CAAD 433/2018-T: Autonomous Taxation on Passenger Vehicle Expenses Under IRC Article 88(3) - Legal Presumption Analysis

ARBITRAL DECISION

1. Report

A..., Tax Identification Number..., General Partnership with registered office at R. ..., ... ..., hereinafter referred to as "A...", "Applicant" or "TP" (Taxpayer), came, pursuant to Articles 2, no. 1 lit. a) and 10, no. 1 lit. a) of the Legal Framework for Tax Arbitration (Decree-Law no. 10/2011, of 20 January), hereinafter "LFTA", to request the constitution of an Arbitral Tribunal.

As the immediate object of the Request for Arbitral Pronouncement in the origins of the case, the Applicant petitions for the annulment of the order rejecting the Hierarchical Appeal, which succeeded and confirmed the order rejecting the Gracious Complaint. Such Hierarchical Appeal and Gracious Complaint had been filed by it on the grounds of error in self-assessment under Corporate Income Tax.

As the mediate object of the Request, the Applicant petitions for the partial annulment of its self-assessment of Corporate Income Tax, relating to the year 2013. Further petitioning for the reimbursement of amounts which it believes to have been unduly paid in this context, in the amount of €27,357.83, plus compensatory interest, also petitioned.

The Gracious Complaint filed by the Applicant was processed under no. ...2016... and was subject to an order rejecting it, now impugned. The Hierarchical Appeal, which had as its object the decision rejecting the Gracious Complaint, was processed under no. ...2016... and confirmed the previous decision in the context of the Gracious Complaint, with the respective order of rejection now also impugned.

To the self-assessment for the year 2013 in question in the case, processed by the Applicant by submission of the respective Model Declaration 22, there corresponds the Corporate Income Tax Settlement Statement with No. 2015....

The Gracious Complaint was filed by the TP on the grounds of error in the self-assessment under Corporate Income Tax for the year 2013 by reference to autonomous taxation which it then assessed, relating, to the extent relevant for these proceedings, to costs incurred with light passenger vehicles.

In summary, the Applicant contends - in the context of the Gracious Complaint procedure and the subsequent Hierarchical Appeal and, now, in the present context of the Request for Arbitral Pronouncement - that Article 88, no. 3 (and no. 4) of the Corporate Income Tax Code (hereinafter "CITC"), under which it proceeded to self-assess the Autonomous Taxation (hereinafter also "AT") which it thereby challenges, contains within itself a presumption. Namely, a presumption of entrepreneurship merely partial. Furthermore, that such invoked presumption should be regarded as a rebuttable presumption. And that, if the Applicant succeeds in proving the contrary of what results from the invoked presumption, the latter should be rebutted. And finally that, if this be so, i.e., if the Applicant succeeds in making such proof, it should be concluded, as a consequence - all as it invokes - by the non-application of Autonomous Taxation in the case.

Having the Applicant paid the total amount resulting from its self-assessment under Corporate Income Tax for the year 2013, which it subsequently partially challenged (in administrative procedures and, now, in these proceedings), and including in that amount paid the value corresponding to the assessment of Autonomous Taxation relating to costs for light passenger vehicles in the part that it challenges, and with which it does not conform, it now petitions: (i) the annulment of the order rejecting the Hierarchical Appeal and, likewise, the order rejecting the Gracious Complaint; (ii) the partial annulment of the self-assessment for the year 2013, i.e., regarding the Autonomous Taxation relating to costs for light passenger vehicles in the part here in dispute; (iii) the reimbursement of the amounts to that extent paid, according to its argument, in an amount greater than due and, likewise, (iv) compensatory interest.

In summary and fundamentally, Applicant and Respondent have divergent understandings regarding the content of the applicable tax rule – Article 88, no. 3 of the CITC – specifically, whether or not it contains within itself a presumption. A legal presumption, we may add from the outset.

The Respondent is the Tax and Customs Authority (hereinafter "TA" or "Respondent").

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and notified to the TA on 04.09.2018.

Pursuant to the provision in lit. b) of no. 1 of Article 11 of the LFTA, the Deontological Council designated as arbitrator of the singular Arbitral Tribunal the undersigned, who timely accepted the assignment.

On 24.10.2018 the Parties were notified of the designation of the arbitrator and manifested no intention to challenge it, cf. Article 11, no. 1, lit. a) and b) of the LFTA and Articles 6 and 7 of the Deontological Code.

Pursuant to the provision in lit. c) of no. 1 of Article 11 of the LFTA, the singular Arbitral Tribunal was constituted on 14.11.2018.

Duly notified, the TA filed a Response, arguing for the complete rejection of the Request for Arbitral Pronouncement (hereinafter "RAP") and the consequent maintenance of the challenged acts in the Legal Order.

The Respondent understands, in contradiction to the understanding of the Applicant, that none of the acts challenged by the latter is tainted with illegality. First and foremost, because they do not constitute any violation of Article 88 of the CITC.

In sum, and as it develops in its Response, it shall be thus: (i) because the Applicant's argument, to the effect of the existence of a presumption of entrepreneurship in Article 88, no. 3, lacks legal support (in that it has no correspondence either in the letter of the law or in its rationale), and (ii) because even if the existence of such a presumption were admitted (which the Respondent does not), the Applicant failed to prove the aforementioned "entrepreneurship" and, as such, could not even be considered to have rebutted the invoked presumption (not admitted by the Respondent), and finally, (iii) because an interpretation of the rule in question (Article 88, no. 3 of the CITC) in the manner advocated by the Applicant would violate the Constitution of the Portuguese Republic (hereinafter "CPR").

By order of 04.01.2019, this Tribunal decided to notify the Parties for the meeting provided for in Article 18 of the LFTA, taking into account the request for production of testimonial evidence filed by the Applicant.

The meeting took place on 25.01.2019, with the Parties then being notified to submit optional successive written arguments, within a period of 15 days each, with the counting of the period beginning with the Applicant.

Both Parties filed arguments. The Applicant came, in its arguments, to reiterate essentially what it had already argued in the RAP, refute the Respondent's argument that its (the Applicant's) thesis in the case contains an appeal to recourse to equity in the decision requested of this Tribunal, and finally insist on the well-foundedness of the thesis it argues for, invoking Arbitral Case Law and arguing against the Respondent's thesis that an interpretation of Article 88, no. 3 as the one it advocates would violate the CPR. Furthermore, arguing that the facts alleged by it in the RAP upon which the witness testimonies focused have been proven.

The Respondent, for its part, in its arguments: came to reiterate what it had previously argued in the Response, adding and developing arguments of law to the effect of the position it adopts; conclude (without conceding as to the non-existence, as it argues, of a presumption in Article 88, no. 3) that the Applicant failed to prove the facts which allegedly would enable it to set aside the invoked presumption; and, finally, reiterate and develop arguments to the effect that Article 88, nos. 3 and 5 should be judged unconstitutional when interpreted in the manner in which the Applicant argues it should be interpreted.

The Arbitral Tribunal was regularly constituted, is competent, and the Parties have judicial personality and capacity, are legitimate and are duly represented, cf. Articles 4 and 10, no. 2 of the LFTA and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The Case does not suffer from nullities and there is no matter of exception, nothing preventing the examination of the merits of the case.

1. Facts

2.1. Proven Facts

The following facts are considered proven:

a) The Applicant is a General Partnership established under Portuguese law and which exercises by principal title a commercial nature activity.

b) In the year 2013 the Applicant had as its corporate purpose the trade in food and consumer products, as well as prospecting, purchase, sale, rental, management of own real estate, construction, remodeling and property management (cf. Permanent Certificate of Commercial Registration, whose access code was attached to the case at the Tribunal's request).

c) The Applicant carries out its main commercial activity in the stores "A..." located in national territory.

d) The Applicant proceeded to the self-assessment of Corporate Income Tax for the year 2013, by submission of Model Declaration 22, and respective replacement declaration whose copy is in the case (PA2, Doc. 2, p. 7 et seq.) and whose content is deemed reproduced.

e) From the Model Declaration 22 above (cf. Replacement declaration, see previous item) appears, in Table 10 - Field 365, the amount of €830,936.87 as Autonomous Taxation, and in the same Table 10, in "Total to pay" the amount of €1,348,030.67.

f) By reference to the Model Declaration 22 above (cf. previous items) was issued the Corporate Income Tax Settlement Statement - "Compensation No. 2015...", "Settlement No. 2015...", "Settlement Date 2015-07-30", whose copy is in the case (PA2, Doc. 1, p. 5) and whose content is deemed reproduced, which contains, as Autonomous Taxation the amount of €830,936.87, and in which "payment of self-assessment" refers to the amount of €1,348,030.67.

g) With reference to the year 2013, the Applicant presented, on 28.07.2016, a Gracious Complaint on the grounds of error in self-assessment.

h) In the Gracious Complaint filed, which was processed under no. ...2016..., the Applicant came to allege that the "act of self-assessment of corporate income tax relating to the taxation period corresponding to the civil year 2013" was tainted with error. - cf. respective Information No. ...-AIR1/2016, attached to the case by the TP with the RAP (doc. no. 2, p. 3) and which is deemed reproduced here.

i) In the Gracious Complaint the then Applicant attributed error to the self-assessment in the part relating to Autonomous Taxation by reference to three distinct situations, namely, costs with representation expenses, costs with light passenger vehicles, and costs with travel allowances (cf. p. 3 of Information No. ...-AIR1/2016 prepared in the Gracious Complaint procedure at a time subsequent to the exercise of the Right to be Heard - attached by the TP with the RAP as Doc. no. 2).

j) The Applicant was notified of the draft decision, rejecting the Gracious Complaint, and to exercise the Right to be Heard (cf. Administrative Case attached to the case and deemed reproduced here – see PA2, p. 75 et seq).

k) From the draft decision of the Gracious Complaint (see PA2, p. 77 et seq., Information No. ...-AIR1/2016) it appears, among other things:

(...)

(...)

(...)

Continuing in the examination of the arguments of the Complainant:

(...)

(...)

l) In the exercise of its Right to be Heard in the context of GC the then Applicant came to accept what was contained in the respective draft order rejecting it regarding Autonomous Taxation with representation expenses and travel allowances, maintaining its disagreement only as to costs with light passenger vehicles and, within these, only in the part of costs relating to "pool vehicles", whose self-assessed Autonomous Taxation amounted to €27,357.83 (twenty-seven thousand three hundred and fifty-seven euros and eighty-three cents).

m) Attached to its statement exercising the Prior Right to be Heard, in the GC, the TP attached, as document no. 2, deemed reproduced, a list entitled "Identification map of pool vehicles", in which 48 vehicles are identified and the corresponding years and acquisition values, autonomous taxation rates applicable, in some cases 10%, in others 20%, and autonomous taxation values per vehicle, the total of Autonomous Taxation contained therein being €27,357.83 (see PA2, pp. 70 and 97; see Doc. 3 attached with the RAP);

n) Attached to its statement exercising the Prior Right to be Heard, in the GC, the TP attached, as documents nos. 3, 4, and 5, three documents which it designated as "Example of pool vehicle requisition form" (see PA2, pp. 70 and 98 et seq.), each of the three relating to a vehicle, and each consisting of (i) a vehicle requisition communication by email, (ii) a Vehicle Receipt Declaration and, on the reverse (iii) a list enumerating six rules under the heading "Rules for the use of replacement vehicles".

o) After the exercise of the right to be heard by the TP, the TA maintained the same position as in the draft decision (GC), reiterating its respective merits and concentrating the decision, in the order rejecting, on the matter that the TP maintained as controversial in the context of the Right to be Heard (see l) above; see doc. no. 2 attached by the TP with the RAP - Information No. ...-AIR1/2016).

p) The Gracious Complaint was rejected by letter no... of 12.09.2016, and the TP notified of the respective decision (cf. doc. no. 2, which it attached with the RAP). From the notification of the rejection decision - Information No. ...-AIR1/2016 attached - it appears, among other things:

(...)

(...)

(...)

q) On 13.10.2016 the TP filed a Hierarchical Appeal of the decision rejecting the Gracious Complaint.

r) The Hierarchical Appeal was processed under no. ...2016... and in it the Applicant argued for the annulment of the decision rejecting the GC, presented the same request - but only in the part relating to Autonomous Taxation for costs with light passenger vehicles which it designates as "pool vehicles" - (cf. l) above), with the same grounds as in the Gracious Complaint, and attached the documents already attached with it and with the statement of the Right to be Heard therein (see m) and n) above).

s) In the context of Hierarchical Appeal the Prior Hearing was dispensed with.

t) On 30.04.2018 an order rejecting the Hierarchical Appeal was issued, in which the Respondent maintained and adhered to the position taken in the draft and in the decision rejecting the GC. From the order rejecting the HA, notified to the Applicant (cf. doc. no. 1 attached with the RAP) it appears, among other things:

(...)

(...)

(...)

(...)

u) The "pool vehicles", listed in the document attached with the RAP as doc. no. 3 (previously attached with the statement of Right to be Heard in the context of GC and, also, with the HA - see above items m) and r)), number 48 and are intended to be used by the Applicant's employees who do not have a company-assigned vehicle.

v) The "pool vehicles" ("pools" located at the headquarters and warehouses of the Applicant), are four-door vehicles, are intended to be used by the Applicant's employees in travel for professional purposes at the national level, are as a rule collected and returned on the same day, at the end of the day, with situations existing in which this rule is subject to exceptions, with collection possibly being made on one day and return on a different day.

w) There is a procedure for vehicle requisition, consisting of: each employee previously requisitions the vehicle, via email, indicating the date and approximate time or hour for collection, foreseeable date and time for return, and the purpose of the travel, and, upon collecting the vehicle, completes a declaration which will record the date and time of collection, with the same declaration also being completed and signed by the employee upon return, adding the date and time of return and the number of kms on return. On the reverse of this declaration there is a set of six rules for use, under the heading "Rules for the use of replacement vehicles" (see n) above, final part), referring to the form of requisitions, collection and return of keys and documents, parking location, washing, fuel supply, and resolution of anomalies.

x) The Applicant does not have a Regulation with rules on vehicle use.

y) The Applicant does not have its own system for detecting situations in which vehicle use exceeds the purposes for which they are requisitioned.

z) It is possible to verify toll usage records.

aa) The Applicant did not establish a threshold of number of kms traveled by employees in the "pool vehicles" from which, on a case-by-case basis, it would be appropriate to verify the actual use strictly for professional purposes, nor does it have GPS system installed in the vehicles.

bb) The Applicant has 243 establishments (1 headquarters, 4 warehouses, 238 stores) distributed across much of the country, and such geographic distribution creates needs for travel of its employees, such as travel to stores, clients, training, meetings, legal proceedings, land and construction sites.

cc) On 03.09.2018 the Applicant filed the Request for Arbitral Pronouncement (hereinafter "RAP") which originated this case.

2.2. Unproven Facts

It was not proven that the use of pool vehicles always takes place exclusively for professional purposes.

2.3. Grounds for the Facts

The facts deemed proven were so based on the documents attached to the case, including with the RAP and in the Administrative Case (hereinafter also "AC"), critically assessed - all documents deemed fully reproduced - and, likewise, on the positions manifested by the Parties in the statements, as well as on the testimonial evidence produced and critically assessed.

Regarding witness depositions, and notwithstanding their professional relationship with the Applicant, the Tribunal considers that they gave their testimony with objectivity, revealing to the Tribunal the knowledge they possessed regarding the facts they mentioned, with no reason to question their veracity.

The fact deemed unproven was so based not only on critical assessment of the attached documents and the respective exposition of the Applicant in the Statements, but also on the testimonial evidence produced. Both witnesses acknowledged the existence of situations in which employees can actually use the requisitioned vehicle also for personal purposes, albeit marginally, furthermore recognizing the limitations of verification thereof by the Applicant (this latter point being proven by the deposition of witness B...). Witness C... even specified an occasion when she herself did not fetch her daughter from school using the pool vehicle she was then driving because her husband was able to do so on that day. Furthermore stating that she does not recognize such situations as completely personal use.

It falls to the Tribunal to select, from those alleged by the Parties, the facts that matter to the examination and decision of the case by viewing the hypothetically plausible solutions of the legal questions (cf. Article 16, lit. e) and Article 19 of the LFTA and, furthermore, Article 123, no. 2 of the Code of Tax Procedure and Article 596 of the Code of Civil Procedure), encompassing its factual cognizance powers instrumental facts and facts that are a complement to or specification of those alleged by the Parties (cf. Articles 13 of the Code of Tax Procedure, 99 of the General Tax Law, 90 of the Code of Administrative Procedure and Articles 5, no. 2 and 411 of the Code of Civil Procedure).

1. Law

3.1. Questions to be Decided

To recapitulate: the Applicant filed its Model Declaration 22 relating to the year 2013 and, in relation to the same, subsequently filed a Gracious Complaint (hereinafter also "GC") on the grounds of error in the part relating to Autonomous Taxation (hereinafter also "AT").

In that context (GC) the then Complainant invoked error, of fact and of law, always by reference to the self-assessment of AT which it had proceeded to under Article 88 of the CITC. However encompassing therein, in its request - as per PI of the GC - AT relating to (i) costs with representation expenses, under no. 7 of Article 88, (ii) costs with light passenger vehicles, under nos. 3 and 4 of Article 88, and (iii) costs relating to travel allowances and compensation for travel in the employee's own vehicle, under no. 9 of Article 88.

Upon exercise of its Right to be Heard, after being notified of the draft decision of the GC, the then Complainant accepted the sense of the draft order rejecting it regarding all matters in its initial request, with the exception of what referred to AT resulting from costs with light passenger vehicles, cf. nos. 3 and 4 of Article 88, and only in part. Namely, in the part corresponding to vehicles it designates as "pool vehicles", or "pool vehicles", regarding which the total amount of self-assessed AT amounted to €27,357.83.

With the GC rejected in its entirety, including thus also this part of the initial request which the Complainant maintained as controversial until the end, and not conforming with this rejection, it came to file a Hierarchical Appeal (hereinafter also "HA"), restricting then the respective object to the AT self-assessed by reference to "pool vehicles" (total value of €27,357.83).

Once the HA was expressly rejected, and thus once more the legality of the self-assessment act in question was confirmed by the TA, the then Applicant filed the RAP in the origins of this case.

As follows from the RAP statement, the Applicant presents it with the following object: request for annulment, as illegal, of the order rejecting the HA and, likewise, the order rejecting the GC; request for annulment, as illegal, of the self-assessment in Corporate Income Tax for the year 2013 in the part relating to AT relating to costs incurred related to certain light passenger vehicles, the "pool vehicles"; reimbursement of the amount of €27,357.83 and compensatory interest.

To substantiate the RAP, and as it had also done in the context of administrative procedures (GC and HA), the Applicant develops arguments in the sense we shall now summarize:

• the self-assessment of AT resulting from expenses incurred with the use of light passenger vehicles ("LPV") - in the case of pool vehicles – for purposes exclusively contained within the scope of its activity, as it alleges, is tainted with illegality because it should be understood that the legislator in listing, "in Article 88 of the CITC", "the acts of expense that should be subject to autonomous taxation", and for the definition of these acts, "adopted a presumption of non-entrepreneurship" (cf. points 51 and 52 RAP);

• "Expenses subject to autonomous taxation are those which, in general, and considering the social purpose of most companies, may be regarded as expenses with a presumptively personal nature and not professional or business nature." (cf. point 53 RAP);

• To determine whether "an act of expense" is or is not subject to AT - (what it refers to after making an incursion through excerpts of Arbitral Decisions it identifies - case no. 209/2013-T, case no. 255/2013-T) - there must be a two-step process: verify whether it is included in the list of Article 88 of the CITC and, if affirmative, in a second moment verify its integral entrepreneurship, which, if proven, will set aside the incidence of AT, since so "it sets aside the presumption that such expenses do not possess a business nature (…)." (cf. point 60 RAP), "(…) and it should also be admitted their complete deductibility as a fiscally accepted cost." (cf. point 62 RAP);

• it should be understood that the presumption that certain expenses do not possess complete entrepreneurship admits rebuttal, since "First of all, any presumption contained in a tax rule of incidence is susceptible to rebuttal, under penalty of violation of the principles of equality and taxation on real income, as is, moreover, referred to in Article 73 of the General Tax Law." (cf. point 67 RAP and then again invoking Arbitral Case Law - transcribing passages from case no. 209/2013-T);

• the rules relating to AT have an anti-abuse character;

• the specificities of the Applicant's activity should be taken into account for purposes of rebutting the presumption (cf. point 83 RAP), what permits, in conjunction with the facts alleged (ref. necessity and actual use of pool vehicles for business purposes alone) and which it considers to prove, to set aside the (invoked) presumption and, thus, makes taxation by way of AT illegal in the case;

• (already in arguments) in arbitral case no. 189/2018-T "where the Parties, the facts and the law invoked and applied are precisely the same (differing only in the year in question: 2014)" "the Applicant's claim, now Respondent, was accepted, based, among others, on the following argumentative basis: In coherence with the decision signed (…). Thus, the aforementioned in the collegial arbitral decision CAAD Case no. 628/2014-T, cited by the Applicant, is adhered to, which dealt with a situation in all respects similar, namely: (…).";

• (continuing in the passages it transcribes from the same case no. 189/2018-T in arguments) "Finally it invokes the TA (…) must "be judged unconstitutional Article 88, nos. 3 and 5 of the CITC, (…), when interpreted in the sense of harboring within itself a rebuttable presumption (...)". To which the Arbitral Tribunal responded with linear clarity with the following line of argument: First of all (…), where the most determinative legal foundation for the adoption of the sense of this decision resides, is not in nos. 3 and 8 of Article 88 of the CITC (…), but above all in the provision contained in Article 73 of the General Tax Law, insofar as (...)".

The Respondent, for its part, and also very briefly, sets out in the Response its reasoning as follows:

• one must question: "(…) accepted that the incurred and deductible costs, relating to vehicle expenses, are demonstrably indispensable for the exercise of the business activity of the Applicant and, as such, deductible, by force of Article 23, no. 1 of the CITC, can it be inferred that, in light of the business character of these costs, they are excluded from the incidence of autonomous taxation or must they still be submitted to a stricter test, in order to prove the integral business nature of the costs?" (see point 43 Response);

• they are included in the rule of incidence in question in the case, as then written, with expenses with LPV whether they are deductible or not deductible;

• neither in the letter of nos. 3 to 6 of Article 88, nor in any other rule of the CITC is it glimpsed that the costs in question may be subtracted from the rules of AT incidence once the proof of their integral business nature is made (see point 45 Response);

• as contained in the Arbitral Decision in case no. 148/2016-T "there is no rule that establishes the possibility of an option" (see point 49 Response);

• autonomous taxation applies to a heterogeneous set of very disparate realities and the purposes intended by the legislator with the respective taxation are multiple and have evolved over time; (see points 50 et seq. Response);

• already in the final part of the same no. 3 of Article 88 of the CITC (cf. wording introduced by 2011 State Budget Law) the legislator enshrined the possibility for the TP to avoid taxation in AT;

• Article 88 is a rule of objective incidence and, for that reason, subject to the principle of legality; (see 63 and 64 Response);

• the rule of incidence in question does not contain in its wording, whether explicitly or implicitly, any type of presumption;

• even if the invoked presumption were admitted (which the Respondent does not), the Applicant made no material concrete, complete, unequivocal proof, which probably would not even become feasible;

• the interpretation of Article 88 of the CITC conveyed by the Applicant violates Article 103, no. 2 of the CPR, as violating the principle of legality regarding the negative delimitation of incidence; it must be "judged unconstitutional Article 88, nos. 3 and 5 of the CITC, by violation of the principles of legality (…) and of legal protection and confidence (Article 103, nos. 2 and 3 of the CPR), when interpreted in the sense of harboring within itself a rebuttable presumption, capable of setting aside taxation on costs (…), whenever it is possible to prove their indispensability for efficient operation of companies." (cf. point 123 Response).

We have, therefore, the following:

3.1.1. Questions to be Decided

The questions to be decided, first and foremost, in these proceedings are of law, namely:

(i) Does Article 88, no. 3 of the CITC contain within itself a legal presumption? and

(ii) If a presumption exists in the rule in question, will it be rebuttable (first and foremost, by force of the provision in Article 73 of the General Tax Law)?

These questions will have to be examined and decided in co-relation.

Then, should the questions of law above be answered affirmatively, it will be for this Tribunal to decide:

(iii) Has the Applicant succeeded in proving the facts that translate the opposite result to the "presumed fact" and thus rebutted the "presumption"?

(iv) Is Article 88, nos. 3 and 5 of the CITC unconstitutional, by violation of Article 103, nos. 2 and 3 of the CPR, when interpreted in the sense of harboring within itself a rebuttable presumption capable of setting aside taxation on costs contained therein whenever it is possible to prove their indispensability for the efficient operation of companies?

Finally, it will be necessary to decide:

(v) Reimbursement of the amounts paid (€27,357.83) and, deciding for reimbursement,

(vi) Compensatory interest.

As will be done hereafter. After previously examining two questions raised in the case, one by the Applicant in the RAP, another by the Respondent in the Response. Which we shall refer to as preliminary questions.

Preliminary Question 1

• "Contemporary Grounds of the Act" which is the object of this case

The Applicant, in the RAP, when referring to the object of the Request, states that "(…) the question is (…) the examination of the (il)legality of the rejection of the HA (…)" while "immediate object (second degree act) practiced by the TA." / "Constituting the self-assessment of Corporate Income Tax for 2013 the mediate object (first degree act)." (see points 25 to 27 RAP). And adds that the arbitral tax proceeding constitutes a contentiousness of legality, for that reason inserting itself in the domain of control of the legality of TA decisions, so in the decision of these proceedings "only the "contemporary grounds of the act" should be considered (…)" (see points 28 to 30 RAP).

The act which is the object of this case is, ultimately, the act of self-assessment of Corporate Income Tax. For which declaration of illegality and annulment are requested (as moreover the Applicant also correctly states - see point 31 final RAP). Although as the immediate object of the Request is presented, correctly, the order rejecting the HA. Which maintained in the Legal Order the acts that preceded it.

If it is true that we are within the scope of a contentiousness of legality, it is also true that we will have as object the examination of the legality of the challenged act as it occurred. That is, with its respective contemporary grounds.

Now, on the one hand, the rejection of the HA followed the act of rejection of the GC, incorporating the grounds of the latter, confirming it. And in turn, the act of rejection of the GC confirmed the legality of the self-assessment in Corporate Income Tax by the TP. In examining the self-assessment, it decided for the legality of the same, which it did with the grounds contained in its respective draft decision and order rejecting it.

Thus, the relevant grounds of the third-degree act (HA) should be those contained therein and which adhere to those emanated in the context of draft decision and decision in the second-degree act (GC). Grounds which, in turn, adhere, in fact, to the grounds underlying the self-assessment act, in which the TP proceeded to assess the Autonomous Taxation (which now comes to challenge) by application of Article 88, no. 3 of the CITC.

That being said, it should be noted that the grounds to which the Respondent resorted to decide as it decided in the GC procedure, which are those contained therein, are of a nature to adhere to the grounds that should be understood as underlying the self-assessment act and are essentially of interpretation and application of rules of law.

As writes Rui Duarte Morais, "(…) It will be necessary to distinguish (both regarding the decision of the hierarchical appeal and regarding the decision of the complaint) between substitutive decisions (revocation by substitution) and confirmatory decisions. / If the decision was confirmatory, the object of the action is the primary act. (...)".

In any case, in the case both the second and third acts are challengeable, as well as the first (self-assessment), since those, examining the legality of this one, confirmed it, maintaining it in the Legal Order. Being that the act whose legality comes to be confirmed is an act of the initiative of the TP, thus the TA, by the second-degree act in question (rejection of the GC), is not confirming "a decision contained in a prior administrative decision".

Being the first-degree act the one that ultimately is sought in these proceedings to be annulled, whose legality is asked to be examined, declaring it illegal, it will always fall to the judge to examine it in light of its contemporary grounds (in the case, being an act of the TP's initiative) as well as not being subject in these proceedings to the Parties' arguments "regarding the investigation, interpretation and application of the rules of law" (cf. Article 5, no. 3 of the Code of Civil Procedure).

Regarding the question of delimitation of the object of the proceeding, in situations such as ours in which to the self-assessment act is followed a decision of rejection in administrative procedure (in the case, two), should it be understood that the object is, before all else, the self-assessment act.

As was written in the Judgment of the Superior Administrative Court delivered in case no. 595/09, of 28.10.2009 "(…) in cases in which the gracious complaint is expressly rejected, the object of the judicial challenge proceeding is, formally and directly, the act of rejection, which maintained the assessment that was the object of the complaint, but the real object of the challenge, the act whose legality is to be determined, is the assessment act that was maintained by the act of rejection of the complaint."

In conclusion, it will fall to this Tribunal to examine, in the terms that are set out, the legality of the first-degree act and, likewise, of the second and third-degree acts (which confirmed the legality of that one).

Preliminary Question 2

• prohibition of recourse to equity

The Respondent suggests in the defense by challenge, in the Response, shortly after referring to the questions to be decided in the case, that the thesis argued by the Applicant contains within itself an appeal for the Tribunal to decide by recourse to equity so that, by way thereof, a correction (applicative, we would say) of a law deemed (under the Applicant's perspective) inadequate to the case might be made. And it then points out that this Arbitral Tribunal is prohibited from deciding by recourse to equity.

With the Applicant for its part, in arguments, coming to refer to the question as an exception which, having been raised by the Respondent, cannot prevent the examination of the merits of the case, because it does not occur.

It should be noted concisely that in the context of a request for arbitral pronouncement, in the same way as in judicial challenge proceedings, we are always and only within the scope of a contentiousness of legality. As such, recourse to equity criteria is prohibited – cf. Article 2, nos. 1 and 2 of the LFTA – limiting thus the Tax Arbitral Tribunals to, applying constituted law, examining, precisely, the legality of the acts (listed in that same no. 1 of Article 2 of the LFTA).

It is understood - without need for further development - that what is being requested of this Tribunal in these proceedings is to examine and decide the Request through the application of the Law. As will be seen, and as will be done.

As follows.

3.2. Does Article 88, no. 3 of the CITC contain within itself a legal presumption and, if it does exist, will it be rebuttable (first and foremost, by force of the provision in Article 73 of the General Tax Law)?

With reference to the year 2013, the Applicant self-assessed AT for costs in which it incurred related to certain light passenger vehicles, what it did under Article 88, nos. 3, 4, and 5 of the CITC (cf. applicable wording). Of these costs, part pertained to "pool vehicles". And it is in this part, which in the self-assessment of AT respects the costs incurred or supported with the "pool vehicles", that the Applicant identifies illegality.

The rates applied and amounts determined are not challenged. What is invoked is that such expenses should not be considered subject to AT, since they were intended for purposes exclusively business and, thus, it should be understood that the "presumption of entrepreneurship" contained in the rule of incidence is set aside, with consequently the same expenses/costs falling outside that scope of incidence.

Thus considers the Applicant that there exists in the rule of incidence in question a presumption. And further, that such presumption must be understood to be rebuttable, because, it argues, being Article 88 of the CITC, no. 3 a rule of objective incidence, Article 73 of the General Tax Law will govern, which provides to the effect that presumptions enshrined in rules of incidence always admit proof to the contrary.

Therefore, argues the Applicant, proving that the expenses in question were incurred by it for purposes exclusively business (not just partially business, as it understands the legislator presumed) the self-assessment act should be considered tainted with error in that part. Thus requesting its annulment, to that extent, and also requesting the annulment of the orders rejecting emanated by the Respondent in the GC and HA procedures.

It should be noted further, first and foremost, that it is a settled understanding that it falls within the competence of Tax Arbitral Tribunals, functioning under the aegis of CAAD, the competence to examine the legality of second and third-degree acts in cases in which they effectively examined the legality of first-degree acts listed in Article 2, no. 1 of the LFTA, whose legality is again questioned in this forum (Arbitral Tax).

In these proceedings we are faced with a first-degree act of self-assessment, with the filing of the necessary Gracious Complaint taking place (cf. Article 131 of the Code of Tax Procedure, Article 10, no. 1 lit. a) of the LFTA and Article 2 lit. a) of the Binding Ordinance). Which examined the legality of the first-degree act, with the subsequently filed Hierarchical Appeal, also filed, examining the legality of what was decided in the GC (which confirmed it).

Now moving to the fundamental question that falls to be examined and decided here.

Let us see, from now on, the relevant legal framework.

Article 88 of the CITC provided, as applicable, thus (always underlined and in bold our own):

Article 88 – Autonomous Taxation Rates

1 — Undocumented expenses are autonomously taxed, at the rate of 50%, without prejudice to their non-consideration as expenses under Article 23.

2 — The rate referred to in the previous number is raised to 70% in cases in which such expenses are made by taxpayers totally or partially exempt, or who do not exercise, by principal title, activities of a commercial, industrial or agricultural nature and also by taxpayers who earn income within Article 7.

3 - Expenses incurred or supported by taxpayers not exempt from a subjective standpoint and who exercise, by principal title, a commercial, industrial or agricultural activity, relating to light passenger vehicles or mixed vehicles whose acquisition cost is equal to or less than the amount fixed under item e) of no. 1 of Article 34, motorcycles or motorbikes, excluding vehicles powered exclusively by electric energy, are autonomously taxed at the rate of 10%.

4 - Expenses incurred or supported by the taxpayers mentioned in the previous number, relating to light passenger vehicles or mixed vehicles whose acquisition cost exceeds the amount fixed under item e) of no. 1 of Article 34, are autonomously taxed at the rate of 20%.

5 — Expenses relating to light passenger vehicles, motorcycles and motorbikes are considered to include, namely, depreciations, rents or leases, insurance, maintenance and conservation, fuels and taxes inciding on their possession or use.

6 — Excluded from the provision in no. 3 are expenses relating to light passenger vehicles, motorcycles and motorbikes, assigned to the operation of public transport service, intended to be rented in the normal exercise of the business activity of the taxpayer, as well as depreciations relating to vehicles regarding which the agreement provided for in no. 9) of item b) of no. 3 of Article 2 of the Personal Income Tax Code has been entered into.

7 - Deductible expenses relating to representation expenses are autonomously taxed at the rate of 10%, considering as such, in particular, expenses incurred with receptions, meals, trips, entertainment and shows offered in the country or abroad to customers or suppliers or to any other persons or entities.

8 — They are subject to the regime of no. 1 or no. 2, as appropriate, being the applicable rates, respectively, 35% or 55%, expenses corresponding to amounts paid or owed, by any title, to natural or legal persons resident outside Portuguese territory and there subject to a clearly more favorable tax regime, as defined under the Code, unless the taxpayer can prove that they correspond to operations actually carried out and do not have an abnormal or excessive character.

9 — Deductible expenses relating to travel allowances and compensation for travel in the employee's own vehicle, at the service of the employing entity, not invoiced to customers, written up by any title, except to the extent that taxation occurs under Personal Income Tax in the sphere of the respective beneficiary, as well as non-deductible expenses under item f) of no. 1 of Article 45, supported by taxpayers that present a tax loss in the taxation period to which they relate, are also autonomously taxed at the rate of 5%.

10 — (Repealed)

11 — Profits distributed by entities subject to Corporate Income Tax to taxpayers that benefit from total or partial exemption are autonomously taxed, at the rate of 25%, encompassing, in this case, capital income, when the corporate interests to which the profits relate have not remained in the ownership of the same taxpayer, uninterruptedly, during the year prior to the date of their made available and will not be maintained for the time necessary to complete that period.

12 — From the amount of tax determined, in accordance with the provision in the previous number, the tax that may have been retained at the source is deducted, not being able in this case the retained tax to be deducted under no. 2 of Article 90.

13 — Autonomously taxed, at the rate of 35%:

a) Expenses or costs relating to indemnities or any compensation owed not related to the achievement of productivity objectives previously defined in the contractual relationship, when there is cessation of duties of manager, administrator or partner, as well as expenses relating to the part that exceeds the value of the remuneration that would have been earned by exercising those duties until the end of the contract, when it is a matter of rescission of a contract before the term, regardless of the modality of payment, whether this is made directly by the taxpayer or whether transfer of the inherent responsibilities is made to another entity;

b) Expenses or costs relating to bonuses and other variable remuneration paid to managers, administrators or partners when these represent a share greater than 25% of annual remuneration and have a value exceeding (euro) 27,500, unless their payment is subject to deferral of a part not less than 50% for a minimum period of three years and conditioned to positive performance of the company throughout that period.

14 - The autonomous taxation rates provided for in this article are increased by 10 percentage points as to taxpayers that present a tax loss in the taxation period to which any of the facts referred to in the previous numbers relate.

In the wording that preceded the applicable wording in the case, namely, in the wording in force until 31 December 2010, inclusive, one read, for what here most relevantly, in nos. 3 and 4 of the same article as follows:

(...)

3 — They are autonomously taxed, excluding vehicles powered exclusively by electric energy:

a) At the rate of 10%, deductible expenses relating to representation expenses and those relating to light passenger vehicles or mixed vehicles, motorcycles or motorbikes, incurred or supported by taxpayers not exempt from a subjective standpoint and who exercise, by principal title, a commercial, industrial or agricultural activity;

b) At the rate of 5%, deductible expenses, supported by the taxpayers mentioned in the previous number, relating to light passenger vehicles or mixed vehicles whose homologated levels of CO2 emission are less than 120 g/Km, in the case of being powered by gasoline, and less than 90 g/Km, in the case of being powered by diesel, provided that, in both cases, a conformity certificate has been issued.

4 — Deductible expenses, supported by the taxpayers mentioned in the previous number, relating to light passenger vehicles or mixed vehicles whose acquisition cost exceeds the amount fixed under item e) of no. 1 of Article 34, when the taxpayers present tax losses in the two taxation periods prior to the one to which the said expenses relate, are autonomously taxed at the rate of 20%.

Also in the CITC, Article 23 provided, in the applicable wording:

Article 23 - Expenses

1 — Expenses are those which are demonstrably indispensable for the realization of income subject to tax or for the maintenance of the income source, namely:

a) Those relating to the production or acquisition of any goods or services, such as materials used, labor, energy and other general expenses of production, conservation and repair;

b) Those relating to distribution and sale, encompassing those of transport, advertising and placement of goods and products;(...)

g) Depreciations and amortizations;

(...)

For its part, the legislator provides in the General Tax Law ("GTL"), in its Articles 73 and 74 thus:

Title III – Of the Tax Procedure

Chapter III – Of the Procedure

Section II – Instruction

Article 73 - Presumptions

Presumptions enshrined in rules of tax incidence always admit proof to the contrary.

Article 74 - Burden of Proof

1. The burden of proof of the facts constituting the rights of the tax administration or of taxpayers falls on those who invoke them.

(...)

In the Code of Tax Procedure, also with interest for the case, the legislator provides thus:

Article 64 – Presumptions

1 - The interested party wishing to rebut any presumption provided for in the rules of tax incidence, if it does not wish to use the means of the gracious complaint or judicial challenge of tax act based thereon, shall request the opening of its own contradictory procedure.

2 - The procedure provided for in the previous number shall be instituted in the local peripheral organ of the area of the domicile or seat of the taxpayer, the location of the goods or the assessment, by petition of the taxpayer addressed to that organ, accompanied by the means of proof admitted in the tax laws.

3 - The petition shall be considered tacitly approved if no response is given to it within the period of six months, unless the failure thereof is imputable to the taxpayer.

4 - If the general periods for complaint or judicial challenge of the tax act have already ended, the decision of the procedure provided for in this article only produces effects for the future.

Finally, in the Civil Code ("CC"):

Chapter II – Proof

Section I – General Provisions

Article 342 – Burden of Proof

1. It falls to those who invoke a right to make proof of the facts constituting the right alleged.

2. Proof of the facts preventing, modifying or extinguishing the right invoked falls to those against whom it is invoked.

3. In case of doubt, facts shall be considered as constituting the right.

Article 344 – Inversion of Burden of Proof

1. The rules of the previous articles are inverted, when there is a legal presumption, (...) and, in general, whenever the law determines so.

(…)

Section II – Presumptions

Article 349 – Notion

Presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact.

Article 350 – Legal Presumptions

1. Whoever has a legal presumption in their favor is excused from proving the fact to which it leads.

2. Legal presumptions may, however, be rebutted by means of proof to the contrary, except in cases where the law prohibits it.

Having set out the legal framework, let us then examine, taking as reference, before anything else, the order of considerations we shall proceed through regarding three questions which we here consider as involved, namely:

A) Concepts (presumption and burden of proof; framework - AT - Article 88/3, 4 and 5)

B) Interpretation of the Law (applicable criteria)

C) Nature of taxation under AT

A) Let us begin with the concepts. Presumption and burden of proof. Framework of AT - Article 88, nos. 3, 4, and 5

Article 349 of the CC (above) provides us with such concept: presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact. We are thus dealing with means of proof. Which can be of two types: (i) legal presumptions ("the law draws from a known fact"), and (ii) judicial presumptions ("the judge draws from a known fact").

Referring to presumptions, teach Pires de Lima and Antunes Varela: "in these the proof of a known fact (basis of the presumption) is supposed, from which, then, the unknown fact is inferred." And, further in the words of the same Authors: "Presumptions may be legal, if established by law, or judicial, simple or of experience, when they rest on the mere reasoning of the judge. (…) Presumptions are means of proof which are by their nature fallible, precarious, whose persuasive force can, for that very reason, be set aside by simple counter-proof. (…) Legal presumptions involve the inversion of the burden of proof (cf. Article 344). They are currently designated as presumptions tantum juris those that can be rebutted by proof to the contrary, and as presumptions juris et de jure those that do not admit proof to the contrary."

With respect to presumptions and burden of proof, it was written in Judgment of the Supreme Court of Justice of 16.02.2006, case no. 06B220: "(…) Regarding legal presumptions, the law establishes that those who have them in their favor are excused from proving the facts to which they lead (Article 350, no. 1 of the CC). / Thus occurs, in relation to the referred presumed facts, the inversion of the burden of proof, but they can be rebutted by means of proof to the contrary, without simple counter-proof being sufficient for their rebuttal (Articles 344, nos. 1 and 2 and 347 of the Civil Code). / Consequently, once proof to the contrary is produced, the decision regarding the presumed fact shall be based on it."

And as writes Jorge Lopes de Sousa: "Whoever benefits from a legal presumption is excused from proving the fact to which it leads (Article 350, no. 1, of the CC), having only to prove the fact that serves as the basis of the presumption for the presumed fact to be considered proven."

Let us ponder.

We have, then, that, on the one hand, the presumption of which we speak in these proceedings, apt to invert the burden of proof, to be considered to exist, must necessarily be a legal presumption, in the strict sense of the concept we have just seen. And which is, moreover, that to which Article 73 of the GTL refers (above), as could not be otherwise, and which the Applicant resorts to to substantiate its thesis.

On the other, to be considered to exist, it means then that the TA is excused from proving that the expense was incurred for purposes that are not exclusively business. It suffices for it to prove (we shall have to conclude so is the case in the Applicant's thesis) that such expense was incurred (the fact that serves, then, as the basis of the presumption). And the taxpayer then bears the burden of proof - proof that those expenses were intended for exclusively 100% business purposes (which will be, this latter, on close examination and in the Applicant's thesis, the "constitutive fact" of the taxpayer's right – right not to be taxed, therefore).

Well examined, then, if a presumption is being alleged, which leads to the inversion of the burden of proof, one will always be speaking of a legal presumption relating to a certain constitutive fact. A constitutive fact which, in a normal situation (that is not with a legal presumption) would fall to the party to whom it benefits to make the respective proof (cf. Article 74, no. 1 of the GTL and Article 342, no. 1 of the CC, above).

Whence: it also means, therefore, that, had the said (invoked) legal presumption not been established (and continuing to develop the reasoning underlying the Applicant's thesis) there would have instead fallen on the TA the such burden of proof (to which in the Applicant's thesis one resorts) - proof that the costs incurred by the taxpayer with such vehicles by means of the realization of such expenses were intended for purposes that are not 100% business (the same as to say, business purposes only in part). This would be, on close reflection on the Applicant's thesis, the alleged "constitutive fact" of the Respondent TA's right (right to tax, therefore). In "our" branch of Law, Tax, it shall be the same as to say, the "taxable event" or "tax fact".

In other words, it would have (following the reasoning contained in the Applicant's thesis) the legislator established a system in which the tax - its respective incidence - would depend on the realization of proof which, one must say, is invariably difficult. If not impossible, at least in the generality of cases. Whether it falls on the TA to prove the non-allocation 100% to the purposes of business activity (first and foremost because those who made the expenses, and not the TA, will be those who have the elements related to the same); whether it also (and even more so, it seems to us, notwithstanding everything) falls on the taxpayer to prove that the expenses in question were incurred for purposes 100% business (considering the generality of types of expenses and costs included in Article 88 and, for what here most interests us, in its nos. 3, 4, and 5, easily will one conclude that we are, as a rule, faced with facts of, at the minimum, difficult proof).

And what we wish to demonstrate/question with this is simple: would it fall within the will of the legislator to configure such a system, with such complexity, insecurity, and lack of certainty? Would it fall within the legislator's spirit - in legislating here - to be configuring, and wishing, such shifting ground to collect a tax, in the case Autonomous Taxation?

Would it not instead be that the legislator refrained from obtaining certainty regarding the "fact" (elected as such in the Applicant's thesis, as, therefore, the "constitutive fact" of Article 74, no. 1 of the GTL and Article 342, no. 1 of the CC) in question (the allocation to activity total/almost total or partial/minimal/non-existent), having regard to considerations of tax policy and/or others and in an overall vision of the System?

Let us keep in perspective, among other things, the so sought-after objectives, in more recent years, of reduction of litigation between taxpayers and TA and we shall have an answer, in our view, evident.

But it will also not be beside the point to think, to answer to this last question, how AT emerged, how they were framed in the Corporate Income Tax and Personal Income Tax Codes and, likewise, how they are presently framed in the context in which they are inserted.

Briefly, it should be noted that the origin, in our legislation, of AT can be found in Decree-Law no. 375/74, of 20/08 (Article 27), at which time "confidential or undocumented expenses" were prohibited, and the violation of the rule was punished with a fine. Later, by the 1988 State Budget Law, that Article 27 of the referred Decree-Law was amended, proceeding to tax "confidential or undocumented expenses", a rule that was in force separately from any Codes on income or others. Then, already in 1990, with which the CIRC and CIRS were already in force, by Decree-Law no. 192/90 of 09/06 the legislator came to "autonomously tax in Personal Income Tax or Corporate Income Tax" confidential or undocumented expenses, this time, from that new separate rule onwards. And finally, with Law no. 30-G/2000, of 29/12 the legislator came to insert in those Codes the referred taxation, transporting it from that Decree-Law and developing it forthwith and, then, over the years.

In parallel with this development, and complexification, of AT, note, the legislator was also being faced with the need to legislate taking into account the reality of the insufficiency of human and technical (and financial) means of the Tax and Customs Administration to proceed with constant in loco inspections of the universe of taxpayers that was exponentially increasing.

This is to note that if, in the past, the law provided for the possibility for the TA to judge the reasonableness of costs or expenses presented by taxpayers, with the legislator's recourse to indeterminate concepts, seeking to lead the taxpayer to calculate costs and expenses "(…) according to average standards, in a crude manner of containing, by this means, the fraudulent diminution of taxable income." , less remotely also in the law – and let us think now of the CIRC - was provided for the deductibility of costs which then, in practice, were confirmed or disproven upon inspections that were operated at the taxpayers' establishments with frequency, and in which the TA would evaluate, in the context of each case, the reasonableness or not, and to what extent, of the costs and expenses contained in the taxpayer's accounts and which the latter considered as tax costs. Examining for this purpose the documentation, the activity in question, the company's practices, etc., etc., etc.

With the taxpayer then having, in a later moment, the possibility to examine the assessment acts that resulted therefrom.

Having such task in practice become, with the passage of years, impossible as being impractical, the legislator - this is our understanding - resorted to AT, which appeared in this context to its eyes as a possibility in face of the pointed difficulty.

It not falling to us, as a judge, to assess the well or poorly achieved and implicated in the technique followed by the legislator, we understand that also in this light should the content of the rules contained in Article 88 of the CITC be interpreted – and should the invoked enshrinement by the legislator, there, and for what here interests us in the respective nos. 3, 4, and 5 (cf. applicable wording), of a legal presumption (juris tantum) be examined.

All this with in mind, also, the multiple purposes that we could see embedded in the diverse rules there (Article 88) contained, certainly, and which range from anti-abuse purposes and of countering unwarranted erosion of the tax base, penalizing purposes (see the case of undocumented expenses), purposes of discouraging certain behaviors and encouraging others (purposes also extra-fiscal, then), among others.

B) Moving to the Interpretation of the Law. Criteria to Apply.

Tells us, to what here most matters, no. 1 of Article 11 of the GTL thus: "In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed."

We are thus, from the outset, referred to the general criteria for interpretation of laws and, here, in special for the provision in the Civil Code (hereinafter also "CC"), Article 9. Now, pursuant to no. 1 of this article "Interpretation must not confine itself to the letter of the law, but reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

In the following numbers of the same Article 9 it is provided thus: "2. However, the legislative thought which does not have in the letter of the law a minimum verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter. / 3. In fixing the meaning and scope of the law, the interpreter will presume that the legislator established the most appropriate solutions and knew how to express his thought in adequate terms."

We know how these rules and general principles of interpretation and application of laws, also in force, therefore, in Tax Law, operate. Still, let us make a brief reference to them. The underlying question will always be that of, in fixing the meaning and scope with which the normative text should apply, choosing a meaning from among various possible ones. Such meaning that will have to be one that assures a minimum uniformity of solutions. And for such effect rules are then established as guides.

The interpretive criteria or factors are essentially two: (i) grammatical element, corresponding to the letter of the law, the text, and (ii) logical element, subdivided this, for its part, into three others, namely, rational or teleological element, systematic element, and historical element. Being that, the letter and the spirit of the law (grammatical element/logical element) must necessarily be used together.

Hermeneutical currents apart, told us Manuel de Andrade: "(…) the interpreter (…) must start from the presupposition that the law emanates from a reasonable legislator; and, for that reason, will have to ask itself how such a legislator would have thought and wanted the law in legislating in the conditionalism of the time of its publication and in the historical environment in which the law was sanctioned.(…)".

And, as refers Baptista Machado: "(…) point of reference of interpretation: the unity of the legal system. Of the three interpretive factors referred to in no. 1 of Article 9, this is undoubtedly the most important.(…)

Specifically regarding the interpretation of laws in Tax Law, referred Saldanha Sanches thus: "(…) Teleological interpretation can thus lead to greater systematicity in Tax Law, as a technique necessarily structuring and attributing meaning to that which, otherwise, will be a mere conglomeration of laws, each one obeying a conjunctural purpose, in potential conflict with all other objectives and purposes that led to the publication of other laws equally marked by the pursuit of conjunctural interests. The achievement of that systematic unity, which is an indispensable condition for avoiding arbitrariness in the application of tax law, necessarily passes through an interpretation that assures coherence, as a postulate to achieve, in the ordering of the consequences of the Law, (…).

Also regarding interpretation of tax rules, and the specificities applicable, on par with the general criteria, to their interpretation,"(…) tax rules have more similarities with criminal law rules, although the requirement of typicity does not go so far, being tempered with a clearly anti-abuse orientation. Thus it is, insofar as the protection of the rights and interests of taxpayers individually considered must be duly weighed against the constitutional public interest, which is also that of the generality of citizens, of assuring the observance of the principles of universality, equality, justice and tax necessity and of public policy orientations.(…)".

C) And still. Nature of taxation under AT.

It should be noted still, briefly, that AT - it is our understanding - are not confused with a tax on income. Not despite it having been the legislator's option, at a given moment, to transport them into the Corporate Income Tax and Personal Income Tax Codes. In truth, while the taxable event elected by the legislator in these latter is income, which is a taxable event of successive formation, in those, differently, the taxable event is the realization of expenses, it is each one of the expenses as identified, in the case of Corporate Income Tax, in Article 88 of the CITC. A taxable event which is instantaneous. And which, for practical reasons, the legislator opted to have taxpayers assess simultaneously with the assessment of Corporate Income Tax/Personal Income Tax.

As we have already had the opportunity to write in another forum: "These [AT] are due for having been realized by the TP certain expenses, to which certain rates are applied (all cf. Article 88, Chapter IV of the CITC). And nothing more than this. Here the taxable event is the expense. With the amount so determined as AT going simply to be added to the Tax on income to be paid (…), at a moment when the same had previously been calculated and determined in accordance with the rules established throughout the Code (...)". And also thus: "(…) Note that even in situations in which there is a relationship with income, it is income of third parties, which are expenses of the Taxpayer. / And taxation that functions autonomously, also as before being inserted in the CIRC and CIRS. We are thus, faced with taxation distinct from taxation on income. First and foremost by its objective incidence. But also by its functioning."

Also on this: "(…) the Superior Administrative Court adopted a different position (…) considering to be at issue a taxation on expense (this