CAAD 456/2016-T: IRC Autonomous Taxation, SIFIDE and RFAI Tax Credit Deductions to Tax Liability

ARBITRAL DECISION

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-chairman), Dr. Paulo Lourenço and Dr. Carla Castelo Trindade, appointed by the Ethics Board of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 19-10-2016, agree as follows:

1. REPORT

A…, S.A. (hereinafter referred to as A… or the "Claimant"), holder of the Collective Person Identification Number (NIPC) No. …, with registered office at Avenue …, No. …, …-… Lisbon, in its capacity as the dominant company of Group B… (in the fiscal year 2013), filed a request for the constitution of a collective arbitral tribunal, under articles 2, no. 1, subsection a), 5, 6 and 10 of Decree-Law No. 10/2011 of 20 January (hereinafter RJAT) and articles 1 and 2 of Ministerial Order No. 112-A/2011 of 22 March, in which the Tax and Customs Authority is the defendant.

The Claimant seeks:

– a declaration of unlawfulness and annulment of the act denying the administrative claim No. …2016…;

– a declaration of unlawfulness and annulment of the assessment act for Corporate Income Tax (IRC) for the fiscal year 2013, as shown in Assessment Statement No. 2015…;

– the addition to the tax calculated under article 90 of the IRC Code, of the amount of autonomous taxation calculated under article 88 of the IRC Code and, consequently, the full deduction of tax benefits, namely tax credits held under SIFIDE and tax benefits calculated under RFAI by reference to the fiscal years 2010 and 2011 (limited, in each of the fiscal years to which they pertain, to a maximum of 25% of the IRC collection assessed), under subsection b) of no. 2 of article 90 of the IRC Code as in force in the fiscal year 2013; and

ii) the refund of the amount of tax overpaid by the Claimant in the amount of € 153,073.37.

The Claimant further requests compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the Tax and Customs Authority on 19-08-2016.

Under the provisions of subsection a) of no. 2 of article 6 and subsection b) of no. 1 of article 11 of the RJAT, the Ethics Board appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the appointment within the applicable period.

On 03-10-2016 the parties were duly notified of such appointment and did not manifest their intention to challenge the designation of the arbitrators, under the combined provisions of article 11, no. 1, subsections a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

In accordance with the provisions of subsection c) of no. 1 of article 11 of the RJAT, the collective arbitral tribunal was constituted on 19-10-2016.

The Tax and Customs Authority responded, defending the unfoundedness of the request for arbitration.

By order of 18-11-2016, it was decided to dispense with the meeting provided for in article 18 of the RJAT and that the proceedings continue with written arguments.

The parties filed written arguments.

The Tribunal is competent, the parties have legal capacity and standing, are legitimate and are duly represented (articles 4 and 10, no. 2, of the same statute and article 1 of Ministerial Order No. 112-A/2011, of 22 March).

The proceedings do not suffer from any defects and there is no obstacle to the consideration of the merits of the case.

2. STATEMENT OF FACTS

2.1. Proven Facts

The following facts are considered proven:

a) The Claimant was, as of 31-12-2013, the dominant company of the Special Regime for Taxation of Groups of Companies (hereinafter RETGS) of Group B…, which, in the fiscal year 2013, was composed of the following companies:

– … – C… S.A.

– … – D… S.A.

– … – E… S.A.

– … – A… S.A.

– … – F… SGPS S.A.

– … – G… - SGPS, S.A.

– … – H… S.A.

– … – I…, S.A.

– … – J…, LDA.

– … – K…, S.A.

– … – L…, S.A.

– … – M…, S.A.

– … – N…, S.A.

– … – O…, S.A.

b) The Claimant, as the dominant company of the RETGS, proceeded to file the Statement of Income Form 22 for IRC for the fiscal year 2013 of the Group, and subsequently a replacement Statement of Income Form 22 for IRC, on 20-10-2015 (document No. 3 attached to the request for arbitration, the contents of which are hereby reproduced);

c) The group taxed under the RETGS, then dominated by the Claimant, held various tax benefits available for deduction in the fiscal year 2013, and following the partial approval of the Administrative Claim filed for the fiscal year 2012 as well as the contested IRC self-assessment, the following remained available for deduction:

– tax credits resulting from the System of Tax Incentives for Research and Development (SIFIDE) calculated in the fiscal years 2011, 2012 and 2013, in a total of € 363,374.73, € 302,941.90, and € 678,761, respectively;

– tax credits resulting from the Tax Regime for Investment Support (RFAI) calculated in the fiscal years 2010, 2011, 2012 and 2013, in a total of € 5,017,632.80; and

– tax credit resulting from the calculation of the Extraordinary Tax Credit for Investment (CFEI) in the fiscal year 2013;

d) Due to insufficient collection, such benefits were not fully deducted in the fiscal years 2010, 2011 and 2012, with various tax benefits remaining available for deduction in the fiscal year 2013, even considering the merits of the request for arbitration concerning the fiscal years 2011 and 2012;

e) In the taxation period of 2013, according to the statement of income contained in Document No. 3, the Claimant deducted tax benefits of only € 509,456.64 in its Statement of Income Form 22 for the RETGS;

f) Following the filing of the statement, on 19-06-2015, the Tax and Customs Authority issued Assessment No. 2015 … which is contained in document No. 2 attached to the request for arbitration, the contents of which are hereby reproduced;

g) On 30-03-2016, the Claimant filed an administrative claim against such assessment, which was assigned No. … 2016 … (document No. 1 attached to the request for arbitration, the contents of which are hereby reproduced, in particular page 3 of the decision draft);

h) The administrative claim was denied by order of 25-05-2016, issued by the Chief of the Division of Management and Tax Assistance of the Large Taxpayers Unit (document No. 1 attached to the request for arbitration, the contents of which are hereby reproduced);

i) The aforementioned order expresses agreement with Information Nos. …-… /2016 and …-… /2016, the contents of which are hereby reproduced, in which, among other things, the following is stated:

§ IV. ANALYSIS OF THE CLAIM

1. Having examined the contents of the initial petition filed by the Taxpayer, now Claimant, and considering that the issue in the present case is to determine whether the tax act under review suffers or not from the defects of unlawfulness pointed out to it, we proceed to assess the merit of the arguments presented to us.

Thus,

§ IV.1. Regarding the calculation of tax

§ IV.1.1. Deduction from autonomous taxation of credits relating to tax benefits under SIFIDE and RFAI

§ IV.1.2. The Claimant's arguments

The Claimant argues that, out of caution, it has been deducting tax benefits only from IRC collection, not considering as such the collection from autonomous taxation, in so far as prior to the reform of the tax effected in 2014 there was uncertainty as to whether this taxation possessed the character of IRC.

1. It holds that with the wording given to subsection a) of no. 1 of article 23-A of the IRC Code by Law No. 2/2014, of 16 January, the nature of autonomous taxation was clarified by establishing that IRC, including autonomous taxation, is not deductible for purposes of determining taxable income.

2. In support of its thesis it invokes various national jurisprudence, both from the Supreme Administrative Court and from the Arbitral Tribunal.

§ IV.1.3. Assessment

1. We cannot agree with the Claimant's intention to deduct from the autonomous taxation calculated in the taxation period 2013 the tax benefits that operate by deduction from the collection of IRC, specifically those resulting from SIFIDE and RFAI.

2. Without prejudice to autonomous taxation currently being inserted in the Codes of Income Tax (IRC Code and IRS Code) and being assessed within its scope and under that title, the fact is that it is an autonomous tax imposition, as indicated by the designation conferred upon it.

3. It is, therefore, a taxation that affects certain types of expenses and not a tax that affects, as in the case of IRS, the annual value of income from its various categories, or as in the case of IRC, income obtained in the taxation period, whose duration is conventionally set at one year.

4. Autonomous taxation is independent of income taxes and should not be confused with them.

5. With autonomous taxation, the intention is not to tax income at the end of the taxation period, but rather to tax certain expenses, considered in themselves, for reasons of fiscal policy that are well known to all.

6. In autonomous taxation, the fact that gives rise to it is each expense subject to it, with an assessment completely independent of that of income taxes, although it will be assessed together with these.

7. Hence, our jurisprudence and doctrine have classified it as a tax of single obligation, whose taxable event occurs instantaneously, which arises isolated in time, generating upon the taxpayer an obligation to pay with an occasional character.

8. As stated in various national jurisprudence, in autonomous taxation, the taxable event that gives rise to the tax is instantaneous: it is exhausted in the act of performing a certain expense 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 performing expense considered, is carried out at the end of a certain tax period). But the fact that the tax is assessed at the end of a certain period does not transform it into a periodic tax, of successive formation or of a lasting character. That assessment operation is merely the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence whatsoever of the volume of expenses incurred in determining the rate.

9. This characterization of autonomous taxation prevents, as a general rule, any deductions being considered in its assessment and even more so those that were enshrined by the legislator for purposes of determining the IRC due and which are provided for in no. 2 of article 90 of the respective Code, which include deductions relating to tax benefits that operate at this stage of tax calculation.

In fact,

1. In the context of IRC, the legislator introduced into the calculation mechanics deductions from collection, which are merely subtractions from the collection of tax aimed at adjusting it, in each taxation period, to particular situations of taxpayers, such as their subjection to situations of international double taxation, their entitlement to enjoy tax benefits, their obligation to have already paid tax in advance (advance payments and withholding at source).

2. It is in this way that in no. 2 of article 90 of the IRC Code we see the possibility of deductions in the assessment of IRC being considered, under the conditions indicated there, relating to:

• International double taxation

• Tax benefits

• Special advance payment as referred to in article 106

• Withholdings at source not susceptible to set-off or reimbursement under applicable law

1. As regards autonomous taxation, the only deduction permitted was established by the legislator in article 88 of the IRC Code, which is itself the regulation that defines the realities subject to it, as well as the respective rates.

2. It is the deduction of tax that may have been withheld at source in the distribution of profits by entities subject to IRC to taxpayers who benefit from full or partial exemption and in the situations provided for in no. 11 of article 88 of the IRC Code, which in this case cannot apply the deduction relating to withholdings at source provided for in no. 2 of article 90 of the same statute as determined by no. 12 of cited article 88.

Wherefore,

1. It can be inferred that autonomous taxation is merely a set of rates that affects autonomous events and even though inserted in the Codes of Income Tax, the result of its application is a pure additional assessment to be collected and paid by taxpayers, being not susceptible of being confronted with deductions from collection, specifically those provided for in no. 2 of article 90 of the IRC Code, as the Claimant requires,

Indeed,

1. In line with what we have just explained is the fact that the legislator, with the State Budget Law for 2016, added to article 88 of the IRC Code no. 21 clarifying that "The assessment of autonomous taxation in IRC is effected under the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the global amount assessed."

In this sense,

1. Also, the specific legislation relating to tax benefits, whether those contemplated in RFAI or those covered by SIFIDE, provides that they are deducted from the IRC collection, not providing for their deduction from any other taxes.

Thus,

1. We conclude that no deduction can be promoted under the terms requested by the Claimant and consequently the tax act complained of does not suffer from any unlawfulness.

j) On 28-07-2016, the Claimant filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision that have not been proven.

2.3. Reasoning for the Determination of Facts

The facts were determined as proven on the basis of the documents attached to the request for arbitration and statements by the Claimant that are not disputed by the Tax and Customs Authority.

3. LAW

The essential question that is the subject of the present proceedings is whether, regarding the fiscal year 2013, the amounts relating to the SIFIDE and RFAI tax benefits can be deducted from the IRC collection produced by autonomous taxation, including in light of the wording of the CIRC resulting from Law No. 7-A/2016, of 30 March.

3.1. Question of the Application of Article 90 of the CIRC to Autonomous Taxation

In the decision on the administrative claim, the Tax and Customs Authority held, in summary, that "autonomous taxation is merely a set of rates that affects autonomous events and even though inserted in the Codes of Income Tax, the result of its application is a pure additional assessment to be collected and paid by taxpayers, being not susceptible of being confronted with deductions from collection, specifically those provided for in no. 2 of article 90 of the IRC Code".

Articles 89 and 90 of the CIRC establish the following, as worded by Law No. 3-B/2010, of 28 April:

Article 89

Competence for Assessment

The assessment of IRC is effected:

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

b) By the General Tax Authority, in the remaining cases.

Article 90

Procedure and Form of Assessment

1 - The assessment of IRC is carried out as follows:

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

b) In the absence of submission of the declaration referred to in article 120, the assessment is effected by 30 November of the year following that to which it relates or, in the case provided for in no. 2 of said article, by the end of the 6th month following the end of the deadline for submission of the declaration mentioned there and is based on the annual value of minimum remuneration or, when greater, the totality of the taxable matter of the fiscal year most recently determined;

c) In the absence of assessment under the preceding subsections, the same is based on the elements available to the tax administration.

2 – To the amount assessed under the preceding number, the following deductions are made, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

c) That relating to special advance payment as referred to in article 106;

d) That relating to withholdings at source not susceptible to set-off or reimbursement under applicable law.

3 – (Repealed by Law No. 3-B/2010)

4 – To the amount assessed under no. 1, regarding the entities mentioned in no. 4 of article 120, only the deduction relating to withholdings at source is to be made when these have the nature of tax on account of IRC.

5 – The deductions referred to in no. 2 relating to entities to which the tax transparency regime established in article 6 applies are imputed to their respective partners or members under the terms established in no. 3 of that article and deducted from the amount assessed on the basis of taxable matter that has taken into account the imputation provided for in the same article.

6 – When the special regime for taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made to the amount assessed regarding the group, under the terms of no. 1.

7 – The deductions made under subsections a), b) and c) of no. 2 cannot result in a negative value.

8 – To the amount assessed under subsections b) and c) of no. 1, only deductions of which the tax administration is aware and which can be made under nos. 2 to 4 are to be made.

9 – In cases where the provision of subsection b) of no. 2 of article 79 is applicable, annual assessments are to be made on the basis of taxable matter determined provisionally, and compared to the assessment corresponding to the taxable matter for the entire assessment period, the difference found is to be collected or annulled.

10 – The assessment provided for in no. 1 can be corrected, if appropriate, within the period referred to in article 101, collecting or annulling then the differences found.

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

In fact, it is now settled, following numerous arbitral decisions and the positions taken by the Tax and Customs Authority, that the tax assessed on the basis of autonomous taxation provided for in the CIRC has the nature of IRC. Moreover, beyond jurisprudence, article 23-A no. 1, subsection a), of the CIRC, as worded by Law No. 2/2014, of 16 January, leaves no room for any reasonable doubt, corroborating what already resulted from the literal wording of article 12 of the same Code.

Now, article 90 of the CIRC refers to the forms of assessment of IRC, by the taxpayer or by the Tax Administration, applying to the calculation of tax due in all situations provided for in the Code, including additional assessment (no. 10).

Therefore, article 90 also applies to the assessment of the amount of autonomous taxation, which is assessed by the taxpayer or by the Tax Administration, following the filing or non-filing of declarations, there being no other provision that provides for different terms for its assessment.

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

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

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

Indeed, it is not only the assessments provided for in article 88 that may encompass various calculations of the application of rates to certain taxable matters, as the same may occur in the situations provided for in nos. 4 to 6 of article 87. [1]

In any case, whatever calculations are to be made, it is the unitary self-assessment that the taxpayer or the Tax and Customs Authority must make under articles 89, subsection a), 90, no. 1, subsections a), b) and c), and 120 or 122, and on the basis of it that the overall IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it. [2]

Indeed, if article 90 were not applicable to the assessment of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no provision governing its assessment, which would amount to illegality by violation of article 103, no. 3, of the Constitution, which requires that assessment of taxes be made "in accordance with the law".

Reference should also be made to the new provision in no. 21 added to article 88 of the CIRC by Law No. 7-A/2016, of 30 March, which, regardless of whether it is truly interpretative, in no way alters this conclusion, as it establishes, regarding the form of assessment of autonomous taxation, that it "is effected under the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers".

Indeed, if it is true that this new provision comes to make explicit how the amounts of autonomous taxation are to be calculated (which already resulted from the text of the various provisions of article 88) and that competence falls to the taxpayer or the Tax Administration, under article 89, it is also clear that it does not set aside the need to use the procedure provided for in no. 1 of article 90, specifically in the cases provided for in its subsection c) where assessment is the responsibility of the Tax and Customs Authority, based on "the elements available to the tax administration", which will include the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements proving its requirements.

Therefore, both before and after Law No. 7-A/2016, of 30 March, article 90, no. 1, of the CIRC is applicable to the assessment of autonomous taxation.

3.2. Question of the Deductibility of Investment Expenses Provided for in SIFIDE from the Amounts Due as Autonomous Taxation

In 2013, the System of Tax Incentives for Research and Development II (SIFIDE II) was in effect, which was approved by article 133 of Law No. 55-A/2010, of 31 December, and amended by article 163 of Law No. 64-B/2011, of 30 December.

This statute establishes the following, in its articles 4 and 5:

Article 4

Scope of Deduction

1 - IRC taxpayers resident in Portuguese territory who exercise, as their principal activity, an activity of an agricultural, industrial, commercial or service nature and non-residents with a permanent establishment in that territory may deduct from the amount assessed under article 90 of the IRC Code, and up to its concurrence, the value corresponding to research and development expenses, insofar as it has not been the subject of financial assistance from the State on a non-repayable basis, carried out in the taxation periods from 1 January 2011 to 31 December 2015, at a dual percentage:

a) Base rate - 32.5% of expenses incurred in that period;

b) Incremental rate - 50% of the increase in expenses incurred in that period compared to the simple arithmetic average of the two preceding fiscal years, up to the limit of (euro) 1,500,000.

2 - For IRC taxpayers who are SMEs as defined in article 2 of Decree-Law No. 372/2007, of 6 November, who have not yet completed two fiscal years and who have not benefited from the incremental rate set forth in subsection b) of the preceding number, an increase of 10% is applied to the base rate set forth in subsection a) of the preceding number.

3 - The deduction is made, under article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding number.

4 - Expenses that, due to insufficient collection, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the sixth immediately following fiscal year.

5 - For purposes of the provisions of the preceding numbers, when in the year of commencement of enjoyment of the benefit there occurs a change in the taxation period, the annual period beginning in that year should be considered.

6 - The incremental rate provided for in subsection b) of no. 1 is increased by 20 percentage points for expenses relating to the hiring of doctorate holders by companies for research and development activities, with the limit provided for in the same subsection becoming (euro) 1,800,000.

7 - To taxpayers who reorganize as a result of concentration operations as defined in article 73 of the IRC Code, the provisions of no. 3 of article 15 of the Tax Benefits Statute apply.

Article 5

Conditions

Only taxpayers who cumulatively meet the following conditions may benefit from the deduction referred to in article 4:

a) Their taxable income is not determined by indirect methods;

b) They are not indebted to the State and to social security for any taxes or contributions, or have their payment duly assured.

In the case at hand, the Tax and Customs Authority does not dispute that the Claimant meets the subjective and objective requirements to benefit from SIFIDE, having denied the administrative claim on the grounds that the expenses in question cannot be deducted from the amounts it paid as autonomous taxation, since the deduction can only be made from the IRC collection resulting from the application of the IRC rate to taxable income.

As stated, article 90 of the CIRC also applies to the assessment of autonomous taxation.

And, as also stated, there is no legal support for affirming that, in the event that several calculations must be made in a declaration to determine IRC, more than one self-assessment is made.

The statute that approved SIFIDE does not state that the credits arising from it are deductible from any and all IRC collection; rather, it defines the scope of the deduction by reference, in its no. 1 of article 4, to "the amount assessed under article 90 of the IRC Code, and up to its concurrence".

No. 3 of the same article 4 confirms that it is to the amount assessed under article 90 of the CIRC that is relevant for carrying out the deduction when stating that "the deduction is made, under article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding number".

Thus, by mere declarative interpretation, it is concluded that article 4, no. 1, of SIFIDE II, by establishing the deduction "to the amount assessed under article 90 of the IRC Code, and up to its concurrence", implies deduction from the amount of autonomous taxation that is assessed under that article 90.

The fact that article 5 of SIFIDE II excludes the benefit when taxable income is determined by indirect methods and autonomous taxation includes situations where the aim is indirectly to tax profits (namely, by not giving relevance to or discouraging facts susceptible of reducing them) has no relevance for this purpose, since the concept of "indirect methods" has a precise scope in tax law, which is substantiated in article 90 of the LGT (in addition to special provisions), referring to means of determining taxable income, whose use is not provided for in calculating the taxable matter of autonomous taxation provided for in article 88 of the CIRC.

On the other hand, if it is the need to make use of indirect methods that excludes the possibility of enjoying the benefit, this exclusion cannot be justified regarding the collection of autonomous taxation, which is determined by direct methods.

Moreover, one cannot see, in the possible anti-abuse nature that some autonomous taxation assumes [3] an explanation for its exclusion from the respective tax collection from the scope of deductibility of the SIFIDE II benefit, since there is no legal support for excluding deductibility from collection derived from corrections based on provisions of an undoubtedly anti-abuse nature, such as those relating to transfer pricing or thin capitalization.

On the other hand, the fact that the deductibility of the SIFIDE II tax benefit is limited to the collection of article 90 of the CIRC, up to its concurrence, does not allow the conclusion that the tax credit is only deductible if there is taxable income, since what that fact requires is that there be IRC collection, which may exist even without taxable income, namely by virtue of autonomous taxation.

Thus, pointing to the literal wording of article 4 of SIFIDE II in the sense that the deduction also applies to the IRC collection derived from autonomous taxation assessed under article 90 of the CIRC, only through a restrictive interpretation can the application of the tax benefit be excluded from the IRC collection provided by autonomous taxation.

A restrictive interpretation encounters, from the outset, a general obstacle, which is that the provisions creating tax benefits have the nature of exceptional provisions, as results from the express wording of article 2, no. 1, of the Tax Benefits Statute, so that, in the absence of special rules, they must be interpreted in their precise terms, as is settled jurisprudence. [4] In the case of tax benefits, extensive interpretation is explicitly provided for (article 10 of the Tax Benefits Statute), but restrictive interpretation is not, so that, as a general rule, the tax benefit should not be interpreted with less amplitude than that which, in a declarative interpretation, results from the wording of the provision that provides for it.

In any case, a restrictive interpretation is only justified when "the interpreter concludes that the legislator adopted wording that belies his intention, insofar as it says more than what he intended to say. Also here the ratio legis will have a decisive word. The interpreter should not be led astray by the apparent scope of the text, but should restrict it so as to make it compatible with legislative thinking, that is, with that ratio. The argument on which this type of interpretation rests is customarily expressed thus: cessante ratione legis cessat eius dispositio (where the reason for the law ends, its scope ends)". [5]

As a basis for a restrictive interpretation, one might argue that some autonomous taxation aims to discourage certain taxpayer conduct susceptible to affecting taxable income, and consequently diminishing tax revenue, and its deterrent force will be attenuated with the possibility of its collection being subject to deductions.

But the discouragement of such conduct is justified only by concerns to protect tax revenue, and the tax benefits granted are, by definition, "exceptional measures instituted to protect relevant non-fiscal public interests that are superior to the taxation they prevent" (article 2, no. 1, of the Tax Benefits Statute).

That is, in the case at hand, by establishing a tax benefit by deduction from IRC collection, the legislator chose to forgo the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this balancing of the interests at stake (tax revenue versus strong stimulus for investment) it is immaterial whether such revenue comes from calculations made under article 87 or article 88 of the CIRC. In fact, whatever the form of calculation of that tax revenue, one is dealing with money whose collection the legislator deemed less important than the pursuit of the aforementioned economic purpose. Of the two alternatives before the legislator regarding the incentive for investments provided for in SIFIDE II, which were, on the one hand, to keep intact the revenue from IRC (including that from autonomous taxation) and not see investment incentivized and, on the other hand, to implement this incentive with loss of IRC revenue, the balancing necessarily underlying SIFIDE II is that of choosing to create the incentive with loss of revenue. And, naturally, if the creation of investment incentive is better, from the legislator's perspective, than the collection of revenue, it is not clear how it can be relevant that the IRC revenue lost to implement the incentive comes from the general taxation of IRC provided for in no. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creating the incentive and collecting IRC revenue and the relative balancing that can be done of the conflicting interests is identical, whatever the forms of determining the amount of IRC that is forgone to create the incentive.

And, in the case of the SIFIDE II tax benefit, the reasons of a non-fiscal nature that justify the incentive with loss of revenue are very strong, since investments incentivized are considered a decisive factor in the country's future competitiveness.

Therefore, it is certain that one is dealing with a tax benefit whose justification is legislatively considered more important than the obtaining of tax revenue from IRC, whatever the basis of its calculation, since what is at stake is always whether or not to forgo a certain amount of money to create an investment incentive.

In this context, the nature of autonomous taxation and the legislatively adopted solutions, in general, regarding it, have no relevance to the assessment of this question, since it must be assessed in light of the specific interests that clash in its balancing.

In fact, what is at stake is exclusively to determine the scope of SIFIDE II, which establishes a regime of an exceptional nature, which aimed to pursue certain public interests, and not to contribute to the decision of any conceptual question regarding the nature of autonomous taxation, a matter on which there is perceived neither in the text of the law nor in the Budget Report for 2011 the slightest legislative concern.

For the same reason that what is at stake is to interpret the scope of the special provision that is SIFIDE II, cannot be given relevance, for this purpose, to the provision in no. 21 of article 88 of the CIRC, added by Law No. 7-A/2016, of 30 March, insofar as it refers that no "deductions are made to the global amount assessed", despite the alleged interpretative nature attributed to it.

In fact, there is no indication, neither in Law No. 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that with the addition to article 88 of the CIRC of a general provision prohibiting deductions to the global amount assessed of autonomous taxation, the intention was to interpret restrictively the expression "deduct from the amount assessed under article 90 of the IRC Code" which appears in a special provision of a separate statute, such as SIFIDE II.

And, in the absence of an unequivocal intention to the contrary, the rule applies that general law does not alter special law (article 7, no. 3, of the Civil Code), which has the justification that "the general regime does not include consideration of the particular conditions that precisely justified the enactment of special law". [6]

Moreover, the aforementioned rules of SIFIDE II are intended to encourage IRC taxpayers to make investments in the period between 01-01-2011 and 31-12-2015, so that, the tax benefit being a counterpart to the adoption of the legislatively desired and encouraged conduct, it would be incompatible with the constitutional principle of confidence, inherent in the principle of democratic rule of law (article 2 of the Constitution), not to recognize these conduct the favorable tax effects provided for in the law in force at the time they occurred. Therefore, if hypothetically Law No. 7-A/2016 intended to eliminate, fully or partially, the favorable tax effects that SIFIDE II promised to taxpayers who, with justified confidence, adopted the conduct provided therein, it would be materially unconstitutional, by violation of that principle.

By the foregoing, the literal and rational elements of interpretation of article 4 of SIFIDE II converging in the sense that the investment expenses provided for therein are deductible from "the amount assessed under article 90 of the IRC Code, and up to its concurrence", it is concluded that they are deductible from the totality of that collection, which encompasses, in addition to that derived from taxation of profits in each fiscal period, that resulting from special advance payment and other positive components of the tax, specifically autonomous taxation, state surcharge and IRC from prior taxation periods.

Thus, the request for arbitration is well-founded regarding this issue. [7]

3.3. Question of the Deductibility of Investment Expenses Provided for in RFAI from the Amounts Due as Autonomous Taxation

The Tax Regime for Investment Support implemented in 2009 (RFAI 2009) was approved by Law No. 10/2009, of 10 March.

It was maintained in force in the year 2013 by article 232 of Law No. 66-B/2012, of 31 December (State Budget Law for 2013).

Regarding IRC, said regime resulted in a tax benefit provided for in article 3 of that Law, which establishes the following, insofar as it is relevant here:

Article 2

Scope and Definitions

1 - RFAI 2009 is applicable to IRC taxpayers who exercise, as their principal activity, an activity:

a) In the agricultural, forestry, agro-industrial, energy and tourism sectors and also in the extractive or transforming industry, with the exception of the steel, shipbuilding and synthetic fibers sectors, as defined in article 2 of Commission Regulation (EC) No. 800/2008, of 6 August;

b) In the context of new generation broadband networks.

2 - For purposes of this regime, the following are considered relevant investments provided they are allocated to the company's operations:

a) Investment in tangible fixed assets, acquired in new condition, with the exception of:

i) Land, except when intended for exploitation of mining concessions, natural mineral waters and spring waters, quarries, clay pits and sand pits in extractive industry projects;

ii) Construction, acquisition, repair and enlargement of any buildings, except if they are manufacturing facilities or allocated to administrative activities;

iii) Light passenger or mixed vehicles;

iv) Furniture and comfort or decoration articles, except hotel equipment allocated to tourism operations;

v) Social equipment, with the exception of that which the company is required to have by legal determination;

vi) Other investment assets that are not directly and necessarily associated with the productive activity carried out by the company;

b) Investment in intangible fixed assets, consisting of expenses with technology transfer, namely through the acquisition of patent rights, licenses, know-how or technical knowledge not protected by patent.

3 - May benefit from the tax incentives provided for in this regime the IRC taxpayers who cumulatively meet the following conditions:

a) Have accounting regularly organized, in accordance with accounting standardization and other legal provisions in force for the respective sector of activity;

b) Their taxable income is not determined by indirect methods;

c) Maintain in the company and in the region for a minimum period of five years the assets that are the subject of the investment;

d) Are not indebted to the State and social security for any contributions, taxes or quotas or have the payment of their debts duly assured;

e) Are not considered enterprises in difficulty under the terms of the Commission communication - Community guidelines on State aid for emergency aid and restructuring of enterprises in difficulty, published in the Official Journal of the European Union, No. C 244, of 1 October 2004;

f) Carry out relevant investment that provides for job creation and its maintenance until the end of the deduction period contained in nos. 2 and 3 of article 3.

4 - In the case of IRC taxpayers who do not fall within the category of micro, small and medium-sized enterprises, as defined in Annex I of Commission Regulation (EC) No. 800/2008, of 6 August, the investment expenses referred to in subsection b) of no. 2 cannot exceed 50% of relevant investments.

5 - Investment made in 2009 is considered the corresponding to the additions verified in that fiscal year, of tangible assets and also that, having the nature of tangible asset and not concerning advances, is translated into additions to assets under construction.

6 - For purposes of the preceding number, the additions of tangible assets that result from transfers of assets under construction carried forward from prior fiscal years are not considered, except if they are advances.

Article 3

Tax Incentives

1 - To IRC taxpayers resident in Portuguese territory or who have therein a permanent establishment, who exercise as their principal activity a commercial, industrial or agricultural activity covered by no. 1 of the preceding article, who make, in 2009, investments considered relevant, the following tax incentives are granted:

a) Deduction from IRC collection, and up to the concurrence of 25% of the same, of the following amounts, for investments made in regions eligible for support under the regional purpose incentives:

i) 20% of relevant investment, for investment up to the amount of (euro) 5,000,000;

ii) 10% of relevant investment, for investment of value exceeding (euro) 5,000,000;

(...)

2 - The deduction referred to in subsection a) of the preceding number is made in the assessment relating to the taxation period that commences in 2009.

3 - When the deduction referred to in the preceding number cannot be made integrally due to insufficient collection, the amount not yet deducted may be so, under the same conditions, in the assessments of the four following fiscal years.

(...)

5 - The total amount of tax incentives granted under the preceding numbers cannot exceed the value resulting from the application of the maximum limits applicable to investment for regional purposes for the period 2007-2013, in force in the region where the investment is made, contained in article 7.

As can be seen from subsection a) of no. 1 of this article 3, the tax benefit is realized through "deduction from IRC collection".

This expression does not have substantially different scope from that used in SIFIDE II, which is "amount assessed under article 90 of the IRC Code".

By what has already been stated above, the collection derived from autonomous taxation provided for in the CIRC is "IRC collection", so the expression used in RFAI does not exclude deduction of eligible investments from the collection provided by such taxation.

Also regarding this tax benefit, the following applies to what was stated above regarding:

– the exceptional nature of the provisions providing for this tax benefit;

– the prevalence of the interests that the tax benefit aims to achieve over the interest in obtaining tax revenue;

– the relevance of the collection derived from autonomous taxation to give the tax benefit considerable scope, given the meager IRC collection that comes from assessment based on taxable income;

– the inadmissibility, in light of the constitutional principle of confidence, of a hypothetical restrictive interpretation a posteriori of the scope of a statute that created a tax benefit implemented through a tax advantage that is a counterpart to certain taxpayer conduct;

– the non-exclusion of the application of a special provision on deduction from IRC collection by a later general provision, even with alleged interpretative nature.

Therefore, also regarding this issue, the request for arbitration is well-founded.

3.4. Constitutional Questions Raised by the Tax and Customs Authority

The Tax and Customs Authority states in article 123 of its Reply the following:

Notwithstanding it be said that any interpretation that does not apply the provision contained in the State Budget Law for 2016, embodied in article 133, which added no. 21 to article 88 of the CIRC, with the effects provided for in article 135, both contained in the State Budget Law for 2016, published on 30.03.2016, entering into force the following day, in which it is advocated, with an interpretative character, that

"The assessment of autonomous taxation in IRC is effected under the terms provided for in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the global amount assessed."

and which, consequently, permits deduction from the portion of IRC collection produced by autonomous taxation rates of the tax benefits made under IRC, in the present case, SIFIDE/CFEI/RFAI, such decision is materially unconstitutional, by

a) violation of the principle of legality, inherent in article 103, no. 2 of the Constitution,

b) violation of the principle of separation of powers, embodied in article 2 of the Constitution,

c) violation of the principle of protection of confidence provided for in article 2 of the Constitution,

d) violation of the principle of equality, in its positive formulation of tax capacity, arising from article 13, no. 2 and article 103, no. 2, both of the Constitution.

It is noted that the Tax and Customs Authority does not explain the reason or reasons why it believes these principles are violated, limiting itself to referring to them, so it has not complied, regarding these hypothetical questions, with the burden of pleading indispensable for ensuring the right to due process.

In any case, with the brevity that the insufficiency of pleading justifies, it can be said that it is not clear how the principle of legality can be violated, since legality has precisely the scope stated above and, specifically, the general provision of no. 21 of article 88 of the CIRC, even applied to prior situations, has no potential to revoke special provisions, such as those of SIFIDE II and RFAI that provide for deduction from IRC collection, which includes that of autonomous taxation. Being this the adequate interpretation of said provisions, what would be incompatible with the principle of legality would be to apply them with a different scope than that resulting from the appropriate interpretative rules.

As to the principle of separation of powers, the present decision is rendered by a Court, and therefore has a judicial character, and in the exercise of judicial power it falls to Courts to interpret and apply the laws and, in this case, this Court interpreted all the provisions in question, including no. 1 of article 88 of the CIRC, with the meaning it stated and not otherwise.

Regarding the principle of protection of confidence, even if one understands that its scope of protection extends to State Administration, it certainly does not encompass confidence that courts will adopt a certain interpretation, when jurisprudence is not settled.

With respect to the principle of equality, no comparable situation is identified to which different treatment has been given. Moreover, autonomous taxation is not based on the tax capacity of companies, since its autonomy is realized precisely in imposing taxation with indifference to the existence of income, being exceptions to the principle of taxation of companies with incidence "fundamentally on its actual income" (article 104, no. 2, of the Constitution). Therefore, it is not clear how the principle of equality is violated, and much less article 103, no. 2, of the Constitution, which refers to the formal requirements of tax laws.

By the foregoing, there is no violation of the principles invoked.

4. REFUND OF OVERPAID AMOUNT AND COMPENSATORY INTEREST

The Claimant seeks refund of the amount of overpaid tax, in the amount of € 153,073.37, plus compensatory interest, "in accordance with article 43 of the LGT".

Regarding compensatory interest, in accordance with the provisions of subsection b) of article 24 of the RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, this being required, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of sentences of judicial tax courts, to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for this purpose", which is in harmony with the provision of article 100 of the LGT [applicable by force of the provision of subsection a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obligated, in case of full or partial approval of a claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and complete restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if appropriate, from the end of the period for execution of the decision".

Although article 2, no. 1, subsections a) and b), of the RJAT uses the expression "declaration of unlawfulness" to define the competence of the arbitral tribunals functioning in the CAAD, not referring to condemnatory decisions, it should be understood that the powers that, in judicial challenge proceedings, are attributed to tax courts are included in its competencies, this being the interpretation that is in line with the legislative authorization on which the Government based itself to approve the RJAT, in which it is stated, as the first directive, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge process, despite being essentially a process for annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as can be inferred from article 43, no. 1, of the LGT, which establishes that "compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due" and article 61, no. 4 of the Code of Tax Procedure and Process (as worded by Law No. 55-A/2010, of 31 December, corresponding to no. 2 in the original wording), which states that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the voluntary execution period".

Thus, no. 5 of article 24 of the RJAT, in stating that "payment of interest is due, regardless of its nature, under the terms provided for in the general tax law and the Code of Tax Procedure and Process", should be understood as allowing recognition of the right to compensatory interest in the arbitration process.

In the case at hand, as a result of the illegality of the self-assessment acts in the parts relating to the non-deduction of SIFIDE and RFAI, there is ground for refund of the tax paid that should have been deducted, by force of the aforementioned articles 24, no. 1, subsection b), of the RJAT and 100 of the LGT, since this is essential to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed", which should be determined in execution of judgment.

The substantive regime of the right to compensatory interest is regulated in article 43 of the LGT, which establishes, insofar as relevant here, the following:

Article 43

Overpayment of Tax

1 – Compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due.

2 – Error attributable to the services is also considered to occur in cases where, despite the assessment being made on the basis of the taxpayer's declaration, the taxpayer followed, in completing it, the general guidance of the tax administration, duly published.

Of the various situations in which compensatory interest is due indicated in article 43 of the LGT, the same will be due if it is found that error attributable to the services occurred.

In the case at hand, the overpaid tax was self-assessed, so the Tax and Customs Authority had no participation in the performance of the payment act, with such participation being attributable to the Claimant itself.

On the other hand, the Claimant has not alleged to have been influenced by any action of the Tax and Customs Authority, stating that "the Claimant has adopted, out of caution, as a procedure the deduction of tax benefits from IRC collection, not considering as such the collection from autonomous taxation, in so far as, prior to the introduction of the Reform of IRC for the fiscal year 2014, there was uncertainty as to whether autonomous taxation possessed the character of IRC, which has since been clarified, corroborating, moreover, what already previously resulted from the literal wording of article 12 of the same Code" (article 9 of the request for arbitration).

Therefore, regarding the self-assessment, no error attributable to the services occurred, there being consequently no right to compensatory interest derived from its performance.

However, the same does not apply to the decision on the administrative claim, since the Claimant's claim should have been approved therein, insofar as it is here judged well-founded, and the non-approval of the claim is attributable to the Tax and Customs Authority.

This case of the Tax and Customs Authority maintaining a situation of illegality, when it should have restored it, should be framed, by mere declarative interpretation, in no. 1 of article 43 of the LGT, since it is a situation in which there is adequate causal nexus between error attributable to the services and maintenance of an overpaid and the omission to restore legality when the action that would restore it should be undertaken should be equated with the action itself. [8]

In the case at hand, the administrative claim was filed on 30-03-2016 and was decided on 25-05-2016, within the legal period provided for in article 57, no. 1, of the LGT.

Therefore, from 31-03-2016 onwards, compensatory interest begins to run, at the legal default rate, under articles 43, nos. 1 and 4, and 35, no. 10, of the LGT, article 559 of the Civil Code and Ministerial Order No. 291/2003, of 8 April.

5. DECISION

It is therefore agreed by this Arbitral Tribunal to:

– judge the request for arbitration well-founded regarding the request for declaration of unlawfulness of the decision on the administrative claim and annul such decision;

– declare the unlawfulness of the self-assessment for the fiscal year 2013, in the part relating to the amounts available from SIFIDE II and RFAI that were not deducted from the amount of IRC collection resulting from autonomous taxation and annul the self-assessment in the respective part;

– condemn the Tax and Customs Authority to refund to the Claimant the amount it overpaid, in the amount of € 153,073.37, and to pay compensatory interest to the Claimant, regarding this amount, from 31-03-2016 until its refund, at the legal default rate.

6. VALUE OF THE CASE

In accordance with the provisions of article 305, no. 2, of the Code of Civil Procedure and article 97-A, no. 1, subsection a), of the Code of Tax Procedure and Process and article 3, no. 2, of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the case is set at € 153,073.37.

7. COSTS

Under article 22, no. 4, of the RJAT, the amount of costs is set at € 3,672.00, in accordance with Table I attached to the Regulation of Court Costs in Tax Arbitration Proceedings, at the expense of the Tax and Customs Authority.

Lisbon, 05-01-2017

The Arbitrators

(Jorge Lopes de Sousa)

(Paulo Lourenço)

(Carla Castelo Trindade)

(dissenting in accordance with the dissenting opinion attached)

DISSENTING OPINION

I do not agree with the position taken by the majority for the reasons which, while in summary form, I proceed to reiterate.

Everything begins with the fundamental disagreement regarding the nature of autonomous taxation.

Here – and contrary to what seems to be the position adopted by the decision under consideration – the uniform and reiterated position of both the jurisprudence of the Constitutional Court and the Supreme Administrative Court and the doctrine are followed.

Autonomous taxation is a tax on expenditure different and distinct from IRC, which is undoubtedly a tax on income.

This jurisprudence was initiated six years ago in the Constitutional Court with the dissenting vote of Hon. Counselor Vítor Gomes, attached to Judgment No. 204/2010, where it can be read that: "Although formally inserted in the CIRC and the amount that allows it to be collected is assessed within its scope and under the heading of IRC, the provision in question concerns a fiscal imposition that is materially distinct from the taxation in this component, (….). Indeed, we are faced with autonomous taxation, as the very letter of the provision says. And this makes all the difference. It is not a matter of taxing income at the end of the tax period, but certain types of expenses in themselves, for the understandable reasons of fiscal policy that the judgment points out (…)." In Judgment No. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Judgment No. 18/11 moving closer to the then dissenting vote of Counselor Vítor Gomes, as follows: "Contrary to what occurs in the taxation of income under IRS and IRC, in which the aggregate of income earned in a given year is taxed (which implies that only at the end thereof can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case each expense incurred is taxed, in itself considered, and subject to a certain rate, with autonomous taxation being determined independently of the IRC that is due in each fiscal year, by not being directly related to obtaining a positive result, and therefore being subject to taxation. Thus, and in the case of IRC, we are faced with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, with the law considering that the taxable event of the tax is deemed to occur on the last day of the taxation period (cf. article 8, no. 9, of the CIRC). Whereas regarding autonomous taxation in IRC, the taxable event is the actual performance of the expense, not being faced with a complex fact, of successive formation over a year, but faced with an instantaneous taxable fact. This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose taxable event occurs successively, by the passage of a determined period of time, as a general rule annual, and tends to repeat itself in time, generating for the taxpayer the obligation to pay tax with a regular character) and taxes of single obligation (whose taxable event occurs instantaneously, arises isolated in time, generating upon the taxpayer an obligation to payment with an occasional character). In autonomous taxation, the taxable event that gives rise to the tax is instantaneous: it is exhausted in the act of performance of 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 performance considered, is carried out at the end of a determined tax period). But the fact that the assessment of the tax is effected at the end of a determined period does not transform it into a periodic tax, of successive formation or of lasting character. That assessment operation is merely the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence whatsoever of the volume of expenses incurred in determining the rate."

This jurisprudence was later reaffirmed by the Plenary, in Judgment No. 617/2012, proceeding No. 150/12, of 31/1/2013 and, recently, in Judgment No. 197/2016, rendered in proceeding No. 465/2015.

In the same sense has proceeded the Supreme Administrative Court as confirmed, among others, in the Judgment of 21/3/2012, proceeding 830/11, of 21/3/2012.

Doctrine also follows this position.

SÉRGIO VASQUES, in footnote 60, page 342, of his Manual of Tax Law (Almedina, 2015) states on this subject that "In judgment no. 18/2011, however, concerning the aggravation of autonomous taxation rates of IRC on expenses with vehicles, made concrete in December 2008 with effects reporting to the beginning of that year, the Constitutional Court ignores the question, integrating the occasional expenses subject to autonomous taxation within the scope of the annual income that serves as the basis for incidence of IRC. This is a way of seeing things that we cannot subscribe to, since, as observed by Vítor Gomes in dissenting vote, although "formally inserted (in the IRC Code", the autonomous taxation rates do not affect the income whose formation is happening throughout the year but rather to occasional expenses that represent autonomous taxable facts and "to which the taxpayer is subject, whether or not the taxpayer comes to have taxable income in IRC at the end of the period".

Already RUI MORAIS (Notes to the IRC, Almedina, 2009, pp. 202-203) "concerns a taxation that affects certain expenses of taxpayers, which are deemed to constitute taxable facts. (…)".

Professor CASALTA NABAIS, in turn, considers, "True taxes on expenses incurred by companies. Having begun by affecting undocumented and confidential expenses and then on representation and vehicle expenses, they have since been extended to various expenses and, under IRC, to certain income such as distributed profits and certain indemnities or compensations. Which leads us to recognize that in IRC we have autonomous taxation on certain income, on expenses that are not tax-deductible expenses and on expenses that are considered tax-deductible expenses" arriving at the statement "It is a taxation on expense or consumption and not on income (…)." (Tax Law, 8th ed., Almedina, Coimbra, 2015, p. 542).

In the same sense, it can be analyzed by professor ANA PAULA DOURADO in Tax Law, Lessons, 2015, pp. 237 et seq.

This thesis was transposed into law, unequivocally, by the legislator himself when in the wording introduced to article 23-A, no. 1, subsection a), of the IRC Code by Law No. 2/2014, of 16 January, it comes to state that "are not deductible for purposes of determining taxable income" "IRC, including autonomous taxation". What sense would it make to make clear in the law that autonomous taxation and IRC are not deductible from taxable income if autonomous taxation were part of IRC? Thus, in light of the foregoing, it can be concluded simply that if the tax legislator understood that IRC included autonomous taxation, it would not have had the need to distinguish the two realities, since that IRC would necessarily already include autonomous taxation.

And it is not because autonomous taxation is inserted in the IRC Code that the two realities should be confused.

It should be recalled that autonomous taxation was introduced by article 4 of Decree-Law No. 192/90, of 9 June, not having been immediately inserted in the IRC Code. The legislator only 10 years after the emergence of autonomous taxation decided to introduce it in the IRC Code through Law No. 30-G/2000 of 29 December. What the legislator sought with this approach was an anesthetic effect, since, although autonomous taxation is assessed independently of IRC, it is self-assessed together with the IRC declaration, through form 22. Regarding this question, the Constitutional Court held, in Judgments Nos. 18/2009 and 85/2010, that autonomous taxation could be inserted in any other code or separate statute.

And the realities are different from the start because the objectives are different.

In IRC the aim is taxation of income under the scrutiny of tax capacity.

Whereas autonomous taxation had, at least originally, two very different objectives.

The first being to tax in the sphere of companies what cannot be taxed under IRS and the second being to discourage the performance of certain expenses or certain conduct. On this subject, Professor Saldanha Sanches even stated that "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime that is found in the zone of intersection of the personal sphere and the business sphere" adding further that in the "designation of 'autonomous taxation', various realities are hidden (...)»" (Manual of Tax Law, 3rd edition (2007), Coimbra Editor, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation "(…) fulfill, in essence, two functions: on the one hand, to avoid erosion of the tax base under IRC, by imposing taxation on charges that may be deducted by IRC taxpayers, but which, if deducted, transform into an aggravation of taxation, therefore, intending to serve as a disincentive to spending on such charges; other types of autonomous taxation aim purely and simply to penalize presumptively evasive or fraudulent conduct of taxpayers, constituting an anti-abuse mechanism.". Professor Casalta Nabais qualifies autonomous taxation as "True taxes on expenses incurred by companies. Having begun by affecting undocumented and confidential expenses and then on representation and vehicle expenses, they have since been extended to various expenses and, under IRC, to certain income such as distributed profits and certain indemnities or compensations. Which leads us to recognize that in IRC we have autonomous taxation on certain income, on expenses that are not tax-deductible expenses and on expenses that are considered tax-deductible expenses" being that, further on, regarding the purpose thereof, adds that, if, in a first phase, "aimed to prevent, through such expenses, companies from proceeding to disguised distribution of profits, especially dividends, as well as combating fraud and tax evasion that such expenses cause, not only in relation to IRS and IRC, but also in relation to contributions (of employers and workers) to social security", at present, the expansion and aggravation to which they have been subject reveal a "clear purpose to obtain more tax revenue" says Professor Casalta Nabais.

And it is enough to look at the evolution of revenue obtained by autonomous taxation to agree with this understanding.

Evolution of Autonomous Taxation Revenue[10]

Autonomous taxation thus aims to tax a patrimonial advantage obtained usually through the performance of an expense and which consequently results in the diminution of taxable income. IRC aims for its part to tax the actual income of the taxpayer attending to its tax capacity.

Here and in way of conclusion it must be recalled that it is unanimously accepted by both jurisprudence and doctrine that the autonomous rates of IRC (and IRS) are a tax of single obligation distinct from IRC and IRS themselves, taxes of successive formation. It must also be recalled that the autonomy of autonomous rates results from their possession of a taxable event radically distinct from IRS/IRC, from obeying their own rules of assessment and from serving very specific purposes. Indeed, the purposes of autonomous rates are today varied but, in what is most important about them, insist, they serve to ensure tax equality guaranteeing the subjection to tax of values that, being expenses in the sphere of companies, prefigure income in the sphere of third parties and preventing abusive planning by resorting to tax havens. These objectives are of supreme importance to ensure the fair distribution of income and wealth to which article 103, no. 1, of the Constitution appeals.

In light of the foregoing, we conclude that if there are reasons that justify the admission of general deductions from the tax collection (IRC), permitted by law by force of the principle of taxation of actual and effective income as an element revealing tax capacity, the same does not happen regarding the collection due by autonomous taxation. Deduction from collection is a reality of IRC (and of IRS) as a tax legitimized by the principle of tax capacity.

In autonomous taxation, or, it is risked, in VAT, that general deduction ceases to make sense because, not taxing income but expenses and if one wants conduct, there is not raised, regarding these, any question of justice in the distribution of the general burden of the tax. These are not the concerns and the elements informing the tax. It would even be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abuse sense that characterizes them and which amounts to the discouragement of deviant conduct that their institution represses or settles.

In summary, autonomous taxation, which affects certain expenses, operates differently from what constitutes the essential scope of IRC, which taxes income, and, despite the systematic insertion and functional connection to IRC, the truth is that they are collected within the scope of the assessment process of this tax without, however, being characterized differently and losing their own dogmatic foundation.

Thus, one cannot subscribe to a conclusion such as that of this judgment which goes in the direction that there is no legal foundation for excluding the deductibility of the SIFIDE and RFAI tax benefit from the collection of autonomous taxation because this results directly from the letter of article 4, no. 1 of the respective statute, combined with article 90 of the IRC Code. First and foremost because this conclusion results from a legal interpretation that makes short work of the invocation of the teleological and rational elements, particularly the objectives pursued both by the tax incentive in question as by the purposes assigned to autonomous taxation disregarding the principles underlying both IRC taxation and IRC tax benefits (SIFIDE and RFAI).

Let it be understood then the content of article 4, no. 1 of the respective statute, combined with article 90 of the IRC Code.

For this it is necessary to understand that it was established in the then no. 6 of article 109 of the IRC Code, current article 117, that the obligation to file the periodic income declaration encompasses entities exempt from IRC, when subject to autonomous taxation. And for certain purposes – specifically for purposes of the deductions provided for in no. 2 of article 90 of the IRC Code or the calculation of advance payments or also the Result of Assessment (article 92) – it was, then, entrusted to the care of the interpreter and applier of law the task of identifying the relevant part of the tax collection. That is, extracting from the applicable norms a useful meaning, literally possible, which permits a coherent solution in accordance with the nature and functions attributed to each component of the tax. Well, it is here that caution is required. When dealing with the deductions provided for in no. 2 of article 90 of the IRC Code, the majority of this collegiate body agrees that the expression "amount assessed under the preceding number" should be understood as encompassing...

[Note: The dissenting opinion continues but is truncated in the source material provided]