Summary
Full Decision
ARBITRAL DECISION
Arbitral Decision
The Arbitrators Counsellor Carlos Alberto Fernandes Cadilha (Arbitrator President), Dr. Olívio Mota Amador (Arbitrator Member) and Dr. André Festas da Silva (Arbitrator Member), appointed by the Administrative Arbitration Centre to form an Arbitral Tribunal agree as follows:
1. – Report
1.1. A… SGPS S.A., collective entity no. …, with registered office at …, …-… …, (hereinafter referred to as "Claimant") submitted, on 21-11-2018, a request for the constitution of an arbitral tribunal, pursuant to article 2.º no. 1, subparagraph a) and 10.º, nos. 1, and 2 of the Legal Regime of Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228.º of Law no. 66-B/2012, of 31 December (hereinafter abbreviatedly referred to as "RJAT") and articles 1.º and 2.º of Ordinance no. 112-A/2011, of 22 March, to declare the illegality and consequent annulment of the corporate income tax self-assessment act no. 2016 ..., relating to the fiscal year 2014, and also of the dispatch of the Director of the Unit of Large Taxpayers ("UGC"), of 20-09-2017, which dismissed the administrative claim no. ...2017..., and of the dispatch of the Deputy Director-General of the area managing Income Taxes of the Tax Authority, of 24-08-2018, which dismissed the hierarchical appeal no. ...2017... and the replacement by a new act determining the deduction of financial charges from taxable profit in the amount of € 5,469,275.54 (five million, four hundred and sixty-nine thousand two hundred and seventy-five euros and fifty-four cents) and the reimbursement in the amount of € 708,050.98 (seven hundred and eight thousand and fifty euros and ninety-eight cents).
1.2. The request for constitution of the arbitral tribunal was accepted on 21-11-2018, and automatically notified to the Tax and Customs Authority ("AT", hereinafter referred to as "Respondent").
1.3. The Claimant did not proceed to the appointment of an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of no. 2 of article 6.º and subparagraph a) of no. 1 of article 11.º of the RJAT, the President of the Deontological Council of CAAD appointed the arbitrator president and the auxiliary arbitrators of the collective arbitral tribunal, and the signatories communicated acceptance of the duty within the applicable period.
1.4. The parties were notified of the appointments of the arbitrator president and the auxiliary arbitrators on 14-01-2019, and neither expressed the will to challenge any of them.
1.5. In accordance with the provisions of subparagraph c) of no. 1 of article 11.º of the RJAT, the Collective Arbitral Tribunal was constituted on 04-02-2019.
1.6. The Respondent, duly notified for such purpose through the arbitral dispatch of 04-02-2019, submitted its response on 11-03-2019, defending itself by exception and by challenge and forwarded, on 12-03-2019, the administrative file.
1.7. The Arbitral Tribunal, by dispatch of 13-03-2019, pursuant to the principles of autonomy in the conduct of proceedings, expedition, simplification and procedural informality (articles 19.º, no. 2, and 29.º, no. 2, of the RJAT), dispensed with the holding of the meeting provided for in article 18.º of the RJAT, and determined the continuation of proceedings by notifying the parties to submit optional written submissions, within the successive period of 15 days, which could be used by the Claimant to exercise the right to reply regarding the exception raised by the Respondent in the Response. 4 July 2019 was set as the date for pronouncement of the arbitral decision.
1.8. Submissions were made by the Claimant on 22-03-2019, and by the Respondent on 11-04-2019.
1.9. The position of the Claimant, in accordance with the provisions of the request for constitution of the Arbitral Tribunal and the submissions, is, in summary, as follows:
1.9.1. Financial charges should be deducted with the acquisition of equity interests whose transfer did not occur by 31 December 2013, since that regime was never fully applied as no capital gains or losses were realized during its validity.
1.9.2. Should the requirements for the application of the regime provided for in article 32.º of the EBF not have been met, the financial charges incurred with the acquisition of equity interests would always be deductible in light of the general rule of deductibility of expenses (see article 23.º, no. 2, subparagraph c), of the Corporate Income Tax Code). Taking into account the literal and teleological elements of the regime provided for in no. 2 of article 32.º of the EBF, it must be concluded that, should an SGPS have realized no capital gains or losses with the transfer of equity interests that benefited from that regime, the financial charges with the acquisition of those interests should be taken into account for purposes of determining taxable profit.
1.9.3. Even if the AT understands that the deductibility of financial charges incurred with the acquisition of equity interests held at the date of revocation of article 32.º of the EBF finds no basis in Circular no. 7/2004, the application of the principle of non-deductibility set out in that Circular can never result in the production of effects different from those intended by the legislator, namely the "environment of neutrality" that was intended to be attributed to that regime, insofar as such Circular has no force of law. With the revocation of the regime provided for in article 32.º of the EBF, compliance with the understanding advocated in Circular no. 7/2004 ended up originating a materially unequal situation compared to other SGPSs that chose to depart from that same understanding.
1.9.4. In this context, in addition to lacking any legal justification, the interpretation that financial charges cannot be deducted owing to their tax situation having been irremediably defined at the moment they were added as a result of the application of Circular no. 7/2004, would be contrary to the principle of tax equality enshrined in article 13.º of the CRP.
1.9.5. The AT should proceed to correct the tax situation of the now Claimant, allowing the deduction of financial charges added relating to equity interests of which it was still the holder at the date of revocation of article 32.º of the EBF. Thus, the Claimant considers that the deduction of financial charges that were added in the past should be made only in the tax period of 2014, insofar as, until 31 December 2013, inclusive, the regime provided for in no. 2 of article 32.º of the EBF was still in force.
1.9.6. Financial charges that were added and that relate to equity interests whose associated capital gains did not benefit from the regime provided for in no. 2 of article 32.º of the EBF should be recognized as a tax cost in the fiscal year in which it is concluded that there is actual impossibility of application of that regime, and not in the one in which, potentially, it will not be applicable. Which, in the case at hand, corresponds to the tax period of 2014. It follows, therefore, that it is unequivocal that the underlying rationale of no. 2 of article 32.º of the EBF does not consist in the limitation of the deductibility of financial charges incurred by SGPSs per se, but rather in the logical consequence of the fiscal neutrality intended by the legislator upon the introduction of this regime.
1.9.7. Regarding the matter of the deductibility of tax benefits to the collection of autonomous taxes, it should be noted that the simplest and most literal interpretation of article 90.º, no. 2, of the Corporate Income Tax Code is that which allows that tax benefits which operate by deduction from collection to be deducted from the total corporate income tax payable by the taxpayer – and therefore also from local surcharge and autonomous taxes – and not only from corporate income tax collection strictly speaking. Moreover, it is already recognized, both by doctrine and by case law, that although they contain some specificities compared to the general regime, autonomous taxes are components of corporate income tax.
1.9.8. As regards deductions from collection ascertained in the individual sphere of entities subject to the Special Tax Regime for Groups of Companies ("RETGS"), the general rule of joint taxation has clear and unequivocal implementation in article 90.º, no. 6, of the Corporate Income Tax Code. Now, since the amount of tax ascertained in those terms includes autonomous taxes, it is necessary to conclude that deductions relating to tax benefits must have as reference the collection of tax ascertained within the Group.
1.9.9. The Claimant considers that, since autonomous taxes are an integral part of corporate income tax collection, it must be concluded that the amounts ascertained under tax benefits not deducted from collection of the tax period of 2013 should have been, without placing in question the relevant tax limits on the use of the same.
1.9.10. Regarding the issue of deduction of tax benefits to autonomous taxes, it is important to note that the Claimant's position has already been supported in the decisions of arbitral proceedings nos. 369/2015-T and 370/2015-T.
1.10. In its Response, the Respondent raised the exception of incompetence of the Arbitral Tribunal, a dilatory exception that prevents the continuation of proceedings and leads to absolution of the instance as to the claim in question, with the following grounds:
1.10.1. It follows from the Claimant's final request "(II) The Reimbursement in the amount of € 708,050.98 increased by the respective compensatory interest." As regards this latter part of the Claimant's request, it is important to say that it cannot be heard in the present proceedings, as such request (in the part identified) goes beyond the competence of this Tribunal.
1.10.2. As provided for in article 24.º of the RJAT, the definition of acts in which the execution of arbitral judgments should be concretized is the responsibility, in the first place, of the AT, with the possibility of recourse to tax tribunals to request coercive execution, within the scope of the execution of judgments process, provided for in article 146.º of the CPPT and articles 173.º and following of the Code of Procedure in Administrative Courts.
1.10.3. Finally, should it not be understood to result from the provisions of article 2.º of the RJAT, interpreting it in a manner different from that advocated by the Claimant, it will still be said that such interpretation will be contrary to the unity of the legal order and will be in violation of the principles of certainty and legal security, sub-principles that give concrete expression to the principle of the Democratic Rule of Law, provided for in article 2.º of the Constitution of the Portuguese Republic. Such interpretation would equally be materially unconstitutional for violating the principle of access to justice, equality of treatment, effective judicial protection, provided for in articles 13.º and 20.º of the CRP. Furthermore, such interpretation would be materially unconstitutional for violating the principle of legality, which informs all administrative activity, and its corollary of the indisponibility of tax credit.
1.10.4. As to the value of the charges, the Tribunal cannot fix its exact amount due to the pending of legal proceedings, being heard in the Tax Court of …, as indicated in the request for arbitral pronouncement (footnote to article 18.º) where they are being discussed and in which the Claimant petitions their deduction in the respective fiscal year.
1.11. With regard to the exception raised by the Respondent, the Claimant in its submissions exercised the right to reply in the following terms:
1.11.1. The AT well understands that the request for arbitral pronouncement has as its object the corporate income tax assessment act, founded on the illegality of the corrections of which it is concomitant, and whose annulment, by such means, is necessary.
1.11.2. The restitution of the tax which, by virtue of such recognition of illegality, is judged to have been paid unduly, represents an effect of the necessary and consequent revocation of the assessment act here challenged, and is to that exact extent also an effect sought with the request for constitution and arbitral pronouncement.
1.12. The defense of the Respondent by challenge, expressed in the response and in the submissions, can be summarized as follows:
1.12.1. During the validity of article 32.º of the EBF, non-deducted financial charges could only be taken into account for taxable profit of the tax period in which capital gains were realized to which the exemption regime was not applied. Now, as no realization of any capital gains or losses resulting from the sale of equity interests whose ownership was maintained on 31/12/2013 that would have affected taxable profit was reported for 2014, there is no legal basis supporting the claim for deduction of charges for purposes of determining taxable profit.
1.12.2. Point 6 of Circular no. 7/2004 left no doubt that it was "at the moment of sale of the interests" and not at any other moment that it should be concluded whether all requirements for application of that regime were met. Furthermore, it cannot be argued that with the revocation of article 32.º of the EBF, capital gains and losses have come to be subject to differentiated and more burdensome treatment, as they are covered by article 51.º-C of the Corporate Income Tax Code and do not contribute to taxable profit. What occurred was, therefore, a succession of regimes, within which the so-called participation exemption regime succeeded, because it replaced, the special regime for SGPSs, enshrined in article 32.º of the EBF.
1.12.3. Thus, the interpretation set out by the Claimant has no legal support, either of point 6 of Circular no. 7/2004 or of the effects of the revocation of article 32.º of the EBF, on which the deduction of financial charges with the acquisition of equity interests whose transfer did not occur by 31 December 2013 can be supported, all the more so since the Claimant acknowledges that "the condition of constitutive effectiveness of the tax fact relating to financial charges never came to be verified". Thus, effectively only from the tax period of 2014 onwards will the Claimant be able to verify, when the equity interests are disposed of, whether the capital gains will or will not benefit from exemption and not in the fiscal year in which the regime of article 32.º of the EBF ceased to have application.
1.12.4. The solution that the Claimant advocates for deduction, in a single occasion, of all financial charges incurred in past fiscal years added to taxable profit in earlier tax periods, disconnected from the incorporation of any associated income or gains, that is, without the sale of the corresponding equity interests, also violates the rules of apportionment of expenses and losses attributable to taxable profit, set out in article 18.º of the Corporate Income Tax Code.
1.12.5. The Claimant has no grounds for proceeding to the deduction of financial charges added to the taxable profit of the fiscal years 2004 to 2010, which are associated with equity interests whose ownership was maintained on 31.12.2013, either by invocation of Circular no. 7/2004, in its point 6, which expressly provided that deduction would only take place at the moment of sale of the interests. A fact that did not occur, nor because the revocation of article 32.º of the EBF was not accompanied by the creation of a transitional rule defining a regularization regime for such charges, being forbidden to the AT to replace the legislator and create that transitional rule, allowing the full and single deduction, to taxable profit of the fiscal year 2014, of financial charges not deducted in the past.
1.12.6. The Claimant alleges that the group of entities covered by the RETGS is the fiscal holder of credits, by virtue of tax benefits relating to SIFIDE, RFAI and CFEI which, being unable to be used by corporate income tax collection, it requests be deducted from autonomous taxes ascertained by the Group. Except that the collection of corporate income tax, referred to in subparagraph a) of no. 1 of article 90.º of the Corporate Income Tax Code, to which no. 2 of this article and the relevant norms of SIFIDE, RFAI and CFEI refer, is distinguished from collections of Autonomous Taxes by resulting, solely, from the assessment of tax on taxable matter calculated on the basis of profit (see, from article 15.º to article 86.º-B of Chapter III of the Code and rates provided for in article 87.º), whereas the tax-generating facts of autonomous taxes are multiple and refer to expenses incurred by taxpayers or by third parties who have a relationship with them, giving rise to various assessments depending on the different applicable rates.
1.12.7. Because autonomous taxes are used as anti-abuse tax instruments, the proposed thesis of the Claimant would empty them of any practical tax content. It is enough to recall the absurd situation that would result if autonomous taxes levied on undocumented expenses were absorbed by tax credits corresponding to tax benefits.
1.12.8. Hence it follows that "the amount ascertained in the terms of subparagraph a), of no. 1, of article 90.º" does not have a unitary character, as it includes values calculated according to different rules, which are associated with also differentiated purposes, so that the deductions provided for in the subparagraphs of no. 2 of the same article can only be made from the part of the corporate income tax collection with which there is direct correspondence, so as to maintain the coherence of the conceptual structure of the rule-regime of the tax. Consequently, there is not a single corporate income tax assessment but, rather, two calculations, two distinct ascertainments which, although processed in accordance with the terms of subparagraph a) of no. 1 of article 90.º of the Corporate Income Tax Code, in the declarations to which articles 120.º and 122.º of the same Code refer, are made on the basis of different parameters, as each is materialized in the application of its own rates, provided for in either article 87.º or article 88.º of the Corporate Income Tax Code, to their respective taxable matters, determined equally in accordance with rules of their own.
1.12.9. As to the issue of whether tax benefits of entities covered by the RETGS can be deducted from the total amount of autonomous taxes, the answer is already negative. The entry of autonomous taxes of the group made by the parent company is limited to the sum of autonomous taxes assessed individually by the entities that make up the group's scope, except when in the group's declaration a tax loss is ascertained, in which case the additional 10% levy provided for in nos. 14 and 20 of article 88.º of the Corporate Income Tax Code must be assessed.
1.12.10. The determination of autonomous taxes is governed, in the first place, by a purely individual logic and not a group logic, whenever in the group's periodic income declaration corporate income tax taxable matter is ascertained, and, if that is so, it would be entirely incoherent for tax credits for benefits relating to SIFIDE and RFAI to be deducted from the total amount of autonomous taxes. So, if it were permitted by law – which it is not, as has already been stated – the deduction of tax benefits to autonomous taxes, in the situation sub judice, could only operate if it took as reference the amount ascertained in the individual declaration of each entity of the group, in accordance with the terms of subparagraph a) of no. 1 of article 90.º of the Corporate Income Tax Code.
1.13. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with the terms of articles 2.º, nos. 1, subparagraph a), 5.º and 6.º, no. 1, of the RJAT.
The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented, in accordance with the provisions of articles 4.º and 10.º, no. 2, of the RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March.
The proceedings do not suffer from nullities.
The exception of incompetence of the Arbitral Tribunal, raised by the Respondent (see 1.10. and 1.11. above), will be appreciated as a priority in no. 3 below.
Everything considered, the decision must be pronounced.
2. FACTUAL MATTER
2.1. Facts taken as proven
The Claimant is a Portuguese public limited company with the legal form of a Management Company of Equity Interests (SGPS), resulting from the merger made in 2013 between B… – Telecommunications and Multimedia Services, SGPS, S.A. and C… SGPS, S.A.
The Claimant is the parent company of the so-called A… Group, subject to the Special Tax Regime for Groups of Companies (RETGS) provided for in articles 69.º and following of the Corporate Income Tax Code, which engages in activity in the area of telecommunications and entertainment in Portugal and also in the area of film distribution and exhibition.
The Claimant submitted, on 30-05-2015, the IRC Form 22 income tax return for the tax period of 2014, identified with the code ...-C6307-15 (see Document no. 4, annexed to the request for arbitral pronouncement).
With regard to the tax period of 2014, the Claimant submitted, on 30-05-2016, a replacement declaration to the IRC Form 22 income tax return, identified with the code ...-C…-17 (see Document no. 5, annexed to the request for arbitral pronouncement).
In the IRC Form 22 income tax return identified in the preceding subparagraph, the Claimant entered in box 10 the following amounts: € 840,573.08 Collection (field 351); € 916,008.86 State local surcharge (field 373); € 708,050.98 Autonomous taxes (field 365) (see Document no. 5, annexed to the request for arbitral pronouncement).
In Annex D of the IRC Form 22 income tax return identified in subparagraph D), the Claimant entered, as deductions from collection, the following amounts: (i) SIFIDE – Tax Incentive System for Business Research and Development € 1,245,158.86 (box 073 Field 711); (ii) Tax Regime Supporting Investment (RFAI) € 439,145.49 (box 074 Field 715); (iii) Extraordinary Investment Tax Credit; €0.00 (box 076 Field 724); (iv) the total of deductions € 1,684,304.35 (box 075 Field 721) (see Document no. 5 annexed to the request for arbitral pronouncement).
The Claimant was notified, on 24-08-2016, of the demonstration of corporate income tax assessment relating to the tax period of 2014, made on 01-06-2016, under no. 2016 ..., in which the amount to be reimbursed appears as € 2,071,887.65 (see Document no. 1 annexed to the request for arbitral pronouncement).
The Claimant added to its individual taxable profit, as financial charges incurred with the acquisition of equity interests, the following amounts:
€ 1,124,476.00 – Fiscal year 2004
€ 1,105,362.94 – Fiscal year 2005
€ 1,423,096.25 – Fiscal year 2006
€ 2,040,064.44 – Fiscal year 2007
€ 4,866,152.99 – Fiscal year 2008
€ 3,405,830.84 – Fiscal year 2009
€ 709,649.79 – Fiscal year 2010
(see no. 29 of the Information of the Unit of Large Taxpayers no. ...-AIR.../2017, of 04-09-2017, pages 58 of the Administrative File).
The amounts added to the individual taxable profit of the Claimant as financial charges incurred with the acquisition of equity interests in the tax periods of 2009 and 2010 were challenged in court by the Claimant, through three proceedings before the Tax Court of … with nos. …/14.7 ... (relating to the year 2009 – amount added € 3,405,830.84), …/13.9 ... and …/15.0 ..., (relating to the year 2010 – amount added € 709,649.79) (see no. 29, subparagraph h), of the Information of the Unit of Large Taxpayers no. ...-AIR.../2017, of 04-09-2017, pages 58 of the Administrative File and footnote no. 2 of the request for arbitral pronouncement).
With regard to the equity interests held on 31-12-2013, the Claimant had added to its taxable profit, in overall terms, the amount of € 5,469,275.55 (see no. 29, subparagraph i), of the Information of the Unit of Large Taxpayers no. ...-AIR.../2017, of 04-09-2017, pages 58 of the Administrative File)
The Claimant submitted, on 30-05-2017, an administrative claim addressed to the Unit of Large Taxpayers against the corporate income tax self-assessment act for the tax period of 2014, which received no. ...2017... (see Document no. 6 annexed to the request for arbitral pronouncement).
The Claimant was notified, on 04-08-2017, of the draft decision dismissing the administrative claim, and exercised its prior hearing right, in accordance with the terms of article 60.º, no. 1, subparagraph b) of the LGT (see Document no. 7 annexed to the request for arbitral pronouncement).
The Claimant, on 26-09-2017, was notified by letter from the Unit of Large Taxpayers of the dispatch dismissing the administrative claim issued by the Director of the Central Service on 20-09-2017, contained in the Information no. ...-AIR.../2017, of 04-09-2017 (see Document no. 2 annexed to the request for arbitral pronouncement).
The Claimant filed, on 23-10-2017, a hierarchical appeal addressed to the Minister of Finance, which received no. ...2017..., against the dispatch dismissing the administrative claim issued by the Director of the Central Service of the Unit of Large Taxpayers on 20-09-2017, (see Document no. 8, annexed to the request for arbitral pronouncement and page 2 of the Administrative File).
The Claimant was notified, by letter from the IRC Management Service of 24-08-2018, of the dispatch of partial deferral of the hierarchical appeal issued by the Deputy Director-General, under Subdelegation of powers, on 23-08-2018, contained in the information no. 2018… of the IRC Management Service, of 12-03-2018 (see Document no. 3 annexed to the request for arbitral pronouncement).
The dispatch of the Deputy Director-General identified in the preceding subparagraph dismissed the part relating to financial charges added to taxable profit and the part relating to the deduction of tax benefits from collection of autonomous taxes, but deferred the part relating to the inclusion of the accrual of the period as a tax benefit relating to RFAI calculated on the investment made by A… Comunicações S.A., ordering the return of the file, in this part, to the Unit of Large Taxpayers for reconsideration in the administrative claim procedure (see Document no. 3 annexed to the request for arbitral pronouncement).
2.2. Facts taken as not proven
With relevance to the decision, there are no facts that should be considered as not proven.
2.3. Substantiation of the proven and not proven factual matter
As to the factual matter, it is the duty of the Tribunal to select the facts that matter for the decision and to discriminate between the matter proven and that not proven, not having to rule on everything that was alleged by the parties (see article 123.º, no. 2, of the CPPT and article 607.º, no. 3, of the CPC, applicable ex vi article 29.º, no. 1, subparagraphs a) and e), of the RJAT).
Thus, the facts pertinent to the judgment of the case are chosen and delimited according to their legal relevance, which is established taking into account the various plausible solutions to the questions of law raised (see article 596.º of the CPC, applicable ex vi article 29.º, no. 1, subparagraph e), of the RJAT).
In these terms, taking into account the positions taken by the parties, in light of article 110.º, no. 7, of the CPPT, and the documentary evidence attached to the proceedings, the facts listed above were considered proven, with relevance to the decision.
3. MATTERS OF LAW
3. Incompetence of the Arbitral Tribunal
3.1. The Tax Authority raised the dilatory exception of incompetence of the arbitral tribunal with respect to the request for reimbursement in the amount of € 708,050.98, plus compensatory interest, on the grounds that such request, in the part aimed at the return of tax unduly paid, even if it may constitute a consequence of the declaration of illegality of the impugned assessment acts, at the executive level, does not fall within the competence of the arbitral tribunal as defined in article 2.º, no. 1, subparagraphs a) and b), of the RJAT.
In the initial petition the Claimant makes clear that its claim has as its object the corporate income tax self-assessment act relating to fiscal year 2014, as well as the decision dismissing the administrative claim lodged against that act and the decision dismissing the hierarchical appeal filed following that administrative challenge. However, in the formulation of the request, the challenger requires not only the annulment of the self-assessment act and the dismissal dispatches, but also its replacement by a new act that translates the corrections to taxable profit, by means of deduction of financial charges in the amount of € 5,469,275.54, and reimbursement in the amount of € 708,050.98, plus respective compensatory interest.
It must be said first that, although the competence of arbitral tribunals in tax matters covers only those claims involving a declaration of illegality of tax assessment acts, ascertainment of taxable matter and determination of asset values, in accordance with the aforementioned subparagraphs a) and b) of no. 1 of article 2.º of the RJAT, the fact is that it constitutes an effect of the arbitral decision granting the claim that the Tax Authority should practice the tax act legally owed in substitution for the impugned act and restore the situation that would exist if that act had not been practiced (article 24.º, no. 1, of the RJAT).
That is, moreover, the necessary consequence of the duty of execution of sentences annulling administrative acts (article 179.º of the CPTA), which becomes applicable, in the same exact terms, to situations where there is occasion for administrative annulment at the initiative of the Authority or at the request of the individual (article 172.º of the CPA).
In the case, the Claimant came to lodge a request for reimbursement of tax unduly paid, but such is a merely ancillary request and conditioned on the declaration of illegality of the impugned tax acts, not assuming the nature of an autonomous request for condemnation in the practice of an act owed or of recognition of legally protected rights that goes beyond the scope of material competence of the arbitral tribunal.
In that sense also points the fact that nothing prevents the tribunal from pronouncing condemnation, if appropriate, to payment of compensatory interest.
In accordance with no. 5 of article 24.º of the RJAT "payment of interest is due, regardless of its nature, in the terms provided for in the General Tax Law and in the Code of Procedure and Process for Tax Matters", which refers to the provisions of articles 43.º, no. 1, and 61.º, no. 5, of one and the other of those statutes, implying the payment of compensatory interest from the date of unduly paid tax until the date of processing of the respective credit note. With the payment of compensatory interest becoming due whenever the unduly paid tax liability results from error attributable to the services, verifiable either in administrative challenge or in judicial challenge.
There is thus occasion, following a declaration of illegality of the tax assessment act, for payment of compensatory interest, in accordance with the cited provisions of articles 43.º, no. 1, of the LGT and 61.º, no. 5, of the CPPT, calculated on the amount that the Claimant paid unduly, at the rate of legal interest (articles 35.º, no. 10, and 43.º, no. 4, of the LGT).
And, consequently, the arbitral tribunal is not prevented from including in the operative part the consequences merely flowing from the declaration of illegality of the tax act.
Matters of substance
4. Deductibility of financial charges as a result of the revocation of article 32.º, no. 2, of the Tax Benefits Statute
4.1. In a first instance, the Claimant seeks that, as a result of the revocation of article 32.º, no. 2, of the Tax Benefits Statute (EBF), effected by Law no. 83-C/2013, of 31 December, financial charges incurred in earlier tax periods, relating to the acquisition of interests that on 31 December 2013 remained in its ownership, may be deducted for purposes of determining taxable profit for 2014.
And this understanding is based on the circumstance that the aforementioned provision of the EBF had instituted an exclusion from taxation of capital gains obtained by management companies of equity interests, in relation to equity interests of which they were holders, which had as its direct counterpart the non-deductibility of financial charges that were associated therewith, so that the elimination of this tax benefit should determine the deductibility of financial charges relating to interests that were not transferred during the validity of article 32.º of the EBF and, consequently, did not give rise to any capital gains or losses that could be excluded from taxation.
And that criterion, still according to the Claimant, finds support in no. 6 of Circular no. 7/2004 which points to the possibility of reverting the principle of non-deductibility of financial charges when it is concluded, at the moment of sale of the interests, that not all requirements for application of the tax benefit are met.
The Tax Authority sustains, in contrast, that the non-deductibility of financial charges associated with the acquisition of equity interests by management companies of equity interests is a legislative measure autonomous in relation to that which establishes that capital gains and losses realized do not contribute to the formation of taxable profit, and, on the other hand, the revocation of the regime of article 32.º of the EBF merely raises a problem of succession of laws over time that should be resolved as follows: to financial charges added occurring within the temporal application of the tax regime of SGPSs the regime provided for in article 32.º applies; financial charges due from 1 January 2014 onwards become deductible under the conditions of article 23.º of the Corporate Income Tax Code, being only limited by the provisions of article 67.º; and with regard to capital gains or losses of management companies of equity interests, to be obtained by the sale of interests of management companies of equity interests, the "participation exemption" regime provided for in article 51.º-C applies.
It must be said first that the issue has not been subject to uniform understanding in arbitral case law.
In the judgment rendered in Process no. 285/2017-T, proceeding from the principle that the regime of article 32.º, no. 2, of the EBF constitutes a conditioned benefit, which had as its counterpart the rule of non-deductibility of financial charges, it was considered that the revocation of the provision unaccompanied by any transitional law rule, implying the maintenance of the special regime of non-deductibility of financial charges and the concomitant loss of the tax benefit, leaves management companies of equity interests in a position of unjustified disadvantage compared to other entities, violating the principle of equality and the principle of ability to pay.
In the judgment rendered in Process no. 645/2017-T, in a similar situation, the arbitral claim was judged meritorious on the basis of non-compliance by the Tax Authority with what was established in point 6 of Circular no. 7/2004.
It is stated to that effect the following:
(…) in light of the understanding published in point 6 of that Circular, binding for the Tax and Customs Authority, the disregard of financial charges incurred by the Claimant with the acquisition of equity interests was conditioned to the verification of the requirements for application of this regime of non-contribution of capital gains realized to formation of taxable profit: if it were to be found, "at the moment of sale of the interests, that not all requirements for application of that regime are met, in that fiscal year, the consideration as tax cost of financial charges that were not considered as costs in earlier fiscal years".
In the presupposition adopted in that Circular, the tax disadvantage that constitutes the disregard of financial charges is conditioned on the obtaining of the subsequent tax benefit that constitutes the non-taxation of capital gains. This tax advantage will be a counterpart to the disadvantage that constitutes the disregard of financial charges, so that it must be concluded that, in the perspective of that Circular, the impossibility of coming to have a privileged regime applied at the level of sale will be justification for the disadvantage referred to being eliminated.
Using the terminology of that Circular, it can be said that, having the regime referred to before the "moment of sale of the interests" been revoked, it must be concluded, definitively, that the regime of article 32.º, no. 2, cannot be applied.
And, having acquired in a certain fiscal year, by virtue of the revocation of the legal regime, the certainty that "all requirements for application of that regime" will not be met, the Tax and Customs Authority is bound to apply the provision that it announced in the final part of that point 6: "in that fiscal year, the consideration as tax cost of financial charges that were not considered as costs in earlier fiscal years".
That same principle was adopted in the judgment rendered in Process no. 754/2016-T, albeit in that case on the grounds that the taxpayer ceased to be a management company of equity interests in 2013 and was unable, for that reason, to benefit from the regime of article 32.º, no. 2, of the EBF, constituting that circumstance the determining reason, in light of point 6 of Circular no. 7/2004, for considering as expenses of the fiscal year the financial charges incurred with the acquisition of equity interests in earlier tax periods.
In the opposite direction, the judgment rendered in Process no. 610/2017-T, followed by the judgment rendered in Process no. 377/2018-T, considers that the situation of the case does not fall within the provision of no. 6 of Circular no. 7/2004, inasmuch as the revocation of the norm of article 32.º, no. 2, of the EBF cannot be understood as equivalent to the failure to meet the requirements for application of the regime defined in that provision, when the latter was still in force. In addition to which the Circular, although possessing binding effectiveness for the Tax Authority, by virtue of its character as an internal regulatory act, does not bind the courts, which will have to assess the legality of the administrative action based on the norms and legal principles applicable to the case. Furthermore, the revocation of the provisions of article 32.º of the EBF had as its counterpart the introduction of the participation exemption regime provided for in the new article 51.º-C of the Corporate Income Tax Code, added by Law no. 2/2014, of 16 January, from which it follows that SGPSs now benefit from non-subjection to taxation of capital gains and losses on equity interests and can deduct financial charges in accordance with the general terms of articles 23.º and 67.º of that Code. And, in that sense, the succession of legal regimes does not violate the principle of equality or the protection of confidence.
4.2. It appears to the tribunal that preference cannot be withheld from the understanding supported by these latter arbitral decisions.
Article 31.º, no. 2, of the EBF, introduced by Law no. 32-B/2002, of 30 December (State Budget Law for 2003) and later renumbered by Decree-Law no. 108/2008, of 26 July, as article 32.º, provided as follows:
Capital gains and losses realized by SGPSs and SCRs through onerous transfer, regardless of the title by which it is effected, of equity interests of which they are holders, provided that held for a period of not less than one year, and likewise, financial charges incurred with their acquisition, do not contribute to the formation of taxable profit of these entities.
The provision was subsequently subject to various amendments with no reflection in the normative content of that no. 2, which came to be revoked by Law no. 83-C/2013, of 31 December (State Budget Law for 2014).
It also has relevance to consider no. 6 of Circular no. 7/2004 which provided in the following terms:
Regarding the fiscal year in which financial charges should be disregarded as costs for tax purposes, should proceed, in the fiscal year to which they relate, to the tax correction of those that have been incurred with acquisitions of interests that are likely to benefit from the special regime established in no. 2 of article 31.º of the EBF, regardless of whether all conditions for application of the special regime of taxation of capital gains have already been met. Should it be concluded, at the moment of sale of the interests, that not all requirements for application of that regime are met, in that fiscal year, there shall be consideration as tax cost of financial charges that were not considered as costs in earlier fiscal years.
As has been understood, the regime of exemption from taxation in corporate income tax of capital gains realized by SGPSs with the sale of equity interests held for more than one year, established in the aforementioned no. 2 of article 32.º of the EBF, is associated with the regime of disregard of the deductibility for tax purposes of financial charges of a nature directly related to the acquisition of equity interests.
This is made explicit in the report on the State Budget for 2003, in which it makes express reference to this aspect of the legal regime in stating that it establishes "the disregard of the deductibility, for purposes of determining taxable profit, of financial charges of a nature directly associated with the acquisition of equity interests by SGPSs".
As clarified in the arbitral decision rendered in Process 610/2017-T, with support in doctrine and arbitral case law, the legislative measure is justified in the following terms:
In other words, the objective of the regime instituted in 2003 was to counterbalance the attribution of a benefit – the total exclusion of taxation of capital gains – with the non-contribution of certain financial charges incurred, creating an environment of neutrality between the potential gains with certain assets (certain financial holdings) and the liabilities necessary to create the conditions for the obtaining of such gains, that is, the liabilities related to the acquisition of such interests.
In substance, the legislator did not want two benefits to be cumulated: SGPSs already saw their capital gains on equity interests exempt from tax; so when such occurred, they could not cumulate with the benefit of fiscal acceptance of interest incurred with financing for the acquisition of those equity interests.
For its part, the revocation of article 32.º, no. 2, of the EBF, effected by Law no. 83-C/2013, must be understood in light of the considerations made in the Report of the Commission for Reform of Corporate Income Tax (made concrete by Law no. 2/2014, of 16 January), in which it is stated regarding specifically the participation exemption regime as follows:
In a concern of diametrically opposite scope, the adoption of the new participation exemption regime came to render redundant, in the perspective of the Commission for Reform, various special tax regimes currently in existence. For this reason, it is proposed to eliminate the following regimes:
(…)
c) since the new regime also consumes the tax regime provided for SGPSs, and taking into account that these have failed to achieve the objective originally proposed of establishing themselves as a fiscally competitive vehicle for investment at the international level, it is proposed to eliminate article 32.º of the EBF, further recommending that the legal-corporate regime of these entities, currently provided for in Decree-Law no. 495/88, of 30 December, be abolished.
(…)
Tax expenditure resulting from the exclusion of taxation applicable to capital gains and losses obtained by management companies of equity interests (SGPS), capital risk companies (SCR) and capital risk investors (ICR)
The creation of a participation exemption regime, justified in this report in the respective Chapter f., will be translated in the transposition to the Corporate Income Tax Code of a model of taxation of income from equity interests that maintains, in essence, the advantages that the Tax Benefits Statute conferred on this type of entities.
Furthermore, it is the understanding of the Commission that the elimination of this regime would not result in the capture of an equivalent amount of tax revenue, inasmuch as, in its absence, a high number of the operations that benefit from it would not be carried out, or would be carried out by means which, using alternative configurations, would produce identical results.
(…)
The participation exemption regime was subsequently made concrete by article 51.º-C, added by Law no. 2/2014, of 16 January, which institutes for all entities (regardless of whether they are management companies of equity interests) a regime of exemption from corporate income tax with respect to capital gains and losses realized with the onerous transfer of equity interests (within the conditionality provided therein). On the other hand, the general regime of deductibility of financial charges was maintained in accordance with the provisions of article 23.º of the Corporate Income Tax Code, with the limitations contained in article 67.º of the CIRC.
In this manner, the revocation of article 32.º, no. 2, of the EBF, although not accompanied by any substantive transitional law provision, determined that management companies of equity interests come to benefit from a regime of non-subjection to taxation of capital gains and losses on equity interests (article 51.º-C) and of deduction of financial charges with the acquisition of equity interests (articles 23.º and 67.º).
4.3. Returning to the case at hand, it must be said first that no application whatsoever has the provision of no. 6 of Circular no. 7/2004 to the situation of these proceedings.
It is stated therein that "[s]hould it be concluded, at the moment of sale of the interests, that not all requirements for application of that regime are met, in that fiscal year, there shall be consideration as tax cost of financial charges that were not considered as costs in earlier fiscal years." The moment relevant for considering that the requirements of application of the regime of article 32.º, no. 2, are not met is, therefore, that of the "sale of the interests", a fact which has not even occurred in the case at hand, given that the Claimant was still the holder of the equity interests to which the financial charges refer at the date of revocation of the regime contained in article 32.º, no. 2, of the EBF.
That is, within the scope of the regime defined in that provision, SGPSs were only permitted, at the moment of sale of equity interests, to deduct the charges with the acquisition of those equity interests when the advantage could not be obtained translated in the exemption of capital gains. Whereas the Claimant seeks to deduct the charges incurred with the acquisition of equity interests, despite retaining ownership of the interests, based on the idea that the revocation of the legal regime corresponds to the non-meeting of the requirements that implied the exemption of taxation of capital gains that would flow from the sale.
It is, however, clear that the application of the provisions of the Circular, with the consequent possibility of deduction of financial charges, has as its presupposition the occurrence of sale of equity interests, and, on the other hand, the revocation of the legal regime is not equivalent to the non-meeting of the requirements on which the exemption of taxation of capital gains depended in accordance with that Circular. What is happening is that the regime contained in article 32.º, no. 2, has been replaced by another, whereby the deduction of financial charges can only occur within the framework of the new legal discipline and not as an effect of the fictitious application of a Circular which aimed to clarify interpretive doubts that might be raised within the framework of the preceding regime.
It is also to be noted, by way of reinforcement of the argument, that any potential non-compliance with the generic guidance contained in the Circular could never determine, by itself, the illegality of the tax act.
Circulars, having in view to dictate rules of procedure or to standardize the interpretation of legal or regulatory norms, are characterized as internal regulations, issued in the exercise of a power of hierarchical direction, which are directed toward the interior of the administrative organization itself, without direct repercussion in the relations between it and individuals. Only in cases where regulations go beyond their functional character and prescribe provisions susceptible of interfering in the service relationship existing between the Authority and officials or of affecting the interests of third parties, is that they acquire external effectiveness and may be subject to contentious challenge.
It is, on the other hand, irrelevant that the Tax Authority is bound by the generic guidance contained in circulars (article 68.º-A, no. 1, of the LGT). That binding constitutes the necessary consequence of it being regulations that are intended to standardize the understanding of the services. Being norms without external effectiveness, their non-compliance by the services can only produce disciplinary effects and has no consequence at the level of the definition of law.
It is for the tribunal to state the law in light of the norms and legal principles applicable to the case, so that the illegality of the impugned act cannot result from non-compliance with generic guidance but solely from the violation of law. Thus it is understood, moreover, that article 68.º-A itself, which confers binding nature on the generic guidance, ends up imposing on the Authority the duty to review that guidance taking into account, in particular, the case law of the higher courts (no. 4).
4.4. The legislative solution also does not violate the principle of ability to pay, as a corollary of the principle of equality, nor the principle of protection of confidence.
As a presupposition and criterion of taxation, the principle of ability to pay has inherent above all "the idea of generality or universality, whereby all citizens are subject to the duty to pay taxes, and of uniformity, requiring that such duty be assessed by the same criterion - the criterion of ability to pay. This thus implies equal tax for those with equal ability to pay (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different ability to pay in proportion to that difference (vertical equality)" (Casalta Nabais, Direito Fiscal, 5th edition, Coimbra, 2009, pages 151-152).
Also the Constitutional Court has analyzed the principle of equality in taxation from the perspective of ability to pay, as can be seen in particular in Judgment no. 142/2004, where it states that "[t]he principle of ability to pay expresses and gives concrete expression to the principle of tax or fiscal equality in its aspect of uniformity – the duty of all to pay taxes according to the same criterion – with ability to pay fulfilling the unitary criterion of taxation".
The recognition of the principle of ability to pay as a criterion intended to assess the constitutional inadmissibility of certain or some solutions adopted by the fiscal legislator has also led to the idea, expressed for example in the judgment of the Constitutional Court no. 348/97, that taxation in conformity with the principle of ability to pay will imply "the existence and maintenance of an effective connection between the tax liability and the economic presupposition selected as the object of the tax, requiring, therefore, a minimum of logical coherence of the various concrete instances of tax provided for in the law with the corresponding object of the same".
The Constitutional Court has been, therefore, to move away from merely negative control of tax equality, coming to adopt the principle of ability to pay as the appropriate criterion for the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an auxiliary element in the verification of the constitutional validity of normative tax solutions of broad scope, particularly when these are dictated by considerations of legislative policy related to the rationalization of the system.
In sum, the principle of tax equality may be given concrete expression through various aspects: a first, is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating in the same way taxpayers who find themselves in equal situations and differently those who find themselves in different situations, to the extent of the difference, to be assessed by ability to pay; a last, is in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that are devoid of rational foundation (see Judgments of the Constitutional Court no. 306/2010 and no. 695/2014).
For its part, according to constitutional case law on the principle of legal security in the material aspect of confidence, in order for the latter to be protected, it is necessary that two essential presuppositions be met: (a) the affectation of expectations, in an unfavorable sense, will be inadmissible when it constitutes a mutation of the legal order with which, reasonably, the addressees of the norms contained therein cannot count; and further (b) when it is not dictated by the necessity of safeguarding rights or interests constitutionally protected that should be considered prevalent (recourse should be had here to the principle of proportionality, explicitly enshrined, regarding rights, freedoms and guarantees, in no. 2 of article 18.º of the Constitution).
The two criteria stated are, in fact, reducible to four different requirements or "tests". In order for there to be constitutional legal protection of "confidence", it is necessary, first, that the State (in particular the legislator) have undertaken actions capable of generating in individuals "expectations" of continuity; then, such expectations must be legitimate, justified and grounded in good reasons; third, individuals must have made life plans taking into account the perspective of continuity of the State "action"; finally, it is still necessary that there be no reasons of public interest that justify, on balance, the non-continuity of the action that generated the expectation situation.
This principle thus postulates an idea of protection of the confidence of citizens and the community in the stability of the legal order and the constancy of State action. However, the confidence here is not any confidence: if it does not meet the four requirements that above were formulated, the Constitution does not grant it protection (see, among others, Judgment no. 287/90).
In the case at hand, as was glimpsed above, the legislator replaced the regime contained in article 32.º, no. 2, of the EBF, which implied an advantage (exemption of capital gains from the sale of equity interests) and a disadvantage (non-deductibility of financing costs for the acquisition of those equity interests), by another criterion that allows entities to benefit not only from the exemption of capital gains but also from the deduction of financial charges in accordance with the general regime, which is translated into an additional benefit compared to the preceding regime.
As was explained in the Report of the Commission for Reform of Corporate Income Tax, the elimination of the special regime of article 32.º, no. 2, of the EBF for management companies of equity interests was determined by the implementation of the new participation exemption regime, which maintains, in essence, the advantages that the Tax Benefits Statute conferred on this type of entities, and was further justified by the fact that the previous tax regime provided for SGPSs had not achieved the objective originally envisaged of facilitating fiscally competitive investment at the international level.
The revocation of article 32.º, no. 2, of the EBF is thus presented as a measure of legislative policy justified by reasons of public interest and was intended to extinguish the special regime applicable to SGPSs and replace it with a more favorable regime that becomes applicable to the generality of business entities.
It is true that the Claimant, as an effect of the new legal regime, can only deduct financial charges incurred with the acquisition of equity interests from 1 January 2014 onwards, whereas the charges incurred within the scope of the tax regime previously provided for in article 32.º, no. 2, were not deductible and the exemption of taxation of capital gains could only occur when the sale of equity interests was verified.
It is not seen, in any case, how the succession of laws over time affects the generality and uniformity of the tax, in such a way that the violation of the principle of ability to pay could be considered verified. Moreover, it is manifestly not possible to understand as violated the principle of tax equality, in the modality of prohibition of arbitrariness, when the new regime is justified by reasons of legislative policy with a sufficiently substantive foundation.
It also fails, with sufficient degree of clarity, the verification of any of the requirements that could justify the constitutional legal protection of "confidence". It is not seen in what manner the institution of a special tax regime for management companies of equity interests was to generate in the beneficiaries the expectation grounded in the continuity of the regime, in such a way that the interested parties had foregone proceeding to the sale of equity interests prior to the entry into force of the new law, by having believed that the tax benefit of exemption of taxation relating to capital gains resulting from the sale would never be abolished or would always be safeguarded by a later law. But beyond that, as was set out, the legislative amendment is grounded in sound reasons of public interest, which from the outset and by itself prevents the violation of the principle of protection of confidence.
5. Deduction of tax benefits from the collection of autonomous tax
5.1. The Claimant further challenges the tax acts in question in the part in which they do not admit the deduction from corporate income tax collection produced by autonomous tax rates of the tax benefits ascertained under the System of Tax Incentives for Business Research and Development (SIFIDE), the Tax Regime Supporting Investment (RFAI) and the Extraordinary Investment Tax Credit (CFEI).
The Claimant defends, to this effect, that corporate income tax collection comprises not only corporate income tax collection strictly speaking but also that of autonomous taxes and it is in relation to the amount ascertained in those terms that the deductions provided for in no. 2 of article 90.º of the Corporate Income Tax Code must be made, including those relating to the tax benefits to which subparagraph c) of that number refers. And it adds that the norm of article 88.º, no. 21, of the CIRC, in the redaction introduced by article 134.º of Law no. 7-A/2016, of 30 March, has an innovative nature, so that its qualification as an interpretive norm, for the effect of being applied retroactively to the situation of the proceedings, violates the principle of legal security.
The issue under analysis has also not been subject to uniform understanding in arbitral case law. In favor of the admissibility of the deduction of tax benefits from collection arising from autonomous taxes, the main argument used has been the manner of assessment of corporate income tax. The collection provided by autonomous taxation – it is stated – constitutes corporate income tax collection and the deduction of tax benefits is made in relation to the amount ascertained in accordance with article 90.º of the CIRC, which leads to the conclusion that the processing of the tax assessment, as results from that provision, applies to all situations provided for in the Code, including with respect to autonomous taxes. Proceeding from this central idea, it is concluded that the autonomy of this type of taxation is restricted to the applicable rates and the respective taxable matter, there being no legal support, in light of the provisions of article 90.º, for distinguishing between collection arising from autonomous taxation and that resulting from income subject to corporate income tax.
Such an understanding appears, however, not to take into account the specific characterization of autonomous taxes.
The introduction of the mechanism of autonomous taxation is justified in that it relates to expenses whose tax regime is difficult to discern because they are found in a "zone of intersection of the private sphere and the business sphere" and is intended to prevent and avoid that, through those expenses, companies proceed to the hidden distribution of profits or attribute income that may not be taxed in the sphere of the respective beneficiaries, also having the objective of combating fraud and tax evasion (Saldanha Sanches, Manual de Direito Fiscal, 3rd edition, Coimbra, page 407).
Furthermore, autonomous taxation, although regulated normatively in the context of income tax, is materially distinct from taxation in corporate income tax, insofar as it does not directly incide on taxable profit of the company, but on certain expenses which constitute, in themselves, a new tax fact (which relates not to the perception of income but to the realization of expenses). And, in that way, autonomous taxation has inherent the idea of discouraging a practice which, in addition to affecting equality in the distribution of public charges, may involve situations of lesser tax transparency, and is explained by a legislative intention to stimulate companies to reduce as much as possible the expenses that negatively affect tax revenue.
In those special situations listed in the law, the legislator opted, therefore, for subjecting the expenses to autonomous taxation as a form alternative and more effective than the non-deductibility of the expense for purposes of determining taxable profit, all the more so that when the company comes to suffer a tax loss, there will be no place for the payment of tax, frustrating the objective intended to be achieved which is to discourage the very realization of that type of expenses.
In this context, analyzing the issue of autonomous taxation in light of the principle of taxation of companies according to actual income and the principle of ability to pay, the Constitutional Court, in Judgment no. 197/2016, subscribed to the following understanding.
"(…) corporate income tax and autonomous taxation are distinct taxes, with different tax bases and subject to specific rates. Corporate income tax incides on income obtained and profits directly attributed to the exercise of a certain economic activity, by reference to the annual period, and thus taxes the aggregation of all income obtained in the taxation period. By contrast, in autonomous taxation in corporate income tax – according to case law itself of the Constitutional Court –, the tax-generating fact of the tax is the very realization of the expense, characterizing itself as an instantaneous tax fact that emerges isolated in time and generates a payment obligation with an occasional character. For this reason it is understood that we are dealing with a tax of single obligation, by contrast to periodic taxes, whose tax-generating fact is produced in a successive manner over time, generating the tax payment obligation with a regular character.
As is to be concluded, autonomous taxation, although provided for in the CIRC and assessed together with corporate income tax for purposes of collection, has nothing to do with the taxation of income and profits attributed to the exercise of the company's economic activity, since they incide on certain expenses that constitute autonomous tax facts that the legislator, for reasons of fiscal policy, wished to tax separately by means of subjection to a predetermined rate that has no relationship with the volume of business of the company".
In identical sense, the judgment of the Constitutional Court no. 310/2012, which judged unconstitutional, for violation of the principle of non-retroactivity of tax law, the norm of article 5.º, no. 1, of Law no. 64/2008, of 5 December, insofar as it makes retroactive to 1 January 2008 the effects of the increase in autonomous taxation rates, called attention to the materially distinct nature of autonomous taxation in relation to income tax for collective entities, even though that tax imposition is formally inserted in the Corporate Income Tax Code.
To that effect, that judgment stressed:
"By contrast to what occurs in the taxation of income under IRS and corporate income tax, in which the set of income earned in a given year is taxed (which implies that only at the end thereof can the tax rate be ascertained, as well as the bracket in which the taxpayer falls), in this case each expense made is taxed, in itself considered, and subject to a certain rate, with autonomous taxation being ascertained independently of the corporate income tax owed in each fiscal year, by not being directly related to the obtaining of a positive result, and therefore, capable of taxation.
Thus, and in the case of corporate income tax, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, the law considering that the tax-generating fact of the tax is deemed to be verified on the last day of the tax period (see article 8.º, no. 9, of the CIRC).
Already as regards autonomous taxation in corporate income tax, the tax-generating fact of the tax is the very realization of the expense, we are not dealing with a complex fact, of successive formation over one year, but with an instantaneous tax fact.
This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose tax-generating fact is produced in a successive manner, by the lapse of a given period of time, as a rule annually, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and taxes of single obligation (whose tax-generating fact is produced in an instantaneous manner, emerges isolated in time, generating over the taxpayer an obligation to pay tax with an occasional character).
In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of certain expense that is subject to taxation (even though the ascertainment of the amount of tax resulting from the application of the various autonomous taxation rates to the various acts of realization of expense considered will be made at the end of a given tax period). But the fact that the assessment of the tax is made at the end of a given tax period does not transform it into a periodic tax, of successive formation or of a lasting character. That operation of assessment translates itself only in the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence from the volume of expenses made in the determination of the rate".
It is understood, in the terms just set out, that the tax base of autonomous taxation is not translated in a net income, but in a deductible cost transformed exceptionally into an object of taxation, corresponding to a legal sanction that is intended to reduce the tax advantage that could result from unjustified or excessive expenses. And, in this framework, it would be entirely contrary to the unity of the legal system that tax benefits to
Frequently Asked Questions
Automatically Created