CAAD 406/2018-T: Autonomous Taxation, SIFIDE & CFEI Tax Credits Cannot Offset IRC Autonomous Tax

ARBITRAL DECISION

The Arbitrators Counsellor Maria Fernanda dos Santos Maças (Arbitrator President), Dr. Olívio Mota Amador (Arbitrator Member) and Prof. Dr. Maria do Rosário Anjos (Arbitrator Member), appointed by the Centre for Administrative Arbitration to form an Arbitral Tribunal, agree as follows:

I - Report

1. A..., S.A., legal entity no...., with registered office at Rua ... ..., ...-... ..., Lisbon, (hereinafter referred to as "Claimant") submitted, on 28-08-2018, a request for the constitution of an arbitral tribunal, pursuant to article 2, no. 1, subparagraph a), 5, no. 3, subparagraph a), 6, no. 2, subparagraph a) and 10, nos. 1, subparagraph a) and 2 of the Legal Framework for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "RJAT"), to declare the illegality and consequent annulment of the self-assessment of Corporate Income Tax (IRC), relating to the tax year 2015, and of the decision dismissing the administrative appeal filed on 30-05-2018, insofar as they do not admit the deduction from the IRC tax due of the amounts produced by the autonomous taxation rates of tax benefits determined under the System of Tax Incentives for Research and Business Development (SIFIDE) and the Extraordinary Fiscal Credit for Investment (CFEI) in the amount of €345,809.91 (three hundred and forty-five thousand, eight hundred and nine euros and ninety-one cents).

2. The request for constitution of the arbitral tribunal was accepted on 28-08-2018 and automatically notified to the Tax and Customs Authority (hereinafter referred to as "Respondent").

3. The Claimant did not proceed with the appointment of an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of no. 2 of article 6 and subparagraph a) of no. 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable period.

4. The parties were notified of the appointment of the arbitrators on 17-10-2018, and did not express any wish to object to any of them.

5. In accordance with the provisions of subparagraph c) of no. 1 of article 11 of the RJAT, the Collective Arbitral Tribunal was constituted on 07-11-2018.

6. The Respondent, duly notified to this effect by means of the arbitral order of 07-11-2018, submitted its response on 10-12-2018, defending itself by challenging the claim and remitted the administrative file on the same date.

7. Having regard to the provisions of subparagraphs c) and e) of article 16 and no. 2 of article 29, both of the RJAT, the Arbitral Tribunal by order of 10-12-2018 dispensed with the holding of the meeting referred to in article 18 of the RJAT, having granted the parties a period for submission of written pleadings and fixed 07-05-2019 as the deadline for pronouncement of the arbitral decision.

8. The pleadings were submitted by the Claimant on 04-01-2019 and by the Respondent on 21-01-2019.

9. The position of the Claimant, in accordance with the provisions of the request for constitution of the Arbitral Tribunal and the pleadings, is, in summary, as follows:

9.1. Autonomous taxation essentially constitutes a taxation mechanism under IRC. From which it must be concluded that article 90 of the IRC Code (CIRC) refers to the forms of calculation of IRC, both by the taxpayer and by the Tax Authority, applying to the calculation of the tax due in all situations provided for in the CIRC, including autonomous taxation, with no other provision even existing that provides for different terms for its calculation. In this way, it is found that the deduction relating to tax benefits provided for in article 90, no. 2, subparagraph c), of the CIRC, is necessarily applicable to the tax due resulting from autonomous taxation.

9.2. Consequently, in cases where the amount of tax benefits exceeds the tax due resulting from taxable income, the remainder of the deductible tax credit shall, equally, be applied to the tax due resulting from autonomous taxation and up to its full amount. In these terms, concluding that the IRC tax due resulting from taxable income and autonomous taxation is calculated in accordance with article 90 of the CIRC, no doubts can remain as to the deductions provided for in subparagraph c) of its no. 2 being indiscriminately applicable to such tax due, given that they refer to "the amount calculated in accordance with the preceding paragraph".

9.3. Having regard to the purpose of the legislator to privilege incentives for business R&D, there is no legal basis for departing from the deductibility of the tax benefit of the System of Tax Incentives for Business Research and Development (SIFIDE) from the tax due of autonomous taxation, which results directly from articles 36, no. 1, of the Investment Tax Code (republished by Decree-Law no. 82/2013, of 17 June) and 38, no. 1, of the new Investment Tax Code (approved by Decree-Law no. 162/2014, of 31 October).

9.4. With respect to the deductibility of investment expenses provided for in the Extraordinary Fiscal Credit for Investment (CFEI), the Claimant understands that the exposition set out above regarding SIFIDE should apply, mutatis mutandis, with no grounds whatsoever to adopt a different position.

9.5. In this way, there is no basis for an interpretation that prevents the deductibility of SIFIDE and CFEI from IRC, so that the corresponding expenses are deductible from the total IRC tax due, namely that resulting from autonomous taxation, and the tax act in question should be annulled, with the other legal consequences.

9.6. In light of the above, it must be concluded that article 135 of the State Budget Law for 2016, which attributed interpretative nature to the new wording of no. 21 of article 88 of the CIRC, is materially unconstitutional by violation of the prohibition of retroactivity principle provided for in article 103, no. 3, of the Constitution, when interpreted in the sense of dictating, in tax years prior to the entry into force of that law, the departure from the right to deduct from the IRC tax due (derived from autonomous taxation) tax benefits. Therefore, it is found that article 88, no. 21, of the CIRC, in the wording of article 135 of the State Budget Law for 2016, is not applicable to the aforementioned tax years (tax years 2013 and 2014), so that this regime is not capable of obstructing the deduction of SIFIDE and CFEI, as tax benefits, from the tax due derived from autonomous taxation.

9.7. The Claimant understands that the self-assessment of IRC for the tax year 2015 is partially illegal, requiring its annulment in the part in question, in accordance with article 163, no. 1, of the Code of Administrative Procedure, applicable pursuant to article 29, no. 1, subparagraph d), of the RJAT, all with the other legal consequences. It is further noted that, as the tax acts which are at the origin of these proceedings suffer from the defect of violation of law, the Claimant is entitled to receive compensatory interest based on error imputable to the Tax Authority, in the period between 31 May 2016 (the day following the submission of Form 22 of IRC for the tax year 2016) and the date of issue of the respective credit note.

1. The position of the Respondent, expressed in its response and pleadings, may be summarized as follows:

10.1. The integration of autonomous taxation in the CIRC (and IRS) conferred on the normative system of this tax a dualistic nature, in certain aspects, which materialized, in particular, in the framework of article 90, no. 1, subparagraph a), of the CIRC, in separate calculations of the respective taxes due, because they are subject to different rules, since in one case it is the application of the tax rate(s) of article 87 of the CIRC to the taxable income determined according to the rules contained in chapter III of the Code (i.e., based on profit) and, in another case, it is the application of the rates to the values of taxable income relating to the different situations contemplated in article 88 of the CIRC. From which it results that the amount calculated in accordance with article 90, no. 1, subparagraph a), of the CIRC does not have a unitary character, since it includes values calculated according to different rules, to which different purposes are associated, so that the deductions provided for in the subparagraphs of no. 2 may only be made to the part of the IRC tax due with which there is a direct correspondence, so as to maintain the coherence of the structural framework of the regime-rule of the tax.

10.2. Given the diversity of situations subject to autonomous taxation rates, the markedly anti-evasion purposes which are attached to them, and the instantaneous nature in terms of verification of taxable events, it is possible to conclude that different modes of taxation coexist created for reasons of fiscal policy. This autonomization projects itself, consequently, in distinct calculation processes and in the separate calculation of the respective taxes due. In overall terms, the IRC tax due, calculated in accordance with articles 89 and 90, no. 1, has a composite, divisible nature: (i) On one hand, the tax due properly so-called, resulting from the general IRC calculation structure, which is due on a constitutional basis based on the general duty of each (including legal entities) to contribute to public expenditures according to their assets (article 103, no. 1, of the Constitution), from which are deducted the amounts referred to in article 90, no. 2, in the terms and manner referred to therein; and (ii) On the other, the sum of the taxes due from autonomous taxation which incorporate a meaning and foundations of their own and which, for that reason, should not be confused.

10.3. In deductions from the tax due on account of tax benefits, the amount to which they are made can only relate to the tax assessed on the basis of taxable income determined in accordance with the rules of chapter III and the tax rates provided for in article 87 of the CIRC. As regards the deduction relating to tax benefits [article 90, no. 2, subparagraph b)], when it comes to investment benefits (as is the case with SIFIDE), it is based on the philosophy that the benefit constitutes a prize whose extent varies with the profitability of investments, since the higher the profit/taxable income of the IRC, the greater the capacity to make the deduction.

10.4. The rules governing the deduction of investment tax benefits, including SIFIDE, RFAI and CFEI, are integrated by the way they operate and by the purposes attached to benefits, in the structure of the regime-rule of IRC, so they are not reconcilable with the rationale of autonomous taxation, nor with their respective taxable events, and the proof is that the legislator itself was careful to mark that dividing line in article 3, no. 5, subparagraph a), of Law 49/2013.

10.5. There is not a single IRC calculation, but rather two calculations. That is, there are two distinct calculations that, although processed in accordance with article 90/1-a) of the CIRC in the declarations referred to in articles 120 and 122 of the same code, are carried out on the basis of different parameters, since each is materialized in the application of its own tax rates, provided for in articles 87 and 88 of the CIRC, to the respective taxable income, determined equally in accordance with its own rules. Therefore, it cannot be concluded that the rule of article 88, no. 21, insofar as it clarifies the impossibility of making any deductions from the amount of taxes due from autonomous taxation, has the purpose of fixing the understanding that has always prevailed in matters of deductions from IRC tax due and which has only been challenged as a result of some recent arbitral jurisprudence.

10.6. The documents presented in the proceedings by the Claimant only demonstrate the existence of tax credits resulting from SIFIDE. However, the Claimant does not demonstrate compliance with the other requirements necessary to be able to enjoy the benefits: having its tax and contributory situation regularized in 2015.

10.7. The calculation in question does not stem from any error by the services, but derives directly from the application of the law. The Respondent merely limited itself to applying the legal consequences which, from a fiscal point of view, were required in view of the occurrence of the factual assumptions underlying the correction made, and therefore the challenge regarding the interest requested should also be judged as unfounded.

1. The Arbitral Tribunal is materially competent and is regularly constituted in accordance with articles 2, no. 1, subparagraph a), 5 and 6, no. 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are regularly represented, in accordance with the provisions of articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Thus, there is no obstacle to the examination of the case.

Having examined all matters, it falls to pronounce

II. DECISION

A. FACTS

A.1. Facts deemed established

The Claimant is a commercial joint-stock company of Portuguese law, with registered office and effective management in national territory, whose object is, in particular, the pursuit of aircraft operation and management activities, being subject to IRC in accordance with articles 2, no. 1, subparagraph a) and 3, no. 4, of the CIRC and being a taxpayer of high economic and fiscal relevance within the meaning of article 68-B of the General Tax Code (see, Administrative Proceedings pp. 89);

In the tax year 2013, the Claimant was granted the tax benefit under the CFEI scheme in the amount of €109,313.35, corresponding to 20% of the total value of the investment made between 01-06-2013 and 31-12-2013 (see, Document no. 4 attached to the Request for Arbitral Opinion);

Following the Claimant's applications to SIFIDE, the Certifying Commission for Tax Incentives for Business R&D approved the following tax credits: €143,796.36 (relating to the tax year 2013); €89,179.63 (relating to the tax year 2014); €140,665.83 (relating to the tax year 2015) (see, Documents nos. 5, 6 and 7 attached to the Request for Arbitral Opinion);

The Claimant was only able to deduct from the IRC tax due for the tax years 2015 and 2016 the amount of €134,293.25, relating to part of SIFIDE for the tax year 2013 (see, Documents nos. 1 and 8 to 11 attached to the Request for Arbitral Opinion);

From the amounts listed in no. 3 above, tax benefits remained undeducted from the IRC tax due in the total amount of €348,661.92 corresponding to:

The Claimant submitted on 30-05-2016 the IRC Tax Return Form 22 for the tax period 2015, in which it calculated, in table 10, field 365, autonomous taxation in the total amount of €345,809.91 and, in table 10, field 367, a tax due of €245,656.54 (see, Document no. 1 attached to the Request for Arbitral Opinion).

The Claimant, on 30-05-2018, filed an administrative appeal directed to the Director of the Large Taxpayers Unit, which received no. ...2018..., to annul the self-assessment of IRC relating to the tax year 2015, as it does not agree with the impossibility of deducting CFEI and SIFIDE from the IRC tax due resulting from autonomous taxation (see, Document no. 3 attached to the request for arbitral opinion);

The Claimant was notified, by letter from the Large Taxpayers Unit of 11-06-2018, to exercise its right of prior hearing, in accordance with article 60, no. 1, subparagraph b) of the General Tax Code, but did not exercise it (see, Administrative Proceedings pp. 100);

The Claimant was notified, by letter of 15-07-2018, of the order dismissing the administrative appeal, identified in no. 7 above, issued by the Head of the Service Division of the Central Service of the Large Taxpayers Unit, by delegation of powers, on 09-07-2018, set forth in Report no. ...-AIR1/2018 (see, Document no. 2 attached to the request for arbitral opinion).

A.2. Facts deemed not established

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

A.3. Justification of the facts deemed established and not established

With respect to the facts of the case, it is the duty of the Tribunal to select the facts that are material for the decision and to distinguish the established facts from the not established, without having to pronounce on everything alleged by the parties (cf. article 123, no. 2, of the Tax Code of Administrative Procedure and article 607, no. 3, of the Code of Civil Procedure, applicable pursuant to article 29, no. 1, subparagraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established taking into account the various plausible solutions to the legal questions raised (cf. article 596 of the Code of Civil Procedure, applicable pursuant to article 29, no. 1, subparagraph e), of the RJAT).

Therefore, having regard to the positions adopted by the parties, in light of article 110, no. 7, of the Tax Code of Administrative Procedure, and the documentary evidence in the proceedings, the facts listed above were deemed established as relevant to the decision.

B. LAW

§1. Question to be decided

The central question to be decided in these arbitral proceedings is whether the Claimant should be recognized as having the right to deduct the tax benefits, in the form of SIFIDE and CFEI, from the tax due produced by autonomous taxation.

In analyzing the question raised by the Claimant, it is necessary to begin by explaining the distinction between the figures of autonomous taxation and IRC. Then, to verify whether or not any deductions fall within the calculation of autonomous taxation and how the respective calculation is effected. Finally, to verify whether the investment support regimes, which are materialized in deductions from the tax due, namely the CFEI and SIFIDE regimes, are or are not related to the IRC tax due strictly speaking and for whose calculation autonomous taxation does not contribute.

§2. Application of law to the case sub judice

With respect to the question to be decided enunciated above, the Tribunal upholds the position adopted by Arbitral Decision no. 111/2018-T, of 10 January 2019, a decision whose panel was also presided by the Arbitrator President here (and to whose content we hereby refer).

As to the distinction in nature between the figures of autonomous taxation and IRC, this Tribunal reiterates the position uniformly adopted by the jurisprudence of the Constitutional Court and the Supreme Administrative Court and by Doctrine to the effect that autonomous taxation is a tax on expenditure different and distinct from IRC which is a tax on income.

In this respect, Arbitral Decision no. 111/2018-T states: "Autonomous taxation is a tax on expenditure different and distinct from IRC which, indisputably, is a tax on income. This without discussing whether autonomous taxation has or does not have nature – similarities – with IRC. For, independently of possible similarities, there is no doubt that they are different taxes.

This jurisprudence was initiated seven years ago in the Constitutional Court with the dissenting opinion of Hon. Counsellor Vítor Gomes, appended to Decision no. 204/2010. In Decision no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Decision no. 18/11 approaching the then dissenting opinion of Counsellor Vítor Gomes.

This jurisprudence was later reaffirmed by the Plenary, in Decision no. 617/2012, case no. 150/12, of 31/1/2013 and, recently, in Decision no. 197/2016, issued in case no. 465/2015.

The Supreme Administrative Court has likewise followed this line, as confirmed, among others, in the Decision of 21/3/2012, case 830/11, of 21/3/2012.

The doctrine also supports this position.

From Sérgio Vasques, in footnote 60, page 342, of his Manual of Tax Law, Almedina, 2015, to Rui Morais in Notes on IRC, Almedina, 2009, pp. 202-203, passing through Professor Casalta Nabais in his Tax Law, 8th ed., Almedina, Coimbra, 2015, p. 542 and Professor Ana Paula Dourado in Tax Law, Lessons, 2015, pp. 237 et seq. All reiterate the position already upheld by Portuguese courts. Autonomous taxation and IRC are different taxes.

This understanding has been followed in various decisions, in particular the arbitral decision issued by the panel presided by Counsellor Carlos Alberto Cadilha in case no. 7/2018-T of 3 July 2018: "Autonomous taxation, although regulated normatively under income tax, is materially distinct from taxation in IRC, insofar as it does not directly impact the taxable profit of the company, but rather certain expenses which constitute, in themselves, a new taxable event (which refers not to the perception of income but to the making of expenditures)".

This thesis was transposed into law in an unequivocal manner by the legislator itself when in the wording introduced to article 23-A, no. 1, subparagraph a), of the IRC Code by Law no. 2/2014, of 16 January, it began to state that "are not deductible for the purposes of determining taxable profit" "IRC, including autonomous taxation". What sense would it make to make clear in the law that autonomous taxation and IRC are not deductible from taxable profit if autonomous taxation were part of IRC? If that were the case, the Agreements to Avoid Double Taxation would have autonomous taxation included where it refers to IRC, which, as is known, does not happen. That is, in fact, the reason why Portugal has been including autonomous taxation in the list of taxes covered. Thus, in view of the above, it can be immediately concluded, in a simple way, that if the tax legislator understood that IRC included autonomous taxation it would not have had the need to distinguish the two realities, since that IRC would already necessarily include autonomous taxation.

And it is not the fact that autonomous taxation is included systematically in the IRC Code that the two realities should be confused.

Recall that autonomous taxation was introduced by article 4 of Decree-Law no. 192/90, of 9 June, and was not immediately included in the IRC Code. The legislator only 10 years after the emergence of autonomous taxation decided to introduce it into the IRC Code through Law no. 30-G/2000 of 29 December. What the legislator sought with this systematic approach was an anesthetic effect, since, notwithstanding the fact that autonomous taxation is assessed independently of IRC, it is self-assessed together with the IRC declaration, through form 22. On this question, the Constitutional Court considered, in Decisions nos. 18/2009 and 85/2010, that autonomous taxation could be included in any other code or autonomous statute.

And the realities are different from the outset because the objectives are different.

In IRC, the aim is to tax income under the scrutiny of taxpaying capacity.

Whereas autonomous taxation had, at least originally, two very different objectives always under the legitimation of the principle of tax equality.

The first being to tax in the sphere of companies what cannot be taxed in the context of personal income tax, and the second to discourage the performance of certain expenses or certain behaviors. On this point, Professor Saldanha Sanches even stated that "In this type of taxation, the legislator seeks to respond to the recognized difficult question of the fiscal regime that is located in the zone of intersection of the personal sphere and the business sphere", adding further that in the "designation of 'autonomous taxation', very diverse realities are hidden (...)" (Manual of Tax Law, 3rd edition (2007), Coimbra Publisher, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation "(...) fulfills, essentially, two functions: on one hand, to prevent the erosion of the tax base in IRC, by imposing taxation on charges that may be deducted by IRC taxpayers, but which, if so, transform themselves into an increase in taxation, thus intending to serve as a disincentive to spending on such charges; other types of autonomous taxation aim, purely and simply, to penalize presumptively evasive or fraudulent behaviors of taxpayers, constituting an anti-abuse mechanism.".

In this sense, the arbitral decision issued by the panel presided over by Counsellor Carlos Alberto Cadilha in case no. 641/2017-T: "autonomous taxation rates have the nature of anti-abuse rules and are intended to discourage certain special situations that aim to obtain a decrease in the tax burden by deduction of costs that are presumed not to be determined by a business cause".

Autonomous taxation aims only at certain expenses typified in tax law, and not the taxation of business income that has been obtained in the respective economic exercise, thus aiming to tax a patrimonial advantage obtained, as a rule, through the performance of these expenses and which consequently translates into a decrease in taxable profit. IRC, in turn, aims to tax the actual income of the taxpayer taking into account its taxpaying capacity.

It must be recalled that it is unanimously accepted both by the jurisprudence and by doctrine that autonomous taxation rates of IRC (and personal income tax) are a tax of single obligation distinct from IRC and personal income tax themselves, which are taxes of successive formation. It must also be recalled that the autonomy of autonomous taxation rates results from their possessing a taxable event radically distinct from personal income tax/IRC, of being subject to their own calculation rules, and of serving very specific purposes.

The legislator has been expanding the scope of autonomous taxation, having come to include charges relating to indemnities paid to managers, administrators or partners when they cease functions, and also charges relating to bonuses and other variable remuneration paid to managers, administrators or partners when these exceed certain thresholds. Which is justified as a way to ensure "a more just distribution of tax burdens and a progressive moralization of company remuneration policies".

In fact, the purposes of autonomous taxation are today varied but, in what is most important about them, it must be emphasized, they serve to guarantee tax equality by ensuring the taxation of values which, being expenditure in the business sphere, prefigure income in the sphere of third parties and by preventing abusive planning through recourse to tax havens. These objectives are of paramount importance to guarantee the just distribution of income and wealth which is appealed to in article 103, no. 1, Constitution."

Consequently, deduction from the tax due is a reality inherent to IRC as a tax formed by the principles of taxpaying capacity and taxation of actual income. This is not the case, however, with respect to the tax due from autonomous taxation, indeed the deduction of such charges, if it occurred, would eliminate the anti-abuse sense that characterizes them.

Despite the systematic inclusion and functional link to IRC, autonomous taxation is collected within the framework of the calculation process of this tax without, however, losing its characterization and its own dogmatic root.

In sum, autonomous taxation, which impacts on certain expenditures, functions differently from what constitutes the scope of IRC in taxing income.

In developing this position, Arbitral Decision no. 111/2018-T states, pertinently, the following: "Nothing is said in the law whether what is in article 90 of the IRC Code, under the heading 'Procedure and Form of calculation' applies to both realities – IRC and autonomous taxation – or to one only and which one. However, in the view of this Tribunal from a teleological and systematic interpretation of the law it is clear that no. 1 of article 90 - which contains the calculation procedure – applies both to IRC and to autonomous taxation. Already no. 2 of the same article – which contains the form of calculation – refers to cases of the taxable income referred to in article 15 of the CIRC, that is, to IRC.

To better understand this conclusion, it will be necessary to understand what was established in what is now no. 6 of article 109 of the IRC Code, current article 117, that the obligation to submit the periodic tax return covers entities exempt from IRC, when they are subject to autonomous taxation. And for certain purposes – namely for the purposes of the deductions provided for in no. 2 of article 90 of the IRC Code or the calculation of installments or still the Result of Calculation (article 92) - it was left to the care of the interpreter and the applicator of the law the task of identifying the relevant part of IRC tax due. This by extracting from the applicable normative provisions a useful meaning, literally possible, which allows for a coherent solution consistent with the nature and functions attributed to each component of the tax. Well, it is here that care must be taken.

When it comes to the deductions provided for in no. 2 of article 90 of the IRC Code, it seems the Claimant defends that the expression 'amount calculated in accordance with the preceding paragraph' should be understood as encompassing the sum of the amount of IRC calculated on the taxable income determined according to the rules of chapter III and the tax rates provided for in article 87 of the same Code, and the amount of autonomous taxation calculated on the basis of the rules provided for in article 88. Now, the result of this interpretation would immediately imply in a very simple way that on the basis of the calculation of installments defined in no. 1 of article 105 of the IRC Code, and in terms identical to those used in no. 2 of article 90, autonomous taxation were included. In fact, for the basis of calculation of installments only the IRC assessed on the basis of taxable income determined according to the rules of chapter III and the tax rates of article 87 of the respective Code is considered. And there is no disagreement here either in Doctrine or in jurisprudence. For, it should be noted that the coherence and adequacy of this understanding is based on the very nature of the installments of the tax due finally, which, according to the definition of article 33 of the General Tax Code are "the pecuniary deliveries advanced which are made by taxpayers in the period of formation of the taxable event", constituting a "(...) form of approximation of the moment of collection to that of the perception of income so as to fill the situations in which that approximation cannot be effected through retentions at source". Therefore, it only makes sense to conclude that the respective basis of calculation corresponds to the amount of IRC tax due resulting from the taxable income which is identified with the profit/income of the taxpayer's tax year.

Here, this Tribunal follows what the Respondent defends insisting that the only (and consistent) interpretation of the expression 'amount calculated in accordance with the preceding paragraph' with the nature of the deductions referred to in the subparagraphs of no. 2 of article 90 of the IRC Code, relating to:

• tax credits for double international legal and economic taxation (current subparagraphs a) and b));
• tax benefits (current subparagraph c));
• special installment payment (current subparagraph d));
• and retentions at source (current subparagraph e)).

In reality, it is noted that the common thread to all the realities reflected in the deductions referred to in no. 2 of article 90 of the IRC Code resides in the fact that they respect income or expenses incorporated in the taxable income determined on the basis of the taxpayer's profit or anticipated payments of the tax, being thus completely alien to the realities that make up the taxable events of autonomous taxation."

It is clear to this Tribunal that in the calculation of autonomous taxation no deductions fall within its scope and the respective calculation is effected in accordance with articles 88 and 89 and no. 1 of article 90 of the CIRC. The legislator in no. 2 of article 90 of the CIRC refers only to the taxable income contained in article 15 of the CIRC. The fact that the calculation procedure provided for in no. 1 of article 90 of the CIRC also applies to autonomous taxation does not directly and necessarily imply that the same occurs with no. 2 of the aforementioned article 90.

Finally, it is now necessary to analyze whether the investment support regimes which are materialized in deductions from the IRC tax due, namely the CFEI and SIFIDE regimes, are or are not related to the IRC tax due strictly speaking.

First, in terms of framework, it is important to note that Law no. 49/2013, of 16 July, approved the CFEI with the aim of promoting investment and internationalization of national companies through the grant of a tax credit, in the form of a deduction from the tax due, for the performance of certain investments. The CFEI corresponded to a deduction from the IRC tax due in the amount of 20% of investment expenses in assets used in the business activity carried out, up to the limit of 70% of that tax due. The eligible investment to obtain this tax credit had to be made between 1 June 2013 and 31 December 2013, with the maximum amount of eligible investment expenses being €5,000,000.00 per taxpayer. The CFEI is not cumulative, with respect to the same eligible investment expenses, with any other tax benefits of the same nature.

SIFIDE, on the other hand, was first approved by Law no. 55-A/2010, of 31 December, and successively provided for in articles 33 to 40 of the Investment Tax Code and in articles 35 to 42 of the Investment Tax Code approved by Decree-Law no. 162/2014, of 31 October.

SIFIDE II allows companies to obtain a tax benefit, in IRC, proportional to the investment spending in research and development that they can evidence, in the part that has not been subject to state financial contribution on a non-repayable basis. Thus, the benefit to be obtained with SIFIDE II translates into the possibility of deducting from the IRC tax due assessed in the tax year, an amount of tax credit which results from the sum of the following items: Base rate: 32.5% of expenses made in the tax year; Incremental rate: 50% of the increase in expenses made in the tax year compared to the simple arithmetic average of expenses made in the two preceding tax years, up to the limit of €1,500,000. The amounts that represent the tax benefit under SIFIDE are deducted "from the amounts calculated in accordance with article 90 of the IRC Code, and up to its extent" and in the calculation for the tax period in which the expenses eligible for this purpose are made and that, in the absence or insufficiency of tax calculated in these terms, the expenses that cannot be deducted in the tax year in which they are made "may be deducted up to the 6th immediate tax year".

As the cited Arbitral Decision states "(…) the legislator of the SIFIDE regime, by making this express reference to the amount calculated in accordance with article 90 of the IRC Code, is referring to the IRC tax due proper for whose calculation autonomous taxation does not contribute precisely because they do not enter into the calculation of either taxable profit or taxable income, and, as a consequence, do not contribute to the IRC assessed.

It is perceptible that, although the SIFIDE article refers to article 90 as a whole, it refers to the amount calculated in accordance with no. 2 of article 90, and this only applies, as is already known, to IRC.

The deduction relating to tax benefits (subparagraph b) of no. 2 of article 90), when it comes to investment benefits - as is the case with SIFIDE - is based on the philosophy that the benefit constitutes a prize whose extent varies with the profitability of investments, since the higher the profit/taxable income of the IRC, the greater the capacity to make the deduction. And it is this logic of the SIFIDE tax benefit that justifies and legitimates the derogation from the principle of tax equality.

Thus, there is no conceptual error nor any contradiction between what has just been stated and the fact that the SIFIDE regime establishes that these are materialized in deductions from the tax due of the amounts calculated in accordance with article 90 of the IRC Code, i.e., of IRC. It is because in the view of this tribunal both autonomous taxation and IRC are assessed in accordance with no. 1 of article 90 of the IRC Code. However, of the two realities, the only one that is capable of deduction from the tax due – that is, of materialization of the benefit – is, both for literal reasons (because no. 2 of article 90 applies only to IRC) and for material reasons (the benefit only materializes if there is profit so as to reward the profitability of investment), the IRC tax due which, as we have seen, is different and distinct from autonomous taxation. The result of autonomous taxation, assessed in an autonomous/independent/separate manner does not contribute to the IRC tax due; rather, it must accrue to the assessed IRC for the purposes of calculating the amount to be paid or recovered, which constitutes a quite different result. Note in this regard that autonomous taxation (increased) is already due in the case of taxpayers who present fiscal losses."

Given the nature and reason for the existence of autonomous taxation, it is not possible to admit the deduction of tax benefits from the autonomous taxation tax due, under pain of violation of the principle of tax equality.

If a taxpayer could make the deduction by virtue of SIFIDE or other tax benefits from the amount of autonomous taxation levied on undocumented expenses, the function of this taxation in the prevention or avoidance of fiscal and socially undesired behaviors would be subverted.

Now, given that the autonomous taxation regime has a function of discouraging abusive behaviors, this Tribunal finds no justification for this deterrent to be nullified in favor of a tax benefit. It would be to admit that tax credits resulting from incentive or tax benefit could neutralize the sanctionary effect of autonomous taxation, distorting the very concept of tax benefit and the principles of taxpaying capacity and fair distribution of the tax burden.

As the above-cited Arbitral Decision states "(...) the Tribunal performs not a restrictive interpretation of article 4 of SIFIDE II but only a teleological and systematic interpretation of the provisions both of SIFIDE and of the IRC Code so as to save the regime from the test of constitutional compliance, namely with respect to what concretely concerns the violation of the principle of tax equality. For we can never forget that the rules governing benefits such as SIFIDE have an exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality is necessary, adequate and proportionate to the extra-fiscal purpose that underlies them.

It is therefore not worth entering into the discussion, as it is beside the point, of whether or not we are faced with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues. Of course we are; otherwise the SIFIDE regime would not have been approved. The question is what tax revenue was ceded in terms of investment? Revenues from a tax that allows deductions and that obeys the principle of taxpaying capacity and that rewards whoever invests, but whoever generates tax by admitting that whoever obtains more profit can invest more. Or what was intended (and admitted) was to cede revenue from a tax on expenditure that, under the principle of tax equality, requires whoever has deviant behaviors – such as payment with travel allowances or representation expenses, or even payments to entities resident in tax havens – to cease to pay this tax by virtue of having investment expenses?

There is no doubt that it was the former.

This is evidenced by the fact that the amendment introduced by the State Budget Law for 2018 amended the wording of article 88 of the IRC Code so that no deductions are made from the amount due of autonomous taxation even if these stem from special legislation such as SIFIDE. Now, even without resorting to the interpretative character given by the legislator again to no. 21 of article 88 of the IRC Code, it is clear that the legislator – which, recall, is always the same, the Assembly of the Republic – intended to elucidate what, moreover, already resulted from the law.

And until now, if there was no sign, neither in Law no. 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that with the addition to article 88 of the CIRC of a general rule prohibiting deductions from the total amount calculated of autonomous taxation, it was intended to interpret restrictively the expression 'deduct from the amount calculated in accordance with article 90 of the IRC Code' which appears in a special rule of an individual statute, as is SIFIDE II, it is now clear with the new wording of no. 21 of the article that no deductions are permitted from the tax due of autonomous taxation even if these stem from special legislation.

In the thesis that this Tribunal upholds, the legislator, in adding this no. 21 to article 88 of the CIRC, with the content mentioned, merely came to adopt and reinforce the interpretative sense that already resulted from the existing rules."

For all that has been stated, it makes no sense to invoke the unconstitutionality of no. 21 of article 88 of the CIRC added by Law no. 7-A/2016, of 30 March, by violation of the principle of retroactivity of the law, prohibited by article 103, no. 3, of the Constitution, insofar as such rule is not even invoked in the resolution of the case at issue.

This Tribunal understands that with respect to the question of deductibility of investment expenses provided for in CFEI, the understanding that has been stated regarding SIFIDE applies, with no grounds that justify a different position.

Thus, for the reasons stated, this Tribunal denies grant to the arbitral request for declaration of illegality of the self-assessment of IRC relating to the tax year 2015, in the part produced by autonomous taxation, and the dismissal of the administrative reclamation now being challenged is to be upheld.

As the request for declaration of illegality of the impugned IRC self-assessment relating to the tax year 2015 is unfounded, the requests made by the Claimant regarding the return of the amounts paid and the payment of compensatory interest are likewise prejudiced.

C. DECISION

Therefore, it is decided in this Arbitral Tribunal:

1. To judge unfounded the request for arbitral opinion on the declaration of illegality of the self-assessment of IRC relating to the tax year 2015, insofar as it concerns the possibility of deducting tax benefits relating to SIFIDE and CFEI from the tax due from autonomous taxation;

2. To uphold the decision dismissing the administrative appeal;

3. To judge unfounded the request for reimbursement of the amount of IRC under review in the proceedings and paid by the Claimant relating to the tax year 2015 increased by compensatory interest, since this request is prejudiced by the unfoundedness of the arbitral request referred to in a), absolver the Respondent of the respective request and, consequently,

4. To condemn the Claimant to pay the costs of the present proceedings.

D. Value of proceedings

The value of the proceedings is fixed at €345,809.91 (three hundred and forty-five thousand, eight hundred and nine euros and ninety-one cents), in accordance with article 97-A, no. 1, subparagraph a), of the Tax Code of Administrative Procedure and Process, applicable by virtue of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €5,814.00 (five thousand eight hundred and fourteen euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the request was entirely unfounded, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforementioned Regulation.

Let it be notified.

Lisbon, Centre for Administrative Arbitration, 8 April 2019.

The Arbitrator President

(Counsellor Maria Fernanda dos Santos Maças)

The Arbitrator Member

(Dr. Olívio Mota Amador)

The Arbitrator Member

(Prof. Dr. Maria do Rosário Anjos – dissenting, as per declaration attached)

DISSENTING OPINION

I disagree with the decision taken by majority, for the reasons set forth below, summarily stated:

1- For greater celerity of exposition of the reasons for my dissenting opinion, I refer, essentially, to the content of the arbitral decisions issued in cases nos. 626/2017-T, of 14-07-2018 and 45/2018-T of 15-06-2018, in which I participated as an arbitrator member and whose majority understanding differs from that followed in this decision. Thus, I have the entire content of the aforementioned decisions reproduced, with respect to the treatment and justification of the legal questions under discussion in these proceedings.

2- In summary, considering that the calculation challenged relates to the tax year 2015 and adapting some text extracts from that Decision of Case no. 45/2018-T, whose justification I subscribe to, I consider that:

"(...) At least until Law no. 7-A/2016, of 30 March, there was no legal provision that indicated any special calculation procedure for IRC resulting from autonomous taxation, so that, under pain of unconstitutionality for violation of no. 3 of article 103, by the calculation not being effected 'in accordance with the law', the procedure provided for in article 90 of the CIRC had to be applied. As the IRC tax due, both that resulting from taxable profit and that resulting from autonomous taxation, is calculated through the calculation procedure provided for in article 90 of the CIRC, the deductions provided for in no. 2 of the same article, which refer to 'the amount calculated in accordance with the preceding paragraph', are potentially applicable to such tax due, without any distinction as to the nature of the types of IRC tax due that are included in that amount. Therefore, from the literal content of no. 2 of article 90 of the CIRC, no obstacle results to the application of deductions to the part of the amount calculated in accordance with no. 1 derived from autonomous taxation. As is stated in the decision of the Constitutional Court no. 267/2017, of 31-05-2017, issued in case no. 466/16, 'the autonomy of the taxation in question as to its base of incidence, as to the applicable rates and even as to the moment of payment, by itself, does not determine – neither logically nor legally – the irrelevance of the tax collected with autonomous taxation within the framework of the calculation of the tax due of IRC itself – a question regulated, in general, in article 90, no. 1, of the CIRC – in particular as to the integration of the former into the latter and, consequently, as to the admissibility of consideration of the value of the cited tax due for the purpose of the realization of the deductions legally provided for in article 90, no. 2, of the CIRC. Such question, in the absence of a specific rule to the contrary – such as that, for example, came to be established in article 88, no. 21, of the CIRC – falls within the legislative configuration of IRC itself, including the relevance or irrelevance, for the purposes of calculating the final IRC tax due, of the amounts paid by virtue of autonomous taxation'.

In fact, only with Law no. 7-A/2016, of 30 March, which added to article 88 of the CIRC a no. 21, did there come to exist a rule in which the possibility of application of the deductions provided for in no. 2 of article 90 of the CIRC (...) is excluded.

Law no. 114/2017, of 29 December, came to reaffirm the exclusion of the applicability of the deductions provided for in no. 2 of article 90 of the CIRC to the IRC tax due resulting from autonomous taxation (...).

To this no. 21 of article 88 of the CIRC was attributed interpretative nature, by article 135 of Law no. 7-A/2016 and by article 233 of Law no. 114/2017, respectively. However, the Constitutional Court, in the aforementioned decision no. 267/2017, has already affirmed the unconstitutionality of that article 135 in the part in which, due to the effect of the merely interpretative character that it attributes to the 2nd part of no. 21 of article 88 of the CIRC, it excludes the possibility of deduction from the total amount resulting from autonomous taxation assessed in a given year in IRC of deductions permitted in fiscal years prior to 2016.

This decision of the Constitutional Court was based on no. 3 of article 103 of the Constitution, which establishes that no one may be obliged to pay taxes that have a retroactive nature, from which the Constitutional Court understood that 'the legislator cannot create taxes with such nature or introduce into existing taxes modifications which, with retroactive effects, aggravate them' and that 'what is in question is the prohibition of establishing new legal consequences which constitute ex novo or aggravate already defined fiscal situations, in particular the quantum owed by virtue of a certain tax and previously defined in reason of the verification of all relevant facts in light of the law applicable before the establishment of the new legal consequences'.

Therefore, in line with this jurisprudence, the constitutionality of the restrictive interpretation of no. 2 of article 90 of the CIRC, so as to exclude the possibility of deductions from the IRC tax due resulting from autonomous taxation, depends on whether it should already have been effected in view of the regime prior to that Law no. 7-A/2016, for it is constitutionally inadmissible the retroactive unfavoring of taxpayers in fiscal rules from which results obligation to payment of taxes.

It should be noted, however, from the outset, that the new wording given by Law no. 114/2017 to no. 21 of article 88 of the CIRC, by excluding the possibility of deductions from the total amount of autonomous taxation 'even if such deductions result from special legislation' clarifies, with interpretative nature (in this part without problems of constitutionality, because it concerns retroactivity favorable to taxpayers), that there existed special legislation from which resulted that deductions be made from the amount of autonomous taxation, thus coming to recognize, with the legislative authority of an authentic interpretation, what had already been patiently and repeatedly explained by the majority arbitral jurisprudence (as was justified and justifies itself in view of the difficulties manifested by the Tax and Customs Authority in article 127 of its pleadings, in which it confesses that, for it, it is a matter of 'incomprehensible and unintelligible theses'). (...)"

As a basis for a restrictive interpretation could, in a first analysis, be ventured the fact that some autonomous taxation, in particular some of those that have 'expenses' or 'charges' as a base of incidence, aim to discourage certain behaviors of taxpayers capable of affecting taxable profit, and consequently diminishing tax revenue, and their deterrent force will be attenuated with the possibility of the respective tax due being subject to deductions.

However, as was legislatively recognized by the wording given to no. 21 of article 88 by Law no. 114/2017 (here with interpretative force constitutionally irreproachable in view of article 103, no. 3, of the Constitution), there is special legislation from which result deductions from the tax due derived from autonomous taxation, which are necessarily situations in which legislatively preference was given to satisfaction of the interests that justify the deductions in relation to those aimed at with autonomous taxation, which occurs with the rules on tax benefits deductible from the IRC tax due.

On the other hand, the nature of anti-abuse rules, intended to prevent fraud and tax evasion, does not exclude the possibility of deductions from the IRC tax due that with the application of such rules is determined, which is manifest with respect to the tax due afforded by corrections based on rules of indisputably anti-abuse nature, such as, for example, those relating to transfer pricing or undercapitalization and also the corrections resulting from the application of the general anti-abuse rule provided for in article 38, no. 2, of the General Tax Code.

Furthermore, it is also evident that the anti-abuse nature of some of the autonomous taxation that aim to discourage expenses and prevent tax evasion could not serve to justify the non-deduction of tax benefits from all the IRC tax due resulting from autonomous taxation, since that provided for in no. 11 of article 88 of the CIRC does not impact on expenses or charges, but rather on 'profits', being a form of complementary or alternative profit taxation in relation to that provided for the generality of income. Moreover, the autonomous taxation provided for in no. 8 of article 88 does not have underlying it any intention to discourage the performance of the operations to which it refers, but rather to impose on taxpayers special probative duties in situations in which the more favorable taxation of the recipients of the expenses can raise doubts as to the reality and normality of the operations, since autonomous taxation is excluded 'if the taxpayer can prove that they correspond to operations effectively carried out and do not have an abnormal character or an exaggerated amount'.

Furthermore, even with respect to some autonomous taxation that impacts on expenses, it would not be compatible with the constitutional principles of proportionality and equality to impose taxation on the basis of a hypothetical legislative intention to discourage the use of motorcycles for certain activities for which they are indispensable, as is the case with motorcycle shows, or for which they have evident adequacy, with their use corresponding to manifestly good business management and would be especially inconceivable to include in the scope of this discouraging intention the very payment of 'the taxes levied on their possession or use', which is referred to in the final part of no. 5 of article 88, which should even be assured coercively by the Tax and Customs Authority, in the case where the taxpayer feels discouraged to make that payment.

Thus, the understanding that all autonomous taxation aims to tax expenses or discourage or sanction behaviors, which may result from a cursory first analysis, encounters, on a more incisive perception, an insurmountable lack of correspondence with reality, being more coherent, as a global explanation, the idea that we are 'faced with a mechanism whose ultimate objective is to contribute to the 'normalization' of taxation in IRC, that is, to the functioning of this tax in its purest form and closest to its roots as a tax on profit obtained by legal entities. In that sense, autonomous taxation is nothing more than an ancillary mechanism of the central axis of IRC, which is to tax profits by allowing the deduction of expenses in which taxpayers must incur with a view to the realization of taxable income."

For all that has been stated, taking into account the specific case of these proceedings, I understand that the amounts of tax credits under discussion are deductible from the IRC tax due, whether this results from the calculation of taxable profit or is originated by the so-called 'autonomous taxation', so I dissent from this arbitral opinion.

The Arbitrator Member

(Prof. Dr. Maria do Rosário Anjos)