Autonomous Taxation on Vehicle Expenses: Can Presumptions Be Rebutted Under IRC? CAAD 411/2016-T

ENGLISH TRANSLATION

ARBITRAL DECISION

The Arbitrators Maria Fernanda dos Santos Maçãs (Arbitrator President), José Pedro Carvalho and Manuela Roseiro, meeting at the Administrative Arbitration Centre to form an Arbitral Court, hereby agree on the following:

I – REPORT

On 18 July 2016, A…, LDA., a legal entity no.…, with registered office at Rua…, …, Floor…, … … and …, …-… Almada, as the dominant company of a group taxed under the special regime for taxation of groups of companies (RETGS), provided for in Article 63 of the CIRC, which includes B…, S.A., a legal entity no.…, with registered office at the same address as the former, submitted a request for the establishment of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011 of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, 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 acts of dismissal of the gracious complaint and, partially, of the assessment of Corporate Income Tax ("IRC") no. 2015…, no. 2015… and no. 2015…, relating to the fiscal years 2011, 2012 and 2013, in the part corresponding to autonomous taxation on vehicle expenses, in the amount of € 404,732.88.

The Applicant seeks a declaration of partial illegality of the tax acts of IRC self-assessment relating to the fiscal years 2011, 2012 and 2013, in the part corresponding to autonomous taxation on vehicle expenses, arguing, in summary, that a taxpayer may, under Articles 73 and 74 of the General Tax Law (LGT), rebut the presumptions underlying the rules that determine autonomous taxation of certain expenses, and that, in the present case, the Applicant succeeded in doing so.

On 19-07-2015, the request for establishment of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant proceeded with the appointment of an arbitrator, having designated the present Rapporteur, under Article 11(2) of the RJAT. Under Article 11(3) of the same provision, the AT designated Dr. Manuela Roseiro as arbitrator. By agreement, the arbitrators appointed by the parties designated to preside over this Arbitral Court Mrs. Councillor Dr. Maria Fernanda dos Santos Maçãs, who, within the applicable deadline, accepted the appointment.

On 14 October 2016, the parties were notified of such designations, pursuant to Article 11(7) of the RJAT, and neither objected or made any request.

In accordance with Article 11(8) of the RJAT, the collective Arbitral Court was constituted on 31 October 2016.

On 05 December 2016, the Respondent, within the legal deadline, presented its response, defending itself by exception and by impugnation, maintaining, in summary, that "there is no indication in the wording of numbers 3 to 6 of the aforementioned Article 88, nor in any other provision of the CIRC, nor does the Applicant invoke any normative provision that clarifies the claim that expenses incurred with vehicles, including motorcycles or motor cycles, can be excluded from the incidence of autonomous taxation provided that a demonstration of their full business nature is made."

The Applicant exercised its right of contradiction with respect to the matter of exception.

By order of 25/12/2016, it was decided:

"1. Accepted as legal representatives of the AT, those listed in the designation order issued by AT attached to the case file.

1. The AT invoked, in the impugnation, the dilatory exception of irregularity of legal representation on the active side. Indeed, it is verified that the company that granted powers of attorney to the Applicant's representative does not coincide with the latter. However, since this is a procedural defect that can be cured and, since on 19 July 2016, a power of attorney was attached by the same Applicant in which that irregularity is remedied, it becomes unnecessary to issue an order for improvement.

2. Having been contradicted with respect to the matter of exception and there being no place for the production of evidence to be constituted, without prejudice to the possibility that the parties may request the production of oral arguments, the Court dispenses with the holding of the meeting provided for in Article 18 of the RJAT, which it does under the principles of the Court's autonomy in the conduct of proceedings, and in order to promote expedience, simplification and informality thereof. See Articles 19(2) and 29(2) of the RJAT.

3. Both parties shall be notified to declare, within ten days, whether they intend to produce arguments and, if so, whether these will take the form of oral or written arguments.

4. Should there be written arguments, these shall be produced within fifteen days from notification of this order, and the respondent is granted the option of, if it so wishes, submit its arguments successively in relation to those produced by the taxpayer."

The date of 30-04-2017 was also set for the rendering of the arbitral decision.

Subsequently, the Applicant and the Respondent presented, successively, their respective written arguments, in which, in addition to maintaining and developing the positions previously assumed and defended in their pleadings...

The date set for the rendering of the arbitral decision, as well as the deadline referred to in Article 21(2) of the RJAT, were extended by a further 2 months, until 30-06-2017.

The Arbitral Court is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.

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

The proceedings do not suffer from nullities.

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

Everything considered, it is necessary to render

II. DECISION

A. MATTERS OF FACT

A.1. Facts established as proven

1. Under the Framework of Service Order OI 2014…/…/… DIV … EQ …, the Tax Inspection Services (SIT) conducted an external inspection action of partial scope with respect to the present Applicant, relating to IRC for the taxation periods of 2011, 2012 and 2013.

2. As a result of this inspection action, the Applicant was notified, on 30 September 2015, of the Draft Tax Inspection Conclusions, which proposed various corrections.

3. On 15 October 2015, the present Applicant exercised the right of prior hearing on the Draft Conclusions, accepting some of the suggested corrections – which it voluntarily regularized – and contesting others.

4. The SIT accepted some of the explanations provided by the present Applicant in the context of the Prior Hearing, and rejected others, and on 30 October 2015 presented to a proposal for corrections to the Draft Conclusions, altering the tables of corrections initially proposed for the three fiscal years considered, as follows:

5. On 30 October 2015, the present Applicant filled out and presented to the Tax Authority a new IRC return relating to the fiscal year 2011, and on 2 November 2015, new IRC returns relating to the fiscal years 2012 and 2013, in replacement of those it had previously submitted for each of those fiscal years, and in which it introduced the amendments proposed by the SIT, which is why the final Inspection Report found no incidents to correct.

6. Based on the substitute returns presented, the original IRC assessments relating to the fiscal years 2011, 2012 and 2013 were cancelled and:

a. on 4 November 2015, the one relating to the fiscal year 2011 was replaced by assessment no. 2015…;

b. on 16 November 2015, the one relating to the fiscal year 2012 was replaced by assessment no. 2015…, and

c. on 16 November 2015, the one relating to the fiscal year 2013 was replaced by assessment no. 2015….

1. On 19 November 2015, the present Applicant was notified of assessment no. 2015… and on 23 and November 2015 of assessments no. 2015… and no. 2015….

2. After making the appropriate offsets and adding default interest and compensatory interest, the taxes owed amounted to:

a. in the fiscal year 2011, € 97,155.36;

b. in the fiscal year 2012, € 175,696.61; and

c. in the fiscal year 2013, € 131,880.91, for a total of € 404,732.88.

1. On 15 January 2016, the Applicant proceeded with the regularization of the amount of taxes owed, which amounted to € 404,732.88 (this amount already included compensatory interest).

2. The Applicant did not accept the correction promoted by the SIT relating to autonomous taxation on vehicle expenses, in the amount of € 404,732.88, which is why on 29 February 2016 it filed a gracious complaint against the acts of IRC self-assessment for the fiscal years 2011, 2012 and 2013, in the corresponding part.

3. The arguments presented by the present Applicant were not accepted by the Tax Authority, and the Applicant was notified, on 29 March 2016, of the draft dismissal of the gracious complaint, having exercised the respective right of prior hearing on 07 April 2016.

4. The arguments of the present Applicant were not accepted, which is why on 20 April 2016 the Applicant was notified of the final decision of dismissal of the gracious complaint presented, in which the Tax Justice Division of the Finance Department of… maintained the corrections promoted by the Tax Inspection Services.

5. The corrections relating to autonomous taxation that the Tax Inspection Services promoted and that the Applicant now contests, in the total amount of € 404,732.88, relate to expenses incurred by B… with motorcycles in the fiscal years 2011, 2012 and 2013.

6. In the context of pursuing its activity of providing food product distribution services, B… owns various motorcycles that are properly recorded in its accounting as tangible assets and to which various expenses are associated, namely depreciation, insurance, maintenance and upkeep and fuel.

7. B… has as its activity the manufacture, processing, distribution and commercialization of food products.

8. For the development of its activity of commercialization and distribution of food products, B… needs to provide vehicles to its employees for the delivery of its products to customers.

9. In order to maximize the number of daily deliveries, B… concluded that the vehicles that would best adapt to its activity and that would most effectively allow it to increase the number of deliveries, through their speed of movement, were motorcycles.

10. The use of commercial vehicles would prove inadequate for the activity of delivering products to customers' homes, in that it would hinder the circulation of employees in charge of deliveries, when compared with the use of motorcycles, which, due to ease of circulation, allow for a greater number of deliveries in less time, increasing billing.

11. The choice to use commercial vehicles in the activity carried out by B… would entail a significant increase in costs for fuel and maintenance of vehicles and would hinder the circulation of employees in charge of deliveries, when compared with the use of motorcycles, which, due to ease of circulation, allow for a greater number of deliveries in less time.

12. According to the Internal Procedures Manual, "The motorcycles used in the Stores operated by B… are owned by it and are intended for carrying out deliveries to customers' homes."

13. Each B… store has its own garage/parking in order to guarantee the parking of motorcycles at the end of each working day.

14. B… owns exclusive and dedicated workshops for the repair and maintenance of B… motorcycles, certified and approved by a motorcycle brand (…), benefiting from the same conditions as any dealer of the brand.

15. The same Manual provides that it is the responsibility of each employee to whom a motorcycle has been assigned, at the beginning and end of each work period, to retrieve and park it in the garage or parking assigned to the relevant Store, and should also return the vehicle keys and garage/parking keys to the Store management team.

16. It is also provided in the Procedures Manual that any abusive use of motorcycles (namely for purposes unrelated to the Applicant's activity) constitutes a disciplinary infraction.

17. Having analyzed the monthly billing of B… in the years 2011, 2012 and 2013, according to its accounting, the billing resulting from home deliveries has the weight in billing shown in the tables below:

[Tables referenced but content omitted in original]

1. According to the Applicant's accounting, billing at sales points was, for the same period referred to in the previous item, as shown in the table below:

[Tables referenced but content omitted in original]

1. The percentage of B…'s billing relating to home deliveries is maximized by the fact that it mitigates the impact of exogenous factors such as traffic on its activity, through the use of motorcycles.

2. The majority of B…'s installations are dedicated to home delivery services, with only three stores being exclusively dedicated to the restaurant component.

A.2. Facts established as not proven

With relevance to the decision, there are no other facts that should be considered proven.

A.3. Grounds for the matters of fact proven and not proven

With respect to the matters of fact, the Court does not have to rule on everything that was alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish between proven and unproven matters (see Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable by virtue of Article 29(1)(a) and (e) of the RJAT).

In this manner, the facts relevant to the judgment of the case are chosen and determined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former Article 511(1) of the CPC, corresponding to current Article 596, applicable by virtue of Article 29(1)(e) of the RJAT).

Thus, taking into account the positions taken by the parties, the documentary evidence and the case file attached to the proceedings, the facts listed above are considered proven, with relevance to the decision.

B. LAW

On the matter of exception

The Respondent begins by arguing the untimeliness (more precisely, extemporaneity) of the request for arbitral pronouncement, alleging that the Applicant petitions (solely) that the arbitral tribunal declare the illegality of the acts of IRC assessment no. 2015…, no. 2015… and no. 2015…, and that it is clearly evident that the legally defined deadline for challenging the assessment acts in question in arbitration has been exceeded, since the payment deadlines for those occurred, respectively, on 2016-01-08, 2016-01-18 and 2016-01-20, and the request for the establishment of the arbitral tribunal was submitted on 2016-07-18.

The Respondent's position is based on the understanding that the Applicant should have identified as the subject of arbitral pronouncement the act of dismissal of the gracious complaint presented by it.

With all due respect, it is understood that the AT does not have reason in this matter. In fact, from the outset, it is necessarily the case that the request for a declaration of illegality of the assessment act has implicit within it the declaration of illegality of all subsequent acts and whose validity is affected by that declaration, which obviously includes the act of dismissal of the gracious complaint.

Moreover, and furthermore, in the part relating to dismissal, and insofar as there are no vices of the decision act itself regarding the gracious complaint/hierarchical appeal, or its respective procedure, that act would be merely confirmatory and, as such, not subject to appeal in itself.

On the other hand, and as has been recognized by national case law, if, in cases such as those before us, the immediate object of the proceedings is the decision act of the gracious complaint/hierarchical appeal, its mediate object will be the primary assessment act itself.

This situation, moreover, is perfectly clear in administrative contentious proceedings, as is evident from Article 50(1) of the CPTA, duly combined with Article 59(4) of the same Code. The regime of tax arbitration contentious proceedings also corroborates this understanding, since Article 2 of the RJAT takes as the reference for the competence of arbitral tribunals the primary acts, with secondary acts being relevant as references for the timeliness of the impugnatory claim, as results from Article 10(1)(a) of that Regime, which requires that requests for the establishment of arbitral tribunals be submitted within 90 days, counted from the facts provided for in numbers 1 and 2 of Article 102 of the Code of Procedure and Tax Process.

In other words, in summary and in proper terms, the Applicant's claim was correctly formulated, since it concerns Article 2(1)(a) of the RJAT (assessment act), and was submitted within the deadline set by Article 10(1)(a) of the same diploma (90 days counted from the gracious complaint decision).

Thus, the exception of extemporaneity of the request, invoked by the AT, should fail.

On the merits of the case

The Applicant argues, in essence, that from the analysis of the literal meaning of the provisions contained in numbers 3 and 6 of Article 88 of the CIRC, with the expenses on motorcycles incurred by B… not fitting within the exclusion conditions of number 6, it appears that they should be subject to autonomous taxation under number 3. However, having regard to the ratio of the norms in question, the normal activity carried out and the context of the use of motorcycles (exclusive use for its activity), the Applicant understands that it should not be penalized for the purchase of motorcycles as opposed to the purchase of commercial vehicles, which fall under the exclusion of number 6 of Article 88 of the CIRC.

Finally, the Applicant argues that, just as the AT considered, through the Binding Information regarding Process no. 2879/2005, of 14 September, that expenses for the use of light passenger vehicles by hotels for transfer services are not subject to autonomous taxation, the same information should be used for the present case, and the expenses for the use of its motorcycles should not be relevant, given their exclusive use in its activity.

In turn, according to the AT, the emphasis that the Applicant places on the commercial nature and the context of the use of its motorcycles "are arguments in no way apt to override what the tax law expresses and clearly establishes: subjection to autonomous taxation", which is why the Applicant's interpretation has the minimum support neither in the letter nor in the ratio of the provisions in question.

The autonomous taxation in question in the present proceedings was levied on expenses of the Applicant, with depreciation, insurance, maintenance and upkeep and fuel, relating to motorcycles.

In this regard, Article 88 of the CIRC in effect in the fiscal year 2011 provided, insofar as it is relevant here, that:

"3 — Are taxed autonomously, excluding vehicles powered exclusively by electric energy:

a) At the rate of 10%, deductible charges relating to representation expenses and those related to light passenger vehicles or mixed vehicles, motorcycles or motor cycles, made or borne by taxpayers not exempt from personal income tax and who carry out, as their main activity, a commercial, industrial or agricultural nature activity; (...)

5 — Charges related to light passenger vehicles, motorcycles and motor cycles are considered to include, in particular, depreciation, rentals or leases, insurance, maintenance and upkeep, fuel and taxes levied on their possession or use.

6 — Excluded from the provisions of number 3 are charges related to light passenger vehicles, motorcycles and motor cycles, devoted 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 for which the agreement provided for in number 9) of subparagraph b) of number 3 of Article 2 of the Personal Income Tax Code has been concluded."

In the year 2012, the wording of that provision became the following, which also applied in the year 2013:

"3 – Are taxed autonomously at the rate of 10% charges made or borne by taxpayers not exempt from personal income tax and who carry out, as their main activity, a commercial, industrial or agricultural nature activity, related to light passenger vehicles or mixed vehicles whose acquisition cost is equal to or less than the amount established pursuant to subparagraph e) of number 1 of Article 34, motorcycles or motor cycles, excluding vehicles powered exclusively by electric energy.

5 – Charges related to light passenger vehicles, motorcycles and motor cycles are considered to include, in particular, depreciation, rentals or leases, insurance, maintenance and upkeep, fuel and taxes levied on their possession or use.

6 – Excluded from the provisions of number 3 are charges related to light passenger vehicles, motorcycles and motor cycles, devoted 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 for which the agreement provided for in number 9) of subparagraph b) of number 3 of Article 2 of the Personal Income Tax Code has been concluded."

This wording remained in effect until 2015, when it took on the following content:

"3 - Are taxed autonomously charges made or borne by taxpayers not benefiting from personal exemptions and who carry out, as their main activity, a commercial, industrial or agricultural nature activity, related to light passenger vehicles, light cargo vehicles referred to in subparagraph b) of number 1 of Article 7 of the Vehicle Tax Code, motorcycles or motor cycles, excluding vehicles powered exclusively by electric energy, at the following rates:

a) 10% in the case of vehicles with an acquisition cost of less than €25,000;

b) 27.5% in the case of vehicles with an acquisition cost of €25,000 or more, and less than €35,000;

c) 35% in the case of vehicles with an acquisition cost of €35,000 or more.

5 - Charges related to light passenger vehicles, motorcycles and motor cycles are considered to include, in particular, depreciation, rentals or leases, insurance, maintenance and upkeep, fuel and taxes levied on their possession or use.

6 - Excluded from the provisions of number 3 are charges related to:

a) Light passenger vehicles, motorcycles and motor cycles, devoted to the operation of public transport services, intended to be rented in the exercise of the normal activity of the taxpayer; and

b) Motor vehicles for which the agreement provided for in number 9) of subparagraph b) of number 3 of Article 2 of the Personal Income Tax Code has been concluded."

Previously to 2010, the wording of Article 81 of the CIRC, insofar as relevant here, corresponding to Article 88, supra transcribed, was as follows:

"3 – Are taxed autonomously, excluding vehicles powered exclusively by electric energy:

a) At the rate of 10%, deductible charges relating to representation expenses and those related to light passenger vehicles or mixed vehicles, motorcycles or motor cycles, made or borne by taxpayers not exempt from personal income tax and who carry out, as their main activity, a commercial, industrial or agricultural nature activity; (...)

5 – Charges related to light passenger vehicles, motorcycles and motor cycles are considered to include, in particular, depreciations, rentals or leases, insurance, maintenance and upkeep expenses, fuel and taxes levied on their possession or use.

6 – Excluded from the provisions of number 3 are charges related to light passenger vehicles, motorcycles and motor cycles, devoted to the operation of public transport services, intended to be rented in the exercise of the normal activity of the taxpayer, as well as depreciations related to vehicles for which the agreement provided for in number 8) of subparagraph b) of number 3 of Article 2 of the Personal Income Tax Code has been concluded."

In summary, what is at issue is to determine the ratio legis of the provision of Article 88(3)(a), and of Article 88(3) that followed it, transcribed above, to verify whether it is based on a presumption and, if the answer is affirmative, whether the same was, or was not, rebutted in this case.

When speaking of autonomous taxation, as is the case, it is convenient from the outset to bear in mind that it concerns a set of disparate situations, which will encompass, at least, three distinct types, namely:

o Autonomous taxation of certain income (e.g., Article 72 of the current CIRS);

o Autonomous taxation of certain deductible charges (e.g., number 7 of Article 88 of the current CIRC);

o Autonomous taxation of other charges independently of their deductibility (e.g., Articles 1 and 2 of Article 88 of the current CIRC).

This precision becomes important because it is understood that, given the disparity and heterogeneity of the situations subject to autonomous taxation, it will be at this point not only unnecessary but even counterproductive to attempt to synthesize and seek a proper and unitary legal nature common to all those situations.

The nature of the specific autonomous taxation in question in the present proceedings has been the subject of extensive discussion in recent doctrine and case law.

One school of thought has regarded them as a tax on expenditure, which would tax certain types of expenses, in a manner completely detached from income, to the point that some argue that they constitute a distinct tax that would only incidentally be integrated into the codes of the IRS and IRC.

Nevertheless, the understanding that autonomous taxation on deductible charges, such as those in question in the present proceedings, still integrates the regime of taxes regulated by the codes in which they are integrated, seeking, albeit in a convoluted manner, the income taxed by those codes, has obtained recurrent acceptance in the case law of the CAAD.

Naturally, those who regard the autonomous taxation that concerns us as a distinct tax, different from the IRC and directly levied on expense, will conclude that the rule under interpretation does not contain any presumption, directly formulating the object of its incidence – the expense.

That has not, however, been the understanding of the Tax and Customs Authority, which for some time has maintained, for example, that "autonomous taxation does not ontologically constitute a type of tax distinct from IRC, such as, for example, the municipal levy (derrama)", with the characteristics that make them "a distinct and special tax in relation to IRC", which is why "autonomous taxation are neither nor have ever been a special autonomous tax", and that "in a teleological, systematic and functional perspective, (…) autonomous taxation must be considered an additional to the IRC", basing the AT's such conclusions on the understanding that the purpose of autonomous taxation "is undoubtedly accessory to the taxation of income", it not being "correct to affirm that autonomous taxation distances itself, either from the function and nature of IRC, or even from the determination of taxable profit."

The Constitutional Court has also recognized that the matter of autonomous taxation is "regulated normatively in the context of income tax", despite affirming that it "is materially distinct from taxation in IRC", and that "we are (…) before distinct tax facts that are subject to differentiated fiscal treatment", thus invalidating the AT's thesis because "autonomous taxation cannot be understood as an additional to the tax that the taxpayer must pay as IRC", and even going so far as to state that "IRC and autonomous taxation are distinct taxes" and that such taxation "has nothing to do with the taxation of income and profits", statements that must be read, it is believed, with a grain of salt, framing them within the limitations that contextualize them, referring them to the existence of a "tax base" consisting of "certain expenses that constitute autonomous tax facts", and the "subjection to specific rates", thus understanding that autonomous taxation "has nothing to do with the taxation of income and profits attributable to the company's economic activity" (which does not mean it is unrelated to income and profits in general), and that the distinction between autonomous taxation and IRC, being profound and clear, should be confined to what is necessary to safeguard the specificity of the former at the level of its respective teleology, tax base and specific rates, without undermining its integration in the same normative edifice.

Indeed, it is believed the TC is not arguing that autonomous taxation constitutes a tax on expenditure stricto sensu, completely alien and distinct from IRC, on pain of not only being contradicted by the systematic nature of tax law and, expressly, by the legislator itself, but also condemning irremediably autonomous taxation to formal unconstitutionality, due to violation of Article 165(1)(i) of the Constitution, to the extent that the authorizing laws for the creation thereof did not license the creation of a new tax on expenditure.

In effect, and as has been the opportunity to write elsewhere, "the complexity generated by successive changes in the architecture of the CIRC have led (…) to an atypical normative edifice, in which one can discern a core corresponding to what can be called IRC tout court (or in the strict sense), which the Applicant wishes to exhaust everything designated as IRC, and a periphery that integrates "marginal" regulations, subtracted, in large part, from the logic, nature and principles of IRC tout court, but which, nevertheless, still lie in the 'gravitational field' of that.

And it is in the process of concretizing this zone of difficult definition that all the decisions analyzed (…) operate, and they cannot be properly understood without also understanding that, in fact, what all the decisions in question are doing is determining what consequences the 'gravitation' around the core of IRC brings about for the matters addressed in each of them."

In this sense, "within the hermeneutic framework outlined above, (…) by force of the historical evolution of its respective legal regime, there was established a type of IRC that integrates a hard nucleus (…) and a group of adjacent regulations, which share part of the logic and regime of that, but which in many respects diverges from the same." And, further on, "from the consideration of the legislative text, statically and in its historical evolution, it results that the legislator understood, and continues to understand, that autonomous taxation integrates IRC, if not as a tax stricto sensu, at least in terms of forming part of the same unitary fiscal regime."

This is because "the legal regime of autonomous taxation in question in the present proceedings only makes sense in the context of taxation under IRC. In other words, detached from the legal regime of this tax, they will lack their principal reference of meaning. Their existence, their purpose, their explanation, in short, their juridicity, is only properly understandable and acceptable within the legal regime of IRC."

This is why it is not understood that "the definition of IRC contained in Articles 1 and 3 of the CIRC" is "really surpassed by a new definition of transversal/general application", which is an epistemological posture of a conceptualism that is outright rejected.

On the contrary: it is the recognition of what, in light of the legal framework in force, imposes itself as the most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and the recognition of its regime as a complex and multifaceted reality, irreducible to a definition of that nature, which only fundamentally abstractionist conceptualism could presume."

"Everything that has been said shows that the evolution of the legal regime of IRC has transmuted it into a complex and multifaceted reality at the most diverse levels, which is reflected, in the matter that concerns us in these proceedings, in that 'dual nature' of which Professor Saldanha Sanches spoke in the passage cited in Constitutional Court Decision 617/2012.

The recognition of this duality of nature does not prejudice, however, as is understood to be implicit either in the citation in question or in the case law that cites it, that one considers that the system, despite being dual, is the same system. Put another way, it only makes sense to speak of a dual system if the system in question, globally considered, is still the same system. Otherwise, one would not speak of a system of dual nature, but of two distinct systems, which, by everything that has been said, will not be what occurs. And, in this case, the system will be the IRC regime, which, operating either by profit or by expenses, aims at and pursues the purposes of that tax, including, evidently, the collection of revenue for the State."

In this framework, it is believed that the most correct understanding will be that the autonomous taxation in question can be configured as a "hybrid" tax, levied on the income of individuals and legal entities, and not on consumption or expenditure, as they do not exhibit the main characteristics of this form of taxation, nor does it levy on property, and fits within the problematic of income taxation with respect to which the legislator understood to act at two levels (separately or simultaneously): not accepting the deductibility of some expenses, in whole or in part, and/or taxing them autonomously.

The autonomous taxation in question in the present proceedings will also form part, moreover, of the list of specific anti-abuse norms, with apparent similarity, for example, with the provision of former Article 65(1) of the CIRC, which provided that:

"Are not deductible for purposes of determining taxable profit the amounts paid or due, on any basis, to individuals or legal entities resident outside the territory of Portugal and subject there to a clearly more favorable tax regime, except if the taxpayer can prove that such charges correspond to transactions actually carried out and do not have an abnormal character or an exaggerated amount."

In other words, in the cases to which the autonomous taxation borne by the Applicant in the present proceedings refers, the legislator could have opted for a regime similar to that established in the transcribed norm, purely and simply prohibiting the respective deductibility, or conditioning it on the same terms of that norm, or on others it deemed appropriate.

Instead, the legislator opted not to go that far, with the legal regime of IRC on the expenses in question remaining at a level below that, by allowing the deductibility of the charges in question, in exchange for the immediate payment of a portion of the taxable profit that, presently or in the future, will be affected by such deduction.

Nevertheless, the similarity of the regimes will still be undeniable, as well as the concerns and purposes that underlie them.

What has just been said is thus based on the finding that autonomous taxation, including those in question in the present proceedings, owes much of its raison d'être to the circumstance that it will be objectively unfeasible to levy comprehensive taxation on a rigorous basis, under the IRS, on the potential beneficiaries of the expenses subject to those (which would amount to a taxation of fringe benefits as conceived and applied in Australia and New Zealand). It is not ignored thus that autonomous taxation of the type that concerns us here has a dimension directed directly at the income of individuals. As they also have, indeed, a sanctionary dimension – in the sense of imposing unfavorable treatment – with respect to the type of expenses that trigger them. However, these dimensions do not empty, nor, much less, preclude, another dimension, equally (if not more) relevant, inseparably interlinked with income, in the case of legal entities.

It is understood, then, that, by means of the impositions in question, it is also aimed, at least to the same extent, to regulate the use by companies of expenses that may be necessary, in part, to pursue normal activity, but which – based on a judgment of normality – will also be for the benefit of individuals who end up enjoying them on a personal and non-professional basis. Only, not having the Tax Authority any "measuring tape" to make such separation, the legislator has been opting, for quite some time, for the introduction into the IRC Code of this portion that it already considered objectively, at the time of the present proceedings, an imposition at least similar to IRC, even if such provision is considered questionable (as well as the current wording, regarding the inclusion in IRC, of autonomous taxation in Article 23-A of the IRC Code).

It is thus recognized here those characteristics that doctrine has been pointing to autonomous taxation in question for several years now, such as:

a) autonomous taxation only makes sense because costs/expenses are relevant as negative components of IRC taxable profit. This is what motivates IRC taxpayers to report as high a value as possible of those expenses to reduce the taxable base of IRC, the tax collection and, consequently, the tax to be paid;

b) it is intended to discourage this type of expense in taxpayers that show negative results but, regardless, continue to show structures of consumption little or not at all compatible with the financial health of their companies;

c) it is, in a more general thesis, about modulating the tax system so that it reveals a certain balance in view of better distribution of the effective tax burden among taxpayers and types of income;

d) certain expenses are considered unfavorably in which, admittedly, it is not easy to determine the exact measure of the component corresponding to private consumption, and with respect to which the general practice of abuse in their reporting is known.

Although, lately, the AT has sought to add to the above list a dimension of extra-fiscal character (green fiscal policy), pointing out that "autonomous taxation also constitutes a fiscal policy instrument that acts as a disincentive to the use of light passenger vehicles or mixed vehicles, motorcycles and motor cycles powered by fossil fuels, due to the negative externalities they cause," it is not seen that this is a ground for the imposition of autonomous taxation, but rather of the exclusion of certain vehicles from its scope.

Indeed, from the outset, it was not the creation and development of the autonomous taxation in question here that was motivated by the pursuit of ecological objectives, but rather the abatement thereof with respect to some vehicles that had such motivation.

On the other hand, underlying such abatement appears to be, not so much a proscription of fossil fuels, since if that were the case all vehicles that did not use such fuels should have the same treatment, on the one hand, and all vehicles that did should equally, at least to the extent corresponding to their respective level of pollution, have the same treatment also.

Thus, the exemption of electric vehicles from autonomous taxation is framed more as a specific and ad hoc measure, even by its historical context, related to the promotion of the industry and commerce of vehicles powered by electricity, than as a structured measure for the defense of environmental quality.

Better or worse, the autonomous taxation in question here should thus be understood as a form of preventing certain abusive actions, which the "normal" functioning of the taxation system was unable to prevent, and other ways of combating such actions, including ways more burdensome for the taxpayer, were possible.

This anti-abuse character of the autonomous taxation in question here will be not only consistent with its "anti-systemic" nature (as happens with all norms of this kind), but with a presumptive nature, pointed out both by Professor Saldanha Sanches and by the case law that often cites it.

From the perspective that has just been laid out, the autonomous taxation in question will thus materially underlie a presumption of "partial" business nature of the expenses on which it levies, in light of the aforementioned circumstance that such expenses are situated on a gray line separating what is business expense, productive, from what is private expense, consumption, and, notoriously, in many cases, the expense will effectively in reality have a dual nature (part business, part personal).

Confronted with such difficulty, the legislator, instead of simply excluding its deductibility, or reversing the burden of proof of the business nature of the expenses in question (imposing, for example, the demonstration that "do not have an abnormal character or an exaggerated amount", for example, as it does in Article 88(8), and did in Article 65(1), both of the CIRC), opted to establish the regime currently in effect, which, nevertheless, has precisely the same ground, the same purpose, and the same type of result, as other forms used in other typical situations of the regime (in this case) of IRC.

Thus, from the known fact that the realization of a certain type of expenses, the legislator draws the unknown fact, which is the assessment of the degree of business affectation of the product of such expenses.

And it will be this unknown fact, presumed by the legislator, that triggers and justifies the autonomous taxation in question in the present proceedings. Indeed, it was by presuming that the expenses on which that autonomous taxation levies have, as a rule, mixed affectation, and that there is therefore an unjustified benefit in their full deduction, that the legislator began, in a first phase, by limiting the percentage of those it admitted as deductible. Subsequently, for reasons that will matter little to the case, but which will involve budgetary constraints, on the one hand, and the need to ensure the taxation of potential benefits that individuals could derive from those expenses, the legislator adopted the current model of autonomous taxation of the expenses that now concern us. But that did not exclude, rather complemented, that primitive motivation to tax, adequately, the income of legal entities, distorted by the deduction of expenses that the legislator presumes to have non-wholly business affectation. In other words: the budgetary purposes and, eventually, fringe benefits taxation, that may support the current regime of autonomous taxation that concerns us, do not exclude, rather are based on, the aforementioned presumption of "partial business nature" of the expenses on which they fall (and, complementarily, on the distortion of the taxation of income of legal entities resulting therefrom).

This understanding is not only compatible, but is a consequence of what the AT has sustained in arbitration, stating, for example, that "The reason for the existence of autonomous taxation is not found in the simple collection of more tax, but primarily aims to discourage the resort to the type of expenses it taxes, which, by their nature, are conducive to the payment of disguised income, and, ultimately, to allow recovery of some tax that ceased to be paid by the beneficiary of the income, transferring the responsibility thereof to the sphere of whoever pays that income, (…) Which gives them a clear anti-abuse nature, manifestly accessory/complementary to taxation according to the taxable capacity revealed by the income, even if only apparently to the detriment of the taxation of real income (read, on the basis of accounting), because what is intended with them is precisely to prevent abusive use of certain expenses and distribution of dividends and in fraud of norms aimed at reaching the real income of taxpayers.", being "precisely its anti-abuse function that legitimizes autonomous taxation in light of the principle of taxable capacity."

The recent case law of the Constitutional Court, already cited, has also stated that "The introduction of the autonomous taxation mechanism is justified, on the other hand, because it relates to expenses whose fiscal treatment is difficult to discern because they are in a 'zone of intersection of the private sphere and the business sphere' and is aimed at preventing and avoiding that, through those expenses, companies proceed to the hidden distribution of profits or attribute income that may not be taxed in the sphere of their respective beneficiaries, and also has the objective of combating fraud and tax evasion", having "inherent the idea of discouraging a practice which, besides affecting equality in the distribution of public burdens, may involve situations of less fiscal transparency, (…) explained by a legislative intent to encourage companies to reduce as much as possible the expenses that negatively affect tax revenue.", confirming that "the legislator therefore opted to subject the expenses to autonomous taxation as an alternative and more effective form of non-deductibility of the expense for purposes of determining taxable profit", "intending (…) to reduce, through the incidence of the tax, the tax advantage that results for companies from the realization of expenses that are deductible but do not have a business cause." and "avoid the realization of excessive and unnecessary expenses from the point of view of business interest" that "being excessive and unjustified from the point of view of business, have unfavorable effects for the obtaining of tax revenue", thus aimed at "penalizing certain types of expenses that, being excessive, are not justified by business reasons" and "compensate the adverse result which, through the reduction of taxable profit, the expense brings about for the public treasury."

The Constitutional Court thus leaves no doubt that it is intrinsic to autonomous taxation, "to encourage taxpayers to avoid the realization of excessive expenses which, unjustifiably, may affect economic results and cause a reduction in tax revenue", given a censure "from the point of view of tax" of the "realization of expenses that unnecessarily determine a reduction of taxable income" (emphasis ours).

Thus is ascertained in a manner it is believed to be clear, in constitutional case law, a plane of axiological-normative justification underlying the regime in question, directly related to the unnecessariness or unjustifiability of the expense subject to autonomous taxation, in terms of, it is believed, not being verified, beyond any reasonable doubt, that unnecessariness or unjustifiability, failing the normative ground that sustains that type of taxation.

Given the conclusion that has just been reached, that the autonomous taxation that concerns us contains a presumption that the expenses it subjects to are, partially, unnecessary or unjustifiable from the point of view of business, it is then necessary to ascertain whether such presumption is, or is not, susceptible to being rebutted.

In this regard, Article 350(2) of the Civil Code provides:

"Legal presumptions may, however, be rebutted by contrary proof, except in cases where the law prohibits it."

In coherence, Article 73 of the LGT provides:

"The presumptions established in the norms of tax incidence always admit contrary proof."

For this latter norm to apply, it is obviously necessary that there be at issue a norm of tax incidence.

Now, in this case, the norm in question will undoubtedly be an objective norm of tax incidence, as the Respondent itself, indeed, recognizes, since it provides that certain facts – the expenses with certain goods that are presumed to have mixed affectation (business and personal), as has already been seen – imply a certain tax obligation.

The Respondent, while recognizing, as has been said, that one is dealing with a norm of incidence, seeks to exclude the applicability thereof, alleging that "on the one hand, it does not contain in its wording the expression 'it is presumed,' nor, on the other, does it proceed with taxation based on fictions of income or of the taxable base."

Now, with all due respect, neither one nor the other of those arguments should proceed.

Indeed, with respect to the first, it will suffice to note that presumptions contained in norms of incidence, as a rule, do not contain the expression "it is presumed," or equivalent.

With respect to the second of the arguments presented by the Respondent, which it develops, alleging that "the charges that (…) are taxed autonomously are the 'made or borne by taxpayers,' (…) are the charges that are accountingly recorded in the accounts of the Applicant and that concurred, in the capacity of indispensable costs, to the formation of taxable profit", which is why "the norm in question did not fictionally create a certain amount to be taxed as charges for light passenger vehicles or mixed vehicles" or "fictionally created the respective taxable base", the same is only compatible, although the Respondent does not expressly assume it, with the understanding that autonomous taxation is a tax on expenditure.

Indeed, only by considering that autonomous taxation exhausts its taxing ground in the expenditure on which its respective tax fact is based, can one conclude that that is exhausted in the "charges that are accountingly recorded in the accounts of the Applicant and that concurred, in the capacity of indispensable costs, to the formation of taxable profit."

Conversely, considering that the purpose of autonomous taxation "is undoubtedly accessory to the taxation of income", that it is not "correct to affirm that autonomous taxation distances itself, either from the function and nature of IRC, or even from the determination of taxable profit," and, above all, that what is intended with them is precisely "to prevent abusive use of certain expenses and distribution of dividends and in fraud of norms aimed at reaching the real income of taxpayers", being "precisely its anti-abuse function that legitimizes autonomous taxation in light of the principle of taxable capacity", or, in summary, that autonomous taxation is still taxation on income, and not on expenditure, as was seen above, one will necessarily have to conclude that the charges that make up the tax fact are nothing other than the known fact, from which the legislator draws the unknown fact which is the income of the legal entity (in this case), legitimating the taxation, affected by the presumed partial (incomplete, unjustified, unnecessary) business nature of the charges in question.

Given the foregoing, it must be concluded that the presumption of "partial business nature" in question should, in coherence, be considered as encompassed by the possibility of rebuttal generically established in Article 350(2) of the Civil Code and Article 73 of the LGT, which appears, moreover, to be in accordance with a proportional and adequate distribution of the burden of proof, to the extent that, with autonomous taxation in question bearing on expenses of integral business nature not obviously apparent from the outset, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in the concrete case.

Having arrived here, it becomes necessary, then, to assess whether, in the concrete case, the presumption of the norm of Article 88(3)(a), with respect to the fiscal year 2011 of the CIRC in effect at the time of the tax facts, as determined above, was, or was not, rebutted.

As was established in the Arbitral Decision relating to proceedings no. 553/2016-T, "given that the essential justification of autonomous taxation provided for in numbers 3 and 4 of Article 88 is the natural difficulty of assessing the business nature of vehicle expenses taxed there, the proof that complete business nature occurred must be especially demanding, and the presumption cannot be considered rebutted when reasonable doubts remain about the exclusive affectation of vehicles to the service of companies, as it is precisely for situations of doubt that autonomous taxation is required."

In the concrete case, there are no doubts whatever about the use of the motorcycles in the exercise of the Applicant's activity, and it can even be considered a notorious fact, of general knowledge.

It would then remain to verify whether, in fact, as was expounded above, that use of the motorcycles in the exercise of the Applicant's activity is demonstrated, beyond any reasonable doubt, as occurring in a context exclusively of business, with no margin for its employees, corporate officers or partners to derive benefits from their availability for personal purposes.

Such doubts cannot be dispelled by the mere presentation of internal regulations and provision of means of control abstractly adequate to detect infractions to its rules potentially adequate.

In light of the facts given as proven, it must be considered that, in this case, that is not what occurs.

Indeed, as results from the matters of fact given as proven, the evidence produced does not allow one to conclude that the vehicles were not used for purposes unrelated to the Applicant's activity. It was the Applicant's burden, in accordance with the rules of burden of proof, to make such demonstration. Having failed to do so, the failure to meet that burden reverts against the party on whom this latter burden devolved, namely against the Applicant, and such fact cannot be declared as proven. In truth, it was only proven that the Applicant created internal rules for use and provided means of control with the objective of preventing the use of vehicles in the personal interest of its employees, but no convincing evidence was produced about the efficiency or otherwise of the practical implementation of those rules. The circumstance that it involves modified vehicles does not by itself exclude the possibility of abusive use.

In reality, the mere presentation of internal regulations and the provision of means of control abstractly adequate to detect infractions to its rules does not amount to the actual demonstration that such rules were complied with, that is, does not correspond to proof of the efficiency of the practical implementation of those rules.

In this context, even if it is admitted that the existence of those use regulations and the provision of means of control could, to an undetermined extent, dissuade uses of motorcycles for private purposes, it cannot fail to be concluded that they did not dispel, with the certainty required of a judicial decision, the doubts that legislatively justify those autonomous taxation.

In summary, it cannot be concluded that the situations in question distance themselves from the "gray line that separates what is business expense, productive, from what is private expense, consumption" and, being thus, the application of the legislative presumption of partial business nature of the charges in question is maintained.

In such terms, the presumption of Article 88(3)(a) (regarding the fiscal year 2011) of the CIRC in effect at the time of the tax facts must be considered not rebutted, which is why, demonstrating that the motorcycles to which the expenses on which the autonomous taxation in question in the present arbitration proceedings was levied do not have 100% business affectation, the corresponding expenses should be subject to such taxation.

Given the foregoing, the present arbitration should be judged unfounded and, consequently, the assessment that is the subject of the present proceedings should be maintained.

Thus rendered moot is the Applicant's request for the AT to be condemned to pay compensatory interest on the amount paid by it following notification of the assessment now under review.

C. DECISION

In such terms, it is decided in this Arbitral Court:

a. To dismiss the exception of untimeliness raised by the respondent entity;

b. To judge unfounded the request for arbitral pronouncement and, in consequence, to maintain the acts of assessment of Corporate Income Tax ("IRC") no. 2015…, no. 2015… and no. 2015…, relating to the fiscal years 2011, 2012 and 2013, in the part corresponding to autonomous taxation on vehicle expenses, which is the object thereof, in the amount of € 404,732.88, as well as the act of decision of the gracious complaint that bore on the same.

D. Value of proceedings

The value of the proceedings is set at € 404,732.88, in accordance with Article 97-A(1)(a) of the Code of Procedure and Tax Process, applicable by force of Article 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

Let it be notified.

Lisbon 28 June 2017

The Arbitrator President,

(Fernanda Maçãs), with the following statement:

I vote for the decision but do not concur with the reasoning as to the nature of autonomous taxation, maintaining the position defended in previous arbitral decisions.

The Arbitrator Vogal

(José Pedro Carvalho, dissenting as per attached statement of vote)

The Arbitrator Vogal

(Manuela Roseiro, with attached statement of vote)

Statement of Vote

I concur with the present Decision insofar as it concluded in favor of the unfoundedness of the Request for arbitral pronouncement and the legality of the challenged assessment. I must, however, note that I maintain the interpretation defended in previous statements of vote in proceedings with identical subject matter (nos. 628/2014-T and 553/2016-T), as to the characterization of the norms relating to autonomous taxation provided for in the IRC Code and their articulation with Article 73 of the LGT.

Basing my reasoning now very briefly, I reiterate the interpretation that Article 88 of the CIRC does not contain a rebuttable presumption, through application of Article 73 of the LGT. Rather, it is a norm that, although having underlying it a presumptive judgment of the difficulty of rigorous monitoring of the nature and quantity of taxable income, opts to typify situations of application of autonomous taxation, which constitute, in practice, a reduction of the amount of costs deductible in determining the taxable base in IRC. For the reasons identified in the present decision, I consider such typification appropriate to the realization of objectives pursued by the legislator in income taxation, namely to prevent erosion of the taxable base in IRC in the situations in question.

In summary, I conclude that the legislator uses a legislative technique similar to that expressed in other tax norms and compatible with the difficulty of ensuring administrative oversight of the situations encompassed by them.

Manuela Roseiro

Statement of Vote

I do not concur with the decision that prevailed, with the exception of the reasoning relating to the nature of autonomous taxation, understanding that, similarly to what occurred in arbitral proceedings 628/2014-T, the request formulated by the Applicant should proceed in full.

Thus, and regarding the matters of fact, considering in particular:

• the lack of specific denial, assessed, in accordance with Article 110(7) of the CPPT, in light of common experience of things, which includes the public notoriety of the Applicant's activity and the manner in which it exercises it;

• the content of the Applicant's Internal Procedures Manual regarding the use of motorcycles, which, despite being internal, was not questioned as to its authenticity and application, and, as such, it is normal that the use of motorcycles occurs in accordance with what is prescribed there;

• the notorious fact that the motorcycles used by B… are modified and adapted vehicles for the proper purpose of that activity, containing a proper box intended for the transport of pizzas, characterized with the brand insignia, and which reduces transport capacity to one person

the following facts, alleged by the Applicant, should have been established as proven:

a) The aforementioned motorcycles are used solely for the delivery of food products and only during B…'s operating hours, and their use on a personal basis by employees is not permitted;

b) The Internal Procedures Manual for the use of B…'s motorcycles provides that the use of motorcycles by the Applicant's employees is limited, solely and exclusively, to the exercise of their activity, expressly stating that the motorcycles "are intended for carrying out home deliveries";

c) In the price charged by B… to customers for the products is already reflected the increase in charges borne by it by virtue of home deliveries, and the amount corresponding to the delivery service is not expressly itemized in the invoices it issues and the home delivery service is not available for orders of products below a certain value in the price charged by B… to customers for the products is already reflected the increase in charges borne by it by virtue of home deliveries, and the amount corresponding to the delivery service is not expressly itemized in the invoices it issues and the home delivery service is not available for orders of products below a certain value.

As regards the law, the questions that arise in the present proceedings are, saving better opinion, to know, first, whether the norm on which the autonomous taxation that the Applicant contests is based has underlying it a presumption, if, in the affirmative case, it will be legally possible to rebut such presumption, and, finally, if, in the concrete case, the Applicant succeeded in doing so.

The prevailing decision answers affirmatively to the first two questions and negatively to the second.

The autonomous taxation whose charge the Applicant seeks to have excluded from its taxable profit could be regarded as a species of consensual anti-abuse norm, in which the legislator proposes to the taxpayer that it deduct the expense under general terms, accepting the percentage of business nature established on a forfeit basis, embodied in the payment of autonomous taxation, as compensation for the erosion of the taxable base resulting from an expense that the normality of things reveals will not have, as a rule, exclusively business affectation, without prejudice to, by force of the general norms applicable to presumptions, analyzed above, as well as of the principles proper to tax law, including, as the Respondent itself recognizes, the "principle of the economic substance of tax facts, which requires that taxation, whenever possible, be based on the economic reality underlying the tax facts", the taxpayer being able to prove, in the concrete case, the actual full business nature of the expense, and, consequently, deduct it in full, not bearing the autonomous taxation, with the case that autonomous taxation bears exclusively on deductible charges, excluding, therefore, non-deductible ones, the taxpayer may still, not deduct the expenses subject to such taxation, if deductible, with the autonomous taxation referred to (on deductible charges) not being verified.

It should be noted here, also in light of any confusion that may arise, that the integral business nature spoken of here does not identify with the business nature to which Article 23 of the CIRC refers. Rather, the fulfillment of the requirements of Article 23 of the CIRC, with respect to the expenses in question, are a prerequisite for the deductibility of the expense and, in the case in which autonomous taxation bears on deductible charges, of autonomous taxation itself.

Indeed, and for example, in requiring in the provision of Article 88(3)(a) of the CIRC in effect in the fiscal year 2011, that be deductible "the charges (…) relating to representation expenses and those related to light passenger vehicles or mixed vehicles, motorcycles or motor cycles" to subject them to autonomous taxation, naturally the legislator is referring to the general criterion of Article 23 of the CIRC, as a requirement for the operation of the autonomous taxation in question, not being able, it is believed, under pain of violating, moreover, the principle of specificity of tax law, for such autonomous taxation to bear on non-deductible charges, which, moreover, is consistent with the proper nature of that, which, as is consensually recognized, drinks one of its principal grounds in the need for, in the words of the Constitutional Court, cited in the decision, to eliminate "the tax advantage that results for companies from the realization of expenses that are deductible but do not have a business cause," or, in the words of the Respondent in the proceedings, to avoid the "erosion of the taxable base under IRC", an advantage and erosion that are not consumed, in the case of non-deductible expenses.

Hence, from the outset, the "business nature" (partial) presumed by the autonomous taxation in question is special, in relation to the business nature of Article 23, which they presuppose.

Put another way, and making explicit the normative articulation between the regimes in question, in general and as a rule, the fulfillment of the criteria of Article 23 of the CIRC confer on the taxpayer the right to fully deduct from taxable profit the expenses corresponding.

However, with respect to the expenses subject to autonomous taxation, in question here, such right is burdened with the obligation to bear with the corresponding autonomous taxation, fundamentally because the legislator, as was seen above, understands that, within the framework of normality, which also underlies the regime of Article 23 of the CIRC, such expenses are clothed with special characteristics, which indicate non-integral business nature, in contrast to what happens with the generality of expenses that meet the requirements of the said Article 23 of the CIRC, in terms of not justifying as a rule their non-deductibility, as it is conceded that a greater or lesser part, always on the plane of the normality of things where the legislator positions itself, of the expense will, in fact, be business necessary, but also in terms of not justifying, for the reasons already seen above, that the deduction of the expense affects tax revenue in the terms resulting from the deduction under the said Article 23, without the intervention of autonomous taxation.

Thus, in order to justify the non-incidence of autonomous taxation on the expenses in question, the taxpayer must demonstrate, beyond any reasonable doubt, that, in the concrete case, the expenses of the kind in question, which it seeks to deduct in full without subjecting to autonomous taxation, had exclusively business affectation.

Hence the proof to be carried out, in order to infirm the presumption of partial business nature in question, is distinct from the proof underlying the general regime of Article 23 of the CIRC, and the abundant case law and doctrine produced in this regard are not applicable, requiring the demonstration, beyond any reasonable doubt, not merely of the relationship of the expenses to the activity pursued by the taxpayer, which, moreover, it presupposes, but that, as has been said, in the concrete case, the expenses in question had exclusively business affectation, without, on the plane of the normality of the functioning of the company, detecting any margin of the designated gray zone of business expense, productive, and private expense, consumption, and any doubt must be resolved to the disadvantage of the taxpayer, by force of the proper functioning of the rules of burden of proof.

Thus do not proceed, in this manner, in what is believed, the considerations presented by the Respondent in its Response, according to which we would be before "a manifest redundancy, since it would require it to a double burden of proof, under the aegis of the same tax code, under the same tax", because "beyond having taxpayers to prove the indispensability of the costs concurring to the formation of taxable profit", they have "equally to prove the business nature of the expenses subject to taxation, under the provisions of Article 88 of the CIRC", which is why "it would be legitimate to attempt, then, two (absurd) conclusions, alternative to each other: The first, that, under the terms and for the effects of Article 23 of the CIRC, whenever taxpayers proved the indispensability of a cost, by turn subject to autonomous taxation, they would be automatically excluded from the taxation of Article 88 of the CIRC, because business nature already rested on indispensability; The second, that, whenever taxpayers failed to prove the business nature of an expense – previously accepted as a fiscal cost for purposes of determining taxable profit –, would see the aforementioned cost be corrected and increased to Q07 of their Model 22, because if an expense is not considered as pursuing business ends, the said cost cannot, under pain of incoherence, be considered indispensable to its producing source."

Moreover, the concept "full business nature", object of the proof necessary to the rebuttal of the presumption in question, and the correlative concept of "partial business nature" (or non-integral), underlying it, are not exclusive to the matter that concerns us, and preexist, even, to the creation of autonomous taxation.

Indeed, the VAT Code, since its entry into force, in the year 1986, and in its current Article 23, provides for exclusions of the right to deduction that rest, knowingly, on a judgment of analogous affectation "not strictly professional" of the expenses whose deduction is excluded.

That provision, as could not be otherwise, given the known EU matrix of VAT, has correspondence in Article 176 of Directive 2006/112/EC of the Council (which reformulated the Sixth Directive), which provides that:

"The Council, acting unanimously on a proposal from the Commission, shall determine which expenses do not confer the right to deduct VAT. In any case, excluded from the right to deduction are expenses that do not have a strictly professional nature, such as sumptuary, recreational or representation expenses. Until the entry into force of the provisions referred to in the first paragraph, the Member States may maintain all the exclusions provided for in their respective national legislation on 1 January 1979 or, as regards Member States that acceded to the Community after that date, on the date of their accession."

That provision succeeded Article 17(6) of the Sixth Directive, in force when Portugal acceded to the EC, which prescribed that:

"At the latest before the expiry of the period of four years from the date of entry into force of this directive, the Council, acting unanimously on a proposal from the Commission, shall determine which expenses do not confer the right to deduct value added tax. In any case, excluded from the right to deduction are expenses that do not have a strictly professional nature, such as sumptuary, recreational or representation expenses. Until the entry into force of the provisions referred to above, Member States may maintain all the exclusions provided for in their respective national legislation at the time of entry into force of this directive."

The fact that, despite the provisions of this latter norm, the Council decision referred to therein was not approved, more than 30 years later, well accounts for the delicacy and sensitivity of the question.

Indeed, and as detailed by Clotilde Celorico Palma and Maria Odete Oliveira and João Seixas Cambão, despite various attempts over the years, it was never possible to achieve the necessary unanimity of the Member States with respect to the matter in question.

That is to say, being consensual the existence, within the scope of business activities, of expenses, in this case subject to VAT, that do not have "strictly professional" affectation, the adequate form and measure of the framing of such expenses within the scope of the VAT system has still not been found. And, if such insurmountable divergences are verified among States, which necessarily share the same side of the legal tax relationship, one will easily understand the extent and scope of the dissatisfaction that taxpayers, on the opposite side of the same, will manifest on such a matter and, correlatively, on the matter that now concerns us, whose axiological-normative ground, it is believed, is undoubtedly essentially the same.

Now, as has become gradually evident given the case law of the Court of Justice of the European Union regarding the essentiality of the principle of neutrality under VAT, it will inevitably be concluded, given the Council's inertia in approving the regulation of exclusions from the right to deduction provided for in Article 176 of Directive 2006/112/EC, and notwithstanding the existence of old case law of the Court of Justice in the opposite sense, that, once the strictly business character of the expenses is demonstrated, the same should be deductible (if that already results from the reaffirmed need for restrictive interpretation of exclusions from the right to deduction), such demonstration being, as in the matter now in question, necessarily distinct from the demonstration necessary to the exercise of the right to deduction under general terms.

The recognition of the presumptive nature of the autonomous taxation in question in the proceedings, in the terms exposed above, will be, beyond everything else, it is believed, a safeguard of its constitutionality, to the extent that it will be guaranteed both the possibility of its full deduction by the taxpayer, and its non-deduction, depending on whether the presumption underlying them is, concretely and in each case, infirmed, thus duly ensuring the conformity of the legal regime in question with the principles of tax equality and taxable capacity, which would be unnecessarily (and, occasionally, as is the case, disproportionately) truncated by the establishment of a non-rebuttable presumption of the partiality of the business affectation of the expenses in question.

Indeed, and ultimately, the question of the possibility, or otherwise, of rebutting the presumption of partial business nature on which the autonomous taxation that now concerns us rests, is reduced to the answer to a more prosaic and evident question, which is to know whether there exists, and what is, the material ground, inherent in a reasonable legislator, for a taxpayer who, by virtue of its concrete activity has an inescapable need to use a certain type of vehicle, in this case, even, specially modified and adapted to such activity, and that has implemented a system, within the framework of its business organization, that excludes, from the point of view of the regularity and legality of its functioning, the private (non-business) use of said vehicles, to be burdened with autonomous taxation, with the characteristics, nature and grounds of that which now concerns us.

The absence of such ground, and the imposition, in those circumstances, of a taxation that, not being, ultimately, a tax on expenditure or property, is reduced, therefore, and in some way, to a tax on income in which it is inserted, could not, it is believed, fail to result in a deficit of constitutionality, not only in light of the aforementioned principles of tax equality and taxable capacity, but also in light of the principles relating to freedom of economic initiative, competition, and even property, to the extent that, without any acceptable justification, certain economic activities would be burdened with an additional fiscal charge, which cannot be exercised in another manner, thereby prejudicing its free development, considerations that were doubtless not foreign to the AT's binding information of 14-09-2006, issued in proceedings 2879/2005, where it was considered that it was intended to exclude from the scope of application of the (then) Article 81(3) of the CIRC vehicles used in the exercise of the taxpayer's normal activity (in the case of that information, vehicles used by hotel units in transfers) and which, despite the sparse reasoning and the different historical context, does not fail to evidence some sensitivity on the part of the AT to what has just been said, all the more so because, to date, the information in question has not been revoked.

Essentially, the prevailing decision ends up resting on the understanding that the Applicant did not furnish conclusive proof that the vehicles to which the autonomous taxation questioned bore had strictly business use, a conclusion that is not subscribed to.

Indeed, motorcycles are, in general, a means of transport that is not used in commercial or industrial activity, as it is more profitable for a worker to drive a vehicle with greater transport capacity.

But, in the case at hand, the use of the motorcycles is perfectly explained as being the "vehicles that best adapt to its activity and that most effectively allow it to increase the number of deliveries, through their speed of movement, and in turn increase the taxable profit generated by the increase in sales."

Notoriously, there is no other way to deliver hot pizzas to customers' homes (especially during peak traffic hours) and the delivery of pizzas under those conditions is obviously essential to the business, as, moreover, the Applicant's accounting, which is not challenged by the AT, evidences. On the other hand, it is equally notoriously known that motorcycles are vehicles more economical in terms of acquisition cost, fuel consumption and maintenance.

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