, by settlement, although not approved, or by acts of analogous nature".

The Claimant, however, in its submissions highlights the fact that the new law only applies prospectively given that its character is innovative. If not so understood, one will be faced with the retroactive application of law in tax matters, which is constitutionally barred. We believe that this is not the best reading of the said legal provisions. We follow on this matter what is written in the decision we are following: BAPTISTA MACHADO teaches regarding interpretative laws: "…We may, consequently, say that those laws whose nature is interpretative are those which, on points or questions where the applicable legal rules are uncertain or their sense is controversial, come to establish a solution that courts could have adopted. It is not necessary that the law come to establish one of the prior jurisprudential streams or a strong prior jurisprudential stream. All the more so as the interpretative law often emerges before such jurisprudential streams even come to form. … For a new law to be truly interpretative, therefore, two requirements are necessary: that the solution of the prior law be controversial or at least uncertain; and that the solution defined by the new law be situated within the framework of the controversy and be such that the judge or interpreter could arrive at it without exceeding the limits normally imposed on the interpretation and application of the law. If the judge or interpreter, in face of old texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative".

"In face of this position, whose reasoning is considerable, in light of the legislation in effect in 2012 and 2013, the attribution of an interpretative nature to no. 21 of Article 88.º of the CITC as made in Article 135.º of Law no. 7-A/2016, of 30 March, can be accepted, in light of the teachings of BAPTISTA MACHADO, because the solution provided therein of the impossibility of deduction of special advance payment from the global amount of autonomous taxation passes the test enunciated by this Author: – the solution resulting from the literal sense of Article 93.º, no. 1, of the CITC was controversial, as evidenced by that arbitral decision and the solution defined by the new law is situated within the framework of the controversy; – the judge or interpreter could arrive at that solution without exceeding the limits normally imposed on the interpretation and application of the law, since the restrictive interpretation is admissible when there are reasons to conclude that the scope of the legal text betrays the legislative thought or it is necessary to optimize the harmonization of conflicting interests that two norms seek to protect".

Furthermore, it is not seen that the regime resulting from Article 88.º, no. 21, of the CITC contains any contradiction, contrary to what the Claimant argues: according to this new norm, the norms of the CITC relating to the manner of assessment of autonomous taxation must be interpreted as provided therein and regarding that part of the assessment of Corporate Income Tax no deductions are made.

However, in the specific case of special advance payments, it cannot be concluded that one is not faced with a truly interpretative law, because there was not consolidated case law in the sense of its deductibility from the collection resulting from autonomous taxation and, on the contrary, the solution adopted in no. 21 of Article 88.º could already previously be adopted by courts, as occurred in various cases that proceeded in the CAAD. Thus, it cannot be concluded that the authentic interpretation made in that Article 88.º, no. 21, by force of Article 135.º of Law no. 7-A/2016, of 30 March, violates the constitutional principle of legal certainty, regarding that part of that norm that reports to the non-deductibility of special advance payments from the collection of autonomous taxation (Judgment 673/2015-T).

It is therefore moot the examination of the controversy related to retroactivity and the unconstitutionality of this norm as well as the illegality of the self-assessment by non-existence of a norm that permits the assessment of autonomous taxation, contained in the subsidiary request.

The arbitral pronouncement request is entirely unsuccessful as regards the illegalities of the self-assessment.

VI - DECISION

Considering the factual and legal elements collected and set forth, this arbitral tribunal decides to render the principal and subsidiary arbitral pronouncement requests unmeritorious. Given the decision rendered, the examination of the requests for restitution of the tax paid and compensatory interest claimed is moot. Consequently, the Tax Authority is absolved from the requests.

The Claimant is condemned to payment of the costs calculated below.

VII - VALUE OF THE PROCEEDING AND COSTS

In accordance with the provision of Article 305.º, no. 2, of the Code of Civil Procedure and Article 97.º-A, no. 1, subparagraph a), of the Code of Tax Procedural Law and Article 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the proceeding is valued at € 16,649.30.

Pursuant to Article 22.º, no. 4, of the LFRAMT, the amount of costs is fixed at € 1,224.00 (one thousand two hundred and twenty-four euros), pursuant to Table I Appended to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant.

Lisbon, 2016/09/26

The Arbitrator

José Ramos Alexandre