Autonomous Taxation on Vehicle Expenses: Motorcycles Under IRC – CAAD Ruling 553/2016-T

ARBITRAL DECISION

The arbitrators Dr. Jorge Manuel Lopes de Sousa (chair arbitrator, appointed by the other arbitrators), Dr. Ricardo da Palma Borges and Dr. Maria Manuela do Nascimento Roseiro, respectively appointed by the Claimant and the Respondent, to form the Arbitral Tribunal, constituted on 02-12-2016, agree as follows:

1. REPORT

A…, S.A., with registered office at …, no. …, …-… Lisbon, legal entity no. …, hereinafter referred to as A… or Claimant, pursuant to Decree-Law no. 10/2011, of 20 January, hereinafter "RJAT" – Legal Regime of Tax Arbitration, filed a petition for the constitution of a collective arbitral tribunal, with a view to declaring the illegality of the dismissals of applications for official review and the partial illegality of the autonomous taxation liabilities on autonomous taxation regarding vehicles for the fiscal years 2011 and 2012 of the fiscal group A….

The Claimant further requests the reimbursement of the amounts of € 249,321.10 (2011) and € 298,028.48 (2012), totalling € 547,349.58, plus default interest.

The Respondent is the TAX AUTHORITY AND CUSTOMS SERVICE.

The Claimant appointed Dr. Ricardo da Palma Borges as arbitrator, pursuant to the provisions of article 6, paragraph 2, letter b), of the RJAT.

The petition for constitution of the Arbitral Tribunal was accepted by the President of the CAAD and automatically notified to the Tax Authority and Customs Service on 26-09-2016.

Pursuant to the provisions of letter b) of paragraph 2 of article 6 and paragraph 3 of the RJAT, and within the deadline provided in paragraph 1 of article 13 of the RJAT, the senior official of the Tax Administration service appointed Dr. Maria Manuela do Nascimento Roseiro as arbitrator.

The arbitrators appointed by the parties agreed to appoint Counsellor Jorge Lopes de Sousa as chair arbitrator, who accepted the appointment.

Pursuant to the terms and for the purposes of the provisions in paragraph 7 of article 11 of the RJAT, the President of the CAAD informed the parties of this appointment on 16-11-2016.

Thus, in accordance with the provisions of paragraph 7 of article 11 of the RJAT, with the deadline provided in paragraph 1 of article 13 of the RJAT having elapsed without the parties making any submissions, the Collective Arbitral Tribunal was constituted on 02-12-2016.

The Tax Authority and Customs Service submitted a reply in which it raised an exception of lack of jurisdiction of the Arbitral Tribunal and defended the inadmissibility of the petition for arbitral determination.

On 09-02-2017, a hearing was held at which testimonial evidence was produced and it was agreed that the proceedings would continue with written submissions.

The Arbitral Tribunal was duly constituted.

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

An exception of lack of jurisdiction is raised which must be considered as a priority matter (article 13 of the Code of Administrative Court Procedure).

2. QUESTION OF THE LACK OF JURISDICTION OF THE ARBITRAL TRIBUNALS OPERATING AT THE CAAD TO ASSESS THE LEGALITY OF AUTONOMOUS TAXATION ACTS NOT PRECEDED BY ADMINISTRATIVE COMPLAINT BUT BY A REQUEST FOR OFFICIAL REVIEW

The Tax Authority and Customs Service argues, in summary, that article 2, letter a), of Ordinance 112-A/2011, of 22 March, through which the Tax Authority and Customs Service became bound by arbitral jurisdiction, excludes claims relating to the declaration of illegality of autonomous taxation acts that have not been preceded by recourse to the administrative process in accordance with article 131 of the Code of Tax Procedure and Process.

The question has been the subject of contradictory arbitral decisions and therefore its reconsideration is necessary, including from the perspective of constitutionality with which the Claimant raises it in its submissions.

Tax arbitration was created by the Government through Decree-Law no. 10/2011, of 20 January (RJAT), issued pursuant to the legislative authorization granted to it by article 124 of Law no. 3-B/2010, of 28 April.

In paragraph 4 of that article 124, it was established that the scope of the authorization provided in this article includes, in particular, the following matters:

a) The delimitation of the subject matter of the tax arbitral process, which may include acts of taxation of taxes, including autonomous taxation, withholding at source and payments on account, fixation of the taxable matter, when they do not give rise to taxation, total or partial dismissals of administrative complaints or applications for review of tax acts, administrative acts that involve the assessment of the legality of taxation acts, acts fixing asset values and rights or legitimate interests in tax matters;

The legislative authorization was indispensable for the Government to legislate validly on this matter, relating to taxpayer guarantees, included in the relative reserved jurisdiction of Parliament, pursuant to articles 103, paragraph 2, and 165, paragraph 1, letter i), of the Constitution, and in which, therefore, the Government has no own legislative jurisdiction, as follows from articles 198, paragraph 1, letters a) and b), of the Constitution.

Using this legislative authorization, the Government established in article 2, paragraph 1, letter a), of the RJAT that "the jurisdiction of arbitral tribunals comprises the assessment of the following claims: a) the declaration of illegality of acts of taxation of taxes, autonomous taxation, withholding at source and payments on account".

It is therefore unequivocal that the Government, in exercising the legislative powers granted to it by the legislative authorization, conferred upon arbitral tribunals jurisdiction for the declaration of illegality of autonomous taxation acts, without any restriction.

In article 4 of the RJAT, in the original wording, it was established that "the binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of the present law depends on an ordinance of the Government members responsible for the areas of finance and justice", a norm under which Ordinance no. 112-A/2011, of 22 March, was issued, which included the norm invoked by the Tax Authority and Customs Service, through which are excepted from the jurisdiction of arbitral tribunals the "claims relating to the declaration of illegality of autonomous taxation acts, withholding at source and payments on account that have not been preceded by recourse to the administrative process in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

However, on the one hand, it is manifest that if this norm of Ordinance no. 112-A/2011 is interpreted as redefining (restricting) the jurisdiction of arbitral tribunals in relation to what is legislated, it has no basis in the legislative authorization law, since the latter does not even make the jurisdiction of arbitral tribunals dependent on any binding.

From the binding, if it were to be constitutionally admissible, the beginning and cessation of the possibility of taxpayers suing the Tax Authority and Customs Service in arbitral tribunals could depend, but not the definition of the jurisdiction of these tribunals.

It is true that, after Ordinance no. 112-A/2011 was issued, Law no. 64-B/2011, of 30 December, established a new wording for article 4 of the RJAT, according to which "the binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of the present law depends on an ordinance of the Government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered".

However, since this Ordinance was issued under the original wording of article 4 of the RJAT, what results from article 2 of article 12 of the Civil Code is that the validity of juridical acts is assessed in light of the law in force at the moment they are performed.

On the other hand, by force of the provision in article 112, paragraph 5, of the Constitution, "no law may create other categories of legislative acts or confer on acts of a different nature the power to, with external effectiveness, interpret, integrate, modify, suspend or repeal any of its provisions".

Therefore, article 4, paragraph 1, of the RJAT, in the original wording (which is relevant here) if interpreted as permitting the Ministers of Justice and Finance, through binding (which does not even have support in the legislative authorization law), to redefine, through an act of a regulatory nature, the jurisdiction of tax arbitral tribunals, would be materially unconstitutional, by violation of this principle of the hierarchy of normative sources, enshrined in article 112, paragraph 5, of the Constitution.

In turn, Ordinance no. 112-A/2011, if interpreted as restricting the jurisdiction of arbitral tribunals in relation to those deriving from article 2 of the RJAT and the legislative authorization law on which it is based, in addition to being also materially unconstitutional by violation of the aforementioned article 112, paragraph 5, would be organically unconstitutional, by innovatively regulating a matter included in the relative reserved jurisdiction of Parliament, on which it is not permitted for the Government to issue norms in the exercise of its own jurisdiction.

It is in this light that the exception of lack of jurisdiction raised by the Tax Authority and Customs Service must be assessed, having as its object the concrete situation that arises in the proceedings, since it is outside the jurisdiction of arbitral tribunals to assess the abstract unconstitutionality.

In letter a) of article 2 of Ordinance no. 112-A/2011, are excluded from the scope of the binding of the Tax Administration to the jurisdiction of the arbitral tribunals operating at the CAAD the "claims relating to the declaration of illegality of autonomous taxation acts, withholding at source and payments on account that have not been preceded by recourse to the administrative process in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

The express reference to the preceding "recourse to the administrative process in accordance with articles 131 to 133 of the Code of Tax Procedure and Process" must be interpreted as referring to cases in which such recourse is mandatory, through administrative complaint, which is the administrative means indicated in those articles 131 to 133 of the CPPT, to whose terms it refers. In fact, immediately, it would not be understood that, being administrative challenge not necessary "when its basis is exclusively a matter of law and the autonomous taxation has been carried out in accordance with generic guidelines issued by the tax administration" (article 131, paragraph 3, of the CPPT, applicable to cases of withholding at source, by force of the provision in paragraph 6 of article 132 of the same Code), arbitral jurisdiction would be excluded for this administrative challenge, which is understood to be unnecessary, not having been carried out.

In this article 2 of Ordinance no. 112-A/2011, there is no express reference to autonomous taxation acts that have been preceded by a request for official review, as opposed to what happens with the legislative authorization on which the Government based itself to approve the RJAT, which refers to acts of total or partial dismissal of "requests for review of tax acts".

However, the formula "declaration of illegality of acts of taxation of taxes, autonomous taxation, withholding at source and payments on account", used in letter a) of paragraph 1 of article 2 of the RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which a direct challenge is made to an act of one of those types. In fact, the illegality of autonomous taxation acts can be declared judicially as a corollary of the illegality of a second-instance act, which confirms an autonomous taxation act, incorporating its illegality.

The inclusion in the jurisdiction of the arbitral tribunals operating at the CAAD of cases in which the declaration of illegality of the acts indicated there is made through the declaration of illegality of second-instance acts, which are the immediate object of the challenging claim, results with certainty from the reference made in that norm to autonomous taxation acts, withholding at source and payments on account, which are expressly referred to as included among the jurisdiction of arbitral tribunals. Indeed, with respect to these acts, administrative complaint, mandatory, is imposed as a rule, in articles 131 to 133 of the CPPT, so that in these cases, the immediate object of the challenging process is, as a rule, the second-instance act that assesses the legality of the taxation act, an act which, if it confirms it, must be annulled to obtain the declaration of illegality of the taxation act. The reference made in letter a) of paragraph 1 of article 10 of the RJAT to paragraph 2 of article 102 of the CPPT, which provides for the challenge of acts dismissing administrative complaints, dispels any doubts that cases in which the declaration of illegality of the acts referred to in letter a) of that article 2 of the RJAT has to be obtained following the declaration of illegality of second-instance acts are encompassed in the jurisdiction of the arbitral tribunals operating at the CAAD.

Indeed, it was precisely in this sense that the Government, in Ordinance no. 112-A/2011, of 22 March, interpreted this jurisdiction of the arbitral tribunals operating at the CAAD, by excluding from the scope of that jurisdiction the "claims relating to the declaration of illegality of autonomous taxation acts, withholding at source and payments on account that have not been preceded by recourse to the administrative process in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has the effect of restricting, in its binding, to cases in which such recourse to the administrative process was used, in harmony with the provisions of these norms of the CPPT.

Having obtained the conclusion that the formula used in letter a) of paragraph 1 of article 2 of the RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-instance act, it will also encompass cases in which the second-instance act is that of dismissal of a request for review of the tax act, since no reason is seen for restricting, especially since, in cases in which the request for review is made within the deadline for administrative complaint, it should be equated to an administrative complaint. ( [1] )

The express reference to article 131 of the CPPT made in article 2 of Ordinance no. 112-A/2011 cannot have the decisive effect of excluding the possibility of assessing claims for illegality of acts dismissing requests for official review of autonomous taxation acts.

In fact, the interpretation exclusively based on the literal wording defended by the Tax Authority and Customs Service in the present proceedings cannot be accepted, since in the interpretation of tax norms the general rules and principles of interpretation and application of laws are observed (article 11, paragraph 1, of the General Tax Law), and article 9, paragraph 1, expressly prohibits interpretations exclusively based on the literal wording of norms by stating that "interpretation should not limit itself to the letter of the law", but should, instead, "reconstitute from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

As to the correspondence between the interpretation and the letter of the law, it suffices "a minimum of verbal correspondence, even if imperfectly expressed" (article 9, paragraph 3, of the Civil Code), which will only prevent adoptions of interpretations that cannot in any way be reconciled with the letter of the law, even recognizing in it imperfection in the expression of legislative intent.

Therefore, the letter of the law is no obstacle to making a declarative interpretation, which explains the scope of the literal wording, or even extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, it would intend to say, that is, when it said imperfectly what it intended to say. In extensive interpretation "it is the very evaluation of the norm (its 'spirit') that leads to discover the necessity of extending the text of this to the hypothesis that it does not encompass", "the expansive force of the proper legal evaluation is capable of leading the device of the norm to cover hypotheses of the same kind not covered by the text". ( [2] )

Extensive interpretation, thus, is imposed by the evaluative and axiological coherence of the legal system, established by article 9, paragraph 1, of the Civil Code as a paramount interpretative criterion through the imposition of compliance with the principle of unity of the legal system.

It is manifest that the scope of the requirement of prior administrative complaint, necessary to open the contentious way of challenging autonomous taxation acts, provided in paragraph 1 of article 131 of the CPPT, has as its only justification the fact that, with respect to this type of acts, there is no taking of position by the Tax Administration on the legality of the legal situation created with the act, a position that may even turn out to be favorable to the taxpayer, avoiding the necessity of recourse to the contentious way.

In fact, in addition to not envisioning any other justification for this requirement, the fact that an identical administrative complaint, necessary for the contentious challenge of withholding at source and payment on account acts (in articles 132, paragraph 3, and 133, paragraph 2, of the CPPT), is provided, which have in common with autonomous taxation acts the circumstance that there is also no taking of position by the Tax Administration on the legality of the acts, confirms that this is the reason for that necessary administrative complaint.

Another unequivocal confirmation that this is the reason for the requirement of necessary administrative complaint is found in paragraph 3 of article 131 of the CPPT, in establishing that "notwithstanding the provisions in the preceding paragraphs, when its basis is exclusively a matter of law and the autonomous taxation has been carried out in accordance with generic guidelines issued by the tax administration, the deadline for the challenge does not depend on prior complaint, and the challenge must be presented within the deadline of paragraph 1 of article 102". In fact, in situations of this type, there was a prior generic pronouncement by the Tax Administration on the legality of the legal situation created with the autonomous taxation act and it is this fact that explains why the administrative complaint is no longer required.

Now, in cases in which a request for official review of a taxation act is formulated, the Tax Administration is provided, with this request, with an opportunity to pronounce itself on the merits of the claim of the taxpayer before the latter has recourse to the jurisdictional process, so that, in coherence with the solutions adopted in paragraphs 1 and 3 of article 131 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative assessment within the scope of that official review procedure, a new administrative assessment through administrative complaint be required. ( [3] )

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from filing requests for official review in cases of autonomous taxation acts, since these were expressly referred to in paragraph 2 of article 78 of the General Tax Law and, despite the repeal of this norm by Law no. 7-A/2016, of 30 March, the possibility of review of tax acts, official or at the initiative of the interested parties, continues to be referred to in article 54, paragraph 1, letter c), of the General Tax Law, with express reference in its paragraph 2 that "the taxpayer guarantees provided in this chapter also apply to autonomous taxation", in the part not incompatible with the nature of this figure.

In this context, allowing the law expressly that taxpayers opt for administrative complaint or official review of autonomous taxation acts and being the request for official review formulated within the deadline of administrative complaint perfectly equatable to an administrative complaint, as mentioned, there is no reason why access to the arbitral process cannot be granted to a taxpayer who opted for review of the tax act instead of administrative complaint.

Therefore, it is to be concluded that the Government members who issued Ordinance no. 112-A/2011, in making reference to article 131 of the CPPT with respect to claims for declaration of illegality of autonomous taxation acts, spoke imperfectly of what they intended, since, intending to impose prior administrative assessment to the contentious challenge of autonomous taxation acts, they ended up including reference to article 131 which does not exhaust the possibilities of administrative assessment of those acts.

Moreover, it is to be noted that this interpretation, not limiting itself to the literal wording, is even specially justified in the case of letter a) of article 2 of Ordinance no. 112-A/2011, since its imperfections are evident: one, is to associate the comprehensive formula "recourse to the administrative process" (which references, besides administrative complaint, hierarchical appeal and review of the tax act) with the expression "in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", which has potential restrictive effect to administrative complaint; another is to use the formula "preceded" by recourse to the administrative process, referring to "claims relating to the declaration of illegality of acts", which, obviously, would agree much better with the feminine word "preceded" (in Portuguese).

Therefore, in addition to the general prohibition of interpretations limited to the letter of the law contained in article 9, paragraph 1, of the Civil Code, in the specific case of letter a) of article 2 of Ordinance no. 112-A/2011 there is a special reason not to justify great enthusiasm for a literal interpretation, which is the fact that the wording of that norm is manifestly defective.

Furthermore, since review of the tax act provides the possibility of assessing the claim of the taxpayer before access to the contentious process that is intended to be achieved with the necessary administrative challenge, the most correct solution, because it is the most coherent with the legislative design to "strengthen the effective and actual protection of rights and legally protected interests of taxpayers" manifested in paragraph 2 of article 124 of Law no. 3-B/2010, of 28 April, is the admissibility of the arbitral process to assess the legality of taxation acts previously assessed in a review procedure.

And, because it is the most correct solution, it must be presumed to have been normatively adopted (article 9, paragraph 3, of the Civil Code).

On the other hand, since that letter a) of article 2 of Ordinance no. 112-A/2011 contains an imperfect formula, but which contains a comprehensive expression "recourse to the administrative process", which potentially also references review of the tax act, is found in the text the minimum of verbal correspondence, although imperfectly expressed, required by that paragraph 3 of article 9 for the viability of adopting the interpretation that establishes the most correct solution.

It is to be concluded, thus, that article 2, letter a), of Ordinance no. 112-A/2011, duly interpreted on the basis of the criteria for interpretation of law provided in article 9 of the Civil Code and applicable to substantive and procedural tax norms, by force of the provision in article 11, paragraph 1, of the General Tax Law, enables the filing of petitions for arbitral determination with respect to autonomous taxation acts that have been preceded by a request for official review.

Moreover, this interpretation, to the effect that Ordinance no. 112-A/2011 does not restrict the jurisdiction of the arbitral tribunals operating at the CAAD, will be the only one that is compatible with the aforementioned principle of the hierarchy of norms and with the relative reserved jurisdiction of Parliament, that is, the only interpretation that ensures the constitutionality of that Ordinance.

Regarding the allegation of the Tax Authority and Customs Service that "it is constitutionally prohibited, by force of the constitutional principles of the rule of law and separation of powers (cf. articles 2 and 111, both of the Constitution), as well as of legality (cf. articles 3, paragraph 2, and 266, paragraph 2, both of the Constitution), as a corollary of the principle of unavailability of tax credits inherent in article 30, paragraph 2 of the General Tax Law, the interpretation, even if extensive, that expands the binding of the AT to arbitral protection fixed legally, since such necessarily presupposes the consequent expansion of the situations in which it is obligatorily submitted to such regime, renouncing to that same extent the recourse to full jurisdictional process [cf. article 124, paragraph 4, letter h) of Law no. 3-B/2010 and articles 25 and 27 of the RJAT, which imposes a restriction of remedies against the arbitral decision]."

In fact, the Constitution does not impose that the interpretation of normative instruments must limit itself to the literal wording and, in the case in question, as explained, upon duly interpreting the norms of article 2, paragraph 1, of the RJAT and of article 2 of Ordinance no. 112-A/2011, of 22 March, it is concluded that the binding of the Tax Authority and Customs Service to the arbitral tribunals operating at the CAAD encompasses cases in which autonomous taxation acts were preceded by requests for official review. Therefore, the interpretation made did not increase the binding of the Tax Authority and Customs Service in relation to what is regulated, but rather defined exactly the binding that results from the regulatory instrument, duly interpreted.

On the other hand, in interpreting and applying legal norms, this Arbitral Tribunal is performing the function that is constitutionally assigned to it (articles 202, paragraph 1, 203 and 209, paragraph 2, of the Constitution), so that there is no way to see how there could be violation of the principles of separation of powers, rule of law and legality, since what is decided by this Tribunal evidences, precisely, its perfect realization: Parliament authorized the Government to legislate (article 124 of Law no. 3-B/2010, of 28 April); the Government, in the exercise of legislative powers, issued the RJAT; the Administration, through two Government members, issued Ordinance no. 112-A/2011, of 22 March; the Arbitral Tribunal interpreted and applied the aforementioned normative instruments. It is, manifestly, the realization of the principle of separation of powers.

As to the invocation of the principle of unavailability of tax credits, defined in article 30, paragraph 2, of the General Tax Law, in which it is stated that "the tax credit is unavailable, with conditions for its reduction or extinction only being able to be set with respect for the principle of equality and tax legality", it would certainly be a lapse, since in deciding on its jurisdiction the Arbitral Tribunal is not performing any act of disposal of any credit. Moreover, nor is it seen to what credit the Tax Authority and Customs Service will be referring, since in the present proceedings what is in question is an autonomous taxation act of corporate income tax that was paid and, therefore, what is in question is not the collection of any tax credit.

The credit that existed, following the autonomous taxation, is already extinguished by payment, and nor is it seen that any other exists.

Different from this is, naturally, the possible annulment of an illegal collection, but this has nothing to do with the availability of any credit, but rather with the right to contentious challenge of harmful acts, which is constitutionally assured (article 268, paragraph 4, of the Constitution) and is a fundamental right of taxpayers in a rule of law state (articles 2 and 20, paragraph 1, of the Constitution).

Thus, the interpretation of letter a) of article 2 of Ordinance no. 112-A/2011 that is here adopted, rather than being materially unconstitutional, is the only one that ensures its constitutionality, in light of the provisions of articles 103, paragraph 2, 112, paragraph 5, 165, paragraph 1, letter i), and 198, letter b), of the Constitution, as mentioned above. That is, this is the interpretation in accordance with the Constitution, in which is recognized in the norm "a meaning which, although not apparent or not resulting from other elements of interpretation, is the necessary meaning and what becomes possible by virtue of the conforming force of the Fundamental Law. And there are diverse routes that, for this purpose, are followed and diverse results to which one arrives: from extensive or restrictive interpretation to reduction (eliminating the unconstitutional elements of the provision or act)". ( [4] )

As concerns the "violation of the principle of equality of the parties and means of reaction, inasmuch as it would allow some taxpayers, in a sense of contempt for the wording of article 131 of the CPPT, to enjoy not a period of two years – provided, precisely, for the necessary administrative complaint – but rather a maximum period of four years to challenge taxation acts", is not easily perceptible the argument of the Tax Authority and Customs Service, but it is obvious that the interpretation made here of the jurisdiction of the arbitral tribunals operating at the CAAD and of the use of the arbitral process and "other means of reaction" is applicable to all taxpayers, regardless of the personal position of contempt or appreciation for article 131 of the CPPT.

The exception of lack of jurisdiction invoked by the Tax Authority and Customs Service is therefore inadmissible.

3. FACTUAL MATTER

3.1. Proved Facts

The following facts are considered proved:

a) The A… Group is headed by the Claimant, of which there is part a group of companies referred to in the table that follows:

(2011 and 2012 Reports and Accounts which form part of the documents nos. 10 and 11, attached with the petition for arbitral determination, whose contents are given as reproduced);

b) Inherent to the postal activity of the A… Fiscal Group, which extends throughout the country, is the use of a diversified fleet of vehicles, the transport of postal objects using motorized vehicles being one of the essential components of the normal activity of the Group; (statements of witnesses J…, K… and L…)

c) The companies of the A… Group define different mail distribution routes, with consideration of multiple factors; (statement of witness K…)

d) Being that each route corresponds to a certain distance to be covered by the postal worker, which implies the choice of an appropriate means of locomotion; (statement of witness K…)

e) This choice is, as a rule, made based on the distance to be covered, in which for shorter routes postal workers move on foot or by bicycle (presently electric), for routes between approximately 10km and approximately 40km they use low-displacement motorcycles (up to 50cc) and for routes from approximately 40km to approximately 80 km they use motorcycles of higher displacement (up to 125cc) and also automobiles; (statement of witness K…)

f) In the years 2011 and 2012, the number of routes and means of locomotion allocated to them are contained in the document no. 12 attached with the petition for arbitral determination, whose contents are given as reproduced, being the following: (statement of witness K…)

g) The numbers of motorcycles referred to in the preceding tables include those belonging to A… and those belonging to postal workers that are used in service; (statement of witness K…)

h) Motorcycles are the most used means of locomotion because they are the type of vehicle which, by its characteristics, most frequently adapts to the routes, namely, by agility in traffic, possibility of use on paths difficult to traverse, including where automobiles do not pass, ease of parking, reduced acquisition cost, reduced consumption, simple and inexpensive maintenance; (statement of witness K…)

i) With respect to routes for which the motorcycle is identified and used as the most appropriate type of vehicle, the postal worker is given the possibility to use his own motorcycle in exchange for a "mileage allowance", determined based on the kilometers provided for the routes allocated to that postal worker; (statements of witnesses J… and L…)

j) Those mileage allowances were, in the fiscal years 2011 and 2012, subject to taxation in the sphere of postal workers under personal income tax; (statement of witness J…)

k) The calculation of payments to postal workers for the use of their own motorcycles is made on the basis of a table between approximately € 0.14 and approximately € 0.26/0.27 per kilometer, depending on various factors, such as the distance to be covered, the existence or not of co-financing by A… for acquisition of the motorcycle, being or not in the 36-month period during which the postal worker remains contractually bound to use the motorcycle in service of A…; (statement of witness K…)

l) The regime of use in service of the Claimant of motorcycles belonging to postal workers has considerable adhesion from them and is of interest to the company in light of the variable seasonal needs (such as beach areas where in summer and winter there are different needs); (statement of witness K…)

m) Postal workers when using their own motorcycles save more on vehicles, being the reason why A… encourage postal workers to adhere to the use of their own motorcycle; (statement of witness K...)

n) Approximately half of the motorcycles used are owned by postal workers; (statement of witness K…)

o) Motorcycles whose ownership belongs to A… are not made available by the company for personal purposes; (statement of witness J… and statement of witness K…)

p) There are control mechanisms for the use of motorcycles that are owned by A… intended to dissuade postal workers from using them for personal purposes, which are considered effective by A…, although they cannot ensure absolutely that such use for personal purposes does not occur; (statement of witness J… and statement of witness K…)

q) A… has rigorous inspection services which make it very difficult to use the motorcycles of A… for personal purposes and if this occurs there are disciplinary consequences for those who do so; (statement of witness K…)

r) The motorcycles are equipped with a cargo box, immovable, which, in some cases is designed exclusively for A… and show identifying signs of A…; (statement of witness K…)

s) No postal worker has exclusively allocated to him a motorcycle, the allocation of motorcycles being made according to Postal Distribution Centers (CDP) (and not of postal workers), and neither motorcycles nor postal workers are allocated to a particular route, with rotation among various postal workers allocated to each route; (statement of witness K…)

t) A… uses a Fleet Management Procedure Manual for Light Production Vehicles, Motorcycles and Mopeds, whose versions drawn up in 2010 and 2012 are contained in documents nos. 19 and 20, respectively, attached with the petition for arbitral determination, whose contents are given as reproduced, in which is mentioned, among other things:

1. Persons authorized to drive and be transported in CTT vehicles

a) All employees, duly authorized by management, are authorized to drive or be transported in A… vehicles, whenever this is necessary for the company;

b) It is expressly forbidden to transport employees on trips for their own convenience, outside of service, in company vehicles.) (page 39 of document no. 19 and page 38 of document no. 20); (statement of witness K…)

u) For control of compliance with the rules provided in the aforementioned Manual, there is an obligation to daily fill in a vehicle use control document (or "Vehicle Report"), in which the users are identified, the route covered (in the column "reason for trip") and respective kilometers, being subsequently filed for several years, being used even to identify those responsible for traffic citations; (statement of witness J… and statement of witness K… and document no. 21 attached with the petition for arbitral determination, whose contents are given as reproduced)

v) A… has distribution supervisors exclusively allocated to monitoring the activity of postal workers on the streets and there is monitoring of the kilometers covered by motorcycles (statement of witness K…)

w) One cannot guarantee that no postal worker will engage in misconduct, using motorcycles for personal purposes, but normally this does not happen and if it does the person in breach must answer disciplinarily, with cases of people being dismissed because of it; (statement of witness K…)

x) Fueling of motorcycles must be carried out exclusively through the fleet fuel program, which expressly identifies the vehicle to which it is associated, with each motorcycle having a fleet program card; (statements of witnesses J… and K…)

y) Mandatory parking of motorcycles must be at the Claimant's facilities in Postal Distribution Centers or rented, where they remain immobilized between the end of each working day and the start of the next day, with motorcycle keys being handed in; (statement of witness J… and statement of witness K…)

z) A… stores are dispersed throughout the country, among which postal distribution centers and post offices; (statements of witnesses K… and L…)

aa) The management of A… is located in Lisbon, but there is decentralization according to logistical needs, namely in Porto, Coimbra and Évora and islands; (statement of witness L…)

bb) A… has the need for a logistical organization that allows it to maintain contact between the various points of the organization and with customers, having, for that purpose, a fleet of light passenger vehicles of the brands and models …, … and …, which have the company logos and which it designates as "GSV" (general service vehicles); (statement of witness L…)

cc) Any employee of A… can request a GSV, justifying its use, as long as authorized; (statement of witness L…)

dd) In the years 2011 and 2012 A… had the GSVs indicated in the following tables, respectively, with the registration numbers and brands and models indicated in document no. 23 attached with the petition for arbitral determination, whose contents are given as reproduced; (statement of witness L…)

ee) In early 2012 there was a renewal of the fleet, which is used under a lease arrangement, with a period in which A… had both the new and old vehicles, with 177 GSVs existing on 31-12-2012; (statement of witness L…)

ff) GSVs are light passenger vehicles as they are intended for the transport of persons and when traveling to a meeting 3 to 4 persons are transported; (statement of witness L…)

gg) As a rule, GSVs are characterized, that is, they have the colors of A… and are identified with the logo of A…; (statement of witness L…)

hh) This only does not occur in specific cases where, as a result of the characteristics of one of the types of function served by the GSVs, it is advisable that there be no such characterization, as is the case with audit and inspection functions, to which 15 to 20 GSVs are allocated; (statement of witness L…)

ii) For each of the directorates is assigned an allocation of GSVs, normally according to a pool organization; (statement of witness L…)

jj) The assignment of GSVs to a pool of a directorate must be reasoned and authorized, with one person in each directorate responsible for authorizing or not; (statement of witness L…)

kk) It is provided in the rules on the use of GSVs that, when finished, the vehicle is parked, the key and Vehicle Report returned, in which is recorded the identification of the user, the day, the place of departure, the destination, the kilometers at departure and arrival, the time of departure and the time of arrival; (statement of witness L…)

ll) At the end of the month the Report is sent to a first-line director, in order to ensure that there is prudent and regular use of the GSVs; (statement of witness L…)

mm) To each Directorate falls the daily management of the respective fleet of GSVs that is associated with it, and it must nominate an employee who is the liaison with the Physical Resources and Security area; (statement of witness L…)

nn) Rules were defined for use of GSVs by employees of the A… Fiscal Group, based on the principles contained in the Service Orders, reproduced in documents nos. 26 and 27 attached with the petition for arbitral determination, whose contents are given as reproduced, in which is mentioned, among other things, the following:

1. GENERAL PRINCIPLES

1.1

DEFINITION OF GSV

General Service Vehicles (GSVs) are motor vehicles, as a rule light passenger vehicles, identified with the logos of A….

1.2

USE

1.2.1

GSVs are to be used exclusively in service of the Company, namely in activities designated as support.

1.2.2

GSVs should be used only and whenever it is necessary to cover significant distances in service trips.

For small distances, or whenever it is more economical for the Company, public transportation should be preferred, when available.

1.2.3

In its use the filling out of the Daily Vehicle Report is required, a model of control of users, routes, kilometers and fuel.

1.2.4

As a rule, parking outside of A… facilities is not permitted, or, if non-existent, outside places near the services of allocation or designated by these.

1. ALLOCATION

2.1

ORGANIZATION AND MANAGEMENT

2.1.1

To each Directorate falls the management of the fleet of GSVs that is allocated to it.

2.1.1.1

Each Directorate must appoint an element that is responsible for the management of this fleet, as well as liaison with the SRF/GEF.

2.1.1.2

For purposes of the preceding items a GSV allocation is fixed, for each Directorate, which, organized in pools, will have diversified use according to point 1.2.

2.1.1.3

It falls to the Board of Directors, on proposal of the First-Line Director and with the agreement of the Administrator of the area of responsibility, to approve the GSV allocation to be assigned to each Directorate.

2.1.1.4

For immediate purposes, the allocations contained in annex I to this Service Order are approved.

2.1.2

All costs with the GSVs, namely rents and costs of use, will be borne by the Directorates to which they were allocated.

2.2

CONTROL OF USE OF THE GSV

2.2.1

In its use the filling out of the Daily Vehicle Report is required, a model of control of users, routes, kilometers and fuel, validated monthly by the Director directly dependent on the Board of Directors, which sends it to the USP/SRF/GEF.

2.2.2

It is the responsibility of the Directorates to verify the maintenance required by the manufacturer, periodic mandatory inspections (when necessary), as well as monthly verification of oil levels, water and tire pressure.

2.2.3

Monthly, the USP/SRF/GEF will provide information to the Directorates of all expenses resulting from the use of the GSVs.

Annually, an analysis of the use of vehicles allocated to each Directorate should be made in order to correct the allocations assigned.

1. FINAL PROVISIONS

3.1

Service Order …A of 17 February is repealed and all regulations that contradict this Service Order.

3.2

All authorization orders issued for exclusive use of GSVs are annulled.

3.3

This Service Order takes effect from 1 September 2011.

23 August 2011 - By the Board of Directors, the Vice-President of the Board of Directors, M….

In order to define the procedures and circuits necessary for the execution of point 2 of Service Order …CA* of 17 February, regarding the regulation of use of General Service Vehicles (GSVs), and the model of management and organization of the pools as well as the formula for calculation and allocation of costs to users, it is determined pursuant to the provision in point 2.1.4 of the mentioned Service Order:

I – OPERATIONAL MANAGEMENT PROCESS OF THE GSV POOL

1.1

Requests for use of GSV vehicles must be made to the area responsible for the pool of GSVs – USP/SRF/GEF – through a form available on the intranet. The form should be sent to the GEF by e-mail to one of the following e-mail addresses:

pedidosviaturas.porto@...pt

pedidosviaturas.coimbra@...pt

pedidosviaturas.lisboa@...pt

1.2

It is the responsibility of the user to choose the pool of vehicles to which to turn:

Porto, Coimbra or Lisbon.

1.3

The provision of vehicles will be made on a chronological basis of the arrival of the request at the USP/SRF/GEF, with no priority degrees being assigned. The request from the requesting area should reach that Service with an advance in relation to the scheduled date of use that cannot exceed 7 days.

1.4

Authorization for use is effected as follows:

1.4.1

For use with a duration of less than 7 days, authorization must be obtained from the second-line manager of the respective requesting area.

1.4.2

For use with a duration of 7 days or more and less than 30 days, authorization must be obtained from the first-line manager of the respective requesting area.

1.4.3

For use with a duration of 30 days or more, authorization must be obtained from the Administrator of the portfolio to which the requesting area belongs.

1.4.4

Successive requests by the same user from a given requesting area will be counted, for authorization purposes, as a single loan request.

1.4.5

If there are no GSVs available for use on the date/time requested by the user, the USP/SRF/GEF will inform him of this fact. The user will then have to indicate a new date and time of use, or alternatively the USP/SRF/GEF may proceed to rent a vehicle from a car rental company, with authorization from the first-line manager of the respective requesting area. This rental will be made from the car rental company that presents the best proposals in terms of price list obtained by market consultation. In this situation the user will be responsible for the pick-up (check-out) and return (check-in) of the vehicle to the selected car rental company.

1.4.6

If the number of GSV vehicle requests exceeds the number of available vehicles in the respective pool, the percentages by service contained in Annex I will be applied to the number of remaining vehicles for use. The annual updating of the information contained in this annex is the responsibility of the USP/SRF/GEF.

In this situation a maximum use limit per directorate is defined, above which vehicle availability is not guaranteed. The USP/SRF/GEF may then proceed to rent a vehicle from a car rental company, with authorization from the first-line manager of the respective requesting area.

1.4.7

The requesting area may cancel, without additional costs, a vehicle request up to the day immediately preceding the scheduled date of use. For cancellations on the same day a cancellation fee equal to the daily value of the fixed cost of the rental will be charged.

1.4.8

GSVs based at the DRA belong to the port vehicle pool and are made available permanently to that area.

1.4.9

GSVs based at the DRM belong to the Lisbon vehicle pool and are made available permanently to that area.

1.4.10

After the vehicle is made available to the user by the USP/SRF/GEF, the latter will proceed to collect the keys and documentation and will be indicated the place where the vehicle is parked.

1.4.11

For the Lisbon vehicle pool, the user should collect the keys and documentation at the Gate that gives access to the interior parking of Building A….

A shared control file will be created between the Gate of Building A… and the USP/SRF/GEF in which, for each vehicle:

1.4.11.1

The scheduled start of use is marked by the USP/SRF/GEF;

1.4.11.2

The Gate confirms the filling of the above information, then delivering the keys and documentation to the user and marks in the file the exit of the vehicle (date/time);

1.4.11.3

After the use of the vehicle, the Gate collects the keys and documentation and marks in the file the entry of the vehicle;

1.4.11.4

The USP/SRF/GEF confirms the filling of the above information so that it can consider the vehicle as available for new use.

1.4.11.5

This control file must be permanently updated so that the USP/SRF/GEF and the Gate of Building A… have at any time the real information of vehicle exits and entries.

1.4.12

In the case of vehicle pools in Porto and Coimbra, the user should collect the keys and documentation directly at the local facilities of the USP/SRF/GEF. For these pools the file is not shared with the Gate, with the USP/SRF/GEF being responsible for its complete filling.

2 - VEHICLE USE RULES

2.1

The user must check the condition of the GSV before starting to travel. If any vehicle anomaly is detected, it must be noted in the field available in the vehicle report, as well as informing the USP/SRF/GEF responsible for the pool.

2.2

The user must check the fuel level before returning the vehicle. If the level indicates that the fuel tank capacity is below half, the user must fill the tank before return.

2.3

The activity report should be filled out, with confirmation of departure kilometers and vehicle condition.

2.4

For vehicle pools in Porto and Coimbra, if the activity report is completely filled out, it should be returned directly to the USP/SRF/GEF service where the vehicle was requested, after which the user should place a new report in the vehicle. The activity report is available on the intranet.

2.5

For the Lisbon vehicle pool, the Gate will be responsible for verifying the completion of the activity report. When it is completely filled out, the Gate will provide a new report to the user and deliver the completed report directly to the USP/SRF/GEF.

2.6

Good practices for vehicle use must be respected, both in terms of

driving (defensive/safe and economical/ecological) and interior and exterior cleanliness and hygiene.

2.7

If the user detects any vehicle malfunction, they should contact the USP/SRF/GEF, which will inform them of the procedure to follow.

2.8

Use of the vehicle on working days is only permitted between 8am and 8pm, and must be parked at the respective pool facilities between 8pm and 8am.

2.9

Use of the vehicle in the night period (from 8pm to 8am) and during weekends and holidays is only permitted with authorization from the first-line manager of the respective area.

2.10

The hourly restriction measures indicated above also apply to vehicles rented from car rental companies.

2.11

For vehicles from car rental companies, the user must ensure that the fuel level when returning the vehicle to the car rental company is the same as when it was picked up. In not observing this point, the requesting area of the vehicle incurs payment of a service fee according to the process approved between A… and the car rental company.

2.12

After use of the vehicle, it should be parked at the place where it was initially requested, with the user delivering the keys and documentation of the GSV at the same place where they were collected.

2.13

Preventative and corrective maintenance plans will be defined/managed by the USP/SRF/GEF. Once a month the fluid levels of each vehicle will be checked, as well as interior cleaning and exterior washing carried out.

3 - COST ALLOCATION TO USERS

3.1

Monthly the USP/SRF/GEF will process the costs of use through a tool available in the TMS – Transport Management System.

3.2

Each use will have its costs allocated to the requesting area. The total cost of use is made up of 2 parts: a fixed cost, corresponding to the rent and other monthly costs of vehicles under operating leasing and a variable cost, corresponding to fuel, tolls and accident expenses.

3.3

Each use request will have a daily fixed cost regardless of the vehicle use time.

3.4

Accidents and citations will follow the currently operating processing channel in the USP/SRF/GEF.

4 - OPTIMIZATION OF VEHICLE USE RATE

The USP/SRF/GEF will conduct an ongoing analysis of the vehicle use rate, with its quantity and/or location able to be altered in order to continue the operational cost reduction program.

This order takes effect immediately.

oo) GSVs are not with anyone in particular, are not allocated for use by any employee, but in a pool to each directorate, from which employees request vehicles, with the allocation of a vehicle to an employee being random; (statement of witness L…)

pp) The daily data from the Vehicle Report are, subsequently and with monthly frequency, validated by the responsible person of the directorate, who will re-forward the respective report to the Physical Resources and Security area by the 15th of the month following that to which the use relates; (statement of witness L…)

qq) With monthly frequency, the Physical Resources and Security area analyzes the collected information, as well as other relevant information (example: "via verde" extracts and fueling) (statement of witness L…)

rr) It is always possible for anyone to violate the rules, generating disciplinary responsibility for violation of the duty of loyalty to use company property for personal benefit, which may result in dismissal for just cause (statement of witness L…)

ss) Witness L… became aware that, many years ago, when he did not yet hold his position, an employee was punished for improper use of a GSV; (statement of witness L…)

tt) Witness L… became aware, when he was already in office, of few cases of postal workers who were punished for improper use of motorcycles, but they were not given an expulsive sentence; (statement of witness L…)

uu) Cargo vehicles used by A… are almost all allocated to a single operations directorate; (statement of witness L…)

vv) A… has much fewer cargo vehicles than GSVs; (statement of witness L…)

ww) Consideration is given to the choice of GSVs to the use of electric vehicles, as long as it is economically viable, including taking into account charging points, but this did not occur in the years 2011 and 2012; (statement of witness L…)

xx) A…, when intending to grant its employees the possibility of personal use of vehicles (called Personal Use Vehicles or "PUV"), make such use appear in a written agreement, with the use being taxed in the sphere of the workers; (statements of witnesses J… and L…)

yy) On 31 December 2011 there were 297 PUVs and on 31 December 2012 there were 270 PUVs, in which vehicles were delivered to users by means of the conclusion of a use agreement that expressed the value of the vehicle for tax purposes under personal income tax;

zz) On 28 May 2012 and 30 May 2013 the Claimant submitted declarations of Corporate Income Tax ("CIT") Model 22 of its Fiscal Group for the fiscal years 2011 and 2012, and also submitted replacement declarations (documents nos. 1 to 4 attached with the petition for arbitral determination, whose contents are given as reproduced);

aaa) At those times the Claimant proceeded to the autonomous taxation liabilities in CIT of those same fiscal years of 2011 and 2012, in the amounts of € 685,712.97 (2011) and € 695,598.39 (2012), respectively (fields 365 of model 22 declarations);

bbb) In the fiscal year 2011 the autonomous taxation liabilities that fell on motorcycle and light passenger or mixed vehicle expenses were the following: (statement of witness J… and document no. 9 attached with the petition for arbitral determination, whose contents are given as reproduced)

ccc) In the fiscal year 2012 the autonomous taxation liabilities that fell on motorcycle and light passenger or mixed vehicle expenses were the following: (statement of witness J… and document no. 9 attached with the petition for arbitral determination, whose contents are given as reproduced):

ddd) On 23-03-2016, the Claimant submitted a request for official review against the aforementioned autonomous taxation liabilities for the fiscal years 2011 and 2012 (documents nos. 7 and 8 attached with the petition for arbitral determination, whose contents are given as reproduced);

eee) On 20 June 2016 (fiscal year 2011) and 17 June 2016 (fiscal year 2012), the Claimant was notified of the dismissal of the aforementioned requests for official review (documents nos. 5 and 6 attached with the petition for arbitral determination, whose contents are given as reproduced), in which reference is made to the grounds contained in the draft decisions previously notified (Documents nos. 7 and 8 attached with the petition for arbitral determination, whose contents are given as reproduced);

fff) The Claimant paid the autonomous taxation amounts (documents nos. 30 and 31 attached with the petition for arbitral determination, whose contents are given as reproduced);

ggg) On 13-09-2016, the Claimant submitted the petition for constitution of the arbitral tribunal that gave rise to the present proceedings.

3.2. Unproved Facts and Reasoning for the Decision on Factual Matter

There are no other facts relevant to the decision in the case that can be considered proved.

The proved facts are based on the documents indicated for each point and on the statements of the witnesses.

The witnesses appeared to testify with impartiality and with limited knowledge of the facts, leaving the arbitral tribunal with the conviction that, as to the concrete use of motorcycles and automobiles, they have only direct knowledge of the regulation created to control their use and prevent use for personal purposes and no concrete knowledge of the actual use in the numerous situations that occur daily throughout the national territory, knowledge which does not even appear viable in a company that has in its service approximately one hundred fifty general service vehicles and provides more than 2,000 postal worker routes using motorcycles on working days.

In this context, the fact that witness L…, who stated that he had knowledge of infractions of the rules of vehicle use for personal use that were sanctioned, said he knew of the existence of only one infraction relating to GSVs (many years ago, when he did not yet hold his position) and few cases relating to motorcycles (which were not given an expulsive sentence), cannot justify a minimally certain conclusion about the effectiveness of the rules to prevent the practice of infractions and nor even a reasoned judgment about the probability that they did not occur in 2011 and 2012, more strongly justifying distrust of the effectiveness of the control means, in addition to the fact that the knowledge of the existence of those infractions by that witness reveals that they, after all, do exist despite the rules.

Furthermore, corroborating doubts about control effectiveness, it is found that the pool system (randomness in the allocation of GSVs and motorcycles) will have limitations in its implementation, since the Vehicle Report in document no. 21 attached by the Claimant shows the continued use of the same vehicle by the same driver for 11 consecutive days (without mediation by any other driver).

Indeed, even as a matter of regulation, daily rotation of vehicles among users is not imposed, as can be seen from points 1.4.2. and 1.4.3. of document no. 27, which provide for uses with durations exceeding 7 days and 30 days.

To this is added that in point 2.9 of document no. 27 there is even provision for authorization by the first-line managers of each area of use of GSVs in the night period and during holidays and weekends, with it not being alleged or proved what use related to the activity of the Claimant justifies such use.

Thus, in line with what was stated by witnesses K… and L…, the Arbitral Tribunal formed the conviction that one cannot guarantee that no user of motorcycles and GSVs will engage in misconduct, using the vehicles for personal purposes, but normally this will not happen and the Claimant sanctions disciplinarily the cases of infractions of the rules of which it has knowledge.

4. LEGAL MATTER

The Claimant submitted model 22 declarations for the fiscal years 2011 and 2012, in which it autonomous taxed autonomous taxation liabilities relating to motorcycle and light passenger or mixed vehicle expenses.

With respect to fiscal year 2011, the Claimant autonomous taxed € 168,405.08 regarding motorcycle expenses and € 80,916.02 concerning light passenger or mixed vehicle expenses.

In fiscal year 2012, the Claimant autonomous taxed € 178,631.25 relating to motorcycle expenses and € 119,397.23 regarding light passenger or mixed vehicle expenses.

The Claimant argues, in summary, that paragraphs 3 and 4 of article 88 of the CIT Code, in the wording given by Law no. 55-A/10, of 31 December, contain implicitly a presumption of use for personal purposes of motorcycles and light passenger or mixed vehicles, which admits refutation, and that the evidence produced allows the presumption to be considered refuted.

The autonomous taxation liabilities relating to motorcycle and light passenger or mixed vehicle expenses are contained in paragraphs 3 to 6 of article 88 of the CIT Code which establish the following, in the wording given by Law no. 55-A/2010, of 31 December:

3 - Expenses incurred or borne by taxable persons not exempt subjectively and who exercise, as their main activity, commercial, industrial or agricultural activity, related to light passenger or mixed vehicles whose acquisition cost is equal to or less than the amount fixed pursuant to letter e) of paragraph 1 of article 34, motorcycles or mopeds, excluding vehicles powered exclusively by electrical energy, are taxed autonomously at the rate of 10%.

4 - Expenses incurred or borne by the taxable persons mentioned in the previous paragraph, related to light passenger or mixed vehicles whose acquisition cost is higher than the amount fixed pursuant to letter e) of paragraph 1 of article 34, are taxed autonomously at the rate of 20%.

5 – Expenses related to light passenger or mixed vehicles, motorcycles and mopeds are considered, namely, depreciations, rents or leases, insurance, maintenance and conservation, fuels and taxes incidental to their possession or use.

6 – Excluded from the provision in paragraph 3 are expenses related to light passenger or mixed vehicles, motorcycles and mopeds, allocated to the operation of public transportation service, intended to be leased in the normal exercise of the taxable person's activity, as well as depreciations related to vehicles with respect to which the agreement provided in item 9) of letter b) of paragraph 3 of article 2 of the Personal Income Tax Code has been entered into.

The "amount fixed pursuant to letter e) of paragraph 1 of article 34" is contained in Ordinance no. 467/2010, of 7 July. ( [5] )

As results from the wording of the aforementioned paragraphs 3 and 4 of article 88, these autonomous taxation liabilities do not have as a prerequisite the non-business nature of vehicle expenses of the types provided there, being applicable regardless of whether the expenses are or are not deductible under article 23 of the CIT Code.

This conclusion, which results from the literal wording of these norms, is confirmed by their comparison with the antecedents paragraphs 3 and 4 of article 81 of the CIT Code, in the wording introduced by Law no. 64/2008, of 5 December, in which express reference was made that these autonomous taxation liabilities reported to "deductible expenses".

Thus, under the generic term "autonomous taxation" are indicated in article 88 of the CIT Code situations of various types, among which are included situations of autonomous taxation of non-deductible expenses under article 23 of the CIT Code (as is the case of articles 88, paragraphs 1 and 2) and autonomous taxation of expenses that may be deductible under that article 23 (as is the case of autonomous taxation provided in paragraphs 3 and 4 of article 88).

As is stated in the arbitral award in case no. 628/2014-T:

"The nature of the specific autonomous taxation liabilities at issue in the case has been the subject of broad discussion in recent doctrine and case law.

A strong current has looked at them as an expenditure tax, which would tax certain types of expenses, in a way completely disconnected from income, in terms that there are even those who argue that they constitute their own tax, which would only casually be integrated into the Personal Income Tax and Corporate Income Tax codes.

Nevertheless, there has been recurrent acceptance in CAAD case law [6] of the understanding that autonomous taxation liabilities on deductible expenses, as are those at issue in the present case, still integrate the regime of taxes regulated by the codes where they are integrated, aiming, albeit in a convoluted way, at income taxed by those".

In line with this arbitral case law, the autonomous taxation liabilities in question could be configured "as a 'hybrid' tax, incidental to the income of individuals and corporations, and not to consumption or expenditure, as they do not present the main characteristics of this form of taxation, nor inciding equally on patrimony, and fitting into a problematic of income taxation with respect to which the legislator understood to act at two levels (separately or simultaneously): not accepting the deductibility of some expenses, in whole or in part and/or taxing them autonomously". ( [7] )

These autonomous taxation liabilities will constitute specific anti-abuse norms, which aim primarily to "regulate the use by companies of expenses that may be necessary, in part, for the pursuit of normal activity, but which – based on a judgment of normality – will also be for the benefit of individuals who end up enjoying them on a personal and non-professional basis". ( [8] )

In the words of SALDANHA SANCHES, "a kind of presumption is created here that these costs do not have a business cause and, therefore, are subject to autonomous taxation.

In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since here the basis of incidence is not a net income, but rather a cost transformed – exceptionally – into the object of taxation".

As is stated in the arbitral award of case no. 628/2014-T:

"Autonomous taxation liabilities under analysis will therefore have materially underlying a presumption of 'partial' business nature of the expenses on which they fall, due to the (...) circumstance that such expenses are in a gray line that separates what is business expense, productive, from what is private expense, consumption, being that, notoriously, in many cases, the expense will effectively in reality have a dual nature (part business, part personal).

Confronted with such difficulty ( [9] ), the legislator, instead of simply excluding its deductibility, or reversing the burden of proof of the business nature of the expenses in question (by imposing, for example, the demonstration that 'they do not have an abnormal character or an exaggerated amount', as it does in articles 65/1 and 88/8 of the CIT Code), opted to establish the currently prevailing regime, which, nevertheless, has precisely the same foundation, the same purpose, and the same type of result, as other forms used in other typical situations of the regime (in this case) of the Corporate Income Tax Code.

Thus, from the fact known, which is the realization of a certain type of expenses, the legislator draws the fact unknown, which is the assessment of the degree of business allocation of the product of such expenses.

And it will be this fact unknown, presumed by the legislator, that triggers and justifies the autonomous taxation in question in the present proceedings. Indeed, it was by presuming that the expenses on which this autonomous taxation falls are, by norm, of mixed allocation, with there being, therefore, an unjustified benefit in their full deduction, that the legislator began, in a first phase, by limiting the percentage of those which it admitted as deductible. Subsequently, for reasons that will matter little to the case, but which will pass by budgetary constraints, on one hand, and by the need to ensure the taxation of possible benefits that individuals could derive from those expenses, the legislator adopted the current model of autonomous taxation of the expenses with which we are now concerned. But this did not exclude, but rather complemented, that original motivation to tax, adequately, the income of corporations, distorted by the deduction of expenses, which the legislator presumes of non-totally business allocation. That is: the budgetary purposes and, possibly, of fringe benefit taxation, which may assist the current regime of autonomous taxation with which we are concerned, do not exclude, but rather rest on, the aforementioned presumption of 'partial business nature' of the expenses on which they fall (and, complementarily, on the distortion of the taxation of corporate income resulting therefrom)".

There is therefore underlying the autonomous taxation liabilities provided in paragraphs 3 and 4 of article 88 a presumption of partial non-business nature of the expenses with vehicles of the types indicated there, which justifies that they are deductible attenuatedly, with its total relevance as expenses being compensated by autonomous taxation with application of a rate lower than that of the CIT Code.

It appears that the questions of the application of autonomous taxation to motorcycles and GSVs are different, so the two situations will be assessed separately.

4.1. The Question Concerning the Motorcycles of the Claimant's Fleet

The Claimant argues that it would be materially unconstitutional to apply the aforementioned autonomous taxation liabilities to companies that "use motorcycles as vehicles for the transport of goods whose transport constitutes the object of their business (postal objects)" and that "in addition to this absence, a priori, of justification for autonomous taxation in the case of A… motorcycles equipped (modified) for the transport of postal merchandise, that the control mechanisms implemented allow A… to strengthen the correct use of its motorcycles within the parameters that justify their acquisition and holding: to serve, exclusively, the transport of postal merchandise" (articles 91 and 92 of the petition for arbitral determination).

From the norms of paragraphs 3 and 4 of article 88, in the parts in which they refer to "light passenger or mixed vehicles", and not also light cargo vehicles, it is concluded that autonomous taxation of light cargo vehicles is excluded, which are those that, by their characteristics, are intended primarily for the transport of cargo.

This exclusion would be justified on the understanding that, with respect to vehicles intended for cargo transport, the vehicles' own characteristics weaken the probability of partial use for non-business purposes. Therefore, from the legislative perspective, autonomous taxation of expenses with cargo vehicles will not be justified, with their use for non-business purposes, when proved, having fiscal relevance in CIT only in terms of exclusion from deductibility, by application of the rule of article 23, paragraph 1, of the CIT Code.

The motorcycles of the Claimant's fleet, which are adapted for mail transport with the placement of a fixed cargo box, should be considered vehicles intended for cargo transport, to which the designation of cargo vehicles is adequate, so it is manifestly justified that, regarding autonomous taxation, they are subject to the regime that is applicable to other cargo vehicles, even more so, since while in light or heavy cargo vehicles the transport of passengers, besides the driver, is still possible, in the motorcycles in question only cargo can be transported, besides the driver.

Therefore, it is to be concluded that the text of paragraph 3 of article 88 of the CIT Code, in alluding generically to motorcycles, does not adequately reflect the legislative intention underlying this norm, which does not include autonomous taxation of vehicles intended for cargo transport.

A restrictive interpretation is justified when "the interpreter arrives at the conclusion that the legislator adopted a text that betrays his thought, inasmuch as it says more than what he intended to say. Also here the ratio legis will have a decisive word. The interpreter should not let himself be carried away by the apparent reach of the text, but should restrict it so as to make it compatible with legislative thought, that is, with that ratio. The argument on which this type of interpretation rests is usually thus expressed: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, its scope ends)". ( [10] )

"The teleological method has been moving more and more to the foreground in relation to literal interpretation. According to the long-known principle: cessante ratione legis, cessat lex ipsa, the end and reason for being should matter more than the respective literal sense. The ratio should impose itself, not only within the limits of a literal wording often equivocal, but even breaking the bonds of that literal wording or restricting a legal formula with overly broad scope. In these latter cases one speaks of extensive or restrictive interpretation". ( [11] )

In accordance with this doctrine, the reference to motorcycles made in paragraph 3 of article 88 of the CIT Code should be interpreted restrictively, as referring only to those that are not, by their characteristics, intended for cargo transport, as is the case with those that were part of the Claimant's fleet in fiscal years 2011 and 2012.

It will be with this restrictive interpretation that the constitutionality of this norm is ensured, since application only to motorcycles of autonomous taxation liabilities relating to expenses with vehicles intended especially for cargo transport would constitute an unjustified negative discrimination of companies for whose activity the use of cargo motorcycles is especially appropriate, discrimination that would be incompatible with the principle of equality, stated in article 13 of the Constitution.

Thus, the autonomous taxation liabilities carried out in those fiscal years, as well as the decisions on requests for official review, in the parts in which they dismissed the Claimant's claims relating to these motorcycles, are subject to defects of violation of law, which justify their annulment, in the respective parts.

4.2. The Question Concerning the General Service Vehicles (GSVs) of the Claimant's Fleet

With respect to GSVs, these are light passenger or mixed vehicles that clearly fall within the provision of paragraphs 3 and 4 of article 88 of the CIT Code.

Since the essential justification for the autonomous taxation liabilities provided in paragraphs 3 and 4 of article 88 is the natural difficulty in ascertaining the business nature of the expenses with vehicles taxed there, the proof that total business nature occurred must be especially demanding, and the presumption cannot be considered refuted when reasonable doubts remain about the exclusive allocation of vehicles to the service of companies, for it is precisely for situations of doubt that the taxation is imposed.

Thus, these doubts cannot be eliminated with the mere presentation of internal regulations and provision of abstractly adequate control means to detect infractions of their rules potentially adequate, being essential a certain conclusion about the efficiency of their concrete application, which may be presumed when one is before a type of activity in which this concretization is easy ( [12] ), but which can no longer be presumed when one is before a situation in which the periods of vehicle use are sufficiently long to enable use for private purposes and there are no certain indications of the efficiency of the control abstractly provided in the regulations.

In the case in question, as stated in the reasoning of the decision on factual matter, the evidence produced does not allow the conclusion that vehicles were not used for purposes other than the activity of the Claimant.

In fact, it was only proved that the Claimant created rules of use and provided control means with the objective of preventing the use of vehicles in the interest of its employees, but convincing evidence on the efficiency or not of the practical implementation of these rules was not produced.

On the other hand, with respect to GSVs, there is the availability of vehicles for periods sufficiently prolonged to enable private uses [periods that can exceed several days, even providing for use for periods exceeding 30 days in point 1.4.3. of the Service Order reproduced in item NN) of the factual matter set out] and the use in night period (from 8pm to 8am) and during weekends and holidays [point 2.9. of the Service Order reproduced in item NN) of the factual matter set out] which reinforces doubts about the alleged exclusivity of business use of these vehicles and compliance with the aforementioned norms, since they are periods with respect to which it was neither alleged nor proved what use related to the activity of the Claimant justifies such use.

In this context, even if it is admitted that the existence of those use rules and the provision of control means could, in an undetermined measure, dissuade uses of vehicles for private purposes, it cannot but be concluded that the doubts that legislatively justify those autonomous taxation liabilities were not dispelled with the certainty required in a jurisdictional decision.

That is, it cannot be concluded that the situations in question move away from the "gray line that separates what is business expense, productive, from what is private expense, consumption" and, being thus, the application of the legislative presumption of partial business nature of the expenses in question is maintained.

Therefore, depending on the moving away from the aforementioned autonomous taxation liabilities on the proof of the total business nature of the expenses, it must be concluded that the autonomous taxation liabilities do not suffer from illegality, in the part relating to GSVs, so its annulment is not justified.

However, the position taken by the Tax Authority and Customs Service in the decisions dismissing requests for official review, which was based on the understanding that paragraphs 3 and 4 of article 88 do not admit any refutation of the presumption, is erroneous, inasmuch as paragraphs 3 and 4 contain an implicit presumption, which admits refutation, regarding the partial non-business nature of the expenses on which they fall.

CONCLUSION

For the above reasons:

The Arbitral Tribunal decides:

1. To dismiss as inadmissible the exception of lack of jurisdiction raised by the Tax Authority and Customs Service;

2. To partially uphold the petition;

3. To annul, in the part relating to motorcycle expenses, the autonomous taxation liabilities autonomous taxed by the Claimant in the amounts of € 168,405.08 for fiscal year 2011 and € 178,631.25 for fiscal year 2012, and the corresponding decisions dismissing the requests for official review;

4. To maintain, in the part relating to general service vehicle expenses, the autonomous taxation liabilities autonomous taxed by the Claimant in the amounts of € 80,916.02 for fiscal year 2011 and € 119,397.23 for fiscal year 2012, and the corresponding decisions dismissing the requests for official review;

5. To determine that the Tax Authority and Customs Service shall, within the legal deadline, proceed with:

a) The refund of the autonomous taxation relating to motorcycle expenses, in the amounts stated in item 3 above, accrued with the corresponding default interest, calculated from the date of payment to the date of actual refund;

b) The recalculation of the total autonomous taxation liabilities for the fiscal years 2011 and 2012, with the elimination of the amounts relating to motorcycle expenses, correcting the respective declarations model 22, and returning to the Claimant the amounts corresponding to the difference between what was paid and what should have been paid, with the corresponding default interest, calculated from the date of payment to the date of actual refund.

1. To condemn the Tax Authority and Customs Service to pay to the Claimant the amount of € 249,321.10, corresponding to the difference between the autonomous taxation relating to motorcycles annulled for fiscal year 2011 (€ 168,405.08) and the autonomous taxation relating to motorcycles and general service vehicles maintained for that fiscal year (€ 80,916.02), plus default interest calculated from 28 May 2012, the date of the autonomous taxation payment, to the date of actual payment, at the rate fixed for default interest in tax matters.

2. To condemn the Tax Authority and Customs Service to pay to the Claimant the amount of € 298,028.48, corresponding to the difference between the autonomous taxation relating to motorcycles annulled for fiscal year 2012 (€ 178,631.25) and the autonomous taxation relating to motorcycles and general service vehicles maintained for that fiscal year (€ 119,397.23), plus default interest calculated from 30 May 2013, the date of the autonomous taxation payment, to the date of actual payment, at the rate fixed for default interest in tax matters.

Thus they have decided and signed this award in Lisbon, on the 19th day of July 2017.

(Signed)
The Chair Arbitrator
Jorge Manuel Lopes de Sousa

The Arbitrator appointed by the Claimant
Ricardo da Palma Borges

The Arbitrator appointed by the Respondent
Maria Manuela do Nascimento Roseiro