Summary
Full Decision
ARBITRAL DECISION
The Arbitrators Judge José Poças Falcão (Presiding Arbitrator), Dr. Olívio Mota Amador (Arbitrator Member) and Dr. Isaque Marques Lameiras Ramos (Arbitrator Member), appointed by the Centre for Administrative Arbitration to constitute an Arbitral Tribunal, agree as follows:
1. A..., S.A., legal entity no. ..., with registered office at Rua ..., ..., ...-... ..., (hereinafter referred to as the "Claimant") submitted, on 30-07-2018, a request for constitution of an arbitral tribunal, pursuant to article 2, no. 1, paragraph a), 5, no. 3, paragraph a), 6, no. 2, paragraph a) and 10, nos. 1, paragraph a) and 2 of the Legal Regime for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LRTA"), requesting the declaration of illegality and consequent partial annulment of the self-assessment of Corporate Income Tax no. 2016..., relating to the 2015 tax year, resulting from the submission of the Income Return Form Model 22 with identification no. ..., subsequently replaced by the Income Return Form Model 22 of Corporate Income Tax, with identification ..., and the decision dismissing the administrative appeal no. ...2018..., submitted on 30-01-2018, determining the reimbursement of the total amount of 358,269.31 (three hundred and fifty-eight thousand two hundred and sixty-nine euros and thirty-one cents) as indirectly paid tax, in the 2015 taxation period, corresponding to autonomous taxation collected in excess due to non-deduction of tax benefits calculated within the scope of the Tax Incentive System for Business Research and Development (SIFIDE) and municipal surcharge collected in excess due to non-deduction of the International Legal Double Taxation Credit (ILDTC) relating to countries with which Portugal has concluded a Double Taxation Avoidance Convention (DTAC).
2. The request for constitution of the arbitral tribunal was accepted on 31-07-2018, and automatically notified to the Tax and Customs Authority (hereinafter referred to as the "Respondent").
3. The Claimant did not appoint an arbitrator, wherefore, pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph a) of no. 1 of article 11 of the LRTA, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of their assignment within the applicable period.
4. The parties were notified of the appointment of arbitrators on 19-09-2018, and did not manifest the intention to challenge any of them.
5. In accordance with the provisions of paragraph c) of no. 1 of article 11 of the LRTA, the Collective Arbitral Tribunal was constituted on 10-10-2018.
6. The Respondent, duly notified for this purpose through the arbitral order of 12-10-2018, filed its response on 14-11-2018, defending itself through opposition and remitted the administrative file on the same date.
7. The Arbitral Tribunal, by order of 27-12-2018, dispensed with the holding of the meeting referred to in article 18 of the LRTA, having granted the parties a period for the presentation of written submissions and set 15-03-2019 as the final deadline for issuing the arbitral decision.
8. Submissions were filed by the Claimant on 18-01-2019, and by the Respondent on 28-01-2019.
9. The Arbitral Tribunal, by order of 14-03-2019, transferred to 08-04-2019 the final date for issuing the decision.
10. The position of the Claimant, in accordance with the provisions of the request for constitution of the Arbitral Tribunal and in the submissions, is, in summary, as follows:
10.1. The Claimant understands that there can be no doubt regarding the deductibility of credits resulting from SIFIDE from the collection of autonomous taxation, and should therefore be reimbursed for the amount paid in excess, due to non-deduction of SIFIDE from the collection of autonomous taxation.
10.2. This amount will naturally respect the difference between the amount paid as autonomous taxation and the amount due as autonomous taxation after deduction of SIFIDE, that is, to the amount of the Claimant's autonomous taxation in the amount of € 248,829.29, part of the credit calculated as SIFIDE from 2013 that carried over to the tax year in question should be deducted – in the amount of € 2,036,192.36.
10.3. However, regardless of the nature of autonomous taxation, the crux of the matter lies in determining whether its amount is calculated in accordance with paragraph a) of no. 1 of article 90 of the Corporate Income Tax Code, because if so, it will be concluded that, to determine the limit of deduction of tax credits, consideration should be given to the Corporate Income Tax collection, including that arising from autonomous taxation.
10.4. It is clear to the Claimant that it is only possible to conclude that paragraph a) of no. 1 of article 90 of the Corporate Income Tax Code, referring to the manner of collection of Corporate Income Tax by the taxpayer, through the declarations referred to in articles 120 and 121 of the Corporate Income Tax Code, and applying to all situations provided for in the Code, must necessarily also apply to the collection of the amount of autonomous taxation calculated by the taxpayer.
10.5. The Claimant deducted, in the 2015 tax year, from the total Corporate Income Tax collection, as ILDTC, the amount of € 1,269,380.93, having calculated an amount of € 109,440.02 as municipal surcharge. The Claimant understands, however, that at the time of the self-assessment of Corporate Income Tax in question, the amount calculated as ILDTC, relating to countries with which Portugal has concluded a DTAC, could have been deducted from the amount due as municipal surcharge.
10.6. The ILDTC calculated by the Claimant, relating to countries with a DTAC, should first be deducted from the municipal surcharge collection and only then from the Corporate Income Tax collection. The Claimant has the right to establish the order in which it operates the deduction of the ILDTC it possesses. Nothing in the law imposes mandatory deduction, in the first instance, from the total Corporate Income Tax collection and, in the event that it proves insufficient, from the municipal surcharge collection.
10.7. The Claimant understands that the ILDTC calculated in the 2015 tax year, relating to countries with which Portugal has concluded a DTAC should be deducted, in the first place, up to the amount of the municipal surcharge collection, in the amount of € 109,440, and the remainder from the total Corporate Income Tax collection, in the amount of € 1,159,940.91.
10.8. Given the foregoing, the indirectly paid tax in excess as municipal surcharge should be restituted to the Claimant, in the amount of € 109,440, as a result of non-deduction from the municipal surcharge of ILDTC relating to countries with a DTAC.
10.9. The Claimant understands there to be error attributable to the services in cases where, although the collection is effected on the basis of the taxpayer's declaration, the latter has followed, in its completion, the generic guidelines of the Tax Authority, duly published. Now, in the situation at issue in the present request, with respect to the deduction of ILDTC and the SIFIDE tax credit, the Claimant acted, both in the first case, by requirement of the IT platform for submission of Model Form 22, and in the second, in accordance with the indications published by the Tax Authority and with what was provided for in Model Form 22 of the Corporate Income Tax Code itself. Thus, if the aforementioned situation is verified, confirming the error attributable to the Services, in accordance with the provisions of nos. 1 and 2 of article 43 of the General Tax Law, compensatory interest is hereby requested, at the legal rate in force.
11. The position of the Respondent, expressed in the response and in the submissions, may be summarized as follows:
11.1. The integration of autonomous taxation in the Corporate Income Tax Code (and the Personal Income Tax Code), conferred a dualistic nature, in certain respects, to the normative system of this tax, which was embodied, in particular, in the framework of paragraph a) of no. 1 of article 90 of the Corporate Income Tax Code, in separate calculations of the respective collections, by virtue of being subject to different rules.
11.2. There is an inseparable link between the amount of the tax credit for investment and the part of the Corporate Income Tax collection calculated on the taxable matter based on profit and, were it not so, the necessary articulation that, at the substantive level, must exist would be subverted – between the objectives pursued by the tax benefits and their impact on the very magnitude that serves as the basis for calculating the taxable matter and the collection – profit.
11.3. The values that express the tax benefit under SIFIDE are deducted "from the amounts calculated in accordance with article 90 of the Corporate Income Tax Code, and up to their amount" and in the collection relating to the taxation period in which the eligible expenses are incurred and which, in the absence or insufficiency of collection calculated in such terms, expenses that cannot be deducted in the year in which they are incurred "may be deducted up to the 6th subsequent year".
11.4. The collection referred to in article 90 of the Corporate Income Tax Code, when the collection is to be made by the taxpayer, is calculated on the basis of the taxable matter contained in that collection/self-assessment [cf. article 90, no. 1, paragraph a) of the Corporate Income Tax Code]. The credit in which SIFIDE is expressed being deducted only from the collection thus calculated, that is, from the collection calculated on the basis of the taxable matter.
11.5. The autonomous character of these taxation is manifest, resulting from the special configuration given to the substantive and temporal aspects of the facts giving rise to the tax obligation, which impose, in certain areas, the disapplication or adaptation of the general rules applicable to the Corporate Income Tax Code.
11.6. The integration of autonomous taxation in the Corporate Income Tax Code (and the Personal Income Tax Code), conferred a dualistic nature, in certain respects, to the normative system of this tax, which was embodied, in particular, in the framework of paragraph a) of no. 1 of article 90 of the Corporate Income Tax Code, in separate calculations of the respective collections, by virtue of being subject to different rules. It should be recalled in this context that the technical method of tax credit adopted for SIFIDE and for other investment incentives models the amount of the benefit to be granted as a function of two variables, on the one hand, the amount of the investment (relevant expenses) and, on the other, the profitability of the company, which makes it possible to reward profitable companies. From the foregoing it follows that the objectives and philosophy underlying tax benefits for investment and, in particular, SIFIDE, are distorted by admitting that the tax credit be exercised by deduction from the collections of autonomous taxation.
11.7. The Claimant is in error in transposing to the municipal surcharge the order of deductions from the Corporate Income Tax collection, since that can only be reduced by virtue of a convention to avoid double taxation because of its nature as an income tax although with the nature of a dependent tax. Contrary to what is stated by the Claimant, the order of deductions from the Corporate Income Tax collection must be respected, as imperatively results from the text of no. 2 – "From the amount calculated in accordance with the previous number, the following deductions are made, in the order indicated:".
11.8. The law does not give taxpayers the option to choose the deduction of ILDTC with respect to other benefits, and the legally established order must be observed. And, since Corporate Income Tax is the principal tax and, to that extent, hierarchically superior to the dependent tax, the deduction of ILDTC should begin with that, i.e., with the Corporate Income Tax.
11.9. As there is no error attributable to the services in the collection of the tax in the present proceedings, no right to compensatory interest should be recognized for the Claimant.
12. The Arbitral Tribunal is materially competent and is regularly constituted in accordance with articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the LRTA.
The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented, in accordance with the provisions of articles 4 and 10, no. 2, of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March.
The proceeding does not suffer from nullities.
Thus, there is no obstacle to the examination of the case.
All having been seen, it is necessary to decide.
II. DECISION
A. FACTUAL MATTERS
A.1. Facts Established as Proven
The Claimant is a commercial corporation of Portuguese law, with registered office and effective management in national territory, which is engaged, within the scope of its corporate purpose, in engineering activities and related techniques and is subject to Corporate Income Tax, in accordance with articles 2, no. 1, paragraph a) and 3, no. 4, of the Corporate Income Tax Code and being a taxpayer of high economic and fiscal relevance within the meaning of article 68-B of the General Tax Law (see Administrative File pp. 3);
The Claimant filed, on 31-05-2016, the Corporate Income Tax Income Return Form Model 22, relating to the 2015 taxation period, with identification number ... . (see Document no. 6 attached to the Request for Arbitral Opinion).
The Claimant filed, on 14-09-2017, the Replacement Corporate Income Tax Income Return Form Model 22, relating to the 2015 taxation period, with identification number ... (see Document no. 7 attached to the Request for Arbitral Opinion).
In the Income Return, identified in the previous number, the Claimant calculated: (i) Taxable profit in the amount of € 7,296,001.65 (field 778, table 07); (ii) Corporate Income Tax collection in the amount of € 1,532,160.35 (field 373, table 10); (iii) State surcharge in the amount of € 173,880.05 (field 364, table 10,); (iv) Municipal surcharge in the amount of € 109,440.02 (field 778, table 07); (v) Autonomous taxation in the amount of € 248,829.29 (field 365, table 10); (vi) Deduction from total Corporate Income Tax collection, as ILDTC, in the amount of € 1,269,380.93 (field 07 table 14,); (vii) Deduction for SIFIDE in the amount of € 434,498.24 (field 711, table 07, Annex D). (see Document no. 7 attached to the Request for Arbitral Opinion and which is hereby fully incorporated for all legal purposes).
The Claimant, on 30-01-2018, filed an administrative appeal addressed to the Director of Finance of Porto, which was assigned no. 2018..., to annul the self-assessment of Corporate Income Tax relating to 2015, as it did not conform with the impossibility of deducting SIFIDE from the Corporate Income Tax collection resulting from autonomous taxation and the absence of legal basis that prevents the deduction of ILDTC relating to countries with a DTAC, in the first place, from the municipal surcharge and only then from the total Corporate Income Tax collection (see Document no. 3 attached to the request for arbitral opinion);
The Claimant was notified, by letter of the Large Taxpayers Unit of 29-03-2018, to exercise its right to prior hearing, in accordance with article 60, no. 1, paragraph b) of the General Tax Law, but did not do so (see Documents nos. 4 and 1 attached to the request for arbitral opinion);
The Claimant was notified, by letter of 03-05-2018, of the decision dismissing the administrative appeal, identified in no. 5 above, issued by the Head of Division of the Central Service of the Large Taxpayers Unit, by delegation of authority, on 02-05-2018, set out in Information no. ...-AIR1/2018 (see Document no. 1 attached to the request for arbitral opinion).
A.2. Facts Established as Not Proven
With relevance to the decision, there are no facts that should be considered as not proven.
A.3. Justification for the Established and Not Established Factual Matters
As regards the factual matters, it is the Tribunal's duty to select the facts that matter for the decision and discriminate the proven from the unproven matters, without having to rule on everything that was alleged by the parties (cf. article 123, no. 2, of the Code of Tax Procedure and Process and article 607, no. 3, of the Code of Civil Procedure, applicable ex vi article 29, no. 1, paragraphs a) and e), of the LRTA).
In this way, the facts relevant to the judgment of the case are chosen and delimited according to their legal relevance, which is established taking into account the various plausible solutions to the legal questions raised (cf. article 596 of the Code of Civil Procedure, applicable ex vi article 29, no. 1, paragraph e), of the LRTA).
Thus, taking into account the positions assumed by the parties, in light of article 110, no. 7, of the Code of Tax Procedure and Process, and the documentary evidence attached to the file, the facts listed above were considered proven, with relevance to the decision.
B. ON THE LAW
§1. Questions to be Decided
The questions to be decided in the present arbitral proceedings are whether the Claimant should be recognized the right to deduct: (i) tax benefits, as SIFIDE, from the collection produced by autonomous taxation; (ii) ILDTC relating to countries with a DTAC until the municipal surcharge is exhausted, in the first place, and subsequently from the Corporate Income Tax collection.
§2. Deduction of Tax Benefits, as SIFIDE, from the Collection Produced by Autonomous Taxation
With respect to the first question to be decided set out above, the Tribunal deems it appropriate to reiterate, regarding the differentiation of nature between the figures of autonomous taxation and the Corporate Income Tax Code, the position adopted uniformly by the case law of the Constitutional Court and the Supreme Administrative Court and also by Legal Doctrine to the effect that autonomous taxation is a tax on expenditure different and distinct from the Corporate Income Tax Code as a tax on income.
In this respect, Arbitral Decision no. 111/2018-T, of 10 January 2019, states: "Autonomous taxation is a tax on expenditure different and distinct from the Corporate Income Tax Code, which is indisputably a tax on income. This is without discussing whether autonomous taxation has or does not have a nature – similarities – with the Corporate Income Tax Code. For it is independent of possible similarities, there is no doubt that they are different taxes.
This case law was initiated 7 years ago in the Constitutional Court with the dissenting vote of the Honourable Councillor Vítor Gomes, attached to Decision no. 204/2010. In Decision no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Decision no. 18/11 approaching the then dissenting vote of Councillor Vítor Gomes.
This case law was later reaffirmed by the Plenary, in Decision no. 617/2012, case no. 150/12, of 31/1/2013 and, recently, in Decision no. 197/2016, issued in the framework of case no. 465/2015.
The Supreme Administrative Court has proceeded in the same manner, as will be confirmed, among others, in the Decision of 21/3/2012, case 830/11, of 21/3/2012.
Legal doctrine also follows this position.
From Sérgio Vasques, in footnote 60, page 342, of his Manual of Tax Law Almedina, 2015, to Rui Morais in Notes to the Corporate Income Tax Code, Almedina, 2009, pp. 202-203, passing through Professor Casalta Nabais in his Tax Law, 8th ed., Almedina, Coimbra, 2015, p. 542 and by Professor Ana Paula Dourado in Tax Law Lessons, 2015, pp. 237 et seq. All reiterate the position already endorsed by Portuguese courts. Autonomous taxation and Corporate Income Tax Code are different taxes.
This understanding has been followed in various decisions, in particular the arbitral decision issued by the panel chaired by Honourable Councillor Carlos Alberto Cadilha in the context of case no. 7/2018-T of 3 July 2018: "Autonomous taxation, although regulated normatively in the framework of a tax on income, is materially distinct from taxation under the Corporate Income Tax Code, inasmuch as it does not impact directly on the taxable profit of the company, but on certain expenses that constitute, in themselves, a new taxable fact (which refers not to the perception of income but to the incurrence of expenses)".
This thesis was transposed into law in an unequivocal manner by the legislator itself when in the amendment introduced to article 23-A, no. 1, paragraph a), of the Corporate Income Tax Code by Law no. 2/2014, of 16 January, it began to state that "are not deductible for purposes of determining taxable profit" "the Corporate Income Tax Code, including autonomous taxation". What sense would it make to make it clear in the law that autonomous taxation and the Corporate Income Tax Code are not deductible from taxable profit if autonomous taxation formed part of the Corporate Income Tax Code? If so, Double Taxation Avoidance Agreements would have autonomous taxation included where it refers to the Corporate Income Tax Code which, as is known, does not occur. That is moreover the reason why Portugal has been including autonomous taxation in the list of taxes covered. Thus, in light of the foregoing, it can already be simply concluded that if the tax legislator understood that the Corporate Income Tax Code included autonomous taxation, it would not have had the need to distinguish the two realities, since that Corporate Income Tax Code would already necessarily include autonomous taxation.
And it is not because autonomous taxation is inserted in the Corporate Income Tax Code that the two realities should be confused.
Recall that autonomous taxation was introduced by article 4 of Decree-Law no. 192/90, of 9 June, and was not immediately inserted in the Corporate Income Tax Code. The legislator only 10 years after the emergence of autonomous taxation decided to introduce it in the Corporate Income Tax Code through Law no. 30-G/2000 of 29 December. What the legislator sought with this arrangement was an anesthetic effect, since, although autonomous taxation is collected independently from the Corporate Income Tax Code, it is self-assessed together with the Corporate Income Tax Code declaration, through form 22. On this question, the Constitutional Court considered, in Decisions nos. 18/2009 and 85/2010, that autonomous taxation could be inserted in any other code or autonomous law.
And the realities are different from the outset because the objectives are different.
In the Corporate Income Tax Code, the aim is to tax income under scrutiny of the ability to pay principle.
Autonomous taxation had, at least originally, two very different objectives always under the legitimation of the principle of tax equality.
The first was to tax in the sphere of companies what cannot be taxed in the Personal Income Tax Code sphere and the second was to discourage the performance of certain expenses or certain behaviors. On this point, Professor Saldanha Sanches even stated that "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime found in the zone of intersection of the personal sphere and the business sphere" further adding that in the "designation of "autonomous taxation" are hidden very diverse realities (...)". Professor Guilherme de Oliveira Martins states that autonomous taxation "(…) fulfils, essentially, two functions: on the one hand, to prevent erosion of the tax base in the Corporate Income Tax Code sphere, by imposing taxation on expenses that can be deducted by Corporate Income Tax Code taxpayers, but which, being so, become an aggravation of taxation, intended therefore to serve as a disincentive to spending on such expenses; other types of autonomous taxation aimed, purely and simply, at penalizing presumptuously evasive or fraudulent behavior by taxpayers, constituting an anti-abuse mechanism.".
In this sense, the arbitral decision issued by the panel chaired by Honourable Councillor Carlos Alberto Cadilha in the context of case no. 641/2017-T: "the rates of autonomous taxation have the nature of anti-abuse rules and are intended to discourage certain special situations that aim to obtain a reduction in tax burden by deducting costs that are presumed not to be determined by a business cause".
Autonomous taxation applies only to certain expenses typified in tax law, and not to the taxation of business income that has been derived in the respective economic year, they are intended to tax an advantage obtained, as a rule, through the performance of these expenses and which translates, consequently, in the reduction of taxable profit. The Corporate Income Tax Code, on the other hand, is intended to tax the actual income of the taxpayer taking into account its ability to pay.
It should be recalled that it is unanimously accepted both by case law and by legal doctrine that the autonomous rates of the Corporate Income Tax Code (and Personal Income Tax Code) are a single obligation tax distinct from the Corporate Income Tax Code and Personal Income Tax Code themselves, taxes of successive formation. It should also be recalled that the autonomy of autonomous rates results from their possessing a taxable fact that is radically different from the Personal Income Tax Code/Corporate Income Tax Code, from being subject to their own liquidation rules and from serving very specific purposes.
The legislator has been expanding the scope of autonomous taxation, having come to include expenses relating to indemnities paid to managers, administrators or directors when they cease office, and also expenses relating to bonuses and other variable remuneration paid to managers, administrators or directors when these exceed certain thresholds. What shows itself justified as a way to ensure "a fairer distribution of tax burdens and a progressive moralization of companies' remuneration policies".
Indeed, the purposes of autonomous taxation are today varied but, in what is most important in them, it is insisted, they serve to guarantee tax equality by ensuring the subjection to tax of values which, being expenses in the sphere of companies, prefigure income in the sphere of third parties and preventing abusive planning through recourse to tax havens. These objectives are of paramount importance to guarantee the just distribution of income and wealth that article 103, no. 1, of the Constitutional Law appeals to."
Thus, deduction from the collection is a reality inherent in the Corporate Income Tax Code as a tax based on the principles of ability to pay and taxation of actual income. However, the same does not occur with respect to the collection due for autonomous taxation, the deduction of such expenses, if it were to occur, would eliminate the anti-abuse sense that characterizes them.
Autonomous taxation is collected in the context of the Corporate Income Tax Code liquidation process without, however, being mischaracterized and losing its own dogmatic root.
In summary, autonomous taxation, which applies to certain expenses, operates differently from what constitutes the scope of the Corporate Income Tax Code in taxing income.
In the development of this position, the aforementioned Arbitral Decision no. 111/2018-T states the following: "Nothing is said in the law whether what is in article 90 of the Corporate Income Tax Code, under the heading "Procedure and Form of Collection" applies to both realities – Corporate Income Tax Code and autonomous taxation – or to only one and which. However, in this Tribunal's view, from a teleological and systematic interpretation of the law, it is clear that no. 1 of article 90 – which contains the liquidation procedure – applies both to the Corporate Income Tax Code and to autonomous taxation. Already no. 2 of the same article – which contains the form of collection – refers to cases of taxable matter referred to in article 15 of the Corporate Income Tax Code, that is, to the Corporate Income Tax Code.
To better understand this conclusion, it will be necessary to understand that it was established in the then no. 6 of article 109 of the Corporate Income Tax Code, current article 117, that the obligation to submit a periodic income return includes entities exempt from Corporate Income Tax Code, when they are subject to autonomous taxation. And for certain purposes – namely for purposes of the deductions provided for in no. 2 of article 90 of the Corporate Income Tax Code or for the calculation of estimated tax payments or even the Result of Collection (article 92) – it was then left to the care of the interpreter and the applier of the law the task of identifying the relevant part of the collection of the Corporate Income Tax Code. That is drawing from the applicable rules a useful meaning, literally possible, that allows a coherent solution consistent with the nature and functions assigned to each component of the tax. Well, it is here that one must be careful.
When it comes to the deductions provided for in no. 2 of article 90 of the Corporate Income Tax Code, it seems the Claimant argues that the expression "amount calculated in accordance with the previous number" should be understood as encompassing the sum of the amount of the Corporate Income Tax Code, calculated on the taxable matter determined according to the rules of chapter III and at the rates provided for in article 87 of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in article 88. Well, the result of this interpretation would immediately and in a very simple way imply that the basis for calculation of the estimated tax payments defined in no. 1 of article 105 of the Corporate Income Tax Code, and in terms identical to those used in no. 2 of article 90, included autonomous taxation. Indeed, for the basis for calculation of estimated tax payments, only the Corporate Income Tax Code calculated on the basis of the taxable matter determined according to the rules of chapter III and the rates of article 87 of the respective Code is considered. And here there is no disagreement either in Legal Doctrine or in case law. For it is to be noted that the coherence and adequacy of this understanding is grounded on the very nature of estimated tax payments of the tax due finally, which, in accordance with the definition of article 33 of the General Tax Law are "pecuniary deliveries advanced that are made by taxpayers in the period of formation of the taxable fact", constituting a "(…) form of approaching the moment of collection to that of perception of income so as to fill the situations in which that approach cannot be effected through source deductions". Therefore, it only makes sense to conclude that the respective basis for calculation corresponds to the amount of the collection of the Corporate Income Tax Code resulting from the taxable matter that is identified with the profit/income of the taxpayer's year.
Here, this Tribunal follows what the Respondent argues insisting that the only (and consistent) interpretation of the expression "amount calculated in accordance with the previous number" with the nature of the deductions referred to in the items of no. 2 of article 90 of the Corporate Income Tax Code, relating to:
credits for tax on international legal and economic double taxation (current paragraphs a) and b));
tax benefits (current paragraph c));
special payment on account (current paragraph d));
and source deductions (current paragraph e)).
In reality, it is noted that the common feature of all the realities reflected in the deductions referred to in no. 2 of article 90 of the Corporate Income Tax Code lies in the fact that they relate to income or expenses incorporated in the taxable matter determined on the basis of the taxpayer's profit or advanced tax payments, and are therefore entirely unrelated to the realities that integrate the facts giving rise to autonomous taxation."
This Tribunal considers that in the calculation of autonomous taxation there is no room for any deductions, and the respective collection is effected in accordance with articles 88 and 89 and no. 1 of article 90 of the Corporate Income Tax Code. Consequently, the legislator in no. 2 of article 90 of the Corporate Income Tax Code refers only to the taxable matter contained in article 15 of the Corporate Income Tax Code. The fact that the liquidation procedure provided for in no. 1 of article 90 of the Corporate Income Tax Code also applies to autonomous taxation does not directly and necessarily imply that the same occurs with no. 2 of the aforementioned article 90.
It is now necessary to analyze whether SIFIDE, as an investment support scheme that is implemented in deductions from the collection of the Corporate Income Tax Code, applies to the collection of the Corporate Income Tax Code in the strict sense or not.
SIFIDE was first approved by Law no. 55-A/2010, of 31 December, and successively provided for in articles 33 to 40 of the Tax Code for Investment and in articles 35 to 42 of the Tax Code for Investment approved by Decree-Law no. 162/2014, of 31 October.
SIFIDE allows companies to obtain a tax benefit in the Corporate Income Tax Code sphere, proportional to the investment expense in research and development that they can demonstrate, in the part that has not been subject to financial participation by the State on a non-reimbursable basis. Thus, the benefit to be obtained with SIFIDE is expressed in the possibility of deducting from the collection of the Corporate Income Tax Code calculated in the year, an amount of tax credit that results from the sum of the following parts: Base rate: 32.5% of expenses incurred in the year; Incremental rate: 50% of the increase in expenses in the year compared to the simple arithmetic average of expenses in the two previous years, up to the limit of € 1,500,000.
The values that express the tax benefit under SIFIDE are deducted "from the amounts calculated in accordance with article 90 of the Corporate Income Tax Code, and up to their amount" and in the collection relating to the taxation period in which the expenses eligible for this purpose are incurred and which, in the absence or insufficiency of collection calculated in such terms, expenses that cannot be deducted in the year in which they are incurred "may be deducted up to the 6th subsequent year".
As the aforementioned Arbitral Decision states: "It is that we can never forget that the rules that govern benefits such as SIFIDE have an exceptional nature and can only be recognized as valid when the derogation that they bring to the principle of equality is necessary, adequate and proportionate to the extrafiscal purpose underlying them.
It is therefore not worth entering into the discussion, as it is beside the point, of whether or not we are faced with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues. Clearly yes, otherwise the SIFIDE scheme would not have been approved. The question is that of knowing what tax revenue was ceded as a function of investment? Revenues resulting from a tax that admits deductions and that obeys the principle of ability to pay and that rewards those who invest, but who generates tax admitting that those who obtain the most profit can invest the most. Or what was intended (and was admitted) was to cede revenue resulting from a tax on expenditure that under the auspices of the principle of tax equality obliges those who have deviant behaviors – such as payment with allowances or representation expenses, or even payments to entities resident in tax havens – to cease paying that tax by virtue of having investment expenses?
There is no doubt that it was the former.
So much so that the amendment introduced by the State Budget Law for 2018 amended the wording of article 88 of the Corporate Income Tax Code so that no deductions are made from the amount due for autonomous taxation even if these come from special legislation such as SIFIDE. Now, even without resorting to the interpretative character given by the legislator once again to no. 21 of article 88 of the Corporate Income Tax Code, it is clear that the legislator – which, it should be recalled, is always the same, the Parliament –, intended to clarify what otherwise already resulted from the law.
And up to here, if there was no sign, neither in Law no. 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that with the addition in article 88 of the Corporate Income Tax Code of a general rule prohibiting deductions from the overall amount calculated for autonomous taxation, it was intended to interpret restrictively the expression "deduct from the amount calculated in accordance with article 90 of the Corporate Income Tax Code" that appears in a special rule of a separate statute, such as SIFIDE II, it is now clear with the new wording of no. 21 of the article that no deductions are permitted from the collection of autonomous taxation even if these come from special legislation.
In the thesis that this Tribunal endorses, the legislator, by adding this no. 21 to article 88 of the Corporate Income Tax Code, with the content mentioned, merely limited itself to embracing and reinforcing the interpretative meaning that already resulted from the applicable rules."
Given the foregoing, the allegations by the Claimant regarding the deduction of tax benefits, as SIFIDE, from the collection produced by autonomous taxation proves to be without merit.
§3. Deduction of ILDTC Relating to Countries with which Portugal has Concluded a DTAC, until the Municipal Surcharge is First Exhausted and Subsequently from the Corporate Income Tax Collection.
The second question to be decided concerns the possibility of effecting the deduction of the international legal double taxation tax credit relating to countries with a DTAC, first exhausting the municipal surcharge collection and deducting the remainder from the total Corporate Income Tax collection.
The question concerns the inclusion of the municipal surcharge in the expression contained in paragraph b) of no. 1 of article 91 of the Corporate Income Tax Code for purposes of ILDTC, in accordance with paragraph a) of no. 2 of article 90 of the Corporate Income Tax Code.
This Tribunal considers that the municipal surcharge is an accessory tax of the Corporate Income Tax Code, currently configured as an addition, impacting on the profit of the subjects of this tax. Thus, the wording of the law in referring to "fraction" of the Corporate Income Tax Code is susceptible to encompassing the municipal surcharge.
On this question, the Tribunal shares the understanding contained in Arbitral Decision no. 340/2017-T, of 10 January 2018, which states: "It must be noted at the outset that this expression has remained unchanged in the legal text since the original wording of the Corporate Income Tax Code. This assumes particular interpretive relevance inasmuch as, initially, the international legal double taxation tax credit was only granted to income from countries with which Portugal had in force a DTAC.
That is, in the original wording of the rule, the expression "fraction of tax" necessarily had, in all cases, to be interpreted in accordance with the conventional texts, which, in their no. 2 (taxes covered), regardless of the specific formulation used, encompass the municipal surcharge.
When, later, the legislator decided that Portugal, as a country of residence, would unilaterally attribute (that is, independently of the existence of a DTAC) a international legal double taxation tax credit, it did not alter the expression "fraction of the Corporate Income Tax Code". That is, the analysis of the evolution of the literal element does not allow, at any moment, to discern a legislative intent to distinguish between the implementation (the collections to which deduction can be made) of the tax credit in situations where there is a DTAC and those in which there is not (in which the granting of such credit is unilateral, resulting from domestic law).
The teleological element of interpretation also does not point in the direction advocated by the Respondent. Portugal's decision to grant, unilaterally (i.e., in the absence of a DTAC that imposes it), to its residents with income from abroad, a credit by reason of the tax paid in the source countries gives expression to the so-called principle of neutrality on export: "taxpayers who obtain income in other states should be covered by a tax treatment similar to that applicable to those whose income is obtained exclusively in the state of residence". What is at issue, then, is an equality among residents, which should not result limited by restrictive interpretations of the law, by interpretations that restrict the actual possibility of deduction of such a credit.
Finally, consideration must be given to the systematic element of interpretation, which amounts to ascertaining what interpretation appears most coherent with the legal system in which the rule is inserted, considered in its entirety.
That is, even if it can be understood that such international commitments do not directly bind the tax legislator, the interpreter cannot fail to have them in mind, in the name of the unity of the legal system, considered in its entirety. The interpretation that ensures the coherence of the legal system is, certainly, the one that corresponds to "the most correct legal solution" which is supposed to have been adopted by the legislator (no. 3 of art. 9 of the Civil Code).
Finally, and still within the framework of the rational/teleological element of interpretation, one cannot fail to consider the absurdity that consists in seeking to maintain intact the municipal surcharge collection in situations in which this would lead to international double taxation of income. We would even say that, rationally, this would be the collection with respect to which the deduction corresponding to the international double taxation credit should be effected, in the first place. In reality, the municipal surcharge aims to provide municipalities with their own financial resources, obtained through taxes impacting on those who conduct profitable activities in the area of a given municipality. Thus, going beyond the specific question at issue, it seems devoid of reasonable foundation to require the payment of such a tax in relation to activities carried out outside national territory. Which, by extension, reinforces the understanding that payment of this tax should be "eliminated" by deduction of international double taxation credits whenever the collection of the Corporate Income Tax Code, strictly speaking, does not prove sufficient to absorb them in their entirety, as occurs in the present case."
Given the foregoing, the expression "fraction of the Corporate Income Tax Code" contained in paragraph b) of no. 1 of article 91 of the Corporate Income Tax Code should include the collection of the municipal surcharge and, as a result, the international double taxation credit can be deducted from the fraction of the collection of such tax originated by income obtained abroad.
On this point, the allegations by the Claimant are considered well-founded.
§4. Remaining Requests
In addition to the annulment of the collection and consequent reimbursement of the amounts indirectly paid, the Claimant also requests that it be recognized the right to compensatory interest, under article 43 of the General Tax Law.
In article 100 of the General Tax Law, applicable to the case by virtue of the provision in paragraph a) of no. 1 of article 29 of the LRTA, it is established that "The tax administration is obliged, in the event of full or partial success of administrative appeals or judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for in the law."
The case contained in the present proceedings raises the application of the aforementioned rules, since as a consequence of the partial illegality of the collection act, referenced in this proceeding, there must, by virtue of these rules, be reimbursement of the amounts paid as tax, as a way to achieve the restoration of the situation that would exist if the illegality had not been committed.
Thus, given what is established in article 61 of the Code of Tax Procedure and Process and the requirements for the right to compensatory interest being met, that is, the existence of error attributable to the services with respect to the municipal surcharge collected in excess due to non-deduction of ILDTC relating to countries with a DTAC and as a result the payment of the tax liability in an amount higher than the legally due, as provided for in no. 1 of article 43 of the General Tax Law, the Claimant has the right to compensatory interest at the legal rate, counted from the date of payment relating to the part of the collection annulled.
C. DECISION
For these reasons, in this Arbitral Tribunal:
It is judged that the request for annulment of the Corporate Income Tax collection act at issue in the proceedings, in the part relating to corrections resulting from autonomous taxation, as requested in i), of the request for arbitral opinion, is without merit;
It is judged that the request for annulment of the Corporate Income Tax collection act at issue in the proceedings, in the part relating to corrections resulting from the municipal surcharge collected in excess due to non-deduction of the international legal double taxation tax credit, relating to countries with Double Taxation Avoidance Convention, as requested in ii), of the request for arbitral opinion, is well-founded;
The decision dismissing the administrative appeal is annulled, in the part relating to corrections resulting from the municipal surcharge collected in excess due to non-deduction of the international legal double taxation tax credit, relating to countries with which Portugal has concluded Double Taxation Avoidance Conventions;
The request for compensatory interest is judged partially well-founded, in the part referring to the municipal surcharge collected in excess due to non-deduction of the international legal double taxation tax credit relating to countries with Double Taxation Avoidance Convention and that resulted in payment of the tax liability in an amount higher than the legally due.
D. Case Value
The case value is set at € 358,269.31 (three hundred and fifty-eight thousand two hundred and sixty-nine euros and thirty-one cents), in accordance with article 97-A, no. 1, paragraph a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the LRTA and no. 2 of article 3 of the Arbitration Costs Regulation for Tax Arbitration Proceedings.
E. Costs
The arbitration fee is set at € 6,120.00 (six thousand one hundred and twenty euros), in accordance with Table I of the Costs Regulation for Tax Arbitration Proceedings, to be borne by both parties in proportion to their respective adverse decisions, that is, 69.5% by the Claimant and 30.5% by the Respondent [articles 12, no. 2 and 22, no. 4 of the LRTA; 4, no. 4 of the Regulation of Costs for Tax Arbitration Proceedings and attached Table I and with the general procedural rule on costs contained in article 527, nos. 1 and 2 of the Code of Civil Procedure].
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Lisbon, Centre for Administrative Arbitration, 5 April 2019
The Presiding Arbitrator
(Judge José Poças Falcão)
The Arbitrator Member
(Dr. Olívio Mota Amador)
The Arbitrator Member
(Dr. Isaque Ramos)
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