CAAD 443/2016-T: IRC Autonomous Taxation, SIFIDE and RFAI Tax Incentives Dispute

ARBITRAL DECISION [1]

The arbitrators Counsellor Maria Fernanda dos Santos Maçãs (President), Dr. Maria Cristina Aragão Seia (Member) and Dr. Sílvia Oliveira (Member), designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Collective Arbitral Tribunal, decided as follows:

I. REPORT

A…, S.A. (hereinafter referred to as "A…" or Claimant), legal entity number …, with registered office at Avenue …, number …, in Lisbon, filed, pursuant to article 2, paragraph 1, letter a) and articles 10 et seq. of the Legal Framework for Tax Arbitration, as provided in Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012, of December 31 (hereinafter abbreviated as "LFTA") and articles 1 and 2 of Ordinance no. 112-A/2011, of March 22, a request for arbitral pronouncement regarding the legality of the decisions denying the requests for review of tax acts numbered …2016… and …2016…, concerning the tax periods 2011 and 2012, respectively.

The respondent is the Tax and Customs Authority (AT).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 29-07-2016.

The Claimant did not appoint an arbitrator, wherefore, in accordance with the provisions of letter a) of paragraph 2 of article 6 and letter b) of paragraph 1 of article 11 of the LFTA, the President of the Deontological Council of CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable timeframe.

On 03-10-2016, the parties were duly notified of such designation, and neither party manifested any intention to challenge the designation of the arbitrators, in accordance with article 11, paragraph 1, letters a) and b), of the LFTA and articles 6 and 7 of the Deontological Code.

Accordingly, in compliance with the provision of letter c) of paragraph 1 of article 11 of the LFTA, the Arbitral Tribunal was constituted on 19-10-2016.

Having been duly notified, the Tax and Customs Authority submitted a response in which it defended the rejection of the request, raising exceptions and challenging the allegations.

As it was understood that the facts relevant to the decision have sufficient documentary support and no witnesses were called by either the Claimant or the Respondent, the hearing referred to in article 18 of the LFTA was dispensed with.

The date of April 19 was set for the pronouncement of the final decision.

The parties submitted written submissions, expressing themselves regarding the evidence produced, reiterating and developing their respective legal positions.

The Claimant seeks a declaration of illegality of the decisions denying the requests for review of tax acts numbered …2016… (doc. 1 attached with the arbitral request) and …2016… (doc. 2 attached with the arbitral request), concerning the tax periods 2011 and 2012, respectively, with their consequent annulment, as well as of the primary tax acts relating to the assessment of Corporate Income Tax (CIT) for the fiscal years 2011 and 2012, as evidenced in Assessment Statement no. 2013… and 2015… (docs. 3 and 4 attached with the arbitral request), alleging, in summary:

a) The Claimant was, on December 31, 2011 and 2012, the parent company of the Special Tax Regime for Groups of Companies (RETGS) of Group B….

b) Group B… was, in the fiscal year 2011, comprised of the following companies: C…, SA, D…, SA, E…, SA, F…, SA, G…, SA, H…, SA, I…, SA, J…, SA and K…, SA.

c) Group B… was, in the fiscal year 2012, comprised of the following companies: C…, SA, D…, SA, E…, SA, F…, SA, L…, SA, G…, SA, M…, SA, N…, Lda, H…, SA, I…, SA, J…, SA, K…, SA and O…, SA.

d) As the parent company, it filed the Group CIT Income Statement Form 22 for the fiscal year 2011, and subsequently, on 27.11.2013, a Substitute Statement (doc. 5).

e) As the parent company, it likewise filed the Group CIT Income Statement Form 22 for the fiscal year 2012, and subsequently, on 18.12.2014, a Substitute Statement (doc. 6).

f) It subsequently submitted a request for review of a self-assessment tax act for the fiscal year 2011, and another review request for the fiscal year 2012, requesting consideration of the State and Municipal Levy as part of CIT collection for the purpose of deducting tax benefits, regarding which partially favorable decisions were issued, with the request being granted with respect to the State Levy, as evidenced in assessment notes numbered 2013… and 2015… (docs. 7 and 8).

g) Group B… held several tax benefits for deduction.

h) In the fiscal year 2009, the Claimant obtained a tax credit relating to the System of Tax Incentives for Business Research and Development (SIFIDE) corresponding to a total of € 635,110.29.

i) Due to insufficient collection, this benefit was not fully deducted in fiscal years 2009 and 2010, with a remaining amount of € 3,824,517.00 in fiscal year 2011 in respect of SIFIDE 2009 and also SIFIDE 2010 and the Investment Support Tax Regime (RFAI) 2010, available for utilization/deduction.

j) In the tax period 2011, the Claimant did not deduct any amount relating to tax benefits in field 355 of Form 22 of the RETGS.

k) Only having deducted the amount initially paid in State Levy against the available tax benefits, after the partial granting of the request for review of the tax act.

l) With regard to the fiscal year 2012, even after the partial granting of the aforementioned voluntary claim, the following remained available for deduction:

• tax credits arising from SIFIDE determined in fiscal years 2010, 2011 and 2012 in the amounts of € 287,480.66, € 363,374.73 and € 302,941.90, respectively; and

• tax credits arising from RFAI determined in fiscal years 2010, 2011 and 2012, in the total amount of € 5,142,523.82.

m) In the period 2012, the Claimant only deducted tax benefits of € 893,536.84, already taking into account the impact of the deduction of the amount relating to the State Levy initially paid.

n) The Claimant, with regard to the deduction of tax benefits that operate through deduction from the collection, has adopted as its procedure, solely as a precaution, the non-consideration of the autonomous taxation collection as CIT collection.

o) However, having regard to recent arbitral jurisprudence, namely the decisions issued by CAAD in cases 219/2015-T, 769/2014-T and 370/2015-T, it should be understood that the amount of autonomous taxes determined in accordance with article 90 of the CIT Code should be considered as CIT collection, for the purposes of deducting SIFIDE and RFAI.

p) In the fiscal years 2011 and 2012, the Claimant bore autonomous taxes in the amounts of € 264,596.66 and € 152,434.43, respectively, corresponding to the sum of the autonomous taxes owed by each of the entities in the group of companies which it controls.

q) On this basis, the Claimant understands that it should be permitted to deduct the said tax benefit determined by the Group, under SIFIDE and RFAI, against its respective autonomous taxation collection determined in accordance with article 90 of the CIT Code, as an integral part of CIT collection.

r) The AT having no legal basis for the position it defends, rather than that, based on the alleged interpretative character (which the Claimant contests) of article 88, paragraph 21 of the CIT Code, as amended by article 133 of Law no. 7-A/2016, of March 30, constitutes a clear violation of the prohibition of retroactivity in tax matters, as results from article 103, paragraph 3 of the Portuguese Constitution (CRP), the jurisprudence of the Constitutional Court and legal doctrine on this matter.

s) For which reason the Claimant seeks the annulment of the decisions denying the requests for review of the tax acts identified above, the addition to the assessed tax of the amount of the autonomous taxes borne in fiscal years 2011 and 2012 and the full deduction of tax benefits, that is, tax credits held under SIFIDE determined in fiscal years 2009 and 2010 and tax benefits determined under RFAI relating to fiscal years 2010 and 2011, in accordance with legal requirements and, consequently, the refund of the tax paid in excess in the global amount of € 417,031.09 (€ 264,596.66 and € 152,434.43 relating to fiscal years 2011 and 2012, respectively).

t) The Claimant further seeks indemnificatory interest, in accordance with article 43 of the General Tax Law (LGT).

In turn, the Respondent came in reply to allege, in summary:

a) The Arbitral Tribunal is materially incompetent to hear and decide the request subject to the present dispute, since this was formulated as a consequence of the denial (partial) of a request for official review, in accordance with articles 2, paragraph 1, letter a) and 4, paragraph 1, both of the LFTA and articles 1 and 2, letter a), both of Ordinance no. 112-A/2011, of 22/3, which constitutes a dilatory exception preventing consideration of the merits of the case, in accordance with the provisions of article 576, paragraphs 1 and 2 of the Code of Civil Procedure.

b) Autonomous taxes, despite being a form of CIT collection, are distinguished by inciding not on profits but on expenses incurred by the taxpayer or by third parties who have relationships with it.

c) The legislator, in creating autonomous taxes, did so with a purpose that belongs to the plane of obvious facts, i.e.,

• the fight against tax evasion;

• the intention to tax the income of third parties whose increase in income would otherwise escape taxation;

• penalty through taxation for the payment of income considered excessive in light of the economic crisis, of which traces still exist today.

d) Permitting the admissibility of deduction of tax benefits from autonomous taxation collection – in the same manner as the law permits for CIT collection – as the Claimant seeks, inevitably undermines autonomous taxes in what were the principles and purposes on which the legislator based their creation.

e) As an anti-abusive fiscal instrument, autonomous taxes would be emptied of any practical-tax content in the event that the thesis defended by the Claimant were accepted.

f) It must always be invoked, definitively resolving the disputed question, the content of paragraph 21 of article 88 of the CIT Code, from the State Budget for 2016, which provides, with interpretative character, that

"The assessment of autonomous taxes in CIT is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, with no deductions being made from the total amount assessed."

g) Interpreting the current rules applicable to autonomous taxes in the sense advocated by the Claimant is nothing more than an abrogating interpretation dressed up as a legislative impulse, and may ultimately constitute a violation of the principle of separation of powers.

h) The tax acts contested by the now Claimant do not merit censure and should remain valid in the legal order, and thus, for lack of substantiation, the arbitral request is rejected.

II. PRELIMINARY MATTERS

2.1. The request for arbitral pronouncement is timely, since it was submitted within the timeframe provided in letter a) of paragraph 1 of article 10 of the LFTA.

2.2. The parties have legal standing and capacity, are properly interested in the request for arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of the LFTA and article 1 of Ordinance no. 112-A/2011, of March 22.

2.3. The accumulation of requests made here by the Claimant is legal and valid, in accordance with the provisions of article 3, paragraph 1 of the LFTA, given that the merits of the requests depend essentially on the assessment of the same factual circumstances and on the interpretation and application of the same principles or rules of law.

2.4. Regarding the issue of the Arbitral Tribunal's competence to hear the request for arbitral pronouncement formulated by the Claimant, the Respondent raised the exception of material incompetence of this Arbitral Tribunal resulting from the fact that the request for arbitral pronouncement was formulated as a consequence of the denial of a request for official review of the CIT self-assessment acts relating to fiscal years 2011 and 2012.

2.4.1. According to the AT, "The request for arbitral pronouncement sub judice is formulated as a consequence of the partial denial of two (2) requests for official review of a tax self-assessment act relating to corporate income tax (CIT) for the years 2011 and 2012, formulated on 31.03.2016, that is, in circumstances at a time when the timeframe for the voluntary claim referred to in article 131 of the Tax Code of Procedure and Process (TCPP) had already elapsed" (9th of Response). "Now, given the provisions of articles 2, paragraph 1, letter a) and 4, paragraph 1, both of the LFTA, and articles 1 and 2, letter a), both of Ordinance no. 112-A/2011, of March 22, there is an exception of material incompetence of the present Arbitral Tribunal to hear and decide the above-mentioned request, a circumstance which requires the absolution of the Defendant from the claim [cf. articles 576, paragraphs 1 and 2 and 577, letter a) of the Code of Civil Procedure, by virtue of article 29, paragraph 1, letters a) and e) of the LFTA]." (10th of Response). The AT argues, in summary, that article 2, letter a) of ordinance 112-A/2011, of 22/3, by which it became bound to arbitral jurisdiction, excludes claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to administrative remedies, in accordance with the provisions of articles 131 to 133 of the TCPP. An understanding which, for the AT, beyond the literal element, is required "by force of the constitutional principles of the rule of law and separation of powers (cf. articles 2 and 111, both of the CRP), as well as of legality (cf. articles 3, paragraph 2, and 266, paragraph 2, both of the CRP), as a corollary of the principle of indisponibility of tax credits inherent in article 30, paragraph 2 of the LGT, which bind the legislator and all activity of the AT" (57th Response). "Effectively, the binding of the AT to necessary arbitral protection, in which the principle of irrevocability of decisions prevails, presupposes a limitation of the situations in which it can fully decide whether or not to appeal an unfavorable judicial decision, that is, the power to choose between definitively waiving collection of the tax credit or adopting the behavior" (58th Response).

The Claimant exercised the right of reply granted to it regarding the exception, defending that "the acts whose legality is disputed were preceded by 'administrative challenge' through the mechanism of official review" (article 15 of Response to Exceptions).

It is necessary to decide:

2.4.2. We shall follow, regarding this matter, the decision issued on 15.11.2016 in Case 143/2016-T, which decided a similar question, which we now transcribe:

"(…). The competence of the arbitral tribunals functioning in CAAD is, in the first place, determined by the matters indicated in article 2, paragraph 1, of decree-law no. 10/2011, of 20/1 (LFTA). In a second place, the competence of the arbitral tribunals functioning in CAAD is also limited by the terms in which the AT became bound to that jurisdiction by ordinance no. 112-A/2011, of 22/3, since article 4 of the LFTA establishes that "the binding of the tax authority to the jurisdiction of the tribunals constituted in accordance with the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered."

In light of this second limitation on the competence of arbitral tribunals functioning in CAAD, the resolution of the competence issue depends essentially on the terms and nature of this binding, because, even if one is dealing with a situation that falls within that article 2 of the LFTA, if it is not covered by the binding, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be ruled out. That is, "the scope (…) of arbitral proceedings is restricted to questions of legality of acts of the types referred to in article 2 [of the LFTA] which are covered by the binding made in Ordinance no. 112-A/2011 (…)", cf. Decision of the Superior Administrative Court of 28/4/2016 (case 09286/16, rapporteur: Anabela Russo).

"(…) It happens that in letter a) of article 2 of ordinance no. 112-A/2011, are expressly excluded from the scope of the AT's binding to the jurisdiction of arbitral tribunals functioning in CAAD the 'claims relating to the declaration of illegality of self-assessment acts, withholding at source acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Procedure and Tax Process.' That is, comparing the binding ordinance with the LFTA, the former is more demanding than the latter, by adding a requirement to abstract delimitation of the subject matter of the AT's binding to arbitral jurisdiction."

"(…) Now what requires special interpretative work is the requirement of 'administrative remedy' necessary (prior), 'in accordance with articles 131 to 133 of the Code of Procedure and Tax Process.'

"First of all, in obedience to those same 'terms' provided for in article 131 of the TCPP, the requirement of prior administrative remedy will only apply to cases where such recourse is mandatory, through the voluntary claim. Indeed, in the case of self-assessments, the voluntary claim is required, but only in cases of errors that are not founded exclusively on matters of law, and in which self-assessments have been effected in accordance with generic guidelines issued by the tax authority (cf. paragraph 1 and paragraph 3 of article 131 of the TCPP)[2].

"The useful meaning of the ordinance, in light of what was established in the LFTA, the will of the legislator, was to ensure that the taxpayer does not resort to the Tribunal '(…) before any position-taking by the administration regarding the situation created by the act of the taxpayer (…) because no dispute is yet detectable'[3]|[4]. Thus it is understood that cases provided for in article 131, paragraph 3 of the TCPP are excluded from the requirement of a voluntary claim, since in those the AT has already ruled, a priori, through 'generic guidelines.'

Returning to the request for arbitral pronouncement, in the case sub judice, what truly matters is that, in cases where a request for official review of an assessment act is formulated, the AT is likewise afforded an opportunity to pronounce on the merits of the taxpayer's claim, before the latter resorts to the judicial remedy.

"Thus, by 'consistency with the solutions adopted in paragraphs 1 and 3 of article 131 of the TCPP, it cannot be required that, cumulatively with the possibility of administrative review within the scope of that official review procedure, a new administrative review through voluntary claim be required. On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from filing requests for official review in cases of self-assessment acts, since these are expressly referred to in paragraph 2 of article 78 of the LGT. In this context, since the law expressly permits taxpayers to opt for the voluntary claim or for official review of self-assessment acts and since the request for official review filed within the timeframe of the voluntary claim is entirely equivalent to a voluntary claim[5] (…) there can be no reason that would explain why access to arbitral remedy could not be granted to a taxpayer who opted for review of the tax act instead of the voluntary claim" [6].

"(…) In light of the foregoing, it is concluded[7] that ordinance no. 112-A/2011, in expressly referring to article 131 of the TCPP regarding claims for declaration of illegality of self-assessment acts, stated imperfectly what it intended. Wishing to impose the administrative review necessary for contentious challenge of self-assessment acts, it ended up making express reference to article 131, forgetting that this remedy does not exhaust the possibilities for administrative review of such acts. The interpretation favored is the interpretation that best reflects the will of the 'legislator' and that does not conflict with any constitutional principles (…)."

This exception of incompetence is therefore rejected.

2.5. In addition to the exception of material incompetence of this Arbitral Tribunal, raised by the Respondent and ruled out by this Tribunal, no other exceptions requiring decision were raised.

2.6. No procedural defects are evident, wherefore it is necessary to proceed to consideration of the merits of the request.

III. MERITS

III.1. MATTERS OF FACT

§1. Established Facts

The following facts are established:

a) The Claimant was, on December 31, 2011 and 2012, the parent company of the Special Tax Regime for Groups of Companies (RETGS) of Group B…, which was comprised, in each of the respective fiscal years, by the following companies:

b) The Claimant, as the parent company of the RETGS, proceeded to file the income statements Form 22 of CIT for its Fiscal Group, relating to fiscal years 2011 and 2012, on May 31, 2012 and May 31, 2013 (as referred to in docs. 10 and 11, attached with the request).

c) The Claimant subsequently submitted, on November 27, 2013, a substitute income statement Form 22 of CIT, with reference to fiscal year 2011 (Doc. 5 attached with the request) and submitted, on May 18, 2014, a substitute income statement Form 22 of CIT, with reference to fiscal year 2012 (Doc. 6 attached with the request).

d) In each of the fiscal years identified above, the Claimant proceeded to self-assess autonomous taxes in CIT, in the amounts of EUR 264,596.66 (2011) and EUR 152,434.43 (2012) respectively (Docs 5 and 6, attached with the request).

e) According to the substitute income statement filed, in fiscal year 2011, Fiscal Group B… made the following tax calculation (Doc. 5 attached with the request):

f) Fiscal Group B… had tax benefits available for deduction, on December 31, 2011, in the total amount of EUR 3,824,517 relating to SIFIDE 2009, SIFIDE 2010 and RFAI 2010, having deducted no amount for this purpose in field 355 of table 10 of the form 22 income statement relating to fiscal year 2011 (as evidenced in Doc. 5, attached with the request).

g) According to the substitute income statement filed, in fiscal year 2012, Fiscal Group B… made the following tax calculation (Doc. 6 attached with the request):

h) Fiscal Group B… had tax benefits available for deduction, on December 31, 2012, in the total amount of EUR 953,797.29 (relating to SIFIDE 2010, 2011 and 2012) and in the amount of EUR 5,142,523.82 (relating to RFAI determined in the years 2010 to 2012), having deducted EUR 492,088.30 under SIFIDE in field 355 of table 10 of the form 22 income statement relating to fiscal year 2012 (as evidenced in Doc. 6, attached with the request).

i) From the substitute statement submitted for CIT for the year 2012 resulted assessment no. 2014…, of December 23, 2014, which was the subject of a voluntary claim (number …2015…), whose request concerned "overpayment of tax in respect of levies, whether state or municipal," and which was the subject of a partial granting decision (as evidenced in Doc. 11, attached with the request).

j) The Claimant submitted, on March 31, 2016, a request for official review of a tax assessment act in CIT (number …2015…), relating to fiscal year 2011, evidenced in assessment no. 2013…, of December 18, 2013, in which a CIT amount to be refunded in the amount of EUR 1,207,785.13 was determined (as evidenced in doc. 10 and doc. 7, attached with the request).

k) The Claimant submitted, on March 31, 2016, a request for official review of a tax assessment act in CIT, relating to fiscal year 2012, evidenced in assessment no. 2015…, of December 19, 2015, in which a CIT amount to be refunded in the amount of EUR 503,117.74 was determined (as evidenced in doc. 11 and doc. 8, attached with the request).

l) The Claimant was notified of Official Letter no. …, of May 20, 2016, relating to the draft decision to deny the administrative procedure for official review number …2016…, relating to CIT for fiscal year 2011 of Fiscal Group B…, and to exercise, if desired, within 15 days the respective right to prior written hearing (Doc. 10 attached with the request).

m) The Claimant did not exercise the hearing right referred to in the preceding point (Doc. 1 attached with the request).

n) The Claimant was notified of Official Letter no. … of May 20, 2016, relating to the draft decision to deny the administrative procedure for official review number …2016…, relating to CIT for fiscal year 2012 of Fiscal Group B…, and to exercise, if desired, within 15 days the respective right to prior written hearing (Doc. 11 attached with the request).

o) The Claimant did not exercise the hearing right referred to in the preceding point (Doc. 1 attached with the request).

p) The Claimant was notified of Official Letter no. …, of June 16, 2016, relating to the decision to deny the administrative procedure for official review number …2016…, relating to CIT for fiscal year 2011 of Fiscal Group B… (Doc. 1 attached with the request).

q) The Claimant was notified of Official Letter no. …, of June 16, 2016, relating to the decision to deny the administrative procedure for official review number …2016…, relating to CIT for fiscal year 2012 of Fiscal Group B… (Doc. 2 attached with the request).

§2. Reasoning Regarding Matters of Fact

Regarding the matters of fact established, the conviction of the Arbitral Tribunal was founded on the free assessment of the positions assumed by the Parties (regarding facts) and on the content of the documents attached to the case file, which were not disputed by the Parties, as well as on the analysis of the administrative file attached by the Respondent.

III.2. MATTERS OF LAW

The central issue to be decided in this case (as presented by the Claimant in the request filed) is whether the CIT self-assessments (including those of autonomous taxes) relating to fiscal years 2011 and 2012 suffer from the material defect of violation of law, object of challenge because, according to the Claimant's understanding, the deduction of SIFIDE and RFAI should not be prohibited from the portion of CIT collection corresponding to autonomous taxes.

According to the Claimant's argument, the CIT collection, as provided in article 90, paragraphs 1 and 2, letters b) and c), as written in each of those fiscal years, also encompasses the collection of autonomous taxes in CIT, that is, the Claimant understands that there exists the "(…) possibility of deducting the tax benefit determined under SIFIDE and RFAI against its respective autonomous taxation collection assessed (…)" in each of the years under analysis (2011 and 2012), nor is it required "(…) the existence of taxable profit determined by the RETGS (…)".

Thus, the Claimant concludes that "(…) autonomous taxes are CIT and that SIFIDE and RFAI are deductible from autonomous taxation collection as an integral part of CIT collection and subject to the CIT assessment rules provided for in article 90 of the Code of that tax."

Additionally, the Claimant also understands that, as regards the scope and nature of article 135 of Law no. 7-A/2016, of March 30, paragraph 21 of article 88 of the CIT Code, introduced by that Law "(…) is an innovative rule, of retroactive character and, consequently, devoid of interpretative character (…)", wherefore "by reference to the tax period 2011 and 2012 (…) the Claimant could not, and should not have relied on the interpretation given (…)" by said paragraph 21 of article 88 of the CIT Code.

For its part, according to the Respondent, "(…) autonomous taxes (…) although constituting a form of CIT collection, are distinguished by inciding not on profits but, rather, on expenses incurred by the taxpayer or by third parties who have relationships with it," wherefore it understands that "the interpretation advanced by the Claimant (…) is nothing more than a violation of the current rules for tax assessment."

Regarding "the interpretative effect granted by article 135 contained in the State Budget Law for 2016 (…)" the Respondent understands that "(…) the very interpretative effect granted by that Law would be (…) unnecessary, in so far as (…) no other interpretation would be possible to be made having regard to the teleology and legal hermeneutics of the norms in question (…), which confers total legality, constitutionality and (…) authenticity on that interpretative character."

The answer to the problem posed presupposes, from the outset, an analysis of the evolution of the figure of autonomous taxes with a view to ascertaining whether its legal regime (comprising nature and reason for being) is compatible with the Claimant's claim or, if instead, the position defended by the Respondent is correct.

III.2.1.1. On the Nature of Autonomous Taxes in National Jurisprudence and Doctrine

As stated in Arbitral Decision no. 722/2016-T, of June 28, 2016, whose panel was presided over by the here also Arbitrator President (and to whose content we hereby refer), autonomous taxes tax expenses and not income, a position assumed by His Excellency Counselor Vítor Gomes (dissenting opinion appended to Decision no. 204/2010 of the Constitutional Court), in the terms of which he states, referring to autonomous taxes, that "although formally inserted in the CIT Code and the amount it permits to be collected is assessed within its scope and as CIT, the norm in question concerns a tax imposition that is materially distinct from taxation in this tax head (….)".

"In effect, we are dealing with autonomous taxation (…) and that makes all the difference. It is not a matter of taxing an income at the end of the tax period, but certain types of expenses in themselves, for the understandable reasons of fiscal policy that the decision points out".[8]

And adds that "in this way, the fact revealing taxable capacity that is sought to be achieved is the simple carrying out of that expense, at a given moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not he comes to have taxable income in CIT at the end of the period, it being irrelevant that this portion of tax is only assessed at a later moment and jointly with CIT" (emphasis ours).

Similarly, it was also recognized by the jurisprudence of the Supreme Administrative Court (STA) that "under the designation of autonomous taxes hide very diverse realities, including, in accordance with paragraph 1 of (then) article 81 of the CIT Code, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in the cases of expenses incurred by taxpayers wholly or partly exempt, or who do not exercise, as their principal activity, commercial, industrial or agricultural activities (paragraph 2 of [then] article 81) and which are not considered as a cost in the calculation of taxable income in CIT. It should be noted, however, that entertainment expenses and those related to light passenger vehicles, in accordance with the provisions of (then) article 81, paragraph 3 of the CIT Code and travel allowances, are affecting business activity and indispensable, so they are fiscally accepted in some cases although within certain limits".[9]

With regard to the position assumed by the Constitutional Court, cite the Decision no. 18/11, in the terms of which it is stated that "there are facts subject to autonomous taxation, which correspond to charges demonstrably indispensable for the realization of returns and (…) this means that autonomous taxation also falls on charges that correspond to the nucleus of the concept of real income, net income and compliance with accounting obligations" (emphasis ours).

"This argument of the Constitutional Court (…) interests us only to point out that the Court recognizes that this regime constitutes a limitation to the taxation of real income (which is guaranteed by article 104, paragraph 2 of the CRP".

More recently, the Constitutional Court reformulates the doctrine of Decision no. 18/11 (mentioned above), approaching the then dissenting opinion of Counselor Vítor Gomes and the Decision of the STA no. 830/11 (also cited above), in the sense of understanding that "contrary to what happens in the taxation of income under IRS and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case, each expense incurred is taxed, considered in itself, and subject to a certain rate, with autonomous taxation being assessed independently of the CIT that is owed in each fiscal year, by not being directly related to the obtaining of a positive result, and therefore, capable of taxation. Thus, and in the case of CIT, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the combination of all income obtained in a given year, the law considering that the tax event is deemed to have occurred on the last day of the tax period (cf. article 8, paragraph 9 of the CIT Code). Now, as regards autonomous taxation in CIT, the tax event is the very carrying out of the expense, not being a complex fact, of successive formation over a year, but a fact of instantaneous taxation" (emphasis ours).

Now, further according to this Decision of the Constitutional Court, "this characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose tax event occurs in successive fashion, by the lapse of a given period of time, usually annual, and tends to repeat itself in time, generating for the taxpayer an obligation to pay tax with a regular character) and single-obligation taxes (whose tax event occurs instantaneously, appears isolated in time, generating on the taxpayer an obligation of payment with an irregular character). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of carrying out a certain expense that is subject to taxation (although the assessment of the amount of tax, resulting from the application of the various taxation rates to the various acts of expense realization considered, is to be carried out at the end of a given tax period). But the fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of permanent character. That operation of assessment translates only into the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, the rate of which is applied to each expense, with no influence of the volume of expenses incurred on the determination of the rate" (emphasis ours). [10]

Regarding doctrine, we find that, in essence, the concept and nature of autonomous taxes does not substantially depart from the understanding of the jurisprudence produced by the Constitutional Court (summarized above).

In fact, as RUI MORAIS points out, "what is at issue is a taxation that falls on certain expenses of taxpayers, which are considered as constituting tax facts. It is difficult to discern the nature of this form of taxation, and even more so the reason why it appears provided for in the codes of taxes on income".[11]

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO states that "it is not properly a matter of CIT – which aims to tax the income of legal entities and not expenses incurred by them – but rather the substitution of a taxation of 'implicit' income of individuals, which is considered not directly enforceable".[12]

In sum, some doctrine and the jurisprudence of national superior courts and the Constitutional Court consider that autonomous taxes are autonomous tax facts that fall on expenses, and therefore, despite being formally inserted in the CIT Code, concern a taxation distinct from the tax on income.

Additionally, it should be noted that it is also accepted by the majority of doctrine and jurisprudence that autonomous taxes are aimed at preventing abusive practices in the remuneration of workers, managers and partners/shareholders of the company.

Indeed, as SALDANHA SANCHES points out, "in this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime of expenses that are found in the zone of intersection of the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for purely fiscal reasons or hidden distribution of profits. The rule presents a characteristic similar to what we will find in the legal sanction against undocumented costs, with a rate increase when the situation of the taxpayer does not correspond to a situation of fiscal normality."[13]

In these terms, "it is a taxation that is explained by the need to prevent and avoid that, through such expenses, companies proceed to disguised distribution of profits, especially dividends which would thus be subject to CIT as profits of the company, as well as to combat fraud and tax evasion caused by such expenses (…)".[14]

III.2.1.2. On the Evolution of the Figure of Autonomous Taxes

On this matter, it should be noted that, in the original version of the CIT Code (approved by Decree-Law no. 442-B/88, of November 30), there was no express or implicit reference to autonomous taxes, and only with Law no. 101/89, of December 29 (act that approved the State Budget for 1990), was a first reference made to autonomous taxes within the scope of CIT, through the legislative authorization contained in paragraph 3 of its article 15 [in accordance with which the Government was authorized to autonomously tax at an aggravated rate of 10% and without prejudice to the provisions of letter h) of paragraph 1 of article 41 of the CIT Code, undocumented or confidential expenses incurred in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by CIT taxpayers not included in articles 8 and 9 of the respective Code].

As is well known, the origin in the Portuguese tax legal system of autonomous taxes dates back to 1990, with the publication of Decree-Law no. 192/90, of June 9, in accordance with which (in article 4), an autonomous taxation was established:

a) At the rate of 10% relating to confidential or undocumented expenses; and

b) At the rate of 6.4%, relating to entertainment expenses and charges related to light passenger vehicles.

In fact, it was with the approval of Decree-Law no. 192/90 (and implementing that legislative authorization) that a rule on autonomous taxes was included at the margins of the IRS and CIT codes, in accordance with which "confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by CIT taxpayers not included in articles 8 and 9 of the respective Code are autonomously taxed in IRS or CIT, as applicable, at a rate of 10% without prejudice to the provisions of letter h) of paragraph 1 of article 41 of the CIT Code."

This rule (and, generally, the regime of autonomous taxes) became subject to various amendments (e.g., Law no. 52-C/96, of December 27, Law no. 87-B/97, of December 31, Law no. 3-B/2000, of April 4 and Law no. 30-G/2000, of December 29), namely through successive modifications, both of the rates and of the systematization and wording given to them, in the respective codes on taxes on income (that is, both in the CIT Code and the IRS Code).

With the approval of Law no. 30-G/2000, of December 29, the decree that established "autonomous taxes" was repealed, adding to the CIT Code article 69-A [corresponding, as of the dates of the facts underlying (2011 and 2012) to article 88] in which, besides the maintenance of incidence of these on undocumented expenses, entertainment expenses and vehicle expenses, the same was extended to other situations of a diverse nature.

As a consequence of this analysis of the evolution of the figure of autonomous taxes, it is possible to draw, from the outset, two conclusions:

(i) The first is that autonomous taxes fall on both deductible and non-deductible charges in CIT;

(ii) The second is that autonomous taxes aim to prevent erosion of the taxable base in CIT, by imposing taxation on charges that may be deducted by CIT taxpayers but which, being so, are transformed into an increase in taxation, thus intending to serve as a disincentive to spending on such charges.

With respect to autonomous taxes on non-deductible expenses, if their deductibility were admitted, it would be admitting the deductibility of a charge not indispensable for the realization of the income subject to tax or for the maintenance of the income-generating source.

Thus, it can be taken as established, and for what will be relevant to the sense of the decision to be pronounced in the present case, the following assumptions:

(i) Autonomous taxes in CIT anchored in the various paragraphs and letters of article 88 of the CIT Code reflect diverse situations, to which different taxation rates also apply;

(ii) Autonomous taxes in CIT falling on certain charges of CIT taxpayers should be understood as payments independent of the existence or non-existence of taxable matter;

(iii) Interpreted as payments associated with CIT, or at least related to it, and may be understood as an exception with respect to the principle of taxation of legal entities in accordance with actual and effective profit assessed (article 3 of the CIT Code),

(iv) In autonomous taxes, the tax fact that gives rise to taxation is instantaneous: it is exhausted in the act of carrying out certain expenses that are subject to taxation (although the assessment of the amount of tax resulting from the various rates applied to the various acts of expense realization considered is to be carried out at the end of a given tax period);

(v) The fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or permanent character, since that operation of assessment translates only into the aggregation, for collection purposes, of the set of operations subject to that taxation, the rate of which is applied to each expense, with no influence of the volume of expenses incurred on the determination of the rate;

(vi) Autonomous taxation is not equivalent to non-deductibility of expenses incurred by the CIT taxpayer.

On the other hand, and as regards the characteristics of autonomous taxes, are recognized here those which, for some time now, doctrine has been pointing out about this type of taxation, namely:

a) Autonomous taxation only makes sense because costs/expenses are relevant as negative components of the CIT taxable profit, which is what motivates CIT taxpayers to show as high a value as possible of such expenses to reduce the taxable matter of CIT, the collection and, consequently, the tax to be paid;

b) With the associated tax regime, it is intended to discourage this type of expenses in taxpayers who show negative results but who, regardless thereof, continue to evidence consumption structures hardly or not at all compatible with the financial health of their companies;

c) It is, in a more general sense, a matter of modeling the tax system so that it reveals a certain balance with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) Certain expenses are viewed unfavorably, about which it is admittedly difficult to determine the exact measure of the component corresponding to private consumption, and for which the general practice of abuse in their statement is known.

III.2.1.3. On the Cause and Function of Autonomous Taxes in CIT

It is settled that autonomous taxes are rooted, as mentioned, in the need to avoid abuses regarding the statement of certain charges or expenses and which may be easily subject to diversion to private consumption or which, in some way, are susceptible of formally constituting an expense of a legal entity, but which, in substance, represent or may constitute abuses in order to minimize the real measure of the tax.

Aware of this difficulty of, often, effecting a rigorous separation of these two realities, was successively "grafted," as described above, onto the regime of taxation of actual and effective profit established in the CIT Code, as the general standard, an autonomous regime of taxation of certain expenses, in whole or in part unwanted and undesirable, which contaminate the terms of the tax duty, which thus arises configured below the real tax-paying capacity of the entity that presents it as such.

In these terms, it can be said that autonomous taxes appear integrated in the CIT regime, are assessed and owed within the scope of the legal relationship of tax on the income of legal entities and it is in this framework that their assessment is effected.

But they are not "CIT," tout court as the Claimant states lapidarily and definitively.

Indeed, for them to be so considered, they would first have to tax income and this, as we have seen, is not what occurs, at any moment. In fact, although there is an evident instrumentality between CIT and the model of income taxation in Portugal and autonomous taxes (a fact moreover well evidenced in the jurisprudence of the Superior Courts and, in particular, of the Constitutional Court), the understanding prevails that autonomous taxes tax expenses.

Indeed, autonomous taxes are an instrument that (moving away from and introducing some measure of distortion in a system that declares it taxes real and effective income), in fact also taxes expenses, deductible or not in CIT, without thereby violating the constitutional provisions, since the applicable rule (article 104, paragraph 2 of the CRP) declares imperative the taxation of companies "fundamentally" on their actual and effective income, without prejudice to both situations of taxation according to profits or actual income (when assessed by indirect methods), and to situations of taxation of expenses subject to autonomous taxation (by express choice of law), the establishment of technical solutions (as is the case of special payment on account) and specific rules aimed at their refund.

Within this scope, it is worth recalling that neither tax systems, nor models of concrete imposition correspond to pure models, free of elements of foreignness to the system itself as founded, of values, or to the general regime of any tax abstractly considered. Indeed, all taxes have characteristics or solutions that, when viewed in isolation, may objectively represent a mischaracterization of the model as conceived in the purity of concepts, but which, when articulated with the model, is verified to contribute to its effectiveness and confer or reinforce its coherence.

These solutions, more pragmatic or specific, do not offend such essential value dictates, whether they be protection of revenue or densification of general value ideals (of the tax order) or specific to the tax (as is the case of the need to avoid abuses), provided that they themselves are not of such significance as to abjure the standard taxation model or structurally falsify the values on which it rests.

In the case under analysis, although the choice of the fundamental law and, consequently, of ordinary law has been clearly in the direction of taxing the income of legal entities and, in the possible forms of assessment thereof, actual and effective income taxation has been chosen as a manifestation of the highest standard of tax justice, the truth is that the system has always known more or less relevant deviations, whether because certain expenses are not considered as such by tax law (although objectively they may be imputable to a commercial activity), whether because tax law, recognizing this essentiality, fears the occurrence of abuses (as is the case of autonomous taxes, generically speaking).

In part, this departure from the purity of concepts is an inevitable consequence of the complexity of the relationships of life, whether because pure models of tax imposition are more costly to implement and manage since they require much more refined relevant information, whether because in the field of taxes, as in other fields of life, the ideal of justice enshrined must be tempered with solutions of normative reasonableness in the qualification of relevant facts and technique in the solutions and requirements to be established, with the objective of preventing tax models from becoming excessively complex and costly, ceasing to reach realities and practices that mitigate the tax burden or contribute to poor distribution thereof.

Now, from this balancing of the values supporting the duty to establish / bear tax with the realities of life may result the need to establish limits (fiscal or otherwise) to the behavior of taxpayers, with the objective of maintaining within general patterns of balance, the legal solutions of the system.

On the other hand, it is important to bear in mind (because this is relevant to the effects of the decision to be taken) that autonomous taxes constitute anti-abuse rules aimed at rationalizing specific behaviors of taxpayers (in light of the tax duty) through which, traditionally, they were able to achieve a measure of tax lower than what was evidenced by their effectively revealed tax-paying capacity but which, by virtue of such abusive behaviors, was capable of being mitigated or eliminated, with evident violation or postponement of the principle of justice, of fair distribution of the tax burden by those who evidence tax-paying capacity.

Consequently, it makes sense to admit that general deductions are made from the tax collection, which are permitted by law to give effective meaning to the principle of taxation of actual and effective income. However, as regards the collection owed by autonomous taxes, that general deduction ceases to make sense because, not taxing profits, but expenses, does not arise, as to them, the question of justice in the distribution of the general tax burden, wherefore it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that pervades them; the deterrent of deviant behaviors that its institution represses or eliminates.

Now, autonomous taxes, as seems clear, do not have a markedly revenue-producing purpose, that is, they do not, primarily, aim at obtaining (more) tax revenue, although this may not be an aspect of little consequence, verifiable.

Indeed, they aim to dissuade behaviors, practices or choices of companies rooted in reasons essentially of a fiscal savings nature, revenue-producing and, on the other hand, preserve the balances inherent to the regime of taxation of legal entities, avoiding distortions not only at the level of taxable results, but waves of deviant behaviors, affecting the legal expectation of revenue, in each economic year.

And, through these general anti-abuse clauses, they force the maintenance of a healthy correlation between the volumes of business, the taxable profits and the tax ultimately owed by CIT-subject entities, in line with the levels of effective tax burden average that falls on the different groups of taxpayers, within the Portuguese tax system and, even comparatively, with that of OECD member states or otherwise.

Thus, autonomous taxes, including those provided for in letter b) of paragraph 13 of article 88 of the CIT Code, have therefore a general regulatory function that is not foreign to the systemic purposes of the tax, especially because, as an anti-abuse mechanism, autonomous taxes are not foreign to the general purposes of the tax system.

In these terms, the adoption of legal regimes that limit the harmful effects resulting from behaviors affecting the balanced distribution of the tax burden among different groups of taxpayers does not constitute merely an option of the legislator but, rather, a strict obligation, as a result of the obligation to design and make the system function as a whole in a balanced manner.

Indeed, autonomous taxes introduce taxation mechanisms that, naturally, will displease their addressees, but they prevent or limit the harmful effects of abusive practices that would harm others and are, therefore, necessary to preserve the system's balance.

Now, companies, just as individuals, are equally subject, with the same intensity, to the general duty to pay taxes and, in this measure, tax law cannot fail to establish mechanisms that limit deviant procedures since each one must bear tax according to their ability, that is, according to their revealed tax-paying capacities.

It is also important to note that, in our day, actual and effective income taxation has been adopted as a general rule for legal entities, not constituting this a mere option of functioning of the tax system among several other possible.

In fact, it is, rather, a concrete manifestation of the modernity and maturity of a tax system that requires of its addressees/beneficiaries a maturity of the same stature, since it also represents a new form of ethical and social accountability before the phenomenon of the tax. [15]

As SALDANHA SANCHES noted, opportunely (cited in Arbitral Decision 187/2013-T, pp. 28), autonomous taxes constitute a form of preventing abusive actions: "(…) that the normal functioning of the tax system was incapable of preventing, while other, including more burdensome forms for the taxpayer, were possible. This anti-abuse character of autonomous taxes, will be not only coherent with its "anti-systemic" nature (as happens with all rules of this kind), as with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the jurisprudence that cites it. They will then materially underlying a presumption of partial business nature of the expenses on which they fall, in function of the above-mentioned circumstance that such expenses are situated on a gray line that separates what is business expense, productive, from what is private expense, consumption, and, notoriously, in many cases, the expense will even have in reality a double nature (part business, part private)". [16]

All these considerations invoke what seems to us to be the true legislative intent, given that the discovery of the true sense of the law constitutes an imperative, since it is necessary to ensure that the interpreter's activity reaches an interpretative sense through which the law exteriorizes its most beneficial, most fruitful and most salutary sense, in the words of FRANCESCO FERRARA.[17]

On the other hand, the logical sense of interpretation leads us only in the direction that autonomous taxes rest on a logic according to which the law intends to avoid or discourage such legal entities from presenting (abusively) as expenses values relating to bonuses or variable remuneration. Thus, it is the presentation as an expense for CIT purposes, in its entirety, that is intended to be discouraged.

By invoking the purpose of the law, it is clear that autonomous taxes are collected within the CIT assessment process in accordance with a root and dogmatic peculiar to that leads to the fact that the total collection of the tax is not a unitary reality but a composite one.[18]

Thus, in it it is possible to discern the tax collection properly speaking, resulting from the general mechanics of CIT assessment, which is owed with a constitutional foundation based on the general duty of each one (which includes legal entities) to contribute to public expenses according to their means (article 103, paragraph 1 of the CRP). All in respect and compliance with the principles of justice, equality and the duty to pay tax according to revealed tax-paying capacity. And from which are deducted the amounts referred to in article 90 of the CIT Code and in the terms and modes referenced therein.

To this general collection, rooted in this foundational basis, is added the specific collection, owed by autonomous taxes, which has, as was made clear, its own root, sense and foundation, namely that of discouraging the adoption of the behaviors taxed by them, enumerated in article 88 of the code, which constitutes an anti-abuse rule, which permits us to invoke here all the dogmatic proper in which it is based.

In this case, since it is a matter of fulfilling purposes that go beyond the purely revenue-producing purposes of the tax, to situate itself in the field of behaviors that the law considers abusive and/or undesired, it seems clear that it does not make sense to make deductions from it, under penalty of emptying, in practice, of any sense the anti-abusive regime created.

Thus, in light of what has been exposed, we are now in a position to analyze the Claimant's request, regarding the legality of the deduction of SIFIDE and RFAI from the portion of CIT collection of Fiscal Group B…, corresponding to autonomous taxation rates, in each of the fiscal years 2011 and 2012.

III.2.2. On the Possible Deductibility of SIFIDE and RFAI from Autonomous Taxation Collection

In light of the foregoing, it was concluded that the collection of autonomous taxes has a different root, which cannot, under penalty of subversion of the order of values, permit the deduction of tax benefits, under penalty of mischaracterization of the principles that specifically are intended to be pursued.

Indeed, having the regime of autonomous taxes a function of discouraging abusive behaviors, there is no reason to see why such discouragement could, thereafter, dissipate, which would occur if it were possible to deduct from the collection of autonomous taxes fiscal incentives, as the Claimant seeks, since that possibility would result in a double strange effect, that is, on the one hand could, at the limit, eliminate the collection resulting from autonomous taxes and, on the other, would foster the deduction of a certain tax benefit (in the present case, SIFIDE and RFAI are at issue, by the fulfillment of objectives or adoption of conduct set forth in the rule conferring the right to the tax benefit) from tax that has a specifically anti-abuse function, mitigation of behaviors fiscally and socially undesired.

From the combination of these possibilities would result a contradictory, illegal and unethical result, precisely because the same tax law would permit, within the framework of the same tax system, to relieve the taxpayer of the burden of paying a tax that is precisely owed because of the adoption of abusive, undesired and discouraged conduct (presentation as expenses of charges provided for in article 88 of the CIT Code).

The arbitral understanding now favored, in the sense of the orientation followed in Arbitral Decision no. 722/2015-T, is in line with the new paragraph 21 of article 88 of the CIT Code added by Law no. 7-A/2016, of March 30, by establishing that from the amount assessed of autonomous taxes no "deductions are made."

Also in this case, the legislator simply adopted, clarifying it, a solution that the courts, with recourse to the rules in force and by application of legal hermeneutic criteria, were in a position to extract from the regime to be applied, which is what this panel limited itself to do in the present case.

In light of the foregoing, it is concluded, in this manner, by the illegality of the deductibility of SIFIDE and RFAI from autonomous taxation collection, without need to resort to the interpretative character given by article 135 of Law no. 7-A/2016, of March 30 (State Budget for 2016), to article 21 of article 88 of the CIT Code, in accordance with which "the assessment of autonomous taxes in CIT is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, with no deductions being made from the total amount assessed."

Thus, the Claimant's argument regarding the declaration of illegality of the assessments by violation of article 103, paragraph 3, of the CRP is rejected, since the tribunal does not decide based on the application of the interpretative law.

In these terms, this Arbitral Tribunal understands that the Claimant's position is not well-founded, for the reasons and grounds invoked above, as regards the possibility of deducting the tax benefit relating to SIFIDE and RFAI from the autonomous taxation collection relating to fiscal years 2011 and 2012.

III.2.3. On the Other Requests

In view of the rejection of the request for declaration of illegality of the assessments contested relating to fiscal years 2011 and 2012, the requests made by the Claimant for refund of the sums paid and respective interest are likewise rendered moot.

III.2.4. On Responsibility for Payment of Arbitral Costs

In accordance with the provisions of article 22, paragraph 4, of the LFTA, "the arbitral decision issued by the arbitral tribunal includes the determination of the amount and apportionment among the parties of the costs directly resulting from the arbitral proceedings."

Thus, in accordance with the provisions of article 527, paragraph 1 of the Code of Civil Procedure (CCP), applicable by virtue of article 29, paragraph 1, letter e) of the LFTA, it must be established that the party that caused them shall be condemned to pay costs or, if there is no prevailing party, whoever obtained benefit from the proceedings.

In this regard, paragraph 2 of the referred article implements the expression "caused," according to the principle of proportional fault, understanding that the losing party, in the proportion in which it loses, causes costs of the proceedings.

In the case under analysis, having regard to the foregoing, the principle of proportionality requires that full responsibility for costs be attributed to the Claimant, in accordance with the provisions of article 12, paragraph 2 of the LFTA and article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings.

IV. DECISION

For the reasons stated, this Arbitral Tribunal decides:

a) The exception of material incompetence of this Arbitral Tribunal, raised by the Respondent, stemming from the fact that the request for arbitral pronouncement was formulated as a consequence of the denial of a request for official review of CIT self-assessment acts relating to fiscal years 2011 and 2012, is rejected;

b) The request for arbitral pronouncement seeking the declaration of illegality of the CIT self-assessments of the Claimant, in the portions produced by autonomous taxes, of fiscal years 2011 and 2012, which are contested, is wholly rejected, with the Respondent being absolved of this request;

c) The request for refund of the amount of CIT paid by the Claimant, relating to fiscal year 2011 (EUR 264,596.66) and relating to fiscal year 2012 (EUR 152,434.43), plus indemnificatory interest, as formulated by the Claimant, is rejected, since this request is rendered moot by the rejection of the arbitral request referred to in b) above, with the Respondent being absolved of the respective request and, in consequence,

d) The decisions denying the requests for review of the CIT self-assessment tax acts relating to fiscal years 2011 and 2012 are upheld;

e) The Claimant is condemned to pay the costs of the present proceedings.

V. VALUE OF THE CASE

In accordance with the provisions of article 306, paragraph 2, of the CCP, article 97-A, paragraph 1, letter a), of the Tax Code of Procedure and Process and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 417,031.19.

VI. COSTS

Pursuant to article 22, paragraph 4, of the LFTA, the amount of costs is fixed at € 6,732.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Notification required.

Lisbon, February 23, 2017

Text prepared on computer, in accordance with the provisions of article 131, paragraph 5, of the CCP, applicable by virtue of article 29, paragraph 1, letter e), of the LFTA.

[1] The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except as regards the transcriptions made.

[2] Moreover, as stated in Decision 617/2015 CAAD, of 22/2/2016, "nor would it be understood that, if administrative challenge were not necessary if the arbitral jurisdiction were to be excluded because this administrative challenge, held as unnecessary, was not effected."

[3] Cf. Lopes de Sousa, Code of Procedure and Tax Process Annotated and Commented. Vol. II, Áreas Ed., p. 407.

[4] Additionally, as stated in Decision 617/2015 CAAD already cited, "beyond not discerning any other justification for this requirement, the fact that identical mandatory voluntary claim is provided for contentious challenge of withholding at source acts and payment on account acts (in articles 132, paragraph 3, and 133, paragraph 2, of the TCPP), which have in common with self-assessment acts the circumstance that there also does not exist a position-taking by the Tax Authority on the legality of the acts, confirms that this is the reason for that mandatory voluntary claim."

[5] Cf. Decision of the STA of 12/6/2006 (case 0402/06, rapporteur: Jorge de Sousa).

[6] Cf. Decision 617/2015 CAAD, of 22/2/2016.

[7] Cf. in the same sense Decisions 117/2013, 244/2013, 299/2013, 613/2014, 56/2015, 203/2015 and 617/2015, all of CAAD.

[8] In the same sense see also dissenting opinion of the same Arbitrator President, appended to Arbitral Decision no. 5/2106-T, of July 27, 2016 (and to whose content we hereby also refer).

[9] See case no. 830/11, of 21-03-2012 (2nd panel).

[10] In this sense, see Decision no. 310/12, of June 20 (Rapporteur Counselor João Cura Mariano), jurisprudence reiterated by the Plenary Decision, in Decision no. 617/2012 (case no. 150/12, of January 31, 2013) and in Decision no. 197/2016 (case no. 465/2015, of May 23, 2016).

[11] See RUI DUARTE MORAIS, in "Notes on CIT," Almedina, 2009, pp. 202-203.

[12] Also CASALTA NABAIS considers that "it is a taxation on expense and not on income" (in "Tax Law, 6th Ed., p. 614) and, in the same sense, cf. ANA PAULA DOURADO (in "Tax Law, Lessons," 2015, p. 237).

[13] See SALDANHA SANCHES, in "Manual of Tax Law," 3rd Ed., Coimbra Editora, 2007, p. 406.

[14] See CASALTA NABAIS, Idem, p. 614.

[15] On questions regarding the limits of morality in relation to tax see SUSANNE LANDREY, STEF VAN WEEGHEL and FRANK EMMERINK). Regarding the deep and indisputable interconnection between law and morality, see JOÃO BAPTISTA MACHADO, Introduction of Law and to the Legitimating Discourse, Almedina, 9th Reprint pp. 50 et seq.

[16] Arbitral Decision of CAAD no. 210/13-T states that the "expenses (…) share among themselves a risk of non-business nature, that is, a risk of not being realized for business purposes, but rather for non-business or private purposes."

[17] In "Interpretation and Application of Laws," Arménio Amado, editors, 1978, p. 137 et seq.

[18] See MANUEL DE ANDRADE, Essay on the Theory of Interpretation of Laws.

[19] The System of Tax Incentives for Business Research and Development (SIFIDE) aims to increase the competitiveness of companies by supporting their Research and Development efforts through deduction from CIT collection of the respective expenses. This incentive system was created in 1997 as a measure to stimulate participation of the business sector in the overall R&D effort. The experience resulting from its application allows us to conclude that this mechanism has contributed to an effective increase in R&D activity by Portuguese companies.

The State Budget Law for 2011 (Law no. 55-A/2010, of December 31) established SIFIDE II (which replaced SIFIDE), which came into effect from 2011, with the introduction of some changes to the legislation that made it even more attractive for companies, with the objective of continuing to increase their competitiveness by supporting their R&D efforts.

[20] The Tax Code for Investment (originally approved by Decree-Law no. 249/2009, of September 23 and amended and republished by Decree-Law no. 162/2014, of October 31) sought to synthesize a set of fiscal aid measures for productive investment and also for research and development, intending to contribute to the promotion of national economic competitiveness and to maintaining a favorable fiscal context for investment, job creation and strengthening of companies' equity. Under that Code, various incentive/tax benefit regimes were established, namely the Investment Support Tax Regime (RFAI). This regime instituted a tax benefit for investment in tangible fixed assets and intangible assets, consisting of deductions from CIT collection (of the tax period in which the relevant applications are made and, when it cannot be effected in full, due to insufficient collection, it may be effected in the assessments relating to the following ten periods, with certain limits), exemption from Stamp Tax and exemption or reduction of Property Tax and Transfer Tax with respect to real property acquired or constructed within this scope, being applicable to CIT taxpayers who exercise as their principal activity an activity in certain sectors [classified in accordance with the Portuguese Classification of Economic Activities, Revision 3 (NACE-Rev.3), as defined in Ordinance no. 282/2014 of December 30].

RFAI is not cumulative with other benefits of the same nature, for the same relevant applications, except those provided for in the regime of Retained Earnings and Reinvestment Deduction (DLRR), with the maximum limits applicable to aids with regional development purpose.