Process: 457/2018-T

Date: May 20, 2019

Tax Type: Outros

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 457/2018-T) addresses whether SIFIDE tax credits can be deducted from IRC autonomous taxation amounts. The claimant, A... S.A., dominant company of a tax group under RETGS, sought to deduct €57,323.00 in SIFIDE credits from autonomous taxation in its 2015 IRC self-assessment. The Tax Authority denied this, arguing that IRC collection under Article 90 of the IRC Code excludes autonomous taxation amounts, and that Article 135 of Lei n.º 7-A/2016 (with interpretative nature) explicitly prohibits any deductions from autonomous taxation. The Arbitral Tribunal ruled in favor of the taxpayer, following established CAAD jurisprudence. The decision determined that autonomous taxation, despite being based on instantaneous facts (certain expenses), remains within the IRC framework and is therefore part of 'IRC collection' for SIFIDE deduction purposes. The tribunal emphasized that tax benefits under the EBF (Estatuto dos Benefícios Fiscais) should not be restrictively interpreted, and SIFIDE benefits pursue extrafiscal objectives superior to revenue protection concerns. The constitutional issue regarding Article 135's interpretative provision was implicitly addressed by prioritizing the original SIFIDE legislation's broader scope. The tribunal granted partial annulment of the self-assessment, ordering reimbursement with compensatory interest (juros indemnizatórios), and annulled the dismissal of the administrative review. This decision reinforces taxpayers' rights to maximize SIFIDE deductions against all IRC components, including autonomous taxation, despite legislative attempts to restrict this through interpretative laws.

Full Decision

ARBITRAL DECISION

I - REPORT

A) Constitution of the Arbitral Tribunal and Procedural Conduct

A..., S.A., NIPC..., with registered office at ..., ...-..., Barreiro, filed, in accordance with the law, a request for arbitral pronouncement, with the Tax and Customs Authority as the Respondent.

The Claimant, pursuant to Article 6, No. 2, paragraph b), of the RJAT, designated Ms. Dr. Filomena Salgado Oliveira as Arbitrator.

The highest officer of the Tax Administration designated Mr. Dr. José Rodrigo de Castro as Arbitrator.

The Arbitrators designated by the Parties agreed to designate Mr. Prof. Rui Duarte Morais as Presiding Arbitrator.

The Collective Arbitral Tribunal was constituted on 10/12/2018.

The Tax and Customs Authority submitted a timely response, concluding for the dismissal of the request.

By arbitral order of 08/03/19, the meeting referred to in Article 18 of the RJAT was dispensed with, for lack of subject matter, as well as the submission of pleadings, to which the parties, duly notified, raised no objection.

B) REQUESTS FOR ARBITRAL PRONOUNCEMENT

The principal request is for partial annulment of the self-assessment of Corporate Income Tax (IRC) for 2015, with regard to the amount of €57,323.00, relating to autonomous taxation.

The Claimant also requests the condemnation of the Public Treasury to payment of indemnity interest.

Upon success of the principal request, it further requests the annulment of the decision dismissing the administrative review application No. ...2018....

C) FACTS FOUND PROVEN

a) The Claimant's corporate purpose is the production and sale of acrylic fibers and respective commercialization, as well as any other activities connected or related thereto.

b) During the taxation period in question, the Claimant was the dominant company of a fiscal group subject to the Special Tax Regime for Groups (RETGS).

c) The Claimant timely filed Form 22 of Corporate Income Tax relating to such group of companies, in which it self-assessed the tax it considered due.

d) The Claimant had a tax credit arising from SIFIDE – System of Tax Incentives for Research and Business Development – of €2,427,266.70.

e) The Claimant deducted from the group's tax collection €1,027,873.27, relating to SIFIDE, with the remaining balance carried forward to subsequent fiscal years.

f) After filing the return, the Claimant understood that it had committed an error in the self-assessment by not having deducted the tax credit relating to SIFIDE from the portion of Corporate Income Tax collection corresponding to autonomous taxation, which resulted, in its understanding, in having paid €57,323.00 more than was due.

g) The Claimant timely filed an administrative review against the self-assessment of Corporate Income Tax, invoking its right to deduct from the autonomous taxation collection a tax credit relating to SIFIDE.

h) Such administrative review was dismissed by order of 13 June 2018.

The facts found proven appear in the documentation attached to the case file and have not given rise to any disagreement.

There are no unprovable facts relevant to the proper decision of the case.

D) ISSUE TO BE DECIDED

The issue to be decided is whether, with reference to 2015, tax credits arising from SIFIDE were deductible from the collection of autonomous taxation in Corporate Income Tax.

The Respondent Tax Authority, in the decision dismissing the administrative review, understood, in summary, the following: "the concept of Corporate Income Tax collection does not include the amount of autonomous taxation, and as such the Corporate Income Tax Code does not provide for the possibility of making deductions of tax benefits provided for in paragraphs c) No. 2 of Article 90, to the value of autonomous taxation"; "autonomous taxation, although regulated in Article 88 of the Corporate Income Tax Code, taxes expenses and not income contrary to Corporate Income Tax, expenses which by their very nature promote tax evasion"; "by allowing the deduction of tax benefits, or others, to the value of autonomous taxation would nullify the intended effect of this taxation"; "No. 21 of Article 88 of the Corporate Income Tax Code, added by Law No. 7-A/2016 of 30 March, to which Article 135 of the same law attributes interpretative nature, came expressly to establish that, to the amount determined for autonomous taxation no deductions whatsoever are effected."

The proceeding is timely, the parties are legitimate and duly represented, there are no nullities or exceptions to be raised, thus the merits of the case must be examined.

E) DECIDING

Article 38, No. 1, of the Tax Code for Investment provides that taxpayers may deduct from the amount of Corporate Income Tax collection, calculated in accordance with paragraph a) of No. 1 of Article 90 of the Corporate Income Tax Code, the value corresponding to certain percentages of expenses with research and development.

What is at issue is whether the collection arising from autonomous taxation is part of the "Corporate Income Tax collection" referred to in such provision.

The question is well-known, having been the subject of numerous arbitral decisions, of essentially coincident meaning.

We cite from case No. 94/2014-T, of 11 July 2013, "Accepting, then, as materially distinct (…) taxation under autonomous taxation with which we are now concerned, from that which occurs under Corporate Income Tax tout court (one being through an instantaneous fact and the other through a continuous fact), it is understood however that such autonomous taxation, relating to deductible charges, still occurs within the scope and by virtue of Corporate Income Tax (…) although they may be based on instantaneous facts, they are liquidated and paid by virtue of Income Tax, integrating the regime of this tax. It is understood, thus and in summary, that one thing is the type of tax fact that forms the basis of a given imposition. Another thing is the title under which such imposition is due, ultimately, the cause of the tax obligation. And in the case of autonomous taxation under Corporate Income Tax, that cause, the title under which the tax is exacted, will still be Corporate Income Tax."

Regarding the argument raised by the Respondent of "protection of revenue," imposing a restrictive interpretation of the concept of "Corporate Income Tax collection," we transcribe from arbitral decision No. 474/2017-T, of 5 March 2018: "In the case of tax benefits, the possibility of extensive interpretation is explicitly provided for (Article 10 of the EBF), but not of restrictive interpretation, wherefore, as a rule, the tax benefit should not be interpreted with lesser scope than that which, in a declarative interpretation, results from the tenor of the rule providing for it"; "Now, even regarding autonomous taxation aiming to discourage expenses, the discouragement of behaviors is justified only by concerns for protection of tax revenue and tax benefits granted are, by definition, 'measures of an exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to those of the taxation itself that prevents them' (Article 2, No. 1, of the EBF)"; "Therefore, it is certain that we are dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenue (…)"; "By the foregoing, the literal and rational elements of the interpretation of Article 4 of SIFIDE I and SIFIDE II converging in the sense that the investment expenses provided therein are deductible 'from the amount calculated in accordance with Article 90 of the Corporate Income Tax Code, and up to its concurrence,' it is to be concluded that there is no basis for a restrictive interpretation as to these tax benefits, wherefore those investment expenses are deductible from the entirety of that collection, which encompasses, in addition to that derived from taxation of profits in each fiscal period, that which results from other components of the collection, namely from autonomous taxation."

We subscribe to and make our own this reasoning.

a) It remains to examine the last ground invoked by the Claimant, that "No. 21 of Article 88 of the Corporate Income Tax Code, added by Law No. 7-A/2016 of 30 March, to which Article 135 of the same law attributes interpretative nature, came expressly to establish that, to the amount determined for autonomous taxation no deductions whatsoever are effected."

The question of the constitutional conformity of the "authentic interpretations" determined by such legislative instrument has already been the subject of, at least, two pronouncements by the Constitutional Court. In Decision No. 267/2017, it was decided "To declare unconstitutional, for violation of the prohibition on creation of taxes with retroactive nature set forth in Article 103, No. 3, of the Constitution, the rule of Article 135 of Law No. 7-A/2016, of 30 March, insofar as, by effect of the merely interpretative character attributed to it, it determines that the rule of Article 88, No. 21, 2nd part, of the Corporate Income Tax Code – such number added by Article 133 of the cited Law – according to which, to the total amount resulting from autonomous taxation liquidated in a given year under Corporate Income Tax, the amounts paid as special payment on account in that same year cannot be deducted, applies to fiscal years prior to 2016"; "the normative solution of Article 88, No. 21, of the Corporate Income Tax Code resulting from the alteration introduced by Article 133 of the 2016 Budget Law is innovative and diminishes the taxpayer's possibilities of making deductions from Corporate Income Tax collection, that is, it unfavorably aggravates the manner of calculating the quantum annually due by way of Corporate Income Tax. The determination of the application of such solution to fiscal years prior to that of the entry into force of the 2016 Budget Law provided for in Article 135 of this same Law makes it, therefore, substantially retroactive and, to that same extent, incompatible with the prohibition of retroactive taxation of Article 103, No. 3, of the Constitution");

"In fact, and as the decision now appealed from correctly notes, that which represented a certain case-law understanding as to the admissibility of deductions from the total amount of Corporate Income Tax collection, including in this the value of autonomous taxation – as favored in the decisions of CAAD issued in the context of cases Nos. 769/2014-T, 163/2014-T, 219/2015-T and 370/2015 – ceased to be admissible in light of cited No. 21. Hence it is unequivocal the substantially retroactive character of that precept, understood as interpretative law. Given the burdensome content for taxpayers of the new legal solution – inasmuch as it tends to aggravate the quantum due by way of Corporate Income Tax – the claim for its application to fiscal years prior to that of the beginning of its efficacy shows itself flagrantly incompatible with the constitutional prohibition of retroactive taxes (see Article 103, No. 3, of the Constitution)."

Such finding of unconstitutionality was reaffirmed in the Constitutional Court Decision No. 107/2018, in case No. 1430/2017, of 22 February 2018.

We subscribe to this understanding as well, entirely applicable to the case now under examination.

Regarding the request for condemnation of the Respondent to payment of indemnity interest, it contends that "in the situation of the case file, the determination of the tax was effected by the Claimant. In accordance with Jorge Lopes de Sousa, in On the Civil Liability of the Tax Administration for Illegal Acts, Áreas Editora, Lisbon, 2010, page 52, 'In situations where the practice of the act that defines the tax debt falls to the taxpayer (as occurs, in particular, in the aforementioned cases of self-assessment, withholding at source and payment on account), as well as in those where the act is practiced by the Tax Administration on the basis of incorrect information provided by the taxpayer and recourse to administrative challenge is available (administrative review or hierarchical appeal), the error shall become attributable to the Tax Administration after the eventual dismissal of the claim presented 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 necessary elements to render a decision with correct prerequisites.'

The question of the right to indemnity interest, when the constitutionality of the rule on which the assessment was based is at issue, is superseded by the now provided in paragraph d) of Article 43 of the General Tax Code, in the version given by Law No. 9/2019, of 1 February: [Indemnity interest is owed] in the event of a final and conclusive court decision that declares or finds the unconstitutionality or illegality of the legislative or regulatory rule on which the assessment of the tax obligation was founded and that determines its respective refund.

The question of the moment of the beginning of the counting of such interest remains open.

We understand, as the Respondent contends, that where the issue concerns indemnity owed for the practice of an unlawful act committed by the Tax Administration (an illegality in the assessment practiced or sustained by it), interest may only be counted from the moment when it has ruled on the legal framework of the situation in question, which, because self-assessed tax is involved, only occurred with the decision dismissing the administrative review, also for this reason necessary.

F) ARBITRAL DECISION

a) The contested assessment is partially annulled, regarding the non-acceptance, as a deduction from Corporate Income Tax collection, in the part generated by autonomous taxation, of the amount of €57,323.00, relating to the tax benefit arising from SIFIDE.

b) Consequently, the dismissal of administrative review application No. ...2018... is annulled.

c) The Respondent is condemned to pay to the Claimant indemnity interest, to be calculated at the legal rate, from 13 June 2018, on the said amount of €57,323.00.

Case value: €57,323.00.

Lisbon, 20 May 2019

The Arbitrators

Rui Duarte Morais

Filomena Salgado Oliveira

José Rodrigo de Castro

Frequently Asked Questions

Automatically Created

Can SIFIDE tax credits be deducted against the IRC autonomous taxation (tributações autónomas) amount?
Yes, SIFIDE tax credits can be deducted against IRC autonomous taxation amounts according to CAAD jurisprudence. Although the Tax Authority argued that 'IRC collection' under Article 90 excludes autonomous taxation, arbitral tribunals consistently hold that autonomous taxation remains part of the IRC framework. The EBF requires tax benefits not be restrictively interpreted, and SIFIDE pursues extrafiscal objectives (promoting R&D investment) superior to revenue protection. Therefore, SIFIDE credits are deductible from the entire IRC collection, including both standard taxation on profits and autonomous taxation on specific expenses, up to the total amount calculated under Article 90 of the IRC Code.
What is the constitutional issue raised regarding Article 135 of Lei n.º 7-A/2016 in SIFIDE deductions?
Article 135 of Lei n.º 7-A/2016 introduced paragraph 21 to Article 88 of the IRC Code with interpretative effect, stating that no deductions apply to autonomous taxation amounts. The constitutional issue concerns whether this interpretative provision retroactively restricts SIFIDE deductions contrary to taxpayers' legitimate expectations and the principle of legal certainty. The CAAD has consistently found that genuinely interpretative norms cannot alter the original law's substance. Since SIFIDE legislation (CFI Article 38) allows deduction from 'IRC collection calculated under Article 90,' and autonomous taxation is part of IRC, the interpretative provision appears to unconstitutionally modify rather than clarify existing law, potentially violating principles of tax legality and non-retroactivity of restrictive tax provisions.
How does the RETGS (tax group regime) affect the SIFIDE credit deduction in IRC self-assessments?
Under RETGS (Special Tax Regime for Groups of Companies), the dominant company files a consolidated IRC return for the entire group and manages tax credits at group level. In this case, the claimant as dominant company held €2,427,266.70 in SIFIDE credits, deducting €1,027,873.27 and carrying forward the remainder. The error identified concerned not deducting SIFIDE from the autonomous taxation portion of the group's IRC. RETGS does not affect the substantive right to deduct SIFIDE against autonomous taxation—the same principles apply as for individual taxpayers. However, procedurally, only the dominant company can challenge the consolidated assessment, and SIFIDE credits must be managed centrally, considering the group's total IRC liability including all companies' autonomous taxation amounts.
What is the procedure to challenge an IRC self-assessment error related to SIFIDE deductions through arbitration at CAAD?
To challenge an IRC self-assessment error related to SIFIDE deductions through CAAD arbitration: (1) First, file a timely administrative review (reclamação graciosa) with the Tax Authority identifying the error and requesting correction, as the claimant did here; (2) Upon dismissal of the administrative review, file a request for arbitration with CAAD within the legal deadline under RJAT (Regime Jurídico da Arbitragem Tributária); (3) The request must specify the disputed amount, legal grounds, and designation of an arbitrator if choosing a collective tribunal; (4) Attach supporting documentation including the self-assessment, administrative review decision, and evidence of SIFIDE credits; (5) The Tax Authority will respond, and a tribunal (singular or collective) will be constituted; (6) The process is generally faster than judicial courts, typically resolved within 6-12 months, offering specialized tax law expertise.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when a SIFIDE deduction against autonomous taxation is wrongly denied?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when SIFIDE deduction against autonomous taxation is wrongly denied, as explicitly requested and granted in this decision. Under Article 43 of the LGT (Lei Geral Tributária), compensatory interest is due when tax has been paid in excess due to illegal actions by tax authorities or errors in self-assessment not attributable to the taxpayer. The interest compensates for the State's use of amounts to which it was not entitled. The rate and calculation follow Article 43, running from payment date until reimbursement. In this case, since the taxpayer paid €57,323.00 more than legally due because the Tax Authority's interpretation wrongly prohibited the SIFIDE deduction, and subsequent administrative review was dismissed on the same erroneous basis, compensatory interest is legally required to make the taxpayer whole for the period the State retained funds without legal entitlement.