Autonomous Taxation IRC Surcharge and SIFIDE Credits: CAAD Arbitral Decision 536/2016-T

I'll translate this CAAD tax arbitration decision for you. This is a comprehensive legal document, so the translation will be substantial.

Arbitral Decision

The arbitrators Councillor Jorge Lopes de Sousa (arbitrator-president), Dr. A. Sérgio de Matos and Dr. Luís Baptista, appointed by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 25-11-2016, agree as follows:

1. Report

A…, SGPS, S.A., legal entity no. …, with registered address at Rua … no. …–…, …, hereinafter referred to as "A…" or "Claimant", has submitted a request for establishment of the arbitral tribunal with a view to annulling the decision on the gracious appeal of the self-assessment of Corporate Income Tax (IRC) for the fiscal year 2014 and the annulment of the self-assessment and reimbursement of tax paid relating to the increase in autonomous taxation and the amount unduly paid relating to SIFIDE, as well as the payment of compensatory interest.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for establishment of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 26-09-2016.

Pursuant to the provisions of subsection a) of article 6, no. 2 and subsection b) of article 11, no. 1 of the RJAT (Administrative Arbitration Regulation), the Ethics Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of their appointment within the applicable period.

On 10-11-2016 the parties were duly notified of this appointment and expressed no wish to challenge the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, subsections a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

In accordance with the provisions of subsection c) of article 11, no. 1 of the RJAT, the collective arbitral tribunal was constituted on 25-11-2016.

The Tax and Customs Authority replied, contesting the admissibility of the request for arbitral determination.

By order of 11-01-2017 the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with successive written pleadings.

The parties presented pleadings.

The parties have legal personality and capacity, are entitled to bring proceedings and are duly represented (articles 4 and 10, no. 2, of the same instrument and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects and no obstacle exists to consideration of the merits of the case.

No objections are raised and no obstacle exists to consideration of the merits of the case.

2. Statement of Facts

2.1. Proven Facts

The following facts are considered proven:

1. The Claimant is a company incorporated under Portuguese law, which pursues, within the scope of its corporate purpose, the principal activity of managing shareholdings.

2. The Claimant is subject to the general taxation regime for Corporate Income Tax (IRC) purposes, the taxation period of which coincides with the calendar year.

3. With regard to the fiscal year 2014, the Claimant was the parent company of the perimeter of entities forming part of the Special Group Taxation Regime ("RETGS"), which comprised the following entities:

►B…, S.A. (hereinafter "B…"), with TIN…;

►C…, S.A. (hereinafter "C…"), with TIN…;

►D…, S.A. (hereinafter "D…"), with TIN…;

►E…, SGPS, S.A. (hereinafter "E…"), with TIN…;

►F…, S.A. (hereinafter "F…"), with TIN…;

►G…, S.A. (hereinafter "G…"), with TIN…;

►H…, S.A. (hereinafter "H…"), with TIN…;

►I…, S.A. (hereinafter "I…"), with TIN…;

►J…, Lda. (hereinafter "J…"), with TIN…;

►K…, SGPS, S.A. (hereinafter "K…"), with TIN…;

►L…, SGPS, S.A. (hereinafter "L…"), with TIN…;

►M…, S.A. (hereinafter "M…"), with TIN …;

►N…, SGPS, S.A. (hereinafter "N…"), with TIN…;

►O…, S.A. (hereinafter "O…"), with TIN…;

►P…, SGPS, S.A. (hereinafter "P…"), with TIN…;

►Q…, SGPS, S.A. (hereinafter "Q…", with TIN…;

►R…, Lda. (hereinafter "R…"), with TIN…;

►S…, SGPS, S.A. (hereinafter "S…"), with TIN…;

►T…, S.A. (hereinafter "T…"), with TIN…;

►U…, S.A. (hereinafter "U…"), with TIN…;

►V…, S.A. (hereinafter "V…"), with TIN…;

►W…, S.A. (hereinafter "W…"), with TIN …;

►X…, S.A. (hereinafter "X…"), with TIN…;

►Y…, S.A. (hereinafter "Y…"), with TIN …;

►Z…, SGPS, S.A. (hereinafter "Z…"), with TIN… .

1. In its capacity as parent company, the Claimant submitted, on 29-05-2015, the Corporation Tax Return Form 22 (Modelo 22), which resulted in assessment no. 2015…, in which the amount of € 481,170.07 was assessed as autonomous taxation (document no. 2 attached with the request for arbitral determination, the contents of which are hereby reproduced).

2. The aforementioned autonomous taxation was subject to an increased rate, pursuant to article 88, no. 14, of the Corporate Income Tax Code (CIRC), as the Group had declared fiscal losses.

3. Some of the group companies, individually considered, did not report fiscal losses, namely the following:

4. At the end of the fiscal year 2014, the Claimant had € 1,549,377.25 in SIFIDE tax benefit credit available for deduction.

5. No deduction of any SIFIDE amount was made from the tax collection derived from autonomous taxation.

6. The Claimant filed a gracious appeal of the self-assessment (document no. 4 attached with the request for arbitral determination, the contents of which are hereby reproduced).

7. By order no. …, of 19-04-2016, the Claimant was notified of the draft dismissal of the gracious appeal contained in document no. 5 attached with the request for arbitral determination, the contents of which are hereby reproduced, which states, inter alia, the following:

§ IV.I. Of the tax calculation

§ IV.I.I. Of the increase in the autonomous taxation rate

§ IV.I.I.I. Of the Appellant's arguments

On 29 May 2015, the Taxpayer, now Appellant, in its capacity as parent company in the context of RETGS, submitted the tax return for consolidation of the fiscal group, pursuant to article 70 and article 117, both of the CIRC.

That tax return, in turn, resulted in assessment no. 2015 … of 12 August 2015, with a tax refund amount of € 2,910,715.93 (two million, nine hundred and ten thousand, seven hundred and fifteen euros and ninety-three cents), here under challenge.

From the aforementioned return (and assessment), as autonomous taxation, within the scope of RETGS, the amount of € 481,170.07 (four hundred and eighty-one thousand, one hundred and seventy euros and seven cents) is shown, which, according to the Taxpayer, now Appellant, was incorrectly considered in excess, despite the requirement to apply the rate increase provided for in no. 14 of article 88 of the CIRC.

The Taxpayer, now Appellant, states that the rule imposing the increase in the autonomous taxation rate, even in situations covered by RETGS, has as its condition for application the existence of fiscal loss in the company incurring the expense and charge subject to autonomous taxation and not at the level of the fiscal group in which it is included.

The Taxpayer, here Appellant, presents in detail the amount paid as autonomous taxation, as provided for in article 88 of the CIRC, for each of the companies comprising the Group, demonstrating that, due to the error described above, there is a distortion in the tax to be paid.

Subsequently, the Taxpayer, now Appellant, stating that it has always followed the instructions given by the Tax Authority regarding the manner of calculating autonomous taxation within the context of RETGS, in particular, as provided for in Binding Information no. 2011…, of 30 March 2012, considers that such information does not have binding force on taxpayers, that is, it binds only the Tax Authority itself.

Furthermore, it adds that this interpretation finds no reflection in the tax legal system and, if within the context of RETGS a differentiated regime is established from the general rule, the same procedure should also apply with respect to autonomous taxation.

It states, in summary, that, for purposes of applying or not applying a rate increase in autonomous taxation, what is relevant is the fiscal result of the entity itself where the expenses and charges subject to autonomous taxation are incurred and not that of the fiscal group in which it is included.

In light of this, the Taxpayer, here Appellant, believes that, notwithstanding the existence of a fiscal loss situation at the level of RETGS, the rate increase in autonomous taxation provided for in no. 14 of article 88 of the CIRC should not be applied to it, since the companies that incurred the expenses and charges autonomously taxed did not present, for the period, any fiscal loss.

To reinforce this view, the Appellant attaches the arbitral decision issued in process no. 239/2014-T, of 01 September 2014, in which it is declared that the regime for increasing rates is provided for only with respect to the determination of taxable profit; payments on account and special payments on account; deduction of fiscal losses; and net financing costs.

Thus, according to it, because the rate increase of 10 percentage points is not applied to it, autonomous taxation should then be effected via normal rates and, therefore, instead of the amount of € 481,170.07 (four hundred and eighty-one thousand, one hundred and seventy euros and seven cents), initially declared (and assessed), it should remain only at the overall value of € 416,886.91 (four hundred and sixteen thousand, eight hundred and eighty-six euros and ninety-one cents).

It thus requests the annulment and consequent restitution of the amount of € 64,285.16 (sixty-four thousand, two hundred and eighty-five euros and sixteen cents), corresponding to the difference between the amount initially calculated (€ 481,170.07) and that which should have resulted (€ 416,886.91).

§ IV.I.I.II. Of the assessment

In our view, the issue to be clarified at this point concerns whether the "fiscal loss" prerequisite referred to in no. 14 of article 88 of the CIRC, in the case of RETGS, should have an impact at this level or whether the concrete situation of the company incurring the respective expense/expenses, individually considered, is what matters.

We begin by stating, completely resolving the issue that, to this effect, and with interpretative character, article 133 of Law no. 7-A/2016, of 30 March, altered the wording of article 88 of the CIRC, clarifying that "(...) when the special regime for taxation of groups of companies established in article 69 is applicable, the fiscal loss determined under article 70 is considered".

If there were doubts, these are then definitively clarified in the sense that what is relevant is, in fact, the "fiscal loss" determined at the level of RETGS and not at the individual sphere of the entity incurring the expenses and charges subject to autonomous taxation as provided for in article 88 of the CIRC.

The Taxpayer, here Appellant, therefore has no reason for complaint.

Continuing:

As if the above were not enough, it should likewise be said that, with respect to this matter, there is still a Binding Information, as mentioned by the Taxpayer, here Appellant.

This is the doctrinal note resulting from process no. 2011…, which was processed before the Department of Corporate Income Tax (DSIRC), and this same interpretation obtained a concordant Order from the Deputy Director General, of 30 March 2012.

In this chapter, these Services have no alternative but to maintain the interpretation set forth there, for, as is known, the Tax Authority has a hierarchical structure pursuant to subsection a) of article 6 of Decree-Law no. 118/2011, of 31/12, it being understood that the norms issued at higher levels are applied throughout the structure, leaving no room for any discretion.

In effect, the wording of no. 14 of article 68 of the General Tax Law (LGT) further provides that: "The tax administration, with respect to the subject matter of the request, cannot subsequently proceed in a manner different from the information provided, except in compliance with a judicial decision".

Although it may be understood that this rule concerns only the specific case that was the subject of the information provided, it would make no sense for the Tax Administration to adopt different positions for facts of an identical nature and dealing with the same matter, for fear of complete incoherence before the law and taxpayers, which would surely undermine any relationship of trust.

Notwithstanding the fact that RETGS represents an optional regime, of special character by virtue of the corporate structure of certain taxpayers, serving only to determine a method of calculating taxable profit and, in the case of fiscal losses occurring, these will affect the applicable rate in autonomous taxation.

This interpretation reveals coherence on the part of the legislator: the creation of the figure of autonomous taxation is intended to prevent taxpayers from frequently resorting to a certain type of expenses, situated in a "gray zone" between business purpose and private purpose, with a view to reducing tax revenue.

Thus, it is not apparent how it could be otherwise, for by articulating the provisions of that no. 14 of article 88 with no. 1 of article 70, both of the CIRC, it is clear that fiscal losses are determined by the parent company through the submission of the "self-assessment".

It is well known that "self-assessment" means nothing more than the calculation of tax and other obligations to be paid or received by the taxpayer, that is, it seeks to obtain the amount whose procedure is established in article 70 and corresponds to the "algebraic sum of taxable profits and fiscal losses determined in individual declarations".

Now,

To consider that the reference value for determining the applicable rate in autonomous taxation is that of each company in the Group would be equivalent to creating a "special regime" within RETGS itself, which is already a special situation, which is clearly not sustainable and goes against the provisions of the CIRC.

In conclusion, at this point, it is abundantly clear that the request of the Taxpayer, now Appellant, cannot be declared well-founded.

§ IV.I.II. Of the deduction of tax benefit to the collection from autonomous taxation

§ IV.I.II.I. Of the Appellant's arguments

With regard to the taxation period in question, the Taxpayer, here Appellant, determined an amount of € 1,774,415.53 (one million, seven hundred and seventy-four thousand, four hundred and fifteen euros and fifty-three cents) within the scope of the tax benefit relating to the System of Tax Incentives for Business Research and Development (SIFIDE).

Of the total of this amount, the sum of € 1,549,377.25 (one million, five hundred and forty-nine thousand, three hundred and seventy-seven euros and twenty-five cents) carried forward to other periods.

Due to insufficient tax collection, the Taxpayer, here Appellant, was unable to proceed with the deduction of this benefit and, thus, intends to make it now to the amount determined as autonomous taxation.

According to the Taxpayer, now Appellant, this operation becomes possible to the extent that it considers that the tax determined as autonomous taxation integrates the collection determined within the scope of IRC, being capable of deduction as occurs under article 90 of the CIRC.

Similarly to the previous point, the Taxpayer, here Appellant, attaches case law in order to demonstrate the prevalence of this interpretation.

§ IV.I.II.II. Of the assessment

In this part, the issue to be decided concerns whether amounts relating to tax benefits, namely SIFIDE, can be deducted from autonomous taxation collection.

We begin by stating, completely resolving the issue, that, to this effect, and with interpretative character, article 133 of Law no. 7-A/2016, of 30 March, altered the wording of article 88 of the CIRC, clarifying that no deductions are made from autonomous taxation collection.

If doubts existed, these are then definitively clarified in the sense that no deduction can be made as suggested by the Taxpayer, now Appellant.

The Taxpayer, here Appellant, therefore has no reason for complaint.

Without prejudice,

We begin by determining the nature of autonomous taxation, since the Taxpayer, now Appellant, argues that it is an integral part of the corporate income tax collection (IRC), and therefore is subject to deduction of tax benefits pursuant to article 90 of the CIRC.

Public taxes are traditionally divided into three categories: taxes, fees, and contributions, the first being characterized by their unilateral nature, serving the purpose of revenue collection.

It is accepted that they may also serve purposes of social ordering and guidance of conduct, even if indirectly, as is the case with autonomous taxation, since it is required without any counterpart.

By applying to facts that assume the nature of "expense" and not "income", it reveals a certain independence in material terms in relation to income tax (in the strict sense), being, moreover, calculated autonomously, it matters little whether or not taxable income is shown at the end of the period, except with respect to the rate increase in situations where the expenses are incurred.

Its insertion in the CIRC was due above all to simplification matters, since underlying its calculation are expenses that contribute to determining the tax to be paid at the end of the period.

1. With this typology, decidedly anti-abuse and intentional in combating tax fraud and evasion anchored in the principle of tax capacity (by connection with the principle of taxation of actual business income), the tax legislator sought to promote, as much as possible, the reduction of the use of such expenses that negatively affect the collection and, consequently, tax revenue under income taxes.

2. Unlike what occurs at the level of the intrinsic IRC tax base, autonomous taxation of expenses and charges, in turn, is nothing more than an instrumental and accessory reality to the achievement of the result of that income tax, in the just measure that it was in function (and protection) of the same that gave rise to the conception of autonomous taxation and in which, all things considered, its very raison d'être is rooted.

Continuing:

1. Autonomous taxation seeks its objective incidence in expenses and charges and not in income (of the burdened entity), distancing itself thereby from IRC in the strict sense, although it is instrumental and universally linked to this for purposes of an operational and functional character.

2. As a revealing feature of this nuance we emphasize the legislative change achieved in the current subsection a) of no. 1 of the current article 23-A of the CIRC, where, reinforcing the position here defended, the expression "including autonomous taxation" was added, which is equivalent to saying in other words that, on the one hand, autonomous taxation integrates the principal tax in a broad sense, but on the other, and distinct from that in the strict sense.

3. Another example: in article 12, 24 of the same code, the relationship of "operationality" and "functionality" between income taxation and autonomous taxation of certain expenses or charges is immediately highlighted, without prejudice to reiterating the distance between these same figures.

In these terms,

1. As results from the express terms in its own initial petition, the Taxpayer, here Appellant, contests partially the "assessment" act and, consequently, requests then that the amounts that correspond to it as "credit" of tax by virtue of the use of the tax benefit relating to SIFIDE be, in turn, deducted from the collection that is then determined and calculated through autonomous taxation of some determined expenses and charges.

Now,

1. Precisely because it is our understanding that the collection calculated as autonomous taxation cannot—nor should—be confused with the collection that results in the strict scope of corporate income tax, the argument of the Taxpayer, here Appellant, cannot be well-founded.

2. With regard to autonomous taxation provided for in article 88 of the CIRC, it is easily seen that this is calculated in a distinct and autonomous manner compared to the processing of IRC in the strict sense, in light of the provision of article 90 of the same code, which is inherent to the nucleus of strict income taxation and not to the taxation of certain expenses as occurs in the realm of autonomous taxation.

3. Although both are inserted in the calculation at the level of the broader scope of business taxation, they constitute, however, manifestly distinct and individualized procedures, since one concerns the strict IRC collection, and the other the collection as autonomous taxation.

4. One cannot overlook the spirit that presided over the establishment of autonomous taxation and tax benefits, distinct realities with immediate and mediate interests equally divergent to the point of preventing their respective convergence, especially with respect to the deduction from the first of the amount relating to these latter.

Therefore,

1. Measuring the interests in dispute, the claim formulated by the Appellant does not merit success, since the exercise of the SIFIDE benefit right is not absolute, for it itself is subject to limits, including material ones, as will be better demonstrated below.

2. The so-called SIFIDE tax benefit allows companies to obtain a tax benefit, under corporate income tax, and is promoted in relation to charges incurred with investment in research and development (R&D), to the extent that it has not likewise benefited from financial assistance from the State.

3. This benefit is embodied in a tax credit capable of being used for purposes of deducting this amount from the (strict) IRC collection itself (or from other realities whose taxation equally starts from taxable profit), without prejudice to this amount, in case of insufficient collection, being "carried forward" to subsequent periods.

4. In light of the SIFIDE regime, in no. 1 of article 4, under the heading "Scope of deduction", it states that taxpayers subject to corporate income tax" resident in Portugal who exercise, as their principal activity or not, an activity of an agricultural, commercial, industrial, or services nature, and likewise, non-residents with a permanent establishment in Portugal, may proceed with the deduction of the respective amount to the amount determined pursuant to the provision of article 90 of the CIRC, which stated in the following terms:

(...)

Thus,

From the comparison between the two aforementioned rules, it is easy to see that amounts resulting from that tax benefit are capable of deduction from the amounts determined pursuant to that article 90 of the CIRC, and up to their concurrent amount, always in the "assessment" relating to the taxation period in which accounting recognition of expenses covered by the benefit falls.

That is, for purposes of SIFIDE, the deduction is effected to the amount determined in those precise terms, that is, to the strict IRC collection connected to taxable profit and determined pursuant to article 90, and not to the collection that results from realities autonomously taxed pursuant to article 88, whose calculation procedures are, repeat, distinct.

One cannot therefore confuse, moreover when it manifestly results that one is autonomous in relation to the other, implying that, in light of SIFIDE, the referred "amount determined pursuant to article 90 does not comprise in turn the "amount that results from article 88 of the CIRC" (autonomous taxation collection).

The tax legislator considered them as autonomous and distinct, when, in SIFIDE, confined to the perimeter of income, it only referred to the provision of article 90, that is, to the calculation concretely within the scope of IRC stricto sensu and to other figures whose starting point is taxable profit and which reveal the same identity at the level of the active subject of the tax legal relationship.

In accordance with established case law, the autonomy of this reality is essentially connected to the facts on which it bears and the specificities of its calculation, but not, juridically, in relation to the remaining portions of IRC, for in this perspective autonomous taxation is nonetheless still IRC in its broader conception."

In turn, no. 2 of article 90 of the CIRC determines the form of proceeding with the assessment of tax, enumerating exhaustively and in order, all deductions permitted from the collection determined pursuant to no. 1 of the same provision, and this assessment is that which is based on the taxable matter defined pursuant to article 15 of the SIFIDE regime, that is, the values that translate this tax benefit are deducted "from the amounts determined pursuant to article 90 of the Corporate Income Tax Code, and up to their concurrent amount".

The collection to which this rule refers when the assessment is to be made by the taxpayer is calculated based on the taxable matter contained in that assessment, with the credit in which SIFIDE translates being deducted only from collection based on taxable matter.

In effect, IRC collection is—and unlike autonomous taxation collection—dependent on the achievement of a positive result by the company, and results from the application of the applicable rate to it, for which reason it is not provided, at any time, to take into account autonomous taxation, which, as the name itself indicates, are autonomous, that is, independent of the result obtained by the company, and always due in their entirety, since the Code does not provide for any deductions thereto."

1. Therefore, we here understand that the value that results from SIFIDE cannot in any way serve as a deduction from the collection that results from the spectrum of autonomous taxation in the list provided in article 88, since, for these purposes, the collection calculated within the scope of article 90 is not equivalent to the collection that in turn results from the aggregate of realities under the yoke of autonomous taxation.

2. To permit the amount calculated in autonomous taxation collection to be able to benefit from the effect of "deduction" of amounts relating to the tax credit that results from SIFIDE would lead to a direct confrontation with its immediate purpose, namely the disincentive to the acquisition and use of certain consumer goods and services or mixed use.

3. Moreover, by not being inscribed in the strict base of the concrete taxation of income, but in the inverse perspective (that of expense), autonomous taxation and the respective collection do not benefit from tax benefits whose emphasis occurs at the level of income and not at the level of expense, as occurs in the known cases relating to tax benefits such as that here in question.

4. It lacks absolute reasonableness to admit, in these terms, any deduction from the collection that results from autonomous taxation, when the law itself also does not permit that the value thereof can be deducted from the taxable profit of the period.

5. Consequently, it would be a paradox to promote the depletion of autonomous taxation collection as a result of its reduction through the use of amounts granted for reasons and interests that ab initio conflict with the purposes of the establishment of the first, benefiting fiscally precisely those whom the legislator wished to "penalize" through a (subsidiary) mechanism that taxes expense, eliminating or reducing indirectly any tax advantage that is in the strict perimeter of income taxation and, consequently, in the respective collection and final revenue under penalty of "fraud on the law".

6. More serious, it would be to accept fiscally this deduction when, pursuant to the law, the legislator himself made a point of emphasizing caution regarding the coexistence between tax benefits and the verification of certain expenses and charges, as occurred, for example, in no. 2 of the aforementioned article 88 of the CIRC.

Otherwise,

1. In the wake of the most recent arbitral case law, it was held that "(...) it would not be reasonable, indeed contrary to the reason that led the legislator to autonomously tax those expenses that, through their deduction from taxable profit as expenses, would eliminate the basis for the existence of autonomous taxation" having been "(...) thus certain that autonomous taxation does not constitute IRC in the strict sense but is interwoven with this (IRC), and should be contained in the "other taxes" that the final part of subsection a) of no. 1 of article 45 of the CIRC gives us account of".

2. Likewise understood that "(...) aiming at autonomous taxation to reduce the tax advantage achieved with the deduction from taxable profit of the costs on which it bears and further to combat tax evasion that this type of expense, by its nature, fosters, it cannot itself through its deduction from taxable profit as an exercise expense constitute a factor in reducing this reduction in advantage intended and determined by the legislator."

3. Further: "(...) autonomous taxation, which applies to charges deductible for purposes of determining the taxable base of IRC, integrate the regime and are due under this tax, not constituting the expenses with the payment of such autonomous taxation deductible charges for purposes of determining taxable profit'.

4. All the more so that, it will be recalled, being autonomous taxation an exceptional regime within the constitutional legal-tax framework of income taxation and actual income, the regime should be the subject of restrictive interpretation, for it would be contrary to the spirit of the system to permit that, by virtue of the deductions referred to in no. 2 of the cited article 90, this anti-abuse character that presided over its implementation within the very IRC system be removed from autonomous taxation.

5. It should further be emphasized, by way of caution, that it is likewise not legitimate to say that the anti-abuse matrix of autonomous taxation does not preclude the impediment of the deduction of the benefit value from that collection, as occurs with other specific anti-abuse provisions disseminated through the various tax codes.

In effect,

1. Unlike what occurs at the level of autonomous taxation, of an anti-abuse nature, of "indirect" action, in anti-abuse provisions, "direct" (whether in the general anti-abuse clause or in the sniper approach), the correlative tax treatment by the occurrence of legally provided facts is circumscribed to the calling into the taxable base; the tax legislator understood that the action of these would be advocated within the level of the determination of taxable matter and not, downstream, in the phase of calculation of collection.

2. In "direct" anti-abuse rules, both the tax censure and its sanctioning are directly prescribed in the chapter of taxable matter, being there that the tax legislator crystallized, on one hand, its censure and, on the other, its respective sanctioning.

3. This is what occurs, for example, at the level of the rules legally provided in the area of "transfer pricing", "under-capitalization", etc.

4. We have no doubts: to admit the deduction of the SIFIDE tax benefit from autonomous taxation collection in the same way as occurs with the strict IRC collection or other figures immediately connected with income, nothing more would be being done than to move away from the sanctionary direction that presided over the establishment of that regime.

5. It would be a contradiction that this autonomous taxation (calculated in a context of eventually abusive conduct) would be exhausted by the deduction resulting from an expense (tax benefits) that the State supports with a view to inducing investment and consequent development of the States themselves and companies.

6. Recall what has already been said, the deduction within the scope of the SIFIDE tax benefit is not of absolute exercise, for its regime is guided by limits of a formal, temporal, and material nature, the latter preventing the elimination or mitigation of the collection calculated under the responsibility of the anti-abuse mechanism that postulates the autonomy of the taxation of certain realities (of expense and not of income), to the point that, consequently, it likewise prevents the lesser tax burden by the cost of realities that the tax legislator considered as potentially litigious.

Thus,

1. In this part, given the foregoing, considering the impediment of the requested deduction, the request now formulated by the Taxpayer, now Appellant, should be dismissed, with all the legal consequences that the case entails.

§ V. OF THE CONCLUSION

In accordance with all the foregoing, we propose that the request made herein be dismissed in accordance with the content of the "summary table" identified above in the introduction of our information, with all legal consequences.

1. The gracious appeal was dismissed by order of 18-05-2016, issued by the Head of Division of the Large Taxpayers Unit, contained in document no. 1 attached with the request for arbitral determination, the contents of which are hereby reproduced, which expresses agreement with Information no. …-…/2016, the contents of which are hereby reproduced, to which it refers for the grounds of the draft decision.

2. On 01-09-2016, the Claimant submitted the request for arbitral determination that gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision that have not been proven.

2.3. Grounds for Establishing the Statement of Facts

The proven facts are based on documents submitted by the Claimant and which are also contained in the administrative file.

The statement of facts is not disputed.

3. Legal Issues

3.1. Issue of the Increase in Autonomous Taxation Provided for in Article 88, No. 14, of the CIRC

3.1.1. Terms in Which the Issue Arises

Article 88 of the CIRC provides for various autonomous taxation in IRC with the respective rates.

In its no. 14 the following is established:

14 - The rates of autonomous taxation provided for in the present article are increased by 10 percentage points for taxpayers presenting fiscal loss in the taxation period to which any of the tax facts referred to in the previous numbers relate.

The issue that is the subject of the present proceedings is whether, when the special regime for taxation of groups of companies is applicable, the fiscal losses relevant to determining this increase in autonomous taxation rates are those of the group or those of each of the individual entities comprising it.

The Claimant believes that the relevant fiscal losses are those of each company in the group, while the Tax and Customs Authority believes that it is the fiscal loss of the group that determines the increase in rates.

The issue is today legislatively resolved, in the sense advocated by the Tax and Customs Authority, through the addition, made by Law no. 7-A/2016, of 30 March, of no. 20 to article 88 of the CIRC, which establishes the following:

20 - For purposes of the provision in no. 14, when the special regime for taxation of groups of companies established in article 69 is applicable, the fiscal loss determined pursuant to article 70 is considered.

Article 135 of this Law no. 7-A/2016, of 30 March, attributed an interpretative character to this new wording of no. 20 of article 88 of the CIRC.

However, the Claimant contends that this new wording does not have a truly interpretative nature, but rather a retroactive one, for the following, in summary:

The solution of the new law (article 88, no. 21 of the Corporate Income Tax Code) does not result from the wording (letter and spirit) of no. 14 of article 88 of the Corporate Income Tax Code, nor does it take into account the unity of the legal-tax system of IRC (namely, the legal-tax nature of autonomous taxation).

Furthermore,

A judge interpreting no. 14 of article 88 of the Corporate Income Tax Code, only in clear violation of general rules of interpretation, could arrive at an understanding similar to that provided for in the (new) no. 21 of article 88 of the Corporate Income Tax Code.

Regardless of the solution that is deemed most adequate in the face of the regime in force before Law no. 7-A/2016, of 30 March, it is a fact that its article 135 attributed an interpretative character to the new wording, for which reason, in a State based on the rule of law (article 2 of the Constitution), departure from its provision may only result from incompatibility with norms of higher hierarchy, namely constitutional ones.

Thus, the primary issue to be considered is whether the authentic interpretation carried out by Law no. 7-A/2016, of 30 March, is constitutionally admissible, a question that is to be considered ex officio by the Courts, in view of the provision of article 204 of the Constitution, which establishes that "in matters submitted for judgment, courts cannot apply norms that infringe the provisions of the Constitution or the principles enshrined in it".

If a conclusion of inadmissibility is reached, consideration should be given to the issue of which of the interpretations should be chosen.

3.1.2. Interpretative or Innovative Nature of No. 20 of Article 88 of the CIRC

Article 135 of Law no. 7-A/2016, of 30 March, in attributing an "interpretative" character to that new no. 20 of article 88, combined with article 13 of the Civil Code (which is the only rule that defines the concept of an interpretative law), has implicit in it a legislative intention to apply the new regime to earlier situations in which there are no "effects already produced by compliance with the obligation, by a final judgment, by settlement, even if not approved, or by acts of an analogous nature".

BAPTISTA MACHADO teaches regarding interpretative laws:

Now the reason why the interpretative law applies to facts and situations prior to it resides fundamentally in that it, coming to establish and fix one of the possible interpretations of the old law with which the interested parties could and should have counted, is not susceptible to violating safe and legitimately founded expectations. We can consequently say that those laws are of an interpretative nature whose points or questions in which the applicable legal rules are uncertain or their meaning is disputed, come to establish a solution that courts could have adopted. It is not necessary that the law come to establish one of the earlier jurisprudential currents or a strong earlier jurisprudential current. All the more so that the interpretative law often emerges before such jurisprudential currents have even formed. But, if this is the case, and if in the meantime a uniform jurisprudential current has formed that made practically certain the meaning of the old norm, then the new law that comes to establish an interpretation different from that same norm can no longer be considered truly interpretative (though it may be by legislative determination), but innovative.

For a new law to be truly interpretative two requirements are therefore necessary: that the solution of the prior law be disputed or at least uncertain; and that the solution defined by the new law be situated within the framework of the dispute and be such that the judge or the interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of law. If the judge or 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.

Thus, the first issue to be considered, which may be decisive, is whether the rule of no. 20 of article 88 of the CIRC truly has an interpretative nature.

The expression "taxpayers presenting fiscal loss" contained in no. 14 of article 88 of the CIRC may, by its own literal wording, be interpreted as referring to the losses of the group or those of each of the companies comprising it.

In fact, even when taxation is based on the group's taxable profit, the fiscal losses of each of the companies comprising it continue to be determined, as results from article 70, no. 1, of the CIRC.

On the other hand, the fact that article 88, no. 14, of the CIRC refers to "taxpayers" and the CIRC does not indicate groups of companies among the taxpayers indicated in its article 2 does not exclude the possibility that the interpretation of that expression encompasses them, for article 18, no. 3, of the General Tax Law attributes such designation to "a natural or legal person, the assets or an organization in fact or in law that, pursuant to law, is bound to comply with the tax obligation, whether as a direct contributor, substitute or liable". Now, in the case of taxation of groups of companies, "the payment of IRC is the responsibility of the parent company", in the first instance, as results from article 115 of the CIRC, for which reason this is, also in this capacity, a taxpayer of IRC.

Furthermore, the Report of the State Budget for 2011, which introduced the aforementioned no. 14 in article 88 of the CIRC, is not clarifying regarding the scope of the reference to "taxpayer", for it only states that "a rule that in more narrow terms already appeared in article 88 of the Corporate Income Tax Code is expanded and it is determined, with general character, that the rates of autonomous taxation suffer an increase of 10 percentage points whenever taxpayers present fiscal losses, with which it is intended to give a clear signal of moralization in the management of companies with respect to expenses such as allowances or representation expenses".

Furthermore, if it is true that the most coherent and logical position is that, given that unitary taxation of income is the justification for the existence of a special regime for taxation of groups of companies and there is no reference to autonomous taxation in the Subsection of the CIRC establishing this regime, these would not be covered by it, it is equally true that autonomous taxation reveals an evident, persistent, and growing legislative indifference to the coherence of the system of taxation of companies, which should be fundamentally based on actual income, by virtue of the provision of article 104, no. 2, of the Constitution.

And, in fact, the lack of clarity of the solution must be admitted, as is demonstrated by divergent arbitral case law on this matter, namely the decisions of 01-09-2014, issued in process no. 239/2014-T and of 24-04-2015, issued in process no. 659/2014-T.

In the latter, the interpretation is explicitly adopted that, in cases of application of RETGS, the fiscal losses relevant for purposes of the increase referred to in no. 14 of article 88 of the CIRC are those of the group that the parent company is the "sole taxpayer for purposes of IRC", as is evident in the excerpt that follows, emphasizing the relevant points:

"That is: the issue can be reduced to asking, in simple terms, whether or not it is just to penalize someone, in a situation of fiscal loss, opting, using the previous example, for the acquisition of light passenger vehicles for use by its administrators, of cost above a reasonable limit.

And with respect to this matter there are no specificities or exceptions to note in the case, as in the case of the pleadings, of companies taxed, by their own choice, within the scope of RETGS (articles 69 et seq., of the CIRC).

In fact, although in this case an assessment of fiscal losses by declaration of the Fiscal Group occurs, the truth is that this occurs by the taxpayer's own choice, which accepted that the respective calculation be processed not individually but through the algebraic sum of taxable profits and fiscal losses determined in individual periodic declarations so that, in the end, there is only one sole taxpayer for purposes of IRC.

If from this taxation regime there results, in one case or another, in a final taxation more onerous than that which could result from individual final taxation, such consequence can only be imputed to the taxpayer."

On the other hand, the fact that there exists a Binding Information issued by the Tax and Customs Authority dated 30-03-2012, in the sense that the latter defends in the present proceedings, is decisive to conclude that this was an interpretation with which taxpayers could count, for binding information is published and this has been published since 21-06-2012.

Furthermore, there were already some doctrinal positions to the effect that came to be adopted in no. 20 of article 88, namely that "being a business group integrated in the special taxation regime, it has been understood that, for purposes of calculating the increase in autonomous taxation, account should be taken of the circumstance that the group presents profit or loss, and not just the result of each company. That is, if there are group companies with fiscal loss, but, in the overall calculation, the group determines consolidated taxable profit, the 10% increase should not be considered."

Given this, it is not understood the surprise or strangeness of the Claimant for in the decision issued in process 685/2015-T, it is accepted that, before Law no. 7-A/2016, it should be considered that the group of companies should be considered a taxpayer for purposes of IRC, the sole entity that has the legal obligation to pay IRC, including that resulting from autonomous taxation: it was already said by arbitral case law, it was already said by the Tax and Customs Authority and no dissenting voice was known at the jurisprudential or doctrinal level. In fact, the arbitral decision issued in process no. 239/2014-T, which was the only known jurisprudential decision to the effect that fiscal losses of the group were not relevant for purposes of article 88, no. 14, of the CIRC, did not even reveal any doubt regarding the quality of taxpayer that the group has in IRC, rather implicitly accepted that it did, for the only reason why it was understood therein that fiscal losses of the group were not relevant was the understanding that "the applicability of the special regime for taxation of groups of companies is limited to the determination of taxable profit and fiscal losses" and that autonomous taxation in IRC do not have as a base for incidence taxable profit.

In light of the aforementioned positions, the interpretative nature attributed to no. 20 of article 88 of the CIRC made in article 135 of Law no. 7-A/2016, of 30 March, is not to be ruled out, in light of the teachings of BAPTISTA MACHADO, for the solution that results therefrom regarding the application of the increase in autonomous taxation provided for in no. 14 of article 88 of the CIRC in cases of taxation within the scope of RETGS passes the test set forth by this Author:

– the solution that resulted from the literal wording of article 88, no. 14, of the CIRC was disputed and the solution defined by the new law is situated within the framework of the dispute;

– the judge or interpreter could reach this solution without exceeding the limits normally imposed on the interpretation and application of law, as the jurisprudence and doctrine referred to reached.

This attribution of an interpretative character, before this context of jurisprudential and doctrinal positions, does not appear to be materially unconstitutional, namely in light of the prohibition of retroactivity of taxes established in no. 3 of article 103 of the Constitution.

Article 103, no. 3, of the Constitution establishes that no one can be obliged to pay taxes that have a retroactive nature.

The interpretative law, integrating itself in the interpreted law, pursuant to article 13 of the Civil Code, necessarily has effects prior to its entry into force, at least that of eliminating one or more of the possible interpretations of the interpreted law.

The constitutional prohibition of retroactivity of norms creating tax obligations that is drawn from no. 3 of article 103 of the Constitution aims to prevent legislative violations of the principle of legal certainty, in its aspects of certainty in the orientation of the conduct of taxpayers and security of the effects created by situations already occurred.

In the wake of the lesson of BAPTISTA MACHADO, it should be understood that in situations in which the interpretation given in the new law comes to establish one of the possible interpretations of the old law with which the interested parties could and should have counted is not susceptible to violating safe and legitimately founded expectations, for which reason the reasons justifying the prohibition of retroactivity do not occur.

As interpretations possible of the old law with which the interested parties could and should have counted cannot be considered those that exceed, restrictively or extensively, its literal wording, at least as long as there are no doctrinal positions or jurisprudential practice adopting them, but include, surely, those that are viable in light of the anterior legal text in a mere declarative interpretation.

As already referred, the literal wording of no. 14 of article 88 of the CIRC permits, by mere declarative interpretation, that it have in mind the broad concept of taxpayer that results from articles 18, no. 3, of the General Tax Law and 115 of the CIRC, corroborated by article 31, no. 1 thereof, to assign the qualification of taxpayer to the parent companies of the groups covered by RETGS, for which reason the consideration of the losses of the group as a determining fact of the increase in autonomous taxation must be considered as an interpretation with which taxpayers could and should have counted previously.

Confirmation that the Claimant could count on the interpretation that came to be adopted by Law no. 7-A/2016, is found in the fact that it was the Claimant itself who made the self-assessment, calculating the value of autonomous taxation with the increase that underlies the fiscal losses of the group.

Even assessing the situation in light of the principle of legal certainty, intrinsic to the principle of democratic rule of law, which has greater breadth than the constitutional prohibition of creating retroactive taxes, it is clear that there is no incompatibility with an authentic interpretation that has the effect of maintaining and not altering an existing situation. In fact, the authentic interpretation in question, applied to situations such as those in the pleadings in which the taxpayer created the legal situation in which it finds itself by making self-assessments in harmony with this interpretation and making the respective payments, does not affect legal certainty, rather reinforces it, for it has the practical effect of consolidating legally the existing situation.

By the foregoing, the authentic interpretation carried out by no. 20 of article 88 of the CIRC, in the wording of Law no. 7-A/2016, of 30 March, does not offend the constitutional prohibition of retroactive tax norms nor the principle of legal certainty.

3.2. Issue of Deductibility of Investment Expenses Provided for in SIFIDE from Autonomous Taxation Amounts

3.2.1. Applicability of Articles 89 and 90 of the CIRC to the Calculation of Autonomous Taxation

Articles 89 and 90 of the CIRC establish the following, in the wording given by Law no. 3-B/2010, of 28 April:

Article 89

Competence for Assessment

Assessment of IRC is made:

a) By the taxpayer itself, in the returns referred to in articles 120 and 122;

b) By the Directorate-General of Taxes, in the remaining cases.

Article 90

Procedure and Form of Assessment

1 - The assessment of IRC is made in the following terms:

a) When the assessment is to be made by the taxpayer in the returns referred to in articles 120 and 122, it is based on the taxable matter contained therein;

b) In the absence of submission of the return referred to in article 120, the assessment is made by 30 November of the following year to which it relates or, in the case provided for in no. 2 of that article, by the end of the 6th month following the end of the deadline for submission of the return mentioned there and is based on the annual amount of minimum monthly remuneration or, when greater, the totality of the taxable matter of the fiscal year that is more closely determined;

c) In the absence of assessment under the preceding subsections, the same is based on the elements available to the tax administration.

2 – To the amount determined under the preceding number the following deductions are made, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

c) That relating to special payment on account referred to in article 106;

d) That relating to withholdings at source not capable of offset or reimbursement under the applicable legislation.

3 – (Repealed by Law no. 3-B/2010)

4 – To the amount determined under no. 1, with respect to the entities mentioned in no. 4 of article 120, only the deduction relating to withholdings at source is to be made when these have the nature of tax on account of IRC.

5 – The deductions referred to in no. 2 relating to entities to which the tax transparency regime established in article 6 applies are imputed to the respective shareholders or members pursuant to the terms established in no. 3 of that article and deducted from the amount determined based on the taxable matter that has taken into account the imputation provided for in the same article.

6 – When the special regime for taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount determined with respect to the group, pursuant to no. 1.

7 – From the deductions made pursuant to subsections a), b), and c) of no. 2, no negative value can result.

8 – To the amount determined under subsections b) and c) of no. 1 only deductions of which the tax administration has knowledge and which can be made pursuant to nos. 2 to 4 are made.

9 – In cases in which the provision of subsection b) of no. 2 of article 79 is applicable, assessments are made annually based on taxable matter determined on a provisional basis, and, with respect to the assessment corresponding to taxable matter relating to the entire assessment period, the difference ascertained is to be collected or cancelled.

10 – The assessment provided for in no. 1 can be corrected, if appropriate, within the deadline referred to in article 101, collecting or cancelling then the differences ascertained.

The aforementioned articles 89 and 90 of the CIRC, as well as other provisions of this Code, such as those relating to the returns provided for in articles 120 and 122, are applicable to autonomous taxation.

In fact, it is today settled, following innumerable arbitral case law and the positions assumed by the Tax and Customs Authority, that the tax collected based on autonomous taxation provided for in the CIRC has the nature of IRC. Moreover, apart from case law, article 23-A no. 1, subsection a), of the CIRC, in the wording of Law no. 2/2014, of 16 January, leaves today no room for any reasonable doubt, corroborating what previously resulted from the literal wording of article 12 of the same Code.

Now, article 90 of the CIRC refers to the forms of assessment of IRC, by the taxpayer or by the Tax Authority, applying to the determination of tax due in all situations provided for in the Code, including additional assessment (no. 10).

Therefore, that article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Authority, following the submission or non-submission of returns, 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 limited to the determination of taxable matter and the applicable rates, which are those provided for in Chapters III and IV of the CIRC for IRC based on taxable profit and in article 88 of the CIRC for IRC based on the taxable matter of autonomous taxation and their respective rates.

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

However, the circumstance that a self-assessment of IRC, made pursuant to no. 1 of article 90, may contain various partial calculations based on various rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that rule when referring to "assessment", in the singular, in all cases in which it is "made by the taxpayer in the returns referred to in articles 120 and 122", being "based on the taxable matter contained therein" (whether determined based on the rules of articles 17 et seq. or whether determined based on the various situations provided for in article 88).

Indeed, it is not only the assessments provided for in article 88 that can encompass various calculations of the application of rates to certain taxable matters, for the same can occur in the situations provided for in nos. 4 to 6 of article 87.

In any case, whatever calculations are to be made, it is the single self-assessment that the taxpayer or the Tax and Customs Authority must make pursuant to articles 89, subsection a), 90, no. 1, subsections a), b), and c), and 120 or 122, and based on it that the global IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it.

Indeed, if this article 90 were not applicable to the assessment of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no provision providing for its assessment, which would amount to illegality, by violation of article 103, no. 3, of the Constitution, which requires that the assessment of taxes be made "pursuant to law".

Reference should further be made to the new provision of no. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of 30 March, which, regardless of whether or not it is truly interpretative, in no way alters this conclusion, for there it is established, with respect to the form of assessment of autonomous taxation, that it "is made pursuant to the terms provided for in article 89 and is based on the values and rates resulting from the provision of the preceding numbers".

In effect, if it is true that this new provision comes to make explicit 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 belongs to the taxpayer or the Tax Authority, pursuant to article 89, it is equally clear that the need to use the procedure provided for in no. 1 of article 90 is not ruled out, namely in the cases provided for in its subsection c) in which assessment belongs to the Tax and Customs Authority, with "based on the elements available to the tax administration", which will encompass the possibility of assessing based on autonomous taxation, if the Tax and Customs Authority has elements proving its prerequisites.

For this reason, whether before or after Law no. 7-A/2016, of 30 March, article 90, no. 1, of the CIRC is applicable to the assessment of autonomous taxation.

3.2.2. Deductibility of Investment Expenses Provided for in SIFIDE from the IRC Collection Derived from Autonomous Taxation

In 2014, the System of Tax Incentives for Business Research and Development II (SIFIDE II) was in force, which was approved by article 133 of Law no. 55-A/2010, of 31 December, and amended by article 163 of Law no. 64-B/2011, of 30 December.

This instrument establishes the following, in its articles 4 and 5:

Article 4

Scope of Deduction

1 - Taxpayers subject to IRC resident in Portuguese territory who exercise, as their principal activity, an activity of an agricultural, industrial, commercial, or services nature and non-residents with a permanent establishment in that territory may deduce from the amount determined pursuant to article 90 of the Corporate Income Tax Code, and up to its concurrent amount, the value corresponding to research and development expenses, to the extent that they have not likewise been the subject of financial contribution from the State on a non-reimbursable basis, incurred in the taxation periods of 1 January 2011 to 31 December 2015, at a twofold percentage:

a) Base rate - 32.5% of the expenses incurred in that period;

b) Incremental rate - 50% of the increase in expenses incurred in that period compared to the simple arithmetic average of the two previous fiscal years, up to the limit of (euro) 1,500,000.

2 - For taxpayers subject to IRC who are SMEs in accordance with the definition contained in article 2 of Decree-Law no. 372/2007, of 6 November, that have not yet completed two fiscal years and that have not benefited from the incremental rate fixed in subsection b) of the preceding number, a surcharge of 10% applies to the base rate fixed in subsection a) of the preceding number.

3 - The deduction is made, pursuant to article 90 of the Corporate Income Tax Code, in the assessment relating to the taxation period mentioned in the preceding number.

4 - Expenses that, due to insufficient collection, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the sixth immediately following fiscal year.

5 - For purposes of the preceding numbers, when in the year of beginning of benefit use there is a change of the taxation period, the annual period that begins in that year should be considered.

6 - The incremental rate provided for in subsection b) of no. 1 is increased by 20 percentage points for expenses relating to the hiring of doctorate holders by companies for research and development activities, the limit provided for in the same subsection becoming (euro) 1,800,000.

7 - To taxpayers who reorganize, as a result of concentration acts as defined in article 73 of the Corporate Income Tax Code, the provision of no. 3 of article 15 of the Statute of Tax Benefits applies.

Article 5

Conditions

Only taxpayers subject to IRC that cumulatively meet the following conditions may benefit from the deduction referred to in article 4:

a) Their taxable profit is not determined by indirect methods;

b) They are not indebted to the State and social security for any taxes or contributions, or have their payment duly secured.

In the case in hand, the Tax and Customs Authority does not dispute that the Claimant meets the subjective and objective requirements to benefit from SIFIDE, having dismissed the gracious appeal by understanding that the expenses in question cannot be deducted from the amounts it paid as autonomous taxation, as the deduction can only be made from the IRC collection resulting from the application of the IRC rate to taxable profit.

As referred to, article 90 of the CIRC also applies to the assessment of autonomous taxation.

And, as also stated, there is no legal support to affirm that, in the eventuality of having to effect various calculations in a return to determine IRC, more than one self-assessment is made.

The instrument that approved SIFIDE does not state that credits resulting from it are deductible from any and all IRC collection, rather defines the scope of the deduction alluding, in its no. 1 of article 4, to "the amount determined pursuant to article 90 of the Corporate Income Tax Code, and up to its concurrent amount".

No. 3 of the same article 4 confirms that it is to the amount that is determined pursuant to article 90 of the CIRC that is relevant to achieve the deduction by stating that "the deduction is made, pursuant to article 90 of the Corporate Income Tax 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 "from the amount determined pursuant to article 90 of the Corporate Income Tax Code, and up to its concurrent amount", implies the deduction from the amount of autonomous taxation that is determined pursuant to that article 90.

The fact that article 5 of SIFIDE II rules out the benefit when taxable profit is determined by indirect methods and autonomous taxation includes situations where one aims indirectly at the taxation of profits (namely, by not giving relevance or discouraging facts capable of reducing them) has no relevance for this purpose, for the concept of "indirect methods" has a precise scope in tax law, which is concrete in article 90 of the General Tax Law (apart from special norms), relating to means of determining taxable profit, the use of which is not provided for calculating the taxable matter of autonomous taxation provided for in article 88 of the CIRC.

On the other hand, if it is the need to make use of indirect methods that rules out the possibility of benefiting from the benefit, one cannot justify this ruling out with respect to the collection of autonomous taxation, which is determined by direct methods.

Furthermore, it cannot be seen, in the possible anti-abuse nature of some autonomous taxation, an explanation for its exclusion from the respective collection of the scope of deductibility of SIFIDE II benefit, for there is no legal support for ruling out deductibility from collection provided by corrections based on rules of an undisputedly anti-abuse nature, such as, for example, those relating to transfer pricing or under-capitalization.

On the other hand, the fact that the deductibility of the SIFIDE II tax benefit is limited to the collection of article 90 of the CIRC, up to its concurrent amount, does not permit the conclusion that the tax credit is only deductible if there is taxable profit, for what that fact requires is that there be IRC collection, which can exist even without taxable profit, namely by virtue of autonomous taxation.

Thus, as the literal wording of article 4 of SIFIDE II points to the deduction applying also to the IRC collection resulting from autonomous taxation determined pursuant to article 90 of the CIRC, only by means of a restrictive interpretation can the application of the tax benefit to the IRC collection provided by autonomous taxation be ruled out.

The viability of a restrictive interpretation encounters, from the outset, an obstacle of a general order, which is that rules creating tax benefits have the nature of exceptional rules, as results from the express wording of article 2, no. 1, of the Statute of Tax Benefits, for which reason, in the absence of a special rule, they should be interpreted in their precise terms, as is established case law.

In the case of tax benefits, the possibility of extensive interpretation is explicitly provided for (article 10 of the Statute of Tax Benefits), but not of restrictive interpretation, for which reason, as a rule, the tax benefit should not be interpreted with lesser scope than that which, in a declarative interpretation, results from the wording of the rule providing for it.

In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text that betrays his thought, to the extent that it says more than what was intended. Here too the ratio legis will have a decisive word. The interpreter should not be led astray by the apparent scope of the text, but should restrict this in order to make it compatible with the legislative thought, that is, with that ratio. The argument on which this type of interpretation is based is usually thus expressed: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, its scope ends)".

As a ground for a restrictive interpretation may be ventured the fact that some autonomous taxation aims to discourage certain conduct of taxpayers likely to affect taxable profit, and, consequently, reduce tax revenue, and its deterrent force will be attenuated with the possibility of the respective collection being the subject of deductions.

But, the discouragement of such conduct is justified only by concerns of protection of tax revenue and the tax benefits granted are, by definition, "exceptional measures instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation they prevent" (article 2, no. 1, of the Statute of Tax Benefits).

And, in the case of the SIFIDE II tax benefits, the reasons of an extra-fiscal nature justifying their prevalence over tax revenues are, in the legislative perspective, of enormous importance, as is inferred from the grounds given in the Report of the State Budget for 2011:

II.2.2.4.4. System of Tax Incentives for Business Research and Development II (SIFIDE)

Taking into account that one of the strengths of competitiveness in Portugal lies in the commitment to technological capacity, scientific employment, and conditions for affirmation in the European space, the Proposal for the State Budget for 2011 proposes to renew SIFIDE (System of Tax Incentives for Business Research and Development), now in the SIFIDE II version, to be in force in the periods 2011 to 2015, enabling the deduction from IRC collection for companies that invest in R&D (research and development capacity).

Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system in other countries, it was decided to review and reintroduce for five more taxation periods this support system. Business R&D is a decisive factor not only for its own affirmation as a competitive structure, but also for productivity and long-term economic growth, a fact that is also expressly recognized in the Eighteenth Government Program, as well as in various recent international reports.

It is in this context that, in the international panorama, the OECD has considered since 2001 Portugal as one of the three countries with the most significant advancement in business R&D. Being the current national system, in comparison to other systems using deduction from collection and the distinction between base rate and incremental rate, one of the most attractive and competitive.

Given that business research and development is "a decisive factor not only for its own affirmation as a competitive structure, but also for productivity and long-term economic growth", it is understood that preference was given to encouraging investment in technological capacity, scientific employment, and conditions for affirmation in the European space, which, in the long term, lead to the achievement of greater tax revenues.

The importance that, in the legislative perspective, was recognized in this tax benefit provided for in SIFIDE II is decisively confirmed by the fact that it is indicated as being especially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in article 92 of the CIRC.

For this reason, it is certain that one is facing tax benefits whose justification is legislatively considered more relevant than the achievement of tax revenues, inferred from that article 92 that the legislative intention to encourage investments in research and development provided for in SIFIDE II is so firm that it goes to the point of not even establishing any limit to the deductibility from the IRC collection, despite this tax regime having been created and applied in a period of notorious difficulties in public finances.

Thus, no legal foundation is seen, namely in light of the legislative intention that is possible to detect, to, on the grounds of a restrictive interpretation, rule out the deductibility of the SIFIDE II tax benefit from the collection of autonomous taxation that results directly from the wording of article 4, no. 1, of the respective instrument, combined with article 90 of the CIRC.

On the other hand, a possible limitation of the application of the tax benefit to companies presenting taxable profit in 2014 would amount to a very strong restriction of its field of application, already that, as is public fact, the great majority of companies, in that year and in previous ones, presented fiscal losses, although they paid IRC by other means.

In fact, according to statistics published by the Tax and Customs Authority, in the year 2011 (the last year whose data would be available when the Proposal for the State Budget for 2012 was presented, so, it is to be assumed that it was considered in the weighting of the scope of the tax benefit), more than half of the IRC returns presented a negative net value and in the taxation period 2011 only 26% of taxpayers presented Assessed IRC (Table 7), and approximately 71% of taxpayers made IRC payments (Table 8), by means of Special Payment on Account, or other positive components of the tax (Autonomous Taxation, Municipal Tax, State Tax, IRC from previous taxation periods, etc.).

For this reason, it is manifest that the applicability of the tax benefit to companies that, although presenting fiscal losses, paid IRC, including by way of autonomous taxation, greatly expanded the number of companies potentially benefiting and, consequently, is more in harmony with the legislative intention underlying SIFIDE II than that defended by the Tax and Customs Authority.

On the other hand, as referred to, one cannot overlook that autonomous taxation aims to protect or increase tax revenues and that the tax benefits granted are, by definition, "exceptional measures instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation they prevent" (article 2, no. 1, of the Statute of Tax Benefits).

That is, in the case in hand, in establishing a tax benefit by deduction from IRC collection, the legislator opted to forgo the tax revenue that this tax could provide, to the extent of the grant of the tax benefit. For this weighing relating to the interests in question (tax revenue versus strong stimulus to investment) it is irrelevant that that revenue come from calculations made based on article 87 or article 88 of the CIRC. In fact, whatever the form of calculation of that tax revenue, one is faced with money whose collection the legislator considered to be less important than the pursuit of the economic purpose referred to. Of the two alternatives that presented themselves to the legislator regarding the encouragement of investments provided for in SIFIDE, which were, on one hand, to keep intact the revenues from IRC (including those from autonomous taxation) and not see investment encouraged and, on the other hand, to achieve this encouragement with loss of IRC revenues, the weighing that necessarily underlies SIFIDE II is that of opting for the creation of the encouragement with prejudice to the revenues. And, naturally, being the creation of the encouragement to investment better, in the legislative perspective, than the collection of revenues, it is not seen how it can be relevant that the IRC revenues lost to achieve the encouragement come from the general taxation of IRC provided for in no. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creation of the encouragement and collection of IRC revenues and the relative weighing that can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC foregone to create the encouragement.

And, in the case of the SIFIDE II tax benefit, the reasons of an extra-fiscal nature justifying the encouragement with loss of revenue are very strong, for it is considered that the investments encouraged are a decisive factor in the future competitiveness of the country, which is fundamental for the very increase in tax revenues.

For this reason, it is certain that one is facing a tax benefit whose justification is legislatively considered more relevant than the achievement of tax revenues from IRC, whatever the basis of its calculation, for what is always in question whether to forgo or not a certain amount of money to create an encouragement to investment.

In this context, the nature of autonomous taxation and the solutions legislatively adopted, in general, with respect to it, have no relevance to the consideration of this issue, for this must be considered in light of the specific interests that clash in its weighing.

In fact, what is in question is, exclusively, to determine the scope of SIFIDE II, which establishes a regime of an exceptional nature, which aimed to pursue certain public interests, and not to contribute to the decision of any conceptual question regarding the nature of autonomous taxation, a matter regarding which neither in the text of the law, nor in the Report of the Budget for 2011, is the slightest legislative concern seen.

By the same reason that what is in question is to interpret the scope of the instrument of a special nature that is SIFIDE II, cannot be attributed relevance, for this purpose, to the provision of no. 21 of article 88 of the CIRC, added by Law no. 7-A/2016, of 30 March, in the part in which it states that no "deductions are made from the global amount determined", despite the claimed interpretative nature attributed to it.

In effect, 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 in article 88 of the CIRC of a general norm prohibiting deductions from the global amount determined as autonomous taxation, it was intended to restrictively interpret the expression "deduce from the amount determined pursuant to article 90 of the Corporate Income Tax Code" that appears in a special norm of a separate instrument, as SIFIDE II is.

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

Furthermore, the aforementioned SIFIDE II rules aim to encourage taxpayers subject to IRC to make investments in the period between 01-01-2011 and 31-12-2015, for which reason, being the tax benefit a counterpart of the adoption of the legislatively desired and encouraged conduct, it would be incompatible with the constitutional principle of trust, intrinsic to the principle of democratic rule of law (article 2 of the Constitution), not to recognize in that conduct the favorable tax effects provided for in the law in force at the time it occurred. For this reason, if hypothetically Law no. 7-A/2016 intended to eliminate, totally or partially, the favorable tax effects that SIFIDE II promised to taxpayers who, with justified trust, adopted the conduct provided for therein, it would be materially unconstitutional, by violation of that principle.

By the foregoing, converging the elements literal and

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