Process: 591/2018-T

Date: June 26, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This arbitral decision (Process 591/2018-T) addresses whether fiscal benefits under SIFIDE (System of Tax Incentives for Business Research and Development), RFAI (Fiscal Regime for Investment Support), and CFEI (Extraordinary Tax Credit for Investment) can be deducted from autonomous taxation amounts in Corporate Income Tax (IRC). The petitioner, a dominant company of a fiscal group under the Special Regime for the Taxation of Groups of Companies (RETGS), self-assessed IRC for 2016 including €92,690.72 in autonomous taxation. The company was prevented from deducting fiscal benefits that exceeded the autonomous taxation liability, despite having tax credits available. The petitioner argued that IRC collection under Article 45(1)(a) includes autonomous taxation and should follow Article 90's calculation method, allowing fiscal benefit deductions. They challenged Article 88(21) as an unconstitutional retroactive interpretive norm violating the separation of powers principle. The Tax Authority countered that IRC has a dualistic structure with separate calculations for standard IRC (using Article 87 rates) and autonomous taxation (using Article 88 rates). They argued that allowing benefit deductions from autonomous taxation would contradict the legislator's intent to discourage certain expenses through punitive taxation rates. The case raises fundamental questions about the architecture of Portugal's IRC system, whether autonomous taxation constitutes a separate levy or integral part of IRC, and the extent to which fiscal incentives can offset deterrent taxes designed to discourage specific business expenditures.

Full Decision

ARBITRAL DECISION

They agree in Arbitral Tribunal

I – Report

  1. A... – S.G.P.S., S.A., legal entity no. ..., with registered office at ..., no. ... – ..., ...-... ..., municipality of ..., dominant company of Fiscal Group B... SGPS, subject to the Special Regime for the Taxation of Groups of Companies B... – S.G.P.S., S.A., filed a petition for the establishment of an arbitral tribunal, under the terms of Article 2, no. 1, paragraph a), and Articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to assess the legality of the rejection of a gracious claim filed against the act of self-assessment of Corporate Income Tax (IRC), relating to the financial year 2016, in the amount of € 92,690.72, in the part in which it does not permit the deduction from the IRC collection produced by the autonomous taxation rates of fiscal benefits determined within the scope of the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI) and the Extraordinary Tax Credit for Investment (CFEI), further requesting the condemnation of the Tax Authority to payment of compensatory interest.

The petitioner bases the claim on the following grounds.

The Petitioner is the dominant company of Fiscal Group B..., which is subject to the special regime for the taxation of groups of companies provided for in Articles 69 et seq. of the IRC Code, and in that capacity presented the consolidated IRC declaration (model 22) for the year 2016, having proceeded to self-assessment of the autonomous taxation of that same year in the amount of € 92,690.72.

In the self-assessment, it was prevented from deducting the amounts of fiscal benefit recognized to the companies in the fiscal group under the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI) and the Extraordinary Tax Credit for Investment (CFEI), which corresponded to tax credits in an amount exceeding the collection from autonomous taxation.

The Petitioner also had the necessary requirements to deduct the fiscal benefits, in that the taxable profit was not determined through indirect methods and its tax and social security situation was regularized.

Furthermore, the IRC collection provided for in Article 45, no. 1, paragraph a), of the IRC Code comprises the collection from autonomous taxation in IRC, being subject, as such, to the method of calculation provided for in Article 90 of that Code, whereby deductions relating to fiscal benefits should be made in relation to the determined amount in accordance with paragraph c) of no. 2 of that provision.

The provision of Article 88, no. 12, of the CIRC, which only permits tax withheld at source to be deducted from the part of IRC collection produced by no. 11 of Article 88 of the CIRC, is not relevant.

The Petitioner further states that the norm of Article 88, no. 21, of the CIRC, in the wording introduced by Article 134 of Law no. 7-A/2016, of 30 March, has innovative nature, despite its express qualification as an interpretive norm, becoming inapplicable to the situation of the case by effect of the principle of prohibition of retroactivity of tax law and by violation of the principle of separation of powers and interdependence of organs of sovereignty and the principle of independence of the judicial power.

And should it be understood that Article 90 of the IRC Code does not apply to autonomous taxation, then the illegality of the assessment of autonomous taxation should be declared due to absence of legal basis for its implementation, given the terms of Article 8, no. 2, paragraph a), of the General Tax Law (LGT) and Article 103, no. 3, of the Constitution.

It therefore requests the declaration of illegality of the decision rejecting the gracious claim, as well as the self-assessment of IRC, relating to the financial year 2016, for the vice of violation of law, in that it prohibits the deduction of fiscal benefits from the part of IRC collection corresponding to autonomous taxation rates, and, subsidiarily, the declaration of illegality of the assessment of autonomous taxation due to absence of legal basis.

The Tax Authority, in its response, argues that the inclusion of autonomous taxation in the IRC Code, by its nature and purpose, has as a logical corollary the application of the general norms specific to that tax that do not conflict with its special form of incidence, conferring a dualistic nature to the normative system of the tax that is embodied in the separate calculation of the respective collections in accordance with different rules.

There being thus place for two distinct calculations, which, although processed in accordance with paragraph a) of no. 1 of Article 90, are carried out on the basis of the application of different rates to the respective taxable bases that are similarly determined in accordance with specific rules.

The assessment of IRC operates through the application of the rates of Article 87 to the taxable base, whereas in relation to the assessment of autonomous taxation, various collections are determined in accordance with the rates provided for in Article 88, depending on the diversity of facts that give rise to the assessment of autonomous taxation, and it cannot therefore be said that there is a unitary system of taxation in IRC.

And in that sense, the "amount determined in accordance with the previous number," to which no. 2 of Article 90 of the CIRC refers, should be understood as covering the sum of the amount of IRC determined in accordance with the rules of Chapter III of the Code by application of the rates provided for in Article 87 and the amount of autonomous taxation, calculated on the basis of the rules provided for in Article 88.

Otherwise, the deduction of fiscal benefits from the collection resulting from autonomous taxation would have a contradictory effect, allowing the achievement of fiscal incentive objectives to come to eliminate autonomous taxation in relation to expenses that the legislator intends to discourage.

It further adds that there is no place for the payment of compensatory interest, which would only be due if the assessment contained an illegality attributable to error on the part of the services.

It concludes in the sense of the impropriety of the arbitral petition.

  1. In the course of the proceedings, the meeting referred to in Article 18 of the RJAT was dispensed with, as was the production of testimony evidence.

In the arguments, the parties reiterated their previous positions.

  1. The petition for the establishment of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority in accordance with regulatory terms.

In accordance with the terms set forth in paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the task within the applicable period.

The parties were duly and timely notified of that designation and did not manifest the will to refuse it, in accordance with the combined terms of Article 11, no. 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provisions of paragraph c) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 6 February 2019.

The arbitral tribunal was regularly constituted.

The parties have legal personality and capacity, are legitimate and are represented.

The proceedings do not suffer from any nullities nor were any exceptions raised.

It is incumbent to assess and decide.

II – Grounds

  1. The factual matters relevant to the decision of the case are as follows:

a) Fiscal Group B..., composed of C..., S.A., D..., S.A., E..., S.A., F..., Lda., G..., S.A., H..., S.A., I..., S.A., J..., Lda., K..., S.A. and L..., is subject to the Special Regime for the Taxation of Groups of Companies (RETGS);

b) In its capacity as dominant company of Fiscal Group B..., the Petitioner presented a consolidated IRC declaration Model 22 for the financial year 2016, proceeding to self-assessment of the autonomous taxation of that same year in the total amount of € 92,690.72;

c) The computer system did not permit the deduction from the IRC collection, with reference to the financial year 2016, of the amounts of fiscal benefit recognized to the companies in the fiscal group under the System of Tax Incentives for Business Research and Development (SIFIDE), in the amount of € 1,630,384.09, the Fiscal Regime for Investment Support (RFAI), in the amount of € 1,719,372.14, and the Extraordinary Tax Credit for Investment (CFEI), in the amount of € 39,857.99;

d) The Petitioner filed a gracious claim regarding the self-assessment of autonomous taxation for the financial year 2016, which was rejected by order of 28 August 2018 from the Head of the Finance Department Division of ..., under subdelegation of competence;

e) The decision rejecting the ex officio review petition was based on the non-deductibility of any amounts from the collection produced by autonomous taxation as it was contrary to the spirit of the system which, by force of the deductions referred to in Article 90, no. 2, of the Personal Income Tax Code, would eliminate the anti-abuse character that presided over the implementation of those autonomous taxation rates, and because it was further considered that Article 21, no. 8, of the IRC Code, in the wording introduced by the 2018 State Budget Law, came to clarify the interpretation to be drawn from Article 90, no. 2, of that statute in the sense that there is no place for deductions from the total amount determined as a result of autonomous taxation.

The Tribunal formed its conviction regarding the proven facts on the basis of the documents attached to the petition and in the administrative file submitted by the Tax Authority.

Matters of Law

Deduction of Fiscal Benefits from the Collection of Autonomous Taxation

  1. The question to be decided is whether there is place in the IRC for the deduction from the collection produced by autonomous taxation rates of fiscal benefits determined within the scope of the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI) and the Extraordinary Tax Credit for Investment (CFEI).

This question has been decided by the majority arbitral jurisprudence in the affirmative sense, using as the principal argument the method of assessment of IRC even when it is a matter of autonomous taxation. The collection provided by autonomous taxation – it is stated – constitutes collection of IRC and the deduction of fiscal benefits is carried out in relation to the amount determined in accordance with Article 90 of the CIRC, which leads to the conclusion that the processing of the assessment of the tax, as it results from the aforesaid Article 90, applies to all situations provided for in the Code, including with regard to autonomous taxation. Starting 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 base, there being no legal support, in light of the provision in Article 90, to distinguish between the collection stemming from autonomous taxation and that which results from income subject to IRC.

In any case, the analysis of the question justifies a more precise characterization of the so-called autonomous taxation.

It must be said at the outset that autonomous taxation constitutes the principal exception to the taxation of income according to the principle of net income or actual income, by which the income of individuals is determined after deducting the expenses made for its obtaining and the taxation of companies is determined in accordance with the profit determined by the accounts (SALDANHA SANCHES, Manual of Tax Law, 3rd edition, Coimbra, p. 406).

As has been frequently noted, autonomous taxation initially related to confidential and undocumented expenses (Article 4 of Decree-Law no. 192/90, of 9 June), subsequently coming to encompass vehicle expenses, amounts paid to persons with more favorable tax treatment and representation expenses, and later, expenses relating to daily allowances or travel expenses.

With the 2010 State Budget Law (Law no. 3-B/2010, of 28 April), autonomous taxation came also to include expenses relating to indemnities paid to managers, administrators or managing partners by virtue of cessation of functions, as well as expenses relating to bonuses and other variable remuneration paid to managers, administrators or managing partners when these represent a portion exceeding 25% of annual remuneration and have a value exceeding € 27,500. Meanwhile, Law no. 55-A/2010, of 31 December, added a no. 14 to Article 88, providing for the increase of the autonomous taxation rates provided for in that Article by 10 percentage points for taxpayers who present a tax loss in the taxation period to which any of the tax facts referred to in the preceding numbers relate.

The introduction of the autonomous taxation mechanism is justified, on the other hand, by reporting to expenses whose tax treatment is difficult to discern because they are found in a "zone of intersection of the private sphere and the business sphere" and is aimed at preventing and avoiding that, through these expenses, companies proceed to the hidden distribution of profits or attribute income that may not be taxed in the sphere of their respective beneficiaries, also having the objective of combating tax fraud and evasion (SALDANHA SANCHES, op. cit., p. 407).

Furthermore, autonomous taxation, although regulated normatively in the context of income tax, is materially distinct from taxation in IRC, in that it does not directly affect the taxable profit of the company, but rather certain expenses that constitute, in themselves, a new tax fact (which refers not to the perception of income but to the realization of expenses). And, in that way, autonomous taxation has inherent in it the idea of discouraging a practice which, in addition to affecting equality in the distribution of public charges, may involve situations of less fiscal transparency, and is explained by a legislative intention to stimulate companies to reduce as much as possible expenses that negatively affect tax revenue.

In those special situations listed in the law, the legislator opted, therefore, to subject the expenses to autonomous taxation as an alternative and more effective form to the non-deductibility of the expense for purposes of determining taxable profit, especially since when the company comes to suffer a tax loss, there will be no place for the payment of tax, frustrating the objective that is intended to be achieved which is to discourage the very realization of this type of expenses.

However, through successive legal amendments, the legislator has come to expand the scope of autonomous taxation, having come to include expenses relating to indemnities paid to managers, administrators or managing partners when they cease functions, as well as expenses relating to bonuses and other variable remuneration paid to managers, administrators or managing partners when these exceed certain thresholds. Which is justified as a way of ensuring "a fairer distribution of tax burdens and progressive moral improvement of corporate remuneration policies." As the doctrine has recognized, these are cases of autonomous taxation mechanisms that depart from the initial design of combating tax fraud and evasion – as happened with undocumented expenses – but which may still fit within the objective of limiting expenses that may be reflected in the collectible income of companies.

In this context, analyzing the question 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 Decision no. 197/2016, subscribed to the following understanding.

"(...) IRC and autonomous taxation are distinct taxes, with different tax bases and subject to specific rates. IRC applies to income obtained and profits directly attributable 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 IRC – according to constitutional jurisprudence itself – the tax-generating fact is the very realization of the expense, being characterized as an instantaneous tax fact that arises isolated in time and generates an obligation of payment with an occasional character. For this reason it is understood that we are dealing with a tax of single obligation, as opposed to periodic taxes, whose tax-generating fact occurs in a successive manner over time, generating for the taxpayer the obligation to pay tax with a regular character.

As can be concluded, autonomous taxation, although provided for in the CIRC and assessed jointly with IRC for purposes of collection, has nothing to do with the taxation of income and profits attributable to the economic exercise of the company, since they affect certain expenses that constitute autonomous tax facts that the legislator, for reasons of fiscal policy, wished to tax separately by subjection to a predetermined rate that has no relation to the volume of business of the company."

In the same sense, the Decision of the Constitutional Court no. 310/2012, which held unconstitutional, by violation of the principle of non-retroactivity of tax law, the norm of Article 5, no. 1, of Law no. 64/2008, of 5 December, in the part in which it makes retroactive to 1 January 2008 the effects of the increase in autonomous taxation rates, drew attention to the materially distinct nature of autonomous taxation in relation to the tax on income of legal entities, even though this tax levy is formally inserted in the IRC Code.

To this end, that decision emphasized:

"Contrary to what happens in the taxation of income under Personal Income Tax (IRS) and IRC, in which the aggregate of income earned in a given year is taxed (which implies that only at the end of the year can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case each expense carried out is taxed, considered in itself, and subject to a determined rate, autonomous taxation being determined independently of the IRC that is owed in each financial year, because it is not directly related to the obtaining of a positive result, and therefore capable of taxation.

Thus, in the case of IRC, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, with the law considering that the tax-generating fact is deemed to have occurred on the last day of the taxation period (cf. Article 8, no. 9, of the CIRC).

As regards autonomous taxation in IRC, the tax-generating fact is the very realization of the expense, not being dealing with a complex fact of successive formation over a year, but rather with an instantaneous tax fact.

This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose tax-generating fact occurs in a successive manner, by the passage of a determined period of time, as a rule annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and single obligation taxes (whose tax-generating fact occurs instantaneously, arises isolated in time, generating on the taxpayer an obligation of payment 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 a certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various autonomous taxation rates to the various acts of realization of expense considered, comes to be carried out at the end of a given taxation period). But the fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of a lasting character. This operation of assessment translates itself only into the aggregation, for purposes of collection, of the set of operations subject to this autonomous taxation, whose rate is applied to each expense, with no influence from the volume of expenses carried out in the determination of the rate."

It is understood, in the terms just set forth, that the tax base of autonomous taxation does not translate into net income, but into 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 the fiscal benefits to be attributed to taxpayers under IRC come to be deducted from the collection resulting from the application of autonomous taxation rates.

As has been pointed out, autonomous taxation rates have the nature of anti-abuse norms and are intended to discourage certain special situations that aim to obtain a reduction in tax burden by deducting costs that are presumed not to be determined by a business cause. Furthermore, the normative system of the tax has a dualistic nature in that it integrates, on the one hand, the taxable base based on taxable profit, and, on the other hand, the taxable base resulting from the application of autonomous taxation rates affecting a certain type of expenses.

Even though the assessment of the tax is carried out in an aggregated manner, on the basis of these two different components, it makes no sense for the general deductions to be made in relation to the amount of tax determined to affect the collection due by the application of autonomous taxation rates. In fact, deductions from the collection constitute one of the ways of giving effect to the principle of ability to pay which has as one of its corollaries taxation according to actual income. Given that these are taxes on income, the objective deductions to be contemplated are those corresponding to expenses that can reasonably be considered necessary for the collection of income and that are appropriate to the nature of each category of income, and in the case of business activities, the expenses or losses incurred or borne by the taxpayer to obtain or secure the income subject to IRC (SÉRGIO VASQUES, Manual of Tax Law, Coimbra, 2015, p. 299).

It is certain that the law still admits deductions from taxable profit and, among them, those relating to fiscal benefits (Article 90, no. 2, paragraph c)). It does not make sense, however, that these deductions can occur in relation to the collection from autonomous taxation.

It is to be recalled that autonomous taxation affects certain expenses typified in the tax law that have been carried out by the company, and only on these expenses, and does not aim at the taxation of business income that has been earned in the respective economic year. And the objective of the legislator – as was referred to – is to discourage the realization of expenses that may negatively affect tax revenue and artificially reduce the company's own ability to pay.

The logic of autonomous taxation seems to be this. The company reveals financial availability to carry out expenses that involve situations of less fiscal transparency and negatively affect tax revenue. In this circumstance, the taxpayer should be in a position to bear an additional tax burden relating to these same expenses (which could be avoided) and which is intended to offset the tax advantage resulting from the reduction in the taxable base as a result of the realization of these expenses.

The expense constitutes an autonomous tax fact, generating a tax to which the taxpayer is subject independently of having obtained or not taxable income under IRC in the same taxation period. And, thus, the fact revealing the ability to pay is the very realization of the expense.

Admitting that the tax credits resulting from situations of incentive or fiscal benefit could neutralize the sanctioning effect of autonomous taxation would be to distort the very concept of fiscal benefit and the principles of ability to pay and the fair distribution of the tax burden.

By their very nature, fiscal benefits are exceptional measures instituted for the protection of relevant extrafiscal public interests that are superior to those of taxation itself, they prevent, corresponding to situations in which the tax legislator provides relief, for technical or fiscal policy reasons, certain manifestations of wealth that it intends to remove from normal taxation (Article 2, no. 1, of the EBF). The fiscal benefit is considered, on the other hand, as a tax expenditure in that it affects a situation subject to taxation and is equivalent, in quantitative terms, to tax revenue not collected.

It makes no sense whatsoever, in this conditionality, that deductions from the collection of the tax that result from fiscal benefits affect not only the taxable profit but expenses that the legislator intended to tax for reasons of fiscal transparency. Which would lead to allowing the fiscal benefit to be used to frustrate the objective that is intended to be achieved with autonomous taxation which is precisely to discourage the very realization of this type of expenses.

  1. In the present case, the Petitioner imputes to the decision rejecting the gracious claim and to the act of self-assessment of IRC the vice of violation of law in the part in which they do not admit the deduction from the IRC collection produced by autonomous taxation rates of fiscal benefits determined within the scope of SIFIDE, RFAI and CFEI.

At issue is the system of fiscal incentives for business research and development II, abbreviated to SIFIDE II, approved by Article 133 of Law no. 55-A/2010, of 31 December, the fiscal regime for investment support carried out in 2009, approved by Law no. 10/2009, of 10 March (RFAI) – subsequently transposed to the Fiscal Code of Investment by means of the amendment resulting from Decree-Law no. 82/2013, of 17 June – and the extraordinary fiscal credit for investment, established by Law no. 49/2013, of 16 July (CFEI).

With regard to SIFIDE II – which came into force in the taxation periods from 2013 to 2020 as a result of the amendment imposed by Law no. 83-C/2013, of 31 December – the law permits IRC taxpayers resident in Portuguese territory who exercise, as a principal activity or not, an activity of an agricultural, industrial, commercial or services nature and non-residents with permanent establishment in that territory to deduct from the amount determined in accordance with Article 90 of the IRC Code, and up to its amount, the value corresponding to expenses with research and development, in the part that has not been the subject of non-repayable financial participation from the State, carried out in the taxation periods from 1 January 2013 to 31 December 2020, in a double percentage: a) base rate – 32.5% of the expenses carried out in that period; b) incremental rate – 50% of the increase in expenses carried out in that period in relation to the simple arithmetic mean of the two preceding financial years, up to the limit of € 1,500,000. There is still place in certain situations for the increase of that rate (Article 36 of the Fiscal Code of Investment).

The fiscal incentive for investment, in addition to involving various types of exemptions, is processed by deduction from the IRC collection, up to the amount of 50% of the same, of the following amounts, for investments carried out in regions eligible for support within the framework of incentives with regional purpose: i) 20% of the relevant investment, relating to investment up to the amount of € 5,000,000; ii) 10% of the relevant investment, relating to investment of value exceeding € 5,000,000 (Article 28 of the Fiscal Code of Investment).

The fiscal benefit to be granted to taxpayers within the scope of CFEI, as provided for in Article 3, no. 1, of Law no. 49/2013, corresponds to a deduction from the IRC collection in the amount of 20% of investment expenses in assets used in the exploitation, with the subsequent no. 5 determining that, in the case of application of the special regime for taxation of groups of companies, the deduction is made from the amount determined in accordance with paragraph a) of no. 1 of Article 90 of the IRC Code, on the basis of the collectible base of the group.

In any case, the law orders the deduction of the amounts resulting from the fiscal incentives from the IRC collection or from the amount determined in accordance with Article 90 of the CIRC, and it should be understood that the referral is made to the assessment procedure referred to in that same provision of the Code. The specific norms that regulate fiscal incentives do not contain, as such, a special regime with regard to the method by which the deduction from the collection should be processed, and so there should be place for the deduction of fiscal benefits from the amount of tax determined as provided for in Article 90, no. 2, paragraph c).

The point is that this provision, as has been intimated, cannot be interpreted in the sense of encompassing autonomous taxation given that we are there dealing with a taxation distinct from IRC and in relation to which it would make no sense to make the deductions by way of fiscal benefit fall.

To this end, the Petitioner further refers to the innovative nature of the norm of Article 88, no. 21, of the CIRC, in the wording introduced by Article 134 of Law no. 7-A/2016, of 30 March, with the consequent inapplicability to the situation of the case by violation of the principle of prohibition of retroactivity of tax law.

The said norm came to establish that "the assessment 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 numbers, with no deductions being made from the total amount determined." And the subsequent Article 135 of the same Law confers on the said provision of Article 88, no. 21, of the CIRC interpretive nature.

The invocation of the pointed out provision could raise the question of whether the norm, in the conditionality of the case, could be qualified as interpretive and whether the retroactive effect of that qualification could put into question the principle of prohibition of retroactivity of tax law.

However, the tribunal, in order to reach the solution of the case, limited itself to interpreting the provision of Article 90, no. 2, paragraph c), of the CIRC according to the general rules of legal hermeneutics, refraining from applying the provision of the aforesaid Article 88, no. 21, of the CIRC, and so, not having used that provision as the ratio decidendi, the violation of any constitutional parameter that reports to the purported interpretive character of the law is not invocable (among many, the decisions of the Constitutional Court nos. 319/94 and 524/98).

  1. The Petitioner further deduces a subsidiary petition in order to obtain the annulment of the tax act of assessment of autonomous taxation, should it be understood that Article 90 of the CIRC does not apply to this type of taxation, on the grounds that there is no legal basis for its implementation, invoking the terms of Article 8, no. 2, paragraph a), of the LGT and Article 103, no. 3, of the Constitution.

If correctly understood, the Petitioner starts from the assumption that, given that there is no place for the deduction from the IRC collection produced by autonomous taxation rates of fiscal benefits, there is also no legal basis for carrying out the autonomous taxation.

The argument is based on an obvious misunderstanding.

The autonomous taxation rates are provided for in Article 88 of the CIRC and it is this provision that permits the assessment of the corresponding tax, although this assessment arises aggregated with the assessment of IRC. In considering that fiscal benefits are not deductible from the amount of tax determined that results from the application of autonomous taxation rates, the tribunal is not asserting that the provision of Article 90 is not applicable to autonomous taxation, but rather is making an interpretation of Article 90, no. 2, paragraph c), in the sense that the deduction from the collection of fiscal benefits does not affect autonomous taxation.

It being certain that autonomous taxation does not for this reason cease to have legal support.

In such terms, the petition of the Petitioner is improper, and the decision rejecting the gracious claim impugned is to be maintained, with the remaining petitions for reimbursement of amounts paid and payment of compensatory interest necessarily prejudiced.

III – Decision

In such terms it is decided:

a) To judge improper the arbitral petition for declaration of illegality of the decision rejecting the gracious claim filed against the act of self-assessment of IRC, relating to the financial year 2014, in the part in which it does not admit the deduction from the IRC collection produced by autonomous taxation rates of fiscal benefits determined within the scope of the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI) and the Extraordinary Tax Credit for Investment (CFEI);

b) To judge prejudiced the petitions for reimbursement of amounts paid and payment of compensatory interest.

Value of the Proceedings

In accordance with the terms of Articles 306, no. 2, and 297, no. 2 of the Code of Civil Procedure (CPC), Article 97-A, no. 1, paragraph a) of the Code of Tax Procedure (CPPT) and Article 3, no. 2, of the Rules of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 92,690.72.

Costs

In accordance with Article 22, no. 4, of the RJAT, the amount of costs is fixed at € 2,754.00, in accordance with Table I attached to the Rules of Costs in Tax Arbitration Proceedings, which shall be borne by the Petitioner.

Notify.

Lisbon, 26 June 2019,

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitrator Member

José Ramos Alexandre

The Arbitrator Member

Jónatas Machado

Frequently Asked Questions

Automatically Created

Can tax benefits like SIFIDE, RFAI, and CFEI be deducted from the autonomous taxation (tributação autónoma) amount in IRC?
Under Portuguese tax law, the deductibility of tax benefits like SIFIDE, RFAI, and CFEI from autonomous taxation is contested. The taxpayer argued that Article 90 of the IRC Code allows such deductions as autonomous taxation forms part of overall IRC collection under Article 45(1)(a). However, the Tax Authority maintained that autonomous taxation operates under a separate calculation regime pursuant to Article 88, with distinct rates applied to different expense categories. Article 88(12) specifically limits deductions from autonomous taxation to withholding taxes only, not fiscal benefits. The interpretive provision in Article 88(21), introduced by Law 7-A/2016, clarified that fiscal benefits cannot reduce autonomous taxation amounts, though taxpayers challenged this as improperly retroactive legislation.
How does the Special Group Taxation Regime (RETGS) affect the deduction of tax benefits against autonomous taxation in Portugal?
The Special Group Taxation Regime (RETGS) under Articles 69 et seq. of the IRC Code allows consolidated tax filing by a dominant company on behalf of group members. In this case, the dominant company filed the consolidated IRC declaration (Model 22) including autonomous taxation for the entire fiscal group. The regime itself does not alter the fundamental question of whether fiscal benefits earned by group companies can offset autonomous taxation liabilities. The petitioner maintained all requirements for benefit deduction: taxable profit determined by direct methods and regularized tax/social security status. The dispute centers on whether RETGS consolidation affects the calculation methodology under Article 90, particularly whether the phrase 'amount determined in accordance with the previous number' encompasses both standard IRC and autonomous taxation as a unified base for fiscal benefit deductions.
What is the legal significance of Article 88(21) of the Portuguese IRC Code for autonomous taxation deductions?
Article 88(21) of the IRC Code, introduced by Article 134 of Law 7-A/2016 of March 30, was expressly designated as an interpretive norm clarifying that fiscal benefits cannot be deducted from autonomous taxation amounts. The petitioner challenged this provision as substantively innovative rather than truly interpretive, arguing it constitutes retroactive tax legislation prohibited under Portuguese constitutional principles. They contended it violates the separation of powers by allowing the legislature to impose binding interpretations on judicial organs, infringing judicial independence. If Article 88(21) is deemed inapplicable due to improper retroactivity, and if Article 90 doesn't govern autonomous taxation calculations, the petitioner alternatively argued the autonomous taxation assessment lacks legal basis entirely, violating Article 8(2)(a) of the General Tax Law (LGT) and Article 103(3) of the Portuguese Constitution, which require express legal authorization for taxation.
Can companies file a gracious complaint (reclamação graciosa) against IRC self-assessments that deny tax benefit deductions from autonomous taxation?
Yes, Portuguese taxpayers can file a gracious complaint (reclamação graciosa) against IRC self-assessments that deny tax benefit deductions from autonomous taxation, as demonstrated in this case. The petitioner initially self-assessed IRC for 2016, calculating autonomous taxation but being prevented from deducting available fiscal benefits (SIFIDE, RFAI, CFEI) that exceeded the autonomous taxation liability. After the gracious claim was rejected by the Tax Authority, the company exercised its right to arbitration under Article 2(1)(a) and Articles 10 et seq. of Decree-Law 10/2011. The gracious complaint procedure allows taxpayers to challenge both the calculation methodology and the legal interpretation underlying self-assessments before escalating to judicial or arbitral review. The rejection of the gracious claim formed the basis for the arbitral proceeding seeking declaration of illegality of both the rejection decision and the underlying self-assessment.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when autonomous taxation deductions are wrongfully denied by the Portuguese Tax Authority?
Compensatory interest (juros indemnizatórios) may be payable when autonomous taxation deductions are wrongfully denied, but only if the illegality is attributable to error by the tax services. The petitioner requested compensatory interest along with the principal relief sought. The Tax Authority argued such interest would only be due if the assessment contained an illegality attributable to administrative error on their part. Unlike late payment interest charged to taxpayers, compensatory interest compensates taxpayers for amounts improperly retained by the State due to administrative error. The determination depends on whether the denial of deductions constitutes a legal error by the Tax Authority in applying the law, or represents a legitimate interpretation subsequently found incorrect by the tribunal. If the arbitral tribunal finds the Tax Authority's interpretation was an unreasonable application of clear legal provisions rather than a good-faith dispute over ambiguous law, compensatory interest would likely be awarded from the date payment should have been made or refunded.