CAAD 504/2016-T: Autonomous Taxation IRC Deduction of PEC and Retroactivity

ARBITRAL DECISION

The Arbitrators Maria Fernanda dos Santos Maçãs (Presiding Arbitrator), Paulo Nogueira da Costa and Sílvia Oliveira, appointed by the Ethics Council of the Administrative Arbitration Centre to constitute this Arbitral Tribunal, hereby agree on the following

ARBITRAL DECISION [1] [2]

I – REPORT

1. A…, SGPS, S.A. (hereinafter referred to as the "Applicant"), with registered office at…, …, no.…, …, municipality of Amadora, with the taxpayer identification number (NIPC)…, requested the constitution of an Arbitral Tribunal, pursuant to the terms and for the purposes of Article 2 and Article 10 of the Legal Regime of Arbitration in Tax Matters (hereinafter referred to as RJAT, approved by Decree-Law no. 10/2011, of 20 January), submitting a Request for Arbitral Opinion on 17-08-2016, in which the Tax Authority and Customs Authority (hereinafter referred to as the "Respondent") is the Respondent.

2. The Request for Arbitral Opinion concerns the decision of the Tax and Customs Authority – "Large Taxpayers Unit" – which dismissed the administrative appeal no. …2016…, submitted by the Applicant, relating to the self-assessment of Corporation Income Tax (IRC) for the years 2013 and 2014.

3. The Applicant requests the annulment of the decision of the Tax Authority dismissing the administrative appeal, as above identified, and, consequently, the annulment of the self-assessments relating to the fiscal years 2013 and 2014, embodied in Assessments nos. 2015 … and 2015 … with the consequent refund of the amount of € 493.936,95 (four hundred and ninety-three thousand, nine hundred and thirty-six euros and ninety-five cents), corresponding to the sum of the amounts of € 410.430,96 (relating to fiscal year 2013) and € 83.505,99 (relating to fiscal year 2014), plus respective indemnification interest.

4. The Applicant further requests that the interpretation of the provision contained in paragraph 21 of Article 88 of the IRC Code, in the sense that special payments on account are not deductible in autonomous taxation, be considered unconstitutional, for violation of the principle of non-retroactivity provided for in paragraph 3 of Article 103 of the Constitution of the Portuguese Republic (CRP).

5. The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority on 09-09-2016.

6. The Applicant did not proceed to appoint an arbitrator, therefore, pursuant to the provisions of paragraph a) of Article 6, paragraph 2, and paragraph b) of Article 11, paragraph 1 of RJAT, the President of the Ethics Council appointed the undersigned as arbitrators of the collective Arbitral Tribunal, who communicated their acceptance of the appointment within the prescribed time.

7. On 25-10-2016, the Parties were notified of the appointment of the arbitrators, with no objection being raised.

8. In accordance with the provision of paragraph c) of Article 11 of RJAT, the collective Arbitral Tribunal was constituted on 10-11-2016.

9. To support the Request for Arbitral Opinion, the Applicant alleges, in summary, the following:

a) In light of legal doctrine and recent case law from the Constitutional Court, it is today established that state surcharge is an additional IRC rate, inasmuch as it results from the application of the respective rate to the value of taxable profit determined by the taxpayer, thus adding (the state surcharge collection) to the collection calculated pursuant to Article 90 of the IRC Code (principal tax), which with this is assessed in the Form 22 income declaration;

b) Autonomous taxation in IRC forms part of the concept of total IRC collection, calculated pursuant to Article 90, and therefore should enjoy equal treatment, in particular, regarding the deductions provided for in paragraph 2 of that article;

c) In accordance with the deduction sequence provided for in paragraph 2 of Article 90 of the IRC Code, the Applicant believes it is justified to deduct and/or offset the amounts paid to the Tax Authority as a special payment on account (PEC) against the total IRC collection, which includes autonomous taxation and state surcharge, the latter being, moreover, expressly provided for in the Form 22 income declaration itself;

d) It appears clear to the Applicant that the course of the PEC institute represents, since its creation, a moment of departure from Law no. 30-G/2000, of 29 December, which has been followed by a movement of gradual approximation to the original framework of effective "payment on account", initiated by Law no. 32-B/2002, of 30 December, and reinforced by subsequent amendments which culminate in Law no. 2/2014, of 16 January;

e) The Applicant acknowledges, following André Salgado de Matos, that "payments on account of the tax (…) constitute deductions from collection by nature: since these are amounts of tax paid in advance, it is evident that, under penalty of double taxation, they must be deducted from collection";

f) The Applicant defends the inclusion of autonomous taxation in the concept of total IRC collection and requests that the "credits" arising from advances of the final tax that were made as PEC, and which are capable of deduction in the periods of 2013 and 2014, be deducted from state surcharge and from autonomous taxation, since they constitute a portion of the tax collection;

g) The Applicant understands that the PEC available for use in the taxation periods of 2013 and 2014 should be deducted from IRC collection, which includes, among other things, state surcharge and autonomous taxation;

h) Pursuant to paragraph 21 of Article 88 of the CIRC [introduced with the State Budget Law (LOE) of 2016], "the assessment of autonomous taxation in IRC is carried out pursuant to Article 89 and is based on the values and rates that result from the provisions of the preceding paragraphs, with no deductions being made from the aggregate amount determined";

i) As can easily be verified, Article 90 of the CIRC was not amended and continues to refer to IRC collection;

j) Having regard to the literal element of paragraph d) of Article 90, paragraph 2 of the CIRC, it is understood that from the amount of IRC collection determined, the PEC referred to in Article 106 of the same Code is deductible;

k) Therefore, paragraph 21 of Article 88 of the CIRC came to prohibit that from this collection any deductions be made until such time as, once the total IRC collection is determined, the deductions of Article 90 of the CIRC are made;

l) We are not dealing with any interpretative norm, since this norm alters the meaning, content or scope of the interpreted norm – we are in the domain of a new norm, instituting new rights, duties and obligations;

m) Paragraph 21 of Article 88 of the CIRC is, in its entirety, a new provision that did not exist prior to the 2016 LOE and whose application must be limited to new cases;

n) One cannot admit an application of paragraph 21 of Article 88 of the CIRC, in the interpretation that this is an interpretative norm, because such interpretation would imply the possibility of retroactive application of paragraph 21 of Article 88 of the CIRC, which would mean a material unconstitutionality of Article 135 of the 2016 LOE, by violation of the provision of paragraph 3 of Article 103 of the CRP, which for due purposes is expressly invoked hereby;

o) To accept the interpretative character of paragraph 21 of Article 88 of the CIRC implies the non-application of paragraph 1 of Article 90 of the CIRC, which is the norm that determines how IRC assessment is made, that is, instead of making the assessment of IRC in accordance with the norm in force in the fiscal year in question, a new law is being applied and, therefore, the principle of tax legality is being violated;

p) Having the Applicant determined, in the taxation period of 2013, a total IRC collection of €1.000.906,66 (one million, nine hundred and six euros and sixty-six cents), corresponding to state surcharge and autonomous taxation (€1.738,84 + €999.167,82, respectively), and with an available total amount of PEC capable of deduction in that period of € 410.430,96 (four hundred and ten thousand, four hundred and thirty euros and ninety-six cents), the latter should be deducted up to the extent of the said total collection, in compliance with the respective legal provisions;

q) In the same manner, having the Applicant determined, in the taxation period of 2014, a total IRC collection of € 858.867,43 (eight hundred and fifty-eight thousand, eight hundred and sixty-seven euros and forty-three cents) corresponding to state surcharge and autonomous taxation (€ 32.968,79 + € 825.898,64, respectively) and with an available total amount of PEC capable of deduction in the period of € 116.474,78, the latter should equally be deducted up to the extent of the said total collection;

r) In these terms, the Applicant requests that the Tribunal find this arbitral action proved and consequently annul the decision of the Tax Authority dismissing the administrative appeal, as identified above, and, in consequence, determine the annulment of the self-assessments relating to the fiscal years 2013 and 2014, embodied in Assessments nos. 2015 … and 2015 … with the consequent refund of the amounts in question, plus respective indemnification interest, as provided for in Article 43 of the General Tax Law (LGT) and in Article 61 of the Tax Procedure and Process Code (CPPT).

1. The Respondent submitted a Reply, presenting defense by contestation, in the sense of the inadmissibility of the Request for Arbitral Opinion, invoking, in summary, the following:

a) Autonomous taxation, although being a collection in IRC, is distinguished by the fact that it does not apply to profits but, rather, to expenses incurred by the taxpayer or by third parties having relations with it;

b) In view of its teleology, autonomous taxation, as an anti-abusive fiscal instrument, would be emptied of any practical-tax content in the event that the thesis defended by the Applicant were accepted;

c) The interpretation defended by the Applicant would allow an inadmissible limitation of the freedom of design of the legislative initiative, which in creating autonomous taxation did so with a purpose of i) combating tax evasion, ii) taxation of the income of third parties whose increase in income, otherwise, would be exempt from taxation and iii) the penalization, through fiscal means, of the payment of income deemed excessive in light of the economic crisis of which, even today, remnants exist;

d) The claims of the Applicant are based on a fanciful and fallacious construction without any legal foundation, relying on any forced attempt at ab-rogative interpretation of the current rule, terms in which the arguments put forth by it entirely fail;

e) The position defended by the Applicant translates into an ab-rogative interpretation, and may constitute a violation of the principle of separation of powers;

f) In light of the foregoing, the tax acts challenged by the Applicant merit no censure and should remain valid in the legal order;

g) In these terms, the Request for Arbitral Opinion should be judged inadmissible as unproven, and, consequently, the Respondent should be absolved of the claim, with all due legal consequences.

1. By order dated 21-12-2016, the Tribunal dismissed the request for witness examination submitted by the Applicant, dispensed with the holding of the meeting referred to in Article 18 of RJAT, and set 10-05-2017 as the deadline for pronouncement of the arbitral decision.

2. In the allegations produced, the Parties reaffirmed, in essence, the arguments contained in the Request for Arbitral Opinion and the Reply.

II. PRELIMINARY MATTERS

1. The Parties possess legal standing and capacity, are shown to be legitimate and are regularly represented (Articles 4 and 10, paragraph 2, of RJAT and Article 1 of Order no. 112-A/2011, of 22 March).

2. The tribunal is competent and is regularly constituted.

3. The process does not suffer from any nullities.

4. No exceptions have been raised that would obstruct the determination of the merits of the case.

III. DECISION

III.1. Factual Matters

1. With respect to factual matters, it is important, first and foremost, to note that the tribunal does not have to pronounce on everything alleged by the parties, rather it has the duty to select the facts that matter for the decision and distinguish between proven and unproven facts. All pursuant to Article 123, paragraph 2 of CPPT and Article 607, paragraphs 2, 3 and 4 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, paragraph 1, subparagraphs a) and e), of RJAT. In this manner, the facts relevant for the judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions of the questions of Law (cf. Article 596 of the CPC applicable by virtue of Article 29, paragraph 1, subparagraph e), of RJAT).

2. Having regard to the positions assumed by the Parties and to the documentary evidence attached to the case file, the following facts relevant to the decision are considered proven:

a) The Applicant assumes the legal form of a Portuguese joint-stock company, with head office and effective management in Portugal and qualified, for IRC purposes, as a resident taxpayer pursuant to Article 2, paragraph 1, subparagraph a) of the Tax Code;

b) The Applicant engages in the activity of managing shareholdings in other companies as an indirect form of conducting economic activities;

c) The Applicant was, at the date of the facts, subject to the general regime of IRC taxation and adopted a taxation period coinciding with the calendar year;

d) The Applicant was, in the taxation period of 2013, the dominant company of a group of companies taxed under the Special Regime for Group Company Taxation (RETGS), whose composition was as follows:

i. A…, SGPS, S.A. with NIPC…, as the dominant company of the tax group;

ii. B…, S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

iii. C…, S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

iv. D…, S.A. with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

v. E…, S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

vi. F…, S.A., with NIPC…;

vii. G…, S.A., with NIPC…;

viii. H…, S.A., with NIPC…;

ix. I…, S.A. (I…), with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

x. J…, S.A., with NIPC…;

xi. K…, Lda., with NIPC…;

xii. L…, S.A., with NIPC…;

xiii. M…, S.A., with NIPC…;

xiv. N…, S.A. (N…), with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

xv. O… S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

xvi. P…, S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

xvii. Q…, S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

xviii. R…, S.A. (R…), with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013; and

xix. S…, S.A., with NIPC…, which was part of the RETGS perimeter in the taxation period of 2013;

e) In compliance with the declaratory obligations legally imposed (cf. paragraph 6 of Article 120 of the IRC Code, at the time of the facts), the Applicant submitted a declaration of substitution of the tax group, following the submission of the first Form 22 IRC declaration, relating to the taxation period of 2013;

f) The tax group became available for deduction from collection the PEC made by the companies that were part of the group perimeter in 2013 (whose PEC paid since 2009 until 2013 had not yet been deducted from IRC collection);

g) The Applicant – called at the time T…, SGPS, S.A. – incorporated, through merger by incorporation effective 1 January 2013, the companies U…, SGPS, S.A. and V… – SGPS, S.A., an operation by which all rights and obligations of the latter (incorporated companies) were extinguished and transferred to the Applicant (incorporating company);

h) To the merger operation was granted the regime of fiscal neutrality, provided for in Articles 73 and following of the IRC Code;

i) The amount of PEC capable of deduction by the Applicant, in the taxation period of 2013, amounted to €410.430,96 (four hundred and ten thousand, four hundred and thirty euros and ninety-six cents), as indicated in the following table (amounts expressed in Euros):

AMOUNT OF PEC CAPABLE OF DEDUCTION AS OF 31/12/2013

Taxation Periods | Company | PEC Paid | Last Year of Reporting | Document
2009 | I…[3] | 402.32 | 2013 | Document 5
2010 | I… | 1.510.62 | 2014 | Document 5
2011 | I… | 1.429.94 | 2015 | Document 5
Subtotal | | 3.342.88 | |
2010 | R…3,[4] | 7.347.48 | 2014 | Document 6
Subtotal | | 7.347.48 | |
2010 | N…3 | 19.168.94 | 2014 | Document 7
2011 | N… | 27.112.42 | 2015 | Document 7
2012 | N… | 18.865.44 | 2016 | Document 7
2013 | N… | 12.275.20 | 2017 | Document 7
Subtotal | | 77.422.00 | |
2013 | V…[5] | 1.000.00 | 2017 | Document 8
Subtotal | | 1.000.00 | |
2013 | U…[6] | 160.607.62 | 2017 | Document 9
Subtotal | | 160.607.62 | |
2013 | A… | 160.710.98 | 2017 | Document 10
Subtotal | | 160.710.98 | |
Total | | 410.430.96 | |

j) The total amount of PEC determined by the Applicant, in the period of 2013, was not deducted in that same period due to the non-existence of IRC collection in the strict sense, therefore the balance (of PEC paid in the taxation period of 2010 and later) was carried forward to the taxation period of 2014;

k) The value of tax to be recovered determined in the Form 22 IRC declaration of the group (field 368 of table 10) of € 465.502,00 (four hundred and sixty-five thousand, five hundred and two euros) results from the fact that the calculation formula followed by the Tax Authority's electronic data transmission system did not, at the time, consider, as tax collection, the amount paid as state surcharge – € 1.738,84 (one thousand, seven hundred and thirty-eight euros and eighty-four cents) – entered in field 373 of the income declaration, thus preventing deduction from that amount of the value determined relating to tax deductions (i.e., PEC) indicated above;

l) The amount assessed by the Applicant, as autonomous taxation, in the Form 22 IRC declaration of the tax group, relating to the same taxation period, amounted to € 999.167,82 (nine hundred and ninety-nine thousand, one hundred and sixty-seven euros and eighty-two cents);

m) With respect to the taxation period of 2014, the merger by incorporation occurred in J…, S.A. (previously designated as W…, S.A.), with effect on 1 January 2014, of the company B…, S.A., with NIPC…, of the company E…, S.A., with NIPC…, of the company H…, S.A., with NIPC…, of the company L…, S.A., with NIPC…, and of the company M…, S.A., with NIPC…, for which reason the said entities ceased to be part of the tax group in the taxation period of 2014;

n) The company P…, S.A., with NIPC…, and the company S…, S.A., with NIPC…, ceased operations, having been liquidated during the taxation period of 2014, likewise ceasing to be part of the tax group in the taxation period of 2014;

o) In the taxation period of 2014, the companies X…, S.A., with NIPC… and Y…, S.A., with NIPC… came to be part of the same group;

p) The Applicant timely submitted the Form 22 IRC declaration of the tax group relating to the taxation period of 2014, on 29 May 2015;

q) In completing the Form 22 declaration of the group delivered for the period of 2014, only the amount of € 32.968,79 (thirty-two thousand, nine hundred and sixty-eight euros and seventy-nine cents) was entered in field 356, as deductible PEC;

r) The amount of PEC capable of deduction, in the taxation period of 2014, amounted to €116.474,78 (one hundred and sixteen thousand, four hundred and seventy-four euros and seventy-eight cents);

s) The amount determined by the Applicant, as autonomous taxation, in the Form 22 IRC declaration of the tax group relating to the taxation period of 2014 was effectively borne, in that the payment of €838.087,47 (eight hundred and thirty-eight thousand and eighty-seven euros and forty-seven cents) as appears from field 367 of table 10 of the 2014 Form 22 IRC declaration, presupposed a charge of €825.898,64 borne as autonomous taxation;

t) On 30-03-2016, the Applicant submitted a request for administrative appeal relating to the IRC self-assessment acts relating to the taxation periods, corresponding to the calendar years 2013 and 2014, which was filed with the number …2016…, which culminated with a dismissal order, dated 18 May 2016 and notified on 20 May 2016.

1. The factual matter given as proven is based on the documentary evidence presented and not contested and on the administrative file attached by the Respondent.

2. There are no other facts relevant to the assessment of the merits of the case that have not been proven.

III.2. Legal Matters

With the Request for Arbitral Opinion submitted by the Applicant, it is requested that the Arbitral Tribunal proceed to the "annulment of the decision of the Tax Authority dismissing the administrative appeal (…) identified (…)" and, consequently, determine "the annulment of the self-assessments relating to the fiscal years 2013 and 2014, embodied in Assessments nos. 2015 … and 2015 … with the consequent refund of the amount of € 493.936,95 (…), corresponding to the sum of the amounts of € 410.430,96 (relating to fiscal year 2013) and € 83.505,99 (relating to fiscal year 2014), plus the respective indemnification interest".

To support the claim, the Applicant alleges, in essence, that the PEC available for use in the taxation periods of 2013 and 2014 should be deducted from IRC collection, which includes, among other things, state surcharge and autonomous taxation.

According to the Applicant's arguments, the IRC collection, provided for in Article 90, paragraphs 1 and 2, subparagraphs b) and c), in the wording in force in each of those fiscal years, also encompasses the collection of autonomous taxation in IRC, that is, the Applicant understands that "(…) since it is considered that autonomous taxation in IRC forms part of the concept of total IRC collection, calculated pursuant to Article 90, they should enjoy equal treatment, in particular as regards the deductions provided for in paragraph 2 of that article".

Indeed, "the Applicant understands it is justified to deduct and/or offset the amounts paid to the Tax Authority as PEC against the total IRC collection, which includes autonomous taxation (…)".

Thus, the Applicant defends "(…) the inclusion of autonomous taxation in the concept of total IRC collection and requests that the credits derived from advances of the final tax that were made as PEC, and which are capable of deduction in the periods of 2013 and 2014, be deducted (…) from autonomous taxation, since they constitute a portion of the tax collection (…)".

Additionally, the Applicant further understands, with respect to the scope and nature of Article 135 of Law no. 7-A/2016, of 30 March, that paragraph 21 of Article 88 of the IRC Code, introduced by that Law, is not "(…) any interpretative norm, since this norm alters the meaning, content or scope of the interpreted norm" therefore "we are in the domain of a new norm, instituting new rights, duties and obligations", "(…) whose application must be limited to new cases (…)"[7], since "if the understanding and scope given to the norm in question were others (…) pre-existing rights under the validity of the interpreted norm would be disrespected", concluding that "by conferring the scope of interpretative norm on paragraph 21 of Article 88 of the CIRC, the prohibition of retroactivity established in paragraph 3 of Article 103 of the CRP (…)" is placed in question, of which "(…) no one can be obliged 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".

Finally, the Applicant further understands that "(…) to accept the interpretative character of paragraph 21 of Article 88 of the CIRC implies the non-application of paragraph 1 of Article 90 of the CIRC (…)" that is, "instead of making the assessment of IRC in accordance with the norm in force in the fiscal year in question, a new law is being applied and, therefore, the principle of tax legality is being violated".

In particular, with respect to the alleged interpretative effect conferred by Article 135 contained in the State Budget Law for 2016, the Respondent understands that "(…) any interpretation that does not apply the norm (…)", "and that (…) permits the deduction from the part of IRC collection produced by autonomous taxation rates of the special payment on account made in IRC (…) is materially unconstitutional, by violation of the principle of legality (…), violation of the principle of separation of powers (…), violation of the principle of protection of legitimate expectations (…), violation of the principle of equality, in its positive formulation of contributive capacity (…)".

Notwithstanding the Applicant, in the arbitral petition, dealing in detail with the nature of state surcharge, "in particular its inclusion in IRC collection (…)", it is understood that that exposition has as its sole objective to conclude that "(…) state surcharge and autonomous taxation have the nature of IRC (…), and therefore should be included in the concept of IRC collection (…)".

This understanding, with respect to state surcharge, is also shared, according to what the Applicant itself states, by the Respondent, similar to "(…) what legal doctrine and case law from the Constitutional Court have been emanating, as results (…) unequivocally, from the amendment introduced to the Form 22 income declaration model, where deductions from collection (…) came to be made from total collection (…), constituted by IRC collection in the strict sense (…) and by state surcharge (…)".[8]

In light of the foregoing, the central issue to be decided (given the claim and cause of action) is whether the self-assessments of IRC (in the part relating to autonomous taxation) relating to fiscal years 2013 and 2014 suffer from the material defect of violation of law, since, according to the Applicant's understanding, the deduction of PEC from the part of IRC collection corresponding to said autonomous taxation should not be prohibited.

Thus, notwithstanding all the reasoning and legal grounds invoked by the Applicant, it is understood that the deductibility of PEC from state surcharge does not constitute a legal issue submitted to the determination of this Tribunal[9], with the subject of the dispute being restricted to the assessment of the possibility of deduction of PEC from the part of IRC collection corresponding to autonomous taxation[10].

In this context, the answer to the central issue to be decided (and stated above) presupposes, first, the analysis of the evolution of autonomous taxation with a view to ascertaining whether its legal regime (comprising the analysis of its nature and raison d'être) is compatible with the Applicant's claim or, if, on the contrary, the position defended by the Respondent is correct.

III.2.1.1. On the Nature of Autonomous Taxation in National Case Law and Doctrine

As the position adopted in Arbitral Decisions no. 722/2016-T, of 28 June 2016 and no. 443/2016 of 23 February 2017, whose panels were presided over by the Presiding Arbitrator also here (and to which we hereby refer), this Arbitral Tribunal agrees with the case law that holds that with autonomous taxation, expense is taxed and not income, a position that is assumed by Esteemed Counselor Vítor Gomes (dissenting vote in Decision no. 204/2010 of the Constitutional Court), in the terms of which he states, referring to autonomous taxation, that "although formally inserted in the CIRC and the amount that permits collection is assessed within its scope and as IRC, the norm in question concerns a fiscal imposition that is materially distinct from taxation under this heading (….)".

"Indeed, we are dealing with autonomous taxation (…) and that makes all the difference. It is not a question of taxing income at the end of the taxation period, but certain types of expenses in themselves, for the understandable reasons of fiscal policy that the decision points out".[11]

And he adds that "thus, the fact revealing tax capacity that is intended to be reached is the simple realization of such expense, at a certain moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not it comes to have taxable income in IRC at the end of the period, being irrelevant that this portion of tax is only to be assessed at a later moment and together with IRC" (emphasis ours).

In the same sense, it was equally recognized by the case law of the Supreme Administrative Court (STA) "that under the designation of autonomous taxation hide very diverse realities, including, pursuant to paragraph 1 of the (then) Article 81 of the CIRC, 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 who do not engage, as a principal activity, in commercial, industrial or agricultural activities (paragraph 2 of [then] Article 81), and which are not considered as cost in the calculation of taxable income in IRC. It should be noted, however, that representation expenses and those related to light passenger vehicles, pursuant to the provisions of (then) Article 81, paragraph 3 of the CIRC and meal allowances are affected by business activity and are indispensable and therefore are fiscally accepted in some cases albeit within certain limits".[12]

With respect to the position that was assumed by the Constitutional Court, cite the Decision no. 18/11, in which it states that "there are facts subject to autonomous taxation, which correspond to expenses demonstrably indispensable for the realization of income and (…) this means that autonomous taxation also applies to expenses that correspond to the nucleus of the concept of real income, net income and compliance with accounting obligations" (emphasis ours).

"This argument of the Constitutional Court (…) interests us only to note that the Court recognizes that this regime constitutes a limitation on taxation of real income (which is guaranteed by Article 104, paragraph 2 of the CRP".

More recently, the Constitutional Court has reformulated the doctrine of Decision no. 18/11 (referred to above), approaching the then dissenting vote of Counselor Vítor Gomes and the STA Decision no. 830/11 (also cited above), in the sense of understanding that "contrary to what happens in the taxation of income under IRS and IRC, in which the set of income earned in a given year is taxed (which implies that only at the end thereof can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case each expense incurred is taxed, in itself considered, and subject to a certain rate, 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, capable of being taxed. Thus, in the case of IRC, we are dealing with an annual tax, in which each income received is not taxed individually, but rather the aggregation of all income obtained in a given year, the law considering that the tax fact occurs on the last day of the taxation period (cf. Article 8, paragraph 9, of the CIRC). As for autonomous taxation in IRC, the tax fact is the very realization of the expense, not being a complex fact of successive formation throughout a year, but an instantaneous tax fact" (emphasis ours).

Now, also according to this Decision of the Constitutional Court, "this characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose tax fact occurs successively, by the passing of a certain period of time, generally annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single obligation taxes (whose tax fact occurs instantaneously, emerges isolated in time, generating an obligation to pay on the taxpayer on a sporadic basis). In autonomous taxation, the tax fact giving 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 autonomous taxation rates to the various acts of expense realization considered is to be carried out at the end of a given taxation period). But the fact that the assessment 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 assessment translates solely into the aggregation, for purposes 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). [13]

With respect to doctrine, we note that, in essence, the concept and nature of autonomous taxation do not substantially depart from the understanding of case law produced by the Constitutional Court (briefly summarized above).

Indeed, as RUI MORAIS states, "what is at stake is a taxation that applies to certain expenses of taxpayers, which are deemed to constitute tax facts. It is difficult to discern the nature of this form of taxation and, more so, the reason why it appears provided for in the codes of taxes on income".[14]

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO states that "it is not properly IRC – which aims to tax the income of legal persons and not expense incurred by them – but the substitution of a taxation of 'implicit' income of individuals, which is considered not directly enforceable".[15]

In sum, some doctrine and the case law of the national superior courts and the Constitutional Court consider that autonomous taxation is autonomous tax facts, which apply to expense, and therefore, despite being formally inserted in the IRC Code, concern a taxation distinct from income tax.

Additionally, it should be noted that it is also accepted by the majority of doctrine and case law that autonomous taxation aims to prevent abusive practices of remuneration of workers, managers and shareholders/stockholders of the company.

Indeed, as SALDANHA SANCHES states, "in this type of taxation, the legislator seeks to respond to the admittedly difficult question of the fiscal regime of expenses that are found in the intersection zone of the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for purely fiscal reasons or the hidden distribution of profits. The norm 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."[16]

In these terms, "it is a taxation that is explained by the need to prevent and avoid that, through these expenses, companies proceed with the camouflaged distribution of profits, especially of dividends that would thus be subject to IRC as profits of the company, as well as to combat fraud and tax evasion that such expenses cause (…)".[17]

III.2.1.2. On the Evolution of Autonomous Taxation

On this matter, it should be noted that, in the initial wording of the IRC Code (approved by Decree-Law no. 442-B/88, of 30 November), there was no express or implicit reference to autonomous taxation, and only with Law no. 101/89, of 29 December (diploma that approved the State Budget for 1990), was a first reference made to autonomous taxation within the scope of IRC, through the legislative authorization contained in paragraph 3 of Article 15 [pursuant to which the Government was authorized to autonomously tax at an increased rate of 10% and without prejudice to the provision of subparagraph h) of paragraph 1 of Article 41 of the CIRC, confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by IRC taxpayers not covered by Articles 8 and 9 of the respective Code].

As is well known, the origin in Portuguese fiscal law of autonomous taxation dates to 1990, with the publication of Decree-Law no. 192/90, of 9 June, pursuant to which (in its Article 4), an autonomous taxation was established:

a) At the rate of 10% relating to confidential or undocumented expenses; and

b) At the rate of 6.4%, relating to representation expenses and charges related to light passenger vehicles.

Indeed, it was with the approval of Decree-Law no. 192/90 (and implementing that legislative authorization) that a norm on autonomous taxation was included at the margin of the IRS and IRC codes, pursuant to which "confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by IRC taxpayers not covered by Articles 8 and 9 of the respective Code are taxed autonomously in IRS or IRC, as the case may be, at a rate of 10% without prejudice to the provision of subparagraph h) of paragraph 1 of Article 41 of the CIRC".

This norm (and, in general form, the regime of autonomous taxation) came to be the subject of various amendments (e.g., Law no. 52-C/96, of 27 December, Law no. 87-B/97, of 31 December, Law no. 3-B/2000, of 4 April and Law no. 30-G/2000, of 29 December), namely, through successive modifications, either of the rates, or of the systematization and wording given to them in the respective codes on income taxes (that is, either in the IRC Code or in the IRS Code).

With the approval of Law no. 30-G/2000, of 29 December, the decree that established "autonomous taxation" was repealed, adding to the IRC Code Article 69-A [corresponding at the time of the facts underlying (2011 and 2012) to Article 88] in which, in addition to maintaining the incidence of these to undocumented expenses, representation expenses and vehicle expenses, the same was extended to other situations of diverse nature.

As a consequence of this analysis of the evolution of autonomous taxation, it appears to us to be possible to extract, from the outset, two conclusions:

(i) The first is that autonomous taxation applies to both deductible and non-deductible charges in IRC;

(ii) The second is that autonomous taxation aims to prevent the erosion of the tax base in IRC, imposing taxation on charges that may be deducted by IRC taxpayers but which, in so doing, transform into an increase in taxation, thus seeking to serve as a disincentive to the expense with such charges.

With respect to autonomous taxation on non-deductible expenses, if its deductibility were admitted, it would be admitting the deductibility of a charge not indispensable for the realization of income subject to tax or for the maintenance of the income-producing source.

Thus, it can be taken as established, and for what will be relevant to the sense of the decision to be rendered within the scope of the present proceedings, the following prerequisites:

(i) The autonomous taxation in IRC, anchored in the various paragraphs and subparagraphs of Article 88 of the IRC Code, translate diverse situations, to which different taxation rates also apply;

(ii) Autonomous taxation in IRC, applying to certain charges of IRC taxpayers, should be understood as payments independent of the existence or non-existence of taxable matter;

(iii) Interpreted as payments associated with IRC, or at least related to it, and capable of being understood as an exception with respect to the principle of taxation of legal entities in accordance with actual and effective profit determined (Article 3 of the IRC Code),

(iv) In autonomous taxation, the tax fact giving rise to the taxation is instantaneous, that is, it is exhausted in the act of realization of certain expenses that are subject to taxation (although the determination of the amount of tax resulting from the various taxation rates to the various acts of expense realization considered is to be carried out at the end of a given taxation period);

(v) The fact that the assessment 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, in that that operation of assessment translates solely into the aggregation, for purposes of collection, of the set of operations subject to that taxation, whose rate is applied to each expense, with no influence of the volume of expenses incurred in the determination of the rate;

(vi) Autonomous taxation is not equivalent to the non-deductibility of expenses incurred by the IRC taxpayer.

On the other hand, with respect to the characteristics of autonomous taxation, those that, for some years now, doctrine has been pointing to this type of taxation are recognized here, that is:

a) Autonomous taxation only makes sense because costs/expenses act as negative components of taxable profit in IRC, being this that motivates IRC taxpayers to report as high a value as possible of such expenses to diminish the taxable matter of IRC, the collection and, consequently, the tax to pay;

b) With the fiscal regime associated, it is intended to discourage this type of expense in taxpayers who show negative results but who, regardless thereof, continue to show consumption structures little or not at all compatible with the financial health of their companies;

c) It is, in more general thesis, to model the fiscal system so that it reveals a certain balance with a view to a better distribution of effective tax burden among taxpayers and types of income;

d) Certain expenses are considered unfavorably in which, admittedly, it is not easy to determine the exact measure of the component corresponding to private consumption and with respect to which it is known the general practice of abuse in its reporting.

III.2.1.3. On the Cause and Function of Autonomous Taxation in IRC

It is established that autonomous taxation is rooted, as noted, in the need to prevent abuses regarding the reporting of certain charges or expenses and which may be easily subject to diversion to private consumption or which, in some way, are capable of formally configuring a expense of a legal entity but which, substantially, represent or may configure abuses in order to minimize the real measure of the tax.

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

In these terms, it can be stated that autonomous taxation appears integrated in the IRC regime, is determined and owed within the scope of the legal relationship of income tax on legal entities and it is, within this framework, that its determination is carried out.

But they are not IRC, tout court, as the Applicant states lapidarily and definitively.

Indeed, for them to be thus considered, they would, first, have to tax income and that, as we have seen, is not what occurs, at any moment.

In truth, although there is evident instrumentality between IRC and the model of taxation of income in Portugal and autonomous taxation (a fact moreover well evidenced in the case law of the Superior Courts and, especially, of the Constitutional Court), the understanding prevails that autonomous taxation taxes expenses.

Indeed, autonomous taxation is an instrument that (moving away and introducing some measure of distortion in a system that declares to tax actual and effective income), after all also taxes expenses, deductible or not in IRC, without thereby violating constitutional provisions, since the applicable norm (Article 104, paragraph 2 of the CRP) declares imperative the taxation of companies "fundamentally" on its actual income, without prejudice either to situations of taxation according to profit or real income (when determined by indirect methods), or to situations of taxation of expenses subject to autonomous taxation (by express choice of law), the establishment of technical solutions (such as in the case of PEC) and the rules specific to their return.

Within this scope, it is worth recalling that neither fiscal systems nor actual imposition models correspond to pure models, free of elements foreign to the very foundational system, values, or to the very general regime of any tax abstractly considered. Indeed, all taxes have characteristics or solutions that, when viewed in isolation, may objectively represent a decharacterization of the model as in the purity of concepts it was conceived but which, when articulated with the model, it is verified that they contribute to its effectiveness, and confer or reinforce its coherence.

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

In the case under analysis, although the choice of fundamental law and ordinary law, as a consequence, has been clearly in the sense of taxing the income of legal entities and, in the forms possible of determining this, the taxation of actual and effective income 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, whether because certain expenses are not considered as such by fiscal law (although objectively they may be imputable to a commercial activity), or because fiscal law, recognizing that essentiality, fears the occurrence of abuses (as is the case of autonomous taxation, generically speaking).

In part, this departure from the purity of concepts is an inevitable consequence of the complexity of the relations of life, whether because pure fiscal imposition models are more expensive 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, the ideal of justice enshrined must be tempered 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 fiscal models from being excessively complex and expensive ceasing to reach realities and practices that mitigate the tax burden or contribute to a poor distribution thereof.

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

On the other hand, it is important to bear in mind (because this is relevant for purposes of the decision to be taken) that autonomous taxation configures anti-abuse norms aimed at rationalizing specific behaviors of taxpayers (face to the tax duty) by which, traditionally, they managed to achieve a measure of tax inferior to that evidenced by their effectively revealed contributive capacity but which, by virtue of these abusive behaviors, was capable of being mitigated or eliminated, with evident violation or postponement of the principle of justice, of fair distribution of the fiscal burden by those who reveal contributive capacity.

Consequently, it makes sense to admit that general deductions are made from the tax collection, which are permitted by law to give effective sense to the principle of taxation of actual and effective income.

However, with respect to the collection owed through autonomous taxation, that general deduction ceases to make sense because, not taxing profits, but expenses, the issue of justice in the distribution of the general burden of the tax does not arise with respect to them, and therefore it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that permeates them, that is, the disincentive of deviant behaviors that their institution represses or settles.

Now, autonomous taxation, as appears clear, does not have a markedly revenue-raising purpose, that is, it does not primarily aim at obtaining (more) fiscal revenue, although this may not be a negligible aspect, verifiable.

Indeed, they aim to dissuade behaviors, practices or choices of companies rooted in reasons essentially of a fiscal and revenue-saving nature, and on the other hand, preserve the balances inherent 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 business volumes, taxable profits and the tax ultimately owed by entities subject to IRC, in line with the levels of average effective tax burden falling on the different groups of taxpayers, within the Portuguese fiscal system and, even, comparatively with that of OECD member states or outside thereof.

Thus, autonomous taxation, including that provided for in subparagraph b), of paragraph 13, of Article 88 of the IRC Code, have, therefore, a general disciplinary function that is not unrelated to the systemic purposes of the tax, especially because, as an anti-abuse mechanism, autonomous taxation is not unrelated to the general purposes of the fiscal system.[18]

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 the different groups of taxpayers does not constitute merely an option of the legislator but is instead a strict obligation, as a result of the obligation to design and make the system function as a whole in a balanced manner.

Indeed, autonomous taxation introduces 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 to preserve the balances of the system.

Now, companies, just like individuals, are also subject and with the same intensity to the general duty to pay taxes and, in this measure, fiscal law cannot fail to establish mechanisms that limit deviant procedures since each must support tax according to their ability, that is, according to their revealed contributive capacities.

It is also important to note that, in our days, it was adopted, as a general rule, the regime of taxation according to actual and effective income for legal entities, this not being merely an option for the functioning of the fiscal system among several others possible.

Indeed, it is, rather, a concrete manifestation of the modernity and maturity of a fiscal system that demands of its recipients/beneficiaries a maturity of the same stature for it also represents a new form of ethical and social accountability towards the tax phenomenon. [19]

As SALDANHA SANCHES aptly noted (cited in Arbitral Decision 187/2013-T, pp. 28), autonomous taxation constitutes a way of preventing abusive actions "(...) that the normal functioning of the taxation system was incapable of preventing, while others, including forms more onerous 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 norms of the kind), but with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the case law citing it. They will then have materially underlying a presumption of partial business nature of the expenses on which they apply, based on the above-noted circumstance that such expenses fall in a gray line that separates what is business expense, productive, from what is private expense, consumption, being that, notoriously, in many cases, the expense will itself have in reality a dual nature (part business, part personal)". [20]

All these considerations invoke what appears to us to be the true sententia legis, since the discovery of the true sense of the law constitutes an imperative, for it matters to ensure that the activity of the interpreter reaches an interpretative sense by which the law exteriorize its most beneficial, most fruitful and most salutary sense, in the words of FRANCESCO FERRARA.[21]

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

Appealing to the ratio legis, it is clear that autonomous taxation is collected, within the process of IRC assessment, according to its own root and dogmatics which lead to the total collection of the tax not being a unitary reality but a composite one.[22]

Indeed, it is possible in it to discern the tax collection proper, resulting from the general mechanics of IRC determination, which is owed on the basis of a constitutional foundation based on the general duty of each one (encompassing legal entities) to contribute to public expenses according to their means (Article 103, paragraph 1 of the CRP).

All in respect and in compliance with the principles of justice, equality and the duty to pay tax according to revealed contributive capacity. And from which are deducted the amounts referred to in Article 90 of the IRC Code and in the terms and modes referenced therein.

To this general collection, rooted in this foundational basis, is added the specific collection, owed through autonomous taxation, which has, as has been made clear, its own root, sense and foundation, which is to discourage the adoption of behaviors taxed by it, enumerated in Article 88 of the Code, which configures an anti-abuse norm, which allows us to invoke here all the dogmatics proper in which it is founded.

In this case, because it is a matter of fulfilling purposes that go beyond the purely revenue-raising ends 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 that deductions be made to it, under penalty of emptying, in practice, of any sense the anti-abusive regime created.

Thus, having regard to what has been set out, we are now in a position to analyze the Applicant's claim, as to the legality of the deduction of PEC from the part of IRC collection corresponding to the rates of autonomous taxation, in each of the fiscal years (2013 and 2014).

III.2.2. The Evolution of PEC – Special Payment on Account of IRC Due Finally and Its Regime

The genesis and evolution of PEC develop in three stages, namely (i) the regime from its inception to the year 2000; (ii) the regime applicable to the fiscal years 2001 and 2002; and the subsequent regime which prevails until today.

In its initial version, PEC was presented as a tool for improving the system, which was and is very much based on the declaration of income by taxpayers. Its introduction into the fiscal system was simultaneous with the reduction of the general IRC rate by two percentage points.

The occurrence of the two facts is not coincidence since, on the one hand, the rate applicable to tax-paying taxpayers was reduced, but on the other hand, through PEC, the special payment of a sum as tax was promoted, albeit on a provisional basis, by taxpayers who, despite continuing to conduct their activity year after year, persisted in declaring negative or nil income, escaping effective taxation.

In these terms, it was therefore, as a measure to combat "evasive practices of concealment of income or of inflating costs" that PEC was justified in the preamble to Decree-Law no. 44/98, of 3 March (diploma that established it).

The provisoriality of tax payment lay after all in the possibility of deducting the sums paid as PEC from IRC, calculated in general terms, fixed in Article 71 of the CIRC then in force (of which autonomous taxation did not yet form part), although that deduction was only possible if, despite this operation, the value of the tax to be paid was positive (pursuant to Article 71, paragraph 6 of the 1998 CIRC).

With no IRC to be paid in general terms, the value of PEC satisfied could be carried forward to the following fiscal year (pursuant to Article 74-A, paragraph 1) or reimbursed later (pursuant to Article 74-A, paragraph 2).

Thus, it was sought to ensure that the majority of taxpayers satisfied value on account of IRC, calculated provisionally on the volume of business of the previous fiscal year (pursuant to Article 83-A).

Fundamentally, it was fictioned that all companies would have the tendency of a taxable profit, calculated in accordance with general parameters, equivalent to 1% of their volume of business of the previous year, settling the account later if that were not the case.

The IRC reform carried out in 2000-2001, through Law no. 30-G/2000, of 29 December, reduced the character of payment on account that the tax had, preventing its reimbursement as long as the taxpayer remained in activity and imposed that the carry-forward of the sums satisfied be made only until the fourth subsequent fiscal year (pursuant to Article 74-A, paragraph 1, of the 2001 IRC Code).

From this restrictive provision results, for the first time, the possibility of PEC transforming itself into minimum collection when it was not possible to deduct the sums satisfied, by exhaustion of the carry-forward period.[23]

In summary, it is possible to state that the amendments introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had driven the introduction of PEC. However, although on this occasion "autonomous taxation" was introduced into the CIRC, no mechanism of articulation between the two instruments was foreseen.

The third configuration of PEC was introduced by Law no. 32-B/2002, of 30 December, which in its Article 27 introduced a new regime of PEC deductibility in Article 87, paragraph 3, of the CIRC, restoring the possibility of reimbursement of the sums delivered as PEC and not deducted in the annual IRC assessment.

The character of a measure for pursuit of tax evasion was maintained here as well, although the mark of minimum collection has been lightened, without entirely abolishing it, given the tight conditions imposed for reimbursement.

Article 104 of the CIRC provides that "entities engaged, as a principal activity, in commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, must proceed to pay the tax (…) in three payments on account, due in July, September and 15 December of the same year to which the taxable profit relates or, in the cases of paragraphs 2 and 3 of Article 8, in the 7th month, in the 9th month and on the 15th day of the 12th month of the respective taxation period (…)".

And Article 106 of the CIRC provides that "without prejudice to the provision of subparagraph a) of paragraph 1 of Article 104, the taxpayers mentioned therein are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which the period relates or, in the case of adopting a taxation period not coinciding with the calendar year, in the 3rd and 10th months of the respective taxation period".

From the foregoing results the obligation, for IRC taxpayers, to make payments on account of the IRC that will be owed finally.

As is known, the technique of payments on account consists, in general, in a mere mechanism of anticipation of the tax that will be owed finally.

Indeed, it is, as is peacefully accepted, a means that has advantages for the State since it allows it to anticipate the receipt of the tax, while ensuring its collection at the moment or as the income is produced, without prejudice to final determination and with observance of the determination of what is owed, according to the general method of taxation by actual profit.

It is true that the raison d'être of payments on account and PEC, starting from this common trunk (since, unequivocally, both are the product of a tax technique by which the collection of the tax owed finally is) anticipated. However, still, they present (in the second case), justifications somewhat differentiated.

From the outset, with respect to the raison d'être of payments, in the case of payments on account, since these are, in our opinion, exhausted in the foundations above evidenced, but already PEC, not losing sight of that purpose, has still another that has been added to it.

Indeed, as well noted in the Arbitral Decision rendered within the scope of case no. 113/2015-T, "in doctrine and in case law the PEC regime has always been regarded as a system to prevent tax evasion and to ensure the payment of tax by all companies in activity".

It is also this that results from the doctrinal work developed by the Constitutional Court since, from its Decision no. 494/2009, it results that PEC, in the form given to it in the CIRC, is also "indissolubly linked to the fight against tax evasion and fraud", seeking to ensure that the income manifested by taxpayers "correspond[s] to the taxable income actually earned". [24]

In truth, the cited Decision of the Constitutional Court identifies multiple scientific works that pronounced themselves in the same sense, such as is the case of Teresa Gil, (ob. and loc. cit.), who gave account of the circumstances surrounding the introduction of PEC, in particular the difficulties in applying the principle of taxation by actual profit, encountered given the "divergence that exists between the profits actually obtained and those declared by companies and, therefore, subject to taxation".

As has been said, and in this step, we make ours the summary invoked in the above-referenced Arbitral Decision, in which the current regime of PEC is thus characterized by "(i) having indissoluble connection to the fight against tax evasion and fraud; (ii) having been introduced in the CIRC in March 1998, before autonomous taxation rates which only began to form part of its systematics in the 2000-2001 reform; (iii) in the conception of PEC its deduction from IRC collection was foreseen in the assessment of IRC calculated on actual income; (iv) the recovery of the credit resulting from PEC is subject to conditions of obtaining profitability ratios specific to companies in the sector of activity in which they are inserted or to justification of the credit situation by inspection action made at the request of the taxpayer (87-3 of the CIRC)".

A subsequent question is whether these special reasons are such as to permit that PEC be deducted from the collection of autonomous taxation, since it is nothing more than a payment on account of the IRC that will (presumably) be owed finally by the taxpayer, although with some special characteristics. And, therefore, it is IRC for all legal purposes, although there are special rules for its return.

Unlike autonomous taxation, which is collection owed by reason of behaviors that the law wishes to discourage and, therefore, penalize the reporting of certain expenses by the above-indicated reasons, in PEC what is at stake is to ensure that certain measure of the tax is advanced as IRC, and without prejudice to its deduction from the general collection of the tax, determined by effect of the operation of assessment in the strict sense.

Now, as well noted in the Arbitral Decision above referred to, rendered within the scope of case 113/2015-T, "PEC came to form part of the system of IRC whose assessment was designed to determine the tax directly applied to declared income. When there is fiscal loss, the taxpayer must still bear the PEC; that was indeed the reason for its introduction. If a given company has successive fiscal losses, it will systematically bear tax, as the system doubts its capacity to operate in a situation of permanent deficit, requiring it to satisfy provisionally (on account) a certain value.

It may reimburse it if it proves that this situation is common in its sector of activity or if the Tax Authority verifies the regularity of its declarations. This was the balance that the CIRC required to maintain a system based on the declarations made by taxpayers. Already the tax resulting from autonomous taxation is founded solely on the pursuit of tax evasion through income transfer and has a dissuasive and compensatory effect. If the deduction of PEC from the collection resulting from autonomous taxation is permitted, the purposes of the system in which the provision of Article 83-2-e CIRC is inserted will be frustrated, since the product of the special payment on account that should remain 'stationary' in the ownership of the Public Treasury will be affected by the extinction of the debt of the taxpayer resulting from autonomous taxation, thus alleviating the intended pressure to prevent the evasion of 'declarative' tax. There is indeed an irreconcilable conflict between the ratio of PEC – the fight against evasion or pressure for correction of declarations – and the allocation of its credits to the satisfaction of other obligations than those resulting from the determination of IRC calculated on the taxable result.

In practical terms, the possibility of deduction of PEC from autonomous taxation would imply that even if a given company were eternally in a situation of loss, no tax on its actual income would it have to bear, as long as it applied PEC to the satisfaction of autonomous taxation. Moreover, autonomous taxation itself (Cf. Decision of the Constitutional Court no. 617/2012, cited) would lose its anti-abuse character, coming to be confused after all with the tax calculated on taxable profit.

Now those are not the objectives of the system of taxation of the income of legal entities and the better interpretation of the provision contained in Article 83-2-e CIRC is not that one decidedly which permits the deduction of special payments on account from the collection resulting from the application of autonomous taxation rates".

In sum, weighty reasons, derived from the purposes that were legislatively intended to be achieved with the creation of PEC, justify a restrictive interpretation of Articles 90, paragraph 1, and 93, paragraph 3, of the CIRC, especially the reference made in the latter to "the amount determined in the declaration referred to in Article 120 of the CIRC".

It is worth noting that this arbitral understanding is once again in harmony with the new paragraph 21 of Article 88 of the CIRC added, as we have seen, by Law no. 7-A/2016, of 30 March, by establishing that to the amount determined from autonomous taxation no "deductions are made".

Also, in this case, the legislator merely adopted, clarifying it, a solution which the courts, with recourse to the rules in force and by application of the criteria of legal hermeneutics were in a position to extract from the regime to apply, which is all that this panel did, in the case at hand.

Thus, the argument invoked by the Applicant is also lacking foundation, in the sense that the illegality of the autonomous taxation assessments should be declared due to absence of legal basis for their execution, since "by conferring the scope of interpretative norm on paragraph 21 of Article 88 of the CIRC, the prohibition of retroactivity that is enshrined in paragraph 3 of Article 103 of the CRP" is placed in question, pursuant to which "no one can be obliged 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".

Within this scope, it should be noted that, although Article 135 of the 2016 LOE attributes, as already stated, an interpretative nature to paragraph 21 of Article 88 of the CIRC (which combined with Article 13 of the Civil Code leads to its retroactive application), as has been demonstrated from the arguments set out above, the solution found by this panel did not necessitate the application of this new provision, thus causing the unconstitutionalities that the Applicant attributes to the said provision to fall away.

In the same sense goes Arbitral Decision no. 673/2015-T, where on this subject it was equally concluded, among others, that the solution already resulted from the literal wording of Article 93, paragraph 1, of the CIRC, "(…) without exceeding the limits normally imposed on the interpretation and application of the law, since restrictive interpretation is admissible when there are weighty reasons to conclude that the scope of the legal text betrays the legislative intent or is necessary to optimize the harmonization of conflicting interests that two norms aim to protect".

Having assessed the facts and the Applicant's claim, in the sense of seeing deducted from the part of IRC collection produced by autonomous taxation rates the amount of PEC made in IRC, the same cannot but be declared inadmissible, in light of all that has been set out.

Indeed, for the reasons set out above, the Applicant's claim must necessarily be declared inadmissible, since the self-assessments challenged comply with the principle of legality, as they are based on correct interpretation of the norms cited and analyzed above.

Terms in which the claim for declaration of illegality of the IRC self-assessments, relating to the fiscal years 2013 and 2014, is entirely inadmissible, more specifically the illegality with respect to the non-deduction from the part of IRC collection produced by autonomous taxation rates of the PEC made in IRC, which resulted in an amount of tax assessed in the value of € 410.430,96 (2013) and € 83.505,99 (2014), in a total of € 493.936,95. Consequently, the alleged illegality of the dismissal of the administrative appeal submitted with respect to the IRC of the years already mentioned above is also inadmissible.

III.2.3. Other Claims

The Applicant's claims for refund of sums paid and respective indemnification interest are prejudiced by the inadmissibility of the claim for declaration of illegality of the assessments challenged.

III.2.4. On Responsibility for Payment of Arbitral Costs

In accordance with the provision of Article 22, paragraph 4, of RJAT, "the arbitral decision rendered by the arbitral tribunal must include the fixing of the amount and allocation among the parties of the costs directly resulting from the arbitral process".

Thus, pursuant to the provision of Article 527, paragraph 1 of the CPC, applicable by force of Article 29, paragraph 1, subparagraph e) of RJAT, it must be established that the party that caused the costs shall be condemned to pay them or, if there is no judgment on the merits of the action, whoever benefited from the process.

Within this scope, paragraph 2 of the said article specifies the expression "caused the costs", according to the principle of adjudication, understanding that the party causing the costs of the process is the losing party, in the proportion in which it is so.

In the case under analysis, having regard to what has been set out above, the principle of proportionality imposes that full responsibility for costs be attributed to the Applicant, in accordance with the provision of Article 12, paragraph 2 of RJAT and Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Processes.

IV. DECISION

Terms in which this Arbitral Tribunal decides:

a) To declare entirely inadmissible the arbitral claim for declaration of illegality of the IRC self-assessments, in the parts produced by autonomous taxation, of the fiscal years 2013 and 2014, the subject of challenge, absolving the Respondent of this claim;

b) Consequently, to declare inadmissible the claim for refund of the amount of IRC, relating to fiscal year 2013 (in the amount of € 410.430,96) and relating to fiscal year 2014 (in the amount of € 85.505,99), plus indemnification interest, as formulated by the Applicant, absolving the Respondent of the respective claim;

c) To maintain the decision dismissing the administrative appeal relating to the IRC self-assessment tax acts relating to fiscal years 2013 and 2014, absolving the Respondent of the respective claim;

d) To condemn the Applicant to pay the costs of this process.

V. VALUE OF THE PROCESS

In accordance with the provision of Article 306, paragraph 2, of the CPC, 97-A, paragraph 1, subparagraph a), of the CPPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Processes, the process is valued at € 493.936,95.

VI. COSTS

Pursuant to Article 22, paragraph 4, of RJAT, the amount of costs is fixed at € 7.650,00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Processes, charged to the Applicant.

Notify.

Lisbon, 21 March 2017

The Presiding Arbitrator

(Fernanda Maçãs)

The Arbitrator Vogal

(Paulo Nogueira da Costa – dissenting as per the vote that follows and is part of this decision)

The Arbitrator Vogal

(Sílvia Oliveira)

DISSENTING VOTE

We dissent in the present process, with the grounds which we hereinafter briefly set out, which, in large measure, correspond to the position that we subscribe to in the Decision rendered within the scope of the arbitral case no. 5/2016-T, in which the following is stated:

«Autonomous taxation was created by Article 4 of Decree-Law no. 192/90, of 9 June, which was intended to introduce amendments to the CIRC, as results from its respective preamble. This Decree-Law implemented the legislative authorization granted to the Government by paragraph 3 of Article 25 of Law no. 101/89, of 29 December, whose heading is "Income Tax on Legal Persons (IRC)".

From the diplomas referred to, in particular from the law of authorization, no evidence results 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 corporate income.

With the approval of Law no. 30-G/2000, of 29 December, which was intended to introduce a "reform of income taxation", Decree-Law no. 192/90, of 9 June, was repealed, with Article 69-A being added to the CIRC, under the heading "Autonomous taxation rate", which indicates that we are dealing with the application of a rate, in IRC, distinct from the general rates provided for in Article 69. Note that the heading refers to "autonomous taxation rate"[25] and not "autonomous taxation", which evidences that what the legislator intended was to provide a rate distinct from general rates, for certain situations described therein.

From this results that the express establishment of "autonomous taxation rates" was made within the scope of reform of income taxation, therefore it would appear absolutely out of context and incoherent with the purpose of the legislator to create a tax on expense and, what is more, not to identify it as such and to include it in the CIRC. Moreover, the systematic insertion of the new rule is made immediately following the provision that provides for general rates, and not in the final articles of the CIRC, which would be logical if it were a different tax connected with IRC, nor in the scope of definition of the rules of incidence.

There is thus no evidence which leads us to admit that in the case of "autonomous taxation rates" we are dealing with a tax (on expense?) distinct from IRC.

The provision contained in Article 69-A introduced by Law no. 30-G/2000, of 29 December, as happens with the provision contained in Article 88 of the CIRC in force at the time of the facts in the case sub judice, does not contain rules of subjective incidence, nor on assessment and payment of autonomous taxation. [Truncated - text continues with dissenting vote]