Process: 596/2016-T

Date: March 15, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

In Process 596/2016-T, the CAAD arbitration tribunal addressed whether the CFEI (Extraordinary Tax Credit for Investment) under Law 49/2013 could be deducted from autonomous taxation in IRC. The taxpayer had made qualifying investments in 2013 and sought to deduct the CFEI from all IRC liability components, including autonomous taxation. The Tax Authority denied this, arguing that Article 3(1) of Law 49/2013 only permitted deduction from regular IRC, not autonomous taxation. The tribunal ruled in favor of the taxpayer's interpretation, concluding that 'IRC tax liability' encompasses all components: regular taxation on income, special payment on account, autonomous taxation, municipal levy, and IRC from previous periods. The tribunal emphasized that Law 49/2013 is special legislation designed to incentivize investment during a specific period (June-December 2013), and subsequent general provisions in Law 7-A/2016 (Article 88(21) CIRC) prohibiting deductions from autonomous taxation cannot restrictively interpret this earlier special law. Applying the principle that general law does not alter special law (Article 7(3) Civil Code), and citing constitutional trust principles, the tribunal held that denying the tax benefit would violate taxpayers' legitimate expectations. The decision annulled both the administrative appeal decision and the self-assessment. However, the tribunal could not order immediate refund because the record lacked sufficient evidence that all CFEI eligibility requirements under Article 2 of Law 49/2013 were satisfied, particularly regarding regularized tax and social security status. The Tax Authority may verify these conditions during judgment execution before processing any refund.

Full Decision

which is a diploma of exceptional nature, in light of its text and the interests it pursued, which was not intended to decide any conceptual question about the nature of autonomous taxation, a matter on which there is no sign, either in the text of the Law, or in its preparatory works, of the slightest legislative concern.

For the same reason that what is at issue is to interpret the scope of the special diploma that is Law no. 49/2013, no relevance can be given, for this purpose, to the provision of no. 21 of article 88.º of CIRC, added by Law no. 7-A/2016, of 30 March, in the part in which it refers that "no deductions are made to the global amount determined", despite the alleged interpretative nature attributed to it.

In fact, there is no sign, neither in Law no. 7-A/2016, nor in the Budget Report, nor in its discussion, that with the addition to article 88.º of CIRC of a general rule prohibiting deductions from the global amount determined of autonomous taxation, it was intended to restrictively interpret the expression "deduction from IRC tax liability" that appears in a special provision of a separate diploma, namely article 3.º, no. 1, of Law no. 49/2013.

And, in the absence of an unequivocal intention to the contrary, the rule applies that the general law does not alter special law (article 7.º, no. 3, of the Civil Code), which has the justification in the fact that "the general regime does not include the consideration of the particular conditions that precisely justified the emission of the special law".

Furthermore, the aforementioned rule of article 3.º, no. 1, was intended to encourage taxpayers subject to IRC to make investments in the period between 01-06-2013 and 31-12-2013, so, the tax benefit being a counterpart of the adoption of the legislatively desired and encouraged behavior, it would be incompatible with the constitutional principle of trust, inherent in the principle of the democratic rule of law (article 2.º of the Constitution), not to recognize those behaviors the favorable fiscal effects provided for in the law in force at the time they occurred. For this reason, if hypothetically Law no. 7-A/2016 intended to eliminate, totally or partially, the favorable fiscal effects that Law no. 49/2013 established for taxpayers who adopted the behavior provided for therein, it would be materially unconstitutional, by violation of that principle.

By the foregoing, converging the literal and rational elements of the interpretation of article 3.º, no. 1, of Law no. 49/2013 in the sense that the investment expenses provided for in CFEI are deductible from the "IRC tax liability", it is to be concluded that they are deductible from the entirety of that tax liability, which encompasses, in addition to that derived from the taxation of income in each fiscal period, that which results from the special payment on account and from other positive components of the tax, namely autonomous taxation, municipal levy and IRC from previous taxation periods.

Thus, the decision on the administrative appeal suffers from the defect of violation of law, by error as to the legal assumptions, embodied in erroneous interpretation of articles 3.º, no. 1, of Law no. 49/2013, 88.º (namely no. 21 of article 88.º of CIRC, added by Law no. 7-A/2016, of 30 March) and 90.º of CIRC, as well as of 133.º of this Law no. 7-A/2016, a defect that justifies its annulment, under the terms of article 163.º, no. 1, of the Code of Administrative Procedure, subsidiarily applicable under the terms of article 2.º, letter c), of LGT.

However, as mentioned in the grounds of the decision on the matter of fact, there are no secure elements in the file that allow concluding that all requirements required for the Claimant to benefit from CFEI in fiscal year 2013 were met, in particular whether the provision of letter c) of article 2.º of Law no. 49/2013, of 16 July, relating to regularized tax and contribution situation, is verified.

However, the self-assessment is unlawful to the extent that, by erroneous interpretation of the law, it was based on the assumption that the tax benefits in question are not deductible from the tax liability of autonomous taxation, an assumption that is inherent in the inability to effect that deduction that results from the computer system for submitting Declaration Model 22.

For this reason, the petition for arbitral pronouncement proceeds regarding the petition for declaration of unlawfulness of the decision on the administrative appeal and proceeds regarding the petition for declaration of unlawfulness of the self-assessment, without prejudice to the Tax and Customs Authority, in execution of this judgment, being able to determine whether or not the conditions provided for in article 2.º of CFEI are met, on which depends the possibility for the Claimant to enjoy the tax benefits.

3.3. Subsidiary Request. Knowledge Prejudiced

Understanding that, whether before or after Law no. 7-A/2016, of 30 March, article 90.º, no. 1, of CIRC is applicable to the assessment of autonomous taxation, the knowledge of the subsidiary request that the Claimant formulated, in the event of understanding otherwise, is prejudiced.

4. REFUND OF AMOUNT PAID AND COMPENSATORY INTEREST

The Claimant requests the refund of the amount of € 234,266.89, plus compensatory interest, counted from 30 May 2014 as to € 127,101.49, and from 1 September 2014 as to the remaining € 107,165.40.

As results from the foregoing, the decision on the administrative appeal is unlawful, by error as to the legal assumptions, by setting aside the right for the Claimant to deduct investments susceptible to being covered by CFEI from the amount of autonomous taxation.

However, as mentioned in the grounds of the matter of fact, it was not demonstrated that the Claimant was in the conditions provided for in article 2.º of CFEI on which depends the possibility of enjoying the tax benefit in fiscal year 2013.

For this reason, without prejudice to the rights to refund and compensatory interest possibly coming to be recognized in execution of judgment, they cannot be judged as successful in this proceeding.

5. DECISION

On these grounds, the Arbitral Tribunal agrees to:

– judge the petition for arbitral pronouncement successful regarding the petition for declaration of unlawfulness of the order of 06-07-2016 issued by the Chief of the Division of the Large Taxpayers Unit that denied the administrative appeal and annul it;

– judge the petition for declaration of unlawfulness of the self-assessment as successful, without prejudice to the Tax and Customs Authority in execution of judgment, being able to determine whether or not the conditions provided for in article 2.º of CFEI are met, on which depends the application of the tax benefit provided for in that diploma;

– judge the petitions for refund and payment of compensatory interest as unsuccessful, without prejudice that the respective rights be recognized in execution of judgment.

6. VALUE OF THE CASE

In accordance with the provision of article 305.º, no. 2, of the Code of Civil Procedure and 97.º-A, no. 1, letter a), of the Code of Tax Procedure and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 234,266.89.

7. COSTS

Under the terms of article 22.º, no. 4, of RJAT, the amount of costs is fixed at € 4,284.00, under the terms of Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 15-03-2017

The Arbitrators

(Jorge Lopes de Sousa)

(José Nunes Barata)

(Sérgio Pereira da Silva)

[1] No. 6 of article 87.º of CIRC was repealed by Law no. 55/2013, of 8 August, which has no relevance for this purpose of demonstrating that outside the scope of autonomous taxation there were and are partial IRC calculations based on special rates applicable to certain taxable matters.

[2] In this sense, see the judgment of the Supreme Administrative Court of 15-11-2000, case no. 025446, published in the Bulletin of the Ministry of Justice no. 501, pages 150-153, in which extensive case law of the Supreme Administrative Court and the Supreme Court of Justice is cited.

This Bulletin of the Ministry of Justice is available at: http://www.gddc.pt/actividade-editorial/pdfs-publicacoes/BMJ501/501_Dir_Fiscal_a.pdf

[3] BAPTISTA MACHADO, Introduction to Law and the Legitimizing Discourse, page 186.

[4] The text is published in http://info.portaldasfinancas.gov.pt/NR/rdonlyres/4063B8B8-5ECC-413E-A9A5-DF205BD119A1/0/20140328_NOTAS_PREVIAS_DE_IRC_20102012.pdf.

This text was published by the Tax and Customs Authority in March 2014, so, although reporting to 2012, it may have been that it was not available to Parliament when it approved the CFEI diploma.

But, in March 2013, the identical text relating to the year 2011 was already available, in which the situation was even worse, at the level of the percentage of assessed IRC:

"5. Although in the taxation period of 2011 only 26% of taxpayers presented Assessed IRC (Table 7), it is verified that about 71% of taxpayers made IRC payments (Table 8), via Special Payment on Account, or other positive components of the tax (Autonomous Taxation, Municipal Levy, State Levy, IRC from previous taxation periods, etc.)"

This text is available in http://info.portaldasfinancas.gov.pt/NR/rdonlyres/70E81137-189A-440E-AF11-88B4A6CC1C9A/0/Notas_Previas_IRC_20092011.pdf.

Moreover, for several years now only a minority of taxpayers have paid IRC based on the taxable income of the respective fiscal year, as can be seen in statistical documents published in http://info.portaldasfinancas.gov.pt/pt/dgci/divulgacao/estatisticas/estatisticas_ir/:

– 29% in the taxation period of 2010, in which about 76% of taxpayers made IRC payments via Special Payment on Account, or other positive components of the tax (Autonomous Taxation, Municipal Levy, State Levy, IRC from previous taxation periods, etc.);

– 31% in the taxation period of 2009, in which 77% of taxpayers made IRC payments via Special Payment on Account, Autonomous Taxation and IRC from previous periods;

– 34% in the taxation period of 2008, in which 79% of taxpayers made IRC payments via Special Payment on Account, Autonomous Taxation and IRC from previous periods;

– 36% in the taxation period of 2007, in which 80% of taxpayers made IRC payments via Special Payment on Account, Autonomous Taxation and IRC from previous periods.

[5] Diary of Parliament no. 99, of 07-06-2013, pages 52-53.

[6] OLIVEIRA ASCENSÃO, Law – Introduction and General Theory, page 260.

Frequently Asked Questions

Automatically Created

Can the CFEI (Crédito Fiscal Extraordinário ao Investimento) tax credit be deducted from autonomous taxation under Portuguese IRC?
Yes, according to CAAD Process 596/2016-T, the CFEI tax credit established by Law 49/2013 can be deducted from autonomous taxation under IRC. The tribunal ruled that Article 3(1) of Law 49/2013 permits deduction from the entirety of 'IRC tax liability,' which includes not only regular corporate income tax but also autonomous taxation, special payment on account, municipal levy, and IRC from previous periods. This interpretation prevails despite subsequent Article 88(21) of CIRC (added by Law 7-A/2016) which generally prohibits deductions from autonomous taxation, because the special law (Law 49/2013) is not altered by later general legislation under Article 7(3) of the Civil Code.
How does Article 90 of the CIRC apply to the settlement of autonomous taxation and tax benefits?
Article 90(1) of CIRC establishes that tax benefits applicable to IRC also apply to autonomous taxation assessment, unless the law expressly provides otherwise. In Process 596/2016-T, the tribunal confirmed this principle applies to CFEI under Law 49/2013. The tribunal rejected the Tax Authority's restrictive interpretation that would exclude autonomous taxation from the deduction base. The decision emphasizes that autonomous taxation, despite its special characteristics and flat rates, remains part of the overall IRC tax liability structure. Therefore, unless explicitly excluded by the benefit legislation itself, Article 90(1) ensures that IRC tax benefits extend to autonomous taxation components, maintaining coherence in the tax system.
What is the procedure for challenging an IRC self-assessment through a CAAD arbitration request?
To challenge an IRC self-assessment through CAAD arbitration: (1) File an administrative appeal (reclamação graciosa) with the Tax Authority within 120 days of notification or voluntary payment; (2) If denied or not decided within the legal timeframe, submit an arbitration request to CAAD within 90 days of the administrative decision or legal deadline expiration; (3) The request must identify the contested act, state the legal grounds (violation of law, error in legal assumptions), specify the amount involved, and include supporting documentation; (4) Pay the arbitration fee based on the case value (€4,284 in this case for €234,266.89); (5) The tribunal will examine both legal interpretation issues and factual requirements; (6) As demonstrated in Process 596/2016-T, even if the legal interpretation succeeds, refunds depend on proving all statutory requirements were met.
Are autonomous taxation charges in IRC subject to the same deduction rules as the main corporate tax liability?
No, under the interpretation affirmed in Process 596/2016-T, autonomous taxation charges are subject to the same deduction rules as the main corporate tax liability when special legislation so provides. The tribunal rejected the Tax Authority's position that autonomous taxation operates under separate deduction rules. Article 3(1) of Law 49/2013 refers to 'IRC tax liability' without distinguishing between components, and Article 90(1) of CIRC explicitly extends IRC tax benefits to autonomous taxation unless otherwise specified. However, the tribunal acknowledged that Law 7-A/2016 attempted to establish different rules through Article 88(21) CIRC, prohibiting deductions from autonomous taxation generally. Nevertheless, this general prohibition cannot override the specific deduction rights granted under the earlier special legislation (Law 49/2013) that encouraged investment during 2013.
What are the legal consequences if autonomous taxation lacks a proper legal basis under Article 103(3) of the Portuguese Constitution?
The decision does not directly rule on constitutional invalidity under Article 103(3) of the Portuguese Constitution, as this was the taxpayer's subsidiary argument. However, the tribunal noted that if autonomous taxation lacked proper legal basis, it could violate the constitutional principle of legality requiring tax laws to define 'incidence, rate, tax benefits and guarantees.' The tribunal also invoked constitutional principles indirectly: it stated that retroactively denying CFEI benefits through Law 7-A/2016 would violate the constitutional principle of trust inherent in the democratic rule of law (Article 2 of the Constitution). The tribunal avoided the constitutional question by ruling favorably on the primary legal interpretation issue, demonstrating that courts prefer statutory interpretation solutions over constitutional challenges when possible. If autonomous taxation were found unconstitutional for lacking proper legal basis, all assessments under that regime would be invalid.