Process: 370/2015-T

Date: January 25, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision (Process 370/2015-T) addresses the deductibility of RFAI 2009 tax benefits and special payments on account from various IRC collections in a group taxation regime (RETGS). The claimant, A... SGPS, contested the partial dismissal of its official review petition regarding 2010 IRC self-assessment, raising five key issues: (1) whether RFAI benefits (€274,262.32) could be deducted from both state surcharge and autonomous taxation across the entire group, with the AT only accepting €44,203.91 deductible from the surcharge of the benefit-generating company alone; (2) whether special payments on account (€461,243.19) could similarly be deducted from these collections, with the dispute stemming from a 2009 administrative correction that reduced available credit; (3) proper application of Article 92 CIRC's limitation requiring tax payable to equal at least 75% of the amount without benefits; (4) the right to carry forward unused RFAI benefits (€83,117.8) not deducted due to Article 92 constraints; and (5) entitlement to compensatory interest. The central controversy concerns whether state surcharge and autonomous taxation, despite having distinct incidence rules, constitute integral parts of IRC collection under Article 90 CIRC, thus allowing group-wide deduction of tax benefits and credits. The AT maintained that state surcharge applies individually to each group company's profit, limiting benefit deduction to the specific company generating the RFAI credit rather than the consolidated group amount. The tribunal's analysis would determine the scope of tax benefit deductibility in group taxation contexts and the interplay between RFAI incentives and Article 92's minimum taxation safeguard.

Full Decision

ARBITRAL DECISION

A..., SGPS, S.A., NIPC..., with registered office at Rua..., no..., ..., ...-... Lisbon, requested arbitral determination regarding the partial dismissal of an official review petition it had filed, concerning the self-assessment of Corporate Income Tax for 2010 (assessment no. 2013...), requesting the annulment of this decision and the consequent partial annulment of the said Corporate Income Tax assessment, as well as the refund of the improperly paid tax, plus compensatory interest.

The official review petition was partially dismissed by order of 09/03/2015, of the Director of the Large Taxpayers Unit, of which the Claimant was notified through letter no..., of 10/03/2015, sent by registered mail of the same date.

The Claimant filed its Arbitral Appeal on 09/06/2015, accepted by the CAAD on 11/06/2015, whereby it is timely.

The Tax and Customs Authority – AT is the Respondent.

The Claimant opted to designate an arbitrator, indicating for such functions Mr. Prof. Dr. António Martins. The Respondent designated as arbitrator Mr. Dr. Rodrigo de Castro, with the presiding arbitrator, Mr. Prof. Dr. Rui Duarte Morais, being designated by consensus between them.

The arbitral tribunal was constituted on 24/08/2015.

The AT timely filed its reply.

The holding of the meeting referred to in article 18 of the RJAT was dispensed with.

No evidence being produced, oral arguments took place on 03/12/2015.

I - Report

The Claimant contests the partial dismissal of the review petition it had filed, concerning the self-assessment of Corporate Income Tax for 2010, for not having heeded its claims to: a) deduct an amount corresponding to tax benefits instituted by the RFAI 2009 from the collections of the state surcharge and autonomous taxation of the group of companies it heads; b) deduct a credit relating to special payments on account, carried forward from the previous fiscal year, from the collections of the state surcharge and autonomous taxation of the group it heads; c) deduct, regarding the amount of RFAI determined in the 2009 fiscal year that still remained available for deduction in 2010, only the amount necessary for the tax to be paid to correspond to 75% of the amount that would be determined if there were no tax benefits covered by article 92 of the same Code; d) recognition of the right to carry forward to subsequent fiscal years the tax benefits obtained under the RFAI 2009 not deducted as a consequence of the application of article 92 of the Corporate Income Tax Code; d) condemnation of the AT to pay interest due for the non-reimbursement of the tax that it considers to have paid in excess.

The Respondent AT sustains the legality of the assessment, as reformed in accordance with what followed from the partial allowance of the official review petition. We shall subsequently analyze, regarding each of the issues raised, the arguments submitted by the parties.

The case is proper and timely, the parties are legitimate and are duly represented, there are no nullities or exceptions which it behoves to address.

II - Proved Facts

The following facts are documentally proved, with significance for the proper decision of the case:

  1. In 2010, the Claimant headed a group of companies to which the Special Tax Regime for Groups of Companies (RETGS) was applied, being therefore the passive taxpayer of Corporate Income Tax relating to that group.

  2. The Claimant self-assessed, within the legal deadline, the Corporate Income Tax for 2010, including the state surcharge and autonomous taxation.

  3. Subsequently, the Claimant presented amended declarations, the last of which on 16/12/2013, which gave rise to the assessment now contested.

  4. On 02/01/2015, the Claimant presented an official review petition of such self-assessment.

  5. Such petition was subject to partial dismissal by order of 09/03/2015 of the Director of the Large Taxpayers Unit (UGC).

  6. In such official review petition, the Claimant petitioned:

a) - the deduction of the tax benefits instituted by the RFAI 2009, in the amount of € 274,262.32, from the collections of the state surcharge and autonomous taxation of the group;

b) - the deduction of Special Payments on Account, in the amount of € 461,243.19, from the collections of the state surcharge and autonomous taxation of the Group;

c) - the carrying forward to subsequent fiscal years of the tax benefits obtained under the RFAI 2009, in the amount of € 83,117.8, not deducted as a consequence of the application of article 92 of the Corporate Income Tax Code.

d) – payment of compensatory interest

  1. Regarding the first petition, the AT accepted the deductibility of € 44,203.91, on the grounds that the tax credits resulting from the RFAI 2009 could be deducted from the amount of state surcharge determined regarding the company that generated such benefits, basing this on the fact that the state surcharge is an ancillary tax to Corporate Income Tax.

  2. The tax benefit RFAI 2009 was determined in the sphere of the company "B..., S.A.", which was part of the group of companies for which the claimant determines tax in accordance with the RETGS.

  3. The value of the Special Payments on Account that the Claimant intends to deduct regarding the 2010 fiscal year, of € 461,243.19, corresponds to the difference between the value it considers deductible, of € 839,707.96 and the value accepted by the AT, of € 378,464.77.

  4. The divergence as to the value of Special Payments on Account deductible in 2010 resulted from an administrative correction to the Corporate Income Tax of 2009 (with a consequent additional assessment), which determined the use, in this fiscal year, of the balance of Special Payments on Account paid in previous fiscal years and, consequently, the non-existence of credit from Special Payments on Account available for deduction in the 2010 fiscal year.

  5. The additional assessment of Corporate Income Tax for 2009 was contested judicially by the Claimant, in a case proceeding under no..../13...BELRS.

There are no unproved facts relevant to the proper decision of the case.

III - Ruling on the Merits:

A) Deduction of the tax benefits instituted by the RFAI 2009 from the state surcharge collection of the group

The Claimant argues, in summary, that, as the state surcharge is an integral part of the Corporate Income Tax collection, the tax credits determined under the RFAI can be deducted up to the amount of the state surcharge determined by the group (subject to the RETGS) that it heads.

This is because, although recognizing that Corporate Income Tax stricto sensu and the state surcharge have different rules of incidence, it understands that their assessment is conducted in a single manner, being made in accordance with the terms provided in article 90 of the Corporate Income Tax Code, whose no. 2 stipulates that to the amount determined in accordance with the previous number the deductions provided therein are made (including the deduction relating to tax benefits) and in the order indicated therein, provided that when the special regime for taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount determined regarding the group, in accordance with no. 1.

For its part, the AT argues, in summary, that the deduction of the RFAI 2009 should only take place with respect to the state surcharge determined by the company in whose sphere the benefit originated and not to the sum of the state surcharges of the various companies that make up the group. This is because – the AT understands - the state surcharge applies, in accordance with no. 1 of article 87-A of the Corporate Income Tax Code, to the individual profit of each of the companies of the group, that is, "the state surcharge that the dominant company pays does not correspond to a state surcharge of the group, but rather to the sum of state surcharges determined in each company individually (…) one cannot properly speak of a group state surcharge but rather of a sum of individual state surcharges, even though the dominant company is responsible for payment thereof". "The state surcharge does not therefore follow the same regime provided in article 70 of the Corporate Income Tax Code for determining the taxable profit of the group". "We are faced with the sum of different collections of state surcharge of the various companies of the group to which it is sought to deduct a tax benefit generated by a single company of the group".

It is important to begin by examining the applicable legal provisions.

Article 70, no. 1 of the Corporate Income Tax Code, as worded in 2010, provided: with respect to each of the taxation periods covered by the application of the special regime, the taxable profit of the group is calculated by the dominant company, through the algebraic sum of the taxable profits and tax losses determined in the individual periodic declarations of each of the companies belonging to the group.

For its part, article 87-A of the Corporate Income Tax Code, added by Law no. 12-A/2010, of 30/06, stipulates, under the heading State Surcharge:

1 - An additional tax rate of 2.5% applies to the part of taxable profit exceeding € 2,000,000 subject and not exempted from corporate income tax determined by passive taxpayers resident in Portuguese territory that exercise, as their principal activity, a commercial, industrial or agricultural activity and by non-residents with a permanent establishment in Portuguese territory.

2 - When the special regime for taxation of groups of companies is applicable, the rate referred to in the previous number applies to the taxable profit determined in the individual periodic declaration of each of the companies of the group, including that of the dominant company.

3 - The passive taxpayers referred to in the previous numbers must proceed to assess the additional surcharge in the periodic income declaration referred to in article 120.

It is clear that the legislator expressly provided for the situation of companies subject to the RETGS regarding the state surcharge. This tax, notwithstanding its ancillary character relative to Corporate Income Tax, was excluded from the scope of the RETGS, since it does not apply to the overall profit of a group of companies (to the algebraic sum of taxable profits and tax losses of the companies that comprise it), but rather to the taxable profit of each of the companies of the group, including the dominant company.

Which is understandable, if we examine the objectives of Law 12-A/2010, which "approves a set of additional measures for budget consolidation aimed at strengthening and accelerating the reduction of excessive deficit and controlling the growth of public debt as provided in the Programme for Stability and Growth (PEC)".

It is evident that the sum of the profits of the companies that make up a group will normally result in an amount higher than the amount of the algebraic sum of the taxable profits and tax losses of such companies.

It therefore follows clearly, from the letter and the ratio of the law, that the general rules of the RETGS do not apply to the state surcharge, that the existence of a group of companies is irrelevant for purposes of this tax.

Thus, the Claimant's claim to deduct the tax credit relating to the RFAI, of which it is the holder of one of the companies of the group it dominates, from the "state surcharge collection of the group" is necessarily unfounded, because, quite simply, this does not exist, as the AT correctly understands.

B) Deduction of the tax benefits instituted by the RFAI 2009 from the autonomous taxation collection.

The Claimant seeks to deduct the credit resulting from the said tax benefit from the autonomous taxation collection relating to the fiscal year in question (2010).

To do so it argues, in summary: that autonomous taxation "is Corporate Income Tax" (it is part of this tax), relying, for this conclusion, on abundant jurisprudence, both from the Supreme Administrative Court and from Arbitral Tribunals (CAAD); that no. 1 of article 90 of the Corporate Income Tax Code refers to the final assessment of Corporate Income Tax, which contains the total amount of tax to be paid under this heading and which includes not only the Corporate Income Tax collection stricto sensu, but also the state surcharge and autonomous taxation, as it mentions the assessment of Corporate Income Tax that is conducted on the basis of the income declaration presented by passive taxpayers under article 120 of the Corporate Income Tax Code, which contains not only the taxable profit that will serve as the basis for calculating the Corporate Income Tax collection stricto sensu, but also the taxable matter from which the state surcharge will be calculated in the sphere of each company of the group and any expenses to which autonomous taxation will apply.

For its part, the AT argues, in summary, that the law does not provide for the possibility of making the deductions provided in no. 2 of article 90 of the Corporate Income Tax Code to the amount due by way of autonomous taxation as, if that had been the intention, the legislator would have expressly stated it, providing that the deductions in question would be made to the amount determined in accordance with the previous number and article 88; that, as autonomous taxation aims to reduce the tax advantage achieved with the deduction from the taxable profit of the costs on which it applies and also to combat tax evasion that some of these expenses, by their nature, promote, it cannot itself, through consideration of its amount for purposes of deducting benefits, constitute a factor in reducing this diminution of advantage sought and determined by the legislator; that while it is true that autonomous taxation has the nature of Corporate Income Tax, it cannot be overlooked that it taxes expense and not income, it burdens certain charges incurred by companies and is determined in a manner entirely independent of Corporate Income Tax, so only the rules in the Corporate Income Tax Code that directly refer to it are applicable to it.

Assessing:

As to the nature of autonomous taxation, as constituting an integral part of Corporate Income Tax, the jurisprudential understanding referred to by the Claimant merits no reservations on our part. However, a different question is knowing what effect such understanding has, that is, the nature of autonomous taxation does not, by itself, resolve the question at issue.

We will begin by recalling that such jurisprudence aimed to answer a concrete question: whether the collection from autonomous taxation was deductible from the Corporate Income Tax collection, which would happen "if they were not Corporate Income Tax". That is, we cannot draw from this jurisprudence the conclusion that autonomous taxation is applicable, for all purposes, to the general rules of Corporate Income Tax.

In reality, the differences between what it is sought to tax via Corporate Income Tax and via autonomous taxation are striking, and, furthermore, the different intentionality that presides over each of these taxation forms[1].

Thus, other decisions, to which the Claimant also refers, made it very clear that autonomous taxation does not share some of the essential characteristics of Corporate Income Tax, namely that it should be considered as a non-periodic tax[2].

Established that the answer to the question sub judice does not follow directly from the nature of autonomous taxation, if these "are or are not Corporate Income Tax", it is important to recall the legal provisions in question, in the wording applicable in 2010.

Articles 90, nos. 1, 2 and 6 of the Corporate Income Tax Code provided:

1 — Assessment of Corporate Income Tax is conducted as follows:

a) When the assessment is to be made by the passive taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable matter contained therein;

b) (…)
c) (…)

2 — To the amount determined in accordance with the previous number the following deductions are made, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

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

6 — When the special regime for taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount determined regarding the group, in accordance with no. 1.

For its part, nos. 1 to 3 of article 3 of Law no. 10/2009, of 10 March, which instituted the RFAI 2009, provide as follows:

Tax Incentives

1 - Passive taxpayers of Corporate Income Tax resident in Portuguese territory or having a permanent establishment there, who exercise as their principal activity a commercial, industrial or agricultural activity covered by no. 1 of the previous article that make, in 2009, investments considered relevant, are granted the following tax benefits:

a) Deduction from Corporate Income Tax collection, and up to 25% thereof, of the following amounts, for investments made in regions eligible for support under regional incentive schemes:

i) 20% of the relevant investment, regarding investment up to the amount of € 5,000,000;

ii) 10% of the relevant investment, regarding investment exceeding the amount of € 5,000,000;

b) Exemption from municipal property tax, for a period of up to five years, regarding property owned by them that constitutes relevant investment;

c) Exemption from municipal tax on onerous transfers of property regarding acquisitions of property that constitute relevant investment;

d) Exemption from stamp duty regarding acquisitions of property that constitute relevant investment.

2 - The deduction referred to in paragraph a) of the previous number is made in the assessment for the taxation period beginning in 2009.

3 - When the deduction referred to in the previous number cannot be made in full due to insufficient collection, the amount still not deducted may be deducted, under the same conditions, in the assessments of the four following fiscal years.

Given these provisions, it is important to know whether the amount of autonomous taxation can be understood as Corporate Income Tax collection for purposes of this tax benefit.

Transcribing, with due deference, from the decision of the CAAD no. 219/2015-T[3], we shall state: "Thus, the question that interests us to resolve is, regardless of the nature of the tax to which autonomous taxation refers, whether the amount of autonomous taxation is 'determined in accordance with article 90 of the Corporate Income Tax Code', because, if it is, one must conclude that, to determine the limit of the deduction, regard is had to the collection arising from autonomous taxation.

Article 90 of the Corporate Income Tax Code refers to the forms of assessment of Corporate Income Tax, by the passive taxpayer or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessments (no. 10).

For this reason, it also applies to the assessment of the amount of autonomous taxation, which is determined by the passive taxpayer or by the Tax Administration in accordance with article 90 of the Corporate Income Tax Code, there being no other provision that provides for different terms for its assessment. Its autonomy is restricted to the applicable rates and the respective taxable matter, but the determination of its amount is made in accordance with article 90.

The differences between the determination of the amount resulting from autonomous taxation and the amount resulting from taxable profit reside in the determination of the taxation matter and the rates, provided for in Chapters III and IV of the Corporate Income Tax Code, but not in the forms of assessment, which are provided for in Chapter V of the same Code and apply equally to autonomous taxation and to other taxable matter of Corporate Income Tax.

For this reason, as reference is made to article 90, included in this Chapter V, in article [3, no. 1, of the RFAI], there is no legal basis to make a distinction between the collection arising from autonomous taxation and the remaining Corporate Income Tax collection, because the rates and the forms of determination of the taxable matter are different.

(…)

On the other hand, the fact that the deductibility of the tax benefit (.) is limited to the collection of article 90 of the Corporate Income Tax Code, up to its amount, does not permit the conclusion that the tax credit is only deductible if there is taxable profit, as what that fact requires is that there is Corporate Income Tax collection, which can exist even without taxable profit, namely by virtue of autonomous taxation".

We therefore have it that the literal element of the norm does not exclude the interpretation made by the Claimant, as the deductibility of the said tax benefit from the autonomous taxation collection finds a "minimum of verbal correspondence" in the legislative text (article 9, no. 2, of the Civil Code).

It is true that autonomous taxation, in addition to having the objective of ensuring a minimum collection for companies that show losses (an issue that does not arise in the present case), aims to reduce the "fiscal burden sharing" on certain expenses and, possibly, discourage their incurrence, and such objectives will be less achieved with the possibility that the respective collection could be subject to deductions.

But, on the other hand, tax benefits are measures of an exceptional nature instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation they prevent (article 2, no. 1, of the Tax Benefits Statute).

In the confrontation between these two objectives, it is the law itself that indicates to us what should prevail. The public interests that determine the creation of a tax benefit are, by nature, superior to those of the taxation they prevent.

This is, all the more, manifest regarding tax incentives for investment, as they constitute a true public promise, in the sense that passive taxpayers who adopt certain behaviors, supposedly of the greatest economic and social interest, are guaranteed a certain "tax reward".

An interpretation of the law, not expressly required by the legal text, that restricts the "utilization" of the said tax benefits would harm the credibility of the "legislative promises" in tax matters, would, in summary, be contrary to the principle of confidence, inherent in the idea of the Rule of Law.

Having accepted the deductibility from autonomous taxation collections of the credits resulting from the RFAI, the question arises: regarding a group of companies subject to the RETGS, should the deduction be made from the autonomous taxation collection of all the companies of the group or only regarding each of the companies that benefited from such tax benefit?

We think that the answer follows directly from the law, since no. 6 of article 90 of the Corporate Income Tax Code provided that when the special regime for taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount determined regarding the group, in accordance with no. 1.

The Claimant is thus correct.

C) Credit (deduction from collection) relating to Special Payments on Account paid in previous years

As the proved fact in 9, 10, and 11, there was an administrative correction to the Corporate Income Tax of 2009 (with the consequent additional assessment), which determined the use, in this fiscal year, of the entire balance of Special Payments on Account paid in previous fiscal years, and such additional assessment was contested judicially, a decision having not yet been rendered.

The Claimant understands that such administrative correction and the consequent additional assessment have not become consolidated in the legal order and that, therefore, the quantification of the tax to be paid regarding 2010 (the tax whose assessment is contested in the present case) should be operated as if such correction did not exist.

In this sense it argues that the finality of the assessment of Corporate Income Tax relating to 2009 is a prejudicial cause regarding the assessment relating to 2010, since the only ground that the AT invokes for, on this point, basing this assessment is the assumption that the correction made relating to the 2009 fiscal year is legitimate.

We are not unaware of the artificiality involved in dividing business activity, which is by nature continuous, into "fiscal years", namely for purposes of determining the tax to be paid. There are numerous institutions in tax law that precisely aim to "overcome" some of the adverse consequences of this artificiality, such as, in what interests us here, the possibility of utilizing, in future fiscal years, tax credits that, for some legal reason, cannot be used in the fiscal year in which they were generated.

The question, however, is not that one, but rather whether an administrative act (in this case, additional assessment of Corporate Income Tax for 2009) exists validly in the legal order pending a legal challenge process directed at its annulment.

With VIEIRA DE ANDRADE[4] - expressing an understanding that we consider entirely established - we shall state that "the direct effect of the judgment allowing the petition for annulment is the 'constitutive' effect that translates into the invalidation of the contested act, eliminating it from the moment the illegality occurred, that is, as a rule, except in cases of supervening illegality, from its practice – "ex tunc" efficacy of the judgment.

That is, an act of assessment (which declares a tax claim) exists, validly, in the legal order until the moment it is annulled, in this case, judicially. Its executability may be suspended, as regards the collection of the assessed tax, if applicable, by virtue of the pending legal challenge process and, as a rule, the provision of sufficient security.

The AT, by assuming as the basis of the decision of dismissal, rendered in the course of the extraordinary complaint process, the validity of the additional assessment relating to the 2009 fiscal year, did nothing other than draw the normal consequences of the fact that this administrative act remains valid in the legal order for not yet having been annulled by judicial decision.

Contrary to what the Claimant seeks, there is no relation of prejudicial character of the assessment referring to 2009 regarding that referring to 2010.

If the Claimant is successful in the judicial action contesting the assessment relating to 2009, it will be entitled to be reimbursed for the amount of tax "paid in excess" (in this case, the amount of credits relating to Special Payments on Account from previous years that, in that event, will have been improperly used as deductions from collection in that fiscal year), plus compensatory interest, as only thus will compliance be given to the provision of article 100 of the General Tax Law, "to the full restoration of the situation that would exist if the illegality had not been committed".

That is, the impossibility for the Claimant to deduct, in calculating the tax to be paid in 2010, the value of the Special Payments on Account that, in its view, should have "carried forward" from 2009 in no way prejudices it, should it obtain success in the judicial challenge it filed regarding the assessment relating to 2009. Instead of a tax credit remaining, usable in determining the collection relating to 2010, it will be entitled to be reimbursed, with interest, for the excess paid regarding 2009.

The Claimant's request to deduct from the tax assessed regarding 2010 (the assessment contested in the present case) the credit relating to Special Payments on Account of which it claims to be the holder is therefore unfounded. Thus, the question of whether such "balance" could be deductible from the collections of autonomous taxation and state surcharge relating to 2010 and whether, therefore, to that extent, the assessment now contested is vitiated by illegality, is not reached.

D) Application of article 92 of the Corporate Income Tax Code

The Claimant understands that it does not have to make the maximum deduction permitted by article 3 of the RFAI 2009, as it considers that no. 2 of article 90 of the Corporate Income Tax Code only requires that the passive taxpayer deduct part of the tax benefits to which it is entitled and not all of them, because, otherwise, it could lose the right to deduct certain tax benefits, - as a consequence of the application of the rules that temporally limit their carryforward and of which article 3, no. 3 of the RFAI is an example -, which would not have been the legislator's intention.

Specifically, from the amount of RFAI 2009 that still remained available for deduction, the Claimant only seeks to deduct from the Corporate Income Tax collection, relating to 2010, the amount sufficient for the tax assessed in accordance with no. 1 of article 90 to correspond exactly to 75% of the amount that would be determined if the passive taxpayer did not benefit from tax benefits.

For its part, the AT understands that the legislator, by providing for the possibility of carrying forward the tax benefit relating to RFAI to subsequent fiscal years, presupposed that the deduction of the benefit was made up to the limit drawn by law, that is, 25% of the Corporate Income Tax collection, because the text of the law (no. 3 of article 3 of Law no. 10/2009, of 10 March) clearly refers only to the benefit that was not deducted due to insufficient collection.

This conclusion would also result – according to the AT - from the provision of no. 2 of article 90 of the Corporate Income Tax Code, since it is stated there that from the Corporate Income Tax collection the following deductions are made: international double taxation, tax benefits, special payment on account and withholdings at source not susceptible to compensation or reimbursement, in the order indicated. That is, there being an enumeration, fixed imperatively in sequential terms, the taxpayer cannot choose the fiscal year in which it deducts the tax benefits, so as to avoid the adjustment resulting from the application of article 92 of the Corporate Income Tax Code. Thus, each of the deductions provided for in no. 2 of article 90 should be made in the order indicated therein, only moving from one deduction to the immediately following in the case that a remaining value of collection still exists, resulting from the insufficiency of the amount of the previously made deduction, so that the Claimant's claim to deduct from the Corporate Income Tax collection only part of the amount corresponding to the RFAI finds no support in the legislative bloc.

The AT further understands that the value of RFAI not deducted by virtue of the application of the provision of article 92 of the Corporate Income Tax Code cannot be carried forward to subsequent fiscal years.

We shall begin by examining the content of such norm, in the wording applicable in 2010:

1 — For entities that exercise, as their principal activity, a commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, the tax assessed in accordance with no. 1 of article 90, net of the deductions provided in paragraphs a) and b) of no. 2 of the same article, cannot be less than 75% of the amount that would be determined if the passive taxpayer did not benefit from tax benefits, the regimes provided for in no. 13 of article 43 and article 75.

2 — For purposes of the provision of the previous number, tax benefits are considered to be those provided for:

a) In articles 19 and 67 of the Tax Benefits Statute;

b) In Law no. 26/2004, of 8 July, and in articles 62 to 65 of the Tax Benefits Statute;

c) In benefits in the form of deduction from collection, with the exception of those provided for in Law no. 40/2005, of 3 August, and those that have a contractual nature;

d) In increases in depreciations and amortizations resulting from revaluation made under tax legislation.

The first conclusion to be drawn from such norm is that the tax benefit in the matter of Corporate Income Tax provided for in the RFAI was subordinated, in 2010, to the global limit of deductions from collection then provided for in no. 1 of article 92 of the Corporate Income Tax Code.

However, as the arbitral jurisprudence has concluded, the understanding of which we endorse[5], "this conclusion is not sufficient to resolve the question, as the possibility of carrying forward the tax benefit of the RFAI does not necessarily affect the limit of article 92, no. 1. It is enough that, in the year in question, the amount of the tax benefit is used which, added to the other tax benefits and regimes provided therein, does not exceed the limit of 25% of the collection, so as to allow the tax assessed to be no less than 75% of what would be determined if the passive taxpayer did not benefit from tax benefits and the regimes provided for in no. 13 of article 43 and article 75.

That is, if to achieve the objectives of ensuring that, in each year, the tax collected does not result less than a certain percentage of that which would be due if there were no deductions relating to tax benefits (excepting those listed in no. 2 of article 90) it is sufficient that its deduction (from collection) does not exceed 25% of the collection.

Thus, the article 92, no. 1, of the Corporate Income Tax Code provides no obstacle to the carryforward of deductible amounts, provided that, in each year, the minimum limit of tax assessed that it is sought to is not exceeded".

Let us now analyze the provision of no. 3 of article 3 of the RFAI: when the deduction referred to in the previous number cannot be made in full due to insufficient collection, the amount still not deducted may be deducted, under the same conditions, in the assessments of the four subsequent fiscal years.

"It is manifest that this norm has underlying a legislative intention that the tax benefits supporting investment be utilized by taxpayers, in a reasonable measure, which will be the four years subsequent to that in which the investment occurs (…).

This possibility of deduction in the four subsequent periods constitutes an important guarantee for the taxpayer, by increasing the possibilities of it fully benefiting from the tax benefit, freeing it from the contingency of there not being sufficient collection for the full deduction in the year of the investment, the possibility of carryforward should be considered as an important or even decisive factor to motivate investment decisions.

As it is to be presumed that the legislator established the most accurate solution (article 9, no. 3, of the Civil Code) to achieve the intended objective of encouraging investment, the reference to the possibility of carryforward in case of insufficient collection should not be interpreted with the reach of making it difficult for taxpayers to benefit from the tax benefit, as the objective of the norm is precisely the opposite, to increase the possibilities of taxpayers being able to actually benefit from the benefit, which legislatively is understood to be a fair counterpart to the investment.

Being thus, in a teleological interpretation, which allows finding in the law a way of ensuring the objectives legislatively sought and not prejudicing them, the possibility of deduction should exist in the generality of situations in which the Corporate Income Tax collection available to benefit from the tax benefit is not sufficient for its full utilization, which is nevertheless an interpretation with correspondence in the letter of the law, as from article 92, no. 1, of the Corporate Income Tax Code results a reduction of the collection available to benefit from tax benefits in Corporate Income Tax. And, therefore, when this available collection is insufficient to deduct the totality of the tax benefit resulting from the investment, one is faced with a situation of 'insufficient collection' for purposes of article 3, no. 3, of the RFAI.

Thus, it is concluded that the position defended by the Claimant finds in the letter of the law, even by merely declarative interpretation, verbal correspondence in the letter of article 3, no. 3, of the RFAI, even more than the insufficiently expressed minimum required by article 9, no. 2, of the Civil Code. Furthermore, even if an extensive interpretation were necessary, it would be permitted by article 10 of the Tax Benefits Statute, as it is clear that the legislative intention underlying no. 3 of article 3 of the RFAI is to allow the taxpayer to use the tax benefit to which it is entitled in subsequent years, up to the limit of four, when it cannot use it in previous years.

On the other hand, this interpretation is the one that ensures congruent valuation of the legal system, as it would not be coherent to admit in article 3, no. 1, paragraph a), of the RFAI a deduction from Corporate Income Tax collection of up to 25% and, at the same time, definitively restrict the benefit by way of article 92, no. 1, of the Corporate Income Tax Code.

For this reason, if it is true that the concerns for consolidation of public finances can justify that, in each year, the obtaining of the minimum Corporate Income Tax revenue be imposed over the tax benefit, those concerns can no longer explain that there be no possibility of utilization of the tax benefit in one of the four subsequent years, if such utilization in any of them does not affect that consolidation.

It is thus concluded that the tax benefit resulting from the RFAI in the matter of Corporate Income Tax can only be utilized to the extent that it does not call into question the limit provided for in article 92, no. 1, of the Corporate Income Tax Code, but no legal obstacle is discerned to the part that is not utilized in the year of investment being able to be utilized for deduction from the Corporate Income Tax collection in subsequent years, up to the limit provided for in no. 3 of article 3 of the RFAI.

Therefore, in the present case, the limit provided for in article 92, no. 1, of the Corporate Income Tax Code not permitting the deduction from collection of the total amount of the investment made that benefits from the RFAI regime, the Claimant did not have to attribute all of this investment to that year, remaining without right to deduction in the part in which it would exceed that limit, being able to use the faculty provided for in no. 3 of article 3 of the RFAI"[6].

E) Right to carry forward to subsequent fiscal years the tax benefits obtained under the RFAI 2009 but not deducted as a consequence of the application of article 92 of the Corporate Income Tax Code

The Claimant requests that it be recognized the right to carry forward to subsequent fiscal years the tax benefits obtained under the RFAI 2009, in the amount of € 83,117.8, not deducted as a consequence of the application of article 92 of the Corporate Income Tax Code.

We shall begin by emphasizing that this value was calculated by the Claimant presupposing the total allowance of its petitions, which does not occur.

However, what is relevant here is the fact that "recognition of a right" does not fall within the competence, in terms of subject matter, that the Law attributes to the Arbitral Tribunals (CAAD) in tax matters, as it only conferred upon them the cognizance powers that state tax courts exercise in challenge proceedings, namely, notably, those of knowing the legality of assessments, compensatory interest and indemnification for undue security provision. That is, the cognizance of petitions that, in state courts, must be processed by other procedural forms - in this case, an action for the recognition of a right or legally protected interest - is not included in the competence that the law attributed to arbitral tribunals in tax matters (cf. article 2 of the Tax Arbitration Tribunal Law).

This arbitral tribunal cannot therefore rule on such petition[7].

F) Compensatory Interest

The Claimant petitions for compensatory interest regarding the amount of improperly paid tax, invoking for such the provision of article 43, no. 3, paragraph c) of the General Tax Law, that is, compensatory interest is due in the following circumstances: (…) c) when revision of the tax act by the taxpayer's initiative is made more than one year after the taxpayer's request, except if the delay is not attributable to the tax administration.

The AT understands that compensatory interest is not due because it decided the official review petition within one year from the filing of the respective request, "being able to attribute to it no prejudice resulting from the lapse of time that elapsed from that decision until the transit to final judgment of an arbitral decision which, hypothetically, may judge as allowed the Claimant's petition".

It is important, in the first place, to know what should be understood by "revision of the tax act", whether this corresponds to the requirement of an express pronouncement by the administration on the review petition or if, the taxpayer being correct, the tax act should be considered revised only with the reimbursement to the taxpayer of the improperly paid tax. We conclude, following doctrine that we consider entirely established[8], that only with the practice of this latter act can the official review be considered concluded.

We have, in the second place, that "the right to compensatory interest stems, as a general rule, from a duty of indemnification of the tax administration resulting from the forced unproductiveness of the amounts paid out by the taxpayer"[9], so that its payment will be the rule and not the exception.

It is true that what is at issue is not an error in assessment attributable to the services, since it was a matter of self-assessment. The duty to indemnify results from the partial dismissal of the official review petition, which required the Claimant to resort to this Arbitral Tribunal for the restitution of legality to its tax situation. That is, it was the AT, by deciding as it did, that gave rise to a delay exceeding one year in the definitive resolution of the petition that had been presented to it, in the restitution of legality.

Thus, there is ground for the application of the provision in paragraph c) of article 43 of the General Tax Law, compensatory interest being due, to be calculated on the amount of tax that proves to be improperly paid, to be counted from one year after the date of filing of the official review petition (2/01/2015), that is, from 03/01/2016 (in this sense, Decision of the Supreme Administrative Court of 22/06/2005, case 0322/05).

III - Decision

Based on the foregoing, the arbitrators constituting this Arbitral Tribunal agree in:

A) Partially annulling the order of 09/03/2015 of the Director of the Large Taxpayers Unit (UGC) that decided the review petition filed by the Claimant;

B) Partially annulling the contested assessment, which should be reformed as follows:

B1) Acceptance of the deduction of the tax benefits instituted by the RFAI 2009 from the autonomous taxation collection of the group, subject to the RETGS, headed by the Claimant;

B2) Regarding the amount of RFAI 2009 that still remained available for deduction in 2010, the deduction from the Corporate Income Tax collection of the group (including the autonomous taxation collection) should be only in the amount sufficient for the value of the tax to be paid to correspond to 75% of the amount that would be determined if the passive taxpayer did not benefit from tax benefits.

C) Not ruling on the petition for recognition of the right to "carry forward to subsequent fiscal years the tax benefits obtained under the RFAI 2009, in the amount of € 83,117.8, not deducted as a consequence of the application of article 92 of the Corporate Income Tax Code".

D) Condemning the Respondent, Tax and Customs Authority, to pay compensatory interest, to be calculated on the amount of improperly paid tax, from 03 January 2016.

E) Judging unfounded all other petitions.

The value of the case is fixed at € 242,948.96.

The costs of the proceedings (arbitration fee) are the sole responsibility of the Claimant (article 5, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings).

Lisbon, 25 January 2016

Rui Duarte Morais

António Martins

Rodrigo de Castro

[1] The "differences" between taxation in Corporate Income Tax stricto sensu and autonomous taxation appear clearly explained by Fernando Carreira de Araújo and António Fernandes de Oliveira in "The Deductibility in Corporate Income Tax of Charges with Autonomous Taxation", Cadernos de Justiça Tributária, no. 3, 2014, pp. 3 to 19.

The fact that the Courts have considered – we believe correctly – that the collection from autonomous taxation was not deductible from the Corporate Income Tax collection (a question subsequently expressly resolved by legislative means) does not "erase" such differences.

[2] See Paula Rosado Pereira, "Once Again the Question of Retroactivity of Tax Law in the Field of Autonomous Taxation of Charges: Commentary on the Decision of the Supreme Administrative Court, Case no. 0281/11, of 6 July 2011, 2nd Section", Journal of Public Finance and Tax Law, Coimbra, year IV, no. 3 (2011), pp. 267 to 284.

[3] Arbitrators: Jorge Lopes de Sousa; Vasco Valdez; Maria Isabel Guerreiro.

[4] Administrative Justice, 2007, p. 372.

[5] CAAD Decision no. 693/2014, arbitrators Jorge de Sousa, Henrique Nogueira Nunes and Nuno Pombo.

[6] Ibid.

[7] In the same sense CAAD Decision no. 693/2014-T (Jorge Lopes de Sousa, Henrique Nogueira Nunes and Nuno Pombo).

[8] Lima Guerreiro, Annotated General Tax Law, p. 209.

[9] Ibid., p. 205.

Frequently Asked Questions

Automatically Created

Can RFAI tax benefits be deducted from autonomous taxation and state surcharge collections under Portuguese IRC?
Under Portuguese IRC law, the deductibility of RFAI tax benefits from state surcharge and autonomous taxation collections is contested. The taxpayer's position is that since state surcharge forms an integral part of IRC collection assessed under Article 90 CIRC, RFAI benefits should be deductible from the total group surcharge amount in RETGS contexts. However, the Tax Authority maintains that state surcharge applies individually to each company's profit per Article 87-A CIRC, meaning RFAI benefits can only be deducted from the surcharge of the specific company that generated those benefits, not from the consolidated group surcharge. The AT accepted only €44,203.91 of the claimed €274,262.32 deduction, limiting it to the benefit-generating company's surcharge. Regarding autonomous taxation, which constitutes a separate tax with its own legal framework, the deductibility of RFAI benefits is even more restrictive, as these are generally designed to reduce IRC proper rather than accessory levies.
How does Article 92 of the CIRC limit the use of RFAI tax benefits in corporate tax self-assessments?
Article 92 of the Corporate Income Tax Code establishes a minimum taxation safeguard that limits the use of certain tax benefits, including RFAI incentives. This provision ensures that the IRC payable after applying tax benefits covered by Article 92 must equal at least 75% of the tax that would be due without such benefits. In practical terms, this means taxpayers cannot reduce their tax liability below 25% of the pre-benefit amount through RFAI deductions. In this case, the claimant sought to deduct only the RFAI amount necessary to reach this 75% threshold, with the remainder (€83,117.8) to be carried forward. The Article 92 limitation operates as a ceiling on benefit utilization in any given fiscal year, preventing excessive tax reduction while theoretically preserving unused benefits. However, the right to carry forward RFAI benefits not utilized due to Article 92 constraints is contested, as the CIRC provisions on benefit carryforward may not explicitly address amounts blocked by minimum taxation rules rather than by insufficient tax liability.
Can special payments on account (PEC) be deducted from state surcharge and autonomous taxation in Portugal?
The deductibility of special payments on account (PEC) from state surcharge and autonomous taxation depends on their legal characterization. The disputed amount of €461,243.19 represents PEC credit that the claimant argues should offset these collections. However, this dispute arose from an administrative correction to 2009 IRC that resulted in an additional assessment, which consumed the PEC balance that year, leaving no credit available for 2010. The Tax Authority's position is that PEC credits, being advances against IRC proper, cannot be deducted from state surcharge or autonomous taxation, which are separate levies with distinct legal bases. The claimant's entitlement to the PEC deduction is further complicated by the pending judicial challenge to the 2009 additional assessment (case no..../13...BELRS). If that assessment is ultimately annulled, the PEC credit would be restored for 2010 use. Meanwhile, the legal issue remains whether PEC, conceptually designed as advance IRC payments under Article 106 CIRC, can offset accessory taxes like state surcharge and autonomous taxation, or whether they are strictly limited to IRC collection proper.
What happens to unused RFAI 2009 tax benefits that exceed the Article 92 CIRC threshold in a given tax year?
The treatment of unused RFAI 2009 tax benefits that cannot be utilized in a given year due to Article 92 CIRC's minimum taxation threshold presents a complex carryforward question. The claimant seeks to carry forward €83,117.8 in RFAI benefits that exceeded the Article 92 limitation (which requires tax payable to equal at least 75% of the pre-benefit amount) to subsequent fiscal years. The legal uncertainty stems from whether the CIRC's benefit carryforward provisions contemplate preserving benefits that were blocked by minimum taxation safeguards rather than by insufficient tax liability. Normally, unused tax benefits may be carried forward under specific statutory provisions, but Article 92's constraint operates differently—it doesn't reflect lack of tax to offset but rather a policy limitation preventing excessive reduction. The Tax Authority's position suggests that benefits not deducted due to Article 92 constraints are definitively lost rather than preserved for future use. This interpretation would mean the minimum taxation rule functions as both a yearly floor and a permanent limitation on benefit utilization, potentially reducing the effective value of RFAI incentives for highly profitable companies that generate benefits exceeding the 25% reduction cap. The resolution depends on whether Article 92 should be read as temporarily deferring or permanently extinguishing the unusable benefit portion.
Is a taxpayer entitled to compensatory interest when IRC overpayment results from denied RFAI benefit deductions?
A taxpayer's entitlement to compensatory interest when IRC overpayment results from denied RFAI benefit deductions depends on whether the excess payment constitutes an improper collection under Portuguese tax law. Compensatory interest, regulated by Article 43 of the LGT (General Tax Law), is due when the State retains tax amounts beyond what is legally owed. In this case, if the arbitral tribunal determines that the Tax Authority improperly denied the RFAI deductions, state surcharge offsets, or PEC credits claimed by the taxpayer, the resulting overpayment would trigger compensatory interest from the date of payment until refund. The interest calculation would apply to any amounts paid in excess of the correctly determined IRC liability, including both the principal tax and any improperly collected surcharges. However, the AT's position is that its assessment was legally correct, meaning no overpayment occurred and thus no compensatory interest is due. The compensatory interest claim is therefore derivative of the substantive rulings on RFAI deductibility and benefit carryforward rights. Additionally, if the overpayment relates to the disputed 2009 PEC credit (subject to separate litigation), compensatory interest entitlement may be contingent on that case's outcome, as the availability of the credit itself remains judicially contested.