Process: 530/2016-T

Date: March 27, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

In Arbitral Decision 530/2016-T, A..., S.A. challenged the Tax Authority's refusal to allow SIFIDE (Tax Incentive System for Business R&D) tax credits to be deducted from IRC (Corporate Income Tax) collection generated by autonomous taxation rates for fiscal year 2013. The dispute centered on €58,495.34 in allegedly unlawfully collected tax. The claimant argued that if autonomous taxation constitutes IRC collection—as the Tax Authority itself had successfully argued in numerous prior arbitral cases—then Article 90(2)(b) of the IRC Code should permit SIFIDE deductions from such collection. The claimant cited extensive jurisprudence, referencing at least 36 arbitral decisions establishing that autonomous taxation on vehicles, travel allowances, and representation expenses functions as IRC collection and should be subject to the same deduction regime. The legal inconsistency highlighted was striking: the Tax Authority had consistently maintained that autonomous taxation was IRC to apply non-deductibility rules under Article 45(1)(a), but then denied the corresponding benefit deductions under Article 90. The claimant invoked multiple supporting decisions including cases 769/2014-T, 219/2015-T, 369/2015-T, 370/2015-T, 637/2015-T, 673/2015-T, 740/2015-T, and 784/2015-T. The arbitration tribunal was constituted on November 18, 2016, under RJAT (Legal Regime of Tax Arbitration), following the dismissal of both hierarchical appeal and administrative complaint. The case proceeded without oral hearing under Article 16(c) of RJAT, with decision scheduled for March 27, 2017. This decision contributes to clarifying the scope of fiscal benefits deductions from autonomous taxation collection.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A…, S.A., legal entity no. …, with registered office at …, no. …, …-… Lisbon (hereinafter referred to as the "Claimant"), in response to the express dismissal of the hierarchical appeal and the express dismissal of the administrative complaint regarding the self-assessment of Corporate Income Tax (IRC) for the fiscal year 2013, filed, on 30/8/2016, a request for the constitution of an arbitral tribunal and for an arbitral pronouncement, in accordance with the provisions of article 2, no. 1, of Decree-Law no. 10/2011, of 20/1 (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRATM"), in which the Tax and Customs Authority (AT) is required, seeking that it be "declared, both the illegality of the dismissal of the hierarchical appeal and consequently of the prior dismissal of the administrative complaint, as well as the partial illegality of the aforementioned self-assessment act [...] – and that consequently be annulled –, in accordance with article 2, no. 1, subparagraph a), of Decree-Law no. 10/2011, more specifically with respect to the part of the said self-assessment act that reflects the failure to deduct from the IRC tax collected portion the amounts resulting from autonomous taxation rates of the benefit under SIFIDE, which resulted in an amount of tax unlawfully collected in the amount of € 58,495.34, or, subsidiarily, to the extent that it reflects undue autonomous taxation".

1.2. On 18/11/2016, the present Singular Arbitral Tribunal was constituted.

1.3. In accordance with article 17, no. 1, of the LRATM, the AT was cited, as the respondent party, to submit a response, in accordance with the aforementioned article. The AT submitted its response on 5/1/2017 – having argued for the complete lack of merit of the Claimant's petition – and attached the Administrative File to the proceedings on 4/1/2017.

1.4. By order of 13/3/2017, the Tribunal considered that it was dispensable, in accordance with the provisions of article 16, subparagraph c), of the LRATM, the meeting provided for in article 18 of the LRATM and that the case was ready for decision. In these terms, the date of 27/3/2017 was fixed, by arbitral order of 16/3/2017, for the pronouncement of the arbitral decision.

1.5. The Arbitral Tribunal was regularly constituted, is materially competent, the case does not suffer from defects that invalidate it, and the Parties have legal personality and capacity, being duly qualified.

II – Allegations of the Parties

2.1. The Claimant alleges, in its initial petition, that: a) "in the same manner that jurisprudence has understood, in a practically unanimous manner, that the IRC tax collected provided for in (in force until 2013) article 45, no. 1, subparagraph a), of the IRC Code, comprises, without need of any additional specification, the collection of autonomous taxation in IRC, it must also be understood that the IRC collection provided for in the same code a few meters further ahead (article 90, no. 1, and no. 2, subparagraph b), of the IRC Code, in the version in force in 2013) also encompasses the collection of autonomous taxation in IRC"; b) "whereby [...] the denial of the deduction of SIFIDE from the collection in IRC of autonomous taxation violt[es] subparagraph b) of no. 2 of article 90 of the IRC Code (prior to 2010, article 83; and since 2014 became subparagraph c) of the aforementioned no. 2 of article 90 of the IRC Code)"; c) "thus also expressed itself the collective arbitral panel in case no. 769/2014-T (Councillor Jorge Lopes de Sousa, Prof. Dr. Paulo Nogueira and Dr. Luís Miranda Rocha), with respect to the situation of SIFIDE [...]. And in the same sense pronounced themselves the arbitral decisions issued in cases no. 219/2015-T (Councillor Jorge Lopes de Sousa, Prof. Dr. Vasco Valdez and Dr. Maria Isabel Guerreiro), 369/2015-T, 370/2015-T (these two latter with choice of arbiters by the parties and decided equally by unanimity – Professor Rui Duarte Morais, Professor António Martins and Dr. Rodrigo de Castro), 637/2015-T (José Baeta Queiroz, Óscar Barros and Augusto Vieira), 673/2015-T (Jorge Lopes de Sousa, A. Sérgio de Matos and Luís Miranda da Rocha), 740/2015-T (Jorge Lopes de Sousa, João Taborda da Gama and Ana Maria Rodrigues), 784/2015-T (Jorge Lopes de Sousa, José Nunes Barata and Fernando de Jesus Amado dos Santos), 744/2015-T (Magda Feliciano, this decision on PEC deduction), 775/2015-T (José Baeta de Queiroz, Eva Dias Costa and Filomena Oliveira, this decision on PEC deduction), and likewise the dissenting opinion of arbiter Professor Leonor Fernandes Ferreira, in case no. 697/2014-T"; d) "in the context of qualification of autonomous taxation as IRC, it is public and notorious the position and understanding of the AT, for which it fought and won in countless arbitral cases, that autonomous taxation is IRC, in order thus to apply to the collection of autonomous taxation the norm applicable to IRC collection, more specifically subparagraph a) of no. 1 of article 45 of the IRC Code (in the version in force between 2010 and 2013; prior to 2010, article 42). And as to the possibility of offsetting tax credits from fiscal benefit (SIFIDE) to the collection of autonomous taxation, pronounced itself recently the IRC Services Directorate ("DSIRC") at the request of another (other) taxpayer, having then excluded deductions from the collection of autonomous taxation only with respect to tax credits from international double taxation. Whereby the legitimacy, seen from the perspective of law in action (court decisions on the concept of IRC and AT positions in the same sense), of the deduction of the benefit here in question from the collection of autonomous taxation of A…"; e) "it is reminded of the identification of (at least) thirty-six (36) arbitral decisions produced up to the date when it was concluded regarding the nature of IRC of autonomous taxation [...]. And all these judgments, all this saying by the last instance, the courts, of what is the Law in this question of the legal-fiscal nature of autonomous taxation, has been decreed in accordance with the understanding and systematic requests of the AT (that autonomous taxation would be IRC). Whereby the perplexity of the claimant when it witnesses the AT's denial of the deduction of SIFIDE from the collection of IRC produced by autonomous taxation rates (IRC, in accordance with the understanding, in harmony, of the AT and the courts)"; f) "autonomous taxation concerning, at least, expenses with vehicles, travel allowances and representation expenses (the overwhelmingly here at issue – cfr. Doc. no. 11), are a substitute (or complement) for the non-deductibility of costs in IRC, whereby the nature of IRC collection produced by these autonomous taxation rates. [...] it is on the basis of this conclusion, thus founded, that jurisprudence concluded that because it is IRC collection the collection produced by these autonomous taxation rates was, for that same reason, subject to the regime provided for IRC collection in subparagraph a) of no. 1 of article 45 of the IRC Code (in the version in force until 2013): non-deductibility of this collection in the operation of computing taxable profit. By the very same reason, this taxpayer requests that, coherently, it be concluded that the collection of IRC constituted by these autonomous taxation rates be available, alongside the remaining IRC collection, in the operation of the deductions from collection provided for in article 90 of the IRC Code, among which is found the deduction of SIFIDE"; g) "that article 90 of the IRC Code applies to autonomous taxation is also the conclusion of the arbitral decision issued in case no. 769/2014-T (Councillor Jorge Lopes de Sousa, Prof. Dr. Paulo Nogueira and Dr. Luís Miranda Rocha – cfr. Doc. no. 12): «Article 90 of the IRC Code refers to the forms of collection of IRC, by the taxable person or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (no. 10). Therefore, it applies also to the assessment of the amount of autonomous taxation, which is determined by the taxable person or by the Tax Administration in accordance with article 90 of the IRC Code, there being no other provision that provides for different terms for its assessment.»"; h) "[if] it is understood that it is not possible to carry out the deduction of fiscal benefits for use to the amounts due by autonomous taxation, arguing that, although in essence autonomous taxation is IRC, its assessment does not fit within the framework of the IRC assessment norm enshrined in article 90 of the IRC Code (which only as a mere theoretical hypothesis is conceived), then the claimant requests, on a subsidiary basis, that be annulled the self-assessment of the taxation period of 2014, in the part corresponding to autonomous taxation, for the fact that they have been assessed and collected without legal basis for the purpose"; i) "In the absence of application of those norms directed to IRC, articles 89 and 90 (and following) of the IRC Code, also to autonomous taxation, we would be faced with an insuperable legal gap either by jurisprudence or by doctrine, since, as several arbitral decision-makers referred to above have already seen well, we are dealing with matter of reserve of law, in accordance with article 103, no. 3, of the Constitution"; j) "also [the arbitral decision of 28 April 2016, issued in case no. 673/2015-T (Jorge Lopes de Sousa, A. Sérgio de Matos and Luís Miranda da Rocha)] departs from the premise (accepted by the Courts and by the AT) that autonomous taxation is IRC, whereby its first conclusion that where fiscal incentives provided for in separate legislation speak of deduction of its tax credits from IRC collection, they are also speaking of the collection of autonomous taxation. This conclusion is not set aside by the spirit of fiscal incentives, as well as that decision points out, quite the contrary, given the superior interest of fiscal benefits that overlays the interest in tax revenue collection (cfr. article 2, no. 1, of the Fiscal Benefits Statute)"; l) "being overwhelmingly dominant the jurisprudence that, by viewing autonomous taxation in IRC as IRC, applies to them the norms of the IRC Code directed to IRC that do not conflict with its rates and incidence (which is matter especially regulated in article 88 of the IRC Code), and being also the understanding of the AT that the norms of assessment and payment of articles 89 and following of the IRC Code apply also to IRC generated by autonomous taxation (under penalty of absence of legal basis for its assessment and payment), by this prism of «vote counting» an interpretative law in this area can only, to be such, have one sense: the reiteration, in reaction to some disturbance that might have manifested itself in the system, that when one speaks of IRC in articles 89 and following of the IRC Code, one is also including, without need of specifications, the IRC generated by autonomous taxation (similarly to what the legislator did recently, with respect to subparagraph a) of no. 1 of article 45 of the IRC Code, current article 23-A)"; m) "in the case, the strong, the very strong prior jurisprudential current, goes precisely in the opposite sense to the new law (part 2 of the new no. 21 of article 88 of the IRC Code, which set aside autonomous taxation from part, at least, of article 90 of the IRC Code, disqualifying it from its character of IRC for that effect), whereby by this prism of «vote counting» it cannot be regarded as interpretative for purposes of eventual claim to retroactive application"; n) "taking into account this context of imprecision of the norm (article 135 of the SBA 2016), to which is added both the legal directive that one should presume that the legislator adopted the most correct solutions, and the directive of interpretation most in conformity with the constitution, [it is] to be understood that when it attributed interpretative character «to the wording given by the present law to no. 21 of article 88 of the IRC Code» article 135 of the SBA 2016 wishes to refer to part 1 [«The assessment of autonomous taxation in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions of the preceding numbers»], and not to part 2 [«with no deductions being made to the overall amount determined»], of the aforementioned no. 21"; o) "the regime for the application of laws in time provided for in the Civil Code (which includes by right the article 13 thereof), does not apply with respect to matters that have a specific regime for the purpose, in obedience to different principles, such is the case (currently) of taxes: cfr. article 12 of the General Tax Law and article 103, no. 3, of the Constitution. Whereby the conclusion that the attribution of interpretative nature to a tax norm does not by itself trigger the application of the regime for the application of laws in time provided for in the Civil Code"; p) "how can both parts, 1 and 2, of the new no. 21 of article 88 of the IRC Code, be simultaneously interpretative of what articles 89 and 90 of the IRC Code provide, in opposite senses? How can they be simultaneously interpretative in the sense that the IRC of article 89 also includes autonomous taxation (part 1 of no. 21 of article 88), and in the opposite sense that the IRC of article 90, at least of its no. 2, does not include autonomous taxation? They cannot, that is a logical and systemic impossibility. One of the two prescriptions, either that of part 1, or that of part 2, of the new no. 21 of article 88 of the IRC Code, does not have, and does not necessarily have, by logical impossibility, interpretative character. And knowing of the overwhelming jurisprudence, accompanied by the AT, in the sense of the qualification of the collection of autonomous taxation in IRC as having the nature of IRC, it is easy to conclude that which in this duality of prescriptions of opposite sense has interpretative nature is part 1. And that therefore, and necessarily, part 2 of the new no. 21 of article 88 of the IRC Code has innovative character"; q) "if it is understood (i) that article 135 of the SBA 2016 (Law no. 7-A/2016, of 30 March) attributed interpretative nature also to part 2 of the new no. 21 of article 88 of the IRC Code, that is, also to the normative segment «with no deductions being made to the overall amount [of autonomous taxation in IRC] determined», introduced by the same SBA 2016 (by its article 133), (ii) and that from that would result the application of article 13 of the Civil Code insofar as it prescribes the retroactive application of interpretative laws, [one would then be] faced with a material unconstitutionality of the said article 135 of the SBA 2016, by violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3, of the Constitution, whether it has been concluded or not (and it is understood that not), whether one is faced with a materially interpretative law."; r) "the claimant paid tax in an amount superior to that legally due (cfr. Doc. no. 1 and its field 368, of table 10), whereby, the illegality of the (self-)assessments being declared in the part here petitioned, the claimant has the right not only to its reimbursement, but, also, under article 43 of the General Tax Law ("GTL"), to compensatory interest"; s) "from the above stated, in summary, results that both the dismissal of the aforementioned hierarchical appeal, as well as the dismissal of the preceding administrative complaint, as well as the self-assessment of IRC (including its autonomous taxation rates) relating to fiscal year 2013, suffer from a material defect of violation of law, since the deduction of SIFIDE should not be barred from the part of the IRC collection corresponding to autonomous taxation rates".

2.2. By the above stated, the Claimant intends, in summary, that be "declared the illegality of the dismissal of the hierarchical appeal and of the dismissal of the aforementioned administrative complaint and, likewise, the partial illegality of the self-assessment of IRC, including autonomous taxation rates, of A…, relating to fiscal year 2013, with respect to the amount of autonomous taxation rates in IRC of €58,495.34, with its consequent annulment in this part by the undue exclusion of deductions from collection, given the manifest illegality of the assessment in this part, with all legal consequences, namely the reimbursement to the Claimant of this sum, plus compensatory interest at the legal rate counted, until full reimbursement, from 1 September 2014. Subsidiarily, if it is understood that article 90 of the IRC Code does not apply to autonomous taxation, should then be declared the illegality of the assessment of autonomous taxation (and be consequently annulled) by absence of legal basis for its effectiveness (cfr. article 8, no. 2, subparagraph a), of the GTL, and article 103, no. 3, of the Constitution), with the consequent reimbursement of the same amount and the payment of compensatory interest counted from the same date."

2.3. For its part, the AT alleges, in its response, that: a) "the integration of autonomous taxation into the IRC Code (and IRS), conferred a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied, namely, in the context of subparagraph a) of no. 1 of art. 90 of the IRC Code, in separate determinations of their respective collections, by force of obeying different rules"; b) "when, in the assessment process, there is place for the determination of IRC on the basis of the taxable matter that is based on profit and the determination of autonomous taxation, the amount globally determined, in accordance with subparagraph a) of no. 1 of art. 90, does not have a unitary character, since in it are integrated values calculated according to different rules, to which are associated also distinct purposes, whereby from such differentiation must be extracted the necessary consequences on the plane of the deductions provided for in the subparagraphs of no. 2, in the sense that they can only be carried out to the part of the IRC collection with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the general regime of the tax"; c) "when it comes to the deductions provided for in no. 2 of art. 90 of the IRC Code, the Claimant intends – anchoring itself, with due respect, in a simplistic and decontextualized reading of this normative – that the expression «amount determined in accordance with the preceding number» must be understood as encompassing the sum of the amount of IRC, determined on the taxable matter determined according to the rules of Chapter III and at the rates provided for in art. 87 of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in art. 88. Now, the result of this interpretation would imply that, in the basis for calculating installment payments on account defined in no. 1 of art. 105 of the IRC Code – and in terms identical to those used in no. 2 of art. 90 [...] –, autonomous taxation would be included. In fact, for the basis for calculating installment payments on account only is considered the IRC determined on the basis of taxable matter determined according to the rules of Chapter III and the rates of art. 87 of the respective Code"; d) "thus being, the delimitation of the content of the expression used by the legislator in no. 2 of art. 90 of the IRC Code, «amount determined in accordance with the preceding number», and in no. 1 of art. 105 of the IRC Code, «tax assessed in accordance with no. 1 of art. 90», must be made in a coherent manner. That is, being consequently attributed to it, in both precepts, a univocal sense. [...]. Being the only (and consistent) interpretation of the expression «amount determined in accordance with the preceding number» with the nature of the deductions referred to in the subparagraphs in the subparagraphs of no. 2 of art. 90 of the IRC Code, relating to: - tax credits from international legal and economic double taxation (current subparagraphs a) and b)); - fiscal benefits (current subparagraph c)); special installment payment on account (current subparagraph d)); - and withholdings at source (current subparagraph e)). And this, in face of the interconnection that, on the material plane, must be established between the realities reflected by these deductions and the origin of the amount from which they are subtracted"; e) "[the] deduction relating to fiscal benefits (subparagraph b) of no. 2 of art. 90), when it comes to investment benefits – such is the case of SIFIDE –, has underlying the philosophy that the benefit constitutes a prize whose amplitude varies with the profitability of investments, since, the higher the profit/taxable matter of IRC, the greater the capacity to carry out the deduction. There is, therefore, an indissoluble link between the amount of the tax credit from investment and the part of the IRC collection calculated on the taxable matter based on profit and, were it not so, the necessary articulation that, on the material plane, must exist between the objectives pursued by fiscal benefits and their impact on the very magnitude that serves as the basis for calculating the taxable matter and collection - profit, would be subverted"; f) "however, for the Claimant, [...] there is no reason to conclude that the reasoning and rationale in case no. 769/2014-T would only apply to SIFIDE and not also to other credits from fiscal benefits or other deductions from IRC collection, abstracting in this conclusion from the nature of each of these deductions and its articulation with the taxable base of IRC based on profit"; g) "if the legislator clarified, in cases where the special regime of taxation of groups of companies is applied, that the part of the IRC collection to which the deduction of the fiscal benefit would be carried out was that calculated on the basis of the taxable matter of the group, it is poorly understood that in cases where the company is taxed on an individual basis the deduction of the benefit would be made to the IRC collection that included the part relating to autonomous taxation. It is thus demonstrated that the norms that regulate the deduction of fiscal benefits for investment, including SIFIDE, here controversial, are integrated by the way they operate and by the purposes attached to the benefits, in the structure of the general regime of IRC, whereby they are not reconcilable with the ratio legis of autonomous taxation nor with their respective taxing events, and the proof is that the legislator itself took care to mark that line of demarcation in art. 3, no. 5, subparagraph a), of Law no. 49/2013"; h) "the legislator of the SIFIDE regime, by making that express reference to the amount determined in accordance with no. 1 of art. 90 of the IRC Code, is reporting to the IRC collection properly said for whose determination autonomous taxation does not contribute precisely because they do not enter into the determination of either taxable profit, nor taxable matter, and, as consequence, do not contribute to the IRC assessed. Stated otherwise: the norms that regulate SIFIDE are integrated by the way they operate and by the purposes that are attached to it, in the structure of the general regime of IRC, being irreconcilable with the ratio legis of autonomous taxation nor with their respective taxing events"; i) "there does not occur the intended illegality in the calculation of the collection relating to IRC for fiscal year 2014 for purposes of the deduction of the aforementioned eligible expenses within the scope of SIFIDE. [...] if any doubts remained about the controversial question, they were dispelled with the interpretative nature attributed by art. 135 of Law no. 7-A/2016, of 30 March, to the provisions of no. 21 added to art. 88 of the IRC Code, by art. 133 of the same Law [...]. [The] evidence of contradictory decisions, is demonstrative per se of that which Claimant intends to conceal, that is, that the question was not controversial, and thus to dispel the need for the interpretative character attributed to no. 21 of article 88 of the IRC Code, transforming it into a retroactive interpretation of the law, which, all agree, constitutionally prohibited. It is, therefore, indubitable that (even though recently arisen) the question was – and still is – controversial in the jurisprudence of the CAAD"; j) "as to the second question [«Will fiscal benefits – e.g. SIFIDE, RFAI and/or CFEI – be deductible from the collection produced by Autonomous Taxation?»] – which here matters – it is irrefutable and the Respondent does not ignore that the first arbitral decisions issued were unfavorable to the Respondent – decisions issued in Collective Tribunals chaired by the illustrious Councillor Jorge Lopes de Sousa – maintaining, moreover, the position that was already being taken since the cited case no. 769/2014-T. However, on the one hand, it is important to recall that in Portugal the rule of precedent does not prevail, on the other hand, the Respondent does not agree and does not conform to the decisions cited by the Claimant. Although the Claimant, conveniently, calls upon the sentences unfavorable to the AT in this specific respect (SIFIDE), it is evident the notorious inflection of jurisprudence that this theme [...] has been undergoing in the arbitral decisions recently issued. In this respect see the decisions issued in arbitral cases no. 722/2015-T, 785/2015-T, 727/2015-T, decided unanimously in favor of the Respondent"; l) "also with respect to the amendments introduced by Law no. 7-A/2016 of 30 March (SBA 2016), the Claimant insists in a current recurringly dominant, which we have seen does not correspond to reality to sustain that the norm of no. 21 of article 88 of the IRC Code, added by Law no. 7-A/2016, with interpretative character is not truly interpretative, but rather retroactive, as such illegal and unconstitutional. [...]. The claims advanced rest, with due respect, on a fanciful and fallacious construction without any legal support, leaning on any forced attempt at ab-rogative interpretation of the current normative, terms in which the arguments wielded by the Claimant fizzle out in totality"; m) "although the count of votes, it is certain that there occurred a jurisprudential inflection, see the collective arbitral decisions issued in cases no. 722/2015-T and no. 785/2015-T, dismissed the claim of the Claimants there, that is, denying the deduction from the collection of autonomous taxation of SIFIDE, in casu, the claim of the now Claimant. Also the dissenting opinions in cases no. 749/2015-T and 005/2016-T, make the Claimant's claim fail. Recently, also an arbitral decision was issued in case no. 174/2016-T, in a collective chaired by arbiter José Pedro Carvalho, in which the deduction of SIFIDE from the collection produced by autonomous taxation was claimed. Decision that deemed the Claimant's claim totally without merit. In light of the above stated it is all too evident that the Claimant is not correct in its claim, that is, fiscal benefits should not be, in casu, SIFIDE be deductible from the collection produced by Autonomous Taxation (regardless of the existence or not of no. 21 of article 88 of the IRC Code)"; n) "any interpretation that does not apply the norm contained in the State Budget Law for 2016, set out in article 133, which added number 21 to article 88 of the IRC Code, with the effects provided for in article 135, both contained in the State Budget Law for 2016, published on 30.03.2016, with entry into force the following day, in which it is recommended, with interpretative character, [...] and that, consequently, allows the deduction to the part of the IRC collection produced by autonomous taxation rates of fiscal benefits carried out under IRC, in casu, SIFIDE/CFEI/RFAI, such decision is materially unconstitutional, by a) violation of the principle of legality, inherent to art. 103, no. 2, of the CRP, b) violation of the principle of separation of powers, embodied in art. 2 of the CRP, c) violation of the principle of protection of legitimate expectations provided for in art. 2 of the CRP, d) violation of the principle of equality, in its positive formulation of capacity to contribute, deriving from art. 13, no. 2 and 103, no. 2, both of the CRP. Whereby the aforementioned tax acts impugned by the now Claimant do not deserve censure, and should remain valid in the legal order"; o) "also ambitions the Claimant, as consequence of the success of the main claim it formulates – declaration of illegality of the tax self-assessment act –, be determined the annulment of the assessment and, consequently the Administration proceeds to the reimbursement of the sum that (allegedly) will have been borne in excess, plus compensation in the form of compensatory interest. Such computation that, according to the Claimant, should have as initial term the dates better described in article 169 of the Claim, which are here given as fully reproduced. The Claimant is in error, also here. In the situation of the present case, the determination of the tax was carried out by the Claimant. [...]. [...] even if the success of the claim regarding the payment of interest could be configured – which it is not, since the main claim lacking merit, will necessarily lack merit the claim for interest – in the situation before us, its computation would have as initial term the date on which occurred the decision that dismissed the administrative complaint and, never, the moment indicated by the Claimant in its claim."

2.4. The AT concludes, finally, that "the present request for arbitral pronouncement should be judged without merit and, consequently, the Respondent absolved of all claims, all with the due and legal consequences."

III – Factual Matters Proved, Not Proved, and Respective Justification

3.1. The following facts are considered proved:

i) The now Claimant delivered, on 29/5/2014, a declaration of IRC Form 22 relating to fiscal year 2013 (having delivered, on 5/12/2014, a replacement declaration), having determined an amount of autonomous taxation in IRC of €58,495.34 (see Docs. no. 1 and 2 attached to the present proceedings).

ii) The Claimant was not at the relevant time, nor is currently, an entity indebted to the State and Social Security of any taxes or contributions (see certificates attached to the proceedings as Docs. no. 9 and 10).

iii) The self-assessment of IRC relating to autonomous taxation rates (in terms against which the Claimant here seeks their annulment) was the only option permitted by the information system of the then AT, which did not permit the submission of Form 22 Declarations if to the amounts of that part of the determined IRC (autonomous taxation) it was intended to apply the deduction of SIFIDE.

iv) The present request for arbitral pronouncement has as its object the acts of express dismissal of the hierarchical appeal and the administrative complaint, and the assessment that was intended to be revised by these procedures, which corresponds to the self-assessment act of IRC relating to fiscal year 2013, in the total amount, now in question, of €58,495.34.

v) The said act was subject of an administrative complaint, submitted on 25/7/2015 (see Doc. no. 3 attached to the proceedings). On 29/1/2016, the now Claimant was notified of its dismissal (see Doc. no. 5) and, concurrently, submitted, on 26/2/2016, a hierarchical appeal (see Doc. no. 6), which would come to be dismissed on 7/6/2016 (see Doc. no. 7).

vi) Non-conforming with the dismissal of the hierarchical appeal and administrative complaint, and with the IRC assessment already referred to, the Claimant submitted the present request on 30/8/2016.

3.2. There are no facts not proved relevant to the decision of the case.

3.3. The facts considered pertinent and proved (v. 3.1) are justified in the analysis of the positions exposed by the parties and the documentary evidence attached to the proceedings.

IV – On the Law

In the case here under analysis, there are two questions of law that are controversial: 1) to know if the Claimant has the right to proceed with the deduction of SIFIDE from the IRC collection produced by the application of autonomous taxation rates; and 2) to know if compensatory interest is owed to the Claimant.

Let us see, then.

  1. The Claimant sustains its claim on the following grounds, well summarized by the Respondent: "i. vast arbitral jurisprudence qualifies autonomous taxation as IRC, therefore, it requires the offset of these IRC credits petitioned from the part of the IRC collection produced by autonomous taxation since, in its understanding, nothing exists in the law that excludes that offset; ii. if the IRC collection provided for in no. 1 of art. 45 of the IRC Code comprises, without need of any additional specification, the collection of autonomous taxation, it must be understood that nos. 1 and 2 of art. 90 of the same Code also encompass the collection of autonomous taxation; iii. the AT has already established an understanding favorable to the possibility that the deductions provided for in no. 2 of art. 90 of the IRC Code, with exception of that relating to international double taxation, can be carried out to the collection of autonomous taxation; iv. the information system of the AT prevents the Claimant from entering the value relating to autonomous taxation rates in IRC, not allowing the deduction, for purposes of determining the IRC by it owed, of the amount of autonomous taxation determined to SIFIDE."

In fact, the understanding of the now Claimant, that the deduction of SIFIDE should not be barred from the part of the IRC collection corresponding to autonomous taxation rates, is in line with the majority arbitral jurisprudence – with respect to which, by agreeing with the same, no reasons are seen for adopting contrary orientation.

The Respondent recognizes the existence of this (widely) majority arbitral current, but affirms that, in the justification of the decisions, such as that issued in case no. 769/2014-T (widely cited by the Claimant), "it is verified that the understanding reached results from a legal interpretation that makes a clean slate of the invocation of the teleological and rational elements, in particular of the objectives pursued both by the fiscal incentive in question and of the purposes attached to autonomous taxation, sufficing itself with an analysis of the literal element of that normative and with the arbitral decisions produced to date (at least, thirty-six, [...]) that concluded regarding the nature of IRC of autonomous taxation."

Without need to resort here to all those decisions, it will be cited, as one agrees entirely with it (and as it is entirely pertinent for the present case), the analysis made by the recent Arbitral Decision issued in case no. 784/2015-T, on 13/6/2016:

"One will begin by addressing this question of the application of article 90 of the IRC Code to the assessment of autonomous taxation, since on its solution depends the addressing of the question of the deductibility of SIFIDE and special installment payments on account from the collection of autonomous taxation. [...]. [...] it is today settled, following numerous arbitral jurisprudence and positions taken by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in the IRC Code has the nature of IRC. Moreover, beyond the unanimity of jurisprudence, article 23-A no. 1, subparagraph a), of the IRC Code, in the wording of Law no. 2/2014, of 16 January, leaves today no margin for any reasonable doubt, corroborating what already previously resulted from the literal tenor of article 12 of the same Code. Now, article 90 of the IRC Code refers to the forms of collection of IRC, by the taxable person or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (no. 10). Therefore, that article 90 applies also to the assessment of the amount of autonomous taxation, which is determined by the taxable person or by the Tax Administration, following the submission or not of declarations, there being no other provision that provides for different terms for its assessment. Thus, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are restricted to the determination of the taxable matter and the rates applicable, which are those provided for in Chapters III and IV of the IRC Code for the IRC that has as its basis taxable profit and in article 88 of the IRC Code for the IRC that has as its basis the taxable matter of autonomous taxation and the respective rates. But, the forms of collection provided for in Chapter V of the same Code are of common application to autonomous taxation and the remaining taxable matter of IRC. However, the fact that a self-assessment of IRC, carried out in accordance with no. 1 of article 90, may contain several partial calculations on the basis of several rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm by referring to «assessment», in the singular, in all cases in which it is «made by the taxable person in the declarations referred to in articles 120 and 122», having «as basis the taxable matter that appears therein» (whether that determined on the basis of the rules of articles 17 and following or that determined on the basis of the various situations provided for in article 88). Indeed, it is not only the assessments provided for in article 88 that may encompass several calculations of the application of rates to certain taxable matters, since the same may happen in the situations provided for in nos. 4 to 6 of article 87. In any case, whatever the calculations to be made, it is a unitary self-assessment that the taxable person or the Tax and Customs Authority must carry out in accordance with articles 89, subparagraph a), 90, no. 1, subparagraphs a), b) and c), and 120 or 122, and on the basis of it that the overall IRC is calculated, whatever the taxable matters relating to each of the types of taxation that underlies it. Indeed, as the Claimant well points out when formulating its subsidiary request, if this article 90 were not applicable to the assessment of autonomous taxation provided for in the IRC Code, we would have to conclude that there would be no other norm that provided for its assessment, which would amount to illegality, by violation of article 103, no. 3, of the CRP, which requires that the assessment of taxes be made «in accordance with the law». It should also be noted that the new norm of no. 21 added to article 88 of the IRC Code by Law no. 7-A/2016, of 30 March, independent of whether it is or is not truly interpretative, in no way alters this conclusion, since therein is established, with respect to the form of assessment of autonomous taxation, that it «is carried out in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions of the preceding numbers». In fact, if it is true that this new norm comes to explain how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of article 88) and that competence lies with the taxable person or the Tax Administration, in accordance with article 89, it is also clear that the need to use the procedure provided for in no. 1 of article 90 is not dispensed with, in particular in cases provided for in its subparagraph c) in which the assessment is the responsibility of the Tax and Customs Authority and Customs, on the basis of elements that the tax administration has at its disposal, which appears to be indisputable that they will encompass the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements that prove its prerequisites. Therefore, whether before or after Law no. 7-A/2016, of 30 March, article 90, no. 1, of the IRC Code is applicable to the assessment of autonomous taxation." [End of citation.]

In summary, from this one can conclude, on the basis of the said justification, with which one agrees, that: i) the tax collected on the basis of autonomous taxation provided for in the IRC Code has the nature of IRC; ii) such understanding results not only from numerous jurisprudence in that sense but, also, from the text of article 23-A, no. 1, subparagraph a), of the IRC Code, in the wording given by Law no. 2/2014, of 16/1; iii) whatever the calculations to be made [partial calculations on the basis of several rates applicable to certain taxable matters], it remains a unitary self-assessment that the taxable person or the Tax and Customs Authority must carry out in accordance with articles 89, subparagraph a), 90, no. 1, subparagraphs a), b) and c), and 120 or 122, and it is on the basis of it that the overall IRC is calculated, whatever the taxable matters relating to each of the types of taxation that underlies it; iv) the new norm of no. 21 added to art. 88 of the IRC Code by Law no. 7-A/2016, of 30/3, independent of whether it is or is not truly interpretative, in no way alters this conclusion, since, if it is true that it comes to explain how the amounts of autonomous taxation are calculated and that competence lies with the taxable person or the AT, in accordance with art. 89, it is also clear that the need to use the procedure provided for in no. 1 of art. 90 is not dispensed with, in particular in cases provided for in its subparagraph c); v) art. 90, no. 1, of the IRC Code is, by the above stated, applicable to the assessment of autonomous taxation whether before or after the said Law no. 7-A/2016, of 30/3.

In the same sense, see also, for example, the following more recent arbitral decisions: AD of 5/1/2017, issued in case no. 456/2016-T; AD of 9/8/2016, issued in case no. 785/2015-T; AD of 16/5/2016, issued in case no. 740/2015-T.

It falls now to analyze, specifically, the question relating to the deductibility of investment expenses provided for in SIFIDE to the amounts due by autonomous taxation.

Also in this respect is cited, with due deference, the above referred AD issued in case no. 784/2015-T:

"As mentioned, article 90 of the IRC Code also refers to the assessment of autonomous taxation. And, as also said, there is no legal support to assert that, in the eventuality of having to be made in a declaration several calculations to determine the IRC, more than one self-assessment be made. The statute that approved SIFIDE does not state that the credits therefrom are deductible from every and any IRC collection, rather defines the scope of the deduction by alluding, in its no. 1 of article 4, «to the amount determined in accordance with article 90 of the IRC Code, and up to its concurrence». No. 3 of the same article 4 confirms that it is to the amount that is determined in accordance with article 90 of the IRC Code that is relevant to concretize the deduction by stating that «the deduction is made, in accordance with article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding number». Thus, by mere declarative interpretation, it is concluded that article 4, no. 1, of SIFIDE II, in establishing the deduction «to the amount determined in accordance with article 90 of the IRC Code, and up to its concurrence», implies the deduction to the amount of autonomous taxation that are determined in accordance with that article 90. [...]. Thus, pointing the literal tenor of article 4 of SIFIDE II in the sense that the deduction applies also to the IRC collection derived from autonomous taxation determined in accordance with article 90 of the IRC Code, only by way of a restrictive interpretation could the application of the fiscal benefit to the IRC collection provided by autonomous taxation be excluded. [And, considering that it is a question of fiscal benefits whose justification is legislatively deemed to be more relevant than the obtaining of tax revenue, to the point of justifying, in accordance with article 92, no. 2, subparagraph b), of the IRC Code, the exclusion of the fiscal benefit provided for in SIFIDE II from the general limit to the relevance of fiscal benefits in IRC,] there is seen no legal foundation, in particular in light of the legislative intention that it is possible to detect, to, on the grounds of a restrictive interpretation, exclude the deductibility of the SIFIDE II fiscal benefit from the collection of autonomous taxation that results directly from the letter of article 4, no. 1, of the respective statute, combined with article 90 of the IRC Code. [...]. [...] [As also happens in the present case, with the invocations made by the Respondent in §96 and following of its response, it falls, instead, to note that] what is at issue is to interpret the scope of the statute of special nature that is SIFIDE II, [whereby] cannot be given relevance, for this purpose, to the norm of no. 21 of article 88 of the IRC Code, added by Law no. 7-A/2016, of 30 March, in the part in which it refers that are not «made any deductions to the overall amount determined», despite the intended interpretative nature that was attributed to it. In truth, there is no indication, neither in Law no. 7-A/2016, nor in the Report of the Budget for 2016, nor in its discussion, that with the addition to article 88 of the IRC Code of a general norm prohibiting deductions to the overall amount determined of autonomous taxation, it was intended to restrictively interpret the expression «deduct from the amount determined in accordance with article 90 of the IRC Code» that appears in a special provision of a separate statute, such as SIFIDE II. And, in the absence of an unequivocal intention in the opposite sense, the rule applies that general law does not alter special law (article 7, no. 3, of the Civil Code), which has the justification in the fact that «the general regime does not include the consideration of the particular conditions that precisely justified the issuance of the special law». [...]. By the above stated, converging the literal and rational elements of the interpretation of article 4 of SIFIDE II in the sense that the investment expenses provided therein are deductible «to the amount determined in accordance with article 90 of the IRC Code, and up to its concurrence», it is to be concluded that they are deductible from the totality of that collection, which encompasses, beyond that derived from the taxation of profits in each fiscal period, that which results from special installment payment on account and other positive components of the tax, in particular autonomous taxation, state surcharge and IRC from prior taxation periods." [End of citation.]

In summary, from this one can conclude, on the basis of the said justification, with which one also agrees, that: i) by mere declarative interpretation, it should be concluded that article 4, no. 1, of SIFIDE II, in establishing the deduction «to the amount determined in accordance with article 90 of the IRC Code, and up to its concurrence», implies the deduction to the amount of autonomous taxation that are determined in accordance with that same article 90; ii) considering that it is a question of fiscal benefits whose justification is legislatively deemed to be more relevant than the obtaining of tax revenue, to the point of justifying, in accordance with article 92, no. 2, subparagraph b), of the IRC Code, the exclusion of the fiscal benefit provided for in SIFIDE II from the general limit to the relevance of fiscal benefits in IRC, there is seen no legal foundation for proceeding to a restrictive interpretation; iii) cannot be given relevance (for the purpose of interpreting the scope of the statute of special nature that is SIFIDE II) to the norm of no. 21 of art. 88 of the IRC Code, added by Law no. 7-A/2016, of 30/3 – in the part in which this refers that are not "made any deductions to the overall amount determined", despite the alleged interpretative nature that was attributed to it –, since there are not seen interpretative elements that permit concluding that with the addition to article 88 of the IRC Code of a general norm prohibiting deductions to the overall amount determined of autonomous taxation, it was intended to restrictively interpret the expression «deduct from the amount determined in accordance with article 90 of the IRC Code» that appears in a special provision of a separate statute, such as SIFIDE II.

In light of the above stated, it is concluded that the understanding of the now Claimant is entirely well-founded.

In the same sense, see also, for example, the following more recent arbitral decisions: AD of 6/10/2016, issued in case no. 31/2016-T; AD of 5/1/2017, issued in case no. 456/2016-T; AD of 27/7/2016, issued in case no. 5/2016-T.

  1. In accordance with article 43, no. 1, of the GTL, compensatory interest is owed when it is determined, in administrative complaint or judicial impugnation, that there was error attributable to the tax administration services from which results payment of the tax debt in an amount superior to that legally due. In accordance with no. 2 of the same article, "error attributable to the tax administration services is also considered to exist in cases in which, despite the assessment being made on the basis of the declaration of the taxpayer, this has followed, in its completion, the generic orientations of the tax administration, duly published."

It is, thus, a necessary condition for the attribution of the mentioned interest the demonstration of the existence of error attributable to the tax administration. In this sense, see, for example, the following judgments: "The right to compensatory interest provided for in no. 1 of art. 43 of the GTL [...] depends on it being demonstrated in the proceedings that that act is affected by error regarding the assumptions of fact or law attributable to the AT." (Decision of the STA of 30/5/2012, case 410/12); "The right to compensatory interest provided for in no. 1 of article 43 of the General Tax Law presupposes that in the proceedings it be determined that in the assessment «there was error attributable to the tax administration services», understood as the «error regarding the assumptions of fact or law attributable to the Tax Administration»" (Decision of the STA of 10/4/2013, case 1215/12).

The illegality of the decisions of the hierarchical appeal and the administrative complaint, which was demonstrated above, in point 1), is attributable to the AT, which dismissed them on its own initiative.

Note further that the self-assessment was made by the now Claimant, but the error that affects it, in the part relating to the failure to deduct SIFIDE, is attributable to the AT, since, as well stated by the Claimant in §174 and 182 of its i.p., the structure of the declaration Form 22 of the IRC did not permit the Claimant to make the self-assessment deducting the SIFIDE fiscal benefit to the amount of autonomous taxation. It is, for this reason, a situation which, for purposes of the provision of no. 2 of article 43 of the GTL, is equivalent to the completion of the declaration according to "the generic orientations of the tax administration", since these are underlying the said information system of submission of the Form 22 declaration, which prevented the deduction of SIFIDE to the amount of autonomous taxation.

Thus being, it is concluded that the Claimant has the right to compensatory interest, in accordance with articles 43 of the GTL and 61 of the CPPT.

V – DECISION

In light of the above stated, it is decided:

  • To judge the request for arbitral pronouncement well-founded regarding the request for declaration of illegality of the decisions of the hierarchical appeal and the administrative complaint, in the part relating to the claim of the now Claimant for deduction from the collection of autonomous taxation of the available amount of SIFIDE.

  • To declare the illegality of the self-assessment of IRC relating to fiscal year 2013, in the part relating to the available amount of SIFIDE that was not deducted from the amount of the IRC collection resulting from autonomous taxation and to annul the self-assessment in the part respectively.

  • To condemn the Tax and Customs Authority to proceed with the reimbursement to the Claimant of the amounts that it paid relating to SIFIDE that could have been deducted from the amounts of autonomous taxation and to pay compensatory interest to the Claimant, with respect to that amount, from the date of payment until its reimbursement.

The value of the case is fixed at €58,495.34 (fifty-eight thousand four hundred and ninety-five euros and thirty-four cents), in accordance with art. 32 of the CCPA and art. 97-A of the CPPT, applicable by force of the provision of art. 29, no. 1, subparagraphs a) and b), of the LRATM, and art. 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCTAP).

Costs charged to the Respondent, in the amount of €2,142.00, in accordance with Table I of the RCTAP, and in compliance with the provision of arts. 12, no. 2, and 22, no. 4, both of the LRATM, and of the provision of art. 4, no. 4, of the cited Regulation.

Notify.

Lisbon, 27 March 2017.

The Arbiter

(Miguel Patrício)

Text prepared by computer, in accordance with the provision of article 131, no. 5, of the CPC, applicable by remission of article 29, no. 1, subparagraph e), of the LRATM.

The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Can SIFIDE tax credits be deducted from the IRC collection generated by autonomous taxation rates?
Based on extensive arbitral jurisprudence cited in this case, SIFIDE tax credits can be deducted from IRC collection generated by autonomous taxation rates. The claimant successfully argued that Article 90(2)(b) of the IRC Code permits such deductions since autonomous taxation on vehicles, travel allowances, and representation expenses constitutes IRC collection. Over 36 arbitral decisions, including cases 769/2014-T, 219/2015-T, and 370/2015-T, established that autonomous taxation is IRC by nature, making it subject to the same deduction regime as regular IRC collection. The legal principle of coherence requires that if autonomous taxation is treated as IRC for applying restrictions (Article 45), it must equally allow benefit deductions under Article 90.
What is the legal basis for challenging IRC self-assessment through tax arbitration under the RJAT?
The legal basis for challenging IRC self-assessment through tax arbitration is provided in Article 2(1) of Decree-Law 10/2011 (RJAT - Legal Regime of Tax Arbitration). Before filing, the taxpayer must exhaust administrative remedies: first submitting an administrative complaint (reclamação graciosa) and hierarchical appeal (recurso hierárquico) against the self-assessment act. Only after express dismissal of both can the taxpayer request constitution of an arbitral tribunal within the statutory deadline. In this case, A..., S.A. filed on August 30, 2016, after dismissal of both administrative remedies regarding the 2013 IRC self-assessment, seeking annulment of the €58,495.34 tax collection under Article 2(1)(a) of RJAT.
How does the relationship between autonomous taxation and the IRC collection affect SIFIDE benefit deductions?
Autonomous taxation and IRC collection have an intrinsic relationship affecting SIFIDE benefit deductions. Autonomous taxation on certain expenses (vehicles, travel, representation) serves as a substitute or complement to cost non-deductibility in IRC, making the resulting collection inherently IRC in nature. This characterization has dual implications: negatively, it subjects autonomous taxation to Article 45(1)(a) restrictions on deductibility from taxable profit; positively, it should allow benefit deductions under Article 90 including SIFIDE credits. The claimant exposed a legal inconsistency where the Tax Authority applied IRC classification for restrictions but denied it for benefits, arguing that coherent interpretation requires autonomous taxation collection to be available for all Article 90 deductions alongside regular IRC collection.
What procedural steps are required before filing a tax arbitration request against an IRC self-assessment decision?
The procedural steps required before filing tax arbitration against an IRC self-assessment decision include: (1) submitting an administrative complaint (reclamação graciosa) to the Tax Authority challenging the self-assessment act; (2) filing a hierarchical appeal (recurso hierárquico) if the administrative complaint is dismissed; (3) waiting for express dismissal or tacit dismissal through silence of both remedies; (4) filing the arbitration request within the statutory deadline after final administrative dismissal, under Article 2(1) of RJAT. In Process 530/2016-T, the claimant completed all preliminary administrative procedures before filing the arbitration request on August 30, 2016. The arbitral tribunal was constituted on November 18, 2016, the Tax Authority responded on January 5, 2017, and the case proceeded to decision without oral hearing.
Does the IRC collection referred to in Article 90 of the CIRC include the collection from autonomous taxation for SIFIDE deduction purposes?
Yes, the IRC collection referred to in Article 90 of the CIRC includes collection from autonomous taxation for SIFIDE deduction purposes. This interpretation is supported by systematic legal reasoning and extensive arbitral jurisprudence. Article 90 addresses 'forms of collection of IRC' without distinguishing between regular collection and autonomous taxation collection. Since jurisprudence unanimously established that autonomous taxation on vehicles, travel allowances, and representation expenses constitutes IRC collection—applying Article 45(1)(a) restrictions—the same classification must apply for Article 90 benefits. The claimant cited arbitral decisions including 769/2014-T, 219/2015-T, 369/2015-T, 370/2015-T, 637/2015-T, 673/2015-T, 740/2015-T, and 784/2015-T supporting this interpretation. The Tax Authority's own historical position affirmed autonomous taxation as IRC, making the denial of SIFIDE deductions from such collection legally inconsistent.