Process: 601/2018-T

Date: September 23, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 601/2018-T) addresses whether the 10 percentage point surcharge on autonomous taxation rates under article 88(14) of the Portuguese Corporate Income Tax Code (CIRC) applies at the individual company level or the fiscal group level under the Special Taxation Regime for Groups of Companies (RETGS). The applicant, A... SGPS, S.A., challenged the autonomous taxation self-assessment for fiscal year 2015, arguing that €89,861.47 in additional autonomous taxes was illegally assessed. The company served as the dominant entity of Tax Group B..., and several subsidiary companies within the group were subject to autonomous taxation on certain expenses. Although these individual subsidiaries reported taxable income (no tax losses), the tax authorities applied the 10 percentage point rate increase because the consolidated group reported a tax loss. The applicant contended that the surcharge should be determined based on each company's individual tax result, not the group's consolidated result. The Tax Authority defended the assessment, arguing that under RETGS, the fiscal result is calculated at the group level. The core legal issue involves interpreting whether article 88(14) CIRC refers to individual company tax losses or group-level losses when applying the autonomous taxation surcharge. This decision has significant implications for corporate groups in Portugal regarding the calculation of autonomous taxes on expenses such as vehicle costs, entertainment expenses, and other items subject to these special taxation rules, particularly affecting planning and compliance strategies for SGPS holding companies and their subsidiaries operating under the group taxation regime.

Full Decision

ARBITRAL TAX DECISION

I – REPORT

  1. On 30 November 2018, A..., SGPS, S.A., Tax ID Number..., with registered office at Street..., No...., ...-... Porto, filed an application for the constitution of an arbitral tribunal, pursuant to 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, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as "RJAT"), seeking the declaration of illegality of the autonomous taxation self-assessment act relating to the fiscal year 2015, to the extent corresponding to the application of the rate increase of 10 percentage points with respect to companies forming part of Tax Group B... which, in the relevant fiscal year, did not incur tax losses, and the act of implicit rejection of the administrative complaint against such act, in the referred amount, in the value of €89,861.47.

  2. To substantiate its application, the Applicant alleges, in summary, that partial illegality should be declared of the above-identified autonomous taxation self-assessment act, insofar as it concerns the part of such autonomous taxation self-assessment act reflecting the application of the rate increase of 10 percentage points with respect to companies forming part of Tax Group B..., since the tax loss relevant for the purposes of the rate increase for autonomous taxation is that of the company subject to such autonomous taxation, and not that of the group.

  3. On 03-12-2018, the application for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

  4. The Applicant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of subsection a) of article 6, paragraph 2, and subsection a) of article 11, paragraph 1, of the RJAT, the President of the CAAD Ethics Council appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable timeframe.

  5. On 23-01-2019, the parties were notified of such appointments, and neither manifested any intention to challenge any of them.

  6. In accordance with the prescription contained in subsection c) of article 11, paragraph 1, of the RJAT, the collective Arbitral Tribunal was constituted on 12-02-2019.

  7. On 20-03-2019, the Respondent, duly notified for such purpose, filed its answer, defending itself through exception and through challenge on the merits.

  8. Pursuant to the provisions of subsections c) and e) of article 16 and paragraph 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

  9. Having been granted a deadline for the submission of written statements, these were submitted by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

  10. It was indicated that the final decision would be notified by the deadline set in article 21, paragraph 1, of the RJAT, such deadline being extended by 2 months, pursuant to paragraph 2 of the same article.

  11. The Arbitral Tribunal has material jurisdiction and is properly constituted, in accordance with articles 2, paragraph 1, subsection a), 5 and 6, paragraph 2, subsection a), of the RJAT.

The parties have legal personality and capacity, are legitimate, and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ministerial Order No. 112-A/2011, of 22 March.

The proceedings are not subject to any nullity.

Thus, there is no obstacle to the consideration of the case.

Everything having been examined, the following decision shall be issued:

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

  1. In the Corporate Income Tax (IRC) self-assessment for the fiscal year 2015, A... SGPS (Tax Group B...) also proceeded with the self-assessment of autonomous taxation provided for in article 88 of the Corporate Income Tax Code (CIRC), in a total, in final terms, of €571,859.11.

  2. Among the autonomous taxation amounts were autonomous taxes in the total amount of €347,027.66, including rate increase, relating to the following companies forming part of its Tax Group:

a. C..., Lda. ("C..."), legal entity No...;

b. D..., S.A. ("D..."), legal entity No...;

c. E..., S.A. ("E..."), legal entity No...;

d. F..., S.A. ("F..."), legal entity No...;

e. G..., S.A. ("G..."), legal entity No...;

f. H..., Lda. ("H..."), legal entity No...;

g. I..., S.A. ("I..."), legal entity No... (formerly named J..., S.A.).

  1. The amount of IRC, including state tax levy and autonomous taxation, has been paid.

  2. The autonomous taxation relating to these companies was calculated by applying to the expenses and charges that constitute their taxable bases the respective legally provided rates, to which was added the increase of ten percentage points provided for in article 88, paragraph 14, of the CIRC.

  3. None of the aforementioned companies incurred tax losses in 2015.

  4. Without such rate increase of 10 percentage points, the aforementioned autonomous taxation would have been €257,166.19, and not €347,027.66 (difference, for more, of €89,861.47).

  5. The system for the electronic transmission of data through which, in 2016, the filing of the periodic Corporate Income Tax return was processed was configured to consider that the increase in autonomous taxation rates should be based on the fiscal result calculated by the group of companies subject to the Special Taxation Regime for Groups of Companies (RETGS), and not the fiscal result calculated individually by each of the companies forming part of it, not allowing the filing of returns in those latter terms.

  6. The Applicant filed, on 7 May 2018, an administrative complaint against the self-assessment of autonomous taxation for the aforementioned fiscal year 2015.

  7. Until the date of filing of the arbitral application, the Applicant was not notified of any decision on the administrative complaint.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of Proven and Not Proven Factual Matters

With respect to factual matters, the Tribunal need not pronounce on everything alleged by the parties; rather, it has the duty to select the facts relevant to the decision and to distinguish proven facts from those not proven (see article 123, paragraph 2, of the Tax Procedure Code and article 607, paragraph 3, of the Civil Procedure Code, applicable by virtue of article 29, paragraph 1, subsections a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and delineated in function of their legal relevance, which is established in light of the various plausible solutions to the legal question(s) in issue (see former article 511, paragraph 1, of the Civil Procedure Code, corresponding to current article 596, applicable by virtue of article 29, paragraph 1, subsection e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110, paragraph 7, of the Tax Procedure Code, the documentary evidence and the procedural file attached to the case, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties and presented as facts, consisting of strictly conclusive statements, incapable of proof, and whose veracity must be assessed in relation to the concrete factual matters consolidated above, were neither deemed proven nor not proven.

B. LAW

The question to be decided in the present proceedings reduces itself to ascertaining whether the increase of 10 percentage points provided for in article 88, paragraph 14, of the CIRC/2015, in the case of companies forming part of a group subject to the Special Taxation Regime for Groups of Companies (RETGS) presupposes the occurrence of tax losses in the sphere of the companies that incurred the expenses subject to autonomous taxation, as the Applicant contends, or in the sphere of the group of companies, as the Respondent contends.

The issues underlying autonomous taxation have been the subject of heated litigation between taxpayers and the Tax Authority, a situation that is certainly not unrelated to the peculiar, indeed anti-systemic, nature that such taxation possesses within the framework of income taxes, where it originated.

Related to this issue, reference may be made, for example, to the decisions in arbitral proceedings No. 174/2016-T, 122/2016-T, 34/2016-T, 567/2016-T, 60/2017-T, 61/2017-T, 65/2017-T, 99/2017-T, 433/2017-T, 474/2017-T, and 45/2018-T, among many others.

Indeed, the discussion that emerged 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 such type of taxation, opened a profound exploratory path regarding the nature of autonomous taxation and its relationship with income taxes, in particular the IRC, which addressed the issues of the deductibility of the value of autonomous taxation from the IRC assessment, and the nature, presumptive or otherwise, of autonomous taxation on deductible expenses, as well as, latterly, the issue of the admissibility of deductions from autonomous taxation assessments in fiscal years prior to 2016, without, to date, any definitive legislative intervention that is doctrinally supported and coherent having occurred in order to clarify the proper framework of such taxation within the edifice of the income tax from which it emerges. Rather, disconnected and conjunctural legislative interventions have succeeded one another, which contribute nothing, on the contrary, to the clarification of the nature and function of such taxation.

In this context, case-by-case jurisprudential decisions succeed equally case-by-case legislative interventions, generating a context of uncertainty and instability where taxpayers and the Tax Authority have no other means of seeking applicable law than perpetuated litigation, with the task of serving possible justice falling to the judicial interpreter in the complex normative maze generated, which is a thankless task.

Let us therefore examine the matter.

When speaking of autonomous taxation, as is the case here, it is appropriate from the outset to bear in mind that we are dealing with a disparate set of situations, which will encompass, at minimum, three distinct types, namely:

  • Autonomous taxation of certain income (e.g., article 72 of the current Personal Income Tax Code, and, it is believed, that provided for in current paragraph 11 of article 88 of the CIRC);

  • Autonomous taxation of certain deductible expenses (e.g., paragraphs 7 and 9 of article 88 of the current CIRC);

  • Autonomous taxation of other expenses regardless of their deductibility (e.g., paragraphs 1 and 2 of article 88 of the current CIRC).

From the perspective of the functionality/purpose/rationale of autonomous taxation on expenses (thus excluding autonomous taxation of income), several types have also been identified, such as:

  • Discouraging certain taxpayer conduct tending to be associated with situations of fraud or tax evasion, as occurs, for example, with autonomous taxation on undocumented expenses or payments to entities subject to privileged tax regimes;

  • Combating the erosion of the tax base, as generally occurs with autonomous taxation on deductible expenses;

  • Discouraging certain expenses that presumably have questionable business character (wholly or partially), as occurs with autonomous taxation on vehicle expenses, travel allowances, or entertainment expenses;

  • The taxation of disguised distribution of income to third parties, not taxed in their sphere (fringe benefits), as occurs with autonomous taxation on vehicle expenses, travel allowances, or entertainment expenses;

  • Penalization for incurring certain expenses that do not affect the tax base, nor do they have underlying any non-taxed distribution of income to third parties or fraudulent or evasive potential, but which the legislator may have considered luxurious or sumptuary, as occurs with autonomous taxation on certain payments to managers, administrators, or directors (current article 88, paragraph 13 of the CIRC), as well as autonomous taxation on vehicle expenses to the extent they exceed the normal IRC rate.

These facts become important because, by themselves, they evidence the disparity and heterogeneity of situations subject to autonomous taxation, and the futility of seeking, in jurisprudential proceedings, to synthesize and find a unique legal nature common to all situations.

Therefore, the discussion should be centered on the concrete question raised by the Applicant and a properly grounded answer should be sought for the restricted terms of what is at issue in these proceedings, which shall be to ascertain whether, in light of the CIRC 2015, what was relevant for triggering the 10 percentage point increase provided for in article 88, paragraph 1, of that Code, in the case of a group subject to the Special Taxation Regime for Groups of Companies (RETGS), was the occurrence of tax losses in the sphere of the companies that incurred expenses subject to autonomous taxation or in the sphere of the group of companies.

Properly framed in these terms, the question to be resolved in these proceedings, it should also be borne in mind that the fundamental reference for the response to be given thereto shall be that formulated in article 9 of the Civil Code, according to which the legislative intent of a putative reasonable legislator must be reconstructed from the texts, which intent must have minimal verbal correspondence in the letter of the law, even if imperfectly expressed.

In this context, the aim of the present decision shall not be to theorize about the legal nature of autonomous taxation in general, or of any of its various types, but rather to ascertain whether the legislative intent, with minimal verbal correspondence in the letter of the law, even if imperfectly expressed, was, as of the date of the taxable events in question in these proceedings, in the sense that what was relevant for triggering the 10 percentage point increase provided for in article 88, paragraph 1, of the CIRC, in the case of a group subject to the Special Taxation Regime for Groups of Companies (RETGS) was the occurrence of tax losses in the sphere of the companies that incurred expenses subject to Autonomous Taxation, or in the sphere of the group of companies.

It would be futile, it is believed, to seek a conceptualist basis, grounded in a dogmatic definition of monolithic concepts of IRC and Autonomous Taxation, drawn from norms alien to the matter in issue, professing a "scholastic ontologism" that seeks to "deduce purely logically, from abstract superior concepts, others increasingly concrete and full of content". This approach is methodologically outdated.

Rather, the aim shall be merely to ascertain what solution, in light of constituted law, properly interpreted, appears to apply to the concrete case, not taking the answer given to the question at issue as a finished, exact, and extremely rigorous and precise certainty, but merely as that which, upon reflection, presented itself to its authors as the legally preferable one.

The following is the text of the provision of article 88, paragraph 14, now at issue:

"The autonomous taxation rates provided for in this article are increased by 10 percentage points with respect to taxpayers that present tax loss in the period to which any of the taxable facts referred to in the preceding paragraphs relating to the exercise of a commercial, industrial, or agricultural activity not exempt from IRC."

Reading the text of the provision, it is verified that it expressly states that the increase provided for operates "with respect to taxpayers that present tax loss in the period to which any of the taxable facts referred to in the preceding paragraphs."

From this statement, and for what matters to the case, it results that, under the terms of the legal text, the increase provided for there occurs by reference to taxpayers, and, from the systematics of article 88 where the provision in question is inserted, it results that the reference to taxpayers reports to the subjects that effect or bear the expenses or charges subject to autonomous taxation, as can be verified, for example, from paragraphs 2 and 3 of that article.

Notwithstanding, as is known, legal interpretation, by legal (and also logical-rational) imperative, is not confined to, nor should it be confined to, the text of the norms as a semantic-grammatical reality, but should rather be placed on an axiological-rational level, anchored in all elements of legal interpretation.

Hence, in order to obtain what is the legally most correct interpretation of the text, it is necessary to perform certain tests at the level of the systematic edifice in which the provision to be interpreted is framed, so as to validate, vis-à-vis the same, and in light of the criteria of rationality, congruence, and reasonableness that necessarily guide such normative structure, the interpretation literally suggested.

In this context, the nature of autonomous taxation, as has been mentioned already, has been the subject of extensive discussion in recent doctrine and jurisprudence.

One school has regarded them as a tax on expenses, which would tax certain types of expenses in a manner completely disconnected from income, even to the point where some argue that such taxes constitute a distinct tax that merely by chance would be integrated in the IRS and IRC codes.

Notwithstanding, the understanding that autonomous taxation on deductible expenses integrates, still, the regime of the income taxes regulated by the codes in which they are provided has obtained recurring acceptance in CAAD jurisprudence, aimed at, even if in an intricate manner, the income taxed by such taxes.

Indeed, and as has been written elsewhere, "the complexity generated by successive alterations in the architecture of the CIRC has led to an atypical normative edifice, in which one can discern a core corresponding to what might be called IRC stricto sensu (or in the strict sense), which the Applicant seeks to have exhaust everything designated by IRC, and a periphery integrating 'marginal' regulations, largely abstracted from the logic, nature, and principles of IRC stricto sensu, but which, notwithstanding, still situate themselves in the 'gravitational field' of the latter.

And it is in the process of concretizing this zone of difficult definition that all the decisions analyzed operate, and the same cannot be properly understood without also understanding that, in fact, what all such decisions are doing is ascertaining what consequences the 'gravitation' around the core of the IRC brings to the matters addressed in each of them."

In that sense, "within the hermeneutical framework drawn above, in light of the historical evolution of its respective legal regime, there was constituted a type of IRC that integrates a hard core and an adjacent group of norms that share part of the logic and regime of the latter, but which in many respects 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 stricto sensu, 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 these proceedings only makes sense in the context of taxation in the IRC context. That is, detached from the legal regime of this tax, such taxation would lack its principal referent of meaning. Its existence, its purpose, its explanation, in short, its juridicity, can only be properly understood and accepted within the framework of the legal regime of the IRC."

Hence it is not understood that "the definition of IRC contained in articles 1 and 3 of the CIRC" is "truly superseded by a new definition of transversal/general application," being that a epistemological stance proper to a conceptualism that was preliminarily rejected.

On the contrary: it is the recognition of that which, in light of the legal framework in force, is imperative as the most reasonable: the definitive abandonment of any definition of transversal/general application of IRC, and the recognition of its regime as a complex and multifaceted reality, irreducible to a definition of that nature, which only a fundamentally abstractionist conceptualism could presuppose."

For this reason, "Everything that has been said evidences that the evolution of the legal regime of the IRC has transmuted it into a complex and multifaceted reality at the most diverse levels, which is reflected, in the matter that occupies us in these proceedings, in such 'dual nature' of which Professor 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 the system, despite being dual, is the same. 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, based on all that has been said, is not what occurs. And, in this case, the system would be the regime of the IRC, which, operating sometimes through profit, sometimes through expenses, aims at and pursues the proper purposes of that tax, including, evidently, the raising of revenue for the State."

Finally, "In conclusion, in light of all that has been expounded, and in favor of conceptual rigor, it should further be stated that the tendency is toward the understanding that autonomous taxation, as it exists currently, might be configured as a 'hybrid' tax, affecting the income of natural persons and legal entities, and not on consumption or expenses, as it does not present the principal characteristics of this form of taxation."

What has been said echoes, to some extent, in the jurisprudence being produced by the Constitutional Court (TC), as occurs with Constitutional Court Decision 197/2016, of 13-04-2016.

Indeed, while 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 subject to differentiated tax treatment," even going 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, it is believed, 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 to "subjection to specific rates," and understanding thus that autonomous taxation "has nothing to do with the taxation of income and profits attributable to the economic activity of the enterprise" (which is not to say that it is alien to the taxation of 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 the former at the level of its respective teleology, basis of incidence, and specific rates, without prejudicing integration in the same normative edifice.

Indeed, it is believed that the TC is not arguing that autonomous taxation constitutes a tax on expenses stricto sensu, completely foreign to and distinct from the IRC, on pain of not only being contradicted by the systematics of tax law and, expressly, by the legislator itself, but also of irremediably condemning autonomous taxation to formal unconstitutionality, by violation of the provision in subsection i) of article 165, paragraph 1, of the Constitution, inasmuch as the laws authorizing the creation thereof did not license the creation of a new tax on expenses.

The TC shall bear in mind that autonomous taxation shall be, at minimum, a compensatory taxation of IRC which, by being so, is also IRC (in the broad sense).

The Administrative Court itself, disagreeing, from a principled perspective, with such qualification, has already also recognized that "the legislator (rightly or wrongly and, in our view, wrongly) has always considered them as IRC, including their legal regime within the scope of the respective code (at least since the aforementioned Law No. 30-G/2000, of 29 December)."

Notwithstanding, and without prejudice to what has been expounded, one cannot, in the consideration of the matter in issue, disregard the (emphatically affirmed by the TC) profound formal and teleological distinction between autonomous taxation in IRC and general taxation in this tax (IRC stricto sensu).

In summary: it has previously been detected, on the one hand, the futility of seeking a unitary concept of IRC that coherently accommodates the regime of autonomous taxation, and, on the other hand, that the methodologically most fruitful path for generating legally adequate solutions to the problem in issue passes through understanding the current IRC regime as the product of a historically explained evolution that led to the building of a dual or hybrid nature structure, comprising a principal core corresponding to traditional IRC, and an adjacent part, connected with that and forming part of the same overall normative reality, with specificities of its own which result in a departure, in various and substantial aspects, from the principal regime, in such terms that general principles and solutions, notwithstanding, sometimes apply; at other times they are contradictory, and as such, inapplicable, with the nature proper to that "adjacent normation" which is embodied in the designated autonomous taxation.

Since, as is already well known, that nature, proper or specific, grounded in a logic foreign to the edifice principal of traditional IRC, shall be characterized, essentially, by the notes extensively recognized as proper to autonomous taxation, designating, both as regards its form of imposition (the instantaneous character of its respective taxable fact and the fact that this consists of an expense), and as regards its anti-systemic ratio (the fact that some of the autonomous taxation in IRC have a facet directly directed at the income of natural persons and/or a sanctioning facet, as well as an anti-abuse purpose).

As has been expounded, it is considered that the integration of autonomous taxation into the IRC (that is, as materially forming part of the legal regime of the IRC) is only viable in a context that recognizes in it a system with dual nature, which for convenience might be designated as IRC in the broad sense, integrating a base system corresponding to traditional IRC, or stricto sensu, and a peripheral system, autonomous, that while still forming part of the same overall system, has its own functional and axiological specificities, from which results the departure from the application of the norms proper to that base system, whenever such is justified in light of the coherence of the system itself (from the reasons that justify its autonomy).

Put differently, yes, autonomous taxation is IRC, but only in a broad sense, constituting a peripheral system of the taxation of the income of legal entities, with its own teleology and mechanics, which justify, in certain situations, its autonomy in relation to the aforementioned system of IRC stricto sensu.

Hence, in light of the foregoing, the answer to the concrete question that presents itself to be decided should be formulated and resolved within the framework set out, that is, of a dual system, in which to autonomous taxation shall be applied, or not, the rules of IRC in general (IRC stricto sensu), insofar as such is invoked by the normative structure (form) and purposes (substance) proper to such taxation.

Before proceeding, it should be made clear that the preliminary consideration of the Respondent, according to which the Applicant would intend that "the sun shines in the fields and rain falls in the vineyard," or, that is, "to benefit from the benefits that permeate the RETGS, rejecting any eventual adverse effects that may flow from it," has no place in the case.

Indeed, the sense of the answer to be given to the question that now must be resolved shall not, in the abstract, be favorable or unfavorable to either the interests of taxpayers or those of the Tax Authority.

For indeed, whether it is concluded that what is relevant for the application of paragraph 14 of article 88 under interpretation, in the cases of groups of companies, is the verification or absence of tax loss in the sphere of individual companies or of the group of companies, situations of greater or lesser taxation may arise in both hypotheses.

Thus, and for example, if it is certain that if it is concluded that what is relevant to the provision in question is the tax loss of the group, and not of the companies individually considered, situations may occur in a tax-loss group in which certain individual companies that have no tax loss see the autonomous taxation they have incurred increased by ten percentage points, it is no less certain that in that same hypothesis, in the case of the tax group being profitable, the individual companies that have tax losses shall not see the autonomous taxation they have incurred subject to such increase.

On the other hand, in the opposite hypothesis, that is, if it is considered that what is relevant is the individual tax loss of each company in the group, and not of the group as a whole, there shall be situations in which the increase in autonomous taxation shall not occur, in the case of the group being profitable, but other situations shall occur in which that increase shall operate, in cases that if it were understood that what was relevant was the fiscal result of the group of companies, would not occur.

Hence, as has been mentioned, none of the possible solutions to the question at issue is inherently favorable, in principle, to either party to the tax legal relationship.

Having said this, it is necessary to ascertain which, in light of the structure and legal materiality proper to autonomous taxation, globally considered, should be regarded as more in conformity with the unity and coherence of the legal system, in such terms that it might be affirmed that this was the proper intent of the putative reasonable legislator.

One of the points that should be considered from the outset is that, as the Respondent itself has noted in the arbitral proceedings, where the deductibility, under article 90 of the CIRC, in versions prior to 2016, of certain expenses from autonomous taxation assessments has been discussed, if it is true that the liquidation of such assessments and of IRC stricto sensu converge in the same mechanism, it should no less be certain that upstream there exist profound material differences in the source of the respective tax obligations.

As the Respondent summarized in various arbitral proceedings conducted in the CAAD, "the integration of autonomous taxation into the CIRC (and into the Personal Income Tax Code) conferred a dualistic nature, in certain respects, to the normative system of this tax, which was embodied, in particular, within the scope of subsection a) of article 90, paragraph 1, of the CIRC, in separate calculations of the respective assessments, by force of their obeying different rules. And this, since, in one case, it is a matter of the application of the rate(s) in article 87 of the CIRC to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is a matter of the application of the rates to the values of the taxable matters relating to the different realities contemplated in article 88 of the CIRC."

This understanding, moreover, has already obtained some jurisprudential acceptance, having been considered that "autonomous taxation is calculated independently of the IRC that is owed in each fiscal year, since it is not directly related to the obtaining of a positive result, and therefore is subject to taxation."

Hence, from the outset, it is considered correct that the assessment of autonomous taxation and of IRC stricto sensu, notwithstanding converging in the liquidation and payment, are autonomous, and it is highlighted, for what matters, that the latter is based on the existence of taxable profit, which presupposes the latter, while the former abstracts from the existence of such profit, not only being imposed when the same does not exist, but being aggravated, in light of tax losses, in the terms now being discussed.

This genetic disparity points, from the outset, to the absence of any systemic obstacle to the solution indicated by the letter of the provision here under interpretation, insofar as such solution restricts the relevance of the existence of a group of companies for the purposes of IRC stricto sensu, abstracting from that for the purposes of autonomous taxation.

The Respondent itself, in the present proceedings, recognizes that "the 'autonomy' that gives name to the rates of autonomous taxation relates to the facts on which those rates bear and to the specificities in their calculation."

Now, precisely, the increase in autonomous taxation by ten percentage points imposed by article 88, paragraph 14, of the CIRC now in issue, is a specificity of the calculation of autonomous taxation (and no longer of the "remaining portions of the IRC to be self-assessed and paid by the taxpayer"), and therefore, in the perspective of the Respondent itself, there shall be no obstacle to the individualization of taxable profits and tax losses of individual companies for the purposes of autonomous taxation.

This same point is, moreover, corroborated by the RETGS, as flows from article 70 of the CIRC in effect, which provides that the taxable profit (factor in the calculation of IRC stricto sensu) "of the group is calculated by the dominant company, through the algebraic sum of the taxable profits and tax losses ascertained in the periodic individual declarations of each of the companies belonging to the group."

This norm thus provides another aid to the interpretation task in progress, by clarifying, forcefully, that individual companies have, in light of the CIRC, taxable profits and, above all, their own tax losses, which, at minimum, removes any validity from the pretension to sustain that the reference to "tax loss" in paragraph 14 of article 88 under interpretation necessarily implies that this norm is referring to the tax loss of the group.

On the other hand, the very indication that it is the "taxable profit" of the group – with no reference being made to the "tax loss" of the group – shall also indicate that in the logic of taxation under the RETGS, the former shall be especially relevant, from which it follows, for what now matters, that in that same logic the "tax loss" shall not have been in the mind of the legislator as assuming special relevance in the perspective of the regime (RETGS) in question.

Consequently, this same reference only to the calculation of "taxable profit," and not to "tax loss," indicates that such regime has in view operating at the level of the calculation of IRC stricto sensu, which requires the former, and not necessarily already of autonomous taxation, which abstracts from the same.

Additionally, article 52 of the same CIRC demonstrates conclusively that the calculation of taxable profit and tax losses relating to companies forming part of a group subject to the RETGS maintains relevance within the framework of the IRC.

What has been said is equally confirmed by the tenor of article 105, paragraph 4, of the same CIRC in effect, which provides that, for the purposes of calculating the additional payment on account, additional payment on account is owed by each company in the group, and not by the group as a whole, a solution which has as a consequence that, even in a tax-loss group, profitable companies shall have the obligation to proceed with the aforementioned payment.

In the same sense, article 87-A, paragraph 3, of the same CIRC provides that "When the special taxation regime for groups of companies is applicable, the rates referred to in paragraph 1 shall apply to the taxable profit ascertained in the periodic individual declaration of each company in the group, including that of the dominant company."

Here again there is the attribution of relevance to the taxable profit ascertained individually by each company forming part of a group subject to the RETGS, to the detriment of the taxable profit of the group, calculated under article 70 of the CIRC.

These realities infirm, absent better opinion, another major pillar of the Respondent's argumentation in the present arbitral proceedings, which is that the companies forming part of a tax group "present themselves for taxation as if they were a simple economic entity," that "By means of neutrality, under the terms of article 70 of the CIRC, what is subject to taxation is the global unitary situation of the group, given the possibility of having tax losses generated in the sphere of other companies diluted in the taxable profits ascertained in some companies, all forming part of the group," and that "Despite being composed of companies with legal personality, the group assumes itself as a 'homogeneous mass' for the purposes, among others, of taxation in the context of IRC, with the result being relevant, alongside the revelation of a unique contributive capacity, in such terms as to meet the requirement that the fiscal result of the group results in the algebraic sum of the taxable profits and tax losses of the companies that compose it."

Indeed, if that were the case, the sole taxable profit that would be relevant for calculating the additional payment on account and the tax levy owed would be the taxable profit of the group, and not the individual taxable profit of each company, as is the case.

As that is not the case, it is demonstrated, it is believed, that the individual taxable profit itself (and, a fortiori, tax loss) of each company in a group of companies can be relevant in the context of IRC, without there resulting, necessarily, any distortion of the RETGS regime, and that, in any case, in accepting the Respondent's thesis that such regime implies that the companies forming part of a tax group "present themselves for taxation as if they were a simple economic entity," it would make more sense that it would refer to the taxable profit of the group (and not of the individual companies) both the special payment on account and the tax levy, since those are based on taxable profit and that is where, as has been seen, in light of article 70 of the CIRC, the core of the RETGS is situated, than to the increase in autonomous taxation, which, as has equally been mentioned already, are not based on the existence of taxable profit in the fiscal year in which they become due.

The foregoing is not opposed by the possible circumstance – which, for the sake of argument, might be considered as settled – that Law No. 64-B/2011, of 30 December, which introduced the transcribed version of article 87-A, paragraph 3, of the CIRC, had an innovative character, first and foremost because the calculation of the tax levy is based on taxable profit (which is indeed determined, within the scope of the RETGS, under article 70 of the CIRC).

Finally, and still with respect to the regulation proper to groups of companies for IRC purposes, it is worth mentioning article 115 of the Code of that tax in effect, which provides that

"When the provision in article 69 is applicable, the payment of IRC shall be the responsibility of the dominant company, and any other company in the group shall be jointly and severally liable for the payment of that tax, without prejudice to the right of recourse for the portion of the tax that effectively corresponds to each of them," evidencing thus, once more, the existence and relevance of the taxable profit (and consequently of the tax loss) of the individual companies in the group.

Moreover, contrary to what the Respondent contends, the accountability and group solidarity do not erase the individuality of the group members, but rather reinforce it, as this is a presupposition thereof.

Hence, the Respondent's conclusion cannot be affirmed, according to which "all the signals emanated by the CIRC, with respect to the RETGS, are in the sense that groups of companies, as regards taxation, self-assessment, and payment of tax in the context of IRC, are concretized as if it were a single legal entity, headed by the dominant company (parent company), which, under article 70, read together with articles 104, 115, and 120, paragraph 6, all of the CIRC, is the one that, through an optional act (article 69, paragraph 1 of the CIRC), presents itself for taxation, reportable to the tax owed by the companies that form part of the group's perimeter."

From another perspective, as has been expounded above, in the set of autonomous taxation, although limited to those that integrate the IRC regime in the broad sense, various situations of disparate origin and teleology converge.

Thus, synthetically and by way of example, autonomous taxation can be found that seeks, singly or concurrently, to discourage certain economically undesirable conduct (e.g., excessive remuneration to managers), to tax the so-called fringe benefits (travel allowances; vehicle expenses), to mitigate the tax impact of expenses of questionable full business nature (idem), to discourage conduct with high fraud potential (payments to entities subject to clearly more favorable tax regimes), or to penalize conduct that fosters the so-called parallel economy (taxation of confidential expenses), or that is regarded by the legislator as sumptuary.

Hence, from the outset, another argument used by the Respondent in the present arbitral proceedings is weakened, related to the allegation that "autonomous taxation affects (almost entirely) deductible expenses in the context of IRC" and that "the basis of incidence of autonomous taxation shall be (almost entirely) – and even in a logic of a tax group – expenses/charges that contribute to the calculation of the taxable profit or tax loss of the dominated companies, and which are likewise subject to autonomous taxation rates."

This is because, upon examination of article 88 of the applicable CIRC, it is verified that there is a tendency that has worsened to date, in the sense that there are ever fewer autonomous taxation measures materially affecting deductible expenses.

Thus, beyond the autonomous taxation referred to in paragraphs 1, 2, and 8 of that article 88, all autonomous taxation whose rate exceeds the normal IRC rate result in the practical elimination of that deductibility, equivalent, therefore, to an aggravated non-deductibility by autonomous taxation equivalent to the difference between the nominal rate of the latter and the normal IRC rate.

Another argument advanced by the Respondent, equally incapable of succeeding, is that "autonomous taxation assumes a clear anti-abuse nature, since through them it is intended to prevent abusive use of certain expenses and distribution of dividends and in fraud of the norms aimed at reaching the actual income of taxpayers."

Without prejudice to what has been said, specifically with respect to the various types of autonomous taxation and the existence of various types with diverse teleologies, it is clear that the anti-abuse purpose underlying some of those shall be better served by the understanding that paragraph 14 of article 88 of the CIRC, now at issue, reports to the individual tax losses of the companies forming part of groups subject to the RETGS, and not to any loss of the group.

Indeed, and accepting that, as the Respondent seems to sustain, such norm incorporates an increased judgment of reprehensibility for the incurrence of certain expenses or charges by taxpayers that present tax losses, it cannot be overlooked that the solution to the question at issue sustained in these proceedings by the Respondent is substantially more conducive to abuses than the opposite solution, sustained by the Applicant.

Repeating here what was previously said regarding the circumstance that, in the abstract, and in a perspective of normality, none of the possible solutions is, a priori, more favorable or damaging to either party to the tax legal relationship, the fact is that an abuse perspective shall be favored by the solution that understands that the reference to "tax loss" in paragraph 14 of article 88 of the applicable CIRC reports to the tax loss of the group.

Indeed, in that context, deficit companies forming part of profitable groups might incur expenses subject to autonomous taxation without suffering the increase provided for in article 88, paragraph 14, in question, thus escaping the "censure" that is dispensed by that norm to the remaining taxpayers.

Finally, and from a more generally systemic perspective, consideration should also be given to the regime of article 12 of the applicable CIRC, which prescribes, insofar as matters to the case, that:

"Companies and other entities to which, under article 6, the fiscal transparency regime is applicable, are not taxed in IRC, save as regards autonomous taxation."

Since it is certain that fiscally transparent companies are an atypical situation in the context of IRC, in that they are companies precisely not subject to IRC on profit/income, but subject to IRC in the context of autonomous taxation, the provision in question nonetheless serves to evidence that no obstacle in principle exists to taxation on profit/income being located in a certain sphere (in the case of transparent companies, the partners; in the case of the RETGS, the group) and autonomous taxation being located in another (in the case of transparent companies, the companies themselves; in the case of the RETGS, the individual companies).

The Respondent further inquires, in its Answer, as follows:

  • "Will it be legally accepted that any of the dominated companies that calculate tax loss exempt themselves from the payment of the tax obligation (when individually demanded), invoking that the responsibility for payment of the obligation should be charged to the dominated companies that calculated taxable profit?"; and

  • "Will it be legally accepted that any of the dominated companies that calculate taxable profit exempt themselves from the payment of the tax obligation (when individually demanded), invoking that the increase of 10% in autonomous taxation rates (value forming part of the tax to be paid into the State coffers) is attributable to those dominated companies that incurred losses and to whom, for that reason, responsibility for payment of the obligation should be charged?"

With respect to the first question, it shall be obvious that, in light of article 115 of the CIRC, the answer should be negative. However, both the question and the answer have no relation or implication to the question sub iudice, since the circumstance that a company forming part of a group subject to the RETGS cannot exempt itself from the solidarity imposed by the referred norm says nothing about whether a company forming part of a group of the same type, and that individually presents taxable profit, should see its autonomous taxation increased, under article 88, paragraph 14, because the group it forms part of presents tax loss (admitting that legally there exists tax loss of a group subject to the RETGS).

On the other hand, one cannot overlook that the provision of the right of recourse provided for in article 115, referred to above, indicates a concern that, within the scope of the RETGS, taxation be reflected in terms consonant with the individual contributive capacity of each company, thus conferring relevance to this, which is aligned with the understanding that article 88, paragraph 14, would report to the individual capacity of each company.

With respect to the second question, it contains, insofar as it concerns the discussion in progress, a fallacy, which consists in that this same question has presupposed the solution that it seeks to demonstrate.

Indeed, it shall be evident that if the legal regime in force results in a company that presents taxable profit forming part of a group subject to the RETGS that presents tax losses, sees its autonomous taxation increased by ten percentage points, the former cannot exempt itself from its obligation of solidarity, enshrined in article 115 of the CIRC.

However, if the same legal regime in force results in a company that presents taxable profit forming part of a group subject to the RETGS that presents tax losses, does not see its autonomous taxation increased by ten percentage points, the question formulated by the AT lacks meaning.

Even interpreting the question in issue as, in this latter hypothesis, reporting to the increase in autonomous taxation relating to companies in the same group that have presented tax loss and, for that reason, see such increase applied, naturally that no company in the group, including those that present taxable profit, can exempt itself from its liability of solidarity, but from this it does not follow, just as from the first question examined, any contribution to the solution of the problem now at issue, noting, just as with respect to that first question, that through the right of recourse safeguarded, companies made liable on a joint and several basis shall always be able to rectify the correspondence of taxation with the individual contributive capacities of each member of the group.

Having arrived here, brief mention must be made of the provision of article 135 of Law No. 7-A/2016, of 30 March, which attributes an interpretive nature to article 133 of the same statute, insofar as it sets forth the meaning of article 88, paragraph 14, of the CIRC, under paragraph 20 of that article.

This provision, as the Applicant indicates, was judged, in the referred segment, to be unconstitutional by the Decision of the Constitutional Court No. 395/2017, of 12 July 2017.

Hence, given the unconstitutionality of the provision in question, as declared by the Constitutional Court, and based on the grounds contained in that same Court's aforementioned Decision, article 133 of the same statute cannot be applied, insofar as it sets forth the meaning of article 88, paragraph 14, of the CIRC, under paragraph 20 of that article.

It should further be noted that, as stated at the outset, the present arbitral decision is aimed at determining the normative meaning of the provision of article 88, paragraph 14, of the CIRC/2015, in light of article 9 of the Civil Code, according to which the legislative intent of a putative reasonable legislator must be reconstructed from the texts, which intent must have minimal verbal correspondence in the letter of the law, even if imperfectly expressed.

Now, having the legislator, as of the aforementioned Law No. 7-A/2016, of 30 March, determined, in paragraph 20 of article 88 of the CIRC, that "For the purposes of the provision in paragraph 14, when the special taxation regime for groups of companies established in article 69 is applicable, the tax loss calculated under article 70 is considered," it might be said that it is clarified what understanding a reasonable legislator would have adopted.

However, such reasoning would be fallacious, first because what is intended to be ascertained is the solution that a reasonable legislator would have adopted in article 88, paragraph 14, in the absence of paragraph 20, which came to be added to that article, and second because, although one should presume that "the legislator adopted the most correct solutions and succeeded in expressing his intent in adequate terms," that presumption can be infirmed, especially when the expression of the legislator's intent in legislative texts, properly understood, is incompatible with the most correct solution.

Hence, without prejudice to subsequently implemented legislative solutions possibly having some interpretive value with respect to norms in effect before the entry into force of such solutions, they cannot, in any case, be accorded decisive value, on pain of converting all new laws into interpretive laws.

Thus, as was written in the Decision rendered in arbitral proceedings No. 239/2014T of the CAAD:

"From the previous finding that autonomous taxation is taxation in IRC does not necessarily follow that they are relevant within the scope of the special taxation regime for groups of companies, since this regime does not constitute a general form of taxation in the context of IRC.

In fact, as results from article 69, paragraph 1, of the CIRC, in the version given by Decree-Law No. 159/2009, of 13 July, the speciality of that regime reports to the 'determination of the taxable matter in relation to all companies in the group.'

Although this formula 'determination of the taxable matter' is abstractly inclusive of all types of taxable matter on which the IRC is imposed, article 70 of the same Code, relating to the 'determination of the taxable profit of the group,' specifies that 'with respect to each of the taxation periods covered by the application of the special regime, the taxable profit of the group is calculated by the dominant company, through the algebraic sum of the taxable profits and tax losses ascertained in the periodic individual declarations of each of the companies belonging to the group.'

Thus, it clearly results from this article 70 of the CIRC that the applicability of the special taxation regime for groups of companies is restricted to the determination of taxable profit and tax losses. On the other hand, even when this special regime is applicable, autonomous relevance continues to be given to the tax losses of each company in the group, as shown by article 71 of the same Code, by establishing several rules constituting the 'special regime for the deduction of tax losses.'

Now, although autonomous taxation in IRC is considered IRC, it is manifest that its basis of incidence is not taxable profit.

For this reason, it must be concluded that there is no legal basis for extending to the incidence and determination of the rates of autonomous taxation the special taxation regime for groups of companies, which is limited to the determination of taxable profit and tax losses of groups of companies for the purpose of taxation in IRC, insofar as it directly affects income.

Thus, the increase in autonomous taxation rates provided for in paragraph 14 of article 88 of the CIRC occurs only when the company forming part of the group with respect to which the taxable fact that is the basis of autonomous taxation occurs has presented tax loss in the taxation period to which those facts pertain."

Finally, with respect to Constitutional Court Decision No. 197/2016, it is believed, absent better opinion, that it does not contain matter decisive for the solution of the question that, in this case, presents itself to be resolved.

Indeed, that question was not examined there, and what emerges from the substantiation of the decision in question is the connection of the aggravated reprehensibility underlying article 88, paragraph 14, of the CIRC to the taxpayer who carries out the expenses, which, as has been mentioned already, corroborates the understanding that what would be relevant for the operability of such increase would be the individual tax loss of the company that incurred the expense taxed autonomously, and not that of the group, since, in this case – corresponding to the currently enacted solution – the taxpayer who incurred the expense shall be aggravedly censured for conduct (generation of tax loss) of third parties.

Also with respect to Constitutional Court Decision No. 395/2017, also cited, insofar as it pronounces in the sense of "Not to judge unconstitutional the provision of article 88, paragraph 14, of the CIRC, interpreted in the sense that the increase of ten percentage points applies in the case of companies subject to the RETGS, in which the company taxed does not present tax loss in the period to which the taxation respects, but the group of companies of which it forms part does present it," it is believed that not only does it not impose the solution that came to be enacted legislatively as of 2016, with respect to prior fiscal years, but that, from the substantiation expounded, the opposite might be extracted.

Indeed, if the judgment of constitutionality is grounded, essentially, in the finding that "the subjection to the allegedly discriminatory regime does not result from any imposition of the legislator, but from the free choice of the addressees," this choice can only be considered effectively free from the moment in which the legislator made clear that, in the case of the RETGS, it is the tax loss of the group, and not of the company that incurs the expense subject to autonomous taxation, that is relevant for the increase provided for in paragraph 14 of article 88 of the CIRC, all the more so in that, prior to the legislative intervention embodied in paragraph 20 of that article, the solution that was interpretatively most adequate, as has been seen previously, would be that it was the tax loss of the company incurring the autonomously taxed expenses that was relevant.

Thus, and in light of all the foregoing, it should be concluded that the tax act that is the subject matter of the present proceedings is affected by incorrect application of the law, and the arbitral application should, accordingly, proceed.

Regarding the request for compensatory interest formulated by the Applicant, article 43, paragraph 1, of the General Tax Law (LGT) establishes that compensatory interest is owed when it is determined that there was error attributable to the services that resulted in the payment of the tax debt in an amount higher than that legally due.

In the case, the error that affects the partially annulled assessments should be judged as attributable to the Tax and Customs Authority.

Indeed, as results from the facts given as proven, the system for electronic data transmission through which, in 2016, the filing of the periodic Corporate Income Tax return was processed was configured to consider that the increase in autonomous taxation rates should be based on the fiscal result calculated by the group of companies subject to the RETGS, and not the fiscal result calculated individually by each of the companies forming part of it, not allowing the filing of returns in those latter terms.

Thus, since the Applicant could not file its tax return on other terms, due to a circumstance attributable to the AT, the error verified should be considered as the responsibility of the latter.

The Applicant therefore has the right to be reimbursed for the sum it paid (under article 100 of the LGT and article 24, paragraph 1, of the RJAT) as a result of the partially annulled act and, further, to be indemnified for the improper payment through the payment of compensatory interest by the Respondent, from the date of such payment until its reimbursement, at the legal supplementary rate, under articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the LGT, article 559 of the Civil Code, and Ministerial Order No. 291/2003, of 8 April.

C. DECISION

For these reasons, this Arbitral Tribunal renders judgment entirely upholding the arbitral application filed and, in consequence:

a) Partially annuls the autonomous taxation self-assessment act relating to the fiscal year 2015, to the extent corresponding to the application of the rate increase of 10 percentage points with respect to companies forming part of Tax Group B... which, in the relevant fiscal year, did not incur tax losses, and the act of implicit rejection of the administrative complaint against such first act, in the referred amount, in the value of €89,861.47;

b) Condemns the AT to the payment of compensatory interest, under the terms defined above;

c) Condemns the Respondent in the costs of the proceedings, in the amount fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at €89,861.47, under article 97-A, paragraph 1, subsection a), of the Tax Procedure and Process Code, applicable by virtue of subsections a) and b) of article 29, paragraph 1, of the RJAT and paragraph 3 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,754.00, under Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the application was entirely upheld, under articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 4, paragraph 5, of the aforementioned Regulation.

Notification shall be made, including to the Public Prosecution Service, given the inapplicability of the provision of article 135 of Law No. 7-A/2016, of 30 March, which attributes interpretive nature to article 133 of the same statute, insofar as it sets forth the meaning of article 88, paragraph 14, of the CIRC, under paragraph 20 of that article.

Lisbon, 23 September 2019

The Arbitrator President

(José Pedro Carvalho)

The Arbitrator Member

(Henrique Fernando Rodrigues)

The Arbitrator Member

(Jorge Bacelar Gouveia)

Frequently Asked Questions

Automatically Created

What is the 10 percentage point surcharge on autonomous taxation rates under Portuguese IRC law?
The 10 percentage point surcharge on autonomous taxation rates is an additional tax imposed under article 88(14) of the Portuguese CIRC when a company incurs tax losses. Autonomous taxations (tributações autónomas) are special taxes levied on certain expenses regardless of whether the company has taxable income, such as vehicle expenses, entertainment costs, and other specified charges. The surcharge increases the standard autonomous taxation rates by 10 percentage points when the taxpayer reports a tax loss for the fiscal year, serving as a penalty mechanism to discourage loss-making situations.
Does the tax loss relevant for the autonomous taxation surcharge refer to the individual company or the fiscal group?
The central dispute in this case is whether the tax loss relevant for triggering the autonomous taxation surcharge refers to the individual company subject to the taxation or the consolidated fiscal group result under RETGS. The applicant argued that each subsidiary company's individual tax result should determine applicability of the surcharge, meaning companies with positive results should not be subject to the increase even if the group reports a consolidated loss. The Tax Authority's position was that under the group taxation regime, the fiscal result is calculated at the consolidated group level, and therefore the group's tax loss triggers the surcharge for all member companies.
How are autonomous taxations (tributações autónomas) applied within groups of companies (grupos de sociedades) in Portugal?
Within groups of companies operating under the Special Taxation Regime for Groups of Companies (RETGS) in Portugal, autonomous taxations are calculated on expenses incurred by each individual group member company. However, the question of whether surcharges apply based on individual or consolidated results was disputed. The tax administration's electronic filing system was configured to apply the 10 percentage point increase based on the group's consolidated fiscal result, not allowing alternative filing based on individual company results. This case examines whether this administrative practice correctly interprets the CIRC provisions.
Can a company within a fiscal group challenge the autonomous taxation surcharge if it individually has no tax losses?
Yes, a company within a fiscal group can challenge the autonomous taxation surcharge through arbitration at CAAD even if it individually has no tax losses but the group does. In this case, seven subsidiary companies (C..., D..., E..., F..., G..., H..., and I...) that individually reported positive taxable income for 2015 were subjected to the surcharge because the consolidated Tax Group B... reported a loss. The applicant filed an administrative complaint on May 7, 2018, and after receiving no response (implicit rejection), filed an arbitral claim on November 30, 2018, successfully establishing jurisdiction before the CAAD arbitral tribunal to challenge the €89,861.47 in additional autonomous taxes.
What is the procedure for filing an arbitral claim at CAAD against an IRC self-assessment of autonomous taxation?
The procedure for filing an arbitral claim at CAAD against an IRC self-assessment of autonomous taxation follows the Legal Framework for Arbitration in Tax Matters (RJAT). The taxpayer must first file an administrative complaint (reclamação graciosa) with the Tax Authority. If the complaint is rejected or not decided within the legal timeframe (creating an implicit rejection), the taxpayer may file an application for constitution of an arbitral tribunal under articles 2 and 10 of the RJAT. The application must specify the contested act, the amount in dispute, and legal grounds. In this case, the collective arbitral tribunal was constituted with three arbitrators, the Tax Authority filed its response, and the tribunal dispensed with an oral hearing, deciding based on written submissions pursuant to articles 16 and 29 of the RJAT.