Autonomous Taxation Surcharge on Fiscal Losses (IRC 2013) – CAAD Ruling 447/2015-T

ARBITRAL DECISION

– REPORT

1.              A… SGPS, S.A., legal entity no. …, with registered office at Rua …, …, Floor … …-… Lisbon, hereinafter referred to as Claimant, filed, in its capacity as dominant company of the … fiscal group, a request for establishment of an arbitral tribunal in tax matters and a request for arbitral pronouncement, pursuant to the provisions of Articles 2, paragraph 1 a) and 10, paragraphs 1 and 2, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, abbreviated as RJAT) and of Articles 1 and 2 of Order no. 112-A/2011, of 22 March, wherein the Tax and Customs Authority (hereinafter AT) is summoned, petitioning the declaration of illegality of the act of denial of the administrative review of the self-assessment and, consequently, of the maintenance of the 2013 self-assessment of Corporate Income Tax, which resulted, in the Claimant's view, in an excessive apportionment under autonomous taxation of the group in that year in the amount of € 730,987.61.
   

2.              The request for establishment of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority.
   

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

4.              The parties were duly notified of this designation and did not express any wish to refuse the designation of the arbitrators, pursuant to the combined provisions of Article 11, paragraph 1, letters a) and b) of the RJAT and Articles 6 and 7 of the Code of Ethics.
   

5.              Thus, in conformity with the provision of Article 11, paragraph 1, letter c) of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 1-10-2015.
   

6.              The Tax and Customs Authority responded to the initial request filed, arguing that the Claimant's petition should be ruled unfounded.
   

7.              Given that none of the purposes legally assigned to it are present in this case, the meeting provided for in Article 18 of the RJAT was waived.
   

8.              The parties submitted final written pleadings.
   

9.              The arbitral tribunal was regularly constituted and is materially competent, in accordance with the provisions of Articles 2, paragraph 1, letter a), and 30, paragraph 1, of Decree-Law no. 10/2011, of 20 January.
   

10.          The parties have legal standing and capacity, are legitimate and are represented (Articles 4 and 10, paragraph 2, of the same decree and Article 1 of Order no. 112-A/2011, of 22 March).
    

11.          The proceedings do not suffer from nullities and no exceptions were raised.
    

12.          The allegations supporting the Claimant's request for arbitral pronouncement are, in summary, as follows:
    

Claimant's Allegations

1.              A…, SGPS S.A. (formerly named B…, SGPS, S.A. – hereinafter B… SGPS) is the dominant company of a group, group B, subject to the special regime for taxation of groups of companies provided for since 2010 to date in Articles 69 et seq. of the Corporate Income Tax Code (Fiscal Group B).
   

2.              The Fiscal Group B was constituted in 2013, in addition to the claimant itself in its capacity as dominant company, by the following companies, among others:
   

• C… – …, S.A. which changed its name to D… – … S.A;

• E…, S.A.;

• F… – …, S.A.;

• G…, S.A.;

• H…, S.A.;

• I…, SGPS, S.A.;

• J…, SGPS, S.A.

1.              The claimant, in its capacity as dominant company of Fiscal Group B…, submitted its consolidated Corporate Income Tax return, Model 22, for the fiscal year 2013, and therein proceeded with the self-assessment of the autonomous taxes for that same year.
   

2.              By means of this petition, the Claimant raises the partial illegality of that same act of self-assessment of autonomous taxation for the fiscal year 2013.
   

3.              The claimant filed an administrative review against the self-assessment of autonomous taxation for the referred fiscal year 2013, and was notified on 8 May 2015 of the denial of the administrative review, by dispatch of 6 May 2015 issued by the Chief of the Division of Tax Management and Assistance of the Large Taxpayers Unit.
   

4.              It is thus concluded that the 90-day period provided for in Article 10, paragraph 1, letter a), of Decree-Law no. 10/2011, of 20 January, for filing a request for establishment of an Arbitral Tribunal, counted from the denial of the administrative review, ended on 6 August 2015, so that, given the filing date of this request for establishment of an Arbitral Tribunal, it must be concluded that it is timely.
   

5.              Moreover, the Directorate General of Taxation, succeeded by the Tax and Customs Authority (hereinafter AT), bound itself to the jurisdiction of the arbitral tribunals pursuant to Article 1, letter a), of Order no. 112-A/2011, with respect to claims submitted, as is the case, under Article 2, paragraph 1, of Decree-Law no. 10/2011.
   

6.              In the case of acts of self-assessment of tax, prior recourse to the administrative route is also required (cf. Article 2, letter a), of Order no. 112-A/2011, of 22 March), a requirement that is met here.
   

7.              The act subject to the Arbitral Tribunal's pronouncement request is the denial of the administrative review identified above and, consequently, the act of self-assessment of autonomous taxation relating to the fiscal year 2013 to the extent corresponding to the application of the increase in rates by 10 percentage points with respect to companies within Fiscal Group B which, in the fiscal years in question, had no tax losses.
   

8.          The claimant submits to the Arbitral Tribunal's consideration (i) the legality of this denial of administrative review, to the extent that it disregards the recognition of the illegality of that part of the self-assessment of autonomous taxation relating to fiscal year 2013 of Fiscal Group B and, as well, (ii) the legality of this part of the self-assessment of autonomous taxation relating to fiscal year 2013 whose amount (as will be demonstrated below) amounts to € 730,987.61.
   

9.          In the aforementioned Corporate Income Tax self-assessment for fiscal year 2013, the then B… SGPS (today, A… SGPS) also proceeded with the self-assessment of autonomous taxes provided for in Article 88 of the CIRC, in a total, in final terms, of € 4,760,180.90.
   

10.          Among the taxes were autonomous taxes in a total of € 2,108,179.51, relating to the following companies within its Fiscal Group:
    

• C… – …, S.A.;

• E…, S.A.;

• F… – …, S.A.;

• G…, S.A.;

• H…, S.A.;

• I…, SGPS, S.A.;

• J…, SGPS, S.A.

The value of both the Corporate Income Tax, including state and municipal surtax, and of the autonomous taxes has been paid.

1.          The autonomous taxes relating to these companies were apportioned by applying to the expenses and charges that constitute their taxable bases the respective rates legally provided for, to which was further added the increase of ten percentage points provided for in Article 88, paragraph 14, of the CIRC, notwithstanding that none of these companies incurred tax losses in 2013.
   

2.          Without that (improper) rate increase of 10 percentage points, the autonomous taxes at issue would have been only € 1,377,191.87, and not € 2,108,179.52, so that the difference, in excess, which is contested here with respect to fiscal year 2013, is € 730,987.62.
   

3.          It should further be noted that the application of this rate increase for autonomous taxation of companies that did not incur tax losses reflected the understanding of the Tax and Customs Authority (AT) regarding the application of the provision of paragraph 14 of Article 88 of the Corporate Income Tax Code in cases in which the taxpayers are part of a group of companies subject to RETGS.
   

4.          In fact, according to the position assumed by the AT within the framework of and made public through a doctrine statement, "for purposes of application of the provision of paragraph 14 of Article 88 of the CIRC, in cases in which the taxpayers are part of a group covered by the special regime for taxation of companies (RETGS), the result (taxable profit or tax loss) apportioned in the group's declaration relating to the period of taxation to which any of the facts liable to autonomous taxation relate should be considered, and not the taxable profit or tax loss apportioned by each of the companies that integrate the scope of consolidation covered by the regime".
   

5.          And the system of electronic data transmission through which the delivery of the periodic Corporate Income Tax declaration is processed is configured in the sense that the increase in autonomous taxation rates should be based on the fiscal result apportioned by the group of companies subject to RETGS to the detriment of the fiscal result apportioned individually by each of the companies that compose it.
   

6.          Faced with the configuration of the electronic data transmission system and being prevented from applying what appears to it (clearly) to result from the provision of paragraph 14 of Article 88 of the Corporate Income Tax Code, the claimant had no alternative but to proceed with the self-assessment of autonomous taxation in accordance with the directives of the AT.
   

7.          On the merits of law, it should be noted, first of all, that the arbitral award handed down in case no. 239/2014-T already sanctioned the understanding that the tax loss apportioned under the fiscal group (RETGS) is irrelevant for purposes of Corporate Income Tax (on profit), with what is relevant instead being, under autonomous taxation (and for purposes of paragraph 14 of Article 88, at issue here), whether each company individually subject to autonomous taxes apportioned, or did not apportion, a tax loss.
   

8.          On the other hand, the facts taxable under autonomous taxes are predominantly expenses and charges and, in any case, never income or profit. This is what results from a simple reading of Article 88 of the CIRC.
   

9.          Autonomous taxes are conceptually different from Corporate Income Tax which taxes profit, with all that this concretely entails: different object, different name, total separation between the two taxes in such a way that from their respective apportionments to any exemptions and exclusions from taxation, nothing passes from the latter to autonomous taxation, as defended by the AT in other forums, much more than by the courts, which merely sanctioned in various cases what the AT defended, and which was based on this simple and evident finding: they are not Corporate Income Tax that taxes profit, so there is no need for an express rule to conclude that provisions thought for the functioning of Corporate Income Tax that taxes profit do not apply to them, nor will they draw from regimes, such as RETGS, conceived for the functioning of Corporate Income Tax that taxes profit.
   

10.          It cannot therefore be sustained that, for purposes of the increase in autonomous taxation rates provided for in Article 88, paragraph 14, of the CIRC, the fiscal result of the group of companies would be relevant, as opposed to the individual situation of the company whose expenses or charges are burdened with autonomous taxes.
    

11.          It is not that the legislator cannot do it. The legislator, as is known, can practically do everything and has been able to do everything, so if the AT asks it to legislate in that direction, it will certainly do so.
    

12.          But the legislator has not (yet) legislated in this countercurrent direction, so what is at issue here is simply interpreting a law, in the context of the logic (immune to the logics, whatever they may be, of Corporate Income Tax that taxes profit) intrinsically individual of autonomous taxes (as opposed to the logic of collectivization of RETGS), a role which the AT performed, it is believed, deficiently on this matter, administratively grafting into autonomous taxes a body (the RETGS) that is foreign to them, a body that does not operate according to the nature and logic of operation (individual) of autonomous taxes.
    

13.          The group regime is not called for here for the simple reason that there is no RETGS in the sphere of autonomous taxation, i.e., there is no taxation of "expenses and charges of the group" under autonomous taxation. RETGS is another logic (of group, as opposed to individual), exclusive (like many others) of Corporate Income Tax that taxes profit.
    

14.          Moreover, now from the constitutional perspective: the mere fact that the entity that incurs the expenses or charges subject to autonomous taxation is integrated in a fiscal group for purposes of taxation of the different taxable fact that is income, does not constitute, minimally, a sufficiently differentiating element to disregard the consideration of its eventual losses for purposes of increasing the rates of autonomous taxation, and to replace it with the consideration of the eventual tax losses of third parties, so that the provision of paragraph 14 of Article 88 of the CIRC, in the interpretation that in case of existence of RETGS what would be relevant for purposes of increasing the rates of autonomous taxes would be the eventual tax loss apportioned at the level of the fiscal group under Corporate Income Tax (taxation on income), as opposed to the eventual tax loss apportioned by the company that incurs the expense subject to taxation under autonomous taxation, violates the principles of proportionality (requirement of just/adequate measure) and equality, and the principles related to this of coherence and prohibition of arbitrariness: cf. Articles 2 (Democratic state under the rule of law, with the inherent principles of proportionality, equality and coherence), 13 (principle of equality) and 18, paragraphs 2 and 3 (principle of proportionality) of the Constitution.
    

15.          The claimant paid tax in an amount exceeding that legally due, so that, with the illegality of the (self-)assessment of autonomous taxation declared in the part here petitioned (increase in the rate of 10% with respect to autonomous taxes of companies that had no tax loss), the claimant has the right not only to the respective reimbursement, but also, under Article 43 of the General Tax Code (LGT), to compensatory interest, calculated on the amount of the tax improperly paid which amounts to € 730,987.62, and counted, until full reimbursement thereof, from the end of the date for official reimbursement of the tax (cf., in the numbering of the years of the fiscal years here in question, Article 104, paragraph 3, of the Corporate Income Tax Code), that is, counted from 1 September 2014.
    

Respondent's Reply:

1.              It is not plausible that the Claimant intends to individualize (in the sphere of the subsidiary company) the increase of ten percentage points of the application of autonomous taxation rates in the event of apportionment of a tax loss by that same company, when it is part of a group of companies under the aegis of RETGS.
   

2.              The Claimant intends that, notwithstanding the consent of a set of companies to be taxed as if they were a single entity, - with the manifest possibility of causing the dilution of taxable profits (apportioned in the sphere of some companies of the group) in tax losses (apportioned by others of the group) – only the subsidiary companies that apportion tax losses are "sanctioned" with the increase in autonomous taxation rates of 10%.
   

3.              In its view, since autonomous taxes are distinct from Corporate Income Tax, and therefore distinct from income tax, they should not be considered in a group logic, but rather on a case-by-case basis, company by company.
   

4.              Historically, the recognition of business groups as an autonomous legal-tax reality in our legal system occurred with the entry into force of Decree-Law no. 414/87, of 31 December.
   

5.              Later, it would be repealed, in favor of the current Special Regime for Taxation of Groups of Companies (RETGS), by Law no. 30-G/2000, of 29 December, provided for in Articles 69 et seq. of the CIRC.
   

6.              It should be said from the outset that RETGS is based on the algebraic sum of the taxable profits and individual tax losses of the companies in the scope, where, in a group of companies, those that have tax credits (losses) may cede them to companies of the group that present gains (and that apportion taxable profit), so as to reduce the tax to be paid by these.
   

7.              In this way, everything that increases the initial net assets of each company, belonging to the group, is taxable income of that company, contributing to the apportionment of the fiscal result of the group.
   

8.              In diametrically opposite fashion, the reductions registered in the value of capital invested in a company, at the end of the fiscal period, embody themselves in the individual tax loss of a company which, also, will contribute to the apportionment of the fiscal result of the group of companies in which it is inserted.
   

9.              Regardless of any eventual complexity of the corporate structures, analysis of management, financial, accounting, tax and even legal matters is carried out with a global vision of the group of companies in which they are inserted.
   

10.          RETGS aims at the joining of one or more entities that are legally independent, but which, on a voluntary basis, present themselves to taxation as if they were a simple economic entity, under the control of a parent company, where control gains the meaning of "power to manage the financial and operational policies of an entity or of an economic activity in order to obtain benefits from it".
    

11.          On the other hand, corroborating our thesis, the arbitral award in case no. 209/2013-T CAAD states that:
    

«It is thus understood, in summary, that one thing is the type of taxable fact that underlies a particular imposition. Another thing is the title to which such imposition is due, in essence, the cause of the tax obligation. And in the case of autonomous taxes under Corporate Income Tax, that cause, the title to which the tax is demanded, will still be Corporate Income Tax.

In this sense, one should note, from the outset, that the legal regime of the autonomous taxes in question makes sense only in the context of taxation under Corporate Income Tax. That is, disconnected from the legal regime of this tax, they will completely lack meaning. Their existence, their purpose, their explanation, in essence, their juridical nature, is only comprehensible and acceptable within the framework of the legal regime of Corporate Income Tax.

In fact, and contrary to what the Claimants affirm, the autonomous taxes now under analysis belong, systematically, to Corporate Income Tax, and not to VAT (as has been seen), to IS, or to any new tax. (…) autonomous taxes of the kind that now concern us are strongly linked to the subjects of the respective income tax and, more specifically, to the economic activity carried out by them.

This aspect becomes even more evident if one considers another fundamental fact: the circumstance that the autonomous taxes now in question only affect deductible expenses!

This circumstance, it is believed, is illustrative of the intertwining existing between those and Corporate Income Tax (in this case), and justificatory not only of their inclusion in the CIRC, but equally of their integration, of full right, as part of the legal regime of Corporate Income Tax.»

1.          For its part, arbitral decision no. 659/2014-T provided:
   

«Such censurability, in the eyes of the law (no. 14 of Article 88 of the CIRC), is increased when the subjects of Corporate Income Tax, or economic groups within the framework of RETGS, report this type of charges as expenses, considered abusive or anomalous, and present tax losses. The Claimant argues that the economic group in which it is inserted paid Corporate Income Tax in the form of state and municipal surtax, in addition to other autonomous taxes. And that, with this, it should not be subject to the elevation of 10 percentage points of the autonomous taxation rate provided for in letter b) of paragraph 13 of the same provision.

Now, in the first place, it seems clear to us that, for the interpretive reasons pointed out in the previous item, the law is clear in referring to "tax losses" and not merely to "losses" or "economic losses". By employing the expression "tax losses" the law is sufficiently clear to, in the determination of its sense, leave no room for doubt that it is these and only these that are relevant to the application of the criterion of increasing autonomous taxation rates.

On the other hand, it seems clear to us that the reference in that paragraph 14 to "tax losses" takes as its starting point the process of determination of real and effective profit in Corporate Income Tax and refers to the net result of the fiscal year after having added or deducted the patrimonial variations and tax corrections of Corporate Income Tax to which Articles 15 to 17 of the Code allude. That is, it refers to the question of whether the legal person in question presents a taxable profit or a tax loss. And it is well aware that accounting and taxation pursue different ends, within the framework of the pointed principle of partial dependence, in such terms that it becomes necessary to introduce corrections in the base, increasing accounting expenses that are not accepted for tax purposes and tax income that are not reflected in the accounting and deducting accounting income that are not relevant for tax purposes and tax expenses that were not accounted for in the period (in this sense, see HELENA MARTINS, O IRC, in Lessons in Taxation, 3rd edition, almedina, 2014, coord. by João Ricardo Catarino / Vasco Guimarães and Manuel Pereira, Taxation, Almedina, 2009).

Being so, there is no doubt that the provision under consideration cannot be interpreted except in the sense that the criterion that effectively establishes itself in it is that of "tax loss" and not that of another loss or economic, financial, accounting or any other profit.

It is true that until the entry into force of the State Budget Law for 2011, only companies that presented a tax loss in the two previous fiscal years would be subject to the increased autonomous taxation rate of 20%, to be incurred on deductible expenses [relating, for example, to light passenger and mixed vehicles whose acquisition value exceeded 40 thousand euros] and that from 2011 on autonomous taxation rates began to be increased by ten percentage points, whenever the taxpayer presents a tax loss in the very fiscal year to which the charges relate.

And equally true that, combining this new rule with the fact that the 20% autonomous taxation rate began to be applied, for example, to expenses with vehicles valued at over 30 thousand euros (for those acquired in the very year 2011), regardless of whether the company presents tax losses or not, it came to mean that the final autonomous taxation rate could reach about 30%, and it can effectively happen that companies that present a tax loss from 2011 onwards come, in some cases, to be more penalized, from a tax point of view, than those that present taxable profit.

However, this is a side of the question that ignores or forgets the aforesaid deterrent nature of autonomous taxes with respect to consumption or expenses that, at a minimum, are of very questionable essential nature or business necessity.

That is: the question can be reduced to asking, in simple terms, whether it is fair or not to penalize whoever, in a situation of tax loss, opts, using the previous example, for the acquisition of light passenger vehicles for use by its administrators, costing above a reasonable limit.

And with respect to this matter there are no specificities or exceptions to be noted for the case, such as that of the instant proceedings, of companies taxed, by their own choice, within the framework of RETGS (Articles 69 et seq., of the CIRC).

In truth, notwithstanding that in this case there occurs a determination of tax losses by fiscal group declaration, the truth is that this occurs by the taxpayer's own choice that accepted that the respective calculation would be processed not individually but through the algebraic sum of the taxable profits and tax losses apportioned in individual periodic declarations so that, in the end, there would be only a single taxpayer for purposes of Corporate Income Tax.

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

A note with respect to surtaxes, to recall that these have long been qualified by Doctrine as accessory taxes, although autonomous. State and Municipal Surtax configure today accessory taxes and not mere dependent taxes (as they are due even if the principal tax, on which they depend, is not), resulting from the respective regime that they are incurred on the taxable profit of the principal tax, but they are not and do not configure themselves as an integral, indivisible part of the principal tax itself - Corporate Income Tax. Surtaxes thus enjoy, in the tax system, scientific autonomy, whether in the form of accessory taxes or additionals, as is the case with the Surtaxes under consideration, although this is a mitigated autonomy since, in a certain way, they live in dependence of the principal tax. They do not, however, configure Corporate Income Tax itself. (in this sense see CARDOSO MOTA, LEMOS PEREIRA, Theory and Technique of Taxation, 7th ed. P. 46; SOARES MARTINEZ, Tax Law, Coimbra editor, 1993, p. 215; CASALTA NABAIS, Tax Law, Almedina, p. 61, 62;ANTÓNIO BRAZ TEIXEIRA, Principles of Portuguese tax law, col. 1, ed. Ática, 1964, p. 59).

As for autonomous taxes, as the Claimant very well refers to, they are effectively Corporate Income Tax, in the sense previously defined as, in fact, numerous Arbitral Decisions have confirmed and is hereby reaffirmed. But Article 88, paragraph 14 of the CIRC does not elect as a criterion for the increase that of the payment of Corporate Income Tax, much less by autonomous taxes. As has been said, that criterion is but one, namely, that of "tax loss". It is, thus, the losses related to commercial activity that are relevant and only these. It can be, certainly, argued that some Corporate Income Tax was paid by the group in which the Claimant is inserted (cf. Article 150 of the p. i.), but the fact is that that Corporate Income Tax is not a Corporate Income Tax on profits but a Corporate Income Tax by autonomous taxes. That is, a tax on facts that are fiscally relevant - expenses accepted as such - that the law wishes to discourage. It is, thus, a Corporate Income Tax due by the reporting of expenses or other realities subject to autonomous taxation and, in that measure, it cannot be inferred that the group paid Corporate Income Tax on profits in the just measure in which it presented "tax losses". It can be discussed, it is also true, the foundations of this logic, but the truth is that it presents itself to us in a clear, coherent manner and in a way that does not intolerably offend the order of values that one wishes to preserve. Thus, there is nothing strange, illegal or unconstitutional about the fact that there are "tax losses" and, at the same time, room for the payment of Corporate Income Tax by autonomous taxes given the fact that one and the other reality relate to differentiated aspects of that order of values that aim precisely to preserve.»

1.          For all the foregoing, the Claimant's claim is dismissed, the dispatch that denied the administrative review filed meriting no censure, nor, consequently, should the act of self-assessment be declared partially illegal, in the parts corresponding to the amounts of € 730,987.62, with respect to fiscal year 2013.
   

2.          As for the compensatory interest petitioned, the Claimant further seeks, as a consequence of the merit of the main petition it formulates – declaration of illegality of the act of self-assessment of tax - that the annulment (partial) of the assessment be determined and, consequently, the Administration proceed to reimburse the sums that (allegedly) would have been borne in excess, plus remuneration in the form of compensatory interest.
   

3.          That calculation, according to the Claimant, should have as its initial term the dates of 01.09.2014, as it coincides with that which would be the end of the date for official reimbursement of the tax by the Administration.
   

4.          In the situation before us, the apportionment of the tax was effected by the Claimant herein.
   

5.          According to the esteemed Counselor Jorge Lopes de Sousa, On the Civil Liability of the Tax Administration for illegal acts, Áreas Editor, Lisbon 2010, p. 52 «In situations in which the performance of the act that defines the tax debt is the responsibility of the taxpayer (as occurs, namely, in the referred cases of self-assessment, withholding at source and payment on account), as well as in those in which the act is performed by the Tax Administration based on incorrect information provided by the taxpayer and there is administrative challenge (administrative review or hierarchical appeal), the error will become imputable to the Tax Administration after the eventual denial of the claim filed by the taxpayer, that is, from the moment when, for the first time, the Tax Administration takes a position on the taxpayer's situation, having at its disposal the elements necessary to make a decision with correct assumptions». (emphasis ours).»
   

That is, even if it were configurabla, which it is not, the payment of compensatory interest in the situation before us, its calculation would have as its initial term the date on which notification of the decision that denied the administrative review procedure occurred and never the moment indicated by the Claimant in its petition.

Established Facts:

1.              The claimant is a holding company (SGPS) subject to the Special Regime for Taxation of Groups of Companies (RETGS).
   

2.              As such it submitted its consolidated self-assessment of Corporate Income Tax for the fiscal year 2013.
   

3.              In the course of the self-assessment relating to Corporate Income Tax for 2013, the Claimant apportioned a total of autonomous taxes of € 2,108,179.51 relating to the companies within Fiscal Group B, calculated on the basis of application of the tax increase of ten percentage points provided for in Article 88, paragraph 14 of the CIRC applicable to all companies of the Group.
   

4.              If it were applied only to the company or companies with tax losses, autonomous taxes would be € 1,377,191.87, that is, € 730,987.62 less.
   

5.              The Claimant herein filed an administrative review (mandatory) of the act of self-assessment, and such administrative review was denied, and from this administrative review the Claimant filed the request for establishment of an arbitral tribunal, all within the legal periods for such purposes.
   

Unestablished Facts:

There are no non-essential facts unestablished that are relevant to the decision.

Substantiation of Established and Unestablished Matters of Fact

Still with respect to matters of fact:

The Tribunal is not required to pronounce itself on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish established from unestablished facts (cf. Article 123, paragraph 2, of the Code of Tax Procedure and Article 659, paragraph 2 of the Code of Civil Procedure, applicable by virtue of Article 29, paragraph 1, letters a) and e), of the RJAT).

In this manner, the pertinent facts for judgment of the case are selected and delimited according to their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (cf. Article 511, paragraph 1, of the Code of Civil Procedure, applicable by virtue of Article 29, paragraph 1, letter e), of the RJAT).

ON THE LAW

The regime sub judice, subject to consideration in the present proceedings, may be understood to aim at discouraging conduct which, aiming at total or mainly avoiding the burden of Corporate Income Tax, presents itself as liable to criticism for abusing the legal regimes for the recognition of expenses in the tax and, with this, causing relevant systemic imbalances.

Such censurability, in the eyes of the law (paragraph 14 of Article 88 of the CIRC), is increased when the subjects of Corporate Income Tax, or economic groups within the framework of RETGS, report this type of charges as expenses, considered abusive or anomalous, and present tax losses. The Claimant argues that the economic group in which it is inserted paid Corporate Income Tax in the form of state and municipal surtax, in addition to other autonomous taxes. And that, with this, it should not be subject to the elevation of 10 percentage points of the autonomous taxation rate provided for in letter b) of paragraph 13 of the same provision.

Now, in the first place, and as was stated in arbitral decision no. 659/2014-T, which will be followed closely, it seems clear to us that, for the interpretive reasons pointed out in the previous item, the law is clear in referring to "tax losses" and not merely to "losses" or "economic losses". By employing the expression "tax losses" the law is sufficiently clear to, in the determination of its sense, leave no room for doubt that it is these and only these that are relevant to the application of the criterion of increasing autonomous taxation rates.

On the other hand, it seems clear to us that the reference in paragraph 14 to "tax losses" takes as its starting point the process of determination of real and effective profit in Corporate Income Tax and refers to the net result of the fiscal year after having added or deducted the patrimonial variations and tax corrections of Corporate Income Tax to which Articles 15 to 17 of the Code allude. That is, it refers to the question of whether the legal person in question presents a taxable profit or a tax loss. And it is well aware that accounting and taxation pursue different ends, within the framework of the pointed principle of partial dependence, in such terms that it becomes necessary to introduce corrections in the base, increasing accounting expenses that are not accepted for tax purposes and tax income that are not reflected in the accounting and deducting accounting income that are not relevant for tax purposes and tax expenses that were not accounted for in the period (in this sense, see HELENA MARTINS, O IRC, in Lessons in Taxation, 3rd edition, almedina, 2014, coord. by João Ricardo Catarino / Vasco Guimarães and Manuel Pereira, Taxation, Almedina, 2009).

Being so, there is no doubt that the provision under consideration cannot be interpreted except in the sense that the criterion that effectively establishes itself in it is that of "tax loss" and not that of another loss or economic, financial, accounting or any other profit.

It is true that until the entry into force of the State Budget Law for 2011, only companies that presented a tax loss in the two previous fiscal years would be subject to the increased autonomous taxation rate of 20%, to be incurred on deductible expenses [relating, for example, to light passenger and mixed vehicles whose acquisition value exceeded 40 thousand euros] and that from 2011 on autonomous taxation rates began to be increased by ten percentage points, whenever the taxpayer presents a tax loss in the very fiscal year to which the charges relate.

And equally true that, combining this new rule with the fact that the 20% autonomous taxation rate began to be applied, for example, to expenses with vehicles valued at over 30 thousand euros (for those acquired in the very year 2011), regardless of whether the company presents tax losses or not, it came to mean that the final autonomous taxation rate could reach about 30%, and it can effectively happen that companies that present a tax loss from 2011 onwards come, in some cases, to be more penalized, from a tax point of view, than those that present taxable profit.

However, this is a side of the question that ignores or forgets the aforesaid deterrent nature of autonomous taxes with respect to consumption or expenses that, at a minimum, are of very questionable essential nature or business necessity.

That is: the question can be reduced to asking, in simple terms, whether it is fair or not to penalize whoever, in a situation of tax loss, opts, using the previous example, for the acquisition of light passenger vehicles for use by its administrators, costing above a reasonable limit.

And with respect to this matter there are no specificities or exceptions to be noted for the case, such as that of the instant proceedings, of companies taxed, by their own choice, within the framework of RETGS (Articles 69 et seq., of the CIRC).

In truth, notwithstanding that in this case there occurs a determination of tax losses by fiscal group declaration, the truth is that this occurs by the taxpayer's own choice that accepted that the respective calculation would be processed not individually but through the algebraic sum of the taxable profits and tax losses apportioned in individual periodic declarations so that, in the end, there would be only a single taxpayer for purposes of Corporate Income Tax.

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

A note with respect to surtaxes, to recall that these have long been qualified by Doctrine as accessory taxes, although autonomous. State and Municipal Surtax configure today accessory taxes and not mere dependent taxes (as they are due even if the principal tax, on which they depend, is not), resulting from the respective regime that they are incurred on the taxable profit of the principal tax, but they are not and do not configure themselves as an integral, indivisible part of the principal tax itself – Corporate Income Tax. Surtaxes thus enjoy, in the tax system, scientific autonomy, whether in the form of accessory taxes or additionals, as is the case with the Surtaxes under consideration, although this is a mitigated autonomy since, in a certain way, they live in dependence of the principal tax. They do not, however, configure Corporate Income Tax itself. (in this sense see CARDOSO MOTA, LEMOS PEREIRA, Theory and Technique of Taxation, 7th ed. P. 46; SOARES MARTINEZ, Tax Law, Coimbra editor, 1993, p. 215; CASALTA NABAIS, Tax Law, Almedina, p. 61, 62;ANTÓNIO BRAZ TEIXEIRA, Principles of Portuguese tax law, col. 1, ed. Ática, 1964, p. 59).

As for autonomous taxes, as the Claimant very well refers to, they are effectively Corporate Income Tax, in the sense previously defined as, in fact, numerous Arbitral Decisions have confirmed and is hereby reaffirmed. But Article 88, paragraph 14 of the CIRC does not elect as a criterion for the increase that of the payment of Corporate Income Tax, much less by autonomous taxes. As has been said, that criterion is but one, namely, that of "tax loss". It is, thus, the losses related to commercial activity that are relevant and only these.

It can be, certainly, argued that some Corporate Income Tax was paid by the group in which the Claimant is inserted (cf. Article 150 of the p. i.), but the fact is that that Corporate Income Tax is not a Corporate Income Tax on profits but a Corporate Income Tax by autonomous taxes. That is, a tax on facts that are fiscally relevant – expenses accepted as such – that the law wishes to discourage. It is, thus, a Corporate Income Tax due by the reporting of expenses or other realities subject to autonomous taxation and, in that measure, it cannot be inferred that the group paid Corporate Income Tax on profits in the just measure in which it presented "tax losses".

It can be discussed, it is also true, the foundations of this logic, but the truth is that it presents itself to us in a clear, coherent manner and in a way that does not intolerably offend the order of values that one wishes to preserve. Thus, there is nothing strange, illegal or unconstitutional about the fact that there are "tax losses" and, at the same time, room for the payment of Corporate Income Tax by autonomous taxes given the fact that one and the other reality relate to differentiated aspects of that order of values that aim precisely to preserve.

Concluding on this point it shall be said that the alleged unconstitutionality of the provision of Article 88, paragraph 14, invoked by the claimant is not surprising. Effectively, the principles invoked of equality and proportionality, among others, will not be put in crisis by this interpretation of the law since, on the contrary, it appears to us that it was the taxpayer who, by opting for group taxation, benefited from certain regimes that also do not exist for the generality of companies, having as a counterpart a certain regime of treatment of autonomous taxes that, precisely, encompass the group which the legislator actually intended and to which the Claimant submitted by its own decision.

Finally, for what it is worth the argument, the truth is that in the Budget Law Proposal for 2016, submitted by the Government to Parliament, a legislative clarification of Article 88 of the CIRC is proposed, in the sense now advocated, that is, that, for purposes of the increase in autonomous taxes, tax losses will be apportioned at the level of the group and not of each of the companies individually. And even more: given the interpretive divergences existing with respect to the matter sub judice, such legislative clarification will have the nature of an interpretive rule, which will reinforce the interpretation that is now given to the normative provisions under consideration.

DECISION:

In harmony with the foregoing, the Tribunal agrees on:

a) To rule the request to annul the self-assessment relating to Corporate Income Tax for 2013, in the amount of € 730,987.62, as totally unfounded;

b) To consider, consequently, prejudicial the consideration and decision of the other questions raised by the Claimant, in particular regarding compensatory interest.

Value of the Case

In harmony with the provisions of Article 306, paragraph 2, of the Code of Civil Procedure and Article 97-A, paragraph 1, letter a), of the Code of Tax Procedure and paragraph 2, Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 730,987.62.

Costs

Pursuant to Article 22, paragraph 4, of the RJAT, the amount of costs is fixed at € 10,710.00 in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant.

Lisbon, 12-2-2016

The Collective Arbitral Tribunal

José Poças Falcão

(President)

Luís Miranda da Rocha

(Member)

(Dissenting in accordance with the statement annexed)

Vasco Valdez

(Member)

Dissenting Opinion

I disagree with the decision taken by the majority, for the reasons described below:

1.  I identify myself with the orientation of the arbitral decision handed down in case no. 239/2014-T, in which the CLAIMANT was the same entity and the subject matter under consideration was of identical nature (but relating to the fiscal years 2011 and 2012). That arbitral decision is contrary to the majority decision taken in the context of this case.
   

2.  The text of paragraph 1 of Article 70 of the Corporate Income Tax Code (CIRC) confines the Special Regime for Taxation of Groups of Companies (RETGS) to the determination of the taxable profit or tax loss of a "Group". Consequently, RETGS is nothing more than a special regime for deduction of tax losses, permitting such deduction to occur "in space" (offsetting the taxable profits of other companies that are part of the same "group for tax purposes") and not merely "in time" (through the mechanism of "carry-forward", enshrined in Article 52 of the CIRC). Now, although autonomous taxes are considered Corporate Income Tax, their tax base is not taxable profit, but rather certain expenses or charges. From the above, I conclude that RETGS merely establishes rules for taxation in Corporate Income Tax, in the part in which this tax is incurred effectively and directly on income (not extending to the determination of autonomous taxes).
   

3.  Paragraph 14 of Article 88 of the CIRC mentions the "taxpayers that present a tax loss". Since RETGS does not alter the rules of incidence of Corporate Income Tax, I understand that the taxpayers are the individual entities that apportion taxable profit or tax loss, even when they are inserted in the "Group of Companies" subject to a "Special Regime for Taxation".
   

4.  I disagree with the argument presented by the RESPONDENT, according to which the set of companies that make up a "fiscal group" has a kind of "common economy" and that, as such, must see the rates of autonomous taxes be determined based on the aggregated fiscal result. In truth, the aggregated fiscal result cannot be interpreted as an increase or decrease in wealth or assets, and is even an indicator without any economic significance, not only because it is influenced by the additions, exclusions, deductions and other corrections made in the so-called "Frame 07" of the "Model 22 Declaration of Corporate Income Tax", but also because the control percentages required to integrate a "group for tax purposes" have nothing to do with criteria of an economic nature (in particular, those adopted in accounting normalization). The indicator that would approach this objective is the consolidated fiscal result. However, RETGS is not a "fiscal consolidation" regime, so one cannot speak of "taxation as if it were a single economic entity".
   

5.  I further consider that, if it were the intention of the legislator to autonomously tax certain expenses of the "Group of Companies" (and not of the companies that compose it), then there must be enshrined in the law a mechanism for the elimination of the so-called internal operations (that is the great difference between a mere aggregation of results and a true consolidation). I believe it is not coherent to admit that the determination of autonomous taxation rates is made according to a "group logic" and that the definition of the respective tax base is carried out individually, considering (and taxing) acquisitions that may have been made to other companies inserted in RETGS. Thus, the tax base of autonomous taxes for the group does not have to correspond to the mere aggregation of expenses borne individually by the companies (that is, the whole can be different from the sum of the parts).
   

I add to the foregoing my disagreement with the reference, in the substantiation of this arbitral decision, to an extract from the Budget Law proposal for 2016, whose content was revealed on 5 February 2016. It is my conviction that an arbitral tribunal should not invoke hypothetical future legal norms to support a decision. Notwithstanding this conviction, and given the effective mention of said budget law proposal, "for what it is worth the argument", I also diverge from the respective interpretation as something that reinforces the majority decision. On the contrary, I am of the opinion that a hypothetical recognition of the need to include in the CIRC a norm that extends the scope of RETGS to the determination of autonomous taxes would be clear proof that, at the date to which this request for arbitral pronouncement relates (2013), there was no provision of incidence that conferred legal support for the determination of autonomous taxation rates, based on the aggregated fiscal result. As for the possible "interpretive nature", being an innovative norm project and not a "legislative clarification" project, I believe that we are faced with a project of a future "false interpretive norm", with an excessive degree of retroactivity.

For all that has been stated, I understand that, in the context of the Special Regime for Taxation of Groups of Companies, the autonomous taxation rates applicable to each company that is part must be a function of its own "fiscal result" (taxable profit or tax loss) individual, so I vote dissenting from this arbitral pronouncement.

Luís Miranda da Rocha

(Member)