CAAD 524/2016-T: Autonomous Taxation and Special Advance Payments Under IRC Article 88(21)

ARBITRAL DECISION

Claimant: A…, S.A.

Respondent: TAX AND CUSTOMS AUTHORITY

I. REPORT

1. A…, S.A., (hereinafter referred to as Claimant) taxpayer no. …, with registered office at Rua…, nos …/…, …, …-…Porto, submitted on 25-08-2016, a request for constitution of a singular arbitral tribunal, in accordance with the provisions of article 2(1)(a) and article 10, numbers 1 and 2, both of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), and of articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority is requested (hereinafter designated as AT or Respondent), with a view to the declaration of illegality of the rejection of the administrative appeal and consequent annulment and restitution of the self-assessment of Corporation Income Tax (IRC), with reference to the year 2014, in the amount of €9,478.64.

2. The request for constitution of the Singular Arbitral Tribunal was accepted by His Excellency the President of CAAD and notified to the Respondent on 19-09-2016.

3. In accordance with the provisions of article 6(2)(a) of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed periods, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration (CAAD) the acceptance of the appointment within the period stipulated in article 4 of the Deontological Code of the Centre for Administrative Arbitration.

4. On 04-11.2016, the parties were notified of this appointment, and manifested no intention to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11(1)(a) and (b) of RJAT and of articles 6 and 7 of the Deontological Code.

5. The Singular Arbitral Tribunal was constituted on 21-11-2016, in accordance with the requirement of article 11(1)(c) of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.

6. An arbitral order was issued on 16-01-2017, duly notified to the parties, which provided a reasoned order dispensing with the hearing referred to in article 18 of RJAT, questioning the witness indicated by the Claimant, granted to the parties the opportunity to submit written submissions, and set a deadline for the issuance and notification to the parties of the arbitral decision.

7. The Claimant submitted written submissions on 26-01-2017, in which it essentially reiterates the position assumed in the request for arbitral pronouncement, and the Tax and Customs Authority proceeded on 02-02-2017 to submit its submissions, in which it basically refers to the content of its response.

8. In support of its request, the Claimant invoked, in summary, and with relevance to what matters here, the following (which is mentioned mostly by transcription):

a. (…) that it submitted on 30 March 2016, in accordance with article 68 of CPPT, an administrative appeal relating to the self-assessment act of Corporation Income Tax concerning the taxation period corresponding to the civil year 2014 (see article 4 of the request for arbitral pronouncement);

b. (…) was notified on 14 July 2016, of the rejection of the administrative appeal no. …2016…, relating to the self-assessment of Corporation Income Tax for the year 2014 (see article 1 of the request for arbitral pronouncement and document no. 1 attached thereto);

c. (…) assumes the legal form of a Portuguese public limited company, with registered office and effective management in Portugal and qualified, for Corporation Income Tax purposes, as a resident taxpayer in accordance with article 2(1)(a) of the Code of that tax (see article 5 of the request for arbitral pronouncement);

d. (…) exercises its activity in the construction and design of underground works and other public works and civil construction (see article 6 of the request for arbitral pronouncement);

e. (…) was, at the date of the facts, subject to the general regime of Corporation Income Tax taxation and adopted a taxation period coinciding with the civil year (see article 7 of the request for arbitral pronouncement);

f. in compliance with the obligations of declaration legally imposed (see article 120(1) of the Corporation Income Tax Code at the date of the facts) the Claimant submitted the IRC Form 22 for the period 2014, on 26 May 2015 (see article 8 of the request for arbitral pronouncement and document no. 3 attached thereto);

g. (…) did not determine Corporation Income Tax collection strictly speaking in the taxation periods 2011 to 2013, a circumstance which made impossible the deduction of any amount in respect of Advance Payment of Tax (PEC) (see article 10 of the request for arbitral pronouncement);

h. (…) the amount of PEC susceptible to deduction in the period 2012 amounted to €17,007.97 (…) which corresponded to the sum of the amounts of PEC paid and not deducted since the taxation period 2011 (see article 11 of the request for arbitral pronouncement);

i. given that the Claimant determined, in the taxation period 2014, a Corporation Income Tax collection strictly speaking in the amount of €7,529.32, the amount of PEC available for deduction in that period was deducted up to the extent of said collection (see article 12 of the request for arbitral pronouncement and document no. 4 attached thereto);

j. (…) in accordance with the information available in IRC Form 22 for the taxation period 2014, the amount levied (…) in respect of autonomous taxation amounted to €19,665.22;

k. (…) after deduction of the amount of PEC from the Corporation Income Tax collection strictly speaking determined for the taxation period 2014, the Claimant still had €9,478.64 (…) for deduction in the period from the remainder of the Corporation Income Tax collection which included, in the present case, the autonomous taxation (€19,665.22), (see article 21 of the request for arbitral pronouncement);

l. (…) the Claimant believes that the amount paid in respect of PEC, and susceptible to deduction in the period 2014, can and should be deducted from the total Corporation Income Tax collection formed by autonomous taxation of that same period and identified above, and therefore the Claimant considers it is owed by AT a total of €9,478.64, of the tax paid in excess with reference to the taxation period 2014, equivalent to the deduction of the total amount of PEC paid up to the extent of the collection of the period (see article 22 of the request for arbitral pronouncement).

1. The Claimant seeks, as extracted from its request, the annulment of "the decision of the Tax and Customs Authority, rejecting the administrative appeal (…) because such decision is based on a violation of the provisions of article 90 of the Corporation Income Tax Code and consequently determine the annulment of the self-assessments relating to the fiscal year 2014 with the consequent restitution of the amount of €9,478.64 (….), plus the respective compensatory interest provided for in article 43 of the LGT and in article 61 of CPPT."

Further requests "that any application of the norm – no. 21 of article 88 of CIRC – that implies an interpretation of the same in the sense of non-deductibility of special advance payments in autonomous taxation, be considered unconstitutional, for violation of the principle of non-retroactivity provided for in article 103(3) of CRP, which is expressly alleged from now on".

In conclusive summary (of our responsibility) the Claimant concluded that, either the rejection of the administrative appeal or the self-assessments of Corporation Income Tax (including the autonomous taxation rates) with reference to the year 2014 suffer from violation of law, since the deduction of the special advance payment from the part of the Corporation Income Tax collection corresponding to the autonomous taxation rates should not be prevented.

Contending that autonomous taxation has the nature of Corporation Income Tax, since it does not escape the nature and regime of the tax, and should be included in the concept of "Corporation Income Tax collection", concluding that this should encompass not only the amount of Corporation Income Tax but also that of autonomous taxation.

The Claimant further pronounces itself regarding the addition of no. 21 to article 88 of CIRC, carried out by Law no. 7-A/2016 of 30 March in the manner that will be subject to assessment below.

1. AT, duly notified for this purpose, timely submitted its response and attached the administrative instructional process.

2. In its response, and in accordance with the position already expressed by it in the context of the rejection of the administrative appeal, it alleged, in summary, the following, in the sense of the dismissal of the request for arbitral pronouncement: (which is mentioned mostly by transcription);

11.1. It identifies the request for arbitral pronouncement formulated by the Claimant as the latter's pretension to see deducted the value of the payment made as special advance payment from the collection produced by autonomous taxation.

11.2. To resolve the controversial issue in the present process, it is important to begin by analyzing the legal nature of autonomous taxation and its articulation with the rules of the tax in which it is integrated.

11.3. The considerations made in this regard reveal that the figure of autonomous taxation has been instrumentalized for the pursuit of various objectives that range from the original purpose of avoiding evasion and fraud practices – through undisclosed or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the replacement of taxation of accessory benefits in the form of representation expenses or the allocation of vehicles to workers and members of corporate bodies, in the sphere of their respective beneficiaries – to the purpose of preventing the phenomenon designated as "dividend washing" (see no. 11 of article 88 of CIRC) or of burdening, by way of taxation, the payment of income considered excessive (see no. 13 of the same provision).

11.4. It is thus recognized that the autonomous character of these taxation measures, resulting from the special configuration given to the material and temporal aspects of the taxable facts, imposes, in certain areas, the departure or an adaptation of the general rules of application of Corporation Income Tax.

11.5. The integration of autonomous taxation into the Corporation Income Tax Code (and the Individual Income Tax Code), conferred a dualistic nature in certain aspects to the normative system of this tax, which was embodied, namely, within the framework of article 90(1)(a) of CIRC, in separate determinations of their respective collections, by force of the fact that they obeyed different rules.

11.6. And this, because, in one case it is the application of the rate(s) of article 87 of CIRC to the taxable matter determined according to the rules of chapter III of the Code and, in the other case, it is the application of the rates to the values of the taxable matters relating to the different realities contemplated in article 88 of CIRC.

11.7. Contrary to what is affirmed in point 9 of the dissenting opinion attached to the Arbitral Decision issued in process no. 697/2014-T, there is not a single liquidation of Corporation Income Tax, but rather two determinations:

That is, two distinct calculations which, although processed, in accordance with article 90(1)(a) of CIRC, in the declarations referred to in articles 120 and 121 of the same code, are effected on the basis of different parameters, because each one is materialized in the application of its own rates, provided for in articles 87 or 88 of CIRC, to their respective taxable matters determined equally in accordance with their own rules.

11.8. Contrarily, to the reductive conclusion drawn from this statement that "the norm directed to the Corporation Income Tax collection contained in articles (b) and (c) (current (c) and (d)) of article 90(2) of CIRC equally applies to them, by not perceiving any obstacle to doing so in its special form of incidence and applicable rates", it is necessary that an interpretative exercise be undertaken in order to determine whether the regime of deductions to the Corporation Income Tax collection, as an integral part of the rule-system of this tax and pre-existing the incorporation into it of autonomous taxation, is also projected onto the (multiple) collections of these taxation measures.

11.9. It is important to clarify that the liquidation of autonomous taxation is effected on the basis of articles 89 and 90 of the Corporation Income Tax Code but, applying different rules for the calculation of the tax; (1) in one case the liquidation operates through the application of the rates of article 87 to the taxable matter determined in accordance with the rules of chapter III of the Code and (2) in the other case, various collections are determined according to the diversity of facts that give rise to autonomous taxation.

11.10. Whereby it results that the amount determined in accordance with article 90(1)(a) does not have a unitary character, since it comprises values calculated according to different rules, to which are associated different purposes as well, therefore the deductions provided for in the articles of no. 2 can only be effected to the part of the Corporation Income Tax collection with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the rule-regime of the tax.

11.11. When it comes to the deductions provided for in article 90(2) of CIRC, the Claimant came to argue in the Request – anchoring itself, with all due respect, in a simplistic and decontextualized reading of this norm – that the expression "amount determined in accordance with the previous number" should be understood as encompassing the sum of the amount of Corporation Income Tax, determined on the taxable matter established in accordance with the rules of chapter III and at the rates provided for in article 87 of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in article 88.

11.12. The result of this interpretation would imply that, on the basis of the calculation of advance payments defined in article 105(1) of the Corporation Income Tax Code – and in terms identical to those used in article 90(2), namely:

"advance payments are calculated on the basis of the tax levied in accordance with article 90(1) (…) –

– autonomous taxation would be included.

11.13. In good logic, it only makes sense to conclude that the respective basis of calculation corresponds to the amount of the Corporation Income Tax collection resulting from the taxable matter which is identified with the profit/income of the fiscal year of the taxpayer.

11.14. Thus, the delimitation of the content of the expression used by the legislator in article 90(2) of CIRC "amount determined in accordance with the previous number", and in article 105(1) of CIRC "tax levied in accordance with article 90(1)", must be made in a coherent manner.

11.15. Which is equivalent to saying that it corresponds to the amount of Corporation Income Tax calculated by the application of the rates of article 87 to the taxable matter determined on the basis of profit and at the rates of article 87 of the Code.

11.16. By simple consequence of the preceding considerations that led to the conclusion that the deductions referred to in articles (a) and (b) of article 90(2) of the Corporation Income Tax Code are effected to the "amount determined in accordance with the previous number", understood as the amount of Corporation Income Tax determined on the basis of the taxable matter established in accordance with the rules contained in chapter III and the rates of article 87 of the same Code,

11.17. It is possible to extend such conclusion to the deduction relating to special advance payments.

11.18. The legal nature of PEC, revealed by its configuration as "instrument or guarantee of payment of the tax on account of which it is required, and not as an imposition in itself, as well as by the function that is associated with it in combating tax evasion and fraud, links indissolubly this payment to the amount of Corporation Income Tax determined on the taxable matter established on the basis of profit (chapter III of the Code).

11.19. In sum, the interpretation of article 90(2) in coherence with the nature and content of the deductions provided for in its articles, among which PEC is included, must be made in the light of the general objectives of Corporation Income Tax which lead it back, in its essence, to the taxation of the income of legal entities, determined in conformity with the rules of chapter III of the respective code.

11.20. Being for that reason, manifestly devoid of any basis the pretension of the now Claimant of deduction of the amount borne as special advance payment from the collection produced by autonomous taxation in the year 2014.

1. The parties have legal personality and capacity, are legitimate and are legally represented (article 3, 6 and 15 of CPPT, by force of article 29(1)(a) of RJAT).

2. The process does not suffer from nullities, no exceptions having been raised.

II. GROUNDS

A. FACTUAL MATTERS

A.1. Facts Proven

a. The Claimant assumes the legal form of a Portuguese public limited company, with registered office and effective management in Portugal, and qualified for Corporation Income Tax purposes as a resident taxpayer in accordance with article 2(1)(a) of CIRC.

b. Exercising its activity in the area of "construction and projects of underground works other public works and construction".

c. Having submitted on 26-05-2015 the IRC Form 22 with reference to the period 2014.

d. It did not determine Corporation Income Tax collection in the taxation periods 2011 to 2013, having not proceeded to deduct any payment as PEC.

e. The Claimant determined, in the period 2014, a Corporation Income Tax collection in the amount of €7,529.32.

f. In accordance with the information available in IRC Form 22, the amount levied as autonomous taxation, with reference to 2014, amounted to €19,665.22, which the Claimant levied.

g. On 30-03-2016 the Claimant submitted an administrative appeal which was filed with the number …2016…, against the Corporation Income Tax liquidation of the year 2014 no. 2015 … in the amount of €9,478.64, in which it petitioned "the restitution (….) of the amount of €9,478.64 relating to the self-assessment of Corporation Income Tax for the period 2014".

h. Such appeal was rejected by order dated 30-06-2016, notified to the Claimant on 14-07-2016, by means of Official Letter no. … where AT grounded the rejection as follows:

"In accordance with article 90(2)(d) of CIRC, special advance payments are deductible from the collection determined in accordance with article 90(1) of CIRC. In turn, the collection results from the application of the tax rate to the taxable matter, and does not include autonomous taxation.

It should also be noted that Form 22, namely the structure of table 10, in which autonomous taxation is added to Corporation Income Tax to pay/recover, that is, after the deduction of special advance payments".

i. On 25-08-2016, the Claimant submitted the request for constitution of Arbitral Tribunal, which gave rise to the present process, formulating a request for declaration of illegality of the decision rejecting the administrative appeal and annulment of the identified Corporation Income Tax liquidation, (see the information management system of CAAD processes).

A.2. Facts Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of the Factual Matters Proven and Not Proven

With regard to the factual matters, the tribunal is not required to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision, to distinguish the matters proven from those not proven (see article 123(2) of CPPT and article 607(3) of the Code of Civil Procedure, applicable by force of article 29(1)(a) and (e) of RJAT).

In this way, the facts pertinent to the judgment of the case are chosen and delineated based on their legal relevance, which is established in view of the various plausible solutions to the question(s) of law (see article 596 of CPC, applicable by force of article 29(1)(e) of RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence attached to the case file and the PA attached, the facts listed above are considered proven with relevance to the decision.

B. ON THE LAW

The central question which is the subject of the present process to which it is incumbent to respond, is reduced to knowing whether the amounts paid as special advance payment can be deducted from the collection produced by autonomous taxation, that is,

Is it legally possible to deduct the amount of special advance payments (PEC) from the value of autonomous taxation (TA) collection determined in the self-assessment of Corporation Income Tax of a given fiscal year?

Both this question and that relating to the deduction of tax benefits (for example, SIFIDE and CFEI) have been raised in various decisions issued within the scope of CAAD, appearing as a possible conclusion, in view of the various decisions issued within the scope of CAAD, that the trend and case-law orientation (with obvious exceptions) go in the direction that special advance payments are not deductible from the value of autonomous taxation collection determined in a given fiscal year.

Before addressing the central question which the present case files convoke, a brief excursion into the normative framework that underlies it will be necessary (autonomous taxation, special advance payment).

Regarding autonomous taxation (and respective liquidation rules)

Since its introduction into the Portuguese fiscal legal order in 1990, with the publication of Decree-Law no. 192/90, of 9 June, passing through the reform of Law 30-G/2000, of 29 December, which integrated its normative into the Corporation Income Tax Code until the present moment, the regime of autonomous taxation has been subject to various amendments, notably through successive modifications both of the rates and of the systematization and wording given to them, in the respective codes on income taxes, that is, in both CIRC and CIRS.

The normative evolution regarding autonomous taxation has been covering diverse realities, as immediately appears from the various numbers of the current article 88 of CIRC, subsisting, however, in the view of the legislator, the ratio of its creation;

Concerns about combating fraud and tax evasion (immediately stated in the preamble of Law no. 30-G/2000, of 29 December) and reasons of simplicity and efficiency in tax collection, objectives of avoiding the erosion of the taxable base in the sphere of Corporation Income Tax, determined that the legislator burden equitably all taxpayers with certain types of expenses, the regime of autonomous taxation, inserted in CIRC, having experienced significant expansion.

The Constitutional Court, called upon to rule on various situations related to autonomous taxation (which are not invoked here), has come to pronounce itself on autonomous taxation, in a generic manner, in the manner that will be detailed below (in citation from the arbitral decision issued within the scope of process no. 113/2015-T of 30-12-2015), but which is already, summarily, anticipated, highlighting from the dissenting vote of His Excellency Counselor Vítor Gomes issued in process no. 204/2010 of the Constitutional Court the following:

"Although formally inserted in CIRC and the amount that permits collection is levied within its scope and by way of Corporation Income Tax, the norm in question respects a fiscal imposition that is materially distinct from taxation in this cedula (…). Indeed, we are faced with autonomous taxation, as the very letter of the provision says. And that makes all the difference. It is not a matter of taxing income at the end of the taxation period, but certain types of expenses in themselves, for the understandable reasons of fiscal policy that the ruling points out (…)"

Also coming from the Constitutional Court:

"With this type of taxation it was intended, on the one hand, to encourage the taxpayers subject to it to reduce, as much as possible, the expenses that negatively affect the fiscal revenue, and on the other hand, to prevent that, through these expenses, companies proceed to the disguised distribution of profits, especially dividends which, thus, would only be subject to Corporation Income Tax as profits of the company, as well as to combat the fraud and tax evasion that such expenses occasion not only in relation to Individual Income Tax or Corporation Income Tax, but also in relation to the corresponding contributions, both of employers and workers, to social security".

Being able to extract further as to the ratio of autonomous taxation, and even if exemplarily, the doctrine that emanates from the Supreme Administrative Court:

"the legislator created the rates of autonomous taxation in order to penalize the realization of certain expenses since they should be taxed on the person/company that bears the respective cost (…)"

And further,

"In autonomous taxation the taxable fact that gives rise to the tax is instantaneous; it is exhausted in the act of realization of certain expenses that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various rates of autonomous taxation to the various acts of realization of expenses considered, come to be effected at the end of a determined taxation period. But the fact that the liquidation of the tax is effected at the end of a determined period does not transform it into a periodic tax, of successive formation or of a lasting character".

Arbitrary tax jurisprudence (e.g., processes 166/2014-T; 246/2013-T, 260/2013-T, 282/2013-T, 6/2014-T, 36/2014-T) has come to consider that autonomous taxation belong systematically to Corporation Income Tax and not to Value Added Tax, Individual Income Tax, or any other tax of the Portuguese fiscal system.

Adopting the following understanding: "the reason for autonomous taxation is not found in the simple collection of more tax, but primarily aims to discourage recourse to the type of expenses that it taxes, which by their nature are providers of payment of disguised income, and, ultimately, even to recover some tax that was not paid by the beneficiary of the income, transferring the responsibility for this to whoever pays that income, which gives them a clear anti-abuse nature, manifestly, accessorily complementary to taxation according to the tax capacity revealed by income, albeit only apparently to the detriment of taxation of real income (read based on accounts). In short, with autonomous taxation what is intended is precisely to prevent an abusive use of certain expenses and distribution of dividends and in fraud of the norms that aim to reach the real income of taxpayers".

The doctrine that has been dealing with this issue does not diverge from that which emanates from the jurisprudence noted.

In this sense, exemplarily, SALDANHA SANCHES (with reference to the then article 81, no. 3, which provided for a rate of 10% on charges relating to representation expenses and those related to light passenger vehicles or mixed):

"In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the fiscal regime of expenses that are located in the zone of intersection of the personal sphere and the exclusively business sphere, in order to avoid remuneration in kind more attractive for exclusively fiscal reasons or disguised distribution of profits. The norm presents a characteristic similar to what we will find in the sanction against undocumented costs, with an increase in the rate when the situation of the taxpayer does not correspond to a situation of fiscal normalcy. If in the declaration of the taxpayer there is no profit, the cost can be subject to a negative valuation: for example, we have a rate of 15% applied when the taxpayer had losses in the last two fiscal years and purchased a light passenger vehicle for more than €40,000 (article 81 no. 4).

With this provision the system shows its dual nature, with an aggravated rate of autonomous taxation for certain special situations that it seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles in principle, too costly when there are losses. This creates a sort of presumption that these costs do not have a business purpose, and, therefore, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since the basis of incidence is not a net income, but rather, a cost transformed – exceptionally – into an object of taxation."

One will be, according to RUI MORAIS, faced with "a taxation that affects certain expenses of taxpayers, which are held as constituting taxable facts".

"The objective seems to be to try to prevent (attenuating or annulling the "advantage resulting from them in Corporation Income Tax") that, through these expenses, the taxpayer uses for non-business purposes goods that generated tax-deductible costs: or that remunerations be paid to third parties with evasion of the taxes that would be owed by these. The realization of such expenses implies an additional fiscal burden for those who incur them because the law assumes that, thus, another person ceases to pay tax".

In a corresponding sense HELENA PEGADO MARTINS; "Article 88 provides for autonomous taxation of various expenses. Although they constitute "a distortion" in light of the characteristics proper to Corporation Income Tax, as a direct tax affecting the income of legal entities, they find justification in the objectives they seek to pursue.

The generality of cases provided for in the norm relates either to situations of fiscal evasion (e.g., the case of undocumented expenses and those relating to payments to non-residents and there subject to a more favorable tax regime) or to situations of risk in which it is difficult to ascertain, with certainty, the deductibility of the expense in light of article 23 (case of representation expenses), or in which true income may be attributed to workers without corresponding Individual Income Tax taxation (case of travel allowances and charges with vehicles). The legislator thus opts to subject the expenses to autonomous taxation, as an alternative and more effective method than non-deductibility of a portion of the expense for purposes of determining taxable profit".

On the other hand, it should be taken into account, as has already been written, that "autonomous taxation as it derives from its own designation consists of a form of taxation which, although found provided in the codes of income taxes, namely in Corporation Income Tax, is materially distinct from them. First of all, it has a different taxable fact, since it does not refer, in truth, or at least at first sight, to the perception of income, but to certain expenses. This understanding is confirmed by the jurisprudence of the constitutional, administrative and arbitral courts, as well as by the doctrine. Then, contrary to Corporation Income Tax in its general regime, autonomous taxation does not have a periodic nature and is not of successive formation, but drawing closer to single-performance taxes, given the fact that its general fact, that is, the expenses on which it affects, appear in an isolated manner in time."

Regarding special advance payment (PEC)

The special advance payment was introduced into our legal order through Decree-Law no. 44/98 of 3 March, by way of the addition to the Corporation Income Tax Code (CIRC) of two articles, 83-A and 74-A.

Its preamble is clear as to the justification for its creation: "evasive practices of concealment of income or of inflating costs are manifestly generators of grave distortions of the principles of equity and tax justice and of economic efficiency itself and damaging to the stability of fiscal revenues. They result in an unjust distribution of the tax burden, all the more felt since many Corporation Income Tax taxpayers, for successive years, contributed nothing or almost nothing to the State Budget, continuing, nevertheless, to enjoy, sometimes in a privileged manner, the economic and social rights provided for in the Constitution.

In this context, the present diploma establishes a special advance payment, through a new mechanism, on the income of the years 1998 and following, for legal entities subject to Corporation Income Tax".

Since its creation, passing through the reform introduced by Law no. 30-G/2000, of 29 December, which was followed by the amendment produced through the State Budget Law for 2003 (Law no. 31-B/2002, of 30 December), the regime of special advance payment has undergone some changes as regards, notably, its basis of incidence, the refund in the circumstance of not having been deducted from the tax, deductibility and respective periods, payment conditions, its obligation and others, the analysis of which does not fall within the scope of the present case.

For what matters here, it will be important to bear in mind its mandatory character, in accordance with the provision of article 106(1) of CIRC, as amended by Law no. 3-B/2010 of 28 April:

"1. Without prejudice to the provisions of article 104(1)(a), the taxpayers mentioned therein are subject to a special advance payment, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates, or, in the case of adopting a taxation period not coinciding with the civil year, in the 3rd and 10th months of the respective taxation period."

Providing for in article 93 of CIRC, in its current wording that: "the deduction referred to in article 90(2)(d) is effected on the amount determined in the declaration referred to in article 120 of the own taxation period to which it relates, or, if insufficient, until the 6th following taxation period, after the deductions referred to in articles (a) to (c) of no. 2 and in observance of no. 9, both of article 90."

Given this,

Already cited and abundantly invoked in various rulings and arbitral decisions issued within the scope of CAAD, which have addressed the thema decidendum underlying, we do not hesitate also and with the due respect, to bring to the record what was understood within the scope of process no. 113/2015-T, for the correctness and relevance of what was said there, with which we identify:

"The fundamental question to which it is incumbent to answer in this decision is whether the amounts satisfied as special advance payment can be deducted from income tax on legal entities resulting from the application of autonomous taxation rates.

Comparing the abundant jurisprudence referenced by the Claimant, there is indeed a guiding line that is to be highlighted which coincides with what this arbitral tribunal adopts: the tax calculated by the application of the autonomous taxation rates regulated in article 88 of CIRC is also income tax on legal entities, i.e., income tax on legal entities includes autonomous taxation.

If there were any doubts, the current wording of article 23-A CIRC would dispel them.

(…)

The solution of the case sub judicio requires going deeper and ascertaining what is the regime applicable to Corporation Income Tax calculated through autonomous taxation rates. Corporation Income Tax was born affecting objectively the taxable profit, corresponding to this the difference between net wealth at the end and at the beginning of the taxation period.

(…)

It is thus that in the original conceptual structure of Corporation Income Tax the determination of taxable profit takes as its starting point the result of the fiscal year obtained through the technical rules of accounting, then introducing some corrections of positive or negative sense, so that this final result corresponds to taxable profit, i.e., to the real income that was intended to be taxed (…). Of course, it did not and could not regulate the treatment to be given to "autonomous taxation" which was not part of the system, which was conceived in this simple structure; taking as its starting point the accounting result (17-1 of CIRC 1989), correcting it in order to reflect the income that is intended to be taxed through rules qualitatively similar to those that prevailed in the official accounting plan then in force (article 18 and following CIRC, 1989), applying the general rate to it (69.1 CIRC 1989) and to the product thus obtained making the deductions from taxation that in some way had already been borne or would have to be borne through another fiscal system (71-2 CIRC 1989) (…)

(…)

It is necessary to see now how "autonomous taxation" was inserted into this system.

The introduction into the complex of income taxes of the application of autonomous taxation rates was made through Decree-Law no. 192/90 of 9 June, which stipulated that confidential or undocumented expenses would henceforth be taxed autonomously in Individual Income Tax and Corporation Income Tax.

(…)

All elements indicate that the introduction of taxing expenses in Corporation Income Tax constituted initially an extraordinary measure, outside the conceptual structure of Corporation Income Tax, created to honor the principle of taxation on balanced real income through codified corrections. The said autonomy of this rate thus appears with great intensity; although it is considered undeniably that its product is income tax on legal entities, it is no longer income that is directly taxed (as Corporation Income Tax regulated) but rather expenses.

In these cases of dissonance there will be such conflicts that matter to be resolved.

These conflicts result and are resolved through normative interpretation. In the end, it will be necessary to resolve the apparent conflict when the legislative thinking underlying the norm of the general regime of the tax on the one hand and the norm special that regulates autonomous taxation on the other hand, is not reconcilable, i.e., its application will achieve a purpose not pursued by the norm in question.

This conflict in the purposes pursued by each of the norms is evident at the moment when the so-called "autonomous taxation" was introduced into the Portuguese system.

(…)

It seems clear in light of these commands that in the period 1990-2000 it was not conceivable to use potential tax credits to satisfy the obligation of tax determined under this head, lest the intent of the law be perverted.

In its general line of orientation the post-reform CIRC maintained the principles that are in its genesis: departing from the accounting result and correcting it in accordance with the established rules, now improved by the experience of 12 years, to reach taxable profit.

In what is being ascertained the CIRC resulting from the reform came to contain in its article 69-A with the heading "Autonomous Taxation Rate", where it was regulated that confidential or undocumented expenses (no. 1) and representation expenses and charges related to light passenger vehicles, pleasure boats, touring aircraft, motorcycles and motor scooters (no. 2), would henceforth be taxed autonomously".

(…)

One does not see that the reform of CIRC carried out in 2000-2001 introduced any significant change in the code. One only introduced the mechanism to combat expenses considered undesirable which already appeared in extraordinary legislation, expanded slightly the spectrum of application but did not adapt in any way the liquidation procedure. It is believed for this reason that the characterization of the regime that already previously existed was maintained, continuing to have to undertake the interpretation of the norms in order to prevent effects contrary to the ratio legis.

The successive amendments to this article did not affect in any way the (dis)equilibrium of the system, which was maintained until the date of the facts.

(…) In turn, in the ruling of the Constitutional Court no. 617/2012, regarding "autonomous taxation", it was considered that: "with this type of taxation it was intended, on the one hand, to encourage the taxpayers subject to it to reduce, as much as possible, the expenses that negatively affect fiscal revenue and, on the other hand, to prevent that, through these expenses, companies proceed to the disguised distribution of profits, especially dividends which, thus, would only be subject to Corporation Income Tax as profits of the company, as well as to combat fraud and tax evasion that such expenses occasion not only in relation to Individual Income Tax or Corporation Income Tax, but also in relation to the corresponding contributions, both of employer entities and workers, to social security".

More than asserting the ratio of the imposition of autonomous taxation rates, the reasoning of the cited ruling expresses well how its calculation is understood, by comparison with the liquidation of income tax according to the general rate:

Contrary to what happens in the taxation of income under Individual Income Tax and Corporation Income Tax, in which the set of income earned in a determined year is taxed (which implies that only at the end of it can the tax rate be determined, as well as the bracket in which the taxpayer fits), in the case of taxing each expense made, in itself considered, and subject to a determined rate, being the autonomous taxation determined independently of the Corporation Income Tax that is owed in each fiscal year, for not being directly related to the attainment of a positive result, and therefore, capable of taxation.

The mentioned ruling also expresses clearly the instantaneous manner in which the taxable fact occurs and the absence of a periodic, lasting or successive character in its formation.

That is why it thus characterizes the liquidation operation:

This liquidation operation is translated only into the aggregation, for purposes of collection, of the set of operations subject to this autonomous taxation, the rate of which is applied to each expense, there being no influence of the volume of expenses made in the determination of the rate.

It is believed that with the historical analysis, systematic framework and doctrinal and jurisprudential positions, the ratio legis of the norms that impose tax taxed autonomously and its perfect distinction from the objectives that animate the general structure of Corporation Income Tax has been demonstrated. The line is thus drawn in which the conflict begins: as soon as the interpretation of the norm in question leads to a result that departs from the objectives that presided over its inclusion in the fiscal system. It was already seen what was one and the other.

It is recognized by all the actors who have to work fiscal law in general and Corporation Income Tax in particular, the lesser coherence of the coexistence of "autonomous taxation" with the general regime of income tax on legal entities. The Claimant gives abundant news of this itself. But recognized as that difficulty is, there will always be that the law be applied, ascertaining its meaning through interpretation".

Continuing the identified decision, as regards PEC:

"In the doctrine and jurisprudence the regime of PEC has always been considered as a system to prevent fiscal evasion and to guarantee the payment of tax by all active companies. This line of orientation appears in the texts most inductive of the application of the regime in the courts, namely through the doctrinal work developed by the Constitutional Court. In this sense one can see in the reasoning of its ruling no. 494/2009, that PEC in the form it was given in CIRC is "indissolubly linked to the fight against fiscal evasion and fraud", seeking to guarantee that the income declared by taxpayers "correspond[ed] to the taxable income really earned.

In the doctrine (…) [Teresa Gil] gave well-founded account of the circumstances surrounding the introduction of PEC, notably of the difficulties in applying the principle of taxation by real profit, ascertained in light of the "divergence that exists between the profits actually obtained and those declared by companies, and, therefore, subject to taxation". Although this author considers that PEC is an insufficient measure to resolve the problem of tax evasion of this type, preferring the establishment of minimum levy, she mentions that PEC was after all the possible regime given the constitutional limits.

The current regime of PEC is thus characterized by (i) having an indissoluble link to the fight against fiscal evasion and fraud: (ii) was introduced in CIRC in March 1998, before autonomous taxation rates which only came to be part of its systematics in the 2000-2001 reform; (iii) in the conception of PEC its deduction from the levy was provided in the liquidation of Corporation Income Tax calculated on real income; (iv) the recovery of the credit resulting from PEC is subordinated to conditions of attainment of profitability ratios proper to companies in the sector of activity in which they are inserted or to the justification of the situation of credit by inspection action made at the request of the taxpayer (87-3 CIRC).

In summary, the credit for the amounts paid as special advance payment does not constitute an exigible credit that Corporation Income Tax taxpayers can dispose of. For them to be able to do so, certain conditions must be met".

Concluding:

"It now falls to finally appreciate the argument that is basilar which is that which results from the letter of the norm of article 83, 2/e, of CIRC [wording given by Law no. 60-A/2005, of 31.12 and 90(c) of CIRC, as worded by Law no. 3-B/2010, of 28.4] which permits that to the amount of income tax on legal entities determined the deduction relating to special advance payment be made.

There is indeed a conflict between the regime that regulates autonomous taxation and the deduction from the respective levy of PEC. See the ratio of the norms in question. The method of determination of the tax contained in CIRC is based on the principle of incidence on taxable profit; autonomous taxation affects individual expenses considered on which the rate is applicable to each expense, being that "this liquidation operation is translated only in the aggregation, for purposes of collection, of the set of operations subject to autonomous taxation".

It is unequivocal that the liquidation system is not adequate to the determination of autonomous taxation. But should it be deduced that the PEC from the said "aggregation of the set of operations subject to taxation autonomous taxation" leads to a result irreconcilable for the system in question?

It is necessary to investigate this line.

As was seen, PEC came to be part of the system of Corporation Income Tax the liquidation of which enshrined in the then article 83 was conceived to determine the tax directly affecting the income declared. When there is a fiscal loss the taxpayer still has to bear the PEC; that was after all the reason for its introduction. If a determined company has successive fiscal losses, it will systematically bear tax, since the system doubts its ability to function in a permanently deficit situation, requiring it to provisionally satisfy (on account), a determined value.

It may recover it if it proves that this situation is common in its sector of activity or if AT verifies the regularity of its declarations. This was the equilibrium that CIRC required to maintain a system based on the declarations made by the contributors."

(…) the tax resulting from autonomous taxation is based solely on the pursuit of fiscal evasion by transfer of income and has a dissuasive and compensatory effect.

There is indeed an irreconcilable conflict between the ratio of PEC – the combat against evasion or pressure for correction of declarations – and the allocation of its credits to the satisfaction of other obligations that are not those resulting from the determination of Corporation Income Tax calculated on the taxable result.

In practical terms the possibility of deducting PEC from autonomous taxation would imply that even if a determined company was eternally in a situation of loss, no tax on its real income would have to be borne, as long as it applied PEC to the satisfaction of autonomous taxation. Furthermore, the autonomous taxation itself would lose its anti-abuse character, coming to confuse itself after all with the tax calculated on taxable profit. But these are not the objectives of the system of taxation of income of legal entities and the best interpretation of the norm contained in article 83-2 of CIRC is not that one decidedly that which permits deducting special advance payments from the collection resulting from the application of autonomous taxation rates".

The decision in question, issued within the scope of arbitral process no. 113/2015 - T, which we have just cited, concluded in the following sense:

(…) the pretension of the Claimant must necessarily be dismissed since the questioned liquidation complies with legality, since it is based on correct interpretation of the cited norm"

In light of what has been set forth, this singular arbitral tribunal finds no decisive and determinative reasons to decide in a different sense to what has just been noted, which is moreover seconded by various other decisions issued within the scope of CAAD, among which are highlighted, merely as an example those issued in the following processes: 122/2016-T; 34/2016-T:19/2016-T;785/2015-T;783/2015-T;781/2015-T;113/2015-T

Additionally, it will always be said that this arbitral understanding in the sense of the non-deductibility of special advance payments from the collection resulting from autonomous taxation, is in harmony with the new no. 21 added to article 88 of CIRC by the 2016 State Budget Law.

Regarding the addition of no. 21 to article 88 of CIRC

The theses in confrontation in this segment evidenced in the request for arbitral pronouncement formulated by the Claimant and the position expressed by AT in its response, are of clear identification: (i) the Claimant rejects the interpretative nature of the norm in question and (ii) the Respondent contends to the contrary.

Thus,

Article 133 of the State Budget Law for 2016 (Law no. 7-A/2016, of 30 March), with effect from the immediately following day, introduced no. 21 to article 88 of CIRC, in the following sense:

"The liquidation of autonomous taxation in Corporation Income Tax is effected in accordance with the provisions of article 89 and is based on the values and rates that result from the provisions of the preceding numbers, no deductions being made to the global amount determined"

Its article 135 further determined that such norm has an interpretative nature:

"The wording given by the present law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to nos 20 and 21 of article 88 and to no. 8 of article 117 of the Corporation Income Tax Code has an interpretative nature".

Now, without prejudice to the express declaration of the legislator in the pointed sense, that is, the affirmation that one is before an interpretative law, there will be as a prior task to investigate whether it is thus, anticipating that it is the understanding of this arbitral tribunal the acceptance of the interpretative nature to the norm in question (no. 21 of article 88 of CIRC) and that this fact does not constitute any violation of the principle of prohibition of retroactivity of fiscal law (article 103(3) of CRP), nor violates the constitutional principle of legal certainty.

Let us see;

In accordance with article 13(1) of the Civil Code, "the interpretative law is integrated into the law interpreted, provided, however, that the effects produced by compliance with the obligation, even if not approved, or by acts of an analogous nature, are preserved".

In the teaching of Professors Pires de Lima and Antunes Varela, "interpretative laws are considered integrated in the law interpreted. This means that their effects retroact until the date of entry into force of the old law, everything occurring as if they had been published on the date on which the law interpreted was."

As Professor Baptista Machado refers, "(…) the reason why the interpretative law applies to facts and situations previous rests fundamentally on the fact that it, coming to establish fix one of the possible interpretations of the LA (old law) with which the interested parties could and should count, is not susceptible to violating safe and legitimately grounded expectations

We can consequently say that those laws are of an interpretative nature which, on points or questions in which the applicable legal rules are uncertain or their meaning is controversial, come to establish a solution that the courts could have adopted. It is not necessary that the law come to establish one of the previous jurisprudential currents or a strong previous jurisprudential current. All the more so since the interpretative law often emerges before such jurisprudential currents come to form. But, if this is the case, and meanwhile a uniform jurisprudential current has formed that made practically certain the meaning of the old norm, then the new law that comes to establish a different interpretation of the same norm can no longer be considered truly interpretative (although it may be by determination of the legislator), but innovative".

Proceeding further; "For a new law to be truly interpretative two requirements are necessary, therefore; that the solution of the prior law be controversial or at least uncertain; and that the solution defined by the new law is located within the framework of the controversy and is such that the judge or the interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of the law. If the judge or the interpreter, in the face of old texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative."

Now, as decided within the scope of process no. 673/2015- T of CAAD, the acceptance of the interpretative nature of no. 21 of article 88 of CIRC which is made in article 135 of the 2016 State Budget Law, "passes the test" stated by this Author:

"- the solution that resulted from the literal tenor of article 93, no. 1, of CIRC was controversial, as evidenced by that arbitral decision and the solution defined by the new law is located within the framework of the controversy;

. the judge or the interpreter could reach this solution without exceeding the limits normally imposed on the interpretation and application of the law, since restrictive interpretation is admissible when there are reasons to conclude that the scope of the legal text betrays the legislative thinking or is necessary to optimize the harmonization of conflicting interests that two norms seek to protect"

(…) "Furthermore, one does not see that the regime that results from article 88, no. 21, of CIRC encloses any contradiction (….): according to this new norm, the norms of CIRC relating to the manner of liquidation of autonomous taxation should be interpreted as provided therein and relative to that part of the liquidation of Corporation Income Tax no deductions are made"

On the other hand, also,

The non-retroactivity of fiscal law, as has been pointed out by the doctrine of the Constitutional Court, aims at the creation of retroactive taxes, its scope of application being circumscribed to the matters of subjective, objective, temporal and territorial incidence.

Similarly, one cannot conclude that the definitive attribution of an interpretative nature to the norm in question collides with the principle of legal certainty, subscribing to what is extracted from the arbitral process that we have been following:

"[…] in the specific case of special advance payments, one cannot conclude that one is not before a truly interpretative law, since there was no consolidated jurisprudence on the sense of its deductibility from the collection resulting from autonomous taxation and, on the contrary, the solution adopted by no. 21 of article 88. Could already be adopted by the courts, as it was by the Arbitral Tribunal that issued the decision in the process of CAAD no. 113/2015-T.

Thus, one cannot conclude that the authentic interpretation made of article 88, no. 21, by force of article 135 of Law no. 7-A/2016, of 30 March, violates the constitutional principle of legal certainty, as concerns the part of that norm that refers to the non-deductibility of special advance payments from the collection of autonomous taxation"

In light of the foregoing, and in the absence of any plausible reason for not adopting what has been said, this Singular Arbitral Tribunal subscribes to the position in the sense of the interpretative character of the norm in question and, consequently to the non-violation of the constitutional principle of non-retroactivity or any other.

Concluding, also for this reason, to the dismissal of the request for declaration of illegality of the decision rejecting the administrative appeal, as well as the declaration of illegality of the self-assessment of Corporation Income Tax relating to the fiscal year 2014 which constitute the request of the Claimant.

III. RESTITUTION OF AMOUNTS PAID AND COMPENSATORY INTEREST

The Claimant formulates a request for restitution of the amount paid, plus compensatory interest counted until full reimbursement.

The restitution of amounts and the right to compensatory interest depend on the success of the request for declaration of illegality of the self-assessments.

Consequently, the request for declaration of illegality being dismissed, the requests for restitution and compensatory interest are necessarily also dismissed.

IV. DECISION

In accordance with the foregoing, this Singular Arbitral Tribunal decides as follows:

a. to dismiss the request for declaration of illegality and annulment of the act rejecting the administrative appeal identified in the case file;

b. to dismiss the request for declaration of illegality of the self-assessment of Corporation Income Tax for 2014, in the amount of €9,478.64;

c. to absolve the Tax and Customs Authority from the requests;

d. to condemn the Claimant to payment of the costs of the process.

V. VALUE OF THE PROCESS

In accordance with what is provided in articles 296(1) and (2) of the Code of Civil Procedure, approved by Law no. 37/2013, of 26 June, article 97-A(1)(a) of the Code of Tax Procedure and Process, and article 3(2) of the Regulation of Costs in Tax Arbitration Processes, the value of the process is set at €9,478.64.

VI. COSTS

In accordance with the provisions of articles 12(2) and 22(4) of RJAT, and articles 2 and 4 of the Regulation of Costs in Tax Arbitration Processes, and Table I attached thereto, the amount of costs is set at €918.00.

NOTIFY

Text prepared by computer, in accordance with article 131 of the Code of Civil Procedure, applicable by referral of article 29(1)(e) of the Regime for Tax Arbitration, with blank lines, and reviewed by the arbitrator.

The preparation of this decision is governed by the orthography prior to the Orthographic Agreement of 1990, except as regards transcriptions made.

Twenty-second of March of two thousand and seventeen.

The Arbitrator

(José Coutinho Pires)

[1] Expression used by the Illustrious Professor SALDANHA SANCHES, J.L., Manual of Tax Law, p. 407, "With this provision [autonomous taxation] the system shows its dual nature"

[2] In fact, what exists is a single payment, because, as regards the payment rules, in article 104(2)(a) of CIRC the legislator refers to the total amount determined in the declaration, including, therefore, all determinations.

[3] Merely by way of example, see the decisions issued within the scope of processes nos 769/2014-T and 219/2015-T.

[4] In this sense and even if by way of example, the decisions issued in processes 113/2015-T, 781/2015-T, 783/2015-T, 785/2015-T,19/2016-T, 34/2016-T, 122/2016-T may be seen.

[5] Ruling no. 617/2012, of 19 December 2012 (Plenary) of 31/01/2013, within the scope of process no. 150/12.

[6] Ruling of 12-04-2012, reported by Counselor Fernanda Maças.

[7] Ruling of the Constitutional Court cited.

[8] Arbitral Process no. 187/2013- T.

[9] Manual of Tax Law, 3rd Edition, Almedina, Coimbra 2007, pages 407 et seq.

[10] Notes to Corporation Income Tax, Almedina, Coimbra 2009, reprint of the November 2008 edition, pages 202 et seq.

[11] Lessons on Taxation AAVV, Vol. I, coordination by João Ricardo Catarino and Vasco Branco Guimarães, Almedina, 2014, 3rd Edition, page 320 et seq.

[12] See Ruling no. 122/2016- T, of 04-11-2016, issued within the scope of CAAD.

[13] Annotated Civil Code, Volume I, Coimbra Editora 1967, p. 19.

[14] Introduction to Law and Legal Reasoning, 12th Reprint, Almedina, 2000, pages 246 and following.