CAAD 37/2014-T: Deductibility of Autonomous Taxation Charges for IRC Taxable Profit

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator-President), Júlio Tormenta and Ricardo Rodrigues Pereira, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby render the following

ARBITRAL DECISION

I – REPORT

On 17 January 2014, the commercial company A… Insurance, S.A. (formerly designated as A…, S.A.), tax identification number …, with registered office in …, (hereinafter, the Claimant), filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT) – seeking a declaration of partial illegality of the self-assessment act for Corporate Income Tax (hereinafter, abbreviated as IRC) for the financial year 2010, insofar as it corresponds to the non-recognition of tax charges relating to autonomous taxation of that same financial year, to which corresponds an amount of tax losses that remained improperly unaccounted for in the sum of €277,587.66, on grounds of violation of law, with the consequent increase in the accounted tax losses from €21,546,717.81 to €21,824,305.47 –, the Respondent being the AT – Tax and Customs Authority (hereinafter, the Respondent or AT). The Claimant submitted 16 (sixteen) documents and did not call any witnesses.

In essence and in summary, the Claimant supported its request for arbitral ruling on the following legal arguments: autonomous taxation is not IRC nor does it have anything to do with taxation under IRC; it is a form of taxation quite distinct from IRC and, unlike the latter, does not target income but rather certain expenses. For this reason, the charges incurred with autonomous taxation are fiscally deductible, that is, they enter into the accounts for determining the taxable profit, alongside other expenses or costs of the activity, by virtue of the general rule of deductibility of tax charges provided in Article 23, no. 1, paragraph f), of the IRC Code.

On the same day, 17 January, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT.

The Claimant did not proceed to appoint an arbitrator; therefore, pursuant to the provision in paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, the President of the Deontological Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who confirmed their acceptance of the appointment within the applicable period.

On 3 March 2014, the parties were notified of this appointment and did not manifest their will to refuse the appointment of the arbitrators, in accordance with the combined provision of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code of the CAAD.

Thus, in accordance with the provision in paragraph c) of no. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 18 March 2014.

On 28 April 2014, the Respondent, duly notified for this purpose, submitted its Answer in which, in addition to raising the exception of untimeliness of the request for arbitral ruling regarding the IRC self-assessment act for the financial year 2010, it specifically contested the arguments put forward by the Claimant and concluded for the dismissal of the request, with its consequent absolution. The Respondent submitted no documents and called no witnesses.

In essence and also very briefly, it should be noted that the Respondent based its defence, regarding the substantive question at issue in the proceedings, on the understanding that autonomous taxation is not deductible for purposes of determining taxable profit, because, despite the particularities in its calculation, autonomous taxation remains IRC and, therefore, is covered by the provision of paragraph a) of no. 1 of Article 45 of the IRC Code, in effect at the date of the events. According to the AT, the correctness of this understanding is demonstrated by the wording of the current paragraph a) of no. 1 of Article 23-A of the IRC Code, introduced by Law no. 2/2014, of 16 January.

On 9 May 2014, the Claimant, duly notified for this purpose, made its submission regarding the exception raised by the Respondent in its Answer, arguing for its dismissal.

Subsequently, both parties were notified and informed the tribunal that they dispensed with holding the meeting referred to in Article 17 of the RJAT and requested that they be given a deadline to submit written submissions.

Following this, the Claimant and the Respondent submitted, successively, their respective written submissions, in which they maintained the positions previously taken and defended in their pleadings.

On … of June 2014, duly notified for this purpose, the Respondent submitted the administrative proceedings file (hereinafter, PA) to the record.

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 RJAT.

The parties have legal personality and capacity, are legitimately before the tribunal and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March.

The proceedings are not affected by nullities.

Thus, there is no obstacle to the consideration of the merits of the case.

Everything considered, it is necessary to render a decision.

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1. A… INSURANCE S.A. proceeded to self-assess IRC for the financial year 2010, as well as to self-assess the autonomous taxation provided for in Article 88 of the IRC Code (CIRC), totalling €277,587.66 finally, as shown in field 365 of Table 10 of the amended return, in the following terms:

i. Autonomous taxation on charges relating to vehicles, which generated the amount of €204,399.73 (€127,379.54 + €77,020.19);

ii. Autonomous taxation on travelling allowances and compensation for travel in own vehicle of the worker, in the amount of €7,097.84;

iii. Autonomous taxation on representation expenses, which generated the amount of €66,090.09.

1. Such autonomous taxation was paid in full by the Claimant.

2. The Claimant did not deduct, for purposes of determining the taxable profit for the financial year 2010, the amount incurred with the identified autonomous taxation.

3. Accordingly, it did not recognize the charges with such taxation as tax charges in determining the taxable profit of IRC.

4. The Claimant submitted an amended return of the self-assessment referred to in 1 on 12 February 2013.

5. Such return was subject to administrative review which was decided by a dismissal order issued by the Head of the Tax Management and Assistance Division, dated 30 October 2013, notified to the Claimant on 8 November 2013.

6. The request for constitution of the arbitral tribunal was presented on 18.01.2014.

A.2. Facts Established as Not Proven

With regard to the decision, there are no facts that should be considered as not proven.

A.3. Grounds for the Factual Matters Proven and Not Proven

With respect to the factual matters, the Tribunal does not need to rule on everything that was alleged by the parties; rather, it is incumbent upon it to select the facts that matter for the decision and distinguish the proven facts from the unproven ones (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 pursuant to Article 29, no. 1, paragraphs a) and e), of the RJAT).

Thus, the facts relevant for the judgment of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. former Article 511, no. 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable pursuant to Article 29, no. 1, paragraph e), of the RJAT).

Thus, taking into account the positions adopted by the parties, the documentary evidence and the PA submitted to the record, the facts listed above, which are moreover consensually recognized and accepted by the parties, were considered proven with regard to the decision.

B. ON THE LAW

As a preliminary matter to the consideration of the merits of the claim filed by the Claimant, the AT questions the timeliness of the request for arbitral ruling regarding the IRC self-assessment act for the financial year 2010.

Let us examine this.

The AT questions, then, as a preliminary matter to the consideration of the merits of the claim filed in the proceedings, the timeliness of the request for arbitral ruling regarding the IRC self-assessment act for the financial year 2010.

The AT understands that the Claimant identifies as the tax act subject to the request for arbitral ruling the "self-assessment act for IRC relating to the financial year 2010, insofar as it corresponds to the non-recognition of tax charges relating to autonomous taxation of that same financial year", and that, given that "the final deadline for payment of the tax in question in the proceedings occurred on 31.05.2011/12.02.2013", the untimeliness of the challenge would be established.

Underlying the AT's position is the understanding that the Claimant should have identified as the subject of the arbitral ruling the act of dismissal of the administrative review it had filed.

With all due respect, it is considered that the AT's position does not prevail in this matter. In fact, and first of all, necessarily the request for a declaration of illegality of the (self-)assessment act inherently contains, at least tacitly, the request for a declaration of illegality of all subsequent acts whose validity is affected by that declaration, which obviously includes the act of dismissal of the administrative review.

Moreover, as concerns the dismissal portion, to the extent that no defects in the decision itself on the administrative review or in its respective procedure are raised, that act will be merely confirmatory and, as such, not subject to appeal in itself.

On the other hand, as has been recognized by national case law, if, in cases such as those at hand, the immediate object of the proceedings is the act of decision on the administrative review, its mediate object will be the primary (self-)assessment act itself.[1]

This situation is, moreover, perfectly clear in administrative contentious proceedings, which is the basis for tax contentious proceedings, as results from Article 50/1 of the CPTA, duly read in conjunction with Article 59/4 of the same code.

The regime of tax arbitral proceedings also corroborates this understanding, since Article 2 of the RJAT takes primary acts as the referent for the jurisdiction of arbitral tribunals,[2] with secondary acts being relevant only as referents for the timeliness of the challenge, as results from Article 10/1/a) of that Framework, which provides that requests for constitution of arbitral tribunal be presented within 90 days, counted from the facts provided for in no. 1 and 2 of Article 102 of the Code of Tax Procedure and Process.

That is, in sum and in strict terms, the Claimant's claim was impeccably formulated, as it refers to paragraph a) of no. 1 of Article 2 of the RJAT (self-assessment act), and was presented within the period set by paragraph a) of no. 1 of Article 10 of the same statute (90 days counted from the decision on the administrative review, the act referred to in no. 2 of Article 102 of the CPPT).

Thus, the exception of untimeliness of the request, invoked by the AT, must be dismissed.

Having reached this point, it becomes possible to address the substantive question submitted to this Arbitral Tribunal.

The crux of the matter at issue in the proceedings resides in Article 45/1/a) of the CIRC, in the wording in effect at the date of the tax event, which stated:

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

a) IRC and any other taxes that directly or indirectly apply to profits;".

Essentially, it is a matter of determining in this case whether the amounts incurred by the Claimant with autonomous taxation, assessed and paid under the terms of the CIRC, are or are not excluded from the determination of taxable profit, assessed under the same Code.

When speaking of autonomous taxation, as is the case, it is convenient from the outset to bear in mind that we are dealing with a set of disparate situations, which will include at least three distinct types, namely:

• Autonomous taxation of certain income (e.g., nos. 3, 5 and 6 of the CIRS);

• Autonomous taxation of certain deductible charges (e.g., nos. 3 and 4 of Article 88 of the CIRC);

• Autonomous taxation of other charges independently of their respective deductibility (e.g., Articles 1 and 2 of Article 88 of the CIRC).

At issue in the proceedings is the second of the enumerated types of autonomous taxation, as is clearly shown in point 1 of the factual matters established as proven and in Article 176 of the initial request itself.

This precision becomes important because, contrary to what the Claimant argues, given the disparity and heterogeneity of the situations subject to autonomous taxation, it is considered that in this regard, not only unnecessary but even counterproductive would be the effort to synthesize and seek a proper and unitary legal nature, common to all those situations.

Thus, the discussion should focus on the concrete autonomous taxation borne by the Claimant and seek a properly reasoned answer to the narrow terms of what is at issue in the proceedings, which is then to determine whether the amounts paid in the context of autonomous taxation on deductible charges by a taxpayer subject to IRC should be considered a deductible charge for purposes of determining taxable profit subject to that tax.

Properly framed in these terms, the question to be resolved in the proceedings, it must further be kept in mind that the fundamental referent for the answer to be given to that question will be that formulated in Article 9 of the Civil Code, according to which the legislative intent should be reconstituted from the texts, which should have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

In this framework, the aim of the present decision will not be to theorize about the legal nature of autonomous taxation in general, or of any of its various types, but rather to determine whether the legislative intent, with a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, was or was not, at the date of the tax event at issue in the proceedings, in the direction that the amounts paid in the context of autonomous taxation on deductible charges by a taxpayer subject to IRC should be considered a deductible charge for purposes of determining taxable profit subject to that tax.

Drawing on the words of the Claimant, proceeding from the principle that the deductibility, or not, of the amounts incurred with the autonomous taxation at issue in the proceedings is, not at most, but effectively, "a pure matter of legislative policy", it is a matter then of verifying what was, within the legal framework in effect at the date of the tax events in issue, the direction of such choice.

It is thus from now on assumed that the methodological path followed here is substantially different from that underlying the Claimant's argument.

In fact, that argument shows a markedly conceptualist basis, resting on a dogmatic definition of monolithic concepts of IRC and Autonomous Taxation, drawn largely from norms unrelated to the matter to be decided, close to the "scholastic ontologism" that "considered it possible to deduce in purely logical fashion, from superior abstract concepts, others, progressively more concrete and full of content",[3] evidenced in the recurrent insistence on the definition of IRC arising from Articles 1 and 3 of the CIRC and, above all, in a unitary concept of Autonomous Taxation, aggregating legal realities of disparate nature and teleology.

Here, by contrast, the aim is merely to ascertain what solution, in light of established law, duly interpreted, appears appropriate to the concrete case, not taking the answer given to the question to be decided as finished evidence, exact and with an extreme degree of rigor and exactitude, but rather merely as that which, reflectively, presented itself to its signatories as the legally better one.[4]

In assessing the matter at issue in the proceedings, it must also be borne in mind from the outset that the provision of Article 45 of the CIRC is situated in a context of broad legislative discretion. That is, in defining what are deductible or non-deductible charges for tax purposes, the tax legislator enjoys broad scope for concretization.

The Claimant itself recognizes this fact, at page 19 of its submissions, noting "that the legislator, if not by law, then in fact, has had at its disposal (with the blessing of the Constitutional Court) and has exercised broad discretion as to (non-)deductibility of costs for tax purposes".

Therefore, it cannot be said that it is forbidden to the legislator by the "nature" of autonomous taxation (and, in concrete, that which is proper to autonomous taxation arising from deductible charges in IRC), whatever that may be, to exclude it from deductible charges for purposes of the tax in question.

It is considered, therefore, that it will be legitimate for the legislator to include or exclude the autonomous taxation that concerns us from that category of deductible charges for purposes of IRC, independently of the "nature" that doctrine or case law may perceive in them.

Thus, and continuing with the Claimant's wording, "the question here is solely whether until 31.12.2013 or, more specifically, whether in the fiscal year 2010 at issue here, by virtue of the understanding that autonomous taxation would be IRC, one must then conclude that the legislator had already exercised the discretion to include charges with autonomous taxation among those not deductible for purposes of IRC".

Being so, it becomes clear from the outset that the conceptual value of what, from a generic or doctrinal point of view, is IRC, or what is Autonomous Taxation (if indeed a unitary concept of this is possible), will be of little utility in the interpretive path to be followed, since, by nature, deductibility/non-deductibility of the corresponding charges will not flow from them.[5]

Another fact to be taken into account, not refuted by the Claimant, is that no objection of principle exists to the legislator isolating certain types of income and burdening them with specific or differentiated rates, as occurs, for example, in cases provided for in the various paragraphs of no. 4 of the current Article 87 of the CIRC.

Likewise, no objection of principle will exist to the tax in question being due, assessed and paid, not in function of a period (more or less lengthy) of taxation, but by virtue of the occurrence of instantaneous facts, as already occurs, for example, in cases of withholding at source with a definitive character (cf. Article 94/3 of the CIRC).

This circumstance, likewise omitted from the Claimant's argument, demonstrates that the nature – instantaneous or continued – of the tax-imposing fact will not be decisive for any conclusion to be drawn on the matter.

Finally, nor is the result, apparently so counterintuitive and striking, of being able to be owed the payment of tax by way of the autonomous taxation that now concerns us, even in the event of nonexistence of a (positive) taxable income at the end of the taxation period, avis rara in the IRC regime.

Thus, and in some of the already pointed out cases of withholding at source on a definitive basis, the situation can arise in which the holder of the income subject to that withholding has had expenses exceeding the income, and yet is taxed by virtue of the aforementioned withholding.

Also in the case of the operability of some of the specific anti-abuse provisions (Articles 63 to 67 of the CIRC), by virtue of the disregard of costs, it can occur that taxpayers are taxed on a deemed taxable profit, insofar as it may be a matter of disregarding costs actually incurred but deemed abusive. It can thus occur that a taxpayer must pay IRC, notwithstanding having had, in reality, losses.

In this regard, the Claimant points out that these would be situations distinct from Autonomous Taxation subject to consideration in the present proceedings, since they would be rules that "form part of the set that deals with the measurement of taxable profit subject to IRC rates.".

The Claimant approaches in this part the understanding here advocated, which considers that the Autonomous Taxation sub iudice would form part of the normative set that deals with the definition and quantification of the tax obligations of taxpayers of IRC, under such tax.

Indeed, the reference above to situations of withholding at source on a definitive basis and to anti-abuse rules do not have as their basis an equation between them and the Autonomous Taxation sub iudice, nor even between themselves.

Rather, they are merely reflective topics on the question of the imposition of a tax obligation in situations of absence of income (profit), facilitating understanding of the analogical process of "bringing the life situation closer to the norm" and "on the other hand, the norm to the life situation".[6]

And that which the Claimant points to as explanation for those points of analogical focus, the "fact that they may be poorly calibrated or conceived (lack of safety valves)", can also be directly transposed to the domain of Autonomous Taxation that concerns us, saying that the aspect in evidence – that is, the circumstance that it can result in imposition of a tax obligation even in the event of absence of income (profit) – may be due to poor calibration or conception.

By this route it will then be noted that the circumstance that the Autonomous Taxation that are the object of these proceedings can impose a tax obligation, even in situations of tax loss, despite being, prima facie, striking, should not, it also, be decisive in the argument underlying the final decision that must be taken on the matter.

Returning to the situation concretely at issue in the proceedings, the Claimant begins by sustaining the understanding that autonomous taxation relating to expenses with deductible charges in IRC applies to expense, and not to income.

Acknowledging the matter at issue as unequivocally complex, resulting from a succession of legislative changes in a context of economic degradation, it is considered that not only are things not necessarily as the Claimant argues, but that approach is not even the most adequate to the legal data.

In assessing the question at issue, one must from the outset have regard to the case law formed over recent years regarding the constitutionality of the provision of Article 5, no. 1, of Law no. 64/2008, of 5 December, insofar as it retroactively applied as of 1 January 2008 the amendment to Article 81, no. 3, paragraph a), of the Code for Individual Income Tax, enshrined in Article 1-A of the aforementioned statute, and which culminated with its declaration of unconstitutionality.

This case law, as is known, did not directly address the legal-tax nature of the autonomous taxation in question, but focused specifically on the question of determining the nature of the respective tax-imposing fact, that is, it sought to determine what the concrete fact was from which resulted the birth of the tax legal obligation to pay the tax, and concluded that such fact was the realization of certain expenses relating to charges identified in the law – a fact of instantaneous nature – and that, as such, the application of the tax to facts prior to the entry into force of the law would be contrary to the Constitution. This case law does not thus cover the question of the "nature" of autonomous taxation in IRC, but only the determination of the nature of the tax fact (instantaneous or continued) that underlies them.

However, what has just been said is not meant to signify that the case law in question cannot provide insights into the understanding that was in some way underlying the current case law, as to the matter that now concerns us. What must not be overlooked is that, as has been said, it was not that question that directly constituted the object of consideration of the courts, and any claim that might be made in the referred field should obtain support in the argument itself of the decisions, taking into account their respective context, and not in the immediate decision-conclusion segment.

Now, viewed in this manner, one will conclude that either in the direction contrary to that conveyed by the Claimant or at least in the direction that one should not consider as necessarily underlying the case law in question, the understanding sustained by it.

In fact, and first of all, the Decision of the Constitutional Court no. 617/2012, of 19-12-2012,[7] seems to adhere to the position of Professor Saldanha Sanches on the matter, cited there, according to which:

"With this provision, the system shows its dual nature, with an enhanced rate of autonomous taxation for certain special situations that one seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles that seem excessively costly when losses exist. This creates, here, a kind of presumption that these costs do not have a business purpose and, therefore, are subject to autonomous taxation. In short, the cost is deductible, but autonomous taxation reduces its tax advantage, since here the tax base is not a net income, but rather a cost transformed – exceptionally – into an object of taxation.";

Still in the same Decision one can read that "As regards autonomous taxation in IRC, the tax-generating fact is the realization of the expense itself" (emphasis added), thus demonstrating to have underlying the idea, not contradicted (at least expressly) by the Claimant, that notwithstanding the tax-generating fact being the realization of the expense, the taxation still occurs within the scope of IRC!

Continuing, the Decision in question refers that:

"For this reason, Sérgio Vasques (cf. Manual of Tax Law, Almedina, 2011, p. 293, note 470) calls attention to the circumstance that income taxes include elements of single obligation, such as the liberatory rates of IRS or the autonomous taxation rates of IRC."

Also in the second dissent of the same Decision it was written that:

"We are not here, strictly speaking, faced with a single obligation tax but with tax facts that, applying to deductible expenses, are indissolubly linked to the assessment and collection of IRC" (emphasis added).

Furthermore, already in Decision 18-2011 of the Constitutional Court, one could read, in the dissent that preceded the subsequent reversal of case law, that:

"Although formally inserted in the CIRC and the amount allowing its collection is assessed in its scope and under IRC, the rule in question concerns a tax imposition that is materially distinct from the taxation in this category" (emphasis added).

That is, and regardless of what is considered to be the understanding underlying the nature of autonomous taxation of deductible expenses in IRC, it is concluded that in the constitutional case law on the matter, it was never the case that the amount collected by way of those autonomous taxation was being done under IRC, from which it follows that from that case law does not result, from the outset, that charges incurred with those should be considered deductible costs for purposes of such tax.

It is true that, still in the cited Decision 617/2012 of the Constitutional Court, it is stated that:

"In fact, although the taxation of certain charges is formally inserted in the IRC Code and the respective amount is collected within the scope of that tax, such taxation is a tax imposition materially distinct from taxation in IRC."

However, and absent better opinion, the Constitutional Court is not here taking a position on the legal nature of the autonomous taxation now at issue, understanding them as a tax distinct from IRC.

In fact, from the outset, the Constitutional Court, it is thought deliberately, does not use the expression "tax," in expressing the distinction it makes, speaking instead of "tax imposition" and "taxation."

On the other hand, contextually understood, having in mind not only the passages already highlighted above, especially the citation of Sérgio Vasques, as well as the framework and purpose with which the distinction in question is made, one should conclude that the statement now being commented on refers to the manner of imposition of the tax obligation to pay the amounts taxed under autonomous taxation, as being materially distinct from the ordinary manner of imposition of the tax obligation to pay IRC.

The Claimant also anchors its argument in case law of the Supreme Administrative Court regarding other questions than the one that was just addressed, namely:

• the question relating to the scope of application of Article 12 of the CIRC, before the amendment made by Law no. 109-B/2001, of 27 December;

• the question relating to the applicability of the rules relating to autonomous taxation applying to confidential expenses to an entity subject to special tax on gaming.

First of all, as to this matter, it should be said that it is considered there is no opposition between the decision criticized by the Claimant (or, for that matter, the present decision) and the case law invoked by it.

That is, first of all, the legal questions decided are – patently – distinct, with possibly some incompatibility between their respective grounds at most being verifiable.

In fact, contrary to what the Claimant alleges, the questions that arise in the three decisions compared is not that of "determining whether a certain rule applicable to IRC would also apply to autonomous taxation on expenses." This is rather the question that, conceptually, the Claimant abstracts from the rulings it analyzes. In fact, the question that is decided in the Supreme Administrative Court decisions glossed by the Claimant are those indicated above, and that decided in the arbitral decision is that of determining whether in 2010 "the legislator had already exercised the discretion to include charges with autonomous taxation among those not deductible for purposes of IRC."[8]

Thus, and now returning, with proper grounds, to the case law of the Supreme Administrative Court,[9] contrariety between decisions will only be verified when there is "opposition between expressed solutions and such opposition should exist regarding the decisions themselves and not their grounds [with neither explicit pronouncement nor mere collateral consideration, made within the assessment of a distinct question, sufficing".

It is not denied, obviously, that some considerations made here and there, within the framework of the already mentioned process of "bringing the life situation closer to the norm" and "on the other hand, the norm to the life situation," are incompatible. But the decided in some and other decisions is not, precisely because the "life situation" appreciated is not.

Moreover, and even if inconsistency of decisions should involve the considerations focused by the Claimant, it is still considered that these, duly understood, do not contain any insurmountable contradiction if we free ourselves from an aggressive aprioristic conceptualism and embrace a systemic understanding of applicable law in its entirety, understanding that the complexity generated by successive amendments to the architecture of the CIRC led, as will be referred to below, to an atypical normative edifice, in which one can discern a core corresponding to what might be called IRC pure and simple (or in the strict sense), which the Claimant wishes to exhaust everything designated by IRC, and a periphery that integrates "marginal" regulations, withdrawn largely from the logic, nature and principles of IRC pure and simple, but which, nonetheless, still occupy the "gravitational field" of that.

And it is in the process of defining this zone of difficult definition that all the decisions analyzed by the Claimant operate, and these cannot be duly understood without also understanding that, in fact, what all the decisions in question are doing is determining what consequences the "gravitation" around the core of IRC brings to the matters addressed in each of them.

Viewed in this manner, one cannot even fail to find a certain line of coherence between the decisions in question, which flows, moreover, from the circumstance that the entities covered either by Article 7 or by Article 12 of the CIRC are taxpayers subject to IRC, to whom the legal regime of IRC – IRC in the broad sense – will apply, without prejudice to a substantial part, corresponding to IRC in the strict sense, being set aside by virtue of the specialness of the regimes to which they are subject (tax transparency/special gaming tax).

Thus, and first of all, let it be verified that, regarding the decision of proceedings 0830/11 of the Supreme Administrative Court, it was concluded, precisely, in the direction in which the legislator came to provide. That is, the Supreme Administrative Court considered that the non-subjection to IRC of entities subject to the tax transparency regime did not cover autonomous taxation, precisely what was subsequently enshrined in law, within the logic of autonomous taxation still integrating the IRC regime.

Now, such can only be logically understood within the hermeneutic framework outlined above, that is, that, by virtue of the historical evolution of its legal regime, a type of IRC was constituted that integrates a hard core – in which the Supreme Administrative Court judge considered, rightly, that autonomous taxation would not be integrated – and a group of adjacent normations that shares part of the logic and regime of that, but which in many respects diverges from it.

In like manner, and as regards the matter of proceedings 077/12, and with the particularity, which cannot fail to be underscored, that there were at issue autonomous taxation on confidential expenses – which the Claimant itself recognizes to be substantially distinct from the matter now at issue[10] – one can understand what was decided there in light of the understanding above-referred to, that is, that what the Court effectively did was define that the non-applicability of the IRC regime to activities subject to special tax on gaming is limited to IRC pure and simple, excluding autonomous taxation on confidential expenses, possibly having underlying the understanding that the gaming tax would integrate, in some way, a special regime for taxation of income (similar, for example, to the old property tax), which does not impair the application of the general IRC regime to that which is not incompatible with such special taxation.

Accepting, then, as materially distinct, in the sense established by the Constitutional Court, as to the manner of tax imposition, the taxation under autonomous taxation that now concerns us from that occurring under IRC pure and simple (the former through an instantaneous fact and the latter through a continued fact), it is nonetheless understood that such autonomous taxation, applying to deductible charges, still occur within the scope of and under IRC, just as, for example, autonomous taxation under IRS (and the very liberatory rates which, absent better opinion, will themselves integrate a kind of autonomous taxation[11]), despite potentially having instantaneous facts as their basis, are assessed and paid under IRS, integrating the regime of such tax.

It is thus understood, in sum, that one thing is the type of tax fact that underlies a certain imposition. Another thing is the title under which such imposition is owed, in fact, the cause[12] of the tax obligation. And in the case of autonomous taxation under IRC, such cause, the title under which the tax is exacted, will still be IRC.

In this sense, one must pay attention, among everything else, to the fact that the legal regime of the autonomous taxation in question in the proceedings only makes sense in the context of taxation under IRC. That is, divorced from the legal regime of this tax, those would lack their principal referent of meaning. Their existence, their purpose, their explanation, in fact, their juridicity, are only duly understandable and acceptable in the framework of the legal regime of IRC.

In fact, autonomous taxation now under analysis belong, systematically, to IRC, and not to VAT, to CIS, or to any new tax. In fact, although it may be accepted that the tax-imposing fact will be each of the individually legally typified charges, the fact is that these are not, qua tale, the final object of the taxation, the reality that one seeks to burden with the tax. If it were so, and once more this aspect is forgotten in the Claimant's argument, all expenses incurred by all taxpayers would obviously be taxed, and not merely by some of them.[13]

That is, autonomous taxation of the type now at issue are strongly tied to the taxpayers of the respective income tax and, more specifically, to the economic activity carried out by them.

This aspect becomes even more evident if one notes another fundamental data present from the beginning: the circumstance that the autonomous taxation that now concerns us only apply, at the date of this dispute, to deductible expenses!

This circumstance, also disregarded by the Claimant, is, it is believed, elucidative of the intertwining existing between those and IRC (in the case), and justificatory not only of its inclusion in the CIRC but equally of its integration, by full right, as part of the legal regime of IRC.[14]

In fact, not only:

• only the charges incurred by taxpayers of IRC are subject to the imposition of autonomous taxation in such a framework;

• but such charges will only be so if those taxpayers choose them as deductible expenses in determining the taxable matter of such tax.

The framework thus traced is, it is considered, substantially distinct from what it would be if a tax applied to certain expenses, objectively considered, and it appears that the character and the choice of the taxpayer have here a relevance, if not greater, at least equal to the charge that triggers the tax imposition.

Moreover, it can always be said that if the taxpayer of IRC chooses not to deduct from taxable profit for purposes of that tax the charges corresponding to the expenses subject to autonomous taxation, he will not have to bear such taxation, which will be demonstrative[15] of what was pointed out above, that is, that the cause of autonomous taxation will lie, still and in ultimate analysis, in the IRC regime.

In this framework, and returning to the question to be decided formulated ab initio, as being that of determining what the legislator's intent is, expressed in the legislative text, understood in its entirety, the conjunction of the content of Article 12 of the CIRC with Article 45/1/a) of the same will leave little doubt as to the legislative understanding that autonomous taxation, if not constituting IRC stricto sensu, will certainly integrate the regime of that tax and will be owed under such title.

It is thus considered that the legislative intent, with a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, was, at the date of the tax event at issue in the proceedings, in the direction that the amounts paid in the context of autonomous taxation on deductible expenses by a taxpayer subject to IRC should not be considered a deductible charge for purposes of determining the taxable profit subject to that tax.

The correspondence of such intent in the legislative text is quite clear in the content of that Article 12 of the CIRC, in effect already at the date of the tax event, which states:

"Entities to which, pursuant to Article 6, the tax transparency regime applies are not taxed under IRC, save as regards autonomous taxation." (emphasis added).

That is, in the perspective of the legal system, reflected in its respective text, autonomous taxation integrates the regime of and is owed under IRC, which is why in the rule just transcribed the legislator expressly reserved its application. Therefore, conversely, if it had been the legislator's intent to exclude autonomous taxation from the scope of paragraph a) of no. 1 of Article 45 of the CIRC, it would have said so expressly, since it would not make sense (would not be reasonable) for in one provision of the Code (Article 12) the legislator to understand that taxation under IRC encompasses autonomous taxation and in another (Article 45) to understand the contrary.

And it should not be said, as does the Claimant, that such rule can only be understood, that at most such rule would be worth "as to the assimilation of autonomous taxation to IRC exclusively for purposes of the normative provision it contains",[16] which would lead, from the start, to the question of whether that is the maximum meaning capable of being drawn from the rule in question, what would be the minimum...

Nonetheless, the very terms in which the Claimant poses the question denote its misunderstanding of what has been said. In fact, in no place does one proceed to "assimilation of autonomous taxation to IRC," saying instead that the wording of the rule in question, in effect at the date of the tax facts sub iudice, has underlying (or forms part of the evolutionary process of the construction of IRC in the terms above already addressed (in the strict and broad senses), as will happen in the rule that concerns us here (Article 45/1/a) of the then-effective CIRC), and, for that matter, in Article 7 of the CIRC, duly interpreted and understood.

On the other hand, and reinforcing what has just been said, Article 3 of the recent Law 2/2014 of 16 January, has added Article 23-A of the CIRC, which succeeds the former Article 45, and to which, by what has just been said, should be conferred, in the matter that concerns us, an interpretive character, came to provide:

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

a) IRC, including autonomous taxation, and any other taxes that directly or indirectly apply to profits;" (emphasis added).

That is, and in sum, from the consideration of the legislative text, statically and in its historical evolution, results that the legislator understood, and continues to understand, that autonomous taxation integrates IRC, if not as a pure tax stricto sensu, then at least in terms of forming part of the same unitary tax regime, and should have the same treatment as regards deductibility for purposes of computation of taxable profit.

The provision of Article 1 of the CIRC, which states that the tax in question "applies to income obtained (...) in the taxation period",[17] will not preclude what has just been said.

In fact, and first of all, the rule in question is a programmatic or ordering rule, proclaiming a general (normal) sense or intentionality of the tax in question, but not having underlying any strictly typifying or delimiting intention as to its operability.

On the other hand, such rule predates the emergence of the current autonomous taxation regime in IRC, and therefore should not lead to any decisive conclusion from the maintenance of its content in light of that phenomenon, save, perhaps, the legislator's failure to reflect on the totality of the system when proceeding to punctual amendments thereto.

In fact, the tax legislator, in the recent past, has changed the tax treatment related to autonomous taxation without ever having altered the perspective of including them in taxation on income. Of note in this regard is the introduction in a first phase of the non-deductibility of travelling allowances and charges with compensation for travel in own vehicle of the worker in the service of the employing entity in cases developed in such provision, to quickly transform non-deductibility into generalized deductibility of such charges by replacing it with (yet another) autonomous taxation. Another zigzag in the tax treatment in this regard relates to the replacement of partial non-subjection (only on the depreciation portion) with autonomous taxation when there is a written agreement with the worker or statutory body regarding the use of vehicles for which the agreement provided for in paragraph b) of no. 3 of Article 2 of the IRS Code has been entered into, to then, following the recent IRC Reform, such replacement becomes total, that is, if such written agreement exists, there will be no autonomous taxation on any charges relating to such vehicles. And before this amendment, there had been another (curiously only reflected in the IRC Code and not in the IRS regarding autonomous taxation of vehicles relating to certain charges of category B) in the direction of broadening autonomous taxation under IRC to all charges made or borne (emphasis added) and not merely those deductible, as existed at the date of the occurrence we are dealing with.

In any case, it appears that it will not even be a matter of, in concrete, ratifying that conclusion, insofar as, as has been said, in the perspective of the legislator, the autonomous taxation at issue in the proceedings will effectively and unequivocally integrate the IRC regime, and be owed under such tax.

What has just been said does not mean that, as the Claimant insinuates, it is understood that "the definition of IRC in Articles 1 and 3 of the CIRC" is "really superseded by a new definition of transversal/general application," which would be an epistemological position proper to conceptualism that was liminary repudiated.

To the contrary: it is a matter of recognition of that which, in light of the applicable legal framework, imposes itself as the most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and the recognition of its regime as a complex and multifaceted reality, irreducible to a definition of that kind, which only fundamentally abstractionist conceptualism can presume.

All that has been said evidences that the evolution of the legal regime of IRC has transmuted it into a complex and multifaceted reality at the most various levels, which is reflected, in the matter that concerns us in these proceedings, in that "dual nature" of which Professor Saldanha Sanches spoke in the passage cited in Constitutional Court Decision 617/2012.

The recognition of this duality of nature does not, however, prejudice, as is understood to be underlying both the citation in question and the case law that cites it, that it be considered that the system, despite being dual, is the same.[18] Put differently, it only makes sense to speak of a system of dual nature if the system in question, globally considered, is still the same. Otherwise one would speak not of a system of dual nature but of two distinct systems, which, for everything that has been said, is not what occurs. And, in the case at hand, the system will be the IRC regime, which, operating now by profit and now by expenses, aims at and pursues the ends proper to that tax, including obviously the collection of revenue for the State.

In this regard, it is understood that, in the current context, notwithstanding the undeniable finding that autonomous taxation has been weighing significantly on IRC revenue, one cannot conclude that the taxation in question in the proceedings is essentially a revenue-collection tax (purpose "essentially revenue-producing"), disproportionate and divorced from taxpaying capacity. In fact, in a framework in which IRS rates reach values significantly beyond 50% for middle-class levels of income, autonomous taxation will certainly not integrate the "eye of the hurricane" of such problematic.

Notwithstanding the referred modus operandi via expense, typical of autonomous taxation under analysis, will nonetheless be susceptible to being materially connected to the income which, in ultimate instance, legitimates IRC.

In fact, and as was evidenced above, the referred taxation intervenes chiefly (at the date of these proceedings, integrally) in the autonomous taxation in question, insofar as the taxpayer chooses to deduct the expenses on which they apply from his gains for purposes of IRC. This circumstance will be explained materially by the existence of current profits that the taxpayer wishes to see diminished, or by an expectation of future profits, which will equally be diminished by virtue of the accounting of the charge corresponding to the expense subject to autonomous taxation.

Put differently: a taxpayer who does not have, nor expects to have, taxable profit in IRC will not be affected by the autonomous taxation at issue in the proceedings,[19] since he can simply choose not to deduct from his gains the expenses that trigger those. In such situation, the taxpayer in question will have a smaller tax loss – which will be irrelevant to him, since the dimension of this will only have significance if and when the question of its offset against a taxable profit arises – but will not be subject to autonomous taxation.

Thus, in one or the other case, there will always ultimately be in sight an income, present or future, which the legislator tolerates taxing less (by virtue of the consideration of the deducted expense), in exchange for an immediate taxation, upon the realization of the expense, aiming then, in this perspective, the autonomous taxation to which we refer, albeit indirectly, the income of the taxpayer.

Such taxation will, from this point of view, be a (convoluted, certainly) way of indirectly and through the expense, still taxing income (effective or potential/future) of corporate entities.

And because it is so that the taxpayer is given the option of accounting the amount of the charge subject to autonomous taxation as a deductible charge, bearing it, or not deducting it, and being taxed on the resulting income in the "normal" terms.

This aspect, which conditions the event of the type of autonomous taxation at issue in the proceedings to a choice of the IRC taxpayer, further evidences that it is not there aimed, at least directly or in the first instance, at the income of the individual presumably beneficiary of the expenses or charges, since if it were, the autonomous taxation in question should operate, independently of its eligibility as a deductible charge by the IRC taxpayer, as indeed occurs with other types of autonomous taxation.

Autonomous taxation in question in the proceedings will also, from another point of view, integrate the catalogue of specific anti-abuse rules,[20] with clear similarity being evident, for example, with the rule of the current Article 65/1 of the CIRC, which provides:

"The amounts paid or owed, in any capacity, to individuals or corporate entities resident outside Portuguese territory and subject there to a clearly more favorable tax regime are not deductible for purposes of determining taxable profit, unless the taxpayer can prove that such charges correspond to actually performed operations and do not have an abnormal character or an exaggerated amount.".

That is, in cases to which the autonomous taxation borne by the Claimant in the proceedings refers, the legislator could have opted for a regime similar to that established in the transcribed rule, purely and simply prohibiting the respective deductibility, or conditioning it in the same terms of the above rule, or in others it deemed appropriate. Instead, it chose not to go that far, remaining the legal regime of IRC on the charges in question at a level below, by allowing the deductibility of the charges in question, against the immediate payment of a portion of the taxable profit which, present or in the future, will be affected by such deduction.

Nonetheless, the similarity of the regimes will still be undeniable, as well as the concerns and purposes underlying them.

What has just been said has thus underlying it the finding that autonomous taxation, including that in question in the proceedings, owes much of its reason for being to the circumstance that it will, objectively, be unviable to tax integrally on a rigorous basis, under IRS, in the direct beneficiaries themselves of the expenses subject to those (which would be equivalent to a taxation of fringe benefits as it was conceived and applied in Australia and New Zealand). It is not ignored thus, once more in opposition to that affirmed by the Claimant,[21] that autonomous taxation of the type that now concerns us has a facet directed directly to the income of individuals. Just as they have, moreover, a sanctionary facet – in the sense of imposing unfavorable treatment – regarding the type of expenses that trigger them. However, these facets do not empty, nor much less render impossible, another facet, equally (if not more) relevant, indissolubly interlinked with the income of corporate entities.

It is thus understood that, by way of the impositions in question, it is also aimed, at least in the same measure, to regulate the use by companies of expenses that may be necessary, in part, to the pursuit of normal activity, but which – based on a judgment of normalcy – will also be in benefit of individuals who end up enjoying them in a personal and not professional capacity. Only the Tax Administration lacks no "measuring stick" to make such separation, so the legislator, already for quite some time, has been opting for the introduction in the IRC Code of this portion that already considered objectively, at the date of the proceedings (Article 12 of the CIRC will be sufficiently illuminating as to the spirit of the legislator, as was already pointed out previously), an imposition at least similar to IRC, even if such provision is considered questionable (as well as the current wording, regarding the inclusion in IRC of autonomous taxation in Article 23-A of the IRC Code).

Recognized here, therefore, are those characteristics that doctrine has been pointing out to autonomous taxation in question for already some years, such as:

a) autonomous taxation only makes sense because costs/expenses are relevant as negative components of IRC taxable profit. This is what motivates IRC taxpayers to recognize as high a value as possible of such expenses to diminish the taxable matter of IRC, the collection and, consequently, the tax to be paid;

b) it is intended to discourage that type of expense in taxpayers presenting negative results but which, regardless of this, continue to evidence consumption structures little or not at all compatible with the financial health of their companies;

c) it is, in a more general thesis, a matter of modeling the tax system so that it shows a certain balance having in view a better distribution of the effective tax burden among taxpayers and types of income;

d) certain expenses are considered unfavorably in which, admittedly, it is not easy to determine the exact measure of the component that corresponds to private consumption, and regarding which the general practice of abuse in their recognition is known.

Better or worse, autonomous taxation now in question should thus be understood as a way of preventing certain abusive actions, which the "normal" functioning of the taxation system was incapable of preventing, being that other ways to combat such actions, including ways more burdensome to the taxpayer, were possible.

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

From this perspective,[22] autonomous taxation under analysis will thus have materially underlying it a presumption of "partial" businessness of the expenses on which they apply, in function of the above-pointed circumstance of such expenses being situated in a grey line that separates what is business expense, productive, from what is private expense, of consumption, being that, notoriously, in many cases, the expense will actually in reality have a dual nature (part business, part personal).[23]

Confronted with this difficulty, the legislator, instead of simply excluding its deductibility, or inverting the burden of proof of the businessness of the expenses in question (imposing, for example, the demonstration that "they do not have an abnormal character or an exaggerated amount," as it does in Articles 65/1 and 88/8 of the CIRC[24]), chose to enshrine the regime currently in effect, which, notwithstanding, has precisely the same foundation, the same purpose, and the same type of result as other ways used in other situations typical of the (in this case) IRC regime.

This presumption of "partial businessness" should, in coherence and contrary to what the Claimant refers, be considered as covered by the possibility of elision generically enshrined in Article 73 of the LGT, both by the taxpayer and by the Tax Administration, which, moreover, seems to conform to a proportional and adequate distribution of the burden of proof, insofar as, applying autonomous taxation in question to expenses of businessness not apparent from the start, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in concrete.

For its part, the Tax Administration itself, should it see fit and consider that the case justifies the inherent expenditure of resources, can always demonstrate that, regarding the expenses in question, and although autonomous taxation has applied to them, the general requirement of Article 23/1 of the CIRC is not met, namely its indispensability for the realization of income subject to tax or for the maintenance of the income-producing source.[25]

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

a) not to deduct the expense;

b) to deduct but to pay autonomous taxation, thereby dispensing itself, both the taxpayer and the Tax Administration, from discussing the question of the businessness of the expense;

c) to prove the integral businessness of the expense and to deduct it integrally, not bearing the autonomous taxation.

The Claimant contests this framing, even selecting it as the decisive ground of the decision it criticizes, which, obviously, is not the case.

Nonetheless, it will always be said that also in this part, it is not discerned that the assertion of the Claimant is duly substantiated, according to which it will not be possible for the taxpayer not to deduct from its taxable profit an expense which, being deductible, would be subject to autonomous taxation.

Thus, and first of all, it must be borne in mind that accounting is not a closed normative system of mechanical/automatic application; quite the contrary, it always contains a margin for discretion of the subject, based on inelimitable evaluative judgments of various kinds (technical, legal, economic, managerial), explaining, moreover, in that way the normalizing vocation of its regulation. In fact, accounting rules may establish "(…) a true discretion in the Kelsenian sense, i.e., intentional indeterminacy, as happens for example when the accounting rule establishes several alternative methods for the valuation of inventories (…)".[26]

In this manner, it does not seem correct the understanding that it will be precluded (that it will be prohibited or illicit) not to deduct from taxable profit an expense which, being deductible, would be subject to autonomous taxation. No normative provision can be found, nor does the Claimant suggest any, from which such would result.

On the other hand, it has been recurrently recognized, at the case law level, a space of "autonomy and freedom of management of the taxpayer,"[27] in which the intrusion of the AT will be inadmissible, and where the "judgment on the opportunity and convenience of expenses" will be included, which "is exclusive to the businessman." And if it is true that this consideration has referred to the classification of expenses as necessary, by identity, if not majority, of reason, it will be understood as covering precisely the judgment of unnecessariness thereof.

That is, if the businessman, in the exercise of the "judgment on the opportunity and convenience of expenses," deems them as not necessary for the maintenance of the income-producing source, such cannot, absent better opinion, be disputed by the AT, if only for lack of the general prerequisite (of the proceedings but applicable to the procedure) of lack of standing to sue.[28]

It is not being sustained here, obviously, contrary to the Claimant's interpretation (page 15 of its submissions), that autonomous taxation is optional. Rather, what will be (in a certain sense, at least) is the classification or not of a certain charge as deductible, insofar as the same presupposes its necessity for the maintenance of the income-producing source, and such judgment is incumbent on the taxpayer. Recall – once more – that here, as in the decision criticized by the Claimant, autonomous taxation of deductible expenses is alone being considered, so it is not understood what the relevance of the cases to which the rules of nos. 1, 2 and 8[29] of the 2010 CIRC, cited for this purpose by the Claimant, refers.

Neither is it a matter, equally, of suggesting that "expenses" can be "omitted," as the Claimant indicates in the same passage. In fact, the accounting of a charge as non-deductible implies precisely its recognition in accounting, which is precisely the opposite of its omission! In fact, nor could it be otherwise, given that tax rules must be applied within the principle of formal connection.[30]

The recognition of this presumptive nature of autonomous taxation at issue in the proceedings, in the terms above suggested, will, among everything else, be a safeguard of its constitutionality, insofar as it will be guaranteed both the possibility of its integral deduction by the taxpayer and its non-deduction, depending on which side the presumption underlying them is, concretely and in each case, rebutted.

In conclusion, in light of everything that has been said, and in favor of conceptual rigor, it will further be said that there is a tendency to the understanding that autonomous taxation, as they currently exist, may be configured as a "hybrid" tax,[31] applying to the income of individuals and corporate entities, and not to consumption or expense, since they will not present the principal characteristics of this form of taxation. Having in mind that they also do not apply to wealth, and since the Portuguese Constitution does not provide for other types of taxation, the legislator was left with only two solutions: taxation under IRS, in category A, in the person of the direct beneficiaries (which it already does in some cases) or under IRC (and, by extension, in category B of IRS). In the latter case, the legislator could act at two levels (separately or simultaneously): not to accept the deductibility of some expenses in their entirety or partially and/or to tax them autonomously. Faced with the historical finding of a high number of IRC taxpayers with tax losses, the choice for the generalization of autonomous taxation ended up being imposed.

Also here, once more, is no contradiction consummated,[32] contrary to the Claimant's interpretation. The circumstance that the legislator could have opted for the non-deductibility or partial deductibility of the expenses which, instead, it decided to subject to autonomous taxation, not only does not contradict, but reinforces,[33] what has just been said. The Claimant's confusion may lie, perhaps, in the circumstance that it seems to it that above there was suggested a concealment of the expenses subject to the autonomous taxation at issue in the proceedings, which, as was seen, is not the case. Thus, the possibility, recognized to the legislator of limiting or excluding the deductibility of the charges in question, will not in any way collide with the autonomy of the businessman in classifying as indispensable – or not – the expenses in which he incurs.[34] Simply, in the latter case, the faculty in question will be inoperative – since, indispensable or not, the expense will not be deductible – and in the first, it will only have part of its normal effect – if he classifies the expense as indispensable, he will deduct it partially (if such classification is not validly disputed by the AT, obviously), while if he does not classify it as such, he will not deduct it at all.

Considering, then, that autonomous taxation applying to charges deductible in IRC integrate the regime of and are owed under such tax, and as such are covered by the provision of paragraph a) of no. 1 of Article 45 of the CIRC, the expenses incurred with the payment of such autonomous taxation will not constitute deductible charges for purposes of determining taxable profit, and therefore the present arbitral action must be dismissed.

C. DECISION

Wherefore this Arbitral Tribunal decides:

a) To judge the request for arbitral ruling to be wholly dismissed, and in consequence, to maintain the impugned tax act;

b) To condemn the Claimant to pay the costs of the proceedings in the amount of €2,448.00, taking into account the amount already paid.

D. Value of the Proceedings

The value of the proceedings is fixed at €69,396.92, in accordance with Article 97-A, no. 1, 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 RJAT and no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was wholly dismissed, in accordance with Articles 12, no. 2, and 22, no. 4, both of the RJAT, and Article 4, no. 4, of the cited Regulation.

Notice is to be served.

Lisbon

11 July 2014

The Arbitrator-President

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(Ricardo Jorge Rodrigues Pereira)

The Arbitrator Member

(Júlio Tormenta)

[1] In this sense, see, for example, the Supreme Administrative Court Decision of 16-11-2011, rendered in proceedings 0723/11, and available at www.dgsi.pt, in whose summary one can read: "The judicial challenge of dismissal of administrative review has as its immediate object the decision on the review and as its mediate object the defects attributed to the assessment act."

[2] (Cf. Article 2/1/a)) "acts of assessment of taxes, self-assessment,..."

[3] Arthur Kaufman, "Philosophy of Law," 3rd Edition, Calouste Gulbenkian Foundation, p. 44.

[4] "It is precisely in pedantically exact arguments, thought with an extreme degree of rigor and exactitude, that we frequently have the impression that something, in some way, does not make sense."; idem, p. 89.

[5] Which is equally accepted by the Claimant, which demonstrates, even, that the very "IRC," in the sense defined by it, could be a deductible charge, relying on the Swiss example, after affirming, in a passage already partially transcribed, that "conferring on autonomous taxation for purposes of the referred paragraph a) of no. 1 of Article 45 of the CIRC the same treatment given there to IRC and surtax is at most a pure matter of legislative policy, as opposed to any natural consequence of the logic or purpose associated with autonomous taxation here at issue." It is added that not "conferring on autonomous taxation for purposes of the referred paragraph a) of no. 1 of Article 45 of the CIRC the same treatment given there to" VAT or to CIS will also be "a pure matter of legislative policy, as opposed to any natural consequence of the logic or purpose associated with" IRC!

[6] Arthur Kaufman, op.cit., p. 186.

[7] Available at http://www.tribunalconstitucional.pt/tc/acordaos/20120617.html.

[8] Words of the Claimant (page 19 of its submissions).

[9] See, for all, the recent Decision of 26/02/2014, rendered in proceedings 01936/13, available at www.dgsi.pt.

[10] "There is no similarity whatsoever between confidential/undocumented expenses and the expenses here at issue" (Article 224 of the Initial Request).

[11] The Claimant contests this understanding (page 9 et seq. of its submissions). Since this aspect does not integrate the ratio decidendi of the present decision, but an additional reflective topic, it will always be said that the Claimant obliterates some fundamental aspects of the regime of, at least, some liberatory rates, such as the isolation of the income subject to them and corresponding rates, and the instantaneity of the respective tax fact. On the other hand, undeniably close is the regime of autonomous taxation of gratuities under IRS (Article 72/2 of the 2010 CIRS), which presupposes income and applies to the respective holder, with that of liberatory rates. Which, if it serves no other purpose, highlights the vain glory of fabricating a unitary concept of autonomous taxation for it to be stubbornly pursued.

[12] In this regard, cf. Soares Martinez, "Tax Law," 7th Edition, Almedina, 1993, pp. 191 et seq.

[13] This aspect is particularly evident under IRS, where the autonomous taxation provided for in Article 73 of the respective Code only applies to "taxpayers who have or should have organized accounting within the scope of the pursuit of business and professional activities." And even among these, "Excluded are (...) the taxpayers to whom the simplified regime for determining taxable profit provided for in Articles 28 and 31 is applicable." (no. 8 of Article 73).

[14] It would be difficult to understand that in the VAT Code or the CIS Code, or even in a statute governing an autonomous tax, it is enshrined that certain expenses would only be subject to tax if deductible under IRC...

[15] And not decisive, as the Claimant contends (page 14 et seq. of its submissions).

[16] P. 4 of the Claimant's Submissions.

[17] The considerations below will be equally valid, without need of any adaptation, for Article 3 of the CIRC, referred to by the Claimant, which is mere concretization of Article 1.

[18] Hence the reference to IRC in the strict/broad sense, reflecting such duality.

[19] Today, and after the most recent amendments to the legal regime in question, it will not be affected or will be little affected since non-deductible charges will not, as a rule, be significant.

[20] The Claimant itself recognizes anti-abuse purposes to some types of autonomous taxation other than that at issue in the proceedings, such as that applying to profits distributed to entities exempt from IRC as well as to payments to entities resident in zones of low taxation.

[21] Being thus incomprehensible the statement that "from which, further, in the idea of arbitral decision, everything must have to do with the IRC of whoever bears the autonomous taxation (and not with the IRS or, more broadly, with the taxation of another person)." (p. 18 of the Claimant's submissions).

[22] Who, once more, accrues to all the others that precede, not being thus the ground of what is decided in the sense intended by the Claimant.

[23] The Claimant contests this understanding, affirming, in sum (pp. 16 to 19 of its submissions), that the part referred to as "personal" will, in the perspective of the IRC taxpayer, still be business-related, referring to the example of the use of a vehicle for personal purposes of the worker as being still remuneration of the latter, and as such business-necessary. With due respect, it is understood that such judgment contains a fallacy. In fact, if it is not remuneration owed (not contractually agreed) to the user of the vehicle, the expense is objectively unnecessary from a business perspective. If there is a contractual obligation of the IRC taxpayer to remunerate in the manner described the referred user, we will be faced with an agreement subsumible to the provision of Article 2/3/b)/9 of the CIRS, with autonomous taxation being precluded in accordance with no. 6 of Article 88 of the CIRC.

Also as regards travelling allowances, a situation equally alluded to by the Claimant, the excess will not be merely remuneration. If it were, moreover, the IRC taxpayer would attribute the corresponding excess as such (that is, as remuneration) and would proceed to its accounting in that form, precluding autonomous taxation. The crux is precisely in the situation in which the IRC taxpayer accounts for as a travelling allowance what it is not. And, insofar as a travelling allowance (which is what is subject to autonomous taxation), the expense, in the part that "is objectively excessive in face of the costs incurred by the worker for being away at service of the company," the expense is objectively unnecessary, since its reason for being (to compensate the worker for costs incurred for company business) is not verified.

It remains, thus, for not seeing reason to review, the understanding that these autonomous taxation contain in themselves specific motivations of IRC linked to their having presumably underlying partial businessness.

[24] The Claimant points out that "it is absurd to equate expenses such as those here at issue with expenses benefiting offshore companies." Obviously, the absurdity or not of the comparison depends directly on what is being compared. What is at issue here is the legislative technique used. And obviously – and the Claimant itself recognizes it – the discretionary nature of the legislative process permits the legislator to apply the same mechanism it deemed appropriate for expenses in favor of offshore companies to other expenses, namely those here in question. That is, and to be clear: it is not discerned, nor does the Claimant point out, reasons, from a legal point of view, that preclude the legislative technique used in the treatment of both expenses being the same.

[25] In such case, moreover, it should be understood that the amount assessed under autonomous taxation should be annulled and any amount paid should be refunded/credited, thereby affirming, also by this route, the patent intertwining of autonomous taxation with the IRC regime they integrate.

[26] Cf. Nina Aguiar, "Tax Law and Discretionary Accounting Judgments" in SNC and Value Judgments, a critical and multidisciplinary perspective, Almedina, June 2013, p. 302.

[27] Cf., for example, Supreme Administrative Court Decision of 30-11-2011, rendered in proceedings 0107/11.

[28] Note that we are speaking here of documented expenses. Those not documented, by their very nature, whose analysis escapes the scope of the present decision, will justify different treatment.

[29] All the more so since it seems to be the understanding of the Claimant that "it is absurd to equate expenses such as those here at issue with expenses benefiting offshore companies."

[30] Under this principle, tax rules do not replace accounting rules nor disconnect the calculation of taxable profit from accounting profit, although they lead to a different result. Thus, even if a charge is not fiscally deductible, if that charge has accounting relevance, it must be accounted for in conformity with the accounting normative system in effect in the jurisdiction under analysis. Now, in Portuguese tax law as regards IRC, Article 17 no. 3 establishes a referral to the accounting "regulation in effect" and in no. 1 of the same rule, a rule of formal connection between accounting and tax rules. In fact, the Portuguese formula of the principle of formal connection is very close to that existing in Spanish and Italian law.

[31] Integrating such a system of dual nature already referred to above.

[32] Cf. p. 22 of its submissions.

[33] Demonstrating that they are alternative means of pursuing the same ends.

[34] The faculty from which it follows that if, in the exercise of such autonomy, the businessman classifies as not indispensable certain expenses which, if they were, would be subject to the autonomous taxation at issue in this arbitral proceeding, that taxation will not take place.