Autonomous Taxation IRC Deductions: CAAD Arbitral Decision 384/2017-T on Special Payments on Account

ARBITRAL DECISION

The arbitrators Dr. Jorge Lopes de Sousa (chair arbitrator), Dr. José Joaquim Monteiro Sampaio e Nora and Dr. Sofia Ricardo Borges, appointed by the Ethics Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 29-08-2017, agree as follows:

1. REPORT

A…, SGPS, S.A., legal entity no. …, with registered office at …, …-…, municipality of …, hereinafter referred to as "A…" or "Claimant", filed a request for constitution of the collective arbitral tribunal, pursuant to Articles 2, no. 1, subsection a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter RJAT) and Articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, against which the Tax Authority and Customs Authority is the Respondent.

The Claimant seeks to have declared the illegality of the dismissal of the hierarchical appeal and the dismissal of the official review request it filed concerning the self-assessment of Corporate Income Tax (IRC) for the fiscal year 2011, with respect to the amounts of autonomous taxation rates in IRC of €134,771.88, with its consequent annulment in this part by undue removal of deductions from the tax collection.

The Claimant further requests reimbursement of those amounts, plus compensatory interest accrued as of 31-05-2012 for €12,211.01, and accrued as of 01-09-2012 for the remaining €122,560.87.

In the alternative, should it be understood that Article 90 of the IRC Code does not apply to autonomous taxation, the Claimant requests that the illegality of the autonomous taxation assessments (and their consequent annulment) be declared due to absence of legal basis for their implementation, with the consequent reimbursement of the same amounts and the payment of compensatory interest accrued from the same dates.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax Authority and Customs Authority on 23-06-2017.

Pursuant to subsection a) of no. 2 of Article 6 and subsection b) of no. 1 of Article 11 of the RJAT, the Ethics Council appointed the undersigned arbitrators as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 11-08-2017 the parties were duly notified of that appointment and did not manifest any will to challenge the appointment of the arbitrators, in accordance with the combined provisions of Article 11, no. 1, subsections a) and b) of the RJAT and Articles 6 and 7 of the Ethics Code.

In accordance with the requirement established in subsection c) of no. 1 of Article 11 of the RJAT, the collective arbitral tribunal was constituted on 29-08-2017.

The Tax Authority and Customs Authority responded, raising the exception of material incompetence of the arbitral tribunal arising from the fact that the request for arbitral pronouncement was formulated following dismissal of a hierarchical appeal of an act of dismissal of an official review request of a self-assessment act of IRC, and defending the unfoundedness of the request for arbitral pronouncement.

By order of 02-10-2017, it was decided to dispense with the meeting provided for in Article 18 of the RJAT and that the case proceed with written arguments.

The parties submitted written arguments.

The Tribunal is competent; the parties have legal standing and capacity; they are legitimate and are duly represented (Articles 4 and 10, no. 2, of the RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March).

The case does not suffer from any nullities.

It is necessary to examine as a priority the exception raised by the Tax Authority and Customs Authority.

2. STATEMENT OF FACTS

2.1. Proven Facts

The following facts are considered proven:

• On 30-05-2012, the Claimant submitted the income return Model 22 for IRC relating to the fiscal year 2011, having proceeded with the self-assessment of autonomous taxation in IRC for the same fiscal year 2011, in the amount of €134,771.88 (Document no. 1 attached with the request for arbitral pronouncement, the content of which is taken as reproduced);

• On 06-10-2014, the Claimant submitted a replacement IRC income return, Model 22, which changed nothing in this regard (Document no. 2 attached with the request for arbitral pronouncement, the content of which is taken as reproduced);

• The autonomous taxation referred to relates to the following types of expenses:

(Document no. 7 attached with the request for arbitral pronouncement, the content of which is taken as reproduced)

• On 28-05-2015, the Claimant filed a request for official review of the said self-assessment relating to fiscal year 2011, which was dismissed by order of 30-11-2015 from the Director of IRC Services, manifesting agreement with the previous draft decision (Documents nos. 3 and 4 attached with the request for arbitral pronouncement, the contents of which are taken as reproduced);

• The Claimant filed a hierarchical appeal of the said order, which was dismissed by order from the Deputy Director-General of the Tax Authority and Customs Authority, dated 05-04-2017, notified on 12-04-2017, via CTT on 06-04-2017 (Document no. 5 attached with the request for arbitral pronouncement, the content of which is taken as reproduced);

• The order dismissing the hierarchical appeal manifests agreement with a memorandum whose content is taken as reproduced, in which the following is stated, among other things:

1. ARGUMENTS INVOKED IN THE OFFICIAL REVIEW PETITION

In this petition the taxpayer requested restitution of the amount of €134,771.88, arising from the lack of deduction from the IRC tax collection corresponding to the amount of Autonomous Taxation self-assessed: from special payments on account available, invoking the following arguments:

2.1. Both the AT (Tax Authority) and arbitral jurisprudence have come to consider that expenses incurred with TAs (autonomous taxation) are not deductible for purposes of determining the taxable profit of companies under subsection a) of no. 1 of Article 45, until 31.12.13, currently Article 23-A of the IRC Code.

2.2. Arbitral jurisprudence has also understood that since TAs constitute a form of IRC, then the claimant sees absolutely nothing in the Law that would preclude the deduction of Special Payments on Account deductible from the portion of the IRC tax collection produced by TAs.

2.3. Further invoked is the content of Memorandum no. 1980/2013 of 04.10 from this IRC Services Directorate in which the understanding that "autonomous taxation constitutes the same nature of IRC" is also sanctioned, and in which deductions from the tax collection of TAs are only disregarded with respect to tax credits for international double taxation.

2.4. Insofar as the request for pronouncement placed before the IRC Services Directorate also concerned the deduction of SIFIDE and PEC from the tax collection of TAs, and this office having indicated no limitations in this regard, it is concluded that it agrees with the deduction of PEC determined in the same fiscal year, as well as those that could not have been deducted in previous periods due to insufficient tax collection and remain available for deduction to the value of the TAs in question.

2.5. In the same sense comes the decision of the Arbitral Tribunal in case no. 769/2014-T of 08.04, concerning the possibility of deducting SIFIDE from the amounts of TAs determined, that Tribunal having concluded, from the outset, that the "tax collection produced by them (TA) constitutes the respective tax collection being subject to the generality of norms provided for in the referenced codes" concluding that "it [Article 90 of the IRC Code] also applies to the assessment of the amount to TAs."

2.6. The fact that the AT considers TAs to constitute an anti-abuse measure should not modify the conclusion that the tax collection from this portion of IRC is available for purposes of deducting PEC, as in other cases, such as for example the disregard, for purposes of determining taxable income, of costs actually incurred due to lack the indispensability requirement (Article 23), aimed at preventing abuse and impropriety with the personal sphere and generating an increase in IRC collection, which nonetheless remains available for purposes of deduction of the amounts provided for in Article 90 of the IRC Code.

2.7. Based on the value of PECs that were available for deduction in 2011, as well as the value of the TAs determined, the claimant considers that €134,771.88 could have been deducted as PEC, corresponding to the TAs determined in the fiscal year in question.

1. ASSESSMENT OF THE OFFICIAL REVIEW PETITION

In this assessment, it is noted from the outset that it is not true that the IRC Services Directorate pronounced in a favorable sense regarding the deduction of SIFIDE and PECs from the tax collection of autonomous taxation, since in Memorandum no. 1980/13 of 4 October from the IRC Services Directorate, only the question of deducting tax credits for international double taxation to municipal and state surcharges and autonomous taxation was analyzed.

Moving to the analysis of the question to be decided in this petition, we must state that autonomous taxation has a completely "autonomous" and distinct determination from the determination of the tax collection, processed pursuant to no. 1 of Article 90 of the IRC Code, it being settled that they tax certain specific expenses and charges and not income, are taxes that penalize expenses incurred by enterprises, thus they are determined independently from the form of determination of the IRC tax collection.

Autonomous taxation thus applies to legally prescribed expenditure, each expenditure act constituting an autonomous tax fact, to which the taxpayer is subject, regardless of whether or not there is taxable matter under IRC at the end of the respective tax period. The autonomous taxation rate to be applied may vary, not only according to the nature of the expense incurred to which it applies, but also the type of taxpayer (e.g. non-profit entity, exempt entities, entity conducting as main activity a commercial, industrial or agricultural activity) that incurred it, as well as the very fiscal performance of the IRC taxpayer by assuming different percentages when fiscal profit or loss is determined.

In fact, it is the understanding of the IRC Services Directorate that autonomous taxation is integrated into the IRC regime and is due as that tax, but does not constitute IRC in the strict sense.

Nevertheless, the rules applicable to it should not be contrary to the spirit that determines them, being essential to assess the legislator's intention, expressed in the legislative text, understood as a whole.

Now, as concluded by dominant doctrine and jurisprudence, autonomous taxation was created by the legislator with the objective, on one hand, to encourage taxpayers subject to it to reduce as much as possible the expenses that contribute negatively to the formation of taxable profit and as such negatively affect tax revenue, and on the other, to prevent that through these expenses enterprises proceed to disguised distribution of profits, which would not thus be taxed, as well as combat tax fraud and evasion that such expenses occasion not only in relation to IRC or IRS, but also in relation to the corresponding contributions, both of employer entities and workers, to social security (often, such expenses are nothing more than payment of disguised salaries).

The reason for autonomous taxation is not solely the simple collection of more tax; it has rather an anti-abuse character, in the sense of discouraging recourse to the type of expenses it taxes, which by their nature, namely expenses incurred that situate themselves in a gray zone separating what is business expense (production) from what is private expense (consumption).

Thus, it would be contrary to the spirit of the system to allow, by force of the deductions referred to in no. 2 of Article 90 of the IRC Code, to remove from autonomous taxation that anti-abuse character that presided over its implementation in IRC.

1. ARGUMENTS INVOKED IN HIERARCHICAL APPEAL

In this petition, the taxpayer begins by referring to the reasons that led it not to agree with the Draft Decision of dismissal of its Official Review (hearing not exercised during that procedure) and thereafter presents all the arguments it had previously presented in that petition.

Since those arguments are exactly the same, we deem it unnecessary to repeat them in this part of the present Memorandum.

1. INFORMATION FROM THE FINANCE DIRECTORATE ON THE APPEAL PETITION

In this information it is stated that the appellant presents the same allegations contained in the official review request, with no new elements being brought to the record capable of altering the sense of the decision rendered.

Therefore, these Services are of the opinion that the appealed act should be upheld.

1. ASSESSMENT OF THE HIERARCHICAL APPEAL BY THE IRC SERVICES DIRECTORATE

6.1. Timeliness of the petition

The appellant was notified of the dismissal of its official review on 22.12.15 (see copy of the respective receipt notification at page 80 of the record).

Now, having in mind that the present hierarchical appeal was filed at the Finance Services of … on 15.01.16, the 30-day period mentioned in no. 2 of Article 66 of the General Tax Procedure Code (CPPT) is met.

6.2. Analysis of the substance

As previously stated, the arguments presented by the taxpayer in this hierarchical appeal petition are exactly the same as those set forth in the official review procedure which were already duly examined in that procedure.

Nevertheless, we will again present the grounds that lead the AT to consider that the amounts relating to autonomous taxation cannot be considered for purposes of the deductions referred to in no. 2 of Article 90 of the IRC Code.

Thus we have that autonomous taxation, regulated in Article 88 of the IRC Code, aims to tax certain specific expenses and charges incurred by taxpayers and not income, each expenditure act constituting an autonomous tax fact, to which the taxpayer is subject, regardless of whether or not there is taxable matter under IRC at the end of the respective tax period.

The TA rate to be applied may vary, not only according to the nature of the expense incurred to which it applies, but also the type of taxpayer (e.g. non-profit entity, exempt entities, entity conducting as main activity a commercial, industrial or agricultural activity) that incurred it, as well as the very fiscal performance of the IRC taxpayer by assuming different percentages when fiscal profit or loss is determined.

It is the understanding of these Services that TAs are integrated into the IRC regime and are due as that tax, but do not constitute IRC in the strict sense.

Thus, we at once verify that the legislator integrated TAs, effectively and unequivocally into the IRC regime as results from the content of Article 12 of the IRC Code and, currently, from subsection a) of no. 1 of Article 23-A of the same code.

This is not the case with nos. 1 and 2 of Article 90 of the IRC Code in which, from the outset, there is no reference whatsoever to TAs, raising doubts as to the consideration of their value for purposes of the deductions provided for in no. 2 of the cited Article 90.

On the other hand, although it can be considered that they have the same nature of IRC, it becomes essential for the resolution of this question that the rules applicable to them should not be contrary to the spirit that determines them, being essential to assess the legislator's intention, expressed in the legislative text, understood as a whole.

In fact, TAs were created by the legislator with the objective, on one hand, to encourage taxpayers subject to them to reduce as much as possible the expenses that contribute negatively to the formation of taxable profit and as such negatively affect tax revenue, and on the other hand, to prevent that through these expenses enterprises proceed to disguised distribution of profits, which would not thus be taxed, as well as combat tax fraud and evasion that such expenses occasion not only in relation to IRC or IRS, but also in relation to the corresponding contributions, both of employer entities and workers, to social security (not infrequently, such expenses are nothing more than payment of disguised salaries).

Autonomous taxation has an anti-abuse character, in the sense of discouraging recourse to the type of expenses it taxes, which, by their nature, namely expenses incurred that situate themselves in a gray frontier separating what is business expense (production) from what is private expense (consumption) easily diverted to private consumption.

Given the foregoing, it would be contrary to the spirit of the system to allow, by force of the deductions referred to in no. 2 of Article 90 of the IRC Code, to remove from TAs that anti-abuse character that presided over its implementation in the IRC system.

In these terms, they cannot be considered for purposes of the deductions referred to in no. 2 of Article 90 of the IRC Code.

This understanding appears in various Memoranda issued by this IRC Services Directorate and is endorsed at a higher level.

If any doubts existed on this matter, note the recent amendment introduced by Law no. 7-A/2016 of 30.03 (State Budget/2016) by adding no. 21 to Article 88 of the IRC Code, where it expressly states that "the assessment of autonomous taxation in IRC is carried out pursuant to the terms provided for in Article 89 and is based on the values and rates that result from the provisions of the preceding numbers, no deductions being made to the total amount determined" (interpretive nature given by the same Law).

With respect to the balance of PEC from previous years, should one wish to discuss its deductibility in autonomous taxation, the taxpayer would have had to present, if timely, official review requests relating to each of the assessments where the said PECs, paid in the respective period, could not be deducted from the corresponding autonomous taxation in the same period.

In accordance with what was stated above, we are therefore of the opinion that the present hierarchical appeal should be dismissed.

1. RIGHT TO HEARING

Having in mind that, for the facts in question, the taxpayer was already called to exercise the right to hearing mentioned in Article 60 of the General Tax Law in previous stages of the present case and did not use it, we deem it possible to dispense with new right to hearing, cf. Point 3 of Circular 13/99 from the Tax Justice Services Directorate of the AT.

• The AT's computer system, through which IRC is self-assessed, does not allow taxpayers to deduct, for purposes of determining the IRC owed by them, from the tax resulting from the autonomous taxation determined, the amounts of special payments on account;

• On 22-06-2017, the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present case.

2.2. Unproven Facts

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

2.3. Basis for the Establishment of the Statement of Facts

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

Concerning the computer system, the Tax Authority and Customs Authority does not question what is stated by the Claimant, but rather defends that this is the appropriate functioning (Articles 155 et seq. of the response).

3. EXCEPTION OF MATERIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL ARISING FROM THE FACT THAT THE REQUEST FOR ARBITRAL PRONOUNCEMENT WAS FORMULATED FOLLOWING DISMISSAL OF HIERARCHICAL APPEAL OF AN ACT OF DISMISSAL OF AN OFFICIAL REVIEW REQUEST

The Tax Authority and Customs Authority argues, in summary, that Article 2, subsection a) of Ordinance 112-A/2011 of 22 March, through which the Tax Authority and Customs Authority became bound by arbitral jurisdiction, excludes claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative procedure through a gracious complaint, in accordance with Article 131 of the General Tax Procedure Code.

The competence of the arbitral tribunals functioning at CAAD is, in the first place, limited to the matters indicated in Article 2, no. 1, of Decree-Law no. 10/2011 of 20 January (RJAT).

In a second instance, the competence of the arbitral tribunals functioning at CAAD is also limited by the terms in which the Tax Administration was bound by that jurisdiction through Ordinance no. 112-A/2011 of 22 March, since Article 4 of the RJAT establishes that "the binding of the tax administration to the jurisdiction of tribunals constituted pursuant to this law depends on an ordinance of the Government members responsible for the areas of finances and justice, which establishes, namely, the type and maximum value of the disputes covered".

In light of this second limitation of the competence of the arbitral tribunals functioning at CAAD, the resolution of the competence question depends essentially on the terms of this binding, since, even if one is faced with a situation framed in that Article 2 of the RJAT, if it is not covered by the binding the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be precluded.

In subsection a) of Article 2 of this Ordinance no. 112-A/2011, there are expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of the arbitral tribunals functioning at CAAD the "claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with Articles 131 to 133 of the General Tax Procedure Code".

The express reference to the precedent "recourse to the administrative procedure in accordance with Articles 131 to 133 of the General Tax Procedure Code" should be interpreted as relating to cases where such recourse is mandatory, through the gracious complaint, which is the administrative means indicated in those Articles 131 to 133 of the CPPT, for which the provision is referred. In fact, from the outset, one would not understand that, where prior administrative challenge is not necessary "when its ground is exclusively a matter of law and the self-assessment has been carried out in accordance with generic guidelines issued by the tax administration" (Article 131, no. 3, of the CPPT, applicable to cases of withholding at source, by force of the provision in no. 6 of Article 132 of the same Code), it would preclude arbitral jurisdiction due to that administrative challenge, which is understood to be unnecessary, not having been carried out.

In the case at hand, the declaration of illegality of a self-assessment act is sought, following the dismissal of a request to review tax acts made after the expiry of the two-year period provided for in Article 132, to which a hierarchical appeal followed.

Thus, it is important, first and foremost, to clarify whether the declaration of illegality of acts of dismissal of requests to review the tax act, provided for in Article 78 of the General Tax Law, is included in the competencies attributed to the arbitral tribunals functioning at CAAD by Article 2 of the RJAT.

In fact, in this Article 2 there is no express reference to these acts, contrary to what occurs with the legislative authorization on which the Government based itself to approve the RJAT, which refers to "requests for review of tax acts" and "administrative acts that involve the appraisal of the legality of tax assessment acts".

However, the formula "declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account", used in subsection a) of no. 1 of Article 2 of the RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases where an act of one of those types is directly challenged. In fact, the illegality of assessment acts can be declared jurisdictionally as a corollary to the illegality of a second-order act, which confirms an assessment act, incorporating its illegality.

The inclusion in the competencies of the arbitral tribunals functioning at CAAD of cases in which the declaration of illegality of the acts indicated there is made through the declaration of illegality of second-order acts, which are the immediate object of the challenged claim, results with certainty from the reference made in that norm to self-assessment, withholding at source and payment on account acts, which are expressly referred to as included among the competencies of the arbitral tribunals. In fact, with respect to these acts, a gracious complaint is imposed, as a rule, necessarily required by Articles 131 to 133 of the CPPT, so that, in these cases, the immediate object of the challenging process is, as a rule, the second-order act that appraises the legality of the assessment act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the assessment act. The reference made in subsection a) of no. 1 of Article 10 of the RJAT to no. 2 of Article 102 of the CPPT, in which the challenging of acts of dismissal of gracious complaints is provided for, removes any doubts that the competencies of the arbitral tribunals functioning at CAAD cover cases in which the declaration of illegality of the acts referred to in subsection a) of that Article 2 of the RJAT has to be obtained following the declaration of illegality of second-order acts.

Indeed, it was precisely in this sense that the Government, in Ordinance no. 112-A/2011 of 22 March, interpreted these competencies of the arbitral tribunals functioning at CAAD, by excluding from the scope of those competencies the "claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with Articles 131 to 133 of the General Tax Procedure Code", which has the effect of restricting its binding to cases where that recourse to the administrative procedure was used.

Having reached the conclusion that the formula used in subsection a) of no. 1 of Article 2 of the RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-order act, it will also cover cases in which the second-order act is the one of dismissal of a request to review the tax act, since no reason is seen for restriction, particularly since, in cases where the review request is made within the gracious complaint period, it should be equated with a gracious complaint. ([1])

The same applies to the hierarchical appeal decision, expressly indicated in subsection a) of no. 1 of Article 10 of the RJAT as the starting point for the deadline for submitting a request for constitution of the arbitral tribunal.

The express reference to Articles 131 to 133 of the CPPT made in Article 2 of Ordinance no. 112-A/2011 cannot have the decisive effect of precluding the possibility of appraisal of requests for illegality of acts of dismissal of official review requests of acts of the types referred to there.

In fact, the interpretation exclusively based on the literal wording that the Tax Authority and Customs Authority defends in the present case cannot be accepted, since in the interpretation of tax norms the general rules and principles of interpretation and application of laws are observed (Article 11, no. 1, of the General Tax Law) and Article 9, no. 1, of the Civil Code expressly prohibits interpretations exclusively based on the literal wording of norms by providing that "interpretation must not be limited to the letter of the law", and should instead "reconstitute from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied".

As for the correspondence between interpretation and the letter of the law, there is sufficient "a minimum of verbal correspondence, though imperfectly expressed" (Article 9, no. 3, of the Civil Code) which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even acknowledging therein imperfection in the expression of legislative intention.

Therefore, the letter of the law is not an obstacle to making a declarative interpretation, which clarifies the scope of the literal wording, nor even an extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, it would intend to say, that is, when it said imperfectly what it intended to say. In extensive interpretation "it is the very valuation of the norm (its "spirit") that leads to discovering the need to extend the text of this to the hypothesis it does not cover", "the expansive force of the very legal valuation is capable of leading the disposition of the norm to cover hypotheses of the same type not covered by the text". ([2])

Extensive interpretation, therefore, is imposed by the valuative and axiological coherence of the legal system, established by Article 9, no. 1, of the Civil Code as a paramount interpretive criterion via the imposition of observance of the principle of unity of the legal system.

It is manifest that the scope of the requirement for a prior gracious complaint, necessary to open the contentious avenue of challenging acts of the types referred to in Articles 131 to 133 of the CPPT, has as its only justification the fact that with respect to such type of acts there is no position taken by the Tax Administration concerning the legality of the legal situation created by the act, a position that could even prove favorable to the taxpayer, avoiding the need for recourse to the contentious avenue.

In fact, beyond not seeing any other justification for such requirement, the fact that a necessary gracious complaint is provided for challenging such acts as withholding at source and payment on account (in Articles 132, no. 3, and 133, no. 2, of the CPPT), which have in common with self-assessment acts the circumstance that there is also no position taken by the Tax Administration concerning the legality of the acts, confirms that this is the reason for that necessary gracious complaint.

An unequivocal further confirmation that this is the reason for the requirement of a necessary gracious complaint is found in no. 3 of Article 131 of the CPPT, by establishing that "notwithstanding the provisions of the preceding numbers, when its ground is exclusively a matter of law and the self-assessment has been carried out in accordance with generic guidelines issued by the tax administration, the deadline for the challenge does not depend on a prior complaint, and the challenge should be presented within the deadline of no. 1 of Article 102", a regime which applies to withholding at source acts through referral from no. 6 of Article 132 of the CPPT. In fact, in situations of this type, there was a prior generic pronouncement by the Tax Administration on the legality of the legal situation created by the self-assessment or withholding at source act and it is this fact that explains that the necessary gracious complaint ceases to be required.

Now, in cases where an official review request of a self-assessment or withholding at source act is formulated, the Tax Administration is provided with this request, an opportunity to pronounce itself on the merits of the taxpayer's claim before the latter resorts to the jurisdictional avenue, so that, in coherence with the solutions adopted in nos. 1 and 3 of Article 131 and 3 and 6 of Article 132 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative appraisal within that official review procedure, a new administrative appraisal through a gracious complaint be required. ([3])

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from formulating official review requests in cases of self-assessment acts, since these were expressly referred to in no. 2 of Article 78 of the General Tax Law and in no. 2 of Article 54 of the same Law the applicability to self-assessment and withholding at source of the guarantees of taxpayers provided for in no. 1, which includes official review.

And to self-assessment acts, performed by the taxpayer, are comparable, by mere declarative interpretation, those of withholding at source which are performed by the tax substitute, who is considered a taxpayer (Article 18, no. 3, of the General Tax Law).

In this context, as the law expressly permits taxpayers to opt for a gracious complaint or official review of self-assessment and withholding at source acts and the official review request being formulated within the gracious complaint period being perfectly comparable to a gracious complaint, as stated, there can be no reason that can explain that a taxpayer who opted for review of the tax act instead of a gracious complaint cannot access the arbitral avenue.

Therefore, it is to be concluded that the Government members who issued Ordinance no. 112-A/2011, in making reference to Articles 131 to 133 of the CPPT, said imperfectly what they intended, since, intending to impose prior administrative appraisal to the contentious challenge of acts of the types referred to, they ended up including a reference to Articles 131 to 133 which do not exhaust the possibilities of administrative appraisal of such acts.

Moreover, it is to be noted that this interpretation, not limited to the literal wording, is especially justified in the case of subsection a) of Article 2 of Ordinance no. 112-A/2011, due to evident imperfections therein: one is to associate the comprehensive formula "recourse to the administrative procedure" (which references, beyond the gracious complaint, the hierarchical appeal and the review of the tax act) to the "expression in accordance with Articles 131 to 133 of the General Tax Procedure Code", which has potential restrictive scope to the gracious complaint; another is to use the formula "preceded" by recourse to the administrative procedure, relating to "claims relating to the declaration of illegality of acts", which, obviously, would be much better adapted to the feminine word "preceded".

Therefore, beyond the general prohibition of interpretations limited to the letter of the law that appears in Article 9, no. 1, of the Civil Code, in the specific case of subsection a) of Article 2 of Ordinance no. 112-A/2011 there is a special reason not to justify great enthusiasm for a literal interpretation, which is the fact that the wording of that norm is manifestly defective.

Moreover, as the official review of the tax act provides the possibility of appraisal of the taxpayer's claim before access to the contentious avenue that is intended to be achieved with the necessary administrative challenge, the more correct solution, because it is more coherent with the legislative design of "strengthening the effective and actual protection of the rights and legally protected interests of taxpayers" manifested in no. 2 of Article 124 of Law no. 3-B/2010 of 28 April, is the admissibility of the arbitral avenue to appraise the legality of assessment acts previously appraised in a review procedure.

And, being the more correct solution, it must be presumed to have been normatively adopted (Article 9, no. 3, of the Civil Code).

On the other hand, as that subsection a) of Article 2 of Ordinance no. 112-A/2011 contains an imperfect formula, but which contains a comprehensive expression "recourse to the administrative procedure", which potentially also references the review of the tax act, the minimum of verbal correspondence, though imperfectly expressed, required by that no. 3 of Article 9 for the viability of adoption of the interpretation that consecrates the more correct solution is found in the text.

It is to be concluded, therefore, that Article 2, subsection a) of Ordinance no. 112-A/2011, duly interpreted based on the criteria for interpretation of law provided for in Article 9 of the Civil Code and applicable to substantive and adjectival tax norms, by force of the provision in Article 11, no. 1, of the General Tax Law, enables the submission of requests for arbitral pronouncement concerning self-assessment acts that have been preceded by official review requests.

Concerning the allegation of the Tax Authority and Customs Authority that if this were not understood, such interpretation would be not only illegal but manifestly unconstitutional, by violation of the constitutional principles of the rule of law and separation of powers (cf. Articles 2 and 111, both of the CRP), as well as of legality (cf. Articles 3, no. 2, and 266, no. 2, both of the CRP), as a corollary of the principle of inalienability of tax credits inherent in Article 30, no. 2 of the General Tax Law, which bind the legislator and all activity of the AT".

In fact, the Constitution does not impose that the interpretation of normative diplomas must be limited to the literal wording and, in the case at hand, as explained, duly interpreting the norms of Article 2, no. 1, of the RJAT and Article 2 of Ordinance no. 112-A/2011 of 22 March, it is concluded that the binding of the Tax Authority and Customs Authority to the arbitral tribunals functioning at CAAD covers cases in which self-assessment acts were preceded by official review requests. Therefore, the interpretation that was made did not increase the binding of the Tax Authority and Customs Authority beyond what is regulated, but rather defined exactly its terms, which result from the regulatory diploma.

Moreover, by interpreting and applying legal norms, this Arbitral Tribunal is performing the function that is constitutionally assigned to it (Articles 202, no. 1, 203 and 209, no. 2, of the CRP), so one does not see how there could exist violation of the principles of separation of powers, rule of law and legality, since what was decided by this tribunal evidences, precisely, the perfect implementation of those principles: the Assembly of the Republic authorized the Government to legislate (Article 124 of Law no. 3-B/2010 of 28 April); the Government, in the exercise of legislative powers, issued the RJAT; the Administration, through two Government members, issued Ordinance no. 112-A/2011 of 22 March; the Arbitral Tribunal interpreted and applied the cited normative diplomas.

As for the principle of legality, it is translated into compliance with the law, in the interpretation that shall be made thereof by the courts, which is imposed on the interpretations of other state bodies (Article 205, no. 2, of the CRP).

Regarding the invocation of the principle of inalienability of tax credits, defined in Article 30, no. 2, of the General Tax Law, in which it is stated that "the tax credit is inalienable, conditions for its reduction or extinction being able to be fixed only with respect for the principle of equality and tax legality", this will surely be a mistake, since in deciding on its competence the Arbitral Tribunal is not practicing any act of disposition of any credit. Moreover, one does not see what credit the Tax Authority and Customs Authority refers to, since in the present case, concerning self-assessment acts of tax that was paid, the collection of any tax credit is not at issue, already being extinguished by payment what existed before the payment and nor is it even alleged that there exists any other credit of the Tax Authority and Customs Authority in relation to the Claimant related to the self-assessment in question.

Moreover, the principle of inalienability of tax credits applies to the Administration and not to the Courts, as the Constitutional Court understood, following the generality of doctrine. ([4])

This exception of incompetence is therefore without merit, on the ground of failure to present a gracious complaint of the self-assessment.

Essentially in this sense, regarding self-assessment acts, the judgment of the Central Southern Administrative Court of 27-04-2017, delivered in case no. 08599/15, can be seen.

4. MATTER OF LAW

The Claimant argues that it has the right to deduct the amounts paid as special payments on account from the IRC tax collection produced by autonomous taxation in fiscal year 2011.

The AT's computer system, through which IRC is self-assessed, does not allow taxpayers to deduct, for purposes of determining the IRC owed by them, from the tax resulting from autonomous taxation determined, the amounts of special payments on account.

The Claimant filed a request for official review of the self-assessment made based on model return 22 relating to fiscal year 2011, arguing that the amounts due as autonomous taxation could have the sums paid as special payments on account deducted therefrom.

The Tax Authority and Customs Authority dismissed the official review request, following which the Claimant filed a hierarchical appeal, which was dismissed.

The essential question that is the object of the present case is whether the amounts paid as special payments on account are deductible from the amounts due as autonomous taxation.

The Claimant formulates an alternative request, in case it is understood that Article 90 of the IRC Code does not apply to autonomous taxation, requesting that the self-assessment for the tax period 2011 be annulled in the portion corresponding to autonomous taxation, as having been assessed and collected without legal basis for such purpose.

This question of the application of Article 90 of the IRC Code to the assessment of autonomous taxation will first be examined, since the resolution of this question depends on the appraisal of the question of the deductibility of special payments on account from the tax collection of that autonomous taxation.

4.1. Question of the Application of Article 90 of the IRC Code to Autonomous Taxation

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

Article 89

Authority to Assess

The assessment of IRC is carried out by:

a) By the taxpayer himself, in the returns referred to in Articles 120 and 122;

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

Article 90

Procedure and Form of Assessment

1 - The assessment of IRC is carried out as follows:

a) When the assessment is to be carried out by the taxpayer in the returns referred to in Articles 120 and 122, it is based on the taxable matter contained therein;

b) In the absence of submission of the return referred to in Article 120, the assessment is carried out by 30 November of the following year to which it relates or, in the case provided for in no. 2 of that article, by the end of the 6th month following the end of the deadline for submission of the return referred to therein and is based on the annual value of the minimum monthly remuneration or, when higher, all of the taxable matter of the closest fiscal year found to be determined;

c) In the absence of assessment pursuant to the preceding subsections, it is based on the elements available to the tax administration.

2 - To the amount determined pursuant to the preceding 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;

d) That relating to withholdings at source not susceptible to compensation or reimbursement pursuant to applicable law.

3 - (Repealed by Law no. 3-B/2010)

4 - To the amount determined pursuant to no. 1, with respect to the entities mentioned in no. 4 of Article 120, only the deduction relating to withholdings at source is to be made when these have the nature of tax on account of IRC.

5 - The deductions referred to in no. 2 with respect to entities to which the tax transparency regime established in Article 6 applies are imputed to the respective partners or members pursuant to the terms established in no. 3 of that article and deducted from the amount determined based on the taxable matter that took into account the imputation provided for in that article.

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

7 - From the deductions made pursuant to subsections a), b) and c) of no. 2 no negative value can result.

8 - To the amount determined pursuant to subsections b) and c) of no. 1 only the deductions of which the tax administration has knowledge and which can be made pursuant to nos. 2 to 4 are made.

9 - In cases where the provision in subsection b) of no. 2 of Article 79 is applicable, annual assessments are made based on the taxable matter determined with a provisional character, and, in light of the assessment corresponding to the taxable matter relating to the whole taxation period, the difference ascertained is to be charged or cancelled.

10 - The assessment provided for in no. 1 can be corrected, if applicable, within the deadline referred to in Article 101, charging or cancelling the differences ascertained.

As stated, in the decision on the official review request, the Tax Authority and Customs Authority understood that "Article 90 of the IRC Code does not apply to autonomous taxation", "there being a strong incompatibility between that figure and this article".

However, in the present case, the Tax Authority and Customs Authority recognizes that this interpretation is wrong, by stating in Articles 38 and 39 of its Response:

It is worthwhile to clarify that the assessment of autonomous taxation is carried out based on Articles 89 and 90, no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax:

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

(2) in the other case, various tax collections are determined according to the diversity of facts that originate the autonomous taxation.

Whence it results that the amount determined pursuant to subsection a) of no. 1 of Article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which different purposes are also associated, so that the deductions provided for in the subsections of no. 2 can only be made to the portion of the IRC tax collection with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the standard regime of the tax.

Therefore, it is concluded that there is not even controversy between the Parties as to the application of Article 90 of the IRC Code to the assessment of autonomous taxation, the divergence being limited to the manner of proceeding with the assessment, as the Tax Authority and Customs Authority understands that various tax collections are determined according to the diversity of facts that originate the autonomous taxation and the deductions provided for in the subsections of no. 2 can only be made to the portion of the IRC tax collection with which there exists a direct correspondence, understanding that this does not exist with respect to the IRC tax collection that results from autonomous taxation.

In any case, the said Articles 89 and 90 of the IRC Code, as well as other norms of this Code, such as those relating to the returns provided for in Articles 120 and 122, are applicable to autonomous taxation.

From the outset, it is now settled, following numerous arbitral jurisprudence and positions taken by the Tax Authority and Customs Authority, that the tax charged based on autonomous taxation provided for in the IRC Code has the nature of IRC. Besides, beyond the unanimity of the jurisprudence, Article 23-A, no. 1, subsection a), of the IRC Code, in the wording of Law no. 2/2014 of 16 January, leaves no room today for any reasonable doubt, corroborating what previously resulted from the literal wording of Article 12 of the same Code.

Now, Article 90 of the IRC Code refers to the forms of IRC assessment, by the taxpayer or by the Tax Administration, applying to the determination of the tax owed in all situations provided for in the Code, including additional assessment (no. 10).

Therefore, that Article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or the Tax Administration, following the submission or non-submission of returns, there being no other provision that provides for different terms for its assessment.

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

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

However, the fact that a self-assessment of IRC, made pursuant to no. 1 of Article 90, may contain various partial calculations based on various rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm by making reference to "assessment", in the singular, in all cases where it is "made by the taxpayer in the returns referred to in Articles 120 and 122", having "as its basis the taxable matter contained therein" (whether the matter determined based on the rules of Articles 17 et seq. or that determined based on the various situations provided for in Article 88).

Besides, it is not only the assessments provided for in Article 88 that may include various calculations of the application of rates to certain taxable matters, as the same can occur in situations provided for in nos. 4 to 6 of Article 87. ([5])

In any case, whatever the calculations to be made, the self-assessment that the taxpayer or the Tax Authority and Customs Authority must make pursuant to Articles 89, subsection a), 90, no. 1, subsections a), b) and c), and 120 or 122 is unitary, and it is on the basis of it that global IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it.

Moreover, as the Claimant rightly points out when formulating its alternative request, if this Article 90 did not apply to the assessment of autonomous taxation provided for in the IRC Code, we would have to conclude that there would be no provision providing for its assessment, which would lead to illegality, by violation of Article 103, no. 3, of the CRP, which requires that the assessment of taxes be made "pursuant to the law".

Let it also be mentioned that the new provision of no. 21 added to Article 88 of the IRC Code by Law no. 7-A/2016 of 30 March, regardless of whether or not it is truly interpretive, in no way alters this conclusion, as therein it is established, concerning the form of assessment of autonomous taxation, that it "is carried out pursuant to the terms provided for in Article 89 and is based on the values and rates that result from the provisions of the preceding numbers".

Indeed, if it is true that this new provision clarifies how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of Article 88) and that the authority rests with the taxpayer or the Tax Administration, pursuant to Article 89, it is also clear that the need to use the procedure provided for in no. 1 of Article 90 is not precluded, namely in cases provided for in its subsection c) where the assessment is the responsibility of the Tax Authority and Customs Authority and with "basis on the elements available to the tax administration", which surely will include the possibility of assessing based on autonomous taxation, if the Tax Authority and Customs Authority has elements that prove its assumptions.

Therefore, whether before or after Law no. 7-A/2016 of 30 March, Article 90, no. 1, of the IRC Code is applicable to the assessment of autonomous taxation.

4.2. Question of the Deductibility from Amounts Due as Autonomous Taxation of Amounts Paid as Special Payments on Account

The only reason why the Tax Authority and Customs Authority understood, in the decisions on the official review request and the hierarchical appeal, that special payments on account are not deductible from the tax collection of autonomous taxation was the understanding that these do not form part of the IRC tax collection.

As already mentioned, in the present case the Tax Authority and Customs Authority recognized that "the assessment of autonomous taxation is carried out based on Articles 89 and 90, no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax", with "various tax collections being determined according to the diversity of facts that originate autonomous taxation" (Article 95 of the Response).

The Tax Authority and Customs Authority also stated, in Article 96 of the Response that "the amount determined pursuant to subsection a) of no. 1 of Article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which different purposes are also associated, so that the deductions provided for in the subsections of no. 2 can only be made to the portion of the IRC tax collection with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard regime of the tax".

This position has no consistent basis, nor is any legal provision indicated by the Tax Authority and Customs Authority that provides it with the minimum verbal correspondence necessary for the admissibility of an interpretation.

Before the new no. 21 of Article 88 of the IRC Code, added by Law no. 7-A/2016 of 30 March, there was no legal provision that established the form of assessment of autonomous taxation, so that, under penalty of unconstitutionality by violation of Article 103, no. 3, of the CRP, resulting from lack of legal provision of assessment procedure, it would have to be understood that they were assessed in conformity with the provision in no. 1 of Article 90.

Thus, before Law no. 7-A/2016, the deductions provided for in no. 2 of Article 90 of the IRC Code, which target the "amount determined pursuant to the preceding number", applied to that sole amount resulting from that determination, whenever one was not faced with one of the situations specially provided for in nos. 4 et seq. of that article, which do not apply in the case of the records.

The deduction of special payments on account from all the value determined pursuant to that Article 90, no. 1, subsection a), also resulted from the explicit wording of Article 93, no. 1, of the IRC Code, in the wording prior to Law no. 2/2014 of 16 January, by establishing that "the deduction referred to in subsection c) of no. 2 of Article 90 is made to the amount determined in the return referred to in Article 120 of the same tax period to which it relates or, if insufficient, up to the fourth following tax period, after the deductions referred to in subsections a) and b) of no. 2 and with observance of no. 7, both of Article 90, have been made". ([6])

The amount determined in the return referred to in Article 120 includes the amounts relating to autonomous taxation, there being no other specific return for this purpose, neither before nor after Law no. 7-A/2016.

In fact, the returns provided for in Article 120 of the IRC Code are prepared in a single official form approved by order of the Minister of Finance, pursuant to Articles 117, no. 1, subsection b), and no. 2, of the IRC Code.

Thus, in light of the provision in subsection c) ([7]) of no. 2 of Article 90 and in no. 1 of Article 93 of the IRC Code, until Law no. 7-A/2016, nothing in the literal wording of the IRC Code prevented the deduction of the amounts of special payments on account from all of the IRC tax collection that was determined pursuant to that no. 1 of Article 90, including that derived from autonomous taxation, within the conditions provided therein.

On the other hand, as special payment on account has the nature of a forced loan ([8]), which creates in the legal sphere of the taxpayer a credit against the Tax Administration, it does not seem unreasonable that it be taken into account in situations in which an inverse credit of this against the taxpayer is generated.

Furthermore, autonomous taxation in the context of IRC, in light of the increasing breadth that the legislator has been attributing to it, in order to be compatible with the constitutional principle of taxation of enterprises focusing fundamentally on their actual income (Article 104, no. 2, of the CRP), must be understood as indirect forms of taxing business income, through the taxation of certain expenses and charges, or even, in the case of autonomous taxation provided for in no. 11 of Article 88, as a complementary form of directly taxing profits.

In any case, as stated in the CAAD judgment delivered in case no. 59/2014-T, autonomous taxation in IRC should be considered a form of taxation of business income:

"The Statement of Reasons contained in Bill no. 46/VIII, which gave rise to Law no. 30-G/2000 of 29 December, which enormously expanded the situations of autonomous taxation, leaves no room for doubt that this is a conscious and intended expansion of the previously existing distortions, because it was understood that they were necessary, in summary, to compensate for other distortions resulting from significant fraud and tax evasion and, thus, increase the equity of the distribution of the tax burden between citizens and enterprises".

(...)

"autonomous taxation directly affecting certain expenses, within the context of taxes that originally affected only income, are considered distortions of the system of direct taxation of income that was aimed at with IRC, but a value that was legislatively considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice in favor of those forms of taxation, as they are in consonance with the principles of equity, efficiency and simplicity.

(...)

But this indirect taxation is not ceased to be carried out within the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as a corollary the application of the general rules peculiar to this tax, which do not conflict with its special form of incidence.

Thus, if it is true that autonomous taxation constitutes a different form of applying taxes to enterprises, which could appear in autonomous regulation or be arranged in the Tax Stamp Code, it is also no less true that the legislative choice to include such taxation in the IRC Code reveals an intention to consider such taxation as inserted into IRC, which can be justified by being an indirect form, but, from the legislative perspective, equitable, simple and efficient, of taxing business income that escapes the regime of taxation with direct incidence on income".

Moreover, it is a fact that the imposition of any expense without counterpart to a legal person has as a corollary a potential decrease in its income, so that the imposition of a unilateral tax obligation, even calculated based on expenses incurred or charges borne, constitutes a form of indirectly taxing its income. ([9])

The new Article 23-A of the IRC Code, introduced by Law no. 2/2014 of 16 January, by stating that "the following charges are not deductible for purposes of determining taxable profit, even when accounted for as expenses of the tax period: a) IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits", hints at that, from the legislative perspective, IRC and autonomous taxation are taxes that directly or indirectly affect profits, since it is this understanding that can justify the inclusion of the expression "any other taxes", which presupposes that IRC and autonomous taxation are also taxes of these types.

Therefore, as autonomous taxation provided for in the IRC Code are, ultimately, forms of taxing business income, one does not see why there should necessarily be incompatibility between them and the general rules that provide for the form of making IRC payments.

On the other hand, if it is true that, in light of the regime in force before Law no. 2/2014 of 16 January altered no. 3 of Article 93 of the IRC Code, the amounts paid as special payment on account could not always be deducted ([10]), it is also true that that regime was altered by that Law, with reimbursement being admitted without conditions other than that the taxpayer requests it, within the prescribed deadline.

Therefore, the interpretation that follows most linearly from the wording of Articles 93, no. 3, and 90, no. 1, of the IRC Code, prior to Law no. 2/2014 is that of deductibility of special payments on account from IRC tax collection derived from autonomous taxation.

But it is also no less true that, in light of the previous regime of reimbursement of special payments on account, which revealed that the special payment on account had inherent in it a presumption of undeclared income, one could advance a restrictive interpretation, with respect to special payment on account, in the sense of that it not be deductible from the tax collection of autonomous taxation, as was understood in the arbitral decision of 30-12-2015, delivered in CAAD case no. 113/2015-T, which invokes considerable reasons, derived from the purposes that were legislatively intended to be achieved with the creation of special payment on account, that could justify a restriction of the reference made in Article 93, no. 1, of the IRC Code to the "amount determined in the return referred to in Article 120":

As was seen, PEC became part of the IRC system whose assessment sanctioned in Article 93 was designed to ascertain the tax directly affecting declared income. When there is fiscal loss, the taxpayer nonetheless has to bear PEC; this was in fact the reason for its introduction. If a certain enterprise has successive fiscal losses, it will systematically bear tax, since the system doubts its ability to function in a permanently deficit situation, requiring that it satisfy provisionally (on account) a determined value. It may refund it if it proves that this situation is common in its sector of activity or if the AT verifies the regularity of its returns. This was the balance that the IRC Code required to maintain a system based on the returns made by taxpayers.

Whereas the tax resulting from autonomous taxation is based solely on the pursuit of tax evasion through income transfer and has a dissuasive and compensatory effect.

If the deduction of PEC is allowed to the collection resulting from autonomous taxation, the purposes of the system in which the provision of 93-2-e IRC Code is inserted will be frustrated, since the product of special payment on account which should remain "suspended" in the ownership of the Public Treasury will be affected to the extinction of the debt of the taxpayer resulting from autonomous taxation, thus lightening the intended pressure to avoid tax evasion "declarative". There is in fact an irreconcilable conflict between the ratio of PEC – the fight against evasion or the pressure to correct returns – and the allocation of its credits to the satisfaction of other obligations than those resulting from the determination of IRC calculated on the taxable result.

This fact that special payment on account has the primary purpose of avoiding tax evasion, based on, from the legislative perspective, suspicion that the taxable profit resulting from the income return is less than the actual (special payment on account is itself a form of autonomous taxation, not being calculated based on taxable profit, but based on the volume of business relating to the previous tax period, pursuant to no. 2 of Article 106 of the IRC Code) allows the conclusion that it seeks to achieve an objective that synchronizes with and is cumulative with the purpose of the remaining autonomous taxation, in addition to the existence of these in no way precluding that suspicion: the existence of IRC collection generated by autonomous taxation does not allow one to stop suspecting that the taxable profit is less than actual and that there is tax evasion.

Therefore, it would be incongruous that amounts non-recoverable of special payments on account due to insufficient taxable profit could be deducted from the IRC collection generated by autonomous taxation, since, from the legislative perspective, the reasons for suspecting that what results from the return is less than actual are maintained. ([11])

The new no. 21 of Article 88 of the IRC Code added by Law no. 7-A/2016 of 30 March, synchronizes with this understanding, since it comes to expressly establish that to the amount determined for autonomous taxation are not "made any deductions".

In any case, for what was stated, the interpretation that came to be clarified in this no. 21 of Article 88 of the IRC Code was already, as regards special payments on account (and differently from what occurred with tax benefits), that which should have been adopted previously.

Therefore, regardless of the constitutionality or not of the authentic interpretation carried out by Article 135 of Law no. 7-A/2015 of 30 March, and the wording it gave to Article 88, no. 21, of the IRC Code, in the part in which it relates to special payments on account, the Claimant's claim that special payments on account be deducted from the tax collection of autonomous taxation cannot succeed.

Consequently, the decisions dismissing the official review request and the hierarchical appeal do not suffer from illegality, the same being true of the self-assessment relating to fiscal year 2011.

5. REIMBURSEMENT OF AMOUNTS PAID AND COMPENSATORY INTEREST

The Claimant requests reimbursement of the amounts paid, plus compensatory interest.

As the request for arbitral pronouncement is without merit regarding the declaration of illegality of the dismissal of the hierarchical appeal and the dismissal of the official review request, as well as of the self-assessment, no undue payment occurred, so there is no place for reimbursement of the amount paid nor for compensatory interest (Article 43, no. 1, of the General Tax Law).

These requests are therefore without merit.

6. DECISION

Therefore, the arbitrators of this Arbitral Tribunal agree to:

– Rule that the exception of material incompetence raised by the Tax Authority and Customs Authority is without merit;

– Rule that the principal and alternative requests regarding the declaration of illegality and annulment of the dismissal of the hierarchical appeal and the dismissal of the official review request, as well as of the self-assessment which they confirmed, are without merit;

– Rule that the requests for reimbursement of amounts paid and compensatory interest are without merit;

– Absolve the Tax Authority and Customs Authority of the requests.

7. VALUE OF THE CASE

In accordance with the provision in Article 305, no. 2, of the Code of Civil Procedure and Article 97-A, no. 1, subsection a), of the General Tax Procedure Code and Article 3, no. 2, of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the case is fixed at €134,771.88.

8. COSTS

Pursuant to Article 22, no. 4, of the RJAT, the amount of costs is fixed at €3,060.00, pursuant to Table I attached to the Regulation of Court Costs in Tax Arbitration Proceedings, to be charged to the Claimant.

Lisbon, 21-11-2017

The Arbitrators

(Jorge Lopes de Sousa)

(José Joaquim Monteiro Sampaio e Nora)

(Sofia Ricardo Borges)

(With the Dissenting Opinion that follows)

DISSENTING OPINION

Notwithstanding accompanying the sense of the decision, I did not accompany, in the matter of law, the segments of the reasoning that I will now indicate, and in general those contrary to the understanding that we will set forth. With the reasons that follow and which are grounded, in summary, on the following: it is our opinion that, although required within the scope of IRC, Autonomous Taxation ("TAs") has a distinct nature from it.

Similarly between PECs and TAs. In fact, PECs are calculated by reference to the volume of business and, thereafter, for purposes of deduction from the Collection, are considered by reference to taxable profit. That is, they ultimately have a functioning that is that of the calculation of IRC itself (Chapter III of the IRC Code).

There, in IRC, we are faced with a tax that affects profit, in the broad concept of income increment – cf. Article 3 of the IRC Code (in which the basis of the tax on income of legal persons is precisely defined). Not so with TAs. These are due because the Taxpayer ("TP") has carried out certain expenses, to which certain rates are applied (all pursuant to Article 88, Chapter IV of the IRC Code). And nothing more than this. Here, the tax fact is the expense. Being that the amount thus determined as TA will simply be added to the income tax to be paid (v. table 10, field 361, of Model return 22: "IRC TO PAY" and, thereafter, field 365), at a moment when it was already previously calculated and determined in accordance with the rules established throughout the Code (and especially in its Chapter III - "Determination of Taxable Matter").

Thus also becomes clear the reason why the values paid (advanced) by the TP as PECs will (potentially) be deducted from the Collection (and, moreover, will later be reimbursed, if applicable). Whereas the amounts paid as TAs are not. These latter, ultimately, do not even have any direct relationship with the Collection. And also only so is it understood that in case of absence of taxable profit (or, simply, of Collection, cf. fields 351/378 of Model 22) TAs continue to be due. Autonomously, as the word indicates. Independently of whether there is or is not "IRC to pay" (cf. the very terms of the Model return 22).

Moreover, so distinct is the nature of IRC (tax on income) and that of TAs that, in the limit, if the TP has losses, not only do TAs continue to be due, but, more than that, they suffer an increase (v. Article 88, no. 14 of the IRC Code).

Still regarding the different nature between IRC and TAs, we consider the cases of both exempt-from-IRC companies and companies subject to fiscal transparency to be elucidating.

Thus, in the first situation, and pursuant to Article 117, no. 6 of the IRC Code, our legislator established that entities exempt from IRC (cf. Article 9) should, in the event they have TAs to pay, submit Model return 22 – even though exempt from IRC, it should be underlined (and dispensed, note, from making PECs by force of being exempt from IRC – cf. Article 106, no. 11, subsection a)).

How would one reconcile, in the same taxpayer, subjective and automatic exemption from IRC with subjection to TAs, except if faced with realities of distinct nature?

On the other hand, the legislator also established, regarding companies subject to the fiscal transparency regime (cf. Article 6 of the IRC Code) that their non-taxation in IRC does not dispense them from submitting, also they, the returns proper to IRC taxpayers in case they have incurred expenses subject to TAs (cf. no. 9 of Article 117 of the IRC Code). Thus, notwithstanding the income generated in the company being imputed directly in the sphere of the respective partners (the taxable matter of the company is imputed to the partners in their taxable income) – so that, as a rule, there is not even an obligation to submit the company return in IRC, if the company has incurred expenses subject to TA it will necessarily have to submit the returns proper to IRC taxpayers, assessing and declaring, thus, the TAs (which should be "quantified in field 365" – cf. instructions for completing Model return 22) with it incumbent the payment of the TAs.

We therefore do not accompany the segment of the reasoning where Article 12 of the IRC Code is interpreted in a sense other than that the nature of the two realities (IRC/TAs) is, precisely, distinct.

That is, in our opinion TAs are determined, effectively, within the scope of IRC. But they are so for practical reasons, of simplicity and also because they have as their tax fact expenses which, at least some, are considered as costs in the calculation of the taxable profit of that Taxpayer. Being that even this latter relationship would not impose, strictly speaking, that TAs be calculated together with IRC.

And from the fact that the legislator thus understood to do – to determine them together with IRC – it does not follow that they pass to have a different nature. They continue to be autonomous, with a nature materially distinct from an income tax and due regardless of whether IRC is owed by the same Taxpayer. Precisely because they relate - IRC and TAs - to distinct tax facts. The very functioning in concrete being, also itself, different: TAs do not cease, as a consequence of the aforesaid option of the legislator, to be a tax of single obligation, paid definitively and not subject to subsequent adjustments, calculated by simple arithmetic operation of applying a rate to the value of an expense; contrary to IRC, which is periodic and of successive formation, calculated by a series of operations more or less complex, as regulated by the legislator throughout some ninety articles of the respective Code (up to Chapter IV).

From what has just been set out it is perceived that the assessment is made, by legislative choice, within the scope of the IRC Code, namely in its Articles 89 and 90. We therefore do not see that there is any question here, as to it being the assessment effectively processed pursuant to the IRC Code, in the respective returns for which the Code provides for in Article 90, no. 1. Being Model return 22 (v. Articles 90, no. 1 subsection a), 117 and 120 of the IRC Code) the relevant one for that purpose, which deals with the matter of TAs cf. supra mentioned (and in these same terms since the legislator introduced TAs into the IRC Code in 2010) and which is approved pursuant to the terms established by the legislator in no. 2 of Article 117 of the IRC Code.

A different question will be thereafter to intend to understand that no. 2 of that same Article 90 – and, therefore, the deductions provided therein to the Collection – apply indistinctly to the content of the whole whose calculation followed the referred trammels. That is, and as far as the case of the present case is concerned, to intend to understand that the amounts determined as PECs (v. Article 90, no. 2, subsection d)) can come to be deducted, also, from that portion of the whole to pay (of the "TOTAL TO PAY", pursuant to the relevant return, field 367) constituted by the amount of TAs.

The assessment is made as per subsection a) of no. 1 of Article 90. But this does not make - of the amount of TA determined – Collection in the sense of "Collection" of field 351 (or of 378, if there accrues state surcharge) of the relevant return for which those norms (Article 90, no. 1 subsection a) and Article 120) provide for (the Model return 22). The Collection that leads to the determination of IRC to pay ("IRC TO PAY", cf. field 361 of the return) does not include, in fact, TAs (field 365), which only thereafter come to be added.

Nor will it proceed, in our understanding, an argument to the effect that there is only one assessment procedure, in this context and, therefore, a sole collection.

In fact, assessment is, simply, the arithmetic operation of applying a rate to the taxable matter determined, for the determination of the exact quantitative of tax to be paid by the TP. That is, if it is true that the tax obligation is born with the verification of the tax fact, it becomes liquid only by a procedural act – the tax act of assessment. Now, the "collection" of TAs (the amount of TAs to be paid together with IRC to pay) is determined by the sum of the values resulting from the application of the diverse rates contained in the respective article (Article 88 of the IRC Code) to the expenses that are in question; values which, moreover, will be discriminated in Model return 22, further on, in fields 13 or 13-A. Thus being, of what do we treat here but an assessment?

And thus we arrive at the collection.

The collection of TAs is merely "called" to the return (and, thus, to the compliance with subsection a) of no. 1 of Article 90), when the calculation of the tax, at a final moment, as a "more" that will be added to the value of IRC (IRC to pay), already determined. But which distinguishes itself, therefore, from the "Collection" of IRC (field 351). Thus, not only is the nature of TAs distinct, but, coherently, its respective collection is, also itself, distinct. Distinct, therefore, from the collection for which the legislator intended to refer in no. 2 of Article 90. Whence also, in our understanding, PECs are not susceptible to abatement from TAs.

Returning to the case of entities subject to the fiscal transparency regime, by elucidative in our view, note how the deductions to the collection of Article 90, no. 2 accompany the taxable matter, being made in the sphere of the partners by reference to their respective imputation of income (cf. Article 90, no. 5), remaining the collection of TAs apart, in the sphere of those entities and without subjection to any subsequent adjustments.

Moreover, we do not fail to recognize in TAs the objective of the legislator to discourage less truthful practices of reduction of taxable profit by recourse to expenses that potentially relate to purposes other than those of the activity of the enterprise. Or, viewed from another angle, an objective of penalization, with the same framework. As is readily apparent by examining the regime of TAs since its creation. This finding also leads us, on the other hand, not to see but as proper to the respective regime that the amount of TAs cannot later be used to (by that other avenue, and "at the cost" of those same expenses) reduce taxable profit. That is, that they cannot be considered for deduction in the determination of taxable profit, cf. expressly enshrined by the legislator in 2014 (State Budget for 2014) in Article 23-A, and in our view already flowing (until 1 January 2014) from the previous Article 45, no. 1 subsection a), in conjunction with Article 23, no. 1, subsection f), all of the IRC Code.

We therefore do not accompany, always with all due respect, the segment of the reasoning in which Article 23-A of the IRC Code is interpreted in a sense other than that the legislator felt the need to expressly refer to TAs as not being deductible for purposes of determining taxable profit precisely because they have a distinct nature from IRC.

If we wished to use the premises that the Claimant resorted to in its argumentation, we would conclude by saying that TA is not IRC, therefore PEC is not deductible from the collection of TA.

This is our understanding.

In accordance with all that has been set out, we do not see in the legislative amendment [the dissent continues but the translation provided covers the principal elements].