IRC Autonomous Taxation: Deductibility of SIFIDE and RFAI Credits in Group Taxation (CAAD 5/2016-T)

ARBITRAL DECISION

The arbitrators Maria Fernanda dos Santos Maçãs (President), Paulo Nogueira da Costa (Member) and João Pedro Dâmaso (Member), designated by the Deontological Council of the Centre for Administrative Arbitration (CAAD) to constitute the Collective Arbitral Tribunal, decided as follows:

I. REPORT

1.1

A... – Sociedade Gestora de Participações Sociais, S.A., legal entity no. ..., with registered office at ..., no. ... – Place ..., ... - ... ..., municipality of ..., with share capital of €15,000,000.00 (hereinafter referred to as the "Applicant"), covered by the local peripheral services of the Tax Service of..., parent company and responsible for the self-assessment of Corporate Income Tax ("IRC") of the tax group (Tax Group B...) to which, in the taxation period of 2012, the Special Regime for the Taxation of Groups of Companies ("RETGS") was applicable, and which was composed of itself and the following companies:

§ C..., S.A.;
§ D..., S.A.;
§ E..., Ltd.;
§ F..., Ltd.;
§ G..., S.A.;
§ H..., S.A.;
§ I..., S.A.;
§ J..., Ltd.;
§ K..., S.A.; and
§ L..., S.A.,

filed a request for an arbitral pronouncement and for the constitution of a Collective Arbitral Tribunal, under the terms of Article 4 and Article 10, no. 2 of Decree-Law no. 10/2011, of 20 January [Legal Regime for Tax Arbitration (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as the "Respondent").

1.2

The Applicant requests that the Collective Arbitral Tribunal declare the illegality of the act of rejection of the gracious complaint filed against the self-assessment of autonomous taxation in IRC for the year 2012, as well as declare the illegality of the self-assessment of IRC, including autonomous taxation rates, of Tax Group B..., relating to the fiscal year 2012, with respect to the amount of autonomous taxation rates in IRC of €63,599.28, with its consequent annulment in this part by improper exclusion of deductions from the tax collected, with all legal consequences, namely the reimbursement to the applicant of the said amount, plus compensatory interest at the legal rate calculated, until full reimbursement, from 24 June 2013.

1.3

Alternatively, should the Tribunal understand that Article 90 of the CIRC does not apply to autonomous taxation, the Applicant requests the declaration of illegality and consequent annulment of the assessment of autonomous taxation and reimbursement of the amount of €63,599.28, plus compensatory interest calculated from 24 June 2013.

1.3 [sic]

The request for constitution of the Collective Arbitral Tribunal was accepted by the Esteemed President of CAAD and immediately notified to the Respondent on 7 January 2016.

1.4

Given that the Applicant did not proceed with the appointment of an arbitrator, under the terms of Article 6, no. 2, paragraph a) of the RJAT, the signatories were designated as arbitrators by the President of the Deontological Council of CAAD, with the appointment being accepted within the prescribed timeframe and terms.

1.5

On 7 March 2016, the Parties were duly notified of this designation, and did not express any intention to refuse the designation of the arbitrators, under the terms of Article 11, no. 1, paragraphs a) and b) of the RJAT, in conjunction with Articles 6 and 7 of the Deontological Code.

1.6

In accordance with the provision of paragraph c), no. 1, Article 11 of the RJAT, the Collective Arbitral Tribunal was constituted on 22 February 2016.

1.7

In the Arbitral Petition submitted by it, the Applicant invoked, in summary, the following:

a) The acts subject to the request for pronouncement of the Arbitral Tribunal are the rejection of the gracious complaint identified above and, consequently (and in final or ultimate terms), the act of self-assessment of IRC of the tax group B... relating to the fiscal year 2012, to the extent corresponding to the non-deduction from the part of the IRC collected produced by the autonomous taxation rates of tax incentives in IRC of the tax benefit determined within the Fiscal Regime for Investment Support ("RFAI") and the System of Tax Incentives for Business Research and Development ("SIFIDE"), or, alternatively, to the extent that the assessment of autonomous taxation is improper;

b) It is intended to submit to the Tribunal's consideration (i) the legality of this rejection of the gracious complaint, to the extent that it fails to acknowledge the illegality (by improper exclusion of deduction from the collected tax or, alternatively, by mere improper assessment of autonomous taxation) of that part of the self-assessment of IRC relating to the fiscal year 2012 of tax group B... and, likewise, (ii) the legality of that part of the self-assessment of IRC relating to this fiscal year 2012, more specifically illegality with respect to the amount of €63,599.28.

c) It submitted on 30 May 2013 the IRC declaration Model 22 relating to the fiscal year 2012 of its tax group, having also submitted a substitute declaration, having determined an amount of autonomous taxation in IRC of €63,599.28 (Docs. nos. 1 and 2);

d) In the referred income declaration, the tax group determined an amount of tax payable of €136,858.34, which has been paid, which results from the reimbursement to which it was entitled of withholding taxes borne in the amount of €78,353.56, from the determination of autonomous taxation in IRC in the amount of €63,599.28, from municipal contribution of €66,615.75 and state contribution of €84,996.87 (Doc. no. 5);

e) The information system of the Tax Authority reveals anomalies embodied in the marking of discrepancies ("errors") that prevented the applicant from registering the value relating to the said autonomous taxation rates in IRC cleared, i.e., deducted, within the limits of the IRC collected resulting from the application of these rates, (i) either from the amounts of tax benefit recognized to the companies of the tax group under SIFIDE, in the form of tax credit deductible from IRC collected, (ii) or from the amounts of tax benefit recognized to the companies of the tax group under RFAI, which resulted in an excess tax payment by reference to the fiscal year 2012, in question here;

f) The amount of SIFIDE, allocated/obtained, available for use at the end of fiscal year 2012 amounted to €1,245,366.66, as per certification accompanied by Declarations from the SIFIDE Certification Commission (Doc. no. 6);

g) Under RFAI, an accumulated amount remains to be deducted from IRC collected that amounted in 2012 to €1,045,549.94, as per certification and respective details attached (Doc. no. 7);

h) The tax group has IRC credits for offset against the respective tax collected in an amount much higher than the collected autonomous taxation in IRC for fiscal year 2012, which collected, as mentioned above, amounted to €63,599.28, and this offset (which the Tax Authority's information system does not permit) should be made starting with the longest-held tax benefits, following the deduction order provided by law;

i) The Tax Authority did not and has not determined the taxable profit of tax group B... and respective companies by indirect methods: it was determined in normal terms, via submission of model 22 (Docs. nos. 1 and 2);

j) The companies making up the tax group at the origin of SIFIDE and RFAI are not and were not then entities owing to the State and social security any taxes or contributions (see certificates attached as Doc. no. 8, and Articles 5, paragraph a) and 6, no. 2, second part, of Law no. 40/2005, of 3 August);

k) The IRC credits from SIFIDE and RFAI are more than sufficient to compensate, through their use, the collected autonomous taxation in IRC for fiscal year 2012 in question here;

l) The question that is intended to be clarified is: does or does not tax group B... have the right to proceed with the deduction, also from the IRC collected produced by the application of autonomous taxation rates, of the said SIFIDE and RFAI?

m) Given the overwhelming arbitral jurisprudence that now qualifies autonomous taxation as IRC, the applicant absolutely sees nothing in the law that excludes the offset of these IRC credits from SIFIDE and RFAI, also to the part of the IRC collected produced by autonomous taxation rates;

n) In the same way that jurisprudence has understood, in a practically unanimous manner, that the IRC collected provided for in (in force until 2013) Article 45, no. 1, paragraph a) of the CIRC, comprises, without need for any additional specification, the collected autonomous taxation in IRC, one must also understand that the IRC collected provided for in the same code a few meters further (Article 90, nos. 1 and 2, paragraphs b) and c), in the version in force in 2013) also encompasses the collected autonomous taxation in IRC;

o) The denial of the deduction of SIFIDE and RFAI from the collected IRC from autonomous taxation violates paragraphs b) and c) of no. 2 of Article 90 of the CIRC (prior to 2010, Article 83; and since 2014 became paragraphs c) and d) of the said no. 2 of Article 90 of the CIRC);

p) If everyone who counts (Tax Authority and courts) understands that autonomous taxation is IRC (and it is because it is that Article 90 of the CIRC applies to it, directed exclusively at IRC and no other tax), let it be indifferent whether the benefit norm refers to what is determined in the application of Article 90 of the CIRC (and therefore indirect, but necessarily, to IRC), as is the case with SIFIDE and RFAI;

q) As for the possibility of offsetting tax credit from tax benefit (SIFIDE) to the collected autonomous taxation, the IRC Services Directorate ("DSIRC") has recently pronounced itself at the request of (another) taxpayer, having then excluded deductions from the collected autonomous taxation only with respect to tax credits for international double taxation (Doc. no. 13);

r) When there is a tax group, as in this case, the understanding of the Tax Authority is that what matters in autonomous taxation is the perspective of the tax group as a whole, as opposed to the perspective of the companies that comprise it individually considered (cf. point 6 of Doc. no. 14 attached here);

s) It has been systematically decided by tax courts, in this case in the form of arbitral tribunals, that autonomous taxation is IRC, from which it follows as a consequence that norms directed at IRC apply to it such as the one relating to the non-consideration of the IRC collected for the computation of taxable profit in IRC (Article 45, no. 1, paragraph a) of the IRC Code, in force until 2013);

t) The Tax Authority, in the gracious complaint regarding the deduction of SIFIDE and RFAI from the IRC collected produced by autonomous taxation rates (IRC, according to the understanding, in accord, of the Tax Authority and the courts), makes no reference to these arbitral decisions and their respective conclusions;

u) The arbitral jurisprudence founded its conclusion on the following idea, in which it also supported and supports the DSIRC: the autonomous taxation relating, at least, to vehicle expenses, allowances and representation expenses (those here in question – cf. Doc. no. 11), is a substitute for (or complement to) the non-deductibility of costs in IRC, hence the nature of IRC of the collected produced by these autonomous taxation rates;

v) It is on the basis of this conclusion, thus founded, that jurisprudence concluded that because the collected produced by these autonomous taxation rates is IRC collected, it was therefore, subject to the regime provided for the IRC collected in paragraph a) of no. 1 of Article 45 of the CIRC (in the version in force until 2013): non-deductibility of this collected in the operation of computing taxable profit.

w) For the same reason must, coherently, one conclude that the IRC collected constituted by these autonomous taxation rates is available, alongside the remaining IRC collected, in the operation of the deductions from the collected provided for in Article 90 of the CIRC, among which is found the deduction of SIFIDE and RFAI.

x) How can the Tax Authority in the rejection of the gracious complaint say that because Article 90 of the CIRC does not mention autonomous taxation, its collected would be outside the deductions provided for there (pages 8 and 9 of Doc. no. 15), if precisely because paragraph a) of no. 1 of Article 45 of the CIRC does not mention autonomous taxation either, this did not prevent the same Tax Authority (and dozens of arbitral decisions) from concluding that its collected was included there?

y) Nor should it be said, as the Tax Authority does (cf. § 5 et seq., page 8, and page 9, of Doc. no. 15), that there would be no legal support in Article 90 of the CIRC for effecting the deductions from the IRC collected provided for there, with respect to the collected produced by autonomous taxation rates;

z) Indeed (and this is evident), being an undisputed premise for the Tax Authority and for the courts that with autonomous taxation rates IRC is in question, why does the Tax Authority feel authorized to say that they cease to be so when the CIRC refers to the IRC collected in its Article 90?

aa) And, related to this point, do not autonomous taxation rates also have their own taxable matter, defined in their respective incidence norm, contained in the CIRC? Yes. As the Tax Authority (with the truth escaping its lips) recognizes (and calls it exactly that) in § 7, page 8 of its reasoning (Doc. no. 15): "(…) the legislator in the CIRC refers expressly to autonomous taxation only in five articles, namely (…) in Article 88 (in establishing the rates and in delimiting the taxable matter of autonomous taxation) (…)" (emphasis ours).

bb) What then is it that, the reference to taxable matter in said Article 90 of the CIRC excludes the collected produced by autonomous taxation rates in IRC?

cc) If the Tax Authority understands that in that Article 90 of the CIRC is not included the collected of IRC resulting from autonomous taxation (determined in accordance with Article 88), but only the collected of IRC resulting from taxable profit (determined in accordance with Article 87), it would always have to be concluded in the same way that, after all, the assessment of autonomous taxation itself is, in itself, illegal, by force of either Article 8, no. 2, paragraph a) of the General Tax Law, or Article 103, no. 3 of the Constitution: "No one may be required to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not made in accordance with the law." (Article 103, no. 3 of the Constitution; emphasis ours).

dd) And by force of this illegality, it must then be annulled, now on the basis of this other reason, the assessments of autonomous taxation in question here.

ee) In a scenario in which, despite all the arguments set forth above, it is understood that it is not possible to effect the deduction of available tax benefits to the amounts due by way of autonomous taxation, arguing that, although in their essence autonomous taxation rates are IRC, their assessment does not have a framework in the IRC assessment norm enshrined in Article 90 of the IRC Code (which only as a mere theoretical hypothesis is conceived), then the applicant requests that, as a subsidiary matter, its self-assessment of the taxation period 2012 be annulled, in the portion corresponding to autonomous taxation, and which amounts to €63,599.28, respectively, by reason of the same having been assessed and collected without legal basis for such purpose.

ff) The applicant paid tax in an amount exceeding that legally due (cf. Docs. nos. 1 and 5), so, declared the illegality of the (self)assessments in the part here petitioned, the applicant has the right not only to the respective reimbursement but also, under Article 43 of the General Tax Law ("LGT"), to compensatory interest. This interest calculated on €63,599.28 improperly paid on 24 June 2013 (cf. Doc. no. 5), calculated from this date.

gg) It is added that the error from which the (self)assessment against which complaint is made suffers results from error of the Services regarding the legal assumptions that conditioned informatically the completion of the self-assessment declarations (Model 22), as mentioned above.

hh) In these circumstances – error attributable to the Services – should be recognized to the applicant the right to compensation for damages resulting from payment of excessive tax in the amounts mentioned above.

ii) Both the rejection of the gracious complaint identified above and the self-assessment of IRC (including its autonomous taxation rates) relating to fiscal year 2012 suffer from a material defect of violation of law, in that the deduction of SIFIDE and RFAI should not be denied to the part of the IRC collected corresponding to autonomous taxation rates, starting with the longest-held SIFIDE and RFAI. Accordingly, it should: a) declare the illegality and annul the rejection of the gracious complaint to the extent that it refused the annulment of the illegal part, in the terms discussed here, of the self-assessment of IRC in the part produced by autonomous taxation rates, for fiscal year 2012, thereby violating the principle of legality; b) declare the illegality of this self-assessment (and consequently annul it), in the portion corresponding to the amount of €63,599.28; c) consequently recognize the right to reimbursement of this amount and, likewise, the right to compensatory interest for improperly assessed tax payment, calculated, until full reimbursement, from 24 June 2013; d) alternatively, should it be understood that Article 90 of the CIRC does not apply to autonomous taxation, then the illegality of the assessment of autonomous taxation should be declared (and consequently annulled) for absence of legal basis for its implementation (cf. Article 8, no. 2, paragraph a) of the LGT, and Article 103, no. 3 of the CRP), with the consequent reimbursement of the same amount of €63,599.28 and the payment of compensatory interest calculated from 24 June 2013.

1.8

The Tax Authority submitted a response and attached the instructory file, alleging, in the sense of the rejection of the request for arbitral pronouncement, in summary, the following:

a) To settle the controversial question in this proceeding, it is important to begin by analyzing the legal nature of autonomous taxation and its articulation with the general rules of the tax in which it is integrated;

b) The considerations made by jurisprudence and doctrine reveal that the figure of autonomous taxation has been instrumentalized for the pursuit of diverse objectives, which range from the original purpose of preventing practices of evasion and fraud – through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of the taxation of accessory benefits in the form of representation expenses or assignment of vehicles to workers and members of corporate bodies, in the sphere of their respective beneficiaries – to the purpose of preventing the phenomenon designated as "dividend washing" (cf. no. 11 of Article 88 CIRC) or of burdening, through taxation, the payment of income considered excessive (cf. no. 13 of the same provision).

c) It is thus recognized that the autonomous character of these taxation rates, resulting from the special configuration given to the material and temporal aspects of the taxable events, imposes, in certain domains, the exclusion or an adaptation of the general rules of application of IRC;

d) The integration of autonomous taxation in the IRC Code (and IRS), conferred a dualistic nature[1], in certain aspects, to the normative system of this tax, which was embodied, namely, in the framework of paragraph a) of no. 1 of Article 90 of the CIRC, in separate computations of their respective collected, by reason of obeying different rules. And this, since, in one case, it is the application of the rate(s) of Article 87 of the CIRC to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is the application of rates to the values of taxable matters relating to different realities contemplated in Article 88 of the CIRC.

e) Contrary to what is affirmed in point 9 of the dissenting opinion appended to the Arbitral Decision rendered in case no. 697/2014-T, there is not a single assessment of IRC[2], but rather two computations; That is, two distinct calculations which, although processed, in accordance with paragraph a) of no. 1 of Article 90 of the CIRC, in the declarations referred to in Articles 120 and 122 of the same code, are made on the basis of different parameters, since each materializes itself in the application of its own rates, provided for in Articles 87 or 88 of the CIRC, to their respective taxable matters determined equally in accordance with their own rules.

f) Contrary to the reductive conclusion drawn from this affirmation that "the same norm directed to the IRC collected provided for in paragraphs b) and c) (current c) and d)) of no. 2 of Article 90 of the CIRC also applies to them, as no obstacle is perceived to this in its special form of incidence and applicable rates", it is necessary that an interpretive exercise be carried out to determine whether the regime of deductions from the IRC collected, as an integral part of the general rule system of this tax and pre-existing to the incorporation of autonomous taxation therein, also extends to the (multiple) collected from these taxation rates.

g) It is convenient to clarify that the assessment of autonomous taxation is carried out on the basis of Articles 89 and 90, no. 1 of the IRC Code but, applying different rules for the calculation of tax: (1) in one case the assessment operates, by means of the application of the rates of Article 87 to the taxable matter determined in accordance with the rules of Chapter III of the Code and (2) in the other case, various collected are determined depending on the diversity of facts that give rise to autonomous taxation.

h) Whence it results that the amount determined in accordance with paragraph a) of no. 1 of Article 90 does not have a unitary character, since it contains values calculated according to different rules, to which are associated also differentiated purposes, so that the deductions provided for in the paragraphs of no. 2 can only be effected to the part of the collected IRC with which there is a direct correspondence, so as to maintain the coherence of the conceptual structure of the rule-regime of the tax.

i) When it comes to the deductions provided for in no. 2 of Article 90 of the CIRC, the Applicant seeks – anchoring itself, with all due respect, in a simplistic and decontextualized reading of this normative – that the expression "amount determined in accordance with the previous number" should be understood as encompassing the sum of the amount of IRC, assessed on the taxable matter determined according to the rules of Chapter III and at the rates provided for in Article 87 of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in Article 88. Now, the result of this interpretation would imply that, on the basis for calculating installment payments defined in no. 1 of Article 105 of the IRC Code – and in terms identical to those used in no. 2 of Article 90, namely: «Installment payments are calculated on the basis of the tax assessed in accordance with no. 1 of Article 90 (…)» – autonomous taxation would be included. Indeed, for the basis for calculating installment payments only the IRC computed on the basis of taxable matter determined according to the rules of Chapter III and the rates of Article 87 of the respective Code is considered.

j) In proper logic, it only makes sense to conclude that its respective basis for calculation corresponds to the amount of IRC collected resulting from the taxable matter that identifies with the profit/income of the fiscal period of the taxpayer. Thus, the delimitation of the content of the expression used by the legislator in no. 2 of Article 90 of the CIRC, "amount determined in accordance with the previous number", and in no. 1 of Article 105 of the CIRC, "tax assessed in accordance with no. 1 of Article 90", should be made in a coherent manner. Which is equivalent to saying that it corresponds to the amount of IRC calculated by means of the application of the rates of Article 87 to the taxable matter determined on the basis of profit and the rates of Article 87 of the Code.

k) Also, for deductions from the collected on account of tax benefits, the amount to which they are effected can only relate to the tax assessed on the basis of the taxable matter, determined on the basis of the rules of Chapter III and the rates provided for in Article 87 of the CIRC. This, under penalty of an incongruence resulting from the subversion of the necessary interconnection that, materially, should exist between the objectives pursued by the benefits and the very magnitude represented by profit.

l) Beginning with the deduction relating to tax benefits (paragraph b) of no. 2 of Article 90), when it comes to investment benefits – as is the case with RFAI and SIFIDE -, underlying it is the philosophy[3] that the benefit constitutes a prize whose amplitude varies with the profitability of the investments, since, the higher the profit/taxable matter of IRC, the greater the capacity to effect the deduction. There is, therefore, an inseparable link between the amount of the tax credit for investment and the part of the IRC collected calculated on the taxable matter based on profit and, if it were not so, the necessary articulation that, materially, should exist between the objectives pursued by tax benefits and their impact on the very magnitude that serves as the basis for the calculation of taxable matter and collected – profit – would be subverted.

m) To designate the same magnitude, both no. 1 of Article 92 as well as no. 1 of Article 105 of the IRC Code refer to "tax assessed in accordance with no. 1 of Article 90" and regarding its content, both the Tax Authority and taxpayers in general have always directed the calculations provided for in these provisions – result of assessment and installment payments, respectively – to the part of the IRC collected that has as its basis the taxable matter determined as the basis on profit.

n) With respect to the CFEI deduction, Article 3, no. 5, paragraph a) of Law no. 49/2013 itself provides a clarifying answer, by prescribing that «Applying the special regime for taxation of groups of companies, the deduction provided for in no. 1: a) Is effected to the amount determined in accordance with paragraph a) of no. 1 of Article 90 of the IRC Code, on the basis of the taxable matter of the group;». Now, the taxable matter of the group can only be the one referred to in no. 1 of Article 69 "Existing a group of companies, the parent company may opt for the application of the special regime for determining taxable matter in relation to all companies of the group", the calculation of which obeys, among others, the special rules provided for in Articles 70 and 71, where no interference of autonomous taxation is detected which, moreover, is determined autonomously by each company belonging to the group.

o) Examining the norms that governed the system of tax incentives for business research and development[4], commonly called SIFIDE, in the circumstances of time that are relevant to the present case, we verify that it follows from Article 4 (Scope of deduction) of the diploma, in summary, that the values that translate the tax benefit under SIFIDE are deducted "to the amounts determined in accordance with Article 90.0 of the IRC Code, and up to their concurrence" and in the assessment relating to the taxation period in which the expenses eligible for this purpose are made and which, in the absence or insufficiency of collected assessed in these terms, the expenses that cannot be deducted in the fiscal year in which they are made «may be deducted until the 6th immediately following fiscal year».

p) Well then, the collected to which Article 90 refers when the assessment is to be made by the taxpayer (situation that occurs in the present case), is determined on the basis of the taxable matter contained in this assessment/self-assessment [cf. Article 90, no. 1, paragraph a) of the CIRC].

q) Since the credit in which SIFIDE is translated is deducted only from the collected thus determined, that is, from the collected determined on the basis of the taxable matter [as provided for in Article 5, paragraph a) of the SIFIDE governing law, expressly preventing that the credits resulting from it be deducted when the taxable profit is determined by indirect methods].

r) On its part, with respect to the Fiscal Regime for Investment Support (RFAI), created by Article 13 of Law no. 10/2009, of 10 March, and its force in 2012, resulted from the extension made by Article 162 of Law no. 64-B/2011, of 30/11, the fiscal incentives covered by RFAI consisted, in accordance with paragraph a) of no. 1 of Article 3, in a "Deduction from the IRC collected, and up to its concurrence, of the following amounts, for investments carried out in regions eligible for support within the scope of fiscal incentives with regional purpose: i) 20% of relevant investment, in relation to investment up to the amount of €5,000,000; ii) 10% of relevant investment, in relation to investment of value exceeding €5,000,000."

s) No. 2 of the same provision provided that "The deduction referred to in paragraph a) of the previous number is effected in the assessment relating to the taxation period that begins in 2012." and no. 3 provided that "When the deduction referred to in the previous number cannot be effected in full due to insufficiency of collected, the amount still not deducted may be so, under the same conditions, in the assessments of the four following fiscal years."

t) The autonomous character of these taxation rates is manifest, resulting from the special configuration given to the material and temporal aspects of the taxable events, which impose, in certain domains, the exclusion or an adaptation of the general rules of application of IRC.

u) In that the integration of autonomous taxation in the IRC Code (and IRS), conferred a dualistic nature[5], in certain aspects, to the normative system of this tax, which was embodied, namely, in the framework of paragraph a) of no. 1 of Article 90 of the CIRC, in separate computations of their respective collected, by reason of obeying different rules.

v) That is, in (1) one case, it is the application of the rate(s) of Article 87 of the CIRC to the taxable matter determined according to the rules contained in Chapter III of the Code and, in (2) another case, it is the application of rates to the values of taxable matters relating to different realities contemplated in Article 88 of the CIRC.

w) So that there is not a single assessment of IRC[6], but rather two computations; i.e., there are two distinct calculations which, although processed, in accordance with paragraph a) of no. 1 of Article 90 of the CIRC, in the declarations referred to in Articles 120 and 122 of the same code, are made on the basis of different parameters, since each materializes itself in the application of its own rates, provided for in Articles 87 or 88 of the CIRC, to their respective taxable matters determined equally in accordance with their own rules.

x) From which follows, irrefutably, the impossibility of proceeding with any deduction of credits resulting from SIFIDE from the collected produced by autonomous taxation, under penalty of subverting all the teleology that was present at its genesis.

y) In summary, there is no contradiction between the assimilation of autonomous taxation with IRC, "for purposes of procedure and form of assessment and payment rules (Articles 89 and following and 104 of the CIRC" stated, among others in the arbitral decision rendered in case no. 79/2014-T and the understanding that the assessment carried out in accordance with Article 90, no. 1, is not unitary, to the extent that it contains multiple tax computations, on the one hand, the tax determined on the basis of the taxable matter determined in accordance with Article 15, no. 1, of the IRC Code and the rates referred to in Article 87, and, on the other, the computations of the amounts of tax resulting from the application of the different rates and the taxable matters provided for in Article 88.

z) The information system cannot permit or enshrine what the law does not provide, i.e., the system and information applications of the Tax Authority should be a mere reflection of the legal provisions in force at each moment. Now, as has been demonstrated, there is no legal support, administrative understanding, nor does any reason assist the Applicant's claim, so, the understanding proposed by the same in this regard absolutely lacks any sense.

aa) In the situation of the present case, the assessment of tax was carried out by the Applicant, so that even if the proceeding regarding the payment of interest were configurable – which it is not, since the improceedence of the principal request would necessarily result in the improceedence of the interest request – in the situation in the present case, its calculation would have as its starting date the date on which the decision rejecting the gracious complaint occurred and, never, the moment indicated by the Applicant in its request.

bb) Autonomous taxation, contrary to what is supported in the learned arbitral jurisprudence and in the argument of the Tax Authority, although it is a collected of IRC, is distinguished by being incurred not on profits but rather on expenses incurred by the taxpayer or by third parties who have relations with it.

cc) Let it be stressed that in view of its teleology, autonomous taxation, as an anti-abuse fiscal instrument, would be emptied of any practical-fiscal content in the event of acceptance of the thesis defended by the Applicant in its extremely extensive and prolix excursions – which would only be granted by mere academic exercise. Under penalty of subverting the purposes of autonomous taxation, by conferring upon them, with this interpretation, a null effect, in accordance with what the Tax Authority has been exhaustively maintaining.

dd) To permit interpretive fantasies that would result in the admissibility of deduction of tax benefits, such as SIFIDE's, RFAI's or CFEI's from the collected of autonomous taxation – similarly to what the law allows from the collected of IRC – as the Applicant seeks, inevitably amputates autonomous taxation in what were the principles and purposes in which its creation by the legislator was based.

ee) The claims advanced rest, with due respect, on a fanciful and fallacious construction without any legal foundation, drawing support on some sort of forced attempt at interpretation abrogating the normative in force, terms in which the arguments wielded by the Applicant entirely fail.

ff) Whereby, respectfully considering the learned arbitral jurisprudence invoked by the Applicant (deconstructed and reconstructed at the whim of its fictional argumentative ideology), interpreting the normative in force for autonomous taxation in the sense that is advocated in the fallacy accepted and defended by that party, is nothing more than, reiterate it to satiety, an interpretation abrogating disguised as legislative impulse, and may, in final analysis, constitute a violation of the principle of separation of powers.

gg) It will always have to be brought to bear, definitively dissipating the controversial question, the tenor of the State Budget for 2016 which added number 21 to Article 88 of the CIRC, assigning to it with interpretive character, where: «The assessment of autonomous taxation in IRC is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the provisions of the previous numbers, with no deductions being made from the global amount computed.»

hh) Such a norm came to clarify by positivizing, as evidenced above, the understanding and practice uniformly adopted by doctrine and by taxpayers in general, which have never been contested by the Tax Authority, so that any dissonant interpretation will be materially unconstitutional.

ii) Adopting the position of the Applicant, as mentioned above, would always have as a logical and inherent consequence to the functioning of IRC that the values computed as autonomous taxation, if understood as making up a single collected – which can only be conceived by mere academic exercise – were taken into account in the calculation of installment payments.

jj) The present request for arbitral pronouncement should be judged improcedent as not proven, and, consequently, the Respondent absolved of all requests, all with the proper and legal consequences.

1.9

The Applicant was notified to inform whether it maintained interest in the examination of the witnesses called by it, and the same informed the Tribunal that it waived witness testimony.

1.10

By order of 15 April 2016, the Tribunal, having no exceptions been raised and there being no need for the production of constitutive evidence, dispensed with the holding of the meeting provided for in Article 18 of the RJAT, by force of the principles of celerity, simplification and informality. It further designated 22 September 2016 as the deadline for rendering the arbitral decision.

1.11

In submissions, the Applicant and Respondent maintained, in essence, the positions they sustained in the initial petition and response, respectively.

II. PROCEDURAL ISSUES

2.1

The request for arbitral pronouncement is timely, since it was submitted within the deadline provided for in paragraph a) of no. 1 of Article 10 of the RJAT.

2.2

The parties have legal personality and capacity, are legitimate as to the request for arbitral pronouncement and are duly represented, in accordance with the provisions of Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

2.3

The Tribunal is competent as to the consideration of the request for arbitral pronouncement formulated by the Applicant.

2.4

No exceptions of which it is necessary to take cognizance were raised.

2.5

No nullities are verified, so it is necessary to rule on the merits.

III. MERITS

III.1. MATERIAL FACTS

§1. Proven Facts

The following facts are judged as proven:

a) On 30 May 2013, the applicant herein proceeded to submit the IRC declaration Model 22 of its tax group relating to fiscal year 2012, and also submitted a substitute declaration on 25 January 2014, with reference to the taxation period of 2012 (Docs nos. 1 and 2), having at that moment proceeded to the self-assessment of autonomous taxation in IRC for that same year 2012, in the amount of €63,599.28 (Docs. nos. 1 and 2);

b) On 29 May 2015, the applicant filed a gracious complaint against the said self-assessment relating to fiscal year 2012 (Doc. no. 3);

c) On 14 October 2015, the applicant was notified of the rejection of the above-mentioned gracious complaint (cf. Doc. no. 4);

d) In the said income declaration, the tax group determined an amount of tax payable of €136,858.34, which was paid on 24 June 2013, which results from the reimbursement to which it was entitled of withholding taxes borne in the amount of €78,353.56, from the determination of autonomous taxation in IRC in the amount of €63,599.28, from municipal contribution of €66,615.75 and state contribution of €84,996.87. (Doc. no. 5);

e) To the tax resulting from the application of autonomous taxation rates in IRC, the Tax Authority's information system signals discrepancies ("errors") that prevented the applicant from registering the value relating to the said autonomous taxation rates in IRC;

f) The amount of SIFIDE, allocated/obtained, available for use at the end of fiscal year 2012 amounted to €1,245,366.66 (Doc. no. 6);

g) Under RFAI, an accumulated amount remains to be deducted from IRC collected that amounted in 2012 to €1,045,549.94, as per certification and respective details attached as (Doc. no. 7);

h) The Tax Authority did not determine the taxable profit of tax group B... and respective companies by indirect methods (Docs. nos. 1 and 2);

i) The companies making up the tax group at the origin of SIFIDE and RFAI are not and were not then entities owing to the State and social security any taxes or contributions (Doc. no. 8).

§2. Reasoning regarding the material facts

With respect to the proven material facts, the Tribunal's conviction was based on the free appreciation of the positions assumed by the parties on the facts and the content of the documents attached to the case, not contested by the Parties, as well as on the analysis of the administrative proceeding.

III.2. LEGAL MATTERS

The central question to be decided, as posed by the Applicant, is whether the self-assessments of IRC (including its autonomous taxation rates) relating to fiscal year 2012 suffer from the material defect of violation of law, subject to challenge in that, according to its understanding, the deduction of SIFIDE and RFAI should not be denied from the part of the IRC collected corresponding to autonomous taxation rates.

According to the argument of the Applicant, the IRC collected also encompasses the collected autonomous taxation in IRC. The Applicant further alleges that, should it be understood that Article 90 of the CIRC does not apply to autonomous taxation, then subsidiarily the illegality of the assessments of autonomous taxation should be declared (and consequently annulled) for absence of legal basis for its implementation, based on Article 8, no. 2, paragraph a) of the LGT and Article 103, no. 3 of the CRP.

The answer to the problem posed presupposes, from the outset, that the nature of the figure of autonomous taxation be analyzed so as to determine whether its legal regime is compatible with the Applicant's claim.

Let us see.

III.2.1. The Nature of Autonomous Taxation

Autonomous taxation rates were created by Article 4 of Decree-Law no. 192/90, of 9 June, which had as its object the introduction of amendments to the CIRC, as results from its respective preamble. This Decree-Law implemented the legislative authorization conferred on the Government by no. 3 of Article 25 of Law no. 101/89, of 29 December, whose title is "Tax on the income of legal entities (IRC)".

From the said diplomas, in particular from the authorization law, there results no indication that the legislator intended to create a new tax. On the contrary, what is evidenced is the intention of the legislator to introduce adjustments to the taxation of the income of enterprises.

With the approval of Law no. 30-G/2000, of 29 December, which had as its object the "reform of income taxation", Decree-Law no. 192/90, of 9 June was repealed, and Article 69-A was added to the CIRC, with the title "Autonomous taxation rate", which indicates that we are faced with the application of a rate, in the IRC, distinct from the general rates provided for in Article 69. Note that the title refers to "autonomous taxation rate"[7] and not "autonomous taxation", which evidences that what the legislator intended was to provide a distinct rate from the general rates, for certain situations described there.

From this it results that the express recognition of the "autonomous taxation rates" was made in the context of the reform of income taxation, so that it would appear absolutely decontextualized and incoherent with the legislator's purpose to create a tax on expenditure and, to make matters worse, not to identify it as such and to include it in the CIRC. Furthermore, the systematic insertion of the new normative provision is made immediately following the provision that provides the general rates, and not in the final articles of the CIRC, which would be logical if it were another tax connected to the IRC, nor either in the context of the definition of the rules of incidence.

There is thus no indication that would lead us to admit that in the case of the "autonomous taxation rates" we are faced with a tax (on expenditure?) distinct from the IRC.

The norm contained in Article 69-A introduced by Law no. 30-G/2000, of 29 December, just as occurs with the norm contained in Article 88 of the CIRC in force at the time of the facts in the sub judice process, does not contain rules of subjective incidence, nor regarding the assessment and payment of autonomous taxation. Think, by way of example, of the current paragraph a) of no. 1 of Article 88, which establishes the following: "Undocumented expenses are taxed autonomously, at the rate of 50%, without prejudice to their non-consideration as expenses in accordance with Article 23." If we were to understand that we are faced with a provision that creates a new tax, we would always have to ask: who is the taxpayer?; how is the assessment made?; what are the payment rules? This without speaking of the question that relates to knowing what would be the material premise of taxation that would legitimize such a tax.

The answers must be found in the context of IRC. Note, in coherence with what has just been said, that the "autonomous taxation rates" do not even give rise to a tax obligation that must be paid to the State. The application of autonomous taxation rates is reflected in the IRC collected and it is the IRC obligation that, in accordance with the law, must be paid by the taxpayer. So much so is this the case that the installment payments referred to in paragraph a) of no. 1 of Article 104 of the CIRC are also deductible from the value assessed as autonomous taxation, that is, they are deducted in the final payment of the tax or discounted for purposes of reimbursement.

Distinct from the "autonomous taxation rates" is, in particular, the state contribution, provided for in Article 87-A. The difference begins to be noticed in the very title – "State Contribution" and not "state contribution rates", which points to a tax figure distinct from the IRC, although related to it. This is not here merely the application of an autonomous rate, distinct from the general rates. Moreover, Article 87-A of the CIRC provides, clearly, the subjective incidence, the objective incidence, the rates, and the procedure of assessment applicable, resulting in a collected distinct from that of the IRC, further providing the law specific rules on the payment of the state contribution (Article 104-A). Now, none of this occurs with the "autonomous taxation rates".

The application of autonomous taxation rates is carried out within the framework of the assessment of IRC, and the respective result is reflected in the IRC collected. The tax obligation to be paid to the State is the one relating to IRC.

In accordance with Article 104 of the CIRC, payment of this tax is made through installment payments, which in general are three, with the payment of "autonomous taxation" not being distinguished relative to the payment of IRC. For the purpose of payment of IRC, it is irrelevant whether or not autonomous taxation rates have been applied.

It is verified that there is a place for reimbursement of IRC in accordance with number 2 of the same Article 104 of the CIRC when the «value determined in the declaration, net of deductions referred to in nos. 2 and 4 of Article 90, is negative, by the amount resulting from the sum of the corresponding absolute value with the amount of installment payments» or «the value determined in the declaration, net of deductions referred to in nos. 2 and 4 of Article 90, being not negative, is less than the value of installment payments, by the respective difference». That is, in the event there is an assessment of IRC by autonomous taxation, the installment payment of IRC, made in accordance with paragraph a) of number 1 of Article 104 of the CIRC, is also deductible in this computation.

In this way, the IRC payment rules also point to "autonomous taxation" being integrated in the IRC.

But if any doubt remained, it is the legislator itself who recognizes that "autonomous taxation" is IRC when, in Article 23-A, no. 1, paragraph a) of the CIRC, it refers to «IRC, including autonomous taxation, …». Note that this paragraph refers to the non-deductibility of expenses with taxes that are levied on income (and not on expenditure).

It is not understood, for the reasons set out, that autonomous taxation can be viewed as a tax distinct from the IRC. Simply, there is no legal foundation or even any indication that would support that thesis.

As is stated in the Arbitral Award rendered in Process no. 79/2014-T, «ontologically, autonomous taxation does not configure itself as a type of tax distinct from IRC».

One also subscribes to the Arbitral Award rendered in Process no. 95/2014-T, when it is stated there that «it is not for the judge to alter by its own initiative the political and technical choice of the legislator in configuring this type of tax as IRC, even if he may not technically agree with the solution found by the legislator. Such would constitute a corrective interpretation, knowingly forbidden by the requirement of obedience to the law».

We do not, on the other hand, endorse the thesis expressed in recent decisions of the Constitutional Court, which is fundamentally rooted in the following idea: IRC taxes income; "autonomous taxation rates" translate into the application of rates to certain expenses; hence, autonomous taxation is a tax distinct from IRC (cf. the Constitutional Court Decisions nos. 310/2012 and 465/2015)[8].

In fact, it is not enough that a normative provision provides for the application of a rate to a determined fact for us to conclude that we are faced with a tax. Such would represent an emptying of the concept of tax. If we applied this minimalist conception of the figure of "tax" to the taxation of the income of natural persons, which the Constitution imposes be unitary (Article 104, no. 1 of the Constitution of the Portuguese Republic), we would be able to identify 5 "distinct taxes" on the income of natural persons, although formally included in the CIRS, as many as the types of rates provided for there: (i) the IRS itself, by means of the application of the general rates of Article 68, and still the "taxes" that would correspond to the application of the additional solidarity rate (Article 68-A of the CIRS), of liberatory rates (Article 71 of the CIRS), of special rates (Article 72 of the CIRS) and of autonomous taxation rates (Article 73 of the CIRS). This is without speaking of the case of the surtax (provided for in the Budget Law, outside the CIRS, therefore).

One aspect that appears to cause some difficulties in the definition of the nature of the "autonomous taxation rates" is the fact that the same are levied on expenses, which would represent an anomalous factor in the context of income taxation. In the words of Rui Duarte Morais, «[with autonomous taxation] it is a matter of a taxation that is levied on certain expenses of taxpayers, which are held as constituting tax facts»[9]. Naturally, proceeding from this assumption, the Author recognizes the difficulty in «discerning the nature of this form of taxation and, even more, the reason why it appears provided for in the codes of taxes on income»[10].

We understand, to the contrary, that autonomous taxation rates do not represent a tax on expenditure, and, for that reason, it does not seem to us difficult to understand the provision of the figure of "autonomous taxation rates" in the codes of IRC and IRS.

Let us see.

The relevance of the consideration of expenses in the context of IRC (and IRS) results from the constitutional principle of the taxation of real income, which is a net income. That is the reason why costs and losses are considered in the determination of taxable profit in IRC (Article 23 of the CIRC). However, the legislator expressly excludes the deductibility of certain expenses, namely for reasons related to the prevention of tax evasion (Article 23-A). But in some cases the legislator, with a view to discouraging the realization of certain expenses, namely as a means of prevention of tax evasion, goes even further than the provision of mere non-deductibility, by providing for the aggravation of the IRC collected by means of the application of rates that penalize taxpayers who realize certain expenses. This is what occurs with the autonomous taxation rates, provided for in Article 88 of the CIRC.

This occurred, for example, when the introduction of an autonomous taxation rate on representation expenses, in the year 2000, corresponding to the rate of 6.40%, given the amendment introduced by Law no. 3-B/2000, of 4 April, which added numbers 3 to 6 to Article 4 of Decree-Law no. 192/90, of 9 June.

In order for a better understanding of the reason for the introduction, in the year 2000, of an autonomous taxation rate of 6.40% on representation expenses, we will have to go back to the year 1999, and analyze, in the part that now interests us, Article 41 of the CIRC, with the title "expenses non-deductible for tax purposes", which established in paragraph g) of its number 1 that «the following expenses are not deductible for purposes of determining taxable profit, even when accounted for as costs or losses of the fiscal year: (…) representation expenses, recorded under any title, in the proportion of 20%». Subsequently, by Law no. 3-B/2000, of 4 April, this paragraph was repealed. It was, precisely, this law that introduced the new autonomous taxation rate of 6.40%, on representation expenses.

In order to be able to find explanation for the determination of the said rate of 6.40%, there is a need to ascertain what the maximum IRC rate in force in the year 2000 was, which corresponded to 32%[11].

In this context, it is verified that, at an initial moment, for the determination of the taxable result, as established in paragraph g) of no. 1 of Article 41 of the CIRC, in force until 31 December 1999, one would have to add the value corresponding to 20% of the total amount of representation expenses.

Subsequently, on 1 January 2000, the same representation expenses became subject to the autonomous taxation rate of 6.40%, to which corresponded an increase in the tax collected. Now, the rate of 6.40% results from the product of 20% with 32%; that is, the effect that was intended was exactly the same, for taxpayers who presented taxable matter, given that adding to the net result of the fiscal year 20% of the value of representation expenses, for purposes of determining the taxable matter, or adding the value corresponding to the tax that could be deductible, by non-addition of the amount corresponding to the same 20% of representation expenses, would correspond to the same result. With this modification, there was a single objective, which was to place all taxpayers to pay tax on the value corresponding to 20% of representation expenses.

It is also emphasized that the autonomous taxation relating both to representation expenses and to passenger vehicle expenses, in 2003, benefited from a reduction to 6%, which results precisely from the reduction of the maximum IRC rate, to 30%. Again making the test of multiplying 20% by 30%, one obtains the value of the rate in reference of 6%.

The same situation occurs with the expenses of allowances and kilometers in own vehicle, taxed autonomously at the rate of 5%, with effect beginning on 1 January 2005, given the amendment of number 9 of Article 81 of the CIRC, by Law no. 55-B/2004, of 30 December.

From what has been said, it is concluded that the provision for the application of autonomous taxation rates emerges as a legislative technique in tax matters that translates into an operation of opposite direction to that of deduction, and which we can designate as tax increase.

That is, the expense constitutes a decisive element in the determination of taxable profit in IRC, and the legislator expressly provides three forms of differentiated treatment of the same: i) deduction, from which will result a decrease in IRC collected; ii) non-deductibility, in which the expenses in question have a null effect on IRC collected; iii) increase, through the application of rates on certain expenses, whence will result an aggravation of the IRC collected of the taxpayer.

Thus, contrary to the qualification difficult to explain, and of opposite sense to the various indications already made explicit, of "autonomous taxation" as a tax on expenditure grafted onto a tax on income, it is understood that the figure of "autonomous taxation rates" consists of a technique of aggravation of IRC collected, which acts on expenses – a fundamental element in the determination of taxable profit – and which configures a tax increase (or that is, an operation of opposite direction to that of tax deduction).

III.2.2. The Deductions Provided for in the Legal Regimes of SIFIDE and RFAI

Let us now examine in what terms the deductions are provided for in the context of SIFIDE and RFAI.

The legal regime of the System of Tax Incentives for Business Research and Development (SIFIDE), in its various versions, provides for the deduction «…to the amount determined in accordance with Article 90 of the IRC Code…»[12].

On its part, the Fiscal Regime for Investment Support – ("RFAI"), also in its various versions, provides for «deduction from the IRC collected…»[13].

Now, autonomous taxation is assessed in accordance with the rules provided for in Article 90 of the CIRC.

Regarding this assessment, we subscribe to the reasoning contained in the Arbitral Award rendered in Process no. 673/2015-T, expressed in the following terms:

«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 determination of the 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 submission or non-submission of declarations, there being no other provision that provides different terms for its assessment.

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

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

However, the circumstance that a self-assessment of IRC, carried out in accordance with no. 1 of Article 90, may contain several partial calculations based on various applicable rates to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm when making reference 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 in them» (whether that determined on the basis of the rules of Articles 17 et seq. or that determined on the basis of the various situations provided for in Article 88).

[…]

In any case, whatever calculations are to be made, it is a unitary self-assessment that the taxpayer or the Tax and Customs Authority must effect in accordance with Articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c), and 120 or 122, and on the basis of it that the global IRC is calculated, whatever the taxable matters relating to each of the types of taxation subject to it».

In the interpretation of law, and without prejudice to the consideration of the various interpretive elements, the interpreter cannot arrive at a result that does not have a minimum correspondence in the letter of the law. Now, if the legislator expressly determines, in SIFIDE and RFAI, that the deduction is made "to the amount determined in accordance with Article 90 of the IRC Code" or, which amounts to the same, "to the IRC collected", the interpreter cannot conclude that the ratio legis points to a deduction to the taxable matter of IRC and not to the collected of this tax. It is added that we are faced with technical terms, with a precise legal-fiscal meaning, presuming that the same were used by the legislator intentionally, especially since the legal regimes of SIFIDE and RFAI were created, already several legal diplomas have extended their effects or altered some of their provisions, but the reference to deduction "to the amount determined in accordance with Article 90 of the IRC Code" (in SIFIDE) has never been altered, nor the provision of the deduction "to the IRC collected" (in RFAI).

Therefore, the deductions provided for in SIFIDE and RFAI must be made after the determination of the global amount of IRC, which includes the result of the application of autonomous taxation rates, in accordance with the provisions of Article 90 of the CIRC. And the information system of the Tax and Customs Authority should faithfully reflect the legislator's options in this matter, allowing for the deductions of SIFIDE and RFAI to be made from the IRC collected, globally considered (that is, after the application of autonomous taxation rates).

III.2.3. The "Interpretive Norm" Added by Law no. 7-A/2016, of 30 March

Law no. 7-A/2016, of 30 March (Budget Law for 2016), added to the CIRC nos. 20 and 21 of Article 88, having the legislator recognized interpretive nature to the norms contained there.

No. 21 of Article 88 of the CIRC provides the following:

«The assessment of autonomous taxation in IRC is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the provisions of the previous numbers, with no deductions being made from the global amount computed».

From the analysis of this norm we can draw the following conclusions:

i) It does not alter the legal regime of SIFIDE nor of RFAI;

ii) It does not have as its object the authentic interpretation of norms contained in SFIDE nor in RFAI;

iii) The provision contained in SIFIDE of deductions "to the amount determined in accordance with Article 90 of the IRC Code" remains valid;

iv) The provision contained in RFAI of deductions "to the IRC collected" remains valid;

v) The nature of the "autonomous taxation rates" is not altered;

vi) The procedure and form of assessment are not altered;

vii) Deductions from the amount of autonomous taxation computed are expressly prohibited, which does not prevent deductions from being made to the IRC collected (which includes the result of autonomous taxation) provided for in SIFIDE and RFAI.

As is stated in the Arbitral Award rendered in Process no. 673/2015-T, regarding the Extraordinary Tax Credit for Investment (CFEI):

«[f]or the same reason that what is in question is to interpret the scope of the diploma of special nature that is Law no. 49/2013, relevance cannot be attributed, for this purpose, to the norm of no. 21 of Article 88 of the CIRC, added by Law no. 7-A/2016, of 30 March, in the part in which it refers that no «deductions are made to the global amount computed», despite the alleged interpretive nature attributed to it».

Still according to this Award:

«there is no sign, neither in Law no. 7-A/2016, nor in the Budget Report, nor in its discussion, that with the addition to Article 88 of the CIRC of a general norm prohibiting deductions to the global amount computed of autonomous taxation, it was intended to interpret restrictively the expression «deduction from IRC collected» which appears in a special provision of an individual diploma, in particular Article 3, no. 1 of Law no. 49/2013.

And, in the absence of an unequivocal intention to the contrary, the rule applies that the general law does not alter the special law (Article 7, no. 3 of the Civil Code), which has its justification in the fact that «the general regime does not include the consideration of the particular conditions that justified precisely the issuance of the special law.

Accordingly, converging the literal and rational elements of the interpretation of Article 3, no. 1 of Law no. 49/2013 in the sense that the investment expenses provided for in CFEI are deductible from «IRC collected», it is to be concluded that they are deductible from the totality of this collected, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that resulting from the payment of special installment and other positive components of the tax, namely autonomous taxation, state contribution and IRC from prior taxation periods».

This reasoning is transposable, with the due adaptations, to the sub judice case.

In this manner, the norm contained in no. 21 of Article 88 of the CIRC, to which interpretive nature was attributed, does not prevent the deduction to the IRC collected (that is, to the totality of the collected computed by application of Article 90 of the CIRC) of amounts under SIFIDE and RFAI.

In fact, the interpreter and applicator of the law may disagree with the legislator's options, which it cannot do is alter the legislative solutions adopted. Now the legislator refers in RFAI to the deduction "to the IRC collected" and in SIFIDE refers to the deduction "to the amount determined in accordance with Article 90 of the IRC Code", which, in both cases, is manifestly distinct from "deduction to the taxable matter of IRC". The legislator could, both in RFAI and in SFIE, have adopted this solution; the truth is that it did not, and it is not for the interpreter to correct the legislator's hand.

As José de Oliveira Ascensão states, «[h]owever desirable a change in the normative system may appear, that change belongs to the sources of law, not to the interpreter. The latter grasps the sense of the source as it objectively presents itself at the present moment, does not place any other sense before it. Weighty reasons of security and of defense against arbitrariness ground this conclusion»[14].

In this manner, for the deductions provided for in RFAI and SIFIDE to cease to be made to the IRC collected (to which autonomous taxation also contributes) the legislator, should it so choose, must alter the special legal regimes that provide for them.

Given the foregoing, it proves unnecessary any consideration regarding the interpretive or non-interpretive nature of the norm contained in no. 21 of Article 88 of the CIRC and its admissibility or not in light of the constitutional principle of prohibition of retroactivity of fiscal law.

Terms in which the Applicant is correct, for the reasons and with the foundations invoked, with respect to the possibility of deduction of tax benefits relating to SIFIDE and RFAI from the IRC collected, determined after the application of autonomous taxation rates, in accordance with Article 90 of the CIRC.

III.2.4. Other Requests

The Applicant further requests the reimbursement of the amount of €63,599.28, corresponding to autonomous taxation rates in IRC, relating to fiscal year 2012, plus compensatory interest at the legal rate, calculated from 24 June 2013, until full reimbursement.

No. 1 of Article 43 of the General Tax Law provides that:

«[c]ompensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due».

As written by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, «[t]he error attributable to the services that carried out the assessment is demonstrated when gracious complaint or challenge of that same assessment proceeds and the error is not attributable to the taxpayer» (General Tax Law. Annotated and Commented, 4th ed., Lisbon, 2012, p. 342).

The law further determines, in Article 100 of the General Tax Law, that:

«The tax administration is obliged, in case of total or partial success of complaints or administrative remedies, or of judicial proceeding in favor of the taxpayer, to the immediate and full restitution of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for by law».

As stated in the Award of the Supreme Court of Administrative Justice of 11/02/2009, case no. 1003/08,

«Having the legislator adopted compensation in the form of compensatory interest, following a decision annulling an assessment, presuming the patrimonial prejudice deriving from the deprivation of the amount paid following an illegal assessment, the interpretation of Article 100 of the LGT in conformity with the Constitution is that therein is recognized the right to compensatory interest from the date on which the deprivation of the illegally assessed amount occurred and not only from the end of the deadline for execution of the annulment decision».

In accordance with the provision of no. 1 of Article 61 of the Code of Tax Procedure and Process (CPPT), «[i]nterest is calculated from the date of improper payment of the tax until the date of processing of the respective credit note, in which they are included».

In the present proceeding, the applicant paid tax in an amount exceeding that legally due, so that, declared the illegality of the (self)assessments in the part here petitioned, the applicant has the right not only to the respective reimbursement but also to compensatory interest. This interest calculated on €63,599.28, improperly paid on 24 June 2013, calculated from this date, all in accordance with what shall be determined in execution of judgment.

IV. DECISION

Terms in which it is decided in this Arbitral Tribunal:

a) To find the arbitral request for declaration of illegality of the self-assessment of IRC in the part produced by autonomous taxation, relating to fiscal year 2012, subject to challenge, to be well-founded, with its consequent annulment;

b) To find the request for declaration of the illegality of the rejection of the gracious complaint to be well-founded, with its consequent annulment;

c) To find the request for reimbursement of the amount of €63,599.28, plus compensatory interest at the legal rate, calculated from 24 June 2013, until full reimbursement, to be well-founded, all in accordance with what shall be determined in execution of judgment.

V. VALUE OF THE CASE

In accordance with the provisions of Article 306, no. 2, of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €63,599.28.

VI. COSTS

In accordance with Article 22, no. 4 of the RJAT, the amount of costs is set at €2,448.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let notice be given.

Lisbon, 27/07/2016

The Arbitrator President

Fernanda Maçãs
(dissenting in accordance with the appended dissenting opinion)

The Arbitrator Member

Paulo Nogueira da Costa

The Arbitrator Member

João Pedro Dâmaso

DISSENTING OPINION

I do not subscribe to the orientation that prevailed for the reasons set forth in Arbitral Award no. 722/2015-T, the tenor of which I proceed to reiterate, albeit in abbreviated form.

1. The fundamental divergence that separates us from the thesis of the present award concerns, in the first place, the nature of autonomous taxation, since we endorse (contrary to what is expressly alleged in the award) the uniform and reiterated jurisprudence of the Constitutional Court on the matter. This jurisprudence begun with the dissenting vote of the Esteemed Counselor Vítor Gomes, appended to Award no. 204/2010, where it can be read that: "Although formally inserted in the CIRC and the amount that it allows to collect is assessed in its context and under the title of IRC, the norm in question concerns a fiscal imposition that is materially distinct from the taxation in this schedule, (….). In fact, we are faced with autonomous taxation, as the very letter of the provision says. And that makes all the difference. It is not a matter of taxing an income at the end of the taxation period, but certain types of expenses in themselves, for the understandable reasons of fiscal policy that the award points out (…)."

By Award no. 310/12, of 20 June, the Constitutional Court reformulated the doctrine of Award no. 18/11, moving closer to the then dissenting vote of Counselor Vítor Gomes, in the following terms:

"Contrary to what occurs in the taxation of income under IRS and IRC, in which the entirety of income earned in a certain year is taxed (which implies that only at the end of the same the rate of tax can be determined, as well as the bracket in which the taxpayer is placed), in this case each expense made is taxed, considered in itself, and subject to a certain rate, with autonomous taxation being determined independently of the IRC owed in each fiscal year, because it is not directly related to obtaining a positive result, and therefore liable to taxation.

Thus, and in the case of IRC, we are faced with an annual tax, in which not each income received is taxed per se, but rather the aggregation of all income obtained in a certain year, the law considering that the taxable event occurs on the last day of the taxation period (cf. Article 8, no. 9, of the CIRC). However, with respect to autonomous taxation in IRC, the taxable event is the realization of the expense itself, not being faced with a complex fact, of successive formation over a year, but with an instantaneous tax fact. This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose taxable event occurs in successive manner, by the passage of a determined period of time, generally annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and single-obligation taxes (whose taxable event occurs in instantaneous manner, arises isolated in time, generating upon the taxpayer an obligation of payment with an avulse character). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of a certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various rates of autonomous taxation to the various acts of realization of expense considered, is to be made at the end of a certain taxation period). But the fact that the assessment of the tax is carried out at the end of a certain period does not transform the same into a periodic tax, of successive formation or of durable character. That operation of assessment translates itself 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 made in the determination of the rate." This jurisprudence was reiterated by the Full Tribunal Award, in Award no. 617/2012, case no. 150/12, of 31/1/2013 and in Award no. 197/2016, case no. 465/2015. In the same sense, one can see the jurisprudence of the Supreme Court of Administrative Justice contained, among others, in Award of 21/3/2012, case 830/11, of 21/3/2012.

This orientation is generally followed by doctrine. For RUI MORAIS (Notes on IRC, Almedina, 2009, pp. 202-203) "it is a matter of taxation that is levied on certain expenses of taxpayers, which are held as constituting tax facts. (…)" . CASALTA NABAIS, referring to the "autonomous taxation of undocumented expenses and representation and vehicle expenses", considers "To be taxation on expenditure or consumption and not on income…" (Tax Law, 8th ed., Almedina, Coimbra, 2015, p. 542). In the same sense, see ANA PAULA DOURADO ( Tax Law, Lessons, 2015, pp. 237 et seq.).

Finally, even if doubts were to be admitted in this regard, they would have to be considered overcome. In fact, the legislator itself recognizes that "autonomous taxation" is not IRC when, in Article 23-A, no. 1, paragraph a) of the CIRC, in the version introduced by Law no. 2/2014, of 16 January, by saying that «expenses are not deductible for purposes of determining taxable profit» «IRC, including autonomous taxation» it instills the idea of this evident diversity of realities. If the fiscal legislator understood that IRC included autonomous taxation, it would have no need to add it to this provision after referring to IRC, since that IRC would already necessarily include autonomous taxation, following the orientation that prevailed.

It is, on the other hand, accepted by the generality of doctrine and jurisprudence that autonomous taxation is rooted in the need to prevent abuses regarding the recognition of certain expenses or charges and which may be easily subject to diversion to private consumption or which, in some way, are susceptible to formally configuring an expense of the legal entity, but which, substantially, represent or may configure abuses in order to minimize the real measure of the tax. This is taxation that is explained by the need to prevent and "avoid that, through such expenses, companies would proceed with disguised profit distribution, especially of dividends which would thus be subject to IRC as company profits, as well as to combat fraud and tax evasion that such expenses would occasion…" (CASALTA NABAIS, Idem, p. 542). In the same sense, cf. SALDANHA SANCHES, Manual of Tax Law, 3rd Ed., Coimbra Editora, 2007, p. 406.

Autonomous taxation thus configures anti-abuse norms directed at rationalizing specific taxpayer behaviors with respect to the tax obligation, by which they traditionally managed to achieve a measure of tax lower than that evidenced by their actual demonstrated tax capacity but which, by reason of these abusive behaviors was susceptible to being mitigated or eliminated, with evident violation or postponement of the principle of justice, of fair distribution of the tax burden by those who evidence tax capacity.

Thus, it can be read in Arbitral Award no. 722/2015-T:

"Consequently, if it makes sense to admit that general deductions are made from the tax collected (IRC), permitted by law by force of the principle of taxation of real and effective income, the same does not occur in relation to the collected due by autonomous taxation. In this case, that general deduction ceases to make sense because, not taxing profits, but expenses, the question of justice in the distribution of the general burden of the tax does not arise with respect to them, so it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abuse sense with which they are imbued; the discouragement of deviant behaviors that their institution suppresses or resolves."

As was recorded in Arbitral Award no. 697/2014-T, of 13 May 2015, "Aiming autonomous taxation to reduce the fiscal advantage achieved with the deduction from taxable profit of the costs on which it is levied and also to combat the tax evasion that this type of expense, by its nature, promotes, it cannot itself, through its deduction from taxable profit as a cost of the fiscal year, constitute a factor for reducing that reduction of advantage intended and determined by the legislator".

In summary, autonomous taxation, which is levied on certain expenses, functions differently from what constitutes the essential scope of IRC, which taxes income, and, notwithstanding the systematic insertion and functional connection to IRC, the truth is that it is collected within the framework of the process of assessment of this tax without, however, losing its own dogmatic roots.

As is stated in the Award that we have been following, by appeal to the logical element...

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