Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. José Poças Falcão (president arbitrator), Dr. Paulo Lourenço and Dr. João Pedro Dâmaso, appointed by the Ethics Board of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 12 December 2016, agree as follows:
1. REPORT
A…-SGPS, S.A. (hereinafter referred to as A… or "Claimant"), holder of Corporate Tax Identification Number (NIPC) no…, with registered office at…, no…, Location …, …-… …, in its capacity as the dominant company of Group B…, for the fiscal years 2013 and 2014, filed a request for constitution of a collective arbitral tribunal, under Articles 2, subsection 1, paragraph a), 5, 6 and 10 of Decree-Law no. 10/2011 of 20 January (hereinafter RJAT) and Articles 1 and 2 of Regulation no. 112-A/2011 of 22 March, in which the Tax and Customs Authority is the Respondent.
The Claimant seeks:
– the declaration of illegality and annulment of the act rejecting the administrative appeal no… 2016…;
– the declaration of illegality and annulment of the act assessing Corporate Income Tax (IRC) for the fiscal years 2013 and 2014;
– the addition to the tax determined pursuant to Article 90 of the IRC Code of the amount of autonomous taxation determined pursuant to Article 88 of the IRC Code and, consequently, the full deduction of tax benefits, in this case, tax credits held under the SIFIDE, RFAI and CFEI schemes, by reference to the fiscal years 2013 and 2014 (limited, in each of the fiscal years to which they relate, to a maximum of 25% of the IRC collection assessed), pursuant to paragraph b) of subsection 2 of Article 90 of the IRC Code; and
ii) the refund of the amount of tax overpaid by the Claimant, in the total amount of € 104,334.39.
The Claimant further requests compensatory interest.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 26 September 2016.
Pursuant to paragraph a) of subsection 2 of Article 6 and paragraph b) of subsection 1 of Article 11 of RJAT, the Ethics Board appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the appointment within the applicable period.
On 23 November 2016 the parties were duly notified of this appointment and manifested no intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of Article 11, subsection 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of the Code of Ethics.
In accordance with the provision of paragraph c) of subsection 1 of Article 11 of RJAT, the collective arbitral tribunal was constituted on 12 December 2016.
The Tax and Customs Authority replied, arguing for the dismissal of the request for arbitral determination.
By order dated 16 February 2017, it was decided to dispense with the meeting provided for in Article 18 of RJAT and that the proceedings continue with submissions.
The parties filed submissions.
The Tribunal is competent, the parties have legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10, subsection 2, of the same statute and Article 1 of Regulation no. 112-A/2011, of 22 March).
The proceedings do not suffer from any nullities and there is no obstacle to the examination of the merits of the case.
2. FINDINGS OF FACT
2.1. Established Facts
The following facts are considered established:
a) The Claimant was, on 31 December 2013 and 31 December 2014, the dominant company of the Special Taxation Regime for Groups of Companies (hereinafter RETGS) of Group B…, which was composed of the following companies:
–C…, SA.
–D…, SA.
–E…, SA.
–F…, Lda.
–G…, Lda.
–H…, SA.
–I…, SA.
–J…, SA.
–K…, Lda.
–L…, SA.
–M…, SA.
b) The Claimant, as the dominant company of RETGS, filed the IRC Form 22 Income Statements of the Group, relating to the fiscal years 2013 and 2014, and subsequently a substitute IRC Form 22 Income Statement, by reference to the fiscal year 2013;
c) The group taxed under RETGS, then dominated by the Claimant, held various tax benefits available for deduction in the fiscal years 2013 and 2014, which remained available for deduction:
– tax credits resulting from the System of Tax Incentives for Corporate Research and Development (SIFIDE), in the amount of € 1,354,749.49, in relation to the fiscal year 2013, and € 1,453,806.92, for the fiscal year 2014;
– tax credits resulting from the Tax Regime for Investment Support (RFAI), in the amount of € 1,075,777.26, for the fiscal year 2013, and € 1,392,605.40, for the fiscal year 2014; and
– The tax credit resulting from the determination of the Extraordinary Investment Tax Credit (CFEI) in the fiscal year 2013, in the amount of € 341,938.00;
d) Due to insufficient collection, such benefits were not deducted in the fiscal years 2013 and 2014;
e) The AT information system does not permit the deduction from the IRC collection resulting from autonomous taxation of SIFIDE, RFAI and CFEI;
f) On 29 March 2016, the Claimant filed an administrative appeal of the aforementioned assessments, which constitutes document no. 4 attached with the request for arbitral determination, the contents of which are reproduced herein;
g) The administrative appeal was rejected by order dated 22 June 2016, issued by the Chief of the Tax Justice Division, in substitution capacity, by subdelegation from the Deputy Director of Finance of Aveiro;
h) The companies composing the Claimant's group were not and are not currently debtors of any taxes or contributions to the Tax and Customs Authority or Social Security.
2.2. Unestablished Facts
There are no facts relevant to the decision that have not been established.
2.3. Grounds for the Determination of Findings of Fact
The facts were established on the basis of the documents attached with the request for arbitral determination and assertions of the Claimant that are not contested by the Tax and Customs Authority.
3. MATTERS OF LAW
The essential issue that is the subject of these proceedings is whether, in relation to the fiscal years 2013 and 2014, the amounts referring to the tax benefits of SIFIDE, RFAI and CFEI can be deducted from the IRC collection produced by autonomous taxation, including in light of the wording of the CIRC resulting from Law no. 7-A/2016, of 30 March.
There is abundant arbitral jurisprudence on this matter, in particular the award no. 456/2016T, which we shall follow closely.
3.1. Question of the Application of Article 90 of CIRC to Autonomous Taxation
In the decision on the administrative appeal, the Tax and Customs Authority understood, in short, that "autonomous taxation is nothing more than a set of rates that applies to autonomous facts and although included in the Income Tax Codes, the result of its application is a pure surcharge to be assessed and paid by taxpayers, and is not susceptible to being offset against deductions from collection, specifically those provided for in subsection 2 of Article 90 of the IRC Code."
Articles 89 and 90 of CIRC establish the following, as amended by Law no. 3-B/2010, of 28 April:
Article 89
Authority to Assess
The assessment of IRC is performed:
a) By the taxpayer itself, in the declarations referred to in Articles 120 and 122;
b) By the General Tax Directorate, in all other cases.
Article 90
Procedure and Method of Assessment
1 - The assessment of IRC proceeds as follows:
a) When the assessment is to be made by the taxpayer in the declarations referred to in Articles 120 and 122, it is based on the taxable matter contained therein;
b) In the event of failure to file the declaration referred to in Article 120, the assessment shall be made by 30 November of the following year or, in the case provided for in subsection 2 of that article, by the end of the 6th month following the end of the deadline for filing the declaration mentioned therein and shall be based on the value of the minimum monthly remuneration or, where higher, the entire taxable matter of the nearest fiscal year that has been determined;
c) In the absence of assessment under the preceding paragraphs, it shall be based on the information available to the tax administration.
2 – To the amount determined under the preceding number the following deductions are made, in the order indicated:
a) That corresponding to international double taxation;
b) That relating to tax benefits;
c) That relating to the special payment on account referred to in Article 106;
d) That relating to withholding at source not susceptible to compensation or refund under the applicable legislation.
3 – (Repealed by Law no. 3-B/2010)
4 – To the amount determined under subsection 1, for the entities mentioned in subsection 4 of Article 120, only the deduction relating to withholding at source when it has the nature of a tax credited to IRC shall be made.
5 – The deductions referred to in subsection 2 relating to entities to which the fiscal transparency regime established in Article 6 applies are imputed to their respective partners or members under the terms established in subsection 3 of that article and deducted from the amount determined on the basis of the taxable matter that took into account the imputation provided in that article.
6 – When the special taxation regime for groups of companies applies, the deductions referred to in subsection 2 relating to each company are made on the amount determined for the group under the terms of subsection 1.
7 – From the deductions made under paragraphs a), b) and c) of subsection 2 no negative value may result.
8 – To the amount determined under paragraphs b) and c) of subsection 1 only deductions are made of which the tax administration is aware and which can be made under subsections 2 to 4.
9 – In cases where the provision of paragraph b) of subsection 2 of Article 79 applies, annual assessments are made on the basis of taxable matter determined on a provisional basis, and as against the assessment corresponding to the taxable matter relating to the entire assessment period, the difference ascertained shall be collected or cancelled.
10 – The assessment provided for in subsection 1 may be corrected, where applicable, within the period referred to in Article 101, the differences ascertained then being collected or cancelled.
Articles 89 and 90 of CIRC, as well as other norms of this Code, such as those relating to the declarations provided for in Articles 120 and 122, are applicable to autonomous taxation.
Indeed, it is now settled, following abundant arbitral jurisprudence and positions taken by the Tax and Customs Authority, that the tax assessed on the basis of autonomous taxation provided for in CIRC has the nature of IRC. Moreover, beyond jurisprudence, Article 23-A, subsection 1, paragraph a), of CIRC, as amended by Law no. 2/2014, of 16 January, leaves no room for any reasonable doubt, corroborating what already previously resulted from the literal wording of Article 12 of the same Code.
Now, Article 90 of CIRC refers to the forms of assessment of IRC, by the taxpayer or by the Tax Administration, applying to the determination of the tax due in all situations provided for in the Code, including additional assessment (subsection 10).
Therefore, that Article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, following the filing or non-filing of declarations, there being no other provision that provides for different terms for its assessment.
Thus, the difference between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit is limited to the determination of the taxable matter and the applicable rates, which are those provided for in Chapters III and IV of CIRC for IRC based on taxable profit and in Article 88 of CIRC for IRC based on the taxable matter of autonomous taxation and the respective rates.
However, the forms of assessment provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remainder of IRC taxable matter.
However, the fact that a self-assessment of IRC, made under subsection 1 of Article 90, may contain several partial calculations based on various rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm when it refers to "assessment," in the singular, in all cases in which it is "made by the taxpayer in the declarations referred to in Articles 120 and 122," having "as its basis the taxable matter contained therein," whether determined on the basis of the rules of Articles 17 et seq., or determined on the basis of the various situations provided for in Article 88.
Moreover, it is not only the assessments provided for in Article 88 that may encompass several calculations of the application of rates to certain taxable matters, as the same may occur in the situations provided for in subsections 4 to 6 of Article 87. ( [1] )
In any case, whatever calculations must be made, it is a unitary self-assessment that the taxpayer or the Tax and Customs Authority must make under the terms of Articles 89, paragraph a), 90, subsection 1, paragraphs a), b) and c), and 120 or 122, and on the basis of it that the global IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it. ( [2] )
Moreover, if Article 90 were not applicable to the assessment of autonomous taxation provided for in CIRC, we would have to conclude that there would be no provision providing for its assessment, which would amount to illegality, by violation of Article 103, subsection 3 of the Constitution of the Portuguese Republic, which requires that the assessment of taxes be made "under the terms of the law."
It should also be noted that the new provision of subsection 21 added to Article 88 of CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretative, in no way alters this conclusion, as it establishes, regarding the form of assessment of autonomous taxation, that it "is made under the terms provided for in Article 89 and is based on the values and rates that result from the provisions of the preceding subsections."
Indeed, although it is true that this new provision makes explicit how the amounts of autonomous taxation are calculated, which already resulted from the actual text of the various provisions of Article 88, and that the authority lies with the taxpayer or the Tax Administration under the terms of Article 89, it is also clear that the need to use the procedure provided for in subsection 1 of Article 90 is not avoided, namely in the cases provided for in its paragraph c) in which the assessment is the responsibility of the Tax and Customs Authority, on the basis of "the information available to the tax administration," which will encompass the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has information that proves its prerequisites.
Therefore, both before and after Law no. 7-A/2016, of 30 March, Article 90, subsection 1, of CIRC is applicable to the assessment of autonomous taxation.
3.2. Question of the Deductibility of Investment Expenses Provided for in SIFIDE from Amounts Due as Autonomous Taxation
In 2013, the System of Tax Incentives for Corporate Research and Development (SIFIDE) was in force, which was approved by Article 133 of Law no. 55-A/2010, of 31 December, and amended by Article 163 of Law no. 64-B/2011, of 30 December.
This statute establishes the following, in its Articles 4 and 5:
Article 4
Scope of Deduction
1 - Taxpayers subject to IRC resident in Portuguese territory who exercise, as their principal activity, an activity of an agricultural, industrial, commercial or service nature, and non-residents with a permanent establishment in that territory, may deduct from the amount determined under Article 90 of the IRC Code, and up to its extent, the value corresponding to research and development expenses, to the extent not financed by state grants on a non-reimbursable basis, incurred in the periods of taxation from 1 January 2011 to 31 December 2015, on a twofold basis:
a) Base rate - 32.5% of expenses incurred in that period;
b) Incremental rate - 50% of the increase in expenses incurred in that period as compared to the simple arithmetic average of the two preceding fiscal years, up to the limit of (euro) 1,500,000.
2 - For taxpayers subject to IRC that are SMEs as defined in Article 2 of Decree-Law no. 372/2007, of 6 November, which have not yet completed two fiscal years and which have not benefited from the incremental rate set out in paragraph b) of the preceding number, a 10% enhancement is applied to the base rate set out in paragraph a) of the preceding number.
3 - The deduction is made, under the terms of Article 90 of the IRC Code, in the assessment relating to the period of taxation mentioned in the preceding number.
4 - Expenses that, due to insufficient collection, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the sixth immediately following fiscal year.
5 - For the purposes of the preceding numbers, when in the year of commencement of enjoyment of the benefit there is a change in the period of taxation, the annual period that begins in that year must be considered.
6 - The incremental rate provided for in paragraph b) of subsection 1 is increased by 20 percentage points for expenses relating to the hiring of doctorate holders by companies for research and development activities, with the limit provided for in that same paragraph becoming (euro) 1,800,000.
7 - To taxpayers that reorganize, as a result of concentration transactions as defined in Article 73 of the IRC Code, the provisions of subsection 3 of Article 15 of the Tax Benefits Statute apply.
Article 5
Conditions
Only the taxpayers subject to IRC that cumulatively meet the following conditions may benefit from the deduction referred to in Article 4:
a) Their taxable profit is not determined by indirect methods;
b) They are not debtors to the State and social security of any taxes or contributions, or have their payment duly secured.
In the case at hand, the Tax and Customs Authority does not question that the Claimant meets the subjective and objective requirements to benefit from SIFIDE, having rejected the administrative appeal on the understanding that the expenses in question cannot be deducted from the amounts paid as autonomous taxation, since the deduction can only be made from the IRC collection resulting from the application of the IRC rate to taxable profit.
As stated, Article 90 of CIRC also applies to the assessment of autonomous taxation provided for in CIRC.
And, as has also been stated, there is no legal support for asserting that, in the event that several calculations have to be made in a declaration to determine the IRC, more than one self-assessment is made.
The statute that approved SIFIDE does not state that the credits arising therefrom are deductible from all and any IRC collection; rather, it defines the scope of the deduction by referring, in its subsection 1 of Article 4, "to the amount determined under Article 90 of the IRC Code and up to its extent."
Subsection 3 of the same Article 4 confirms that it is to the amount determined under Article 90 of CIRC that is relevant to concretize the deduction by stating that "the deduction is made, under the terms of Article 90 of the IRC Code, in the assessment relating to the period of taxation mentioned in the preceding number."
Thus, by mere declarative interpretation, it is concluded that Article 4, subsection 1 of SIFIDE, when establishing the deduction "from the amount determined under Article 90 of the IRC Code and up to its extent," implies the deduction from the amount of autonomous taxation that is determined under that Article 90.
The fact that Article 5 of SIFIDE excludes the benefit when taxable profit is determined by indirect methods and autonomous taxation includes situations in which indirect taxation of profits is intended, in particular, by not giving relevance or by demotivating facts capable of reducing them, has no relevance for this purpose, as the concept of "indirect methods" has a precise scope in tax law, which is concretized in Article 90 of LGT, in addition to special norms, referring to means of determining taxable profit, the use of which is not provided for in calculating the taxable matter of autonomous taxation provided for in Article 88 of CIRC.
On the other hand, if it is the need to use indirect methods that excludes the possibility of benefiting from the benefit, such exclusion cannot be justified in relation to the collection from autonomous taxation, which is determined by direct methods.
Furthermore, the eventual nature of anti-abuse norms assumed by some autonomous taxation ([3]) cannot be seen as an explanation for its exclusion from the respective collection from the scope of deductibility of the SIFIDE benefit, as there is no legal support for excluding deductibility from collection provided by corrections based on norms of an indisputably anti-abuse nature, such as, for example, those relating to transfer pricing or thin capitalization.
Moreover, the fact that the deductibility of the SIFIDE tax benefit is limited to the collection under Article 90 of CIRC, up to its extent, does not permit the conclusion that the tax credit is only deductible if there is taxable profit, as what that fact requires is that there be IRC collection, which may exist even without taxable profit, in particular through autonomous taxation.
Thus, pointing to the literal wording of Article 4 of SIFIDE in the sense that the deduction applies also to the IRC collection derived from autonomous taxation determined under Article 90 of CIRC, only through a restrictive interpretation can the application of the tax benefit to the IRC collection provided by autonomous taxation be excluded.
The viability of a restrictive interpretation encounters, from the outset, a general obstacle, which is that the norms that create tax benefits have the nature of exceptional norms, as results from the express wording of Article 2, subsection 1, of the Tax Benefits Statute, and therefore, in the absence of a special rule, must be interpreted in their precise terms, as is settled jurisprudence. ([4]) In the case of tax benefits, explicit provision is made for the possibility of extensive interpretation, Article 10 of the Tax Benefits Statute, but not for restrictive interpretation, and therefore, 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 norm that provides for it.
In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text that betrays its intention, to the extent that it says more than what it intended to say. Here too the ratio legis will have a decisive word. The interpreter should not allow himself to be carried away by the apparent scope of the text, but should restrict it so as to make it compatible with the legislative intention, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for the law ends, its scope ends)." ([5])
As a basis for a restrictive interpretation, one can point to the fact that some autonomous taxation aims to discourage certain taxpayer conduct susceptible to affecting taxable profit, and consequently reducing tax revenue, and its deterrent force will be attenuated with the possibility of the respective collection being subject to deductions.
But the deterrent of such conduct is justified only by concerns of protecting tax revenue, and the tax benefits granted are, by definition, "measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to those of taxation itself that they prevent" (Article 2, subsection 1, of the Tax Benefits Statute).
And, in the case of the SIFIDE tax benefits, the reasons of an extra-fiscal nature that justify their priority over tax revenue are, from the legislative perspective, of enormous importance, as is inferred from the grounds in the Explanatory Memorandum of the State Budget for 2011:
II.2.2.4.4. System of Tax Incentives for Corporate Research and Development II (SIFIDE)
Given that one of the assets of competitiveness in Portugal passes through the commitment to technological capacity, scientific employment and conditions of assertion in European space, the Draft State Budget for 2011 proposes to renew SIFIDE (System of Tax Incentives for Corporate Research and Development), now in the SIFIDE II version, to be in force in the periods 2011 to 2015, enabling the deduction from IRC collection for companies that bet on R&D (research and development capacity).
Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system in other countries, it was decided to review and reintroduce for five more periods of taxation this support system. The R&D of companies is a decisive factor not only in their own assertion as competitive structures, but also in productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in several recent international reports.
It is in this context that, in the international panorama, the OECD has considered Portugal since 2001 as one of the three countries with the most significant progress in business R&D. The current national system, compared to other systems that use deduction from collection and distinguish between base rate and incremental rate, is one of the most attractive and competitive.
Given that research and development of companies is "a decisive factor not only in their own assertion as competitive structures, but also in productivity and long-term economic growth," it is understandable that preference has been given to encouraging the commitment to technological capacity, scientific employment and conditions of assertion in European space, which, in the long term reduce themselves to obtaining greater tax revenue.
The importance that, from the legislative perspective, was recognized for this tax benefit provided for in SIFIDE II is decisively confirmed by the fact that it is indicated as being especially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in Article 92 of CIRC.
Therefore, it is certain that we are dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenue, being inferred from that Article 92 that the legislative intention to encourage investments in research and development provided for in SIFIDE is so firm that it goes to the point of not even establishing any limit to the deductibility from the IRC collection, despite this tax regime having been created and applied during a period of notorious difficulties in public finances.
Thus, no legal basis is seen, in particular in light of the legislative intention that can be detected, to, on the basis of a restrictive interpretation, exclude the applicability of the SIFIDE II tax benefit to the IRC collection derived from autonomous taxation that results directly from the wording of Article 4, subsection 1, of the respective statute, combined with Article 90 of CIRC.
On the other hand, any eventual limitation of the application of the tax benefit to companies that presented taxable profit in 2013 would amount to a very strong restriction of its field of application, since, as is a matter of public fact, the vast majority of companies, in that year and in previous years, presented tax losses, although it paid IRC through other means.
In fact, according to statistics published by the Tax and Customs Authority, in the year 2011 (the last year whose data would have been available when the Draft State Budget for 2012 was presented, and therefore it can be assumed to have been considered in the assessment of the scope of the tax benefit), more than half of the IRC declarations presented negative net value and in the period of taxation of 2011 only 26% of taxpayers presented IRC Assessed (Table 7), and about 71% of taxpayers made IRC payments (Table 8), through Special Payment on Account, or other positive components of the tax (Autonomous Taxation, State Surcharge, State Surcharge, IRC from previous periods of taxation, etc.). ([6])
Therefore, it is manifest that the applicability of the tax benefit to companies that, although presented tax losses, paid IRC, including by way of autonomous taxation, greatly expanded the number of potentially beneficiary companies and, consequently, is more compatible with the legislative intention underlying SIFIDE II than that defended by the Tax and Customs Authority.
On the other hand, as stated, it cannot be overlooked that autonomous taxation aims to protect or increase tax revenue and that the tax benefits granted are, by definition, "measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to those of taxation itself that they prevent" (Article 2, subsection 1, of the Tax Benefits Statute).
That is, in the case at hand, by establishing a tax benefit by deduction from IRC collection, the legislator chose to forgo the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this weighing of the interests at stake (tax revenue versus strong stimulus to investment), it is indifferent whether that revenue comes from calculations made on the basis of Article 87 or Article 88 of CIRC. In fact, whatever the form of calculation of that tax revenue, we are dealing with money whose collection the legislator considered to be less important than the pursuit of the economic purpose referred to. Of the two alternatives that presented themselves to the legislator regarding the incentive to investments provided for in the SIFIDE II, which were, on the one hand, to maintain intact the revenue from IRC (including from autonomous taxation) and not see investment incentivized and, on the other hand, to achieve this incentive with loss of IRC revenue, the weighing that necessarily underlies SIFIDE II is that of choosing the creation of the incentive with prejudice to revenue. And, naturally, given that the creation of the investment incentive is better, from the legislative perspective, than the collection of revenue, it is unclear how it can be relevant that the IRC revenue that is foregone to achieve the incentive come from the general taxation of IRC provided for in subsection 1 of Article 87 or from taxation at special rates provided for in subsections 4 to 6 of the same article, or from autonomous taxation provided for in Article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenue and the relative weighing that can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC that is foregone to create the incentive.
And, in the case of the SIFIDE tax benefit, the reasons of an extra-fiscal nature that justify the incentive with loss of revenue are very strong, as it is considered that the incentivized investments are a decisive factor in the country's future competitiveness.
Therefore, it is certain that we are dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenue from IRC, regardless of the basis for its calculation, as what is at stake is always whether or not to forgo a certain sum of money to create an investment incentive.
In this context, the nature of autonomous taxation and the legislative solutions adopted, in general, in relation to it, have no relevance whatsoever to the examination of this question, as this must be examined in light of the specific interests that clash in its weighing.
Indeed, what is at stake is exclusively to determine the scope of SIFIDE II, which establishes a regime of an exceptional nature, which aimed to pursue certain public interests, and not to contribute to the decision of any conceptual question about the nature of autonomous taxation, a matter on which no legislative concern is envisaged either in the text of the law or in the Explanatory Memorandum for 2011.
For the same reason that what is at stake is to interpret the scope of the statute of a special nature that is SIFIDE II, no relevance can be attributed, for this purpose, to the provision of subsection 21 of Article 88 of CIRC, added by Law no. 7-A/2016, of 30 March, in the part in which it refers to that no "deductions are made to the total amount determined," despite the purported interpretative nature attributed to it.
In fact, there is no sign, either in Law no. 7-A/2016, or in the State Budget Explanatory Memorandum for 2016, or in its discussion, that with the addition to Article 88 of CIRC of a general norm prohibiting deductions to the total amount determined from autonomous taxation, it was intended to interpret restrictively the expression "deduct from the amount determined under Article 90 of the IRC Code" that appears in a special norm of a separate statute, such as SIFIDE II.
And, in the absence of an unequivocal intention to the contrary, the rule that general law does not alter special law applies (Article 7, subsection 3, of the Civil Code), which has its justification in the fact that "the general regime does not include consideration of the particular conditions that justified precisely the enactment of the special law." ( [7] )
Furthermore, the referred rules of SIFIDE II are intended to encourage taxpayers subject to IRC to make investments in the period between 01-01-2011 and 31-12-2015, and therefore, given that the tax benefit is a counterpart of the adoption of the legislatively desired and encouraged conduct, it would be incompatible with the constitutional principle of protection of reliance, inherent in the principle of democratic rule of law (Article 2 of the CRP), not to recognize to such conduct the favorable tax effects provided for in the law in force at the time they occurred. Therefore, if hypothetically Law no. 7-A/2016 intended to eliminate, in whole or in part, the favorable tax effects that SIFIDE II promised to taxpayers who, with justified reliance, adopted the conduct provided for therein, it would be materially unconstitutional, by violation of that principle.
From the foregoing, converging the literal and rational elements of the interpretation of Article 4 of SIFIDE in the sense that the investment expenses provided for therein are deductible from "the amount determined under Article 90 of the IRC Code, and up to its extent," it is concluded that they are deductible from the entirety of that collection, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that which results from the special payment on account and other positive components of the tax, in particular autonomous taxation, state surcharge and IRC from previous periods of taxation.
The claim for arbitral determination thus succeeds on this issue. ([8])
3.3. Question of the Deductibility of Investment Expenses Provided for in RFAI from Amounts Due as Autonomous Taxation
The Tax Regime for Investment Support conducted in 2009 (RFAI 2009) was approved by Law no. 10/2009, of 10 March.
It was kept in force in the year 2013 by Article 232 of Law no. 66-B/2012, of 31 December (State Budget Law for 2013).
With regard to IRC, the referred regime resulted in a tax benefit provided for in Article 3 of that Law, which establishes the following, insofar as relevant herein:
Article 2
Scope of Application and Definitions
1 - RFAI 2009 is applicable to taxpayers subject to IRC that exercise, as their principal activity, an activity:
a) In the agricultural, forestry, agro-industrial, energy and tourism sectors and also in the extractive or processing industry, with the exception of the iron and steel, shipbuilding and synthetic fibers sectors, as defined in Article 2 of Commission Regulation (EC) no. 800/2008, of 6 August;
b) In the field of next-generation broadband networks.
2 - For the purposes of this regime, the following investments are considered relevant, provided that they are assigned to the company's operations:
a) Investment in tangible fixed assets, acquired in new condition, with the exception of:
i) Land, except where it is intended for the operation of mining concessions, natural mineral and spring waters, quarries, clay pits and sand pits in extractive industry projects;
ii) Construction, purchase, repair and expansion of any buildings, except where they are manufacturing facilities or assigned to administrative activities;
iii) Light passenger vehicles or mixed-use vehicles;
iv) Furniture and comfort or decoration items, except hotel equipment assigned to tourism operations;
v) Social facilities, except those that the company is required to have by legal determination;
vi) Other investment goods that are not directly and indispensably associated with the productive activity carried out by the company;
b) Investment in intangible fixed assets, consisting of expenses with technology transfer, in particular through the acquisition of patent rights, licenses, know-how or technical knowledge not protected by patent.
3 - The tax incentives provided for in this regime may benefit taxpayers subject to IRC who cumulatively meet the following conditions:
a) They have accounts regularly organized, in accordance with accounting standards and other legal provisions in force for their sector of activity;
b) Their taxable profit is not determined by indirect methods;
c) They maintain in the company and in the region for a minimum period of five years the assets that are the subject of the investment;
d) They are not debtors to the State and social security of any contributions, taxes or quotas or have the payment of their debts duly secured;
e) They are not considered undertakings in difficulty under the communication of the Commission – Community guidelines on aid for rescue and restructuring of undertakings in difficulty, published in the Official Journal of the European Union, no. C 244, of 1 October 2004;
f) They make relevant investment that provides for the creation of jobs and their maintenance until the end of the deduction period set out in subsections 2 and 3 of Article 3.
4 - In the case of taxpayers subject to IRC that do not fall within the category of micro, small and medium-sized undertakings, as defined in Annex I of Commission Regulation (EC) no. 800/2008, of 6 August, the investment expenses referred to in paragraph b) of subsection 2 cannot exceed 50% of the relevant investments.
5 - Investment made in 2009 is considered to be that corresponding to the additions verified in that fiscal year of tangible fixed assets and also that which, having the nature of tangible assets and not relating to advances, translates into additions to fixed assets under construction.
6 - For the purposes of the preceding number, the additions of tangible fixed assets that result from transfers of fixed assets under construction carried forward from previous fiscal years are not considered, except where they are advances.
Article 3
Tax Incentives
1 - To taxpayers subject to IRC resident in Portuguese territory or which have a permanent establishment therein, who exercise as their principal activity a commercial, industrial or agricultural activity covered by subsection 1 of the preceding article that make relevant investments in 2009, the following tax benefits are granted:
a) Deduction from IRC collection, and up to 25% of the same, of the following amounts, for investments made in regions eligible for support within the framework of incentives with a regional purpose:
i) 20% of the relevant investment, for investment up to the amount of (euro) 5,000,000;
ii) 10% of the relevant investment, for investment of value exceeding (euro) 5,000,000;
(...)
2 - The deduction referred to in paragraph a) of the preceding number shall be made in the assessment relating to the period of taxation that begins in 2009.
3 - When the deduction referred to in the preceding number cannot be made in full due to insufficient collection, the amount still not deducted may be, under the same conditions, in the assessments of the four following fiscal years.
(...)
5 - The total amount of tax incentives granted under the preceding numbers cannot exceed the value resulting from the application of the maximum limits applicable to investment with a regional purpose for the period 2007-2013, in force in the region in which the investment is made, set out in Article 7.
As can be seen from paragraph a) of subsection 1 of this Article 3, the tax benefit is realized through "deduction from IRC collection."
This expression has no substantially different scope than that used in SIFIDE, which is "amount determined under Article 90 of the IRC Code."
For what has already been stated above, the collection derived from autonomous taxation provided for in CIRC is "IRC collection," and therefore the expression used in RFAI does not exclude the deduction of eligible investments from the collection provided by such taxation.
Also with respect to this tax benefit, what has already been stated applies regarding:
– the exceptional nature of the norms that provide for this tax benefit;
– the priority of the interests that the tax benefit aims to achieve over the interest in obtaining tax revenue;
– the relevance of the collection derived from autonomous taxation to give the tax benefit a considerable dimension, given the meager IRC collection that comes from assessment based on taxable profit;
– the inadmissibility, in light of the constitutional principle of protection of reliance, of a hypothetical restrictive interpretation a posteriori of the scope of a statute that created a tax benefit realized through a tax advantage that is a counterpart of certain taxpayer conduct;
– the non-exclusion of the application of a special norm on deduction from IRC collection by a later general norm, even with a purportedly interpretative nature.
Therefore, also on this issue, the claim for arbitral determination succeeds.
3.4. Question of the Deductibility of Investment Expenses Provided for in CFEI from Amounts Due as Autonomous Taxation
The CFEI of 2013 was approved by Law no. 49/2013, of 16 July, which establishes the following, insofar as relevant herein:
Article 2
Subjective Scope of Application
The following may benefit from CFEI: taxpayers subject to IRC who exercise, as their principal activity, an activity of a commercial, industrial or agricultural nature and who cumulatively meet the following conditions:
a) They have accounts regularly organized, in accordance with accounting standards and other legal provisions in force for their respective sector of activity;
b) Their taxable profit is not determined by indirect methods;
c) They have their fiscal and contributory situation regularized.
Article 3
Tax Incentive
1 - The tax benefit to be granted to the taxpayers referred to in the preceding article corresponds to a deduction from IRC collection in the amount of 20% of investment expenses in assets assigned to operations, to be made between 1 June 2013 and 31 December 2013.
2 - For the purposes of the deduction provided for in the preceding number, the maximum amount of eligible investment expenses is 5,000,000.00 EUR, per taxpayer.
3 - The deduction provided for in the preceding numbers shall be made in the IRC assessment relating to the period of taxation that begins in 2013, up to 70% of the collection of this tax.
4 - In the case of taxpayers who adopt a period of taxation not coinciding with the calendar year and beginning after 1 June 2013, the relevant expenses for the purposes of the deduction provided for in the preceding numbers are those made in eligible assets from the beginning of that period until the end of the seventh month following.
5 - Where the special taxation regime for groups of companies applies, the deduction provided for in subsection 1:
a) Is made to the amount determined under paragraph a) of subsection 1 of Article 90 of the IRC Code, based on the taxable matter of the group;
b) Is made up to 70% of the amount mentioned in the preceding paragraph and cannot exceed, in relation to each company and for each fiscal year, the limit of 70% of the collection that would have been determined by the company that made the eligible expenses, had the special taxation regime for groups of companies not applied.
6 - The amount that cannot be deducted under the terms of the preceding numbers may be, under the same conditions, in the five subsequent periods of taxation.
7 - To taxpayers that reorganize, as a result of any of the operations provided for in Article 73 of the IRC Code, the provisions of subsection 3 of Article 15 of the Tax Benefits Statute apply.
Article 4
Eligible Investment Expenses
1 - For the purposes of this regime, investment expenses in assets assigned to operations are considered those relating to tangible fixed assets and non-consumable biological assets, acquired in new condition and which come into operation or use by the end of the period of taxation that begins in or after 1 January 2014.
2 - Investment expenses in intangible depreciable assets made in the periods referred to in subsections 1 and 4 of Article 3 are also eligible, in particular:
a) Expenses with development projects;
b) Expenses with elements of industrial property, such as patents, trademarks, licenses, production processes, models or other assimilated rights, acquired for consideration and whose exclusive use is recognized for a limited period of time.
3 - Investment expenses corresponding to additions of assets verified in the periods referred to in subsections 1 and 4 of Article 3 and also those that, not relating to advances, translate into additions to investments under construction initiated in those periods are considered eligible investment expenses.
4 - For the purposes of the preceding number, additions of assets that result from transfers of investments under construction are not considered.
5 - For the purposes of subsection 1, investment expenses in assets susceptible to use in the personal sphere are excluded, considering as such:
a) Light passenger vehicles or mixed-use vehicles, recreational boats and tourism aircraft, except where such assets are assigned to the operation of public transport services or are intended for rental or cession of their use or enjoyment in the normal course of the taxpayer's activity;
b) Furniture and comfort or decoration items, except when assigned to productive or administrative activity;
c) Those incurred with the construction, purchase, repair and expansion of any buildings, except when assigned to productive or administrative activities.
6 - Also excluded from this regime are expenses made in assets assigned to activities within the scope of concession agreements or public-private partnership agreements entered into with public sector entities.
7 - Land is considered not to be assets acquired in new condition, for the purposes of subsection 1.
8 - Additionally, expenses relating to intangible assets are not considered eligible, whenever they are acquired as a result of acts or legal transactions of the beneficiary taxpayer with entities with which it is in a situation of related party transactions, as defined in subsection 4 of Article 63 of the IRC Code.
9 - The assets underlying the eligible expenses must be held and accounted for in accordance with the rules that determined their eligibility for a minimum period of five years or, where shorter, during their respective minimum useful life, determined under Regulatory Decree no. 25/2009, of 14 September, amended by Law no. 64-B/2011, of 30 December, or until the period in which their physical removal, dismantling, abandonment or disuse occurs, observing the rules provided for in Article 38 of the IRC Code.
In the case at hand, the Tax and Customs Authority does not question that the Claimant meets the subjective and objective requirements to benefit from CFEI in relation to the investment expenses it refers to, having rejected the administrative appeal on the understanding that the expenses in question cannot be deducted from the amounts paid as autonomous taxation, since the deduction can only be made from "IRC collection," under the terms of subsection 1 of Article 3 of Law no. 49/2013 and this collection, in the view of the Tax and Customs Authority, is not comprised of amounts due as autonomous taxation, but only of the amount resulting from the application of the IRC rate to taxable profit.
As stated, it is established in these proceedings, even by agreement of the Parties, that Article 90 of CIRC also applies to the assessment of autonomous taxation.
And, as has been stated, there is no legal support for asserting that, in the event that several calculations have to be made in a declaration to determine the IRC, more than one self-assessment is made.
Therefore, the expression "when the assessment is to be made by the taxpayer in the declarations referred to in Articles 120 and 122, it is based on the taxable matter contained therein," which appears in paragraph a) of subsection 1 of Article 90 of CIRC, encompasses in its literal wording the assessment of autonomous taxation, whose taxable matter must be indicated in the referred declarations, as results even from the Form 22 declaration itself.
Collection is obtained by applying the rate to the respective taxable matter, and therefore, in the case of IRC, where there are various rates applicable to different taxable matters, the global IRC collection will consist of the sum of all the results of these applications.
Thus, by mere declarative interpretation, it is concluded that the reference that in Article 3, subsection 1, of Law no. 49/2013 is made to "deduction from IRC collection" as a way of materializing the tax benefit literally also encompasses the IRC collection resulting from autonomous taxation, which comprises the sole IRC collection.
Given that this is the interpretation that results from the literal wording, only through a restrictive interpretation can the application of the tax benefit to the IRC collection provided by autonomous taxation be excluded.
The viability of a restrictive interpretation encounters, from the outset, a general obstacle, which is that the norms that create tax benefits have the nature of exceptional norms, as results from the express wording of Article 2, subsection 1, of the Tax Benefits Statute, and therefore, in the absence of a special rule, must be interpreted in their precise terms, as is settled jurisprudence. ([9]) In the case of tax benefits, explicit provision is made for the possibility of extensive interpretation (Article 10 of the Tax Benefits Statute), but not for restrictive interpretation, and therefore, 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 norm that provides for it.
In any case, following Batista Machado, in Introduction to Law and Legitimizing Discourse, Almedina, Coimbra, "a restrictive interpretation is only justified when the interpreter reaches the conclusion that the legislator adopted a text that betrays its intention, to the extent that it says more than what it intended to say. Here too the ratio legis will have a decisive word. The interpreter should not allow himself to be carried away by the apparent scope of the text, but should restrict it so as to make it compatible with the legislative intention, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for the law ends, its scope ends)."
Therefore, we must examine whether there are reasons that justify a conclusion about the incompatibility of the sense of the text of Article 3, subsection 1, with the ratio legis of that tax benefit.
The reason for the creation of that tax benefit is evident and was expressly stated in the "Explanatory Memorandum" of Proposal for Law no. 148/XII, which gave rise to Law no. 49/2013:
Accordingly, contributing to the success of the Economic and Financial Adjustment Program for Portugal, and with the objective of promoting competitiveness and employment, the Government commits to a strategy aimed at strongly stimulating direct investment in Portugal, already in 2013.
In this context, this proposal for law introduces into the Portuguese legal system an Extraordinary Investment Tax Credit (CFEI) with the objective of producing a strong impact on the level of business investment.
The CFEI corresponds to a deduction from IRC collection in the amount of 20% of investment expenses incurred, up to 70% of such collection. The eligible investment for this tax credit will have to be made between 1 June 2013 and 31 December 2013 and may amount to 5,000,000.00 EUR, being deductible from the IRC collection of the fiscal year, and for an additional period of up to five years, whenever it is insufficient.
The following are eligible for this benefit: taxpayers who exercise as their principal activity an activity of a commercial, industrial or agricultural nature, have regularly organized accounts in accordance with accounting standards and other legal provisions in force for their respective sector of activity, their taxable profit is not determined by indirect methods and their fiscal and contributory situation is regularized.
As is obvious, the realization of this legislative objective "to strongly stimulate direct investment in Portugal" and to "produce a strong impact on the level of business investment" clearly points in the direction that it was intended to maximize and not limit the scope of the tax benefit.
Any eventual limitation of the application of the tax benefit to companies that did not present taxable profit would amount to a very strong restriction of its field of application, since, as is a matter of public fact, the vast majority of companies, in 2012, presented tax losses, although it paid IRC through other means.
In fact, according to statistics published by the Tax and Customs Authority, in the year 2012 (the last year whose data would have been available when Proposal for Law no. 148/XII was presented and therefore can be assumed to have been considered), more than half of the IRC declarations presented negative net value and only 28% of taxpayers presented "IRC Assessed," with about 70% of taxpayers making IRC payments (Table 8), through Special Payment on Account, or other positive components of the tax (Autonomous Taxation, State Surcharge, State Surcharge, IRC from previous periods of taxation."
Therefore, it is manifest that the applicability of the tax benefit to companies that, although presented tax losses, paid IRC, including by way of autonomous taxation, greatly expanded the number of potentially beneficiary companies and, consequently, is more compatible with the legislative intention underlying Law no. 49/2013 than that defended by the Tax and Customs Authority.
The discussion of the legislative initiative in the Assembly of the Republic confirms that what was not in question was the approval of a tax benefit from which only the minority of companies that paid IRC based on the taxable profit of the 2013 fiscal year could benefit.
In fact, the terms in which the measure was announced by the Secretary of State for Tax Affairs point to an unprecedented measure, of enormous impact and dimension:
"(...) this measure is directed primarily, as I have had the opportunity to say, to the investment of small and medium-sized enterprises. If this were not the case, the investment limit would not have been set at 5 million euros. The 5 million euro limit corresponds to the average value of annual investment of about 97% of Portuguese companies. And it is, precisely, for those companies, for small and medium-sized enterprises, that this investment stimulus measure is directed;
"it is not the first time that an investment tax credit has been created in Portugal, there have been other tax credits in the past, but none with the impact and dimension of this one."
The intended maximization of the tax incentive, viewed as potentially incentivizing about 97% of companies, clearly pointed to its application to any IRC collection and not just to the reduced minority that paid assessed IRC based on the taxable profit of each fiscal year, and therefore the solution of applying it to IRC credits derived from autonomous taxation, in addition to being the one that results linearly from the literal wording of Law no. 49/2013, is the one that is in tune with the reason for it.
On the other hand, it cannot be overlooked that autonomous taxation aims to protect or increase tax revenue and that the tax benefits granted, by definition, are "measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to those of taxation itself that they prevent" (Article 2, subsection 1, of the Tax Benefits Statute).
That is, in the case at hand, by establishing a tax benefit by deduction from IRC collection, the legislator chose to forgo the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this weighing of the interests at stake (tax revenue versus strong stimulus to investment), it is indifferent whether that revenue comes from calculations made on the basis of Article 87 or Article 88 of CIRC. In fact, whatever the form of calculation of that tax revenue, we are dealing with money whose collection the legislator considered to be less important than the pursuit of the economic purpose referred to.
And, in the case of the CFEI tax benefit, the reasons of an extra-fiscal nature that justify its priority over tax revenue are, from the legislative perspective, of paramount importance, as stated in the said Explanatory Memorandum and confirmed in the presentation of the proposal to the Assembly of the Republic.
Therefore, it is certain that we are dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenue from IRC, including that resulting from autonomous taxation.
In this context, the issues raised by the Tax and Customs Authority regarding the compatibility of the solution adopted by Law no. 49/2013 with other legislative solutions (in particular, those adopted regarding the fiscal transparency regime or groups of companies, which have no application whatsoever in the case at hand), have no relevance whatsoever to the examination of this issue, as this must be examined in light of the specific interests that clash in its weighing.
In fact, what is at stake is exclusively to determine the scope of Law no. 49/2013, which is a statute of an exceptional nature, in light of its text and the interests it aimed to pursue, which did not intend to decide any conceptual question about the nature of autonomous taxation, a matter on which no legislative concern whatsoever is envisaged either in the text of the Law or in its preparatory work.
For the same reason that what is at stake is to interpret the scope of the statute of a special nature that is Law no. 49/2013, no relevance can be attributed, for this purpose, to the provision of subsection 21 of Article 88 of CIRC, added by Law no. 7-A/2016, of 30 March, in the part in which it refers to that no "deductions are made to the total amount determined," despite the purported interpretative nature attributed to it.
In fact, there is no sign, either in Law no. 7-A/2016, or in the State Budget Explanatory Memorandum, or in its discussion, that with the addition to Article 88 of CIRC of a general norm prohibiting deductions to the total amount determined from autonomous taxation, it was intended to interpret restrictively the expression "deduction from IRC collection" that appears in a special norm of a separate statute, in particular Article 3, subsection 1, of Law no. 49/2013.
And, in the absence of an unequivocal intention to the contrary, the rule that general law does not alter special law applies (Article 7, subsection 3, of the Civil Code), which has its justification in the fact that "the general regime does not include consideration of the particular conditions that justified precisely the enactment of the special law."
Furthermore, the referred rule of Article 3, subsection 1, was intended to encourage taxpayers subject to IRC to make investments, and therefore, given that the tax benefit is a counterpart of the adoption of the legislatively desired and encouraged conduct, it would be incompatible with the constitutional principle of protection of reliance, inherent in the principle of democratic rule of law (Article 2 of the CRP), not to recognize to such conduct the favorable tax effects provided for in the law in force at the time they occurred. Therefore, if hypothetically Law no. 7A/2016 intended to eliminate, in whole or in part, the favorable tax effects that Law no. 49/2013 established for taxpayers who adopted the conduct provided for therein, it would be materially unconstitutional, by violation of that principle.
From the foregoing, converging the literal and rational elements of the interpretation of Article 3, subsection 1, of Law no. 49/2013 in the sense that the investment expenses provided for in CFEI are deductible from "IRC collection," it is concluded that they are deductible from the entirety of that collection, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that which results from the special payment on account and other positive components of the tax, in particular autonomous taxation, state surcharge and IRC from previous periods of taxation.
The claim for arbitral determination thus succeeds on this issue.
3.5. Questions of Unconstitutionality Raised by the Tax and Customs Authority
The Tax and Customs Authority states in its Reply the following:
It should always be said that any interpretation that does not apply the norm contained in the State Budget Law for 2016, set out in Article 133, which added subsection 21 to Article 88 of CIRC, with the effects provided for in Article 135, both contained in the State Budget Law for 2016, published on 30.03.2016, entering into force the following day, in which it is advocated, with an interpretative character, that
"The assessment of autonomous taxation in IRC is carried out under the terms provided for in Article 89 and is based on the values and rates that result from the provisions of the preceding subsections, no deductions being made to the total amount determined."
and which, consequently, allows the deduction from the part of the IRC collection produced by the autonomous taxation rates of the tax benefits made under IRC, in this case, SIFIDE/CFEI/RFAI, this decision is materially unconstitutional, by
a) violation of the principle of legality, inherent in Article 103, subsection 2 of the CRP,
b) violation of the principle of separation of powers, set out in Article 2 of the CRP,
c) violation of the principle of protection of reliance provided for in Article 2 of the CRP,
d) violation of the principle of equality, in its positive formulation of taxable capacity, arising from Article 13, subsection 2 and Article 103, subsection 2 both of the CRP."
It is noted that the Tax and Customs Authority does not explain the reason or reasons why it understands that these principles are violated, merely alluding to them, and therefore did not fulfill, as to these hypothetical issues, the burden of pleading indispensable to ensure the right to be heard.
In any case, with the brevity that the insufficiency of pleading justifies, it may be said that it is unclear how the principle of legality could be violated, as legality has precisely the scope referred to above and, in particular, the general norm of subsection 21 to Article 88 of CIRC, even applied to earlier situations, has no potential to repeal special norms, such as those of SIFIDE, RFAI and CFEI which provide for deduction from IRC collection, which includes that of autonomous taxation. Given that this is the appropriate interpretation of the referred norms, what would be incompatible with the principle of legality would be to apply them with a different scope than that which results from the appropriate interpretative rules.
As to the principle of separation of powers, the present decision is issued by a Court, and therefore has a judicial character, and in the exercise of judicial power it is incumbent upon Courts to interpret and apply the laws and, in this case, this Court interpreted all the norms at issue, including subsection 1 of Article 88 of CIRC, with the meaning it referred to and not with another.
As regards the principle of protection of reliance, even if it is understood that its scope of protection extends to State Administration, it certainly does not cover reliance that courts will adopt a certain interpretation, when jurisprudence is not settled.
With respect to the principle of equality, no situation comparable to that given a different treatment is identified. Furthermore, autonomous taxation is not based on the taxable capacity of companies, as its autonomy is concretized precisely in the imposition of taxation with indifference to the existence of income, being exceptions to the principle of taxation of companies with incidence "fundamentally on their real income" (Article 104, subsection 2, of the CRP). Therefore, it is unclear how the principle of equality is violated, and much less Article 103, subsection 2, of the CRP, which refers to the formal requirements of tax laws.
From the foregoing, there is no violation of the principles invoked.
4. REFUND OF OVERPAID AMOUNT AND COMPENSATORY INTEREST
The Claimant requests the refund of the amount of tax overpaid, in the amount of € 104,334.39, plus compensatory interest, "in accordance with the provisions of Article 43 of LGT."
With regard to compensatory interest, in accordance with the provision of paragraph b) of Article 24 of RJAT, the arbitral decision on the merits of the claim as to which there is no appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, and this, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of decisions of tax courts, "must restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for this purpose," which is in harmony with the provision of Article 100 of LGT [applicable by virtue of the provision of paragraph a) of subsection 1 of Article 29 of RJAT] which establishes that "the tax administration is obligated, in case of full or partial success of a complaint, legal challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, where applicable, from the end of the period of execution of the decision."
Although Article 2, subsection 1, paragraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating in CAAD, making no reference to condemnatory decisions, it should be understood that the powers attributed to tax courts in legal challenge proceedings are included in its competencies, this being the interpretation that is in tune with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it is proclaimed, as the first guideline, that "the tax arbitral process must constitute an alternative dispute resolution method to the legal challenge process and to the action for recognition of a right or legitimate interest in tax matters."
The legal challenge process, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as may be inferred from Article 43, subsection 1, of LGT, in which it is established that "compensatory interest is due when it is determined, in an administrative complaint or legal challenge, that there was an error attributable to the services from which resulted payment of the tax debt in an amount exceeding the legally due" and from Article 61, subsection 4 of CPPT (as amended by Law no. 55-A/2010, of 31 December, which corresponds to subsection 2 in the initial wording), which states that "if the decision recognizing the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period for voluntary execution."
Thus, subsection 5 of Article 24 of RJAT, when stating that "payment of interest is due, regardless of its nature, as provided for in the general tax law and in the Code of Tax Procedure and Process," must be understood as allowing the recognition of the right to compensatory interest in the arbitral process.
In the case at hand, as a consequence of the illegality of the acts of self-assessment in the parts relating to the non-deduction of SIFIDE and RFAI, there is entitlement to refund of the overpaid tax, by virtue of the referred Articles 24, subsection 1, paragraph b), of RJAT and 100 of LGT, as this is essential to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed," which should be determined in the execution of judgment.
The substantive regime of the right to compensatory interest is regulated in Article 43 of LGT, which establishes, insofar as relevant herein, the following:
Article 43
Unjustified Payment of Tax Obligation
1 – Compensatory interest is due when it is determined, in an administrative complaint or legal challenge, that there was an error attributable to the services from which resulted payment of the tax debt in an amount exceeding the legally due.
2 – There is also deemed to be an error attributable to the services in cases where, although the assessment is made on the basis of the taxpayer's declaration, the taxpayer followed, in its completion, the generic guidelines of the tax administration, duly published.
Of the various situations in which compensatory interest is due indicated in Article 43 of LGT, there will be entitlement to the same if it is determined that an error attributable to the services occurred.
In the case at hand, the unjustifiably paid tax was self-assessed, and therefore the Tax and Customs Authority had no involvement in the performance of the act of payment, the performance being attributable to the Claimant itself.
Moreover, the Claimant did not allege to have been influenced by any action of the Tax and Customs Authority, stating that "the Claimant has been adopting, by prudence, as a procedure the deduction of tax benefits from IRC collection, not considering as such the collection from autonomous taxation, to the extent that, until the introduction of the IRC Reform for the 2014 fiscal year, there was uncertainty that autonomous taxation had the character of IRC, this having subsequently clarified its nature, corroborating, moreover, what had already previously resulted from the literal wording of Article 12 of the same Code."
Therefore, as to the self-assessment, no error attributable to the services occurred, and consequently there is no entitlement to compensatory interest derived from its performance.
However, the same does not apply to the decision on the administrative appeal, as the Claimant's claim should have been granted, insofar as it is here judged to be well-founded, and the non-granting of the claim is attributable to the Tax and Customs Authority.
This case of the Tax and Customs Authority maintaining a situation of illegality, when it should have restored it, should be framed, by mere declarative interpretation, in subsection 1 of Article 43 of LGT, as it is a situation in which there is a causal nexus between an error attributable to the services and the maintenance of unjustified payment and the omission to restore legality when the action that would restore it should have been performed must be equated with the action itself.
In the case at hand, the administrative appeal was filed on 29 March 2016 and was decided on 08 July 2016, within the legal period provided for in Article 57, subsection 1 of LGT.
Therefore, from 30 March 2016, compensatory interest begins to accrue, at the legal default rate, under the terms of Articles 43, subsections 1 and 4 and 35, subsection 10 of LGT, Article 559 of the Civil Code and Regulation no. 291/2003, of 8 April.
5. DECISION
The Arbitral Tribunal hereby agrees to:
– Judge the claim for arbitral determination well-founded as to the request for declaration of illegality of the decision on the administrative appeal and annul this decision;
– Declare the illegality of the acts of self-assessment relating to the fiscal years 2013 and 2014, in the part relating to the available amounts of SIFIDE, RFAI and CFEI that were not deducted from the amount of IRC collection resulting from autonomous taxation and annul the self-assessment in the respective part;
– Condemn the Tax and Customs Authority to refund the Claimant of the amount overpaid, in the amount of € 104,334.39 and to pay compensatory interest to the Claimant, relating to this amount, from 30 March 2016 until its refund, at the legal default rate.
6. VALUE OF THE CASE
In accordance with the provision of Article 305, subsection 2, of the Code of Civil Procedure and Article 97-A, subsection 1, paragraph a), of the Code of Tax Procedure and Process and subsection 2, Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 104,334.39
7. COSTS
Under the terms of Article 22, subsection 4, of RJAT, the amount of costs is set at € 3,060.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.
Lisbon, 10 May 2017
The Arbitrators
Paulo Lourenço
(Adjunct Arbitrator)
João Pedro Dâmaso
(Adjunct Arbitrator)
José Poças Falcão
(President Arbitrator of the Tribunal)
Dissenting Vote as follows
DISSENTING VOTE:
I do not concur, with due respect, with the decision that prevailed and, on the contrary, would judge the claim unfounded, would maintain in the legal system the act rejecting the administrative appeal, would declare the legality of the acts of self-assessment and would absolve the Tax and Customs Authority.
The reasons are substantially apparent from the arbitral decisions issued by the Collective Tribunals I chaired constituted within the scope of CAAD, in particular in cases nos. 697/2014-T, 727/2015-T, 752-2015-T, 785/2015-T, all published on the CAAD website [www.caad.org.pt] and, more recently, in case no. 638/2016-T, not yet published, as well as from the dissenting vote of Dr. Carla Castelo Trindade, in the award that the decision that prevailed followed very closely, issued in arbitral case no. 456/2016-T.
Thus, as to the question of whether the tax benefits, in the form of deduction from IRC collection under IRC, enjoyed under the regimes known by the acronyms "SIFIDE II," RFAI and CFEI, can still be imputed in the part of the IRC collection determined on the basis of the rules of the so-called "autonomous taxation" or, in other words, whether the tax credit in which such benefits are translated can be deducted from that part of the IRC collection, I answer in the negative.
As was noted in the awards issued in the referred cases nos. 727/2015-T and 785/2015-T, from the norms that enshrine the benefits in question, it is extracted, without further ado, that these can only refer to the collection attributable to taxable profit [it is cited, as to SIFIDE, paragraph a) of Article 5 of the statute that created that regime, corresponding today to paragraph a) of Article 37 of the CFI, and, as to CFEI, in particular, the provision of Article 3-5 of the same statute, concerning groups of companies], concluding that there thus exists express legal impediment in CIRC for the credits [arising] therefrom to be deducted from autonomous taxation.
I reiterate that I do not cease to accept and fully subscribe to what was also argued in the arbitral award issued in case no. 722/2015-T regarding the nature of "autonomous taxation" as anti-abuse norms aimed at rationalizing specific behaviors of taxpayers facing the tax obligation and the lack of logic that would be, in this light, to permit the deduction of expenses, with the inherent destruction of the said anti-abuse sense that permeates those norms.
Regarding the new subsection 21 of Article 88 of CIRC and its interpretative character, we should also bear in mind the provision of Article 13 of the Civil Code when it stipulates that the interpretative law is integrated into the interpreted law and, to that extent, subject to specific considerations (e.g., decisions that have become final), retroactive effect cannot be put in question, even though, in the matter of taxes, there is the rule of prohibition of retroactive taxes (See Article 103-3 of the Constitution and also Article 12 of LGT).
That is: for a judgment of (un)constitutionality, a distinction must be made between authentic retroactivity – prohibited by the Constitution – and mere retrospectivity – not covered by the prohibition, except violation intolerable of the principle of protection of reliance.
In this case, there existed, before the introduction of the new subsection 21 to Article 88 of CIRC, interpretative controversy between AT and taxpayers, transposed into Arbitral Jurisprudence, regarding Article 90 of CIRC, as to the question of whether the tax benefits [especially the investment incentives at issue in this case] were deductible from autonomous taxation. [Part of dissent is truncated in the original document]
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