Summary
Full Decision
ARBITRAL DECISION
I. REPORT
I.1
On 22 September 2016 the taxpayer A..., S.A., collective person no. ..., with registered office in Place of... –..., ...-... ... requested, pursuant to and for the purposes of the provisions of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January, the constitution of an Arbitral Court with appointment of the sole arbitrator by the Ethics Council of the Center for Administrative Arbitration, pursuant to the provisions of no. 1 of article 6 of the said legislation.
The request for constitution of the Arbitral Court was accepted by His Excellency the President of CAAD and was notified to the Tax and Customs Authority (hereinafter referred to as AT or "Respondent") on 10 October 2016.
The Claimant did not proceed with the appointment of an arbitrator, so, under the provisions of article 5, no. 2, paragraph b) and article 6, no. 1, of the RJAT, the undersigned was appointed by the President of the Ethics Council of CAAD to be part of the present sole Arbitral Court, having accepted in accordance with the legally provided terms.
The AT submitted its response on 24 January 2017.
By dispatch dated 26.01.2017 the Claimant was notified to, if it wished, make statements regarding the exception raised by the Respondent.
The Claimant made statements on 06.02.2017 regarding the exception raised by the Respondent.
By dispatch of 07.02.2017, the holding of the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with written final arguments.
On 14 February 2017 the Claimant filed arguments.
The Respondent filed its arguments on 23 February 2017.
The Claimant seeks that the Arbitral Court declare the illegality of the dismissal of the request for ex officio review and, likewise, the partial illegality of the self-assessment of IRC no. 2013..., relating to the year 2011, with all legal consequences, namely the reimbursement to the claimant of the sum of €31,743.63, plus compensatory interest.
II.A. The Claimant bases its request, in summary, on the following terms:
1. The Claimant considers that the values of the tax benefit (SIFIDE) that ceased to be deducted due to alleged insufficiency of collection should be deducted from the portion of the IRC collection that includes autonomous taxation, insofar as these are also IRC.
2. Autonomous taxation constitutes a component of IRC.
3. Articles 89 and 90 of the CIRC, as well as other provisions of this Code, namely those relating to the declarations provided for in articles 120 and 122, are applicable to autonomous taxation.
4. The new provision of no. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretative, does not alter this conclusion in any way, as it establishes, with respect to the form of payment of autonomous taxation, that it "is carried out in accordance with the provisions of article 89 and is based on the values and rates that result from the provisions of the preceding paragraphs".
5. The Claimant further adds that, by mere declarative interpretation, it is concluded that article 4, no. 1, of SIFIDE II, in establishing the deduction "to the amount determined in accordance with article 90 of the IRC Code, and up to its occurrence", implies the deduction from the amount of autonomous taxation that are determined in accordance with that article 90.
6. It further alleges that, in the case of tax benefits, an expansive interpretation is explicitly provided for (article 10 of the EBF), but not a restrictive interpretation, so that, as a rule, the tax benefit should not be interpreted with less breadth than that which, in a declarative interpretation, results from the wording of the provision that establishes it.
7. In fact, there is no indication whatsoever, neither in Law no. 7-A/2016, nor in the Report of the 2016 Budget, nor in its discussion, that with the addition to article 88 of the CIRC of a general provision prohibiting deductions to the total global amount determined of autonomous taxation, it was intended to interpret restrictively the expression "deduct from the amount determined in accordance with article 90 of the IRC Code" which appears in a special provision of a separate diploma, such as SIFIDE II.
8. In the absence of an unequivocal intention to the contrary, the rule applies that general law does not alter special law (article 7, no. 3, of the Civil Code), which is justified by the fact that "the general regime does not include consideration of the particular conditions that precisely justified the issuance of the special law".
9. Thus, the Claimant concludes that, with the illegality of the self-assessment in question declared, it is entitled not only to its respective reimbursement, but also, under article 43 of the LGT, to compensatory interest, calculated on the amount of tax unduly paid, based on the increase in the use of tax benefits (€31,743.63) counted, until the full reimbursement of the same, after one year from the date of submission of this request for ex officio review of the tax.
II.B In its Response the AT invoked the following:
The request for arbitral pronouncement sub judice is formulated following the dismissal of a request for ex officio review of an act of self-assessment of corporate income tax (IRC) relating to the year 2011, formulated on 29.03.2016, that is, in circumstances of time in which the period of gracious appeal referred to in article 131 of the CPPT had already elapsed.
Now, in view of the provisions of articles 2, no. 1, paragraph a) and 4, no. 1, both of the RJAT, and in articles 1 and 2, paragraph a), both of Ordinance no. 112-A/2011, of 22 March, there is a finding of material incompetence of the present Arbitral Court to examine and decide the above request, a circumstance which requires the determination of the acquittal of the Respondent Entity from the Instance [cf. articles 576, nos. 1 and 2 and 577, paragraph a) of the Code of Civil Procedure, ex vi article 29, no. 1, paragraphs a) and e) of the RJAT].
The AT bound itself, in accordance with Ordinance no. 112-A/2011, to the jurisdiction of the arbitral courts only if the request for declaration of illegality of the act of self-assessment had been preceded by recourse to the administrative appeal route (in accordance with article 132 of the CPPT).
When the legislator refers to recourse to the administrative route, it only means to refer to the means provided for in articles 131 to 133 of the CPPT, considering the literal element and, consequently, inescapable, of article 2, paragraph a) of Ordinance no. 112-A/2011.
Now, if the legislator did not provide for, in article 2 of that Ordinance, the procedure of ex officio review as equivalent to recourse to the administrative route, especially to the gracious appeal, for the purposes of accessing the request for arbitral pronouncement, it was certainly because it did not intend to do so.
Under penalty of, if this is not understood this way, such interpretation being not only illegal, but manifestly unconstitutional, by violation of constitutional principles of the Rule of Law and the separation of powers (cf. articles 2 and 111, both of the CRP), as well as of legality (cf. articles 3, no. 2, and 266, no. 2, both of the CRP), as a corollary of the principle of the indisposability of tax credits inherent in article 30, no. 2 of the LGT, which bind the legislator and all activity of the AT.
The respondent proceeds to allege that the figure of autonomous taxation has been instrumentalized for the pursuit of diverse objectives, which range from the original purpose of preventing practices of evasion and fraud – through undisclosed or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of the taxation of accessory advantages in the form of representation expenses or allocation of vehicles to workers and members of governing bodies, in the sphere of the respective beneficiaries –, to the purpose of preventing the phenomenon designated as "dividend washing" (see no. 11 of art. 88 CIRC) or of burdening, by way of taxation, the payment of income considered excessive (cfr. no. 13 of the same provision).
In reality, the integration of autonomous taxation in the IRC Code (and the IRS), conferred a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied, namely, in the framework of paragraph a) of no. 1 of art. 90 of the CIRC, in separate determinations of the respective collections, due to the fact that they obey different rules.
In fact, it should be noted that the common feature to all the realities reflected in the deductions referred to in no. 2 of art. 90 of the CIRC resides in the fact that they concern income or expenses incorporated in the taxable matter determined on the basis of the subject's profit or advance payments of the tax, being, therefore, entirely unrelated to the realities that integrate the taxable events of autonomous taxation.
The interpretation of the claimant would result in a contradictory double effect: the achievement of the objectives of a tax incentive oriented towards the economic development of the country could, ultimately, eliminate the collection resulting from autonomous taxation and foster the incentivization of behaviors reflected in the execution of expenses that the legislator intended to discourage.
Finally, not being found, in the present proceedings, error attributable to the services in the collection of the tax, no right to compensatory interest should be recognized to the Claimant.
II.C The Claimant responded to the exceptions as follows:
It is important to recall that whenever the request for review of the tax act aims at an act of collection – as is the case in the present situation –, it is, similarly to the gracious appeal, an administrative means of challenging such an act, and can naturally be based on grounds identical to those that can support the aforementioned gracious appeal.
The answer can only be the following: the law only intends to achieve the administrativization of these acts of individuals, an administrativization that also occurs when, following a request for review concerning an act of self-assessment, the AT makes a negative pronouncement on the merits of the matter, as occurred in casu.
Thus, it should be concluded that making the AT's understanding prevail would be equivalent to the prevalence of the formal over the substantive, only permitted by a positivist reading of the law mobilized by that entity, something in which one does not compromise.
II. PROCEEDINGS ON THE MERITS
A plea of material incompetence of the Arbitral Court is invoked, which must be examined first.
The Respondent alleges that the Court is materially incompetent because the request for arbitral pronouncement was formulated following the dismissal of a request for ex officio review.
The Respondent concludes that, not having the request (annulment of the self-assessment) been subject to prior gracious appeal, the Arbitral Court is prevented from examining it (art. 2, no. 1, al. a) of the RJAT and art. 2, al. a) of Ordinance no. 112-A/2011).
Quid Juris?
The competence of the arbitral courts operating in the CAAD is defined, in the first place, by article 2, no. 1 of the RJAT, which establishes the following:
"1 - The competence of arbitral courts comprises the examination of the following claims:
a) The declaration of illegality of acts of collection of taxes, of self-assessment, of withholding at source and of payment on account;
b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to the collection of any tax, of acts of determination of the collectible matter and of acts of determination of patrimonial values;"
It is important, first of all, to clarify whether the declaration of illegality of acts of dismissal of requests for review of the tax act, provided for in art. 78 of the LGT, is included in the powers attributed to the Arbitral Courts operating in the CAAD, by art. 2 of the RJAT.
In fact, in this art. 2 there is no express reference to these acts. However, the formula "declaration of illegality of acts of collection of taxes, of self-assessment, of withholding at source and of payment on account", used in paragraph a) of no. 1 of art. 2 of the RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In fact, the illegality of collection acts can be declared jurisdictionally as a result of the illegality of a second degree act, which confirms a collection act, incorporating its illegality.
The inclusion in the competencies of the Arbitral Courts operating in the CAAD of cases in which the declaration of illegality of the acts indicated there is effected through the declaration of illegality of second degree acts, which are the immediate subject of the challenging claim, results with certainty from the reference made in that provision to self-assessment acts, withholding at source and payment on account, which are expressly referred to as included among the competencies of arbitral courts. In fact, with respect to these acts a gracious appeal is required as a rule, necessary, in arts. 131 to 133 of the CPPT, so that, in these cases, the immediate subject of the challenging procedure is, as a rule, the second degree act which examines the legality of the collection act, an act that, if it confirms it, must be annulled to obtain the declaration of illegality of the collection act. The reference made in paragraph a) of no. 1 of art. 10 of the RJAT to no. 2 of art. 102 of the CPPT, in which the challenging of acts dismissing gracious appeals is provided for, removes any doubts that the powers of the arbitral courts operating in the CAAD comprise cases in which the declaration of illegality of the acts referred to in paragraph a) of that art. 2 of the RJAT must be obtained following the declaration of the illegality of second degree acts.
Moreover, it was precisely in this sense that the Government, in Ordinance no. 112-A/2011, of 22 March, interpreted the powers of the Arbitral Courts operating in the CAAD, when it excluded from the scope of those powers "claims relating to the declaration of illegality of acts of self-assessment, of withholding at source and of payment on account that have not been preceded by recourse to the administrative appeal route in accordance with articles 131 to 133 of the Code of Procedure and Tax Procedure", which has the effect of restricting its binding to cases in which this recourse to the administrative route was used.
Having obtained the conclusion that the formula used in paragraph a) of no. 1 of art. 2 of the RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second degree act, it will also comprise cases in which the second degree act is the dismissal of a request for review of the tax act, as there is no reason to restrict, especially since, in cases where the review request is made within the period of gracious appeal, it should be equated to a gracious appeal.
In the case under examination the sindicalized act is the self-assessment of IRC for the year 2012. The cause of action is the alleged illegality of the self-assessment of IRC. On a prior date the taxpayer filed a review request (art. 78 of the LGT). The review request involved the examination of the legality of the primary act and was dismissed.
Inasmuch as, by this route there is no impediment that obstructs the examination of the request, the Court is competent.
However, in the second place, the competence of the arbitral courts operating in the CAAD is limited by the binding of the Tax and Customs Authority which, in accordance with article 4, no. 1 of the RJAT, came to be defined by Ordinance no. 112-A/2011, of 12 March, which establishes in art. 2 the following, insofar as is relevant here: "The services and bodies referred to in the previous article bind themselves to the jurisdiction of the arbitral courts operating in the CAAD that have as their object the examination of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:
a) Claims relating to the declaration of illegality of acts of self-assessment, of withholding at source and of payment on account that have not been preceded by recourse to the administrative appeal route in accordance with articles 131 to 133 of the Code of Procedure and Tax Procedure;
(...)"
The express reference to article 131 of the CPPT which is made in article 2 of Ordinance no. 112-A/2011 cannot have the decisive scope of excluding the possibility of examination of requests for illegality of acts dismissing requests for ex officio review of acts of self-assessment.
The right to effective judicial protection is a fundamental right, which should not lead us to reject merely ritualistic and formal interpretations (art. 20, no. 1 of the CRP). The reform of administrative justice expressly condemned the excess of formalism (art. 7 of the CPTA). Procedural rules should be interpreted in the sense of promoting pronouncements on the merits of the claims formulated.
The same philosophy is followed by the CPC "(...) which aims, whenever possible, the prevalence of substance over form, as well as the healing of procedural irregularities and obstacles to the normal progress of the instance, with a view to the maximum use of procedural acts" In Ac. of the TRC of 24.02.2015, proc. no. 1530/12.7 TBPBL.C1
In fact, the interpretation based exclusively on the literal wording, which the AT defends in the present proceedings, cannot be accepted, as in the interpretation of tax provisions the general rules and principles of interpretation and application of laws are observed (article 11, no. 1, of the LGT) and article 9, no. 1 of the Civil Code expressly prohibits interpretations based exclusively on the literal wording of the rules by establishing that "interpretation should not be confined to the letter of the law", but should instead "reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied".
In the framework of weighing procedural requirements, the anti-formalist principles, "pro actione" and "in dubio pro favoritate instanciae" impose an interpretation that presents itself as the most favorable to access to law and effective judicial protection, so that, if any interpretative doubts arise in this area, the one that favors the action should be chosen and thus presents itself as the most capable of guaranteeing the real judicial protection of the rights invoked by the party.
As for the correspondence between the interpretation and the letter of the law, "a minimum of verbal correspondence, even if imperfectly expressed" suffices (article 9, no. 3, of the Civil Code) which will only prevent the adoption of interpretations that cannot at all be reconciled with the letter of the law, even recognizing in it imperfection in the expression of the legislative intention.
For this reason, the letter of the law is not an obstacle to making declarative interpretation, which explains the scope of the literal wording, nor 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 "(...) the interpreter reaches the conclusion that the letter of the text falls short of the spirit of the law, that the verbal formula adopted has a defect, as it says less than what was intended to be said. Then it enlarges or extends the text, giving it a scope in accordance with the legislative thought, that is, making the letter of the law correspond to the spirit of the law." [1]
Extensive interpretation, thus, is imposed by the axiological and evaluative coherence of the legal system, established by article 9, no. 1, of the Civil Code as a primordial interpretative criterion by means of the imposition of the observance of the principle of the unity of the legal system.
It is manifest that the scope of the requirement of prior gracious appeal, necessary to open the contentious route of challenging acts of self-assessment, provided for in no. 1 of article 131 of the CPPT, has as its sole justification the fact that with respect to this type of acts there is no position taken by the Tax Administration on the legality of the legal situation created with the act, a position that could even come to be favorable to the taxpayer, avoiding the need for recourse to the contentious route.
Another unequivocal confirmation that this is the reason for the requirement of necessary gracious appeal is found in no. 3, of article 131 of the CPPT, by establishing that "When exclusively a matter of law is in question and the self-assessment has been carried out in accordance with generic guidelines issued by the tax administration, there is no place for the necessary appeal provided for in no. 1". 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 act of self-assessment and it is this fact that explains why the requirement of necessary gracious appeal ceases to apply.
Now, in cases where a request for ex officio review of a collection act is formulated, it is provided to the Tax Administration, with this request, an opportunity to make a pronouncement on the merits of the claim of the taxpayer before it resorts to the jurisdictional route, so that, in coherence with the solutions adopted in nos. 1 and 3 of article 131 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative examination within the framework of that procedure of ex officio review, a new administrative examination through gracious appeal is required.
The principles of justice, equality and legality (art. 266, no. 2 of the CRP and 55 of the LGT) require that the Respondent correct the self-assessment which may lead to the collection of an amount which, in light of the law, is not due (In this sense Cfr. LGT Annotated, Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, 4th Ed., 2012, pág. 711. In the same sense Cfr. Judgments of the STA delivered on 11.05.005, proc. 319/05, on 12.09/2015, proc. no. 476/12, on 04.05.2016, proc. no. 407/15 and Ac. of the TCAS delivered on 21/05/2015, proc. no. 7787/14). The AT has the duty to revoke illegal acts, with limitations of a temporal nature corresponding to the review period of art. 78 of the LGT (In this sense Cfr. Ac. of the STA of 12.07.2006, proc. no. 402/06).
The Respondent had the opportunity to correct a possible illegality. However, the Respondent maintained the act.
By virtue of the cited principles, if the tax act suffers from some defect that has been invoked in judicial proceedings, it must be examined.
On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from filing requests for ex officio review in cases of acts of self-assessment, as these are tax acts, they are expressly mentioned in no. 1 of article 78 of the LGT.
In this context, the law permitting taxpayers to opt for gracious appeal or for ex officio review of acts of self-assessment and the request for ex officio review being filed within the period of gracious appeal being perfectly equatable to a gracious appeal, there can be no reason that could explain that a taxpayer who has opted for review of the tax act instead of gracious appeal could not have access to the arbitral route.
Therefore, it is to be concluded that art. 2, al. a) of Ordinance no. 112-A/2011, by making reference to article 131 of the CPPT, intends to impose prior administrative examination to the contentious challenge of acts of self-assessment.
On the other hand, containing that paragraph a) of article 2 of Ordinance no. 112-A/2011 a comprehensive expression "recourse to the administrative route", which potentially also references the review of the tax act, is found in the text the minimum of verbal correspondence, required by that no. 3 of article 9 for the viability of the adoption of the interpretation that consecrates the most correct solution.
It is to be concluded, thus, that article 2, paragraph a) of Ordinance no. 112-A/2011, duly interpreted on the basis of the criteria of interpretation of law provided for in article 9 of the Civil Code and applicable to substantive and adjective tax provisions, by virtue of the provision of article 11, no. 1, of the LGT, enables the submission of requests for arbitral pronouncement with respect to acts of self-assessment that have been preceded by a request for ex officio review.
From this perspective, the issues of unconstitutionality do not arise - (violation of constitutional principles of the separation of powers and legality) - which the Tax and Customs Authority raises on the basis of the erroneous literal interpretation it made of that provision.
It is not explained by the AT why the cited constitutional provisions were violated.
Yet, the assumption of material competence by this tribunal in no way interferes with the separation of powers defined in the Constitution, insofar as a jurisdictional function is exercised (art. 1 of the RJAT) that is not restricted to the competence of other organs of sovereignty (President of the Republic, Assembly of the Republic or Government).
Moreover, the solution found by this Court is based on law (art. 2, no. 1, al. a) of the RJAT and art. 2, al. a) of Ordinance 112-A/2011 of 22.03) and the violation of legality is not discernible.
In light of the foregoing, in conclusion, the Court is competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT.
The parties have legal capacity and standing.
The parties are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.
The process is the proper one.
There are no other preliminary issues to be examined nor defects that invalidate the proceedings.
It is now necessary to examine the merits of the request.
III. THEMA DECIDENDUM
The central issue to be decided, as raised by the Claimant, is whether the self-assessment of IRC (including autonomous taxation) relating to the year 2011 suffers from the material defect of violation of law, subject to challenge inasmuch as, in its view, the deduction of SIFIDE should not be prohibited from the portion of the collection corresponding to autonomous taxation.
IV. – FACTUAL MATTER
IV.1. Established Facts
Before proceeding to the examination of the issues, it is necessary to present the factual matter relevant to its understanding and decision, which, having examined the documentary evidence, the attached tax administrative proceedings and taking into account the alleged facts, is established as follows:
On 31 May 2012 the now claimant proceeded to file the IRC declaration Form 22 relating to the year 2011.
On 30 May 2013 the claimant proceeded to submit the substitution IRC declaration Form 22 relating to the year 2011, and at that time proceeded to self-assess autonomous taxation of that same year 2013, in the amount of €31,743.63.
In view of the substitutive declaration the Claimant proceeded to declare a tax loss of €505,394.62.
On 29 March 2016 the claimant filed a request for ex officio review against the said self-assessment relating to the year 2011.
The AT dismissed the request for ex officio review by dispatch dated 13.07.2016.
The AT does not allow the Claimant to deduct the full amounts of SIFIDE (€595,801.76) to the amounts determined as autonomous taxation.
IV.2. Facts Not Established
There are no essential unestablished facts, as all facts relevant to the examination of the request were considered established.
IV.3. Motivation of the Factual Matter
The established facts comprise unchallenged matter and documentary evidence in the proceedings.
The facts listed in numbers 1 to 6 are taken as settled by the analysis of the administrative proceedings, by the documents filed by the Claimant (docs. 1 to 3 of the request for constitution of the Court) and by the position assumed by the parties.
V. The Law
V.1. The nature of autonomous taxation
The rates of autonomous taxation apply to certain expenses incurred by IRC taxpayers, which by their nature may present a more ambiguous connection in the achievement of income subject to taxation or in the maintenance of the income source. Increasingly, through the mechanism of autonomous taxation, an attempt is made to dissuade some excesses in the occurrence of this type of expenses.
In contrast to what happens with the philosophy inherent in the remaining provisions of the IRC Code, income is not taxed but rather expenses or costs.
With autonomous taxation it is intended, in some way, to penalize taxpayers for the execution of certain types of expenses or costs, under certain conditions, even though such taxpayers may have obtained a tax loss and, therefore, in that year did not pay IRC.
The incidence of autonomous taxation is not limited to corporations and other taxpayers subject to IRC, with a profit-making purpose, and such taxation is also extended to associations, foundations, non-profit institutions and other entities that do not exercise, as their principal activity, activities of a commercial, industrial or agricultural nature, and to all entities that have income that is exempt or not subject to IRC.
With respect to autonomous taxation, it should be noted that these are determined independently and distinctly from the determination carried out in accordance with article 90 of the CIRC.
Developing further the question of the nature of autonomous taxation and its degree of connection with IRC, it is necessary to go back to the year 1990 to find the first intervention by the legislator in the sense of subjecting certain expenses to autonomous taxation, which occurred with the publication of Decree-Law no. 192/90, of 9 June, whose article 4 provided that "undisclosed or undocumented expenses incurred in the exercise of commercial, industrial or agricultural activities by individual taxpayers who own or should own organized accounting or by corporate taxpayers not covered by articles 8 and 9 of the respective Code are subject to autonomous taxation in IRS or IRC, as the case may be, at a rate of 10%, without prejudice to the provision in paragraph h) of no. 1 of article 41 of the CIRC." This provision was subject to various subsequent amendments which successively proceeded to increase the rate of taxation provided for in it.
With this type of taxation it was intended, on the one hand, to encourage taxpayers subject to it to reduce as much as possible the expenses that negatively affect tax revenue and, on the other hand, to prevent that, through these expenses, companies proceed to the disguised distribution of profits, especially dividends which would thus only be subject to IRC as profits of the company, as well as to combat tax fraud and evasion that such expenses cause not only in relation to IRS or IRC, but also in relation to the corresponding contributions, both from employers and workers, to social security.
Saldanha Sanches (Cfr. Manual of Tax Law, 3rd Edition, Coimbra Editor, 2007, pág. 407), with respect to autonomous taxation provided for in article 81, no. 3, of the CIRC (wording of 2005, corresponding, in essence, to article 88, nos. 3, 4 and 7, in the 2013 wording), wrote the following: "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax treatment of expenses that are in the intersection of the personal and business sphere, in order to avoid remuneration in kind more attractive for exclusively tax reasons or the hidden distribution of profits. The provision presents a characteristic similar to what we will find in the sanction against undocumented costs, with an increase in the rate when the situation of the taxpayer does not correspond to a situation of tax normality. If in the declaration of the taxpayer there is no profit, the cost can be subject to a negative assessment: for example, we have a rate of 15% applied when the taxpayer had losses in the two previous years and purchased a light passenger vehicle for more than €40,000 (article 81, no. 4). With this provision, the system shows its dualistic nature, with an increased rate of autonomous taxation for certain special situations that it seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles apparently too expensive when there are losses. It creates, here, a sort of presumption that these costs do not have a business purpose and, for that reason, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, as here, the basis of incidence is not a net income, but rather a cost transformed – exceptionally – into an object of taxation." (emphasis of our own).
In contrast to what happens in the taxation of income under IRS and IRC, in which the totality of income received in a given year is taxed (which implies that only at the end of that year can the tax rate be determined, as well as the bracket in which the taxpayer is included), in this case (autonomous taxation) each expense incurred is taxed, considered in itself, and subject to a certain rate, with autonomous taxation determined independently of the IRC that is due in each year, because it is not directly related to the achievement of a positive result, and for that reason, subject to taxation.
Thus, in the case of IRC, we are faced with an annual tax, in which each income received is not taxed individually, but rather the aggregation of all income obtained in a given year is taxed, with the law considering that the taxable event is deemed to occur on the last day of the taxation period (Cfr. article 8, no. 9, of the CIRC).
As for autonomous taxation in IRC, the taxable event is the execution of the expense itself, and we are not faced with a complex fact, of successive formation throughout a year, but with an instantaneous tax event.
This characteristic of autonomous taxation refers us, thus, to the distinction between periodic taxes (whose taxable event occurs successively, by the passage of a certain period of time, as a rule annually, and tends to repeat itself in time, generating for the taxpayer the obligation to pay tax on a regular basis) and single obligation taxes (whose taxable event occurs instantaneously, appears isolated in time, generating on the taxpayer an obligation to pay with a sporadic character).
In autonomous taxation, the taxable fact that gives rise to the tax is instantaneous: it is exhausted in the act of execution of a certain expense that is subject to taxation (although, the determination of the amount of tax resulting from the application of the various taxation rates to the various acts of execution of expense considered, will be carried out at the end of a certain taxation period). But the fact that the collection of the tax is carried out at the end of a certain period does not transform it into a periodic tax, of successive formation or of a lasting nature. That collection operation is merely translated into the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence on the volume of expenses incurred in the determination of the rate.
In this case we are faced with a single obligation tax, applying to operations that occur and are exhausted instantaneously, in which the taxable fact appears isolated in time, creating, for the taxpayer, an obligation to pay with a sporadic character. That is, the rates of autonomous taxation here under analysis do not refer to a period of time, but to a moment: that of the isolated operation subject to the rate, without prejudice to the determination of the amount owed by economic agents subject to the said "rate" being carried out periodically, at a certain moment, jointly with other similar operations, without the joint collection affecting its result.
For this reason, Sérgio Vasques (Cfr. Manual of Tax Law, Almedina, 2011, pág. 293, note 470) draws attention to the fact that income taxes contemplate elements of single obligation, such as the liberatory rates of IRS or the rates of autonomous taxation of IRC.
Autonomous taxation, in accordance with its initial regulation, constituted as it were a substitute for the regime of non-deductibility previously provided for in the CIRC.
In fact, in its genesis was the fiscal non-acceptance of a percentage of certain expenses, with autonomous taxation constituting an alternative and more effective form of correction of costs whenever it is a matter of areas more prone to tax evasion (allowances, representation expenses, vehicle expenses, etc.).
Thus, it would not be reasonable (on the contrary, contrary to the reason that led the legislator to autonomously tax those expenses) for, through their deduction from taxable income as expenses, the foundation for the existence of autonomous taxation to be eliminated.
Arbitral jurisprudence has decided that autonomous taxation belongs, as a rule, systematically, to IRC, and not to VAT, IRS, or any other tax in the Portuguese tax system. This is the case, among others, of the arbitral proceedings delivered within the scope of the CAAD, nos. 166/2014-T, 246/2013-T, 260/2013-T, 282/2013-T, 6/2014-T and 36/2014-T, 697/2014-T.
Also the superior courts have understood that "autonomous taxation, although formally inserted in the IRC Code, has always had its own treatment, as it does not apply to income, whose formation is given throughout the year, but rather to certain isolated expenses that represent autonomous taxable facts subject to rates different from those of IRC"(...) "Despite being a form of taxation provided for in the CIRC, it has nothing to do with the taxation of income, but rather with the taxation of certain expenses, which the legislator understood, for the reasons pointed out above, to do autonomously." (Judgment of the STA of 21/03/2012, proc. 830/11 and, in the same sense, Ac. of the STA of 06/07/2011, proc. no. 0281/11, Ac. of the STA of 17.04.2013, proc. no. 166/13, Ac. of the STA of 21.01.2015, proc. no. 04710/14 and Ac. of the TCAS of 16.10.2014, proc. no. 06754/13).
The Constitutional Court in Ac. no. 617/2012 of 31/01/2013 argued that in autonomous taxation, the taxable fact that gives rise to the tax is instantaneous, as "it is exhausted in the act of execution of a certain expense that is subject to taxation (although, the determination of the amount of tax, resulting from the application of the various taxation rates to the various acts of execution of expense considered, will be carried out at the end of a certain taxation period). But the fact that the collection of the tax is carried out at the end of a certain period does not transform it into a periodic tax, of successive formation or of a lasting nature. That collection operation is merely translated into the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence on the volume of expenses incurred in the determination of the rate."
And in judgment no. 310/12, of 20 June, the Constitutional Court weighed that "(...) in contrast to what happens in the taxation of income under IRS and IRC, in which the totality of income received in a given year is taxed (which implies that only at the end of that year can the tax rate be determined, as well as the bracket in which the taxpayer is included), in this case each expense incurred is taxed, in itself considered, and subject to a certain rate, with autonomous taxation determined independently of the IRC that is due in each year, because it is not directly related to the achievement of a positive result, and for that reason, subject to taxation."
The vast majority of Legal Doctrine does not diverge from the understanding of the superior courts. Thus and as Prof. RUI MORAIS teaches, "taxation is at issue that applies to certain expenses of taxpayers, which are considered as constituting taxable facts. It is difficult to discern the nature of this form of taxation and, moreover, the reason why it appears provided for in the codes of income taxes." (RUI DUARTE MORAIS, Notes on IRC, Almedina, 2009, pp. 202-203). And also CASALTA NABAIS considers that "this is a taxation on expenses and not on income" (CASALTA NABAIS, Tax Law, 6th Ed., p. 614). In the same line Professor Ana Paula Dourado asserts that "it is consensual that autonomous taxation reaches the expense of the taxpayer-contributor and not its income." Tax Law, 2015, Almedina, pág. 237
It is not questionable, in this way, that the mechanism of autonomous taxation of the set of realities provided for in article 88 of the CIRC aims, primarily, to safeguard the general equilibria of the tax system itself, the specific equilibria of IRC and the revenue of the tax itself. That is, to prevent that through the significant acknowledgment of charges such as those provided for in article 88, distortions affecting the system and the expectation about what should be the "normal" revenue of the tax are not introduced. In this case, as is equally well-known, what is at issue is to discourage the execution / acknowledgment of these expenses, firstly because, by their nature and purposes, they can be more easily the subject of diversion for consumption that, in essence, are private or correspond to charges that do not cease to have, also, a specific and ultimate purpose, the avoidance of the tax. These are realities that, as has been previously pointed out, present some degree of reprehensibility as they, without directly violating the law, generate sensible and important imbalances on the general idea of justice, on the fundamental duty to contribute in proportion to one's assets, of equality, of sacrifice, of the proportionality of the measure of the tax in the face of possible manifestations of wealth, of the taxation of real income and of justice.
Operating in a manner different from what constitutes the essential scope of IRC – which taxes income – autonomous taxation, it is reiterated, taxes certain specific expenses or charges – and constitute an instrumental, accessory reality of that tax, in the just measure in which it is in function of it that it was instituted and is, therefore, capable of being recognized an instrumentality or accessories of purposes, rooted in the safeguarding of the purposes of the tax itself where they manifest themselves.
It is thus certain that autonomous taxation does not constitute IRC in the strict sense but is intertwined with it (IRC), and should be contained in the "other taxes" of which the final part of paragraph a) of no. 1 of article 45 of the CIRC tells us (wording in force in 2011).
Revelations of that link of functionality, and in the framework of the legislator's overall intention, stand out, for example, from the discipline of article 12 of the CIRC with respect to entities subject to the regime of fiscal transparency, in not taxing them in IRC, "except as to autonomous taxation", a relationship that also manifests itself with respect to no. 14 of article 88 of the CIRC, in the sense that the rates of autonomous taxation take into account the fact that the taxpayer presents or not a tax loss.
Analyzed from yet another angle, autonomous taxation must be considered in the context of specific anti-abuse provisions and its similarity with the regime provided for under no. 1 of article 65 of the CIRC, ("sums paid or owed, for any reason, to natural or legal persons resident outside Portuguese territory and submitted therein to a clearly more favorable tax regime are not deductible for purposes of taxable income, unless the taxpayer can prove that such charges correspond to effectively performed operations and do not have an abnormal character or an excessive amount"). As autonomous taxation aims to reduce the tax advantage achieved with the deduction from taxable income of the costs on which it applies and also to combat the tax evasion that this type of expense, by its nature, potentiates, it cannot itself, through its deduction from taxable income as an operating expense, constitute a factor in the reduction of that diminution of advantage intended and determined by the legislator.
In conclusion, autonomous taxation, which applies to charges deductible in IRC, integrates the regime and is owed under this tax, with the charges for the payment of such autonomous taxation not constituting deductible charges for purposes of determining taxable income.
This understanding was recently legally clarified by article 3 of Law no. 2/2014, of 16 January, which added article 23A to the CIRC (at the same time that its article 13 repealed article 45) with the following wording:
Article 23A - Charges not deductible for tax purposes
"1. The following charges are not deductible for purposes of determining taxable income, even when recorded as expenses of the taxation period:
a) IRC, including autonomous taxation, and any other taxes that directly or indirectly apply to profits".
With no doubts subsisting as to the interpretative nature of the provision transcribed, in accordance with the rules of legal interpretation, in practice, such provision comes to express what the legislator has always understood and continues to understand, that is, that the charges resulting from the cost associated with autonomous taxation are not relevant for purposes of determining taxable income."
Furthermore, recently Law no. 7-A/2016 of 30.03 brought a new wording to art. 88, no. 21 of the CIRC:
21 - The collection of autonomous taxation in IRC is carried out in accordance with the provisions of article 89 and is based on the values and rates that result from the provisions of the preceding paragraphs, with no deductions being made to the total global amount determined.
In accordance with art. 88, no. 21 of the CIRC it is evident that no deductions are made to autonomous taxation.
In art. 135 of the same legislation, the legislator decided to confer an interpretative character to the cited provision. As Professors Pires de Lima and Antunes Varela refer, interpretative law should be considered that which intervenes to decide a matter of law whose solution is controversial or uncertain, establishing an understanding which jurisprudence by its own means could have reached. Cfr. C.C. Annotated, Vol. I, Coimbra Editor, 1987, pág. 62
Interpretative law is integrated into the interpreted law, retroacting its effects to the entry into force of the old law, as if it had been published on the date on which the interpreted law was published, with the exception of the effects already produced by the performance of the obligation, by final judgment, by transaction even if not approved, or by acts of an analogous nature (art. 13, no. 1 of the Civil Code). In accordance with no. 1 of article 13 of the Civil Code, interpretative law is considered integrated into the interpreted law. Thus, quoting Professors Pires de Lima and Antunes Varela: "This means that it retroacts its effects until the entry into force of the old law, everything occurring as if it had been published on the date on which the interpreted law was published". In CC annotated, Vol. I, Coimbra Editor, 1987, pág. 62
As Professor Baptista Machado refers "(...) the reason why interpretative law is applied to facts and situations prior resides fundamentally in that it, by establishing and fixing one of the possible interpretations of the LA [old law] with which the interested parties could and should count, is not susceptible to violating secure and legitimately founded expectations." In Introduction to Law and Legitimating Discourse, Almedina, 1996, pág. 246. The Professor further continues Baptista Machado by asserting: "For a new law to be truly interpretative, therefore, two requirements are necessary: that the solution of prior law be controversial or at least uncertain; and that the solution defined by the new law falls within the framework of the controversy and is such that the judge or the interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of law. If the judge or the interpreter, in the face of old texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative." In Introduction to Law and Legitimating Discourse, Almedina, 1996, pág. 247
In the case under examination the solution, which resulted from a restrictive interpretation of art. 88 and 93 of the CIRC was controversial as the decision of the CAAD delivered in proc. no. 697/2014-T reveals. Furthermore, the solution advocated by the legislator was in line with a judicial decision known until the date in question, which analyzed the deductibility, or not, of SIFIDE amounts to the value of autonomous taxation. The Court is not unaware that there was a contrary jurisprudential current to the cited one (proc. 219/2015T of the CAAD). However, the legislator clearly made a choice for the jurisprudential current emanating from the decision no. 697/2014-T.
Interpretative law is distinguished from innovative law by aiming to resolve a doubtful or controversial matter in the interpreted law and by resolving it in a sense that would be possible for any interpreter. Since, this being a controversial issue and Law no. 7-A/2016 of 30.03 having adopted the interpretation followed by a judicial decision delivered, it appears that the interpretative law is not innovative.
V.2. Regarding the non-deductibility of SIFIDE
The system of fiscal incentives for business research and development (R&D) (SIFIDE) was initially approved by Law no. 40/2005 of 03.08.
The case under examination relates to the year 2011, and therefore the legislation in force at that date must be considered. For 2011 SIFIDE II was approved (art. 133 of Law no. 55A/210 of 31 December).
SIFIDE permits IRC taxpayers resident in Portuguese territory who exercised, as their principal activity or not, an activity of an agricultural, industrial, commercial and service nature and non-residents with a permanent establishment to deduct from the collection, and up to its occurrence, the value corresponding to research and development expenses in the part that has not been subject to financial support from the State, in a dual percentage: a) base rate – 32.5% of the expenses incurred in that period; and b) incremental rate - 50% of the expenses incurred in that period in relation to the simple arithmetic average of the two previous years, up to the limit of €1,500,000.
It is, in essence, the possibility of deducting from the collection of IRC determined in the year the amount of tax credit verified. Expenses that, due to insufficient collection, cannot be deducted in the year in which they were incurred may be deducted up to the sixth immediately following year.
Taking into account the respective requirements, SIFIDE is an automatic fiscal benefit (article 5, no. 1 of the EBF), as it does not require prior recognition. This fiscal benefit has a mixed nature, as it incorporates not only objective requirements relating to the type and nature of eligible expenses (articles 3 and 4 of SIFIDE II), but also subjective requirements that attend to the conditions and nature of the beneficiaries (articles 5 to 7).
To be able to benefit from this fiscal incentive, taxpayers must comply with the conditions and obligations provided for in articles 5 to 7, among others, non-taxation by indirect methods, non-existence of debts to the State and the process of tax documentation. This must contain the certification declaration, that the activities exercised correspond effectively to actions of research or development, the respective amounts involved, the calculation of the increase in expenses in relation to the average of the two previous years and other elements considered relevant. The certification declaration is issued by an entity named by dispatch of the Minister of Science, Technology and Higher Education, to be integrated into the process of tax documentation of the taxpayer referred to in article 130 of the IRC Code. This documentation must also contain a document evidencing the calculation of the benefit.
Will the values recognized under SIFIDE II be deducted from the collection produced by autonomous taxation?
Pursuant to art. 4, no. 3 of SIFIDE II:
3 - The deduction is made, in accordance with Article 90 of the IRC Code, in the collection relating to the taxation period mentioned in the previous paragraph.
Well, the collection to which article 90 refers when the collection is to be made by the taxpayer (a situation that occurs in the case under examination), is determined on the basis of the taxable matter contained in that collection/self-assessment [cf. article 90, no. 1, paragraph a) of the CIRC].
Thus, the credit which SIFIDE constitutes is deducted only from the collection thus determined, that is, from the collection determined on the basis of the taxable matter and not from the collection resulting from autonomous taxation. As was mentioned above, the collection of autonomous taxation is made under art. 88 of the CIRC, being determined independently and distinctly from the determination carried out in accordance with article 90 of the CIRC.
Moreover, the collection of autonomous taxation does not admit any deduction (art. 88, no. 21 of the CIRC).
Thus, there is an express legal impediment in the IRC Code for SIFIDE II credits to be deducted from autonomous taxation.
In conclusion, in the wake of decisions previously delivered in the CAAD (proc. no. 722/2015, proc. no. 727/2015, proc. no. 785/2015 and proc. no. 629/2016) I decide against the deduction of amounts relating to SIFIDE from the amount of autonomous taxation as it is contrary to the provisions of art. 88 of the CIRC.
V.3 Compensatory Interest
The examination of the conviction of the Respondent in the payment of compensatory interest is prejudiced by the solution reached above.
With the tax act sindicalized maintained, as a consequence, the request for compensatory interest should also be ruled as unfounded.
III. DECISION
In light of all that has been stated above, it is decided:
a) To rule completely unfounded the request for declaration of illegality of the act dismissing the request for ex officio review and, likewise, the partial illegality of the self-assessment of IRC no. 2013..., relating to the year 2011;
b) To maintain entirely the tax act subject to these proceedings;
c) To condemn the Claimant to the payment of the costs of the proceedings, as stated below.
The value of the proceedings is fixed at €31,743.63 in accordance with article 97-A, no. 1, a), of the CPPT, applicable by virtue of paragraph a) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Proceedings of Tax Arbitration.
The arbitration fee is fixed at €1,836.00, in accordance with Table I of the Regulation of Costs of Proceedings of Tax Arbitration, to be paid in full by the Claimant, as the request was completely unfounded, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the cited Regulation.
Notify accordingly.
Lisbon, 21 April 2017
The Arbitral Court
___________________________________
(André Festas da Silva)
[1] In Introduction to Law and Legitimating Discourse, Baptista Machado, Almedina, Coimbra, 1996, Pág. 185
Frequently Asked Questions
Automatically Created