SIFIDE Tax Credit Deduction Against Autonomous Taxation in IRC – CAAD Case 407/2018-T

ARBITRAL DECISION

The arbitrators, Advisor Jorge Lopes de Sousa (arbitrator-president), Prof. Doctor Nuno Cunha Rodrigues and Dr. Nuno Maldonado Sousa (arbitrators members), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 07-11-2018, agree as follows:

1. Report

A..., S.A., with registered office at Rua..., no...., ..., Municipality of Amadora, holder of the tax identification number ..., registered at the Commercial Registry Office of Lisbon under the same number (hereinafter referred to as "Claimant") came, pursuant to article 2(1)(a) and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "RJAT"), to submit a request for an arbitral ruling seeking the annulment of the decision of implicit dismissal of the administrative appeal which it submitted, as well as the self-assessment of Corporate Income Tax (IRC) embodied in the self-assessment payment document no.... .

The Claimant may also request «the reimbursement of € 201,444.96, corresponding to the difference between the amount of € 67,270.78 unduly paid following the self-assessment of the 2015 period, and the amount of € 134,174.18, which should have been reimbursed to the Claimant (difference corresponding to the amount of the tax collection constituted by autonomous taxations, from which the available SIFIDE credit should have been deducted)» and indemnity interest.

The PORTUGUESE TAX AND CUSTOMS AUTHORITY is the Defendant.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 28-08-2018.

Pursuant to article 6(2)(a) and article 11(1)(b) of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the charge within the applicable period.

On 17-10-2018, the parties were duly notified of this designation, and neither manifested an intention to refuse the designation of the arbitrators, pursuant to the combined provisions of article 11(1)(a) and (b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with article 11(1)(c) of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 07-11-2018.

The Tax and Customs Authority submitted a response in which it argued that the claim should be dismissed as unfounded.

By orders of 10-12-2018, it was decided to waive the meeting provided for in article 18 of the RJAT and that the proceedings should continue with successive written submissions.

The parties submitted submissions.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2(1)(a) and 10(1) of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented, enjoy legal personality and capacity, and have standing (articles 4 and 10(2) of the same decree-law and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

2. Findings of Fact

2.1. Established Facts

• On 30-05-2016, the Claimant, in its capacity as the dominant company of the tax group to which it belongs, submitted the tax return Form 22 of the group for the taxation period of 2015 (document no. 1 attached with the request for an arbitral ruling, the contents of which are reproduced);

• In Annex D to said Form 22 declaration, the following values were indicated, in relation to SIFIDE I and SIFIDE II:

• In said self-assessment, the value of € 201,444.96 of autonomous taxations was indicated (Field 365 of Table 10) and the «Total Amount Due» of € 67,270.78 was determined (Field 367 of Table 10);

• No amount of SIFIDE I or SIFIDE II was deducted from the tax collection arising from autonomous taxations, which was not feasible in light of the computer system of the Tax and Customs Authority for submitting IRC returns;

• The Certifying Commission for Tax Incentives for Research and Business Development awarded to company B... S.A. (a company forming part of the tax group of which the Claimant is the dominant company), with reference to the 2010 period, by way of SIFIDE I, a tax credit amounting to € 719,108.52 (document no. 5 attached with the request for an arbitral ruling, the contents of which are reproduced);

• B... S.A., which gave rise to the SIFIDE I tax benefit, was not indebted to the State or Social Security for any taxes or contributions (documents nos. 6 and 7 attached with the request for an arbitral ruling, the contents of which are reproduced);

• The amount of tax credit available for deduction arising from "SIFIDE I 2010" which carried forward to 2015 amounted to € 547,757.20, and the Claimant deducted from the group's tax collection in that period the amount corresponding to € 342,159.97 of this benefit, also including deduction of SIFIDE II (articles 30 and 31 of the request for an arbitral ruling and document no. 1);

• Company C... SGPS, S.A., with tax identification number..., the former dominant company of the tax group, submitted a request for official revision in which it requested from the Tax Authority the deduction of an amount of SIFIDE I from the total tax collection of the group (consisting of IRC proper, state surtax and autonomous taxation) with reference to the 2010 taxation period (€ 127,661.17) (article 32 of the request for an arbitral ruling);

• Additionally to the request for official revision submitted by C... SGPS, S.A., an administrative appeal was also submitted by the Claimant relating to the 2014 taxation period, in which the Claimant requested an additional deduction of SIFIDE I in the amount of € 142,028.29 from the total tax collection of the group (article 33 of the request for an arbitral ruling);

• With regard to the tax credit derived from the SIFIDE II benefit, the amount available for deduction from the tax group's tax collection in the 2015 taxation period amounted to € 471,335.14 (article 35 of the request for an arbitral ruling and document no. 1);

• The amount of SIFIDE II reported arises from the allocation, with reference to the 2013 taxation period, of the tax credit granted to company D..., S.A., a company forming part of the tax group of which the Claimant is the dominant company, by the Certifying Commission for Tax Incentives for Research and Business Development, in the context of the Tax Incentives System for Business R&D (SIFIDE II) (article 37 of the request for an arbitral ruling);

• Additionally, and notwithstanding the fact that it was not reported in the 2014 Form 22 declaration, there was a further allocation of SIFIDE II of € 22,578.07 with reference to the 2014 period to company D..., S.A. (article 38 of the request for an arbitral ruling and certificate of allocation of SIFIDE II tax credit, which is contained in Document no. 8 attached with the request for an arbitral ruling, the contents of which are reproduced);

• The Claimant requested, through the administrative appeal submitted relating to the 2014 taxation period, the deduction of SIFIDE II (in addition to the deduction of SIFIDE I) in the amount of € 194,489.72 from the total tax collection of the group (article 39 of the request for an arbitral ruling);

• Thus, the amount of SIFIDE II available for deduction from the Claimant's 2015 tax collection could be reduced by that amount should the appeal be fully granted.

• D..., S.A., which gave rise to the SIFIDE II tax benefit, was not indebted to the State or Social Security for any taxes or contributions with respect to the year 2015 (documents nos. 9 attached with the request for an arbitral ruling, the contents of which are reproduced and no. 1 attached on 03-01-2019);

• On 06-03-2018, the Claimant submitted an administrative appeal against the self-assessment of group IRC for the 2015 taxation period (document no. 2 attached with the request for an arbitral ruling, the contents of which are reproduced);

• On 31-05-2016, the Claimant paid the sum of € 67,270.78, determined in the self-assessment (documents nos. 3 and 4 attached with the request for an arbitral ruling, the contents of which are reproduced);

• The administrative appeal was not decided until 21-09-2018, the date on which the Claimant submitted the request for an arbitral ruling that gave rise to the present proceedings.

2.2. Facts Not Proved and Justification for the Factual Record

There are no facts relevant to the decision of the case that have not been proved.

The established facts are based on the documents submitted by the Claimant and on statements by the Claimant which are not contested by the Tax and Customs Authority.

3. Matters of Law

3.1. Applicability of Articles 89 and 90 of the IRC Code to the Calculation of Autonomous Taxations

Articles 89 and 90 of the IRC Code establish the following, in the wording given by Law no. 2/2014, of 16 January, in force in the year 2015:

Article 89

Authority for Assessment

The assessment of IRC is carried out:

a) By the taxpayer himself, in the declarations referred to in articles 120 and 122;

b) By the Tax and Customs Authority, in other cases.

Article 90

Procedure and Form of Assessment

1 - The assessment of IRC proceeds as follows:

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

b) In the absence of submission of the declaration referred to in article 120, the assessment is carried out by 30 November of the year following that to which it relates or, in the case provided for in paragraph 2 of said article, by the end of the 6th month following the end of the deadline for submission of the declaration mentioned therein and is based on the annual amount of the minimum monthly remuneration or, when greater, the entire taxable matter of the nearest fiscal year that is determined;

c) In the absence of assessment under the foregoing subparagraphs, it is based on the elements available to the tax administration.

2 - To the amount ascertained under the preceding paragraph, the following deductions are made, in the order indicated:

a) That corresponding to international legal double taxation;

b) That corresponding to international economic double taxation;

c) That relating to tax benefits;

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

e) That relating to withholding taxes not subject to set-off or reimbursement under applicable law.

3 – (Repealed)

4 - To the amount ascertained under paragraph 1, in relation to the entities mentioned in paragraph 4 of article 120, only the deduction relating to withholding taxes is to be made when these have the nature of tax on account of IRC.

5 - The deductions referred to in paragraph 2 relating to entities to which the tax transparency regime established in article 6 applies are imputed to the respective partners or members in accordance with the terms established in paragraph 3 of that article and deducted from the amount ascertained on the basis of the taxable matter that has taken into account the imputation provided for in the same article.

6 - Where the special regime for taxation of groups of companies is applicable, the deductions referred to in paragraph 2 relating to each company are made in the amount ascertained in relation to the group, pursuant to paragraph 1.

7 - From the deductions made under subparagraphs a), b) and c) of paragraph 2, no negative value may result.

8 - In relation to taxpayers covered by the simplified regime for determination of taxable matter, to the amount ascertained under paragraph 1 only the deductions provided for in subparagraphs a) and e) of paragraph 2 are to be made.

9 - From the deductions made under subparagraphs a) to d) of paragraph 2, no negative value may result.

10 - To the amount ascertained under subparagraphs b) and c) of paragraph 1, only deductions of which the tax administration has knowledge and which may be made under paragraphs 2 to 4 are made.

11 - In cases where the provision of subparagraph b) of paragraph 2 of article 79 applies, assessments are made annually on the basis of taxable matter provisionally determined, and, in relation to the assessment corresponding to the taxable matter for the entire assessment period, the difference ascertained is to be collected or cancelled.

12 - The assessment provided for in paragraph 1 may be corrected, if necessary, within the period referred to in article 101, collecting or cancelling the differences ascertained.

These articles 89 and 90 of the IRC Code, as well as other provisions of this Code, such as those relating to declarations provided for in articles 120 and 122, are applicable to autonomous taxations.

In fact, it is now settled, following numerous arbitral decisions and the positions adopted by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxations provided for in the IRC Code has the nature of IRC. Furthermore, beyond the case law, article 23-A(1)(a) of the IRC Code, as amended by Law no. 2/2014, of 16 January, leaves no room for reasonable doubt today, 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 assessment of IRC, by the taxpayer or by the Tax Administration, and applies to the determination of the tax due in all situations provided for in the Code.

Therefore, article 90 also applies to the assessment of the amount of autonomous taxations, which is determined by the taxpayer or by the Tax Administration, following the submission or non-submission of declarations, and there is, as of 2014, no other provision that provides for different terms for its assessment.

Thus, in the year 2015, the differences between the determination of the amount resulting from autonomous taxations and that resulting from taxable profit are limited to the determination of the taxable matter and 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 taxations and the respective rates.

However, the forms of assessment provided for in Chapter V of the same Code are of common application to autonomous taxations and to the rest of the taxable matter of IRC.

Nonetheless, the fact that an IRC self-assessment, carried out under paragraph 1 of article 90, may contain several 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 provision when it refers to «assessment», in the singular, in all cases in which it is «made by the taxpayer in the declarations referred to in articles 120 and 122», taking «as its basis the taxable matter contained therein» (whether that determined under the rules of articles 17 et seq. or that determined under the various situations provided for in article 88).

Indeed, it is not only the assessments provided for in article 88 that may encompass several calculations of the application of rates to certain taxable matters, as the same may occur in the situations provided for in paragraphs 4 to 6 of article 87.

In any case, whatever calculations are to be made, the self-assessment that the taxpayer or the Tax and Customs Authority must make under articles 89(a), 90(1)(a), (b) and (c), and 120 or 122 is unitary, and it is on the basis of it that the overall IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it may be.

Furthermore, if article 90 were not applicable to the assessment of autonomous taxations provided for in the IRC Code, we would have to conclude that there would be no provision that, in 2014, provided for their assessment, which would amount to illegality, by violation of article 103(3) of the Constitution, which requires that the assessment of taxes be made «in accordance with the law».

It is also worth noting the new provision of paragraph 21 added to article 88 of the IRC Code by Law no. 7-A/2016, of 30 March, regardless of whether it can be qualified as truly interpretative, in no way alters this conclusion, as it establishes, with regard to the form of assessment of autonomous taxations, that it «is carried out under the terms provided for in article 89 and is based on the values and rates that result from the provision in the preceding paragraphs». Indeed, while it is certain that this new provision comes to clarify how the amounts of autonomous taxations are calculated (which already followed from the very text of the various provisions of article 88) and that the authority rests with the taxpayer or the Tax Administration, under article 89, it is also clear that the need to use the procedure provided for in paragraph 1 of article 90 is not set aside, particularly in the cases provided for in its subparagraph c) where the assessment is the responsibility of the Tax and Customs Authority and is «based on the elements available to the tax administration», which will include the possibility of assessing on the basis of autonomous taxations, if the Tax and Customs Authority has elements that prove their prerequisites.

The same applies to the wording given to that paragraph 21 of article 88 by Law no. 114/2017, of 29 December.

Therefore, both before and after Law no. 7-A/2016, of 30 March, and Law no. 114/2017, of 29 December, article 90(1) of the IRC Code is applicable to the assessment of autonomous taxations.

3.2. Applicability of the Deductions Provided for in Paragraph 2 of Article 90 of the IRC Code to the IRC Tax Collection Resulting from Autonomous Taxations

For the reasons stated, at least until Law no. 7-A/2016, of 30 March, there was no legal provision that indicated any special procedure for assessing the IRC resulting from autonomous taxations, so, on pain of unconstitutionality by violation of paragraph 3 of article 103, because the assessment was not made «in accordance with the law», the procedure provided for in article 90 of the IRC Code had to be applied.

Since the IRC tax collection, whether resulting from taxable profit or from autonomous taxations, is ascertained through the assessment procedure provided for in article 90 of the IRC Code, the deductions provided for in paragraph 2 of the same article are potentially applicable to such collection, which refers to «the amount ascertained under the preceding paragraph», without any distinction regarding the nature of the types of IRC collection included in that amount.

Therefore, from the literal wording of paragraph 2 of article 90 of the IRC Code, no obstacle results to the application of deductions to the portion of the amount ascertained under paragraph 1 resulting from autonomous taxations.

As stated in the Constitutional Court judgment no. 267/2017, of 31-05-2017, delivered in case no. 466/16, «the autonomy of the taxation in question as to its tax base, as to the applicable rates and even as to the timing of payment, by itself, does not determine – neither logically nor legally – the irrelevance of the tax collection obtained with autonomous taxations in the context of the ascertainment of the collection of IRC itself – a question regulated, in general, in article 90(1) of the IRC Code – namely as to the integration of the former in the latter and, consequently, as to the admissibility of consideration of the value of said collection for the purpose of achieving the deductions legally provided for in article 90(2) of the IRC Code. Such a question, in the absence of a specific norm to the contrary – as was the case with the one that later came to be enshrined in article 88(21) of the IRC Code – falls within the legislative configuration of IRC itself, including the relevance or irrelevance, for the purposes of ascertainment of final IRC collection, of the amounts paid by way of autonomous taxations».

In fact, it was only with Law no. 7-A/2016, of 30 March, which added to article 88 of the IRC Code a paragraph 21, that a provision came to exist that excludes the possibility of application of the deductions provided for in paragraph 2 of article 90 of the IRC Code to the amount ascertained with autonomous taxations, establishing the following:

«21 - The assessment of autonomous taxations in IRC is carried out under the terms provided for in article 89 and is based on the values and rates that result from the provision in the preceding paragraphs, with no deductions being made to the total amount ascertained.»

In the final part of this provision, the scope of application of the deductions provided for in article 90(2) of the IRC Code is restricted to the IRC tax collection derived from taxable profit.

Law no. 114/2017, of 29 December, came to reaffirm the exclusion of the applicability of the deductions provided for in paragraph 2 of article 90 of the IRC Code to the IRC tax collection resulting from autonomous taxations by establishing the following:

«21 - The assessment of autonomous taxations in IRC is carried out under the terms provided for in article 89 and is based on the values and rates that result from the provision in the preceding paragraphs, with no deductions being made to the total amount ascertained, even if those deductions result from special legislation.»

To this paragraph 21 of article 88 of the IRC Code was attributed an interpretative nature, by article 135 of Law no. 7-A/2016 and article 233 of Law no. 114/2017, respectively.

However, the Constitutional Court, in the aforecited judgment no. 267/2017, has already found the unconstitutionality of article 135 to the extent that, as a consequence of the merely interpretative character it attributes to the second part of paragraph 21 of article 88 of the IRC Code, it excludes the possibility of deduction from the total amount resulting from autonomous taxations assessed in a given year in the context of IRC of deductions permitted in tax years prior to 2016.

This Constitutional Court decision was based on paragraph 3 of article 103 of the Constitution, which establishes that no one can be obliged to pay taxes that have a retroactive nature, from which the Constitutional Court understood that «the legislature cannot create taxes of such a nature or introduce into existing taxes modifications that, with retroactive effects, worsen them» and that «the question at issue is the prohibition on establishing new legal consequences that constitute new obligations or worsen situations already defined in tax matters, in particular the quantum owed by way of a certain tax and previously defined by reason of the verification of all facts relevant in light of the law applicable before the establishment of the new legal consequences».

Therefore, in line with this case law, the constitutionality of the restrictive interpretation of paragraph 2 of article 90 of the IRC Code, so as to exclude the possibility of deductions to the IRC tax collection resulting from autonomous taxations, depends on whether it should already be made in light of the regime prior to Law no. 7-A/2016, since it is constitutionally inadmissible for there to be retroactive unfavorable application to taxpayers of tax provisions resulting in the obligation to pay taxes.

It should be noted, however, from the outset, that the new wording given by Law no. 114/2017 to paragraph 21 of article 88 of the IRC Code, by excluding the possibility of deductions from the total amount of autonomous taxations «even if those deductions result from special legislation» clarifies, with interpretative force (in this part without constitutional problems, as it concerns retroactive favorable to taxpayers), that there was special legislation from which it resulted that deductions be made from the amount of autonomous taxations, thereby recognizing, with the legislative authority of an authentic interpretation, what had already been patiently and repeatedly explained by arbitral case law.

Therefore, since it is constitutionally inadmissible, for the reasons stated by the Constitutional Court in the cited judgment, that this new law should exclude the possibility of deductions admissible under the legislation in force until the entry into force of Law no. 7-A/2016, the question that arises, in order to resolve the issues of legality of the self-assessment and subsequent assessment and of the decision on the request for official revision that are raised in the present proceedings, is whether, prior to this law, the restrictive interpretation should already be made that came to be set out therein, whether restrictions should already be placed on the application of the deductions provided for in paragraph 2 of article 90 of the IRC Code to the portion of IRC tax collection resulting from autonomous taxations.

In fact, the fact that the wording of paragraph 2 of article 90 points to the application of deductions to the collection resulting from autonomous taxations, this deductibility did not exclude the possibility of restrictive interpretation, if «the interpreter reaches the conclusion that the legislature adopted a text that betrays its thought, to the extent that it says more than what it intended to say. Here too, the ratio legis will have a decisive word. The interpreter should not be led astray by the apparent scope of the text, but should restrict it so as to make it compatible with the legislative thought, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, its scope also ends)».

As a basis for a restrictive interpretation could, in a first analysis, be advanced the fact that some autonomous taxations, particularly some of those based on «expenses» or «charges», are aimed at discouraging certain taxpayer behaviors liable to affect taxable profit, and, consequently, to reduce tax revenue, and their deterrent force will be weakened by the possibility that the respective collection may be subject to deductions.

However, as was legislatively recognized by the wording given to paragraph 21 of article 88 by Law no. 114/2017 (here with interpretative force constitutionally unimpeachable in light of article 103(3) of the Constitution), there is special legislation from which deductions result from the collection derived from autonomous taxations, which are necessarily situations in which the legislature legislatively gave preference to satisfaction of the interests that justify the deductions over those aimed at with the autonomous taxations, which occurs with the provisions on tax benefits deductible from IRC collection.

On the other hand, the nature of anti-abuse provisions, intended to prevent fraud and tax evasion, does not exclude the possibility of deductions from IRC tax collection that will be determined with the application of those provisions, which is manifest in relation to the collection provided by corrections based on provisions undoubtedly of an anti-abuse nature, such as, for example, those relating to transfer pricing or under-capitalization and also the corrections resulting from the application of the general anti-abuse rule provided for in article 38(2) of the General Tax Code.

Furthermore, it is also evident that the anti-abuse nature of some of the autonomous taxations aimed at discouraging expenses and preventing tax evasion could not serve to justify the non-deduction of tax benefits from all IRC tax collection resulting from autonomous taxations, since the one provided for in paragraph 11 of article 88 of the IRC Code does not apply to expenses or charges, but rather to «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 paragraph 8 of article 88 does not have underlying it any intention to discourage the carrying out of the operations to which it refers, but rather to impose on taxpayers special evidentiary duties in situations where the more favorable taxation of the recipients of expenses may raise doubts about the reality and normality of the operations, since the autonomous taxation is set aside «if the taxpayer can prove that they correspond to actually carried out transactions and do not have an abnormal character or an excessive amount».

Furthermore, even regarding some autonomous taxations that apply to expenses, it would not be compatible with the constitutional principles of proportionality and equality to impose taxation on the grounds of a hypothetical legislative intention to discourage the use of motorcycles for certain activities for which they are indispensable, as occurs with shows with motorcycles, or for which they have evident adequacy, their use corresponding to manifest good business management, and it would be especially inconceivable to include in the scope of that deterrent intention the very payment of «taxes levied on their possession or use», to which the final part of paragraph 5 of article 88 refers, which should even be ensured coercively by the Tax and Customs Authority in case the taxpayer feels discouraged from making that payment.

Thus, the understanding that all autonomous taxations are aimed at taxing expenses or discouraging or sanctioning behaviors, which may result from a superficial initial analysis, encounters, on more incisive examination, 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 the context of 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 this sense, autonomous taxations are no more than ancillary mechanisms of the central axis of IRC, which is to tax profits allowing the deduction of expenses in which taxpayers must incur in order to realize taxable income».

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

«The Explanatory Memorandum contained in Bill no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxations, leaves no room for doubt that this is a conscious and intended expansion of previously existing distortions, as it was understood that they were necessary, in sum, to compensate for other distortions resulting from significant fraud and tax evasion and, thus, to increase the equity of the distribution of the tax burden among citizens and companies».

(...)

«the autonomous taxations applying directly to certain expenses, within the context of taxes that originally applied only to income, are considered distortions of the system of direct income taxation aimed at by 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 for these forms of taxation, as they are in line with the principles of equity, efficiency and simplicity.

(...)

But this indirect taxation is nonetheless carried out within the context of IRC, as results from the inclusion of autonomous taxations in the respective Code, which has as a corollary the application of the general provisions specific to this tax, which do not conflict with its special form of application.

Thus, while it is certain that autonomous taxations constitute a different form of imposing taxes on companies, which could be contained in autonomous regulation or be arranged in the Stamp Duty Code, it is also certain that the legislative choice to include such taxations in the IRC Code reveals an intention to consider such taxations as included in IRC, which could 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 application to income».

In fact, autonomous taxations in the context of IRC, in light of the growing breadth that the legislature has been giving them, in order to be compatible with the constitutional principle of taxation of companies focusing fundamentally on their actual income (article 104(2) of the Constitution), should be understood as indirect forms of taxing business income, through the taxation of certain expenses and charges that reveal capacity to pay, or even, in the cases of autonomous taxations provided for in paragraphs 8 and 11 of article 88, as complementary forms of directly taxing income, in situations in which it will presumably be generated, without taxation, in the legal sphere of third parties.

Furthermore, it is a fact that the imposition of any expense without consideration on a legal entity has as a consequence a potential decrease in its income, so that the imposition of a unilateral tax obligation, even calculated on the basis of expenses incurred or charges borne, constitutes a form of indirectly taxing its income.

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 taxation period: a) The IRC, including autonomous taxations, and any other taxes that directly or indirectly apply to profits», gives a glimpse that, from the legislative perspective, IRC and autonomous taxations are taxes that directly or indirectly apply to profits, as this understanding can justify the inclusion of the expression «any other taxes», which presupposes that IRC and autonomous taxations are also taxes of these types, are taxes that directly or indirectly apply to actual or presumed profits.

Therefore, autonomous taxations provided for in the IRC Code being, ultimately, indirect forms of taxing business income, there is no apparent necessary incompatibility between them and the general rules that provide for the way to carry out the assessment of IRC.

In any case, a restrictive interpretation can only result, in light of the wording of the IRC Code prior to Law no. 7-A/2016, from the conclusion that the text of paragraph 2 of article 90, to some extent, does not correspond to the legislative thought, particularly if it can be concluded that the reason justifies some or some of the deductions, only fits with their application to IRC tax collection resulting from taxable profit.

And, naturally, in light of the constitutional prohibition on retroactive application of the overall exclusion of deductibility to situations prior to Law no. 7-A/2016, deductions shall be applied when they result from the special legislation referred to in the wording of paragraph 21 of article 88 introduced by Law no. 114/2017.

In fact, at least in these cases in which deductions result from special law, the possibility of excluding them will necessarily be set aside by way of a restrictive interpretation of paragraph 2 of article 90, since it is this special law, precisely because it is special, that imposes its application, since special laws supersede general laws in their specific domains of application.

It is in this light that each of the situations in which the Claimant intends to make a deduction from IRC tax collection resulting from autonomous taxations must be assessed.

3.3. Deductibility of Investment Expenses Provided for in SIFIDE from IRC Tax Collection Derived from Autonomous Taxations

SIFIDE - the Tax Incentives System for Research and Business Development was created by Law no. 40/2005, of 3 August, with validity predicted for the years 2006 to 2010, but was reformed by article 133 of Law no. 55-A/2010 of 31 December to remain in force until 2015 as the Tax Incentives System for Research and Business Development II (SIFIDE II).

Subsequently, it was amended by articles 163 and 164 of Law no. 64-B/2011 of 30 December, and transferred to articles 33 to 40 of the Tax Code for Investment, republished by Decree-Law no. 82/2013, of 17 June.

Articles 33, 35, 36 and 38 of the Tax Code for Investment were amended by Law no. 83-C/2013 (articles 211 and 212), extending the period of validity until 2020 (in paragraph 1 of that article 36).

Subsequently, Decree-Law no. 162/2014, of 31 October, approved a new Tax Code for Investment, in which it integrated SIFIDE II.

In the case in question, what is at issue is the deduction in 2015 of investments made in 2010, which was viable by virtue of the provision of article 4(3) of Law no. 40/2005, of 3 August, and article 4(4) of SIFIDE II, as worded by article 133 of Law no. 55-A/2010, of 31 December, which establish that «expenses which, due to insufficiency of collection, cannot be deducted in the year in which they were incurred may be deducted for up to six subsequent years».

On the scope of the deduction, article 4(1) to (3) of Law no. 40/2005 establish the following, insofar as relevant:

Article 4

Scope of Deduction

1 - Taxpayers subject to IRC resident in Portuguese territory who carry out, as a principal or ancillary activity, an activity of an agricultural, industrial, commercial and services nature and non-residents with a permanent establishment in that territory may deduct from the amount ascertained under article 83 of the IRC Code, up to its amount, the value corresponding to expenses with research and development, in the part that has not been subject to financial support from the State on a non-repayable basis, incurred in the taxation period commencing on 1 January 2006, in a dual percentage:

a) Base rate - 32.5 % of expenses incurred in that period; (As amended by Law no. 10/2009, of 10 March)

b) Incremental rate - 50 % of the increase of expenses incurred in that period in relation to the simple arithmetic average of the two preceding years, up to the limit of (euro) 1,500,000. (As amended by Law no. 10/2009, of 10 March)

2 - The deduction is made, under the terms of article 83 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding paragraph.

3 - Expenses which, due to insufficiency of collection, cannot be deducted in the year in which they were incurred may be deducted for up to the 6th subsequent year.

Article 4(1), (3) and (4) of SIFIDE as worded by Law no. 55-A/2010 establishes the following, insofar as relevant:

Article 4

Scope of Deduction

1 - Taxpayers subject to IRC resident in Portuguese territory who carry out, as a principal or ancillary activity, an activity of an agricultural, industrial, commercial and services nature and non-residents with a permanent establishment in that territory may deduct from the amount ascertained under article 90 of the IRC Code, up to its amount, the value corresponding to expenses with research and development, in the part that has not been subject to financial support from the State on a non-repayable basis, incurred in the taxation periods from 1 January 2011 to 31 December 2015, in a dual percentage:

a) Base rate - 32.5 % of expenses incurred in that period;

b) Incremental rate - 50 % of the increase of expenses incurred in that period in relation to the simple arithmetic average of the two preceding years, up to the limit of (euro) 1,500,000.

(...)

3 - The deduction is made, under the terms of article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding paragraph.

4 - Expenses which, due to insufficiency of collection, cannot be deducted in the year in which they were incurred may be deducted for up to six subsequent years.

(...)

In the case in question, the Tax and Customs Authority did not make a decision on the administrative appeal.

As has been stated, article 90 of the IRC Code also refers to the assessment of autonomous taxations.

And, as has also been stated, there is no legal basis for asserting that, in the event that several calculations have to be made in a declaration to determine IRC, more than one self-assessment is made.

The aforementioned diplomas that approved SIFIDE and SIFIDE II do not state that the credits therein provided are deductible from any and all IRC collection, but rather define the scope of deduction by alluding, in paragraphs 1 of their articles 4, to «the amount ascertained under article 83 of the IRC Code, and up to its amount» and «the amount ascertained under article 90 of the IRC Code, and up to its amount».

Paragraph 2 of article 4 of that first diploma and paragraph 3 of the same article 4 of the second diploma confirm that it is to the amount that is ascertained under article 90 of the IRC Code that is relevant to effect the deduction by stating, with the updating resulting from the said renumbering, that «the deduction is made, under the terms of article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding paragraph».

Thus, by mere declarative interpretation, it is concluded that article 4(1) of SIFIDE II, by establishing the deduction «from the amount ascertained under article 90 of the IRC Code, and up to its amount», implies the deduction from the amount of autonomous taxations that are ascertained under that article 90.

The fact that articles 5 of SIFIDE I and SIFIDE II exclude the benefit when taxable profit is determined by indirect methods and autonomous taxations include situations aimed at indirectly taxing profits (namely, by not giving relevance to or discouraging facts likely to reduce them) has no relevance for this purpose, as the concept of «indirect methods» has a precise scope in tax law, which is concretized in article 90 of the General Tax Code (in addition to special provisions), referring to means of determining taxable profit, the use of which is not provided for in the calculation of the taxable matter of autonomous taxations provided for in article 88 of the IRC Code. On the other hand, if it is the need to make use of indirect methods that precludes the possibility of benefiting from the benefit, this exclusion cannot be justified in relation to the collection from autonomous taxations, which is determined by direct methods.

On the other hand, the fact that the deductibility of the SIFIDE I and SIFIDE II tax benefit is limited to the collection of article 90 of the IRC Code, up to its amount, does not permit the conclusion that the tax credit is only deductible if there is taxable profit, since what that fact requires is that there be IRC collection, which may exist even without taxable profit for the year, particularly by virtue of autonomous taxations and other positive components of the tax.

Thus, pointing to the literal wording of articles 4 of SIFIDE I and SIFIDE II in the direction of the deduction applying also to IRC tax collection derived from autonomous taxations ascertained under article 90 of the IRC Code, only by way of a restrictive interpretation can the application of the tax benefit to IRC tax collection provided by autonomous taxations be excluded.

The viability of a restrictive interpretation encounters, from the outset, a general obstacle, which is that provisions creating tax benefits have the nature of exceptional provisions, as follows from the express wording of article 2(1) of the Tax Benefits Code, so that, in the absence of a special rule, they should be interpreted in their precise terms, as is settled case law. In the case of tax benefits, provision is explicitly made for the possibility of extensive interpretation (article 10 of the Tax Benefits Code), but not restrictive interpretation, so that, as a rule, the tax benefit should not be interpreted with less breadth than that which, in a declarative interpretation, results from the wording of the provision that provides for it.

In any case, as has been stated, a restrictive interpretation is only justified when «the interpreter reaches the conclusion that the legislature adopted a text that betrays its thought, to the extent that it says more than what it intended to say».

Now, even regarding autonomous taxations intended to discourage expenses, the discouragement of behaviors is justified only by concerns to protect tax revenue, and the tax benefits granted are, by definition, «exceptional measures instituted for the protection of relevant extrabudgetary public interests that are superior to those of the taxation they prevent» (article 2(1) of the Tax Benefits Code).

And, in the case of SIFIDE I and II tax benefits, the reasons of an extrabudgetary nature that justify their superseding of tax revenues are, from the legislative perspective, of enormous importance, as it is understood that the capacity for research and development is a decisive factor for the competitiveness of companies and of the country, as well as for long-term productivity and economic growth, which is mentioned clearly in the justification of Bill no. 5/X and in the Report on the State Budget for 2011:

Bill no. 5/X

The capacity for research and development (R&D) of companies is a decisive factor not only of their own affirmation as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVII Government, as well as in recent international reports, particularly in the conclusions of the report by the Organization for Economic Cooperation and Development (OECD) "Tax Incentives for Research and Development", 2003, and in the report by the European Commission on "Monitoring Industrial Research", 2004.

(...)

It is therefore necessary to restore, as provided for in the Government Program, the tax incentives for promoting business R&D in cooperation with Universities and other research institutions, which will play a fundamental role in the implementation of the Technology Plan. The stated goal of tripling R&D activities by companies working in Portugal is only possible with increased public support for companies that truly wish to invest in scientific and technological innovation as the central axis of their competitiveness strategies. Support in the form of tax incentives will be of increasing importance, not only because it is a more expeditious way for companies wishing to intensify their investments in an organized and continuous manner, but because it allows leveraging the effects of financial support. In the measures of financial support for R&D in a consortium between companies and research institutions of the QCA 3 (POCTI and POSI), a component of repayable support was introduced, which represents a significant step in involving companies in the results of projects. The restoration of SIFIDE, by allowing the deduction of part of the reimbursements that will be made to financing entities, is a just reward for an involvement that is expected to grow.

II.2.2.4.4. Tax Incentives System for Research and Business Development II (SIFIDE)

Given that one of the strengths of competitiveness in Portugal passes through the commitment to technological capacity, scientific employment and conditions for affirmation in European space, the Proposed State Budget for 2011 proposes to renew SIFIDE (Tax Incentives System for Research and Business Development), now in the SIFIDE II version, to remain in force in the periods 2011 to 2015, enabling the deduction from IRC collection for companies that invest in R&D (research and development capacity).

Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system in other countries, it was decided to review and reintroduce this support system for another five taxation periods. The R&D of companies is a decisive factor not only of their own affirmation as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in various recent international reports.

It is in this context that, at the international level, the OECD has considered Portugal since 2001 as one of the three countries with the most significant progress in business R&D. Since the system currently in force, compared to other systems using deduction from collection and the distinction between base rate and incremental rate, is one of the most attractive and competitive.

Since research and development of companies is «a decisive factor not only of their own affirmation as competitive structures, but of productivity and long-term economic growth», it is understandable that preference was given to encouraging investment in technological capacity, scientific employment and conditions for affirmation in European space, which, in the long term, lead to higher tax revenues.

The importance that, from the legislative perspective, was recognized for this tax benefit provided for in SIFIDE I and SIFIDE II is decisively confirmed by the fact that it is indicated as being specially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in article 92 of the IRC Code (which corresponds to article 86 in the wording prior to the renumbering carried out by Decree-Law no. 159/2009, of 13 July).

Therefore, it is certain that we are dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, it being inferred from that article 92 (former article 86) that the legislative intention to incentivize the investments in research and development provided for in SIFIDE I and SIFIDE II is so firm that it goes to the point of not even establishing any limit to the deductibility of IRC collection, despite this tax regime, from 2010 onwards, having been created and applied in a period of notorious difficulties in public finances.

Thus, no legal basis is apparent, in particular in light of the legislative intention that can be detected, for, on the grounds of a restrictive interpretation, excluding the deductibility of the tax benefit of SIFIDE I and SIFIDE II from the collection of autonomous taxations that results directly from the wording of article 4(1) of the respective diploma, combined with article 90 of the IRC Code.

On the other hand, any limitation of the application of the tax benefit to companies that presented taxable profit would amount to a very strong restriction of its field of application, since, as is a matter of public knowledge, a large part of companies, in the periods of validity of SIFIDE I and SIFIDE II, especially from the aggravation of the economic crisis in 2008, presented tax losses, although it paid IRC by other means.

In fact, according to statistics published by the Tax and Customs Authority, in the year 2011, more than half of IRC returns presented a negative net value and in the 2011 taxation period only 26% of taxpayers presented Assessed IRC (Table 7), and approximately 71% of taxpayers made IRC payments (Table 8), by way of Special Payment on Account, or of other positive components of the tax (Autonomous Taxations, Surtax, State Surtax, IRC of prior taxation periods, etc.).

Therefore, the applicability of the tax benefit to companies that, although presenting tax losses, paid IRC, including by way of autonomous taxations, greatly amplified the number of companies potentially benefiting and, consequently, is more compatible with the legislative intention underlying SIFIDE I and SIFIDE II than the one defended by the Tax and Customs Authority.

This is, therefore, the manifestly most correct solution and which, by being so, must be presumed to have been legislatively enshrined (article 9(3) of the Civil Code).

On the other hand, as has been stated, it cannot be overlooked that autonomous taxations are aimed at protecting or increasing tax revenues, and that the tax benefits granted are, by definition, «exceptional measures instituted for the protection of relevant extrabudgetary public interests that are superior to those of the taxation they prevent» (article 2(1) of the Tax Benefits Code).

That is, in the case in question, by establishing a tax benefit by deduction from IRC collection, the legislature opted to waive the tax revenue that this tax could provide, to the extent of the grant of the tax benefit. For this relative assessment of the interests at stake (tax revenue versus strong stimulus to investment) it is indifferent that that revenue comes from calculations made on the basis of article 87 or article 88 of the IRC Code. In fact, regardless of the form of calculation of that tax revenue, what is involved is money whose collection the legislature considered to be less important than the pursuit of the aforementioned economic purpose.

Of the two alternatives that faced the legislature regarding the incentive to the investments provided for in SIFIDE I and SIFIDE II, which were, on the one hand, to keep intact the revenues from IRC (including those from autonomous taxations) and not to see investment incentivized, and on the other hand, to implement this incentive with loss of IRC revenues, the assessment that necessarily underlies SIFIDE I and SIFIDE II is that of opting for the creation of the incentive with prejudice to revenues. And, naturally, since the creation of the investment incentive is preferable, from the legislative perspective, to the collection of revenues, it is not apparent how it can be relevant that the IRC revenues that are lost to implement the incentive come from the general taxation of IRC provided for in paragraph 1 of article 87 or from taxations at special rates provided for in paragraphs 4 to 6 of the same article, or from autonomous taxations provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenues, and the relative assessment that can be made of the conflicting interests is identical, regardless of the forms used to determine the amount of IRC from which the legislature refrains in order to create the incentive.

And, in the case of the tax benefit of SIFIDE I and SIFIDE II, the reasons of an extrabudgetary nature mentioned legislatively that justify the incentive with loss of revenue are very strong, since it is considered that the incentivized investments are a decisive factor in the country's future competitiveness, which is fundamental to the very increase in tax revenues.

Therefore, it is certain that we are dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues from IRC, regardless of the basis of its calculation, since what is always involved is waiving or not a certain sum of money to create an investment incentive.

In this context, the nature of autonomous taxations and the solutions legislatively adopted, in general, in relation to them, have no relevance to the assessment of this question, since this must be assessed in light of the specific interests that clash in its assessment.

In fact, what is at issue is exclusively to determine the scope of SIFIDE I and SIFIDE II, which establish a regime of an exceptional nature, aimed at pursuing certain public interests, and not to contribute to the decision of any conceptual question about the nature of autonomous taxations, a matter on which neither the text of the law nor the preparatory documents reveal the slightest legislative concern.

For the same reason that what is at issue is interpreting the scope of the diploma of a special nature that SIFIDE I and SIFIDE II are, no relevance can be attributed, for this purpose, to the provision of paragraph 21 of article 88 of the IRC Code, added by Law no. 7-A/2016, of 30 March, to the extent that it refers to the fact that no «deductions are made to the total amount ascertained», despite the purported interpretative nature attributed to it (which implies its unconstitutionality, by retroactive prejudice to taxpayers, as understood by the Constitutional Court in judgment no. 267/2017, of 31-05-2017).

Indeed, there is no sign, either in Law no. 7-A/2016, or in the Report on the Budget for 2016, or in its discussion, that with the addition to article 88 of the IRC Code of a general provision prohibiting deductions from the total amount ascertained of autonomous taxations, the intention was to restrictively interpret the expression «deduct from the amount ascertained under article 90 of the IRC Code» that is contained in special provisions of separate diplomas, such as SIFIDE I and SIFIDE II.

And, in the absence of an unequivocal intention to the contrary, the rule applies that general law does not alter special law (article 7(3) of the Civil Code), which has as its justification the fact that «the general regime does not include consideration of the particular conditions that justified precisely the emission of the special law».

Moreover, it was the legislature itself that, recently, through Law no. 114/2017, of 29 December, came to recognize expressly and unequivocally, with explicit interpretative intention declared in its article 233, (constitutionally admissible to the extent that it is not unfavorable to taxpayers), that there are special provisions from which deductions should result from the amount ascertained with autonomous taxations, by giving new wording to paragraph 21 of article 88 of the IRC Code with the following content:

«21. The assessment of autonomous taxations in IRC is carried out under the terms provided for in article 89 and is based on the values and rates that result from the provision in the preceding paragraphs, with no deductions being made to the total amount ascertained, even if those deductions result from special legislation.»

Thus, if it is certain that this provision clarifies that it is legislative intention that no deductions be made from the total amount ascertained with autonomous taxations, it is also certain that in it there is recognition that it resulted from special legislation that deductions be made, which is precisely the case of the provisions providing for tax benefits by deduction from IRC collection.

But if these special provisions resulted in deductions being made from the total amount ascertained of autonomous taxations, it is manifest that it is not compatible with the constitutional principle of prohibition of retroactive application of provisions that create taxes that the exclusion of this result be effected by a later law, to all those who, in reliance on these special laws in which they trusted, created the conditions to obtain the deductions announced legislatively as a result for their investments.

On the other hand, regarding the innovative thesis defended by the Tax and Customs Authority that the SIFIDE benefit constitutes a prize connected with the obtaining of profit, which aims to «reward the profitability of investment», «whose breadth varies with the profitability of investments, as the higher the profit/taxable matter of IRC, the greater the capacity to make the deduction», its dissonance with the legal regime of this tax benefit is manifest, since there is no legal basis to defend that the tax benefit is dependent on the existence of profits resulting from investments: for example, the fact that investments were made in a company in the group that had losses does not exclude the deductibility of investments provided for in SIFIDE from the taxable profit of the group, as results from the express wording of the provision of paragraph 6 of article 90 of the IRC Code; on the other hand, as long as a company has profits, it can benefit from the tax benefit even if the profits come from activities to which the investments were not applied and these proved disastrous; in the same way, even if the investments do not result in profits, there are no obstacles to the taxpayer being able to benefit from the tax benefit if they come to exist in the six subsequent years.

Moreover, the rules of SIFIDE I and SIFIDE II were aimed at incentivizing IRC taxpayers to make investments in the periods between 01-01-2006 and 31-12-2010 and between 01-01-2011 and 31-12-2015, so that, since the tax benefit of deduction from IRC collection is the counterpart announced by those diplomas for the adoption of the behavior legislatively desired and incentivized, it would be incompatible with the constitutional principle of trust, inherent in the principle of the democratic state of law (article 2 of the Constitution), not to recognize those behaviors the favorable tax effects provided for in the law in force at the time they occurred.

In fact, the interpretation of the law that is made here, which is embodied in the deductions resulting from special law that ensures their deductibility from the collection of autonomous taxations, was something that taxpayers had reason to reasonably expect, as is evidenced by the already abundant and majority arbitral case law that adopts this interpretation, with the recognition of constitutionality that was given to it by the Constitutional Court in judgment no. 267/2017, of 31-05-2017 and with the confirmation that, in good interpretation of the law, there were deductions to autonomous taxations that resulted from special legislation, which came to be imperatively given by Law no. 114/2017.

Therefore, paragraph 21 of article 88 of the IRC Code, in the wording of Law no. 7-A/2016 and Law no. 114/2017, of 29 December, as well as articles 135 of the first and 233 of the second, which attributed an interpretative nature to the new wordings, are materially unconstitutional, by violation of the principles of trust and prohibition of retroactive application of taxes, to the extent that they are interpreted as excluding the right to deduction from IRC tax collection derived from autonomous taxations that results from investments covered by SIFIDE I and SIFIDE II, effected before the entry into force of the first.

By the foregoing, with the literal and rational elements of the interpretation of article 4 of SIFIDE I and SIFIDE II converging to the effect that the investment expenses provided for therein are deductible «from the amount ascertained under article 90 of the IRC Code, and up to its amount», it is to be concluded that there is no basis for a restrictive interpretation regarding these tax benefits, so that those investment expenses are deductible from the entirety of that collection, which encompasses, in addition to that derived from taxation of profits in each fiscal period, that which results from other components of the collection, particularly autonomous taxations.

Thus, the request for an arbitral ruling proceeds on this question, as the self-assessment and the implicit dismissal of the administrative appeal are illegal.

These illegalities justify the annulment, in the part in question, of the self-assessment and of the implicit dismissal of the administrative appeal, under article 163(1) of the Administrative Procedure Code, subsidiarily applicable under article 2(c) of the General Tax Code.

Constitutional Issues Raised by the Tax and Customs Authority

The Tax and Customs Authority makes some references to constitutional principles that it understands would be violated by deductions from IRC tax collection derived from autonomous taxations, with the principles of tax equality, fair distribution of income and wealth and separation of powers.

It is not clear whether the Tax and Customs Authority specifically refers to the deductibility of credits benefiting from SIFIDE, as it includes in its submissions divagations about payment on account and RFAI, which are not at issue in this proceedings.

Provisions providing for tax benefits always imply differentiated treatment for those who benefit from them, but this does not imply violation of the principle of equality, as, regarding tax benefits that depend on a behavior of the taxpayer, the person who creates the conditions to obtain tax benefits is not in an identical situation to one who does not perform them.

On the contrary, what would amount to a violation of the principle of equality, in addition to the principle of trust, would be not to recognize the tax benefit to those who adopted the behavior provided for in law to benefit from it.

As for the legislative assessment of conflicting interests underlying the creation of tax benefits, particularly whether it is justified to sacrifice the interest of taxation to achieve other public interests that supersede the interest of taxation and whether the benefit is appropriate to the behavior, or whether another requirement should be demanded to grant it (the idea of a prize for those who obtain profits that the Tax and Customs Authority propounds and has no legal support), this is a matter falling within the scope of legislative discretion, in which any interference by the Tax and Customs Authority (or the Courts) would involve violation of the principle of separation of powers.

For this reason, in this matter, in a state of law (article 2 of the Constitution), in which the Tax Administration is subordinate to the principle of legality in the entirety of its action (articles 266(2) of the Constitution and 55 of the General Tax Code), the behavior constitutionally imposed on the Tax and Customs Authority is to comply with the legislative choice, rather than to contest it and seek to superimpose on the legislative criterion the assessment of interests that the Tax and Customs Authority would make if it were the Constitution that attributed to it the legislative power.

The same applies to the Courts, which are subject to the Law (article 203 of the Constitution), so that those exercising judicial power must comply with legislative dictates that do not clash with any higher-ranking provision, and cannot superimpose on the legislative understanding manifested in the law the personal classificatory criteria that they themselves would adopt if, instead of being an interpreter, they were the legislator.

On the other hand, regarding the principle of separation of powers, the present decision is delivered by a Court, and thus has a judicial character, and, in the exercise of judicial power, it is to the Courts that it falls to interpret and apply the laws, without any subjection to the interpretations adopted by the Tax and Customs Authority (article 204 of the Constitution).

In the case, this Court interpreted all the provisions in question, including paragraph 21 of article 88 of the IRC Code, in the sense stated and not otherwise. Therefore, the present arbitral decision is a concretization of the principle of separation of powers.

Moreover, there is no apparent reason to doubt that, legislatively, companies that engage in confidential practices, evasive remuneration practices or transactions with offshore territories are permitted to entirely escape the consequences that the law associates with them, as long as their activity involves significant research and development (R&D) expenses.

In fact, it has never been questioned that companies that engage in such behaviors can deduct SIFIDE tax benefits.

The disagreement between the Tax and Customs Authority and the Claimant is only about the possibility of the tax benefits being enjoyed when there is no taxable profit of the group.

But it has never been argued that, by virtue of adopting behaviors that justify autonomous taxations, companies can be deprived of tax benefits, even those that have relationships with territories or countries of privileged taxation, such as, for example, Luxembourg, Ireland, the Netherlands, Bulgaria or the Free Trade Zone of Madeira, all within the European Union.

Nor is there any apparent reason to negatively discriminate against companies that must pay autonomous taxations, as these are a legally provided form of taxation, being even an excellent source of revenue for the State that allows it to secure tax revenues in the context of IRC despite the taxpayer having losses.

Still regarding the principle of equality, one cannot fail to note that autonomous taxations are not based on the capacity to pay of companies, as their tax autonomy is concretized, precisely, in the imposition of taxation with indifference to the existence of income, being exceptions to the principle of taxation of companies with focus «fundamentally on their actual income» (article 104(2) of the Constitution). Therefore, it is not apparent how the principle of equality, provided for in article 13(2) of the Constitution, is violated, much less article 103(2) of the Constitution, which refers to the formal requirements of tax laws.

Therefore, the interpretation of the Claimant to the effect that there is special legislation from which the applicability of deductions to the collection derived from autonomous taxations results, which was confirmed by Law no. 114/2017, is not incompatible with the principle of tax equality and would be incompatible with the principle of separation of powers (article 2 of the Constitution) not to comply with the legislative choice inherent in SIFIDE as to this deductibility.

By the foregoing, no violation of the invoked principles occurs.

4. Reimbursement Request and Indemnity Interest

The Claimant requests reimbursement of € 201,444.96, corresponding to the difference between the amount of € 67,270.78 unduly paid following the self-assessment of the 2015 period, and the amount of € 134,174.18, which should have been reimbursed to the Claimant (difference corresponding to the amount of the tax collection constituted by autonomous taxations, from which the available SIFIDE credit should have been deducted).

As the Claimant itself alleges in articles 32 to 39, administrative challenges are pending (request for revision and administrative appeals) related to SIFIDE I and SIFIDE II from which it may result