CAAD 516/2018-T: Autonomous Taxation on Motorcycles, Company Vehicles & Mileage Allowances in IRC

ARBITRAL DECISION

They agree in the Arbitral Court

I - Report

1. A..., S.A., taxpayer no. ..., with registered office at ..., no. ..., ...-... Lisbon, dominant company of Fiscal Group B..., subject in 2016 to the Special Tax Regime for Groups of Companies (RETGS), hereby requests the constitution of an arbitral court, under the provisions of Articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January, to assess the legality of the act of express dismissal of the administrative review and the underlying act of self-assessment of Corporate Income Tax (IRC) of Fiscal Group B... relating to the fiscal year 2016, with respect to autonomous taxation in the amount of € 397,575.04, relating to expenses and charges with vehicles assigned to the activity of companies of Fiscal Group B... and compensation for travel in workers' own vehicles. It also requests the reimbursement of this amount plus compensatory interest.

The request is grounded in the following terms.

Fiscal Group B... has an extensive and diversified fleet of vehicles, which includes motorcycles and service cars, and is justified by the nature and territorial dispersion of its postal distribution activity throughout the national territory.

With regard to motorcycles, their use follows an economic rationale, using the type of vehicles that best adapt to postal distribution rounds, constituting, within the scope of postal distribution activity, the main means of transport.

Given that the choice of a certain means of transport is based on business management criteria, it would not be justified to penalize the Applicant for the use of motorcycles in place of other production vehicles which, although not subject to autonomous taxation, would entail higher costs for the company.

In addition to motorcycles, the Applicant also uses General Service Vehicles, necessary to maintain permanent contact between all organizational structures of Fiscal Group B... which are dispersed throughout the national territory, and the existence of this specific fleet of vehicles has nothing to do with particular interests of A...'s employees, but with the nature of the social activity developed.

On the other hand, there is a set of rules and procedures implemented that aim to ensure the permanent availability of vehicles for exclusive use within the scope of business activity, namely, the completion of the vehicle bulletin, its delivery to the Applicant's facilities after use, the use of the vehicle from Monday to Friday, preferably for long distances and the prohibition of use for more than five consecutive days.

Autonomous taxation is not equally applicable with respect to kilometre allowances for the use of motorcycles belonging to the postmen themselves in postal distribution activity, since there is control of the kilometres actually traveled in service and paid, and the allowance is intended to cover only the costs of fuel and wear and tear of the motorcycle over the distance traveled in postal distribution service, with the postman incurring, on average, a cost of € 0.154 per kilometre which is higher than the value of € 0.144 per kilometre subject to autonomous taxation.

There are not, therefore, the prerequisites for autonomous taxation with respect to motorcycles and service cars of Fiscal Group B...'s fleet, nor is there occasion for promiscuous use and/or payment of kilometres exceeding actual use in service.

The Applicant further argues that the interpretation of Article 88, nos. 3 and 9, of the IRC Code in the sense that the implicit presumption of partial business character of expenses and charges with vehicles is not rebuttable is unconstitutional, for violation of the principle of equality and the principle of taxpaying capacity, as well as the principles of taxation according to real income and proportionality, in violation of Articles 2, 13, 18, nos. 2 and 3, 103, no. 1, and 104, no. 2 of the Constitution of the Portuguese Republic.

The Tax Authority, in its response, argues that the Arbitral Court cannot decide by resorting to equity and that, according to the rules of interpretation of law, the autonomous taxation rates referred to in Article 88 of the IRC Code are only excluded with respect to the types of vehicles identified in nos. 3 and 6 of that provision, with no reason to exclude the incidence of autonomous taxation based on a presumption of business character.

Contrary to what some arbitral case law advocates, the taxation provided for in Article 88 of the IRC Code does not fall within special anti-abuse clauses, nor does it integrate a presumption that is susceptible to being rebutted by proof to the contrary, corresponding instead to a norm of objective incidence that cannot be avoided by demonstrating the complete allocation of vehicles to business activity.

In any case, no material proof of the business character of the expenses was produced, which would have to be carried out with respect to each vehicle, nor does the service order on the use of General Service Vehicles have the capacity to demonstrate the absolute impossibility of using light passenger vehicles for personal purposes.

Should the norm of Article 88, nos. 3 and 5, of the IRC Code be judged unconstitutional, for violation of the principles of legality (typicality and parliamentary law reservation) and legal protection and confidence, when interpreted in the sense of establishing a rebuttable presumption.

It concludes to the rejection of the claim.

1. In the course of the proceedings, the meeting referred to in Article 18 of the RJAT was dispensed with and it was determined, pursuant to Article 421, no. 1, of the CPC, to make extraprocessual use of evidence produced with contradictory hearing in Case no. 448/2018, with the same parties and on the same questions of fact, and in which the same witnesses were listed.

The proceedings continued to arguments, and the parties maintained their previous positions.

1. The request to constitute the arbitral court was accepted by the President of CAAD and notified to the Tax and Customs Authority in accordance with regulatory procedures.

Pursuant to the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral court the undersigned, who communicated acceptance of the assignment within the applicable time period.

The parties were properly and timely notified of this designation and did not manifest any intention to refuse it, in accordance with the combined provisions of Article 11, no. 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provisions of paragraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral court was constituted on 27 December 2018.

The arbitral court was regularly constituted and is materially competent in light of the provisions of Articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are represented (Articles 4 and 10, no. 2, of the same statute and 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects and no exceptions were raised.

It is our responsibility to assess and decide.

II - Grounds

Matter of Fact

1. The facts relevant to the decision of the case that may be considered established are as follows.

A) The Applicant is the dominant company of Fiscal Group B... subject in 2016 to RETGS and which comprises the following companies: i) A..., S.A., taxpayer no. ...; ii) C..., S.A., taxpayer no. ...; iii) D..., S.A., taxpayer no. ...; iv) E..., S.A., taxpayer no. ...; v) F..., S.A., taxpayer no. ...; and vi) G..., S.A., taxpayer no. ... .

B) On 29 May 2017, the IRC return, Form 22, of Fiscal Group B... for the fiscal year 2016 was filed, and on 31 May following, a substitute return was filed, with an autonomous taxation amount of € 1,360,849.55 being calculated.

C) The total of expenses and charges with vehicles of Fiscal Group B... (or whose use was contractually ensured by Fiscal Group B...) and kilometre allowances for the use of the worker's own vehicle, subject to autonomous taxation in 2016, amounted to a total of € 6,838,778.10.

D) The autonomous taxation collected with respect to these expenses and charges is € 519,986.30.

E) The challenge in these proceedings is limited to the autonomous taxation for the fiscal year 2016 concerning expenses and charges with postal distribution motorcycles and certain light passenger vehicles (called General Service Vehicles) and charges for kilometre allowances concerning postmen's motorcycles used in Fiscal Group B...'s postal distribution activity.

F) The autonomous taxation challenged here was incurred in the fiscal year 2016 on expenses and charges in the amount of € 4,925,033.72.

G) This autonomous taxation amounted to € 397,575.04 of which € 144,801.62 relates to charges with motorcycles for postal distribution, € 146,016.82 relates to charges with General Service Vehicles (GSV) and € 106,756.60 relates to kilometre allowances to postmen for the use of their motorcycles in service of postal distribution of A... .

H) The Applicant, on 21 June 2018, filed an administrative review with respect to said self-assessment, arguing that expenses with own motorcycles and general service vehicles, as well as kilometre allowances, have total business character and the presumption determining autonomous taxation pursuant to Article 88 of the IRC Code should be considered rebutted.

I) The companies of Group B... define different mail distribution routes, weighing a multiplicity of factors, such as the type of mail to be transported (including volume and weight), the number and frequency of stops, the type of geographic area (urban or rural), the type of predominant construction (buildings or houses).

J) The social activity of postal distribution covers one million four hundred thousand households.

L) To ensure this purpose there are approximately 4,700 routes, with each route corresponding to a certain distance to be traveled by the postman, which requires the choice of an appropriate means of transportation.

M) The choice is, as a general rule, made on the basis of the distance to be traveled; for shorter routes postmen travel on foot or by bicycle; for routes of 10 to 40 kilometers they use vehicles of low engine displacement, up to 50 cubic centimeters; and for routes from 40 kilometers to 80 kilometers, they use motorcycles of higher engine displacement, up to 125 cubic centimeters.

N) Approximately 2,000 routes are covered by motorcycles with engine displacement of 50 or 125 cubic centimeters.

O) The completion of routes using motorcycles is justified by the fact that they constitute the means of transportation that, due to their characteristics, best adapts to this, namely, due to their agility in traffic, ease of parking, reduced acquisition cost, simple and inexpensive maintenance and low fuel consumption.

P) In those routes where companies of Group B... identified that the motorcycle constitutes the most appropriate type of vehicle, the postman is given the possibility of using his own motorcycle in return for a "kilometre allowance", determined on the basis of the estimated kilometers for the routes allocated to that postman.

Q) The "kilometre allowances", in the fiscal year 2016, were subject to taxation in the postmen's sphere under income tax (IRS).

R) The calculation of payments to postmen for the use of own motorcycles is made on the basis of a table of between approximately 0.14 euros and approximately 0.26/0.27 euros per kilometer, depending on various factors, such as, for example, the distance to be traveled.

S) The motorcycles in the Applicant's fleet are allocated, as a general rule, to a route and not to a postman, with the allocation of motorcycles being made according to Postal Distribution Centers (PDC), with rotation among various postmen assigned to the same route.

T) There are mechanisms for controlling the use of motorcycles in the aforementioned fleet, such as those contained in the Manual of Procedures for Fleet Management of Light Vehicles, Motorcycles and Scooters, designed to deter postmen from using them for personal purposes, namely its use is limited to the hours of the Applicant's social activity and the obligation to daily complete the document controlling the use of motorcycles, in which the route and respective kilometers traveled are identified, and which is filed for several years.

U) The Applicant has inspection services for the use of motorcycles for personal purposes, and it is certain that if improper use of motorcycles is detected, there are disciplinary consequences for those who do so, as has happened in the past.

V) The motorcycles have a cargo box, which is immovable, and display the identifying marks of the Applicant.

X) The refueling of motorcycles must be carried out exclusively through the fleet fuel program, which expressly identifies the vehicle associated.

Z) It is mandatory to park motorcycles in facilities of the Applicant in the PDCs, where they are immobilized between the end of each working day and the beginning of the following day, with the keys of the motorcycles being handed over to security personnel.

AA) The directive structure of the Applicant is located in Lisbon, but there is decentralization not only throughout the mainland territory but also in the islands.

BB) Therefore, the Applicant also has a fleet of General Service Vehicles (GSV), necessary to maintain contact among its various organizational structures existing throughout the national territory.

CC) This fleet is intended to maintain contact between the various points of the organization and with clients.

DD) Any employee of the Applicant can request a General Service Vehicle, justifying its use.

EE) General Service Vehicles are light passenger vehicles, as they are intended for the transport of people and when traveling to a meeting 3 to 4 people are transported.

FF) As a rule, General Service Vehicles are identified with the Applicant's logo, this only not being the case with respect to one of the functions carried out with the aforementioned vehicles, inspection, with respect to which it is advisable that such characterization does not exist.

GG) For each of the departments of Group B..., an allocation of General Service Vehicles is assigned, according to a pool organization.

HH) The assignment of General Service Vehicles to a department must be justified and authorized, with one person in each department responsible for authorizing or not.

II) In the regulations on the use of General Service Vehicles are contained the obligation to park the vehicle, the return of the key and vehicle bulletin, in which are identified the day, the place of departure, the destination, the kilometers at departure and arrival and the time of departure and arrival.

JJ) At the end of each month, the vehicle bulletin is sent to a first-line director, in order to ensure that there is prudent and regulatory use of General Service Vehicles.

LL) General Service Vehicles are not allocated to the use of any employee, but to the pool of each department, from which employees request vehicles, with the assignment of a vehicle to an employee being random.

MM) On a monthly basis, the Physical Resources and Security department of the Applicant or of Group B... analyzes the information collected and other relevant information (such as electronic toll records), in order to identify deviations, such as the use of vehicles outside normal working hours (identified, for example, on the basis of the electronic toll detail), fuel consumption averages higher than expected in light of the destinations of trips and distances traveled not justified in light of the destinations of trips, and if any deviation is not duly justified and, consequently, improper use of the GSV is indicated, an internal inquiry process is initiated, which may culminate in disciplinary proceedings.

NN) In those cases where the Applicant wishes to grant its workers the possibility of personal use of vehicles - Personal Use Vehicles (PUV) - it records such use in a written agreement, with the use being taxed in the workers' sphere.

OO) The Applicant was notified on 3 August 2018 of the dismissal of the administrative review.

PP) The request for arbitral pronouncement was filed on 17 October 2018.

The Court formed its conviction regarding the proven facts based on the documents attached to the petition and the administrative file attached by the Tax Authority with the response, as well as the witness evidence produced in Case no. 448/2018, in application of the provisions of Article 421, no. 1, of the CPC.

Matter of Law

1. The issue under analysis relates to the subjection to autonomous taxation rates, pursuant to Article 88 of the IRC Code, of the expenses borne by the Applicant and its Fiscal Group with motorcycles for postal distribution, with light passenger vehicles characterized as General Service Vehicles and with compensation for travel in own motorcycles (kilometre allowances) to postmen for mail distribution.

The Applicant argues, in the first instance, that all such expenses are fully attributable to the operation of the postal distribution service throughout the national territory and are justified by their business character, and that the implicit presumption of autonomous taxation resulting from nos. 3, 6 and 9 of Article 88 of the Code with respect to charges with motorcycles and light vehicles and compensation expenses for travel by the worker in an own vehicle should be considered rebutted.

The Tax Authority argues, in contrast, that Article 88 of the IRC Code constitutes a norm of objective incidence of autonomous taxation and does not contemplate any presumption susceptible of being rebutted by proof to the contrary, based on the business character of the expenses covered by that provision.

On this same issue, with the same factual contours, the recent decision rendered in Case no. 448/2018-T pronounced itself in the negative, in which an identical claim formulated by the Applicant here was analyzed, and which referred to the collection of autonomous taxation in IRC for the fiscal year 2015.

And there is no reason to alter the understanding that was upheld there now.

The aforementioned Article 88 of the IRC Code, in the wording applicable to the taxation period in question, and in the part that is most important to consider, reads as follows:

"3 - Expenses incurred or borne by taxpayers who do not benefit from subjective exemptions and who exercise, as their principal activity, a commercial, industrial or agricultural activity, related to light passenger vehicles, light freight vehicles referred to in paragraph b) of no. 1 of Article 7 of the Vehicle Tax Code, motorcycles or motor scooters, excluding vehicles powered exclusively by electrical energy, are taxed autonomously at the following rates:

a) 10% in the case of vehicles with an acquisition cost of less than € 25,000;

b) 27.5% in the case of vehicles with an acquisition cost of € 25,000 or more and less than € 35,000;

c) 35% in the case of vehicles with an acquisition cost of € 35,000 or more.

5 - Expenses related to light passenger vehicles, motorcycles and motor scooters are considered to be, in particular, depreciation, rents or leases, insurance, maintenance and conservation, fuels and taxes levied on their possession or use.

6 - The provisions of no. 3 shall not apply to expenses related to:

a) Light passenger vehicles, motorcycles and motor scooters, assigned to the operation of public transport services, intended to be rented in the normal course of the taxpayer's activity; and

b) Motor vehicles with respect to which the agreement provided for in no. 9) of paragraph b) of no. 3 of Article 2 of the Income Tax Code has been concluded.

9 - Deductible expenses relating to allowances and compensation for travel in the worker's own vehicle, in service of the employer entity, not invoiced to clients, recorded under any heading, are also taxed autonomously at the rate of 5%, except to the extent that taxation occurs under the Income Tax Code in the sphere of the respective beneficiary, as well as non-deductible expenses pursuant to paragraph f) of no. 1 of Article 45 borne by taxpayers presenting a tax loss in the taxation period to which they relate.

14 - The autonomous taxation rates provided for in this article are increased by 10 percentage points for taxpayers presenting a tax loss in the period to which any of the tax facts referred to in the above numbers related to the exercise of a commercial, industrial or agricultural activity exempt from IRC.

17 - In the case of hybrid plug-in light passenger vehicles, the rates referred to in paragraphs a), b) and c) of no. 3 are, respectively, 5%, 10% and 17.5%.

18 - In the case of light passenger vehicles powered by LPG or CNG, the rates referred to in paragraphs a), b) and c) of no. 3 are, respectively, 7.5%, 15% and 27.5%."

It results especially from the transcribed nos. 3 and 6 that expenses related to light passenger vehicles, motorcycles or motor scooters are taxed autonomously, excluding vehicles powered exclusively by electrical energy, as well as light passenger vehicles, motorcycles and motor scooters assigned to the operation of public transport services or intended to be rented in the normal course of the taxpayer's activity, and motor vehicles assigned to the personal use of the worker. It also follows from no. 9 that expenses relating to compensation for travel in the worker's own vehicle, in service of the employer entity, not invoiced to clients, recorded under any heading, are subject to taxation, except to the extent that taxation occurs under income tax in the sphere of the respective beneficiary.

From the perspective of the Applicant, the aforementioned provisions, in delimiting the situations in which autonomous taxation applies, are limited to establishing implicit presumptions iuris tantum susceptible of being rebutted by proof to the contrary in accordance with Article 73 of the General Tax Law.

It is appropriate to begin by recalling, in this regard, that presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact (Article 349 of the Civil Code). In the case of a legal presumption, it corresponds to an inference made by law of an unknown fact on the basis of a known fact (Article 350), distinguishing itself from judicial presumptions which are based on simple reasoning of the judge on the basis of maxims of experience or on judgments of probability.

Thus, legal rules of presumption necessarily present in their structure an implication between two facts, that is, they establish that a certain known fact implies another unknown fact (cf. TEIXEIRA DE SOUSA, Introduction to Law, Coimbra, 2012, p. 234).

Legal presumptions may, however, be rebutted by proof to the contrary, that is, by proof that the presumed fact is not true (presumptions tantum iuris), except in cases where the law prohibits it (presumptions iuris et de iure).

However, the possibility of implicit legal presumptions is not excluded. As stated in the decision of the Constitutional Court no. 753/2014, "Presumptions in matters of tax incidence may be explicit, when revealed by the use of the expression 'it is presumed' or an expression of identical meaning, but may also result implicitly from the linguistic wording of the norm, which occurs when certain values of movable or immovable property are considered as constituting taxable matter in the assumption that these are the values that correspond to reality, dispensing with the determination of the real value or the value that has been declared by the taxpayer".

On the other hand, and with a view to detecting a possible legal presumption in the cited provisions of Article 88, it is important to bear in mind the proper configuration of autonomous taxation.

As clarified in the decision of the Constitutional Court no. 197/2016, "autonomous taxation, although regulated normatively under corporate income tax, is materially distinct from taxation under IRC, in that it does not directly affect the taxable profit of the company, but rather certain expenses that constitute, in themselves, a new tax fact (which refers not to the receipt of income but to the making of expenses). And, in this way, autonomous taxation has inherent the idea of discouraging a practice which, in addition to affecting equality in the distribution of public charges, may involve situations of lesser tax transparency, and is explained by legislative intent to encourage companies to reduce as much as possible expenses that negatively affect tax revenue". In this sense, as is added there, "[t]he expense constitutes an autonomous tax fact, generating a tax to which the taxpayer is subject regardless of whether he has obtained taxable income under IRC in the same taxation period. And, thus, the fact revealing taxpaying capacity is the very realization of the expense".

In the case at hand, the mechanism of autonomous taxation results from the association of the taxpayer with the realization of certain expenses. Subject to tax is the legal consequence of the verification of a certain tax fact - the realization of the legally provided expense -, with no discernment of any condition for the application of the norm that relates to the demonstration, by inference, of another fact other than the very realization of the expense.

The inexistence of any legal presumption related to the business character of the expenses is also evidenced by the verbal context of the provisions in question. Certain types of vehicles are excluded from autonomous taxation according to fiscal policy criteria and differentiated rates are established based on characteristics relating to the acquisition cost of the goods (Article 88, no. 3, of the IRC Code) and the typology of vehicles (Article 88, nos. 17 and 18). Also with respect to expenses relating to compensation for travel in the worker's own vehicle, to which no. 9 of Article 88 of the IRC Code refers, the incidence of autonomous taxation is determined based on certain aspects related to the specific tax situation at issue.

Furthermore, autonomous taxation rates are increased by 10 percentage points with respect to taxpayers presenting a tax loss in the period to which the relevant tax facts relate connected with the exercise of a commercial, industrial or agricultural activity exempt from IRC (Article 88, no. 14, of the IRC Code).

In sum, the incidence norms in question do not rely on the demonstration, by inference of certain presumed facts, which may be set aside based on proof to the contrary, but operate objectively in the face of the elements of the factual situation considered as tax prerequisites, depending only on the legal subsumption of facts to the normative provision.

And it suffices to note that the reason for autonomous taxation is complex and multiple, being able to have in view the prevention, for reasons of tax revenue collection, that revenue relating to the taxation of taxable profit be affected, the discouragement, for reasons of extra-fiscal policy, of certain expenses that are reputed socially as inconvenient and the discouragement of expenses normally associated with evasive or even fraudulent behavior (no. 14 of Article 88).

1. It cannot be ignored that diverse arbitral case law has adopted the understanding that autonomous taxation has underlying a presumption of partial business character of the expenses on which it bears, proceeding from the idea that these expenses will, as a general rule, have a dual nature, corresponding to expenses that in part fall within the productive activity of the company and in another part relate to expenses of a particular consumption character.

As to this case law, it is difficult to understand what is meant by partial presumption. It seems to be meant that the norms providing for autonomous taxation establish a presumption as to the non-business character of the expenses, but that the taxpayer will not be able to rebut in their entirety insofar as there are always expenses that are presumed to be of a private nature and, as such, are irrebuttable.

This approach presents, from the outset, a difficulty. This is because constitutional case law has rejected the institution of irrebuttable presumptions in tax matters on the ground that they prevent the taxpayer from proving the non-existence of the tax paying capacity that the law presumes based on a certain economic assumption (decisions no. 348/97, 452/2003 and 211/2003). And, for this very reason, if there is a presumption that the expenses are not justified for business reasons, the interested party should be required to make proof that the fact does not occur which forms the basis of the presumption, which would allow him to exclude from taxation not only a part of the expenses but their entirety.

The purported implicit presumption of non-business character of the expenses is, in turn, associated with the very fiscal objective sought by autonomous taxation.

As explained by SALDANHA SANCHES, the introduction of the autonomous taxation mechanism is justified because it relates to expenses whose fiscal regime is difficult to discern because they are located in a "zone of intersection of the private sphere and the business sphere" and aims to prevent and avoid that, through these expenses, companies proceed to the hidden distribution of profits or attribute income that may not be taxed in the sphere of the respective beneficiaries, also having the objective of combating tax fraud and tax evasion (Manual of Tax Law, 3rd edition, Coimbra, p. 407).

And, in this way, autonomous taxation has inherent the idea of discouraging a practice which, in addition to affecting equality in the distribution of public charges, may involve situations of lesser tax transparency, and is explained by legislative intent to encourage companies to reduce as much as possible expenses that negatively affect tax revenue. The legislature has in view the discouragement of the realization of certain expenses, admitting the deductibility of the cost, but reducing the tax advantage through autonomous taxation, thus it is understood that taxation bears not on the receipt of income but on the realization of expenses.

Thus, the presumption that is intended to be rebutted by proof to the contrary is not the nature of non-business character of the expenses but the very reason of fiscal policy that led the legislature to tax these expenses, moving the discussion to the level of legislative configuration which is prohibited to the judge.

It is true that the author just cited refers, with respect to autonomous taxation, to the creation here of "a kind of presumption that these costs do not have a business cause" (obs. and loc. cit.). But as may be inferred from all the considerations that precede that excerpt, the author is not referring to a presumption in the technical legal sense, but to precisely noting the fiscal objective that was intended in taxing these costs.

In these terms, in the face of the pointed-out case law, there is no reason to alter the understanding previously exposed, and it must be concluded that the legal provisions establishing autonomous taxation covered in nos. 3 and 9 of Article 88 of the IRC Code constitute norms of tax incidence that do not establish any presumption that is susceptible to proof to the contrary.

Issues of Unconstitutionality

1. The Applicant further raises the question of the unconstitutionality of the norms of nos. 3 and 9 of Article 88 of the IRC Code, when interpreted in the sense that the implicit presumption of only partial business character of the expenses and charges is not rebuttable, for violation of the principle of equality, the principle of taxpaying capacity and also the principles of taxation according to real income and proportionality.

Having concluded that the norms in question do not contemplate any legal presumption, whether implicit, regarding the business character of the expenses or charges, the question of its non-rebuttal does not arise. The solution of the case is grounded not on the impossibility of rebutting the presumption, but on the very non-existence of presumption that becomes susceptible of being rebutted, and, in this way, the issues of constitutionality that are raised are rendered moot.

Even if it is understood that it is intended to challenge the constitutionality of autonomous taxation considered in itself, it is appropriate to recall that the Constitutional Court has already pronounced itself on this matter in the aforementioned decision no. 197/2016, concluding to their constitutional conformity.

There it was concluded, with respect to the principle of taxation according to real income, that "autonomous taxation, although provided for in the IRC Code and collected together with IRC for purposes of collection, has nothing to do with the taxation of income and profits attributable to the economic exercise of the company, since they bear on certain expenses that constitute autonomous tax facts that the legislature, for reasons of fiscal policy, wished to tax separately through subjection to a predetermined rate that has no relationship with the company's turnover". And, in that context, "autonomous taxation does not interfere with the method intended to determine business results, nor does it imply that the taxable matter that will serve as the basis for taxation under IRC comes to include profits or income that the company has not effectively earned".

By identity of reasoning, the Court considered that the impugned provisions do not call into question the principle of taxpaying capacity as a corollary, in the field of taxes, of the principles of equality and fiscal justice. To this regard, the decision emphasizes that "autonomous taxation bears on certain expenses typified in tax law that have been incurred by the company, and only on these expenses, and does not aim at the taxation of business income that has been earned in the respective economic exercise", and, in this sense, "the expense constitutes an autonomous tax fact, generating a tax to which the taxpayer is subject regardless of whether he has obtained taxable income under IRC in the same taxation period". And, thus, the fact revealing taxpaying capacity is the very realization of the expense.

As regards the adequacy of the means used to pursue the purposes sought by the law, it is underscored that the principle of suitability or aptness means that legislative measures must be apt to achieve the pursued purpose or contribute to its achievement. However, "the review of the suitability or adequacy of the measure, as a facet of the principle of proportionality, refers exclusively to the objective and formal aptness of a means to achieve a purpose and not to any substantive evaluation of the intrinsic goodness or timeliness of the measure. That is, a measure is suitable when it is useful for the achievement of a purpose, when it allows the approximation of the intended result, whatever the measure and the purpose and independently of the corresponding merits. And, thus, the measure will only be susceptible of being invalidated for unsuitability or inaptness when its effects are or come to be revealed to be indifferent, ineffectual or even negative taking as reference the approximation of the pursued purpose" (also in this sense, the decision of the Constitutional Court no. 188/2009).

Terms in which it is understood that the impugned acts relating to autonomous taxation do not suffer from the defects of violation of law and unconstitutionality that are attributed to them, whereby the arbitral claim is shown to be unfounded.

Right to Reimbursement and Compensatory Interest

1. Having judged unfounded the main claim for a declaration of illegality of the IRC self-assessment and the decision dismissing the administrative review, the remaining claims for reimbursement of amounts paid and payment of compensatory interest are necessarily rendered moot.

III - Decision

Terms in which it is decided:

a) To judge unfounded the arbitral claim for a declaration of illegality of the IRC self-assessment relating to the fiscal year 2016, as well as the decision dismissing the administrative review filed against the self-assessment act;

b) To judge moot the claims for reimbursement of amounts paid and payment of compensatory interest.

Value of the Case

The Applicant indicated as the value of the case the amount of € 397,575.04, which was not contested by the Respondent and corresponds to the value of the collection which it sought to oppose, whereby the value of the case is fixed at that amount.

Costs

Pursuant to the provisions of Articles 12, no. 2, and 24, no. 4, of the RJAT, and 3, no. 2, of the Regulations on Costs in Tax Arbitration Proceedings and Table I attached to said Regulations, the amount of costs is fixed at € 6,426.00, which shall be borne by the Applicant.

Notify.

Lisbon, 23 May 2019

The President of the Arbitral Court

Carlos Fernandes Cadilha

The Arbitrator Member

Jorge Carita

The Arbitrator Member

Ricardo Rodrigues Pereira