CAAD Case 41/2019-T: Autonomous Taxation Rate Surcharge Under Art. 88(14) CIRC for Tax Group Companies with Tax Losses

ARBITRATION DECISION

Tax Arbitration Case Law

Case no. 41/2019-T

Decision Date: 2019-10-02

Tax: Corporate Income Tax (IRC)

Claim Value: €38,644.42

Subject Matter: IRC - autonomous taxation; Article 88, no. 14 CIRC; RETGS; rate increase of 10%; group companies with tax losses.

ARBITRAL DECISION (consult full version in PDF)

I - REPORT

1. On 18 January 2019, A..., S.A., holder of Tax Identification Number..., with registered office at Rua..., no...., ...-... Maia, filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2, no. 1 a) and 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as "RJAT"), seeking a declaration of illegality of the decision dismissing the Gracious Complaint filed, as well as of the self-assessment of Corporate Income Tax (hereinafter, "IRC") no.... (validation code...), resulting in a value to be paid of €38,644.42, relating to autonomous taxation, for the financial year 2015.

2. To substantiate its request, the Claimant alleges, in summary, the illegality of the decision dismissing the Gracious Complaint, as well as the part of the self-assessment of autonomous taxation relating to the 2015 financial year of the Fiscal Group in question.

3. On 29-01-2019, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax and Customs Authority (hereinafter, "TA").

4. The Claimant did not proceed with the appointment of an arbitrator, wherefore, in accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph a) of no. 1 of article 11 of RJAT, the President of the CAAD Deontological Council designated the undersigned as arbitrator of the singular arbitral tribunal, the latter having communicated acceptance of the assignment within the applicable period.

5. On 13-03-2019, the Parties were notified of this designation and manifested no intention to refuse it.

6. In accordance with the provision of paragraph c) of no. 1 of article 11 of RJAT, the singular Arbitral Tribunal was constituted on 02-04-2019.

7. On 20-05-2019, the Respondent, duly notified for this purpose, filed a response to the arbitral request filed, defending the inadmissibility of the request.

8. Notwithstanding the Respondent's protest to attach to the case file the administrative process (hereinafter "PAT"), this did not occur.

9. Considering that (i) there was no need for production of additional evidence beyond the documentary evidence attached to the case file, (ii) there was no matter of exception on which the parties should pronounce themselves and (iii) in the arbitral process the general principle of procedural economy applies, the Parties were notified to indicate whether they waived the meeting referred to in article 18 of RJAT and, if the answer was affirmative, whether they waived the presentation of arguments or wished to present them in writing.

10. The Claimant informed that, in view of the content of the TA's Response and the absence of disputed factual matters, it no longer had interest in the examination of the witnesses cited, waiving it, as well as the presentation of arguments.

11. The Respondent did not pronounce itself on the said Order.

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

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

The case does not suffer from nullities.

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

Having examined everything, it is proper to render:

II. DECISION

A. STATEMENT OF FACTS

A.1. Facts Established as Proven

1. The Claimant is a commercial company that succeeded universally, by merger, to B..., Unipessoal, Lda., and which was the dominant company of the fiscal group to which, in 2015, the Special Regime for Taxation of Groups of Companies ("RETGS") was applicable.

2. This fiscal group comprised the companies B..., Unipessoal, Lda., A..., S.A. and C... Portugal, S.A..

3. On 31 May 2016, the Claimant proceeded, in its capacity as dominant company of the fiscal group described above, to file its aggregated IRC declaration Model 22 relating to the financial year 2015, having therein proceeded to self-assess the autonomous taxation of that same year, in the amount of €204,160.25, calculated as follows:

4. The aforementioned amount includes the sum of €120,429.62, corresponding to autonomous taxation relating to the company C... Portugal, S.A., which, notwithstanding not having declared tax losses, was subject to a rate increase of 10%.

5. Without this rate increase of 10%, the amount of autonomous taxation would have been €165,515.83, whereby the difference in question is €38,644.42.

6. The system of electronic data transmission through which the filing of the periodic IRC return statement is carried out is parameterized in such a way as to consider that the increase in autonomous taxation rates should have as reference the tax result determined by the group of companies subject to RETGS, and not the tax result determined individually by each of the companies that comprise it.

7. The Claimant filed a Gracious Complaint against the IRC self-assessment (case no...2018...), the said Gracious Complaint being dismissed in October 2018, by the Finance Directorate of Porto (Office no. 2018..., of 19 October).

8. The amount of IRC, including state surcharge and autonomous taxation, was paid.

A.2. Facts Established as Not Proven

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

A.3. Justification of the Proven and Not Proven Facts

With regard to the statement of facts, the Tribunal does not need to pronounce itself on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven from the not proven facts (cfr. article 123, no. 2, of CPPT and article 607, no. 3 of the Code of Civil Procedure (hereinafter "CPC"), applicable by virtue of article 29, no. 1, paragraphs a) and e), of RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and delineated according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (cfr. former article 511, no. 1, of CPC, corresponding to the current article 596, applicable by virtue of article 29, no. 1, paragraph e), of RJAT).

Accordingly, having regard to the positions taken by the parties, in light of article 110/7 of CPPT, and the documentary evidence attached to the case file, the facts listed above were considered proven, as relevant to the decision.

B. ON THE LAW

The issue concerns the application of a 10% rate increase to the amount of autonomous taxation determined when filing the aggregated IRC declaration Model 22 relating to the financial year 2015 by a dominant company of a group of companies. This increase was applied to all companies included in the said group, including a company that had not declared tax losses in the financial year in question.

Accordingly, the issue concerns the application of the provision in no. 14 of article 88 of the IRC Code, which establishes that:

"The autonomous taxation rates provided for in this article shall be increased by 10 percentage points for taxpayers presenting a tax loss in the period to which any of the facts referred to in the preceding numbers relate and that are related to the exercise of a commercial, industrial or agricultural activity not exempt from IRC."

The Claimant considers that it is the tax losses of each of the companies comprising the fiscal group that are relevant for this purpose, whereas the Tax and Customs Authority considers that it is the tax loss of the group that determines the increase in rates.

The question is no longer controversial today and was resolved in the sense advocated by the TA, inasmuch as Law no. 7-A/2016, of 30 March, in no. 20 to article 88 of CIRC, added no. 20 to the said article 88 CIRC, in the following terms:

"For the purposes of the provision in no. 14, when the special regime for taxation of groups of companies established in article 69 is applicable, the tax loss determined in accordance with article 70 shall be considered."

This rule was given interpretative nature.

Autonomous Taxation as Taxation under Corporate Income Tax

The Claimant begins by arguing that autonomous taxation is not income taxation, that is, it is not IRC on profit.

On this specific matter, this Tribunal cannot agree. In fact, it is a settled understanding, in particular among arbitral jurisprudence, that autonomous taxation is indeed considered IRC. In this regard, see, among others, the Arbitral Award rendered in Case no. 239/2014-T, which describes in very clear and elucidative manner the evolution of autonomous taxation and in which the following can be read:

"In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed" (article 11, no. 1, of LGT), which constitutes a referral to article 9 of the Civil Code.

Article 9 of the Civil Code establishes the following:

"Article 9

Interpretation of law

1 – Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking above all into account the unity of the legal system, the circumstances in which the law was drafted and the conditions specific to the time in which it is applied.

2 – However, the interpreter cannot consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3 – In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express its intent in adequate terms."

Thus, what must be done is to seek to reconstruct the legislative intent, based on the interpretative elements indicated in this article 9.

The starting point of interpretation is the letter of the law.

In the absence of other elements that would lead to the choice of a less immediate meaning of the text, the interpreter should in principle opt for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, in the presumption (imposed by no. 3 of article 9 of the Civil Code, which stands until it is demonstrated that it is not correct) that the legislator knew how to express its intent in adequate terms. (1)

(1) In this sense, see BAPTISTA MACHADO, Introduction to Law and to Legitimising Discourse, page 182.

In the initial drafting of CIRC, approved by Decree-Law no. 442-B/88, of 30 November, there was no express or implicit reference to autonomous taxation within the scope of IRC.

Only with Law no. 101/89, of 29 December, which approved the State Budget for 1990, was a first reference made to autonomous taxation within the scope of IRC, through the legislative authorization contained in no. 3 of its article 15, which provides as follows:

"Law no. 101/89, of 29 December

Article 15

3 - The Government is authorized to tax autonomously in IRS or IRC, as the case may be, at a rate increased by 10% and without prejudice to the provisions of paragraph h) of no. 1 of article 41 of CIRC, undisclosed or undocumented expenses incurred in the exercise of commercial, industrial or agricultural activities by IRS taxpayers who have or should have organized accounting or by IRC taxpayers not covered by articles 8 and 9 of the respective Code."

Implementing this legislative authorization, the Government approved Decree-Law no. 192/90, of 9 June, which included, apart from the codes of IRS and IRC, a rule on autonomous taxation establishing the following:

"Decree-Law no. 192/90, of 9 June

Article 4

Undisclosed or undocumented expenses incurred in the exercise of commercial, industrial or agricultural activities by IRS taxpayers who have or should have organized accounting or by IRC taxpayers not covered by articles 8 and 9 of the respective Code shall be taxed autonomously in IRS or IRC, as the case may be, at a rate of 10% without prejudice to the provisions of paragraph h) of no. 1 of article 41 of CIRC."

As results from the literal tenor of this rule, one speaks of autonomous taxation in IRS or IRC, not because they are a tax different from either of these, but because they are calculated by applying a rule different from the general taxation rules applicable to determining the amounts due within those taxes.

But, as is relevant here, the autonomous taxation being in IRC, it results directly from this rule that the tax to be assessed and collected is considered IRC, wherefore, for matters not regulated here, everything provided for IRC and that may be necessary to apply will be applicable to it (for example, for purposes of deadlines for filing statements, competence for assessment, credit privileges, remedies, etc.).

Law no. 52-C/96, of 27 December, amended this article 4 of Decree-Law no. 192/90, but maintained the same reference to autonomous taxation in IRC, establishing the following:

"Law no. 52-C/96, of 27 December

1 - Undisclosed or undocumented expenses incurred by IRS taxpayers who have or should have organized accounting in the exercise of commercial, industrial or agricultural activities, or by IRC taxpayers, shall be taxed autonomously in IRS or IRC, as the case may be, at a rate of 30%, without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the IRC Code."

Law no. 87-B/97, of 31 December, again amended no. 1 of that article 4, giving it the following wording:

"Law no. 87-B/97, of 31 December

1 - Undisclosed or undocumented expenses incurred by IRS taxpayers who have or should have organized accounting in the exercise of commercial, industrial or agricultural activities, or by IRC taxpayers, shall be taxed autonomously in IRS or IRC, as the case may be, at a rate of 32%, without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the IRC Code."

Law no. 3-B/2000, of 29 April, added a no. 3, to the same article 4, with the following wording:

"Law no. 3-B/2000, of 29 April

3 - Representation expenses and charges related to light passenger vehicles incurred by IRS taxpayers who have or should have organized accounting in the exercise of commercial, industrial or agricultural activities, or by IRC taxpayers not exempt and exercising, as their main activity, commercial, industrial or agricultural activity, shall be taxed autonomously in IRS or IRC, as the case may be, at a rate of 6.4%."

Law no. 30-G/2000, of 29 December, repealed the said article 4, but included in CIRC a set of autonomous taxation through the addition of an article 69-A (2) with the following content:

(2) This same Law introduced in CIRS article 75-A with a partially coinciding regime.

"Article 69-A

Autonomous taxation rate

1 - Undisclosed or undocumented expenses shall be taxed autonomously, at a rate of 50%, without prejudice to the provisions of paragraph h) of no. 1 of article 41.

2 - The rate referred to in the preceding number shall be raised to 70% in cases where such expenses are incurred by taxpayers that are wholly or partly exempt, or that do not exercise, as their main activity, commercial, industrial or agricultural activities.

3 - The following shall be taxed autonomously, at a rate corresponding to 20% of the highest normal rate, representation expenses and charges related to light passenger vehicles, pleasure boats, tourist aircraft, motorcycles and motorbikes, incurred or borne by non-exempt taxpayers exercising, as their main activity, commercial, industrial or agricultural activity.

4 - Charges related to light passenger vehicles, pleasure boats, tourist aircraft, motorcycles and motorbikes shall include, in particular, depreciation, leases or rentals, insurance, maintenance and conservation expenses, fuel and taxes levied on their ownership or use.

5 - Excluded from the provision in no. 3 are charges related to light passenger vehicles, pleasure boats, tourist aircraft, motorcycles and motorbikes, allocated to the operation of public transport services, intended to be rented in the exercise of the normal activity of the taxpayer, as well as depreciation related to vehicles in respect of which the agreement provided for in no. 8 of paragraph c) of no. 3 of article 2 of the IRS Code has been concluded.

6 - Representation expenses shall include, in particular, charges incurred with receptions, meals, trips, excursions and entertainment offered in the Country or abroad to customers or suppliers or to any other persons or entities.

7 - The following shall be subject to the regime of nos. 1 or 2, as the case may be, with the applicable rates being, respectively, 35% or 55%, expenses corresponding to amounts paid or owed, in any capacity, to natural or legal persons resident outside Portuguese territory and subjected therein to a clearly more favorable tax regime, as defined under the Code, unless the taxpayer can prove that such charges correspond to operations actually carried out and do not have an abnormal character or excessive amount.

8 - Excluded from the provision in no. 3 are taxpayers to which the regime provided for in article 46-A applies."

Although express reference is not made here to the fact that these autonomous taxation are IRC, this results, on the one hand, from the inclusion of this article in CIRC (in parallel with the inclusion in CIRS of a similar article 75-A); on the other hand, from the fact that nos. 1 to 3 of this article 69-A clearly seek to substitute the former nos. 1 and 3 of article 4 of Decree-Law no. 192/90.

It is true that the inclusion of these autonomous taxation directly affecting expenses and not the income of legal persons in a Code primarily designed to establish the general regime of taxation of the income of legal persons generates, at least apparently, a situation of distortion of the scope of the tax, which ceases to affect directly only profits to also directly affect certain expenses.

But the Explanatory Memorandum contained in the Legislative Proposal no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no doubt that this is a conscious and intended amplification of the previously existing distortions, as it was understood that they were necessary, in short, 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 enterprises.

In fact, it is stated in the said Legislative Proposal:

"The current model of income taxation was established in 1988, based on income tax on individuals (IRS) and income tax on legal entities (IRC), and corresponded to the adoption of basic solutions identical to those common in OECD countries, which we obviously do not intend to alter.

However, reasons of a pragmatic order immediately led to some distortions of the established principles, which the practice of subsequent years came, in numerous situations, to aggravate.

Moreover, the evolution of the country has introduced changes in economic and social reality, partly as a result of the impact of the European Union and of the very dynamics of deepening the integration process, with repercussions on the fabric of relations and institutes that are subject to tax laws.

There is in Portuguese society a widespread feeling that the tax system does not equitably distribute the tax burden among citizens, with the greatest share of tax effort being borne by the most law-abiding, including employees, while tax evasion and fraud maintain a significant presence that frequently allows those who earn the most income not to pay taxes or to pay them at terms far below what is required of them.

1. Accordingly, the Government, following the development of studies and technical reports prepared under the auspices of previous Governments, in particular the XIII Government, as well as the work carried out by the Tax Reform Coordination Structure (ECORFI), which was created in January 2000, in addition to the debate that these issues have raised, deemed it timely to submit to the Parliament a broad reform of the Portuguese tax system.

It is intended with these measures to fulfill a pact of fiscal justice with citizens, based on the broadening of the tax base, on the intensification of the fight against fraud and tax evasion and on the reduction of the tax effort of law-abiding taxpayers, within the framework of the general principles of equity, efficiency and simplicity that should guide the tax system."

In light of this explanation, it becomes clear that, from a legislative perspective, autonomous taxation directly affecting certain expenses, within the context of taxes that originally affected only income, are considered distortions of the system of direct taxation of income that was intended with IRC.

But it also follows from this explanation that a value that legislatively was considered more relevant than the theoretical coherence of taxes, such as the implementation of fiscal justice, imposed a choice for these forms of taxation, as they are in harmony with the principles of equity, efficiency and simplicity.

That is, it was understood that the system of taxation of enterprises exclusively on the basis of taxable profit generated situations of fiscal inequity that were intended to be attenuated or eliminated by carrying out a "broadening of the tax base", through the addition to direct taxation, which continues to be the essence of the system of taxation of enterprises, of situations of indirect taxation, via the application of the tax also to certain expenses that were understood to be causes of this inequity, as they were presumably connected with situations of "evasion and tax fraud" "that frequently allows those who earn the most income not to pay taxes or to pay them at terms far below what is required of them".

With this legislative choice of "broadening of the tax base" of IRC, its base of incidence was broadened in relation to that contained in article 3, but that is precisely what was intended, in light of the said Explanatory Memorandum.

Subsequent amendments were introduced to the said article 69-A (3), by Law no. 32-B/2002, of 30 December, by Law no. 107-B/2003, of 31 December, by Law no. 55-B/2004, of 30 December, by Decree-Law no. 192/95, of 7 November, Law no. 67-A/2007, of 31 December, by Law no. 64/2008, of 5 December, by Law no. 100/2009, of 7 September, by Law no. 55-A/2010, of 31 December, by Law no. 64-B/2011, of 30 December, and by Law no. 2/2014, of 16 January, with a clear tendency toward the expansion of autonomous taxation, which shows that, repeatedly, the tax legislator proved indifferent to the possible distortions of the system of taxation of enterprises that autonomous taxation may imply.

(3) Article 69-A of CIRC corresponds to article 81 with the renumbering of CIRC carried out by Decree-Law no. 198/2001, of 3 July, and to article 88 with the renumbering carried out by Decree-Law no. 159/2009, of 13 July.

For that matter, the great concerns with the coherence of taxes that trouble the Claimant were never shared by our tax legislator, which, for a long time, has maintained a tax in which it includes, under a common denomination, an amalgam of disconnected taxation situations, which is the Stamp Tax, barely perceptibly justified by the simplicity and efficiency of revenue collection, and explicitly recognizes, in the said Legislative Proposal, that, for reasons of a pragmatic order, there were "distortions of the established principles, which the practice of subsequent years came, in numerous situations, to aggravate".

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

Thus, while it is true that autonomous taxation constitute a different form of taxing enterprises, which could be contained in autonomous regulation or be arranged in the Stamp Tax Code, it is equally true that the legislative choice to include such taxation in CIRC reveals an intention to consider such taxation as inserted in IRC, which may be justified by the fact that they are an indirect form, but, from a legislative perspective, equitable, simple and efficient means of taxing business income that escapes the regime of taxation with direct incidence on income.

It is concluded, accordingly, that both in light of article 4 of Decree-Law no. 192/90, of 9 June, in which, in all its versions, it was stated that autonomous taxation were in "IRS or IRC" and not some other tax, and after its inclusion in CIRC, autonomous taxation of which legal entities are taxpayers are considered IRC, wherefore to them shall apply the rules of CIRC that do not conflict with their special form of incidence and applicable rates.

In this light, Law no. 109-B/2001, of 27 December, when stating, in the version given to article 12 of CIRC, that "entities to which, in accordance with article 6, the transparent taxation regime is applicable are not taxed in IRC, except for autonomous taxation", clearly based itself on the assumption, which explicitly resulted from the various versions of article 4 of Decree-Law no. 192/90 and from the integration of autonomous taxation in CIRC carried out by Law no. 30-G/2000, that these taxation were a form of taxation of legal persons in IRC, as this is the only justification for the new version given to article 12 of CIRC to have made express reference to the fact that the exclusion from IRC taxation of entities to which the transparent taxation regime in IRC is applicable does not extend to autonomous taxation.

This conclusion, which could already be drawn with certainty, at least from Law no. 109-B/2001, that autonomous taxation are included within the scope of IRC and to which the general rules of this tax are potentially applicable, is confirmed by the new article 23-A, no. 1, of CIRC, in the version introduced by Law no. 2/2014, of 16 January, when it states that "are not deductible for purposes of determining taxable profit" "IRC, including autonomous taxation".

In fact, it results from the express tenor of the said article 12 of CIRC that autonomous taxation are included in IRC, specifically for the purpose of excluding from deduction to taxable profit the sums spent on their payment.

On the other hand, although this express reference to the inclusion of autonomous taxation was only inserted with this Law no. 2/2014, it is certain that such inclusion already existed previously, not least because this Law did not alter the scope of IRC, in particular articles 1 and 3, to which the Claimant gives special relevance for determining what is IRC.

Thus, it must be concluded that the legislator repeatedly expressed its intention to tax as IRC the expenses incurred by legal persons for which autonomous taxation is provided and that there is no textual basis in the rules relating to such taxation to conclude that expenses for the payment of such taxation would not be considered IRC."

It cannot, accordingly, fail to be considered evident that autonomous taxation are IRC.

Application of Autonomous Taxation and RETGS

RETGS is a special and optional regime for taxation of groups of companies.

Within the scope of this regime, a set of legally independent companies manifests its agreement to be taxed as if it were a single entity only, thus being able to make taxable profits determined in the sphere of some companies diluted in tax losses determined by others.

In accordance with the provision of article 120, no. 6 CIRC:

a) the dominant company must send the periodic return statement relating to the taxable profit of the group determined in accordance with article 70;

b) each of the companies in the group, including the dominant company, must send its periodic return statement in which the tax is determined as if that regime were not applicable.

Notwithstanding each of the companies comprising the fiscal group being a taxpayer for IRC purposes, it cannot fail to be considered that the group of companies is considered a taxpayer for purposes of IRC, being the only entity that has the legal obligation to pay the IRC.

It is worth noting that the fact that article 88, no. 14 CIRC makes reference to "taxpayers" and CIRC does not indicate groups of companies among the taxpayers indicated in its article 2, does not exclude the possibility that the interpretation of that expression encompasses them (it may refer to the fiscal group or to each of the companies comprising it), as article 18, no. 3, of LGT attributes such designation to "the natural or legal person, the assets or the organization in fact or in law that, under the law, is bound to fulfill the tax obligation, whether as direct payer, substitute or liable person". Now, in the case of taxation of groups of companies, the payment of IRC falls to the dominant company, in the first place, as results from article 115 CIRC, wherefore this is also, in that capacity, a taxpayer for IRC purposes.

Autonomous taxation constitutes an exception to the rule of taxation on actual income, applies to expenses and aims either to prevent the erosion of the taxable base of IRC (they apply to charges that may be deductible, but are subject to increased taxation, seeking to discourage the incurrence of such expenses), or to penalize expenses presumed to be in some way fraudulent.

As can be read in the arbitral decision no. 659/2014-T:

"In truth, although in this case an assessment of tax losses occurs by declaration of the Fiscal Group, the truth is that this occurs by the taxpayer's own choice who accepted that the respective calculation would be processed not individually but through the algebraic sum of taxable profits and tax losses determined in individual periodic declaration statements so that, in the end, there would be only a single taxpayer for purposes of IRC.

If such a taxation regime results, in one case or another, in a final taxation more burdensome than that which could result from individual final taxation, such consequence can only be attributed to the taxpayer.

A note regarding surcharges, to recall that these were long ago qualified by Doctrine as accessory taxes, although autonomous. State and Municipal Surcharge currently constitute accessory taxes and not mere dependent taxes (as they are due even if the principal tax, on which they depend, is not), resulting from their respective regime that they apply to the taxable profit of the principal tax, but are neither are configured as an integral, indivisible part of the principal tax itself - IRC. Surcharges thus enjoy, in the tax system, scientific autonomy, either in the form of accessory taxes or additions, as is the case with Surcharges here at issue, although this is a mitigated autonomy since, in a certain way, they exist in dependence on the principal tax. They do not, however, constitute IRC itself. (in this sense see CARDOSO MOTA, LEMOS PEREIRA, Theory and Tax Technique, 7th ed. P. 46; SOARES MARTINEZ, Tax Law, Coimbra editor, 1993, p. 215; CASALTA NABAIS, Tax Law, Almedina, p. 61, 62; ANTÓNIO BRAZ TEIXEIRA, Principles of Portuguese tax law, col. 1, ed. Ática, 1964, p. 59).

Now autonomous taxation, as the Claimant itself rightly points out, are indeed, IRC, in the sense previously defined, as indeed numerous Arbitral Decisions have confirmed and are reaffirmed here. But article 88, no. 14 of CIRC does not elect as a criterion for the increase that of the payment of IRC, much less by autonomous taxation. As has been said, this criterion is only one, namely, "tax loss". It is, therefore, losses related to the activity that are relevant and only these. It may, indeed, be argued that some IRC was paid by the group of which the Claimant is a member (cfr. article 150 of the aforesaid), but the fact is that this IRC is not an IRC on profits but an IRC for autonomous taxation. That is, a tax on fiscally relevant facts - expenses accepted as such - which the law wishes to discourage. It is, thus, an IRC due by the relevance of expenses or other realities subject to autonomous taxation and, in that measure, one cannot determine that the group has paid IRC on profits in the financial year under consideration to the extent that it presented "tax losses". One can also certainly discuss the grounds of this logic, but the truth is that it presents itself to us in a clear, coherent manner and that does not intolerably offend the order of values that is intended to be preserved. Accordingly, there is nothing strange, illegal or unconstitutional in the fact that there are "tax losses" and, at the same time, a place for the payment of IRC for autonomous taxation given the fact that each and every one of these realities relates to differentiated aspects of this order of values that seek precisely to preserve."

It results from what we have set forth that nothing prevents the attribution of the qualification of taxpayer to dominant companies of groups covered by RETGS and the consideration of the group's losses as the determining fact of the increase in autonomous taxation. Arbitral decisions were already rendered to this effect in Cases no. 659/2014-T, no. 447/2015-T and no. 630/2017-T.

The Interpretative Character of the Rule and Court of Constitutional Decision No. 395/2017

As already mentioned, Law no. 7-A/2016, of 30 March, in no. 20 to article 88 of CIRC, added no. 20 to the said article 88 CIRC, in the following terms:

"For the purposes of the provision in no. 14, when the special regime for taxation of groups of companies established in article 69 is applicable, the tax loss determined in accordance with article 70 shall be considered."

This rule was given interpretative nature by article 135 of that act, and the rule serves to make law what was already the understanding of the TA on this matter.

In accordance with the provision in no. 1 of article 13 of the Civil Code, "An interpretative law is integrated into the law interpreted, provided, however, that the effects already produced by performance of the obligation, by judgment that has become final, by settlement, even though not confirmed, or by acts of a like nature shall remain unaffected."

It is true that the expression "taxpayers presenting a tax loss" contained in no. 14 of article 88 CIRC can, literally, be interpreted as referring either to the group's losses or to those of each of the companies comprising it.

On the other hand, and as already mentioned, the fact that article 88, no. 14, of CIRC makes reference to "taxpayers" and CIRC does not indicate groups of companies among the taxpayers indicated in its article 2, does not exclude the possibility that the interpretation of that expression encompasses them, as article 18, no. 3, of LGT attributes such designation to "the natural or legal person, the assets or the organization in fact or in law that, under the law, is bound to fulfill the tax obligation, whether as direct payer, substitute or liable person".

The lack of clarity of the rule is further demonstrated by the fact that there is divergent arbitral jurisprudence on this matter (already indicated above), as well as the fact that there is a Binding Information issued by the TA, dated 30 March 2012, in the sense that it advocates in the present case.

It is thus verified that we are dealing with an interpretative rule, which clarifies the meaning of the rule, a meaning which, not being clear, was already possible in light of the reading of the legal text.

It is true that the Constitutional Court, in Decision no. 395/2017, of 12 July, decided to "declare unconstitutional, for violation of the prohibition of retroactivity of taxes, enshrined in article 103, no. 3, of the Constitution, the normative segment of article 135 of Law no. 7-A/2016, of 30 March, which attributes interpretative nature to article 133 of the same act, insofar as it establishes the meaning of article 88, no. 14, of CIRC, in accordance with no. 20 of that article."

However, as such Decision was rendered in the context of concrete review of the constitutionality of a rule applied in a specific case (cfr. article 280 of the Constitution of the Portuguese Republic), such decision only produces effects in this process, having no binding general force (cfr. articles 281 and 282 of the Constitution of the Portuguese Republic).

As results from the arbitral decision rendered in case no. 630/2017-T, which we follow:

"56. Note, however, that the Constitutional Court only refused a retroactive interpretative effect to no. 20 of article 88 of CIRC, imposing for the future the application of article 88 no. 14 of CIRC to groups of companies that opted for RETGS taxation, ex vi no. 20. With this decision, the Constitutional Court did not consider the solution of no. 20 – of application of the increase in autonomous taxation rates within RETGS – unconstitutional nor did it consider that the same was incompatible with the literal content and systematic placement of article 88 no. 14 of CIRC. Besides, the Constitutional Court made very clear its position on the "topos" of the retroactivity of interpretative laws in another judgment, Decision no. 107/2018, concerning the scope of retroactive interpretative effect of no. 21 of article 88 of CIRC, relating to the prohibition of deductions.

1. With its pronouncements, the Constitutional Court wished to safeguard the interpretative freedom of the judge and his authority to state the law definitively in the specific case, fully respecting his hermeneutical and methodological autonomy. With regard specifically to the application of article 88 no. 14 to groups of companies, the Constitutional Court had the opportunity to pronounce itself specifically on the question of its conformity with the Constitution, having held that "if a company that presents normally taxable profits within the scope of IRC derives fiscal advantages through RETGS from the fact that the fiscal group it comprises presents a loss, it is natural that it sees aggravated the rates of autonomous taxation affecting expenses that the legislator presumes to be, in many situations, dispensable or fraudulent. This is so not only because, by incurring such expenses, the company reduces its contribution to mitigate the losses of the group it comprises and from whose negative results it benefits in the tax plan, but also because the relationships of interdependence and dominance proper to corporate groups may easily dictate that the expenses taxed be incurred, not by the company to which they are substantially destined, but by that company (or companies) in the group that, by not presenting losses, is in a position to minimize the charges of the entire group with autonomous taxation. The solution enshrined in article 88, no. 14, in the interpretation objected to by the appellant, thus corresponds to the need for articulation between the regime of taxation of profit and the regulation of fiscal incentives through autonomous taxation."

2. Accordingly, nothing prevents this present arbitral tribunal from considering that the rule of article 88 no. 14 of CIRC applicable to groups of companies covered by RETGS, in the 2014 financial year, by understanding that this interpretation is entirely compatible with the concept of taxpayer enshrined therein and with a juridical-economic interpretation of autonomous taxation and the legal regime of groups of companies and that this interpretation does not conflict with the principles of tax legality, material equality, prohibition of excess and legal security and protection of citizens' confidence."

C. DECISION

For the foregoing reasons, this Arbitral Tribunal decides to rule inadmissible the present request for arbitral decision and, consequently:

a. To maintain in the legal order the decision rendered in the Gracious Complaint proceedings;

b. To consider, accordingly, the appraisal and decision of the question raised regarding indemnitary interest as unnecessary;

c. To condemn the Claimant in the costs of the process.

D. VALUE OF THE PROCESS

The value of the process is fixed at €38,644.42, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 3 of article 3 of the Regulation of Costs in Tax Arbitration Processes.

E. COSTS

The arbitration fee is fixed at €1,836, in accordance with Table I of the Regulation of Costs in Tax Arbitration Processes, to be paid by the Claimant, as it gave rise to the present arbitral action, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 5, of the cited Regulation.

Notify.

Lisbon, 2 October 2019

The Arbitrator

(Marta Gaudêncio)