CAAD 569/2018-T: Deductibility of CFEI, RFAI & SIFIDE Tax Credits Against Autonomous Taxation in IRC

ARBITRAL DECISION

The arbitrators Dr. Judge José Poças Falcão (arbitrator president), Dr. Cristina Aragão Seia (arbitrator member) and Dr. Marcolino Pisão Pedreiro (arbitrator member) appointed by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Court, agree as follows:

I. REPORT

A..., S.A., legal entity no. ... (hereinafter referred to as Applicant), with registered address at ..., no. ..., ..., Cascais, holding company and responsible for the self-assessment of Corporate Income Tax (IRC) of the B... Fiscal Group to which the Special Tax Regime for Groups of Companies (RETGS) was applicable, in the tax period of 2014, and which was composed of itself and by the companies C..., Lda (NIPC:...), D..., Lda (NIPC:...), E..., Lda (NIPC:...), F..., Unipessoal, Lda (NIPC:...) and G..., Lda (NIPC:..., formerly denominated H..., Lda)(Doc. no. 1), came, pursuant to article 2º no. 1, al. a) and articles 10º et seq. of the Legal Regime for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228º of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as LRTA) and articles 1º and 2º of Ordinance no. 112-A/2011, of 22 March, to submit a request for constitution of an Arbitral Court.

The Applicant intends for the Arbitral Court to rule on the legality of the self-assessment act of IRC of the B... Fiscal Group, relating to the fiscal year 2014 (Docs. 2 and 3 attached with the arbitration request), regarding the non-deduction from the part of the IRC collection produced by the autonomous taxation rates of tax incentives in IRC, namely the tax benefits calculated within the framework of the Extraordinary Tax Credit for Investment (CFEI), the Tax Regime for Support to Investment (RFAI) and the System of Tax Incentives for Research and Business Development (SIFIDE), with respect to the amount of autonomous taxation rates in IRC of € 216,346.29 and with respect to the remaining IRC in the amount of € 164,987.19, all in the global amount of € 381,243.48, and the order dismissing the gracious complaint against the said self-assessment, dated 14 August 2018 (Doc. 4 attached with the arbitration request), seeking the declaration of partial illegality of the said self-assessment and its consequent annulment, as well as the reimbursement of the amount in question, increased by compensatory interest, at the legal rate, counted from 1 September 2015, until full payment. In the alternative, should it be understood that article 90º of the IRC Code does not apply to autonomous taxation, then partial illegality of the autonomous taxation assessment should be declared (and consequently annulled) due to absence of legal basis for its implementation, with the consequent reimbursement of € 216,346.29 and payment of compensatory interest counted from the same date.

The request for constitution of the Arbitral Court was accepted by the President of CAAD and notified to the Tax Authority on 23.11.2018.

Pursuant to the provisions of al. a) of no. 2 of article 6º and al. b) of no. 1 of article 11º of the LRTA, the Ethics Council appointed as arbitrators of the collective Arbitral Court the signatories, who timely communicated acceptance of the appointment.

On 09.01.2019 the Parties were notified of said appointment, having manifested no intention to refuse it (article 11º, no. 1, als. a) and b) of the LRTA and articles 6º and 7º of the Ethics Code).

In accordance with the provisions of al. c) of no. 1 of article 11º of the LRTA, the Arbitral Court was constituted on 29.01.2019.

Thus, it is regularly constituted to hear and decide the subject matter of the proceedings.

To support the request for arbitral ruling, the Applicant alleges, in summary, the following:

- that the Fiscal Group of which it was the holding company at the time has credits, within the framework of tax benefits CFEI, RFAI and SIFIDE, for deduction from IRC collection, in an amount exceeding the amounts of autonomous taxation (ATs) calculated in IRC, all in fiscal year 2014.

- that the Tax Authority's computer system did not accept the deduction of such credits from the collection relating to the ATs;

- that, as responsible for self-assessment of IRC of the Group, it should be able to deduct available credits within the framework of the aforementioned tax benefits from the collection resulting from the application of autonomous taxation rates;

- that the norm of the IRC Code that provides for deductions from IRC collection (article 90º, no. 2) encompasses the IRC collection from autonomous taxation, a requirement that results from the very letter of the law, as understood by the Tax Authority, from the principle of coherence and systematic interpretation and from overwhelming tax case law;

- that the anti-abuse nature of autonomous taxation in IRC cannot serve as justification for denying the requested deduction of credits;

- that, by being denied the right to such deduction, al. c) of no. 2 of article 90º of the IRC Code is being violated;

- that, should articles 89º and 90º et seq. of the IRC Code not be understood as applicable to autonomous taxation, we would be faced with an insurmountable legal gap neither by case law nor by doctrine, because (...) we are dealing with a matter of statutory reservation, pursuant to article 103º, no. 3 of the Constitution (...);

- that the amendment introduced by the State Budget Law 2016 (cfr. its article 135º) in article 88º of the IRC Code, with the addition of no. 21 corresponds to a new provision and not a true interpretative norm;

- that there is material unconstitutionality of said article 135º of the State Budget Law 2016, due to violation of the prohibition of retroactivity in tax matters provided for in article 103º, no. 3 of the Constitution, whether or not one has concluded that we are dealing with a materially interpretative law, and also due to violation of the principle of separation of powers and the principle of independence of the judiciary.

Notified for this purpose, the Tax Authority submitted its response within the legal deadline, defending itself only by opposition, alleging, in summary, that:

- the Applicant is correct regarding the reimbursement of the amount of € 164,897.19 as a title of deductions of CFEI, RFAI and SIFIDE credits from IRC collection, resulting from the replacement declaration Model 22 relating to fiscal year 2014;

- the collection referred to in article 90º when the assessment must be made by the taxpayer, as in this case, is calculated based on the taxable matter that appears in the assessment/self-assessment (cfr. Art. 90º, no. 1, al. a) IRC Code);

- that autonomous taxation is determined autonomously and distinctly from the calculation carried out pursuant to article 90º of the IRC Code;

- that autonomous taxation has in its genesis the non-acceptance for tax purposes of a percentage of certain expenses, constituting an alternative and more effective form of cost correction whenever it is areas more prone to tax evasion;

- on this assumption, it would not be reasonable that through their deduction from Taxable Income (TI) as an expense the basis for their existence would be eliminated, a situation that became clear with the new wording of al. a) of article 23º-A of the IRC Code;

- therefore, autonomous taxation should not be considered for the purposes of the deductions referred to in no. 2 of article 90º of the IRC Code, as the Applicant requests;

- this is the interpretation consistent with a reading of the relevant provisions of the IRC Code that takes account of the general elements of interpretation - historical, systematic and teleological - and which the legislator has now fixed through the interpretative norm of no. 21 of article 88º (added by Law no. 7-A/2016, of 30 March), conferring explicit evidence to the autonomy of the impositions provided for in that normative, with the intention of ensuring certainty and equality in the application of the law;

- in the same way that support is found in the letter and in the ratio of the law to coherently conclude that SIFIDE should not be deducted from the amounts of the collections of autonomous taxation, also, in substance, reasons are detected to conclude that tax benefits cannot be deducted from the same collections;

- the Tax and Customs Authority being subject to the principle of legality (cfr. article 266º no. 2 of the Constitution and article 55º of the General Tax Law), cannot fail to apply a norm by understanding it to be unconstitutional, unless the Constitutional Court has already declared it unconstitutional with binding general force (cfr. article 281º of the Constitution);

- concluding for the lack of merit of the request for arbitral ruling.

On 18.03.2019 the Arbitral Court notified the Parties of the waiver of the meeting provided for in article 18º of the LRTA and of the deadline for submission of written arguments.

Applicant and Respondent submitted written arguments, in which they reiterated their respective positions.

II. PRELIMINARY ASSESSMENT

The Arbitral Court was regularly constituted, pursuant to articles 2º, no. 1, al. a) and 10º, no. 1 of the LRTA, and is competent.

The Parties have legal personality and capacity, are entitled to act and are duly represented (articles 4º and 10º, no. 2, of the LRTA and article 1º of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not affected by nullities, nor is there any matter of exception.

III. MERITS

1. MATERIAL FACTS

1.1. Proven Facts

The following facts are considered proven:

a) The Applicant was integrated as the holding company of the group of companies composed of itself and by the companies C..., Lda (NIPC:...), D..., Lda (NIPC:...), E..., Lda (NIPC:...), F..., Lda (NIPC:...) and G..., Lda (NIPC:..., formerly denominated H..., Lda), to which the RETGS was applicable, in the period of 2014 (Doc. no. 1 attached with the arbitration request);

b) On 29.05.2015, the Applicant delivered the IRC declaration Model 22 with reference to fiscal year 2014, of its fiscal group from which resulted assessment no. 2015..., with amount to be refunded of € 136,582.83 (Doc. no. 2 attached with the arbitration request);

c) On 23.02.2016, it delivered a replacement declaration Model 22, from which resulted the assessment now in question with no. 2016..., materialized in the compensation note no. 2016..., from which resulted amount to be paid of € 13,125.51, whose payment deadline occurred on 04.05.2016 (Doc. no. 3 attached with the arbitration request);

d) In the first IRC declaration Model 22 delivered on 29.05.2015, the Applicant calculated an IRC collection in the amount of € 581,164.64 (field 378 of table 10 of Doc. no. 2 attached with the arbitration request), having deducted tax benefits in the total of € 433,992.55 (€ 160,294.09 as SIFIDE, € 207,800.38 as RFAI and € 65,898.08 as CFEI - fields 711, 715 and 724 respectively of table 7 of annex D of the same document).

e) Pursuant to the replacement declaration delivered on 23.02.2016, a higher IRC collection was calculated, in the amount of € 632,537.51 (field 378 of table 10 of Doc. no. 3 attached with the arbitration request), having deducted tax benefits in the final total value of € 467,640.32 (€ 160,294.09 as SIFIDE, € 241,448.15 as RFAI and € 65,898.08 as CFEI - fields 711, 715 and 724 respectively of table 7 of annex D of the same document).

f) Tax benefits remained undeducted in the remaining amount of the collection calculated pursuant to the replacement declaration delivered by the Applicant, in the amount of € 164,897.19 (final IRC collection of € 632,537.51 – deduction of tax benefits to date of € 467,640.32 = € 164,897.19 remaining collection), to be allocated to tax benefits still to be deducted as SIFIDE, RFAI and CFEI (Doc. no. 12 attached with the arbitration request).

g) In its Response, the Respondent, after consideration of the request for arbitral ruling, recognizes that the tax act of IRC assessment relating to fiscal year 2014 should be partially revoked, accepting, in the assessment of fiscal year 2014, the deduction from the remaining collection of the amount of € 164,897.19, of the same value relating to tax benefits, on the following grounds:

"11º

By information no. 1551/2018 dated 19/12/2018, the revocation order was authorized by the Deputy General Director, already notified to the Applicant herein,

12º

Where it states that in point iii) "It is further requested that the same self-assessment be declared illegal, in the part of the IRC collection proper and still available in the amount of €164,897.19, since the taxpayer still had in 2014, amounts to deduct with respect to tax benefits.

Upon consultation of the DM22 declarations delivered by this taxpayer, it appears that the last one submitted on the date of 23/02/2016, an IRC collection of 632,537.51€ (624,146.31€ of tax plus 8,391.20€ referring to State Surtax) was calculated, to which tax benefits in the amount of 467,640.32€ were deducted (Table 10 of said DM 22) leaving thus available a collection of €164,897.19€.

Now, as the taxpayer informed during the hearing process stage of the administrative procedure, (Point 118) after that first deduction of tax benefits, there remained still to be deducted tax benefits in the amount of 857,576.95€,

This amount does not correspond to the value mentioned in Annex D of said DM22, in which it was declared that, after effecting the deduction of the amount of 467,640.32€, the balance of tax benefits that would carry over to the following fiscal year would be 915,787.65€.

However, as in the situation at hand, only a deduction of 164,897.19€ is in question, equal to the value of the collection still available, we are of the opinion that this deduction be accepted as a title of tax benefits, which must be used following the criterion indicated by the taxpayer in the exercise of the hearing right within the scope of the gracious complaint."

h) In both Model 22 declarations relating to 2014 (the first and the replacement), the amount of € 216,346.29 of autonomous taxation in IRC was calculated;

i) The Tax Authority's computer system, through which IRC is self-assessed, does not allow taxpayers to deduct, for the purposes of calculating the IRC due by themselves, from the IRC resulting from autonomous taxation calculated, the credits they have from RFAI, CFEI and SIFIDE;

j) The amount of SIFIDE, attributed/obtained, available for use at the end of fiscal year 2014 amounted to € 251,220.92, as per certification accompanied by Declarations from the SIFIDE Certifying Commission (Doc. no. 5 attached with the arbitration request);

k) Under RFAI there remained an accumulated amount at the end of the tax period of 2014 to be deducted from IRC collection amounting to € 482,902.42, as per certification and respective detail in annex to the arbitration request (Doc. no. 6 attached with the arbitration request);

l) The amount of CFEI available in the fiscal year at the end of 2014 amounted for its part to a total of € 123,453.61, as per certification and respective detail attached to the arbitration request (Doc. no. 7 attached with the arbitration request);

m) The Tax Authority did not assess the taxable income of the B... Fiscal Group and its respective companies by indirect methods: it was assessed in the normal manner, via submission of Model 22 declaration (Docs. nos. 2 and 3 attached with the arbitration request).

n) The Applicant submitted, on 29.05.2017, a Gracious Complaint which obtained an order of dismissal (Doc. no. 4 attached with the arbitration request).

o) On 15.11.2018 the Applicant submitted the request for arbitral ruling which gave rise to the present proceedings.

1.2. Unproven Facts

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

1.3. Substantiation of the Material Facts

The facts were given as proven on the basis of the documents attached with the Arbitration Request and in the Administrative Proceedings - which are all considered reproduced - as well as on the positions manifested by the Parties in the pleadings contained in the case file, with no controversy concerning the same.

It falls to the Court to select the facts that matter to the consideration and decision of the case, in accordance with their legal relevance, determined according to the various possible solutions for the same, and to discriminate the proven and unproven matter (article 16º, al. e) and article 19º of the LRTA and, further, article 123º, no. 2 of the Administrative Court Procedure Code and articles 596º and 607º, no. 3 of the Code of Civil Procedure).

In the tax proceedings, the principle of discovery of material truth prevails, and the Court may consider instrumental facts relating to alleged facts and legal questions raised, deemed necessary for ascertaining the truth and facts not alleged relating to questions raised (articles 13º of the Administrative Court Procedure Code, 99º of the General Tax Law and 411º of the Code of Civil Procedure).

2. LEGAL MATTERS

2.1. Questions to be Decided

a) Preliminary question: of the reduction of the value of the request in the amount of € 164,897.19;

b) Of the possibility of deduction from the collection produced by autonomous taxation rates in IRC of credits of available tax benefits for deduction from IRC collection, namely, credits calculated within the framework of CFEI, RFAI and SIFIDE;

c) In case of negative answer to the previous question on the ground that the assessment of Autonomous Taxation is not provided for in no. 1 of article 90º of the IRC Code, of the absence of legal basis for Autonomous Taxation.

d) Of the questions of unconstitutionality raised by the Applicant:

- If the answer to question b) is negative (consequently dismissing the main requests) by resort to the application of article 135º of the State Budget Law 2016, is there or is there not a violation of the Constitution (i.e., if this Court applies article 135º of the State Budget Law 2016, and because the Applicant invokes its material unconstitutionality, we will examine such question);

- If the answer to question c) is in the negative (that is, if we answer to the effect that, despite not being provided for in no. 1 of article 90º, the assessment of ATs is not deprived of legal basis), is there or is there not a violation of the Constitution.

e) Of the right to refund and to compensatory interest.

2.2. Preliminary Question: of the Reduction of the Value of the Request in the Amount of € 164,897.19

The Applicant proceeded to deliver the IRC declaration Model 22 of its fiscal group, with reference to fiscal year 2014, from which resulted assessment no. 2015..., with amount to be refunded of € 136,582.83. There was calculated an IRC collection in the amount € 467,640.32.

On 23.02.2016, the Applicant delivered a replacement declaration Model 22, from which resulted the assessment now in question with no. 2016..., materialized in the compensation note no. 2016..., from which resulted amount to be paid in the amount of € 13,125.51.

Pursuant to the replacement declaration, an IRC collection in the amount of € 632,537.51 was calculated, with tax benefits deducted only in the global value of € 467,640.32 (€ 160,294.09 as SIFIDE, € 241,448.15 as RFAI and € 65,898.08 as CFEI).

Thus, tax benefits remained undeducted in the remaining amount of the collection calculated pursuant to the replacement declaration delivered by the Applicant, relating to that which had been calculated in the first declaration delivered, in the amount of € 164,897.19 (final IRC collection of € 632,537.51 – deduction of tax benefits to date of € 467,640.32 = € 164,897.19 remaining collection), to be allocated to tax benefits still to be deducted as SIFIDE, RFAI and CFEI.

The Tax Authority itself declares in its Response (articles 11º and 12º) that the act of IRC assessment relating to fiscal year 2014 should be partially revoked, recognizing the right of the Applicant, in the assessment of fiscal year 2014, to deduct from the remaining IRC collection, in the value of € 164,897.19, the same value relating to tax benefits still to be deducted as SIFIDE, RFAI and CFEI.

Since the Respondent accepted partially the claim of the Applicant, a fact which it alleges it has already notified, it requests the reduction of the value of the request, which should consequently be rectified to the value of € 216,346.29, deducting the value of €164,897.19.

Considering and deciding:

For the purpose of fixing the value of the case, the moment in which the action is brought is the determining factor, with the reservation only of situations in which there is a counterclaim or third-party intervention – article 299º-1, of the Code of Civil Procedure, applicable ex vi article 29º, of the LRTA.

The value of the arbitration proceedings in tax matters is determined by article 97º-A, of the Administrative Court Procedure Code, ex vi article 29º, of the LRTA, and not by application of the Regulation of Costs in Tax Matters, of CAAD (cfr., for brevity's sake, Decision of the Administrative Court of Appeal of 17-1-2019, rendered in Case no. 62/18.4BCLSB and Arbitral Decision of 15-2-2018, rendered in CAAD Case no. 322/2017-T, published in www.dgsi.pt and www.caad.org.pt, respectively.

Thus it is that, for the purposes of the value of the case, the immediate economic utility of the request, whenever this is not defined through a sum certain in money, must be evaluated according to the request and the cause of action and not according to causes or circumstances arising thereafter.

On the other hand and because in arbitration proceedings in tax matters there is no court jurisdiction limitation, the fixing of the value of the case is only relevant for the purposes of costs and to determine whether the proceedings are to be heard by a sole arbitrator or collective Arbitral Court.

Pursuant to al. a) of no. 1, of article 97º-A, of the Administrative Court Procedure Code, the value of the case corresponds to the value of the assessment or the value of the part of it in question, according to whether, respectively, it is requested its total or partial annulment, that is, the sum certain and liquid which, in the event of success of the objection, the objector will cease to pay or will be refunded.

Naturally, it may occur, already in the response, partial confession of the request or equivalent act that translates, in fact, a reduction of the request as initially formulated.

However, such circumstance has no reflection or repercussion whatsoever as to the value of the case which, pursuant to the terms set out above, continues to be what was fixed by the claimant.

Or, said in another way: modifications of value that may arise in the course of the proceedings are irrelevant (e.g., revocation, ratification, reformation or conversion of the tax act whose illegality was raised, reduction or waiver of the request, etc.)

Subsuming:

The Tax Authority, in the Response submitted (articles 11º and 12º), accepts that the act of IRC assessment under objection and relating to fiscal year 2014 should be partially revoked, recognizing the right of the Applicant, in the assessment relating to that fiscal year, to deduct from the remaining IRC collection, in the value of € 164,897.19, the same value relating to tax benefits still to be deducted as SIFIDE, RFAI and CFEI.

Basing itself on that partial acceptance of the Applicant's claim, the Respondent comes to request the reduction of the value of the request, correcting it to € 216,346.29 or that is, deducting the value of €164,897.19 from the initial value of €381,243.48.

Now, for the grounds set out above, such request cannot obviously be accepted.

Hence, dismissing the request formulated, it is decided to maintain the value of the case indicated by the Applicant in the request for arbitral ruling, that is, € 381,243.48, as this is the value that complies with the legal criteria and was not contested by the respondent.

2.3. Legal Framework

Having decided the preliminary question, it remains to resolve the other questions raised in the case, being certain that the central question (as posed by the Applicant in the request submitted) resides in knowing whether the self-assessment of IRC relating to fiscal year 2014, subject to objection, is affected by the defect of violation of law, since, in the understanding of the Applicant, the deduction of credits of CFEI, RFAI and SIFIDE should not be denied from the part of the IRC collection corresponding to autonomous taxation.

The answer to this question presupposes the analysis of the evolution of the figure of autonomous taxation with a view to ascertaining whether its legal regime (including its nature and raison d'être) is compatible with the Applicant's claim or, if on the contrary, the position defended by the Respondent is correct.

This question is already widely discussed in the case law of CAAD, with decisions in both directions.

As regards the present case, we shall closely follow the position adopted in the judgments of 2 July 2018, rendered in case no. 542/2017-T, by a panel to which the here also Arbitrator President presided and in which Mrs. Sofia Ricardo Borges was the reporting judge, in that of 23 February 2017, rendered in case no. 443/2016-T and in that of 28 June 2016, rendered in case no. 722/2015-T, panels to which Mrs. Counselor Fernanda Maçãs presided.

2.3.1. Of the Nature of Autonomous Taxation in National Case Law and Doctrine

As was decided in the judgment rendered in case no. 443/2016 which, in turn, referred to the position adopted in the judgment rendered in case no. 722/2015-T, autonomous taxation taxes expense and not income, a position which is taken by the Esteemed Counselor Vítor Gomes (dissenting opinion attached to Judgment no. 204/2010 of the Constitutional Court), in terms of which he states, referring to autonomous taxation, that "although formally included in the IRC Code and the amount that allows it to collect is liquidated within its scope and under the heading of IRC, the norm in question concerns a tax imposition which is materially distinct from taxation in this tax code (….)".

"Indeed, we are faced with autonomous taxation (...) and that makes all the difference. It is not a question of taxing income at the end of the tax period, but certain types of expenses in themselves, for the understandable reasons of tax policy that the judgment points out".

And adds that "in this way, the fact that reveals taxable capacity that is intended to be achieved is the simple realization of such expense, at a given moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not it comes to have taxable income in IRC at the end of the period, being irrelevant that this portion of tax only comes to be assessed at a later moment and jointly with the IRC".

In the same sense, it was also recognized by the case law of the Supreme Administrative Court (SAC) "that under the designation of autonomous taxation are hidden very diverse realities, including, pursuant to no. 1 of (then) article 81º of the IRC Code, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be increased to 70%, in the cases of expenses made by taxpayers total or partially exempt, or who do not engage, on a principal basis, in activities of a commercial, industrial or agricultural nature (no. 2 of [then] article 81º) and which are not considered as cost in the calculation of taxable income in IRC. It should be noted, however, that representation expenses and those related to light passenger vehicles, pursuant to the provisions of (then) article 81º no. 3 of the IRC Code and travel allowances are affected to business activity and indispensable for which they are fiscally accepted in some cases albeit within certain limits".

As regards the position that was assumed by the Constitutional Court, cite article 18/11, in terms of which it refers that "there are facts subject to autonomous taxation, which correspond to charges proven to be indispensable to the realization of income and (…) this means that autonomous taxation also falls on charges that correspond to the core of the concept of real income, net income and fulfillment of accounting obligations".

"This argument of the Constitutional Court (…) interests us only to point out that the Court recognizes that this regime constitutes a limitation to the taxation of real income (which is guaranteed by article 104º no. 2 of the Constitution)".

More recently, the Constitutional Court comes to reformulate the doctrine of Judgment no. 18/11 (referred to above), moving closer to the then dissenting opinion of Counselor Vítor Gomes and to the SAC Judgment no. 830/11 (also cited above), in the sense of understanding that "contrary to what happens in the taxation of income under IRS and IRC, in which the set of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate be calculated, as well as the bracket in which the taxpayer is placed), in this case each expense made is taxed, considered in itself, and subject to a given rate, with autonomous taxation being calculated independently of the IRC that is owed in each fiscal year, by not being directly related to the achievement of a positive result, and therefore, subject to taxation. Thus, and in the case of IRC, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, with the law considering that the taxable event is verified on the last day of the tax period (cfr. article 8º, no. 9, of the IRC Code). Already as regards autonomous taxation in IRC, the taxable event is the realization of the expense itself, we are not dealing with a complex fact, of successive formation over a year, but with an instantaneous tax fact".

Now, further according to this Judgment of the Constitutional Court "this characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose taxable event occurs in a successive manner, by the passage of a given period of time, as a rule annual, and tends to repeat itself in time, generating for the taxpayer the obligation to pay tax with a regular character) and taxes of single obligation (whose taxable event occurs instantaneously, appears isolated in time, generating on the taxpayer an obligation to pay with an avulsive character). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of a certain expense that is subject to taxation (although the calculation of the amount of tax resulting from the application of the various autonomous taxation rates to the various acts of realization of expense considered comes to be carried out at the end of a given tax period). But the fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of lasting character. That assessment operation is translated only in the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of expenses made in the determination of the rate".

As regards doctrine, we note that, in essence, the concept and nature of autonomous taxation does not substantially depart from the understanding of the case law produced by the Constitutional Court (briefly outlined above).

In fact, as RUI MORAIS refers, "it is a question of taxation that falls on certain expenses of taxpayers, which are considered as constituting tax facts. It is difficult to discern the nature of this form of taxation and, even more so, the reason why it appears provided for in the codes of taxes on income".

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO states that "it is not properly a question of IRC – which aims to tax the income of legal entities and not expense made by them - but the replacement of a taxation of "implicit" income of natural persons, which is not considered feasible to enforce directly".

In sum, some doctrine and the case law of the national superior courts and the Constitutional Court consider that autonomous taxation are autonomous tax facts, which fall on expense and therefore, despite being formally included in the IRC Code, concern a taxation distinct from the tax on corporate income.

Additionally, it should be noted that it is also accepted by the generality of doctrine and case law that autonomous taxation aims to prevent abusive practices of remuneration of workers, managers and shareholders of the company.

In fact, as SALDANHA SANCHES refers, "in this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime of expenses that are in the zone of intersection of the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for exclusively tax reasons or the hidden distribution of profits. The provision presents a characteristic similar to that which we will find in the legal sanction against undocumented costs, with a rate increase when the situation of the taxpayer does not correspond to a situation of fiscal normality."

In these terms, "it is a question of taxation that is explained by the need to prevent and avoid that, through such expenses, companies proceed to the disguised distribution of profits, especially of dividends which would thus be subject to IRC as profits of the company, as well as to combat fraud and tax evasion that such expenses cause (…)".

2.3.2. Of the Evolution of the Figure of Autonomous Taxation

In this matter, it should be noted that, in the original wording of the IRC Code (approved by Decree-Law no. 442-B/88, of 30 November), no express or implicit reference was made to autonomous taxation, and only with Law no. 101/89, of 29 December (the law that approved the State Budget for 1990), was a first reference to autonomous taxation made within the scope of IRC, through the legislative authorization contained in no. 3 of its article 15º [pursuant to which it was provided that the Government was authorized to autonomously tax in IRS or IRC, as the cases may be, at an increased rate of 10% and without prejudice to the provisions of al. h) of no. 1 of article 41º of the IRC Code, confidential or undocumented expenses made in the exercise of commercial, industrial or agricultural activities by IRS taxpayers who have or should have organized accounts or by IRC taxpayers not covered by articles 8º and 9º of the respective Code].

As is well known, the origin in the Portuguese tax legal system of autonomous taxation dates back to 1990, with the publication of Decree-Law no. 192/90, of 9 June, pursuant to which (in its article 4º), an autonomous taxation was established:

a) At the rate of 10% relating to confidential or undocumented expenses and;

b) At the rate of 6.4%, with respect to representation expenses and charges relating to light passenger vehicles.

In fact, it was with the approval of Decree-Law no. 192/90 (and implementing that legislative authorization) that a provision on autonomous taxation was included alongside the codes of IRS and IRC, pursuant to which "confidential or undocumented expenses made in the exercise of commercial, industrial or agricultural activities by IRS taxpayers who have or should have organized accounts or by IRC taxpayers not covered by articles 8º and 9º of the respective Code are taxed autonomously in IRS or IRC, as the cases may be, at the rate of 10% without prejudice to the provisions of al. h) of no. 1 of article 41º of the IRC Code".

This provision (and, in general, the regime of autonomous taxation) came to be subject to various amendments (e.g., Law no. 52-C/96, of 27 December, Law no. 87-B/97, of 31 December, Law no. 3-B/2000, of 4 April and Law no. 30-G/2000, of 29 December), in particular, through successive modifications, either of the rates, or of the systematization and wording given to them, in the respective codes on taxes on income (that is, either in the IRC Code, or in the IRS Code).

With the approval of Law no. 30-G/2000, of 29 December, the decree that enshrined "autonomous taxation" was repealed, adding to the IRC Code article 69º-A [corresponding at the date of the facts underlying (2014) to article 88º] in which, in addition to the maintenance of the incidence of these to undocumented expenses, representation expenses and expenses with vehicles, the same was extended to other situations of a diverse nature.

As a result of this analysis of the evolution of the figure of autonomous taxation, we understand it is possible to draw, from the outset, two conclusions:

(i) The first is that autonomous taxation falls on both deductible and non-deductible charges in respect of IRC;

(ii) The second is that autonomous taxation aims to prevent erosion of the tax base in respect of IRC, imposing taxation on charges that may be deducted by IRC taxpayers but which, when deducted, result in an aggravation of taxation, seeking, therefore, to serve as a disincentive for such charges.

With respect to autonomous taxation on non-deductible expenses, if their deductibility were admitted, it would be admitting the deductibility of a charge not indispensable for the realization of income subject to tax or for the maintenance of the source of income.

Thus, it can be considered settled, and to which will be relevant for the purposes of the decision to be rendered in the scope of the present case, the following assumptions:

(i) Autonomous taxation of IRC anchored in the various numbers and subsections of article 88º of the IRC Code translate diverse situations, to which different taxation rates also apply;

(ii) Autonomous taxation of IRC falling on certain charges of IRC taxpayers should be understood as payments independent of the existence or not of taxable matter;

(iii) Interpreted as payments, associated with IRC, or at least related to it, which can be understood as an exception to the principle of taxation of legal entities in accordance with real and effective income calculated (article 3º of the IRC Code),

(iv) In autonomous taxation, the tax fact that gives rise to taxation is instantaneous: it is exhausted in the act of realization of certain expenses that are subject to taxation (although the calculation of the amount of tax resulting from the various autonomous taxation rates to the various acts of realization of expenses considered, comes to be carried out at the end of a given tax period);

(v) The fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of lasting character, since that assessment operation is translated only in the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of expenses made in the determination of the rate;

(vi) Autonomous taxation is not equivalent to the non-deductibility of expenses made by the IRC taxpayer.

On the other hand, as regards the characteristics of autonomous taxation, those which doctrine has been pointing out to this type of taxation for some years are recognized here, namely:

a) Autonomous taxation only makes sense because costs/expenses are relevant as negative components of the taxable income of IRC, and that is what motivates IRC taxpayers to report as high a value as possible of such expenses to diminish the taxable matter of IRC, the collection and, consequently, the tax to be paid;

b) With the associated tax regime, it is intended to discourage such expenses in taxpayers who present negative results, but who, regardless of this, continue to evidence structures of consumption little or no compatible with the financial health of their companies;

c) It is, in a more general thesis, to model the tax system so that it reveals a certain equilibrium with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) Certain expenses are considered unfavorably in which it is admittedly not easy to determine the exact measure of the component corresponding to private consumption, and with respect to which the general practice of abuse in their reporting is known.

2.3.3. Of the Cause and Function of Autonomous Taxation in respect of IRC

It is settled that autonomous taxation is rooted, as has been mentioned, in the need to prevent abuses regarding the reporting of certain charges or expenses and which may easily be subject to diversion to private consumption or which, in some way, are capable of formally configuring an expense of a legal entity, but which, substantially, represent or may configure abuses in order to minimize the actual measure of the tax.

Aware of this difficulty of, often, making a rigorous separation of these two realities, it was successively "grafted onto", as described above, the regime of taxation of real and effective income established in the IRC Code, as a general standard, an autonomous regime of taxation of certain expenses, in whole or in part undesired and undesirable that contaminate the terms of the tax obligation, which thus emerges configured below the real taxable capacity of the entity that reports it as such.

In these terms, it can be stated that autonomous taxation emerges integrated in the IRC regime, are calculated and owed within the scope of the legal relationship of tax on corporate income and it is in this framework that their calculation is carried out.

But they are not "IRC", tout court, as the Applicant lapidary and definitively states.

In fact, for them to be so considered, they would, from the outset, have to tax income and that, as we have seen, is not what happens, at any time. In truth, although there is evident instrumentality between IRC and the model of income taxation in Portugal and autonomous taxation (a fact moreover well evidenced in the case law of the Superior Courts and, in particular, of the Constitutional Court), the understanding prevails that autonomous taxation taxes expenses.

In fact, autonomous taxation is an instrument which (departing and introducing some measure of distortion in a system that declares to tax real and effective income), also taxes expenses, deductible or not for IRC purposes, without thereby violating constitutional provisions, since the applicable provision (article 104º, no. 2 of the Constitution) declares imperative taxation of companies "fundamentally" on their real income, without prejudice either to situations of taxation according to profits or real income (when assessed by indirect methods), or to situations of taxation of expenses subject to autonomous taxation (by express choice of law), the establishment of technical solutions (as is the case with special payment per account) and the rules specific to their reimbursement.

Within this scope, it is worth remembering that neither tax systems, nor concrete models of taxation correspond to pure models, free from elements of strangeness to the system itself, of values, or to the general regime of any tax abstractly considered. In fact, all taxes possess characteristics or solutions which, when viewed in isolation, may objectively represent a mischaracterization of the model as it was conceived in the purity of the concepts, but which, when articulated with the model, it appears that they contribute to its effectiveness, and confer on it or reinforce its coherence.

Those solutions, more pragmatic or specific, do not violate such essential axiological dictates, whether they be for the protection of revenue or the densification of general values (of the tax system) or specific to the tax (as is the case with the need to prevent abuse) provided that they themselves are not so relevant that they abjure the rule taxation model or structurally falsify the values on which it is based.

In the case under analysis, although the choice of fundamental law and ordinary law, by consequence, has been clearly in the sense of taxing the income of legal entities and, in the possible forms of calculation of this, the taxation of real and effective income has been chosen as a manifestation of the highest standard of fiscal justice, the truth is that the system has always known more or less relevant deviations, either because certain expenses are not considered as such by tax law (although objectively they may be attributable to a commercial activity), or because tax law, recognizing such essentiality, fears the occurrence of abuse (as is the case with autonomous taxation, generically speaking).

In part, this departure from the purity of concepts is an inevitable consequence of the complexity of real-life relations, either because models of pure fiscal imposition are more costly to implement and manage since they require much more refined relevant information, or because in the field of taxes, as in other fields of life, it is necessary to temper the ideal of justice enshrined with solutions of normative reasonableness in the qualification of relevant facts and technique in solutions and requirements to establish, with the objective of preventing tax systems from being excessively complex and costly ceasing to reach realities and practices that mitigate the tax burden or contribute to a poor distribution of the same.

Now, from this balancing of the values that support the duty to establish / bear tax with the realities of life may result the need to establish limits (fiscal or otherwise) to the conduct of taxpayers, with the objective of maintaining within general standards of equilibrium, the legal solutions of the system.

On the other hand, it is important to bear in mind (because that is relevant for the purposes of the decision to be taken) that autonomous taxation constitutes anti-abuse provisions aimed at rationalizing specific behaviors of taxpayers (in the face of the tax obligation) by which, traditionally, they were able to achieve a measure of tax lower than that evidenced by their actually revealed taxable capacity but which, thanks to these abusive behaviors was capable of being mitigated or eliminated, with obvious violation or postponement of the principle of justice, of fair distribution of the tax burden by those who reveal taxable capacity.

Consequently, it makes sense to admit that general deductions are made from the collection of the tax, which are permitted by law to give real effect to the principle of taxation of real and effective income. However, as regards the collection owed by autonomous taxation, this general deduction ceases to make sense because, not taxing profits, but expenses, the question of justice in the distribution of the general burden of tax does not arise regarding them, so it would be illogical to allow the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that permeates them; the deterrent of deviant behaviors that its institution represses or removes.

Now, autonomous taxation, as seems clear, does not have a markedly revenue-raising purpose, that is, does not primarily aim at obtaining (more) tax revenue, although this may not be a negligible aspect, verifiable.

In fact, they aim to dissuade behaviors, practices or choices of companies rooted in reasons essentially of a nature of tax savings, revenue-raising and, on the other hand, preserve the balances inherent to the regime of taxation of legal entities, avoiding distortions not only at the level of taxable results, as waves of deviant behaviors, affecting the legal expectation of revenue, in each economic year.

And, through these general anti-abuse clauses, they force the maintenance of a healthy correlation between the volumes of business, taxable profits and tax finally owed by entities subject to IRC, in line with the levels of average effective tax burden that falls on the different groups of taxpayers, within the Portuguese tax system and, even, comparatively with that of OECD member states or outside it.

Thus, autonomous taxation, including those provided for in al. b), of no. 13, of article 88º of the IRC Code have, therefore, a general disciplinary function that is not alien to the systemic purposes of the tax, especially since, as an anti-abuse mechanism, autonomous taxation are not alien to the general purposes of the tax system.

In these terms, the adoption of legal regimes that limit the harmful effects resulting from behaviors affecting the balanced distribution of the tax burden on the different groups of taxpayers does not constitute only a choice of the legislator, but is rather a strict obligation, as a result of the obligation to design and operate the system as a whole in a balanced manner.

In fact, autonomous taxation introduces taxation mechanisms which, naturally, will displease those to whom they are directed, but prevent or limit the harmful effects of abusive practices that would prejudice others and are, therefore, necessary to preserve the system's equilibrium.

Now, companies, just like natural persons, are also subject and with the same intensity to the general duty to pay taxes and, in this measure, tax law cannot fail to establish mechanisms that limit deviant procedures since each one must bear tax according to their means, that is, according to their revealed taxable capacities.

It should also be noted that, in our days, the regime of taxation according to real and effective income has been adopted as a general rule for legal entities, this not constituting a mere option of operation of the tax system among several other possible.

In truth, it is rather a concrete manifestation of the modernity and maturity of a tax system that requires of its recipients/beneficiaries a maturity of the same stature since it also represents a new form of ethical and social accountability before the phenomenon of tax.

As aptly stated, SALDANHA SANCHES (cited in Arbitral Decision 187/2013-T, p. 28), autonomous taxation constitute a way of preventing abusive actions: "(...) that the normal operation of the taxation system was incapable of preventing, and others, including forms more burdensome for the taxpayer, were possible. This anti-abuse character of autonomous taxation, will be not only consistent with its "anti-systemic" nature (as happens with all provisions of this kind), as with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the case law citing it. They will then materially underlie a presumption of partial businessmanship of expenses on which they fall, based on the above-mentioned circumstance that such expenses are in a grey line that separates what is expense entrepreneurial, productive, from what is private expense, consumption, and that, notoriously, in many cases, the expense will even in reality have a dual nature (part entrepreneurial, part private)".

All these considerations summon what appears to us to be the true sententia legis, since the discovery of the true meaning of the law constitutes an imperative, as it is important to ensure that the activity of the interpreter reaches an interpretative sense by which the law exteriorizes its most beneficial, most fruitful and most salutary sense, in the words of FRANCESCO FERRARA.

On the other hand, the logical sense of interpretation leads us only in the sense that autonomous taxation is based on logic according to which the law intends to prevent or discourage such legal entities from reporting (abusively) as expenses values relating to bonuses or variable remuneration. Thus, it is the reporting as an expense for IRC purposes, in its entirety, that it is intended to discourage.

Appealing to the ratio legis it is clear that autonomous taxation are levied within the IRC assessment process in accordance with its own root and dogmatics that lead to the total tax collection not being a unitary reality, but a composite one.

Thus, it is possible to discern in it the proper tax collection, resulting from the general mechanics of IRC assessment, which is owed based on constitutional grounds rooted in the general duty of each one (in which legal entities are included) to contribute to public expenses according to their means (article 103º, no. 1 of the Constitution). All in respect and in compliance with the principles of justice, equality and the duty to pay tax according to revealed taxable capacity. And from which the amounts referred to in article 90º of the IRC Code are deducted in the terms and ways referenced there.

To this general collection, rooted in this foundational basis, is added the specific collection, owed by autonomous taxation, which has, as has been made clear, its own root, sense and basis, which is to discourage the adoption of the behaviors taxed by it, listed in article 88º of the code, which constitutes an anti-abuse provision, which allows us to invoke here all the specific dogmatics on which it is based.

In this case, because it is a question of fulfilling purposes that go beyond the purely revenue-raising purposes of the tax, to situate itself in the field of behaviors that the law considers abusive and/or undesired, it seems clear that it does not make sense to make deductions from it, under penalty of emptying, in practice, of any sense the anti-abusive regime created."

2.3.4. Tax Benefits

Tax benefits are exceptional measures within the tax system, which the legislator adopts because to achieve certain objectives of economic and social policy, thereby encouraging certain behaviors by taxpayers.

As explained in the judgment rendered in case no. 542/2017, its "legitimation derives from this extra-fiscal basis, which must be properly justified, and which translates the protection of public interests constitutionally relevant. As established by article 2º of the Tax Benefits Framework Law, "Tax benefits are considered as exceptional measures instituted for the protection of public interests of extra-fiscal relevance which are superior to those of taxation itself which they prevent."

They are included in the statutory reservation – cfr. article 103º, no. 2 of the Constitution and article 8º, no. 1 of the General Tax Law - and constitute tax reliefs, opening exceptions to incidence norms, with the objective of achieving certain extra-fiscal purposes.

They are considered tax expenditure (cfr. also article 2º, no. 3 of the Tax Benefits Framework Law) and their creation is therefore subject to a series of conditions. Among which is included the need for an estimate of the tax expenditure they originate. From the outset, the Constitution requires that the State Budget Proposal include a report on Tax Benefits and the respective estimate of foregone revenue (see article 106º, no. 3, al. g) of the Constitution). The General Tax Law establishes (see article 14º, no. 3) that "The creation of tax benefits depends on the clear definition of their objectives and on prior quantification of tax expenditure".

In addressing the theme of the economic and social justification of tax expenditure, Guilherme d' Oliveira Martins delimits the concept of tax expenditure as follows: "(...) tax expenditure only subsists while representing situations which, from the point of view of the taxpayer, are assumed as exceptional reductions of the tax amount to which they are subject and which, from the point of view of public entities, represent renunciation of revenues that in normal conditions would be taxed (…)."

"The matter of tax benefits is one of the most delicate and, to a large extent, responsible for tax complexity. Some careful observers note a general tendency in this field, which passes through the introduction, by the legislator, of a certain tax incentive, followed by the attempt, by taxpayers, to adjust and manipulate their behaviors in order to use and abuse such incentive, followed by the adoption by the legislator, of even more complex and extensive norms to define tax benefits created with greater precision. And so on successively. The result is greater complexity of the tax system, accompanied by greater creativity and sophistication of the techniques developed to circumvent its provisions and maximize the benefits that the same can provide."

2.3.5. IRC

In accordance with article 1º of the IRC Code (Prerequisite of the Tax): "Corporate Income Tax (IRC) falls on income obtained, even when derived from unlawful acts, in the tax period, by taxpayers, under the terms of this Code."

The IRC Code defines its personal or subjective incidence in article 2º (Taxpayers) and real or objective incidence in article 3º (Tax Base).

As regards the present case, as to real incidence and with respect to companies and other legal entities whose principal activity is of an entrepreneurial nature, article 3º establishes:

"1. IRC falls on: a) The profit of commercial companies (…);

"2. For the purposes of the above, profit consists of the difference between the values of net assets at the end and beginning of the tax period, with the corrections established in this Code".

The base of taxation in IRC is therefore, in cases such as those of the present case (i.e., commercial companies as Applicant), profit. The Code embraces for this purpose, cfr. article 3º, no. 2, a broad concept of income-increment.

Article 17º of the IRC Code then establishes that taxable income "is constituted by the algebraic sum of the net result of the period and of positive and negative capital changes verified in the same period and not reflected in that result, determined based on accounts and eventually corrected under the terms of this Code".

That is, IRC falls on profit – on the net result of the fiscal year calculated in accounts and eventually corrected for tax purposes (corrected under the terms of the IRC Code and other applicable legal provisions).

It should be noted here, opening a parenthesis, that the calculation of Taxable Income (and Taxable Matter) obeys a complexity of rules and procedures, which the legislator has established throughout Chapter III of the IRC Code (articles 15º to 86º-B). And, when it is self-assessment (as is the rule in IRC), such calculation should be reflected in Declarations of official form approved by order of the government member responsible for the financial area (see article 117º, no. 2), in particular in the periodic return of income to which articles 117º, no. 1, al. b) and 120º refer. This Declaration is the "Declaration – Model 22" (to which we refer throughout this Decision whenever we refer to the designation or numbering of any "Table" or "Field"), also approved, as it could not but be, by the same legislator. All in coherence with the principle of taxation of real income, an imperative constitutional requirement in the taxation of legal entities (see article 104º, no. 2 of the Constitution), at the origin of the principle of approximation of tax to accounting.

At a later moment, once Taxable Income has been calculated - should it exist - certain amounts are then to be deducted from it. Thus arriving at Taxable Matter (see article 15º, no. 1 al. a) and article 52º of the IRC Code and Table 09 of Model 22).

Being at that point that one is in position to calculate the tax. That is, once Taxable Matter is calculated, the IRC rate is applied to it (see article 87º of the IRC Code) thus obtaining the respective Collection. To this may still be added State Surtax (cfr. article 87º-A of the IRC Code) and, at that point, the Total Collection is calculated.

It is to this Collection that Deductions are then made, if applicable - the Deductions of article 90º, no. 2 of the IRC Code (among them, the one relating to tax benefits at issue in this proceeding – that of al. c)). Being the TOTAL OF DEDUCTIONS to be registered in a specific Field in Table 10 – Field 357.

Once these Deductions are processed we then arrive at TOTAL IRC ASSESSED (Table 10 - Field 358), or "net collection", in the expression of Casalta Nabais.

From this TOTAL IRC ASSESSED, payments that have been previously made on account of the tax (withholding at source, advance payments and additional advance payments) are finally deducted.

And thus we arrive at IRC TO BE PAID – cfr. Table 10 - Field 361. Or, if applicable, IRC TO BE RECOVERED (as in the present proceeding)."

At no point up to this point is it a question of autonomous taxation, as indeed we had already concluded above, in point 2.3.1.

Having set out the framework, it is then necessary to decide.

2.4. Of the Possibility of Deduction from the Collection Produced by Autonomous Taxation Rates in IRC of Credits of Available Tax Benefits for Deduction from IRC Collection. In the case, Credits Calculated within the Framework of CFEI, RFAI and SIFIDE

The Applicant is of the opinion that the self-assessment in question is partially affected by the defect of violation of law because - it argues - it was not recognized for it (as it should have been) the right to also deduct in the collection derived from autonomous taxation rates, in the year 2014, the tax credits arising from tax benefits (CFEI, RFAI and SIFIDE) of which, in fiscal year 2014 the B... Fiscal Group (of which, in the relevant period, the Applicant was the holding company) had available for application against IRC collection.

Which, according to it alleges, it only did not do because it was prevented from doing so by the Tax Authority's computer system, which prevented it.

Having the Applicant filed a Gracious Complaint, its claim was also not granted there by the Tax Authority.

The Applicant's entire claim is presented and substantiated starting from article 90º of the IRC Code. Namely from its no. 2 and from what, in its view, should be understood to signify (meaning and scope with which it should be understood) the expression contained there "amount calculated under the terms of the previous number".

And, simultaneously, starting from the understanding, which it defends, that no. 1 of the same article, to which no. 2 refers, should be interpreted as containing in itself the operation of assessment of Autonomous Taxation.

An understanding which it bases, in turn, on another its prior understanding in the sense that - as it argues - it follows from the provisions of article 23º-A (and, before, from article 45º, no. 1, al. a)) that ATs are IRC, that the IRC collection includes ATs. And that if the legislator so established in that article (as it argues), then (it concludes) the same should also be understood the legislator to have established in article 90º.

Hence, to no. 2 of article 90º referring to the "amount calculated under the terms of the previous number" it will be (it argues) referring to IRC Collection considering this to include the amounts of ATs.

The Applicant relies on a literal interpretation, as we shall see. And literal in the sense that it departs from the other hermeneutical criteria owed to apply, clearly confining its interpretation to the letter of the law. Which, as we have seen above, not only does not conform to the applicable hermeneutical rules, but leads to results that contain in themselves potential to distort – in our understanding – the unity of the tax legal system.

We will not fail, in any event, to note here that, in truth, even if we relied exclusively on a literal criterion (which, as is plain to see, we would not), it would be possible to draw a conclusion opposite to that which the Applicant draws in the case (being certain that there will always be found a minimum correspondence in the letter of the law).

(…) The Applicant invokes that article 45º, no. 1 al. a) of the IRC Code comprises the collection of ATs in IRC. It affirms that Case law has so understood "in practically unanimous manner". To then advance that, in the same manner, it is to be understood that the IRC collection provided for in article 90º, no. 1 and no. 2 al. c) of the IRC Code encompasses the collection of ATs in IRC.

And from this draws the consequence of illegality (for violation of article 90º, no. 2 al. c)) which, in its understanding, the refusal to deduct the credits of Tax Benefits SIFIDE, CFEI and RFAI from the collection of ATs represents.

Now, not only is it not true that there exists case law "practically unanimous" in the sense that article 45º, no. 1 al. a) contained in itself the collection of ATs, but such understanding derives, with due respect to those who profess it, from a literal interpretation of the article in question. And the same is to be said also, in parallel, with reference to the current article 23º-A, no. 1 al. a), with the wording in force (introduced by Law no. 2/2014, of 16 January).

Article 45º, no. 1 al. a) (in force until 31 December 2013 and which was repealed by Law no. 2/2014, of 16 January, which in turn introduced article 23º-A) - was as follows:

"Article 45º - Charges Non-Deductible for Tax Purposes

1. The following charges are not deductible for the purposes of determining taxable income, even when recorded as expenses of the tax period:

a) The IRC and any other taxes which, directly or indirectly, fall on profits; (...)"

In turn, article 23º-A) (in force since 1 January 2014 with the wording it currently maintains) thus provides:

Article 23º-A – Charges Non-Deductible for Tax Purposes

1. The following charges are not deductible for the purposes of determining taxable income, even when recorded as expenses of the tax period:

a) The IRC, including autonomous taxation, and any other taxes which directly or indirectly fall on profits; (...)"

(…) Now, in article 23º-A of the IRC Code, the legislator came expressly to state, in al. a) of no. 1, that among the charges not deductible for tax purposes are also included autonomous taxation. Whereas in article 45º in no. 1, al. a) (see above), which preceded it, there was no express mention of them.

Precisely because ATs are not IRC is that the legislator felt the need to expressly refer, adding them between commas, that they too are not considered deductible for tax purposes.

The amount of tax resulting from the application of autonomous taxation rates does not contribute to the formation of Taxable Income, so it is not fiscally deductible. Notwithstanding being borne by the Taxpayer and recorded as a cost in accounts.

That is precisely what article 23º-A is about: not accepting as costs for tax purposes. In al. b) we are dealing with expenses that are not accepted as costs, for logical reasons: lack of documentation. In al. a) we are dealing with fiscal charges of the Taxpayer, which are likewise not accepted as costs, also for logical reasons: it is not by incurring such fiscal charges that the Taxpayer is, through this, contributing to the formation of its Taxable Income. The collection of ATs is a cost in the form of a fiscal charge. This charge should not be considered in the determination of taxable income in IRC as it does not contribute to the formation of the same. In other words, it is a charge that cannot be considered as a cost of income.

Also by analysis of article 23º ("Costs and Losses"), indeed, would the reason for this be understood. In fact, there it is determined, already in no. 1, that "For the determination of taxable income, all costs and losses incurred or borne by the taxpayer to obtain or guarantee income subject to IRC are deductible."

In coher