Summary
Full Decision
ARBITRAL DECISION
Arbitrator Professor Doctor Clotilde Celorico Palma, appointed by the Deontological Council of the Administrative Arbitration Centre to form the present Arbitral Tribunal, constituted on 12 April 2018, hereby decides as follows:
REPORT
A..., S.A., with registered office at Street..., ..., ...-..., ..., with tax identification number ..., hereinafter designated as "Claimant," comes, pursuant to the provisions of articles 2, no. 1, subsection a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter "RJAT"), to submit a request for constitution of an Arbitral Tribunal to rule on the illegality of the rejection of the Administrative Appeal presented against the self-assessment of Corporate Income Tax (IRC) for the 2015 tax year, as well as to have the illegality of the acts of assessment of Corporate Income Tax ("IRC") of the same tax year recognized, further requesting the payment of compensatory interest.
The Respondent is the Tax and Customs Authority (hereinafter "AT").
The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 02-02-2018 and automatically notified to the Tax and Customs Authority.
Pursuant to the provisions of subsection a) of no. 2 of article 6 and subsection b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed as Arbitrator of the singular Arbitral Tribunal the signatory of this arbitral award, who communicated acceptance of the appointment within the applicable deadline.
On 22-03-2018, the Parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of the Arbitrator, pursuant to the combined provisions of article 11, no. 1, subsections a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.
In accordance with the provision set forth in subsection c) of no. 1 of article 11 of the RJAT, the Arbitral Tribunal was constituted on 12-04-2018.
The Tax and Customs Authority submitted a timely response, defending the inadmissibility of the request for arbitral ruling.
In support of the request for arbitral ruling, the Claimant alleges, in summary, the following:
It is now settled, following numerous arbitral judgments and positions assumed by the Tax and Customs Authority, that tax collected based on autonomous taxation provided for in the Code of Corporate Income Tax (CIRC) has the nature of IRC;
The collection of IRC, provided for in article 90, nos. 1 and 2, subsections b) and c), of the CIRC as worded in force in 2015, also encompasses the collection of autonomous taxation in IRC;
Thus, the Claimant concludes that it has the right to deduct tax benefits arising from the System of Tax Incentives for Research and Business Development ("SIFIDE") from the collection produced by autonomous taxation;
The collection of autonomous taxation is an integral part of IRC collection and subject to the IRC assessment rules provided for in article 90 of the CIRC;
It further contends that, regarding the scope and nature of article 135 of Law no. 7-A/2016, of 30 March, the new provision contained in the new no. 21 of article 88 of the IRC Code, regardless of whether it can be qualified as truly interpretative, cannot in any way alter such conclusion, as it establishes, regarding the manner of assessment of autonomous taxation, that it "is carried out pursuant to the provisions of article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs"
The question that arises, to resolve the issues of legality of self-assessment and of the administrative appeal decision raised in the present proceeding, is whether, before this law, the restrictive interpretation that it came to be made explicit should have already been made, if restrictions should have already been made to the application of the deductions provided for in no. 2 of article 90 of the CIRC to the portion of IRC collection resulting from autonomous taxation;
At least in these cases where the deductions result from special legislation, the possibility of removing them through restrictive interpretation of no. 2 of article 90 will necessarily be precluded, for it is this special law, precisely because it is special, that imposes its application, as special laws override general laws in their specific fields of application;
In the case of the tax benefits of SIFIDE I and II, the reasons of an extrafiscal nature that justify their overriding of tax revenues are, from the legislative perspective, of enormous importance, since it is understood that the capacity for research and development is a decisive factor for the competitiveness of companies and the country, as well as for long-term productivity and economic growth.
The Respondent submitted a Response, presenting a defence by objection, to the effect of the inadmissibility of the request for arbitral ruling, invoking, in summary, the following:
The amounts in which SIFIDE is translated are deducted "from the amounts determined pursuant to article 90 of the IRC Code, and up to its extent" and in the assessment relating to the tax period in which the eligible expenses are incurred;
In the absence or insufficiency of collection, determined in these terms, expenses that cannot be deducted in the tax year in which they are incurred "may be deducted up to the 6th immediate following tax year";
Now, the collection to which article 90 refers when the assessment must be made by the taxpayer (situation that occurs in the present case), is determined based on the taxable matter that appears in that assessment/self-assessment (cf. article 90, no. 1, subsection a) of the CIRC);
Illustrative of the circumstance that the credit in which SIFIDE is translated is deducted, and only, from the collection thus determined, that is, from the collection determined based on the taxable matter, is the provision set forth in article 5, subsection a), of the law governing SIFIDE, which prevents the credits arising therefrom from being deducted when the taxable profit is determined by indirect methods;
Autonomous taxation is determined in an autonomous and distinct manner from the determination carried out pursuant to the terms arising from article 90 of the CIRC;
Autonomous taxation, according to its original regulation, constituted as it were a substitute for the regime of non-deductibility previously provided for in the CIRC;
Indeed, in its genesis was the non-acceptance from a tax perspective of a percentage of certain expenses, with autonomous taxation constituting an alternative and more effective form of correction of costs whenever it is a matter of areas more prone to tax evasion (allowances, representation expenses, vehicles, etc.);
Thus, it would not be reasonable, and indeed contrary to the reason that led the legislator to tax those expenses autonomously, that, through their deduction from taxable profit as expenses, the basis for the existence of autonomous taxation would be eliminated;
This situation became clearer in the new wording given to subsection a) of no. 1 of article 23-A of the CIRC, which expressly states that the following are not deductible for purposes of determining taxable profit: "The IRC, including autonomous taxation, and any other taxes that directly or indirectly apply to profits", having limited itself to making explicit what already resulted from the legal order by application of the rules of interpretation;
The inclusion of the term "including" ("The IRC, including autonomous taxation...") meant to tell us that previously, when the rule contained only the reference to IRC, it already encompassed autonomous taxation;
Such understanding was the subject of legislative consecration, with article 133 of Law no. 7-A/2016, of 30 March (State Budget Law for 2016), adding to article 88 of the CIRC the no. 21 with the following wording: "The assessment of autonomous taxation in IRC is carried out pursuant to the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, no deductions being made from the total amount determined";
Furthermore, article 135 of the State Budget Law for 2016 came to clarify that "The wording given by the present law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to nos. 20 and 21 of article 88 and to no. 8 of article 117 of the IRC Code has an interpretative nature.";
In accordance with the provision set forth in no. 1 of article 13 of the Civil Code, applicable by virtue of subsection d) of article 2 of the General Tax Law, an interpretative law integrates into the law interpreted, its effects retroacting to the entry into force of the old law, as if it had been published on the date when the law interpreted came into force;
Moreover, these taxation systems penalize certain expenses incurred by companies and are determined in a manner totally independent of IRC;
Notwithstanding having the same nature as IRC, the rules applicable to autonomous taxation should not be contrary to the spirit that determines them;
Contrary to the provision set forth in article 12 and subsection a) of no. 1 of article 23-A of the CIRC, in nos. 1 and 2 of article 90 there is no reference to autonomous taxation, which, from the outset, given the dual nature of the system, raises well-founded objections as to the consideration of the value of autonomous taxation for purposes of the deductions provided for in no. 2 of the cited article 90;
Insofar as autonomous taxation corresponds to a form of preventing certain abusive situations, it would be contrary to the spirit of the system to permit, by virtue of the deductions referred to in no. 2 of article 90 of the CIRC, that autonomous taxation be deprived of, or at least perverted from, that anti-abuse character that presided over its implementation in the IRC system;
Thus, autonomous taxation should not be considered for purposes of the deductions referred to in no. 2 of article 90 of the CIRC, as the Claimant contends.
As no exception was at issue, having witnesses been listed by the Claimant only if it were deemed necessary to have complementary information or additional clarifications and insofar as, underlying the case, only matters of law were being considered and documentary evidence was sufficient, the Tribunal deemed that the examination of witnesses listed in point 83 of the request for arbitral ruling should be dispensed with, pursuant to the provisions of article 130 of the Code of Civil Procedure, applicable by virtue of article 29 of the RJAT. Therefore, it was concluded that there was no utility in holding the meeting provided for in article 18 of the RJAT, whereby, in light of the principles of the Arbitral Tribunal's autonomy in conducting the proceedings, of expedience, and of procedural simplification and informality (articles 19, no. 2, and 29, no. 2, of the RJAT), the holding of the said meeting was dispensed with and 30-09-2018 was set as the deadline for delivery of the arbitral decision.
Written submissions were timely presented by the Claimant on 05-06-2018 and by the Respondent on 18-06-2018.
In the submissions made, the Parties reiterated, in essence, the arguments contained in the request for arbitral ruling and the response.
II. Procedural Sanitation
The Parties have legal standing and capacity, are shown to be entitled to the claim, and are regularly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
The Tribunal is competent and is regularly constituted.
The proceedings do not suffer from any nullities.
No exceptions have been raised that prevent examination of the merits of the case.
As there is no impediment to examination of the merits of the case, it is incumbent upon this Tribunal to render a Decision.
III. Reasoning
Matter of Fact
Proven Facts
The Claimant's corporate purpose is the provision of consulting services, technical assistance and maintenance in the area of information technology, the production, development, marketing and representation of computer programs, the representation, distribution, marketing and supply of information systems, multimedia production and aerospace technologies, both in the civil and military sphere, conception, engineering, development, design, production, supply, installation and integration of electrical, electronic and mechanical installations and telecommunications supervision systems, including low-voltage electrical installations, low-voltage electrical networks and transformation stations, telecommunications infrastructure, telematic developments, support and signalling installations in transport systems and other mechanical and electromechanical installations, general construction of all types of works, both building and public works, including also the maintenance and repair of these works, import and export;
The Claimant is an entity subject to and not exempt from IRC;
The Claimant, in the 2015 tax year, effected the corresponding self-assessment of IRC by means of submission of the respective Form 22;
With reference to the 2015 tax year and following submission of its income return, the Claimant was notified to proceed with payment of tax in the amount of €12,210.00 which corresponds to the amount of autonomous taxation assessed in that tax year;
The Claimant applied to the System of Tax Incentives for Research and Business Development (SIFIDE), approved pursuant to Law no. 40/2005 of 3 August;
As a consequence of the approval of the applications that the Claimant submitted with reference to various tax years, it was granted tax credits in the amount of €385,920.00 with reference to the 2013 tax year and €147,947.12 with reference to the 2014 tax year, for a total value of €533,867.00;
The Claimant submitted, against the acts of self-assessment of IRC of the 2013 and 2014 tax years, Administrative Appeals with a view to the recognition of the right to deduct the said tax credit from the collection of autonomous taxation determined with reference to the said tax years, in the amounts of €16,741.21 and €23,033.58 respectively, whereby the available tax credit, corresponded, on the date of submission of Form 22 relating to the 2015 tax year, to the amount of €494,033.58 (€533,867.00 - (€16,741.21 + €23,033.58));
The Claimant submitted, on 31-08-2016, the mandatory prior appeal for contesting the self-assessment relating to the 2015 tax year, having invoked, in summary, that: (i) irrespective of the difference between the determination of autonomous taxation and the remaining collection in IRC, autonomous taxation is integrated into the IRC system and to that extent the general rules of IRC apply to it; (ii) since the assessment of autonomous taxation is carried out pursuant to article 90 of the IRC Code, in particular, pursuant to subsection c) of no. 2 of said article, the deduction of the benefit in question from the collection resulting from autonomous taxation must be admitted;
In April 2017, the Claimant was notified of the Arbitral Award rendered on 03-04-2017, in arbitral proceeding no. 630/2016-T which had already become final, in which the present Claimant was the claimant, regarding the use of the SIFIDE benefit with reference to the 2013 and 2014 tax years, the claimant's claim having been upheld;
On 09-10-2017, the Claimant was notified to pronounce itself, if it so wished, on the draft rejection of the Administrative Appeal mentioned;
In summary, the AT contended in said draft rejection that:
"(...) autonomous taxation aims (...) to prevent that, through these expenses, companies proceed to disguised distribution of profits that would not otherwise be taxed, as well as to combat tax fraud and evasion occasioned by such expenses (...) the legislator refined the purpose of "penalizing" certain expenses (determined by reasons of tax policy) (...). It is, in this manner, conferred upon autonomous taxation a clear anti-abuse nature, manifestly subsidiary/complementary to taxation according to the ability to pay revealed by income, insofar as what is intended with it is to prevent an abusive use of certain expenses and distribution of dividends in fraud of the rules aimed at reaching the real income of taxpayers." whereby "(...) it would be poorly understood that a tax benefit could be deducted from the collection of autonomous taxation, under penalty of preventing the production of the dissuasive effect that the legislator intended, which would constitute an insurmountable logical impediment in light of the principle of systemic coherence."
"(...) that such understanding was recently the subject of legislative consecration, as art. 133 of Law no. 7-A/2016, of 30 March (State Budget Law for 2016) added to art. 88 of the CIRC the no. 21 with the following wording "The assessment of autonomous taxation in IRC is carried out pursuant to the terms provided for in art. 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, no deductions being made from the total amount determined (...) Furthermore, art. 135 of the State Budget Law for 2016 came to clarify that "The wording given by the present law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to nos. 20 and 21 of art. 88 and to no. 8 of article 117 of the IRC Code has an interpretative nature.";
Concluding the Tax Administration that "(...) autonomous taxation should not be considered for purposes of the deductions of art. 90 of the CIRC.";
The Claimant exercised its right to prior hearing, invoking in summary that:
irrespective of the difference between the determination of autonomous taxation and the remaining collection in IRC, autonomous taxation is integrated into the IRC system and to that extent the general rules of IRC apply to it;
since the assessment of autonomous taxation is carried out in the exact terms of article 90 of the IRC Code, in particular, pursuant to subsection c) of no. 2 of said article, the deduction of the benefit in question from the collection resulting from autonomous taxation must be admitted;
that the Tax Arbitration Centre (CAAD) had already upheld the Claimant's understanding in the award rendered on 3 April 2017, in proceeding no. 630/2016-T - which had become final - that recognized its right to the use of the SIFIDE benefit with reference to the 2013 and 2014 tax years;
On 30-10-2017, the Claimant was notified of the decision to reject the Administrative Appeal by the Head of Division by subdelegation of powers on 27-10-2017.
Facts Not Proven
There are no material facts for the decision of the case that have not been proven.
Motivation of the Decision on the Matter of Fact
The facts that above were considered proven result from the application of two criteria to the adjudication of the matter of fact: the first, from the relevance of each concrete fact to the decision, which it is incumbent upon the Arbitral Tribunal to determine, by selecting from among all the facts that were alleged by the Parties those that reveal suitability for such purpose and discriminating the proven from the unproven matter (cf. article 123, no. 2, of the Code of Procedure and Tax Procedure/CPPT and article 607, no. 3, of the Code of Civil Procedure/CPC, applicable by virtue of article 29, no. 1, subsections a) and e), of the RJAT). That is, the selection of the matter of fact relevant to the resolution of the case is made through the condensation of the factual materiality alleged in the pleadings, taking into account the syllogism that must exist between the facts selected, the legal reasoning and the disposition segment that will decide the case.
In the present case, the selection of the facts relevant to the adjudication of the case was made through the choice of facts that, in function of the various plausible legal solutions, presented relevance for the legal resolution of the questions debated in the case (cf. former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable by virtue of article 29, no. 1, subsection e), of the RJAT).
The second criterion that underlies the decision on the matter of fact rests on the conviction of the Tribunal. The conviction of the Tribunal emerges from the critical analysis of the evidence, from the inferences drawn from the instrumental facts and from all the elements that are decisive for that conviction. But, beyond that conviction, the facts that are admitted by agreement, proven by documents or by confession reduced to writing must be taken into consideration, as required by article 607, no. 4, of the CPC, applicable by virtue of article 29, no. 1, subsection e), of the RJAT).
The conviction of the Tribunal is based on the free assessment of evidence, which, however, does not encompass the facts for whose proof the law requires special formality, nor those that can only be proven by documents or that are fully proven, either by documents, or by agreement or admission of the parties (article 607, no. 5, of the CPC).
From the application of these criteria to the concrete case, it results that the conviction of the Tribunal as to the facts selected and considered proven was based on the documents contained in the case.
Finally, it is important to state that the Tribunal also took into account, in responding to the matter of fact, the maxims of evidence with deterministic-natural content which, together with the degree of acceptable probability, gave to the Tribunal, in the apprehension of the facts, the material truth as it was determined and which, as there are no unproven facts, does not justify the motivation of the lack of proof of the same.
Matter of Law
It is of particular interest to decide as to the main question to be analyzed in the present case, namely, to determine whether there is the right to deduct tax benefits arising from SIFIDE from the collection produced by autonomous taxation.
For this purpose, it is of particular importance to determine, as we shall verify, whether autonomous taxation is determined in an autonomous and distinct manner from the determination carried out pursuant to the terms arising from article 90 of the CIRC.
The matter of autonomous taxation, its history, nature and possible consideration for purposes of deductibility, has already been the subject of some decisions in this Tribunal, namely in the Arbitral Decisions of 5 March 2018, relating to Proceeding no. 474/2017-T, of 8 April 2018, relating to Proceeding no. 473/2017-T – Deductibility of tax benefits under the System of Tax Incentives for Research and Business Development ("SIFIDE"), in the Arbitral Decision of 31 January 2018, relating to Proceeding no. 192/2017-T – Deductibility of Special Payments on Account ("PEC") and of tax benefits under SIFIDE, in the Arbitral Decision of 10 April 2018, relating to Proceeding no. 511/2017-T – Deductibility of tax benefits under the Tax Regime for Support to Investment ("RFAI"), and in the Arbitral Decision of 23 February 2017 relating to Proceeding 443/2016, IRC-Autonomous Taxation, SIFIDE and RFAI.
It should be noted, however, that the jurisprudence just cited is not unanimous regarding the question of knowing what the nature and characteristics of autonomous taxation are, from which are naturally drawn different conclusions.
In this context, the response to the problem posed presupposes, from the outset, that the evolution of the figure of autonomous taxation be analyzed with a view to ascertaining whether its legal regime (comprising nature and reason for being) is compatible with the Claimant's claim or, if on the contrary, the position defended by the Respondent is correct.
1. The Interpretation of Tax Norms
As is well known, article 11 of the General Tax Law prescribes that in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed. Now, no. 1 of article 9 of the Civil Code is clear when it determines that interpretation should not limit itself solely to the letter of the law (literal or grammatical element), but should reconstruct from the texts the legislative thought (ratio legis), taking into account the unity of the system (systematic element), the circumstances in which the law was elaborated (teleological element) and the conditions specific to the time in which it is applied (historical element).
The first hermeneutic factor to which the interpreter may resort in order to attain the true meaning and scope of application of the legal texts is, therefore, that which corresponds to the literal or grammatical element.
As regards the systematic element, it determines the interpretation of the norm in an integrated manner, considering the other provisions that form the complex of norms in which the norm to be interpreted is integrated.
Concerning the teleological element, "It consists of this element in the reason for being of the law (ratio legis), in the end intended by the legislator in elaborating the norm. Knowledge of this end, especially when accompanied by knowledge of the circumstances (political, social, economic, moral, etc.) in which the norm was elaborated or of the political-economic-social situation that motivated the legislative "decision" (occasio legis) constitutes a subsidy of the greatest importance for determining the meaning of the norm.
It suffices to recall that the clarification of ratio legis reveals to us the "valuation" or weighing of the diverse interests that the norm regulates and, therefore, the relative weight of those interests, the choice among them expressed by the choice that the norm expresses"[2].
Finally, in accordance with the historical element, it must be ascertained regarding the historical context of the elaboration of the norm.
The interpretation of the provision in question should, therefore, take into account these elements of interpretation.
Rules of SIFIDE and of the CIRC
The SIFIDE - System of Tax Incentives for Research and Business Development, was created by Law no. 40/2005, of 3 August, with effectiveness envisaged for the years 2006 to 2010, having been reformulated by article 133 of Law no. 55-A/2010 of 31 December, to be in effect until 2015 as the System of Tax Incentives for Research and Business Development II (SIFIDE II). Subsequently, it was amended by articles 163 and 164 of Law 64-B/2011, of 30 December, and transferred to articles 33 to 40 of the Tax Code of Investment, republished by Decree-Law no. 82/2013, of 17 June. Articles 33, 35, 36 and 38 of the Tax Code of Investment were amended by Law no. 83-C/2013 (articles 211 and 212), increasing the period of effectiveness until 2020 (in no. 1 of that article 36). Subsequently, Decree-Law no. 162/2014, of 31 October, approved a new Tax Code of Investment in which SIFIDE II came to be integrated.
Having examined the norms that governed SIFIDE at the date of the facts that now occupy us, we find that, pursuant to article 4 of the statute (Scope of deduction), it is determined that: "Taxpayers subject to IRC resident in Portuguese territory who exercise, on a principal or secondary basis, an activity of an agricultural, industrial, commercial or service nature and non-residents with a permanent establishment in that territory may deduct from the amount determined pursuant to article 90 of the IRC Code, and up to its extent, the value corresponding to expenses with research and development, in the part that has not been the subject of financial support from the State on a non-repayable basis, incurred in the tax periods from 1 January 2011 to 31 December 2015, at a double percentage: a) Base rate – 32.5% of expenses incurred in that period; b) Incremental rate - 50% of the increase in expenses incurred in that period in relation to the simple arithmetic average of the two preceding tax years, up to the limit of (euro) 1,500,000."
With relevance to the case at hand, numbers 3 and 4 of the article are also relevant, where it is made explicit that: "2 - The deduction is made, pursuant to article 90 of the IRC Code, in the assessment relating to the tax period mentioned in the preceding number. 3 - Expenses that, due to insufficiency of collection, cannot be deducted in the tax year in which they are incurred may be deducted up to the 6th immediately following tax year."
From the transcribed provisions it results, in summary, insofar as the case is concerned, that the amounts in which SIFIDE is translated are deducted "from the amounts determined pursuant to article 90 of the IRC Code, and up to its extent" and in the assessment relating to the tax period in which the eligible expenses are incurred.
And that, in the absence or insufficiency of collection, determined in these terms, expenses that cannot be deducted in the tax year in which they are incurred "may be deducted up to the 6th immediately following tax year".
Now, the collection to which article 90 refers when the assessment must be made by the taxpayer (situation that occurs in the present case), is determined based on the taxable matter that appears in that assessment/self-assessment (cf. article 90, no. 1, subsection a) of the CIRC).
As the AT emphasizes, illustrative of the circumstance that the credit in which SIFIDE is translated is deducted, and only, from the collection thus determined, that is, from the collection determined based on the taxable matter, is the provision set forth in article 5, subsection a), of the law governing SIFIDE, which prevents the credits arising therefrom from being deducted when the taxable profit is determined by indirect methods.
Autonomous taxation is determined in an autonomous and distinct manner from the determination carried out pursuant to the terms arising from article 90 of the CIRC.
Article 133 of Law no. 7-A/2016, came to add to article 88 of the CIRC the no. 21 with the following wording: "The assessment of autonomous taxation in IRC is carried out pursuant to the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, no deductions being made from the total amount determined", whereby, in turn, article 135 of the State Budget Law for 2016 came to clarify that such wording has an interpretative nature.
This has always been the understanding of the AT, it not being apparent that such norm has an innovative nature. Now, in accordance with no. 1 of article 13 of the Civil Code, an interpretative law integrates into the law interpreted, its effects retroacting to the entry into force of the old law, as if it had been published on the date when the law interpreted came into force.
3. Nature and Characteristics of Autonomous Taxation
As we have previously written elsewhere, in the course of recent years IRC has been the subject of major changes, having come to subject to autonomous taxation various expenses that embrace a vast array of costs[3].
Autonomous taxation was inserted into the codes of taxes on income first based on article 4 of Decree-Law no. 192/90, of 9 June, and subsequently through Law no. 30-G/2000, of 29 December, having then been added to the CIRC article 69-A.
The justification for its introduction rested on the alleged difficulty of distinguishing between the private character and the business nature of certain expenses, as well as on the fact that there were certain forms of income that were not taxed in the hands of their recipients, either because they were not known or because the income was not determinable with precision.
Thus, it was decided to subject to autonomous taxation rates in the sphere of the paying entity, both in IRS and in IRC (in case of existence of organized bookkeeping), confidential or undocumented expenses, representation expenses and charges relating to light passenger vehicles, recreational boats, tourist aircraft, motorcycles and motor scooters.
In 2009, the Government doubled the autonomous taxation rate from 5% to 10% with retroactive effect to 1 January 2008[4].
In particular, autonomous taxation on bonuses and other variable remuneration was introduced by the State Budget for 2010[5], with the respective rates having been further increased in certain circumstances.
In the State Budget for 2011[6], the autonomous taxation rates provided for in article 88 of the CIRC again underwent a significant increase.
That is, as is noted in the Report of the Group for Fiscal Policy of 2009, subsequent to the introduction of autonomous taxation in the codes, changes occurred that partially modified the respective grounds[7]. In this context, in the conclusions of the Report concern is expressed "with the generalization of autonomous taxation, which is deemed susceptible of subverting fundamental principles of income taxation", but, at the same time, after it was found that the level of revenue that autonomous taxation provides, it is concluded that "We recognize, however, that no valid alternative is foreseen for its replacement by another regime, at least in its entirety" [8].
As Casalta Nabais teaches us, the imposition of autonomous taxation is explained " (…) by the need to prevent and avoid that, through these expenses, companies proceed to disguised distribution of profits, especially dividends that would thus only be subject to IRC as profits of the company, as well as to combat tax fraud and evasion occasioned by such expenses not only in relation to IRS or IRC, but also in relation to the corresponding contributions, both from employing entities and workers, to social security"[9].
Saldanha Sanches, regarding the autonomous taxation provided for in article 81, no. 3, of the CIRC, concludes that: "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime of expenses that are found in the zone of intersection of the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for reasons solely of a fiscal nature or the hidden distribution of profits. The norm presents a characteristic similar to that which we shall find in the sanction against undocumented costs, with an increase in the rate when the situation of the taxpayer does not correspond to a situation of fiscal normality. (…)
With this provision, the system shows its dual nature, with an aggravated autonomous taxation rate for certain special situations that it seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles in principle overly expensive when there are losses. A kind of presumption is created here that these costs do not have a business cause and, for this reason, are subject to autonomous taxation. In summary, the cost is deductible, but the autonomous taxation reduces its fiscal advantage, since here the tax base is not a net income, but, rather, an exceptionally transformed cost – subject to taxation." [10].
Helena Martins, after acknowledging that autonomous taxation constitutes a "distortion" in light of the characteristics inherent to IRC, concludes that it finds justification in the objectives it seeks to pursue[11]. As she clarifies, the generality of situations covered by the provisions of article 88 of the CIRC concerns cases of tax evasion.
As she continues, the legislator opts to subject the expenses to autonomous taxation as a form alternative to and more effective than the non-deductibility of a portion of the expense for purposes of determining taxable profit. As she clarifies, in the event that the company determines a tax loss, the non-deductibility would not result in taxation.
As we maintain, in our understanding autonomous taxation are indirect and instantaneous taxes that tax the expense and not the income and that clearly distinguish themselves from IRC as a direct tax, periodic, that taxes income, being determined in a manner totally independent of IRC and Municipal Tax due in the tax year, not even being related to the obtaining of a positive result[12].
In reality, the facts subject to autonomous taxation are distinct from those subject to IRC strictly speaking. Their insertion in the IRC Code is thus due to merely pragmatic reasons, distorting the unique character of the tax.
Whereas the taxable profit subject to IRC is of successive formation, the expenses on which autonomous taxation applies constitute instantaneous or single-obligation tax facts.
The fact that autonomous taxation is due with reference to a determined period which coincides with the calendar year likewise does not detract from the nature of an instantaneous tax fact.
Thus, the tax fact is verified at the moment in which the expenses subject to autonomous taxation are incurred.
It should further be noted that the fact that autonomous taxation is due with reference to a determined period which coincides with the calendar year likewise does not detract from the nature of an instantaneous tax fact, just as no one disputes that VAT is a tax of single obligation and not a periodic tax despite the respective assessment being made with reference to a determined tax period of a monthly or quarterly nature.
As Casalta Nabais emphasizes in the context of isolated autonomous taxation on companies and referring in particular to the "autonomous taxation rates" contained in article 88 of the CIRC, such rates initially began by relating to situations of elevated risk of tax fraud and evasion, however, with the "passage of time, the function of those autonomous taxation, which by then became extraordinarily diversified and increased in value, altered profoundly, progressively becoming that of obtaining (more) tax revenue, thus assuming itself as effective taxes on the expense, albeit grafted, in entirely anomalous terms, into the taxation of company income" [13].
In this sense, he emphasizes that there are a series of situations of autonomous taxation that lead him to conclude that, "…alongside IRC (and business IRS), another tax on companies is progressively being erected, an entirely anomalous tax which, applying to certain expenses, ends up tending to duplicate, without any rational foundation to sustain it, the taxation of companies. What appears to us to be entirely inadmissible" [14].
Now, given that autonomous taxation rates and IRC are distinct tributes, it is important to draw all the consequences owing from such fact.
See also in this sense, namely, the Arbitral Decisions in Proc. no. 443/2016, of 23 February 2017 and in Proceeding no. 504/2016-T, of 21 March 2017.
In the latter, the deduction and/or compensation of the amounts paid to the AT as special payment on account (PEC) against the total IRC collection was under analysis, which would include autonomous taxation and municipal tax[15].
As is noted in this Decision, properly substantiated with arguments with which we agree, pursuant to the position adopted in the Arbitral Decisions no. 722/2016-T, of 28 June 2016 and no. 443/2016, of 23 February 2017, with autonomous taxation the expense is taxed and not the income, a position that is assumed by His Excellency Counselor Vítor Gomes (dissenting vote appended to Judgment no. 204/2010 of the Constitutional Court), pursuant to which he states, referring to autonomous taxation, that "although formally inserted in the CIRC and the amount that allows it to be collected is liquidated within its scope and as IRC, the norm in question concerns a tax imposition that is materially distinct from taxation in this tax bracket (….)".
"Indeed, we are dealing with autonomous taxation (…) and that makes all the difference. It is not a matter of taxing income at the end of the tax period, but determined types of expenses in themselves, for the understandable reasons of tax policy that the judgment points out".11
And he adds that "thus, the fact revealing tax capacity that is intended to be reached is the simple realization of this expense, at a determined moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not he is to have taxable income in IRC at the end of the period, it being irrelevant that this portion of tax only comes to be assessed at a later moment and jointly with the IRC."
Similarly, it was also recognized by the jurisprudence of the Supreme Administrative Court (STA) "that under the designation of autonomous taxation diverse realities are hidden, including, pursuant to no. 1 of the (then) art. 81 of the CIRC, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in cases of expenses incurred by taxpayers wholly or partially exempt, or who do not exercise, on a principal basis, activities of a commercial, industrial or agricultural nature (no. 2 of the [then] art. 81) and which are not considered as costs in the calculation of income taxable in IRC. It should be noted, however, that already representation expenses and those related to light vehicles, pursuant to the provisions of the (then) art. 81 no. 3 of the CIRC and allowances are attached to business activity and indispensable whereby they are fiscally accepted in some cases even if within certain limits."[16]
As is noted, more recently, the Constitutional Court has come to reformulate the doctrine of Judgment no. 18/11, drawing closer to the then dissenting vote of Counselor Vítor Gomes and to the Judgment of the STA no. 830/11, to the effect of understanding that: "contrary to what happens in the taxation of income under IRS and IRC, where the ensemble of income earned in a determined year is taxed (which implies that only at the end of it can the tax rate be ascertained, as well as the bracket in which the taxpayer falls), in the case each expense incurred is taxed, considered in itself, and subject to a determined rate, autonomous taxation being ascertained in a manner independent of the IRC that is due in each tax year, by not being directly related to the obtaining of a positive result, and therefore capable of taxation. Thus, and in the case of IRC, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a determined year, the law considering that the fact generating the tax is verified on the last day of the tax period (cf. article 8, no. 9, of the CIRC). Already as regards autonomous taxation in IRC, the fact generating the tax is the very realization of the expense, it not being a matter of a complex fact of successive formation over the course of a year, but of an instantaneous tax fact."[17]
It is further emphasized in this Decision that, as regards doctrine, in essence, the concept and nature of autonomous taxation does not deviate substantially from the understanding of the aforementioned jurisprudence of the Constitutional Court.
Thus, as Rui Morais concludes, "it is a matter of taxation that applies to certain expenses of taxpayers, which are had as constituting tax facts. It is difficult to discern the nature of this form of taxation and, even more so, the reason why it appears provided for in the codes of taxes on income".[18]
As is equally emphasized, it is also accepted by the generality of doctrine and jurisprudence that autonomous taxation seeks to prevent abusive practices in the remuneration of workers, managers and partners/shareholders of the company[19].
Regarding the evolution of the figure of autonomous taxation, the inference is drawn in particular that autonomous taxation seeks to prevent the erosion of the tax base in IRC, subjecting taxation to charges that may be deducted by IRC taxpayers but that, being deducted, transform into an increase in taxation, thus seeking to serve as a disincentive to expense with such charges.
Regarding autonomous taxation on non-deductible expenses, if their deductibility were to be admitted, it would be admitting the deductibility of a charge not indispensable for the realization of the income subject to tax or for the maintenance of the productive source.
As is noted, it is settled that autonomous taxation roots in the need to prevent abuses regarding the disclosure of certain charges or expenses and which may be easily diverted to private consumption or which, in some manner, are susceptible of constituting, formally, an expense of a legal entity but which, substantially, represent or may constitute abuses in order to minimize the actual measure of the tax.
It is in this context that the following conclusion is drawn: "In these terms, it can be affirmed that autonomous taxation appears integrated into the IRC regime, are ascertained and due within the scope of the legal relationship of taxation of corporate income and it is within this framework that its ascertainment is effected.
But they are not IRC, tout court, as the Claimant laconically and definitively affirms.
(…)
On the other hand, it is important to keep in mind (because this is relevant for purposes of the decision to be taken) that autonomous taxation constitutes anti-abuse norms directed at rationalizing specific behaviors of taxpayers (in light of their tax duty) by means of which, traditionally, they managed to achieve a measure of tax inferior to that which was evidenced by their actual revealed ability to pay but which, by virtue of these abusive behaviors was capable of being mitigated or eliminated, with evident violation or subordination of the principle of justice, of fair distribution of the tax burden by those who reveal ability to pay.
Consequently, it makes sense to admit that general deductions from the tax collection be made, which are permitted by law to give effective meaning to the principle of taxation of real and actual income.
However, as regards the collection due by autonomous taxation, this general deduction no longer makes sense because, not taxing profits, but expenses, the question of justice in the distribution of the overall tax burden does not arise as to them, whereby it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abuse sense that impregnates them, that is, the disincentive of deviant behaviors that its institution represses or eliminates.
(…)
Appealing to the ratio legis it is clear that autonomous taxation is collected, within the scope of the IRC assessment process, in accordance with its own root and dogmatic that lead to the total tax collection not being a unitary reality but a composite one.22
Indeed, it is possible to discern in it the collection of the tax properly so called, resulting from the general mechanics of IRC ascertainment, which is due on the basis of the constitutional foundation established in the general duty of each one (encompassing in this legal entities) to contribute to the expenses of the public according to their means (art. 103, no. 1 of the CRP).
All in respect of and in compliance with the principles of justice, equality and the duty to pay tax according to the revealed ability to pay. And from which the amounts referred to in article 90 of the IRC Code are deducted and in the terms and modes referred to therein.
To this general collection, rooted in this foundational-order ground, is added the specific collection, due by autonomous taxation, which has, as was made clear, a root, a sense and its own grounds, which is to discourage the adoption of the behaviors taxed by it, listed in art. 88 of the Code, which constitutes an anti-abuse norm, which allows us to invoke here the entire dogmatic proper in which it is founded.
In this case, by virtue of fulfilling purposes that exceed the purely revenue-generating ends of the tax, to be situated in the field of behaviors that the law considers abusive and/or undesired, it is clear that it does not make sense that deductions be made to it, under penalty of rendering hollow, in practice, any meaning the anti-abuse regime created."
Already previously in the Arbitral Decision rendered in Proc. no. 443/2016, in which it was decided, among other questions in all respects similar to that which now occupies us within the scope of SIFIDE and autonomous taxation, it was unanimously concluded that:
"Appealing to the ratio legis it is clear that autonomous taxation is collected within the scope of the IRC assessment process in accordance with its own root and dogmatic that lead to the total tax collection not being a unitary reality but a composite one.[18]
Thus, it is possible to discern in it the collection of the tax properly so called, resulting from the general mechanics of IRC ascertainment, which is due on the basis of the constitutional foundation established in the general duty of each one (encompassing in this legal entities) to contribute to the expenses of the public according to their means (art. 103, no. 1 of the CRP). All in respect of and in compliance with the principles of justice, equality and the duty to pay tax according to the revealed ability to pay. And from which the amounts referred to in article 90 of the IRC Code are deducted and in the terms and modes referred to therein.
To this general collection, rooted in this foundational-order ground, is added the specific collection, due by autonomous taxation, which has, as was made clear, a root, a sense and its own grounds, which is to discourage the adoption of the behaviors taxed by it, listed in art. 88 of the code, which constitutes an anti-abuse norm, which allows us to invoke here the entire dogmatic proper in which it is founded.
In this case, by virtue of fulfilling purposes that exceed the purely revenue-generating ends of the tax, to be situated in the field of behaviors that the law considers abusive and/or undesired, it is clear that it does not make sense that deductions be made to it, under penalty of rendering hollow, in practice, any meaning the anti-abuse regime created.
Thus, attentive to what has been set out, we are now in a position to analyze the Claimant's request, regarding the legality of the deduction of SIFIDE and RFAI from the portion of IRC collection of Fiscal Group B…, corresponding to autonomous taxation rates, in each of the tax years 2011 and 2012.
Given the foregoing, it was concluded that the collection of autonomous taxation has a different root, which cannot, under penalty of subversion of the order of values, permit the deduction of tax benefits, under penalty of rendering characterless the principles that are specifically intended to be pursued.
Indeed, having the regime of autonomous taxation a function of discouraging abusive behaviors, it is not apparent by what logical motive this discouragement could later evanesce, which would happen if it were possible to deduct to the collection of autonomous taxation, tax incentives, as the Claimant contends, whereby this possibility would result in a double strange effect, that is, on one hand it could, at the limit, eliminate the collection resulting from autonomous taxation and, on the other, would provide for the deduction of a certain tax benefit (in the concrete case, SIFIDE[19] and RFAI[20] are at issue, for the fulfillment of the objectives or adoption of the behaviors fixed in the norm consecrating the right to the tax benefit) from a tax that has a specifically anti-abuse function, of mitigation of behavior that is fiscally and socially undesired.
From the combination of these possibilities would result a contradictory, illegal and unethical result, precisely because the same tax law would permit, within the framework of the same tax system, to relieve the taxpayer of the burden of payment of a tax that is justly due by the adoption of abusive, undesired and disincentivized behaviors (disclosure as expenses of the costs provided for in art. 88 of the IRC Code).
The arbitral understanding now upheld, to the effect of the orientation followed in the Arbitral Award no. 722/2015-T, is in harmony with the new no. 21 of article 88 of the CIRC added by Law no. 7-A/2016, of 30 March, by establishing that to the amount ascertained of autonomous taxation no "deductions are made".
Also in this case, the legislator limited itself to embracing, clarifying it, a solution that the courts, with recourse to the applicable rules and by application of the criteria of hermeneutic law were in a position to extract from the regime to apply, which is all this collective did in the case of the instant proceedings.
Attentive to the foregoing, it is thus concluded, from the illegality of the deductibility of SIFIDE and RFAI from the collection of autonomous taxation, without need to resort to the interpretative character given by article 135 of Law no. 7-A/2016, of 30 March (Budget Law for 2016), to article 21 of article 88 of the IRC Code, pursuant to which "the assessment of autonomous taxation in IRC is carried out pursuant to the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, no deductions being made from the total amount ascertained."
Therefore, the Claimant's argument is without merit to the effect of the declaration of illegality of the assessments challenged for violation of article 103, no. 3, of the CRP, whereby the Tribunal does not decide based on the application of the interpretative law."
Assessment of the Claims
From what has been said, this Arbitral Tribunal understands that the Claimant is not correct, for the reasons and on the grounds invoked above, regarding the possibility of deduction of the tax benefit relating to SIFIDE from the collection of autonomous taxation relating to the 2015 tax year, the request for declaration of illegality of the assessments challenged being without merit.
The request for declaration of illegality of the assessments challenged relating to the 2015 tax year being without merit, the requests made by the Claimant for reimbursement of the tax paid, together with compensatory interest, are likewise moot.
Responsibility for Payment of Arbitral Costs
In accordance with that provided for in article 22, no. 4, of the RJAT, "the arbitral decision rendered by the Arbitral Tribunal provides for the fixing of the amount and the allocation between the parties of the costs directly resulting from the arbitral proceeding".
Thus, pursuant to the provisions of article 527, no. 1, of the CPC, applicable by force of article 29, no. 1, subsection e) of the RJAT, it must be established that the party that has given cause to them or, there being no success on the action, who from the proceeding derived benefit, shall be condemned in costs.
Within this scope, no. 2 of the said article concretizes the expression "has given cause", in accordance with the principle of decumbency, understanding that the unsuccessful party gives cause to the costs of the proceeding, in the proportion in which it is unsuccessful.
In the case under analysis, taking into account the foregoing, the principle of proportionality imposes that full responsibility for costs be attributed to the Claimant, in accordance with the provisions of article 12, no. 2 of the RJAT and article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings.
DECISION
The Tribunal Arbitral hereby decides:
To judge the arbitral request for declaration of illegality of the Claimant's self-assessments of IRC, in the portions produced by autonomous taxation, of the 2015 tax year, subject to challenge, as entirely without merit, absolution of the Respondent from this request;
To judge without merit the request for reimbursement of the amount of IRC paid by the Claimant, relating to the 2015 tax year (EUR 12,210.19), together with the payment of compensatory interest, as formulated by the Claimant, whereby this request is rendered moot by the lack of merit of the arbitral request above referred to in a), absolution of the Respondent from the respective request and, in consequence,
To uphold the decisions rejecting the requests for revision of the tax acts of self-assessment of IRC relating to the 2015 tax year;
To condemn the Claimant to pay the costs of the present proceeding.
VALUE OF THE PROCEEDING
In accordance with the provisions of article 306, no. 2, of the CPC, 97-A, no. 1, subsection a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €12,210.19 (twelve thousand, two hundred and ten euros and nineteen cents).
COSTS
Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at €918.00 (nine hundred and eighteen euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant.
Let it be notified.
Lisbon, 24 September 2018
The Arbitrator
(Clotilde Celorico Palma)
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