Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Pedro Carvalho (President Arbitrator), Francisco José Nicolau Domingos and Luís Janeiro, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal:
I – STATEMENT OF FACTS
On 29 September 2016, A… S.A., NIPC…, with registered office at…–…, …-… - …, filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (RJAT), as amended by article 228 of Law no. 66-B/2012, of 31 December, seeking declaration of illegality of the act of rejection of the administrative appeal submitted by the Claimant which concerned the self-assessed acts of corporate income tax (IRC) for the fiscal year 2013, for which it seeks an additional deduction, as special payment on account (PEC) and tax benefits (Extraordinary Tax Credit for Investment - CFEI), in the total amount of €44,187.11, and for the fiscal year 2014, for which it seeks an additional deduction, as PEC and tax benefits (Extraordinary Tax Credit for Investment - CFEI), in the total amount of €66,043.75.
To support its request, the Claimant alleges, in summary, that the special payment on account and the tax benefits of the CFEI should be deducted from the aggregate tax collected from autonomous taxation because: (i) they can be deducted from the IRC tax collected in accordance with article 90 of the IRC Code; (ii) the collection of autonomous taxation is considered as IRC collection, being an integral part of this tax; (iii) the liquidation rules provided for in article 90 of the IRC Code are applicable to autonomous taxation and (iv) the Claimant's position follows the jurisprudence of the CAAD which has already pronounced on this matter.
On 30-09-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).
The Claimant did not appoint an arbitrator, wherefore, under the provisions of letter a) of paragraph 2 of article 6 and letter a) of paragraph 1 of article 11 of the RJAT, the President of the Ethics Council of the CAAD appointed the undersigned as arbitrators of the collective tribunal, who communicated acceptance of their assignment within the applicable deadline.
On 30-11-2016, the parties were notified of such appointments and manifested no objection to any of them.
In accordance with the provisions of letter c) of paragraph 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 19-12-2016.
On 31-01-2017, the Respondent, duly notified to that effect, presented its reply defending itself solely by contestation.
Given that in arbitral proceedings the general procedural principles of procedural economy and prohibition of useless acts apply, under the provisions of letters c) and e) of article 16 of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.
Having been granted a deadline for submission of written arguments, these were submitted by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.
A deadline of 30 days was set for delivery of final decision, following submission of arguments by the AT, which deadline was extended by a further 30 days.
The Arbitral Tribunal is materially competent and is regularly constituted, under articles 2, paragraph 1, letter a), 5 and 6, paragraph 1, of the RJAT.
The parties have legal personality and capacity, are entitled to proceed and are legally represented, under articles 4 and 10 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March.
The case is not affected by any nullities.
Thus, there is no obstacle to hearing the case.
Everything considered, it is necessary to deliver
II. DECISION
A. FACTUAL MATTERS
A.1. Facts Found to be Proven
1- The Claimant is a Portuguese public limited company with registered office and effective management in Portugal.
2- The Claimant operates in the telecommunications market, providing cable television services, telephone and broadband internet and data services.
3- The Claimant is subject to the general regime of IRC taxation.
4- The Claimant adopted different tax periods, which are identified below:
a. Tax period of 2007: between 1 July 2007 and 31 August 2007;
b. Tax periods 2007 to 2011: between 1 September and 31 August of the following year;
c. Tax period of 2012: between 1 September 2012 and 31 December 2012;
d. Tax periods 2013, 2014 and onwards: coinciding with the calendar year.
5- The Claimant timely submitted the IRC Form 22 declaration for 2013, on 30 May 2014, and the IRC Form 22 declaration for 2014, on 29 May 2015.
6- The total amount of Special Payments on Account (PEC) still capable of deduction in the tax period of 2011, amounted to €420,000.00 (four hundred and twenty thousand euros), according to the following table:
7- The Claimant did not assess IRC tax collection in the strict sense in any of those periods on the basis of which it would be possible to deduct the PEC paid.
8- In the tax period of 2011, the amount assessed by the Claimant as autonomous taxation amounted to €216,313.73 (two hundred and sixteen thousand, three hundred and thirteen euros and seventy-three cents), which was effectively paid by the Claimant.
9- The Claimant appropriately requested from the AT a revision of the tax act of self-assessment of IRC for the 2011 period, in order to obtain approval on the deduction of PEC from the total IRC collection and autonomous taxation of this tax, in the amount of €216,313.73 (two hundred and sixteen thousand, three hundred and thirteen euros and seventy-three cents).
10- The PEC paid in 2012 totalled €70,000.00 (seventy thousand euros).
11- In the IRC Form 22 declaration for the tax period of 2012, an amount of €22,683.42 (twenty-two thousand, six hundred and eighty-three euros and forty-two cents) was deducted, as PEC from previous periods, which completely "consumed" the tax collected stated in field 351 of table 10 of the declaration.
12- In the same declaration, the amount assessed as autonomous taxation amounted to €41,885.82 (forty-one thousand, eight hundred and eighty-five euros and eighty-two cents).
13- The Claimant appropriately requested revision of the tax act of self-assessment of IRC for the tax period of 2012, in order to obtain approval on the deduction of PEC from the total IRC collection and autonomous taxation of this tax, in the amount of €41,885.82 (forty-one thousand, eight hundred and eighty-five euros and eighty-two cents).
14- In the Form 22 declaration for the tax period of 2013 of the Claimant, the amount of IRC tax collection in the strict sense was €30,895.37 (thirty thousand, eight hundred and ninety-five euros and thirty-seven cents) and that of autonomous taxation was €44,187.11 (forty-four thousand, one hundred and eighty-seven euros and eleven cents).
15- As regards tax benefits, the Claimant had available for deduction, in 2013, a total amount of €1,000,000.00 (one million euros), as Extraordinary Tax Credit for Investment (CFEI).
16- In the same Form 22 declaration for the tax period of 2013 of the Claimant, the IRC tax collection in the strict sense assessed therein was considered, and an amount of CFEI of €21,626.76 (twenty-one thousand, six hundred and twenty-six euros and seventy-six cents) was deducted, equivalent to 70% of the IRC tax collection in the strict sense assessed.
17- The PEC paid by the Claimant in 2013 amounted to €70,000.00 (seventy thousand euros).
18- In the said Form 22 IRC declaration of the Claimant, relating to the tax period of 2013, an amount was deducted as PEC, in the value of €9,268.61 (nine thousand, two hundred and sixty-eight euros and sixty-one cents), corresponding to the remaining 30% of IRC tax collection in the strict sense which was not used in the deduction of CFEI.
19- The PEC paid by the Claimant in 2014 amounted to €70,000.00 (seventy thousand euros).
20- In the IRC Form 22 declaration for the tax period of 2014 of the Claimant, no IRC tax collection in the strict sense was assessed, no amount was deducted as PEC, and the amount assessed as autonomous taxation amounted to €66,043.75 (sixty-six thousand, forty-three euros and seventy-five cents).
21- The Claimant, appropriately, filed an administrative appeal of the self-assessments of IRC for 2013 and 2014, to which the number …2016… was assigned and was notified, on 2 July 2016, of its rejection.
A.2. Facts Found Not to be Proven
With relevance to the decision, there are no facts that should be considered as not proven.
A.3. Reasoning of the Factual Matters Proven and Not Proven
With regard to the factual matters, the Tribunal need not pronounce on everything that was alleged by the parties, its duty being rather to select the facts that matter for the decision and to distinguish the proven from the unproven matters (see article 123, paragraph 2, of the Tax Code of Civil Procedure and Process (CPPT) and article 607, paragraph 3 of the Civil Procedure Code (CPC), applicable by force of article 29, paragraph 1, letters a) and e), of the RJAT).
Thus, the facts relevant to the judgment of the case are selected and delimited according to their legal relevance, which is established having regard to the various plausible solutions of the legal question(s) (see former article 511, paragraph 1, of the CPC, corresponding to the current article 596, applicable by force of article 29, paragraph 1, letter e), of the RJAT).
Thus, having regard to the positions assumed by the parties, in light of article 110, paragraph 7 of the CPPT, the documentary evidence and the administrative procedure file attached to the case, the facts listed above were considered proven, with relevance to the decision.
B. ON THE LAW
The main issue to be decided in the present case, being undoubtedly of some complexity in its resolution, is nonetheless simple in its formulation, and relates to whether or not it is possible to deduct from part of the IRC tax collection produced by autonomous taxation rates, available tax benefits in IRC, as well as amounts paid as Special Payment on Account.
The Claimant invokes in its favour, basing essentially its argument on what is set forth therein, decisions delivered in arbitral proceedings of the CAAD, and we may cite in support of the Claimant's position the decisions of processes no. 769/2014-T, 219/2015-T, 369/2015-T, 370/2015-T, and 637/2015-T, and in the opposite sense those delivered in processes 174/2016-T, 122/2016-T, 34/2016-T, 174-2016T and 567/2016-T[1].
The problematic underlying autonomous taxation, has been, in this as in other matters, the subject of intense litigation between taxpayers and the Tax Authority, a situation to which the very nature, even anti-systemic, of which it is characterized, in the framework of income taxes, where it emerged, is not unrelated.
Indeed, the discussion that erupted with the new autonomous taxation rates introduced by Law no. 64/2008, of 5 December, and initially focused on the nature of the taxable fact underlying that type of taxation, opened a deep exploratory path on the nature of autonomous taxation and its relationship with income taxes, especially IRC, which went through the problems of the deductibility of the amount of autonomous taxation from IRC collection, and the nature, presumptive or not, of autonomous taxation on deductible expenses, without to date there having been a definitive, doctrinally supported and coherent legislative intervention to clarify the proper framework for the taxation in question within the building of the income tax from which they emerge.
In this framework, case-by-case judicial decisions succeed equally case-by-case legislative interventions, generating a framework of uncertainty and instability where taxpayers and the Tax Authority have no other way of seeking the applicable law than perpetuated litigation, falling to the judicial interpreter the ungrateful task of, in the tangled normative framework generated, serving the justice possible.
Let us see, then.
When one speaks of autonomous taxation, as is the case, it is convenient to bear in mind from the outset that we are dealing with a disparate set of situations, which will comprise, at least, three distinct types, namely:
o Autonomous taxation of certain income (e.g.: article 72 of the current Personal Income Tax Code (CIRS));
o Autonomous taxation of certain deductible expenses (e.g.: paragraph 7 of article 88 of the current IRC Code);
o Autonomous taxation of other expenses regardless of their deductibility (e.g.: paragraphs 1 and 2 of article 88 of the current IRC Code).
This fact becomes important because it alone demonstrates the disparity and heterogeneity of the situations subject to autonomous taxation, and the futility of, at the judicial level, seeking to synthesize and find a unified own legal nature, common to all situations.
Thus, the discussion should be centered on the concrete issue raised by the Claimant and seek a properly founded answer for the restricted terms of what is at issue in the case, which will be whether or not it is possible to deduct from part of the IRC tax collection produced by autonomous taxation rates, payments on account and tax incentives available in IRC.
Properly formulated, in these terms, the issue to be resolved in the case, it remains to bear in mind that the fundamental referent of the answer to be given to it will be that formulated in article 9 of the Civil Code, according to which the legislative thought should be reconstituted from the texts, which has in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.
In this framework, the purpose of the present decision will not be to theorize on the legal nature of autonomous taxation in general, or any of its various types, but rather to determine whether the legislative thought, with a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, was or was not, at the date of the taxable fact in question in the case, possible to use the deduction from part of the IRC tax collection produced by autonomous taxation rates, payments on account and tax incentives available in IRC.
It will be futile, it is believed, to seek a conceptualist basis, founded on a dogmatic definition of monolithic concepts of IRC and Autonomous Taxation, drawn from standard setting external to the subject matter being decided, professing a "scholastic ontologism" that seeks to "deduce in purely logical form, starting from abstract superior concepts, others, increasingly concrete and full of content"[2], methodologically superseded, aimed at the final unified concept of Autonomous Taxation, aggregating legal realities of disparate nature and teleology, and which serves as a validating source for all solutions to the various problems that the subject matter in question raises.
The aim will be, in this way, merely to ascertain what the solution is, in light of duly interpreted constituted law, that appears to fit the concrete case, not taking the answer given to the issue decided as a finished, exact evidence with an extreme degree of rigor and exactness, but merely as that which, reflectively, presented itself to its signers as the, juridically, better one[3].
The basis of the Claimant's claim is literally simple and straightforward and results from the finding that, as the liquidation of autonomous taxation is carried out in accordance with article 90, paragraph 1 of the IRC Code, to such liquidation there will be applied the deductions provided for in its paragraph 2.
Indeed, the following is the tenor of the normative provisions in question:
"1 - The liquidation of IRC is carried out as follows:
a) When the liquidation must be made by the taxable person in the declarations referred to in articles 120 and 122, it is based on the taxable matter contained therein;
b) In the absence of submission of the declaration referred to in article 120, the liquidation is carried out by 30 November of the year following that to which it relates or, in the case provided for in paragraph 2 of the said article, by the end of the 6th month following the end of the deadline for submission of the declaration mentioned therein and is based on the value of the annual minimum monthly remuneration or, when greater, the whole of the taxable matter of the closest preceding fiscal year which is determined;
c) In the absence of liquidation in accordance with the preceding letters, the same is based on elements available to the tax administration.
2 - To the amount assessed in accordance with the preceding paragraph, the following deductions are made, in the order indicated:
a) That corresponding to double international 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 capable of offset or reimbursement in accordance with the applicable legislation."
From a semantic-literal point of view, accepting the assumption – which is now accepted – that the liquidation of autonomous taxation is carried out in accordance with paragraph 1 of article 90 transcribed, no other reading is possible to make than that presented by the Claimant, and the conclusion condensed in its main arbitral request is irrefutable.
However, legal reading, by legal mandate (and also by logical-rational necessity) is not confined to, nor should it be confined to, the text of the rules as a semantic-grammatical reality, but should instead be placed at an axiological-rational level, anchored in all elements of legal interpretation.
Hence, in order to obtain what is the correct reading of the text, it is necessary to carry out certain tests at the level of the systematic framework where the rule to be interpreted fits, so as to validate, in light of the same, and in light of the criteria of rationality, congruence and reasonableness that necessarily guide that normative structure, the interpretation literally suggested.
Thus, and from the outset, as rightly pointed out by the Respondent entity, "the liquidation of autonomous taxation is carried out on the basis of articles 89 and 90, paragraph 1 of the IRC Code but, applying different rules for the calculation of the tax:
(1) in one case liquidation operates by applying the rates of article 87 to the taxable matter assessed in accordance with the rules of chapter III of the Code and
(2) in the other case, various collections are assessed depending on the diversity of the facts that give rise to autonomous taxation."
That is, at the threshold, one cannot overlook a first relevant fact, which is that in articles 89 and 90, paragraph 1 of the IRC Code, two forms of taxation converge – relating to the same tax – radically distinct, namely, traditional or strict sense IRC, and autonomous taxation.
The nature of the specific autonomous taxation in question in the case has been the subject of wide discussion in recent doctrine and jurisprudence.
One school has looked at them as a consumption tax, which would tax certain types of expenses in a way completely detached from income, to the point that even some argue that they constitute a distinct tax, which would only incidentally be integrated into the IRS and IRC codes.
Nevertheless, it has obtained recurrent acceptance in the jurisprudence of the CAAD[4], the understanding that autonomous taxation on deductible expenses, such as those at issue in the present case, still integrate the regime of the taxes regulated by the codes in which they are integrated, aiming, even if in a convoluted manner, at the income taxed by those.
Indeed, and as was had the opportunity to write elsewhere[5], "the complexity generated by successive alterations in the architecture of the IRC Code led (…) to an atypical normative building, in which one can discern a core corresponding to what one might call IRC per se (or in the strict sense), which the Claimant intends to exhaust all that is designated as IRC, and a periphery that integrates 'marginal' regulations, withdrawn, in large part, from the logic, nature and principles of IRC per se, but which, nevertheless, still situate themselves in the 'gravitational field' of that.
And it is in the process of concretizing this zone of difficult definition that all the decisions analyzed (…) operate, not being able to the same be properly understood without also understanding that, in fact, what all the decisions in question are doing is ascertaining what consequences the 'gravitation' around the core of the IRC brings to the matters addressed in each one of them."
In that sense, "within the hermeneutic framework drawn above, (…) by force of the historical evolution of its legal regime, there was constituted a type of IRC that integrates a hard core (…) and a group of adjacent regulations, which shares part of the logic and regime of that, but which in many aspects diverges from the same." And, further on, "from the consideration of the legislative text, statically and in its historical evolution, it results that the legislator understood, and continues to understand, that autonomous taxation integrates IRC, if not as a tax in the strict sense, at least in terms of being part of the same unitary tax regime."
This is because "the legal regime of autonomous taxation in question in the case only makes sense in the context of taxation in IRC. That is, detached from the legal regime of this tax, they will lack their main referent of meaning. Their existence, their purpose, their explanation, in short, their juridicity, is only properly comprehensible and acceptable within the framework of the legal regime of IRC."
Hence that we do not "understand that 'the definition of IRC contained in articles 1 and 3 of the IRC Code' is 'really superseded by a new definition of transversal/general application'", being that a posture epistemologically proper to a conceptualism that, preliminarily, was repudiated.
On the contrary: it is a recognition of what, in light of the legal framework in force, imposes itself as most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and the recognition of the regime of this as a complex and multifaceted reality, irreducible to a definition of that kind, which only fundamentally abstractionist conceptualism can presuppose."
Thus, "Everything that has been said evidences that the evolution of the legal regime of IRC has transmuted it into a complex and multifaceted reality, at the most diverse levels, which is reflected, in the matter that concerns us in these proceedings, in such 'dual nature' of which Prof. Saldanha Sanches spoke in the passage cited in Constitutional Court Decision 617/2012.
The recognition of this duality of nature does not, however, prejudice, as is understood to be underlying both the citation in question and the jurisprudence that cites it, that it be considered that the system, despite being dual, is the same[6]. Put differently, it only makes sense to speak of a dual-natured system if the system in question, globally considered, is still the same. Otherwise, one would not speak of a system of dual nature, but of two distinct systems, which, by everything that has been said, is not what occurs. And, in this case, the system will be the regime of IRC, which operating sometimes by profit, sometimes by expenses, aims at and pursues the proper purposes of that tax, including, obviously, the collection of revenue for the State."
Finally, "By way of conclusion, in light of everything that has been set forth, and in favor of conceptual rigor, it will further be said that we lean towards the understanding that autonomous taxation, as it currently exists, may be configured as a 'hybrid' tax[7], affecting the income of individuals and legal entities, and not on consumption or expense, as they do not exhibit the main characteristics of this form of taxation."
Everything that has just been said, echoes, in some way, in the jurisprudence that has been produced by the Constitutional Court (TC), of which Constitutional Court Decision 197/2016, of 13-04-2016[8], constitutes the last published chapter.
Indeed, recognizing that the matter of autonomous taxation is "regulated normatively in the context of income tax", the same Court confirms that it "is materially distinct from taxation in IRC", and that "we are (…) before distinct taxable facts that are the object of differentiated tax treatment", going even so far as to state that "IRC and autonomous taxation are distinct taxes" and that such taxation "has nothing to do with the taxation of income and profits", statements that must be read cum grano salis, framing them within the limitations that contextualize them, reporting them to the existence of a "basis of incidence" consisting of "certain expenses that constitute autonomous taxable facts", and in "subjection to specific rates", thus understanding that autonomous taxation "has nothing to do with the taxation of income and profits attributable to the economic exercise of the company" (which does not mean that it is unrelated to income and profits in general), and that the distinction between autonomous taxation and IRC, being profound and marked, should be limited to what is necessary to safeguard the specificity of that at the level of its respective teleology, basis of incidence and specific rates, without prejudicing integration in the same normative building.
Indeed, it is believed that the TC is not defending that autonomous taxation constitutes a consumption tax strictly speaking, completely alien and distinct from IRC, under pain of not only being contradicted by the systematic arrangement of tax law[9] and, expressly, by the legislator itself[10], but also to irremediably condemn autonomous taxation to formal unconstitutionality, by violation of the provisions of letter i) of article 165, paragraph 1 of the Constitution (CRP)[11], to the extent that the authorizing laws for the creation of those did not license the creation of a new consumption tax[12].
Nevertheless, and without prejudice to what has been set forth, the (emphatically affirmed by the TC) profound formal and teleological distinction between autonomous taxation in IRC and general taxation in this tax (IRC in the strict sense) cannot be disregarded in the assessment of the subject matter in question.
In summary: it has already been previously detected, on the one hand, the futility of seeking a unified concept of IRC that coherently accommodates the regime of autonomous taxation, and that, on the other, the methodologically most fruitful way of generating legally adequate solutions for the problem in question is to understand the current IRC regime as a product of a historically explained evolution that led to the building of a structure of dual or hybrid nature, comprising a main core corresponding to traditional IRC, and an adjacent part, connected with that and forming part of the same global normative reality, with its own specificities from which results a departure, in various and substantial respects, from the main regime, in terms of the general principles and solutions, notwithstanding, sometimes applying, other times being contradictory, and as such, inapplicable, with the nature proper to such "adjacent regulation" that is embodied in the designated autonomous taxation.
Being that, as is already known, that proper, or specific, nature, based on a logic foreign to the main building of traditional IRC, will be characterized, essentially, by the notes sufficiently recognized as proper to autonomous taxation, namely, both as regards its form of imposition (the instantaneous character of its taxable fact and the circumstance that this consists of an expense), and as regards its anti-systemic ratio (the fact that some of the autonomous taxation has a facet directed directly to the income of individuals and/or a punitive facet, as well as an anti-abuse purpose).
Thus, and concluding here, one cannot, it is believed, in the path of the solution to be obtained for the issue decided, obliterate that, despite indeed converging, in the form of liquidation regulated in articles 89 and 90, paragraph 1 of the applicable IRC Code, autonomous taxation and IRC in the strict sense (or traditional), come, upstream, from profoundly distinct geographies, a fact that cannot fail to be duly weighed and taken into account in the solutions to be found downstream, namely, and for what interests the case, with respect to the reading to be made of the rule of article 90, paragraph 2 of the said Code.
Continuing the interpretive path underway downstream, we will proceed to assess the consequences of limiting that hermeneutic process to the literal layer of the object of interpretation being analyzed.
As rightly pointed out by the Respondent entity in its reply, the understanding proposed by the Claimant, according to which from the lack of distinction, at the level of the text of paragraph 1 of article 90 of the applicable IRC Code, it follows that, at the level of such rule, no distinction should be made taking into account the differences, upstream, of the tax that in those terms is liquidated, would imply that in the basis of calculation of payments on account due in IRC, there would also be included the values relating to autonomous taxation, and not only those relating to IRC in the strict sense.
Indeed, paragraph 1 of article 105 of the IRC Code provides that: "Payments on account are calculated on the basis of the tax liquidated in accordance with paragraph 1 of article 90 (…)".
Now, understanding that the normative content of article 90, paragraph 1 of the applicable IRC Code forbids any distinction, for the purposes of other rules that refer to it, between the tax liquidated as autonomous taxation and the tax liquidated as IRC in the strict sense, we would have, coherently and in the same terms, to conclude that payments on account would be due on the basis of the sum of both values, and such solution cannot – it is believed – be considered in conformity with the spirit of a reasonable legislator.
Indeed – and it not being payments on account thema decidendum of the present process – without great depth being justified in this analysis, it will always be said that payments on account, as is doctrinally and jurisprudentially recognized, have as their basis an intention to advance the taxation that will be due finally, having regard to the taxable profit of the previous year.
In this sense, for example, it was written in the Supreme Administrative Court (STA) Decision of 07-03-2007, delivered in process 0877/06[13], that (emphasis ours):
"From the legal definition of 'payment on account' one derives an inevitable, necessary and essential interpenetration between 'payment on account' and 'final tax due'.
In such a way that the 'title' (word of the law) of the 'payment on account' is the 'final tax due'.
Which means that the 'payment on account' is, in the very terms of the law, an advance pecuniary delivery, made on account of the tax due finally, in the period of formation of the taxable fact.
Which further means that the 'payment on account' must be assessed by reference to the accounting situation of the company at the end of the period to which the payment on account refers.
Which decidedly means that, if no pecuniary sum is to be (in advance) delivered on account of the final tax due, in the concerning period of formation of the taxable fact (to which the 'payment on account' refers) – particularly by non-existence of taxable profit revealed by the accounting at that time –, that 'payment on account' has no substantive foundation. (...)
And thus, if there is no taxable profit, there is no tax due."
Now, (at least some) of the autonomous taxation, as has also been indicated elsewhere[14], do not affect income directly, doing so in a merely mediate way, being that the justification for, notwithstanding these being part of the IRC regime in the broad sense, operating via expense and consequently being due even if the taxable person presents a loss.
Thus being, as is believed it is, it will be devoid of meaning that to taxpayers who do not present taxable profit, payment on account is required based on tax liquidated on expenses they made and which were subject to autonomous taxation.
This is corroborated by the distinct nature of the taxable fact underlying IRC in the strict sense and autonomous taxation. Indeed, being the first a taxable fact of continuous nature and the second a taxable fact of instantaneous nature, only as to the first can it make sense to discern an advance of tax (payment on account), and no longer as to the second whose practice generates, immediately, a tax obligation.
In the hermeneutic path underway, consideration must also be given to the rule of paragraph 5 of article 90 in question, which provides that:
"The deductions referred to in paragraph 2 concerning entities to which the tax transparency regime established in article 6 is applicable are imputed to the respective members or partners in the terms established in paragraph 3 of that article and deducted from the amount assessed on the basis of the taxable matter that took into account the imputation provided for in the same article."
This rule directly refers to article 6 of the same Code, which prescribes, as is relevant to the case, that:
"1 - There is imputed to the partners, being integrated, in accordance with the applicable legislation, in their taxable income for the purposes of IRS or IRC, as the case may be, the taxable matter, determined in accordance with this Code, of the following companies, with registered office or effective management in Portuguese territory, even if there has been no distribution of profits:
a) Civil partnerships not formed in commercial form;
b) Professional partnerships;
c) Asset management partnerships, the majority of the equity of which belongs, directly or indirectly, for more than 183 days of the fiscal year, to a family group, or whose equity belongs, on any day of the fiscal year, to no more than five partners and none of them is a public legal entity.(...)
3 - The imputation referred to in the preceding paragraphs is made to the partners or members in the terms that result from the constitutive act of the entities mentioned therein or, in the absence of elements, in equal shares."
Fundamental in the framework of this issue is the tenor of article 12 of the same Code, which states:
"Companies and other entities to which, under article 6, the tax transparency regime is applicable are not taxed in IRC, except as regards autonomous taxation."
Not being, once again, the subject matter of entities subject to the tax transparency regime, the object of the present case, synoptically it will always be said, from the outset, that from the reading on which the Claimant's claim is based, that is, that autonomous taxation integrates, without limitations and for all purposes, the taxable matter of IRC, there would always result one of two situations, equally unacceptable, namely:
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that the entities referred to in article 6, paragraph 1 of the IRC Code would be obliged to bear twice the expenses with autonomous taxation: once in the sphere of the company, in accordance with article 12 of the IRC Code, which expressly provides for it, and another time in accordance with the combined paragraphs 1 and 3 of article 6 of the IRC Code, which imposes that the "taxable matter, determined in accordance with this Code" relating to such entities is imputed to the partners;
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or that, thus, if not, that is, if by some type of interpretation the expression "taxable matter, determined in accordance with this Code" were restricted, purging it of autonomous taxation, the combination of the above-transcribed rules of paragraph 5 of article 90, article 6 and article 12, with the interpretation sustained by the Claimant for paragraph 1 of article 90, would result that taxable persons in IRC subject to the tax transparency regime would be prevented, by way of the said article 90, paragraph 5, from deducting to the amounts liquidated as autonomous taxation, the deductions provided for in paragraph 2 of the same article, since those latter amounts would be borne by the company, while the deductions would only be available to the partners, thus unjustifiably discriminating the taxable persons in IRC subject to the tax transparency regime, from the remainder, who, in the Claimant's thesis, would have the faculty to make operate the deductions provided for in paragraph 2 of article 90, to the amounts liquidated, in accordance with paragraph 1 of the same article, as autonomous taxation.
Here arrived, it is necessary to explore a little more the limits of the literalness of the rules at the epicenter of the present dispute – article 90, paragraphs 1 and 2 of the applicable IRC Code – and its repercussions in the broader framework of the relationship between traditional IRC and autonomous taxation in that tax.
As was set forth above, within the body of autonomous taxation, even if restricted to those that integrate the IRC regime in the broad sense, several situations of disparate origin and teleology converge.
Thus, by way of example, there are autonomous taxation aiming, singly or concurrently, to discourage certain economically undeserving behaviors (e.g.: excessive remuneration to managers), to tax the so-called fringe benefits (allowances; vehicle expenses), to mitigate the tax impact of expenses of dubious full business character (id.), to discourage behaviors with high potential for fraud (payments to entities subject to clearly more favorable tax regime) or to penalize behaviors that promote the so-called parallel economy (taxation of confidential expenses).
The literalness of the interpretation proposed by the Claimant mixes all those situations – because all of them will be liquidated in accordance with article 90, paragraph 1 of the applicable IRC Code – within the narrow confines of the letter of the law.
Now, already above, and on other occasions, was pointed out the vain glory of closing, in a unified concept, all autonomous taxation, even those that only occur within the scope of IRC, given their teleological and functional disparity. And here emerges one of the main weaknesses of the argumentative building in which the Claimant's position resides: that of being founded on a postulate of unity of autonomous taxation in IRC, characterized by those still being taxation on income/profit, in the capacity of substitute for the prohibition of deduction of certain expenses from taxable profit, as is underlying in the arbitral jurisprudence cited by it.
Now, that, among others, is a characteristic recognized in a particular type of autonomous taxation: autonomous taxation relating to deductible expenses.
The crack in the building that underlies the Claimant's position opens up, in light of this finding, in two distinct directions: on the one hand, the reading proposed by the Claimant for the rule of article 90, paragraph 1 of the applicable IRC Code does not distinguish, nor does it allow to distinguish, between autonomous taxation relating to deductible expenses and other types of autonomous taxation, such as those relating to confidential expenses; on the other hand, from the proven factual matters it does not result that the autonomous taxation in question in the present case do not respect distinct types of autonomous taxation, such as, for example, autonomous taxation relating to undocumented expenses, bonuses and other variable remuneration or payments to entities subject to a clearly more favorable tax regime.
From everything that has been said, it results, from the outset, that the entire argument presented by the Claimant, regarding the nature of autonomous taxation, as still taxing income is inconsequential for the decision of the matter sub iudice, because it is not demonstrated even that we are dealing with autonomous taxation where the characteristics on which such argument is based are recognized.
On the other hand, it further results that the argumentative building presented by the Claimant in support of its claim harbors in itself the potential to conceal claims – which, indeed, in light of the facts given as proven, may even be the case of the Claimant – in which it is sought to proceed with deductions in accordance with paragraph 2 of article 90 of the applicable IRC Code, to autonomous taxation relating, for example, to confidential expenses or payments to entities subject to a clearly more favorable tax regime.
Now, this type of claim cannot be considered to be intended by a reasonable legislator, in light of the entire systematic arrangement of IRC in the broad sense, including autonomous taxation. Indeed, it will not be sustainable that, having gone where, juridically, the legislator of the IRC Code went, with a view, for example, to combating the parallel economy or transactions with the so-called (incorrectly[15]) "tax havens", it was its intention that the respective burden of autonomous taxation could be alleviated by means of the deductions provided for in paragraph 2 of article 90 of the IRC Code.
The systematic entropy generated by the position that the Claimant intends to assert in the case will not stop here, however.
Indeed, and even restricting the issue to autonomous taxation on deductible expenses in IRC, such position would result in a direct violation of the principle of equality.
Indeed, as all the jurisprudence abundantly cited by the parties denotes, autonomous taxation relating to deductible expenses has underlying a presumption of "partial" or non-integral "business character". That is, such expenses will contain, presumably, a business purpose, which allows their deduction, but with such purpose other purposes will compete, which, if they were exclusive, would preclude their deductibility[16].
Such presumptive character will justify that when the taxpayer succeeds in rebutting the said presumption, the expenses maintain their deductible character, without being subject to autonomous taxation[17].
Now, in this restricted field of autonomous taxation on deductible expenses, the position sustained by the Claimant would result in a qualified inequality (in that more than treating as equal the unequal, or the unequal as equal, it would treat the unequal as unequal, in the inverse measure of the inequality), since in a situation in which a taxpayer declared deductible expenses that would normally be subject to autonomous taxation, but which, in the concrete case, were not by virtue of the material assumptions of the latter not being met (that is, by rebutting the underlying presumption), as was the case, for example, in the situation in the arbitral process 628/2014-T, and in which that same taxpayer presented a tax loss, could not proceed with any deduction, in accordance with article 90, paragraph 2 of the IRC Code, while another taxpayer, in the same situation (tax loss), but who assumed (implicitly or explicitly) the character of partial business purpose of the same type of expenses, becoming thereby burdened with the corresponding autonomous taxation, could, in the thesis underlying the Claimant's position, avail itself of the deductions provided for in that same article.
That is, and in summary: between two taxpayers in distinct situations before the IRC tax system, one that incurs expenses of entirely business nature, and another that incurs the same expenses but for purposes (actually or presumedly) partially foreign to business character, the second would obtain from the tax system, in the matter that concerns us, more lenient treatment, by way of behavior less in conformity with the teleology of that.
Now, as is well known, the principle of equality is one of the basic constituent principles of tax law, and nothing, at least in light of the criterion of the reasonable legislator, permits concluding that, in the regime in analysis, the legislator wished to confront in a direct manner that principle, granting a benefit in function of a factor contradictory with the teleology of the system.
Indeed, on the fiscal plane, the principle of equality is nothing more than a specific expression of the general principle of equality of citizens before the law, provided for in article 13 of the Constitution, which entails a twofold aspect of formal equality (equality before the law, general and abstract), and a material aspect (prohibiting arbitrary discriminations), and the principle in question can be seen at two distinct planes, namely:
• That of horizontal equality – according to which to equal income, capital or consumption there should correspond equal measure of tax;
• That of vertical equality – according to which to different income, capital or consumption there should correspond different tax, in the measure of the difference.
There results, thus, from the general principle of equality, the prohibition of arbitrary discriminations, extensible to tax law, under pain of violation of the very idea of Rule of Law, and the prohibition of all forms of taxation (or exemption) discriminatory or arbitrary, unacceptable in light of the values of juridical and substantive equality.
The idea of generality of taxation, it is certain, does not prevent the establishment of differentiated taxation regimes, nor the establishment of exemptions, tax reliefs or increases, provided that they are founded on values and public order purposes that are superior to those that determined the creation of the tax itself. That is, differentiation based on perceived values is not prevented, but discrimination based on realities not consented to by the fundamental order itself is prevented.
Being true that the principle of juridical and fiscal equality is not an absolute principle, as it admits situations of difference, it is also true that these situations must correspond to discriminations founded on institutionalized values, generically accepted and adopted in the instituted order of values.
Now, in the case, in which two companies in the situation described above find themselves objectively in differentiated situation and which should, therefore, merit differentiated tax treatment, in the sense of the difference, occurs, in light of the thesis underlying the Claimant's position, precisely the contrary.
Thus, always in the case there should intervene an interpretation factor in conformity with the Constitution of the rules in question, notably article 90, paragraph 2 of the IRC Code.
Within the decisional topics to be considered, it will fall, finally, to make a mention of the entry into force of the new wording of paragraph 21 of article 88 of the IRC Code, introduced by the Law that approved the State Budget for 2016 (Law no. 7-A/2016, of 30 March), which came to say that:
"The liquidation of autonomous taxation in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions of the preceding paragraphs, with no deductions being made to the total amount assessed."
This rule is the subject of article 135 of the said Law that approved the State Budget 2016, which states that:
"The wording given by this law to paragraph 6 of article 51, to paragraph 15 of article 83, to paragraph 1 of article 84, to paragraphs 20 and 21 of article 88 and to paragraph 8 of article 117 of the IRC Code is of an interpretative nature."
The question thus arises as to whether paragraph 21 of article 88 of the IRC Code, introduced by the 2016 State Budget, has (as the law itself says) or does not have an interpretative nature.
Conceding that we are, without doubt, in a borderline situation, we will tend to grant to the rule in question the character that the law itself that creates it expressly confers on it.
Indeed, following the doctrine of the illustrious Master Prof. Dr. Baptista Machado, for a law to be interpretative it is necessary:
a. there be a disputed or uncertain issue in the law in force;
b. that the legislator establishes an interpretative solution that resolves the uncertainty that the interpreter or judge would reach on the basis of the normative before the legislative alteration.
Now, the application of these principles goes, precisely, in the sense that the Law in question is, in fact, of an interpretative nature.
Indeed, prior to the entry into force of the law in question (paragraph 21 of article 88 of the IRC Code), the question of whether or not the deductions provided for in article 90, paragraph 2 of the IRC Code to the amounts liquidated, in accordance with paragraph 1, relating to autonomous taxation, were possible, was a disputed issue, so much so that there were several disputes between the Tax Authority and taxpayers in that respect, a fact that is public and notorious.
Indeed, for a question to be disputed, it will not be necessary, and it will not even be the case, that there be a divergence between judicial decisions, it suffices that there be different application of the disputed law by any legal operator, and the dispute can be, even, of essentially doctrinal nature.
On the other hand, and as regards the second of the requirements listed, it is not considered that the solution given by the legislator must necessarily be one of those proposed by those involved in the dispute nor, much less, that it must adhere to the grounds of those. Indeed, the interpretative intervention of the legislator is not the intervention in a process of parties, in which it arbitrates in favor of one or another of those involved in the dispute. Rather, such interpretative intervention is objective – that is, it places itself before the Law as it was and as it became – and it is the clarification of an own will of the legislator.
Hence, for a law to be considered interpretative, beyond the existence of a dispute in the terms set out above, it is necessary only that the solution be one of the objectively possible ones, within the framework of the existing Law prior to the interpretative intervention, regardless of, in one or another case, or even in all, being one sustained by those involved in the dispute.
That is: for the law to be interpretative, it suffices that the solution given corresponds to a possible one, already in light of the legal text prior to such Law.
Now, as will be seen below, it is that which occurs in the case.
Summarizing what has been said above, it is verified, from the outset, that the interpretation sustained by the Claimant rests, essentially, on the literal tenor of the rules of paragraphs 1 and 2 of article 90 of the applicable IRC Code, with no substantial ground being discerned that justifies the solution in question, all the more so because the arguments on which the Claimant's position is based are essentially relating to autonomous taxation of deductible expenses, and whereas, on the one hand, nothing is proven regarding, in the concrete case, there being autonomous taxation of that type (and not of others), and on the other, from the interpretation proposed there would always result that the deductions provided for in article 90, paragraph 2 of the applicable IRC Code would be made to all types of autonomous taxation, including, for example, those relating to payments to entities subject to clearly more favorable taxation regimes and those relating to confidential expenses, and none of the substantial arguments on which the Claimant's position is based permit justifying that such occurs.
On the other hand, as was seen, while it is certain that article 90, paragraph 1 of the applicable IRC Code does not distinguish between the liquidation of autonomous taxation and the liquidation of traditional or strict sense IRC (on taxable profit), the truth is that, upstream, the procedure and nature of the two types of tax imposition is substantially distinct, as was seen and as the constitutional jurisprudence on the matter gives ample account, a situation which cannot, it is believed, fail to be considered in the matter sub iudice.
Moreover, as was also seen, the ratification of the interpretation that underlies the petitum of the Claimant would be generator of notable turbulence in the normative building of IRC, namely with respect to the regimes of special payment on account and of companies subject to the tax transparency regime.
Finally, as was also analyzed, adherence to the literalness of the precept of article 90, paragraphs 1 and 2, advocated by the Claimant, would result – it is believed – in a violation of the principle of tax equality, moreover, constitutionally imposed.
For all this, it is believed that in the combination of the text of the two rules, the legislator said more than what it intended, a situation which, moreover, resulted not from contemporary carelessness in the wording of such rules, but rather from the evolution of the normative regime of IRC and, concretely, from the gradual introduction therein of the regime relating to autonomous taxation, without this being reflected, coherently, in the tenor of article 90, paragraph 2 of the same Code.
We are thus before a situation described by the Illustrious Master Prof. Doctor Baptista Machado, in which: "At times, albeit rarely, it will be necessary to go further and sacrifice, in obedience still to the legislative thought, part of a normative formula, or even the whole rule. These are aborted legislative formulas or genuine lapses. When the normative formula is so poorly inspired that it does not even allude with minimal clarity to the hypotheses it intends to cover and, taken to the letter, covers others that decidedly are not in the spirit of the law, one may speak of corrective interpretation. The interpreter will resort to such form of interpretation, it is clear, only when in that way alone it is possible to achieve the end sought by the legislator."[18]
Indeed, the normative formula of article 90, paragraph 2 of the applicable IRC Code, taken to the letter, as the Claimant does, covers hypotheses, as was seen, that decidedly are not in the spirit of the law nor are in conformity with the specificities and nature proper to autonomous taxation. In the case, as was already referred to, not by poor inspiration of the rule itself, but of the successive reforms that introduced autonomous taxation in IRC, without these being reflected, correspondingly, in the wording of article 90, paragraph 2 of that Code.
Thus, it becomes necessary to interpret correctively the rule of article 90, paragraph 2 of the applicable IRC Code, so as to restrict the reference it makes to paragraph 1 of the same rule, in the reference it makes to "To the amount assessed in accordance with the preceding paragraph", limiting it to the amount of IRC tax collection calculated by applying the rates of article 87 to the taxable matter assessed in accordance with the rules of chapter III of the Code, and no longer to the amounts assessed as autonomous taxation, thus restoring to the rule its original meaning, which was that corresponding to its textual wording before the introduction of autonomous taxation in the IRC Code.
Notwithstanding it being a frankly exceptional type of interpretation, as good doctrine states, it will always be noted that, in the case, the interpreter finds itself before the alternative of opting for it, or for another still more exceptional type of interpretation, that is, revocatory or abrogating interpretation of the rule of article 135 of the Law that approved the State Budget 2016, and that granted an interpretative character to the addition of paragraph 21 to article 88 of the IRC Code.
That is: between a corrective interpretation and an abrogating interpretation, we opt, beyond everything else that has been said, for the former.
Moreover, as regards the tax benefit of the CFEI, it is not ascertained, it having not been alleged, that the Claimant had, at the date, its tax and social contribution situation regularized, as required by letter c) of article 2 of Law 49/2013, of 16 July.
Here arrived, as a final note, it is necessary to return, precisely, to the subject matter of the interpretative character – or not – of the addition of paragraph 21 of article 88 of the IRC Code, proclaimed by article 135 of the Law that approved the State Budget 2016.
Before anything, note that once again the lack of legislative skill is evidenced here, a symptom of a merely reactive legislative activity that, casually, seeks to address the problems that it itself, in the first place, generates.
Indeed, it is evident that the addition of paragraph 21 to article 88 of the IRC Code does not – in itself – have an interpretative nature, in that with respect to article 88 no controversy was raised, in the matter added, which it was necessary to address. The controversy, as has just been seen, resided in paragraph 2 of article 90, and it is with respect to the interpretation of this, as results from the introduction of paragraph 21 of article 88, that the alteration to the IRC Code introduced by Law no. 7-A/2016, of 30 March, will be interpretative. Put differently, it is with respect to the normative content of article 90, paragraph 2 that the Law that approved the State Budget 2016 is interpretative, in that it imposes that the same be read before its entry into force in the same manner as it undoubtedly came to be read after that same entry into force.
Thus, and if we had not reached the above-referred conclusion, according to which a corrective interpretation of article 90, paragraph 2 of the applicable IRC Code is the juridically most adequate solution for the case, we would always have reached the same conclusion by way of the interpretative character of the alteration to the IRC Code introduced by Law no. 7-A/2016, of 30 March, in that there existing a prior dispute and being that solution one of the possible ones, and the one that results from the Law that expressly assumes itself as interpretative, such solution would always be the one that it would be proper to assume.
It is concluded, in light of all the foregoing, that the arbitral request should not succeed.
Note that, in conclusion, the reasoning of the present decision, and the basis of the AT's defense in arbitral proceedings, do not coincide with the reasoning of the act of decision of the administrative appeal submitted by the Claimant.
This is not, with respect to other opinions, in the case, a reason for annulment of such act.
Indeed, from the outset, it has been peacefully understood, also, that:
"In matters of law, the court is not bound by the allegations of the parties, nor even with respect to the legal qualification of the facts made by them, and enjoys freedom in the investigation, interpretation and application of the Law (article 664 of the CPC)."[19]
On the other hand, and as has also been jurisprudence:
"Despite the implications that the statement of reasoning may eventually have on the substance of the decision, a distinction must be made between the formal aspect, that which interests in the fulfillment of the imperative of reasoning, and the material aspect, which in the structure of the act concerns mainly the existence of the real assumptions that support the decision on the merits."
That is, the formal reasoning, impressed in the fulfillment of the imperative of reasoning, may be correct or incorrect, only contending with the validity of the act if, and insofar as, it crystallizes the assumptions of fact and law of the act and these are non-compliant with the law, embodying itself in an error of fact and/or law.
Moreover, article 2 of the RJAT takes as referent of the competence of arbitral tribunals, the primary acts ("acts of tax liquidation, self-assessment, withholding at source and payment on account"), with secondary acts being solely relevant as referents of the timeliness of the challenge claim, as results from article 10, paragraph 1, letter a) of that Framework, where it is imposed that requests for constitution of an arbitral tribunal be submitted within a period of 90 days, counted from the facts provided for in paragraphs 1 and 2 of article 102 of the Code of Procedure and Tax Process.
Hence, in the first place, we are in the present proceedings to assess the legality of the act of self-assessment of IRC of the Claimant (direct object of the competence of arbitral tribunals), being the legality of the secondary act of administrative appeal – whose main function is to guarantee the timeliness of the Claimant for the arbitral challenge of the primary act – merely reflexive or derived from the legality of that.
Thus, the eventual annulment of the act of decision of the administrative appeal, for wrong reasoning, when – as is the case – we conclude that the illegalities alleged to the primary act were not verified, would always result in a useless act, and as such prohibited, since, bound by the res judicata, the Tax Authority would do no more in the new act than to necessarily confirm that which was decided in judicial proceedings, which moreover has reflection in the regime of paragraph 6 of article 163 of the new Administrative Procedure Code (CPA), which is considered applicable to the case.
C. DECISION
In such terms this Arbitral Tribunal decides that the arbitral requests formulated are not well-founded and, in consequence, maintains the tax acts which are the object of the present arbitral action and condemns the Claimant for the costs of the proceedings, set out below, taking into account what has already been paid.
D. VALUE OF THE CASE
The value of the case is set at €110,230.86, under article 97-A, paragraph 1, a), of the Code of Procedure and Tax Process, applicable by force of letters a) and b) of paragraph 1 of article 29 of the RJAT and paragraph 2 of article 3 of the Rules of Costs in Tax Arbitration Proceedings.
E. COSTS
The arbitration fee is set at €3,060.00, under Table I of the Rules of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the request was entirely without merit, under articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 4, paragraph 4, of the said Regulations.
Notify.
Lisbon 9 April 2017
The President Arbitrator
(José Pedro Carvalho - Reporting Arbitrator)
The Arbitrator Member
(Francisco José Nicolau Domingos)
The Arbitrator Member
(Luís Janeiro)
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