CAAD 473/2017-T: Deduction of SIFIDE Tax Benefits Against Autonomous Taxation in IRC

ARBITRAL DECISION [1]

The arbitrators Counselor Maria Fernanda dos Santos Maçãs (President), Dr. Cristina Aragão Seia (Member) and Dr. Henrique Nogueira Nunes (Member), appointed by the Deontological Council of the Center for Administrative Arbitration (CAAD) to form the Collective Arbitral Tribunal, decided as follows:

REPORT

A…, SA. (hereinafter referred to as "A…" or Claimant), legal entity no.…, with registered office at …, no.…, …, in Algés, came, pursuant to article 2(1)(a) and articles 10 et seq. of the Legal Regime of Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LRTA") and articles 1 and 2 of Order no. 112-A/2011, of 22 March, to submit a request for an arbitral decision on the legality of the act of dismissal of the application for ex officio revision and of the tax act of self-assessment of Corporate Income Tax (CIT) relating to the tax period of 2011 – issued on the basis of the income return ("Form 22") submitted on 23.05.2012 and identified with code no. …-… -…, with replacement declaration submitted on 28.05.2013, with code no. …-… -… - notified on 17/06/2017.

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

The application for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 08.09.2017.

The Claimant did not appoint an arbitrator, and therefore, pursuant to article 6(2)(a) and article 11(1)(b) of the LRTA, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who confirmed acceptance of the appointment within the applicable period.

On 24-10-2017, the parties were duly notified of this appointment and did not express any intention to challenge the appointment of the arbitrators, pursuant to article 11(1)(a) and (b) of the LRTA and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of article 11(1)(c) of the LRTA, the Arbitral Tribunal was constituted on 15.11.2017.

Duly notified, the Tax and Customs Authority filed a response in which it argued for the dismissal of the application, defending itself by way of exception and by way of objection.

As it was understood that the facts relevant to the decision have sufficient documentary support and, as the Claimant waived the examination of the witnesses it had called, the hearing referred to in article 18 of the LRTA was dispensed with.

15.05.2018 was set as the date for the pronouncement of the final decision.

The parties filed written statements, expressing their views on the evidence produced, reiterating and developing their respective legal positions.

The Claimant seeks that the illegality of the act dismissing the application for ex officio revision and the partial illegality of the CIT self-assessment act of the Claimant be declared, relating to the 2011 tax year, as regards the failure to allow deduction against the tax collected from CIT arising from the autonomous taxation rates of the tax benefit calculated within the System of Tax Incentives for Research and Development Business - SIFIDE – which resulted in tax improperly paid in the amount of €96,158.38 - and its respective annulment in this part, with all legal consequences; alternatively, should it be understood that article 90 of the Corporate Income Tax Code (CITC) does not apply to autonomous taxation, the Claimant seeks that the illegality of the assessment of autonomous taxation be declared, with legal consequences, due to absence of legal basis for its implementation, pursuant to article 8(2)(a) of the General Tax Code (GTC) and article 103(3) of the Constitution of the Portuguese Republic (CPR), arguing, in summary:

• The Claimant submitted on 23 May 2012 the income return Form 22 of CIT relating to the 2011 tax year (and, on 28 May 2013, an income return Form 22 of substitution was submitted, which in no way alters what is discussed here), having calculated an amount of autonomous taxation in CIT of €96,158.38 (cf. Docs 1 and 2 attached to the arbitral request).

• What happened was that, intentionally or inadvertently, the income return Form 22 of CIT and its articulation with the programming of AT's computer system prevented the deduction against the tax collected related to the autonomous taxation rates in CIT, entered in field 365 of table 10 of the income return, of the SIFIDE still to be deducted.

• The amount of SIFIDE, allocated/obtained, available for use at the end of the 2011 tax year amounted to €5,651,708.02 in accordance with certification accompanied by Declarations from the SIFIDE Certifying Commission attached hereto (Docs. no. 4 and 5, attached to the arbitral request).

• The Claimant therefore had CIT credits available for offset against the respective tax collected in an amount far exceeding the tax collected from autonomous taxation in CIT for the 2011 tax year, this tax being €96,158.38, and this offset (which AT's computer system did not and does not allow) should be made in accordance with the order of deduction provided by law.

• In disagreement, it submitted an application for ex officio revision of the CIT self-assessment in question which AT dismissed on the grounds that the requirements for admissibility of the revision of tax acts provided for in article 78 of the GTC were not met.

• Now, taking into account the overwhelming arbitral jurisprudence that today classifies autonomous taxation as CIT and which it cites, the Claimant sees nothing in the law that precludes the offset of these CIT credits for SIFIDE, also against the part of the CIT tax collected arising from autonomous taxation.

• Considering that the denial of the deduction of SIFIDE against the CIT tax on autonomous taxation violates paragraph (c) of article 90(2) of the CIT Code (previously to 2014 and until 2010, paragraph (b), and previously to 2010 article 83 of the same Code).

• As AT has no legal basis for the position it defends, but rather expressing this, while relying on the alleged interpretative nature (which the Claimant contests) of article 88(21) of the CIT Code, in the wording introduced by article 133 of Law no. 7-A/2016, of 30 March, a clear violation of the prohibition of retroactivity in tax matters, as results from article 103(3) of the CPR, from the jurisprudence of the Constitutional Court and from doctrine on this matter.

• If it is understood that article 90 of the CITC does not apply to Autonomous Taxation, there is no legal basis for its implementation.

• For which reason the Claimant seeks the annulment of the act dismissing the application for revision of the tax act above identified and the partial annulment of the CIT self-assessment act, relating to the 2011 tax year, in accordance with legal terms and, consequently, the refund of the tax paid by it in excess in the total amount of €96,158.38.

• The Claimant also seeks indemnifying interest, pursuant to article 43 of the GTC.

For its part, the Respondent came in reply to argue, in summary:

• The Arbitral Tribunal is materially incompetent to examine and decide the application that is the object of the dispute sub judice, since it was formulated following the dismissal of an application for ex officio revision, in accordance with articles 2(1)(a) and 4(1), both of the LRTA and articles 1 and 2(a), both of Order no. 112-A/2011, which constitutes a dilatory exception preventing the examination of the merits of the case, in accordance with the provisions of article 576(1) and (2) and article 577(a) of the Code of Civil Procedure, ex vi article 29(1)(a) and (e) of the LRTA.

• Autonomous taxation, although it is a tax collected in CIT, is distinguished by the fact that it does not apply to profits but to expenses incurred by the taxpayer or by third parties with whom he has relations.

• The integration of autonomous taxation into the CIT Code (and IRS), conferred a dualistic nature, in certain respects, to the normative system of this tax, which was embodied, namely, within the scope of paragraph (a) of article 90(1) of the CITC, in separate calculations of the respective taxes collected, by virtue of the fact that they obey different rules.

• And this, because, in one case, it is a matter of applying the rate(s) of article 87 of the CITC to the taxable matter determined in accordance with the rules contained in Chapter III of the Code and, in another case, it is a matter of applying the rates to the values of the taxable matters relating to the different realities covered by article 88 of the CITC.

• Whence, it follows that the amount calculated in accordance with paragraph (a) of article 90(1) does not have a unitary character, since it contains values calculated in accordance with different rules, to which different objectives are also associated, so that the deductions provided for in the paragraphs of article 90(2) can only be made against the part of the CIT tax with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the rule-system of the tax.

• Allowing the admissibility of the deduction of tax benefits against the tax collected from autonomous taxation – similar to what the law allows against the CIT tax – as the Claimant seeks, inexorably amputates autonomous taxation in what were the principles and objectives on which its creation by the legislator was based.

• As an anti-abuse tax instrument, autonomous taxation would be emptied of any practical-tax content in the event of accepting the thesis defended by the Claimant.

• It must always be recalled the content of article 88(21) of the CITC, which provides, in an interpretative manner, that "the assessment of autonomous taxation in CIT is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the preceding paragraphs, with no deductions being made from the total amount calculated".

• The technical modality of tax credit adopted for SIFIDE and for other investment incentives models the amount of the benefit to be granted as a function of two variables, on the one hand, the amount of the investment (relevant expenses) and, on the other, the profitability of the company, which makes it possible to reward profitable companies.

• From the above it follows that the objectives and philosophy underlying tax benefits for investment and, in particular, for SIFIDE, are distorted by admitting that the tax credit is exercised by deduction against taxes collected from autonomous taxation.

• Therefore, the tax acts challenged by the now Claimant do not merit censure and should remain valid in the legal order, thus, the arbitral application is unfounded and inadmissible.

SETTLEMENT

2.1. The request for an arbitral decision is timely, since it was submitted within the period provided for in article 10(1)(a) of the LRTA.

2.2. The parties have legal personality and capacity, are legitimate as to the request for arbitral decision and are duly represented, in accordance with the provisions of articles 4 and 10 of the LRTA and article 1 of Order no. 112-A/2011, of 22 March.

2.3. As to the question of the competence of the Arbitral Tribunal to examine the request for arbitral decision formulated by the Claimant, the Respondent raised the exception of material incompetence of this Arbitral Tribunal arising from the fact that the request for arbitral decision was formulated following the dismissal of an application for ex officio revision of the CIT self-assessment act relating to the 2011 tax year.

2.3.1. According to AT, "The request for arbitral decision sub judice comes formulated following the dismissal of an application for ex officio revision of a self-assessment act of corporate income tax (CIT) relating to the year 2011, formulated on 20.06.2016, that is, in circumstances of time in which the period for filing a administrative appeal referred to in article 131 of the TCPC had already expired)" (4th of Response). "Now, given the provisions of articles 2(1)(a) and 4(1), both of the LRTA, and articles 1 and 2(a), both of Order no. 112-A/2011, of 22 March, there is an exception of material incompetence of this Arbitral Tribunal to examine and decide the above application, a circumstance that requires that the absolution of the Defendant from the Instance [cf. articles 576(1) and (2) and 577(a) of the Code of Civil Procedure, ex vi article 29(1)(a) and (e) of the LRTA]." (5th of Response). AT sustains, in sum, that article 2(a) of order 112-A/2011, of 22/3, by which it became bound to arbitral jurisdiction, excludes claims relating to the declaration of illegality of self-assessment acts that were not preceded by recourse to the administrative remedy, as provided for in articles 131 to 133 of the TCPC. An understanding which, for AT, in addition to the literal element, is required under penalty of "violation of constitutional principles of the rule of law and separation of powers (cf. articles 2 and 111, both of the CPR), as well as of legality (cf. articles 3(2) and 266(2), both of the CPR), as a corollary of the principle of indisposability of tax credits inherent in article 30(2) of the GTC, which bind the legislator and all activity of AT" (65th Response). "Effectively, AT's binding to necessary arbitral protection, in which the principle of irrevocability of decisions prevails, presupposes a limitation of the situations in which it can fully decide whether or not to lodge an appeal of an unfavorable judicial decision, that is, of the power to choose between definitively abandoning the collection of the tax credit or adopting behavior potentially adequate to seek to enforce it" (56th Response).

The Claimant exercised the right to be heard that was granted to it with respect to the exception, arguing that "notwithstanding the literal wording of article 131 of the TCPC, the self-assessment act can also be discussed in a tax judicial proceeding when preceded by an application for ex officio revision (as opposed to administrative claim), which is another administrative procedure, provided for in another statute (the GTC), which likewise allows satisfaction of the condition of prior examination of the claim by AT." (no. 41 of Response to exception).

It is necessary to decide:

2.3.2. We will follow, in what this matter is concerned, the decision delivered on 15.11.2016 in Proc. 143/2016-T, which decided a similar question and which we now transcribe:

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

In the face of this second limitation of the competence of the arbitral tribunals functioning in CAAD, the resolution of the question of competence depends essentially on the terms and nature of this binding, because, even if one is faced with a situation that falls within that article 2 of the LRTA, if it is not covered by the binding, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be excluded. That is, 'the scope (...) of arbitral proceedings is restricted to questions concerning the legality of acts of the types referred to in article 2 [of the LRTA] which are covered by the binding that was made in Order no. 112-A/2011 (...)', cf. Decision STA of 28/4/2016 (proc. 09286/16, reporter: Anabela Russo).

'(...) What happens is that in paragraph (a) of article 2 of order no. 112-A/2011, are expressly excluded from the scope of AT's binding to the jurisdiction of the arbitral tribunals functioning in CAAD 'claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that were not preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Procedure and Tax Process'. That is, comparing the order of binding with the LRTA, the former is more demanding than the latter, by adding a requirement to abstractly delimit the object of AT's binding to arbitral jurisdiction.'

'(...) What is lacking in special labor of interpretation is the requirement of "administrative remedy" necessary (prior), "in accordance with articles 131 to 133 of the Code of Procedure and Tax Process".

'First of all, in obedience to these same "terms", provided for in article 131 TCPC, the requirement of prior administrative remedy shall be applicable only to cases in which such remedy is mandatory, through administrative claim. In fact, in the case of self-assessments, administrative claim is required, but only in cases of errors that are not founded exclusively on a matter of law, and in which the self-assessments have been made in accordance with generic guidelines issued by the tax administration (cf. article 131(1) and (3) TCPC)[2].

'The useful sense of the order, in light of what was established in the LRTA, the legislator's intention, was to ensure that the taxpayer does not resort to the Tribunal "(…) before any taking of a position by the administration on the situation generated by the act of the taxpayer (…) because no dispute is yet detectable"[3]|[4]. Thus it is understood that cases provided for in article 131(3) TCPC are excluded from the requirement of administrative claim, since in those the AT has already ruled, a priori, through "generic guidelines".

Returning to the request for arbitral decision, in the case sub judice, what truly matters is that, in cases where an application for ex officio revision of a tax act is formulated, AT is also given, with that application, an opportunity to take a position on the merits of the taxpayer's claim, before the latter resorts to the judicial remedy.

'Therefore, by "coherence with the solutions adopted in articles 131(1) and (3) of the TCPC, it cannot be required that, cumulatively with the possibility of administrative examination within the scope of this ex officio revision procedure, a new administrative examination be required through administrative claim. On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from submitting applications for ex officio revision in cases of self-assessment acts, since these are expressly referred to in article 78(2) of the GTC. In this context, allowing the law expressly that taxpayers opt for administrative claim or for ex officio revision of self-assessment acts and being the application for ex officio revision filed within the period of administrative claim perfectly comparable to an administrative claim[5] (...) there cannot be any reason that can explain that a taxpayer who opted for revision of the tax act cannot gain access to arbitral remedy instead of administrative claim' [6].

'(...) Given the above, it is concluded[7] that order no. 112-A/2011, when expressly referring to article 131 of the TCPC regarding applications for declaration of illegality of self-assessment acts, said imperfectly what it intended. Wishing to impose the administrative examination necessary for the contentious challenge of self-assessment acts, it ended up making express reference to article 131, forgetting that this remedy does not exhaust the possibilities of administrative examination of these acts. The interpretation sustained is the interpretation that best translates the intention of the "legislator" and does not conflict with any constitutional principles (...).'

Indeed, the invocation of the principle of indisposability of tax credits will possibly be an oversight, since in deciding on its competence, relevant only as a procedural presupposition, the Arbitral Tribunal is certainly not practicing any act of disposition of a tax credit, in the sense of the invoked article 30(2) GTC.

On the other hand, excluding arbitral jurisdiction merely because the means used should have been a prior administrative claim would violate the principles of access to justice and effective judicial protection.

In fact, the rule, whether for judicial challenge or for arbitration, is that all acts regarding which this entity has either not yet ruled or still has no involvement be submitted to AT's scrutiny, for which reason it must be given the opportunity to rule before the judicial or arbitral tribunal rules on their legality.

Thus, the equivalence between the application for revision of the tax act and administrative claim on self-assessment acts, withholding at source and payment on account is manifest. In fact, as was stated in the Decision of the Supreme Administrative Court (Plenary section of CT, process no. 0793/2014), of 3 June 2015, "(...) the procedural means of revision of the tax act cannot be considered as an exceptional means to react against the consequences of a tax assessment act, but rather as an alternative means to the administrative and contentious challenge means (when used at a time when those can still be used) or complementary to them (when the periods for use of the challenge means of the assessment act have already been exhausted)…"

Following the aforementioned Decision, the Supreme Administrative Court decided that "the Dismissal, tacit or express, of the revision application is subject to judicial control [cf. article 95(1) and (2)(d) of the GTC]".

It is now settled jurisprudence that, AT being able, on its own initiative, to proceed with ex officio revision of the tax act, within four years after assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to its services (article 78(1) of the General Tax Code), the taxpayer can also, within that period for ex officio revision, request this same revision on that grounds.

In sum, the application for ex officio revision of the tax act is a mechanism for opening contentious remedy perfectly comparable to the necessary administrative claim, since it serves the purpose of allowing AT to rule on self-assessment acts.

For the reasons set out, the argument of AT regarding the unconstitutionality of article 2(a) of Order no. 112-A/2011 in the interpretation sustained by this tribunal is without merit. In this sense, see among others, the Arbitral Decision delivered in proceedings nos. 577/2016-T and 668/2016-T.

This exception of incompetence is therefore without merit.

2.4. Apart from the exception of material incompetence of this Arbitral Tribunal, raised by the Respondent and deemed without merit by this Tribunal, no other exceptions requiring examination were raised.

2.5. There are no nullities, so it is necessary to proceed, next, to examine the merits of the application.

3. MERITS

3.1. FACTUAL MATTERS

3.1.1. Proven Facts

The following facts are found to be proven:

• The Claimant submitted on 23 May 2012 the income return Form 22 of CIT relating to the 2011 tax year, having calculated an amount of autonomous taxation in CIT of €96,158.38 (cf. Doc. 1 attached to the arbitral request).

• The Claimant subsequently submitted, on 28 May 2013, an income return Form 22, of substitution, which in no way alters what is discussed here (cf. Doc. 2 attached to the arbitral request).

• The income return Form 22 of CIT and its articulation with the programming of AT's computer system prevented the deduction against the tax collected related to the autonomous taxation rates in CIT, entered in field 365 of table 10 of the income return, of the SIFIDE still to be deducted.

• The amount of SIFIDE, allocated/obtained, available for use at the end of the 2011 tax year amounted to €5,651,708.02 in accordance with certification accompanied by Declarations from the SIFIDE Certifying Commission (Docs. no. 4 and 5, attached to the arbitral request).

• The Claimant submitted an application for ex officio revision of the CIT self-assessment in question, which AT dismissed on the grounds that the requirements for admissibility of the revision of tax acts provided for in article 78 of the GTC were not met (Doc. no. 3 attached to the arbitral request).

• The Claimant was notified of this dismissal on 23 June 2017 (Doc. no. 3 attached to the arbitral request).

3.1.2. Unproven Facts

There are no other facts with relevance for examination of the merits of the case that have not been proven.

3.1.3. Reasoning as to Factual Matters

As to the proven factual matters, the conviction of the Arbitral Tribunal was founded on the free examination of the positions taken by the Parties (on the factual aspect) and on the contents of the documents attached to the case file, not contested by the Parties, as well as on the examination of the administrative procedure appended by the Respondent.

3.2. LEGAL MATTERS

3.2.1. Principal Question

The central question to be decided in the proceedings (as posed by the Claimant in the application filed) is whether the CIT self-assessment (including that of autonomous taxation), relating to the 2011 tax year, subject to challenge suffers from the material defect of violation of law, because, in the understanding of the Claimant, the deduction of SIFIDE should be allowed against the part of the CIT tax collected corresponding to autonomous taxation.

The Claimant argues, contrary to AT's thesis, that the deduction of tax benefits, in particular, in this case, "SIFIDE", should be made taking into account autonomous taxation since these are CIT.

The answer to the problem posed presupposes, first of all, that the evolution of the figure of autonomous taxation be analyzed in order to ascertain whether its legal regime (including nature and reason for being) is compatible with the Claimant's claim or, if on the contrary, the position defended by the Respondent is correct.

Let us see.

3.2.1.1. On the Nature of Autonomous Taxation in Portuguese Jurisprudence and Doctrine

We will follow, in what this matter is concerned, the decision delivered on 07.07.2017 in Proc. 668/2016-T, which decided a similar question and which we now transcribe:

"As adopted in Arbitral Decision no. 722/2015-T, of 28 June 2016 (reiterated, among others, in Arbitral Decision no. 443/2016-T), decision whose collegium was presided by the here also Arbitrator President (and for whose contents we hereby refer to), autonomous taxation taxes expense and not income, a position which is assumed by the Esteemed Counselor Vítor Gomes (dissenting opinion affixed to Decision no. 204/2010 of the Constitutional Court), whereby he states, referring to autonomous taxation, that 'although formally inserted in the CITC and the amount that it permits to collect is assessed within its scope and in the guise of CIT, the rule in question concerns a tax imposition that is materially distinct from taxation in this schedule (...)'

'Effectively, we are faced with autonomous taxation (...) 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 decision points out'.[8]

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

In the same sense, it was equally recognized by the jurisprudence of the Supreme Administrative Court (SAC) 'that under the designation of autonomous taxation there hide very diverse realities, including, in accordance with article 81(1) of the (then) CITC, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in cases of expenses incurred by taxpayers totally or partially exempt, or that do not exercise, as the principal activity, commercial, industrial or agricultural activities (article 81(2) of the [then] CITC) and which are not considered as cost in the calculation of taxable income in CIT. It should be noted, however, that representation expenses and those related to light vehicles, in accordance with the provisions of article 81(3) of the CITC and expenses allowances are affected by business activity and indispensable for which reason they are fiscally accepted in some cases even if within certain limits'.[9]

As regards the position which was assumed by the Constitutional Court, cite the Decision no. 18/11, whereby it is stated that 'there are facts subject to autonomous taxation, which correspond to expenses proven to be indispensable to the realization of revenues and (...) this means that autonomous taxation also falls on expenses which correspond to the nucleus of the concept of actual income, net income and compliance with accounting obligations' (emphasis ours).

'This argument of the Constitutional Court (...) interests us only to point out that the Court recognizes that this regime constitutes a limitation on the taxation of actual income (which is guaranteed by article 104(2) of the CPR'.

More recently, the Constitutional Court reformulates the doctrine of Decision no. 18/11 (mentioned above), moving closer to the then dissenting opinion of Counselor Vítor Gomes and to the Decision of the SAC no. 830/11 (also cited above), to the effect of understanding that 'contrary to what happens in the taxation of income in the context of IRS and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of it can the tax rate be calculated, as well as the bracket in which the taxpayer fits), in this case each expense made is taxed, considered in itself, and subject to a given rate, autonomous taxation being calculated independently of the CIT that is due in each fiscal year, by not being directly related to obtaining a positive result, and hence liable to taxation. Thus, and in the case of CIT, we are faced with an annual tax, in which each income received is not taxed per se, but rather the combination of all income obtained in a given year, the law considering that the tax-generating event is deemed to occur on the last day of the tax period (cf. article 8(9) of the CITC). As regards autonomous taxation in CIT, the tax-generating event is the very performance of the expense, one is not faced with a complex fact, of successive formation over a year, but with an instantaneous tax fact' (emphasis ours).

Now, still according to this Decision of the Constitutional Court 'this characteristic of autonomous taxation refers us, thus, to the distinction between periodic taxes (whose tax-generating event occurs in a successive manner, by the passage of a given period of time, usually annual, and tends to repeat itself in time, generating for the taxpayer the obligation to pay tax with regular character) and taxes of single obligation (whose tax-generating event occurs in an instantaneous manner, emerges isolated in time, generating on the taxpayer an obligation to pay with sporadic character). In autonomous taxation, the tax fact 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 calculation of the amount of tax, resulting from the application of the various autonomous taxation rates to the various acts of performance of expense considered, comes to be carried out at the end of a given tax period). But the fact that the calculation of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of lasting character. That operation of calculation translates only in the aggregation, for purpose of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence of the volume of expenses incurred in the determination of the rate' (emphasis ours).[10]

As regards doctrine, we note that, in essence, the concept and nature of autonomous taxation does not substantially depart from the understanding of the jurisprudence produced by the Constitutional Court (above summarily stated).

In fact, as RUI MORAIS states, 'what is at stake is a taxation that affects certain expenses of taxpayers, which are regarded as constituting tax facts. It is difficult to discern the nature of this form of taxation and, even more, the reason why it appears provided for in the codes of taxes on income'.[11]

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

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

Additionally, it should be noted that it is also accepted by the generality of doctrine and jurisprudence that autonomous taxation aim to prevent abusive practices of remuneration of workers, managers and partners/shareholders of the company.

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

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

'It is settled that autonomous taxation stems, as was touched upon, in the need to prevent abuses as to the recording of certain charges or expenses and which can easily be subject to deviation to private consumption or which, in some way, are susceptible to formally configure an expense of a legal entity, but which, substantively, represent or may configure abuses in order to minimize the real measure of the tax.

'Aware of this difficulty of, often, making a rigorous separation of these two realities, was successively "grafted", as described above, in the actual income taxation regime established in the CIT Code, as the general standard, an autonomous regime of taxation of certain expenses, in whole or in part undesired and undesirable that contaminate the terms of the tax duty, which thus appears configured below the real capacity to contribute of the entity that records it as such.

'In these terms, it can be stated that autonomous taxation appear integrated in the CIT regime, are calculated and due within the scope of the legal relationship of taxation of income of legal entities and it is, in this framework, that its calculation is made.

'But they are not "CIT", tout court as the Claimant lapidly and definitely asserts.

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

'In fact, autonomous taxation are an instrument that (moving away and introducing some measure of distortion in a system that declares taxing real and actual income), after all also taxes expenses, deductible or not in CIT, without this violating the constitutional provisions already since the applicable rule (article 104(2) of the CPR) declares imperative the taxation of companies "fundamentally" on their real income, without prejudice to either the situations of taxation according to profits or actual income (when assessed by indirect methods), or situations of taxation of expenses subject to autonomous taxation (by express legal choice), the establishment of technical solutions (as is the case of special payment on account) and the rules specific to its return.

'In this scope, it is worthwhile to recall that, neither the tax systems, nor the models of concrete imposition correspond to pure models, free from elements of strangeness to the system itself foundational, of values, or to the general regime of any tax abstractly considered. In fact, all taxes possess characteristics or solutions that, when viewed in isolation, may objectively represent a discharacterization of the model as in the purity of concepts it was conceived, but which, when articulated with the model, it is verified that they concur for its effectiveness, and confer or reinforce its coherence.

'These solutions, more pragmatic or specific, do not wound such essential axiological dictums, whether they be of receipt protection or of densification of the general axiological ideals (of the tax order) or specific to the tax (as is the case of the need to prevent abuses) provided that, they themselves, are not of such relevance as to abjure the rule-taxation model or structurally falsify the values in which it is rooted.

'In the case under analysis, although the choice of fundamental law and of ordinary law, in consequence, has been clearly towards taxing the income of legal entities and, in the possible forms of calculation of this, real and actual income taxation has been chosen as a manifestation of the highest standard of fiscal justice, the truth is that the system has always known more or less relevant deviations, either because certain expenses are not considered as such by fiscal law (although objectively they may be attributable to a commercial activity), or because fiscal law, recognizing this essentiality, fears the occurrence of abuses (as is the case with autonomous taxation, generically speaking).

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

'Now, from this balancing of the values that support the duty to establish/bear tax with the realities of life can result the need to establish limits (fiscal or other) to the behavior of taxpayers, with the objective of maintaining within general patterns of equilibrium, the legal solutions of the system.

'On the other hand, it is important to bear in mind (because this is relevant for the purposes of the decision to be taken) that autonomous taxation constitute anti-abuse rules aimed at rationalizing specific behaviors of taxpayers (with regard to tax duty) by which, traditionally, they managed to achieve a tax measure inferior to what evidenced their actual capacity to be taxed but which, by virtue of these abusive behaviors was liable to be mitigated or eliminated, with evident violation or postponement of the principle of justice, of fair distribution of the tax burden by those who reveal capacity to contribute.

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

'Now, autonomous taxation, as appears clear, do not have a markedly profit-seeking purpose, that is, they do not primarily aim at obtaining (more) tax revenue, although this may not be an aspect to be despised, verifiable.

'In fact, they aim to dissuade behaviors, practices or options of companies rooted in reasons essentially of a fiscal and profit-saving nature and, on the other hand, preserve the equilibriums proper to the regime of taxation of legal entities, avoiding distortions not only at the level of taxable results, as waves of deviant behaviors, affecting the legal expectation of revenue, in each economic year.

'And, through these general anti-abuse clauses, they force the maintenance of a healthy correlation between trading volumes, taxable profits and the tax due finally by entities subject to CIT, in line with the levels of effective tax burden that fall on the different groups of taxpayers, within the Portuguese tax system and, even, comparatively with that of the OECD member states or outside it.

Thus, autonomous taxation, including those provided for in paragraph (b) of article 88(13) of the CIT Code have, then, a general disciplinary function that is not alien to the systemic purposes of the tax, even because, as an anti-abuse mechanism, autonomous taxation are not alien to the general purposes of the tax system.

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

'In fact, autonomous taxation introduce taxation mechanisms that, naturally, will displease their recipients, but prevent or limit the harmful effects of abusive practices that would harm others and are, therefore, necessary for the preservation of the system's equilibriums.

'Now, companies, like individuals, are equally subject and with the same intensity to the general duty to pay taxes and, to this extent, fiscal law cannot fail to establish mechanisms that limit deviant procedures because each one must bear tax according to what it can, that is, according to its revealed capacities to contribute.

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

'In fact, it is, rather, a concrete manifestation of the modernity and maturity of a tax system that demands of its recipients/beneficiaries a maturity of the same stature since it also represents a new form of ethical and social accountability with respect to the tax phenomenon.[15]

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

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

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

'Appealing to the legislative purpose it is clear that autonomous taxation are levied within the process of CIT assessment in accordance with a purpose and a dogmatics of their own that lead to the total tax collected not being a unitary reality but a composite one.[18]

Thus, in it is possible to discern the tax collected properly said, resulting from the general mechanics of CIT assessment, which is due on a constitutional basis resting on the general duty of each one (in which legal entities are included) to contribute to public expenses according to their means (article 103(1) of the CPR). All in respect and in compliance with the principles of justice, equality and the duty to pay tax according to the revealed capacity to contribute. And from which the amounts referred to in article 90 of the CIT Code are deducted and according to the terms and manner referred to therein.

'To this general tax collected, rooted in this foundational basis, is added the specific tax collected, due by autonomous taxation, which has, as has been made clear, a root, a sense and a purpose of its own, which is to discourage the adoption of the behaviors taxed by them, listed in article 88 of the code, which constitutes an anti-abuse rule, which permits us to invoke here all the proper dogmatics in which it is founded.

'In this case, by virtue of complying with purposes that go beyond the purely profit-seeking purposes of the tax, to be situated in the field of behaviors that the law considers abusive and/or undesired, it appears clear that it does not make sense to effect deductions to it, under penalty of emptying, in practice, of any sense the anti-abusive regime created.'

Here we are in a position to analyze the Claimant's request, as to the legality of the deduction of "SIFIDE" against the part of the CIT tax of 2011, relating to autonomous taxation.

3.2.1.2. On the Possible Deductibility of "SIFIDE" Against Autonomous Taxation

'(...) We concluded above, following the jurisprudence mentioned, that the tax collected from autonomous taxation has a different root, which cannot, under penalty of subversion of the order of values, permit the deduction of tax benefits, under penalty of discharacterization of the principles that are specifically intended to be pursued.

In fact, having the regime of autonomous taxation a disincentivizing function of abusive behaviors, there is no logical reason why that disincentive could, afterward, vanish, which would happen if it were possible to deduct against the tax collected from autonomous taxation, investment incentives, as the Claimant seeks, because that possibility would result in a twofold strange effect, that is, on one hand could, in the limit, eliminate the tax collected resulting from autonomous taxation and, on the other, would provide for the deduction of certain tax benefit (in the concrete case, what is in question is "SIFIDE", by compliance with the objectives or adoption of the conducts set out in the rule conferring the right to the tax benefit) against a tax that has a specifically anti-abuse function, of mitigation of fiscally and socially undesired and discouraged behaviors.

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

Furthermore, as stated in the dissenting opinion, attached to Arbitral Decision no. 5/2016-T, (...) referring to the SIFIDE and RFAI regimes, there is also no "conceptual error nor even any contradiction between the just exposed and the fact that the SIFIDE and RFAI regimes establish that the same are implemented in deductions against the CIT tax collected. In making that express reference is the legislator referring to the CIT tax collected properly said for whose calculation autonomous taxation do not contribute, precisely because they do not enter in the calculation of neither taxable income, nor taxable matter, and, as a consequence, do not contribute to the CIT tax collected, nor even the CIT assessed or the CIT to be paid/recovered (cf. CASALTA NABAIS, Idem p. 541). The result of autonomous taxation is calculated, calculated independently, does not contribute to the CIT tax collected, on the contrary, it is to be added to the CIT assessed for purposes of calculation of the amount to be paid or recovered, which constitutes a result quite different.'

In sum, substantial reasons, deriving from the purposes that were intended to be achieved legislatively with the creation of SIFIDE, justify a restrictive interpretation of the provisions in question of the CITC, and restrictive interpretation is admissible when there are precisely "substantial reasons to conclude that the scope of the legal text betrays the legislative thought or is necessary to optimize the harmonization of conflicting interests that two rules intend to protect" (cf., among others, Arbitral Decision no. 673/2015-T).

The arbitral understanding now upheld, in the sense of the orientation followed in Arbitral Decisions nos. 722/2015-T and 443/2016-T, is in harmony with the new article 88(21) of the CITC added by Law no. 7-A/2016, of 30 March, in establishing that to the amount calculated of autonomous taxation no "deductions are effected".

Also in this case, the legislator merely adopted, clarifying it, a solution that the courts, with recourse to existing rules and by application of criteria of legal hermeneutics were in a position to extract from the regime to be applied, which is what this collegium did, in the case of the proceedings.

Given the foregoing, it is concluded, in this way, by the illegality of the deductibility of SIFIDE against the tax collected from autonomous taxation, without the need to resort to the interpretative character given by article 135 of Law no. 7-A/2016, of 30 March (State Budget for 2016), to article 21 of article 88 of the CIT Code, whereby "the assessment of autonomous taxation in CIT is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the preceding paragraphs, with no deductions being effected against the total amount calculated."

Thus, the invoked unconstitutionality of article 88(21) of the CITC added by Law no. 7-A/2016, of 30 March, by violation of the prohibition of retroactivity principle in tax matters, as results from article 103(3) of the CPR, ceases to make sense, to the extent that such regulatory provision is not even invoked in the resolution of the case under examination.

In these terms, this Arbitral Tribunal understands that the Claimant has no merit, for the reasons invoked above, as to the possibility of deduction of the tax benefit relating to "SIFIDE" against the tax collected from autonomous taxation relating to the 2011 CIT year.

Thus, the applications of the Claimant (principal and alternative) are without merit, and the dismissal of the ex officio revision requested is to be upheld.

3.2.2. Other Requests

The application becoming without merit for declaration of illegality of the dismissal of the application for revision of the tax act as well as partial annulment of the self-assessment act challenged relating to the 2011 CIT year, the applications made by the Claimant for return of amounts paid and respective interest are also prejudiced.

4. DECISION

For these reasons, this Arbitral Tribunal decides:

• Judgment that the exception of material incompetence of this Arbitral Tribunal, raised by the Respondent, arising from the circumstance that the request for arbitral decision was formulated following the dismissal of an application for ex officio revision of the self-assessment act of CIT relating to the 2011 tax year, is without merit;

• Judgment that the arbitral application for declaration of illegality of the dismissal of the application for ex officio revision, as well as illegality of the CIT self-assessment of the Claimant, as regards the deduction of SIFIDE credit against the tax collected from autonomous taxation relating to the 2011 tax year, subject to challenge, is entirely without merit, the Respondent being absolved of these applications;

• The decision dismissing the application for revision of the tax act of self-assessment subject to challenge is upheld;

• Judgment that the application for refund of the amount of CIT under examination in the proceedings and paid by the Claimant, relating to the 2011 tax year plus indemnifying interest, is without merit, the Respondent being absolved of the respective application and, in consequence,

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

5. VALUE OF THE PROCEEDINGS

In accordance with the provisions of article 306(2) of the CPC, 97-A(1)(a) of the TCPC and article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €96,158.38.

6. COSTS

Pursuant to article 22(4) of the LRTA, the amount of costs is fixed at €2,754.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Notice is hereby given.

Lisbon, 8 April 2018

The arbitrators,

Maria Fernanda dos Santos Maçãs (President)

Cristina Aragão Seia

Henrique Nogueira Nunes

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

[2] Furthermore, as stated in Decision 617/2015 CAAD, of 22/2/2016, "nor would it be understood that, it not being necessary for administrative challenge if arbitral jurisdiction were to be eliminated by that administrative challenge, deemed unnecessary, not having been carried out".

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

[4] Additionally, as is stated in Decision 617/2015 CAAD already cited, "aside from not discerning any other justification for this requirement, the fact that identical administrative claim is required for contentious challenge of withholding at source and payment on account acts (in articles 132(3) and 133(2) of the TCPC), which they have in common with self-assessment acts the circumstance that there is also no taking of a position by the Tax Administration on the legality of the acts, confirms that this is the reason for that required administrative claim".

[5] Cf. Decision SAC of 12/6/2006 (proc. 0402/06, reporter: Jorge de Sousa).

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

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

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

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

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

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

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

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

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

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

[16] Arbitral Decision of CAAD no. 210/13-T states that "expenses (...) share between them a risk of non-business character, that is, a risk of not being carried out for business purposes, but rather extra-business or private purposes".

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

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