IRC Autonomous Taxation, SIFIDE Tax Credit & Double Taxation Deduction – CAAD Case 433/2017-T

ARBITRATION DECISION

The arbitrators Adm. Councillor Jorge Lopes de Sousa (arbitrator-president), Dr. A. Sérgio de Matos and Dr. Raquel Franco (arbitrator members) appointed by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 26-09-2017, agree as follows:

1. REPORT

A… SGPS, S.A., a company with single registration and legal entity number …, with headquarters at "…", …, no. …, …, in Sintra (…-…) (hereinafter referred to as the Claimant) came, pursuant to the provisions of articles 2, no. 1, paragraph a), 5, no. 3, paragraph a), 6, no. 2, 10, no. 1, paragraph a) and no. 2, all of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Tribunal, with a view to the declaration of illegality of the tax act of self-assessment of Corporate Income Tax ("IRC"), relating to the year 2014, as well as the tacit dismissal of the administrative appeal filed against the aforementioned tax act of self-assessment.

The Claimant further requests reimbursement of the tax paid unduly, plus the respective compensatory interest.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 18-07-2017.

On 02-08-2017, the Claimant was notified of the final decision dismissing the administrative appeal and, on 25-08-2017, filed a "request for extension of the scope of the arbitral request, requesting that the annulment of the express decision dismissing the administrative appeal filed against the IRC tax act of 2014 be included therein, since that express dismissal decision maintained the tax act which is the subject matter of the present arbitral request, and the defects and grounds for illegality of the said tax act invoked by the Claimant remained, equally, without any alterations whatsoever".

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.

On 05-09-2017 the parties were duly notified of this appointment, and neither party manifested the intention to refuse the appointment of the arbitrators, pursuant to the combined terms of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the requirements of paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 26-09-2017.

The Tax and Customs Authority was notified to respond by electronic mail message sent on 26-09-2017, to five addresses of the representatives, including with notification to the two Legal Advisors Appointed by the Director-General of Tax and Customs Administration and did not file a Response within the legal period.

By dispatch of 13-11-2017 the meeting provided for in article 18 of the RJAT was waived.

On 21-11-2017, the Tax and Customs Authority came to request that a new notification of the deadline to contest be effected and stated that it did not waive the meeting provided for in article 18 nor the arguments, preferably in writing.

By dispatch of 29-11-2017, the request for new notification to contest was dismissed and a date was set for a meeting, for the purpose of oral arguments being presented.

Having the Taxpayer also opted for written arguments, the meeting was cancelled and the parties were notified for written arguments.

The Parties filed arguments.

Following Law no. 114/2017, of 29 December, having given new wording to no. 21 of article 88 of the CIRC, to which interpretative nature was attributed, by its article 233, the Parties were notified to pronounce themselves "on the issues that may arise concerning the possible application of this rule to the situation which is the subject matter of the present proceedings, including, in addition to others that the Parties deem relevant, on the issues of constitutionality that may be raised in light of the rules on the retroactivity of taxes and on the scope and consequences of the expression 'even if those deductions result from special legislation', added to the previous wording".

Only the Claimant pronounced itself.

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

The Parties are duly represented and have legal standing and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case is free from defects of nullity.

2. FINDINGS OF FACT

2.1. Facts Proved

The following facts are considered proved:

• The Claimant is a company governed by Portuguese law which was covered in the 2012 financial year by the general scheme of taxation under IRC;

• The Claimant is currently, and was also on 31-12-2014, the parent company of the group of entities that comprised the RETGS, which included the following subsidiary companies within the meaning of article 69 of the CIRC:

  – B…, S.A., NIPC …;
  – C…, S.A., NIPC …;
  – D…, S.A., NIPC …;
  – E…, Lda., NIPC …;
  – F…, S.A., NIPC …;
  – G…, S.A., NIPC … (document no. 2 attached with the request for arbitral pronouncement, the content of which is hereby reproduced);

• On 27-05-2015, the Claimant proceeded with the delivery of the Consolidated IRC Income Return Model 22 Declaration, with identification number …-… -…, and subsequently, on 07-03-2016, proceeded with the delivery of the last Income Return Model 22 Declaration, Replacement with identification number …-… -… (documents nos. 4 and 5 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);

• Subsequently, the Tax and Customs Authority issued the IRC settlement statement no. 2016…, dated 06-02-2017, in which a self-assessment amount of € 816,344.10 was considered and the amount to be reimbursed of € 7,068.91 (document no. 6 attached with the request for arbitral pronouncement, the content of which is hereby reproduced);

• In the aforementioned Income Return Declaration of the Claimant which appears in document no. 5, it states that the Claimant determined a group's fiscal result of € 11,595,284.77, as well as a total amount of Autonomous Taxation that amounts to € 1,112,984.01;

• The Claimant determined, in the 2014 tax period, a total amount of € 2,717,419.46, corresponding to various items, of which:

  – € 95,226.65, correspond to the amount determined under the tax benefit SIFIDE, relating to investments made in the years 2009 to 2011 (certificates from the Certifying Commission that appear in the administrative file);

  – € 2,456,859.55, correspond to the Credit for International Double Taxation determined in the period in question;

  – € 165,333.26, correspond to the amount paid by the Claimant under Special Payment on Account, of which € 161,832.66 relate to payments made in the 2013 financial year and € 3,500.60 relate to payments made in the 2014 financial year (document no. 7 attached on 11-01-2018 and documents that appear in the administrative file presented with the administrative appeal);

• On 23-12-2016, the Claimant filed an administrative appeal against the self-assessment, in which it requested the following:

  – The deduction of the amount relating to the SIFIDE tax benefit, for the 2014 tax period, from the autonomous taxation assessment, and up to its concurrence, in the amount of € 95,226.65;

  – The deduction of the amount relating to the double taxation credit determined in 2014, from the autonomous taxation assessment, and up to its concurrence, in the amount of € 2,456,859.55;

  – The deduction of the amount as Special Payment on Account for the 2014 tax period, from the autonomous taxation assessment, and up to its concurrence, in the amount of € 165,333.26;

  – the full reimbursement of the autonomous taxation determined in the amount of € 1,112,984.01;

  – compensatory interest due, pursuant to article 100 of the General Tax Law (document no. 1 attached with the request for arbitral pronouncement, the content of which is hereby reproduced and administrative file);

• In the administrative appeal procedure, Report no. …-AIR1/2017 was prepared, which appears in the administrative file, the content of which is hereby reproduced, in which the following is stated, among other matters:

§ IV.I.I. Deduction of the SIFIDE tax benefit from autonomous taxation assessment

§ IV.I.I.I. Arguments of the Appellant

1. The Appellant begins by discoursing on the nature of autonomous taxation, considering that this represents an anti-abuse measure, aimed at "discouraging the adoption of certain conduct by taxpayers".

2. It also considers that the autonomous taxation assessment constitutes IRC and therefore it becomes possible to carry out the settlement procedure pursuant to article 90 of the CIRC, which allows making the deductions mentioned in no. 2 of this rule.

3. It also states that, as shown in table "07", of Annex "D", of its income return "Model 22", under the heading of SIFIDE, it had € 95,226.65 (ninety-five thousand, two hundred and twenty-six euros and sixty-five cents) coming from prior years and which had not yet expired.

Thus,

1. It seeks to have such amount deducted from the autonomous taxation assessment since, with respect to IRC, there was no assessment susceptible to benefiting from the deduction of that benefit.

§ IV.III.II. Assessment

1. The issue to be decided here is whether deductions of amounts relating to tax benefits, particularly relating to SIFIDE, corresponding to € 95,226.65 (ninety-five thousand, two hundred and twenty-six euros and sixty-five cents), can be made to the autonomous taxation assessment or not.

2. The validation of the amount in question will only be necessary if it is admitted that the deduction requested by the Appellant is possible. And it is not.

Let us explain:

1. We begin by saying, settling the matter completely, that, on this ground, article 133 of Law no. 7-A/2016, of 30 March, amended the wording of article 88 of the CIRC, clarifying that no deductions are made to the autonomous taxation assessment.

2. In case any uncertainties remain about the interpretative nature of this rule, see what a recent decision of the Administrative Arbitration Center (CAAD) of 19 November 2016, issued in the course of case no. 174/2016-T, provides:

"Conceding that one is, without doubt, in a border situation, one would tend to grant the rule in question the character that the law itself which creates it expressly confers on it.

Indeed, and as the Appellant itself recognizes, following the doctrine of the illustrious Master Prof. Dr. Baptista Machado, for a law to be interpretative it is necessary that:

a. there is a controversial or uncertain issue in the law in force;

b. that the legislator has enshrined an interpretative solution that resolves the uncertainty that the interpreter or judge would reach based on the normative provision prior to the legislative amendment."

Now, contrary to the Appellant, the application made of these principles goes, precisely, in the direction that the Law in question is, in fact, of an interpretative nature."

1. If there were any doubts, these are then peremptorily clarified in the sense that no deduction can be promoted in accordance with the terms to which the Appellant alludes.

2. The Appellant therefore has no reason whatsoever.

Without prejudice,

1. We begin by determining the nature of autonomous taxation since the Appellant argues that this is an integral part of the tax assessment relating to corporate income (IRC), and is therefore susceptible to the deduction of tax benefits in accordance with article 90 of the CIRC.

2. Public taxes are traditionally divided into three categories: taxes, fees and contributions, the former being characterized from the outset by their unilateral nature, serving the purpose of revenue collection.

3. It is admitted that they may also serve purposes of social ordering and behavioral guidance, albeit indirectly, as is the case with autonomous taxation since it is required without any consideration.

4. By bearing on facts that assume the nature of "expenditure" and not of "income", it reveals a certain independence in substance in relation to the income tax (in the strict sense), being, moreover, determined autonomously, it matters little whether or not it presents taxable income at the end of the period, except insofar as it relates to the increase in the rate in situations where expenses are incurred.

5. With this typology, markedly anti-abuse and intentionally aimed at combating tax fraud and evasion anchored in the principle of ability to pay (by connection with the principle of taxation of real business profits), the tax legislator sought to promote, as much as possible, the reduction in the use of those expenses that negatively affect the assessment and, consequently, the tax revenue in the context of income taxes.

6. In contrast to what occurs at the level of the intrinsic nature of IRC, autonomous taxation of expenses and charges is nothing more than an instrumental and ancillary reality to the obtaining of the result of that income tax, in the just measure in which it was in function (and protection) of the same that the conception of autonomous taxation was given rise to and in which, accounts settled, its own raison d'être is rooted.

7. And this is confirmed by the aforementioned CAAD decision by saying that:

"Indeed, and as one had the opportunity to write elsewhere, "the complexity generated by successive amendments to the CIRC architecture led (...) to an atypical normative structure, in which one can discern a core corresponding to what might be called IRC tout court (or in the strict sense), which the Appellant intends to exhaust everything that is designated as IRC, and a periphery that integrates "marginal" regulations, largely withdrawn from the logic, nature and principles of IRC tout court, but which, nevertheless, still fall within the "gravitational field" of the latter."

Continuing,

1. Autonomous taxation seeks its objective incidence in expenses and charges and not in income (of the entity burdened), thereby distancing itself from IRC in the strict sense, although it is instrumental and universally linked to this for purposes of an operational and functional character.

2. As a revealing feature of this nuance, we emphasize the legislative change effected in the current paragraph a) of no. 1 of current article 23-A of the CIRC, where, reinforcing the position defended here, the expression "including autonomous taxation" was added, which is equivalent to saying in other words that, on the one hand, autonomous taxation is part of the main tax in the broad sense, but, on the other, is distinct from it in the strict sense.

3. Another example: in article 12 of the same code, the relationship of "operationality" and "functionality" between income taxation and autonomous taxation of certain expenses or charges is immediately highlighted, without prejudice to reiterating the distance between these same figures.

In these terms,

1. As results from the express terms in its own initial petition, the Appellant partially contests the tax act of "settlement" and, in consequence, then requests that the amounts that belong to it as "credit" for tax purposes by virtue of the utilization of the tax benefit relating to SIFIDE be in turn deducted from the assessment that is then determined and calculated by means of autonomous taxation of certain specific expenses and charges.

Now,

1. Precisely because it is our understanding that the assessment calculated under autonomous taxation cannot - nor should - be confused with the assessment that results in the strict scope of IRC, the argument of the Appellant cannot be sustainable.

2. With regard to autonomous taxation provided for in article 88 of the CIRC, it is easily seen that this is calculated in a distinct and autonomous manner, in light of the processing of IRC in the strict sense, under the provision of article 90 of the same code, the latter being inherent to the core of strict income taxation and not to the taxation of certain expenses as occurs in the realm of autonomous taxation.

3. It is in this direction that a recent CAAD decision converges:

"Thus, and concluding here, one cannot, it is believed, in the wake of the solution to be obtained for the issue to be decided, overlook that, notwithstanding the fact that they do indeed converge in the form of settlement regulated in articles 89 and 90/1 of the applicable CIRC, autonomous taxation and IRC stricto sensu (or traditional) stem, upstream, from profoundly distinct geographies, a fact that cannot fail to be duly weighed and taken into account in the solutions to be found downstream, namely, and for what matters to the case, with respect to the reading to be made of the rule of article 90/2 of the said Code."

1. Although both are inserted in the determination at the broader scope of business taxation, they constitute manifestly distinct and individualized procedures, since one concerns the strict IRC assessment, and the other the assessment calculated under autonomous taxation.

2. One cannot overlook the spirit that presided over the establishment of autonomous taxation and tax benefits, distinct realities with immediate and mediate interests equally disparate to the point of preventing their respective convergence, especially as far as concerns the deduction from the former of the amount relating to these latter.

For this reason,

1. Weighing the interests at issue, the claim formulated by the Appellant does not merit being upheld, since the exercise of the right to the benefit is not absolute, for it is itself subject to limits, including substantive ones, as we shall better demonstrate below.

2. The so-called SIFIDE tax benefit allows companies to obtain a benefit under corporate income tax, and is promoted in relation to expenditure on investments in assets used in the business.

3. This benefit is embodied in a tax credit susceptible of being utilized for purposes of deduction of that value from the (strict) IRC assessment (or from other realities whose taxation also starts from taxable profit), without prejudice to that amount, in case of insufficiency of assessment, being "carried forward" to subsequent financial years.

4. In light of the SIFIDE scheme, it is easy to discern that the amounts resulting from that tax benefit are susceptible of being deducted from the amounts determined pursuant to article 90 of the CIRC, and up to its concurrence, always in the "settlement" relating to the tax period in which the accounting recognition of the expenses covered by the benefit is included.

5. That is, for purposes and effects of said benefit, the deduction is made to the amount calculated in those precise terms, that is, to the strict IRC assessment connected to taxable profit and determined pursuant to article 90, and not to the assessment that results from realities autonomously taxed pursuant to article 88, whose calculation procedures are, reiterate, distinct.

6. The tax legislator considered them as autonomous and distinct when, in SIFIDE, restricted to the scope of income, only referred to the provisions of article 90, that is, to the calculation specifically within the scope of IRC stricto sensu and to other figures whose starting point is taxable profit and that reveal the same identity at the level of the active subject of the tax legal relationship.

7. According to established case law, the autonomy of this reality is essentially connected to the facts on which it bears and to the specificities of its calculation, but no longer, legally, in relation to the remaining portions of IRC, since in this view autonomous taxation is still IRC in its broadest conception.

8. In turn, no. 2 of article 90 of the CIRC prescribes the procedure for settling the tax, exhaustively and in order enumerating all deductions allowed to the assessment calculated pursuant to no. 1 of the same rule, and this settlement is that which is based on the taxable matter defined pursuant to the SIFIDE scheme.

9. The assessment to which this rule refers when the settlement is to be made by the taxpayer is calculated on the basis of the taxable matter contained in that settlement, the credit in which SIFIDE is translated being deducted only from the assessment based on the taxable matter.

10. Indeed, the IRC assessment is - and in contrast to that of autonomous taxation - dependent on obtaining a positive result by the company, and results from the application of the applicable rate thereto, so that it is not foreseen, at any moment, to take into account autonomous taxation which, as the very name indicates, is autonomous, that is, independent of the result obtained by the company and always due in its entirety, since the Code does not provide for any deductions thereto.

11. Therefore, by this reasoning we understand that the values that result from those benefits cannot in any way serve as a deduction from the assessment that results from the spectrum of autonomous taxation listed in article 88, since, for these purposes, the assessment calculated under article 90 is not equivalent to the assessment that in turn results from the aggregate of realities under the yoke of autonomous taxation.

12. Accordingly, to allow the value calculated in the assessment under autonomous taxation to benefit from the effect of "deduction" of the amounts relating to the tax credit that results from SIFIDE would lead to a direct confrontation with its immediate purpose, namely the discouragement of the acquisition and use of certain consumer goods or mixed-use services.

13. Moreover, by not being inscribed in the strict column of the specific income taxation, but in the opposite view (that of expenditure), autonomous taxation and its respective assessment do not benefit from tax benefits whose emphasis is seen at the level of income and not at that of expenditure, as occurs in the well-known cases relating to tax benefits such as the one in question.

14. It lacks absolute reasonableness to admit, in those terms, any deduction to the assessment that results from autonomous taxation, when the law itself also does not allow that the value thereof can be deducted from the taxable profit of the period.

15. Accordingly, it would be a paradox to promote the emptying of the autonomous taxation assessment by virtue of its reduction by utilization of amounts granted for reasons and interests that ab initio clash with the purposes of establishing the first, benefiting fiscally precisely those whom the legislator intended to "penalize" by means of a (secondary) mechanism that taxes expenditure, eliminating or reducing indirectly any tax advantage that is in the strict scope of income taxation and, consequently, in the respective assessment and final revenue under pain of "circumvention of the law".

16. More serious, it would be to accept fiscally that deduction when, pursuant to the law, the legislator itself took care to emphasize precautions as to the coexistence between tax benefits and the occurrence of certain expenses and charges, as occurred, for example, in no. 2 of said article 88 of the CIRC.

17. Also in line with other arbitral case law, it was considered that "(...) it would not be reasonable, indeed contrary to the reason that led the legislator to autonomously tax those expenses that, through their deduction from taxable profit as expenses, the foundation of the existence of autonomous taxation would be eliminated" having been "(...) as certain that autonomous taxation does not constitute IRC in the strict sense but is interwoven with it, and should be contained in the "other taxes" of which we are informed by the final part of paragraph a) of no. 1 of article 45 of the CIRC".

18. It is likewise understood that "(...) inasmuch as autonomous taxation aims to reduce the tax advantage achieved by deduction from taxable profit of the costs on which it bears and also to combat tax evasion which this type of expenditure, by its nature, potential, cannot itself through its deduction from taxable profit as a cost of the period constitute a factor in reducing that reduction in advantage intended and determined by the legislator."

19. More: "(...) autonomous taxation, which bears on charges deductible for purposes and effects of determining the IRC taxable base, are part of the scheme and are due under this tax, with expenses for the payment of such taxation not constituting deductible charges for purposes of determining taxable profit.

20. All the more so since, recall, being autonomous taxation an exceptional scheme in the constitutional legal framework of income taxation increase and real income, the scheme should be subject to restrictive interpretation, for it would be contrary to the spirit of the system to allow that, by virtue of the deductions referred to in no. 2 of the cited article 90, autonomous taxation be stripped of that anti-abuse character that presided over its implementation within the IRC system itself.

21. It should further be emphasized, as a precaution, that it is equally not legitimate to state that the anti-abuse matrix of autonomous taxation does not prevent the impediment of the deduction of the benefit value from its assessment, as occurs with other specific anti-abuse provisions disseminated through the various tax codes.

Indeed,

1. In contrast to what occurs at the level of autonomous taxation, of an anti-abuse nature, of "indirect" action, in "direct" anti-abuse provisions (whether in the general anti-abuse clause, whether in sniper approaches) the corresponding fiscal treatment for the occurrence of the legally foreseen facts is circumscribed to the calling to the taxable base; the tax legislator understood that the action of these would be recommended within the scope of the level of determining the taxable matter and not, downstream, in the phase of calculating the assessment.

2. In "direct" anti-abuse rules, both the fiscal censure and its sanctioning are directly prescribed in the chapter of the taxable matter, and there it is that the tax legislator crystallized, on the one hand, its censure and, on the other, the respective sanctioning.

3. This is what occurs, for example, at the level of legal rules provided for in "transfer pricing", "thin capitalization", etc.

4. We have no doubts: if one were to allow the deduction of the SIFIDE tax benefit from the autonomous taxation assessment in the same way as occurs with the strict IRC assessment or other tax figures immediately connected with income, nothing more would be happening than moving away from the sanctioning directive that presided over the establishment of that scheme.

5. It would be a contradiction if this autonomous taxation (calculated in a context of possibly abusive conduct) were exhausted by the deduction resulting from an expenditure (tax benefits) that the State bears in order to induce investment and consequent development of the very States and companies.

6. Recall what has already been said, the deduction within the scope of tax benefits is not of absolute exercise, for its scheme is guided by limits of a formal, temporal and substantive nature, the latter preventing the elimination or mitigation of the assessment calculated under the scope of the anti-abuse mechanism that postulates the autonomy of taxation of certain realities (of expenditure and not of income), to the point that, in consequence, it also prevents lesser fiscal burden by the cost of realities that the tax legislator considered as potentially contentious.

Therefore,

1. In this part, in light of the above, considering the impediment of the requested deduction, the claim now formulated by the Appellant must fail, with all legal consequences that the case may entail.

§ IV.I.II. Deduction of the international double taxation credit from autonomous taxation assessment

§ IV.I.II.I. Arguments of the Appellant

1. Similarly to the previous point, the Appellant seeks to make the deduction of the amounts relating to the Credit for International Double Taxation ("CDTI") which corresponds to the total of € 2,456,859.55 (two million, four hundred and fifty-six thousand, eight hundred and fifty-nine euros and fifty-five cents).

2. The basis for this deduction to be possible lies, once again, in the allegation that the nature of autonomous taxation is identical to that of IRC stricto sensu.

3. As such, in its view, the mechanism established in article 90 of the CIRC, with the deductions provided therein, also applies to the autonomous taxation assessment, all in the precise same terms as it applies to IRC itself.

Wherefore,

1. Considering the above, it then requests the annulment of the value then settled as autonomous taxation.

§ IV.I.II.II. Assessment

1. In this situation the issue to be decided revolves around knowing whether the amount relating to CDTI can be deducted from the autonomous taxation assessment, and the amount in question only requires validation if it is shown possible the deduction sought by the Appellant. And it is not.

Let us see:

1. Refraining from repeating concerning the nature of autonomous taxation, we proceed forthwith rather to a brief characterization of the CDTI figure.

Indeed,

1. In light of the developments of economic relations of recent decades, in which the expansion and internationalization of companies has become a common fact, the taxation mechanisms of each state had to be adapted with respect to the location and allocation of income.

2. With the objective of eliminating obstacles to the development of economic activities, namely, taxation in a state where the income in question is generated and subsequent taxation in the state where the entity benefiting from the income is based, the CDTI mechanism was created.

3. Through conventions between states aimed at adopting the same guiding principles regarding double taxation, procedures were harmonized for the calculation and settlement of the tax due, so that the source state of the income would proceed with its taxation thereon and, in turn, the state where the company is based allows the deduction of that tax from the assessment calculated in this territory.

4. It should be noted that a corollary of this harmonization is the consideration of net income for purposes of IRC.

5. Indeed, according to the arbitral decision of 5/5/2014, issued in the course of case no. 232/2013-T, this figure represents "(...) a generic unilateral mechanism for the elimination of the phenomenon of legal or international double taxation consisting of the so-called normal method or method of imputation, according to which if a resident in national territory derives income abroad subject to tax, may deduce (credit) the tax paid in the source country for purposes of determining the IRC to be paid."

Now,

1. The IRC assessment means, similarly to the previous point, the strict assessment, that is, the "amount calculated in accordance with article 90 and does not include in turn the "amount that results from article 88 of the CIRC" (the autonomous taxation assessment).

2. As we have seen, the tax legislator considered them as autonomous and distinct, when, in CDTI, restricted to the scope of income, only referred to the provisions of article 90.

3. Thus, the autonomy of this reality is essentially connected to the facts on which it bears and to the specificities of its calculation, but no longer, legally, in relation to the remaining portions of IRC, since in this view autonomous taxation is not, nevertheless, still IRC in its broadest conception.

4. No. 2 of article 90 of the CIRC prescribes the procedure for settling the tax, exhaustively and in order enumerating all deductions allowed to the assessment calculated pursuant to no. 1 of the same rule.

5. In the case of the CDTI deduction, no. 1 of article 91 of the same statute provides as follows:

"1- The deduction referred to in paragraph a) of no. 2 of article 90 is only applicable when foreign income obtained has been included in the taxable matter and corresponds to the lesser of the following amounts:

a) Income tax paid abroad;

b) Portion of IRC, calculated before the deduction, corresponding to income that in the country in question may be taxed, plus the correction provided for in no. 1 of article 68, net of expenses directly or indirectly borne for its obtaining."

1. Straightaway we encounter an essential condition for proceeding to the deduction of this credit: that the income underlying the tax borne abroad has been included in the taxable matter.

2. As has been amply demonstrated, autonomous taxation does not bear on income, it bears rather on facts that constitute expenses, so that it is easily understood that we are dealing with two distinct assessments: one that has as taxable base expenses and another income.

3. Thus, it becomes incongruous to make a deduction which aims to neutralize the fiscal impact that has already borne on certain income, under pain of double taxation, to an assessment that has as its basis facts completely unconnected and of a different nature.

4. We emphasize once again that the IRC assessment is - and in contrast to that of autonomous taxation - dependent on obtaining a positive result by the company, and results from the application of the applicable rate thereto, so that it is not foreseen, at any moment, to take into account autonomous taxation which, as the very name indicates, is autonomous, that is, independent of the result obtained by the company, and always due in its entirety, since the Code does not provide for any deductions thereto.

5. Therefore, in light of the above, by this reasoning we understand that the value that results from the credit for international double taxation cannot in any way serve as a deduction from the assessment that results from the spectrum of autonomous taxation listed in article 88, since, for these purposes, the assessment calculated under article 90 is not equivalent to the assessment that in turn results from the aggregate of realities under the yoke of the autonomous taxation legal scheme.

6. To allow the value calculated in the assessment under autonomous taxation to benefit from the effect of "deduction" of the amounts relating to the tax borne abroad would lead to a direct confrontation with its immediate purpose, namely the discouragement of the acquisition and use of certain consumer goods or mixed-use services.

7. It lacks absolute reasonableness to admit, in those terms, any deduction to the assessment that results from autonomous taxation, when the law itself also does not allow that the value thereof can be deducted from the taxable profit of the period.

8. Accordingly, it would be a paradox to promote the emptying of the autonomous taxation assessment by virtue of its reduction by utilization of amounts granted for reasons and interests that ab initio clash with the purposes of establishing the first, benefiting fiscally precisely those whom the legislator intended to "penalize" by means of a (secondary) mechanism that taxes expenditure, eliminating or reducing indirectly any tax advantage that is in the strict scope of income taxation and, consequently, in the respective assessment and final revenue under pain of "circumvention of the law".

Besides,

1. As already stated, it was considered that "(...) it would not be reasonable, indeed contrary to the reason that led the legislator to autonomously tax those expenses that, through their deduction from taxable profit as expenses, the foundation of the existence of autonomous taxation would be eliminated" having been "(...) as certain that autonomous taxation does not constitute IRC in the strict sense but is interwoven with it, and should be contained in the "other taxes" of which we are informed by the final part of paragraph a) of no. 1 of article 45 of the CIRC".

2. In the learned judgment it is likewise peremptorily stated that "(...) inasmuch as autonomous taxation aims to reduce the tax advantage achieved by deduction from taxable profit of the costs on which it bears and also to combat tax evasion which this type of expenditure, by its nature, potential, cannot itself through its deduction from taxable profit as a cost of the period constitute a factor in reducing that reduction in advantage intended and determined by the legislator."

3. All the more so that, recall, being autonomous taxation an exceptional scheme in the constitutional legal framework of income taxation increase and real income, the scheme should be subject to restrictive interpretation, for it would be contrary to the spirit of the system to allow that, by virtue of the deductions referred to in no. 2 of the cited article 90, autonomous taxation be stripped of that anti-abuse character that presided over its implementation within the IRC system itself.

4. It should further be emphasized, as a precaution, that it is equally not legitimate to state that the anti-abuse matrix of autonomous taxation does not prevent the impediment of the deduction of the benefit value from its assessment, as occurs with other specific anti-abuse provisions disseminated through the various tax codes.

Indeed,

1. Returning to resort to the arbitral case law cited, we have no doubts: if one were to allow the deduction of the CDTI credit from the autonomous taxation assessment in the same way as occurs with the strict IRC assessment or other tax figures immediately connected with income, nothing more would be happening than moving away from the sanctioning directive that presided over the establishment of that scheme.

Therefore,

1. In this part, in light of the above, considering the impediment of the requested deduction, the claim now formulated by the Appellant must fail, with all legal consequences that the case may entail.

§ IV.I.III. Deduction of amounts paid as special payment on account from autonomous taxation assessment

§ IV.I.III.I. Arguments of the Appellant

1. Similarly to the previous points, the Appellant seeks to make the deduction of the amounts relating to special payment on account ("PEC") which corresponds to the total of € 165,333.26 (one hundred and sixty-five thousand, three hundred and thirty-three euros and twenty-six cents).

2. The basis for this deduction to be possible lies, once again, in the allegation that the nature of autonomous taxation is identical to that of IRC stricto sensu.

3. As such, in its view, the mechanism established in article 90 of the CIRC, with the deductions provided therein, also applies to the autonomous taxation assessment, all in the precise same terms as it applies to IRC itself.

Wherefore,

1. Considering the above, it then requests the partial annulment of the value then settled as autonomous taxation.

§ IV.I.III.II. Assessment

1. In this part the issue to be decided revolves around knowing whether amounts relating to special payment on account can be deducted from the autonomous taxation assessment, and the validation of the values in question will only be possible in the hypothesis that such deduction is possible. And it is not.

Let us explain:

1. Since in the first point of this Report the nature of autonomous taxation was established, we refrain from repeating it, proceeding to a brief characterization of the PEC figure.

2. The introduction of PEC was made through Decree-Law no. 44/98, of 3 March and had as its objective to avoid "evasive practices of concealment of income or inflation of costs" and was made concrete through an advance and provisional payment by taxpayers who declared zero or negative income but continue in activity.

3. Accordingly, in accordance with the arbitral judgment pronounced in the course of Case no. 113/2015-T, of 30 December 2015, notwithstanding the amendments that occurred in the meantime, PEC is considered as a way to avoid "tax evasion and to guarantee the payment of tax by all companies in activity."

4. In the view of the same arbitral pronouncement:

"The current PEC scheme is thus characterized by (i) having an indissoluble connection to the fight against tax evasion and fraud: (ii) it was introduced in the CIRC in March 1998, before the autonomous taxation rates which only became part of its systematic in the 2000-2001 reform; (iii) in the conception of PEC, its deduction from the assessment in the settlement of IRC calculated on real profit was foreseen: (iv) the recovery of the credit resulting from PEC is subordinated to conditions of obtaining profitability ratios specific to companies in the activity sector in which they are located or to the justification of the credit situation by inspection action made at the request of the taxpayer (87-3 CIRC). In short, the credit for the amounts delivered as special payment on account does not constitute an exigible credit that IRC taxpayers can dispose of. For them to be able to do so certain conditions must be met."

1. It should be noted that the delivery of PEC continues to be obligatory even if the taxpayer determines fiscal losses, the amount of which may, however, be reimbursed pursuant to article 93 of the CIRC.

2. In case the amount paid is higher than the IRC assessment calculated in the self-assessment, the difference may be utilized for purposes and effects of deduction of that value from the (strict) IRC assessment, without prejudice to that amount, in case of insufficiency of assessment, being "carried forward" to subsequent financial years.

3. In light of this scheme, IRC taxpayers resident in Portugal who exercise, as principal or not, an activity of an agricultural, commercial, industrial or service nature and, as well, non-residents with permanent establishment in Portugal can proceed to deduct the respective amount from the amount calculated pursuant to the provision of article 90 of the CIRC, which referred in the following terms:

"1 - The settlement of IRC proceeds as follows:

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

b) In the absence of submission of the declaration referred to in article 120, the settlement is made up to 30 November of the following year to which it relates or, in the case provided for in no. 2 of said article, up to the end of the 6th month following the end of the deadline for submitting the declaration mentioned therein and is based on the annual minimum wage or, when higher, the whole of the taxable matter of the fiscal year nearest that is determined; c) In the absence of settlement pursuant to the preceding paragraphs, the same is based on the elements available to the tax administration.

2 - To the amount calculated pursuant to the previous number the following deductions are made, in the order indicated:

a) The corresponding to international double taxation;

b) The relating to tax benefits;

c) The relating to special payment on account referred to in article 106;

d) The relating to withholdings at source not susceptible of compensation or reimbursement pursuant to applicable law.

4 - To the amount calculated pursuant to no. 1, with regard to the entities mentioned in no. 4 of article 120, only is the deduction relating to withholdings at source to be made when these have the nature of tax for the account of IRC.

5 - The deductions referred to in no. 2 relating to entities to which the tax transparency scheme established in article 6 is applicable are imputed to the respective partners or members pursuant to the terms established in no. 3 of that article and deducted from the amount calculated based on the taxable matter that has taken into account the imputation provided for in the same article.

6 - When the special tax scheme for the taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount calculated relating to the group, pursuant to no. 1.

7 - From the deductions made pursuant to paragraphs a), b) and c) of no. 2 a negative value cannot result.

8 - To the amount calculated pursuant to paragraphs b) and c) of no. 1 only are the deductions made of which the tax administration has knowledge and which can be made pursuant to nos. 2 to 4.

9 - In cases in which the provision of paragraph b) of no. 2 of article 79 is applicable, annual settlements are made based on the taxable matter determined with a provisional character, and in relation to the settlement corresponding to the taxable matter relating to the whole settlement period, the difference determined shall be charged or canceled.

10 - The settlement provided for in no. 1 can be corrected, if appropriate, within the period referred to in article 101, with the differences then determined being charged or canceled."

1. That is, for purposes and effects of PEC, the deduction is made to the amount calculated in those precise terms, that is, to the strict IRC assessment connected to taxable profit and determined pursuant to article 90, and not to the assessment that results from realities autonomously taxed pursuant to article 88, whose calculation procedures are, reiterate, distinct.

2. One cannot moreover confuse them when it manifestly results that one is autonomous in relation to the other, implying that, in light of PEC, the said "amount calculated pursuant to article 90" does not in turn comprise the "amount that results from article 88 of the CIRC" (the autonomous taxation assessment).

3. The tax legislator considered them as autonomous and distinct, when, in PEC, restricted to the scope of income, only referred to the provisions of article 90, that is, to the calculation specifically within the scope of IRC stricto sensu and to other figures whose starting point is taxable profit and that reveal the same identity at the level of the active subject of the tax legal relationship.

4. Indeed, the recent arbitral decision already referred to in this Report says the following:

"What decidedly means that, if no pecuniary amount is to be (in advance) delivered on account of the tax due in the end, with respect to the period of formation of the tax fact (to which the "payment on account" refers) - especially due to non-existence of taxable profit revealed by the accounting, at that time -, that "payment on account" has no substantive basis. (...) And, thus, if there is no taxable profit, there is no tax due."

1. Thus, the autonomy of this reality is essentially connected to the facts on which it bears and to the specificities of its calculation, but no longer, legally, in relation to the remaining portions of IRC, since in this view autonomous taxation is not, nevertheless, still IRC in its broadest conception.

2. In turn, no. 2 of article 90 of the CIRC prescribes the procedure for settling the tax, exhaustively and in order enumerating all deductions allowed to the assessment calculated pursuant to no. 1 of the same rule, and this settlement is that which is based on the taxable matter defined pursuant to article 106 of the CIRC, that is, the values that translate this advance payment are deducted "from the amounts calculated pursuant to article 90 of the Code of IRC, and up to its concurrence".

3. The assessment to which this rule refers when the settlement is to be made by the taxpayer is calculated on the basis of the taxable matter contained in that settlement, the advance payment in which PEC is translated being deducted only from the assessment calculated based on the taxable matter.

4. Indeed, the IRC assessment is - and in contrast to that of autonomous taxation - dependent on obtaining a positive result by the company, and results from the application of the applicable rate thereto, so that it is not foreseen, at any moment, to take into account autonomous taxation which, as the very name indicates, is autonomous, that is, independent of the result obtained by the company, and always due in its entirety, since the Code does not provide for any deductions thereto.

5. Therefore, in light of the above, by this reasoning we understand that the value that results from PEC cannot in any way serve as a deduction from the assessment that results from the spectrum of autonomous taxation listed in article 88, since, for these purposes, the assessment calculated under article 90 is not equivalent to the assessment that in turn results from the aggregate of realities under the yoke of the autonomous taxation legal scheme.

6. To allow the value calculated in the assessment under autonomous taxation to benefit from the effect of "deduction" of the amounts relating to the advance payment that results from PEC would lead to a direct confrontation with its immediate purpose, namely the discouragement of the acquisition and use of certain consumer goods or mixed-use services.

7. Moreover, by not being inscribed in the strict column of the specific income taxation, but rather in the opposite view (that of expenditure), autonomous taxation and its respective assessment do not benefit from advance payments whose emphasis is seen at the level of income and not at that of the expenditure itself.

8. It lacks absolute reasonableness to admit, in those terms, any deduction to the assessment that results from autonomous taxation, when the law itself also does not allow that the value thereof can be deducted from the taxable profit of the period.

9. Accordingly, it would be a paradox to promote the emptying of the autonomous taxation assessment by virtue of its reduction by utilization of amounts granted for reasons and interests that ab initio clash with the purposes of establishing the first, benefiting fiscally precisely those whom the legislator intended to "penalize" by means of a (secondary) mechanism that taxes expenditure, eliminating or reducing indirectly any tax advantage that is in the strict scope of income taxation and, consequently, in the respective assessment and final revenue under pain of "circumvention of the law".

10. More serious, it would be to accept fiscally that deduction when, pursuant to the law, the legislator itself took care to emphasize precautions as to the coexistence between tax benefits and the occurrence of certain expenses and charges, as occurred, for example, in no. 2 of said article 88 of the CIRC.

Besides,

1. As already stated, it was considered that "the possibility of deduction of PEC from autonomous taxation would imply that even if a given company were eternally in a situation of loss, no tax on its real income would it have to bear, as long as it applied PEC to the satisfaction of autonomous taxation. Moreover, autonomous taxation itself would lose its anti-abuse character, coming instead to be confused with the tax calculated on taxable profit. But those are not the objectives of the income taxation system for legal persons and the best interpretation of the rule contained in article 83-2-e CIRC is not decidedly that which allows deducting special payment on account from the assessment resulting from the application of the autonomous taxation rates.

2. All the more so that, recall, being autonomous taxation an exceptional scheme in the constitutional legal framework of income taxation increase and real income, the scheme should be subject to restrictive interpretation, for it would be contrary to the spirit of the system to allow that, by virtue of the deductions referred to in no. 2 of the cited article 90, autonomous taxation be stripped of that anti-abuse character that presided over its implementation within the IRC system itself.

Indeed,

1. As demonstrated, arbitral case law indubitably confirms that, if one were to allow the deduction of PEC from the autonomous taxation assessment in the same way as occurs with the strict IRC assessment or other tax figures immediately connected with income, nothing more would be happening than moving away from the sanctioning directive that presided over the establishment of that scheme.

2. Recall what has already been said, the deduction within the scope of PEC is not of absolute exercise, for its scheme is guided by limits of a formal, temporal and substantive nature, the latter preventing the elimination or mitigation of the assessment calculated under the scope of the anti-abuse mechanism that postulates the autonomy of taxation of certain realities (of expenditure and not of income), to the point that, in consequence, it also prevents lesser fiscal burden by the cost of realities that the tax legislator considered as potentially contentious.

Therefore,

1. In this part, in light of the above, considering the impediment of the requested deduction, the claim now formulated by the Appellant must fail, with all legal consequences that the case may entail.

§ V. CONCLUSION

In accordance with all the above, we propose that the claim filed be dismissed in accordance with the contents of the "summary table" identified from the outset in the introduction of our report, the validation of the amounts in question being unnecessary, since, from the outset, as was fully demonstrated, the invoked deductions from the autonomous taxation assessment are not susceptible of being made, independently of the amount in question.

Further it is proposed that, equally in case of Superior Approval, notification of the Appellant be promoted in accordance with the rules inserted in articles 35 to 41, all of the General Tax Procedure Code, by means of letter to be sent under register, so that, if wishing, within the period of 15 (fifteen) days, to exercise their right of participation, in the modality of prior hearing, in written form, pursuant to the provision of article 60 of the General Tax Law, in turn combined with the rule contained in article 121, this of the Administrative Procedure Code, by virtue of paragraph c) of article 2 also of the General Tax Law.

• On 16-01-2017, the Appellant was ordered to be notified for exercise of the right of hearing;

• The Appellant did not exercise the right of hearing;

• On 18-04-2017 a dispatch was issued dismissing the administrative appeal, with the grounds of the aforementioned Report;

• On 17-07-2017, the Appellant filed the request for arbitral pronouncement that gave rise to the present case;

• On 01-08-2017, registered letter was sent to the Appellant, communicating the dismissal of the administrative appeal;

• On 28-08-2017, the Appellant came to request the extension of the request to the annulment of the express decision of the administrative appeal.

2.2. Facts Not Proved

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

2.3. Basis for the Determination of the Findings of Fact

The facts proved are based on the documents attached by the Claimant and which are contained in the administrative file.

There is no controversy concerning the findings of fact.

3. LEGAL MATTERS

3.1. Applicability of Articles 89 and 90 of the CIRC to the Calculation of Autonomous Taxation

Articles 89 and 90 of the CIRC establish the following, in the wording of Law no. 2/2014, of 16 January, in force in the year 2014:

Article 89

Competence for Settlement

The settlement of IRC is effected:

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

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

Article 90

Procedure and Form of Settlement

1 - The settlement of IRC proceeds in the following terms:

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

b) In the absence of submission of the declaration referred to in article 120, the settlement is made up to 30 November of the following year to which it relates or, in the case provided for in no. 2 of said article, up to the end of the 6th month following the end of the deadline for submitting the declaration mentioned therein and is based on the annual minimum wage or, when higher, the whole of the taxable matter of the fiscal year nearest that is determined;

c) In the absence of settlement pursuant to the preceding paragraphs, the same is based on the elements available to the tax administration.

2 - To the amount calculated pursuant to the previous number the following deductions are made, in the order indicated:

a) The corresponding to legal international double taxation;

b) The corresponding to economic international double taxation;

c) The relating to tax benefits;

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

e) The relating to withholdings at source not susceptible of compensation or reimbursement pursuant to applicable law.

3 – (Repealed)

4 - To the amount calculated pursuant to no. 1, with regard to the entities mentioned in no. 4 of article 120, only is the deduction relating to withholdings at source to be made when these have the nature of tax for the account of IRC.

5 - The deductions referred to in no. 2 relating to entities to which the tax transparency scheme established in article 6 is applicable are imputed to the respective partners or members pursuant to the terms established in no. 3 of that article and deducted from the amount calculated based on the taxable matter that has taken into account the imputation provided for in the same article.

6 - When the special tax scheme for the taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount calculated relating to the group, pursuant to no. 1.

7 - From the deductions made pursuant to paragraphs a), b) and c) of no. 2 a negative value cannot result.

8 - With respect to taxpayers covered by the simplified scheme for determining taxable matter, to the amount calculated pursuant to no. 1 only are the deductions provided for in paragraphs a) and e) of no. 2 to be made.

9 - From the deductions made pursuant to paragraphs a) to d) of no. 2 a negative value cannot result.

10 - To the amount calculated pursuant to paragraphs b) and c) of no. 1 only are the deductions made of which the tax administration has knowledge and which can be made pursuant to nos. 2 to 4.

11 - In cases in which the provision of paragraph b) of no. 2 of article 79 is applicable, annual settlements are made based on the taxable matter determined with a provisional character, and in relation to the settlement corresponding to the taxable matter relating to the whole settlement period, the difference determined shall be charged or canceled.

12 - The settlement provided for in no. 1 can be corrected, if appropriate, within the period referred to in article 101, with the differences then determined being charged or canceled.

The aforementioned articles 89 and 90 of the CIRC, as well as other provisions of this Code, such as those relating to declarations provided for in articles 120 and 122, are applicable to autonomous taxation.

In truth, it is today settled, following numerous arbitral case law and the positions assumed by the Tax and Customs Authority, that the tax levied on the basis of autonomous taxation provided for in the CIRC has the nature of IRC. For that matter, apart from case law, article 23-A no. 1, paragraph a), of the CIRC, in the wording of Law no. 2/2014, of 16 January, today leaves no room for any reasonable doubt, corroborating what had previously resulted from the literal wording of article 12 of the same Code.

Now, article 90 of the CIRC refers to the forms of settlement of IRC, by the taxpayer or by the Tax Administration, applying to the calculation of the tax due in all situations provided for in the Code.

For this reason, that article 90 also applies to the settlement of the amount of autonomous taxation, which is calculated by the taxpayer or by the Tax Administration, following the submission or non-submission of declarations, there being, with effect in the year 2014, no other provision that foresees different terms for its settlement.

Thus, in the year 2014, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are limited to the determination of the taxable matter and the applicable rates, which are those provided for in Chapters III and IV of the CIRC for IRC based on taxable profit and in article 88 of the CIRC for IRC based on the taxable matter of autonomous taxation and their respective rates.

But the forms of settlement provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remaining IRC taxable matter.

Nevertheless, the fact that an IRC self-assessment, made pursuant to no. 1 of article 90, may contain several partial calculations, based on various applicable rates to certain taxable matters, does not imply that there is more than one settlement, as results from the very terms of that rule by referring to "settlement", in the singular, in all cases in which it is "made by the taxpayer in the declarations referred to in articles 120 and 122", having "as basis the taxable matter contained therein" (whether that determined on the basis of the rules of articles 17 onwards or that determined on the basis of the various situations provided for in article 88).

Moreover, it is not only the settlements provided for in article 88 that may encompass various calculations of application of rates to certain taxable matters, as the same may occur in the situations provided for in nos. 4 to 6 of article 87.

In any case, whatever calculations are to be made, it is unitary the self-assessment that the taxpayer or the Tax and Customs Authority must effect pursuant to articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c), and 120 or 122, and on the basis of it that the global IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it.

Moreover, if this article 90 were not applicable to the settlement of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no rule which, in 2014, foreseen its settlement, which would lead to illegality, by violation of article 103, no. 3, of the Constitution, which requires that the settlement of taxes be made "in accordance with the law".

Reference should also be made to the new provision of no. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of 30 March, independently of being or not qualifiable as truly interpretative, in no way alters this conclusion, for there it is established, with respect to the form of settlement of autonomous taxation, that it "is made in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions of the preceding numbers". Indeed, if it is true that this new provision comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of article 88) and that competence lies with the taxpayer or the Tax Administration, pursuant to article 89, it is also clear that the need to use the procedure provided for in no. 1 of article 90 is not withdrawn, particularly in the cases provided for in its paragraph c) in which settlement lies with the Tax and Customs Authority, on the basis of "the elements available to the tax administration", which will encompass the possibility of settling on the basis of autonomous taxation, if the Tax and Customs Authority has elements that prove its prerequisites.

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

For this reason, whether before or after Law no. 7-A/2016, of 30 March, and Law no. 114/2017, of 29 December, article 90, no. 1, of the CIRC is applicable to the settlement of autonomous taxation.

3.2. Applicability of the Deductions Provided for in No. 2 of Article 90 of the CIRC to the IRC Assessment Resulting from Autonomous Taxation

For what has been stated, at least until Law no. 7-A/2016, of 30 March, there was no legal provision that indicated any special settlement procedure for IRC resulting from autonomous taxation, so that, under pain of unconstitutionality by violation of no. 3 of article 103, due to settlement not being made "in accordance with the law", the procedure provided for in article 90 of the CIRC had to be applied.

Being the IRC assessment, whether resulting from taxable profit or resulting from autonomous taxation, calculated through the settlement procedure provided for in article 90 of the CIRC, the deductions provided for in no. 2 of the same article are potentially applicable to such assessment, which refer to "the amount calculated in accordance with the previous number", without any distinction regarding the nature of the types of IRC assessment included in that amount.

For this reason, from the literal wording of no. 2 of article 90 of the CIRC, no obstacle results to the application of the deductions to the part of the amount calculated pursuant to no. 1 derived from autonomous taxation.

As stated in the judgment of the Constitutional Court no. 267/2017, of 31-05-2017, issued in case no. 466/16, "the autonomy of the taxation in question as to its tax base, as to the applicable rates and even as to the moment of payment, alone, does not determine – neither logically nor legally – the irrelevance of the assessment obtained with autonomous taxation within the calculation of the assessment of IRC itself – a matter regulated, in general, in article 90, no. 1, of the CIRC –, namely as to the integration of the former in the latter and, consequently, as to the admissibility of consideration of the value of the said assessment for the purpose of accomplishing the deductions legally provided for in article 90, no. 2, of the CIRC. Such question, in the absence of a specific rule to the contrary – such as that which, for example, came to be established in article 88, no. 21, of the CIRC – belongs to the legislative configuration itself of IRC, included in this the relevance or irrelevance, for purposes of calculating the final IRC assessment, of the amounts paid as autonomous taxation".

In truth, only with Law no. 7-A/2016, of 30 March, which added to article 88 of the CIRC a no. 21, there came to exist a rule in which the possibility of application of the deductions provided for in no. 2 of article 90 of the CIRC to the amount calculated with autonomous taxation was withdrawn, establishing the following:

21 - The settlement of autonomous taxation in IRC is effected in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions of the preceding numbers, no deductions being made to the global amount calculated.

In the final part of this rule, the scope of application of the deductions provided for in article 90, no. 2, of the CIRC is restricted to the IRC assessment derived from taxable profit.

Law no. 114/2017, of 29 December, came to reaffirm the withdrawal of the applicability of the deductions provided for in no. 2 of article 90 of the CIRC to the IRC assessment resulting from autonomous taxation by establishing the following:

21 - The settlement of autonomous taxation in IRC is effected in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions of the preceding numbers, no deductions being made to the global amount calculated, even if those deductions result from special legislation.

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

Nevertheless, the Constitutional Court, in the cited judgment no. 267/2017, has already affirmed the unconstitutionality of that article 135 to the extent that, by effect of the merely interpretative character that it attributes to the 2nd part of no. 21 of article 88 of the CIRC, it withdraws the possibility of deduction from the global amount resulting from autonomous taxation settled in a given year in the context of IRC of deductions allowed in tax years prior to 2016.

This decision of the Constitutional Court was based on no. 3 of article 103 of the Constitution, which establishes that no one can be obliged to pay taxes that have a retroactive nature, from which the Constitutional Court understood that the legislator cannot create taxes of such nature or introduce into existing taxes amendments that, with retroactive effects, aggravate them and that what is at issue is the prohibition of establishing new legal consequences that constitute ex novo or aggravate tax situations already defined, particularly the amount due as a certain tax and previously defined due to the verification of all relevant facts in light of the applicable law before the establishment of the new legal consequences.

For this reason, in line with this case law, the constitutionality of the restrictive interpretation of no. 2 of article 90 of the CIRC, so as to exclude the possibility of deductions to the IRC assessment resulting from autonomous taxation, depends on it already having to be made in light of the scheme prior to that Law no. 7-A/2016, for it is constitutionally inadmissible the retroactive unfavorability to taxpayers of tax rules from which results the obligation of payment of taxes.

It should be noted, however, from the outset, that the new wording given by Law no. 114/2017 to no. 21 of article 88 of the CIRC, by withdrawing the possibility of deductions from the global amount of autonomous taxation "even if those deductions result from special legislation" clarifies, with interpretative nature (in this part without problems of constitutionality, for it concerns retroactivity favorable to taxpayers), that there existed special legislation from which it resulted that deductions were made to the amount of autonomous taxation, coming thus, to recognize, with the authority of an authentic interpretation, what had already been patiently and repeatedly explained by the majority arbitral case law (as justified and justifies in light of the difficulties manifested by the Tax and Customs Authority in article 176 of its arguments, in which it confesses that, for it, these are "incomprehensible and unintelligible theses").

For this reason, being constitutionally inadmissible, for what the Constitutional Court stated in the cited judgment, that this new law come to withdraw the possibility of deductions admissible in light of the legislation in force until the entry into force of Law no. 7-A/2016, the issue that arises, to settle the issues of legality of the self-assessment and of the decision of the administrative appeal that are raised in the present case, is that of knowing whether, before this law, the restrictive interpretation that in it came to be made explicit should already be made, whether restrictions should already be made to the application of the deductions provided for in no. 2 of article 90 of the CIRC to the part of the IRC assessment resulting from autonomous taxation.

In truth, the fact that the letter of no. 2 of article 90 points in the direction of the application of the deductions to the assessment resulting from autonomous taxation that deductibility, did not exclude the possibility of restrictive interpretation, if "the interpreter reaches the conclusion that the legislator adopted a text that betrays their thought, insofar as it says more than what was intended. Also here the ratio legis will have a decisive word. The interpreter should not be carried away by the apparent scope of the text, but should restrict this so as to make it compatible with legislative thought, that is, with that ratio. The argument on which this type of interpretation rests is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, its scope ends there)".

The Tax and Customs Authority, in the decision dismissing the administrative appeal, defends precisely that a restrictive interpretation should be made of no. 2 of article 90 of the CIRC, by saying, in point 125 of the Report on which it is based:

"(...), being autonomous taxation an exceptional scheme in the constitutional legal framework of income taxation increase and real income, the scheme should be subject to restrictive interpretation, for it would be contrary to the spirit of the system to allow that, by virtue of the deductions referred to in no. 2 of the cited article 90, autonomous taxation be stripped of that anti-abuse character that presided over its implementation within the IRC system itself."

As a basis for a restrictive interpretation could, in a first analysis, be ventured the fact that some autonomous taxation, particularly some of those having "expenses" or "charges" as their tax base, aim to discourage certain conduct by taxpayers susceptible of affecting taxable profit, and, consequently, of diminishing tax revenue, and its deterrent force will be attenuated with the possibility of their respective assessment being subject to deductions.

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

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

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

Moreover, even with respect to some autonomous taxation that bears on expenses, it would not be compatible with constitutional principles of proportionality and equality to impose taxation on the basis of a hypothetical legislative intention to discourage the use of motorcycles for certain activities for which they are indispensable, as occurs with motorcycle shows, or for which they have evident adequacy, corresponding to their use to manifest good business management, and would be especially inconceivable to include within the scope of that discouraging intention the very payment of "taxes bearing on its possession or use", to which the final part of no. 5 of article 88 refers, which should even be ensured coercively by the Tax and Customs Authority, in case the taxpayer feels discouraged to effect that payment.

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

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

"The Explanatory Memorandum which is part of Bill no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which enormously expanded the situations of autonomous taxation, leaves no room for doubt that this is a conscious and intended amplification of 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 increase the fairness of the distribution of the tax burden among citizens and companies".

(...)

"autonomous taxation bearing directly on certain expenses, within taxes that originally bore only on income, are considered distortions of the system of direct taxation of income intended with IRC, but a value that legislatively was considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax fairness, imposed an option for these forms of taxation, for being in accordance with the principles of equity, efficiency and simplicity.

(...)

But this indirect taxation is not done outside the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as a corollary the application of the general rules specific to this tax, which do not clash with its special form of incidence.

Thus, if it is true that autonomous taxation constitute a different form of imposing taxes on companies, which could be contained in autonomous regulation or be arranged in the Tax Stamp Code, it is also not less true that the legislative option to include such taxation in the CIRC reveals an intention to consider such taxation as inserted in IRC, which could be justified by being an indirect form, but, from the legislative perspective, fair, simple and efficient, of taxing business income that escape the scheme of taxation with direct bearing on income".

In truth, autonomous taxation in the context of IRC, in light of the growing scope that the legislator has been giving them, to be compatible with the constitutional principle of

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