Process: 602/2016-T

Date: October 13, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Decision 602/2016-T addresses a significant dispute regarding the deductibility of Special Payments on Account (Pagamento Especial por Conta - PEC) from autonomous taxation under Portuguese Corporate Income Tax (IRC) rules. The claimant company challenged the Tax Authority's tacit rejection of ex officio revision applications for tax years 2011 and 2012, seeking to deduct PEC amounts totaling €6,670.26 from autonomous taxation obligations. The core legal question centered on whether autonomous taxation should be included within the concept of 'total IRC collection' for purposes of applying article 90 of the IRC Code. The claimant argued that PECs, as advance payments of final tax liability, must be deductible from all components of IRC collection including autonomous taxation, based on the constitutional principle of taxation on actual profit (article 104(2) of the Portuguese Constitution). They contended that errors in self-assessment are attributable to tax services under articles 43 and 78 of the General Tax Code, justifying ex officio revision even after standard appeal deadlines. The company cited prior CAAD decisions (769/2014-T and 219/2015-T) supporting their interpretation. The Tax Authority raised a preliminary objection regarding the arbitral tribunal's material jurisdiction to decide the matter. The case involved PEC amounts of €2,689.48 for 2011 and €3,980.78 for 2012, against autonomous taxation of €25,940.73 and €17,948.86 respectively. This decision has significant implications for corporate taxpayers regarding the interaction between advance payment mechanisms and autonomous taxation regimes, particularly concerning the temporal scope of article 88(21) of the IRC Code introduced by the 2016 State Budget, which the claimant argued should not apply retroactively. The arbitral tribunal was constituted on 19 December 2016 under CAAD's legal framework for tax arbitration.

Full Decision

ARBITRAL DECISION

1. Report

A…, SA, with registered office at Avenida …, no.…, …-… Lisbon, with the collective person number (NIPC)…, hereinafter referred to as the "Claimant", pursuant to the provisions of articles 2, no. 1, paragraph a), and 13, no. 1, of Decree-Law no. 10/2011, of 20 January, the legal instrument which approved the Legal Regime for Arbitration in Tax Matters ("LRAT"), submitted a request for the constitution of an arbitral tribunal, with the intervention of a single arbitrator, for the examination of the legality of the decision of the Tax Authority, regarding the tacit rejection of the applications for ex officio revision with nos. …2016… and …2016… and, consequently, the self-assessment act of Corporate Income Tax (IRC) relating to the tax years 2011 and 2012, to the extent corresponding to the non-deduction of Special Payments on Account (PEC) payments made under the IRC self-assessment regime from the total IRC collection produced by the autonomous taxation rates, in the total amount of €6,670.26.

The Tax and Customs Authority is the Respondent (hereinafter "TA").

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority on 17-10-2016.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LRAT, the Deontological Council appointed the undersigned as arbitrator, who communicated acceptance of the appointment within the applicable period, and notified the parties of this appointment on 30-11-2016, with the Parties not having expressed an intention to refuse the arbitrator's appointment.

On 19-10-2016, the Parties were notified of this appointment, and did not express an intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the LRAT and articles 6 and 7 of the Deontological Code.

In accordance with the provision of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 19-12-2016.

The Claimant bases its request on the following arguments:

  • The Claimant submitted on 15 March 2016 the applications for ex officio revision of the tax act of self-assessment of IRC, relating to the periods 2011 and 2012;

  • The revision of the tax act may be initiated by the TA, after the expiration of the general periods for amicable settlement or judicial challenge of the tax act of assessment that might be applicable to the act to be revised;

  • Doctrine and case law, namely the Supreme Administrative Court (SAC), have pronounced that, even when ex officio, the revision of the tax act may be promoted at the request of the taxpayer, in which case the TA has the duty to carry it out provided that the respective legal requirements are met;

  • It clearly results from the law – articles 43, no. 2 and 78, no. 1 and 2 all of the General Tax Code (GTC) – that any error in self-assessment, for purposes of revision of the tax act, shall be imputable to the services, considering that this is the case in question, being unequivocal the existence of error in self-assessment;

  • The Decision of the SAC of 12 December 2011, handed down in appeal no. 26233, recognized that where there is an assessment error, such error is imputable to the TA;

  • Making reference to what was expressed by Jorge Lopes de Sousa as rapporteur of Decision 0532/07, of 28 November and under the regime of the Tax Procedure Code, in accordance with the provisions of article 94, no. 2 in the wording given by Decree-Law no. 74/95, of 10 March, concludes that, in all cases of self-assessment, even if no amicable claim has been filed, pursuant to article 131 of the TCPP, the taxpayer may request ex officio revision, within the legal period of four years or at any time, if payment has not been made;

  • Concluding that the procedural requirements provided for in nos. 1 and 4 of article 78 of the GTC are manifestly met, with the applications for ex officio revision submitted timely and duly substantiated according to legal terms;

  • As to the factual matters, it states that:

    • It submitted the IRC Model 22 Declaration relating to the taxation period of 2011 on 30 November 2012;

    • The amount of Special Payments on Account (PEC) capable of deduction in the taxation period of 2011, amounted to €2,689.48, having not determined collection "stricto sensu" in this taxation period;

    • In the IRC Model 22 Declaration relating to the taxation period of 2011, the amount assessed as autonomous taxation amounted to €25,940.73;

    • The amount of Special Payments on Account (PEC) capable of deduction in the taxation period of 2012, amounted to €2,689.48;

    • Given the provisions of article 90 of the IRC Code and the tax rules governing each of the deductions provided for in no. 2 of that article, the amounts relating to "tax credits" arising from PECs made should be deducted from the IRC tax collection, which encompasses, in its entirety, the IRC collection "stricto sensu", the state surcharge and autonomous taxation.

    • It submitted the IRC Model 22 Declaration relating to the taxation period of 2012 on 29 November 2013;

    • The amount of Special Payments on Account (PEC) capable of deduction in the taxation period of 2012, amounted to €3,980.78, with the amount paid as autonomous taxation amounting to €17,948.86;

    • The aforementioned amount of €3,980.78 should be deducted up to the limit of the total IRC collection associated with the period of 2012;

  • In accordance with the deduction sequence provided for in no. 2 of article 90 of the IRC Code, it considers that the deduction and/or compensation of amounts paid to the TA as PEC against the total IRC collection is justified, even if the same is, in a given period, composed only of autonomous taxation, as is the case;

  • Currently, the PEC deduction regime with legal basis in articles 93 and 106 of the IRC Code in accordance with the wording of Law no. 2/2014, of 16 January, cumulates the possibility of deducting amounts paid against the IRC collection within a given carry-forward period with reimbursement;

  • It is indisputable that both - PECs and payments on account – share the nature of payment on account which, in light of the constitutional principle of taxation on actual profit, is equivalent to stating, as those authors [Saldanha Sanches and André Matos] immediately do, that "(…) payment on account cannot exceed the tax due (…)", and there should be "(…) full reimbursement of amounts in which it exceeds";

  • It pleads for the constitutionality of the PEC, subject, however, to an interpretation in conformity with the Constitution (CRP), that is, for what is relevant to the matter in question, it appeals to an interpretation in light of the principle of taxation on actual income, embodied in art. 104, no. 2 of the CRP;

  • Autonomous taxation should be integrated into the concept of total IRC collection and the "credits" arising from advances of the final tax that were made as PEC, and which are susceptible to deduction in the periods 2011 and 2012, should be deducted from autonomous taxation, as the same constitute a part of the tax collection, as results from the foregoing and is recognized by CAAD decisions within processes no. 769/2014-T and 219/2015-T;

  • No. 21 of art. 88 of the IRC Code is, entirely, a new provision that did not exist prior to the 2016 State Budget Law and whose application must be limited to new cases.

  • By conferring on no. 21 of art. 88 of the IRC Code the scope of an interpretive rule, the prohibition of retroactivity enshrined in no. 3 of art. 103 of the CRP is placed in question.

The Tax and Customs Authority responded, raising an exception of material incompetence of the Arbitral Tribunal arising from the circumstance that the request for arbitral pronouncement was formulated following rejection of an application for ex officio revision and by challenge, alleging in summary that:

Regarding the exception of material incompetence of the Arbitral Tribunal arising from the circumstance that the request for arbitral pronouncement was formulated following rejection of an application for ex officio revision:

  • Law no. 3-B/2010, of 28 April (State Budget for 2010), contemplated, in its article 124, a legislative authorization relating to arbitration in tax matters, providing that the same should constitute an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest enshrined in the TCPP;

  • In use of such legislative authorization, Decree-Law no. 10/2011, of 20 January, was approved, which established the Legal Regime for Arbitration in Tax Matters (hereinafter LRAT);

  • Pursuant to article 2 of the aforesaid legal instrument, under the heading "Competence of arbitral tribunals and applicable law", it is determined that the competence of arbitral tribunals comprises, in particular (cf. paragraph a) the examination and declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account.

  • However, by virtue of the provisions of no. 1 of article 4 of the LRAT, «The binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of the present law depends on a regulation of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered»;

  • The aforementioned Regulation (no. 112-A/2011, of 22 March) defines, in its article 2, paragraph a), that the TA is bound by arbitral claims that have as their object the examination of claims relating to taxes whose administration is entrusted to it, referred to in no. 1 of article 2 of the LRAT, «with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Tax Procedure and Process Code»;

  • However, the claim is shown to be formulated without such self-assessment act having been preceded by administrative challenge «in accordance with articles 131 to 133 of the Tax Procedure and Process Code», which determines, inescapably, that its examination is excluded in arbitral proceedings;

  • That is, from the wording given to the cited legal provision, it is noted that the legislator chose to restrict knowledge in arbitral jurisdiction to claims that, being related to the declaration of illegality of assessment/self-assessment acts, have been preceded by the claim provided for in article 131 of the TCPP;

  • Effectively, given the voluntary and conventional nature of arbitration (here understood in its broad sense, since the material competence of arbitral tribunals results from regulation of a public nature effected in the LRAT), in accordance with the above explanation, the interpreter cannot expand the object fixed by the legislator regarding the binding of the TA to arbitral jurisdiction;

  • Equal understanding was adopted in the Arbitral Decision handed down in process no. 51/2012T;

  • Indeed, case law has sustained the understanding, which is not questioned, that, given the administrative nature of the ex officio revision procedure, it is capable of being assimilated to the provisions of articles 131 to 133 of the TCPP for the purpose of subsequent challenge of the respective rejection decision;

  • However, such assimilation is legally prohibited in arbitral proceedings, being excluded from the material competence of arbitral tribunals the examination of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account, that have not been preceded by recourse to the administrative procedure, in accordance with articles 131 to 133 of the TCPP, not being included therein, as is clear, the ex officio revision procedure designed in article 78 of the GTC;

  • Now, if the legislator did not provide, in article 2 of that Regulation, the ex officio revision procedure as equivalent to recourse to the administrative procedure, especially to the amicable claim, for purposes of accessing the request for arbitral pronouncement, it was, certainly, because it did not intend to do so;

  • By virtue of what is provided in article 2, paragraph a) of Regulation no. 112-A/2011, disputes that have as their object the declaration of illegality of withholding at source acts, as occurs in the situation sub judice, are excluded from the material competence of arbitral tribunals, if they are not preceded by an amicable claim in accordance with article 132 of the TCPP;

  • Confirming this understanding are the decisions handed down by CAAD in processes no. 48/2012-T, 51/2012-T, 73/2012-T, 236/2013-T, 603/2014-T, 669/2015-T – all decided in favor of the Respondent.

By Challenge:

  • The considerations made in this regard reveal that the figure of autonomous taxation has been instrumentalized for the pursuit of various objectives, ranging from the original purpose of preventing practices of evasion and fraud – through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the replacement of taxation of benefits in the form of representation expenses or assignment of vehicles to employees and members of the corporate bodies, in the sphere of their respective beneficiaries – to the purpose of preventing the phenomenon designated as "dividend washing" (cf. no. 11 of art. 88 IRC Code) or of burdening, by way of taxation, the payment of income considered excessive (cf. no. 13 of the same provision);

  • The autonomous character of these taxation rates, arising from the special configuration given to the material and temporal aspects of the taxable events, requires, in certain domains, the removal or an adaptation of the general rules of application of IRC;

  • In reality, the integration of autonomous taxation into the IRC Code (and IRS), conferred a dualistic nature, in certain aspects, on the normative system of this tax, which was embodied, in particular, in the framework of paragraph a) of no. 1 of art. 90 of the IRC Code, in separate calculations of the respective collections, by virtue of obeying different rules;

  • And this, because, in one case, it is the application of the rate(s) of art. 87 of the IRC Code to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is the application of the rates to the values of the taxable matters relating to the different realities contemplated in art. 88 of the IRC Code;

  • In support of the position defended, the Claimant resorts to the decisions handed down by CAAD, within processes nos. 769/2014-T and 219/2015-T;

  • It is important to determine whether the deductions provided for in no. 2 of art. 90 of the IRC Code are comprised in the areas of conflict that result from the application of the general IRC regime to the discipline of "autonomous taxation";

  • It results as evident that the integration of autonomous taxation into the IRC Code (and IRS), conferred a dualistic nature, in certain aspects, on the normative system of this tax, which was embodied, in particular, in the framework of paragraph a) of no. 1 of art. 90 of the IRC Code, in separate calculations of the respective collections, by virtue of obeying different rules, because, in one case, it is the application of the rate(s) of art. 87 of the IRC Code to the taxable matter determined according to the rules contained in Chapter III of the Code, i.e., having as base the profit and, in another case, it is the application of the rates to the values of the taxable matters relating to the different realities contemplated in art. 88 of the IRC Code;

  • The amount determined in accordance with paragraph a) of no. 1 of art. 90 does not have a unitary character, since it includes values calculated according to different rules, to which different purposes are associated, so that the deductions provided for in the paragraphs of no. 2 can only be made to the part of the IRC collection with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard regime of the tax;

  • The position defended by the TA has explicit support in the provision of no. 5 of art. 90 of the IRC Code – through which the legislator provides a clear indication that the amount of tax assessed, to which the deductions referred to in no. 2 of the same article are made, does not include the amount corresponding to autonomous taxation – by establishing that the deductions that are imputed to partners or members of entities covered by the transparent tax regime established in art. 6 (entities that are subject to the payment of autonomous taxation, by virtue of art. 12) are «deducted from the amount determined on the basis of the taxable matter that took into account the imputation provided for in the same article»;

  • The legal nature of the PEC, revealed by its configuration as «an instrument or guarantee of payment of the tax on account of which it is demanded, and not as a tax in itself», as well as by the function associated with it in combating tax evasion and fraud, indissolubly links this payment to the amount of IRC determined on the taxable matter determined on the basis of profit (Chapter III of the Code);

  • To date, the issue to be decided has already been the subject of several arbitral decisions, in this case, among others, Process no. 113/2015-T; Process no. 535/2015-T; Process no. 639/2015-T; Process no. 535/2015-T; Process no. 670/2015-T; Process no. 722/2015-T; Process no. 736/2015-T; Process no. 745/2015-T; Process no. 746/2015-T; Process no. 750/2015-T; Process no. 751/2015-T; Process no. 752/2015-T; Process no. 767/2015-T; Process no. 769/2015-T; Process no. 780/2015-T; Process no. 781/2015-T; Process no. 784/2015-T; Process no. 784/2015-T – all of them corroborating the thesis advocated by the Respondent;

  • It highlights the interpretive effect conferred by article 135 contained in the State Budget Law for 2016, appealing to good case law already set out in various arbitral processes;

  • Any interpretation that does not apply the rule contained in the State Budget Law for 2016, embodied in article 133, which added no. 21 to article 88 of the IRC Code, with the effects provided for in article 135, both contained in the State Budget Law for 2016, published on 30.03.2016, entering into force on the following day, which provide, with an interpretive character, that «The assessment of autonomous taxation in IRC is carried out in accordance with the provisions of 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 which, consequently, allows the deduction to the part of the IRC collection produced by the autonomous taxation rates of the Special Payment on Account made under the IRC self-assessment regime (PEC), is materially unconstitutional, due to

    • Violation of the principle of legality, inherent in art. 103, no. 2 of the CRP,

    • Violation of the principle of separation of powers, embodied in art. 2 of the CRP,

    • Violation of the principle of protection of legitimate expectations provided for in art. 2 of the CRP,

    • Violation of the principle of equality, in its positive formulation of tax capacity, arising from art. 13, no. 2 and 103, no. 2, both of the CRP;

  • As to the indemnity interest claimed by the Claimant, with the main claim not succeeding, the interest claim would necessarily also fail – however, its calculation would always have as its starting point the date on which occurred the notification of the decision that rejected the amicable claim.

The Claimant pronounced itself on the exception of material incompetence of the Arbitral Tribunal, arguing briefly that:

  • There is case law of the SAC in the sense of considering that the request for revision of the tax act is a mechanism for opening the contentious route, perfectly comparable to the necessary amicable claim;

  • The arbitral decisions now unanimously follow the theses that deserve to prevail, namely in Proc 117/2013 (see also Proc 203/2015, 843/2015T, 943/2015T and 670/2015T);

  • The best reading of paragraph a) of no. 1 of art. 2 of the LRAT is that which allows the arbitral tribunal to examine the possible illegality of the assessment itself, this competence will also encompass cases where the second-level act is that of rejection of a request for revision of the tax act, as there is no apparent reason to restrict, concluding by the non-success of the exception.

By order of 06-06-2017 the holding of a hearing was waived and it was decided that the process would proceed with submissions.

Both Claimant and Respondent presented submissions.

The arbitral tribunal was duly constituted.

The parties enjoy legal personality and capacity (arts. 4 and 10, no. 2, of the same legal instrument and art. 1 of Regulation no. 112-A/2011, of 22 March) and are duly represented.

The process is not affected by any nullities.

It is necessary to examine as a priority the question of incompetence raised by the Tax and Customs Authority.

Question of the incompetence of the arbitral tribunal arising from the circumstance that the request for arbitral pronouncement was formulated following rejection of an application for ex officio revision

The TA invokes the material incompetence of the Arbitral Tribunal arising from the circumstance that the request for arbitral pronouncement was formulated following rejection of an application for ex officio revision.

On this matter, contradictory arbitral case law is observed.

However, the understanding initially pronounced within Process 117/2013 is followed and subsequently followed within processes 203/2015 and 670/2015.

For all, reference is made to the arbitral decision handed down within Process 203/2015 (previously highlighted), an understanding that is accompanied in full when referring that "In paragraph a), of article 2 of this Regulation no. 112-A/2011, there are expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of the arbitral tribunals operating in CAAD the «claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Tax Procedure and Process Code».

Now, if it is true that in the concrete case there was no prior amicable claim, the truth is that the Claimant resorted to the mechanism of ex officio revision of the self-assessment act. Taking into account that, as we have seen, the binding regulation expressly excludes from the scope of tax arbitration the self-assessment acts that have not been preceded by recourse to the administrative procedure, reporting to cases in which such recourse is mandatory, through the prior amicable claim, mandatory, in accordance with the provisions of arts. 131 to 133 of the TCPP, it is necessary to analyze, first and foremost, whether the rejection of applications for revision of the tax act, provided for in art. 78 of the GTC, is included in the competencies attributed to the arbitral tribunals operating in CAAD.

In fact, art. 2 of the LRAT makes no express reference to these acts, contrary to what occurs in the legislative authorization law on which the Government based itself to approve the LRAT, in which express mention is made of "applications for revision of tax acts" and "acts that involve the examination of the legality of assessment acts".

As is stated in the Arbitral Decision handed down in process no. 117/2015-T, the formula «declaration of illegality of tax assessment acts, self-assessment acts, withholding at source and payment on account» used in paragraph a) of no. 1 of art. 2 of the LRAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In fact, the illegality of assessment acts may be declared jurisdictionally as a corollary of the illegality of a second-level act, which confirms an assessment act, incorporating its illegality.

The inclusion in the competencies of the arbitral tribunals operating in CAAD in cases where the declaration of illegality of the acts indicated therein is effected through the illegality of second-level acts, which are the immediate object of the impugned claim, results with certainty from the reference that in that rule is made to self-assessment acts, withholding at source and payment on account, which are expressly referred to as being included among the competencies of the arbitral tribunals. Indeed, with respect to these acts, the amicable claim is imposed, as a rule, as necessary, in arts. 131 to 133 of the TCPP, so that, in these cases, the immediate object of the impugned process is, as a rule, the second-level act that examines the legality of the assessment act, an act which, if it confirms it, must be annulled in order to obtain the declaration of illegality of the assessment act. The reference that in paragraph a) of no. 1 of art. 10 of the LRAT is made to no. 2 of art. 102 of the TCPP, in which the challenge of acts of rejection of amicable claims is provided for, removes any doubts that the referrals in paragraph a) of that art. 2 of the LRAT are covered in the competencies of the arbitral tribunals operating in CAAD those referred to in paragraph a) of that art. 2 of the LRAT must be obtained following the declaration of illegality of second-level acts."

The examination of the question of the competence of the arbitral tribunals operating in conjunction with CAAD is particularly well developed and substantiated in this Arbitral Decision, to which we adhere, without need for further development.

However, it will always be said, moreover, that it was in this sense that the Government, in the Binding Regulation, interpreted the competencies of the tax arbitral tribunals, by removing from its scope of competence the claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the TCPP.

Accordingly, it is to be concluded that the formula used in paragraph a) of no. 1 of art. 2 of the LRAT does not exclude cases in which the declaration of illegality results from the illegality of a second-level act. And, being such, it is our understanding that the competence of the arbitral tribunal also encompasses cases in which the second-level act is, as in the concrete case, an act of rejection of the application for revision of the tax act, all the more so because it is the understanding of the SAC itself (which, moreover, is recognized by the TA in the rejection decision handed down) that in cases in which the application for revision of the tax act is made within the period of the amicable claim, it should be equated to. Furthermore, the interpretation exclusively based on the literal tenor that the Tax and Customs Authority defends in the present process cannot be accepted, because in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (article 11, no. 1 of the GTC) and article 9, no. 1 of the Civil Code. It results from these legal provisions that the interpretation of the legal rule cannot be confined exclusively to its literal tenor. It is fundamental to discern the legislative thought, taking into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it arose and the objectives it seeks to pursue.

The allegation of the ATA in this matter is therefore not accepted. As regards the correspondence between interpretation and the letter of the law, a mere verbal correspondence suffices, even if imperfectly expressed. Only interpretations that have no correspondence in the letter of the law are prohibited, which is not the case. Therefore, the letter of the law is not an obstacle to interpretation that, having regard to the other elements of interpretation, explicitly and rationally expands the scope of the literal tenor and the legislative thought underlying it.

It is manifest that the scope of the requirement of prior amicable claim, necessary to open the contentious route for challenging self-assessment acts, provided for in no. 1 of article 131 of the TCPP, has as its legitimate justification the fact that with respect to the subject matter under examination it is permitted a position-taking by the Tax Administration on the legality of the legal situation created, avoiding judicial contentiousness, if possible, and giving the TA the opportunity to revoke or correct the act. Now such purposes are perfectly achieved in the concrete case with the application for revision of the tax act that gave rise to the second-level act, which consisted in the rejection of the application for ex officio revision of the self-assessment act.

Thus, a different interpretation of the rule provided for in the TCPP and of the one provided for in tax arbitration is not defensible, not least because the letter of the rule contained in Regulation 112-A/2011, of 22 March, ends up being less restrictive than that of the TCPP, inasmuch as it does not include the expression "mandatorily" (see art. 131, no. 1 of the TCPP), nor does it refer to "amicable claim" but rather the expression "administrative procedure". Therefore, it is possible to have a reading of the very letter of the law which is to the effect that only knowledge of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure is removed from the scope of tax arbitral jurisdiction. Such interpretation is, moreover, perfectly compatible with the terms provided for in articles 131 to 133 of the Tax Procedure and Process Code.

In similarity to the case law contained in the Arbitral Decisions handed down in processes 48/2012-T, 117/2013-T and 55/2015-T, among others, cited by the TA itself, it is the understanding of this arbitral tribunal that it is endowed with material competence to know the matter in question and under discussion in the present proceedings. To this effect, citing Decision 117/2013-T, it is concluded that "the interpretation exclusively based on the literal tenor that the Tax and Customs Authority defends in the present process cannot be accepted, because in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (art. 11, no. 1 of the GTC) and article 9, no. 1, expressly prohibits interpretations exclusively based on the literal tenor of the rules by establishing that «interpretation should not be confined to the letter of the law» and should, instead, reconstitute from the texts the legislative thought, having regard especially to the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied»."

It is to be concluded, in harmony with the arbitral case law cited above, that article 2, paragraph a) of Regulation no. 112-A/2011 (Binding Regulation) properly interpreted with the principles of interpretation of law set out above and provided for in art. 9 of the Civil Code, applicable to tax rules by virtue of the provisions of article 11, no. 1 of the GTC, enables the submission of requests for arbitral pronouncement relating to self-assessment acts that have been preceded by an application for ex officio revision".

Because the argumentation cited above is fully endorsed, the exception of incompetence invoked by the Respondent does not succeed.

2. Factual Matters

2.1. Established Facts

The following facts are considered proved:

  • The Claimant submitted the IRC Model 22 Declaration relating to the taxation period of 2011, on 30 November 2012;

  • The amount of Special Payments on Account (PEC) capable of deduction in the taxation period of 2011, amounted to €2,689.48, and no collection "stricto sensu" was determined in this taxation period;

  • In the IRC Model 22 Declaration relating to the taxation period of 2011, the amount assessed as autonomous taxation amounted to €25,940.73;

  • The amount of Special Payments on Account (PEC) capable of deduction in the taxation period of 2012, amounted to €2,689.48;

  • Given the provisions of article 90 of the IRC Code and the tax rules governing each of the deductions provided for in no. 2 of that article, the amounts relating to "tax credits" arising from PECs made should be deducted from the IRC tax collection, which encompasses, in its entirety, the IRC collection "stricto sensu", the state surcharge and autonomous taxation.

  • The claimant submitted the IRC Model 22 Declaration relating to the taxation period of 2012 on 29 November 2013;

  • The amount of Special Payments on Account (PEC) capable of deduction in the taxation period of 2012, amounted to €3,980.78. The amount paid as autonomous taxation amounted to €17,948.86;

2.2. Substantiation of the Factual Decision

The facts were established as proved based on the documents attached with the request for arbitral pronouncement, with the Response and administrative process, attached to the proceedings by the TA.

2.3. Unestablished Facts

Based on the documentary evidence made available in the proceedings and consensually accepted by the parties, it is verified that, with relevance to the decision of the case, nothing remained to be established.

3. Legal Matters

As to the merits of the question, that is, the deductibility of autonomous taxation from the Special Payment on Account, there is, equally, contradictory arbitral case law.

We begin by highlighting the Decision of the Constitutional Court no. 267/2017, handed down within Process 466/16, which concludes by the unconstitutionality "by violation of the prohibition on the creation of taxes with retroactive nature established in article 103, no. 3, of the Constitution, the rule of article 135 of Law no. 7-A/2016, of 30 March, insofar as, by effect of the merely interpretive character that it attributes to it, it determines that the rule of article 88, no. 21, 2nd part, of the IRC Code – a number added by article 133 of the cited Law – according to which, to the overall amount resulting from autonomous taxation assessed in a given year under the IRC, the values paid as Special Payment on Account in that same year cannot be deducted, applies to the fiscal years prior to 2016".

The understanding suffraged in the Decision referred to above is accompanied.

Accordingly, with the unconstitutionality of the rule of art. 135 of Law 7-A/2016, of 30 March, which intended to confer an interpretive character on the rule of art. 88, no. 21, 2nd part, of the IRC Code, validated, the legality of the deductibility of autonomous taxation from the Special Payments on Account that is here discussed, must be assessed by considering the rules existing in the tax years in question, in this case 2011 and 2012.

Once again, recourse is had to arbitral case law, this time making reference to the arbitral decision 784/2015, whose arbitral president was Dr. Jorge Lopes de Sousa, where it was written that "in view of what is provided for in paragraph c) of no. 2 of article 90 and in no. 1 of article 93 of the IRC Code, until Law no. 7-A/2016, nothing in the literal tenor of the IRC Code stood in the way of the deduction of amounts of Special Payments on Account from the total IRC collection that was determined in accordance with that no. 1 of article 90, including that derived from autonomous taxation, within the condition. On the other hand, since the Special Payment on Account has the nature of forced loan, which creates in the legal sphere of the taxpayer a credit over the Tax Administration, it does not appear unreasonable that it be taken into account in situations in which a credit of this is generated in relation to the taxpayer.

Furthermore, autonomous taxation under the IRC, in view of the increasing breadth that the legislator has been conferring on it, in order to be compatible with the constitutional principle of taxation of companies falling fundamentally on their actual income (article 104, no. 2, of the CRP), should be understood as indirect forms of taxing business income, through the taxation of certain expenses, as is implicit in paragraph a) of no. 1 of article 23-A of the IRC Code in the wording of Law no. 2/2014, of 16 January, when it alludes to «IRC, including autonomous taxation, and any other taxes that directly or indirectly bear on profits». The statistics of the Tax and Customs Authority referred to above, as well as the case itself in question, in which the Claimant had tax losses in 2012 and 2013 and in both presents only autonomous taxation of substantial value, are illustrative of the constitutional problem that is posed".

And it continues by referring that "The new article 23-A of the IRC Code, introduced by Law no. 2/2014, of 16 January, when it states that «the following costs are not deductible for purposes of determining taxable profit, even when accounted for as expenses of the taxation period: a) The IRC, including autonomous taxation, and any other taxes that directly or indirectly bear on profits», leaves it apparent that, from the legislative perspective, IRC and autonomous taxation are taxes that bear directly or indirectly on profits, since it is that understanding that can justify that the expression «any other taxes» is included, which presupposes that IRC and autonomous taxation are also taxes of these types.

Therefore, being autonomous taxation provided for in the IRC Code, in the final analysis, forms of taxing business income, it is not seen that there is necessarily an incompatibility between them and the general rules that provide for the form of effecting IRC payment.

On the other hand, if it is true that, in view of the regime in force before Law no. 2/2014, of 16 January amended no. 3 of article 93 of the IRC Code, the amounts paid as Special Payment on Account could not always be deducted, it is also true that that regime was altered by that Law, reimbursement being admitted without conditions other than that the taxpayer request it, within the prescribed period.

Therefore, the interpretation that flows most linearly from the text of articles 93, no. 3, and 90, no. 1, of the IRC Code, prior to Law no. 2/2014, is that of the deductibility of Special Payments on Account from the IRC collection derived from autonomous taxation".

There is complete disagreement with the doctrine that defends a restrictive interpretation of the matter sub judice, in the sense that it is not deductible from the collection the autonomous taxation.

We accompany and agree with the arbitral case law included in Process 672/2016 when it refers that "such [restrictive] interpretation takes more into account the systematic element and the intention attributed to the legislator than the letter of the law, leaving us nothing to believe that the legislator expressed itself incorrectly, and recommending nothing, consequently, restrictive interpretation".

It is therefore understood that art. 90, no. 2, c) and art. 93 of the IRC Code, in the wording as of the date of the facts that are the object of this process, establish the possibility of deduction of the Special Payment on Account from the tax assessed by the taxpayer in the income declaration.

As is referred to in the arbitral decision, this time handed down within process 769/2015, "of all the limitations on the deduction of PEC imposed by the legislator (namely those arising from nos. 7 and 8 of art. 90 of the IRC Code), none refer to the need for connection or correspondence to the collection or part of the collection determined".

And it continues by stating that "Moreover, the tax determined to which no. 2 of art. 90 of the IRC Code refers is precisely that resulting from the self-assessment carried out by the taxpayer in compliance with arts. 89 and 90, no. 1, of the IRC Code, without any distinction or individualization being made depending on the tax rate or the basis of incidence".

To conclude by the "legal possibility of deduction of amounts with the nature of PEC from the total IRC collection determined in accordance with no. 1 of art. 90 of the IRC Code which, as referred to above, necessarily encompasses the autonomous taxation determined in the tax year", an understanding that we fully endorse.

Finally, it is understood that the arguments of the Respondent equally fail to succeed when it makes reference to (i) violation of the principle of legality, inherent in art. 103, no. 2 of the CRP, (ii) violation of the principle of separation of powers, embodied in art. 2 of the CRP; (iii) violation of the principle of protection of legitimate expectations provided for in art. 2 of the CRP; (iv) violation of the principle of equality, in its positive formulation of tax capacity, arising from art. 13, no. 2 and 103, no. 2, both of the CRP.

The matter referred to above was the object of a decision by the Constitutional Court, within the already referred to Decision 267/2017, handed down within process no. 466/2017, to which we refer and with which it is fully agreed that, as also already referred to, it concluded by the unconstitutionality "by violation of the prohibition on the creation of taxes with retroactive nature established in article 103, no. 3, of the Constitution, the rule of article 135 of Law no. 7-A/2016, of 30 March, insofar as, by effect of the merely interpretive character that it attributes to it, it determines that the rule of article 88, no. 21, 2nd part, of the IRC Code – a number added by article 133 of the cited Law – according to which, to the overall amount resulting from autonomous taxation assessed in a given year under the IRC, the values paid as Special Payment on Account in that same year cannot be deducted, applies to the fiscal years prior to 2016".

3.1. Indemnity Interest

With respect to this subject, article 43 of the GTC establishes the following:

"1- Indemnity interest is due when it is determined, in amicable claim or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount exceeding that legally due.

2- It is also considered to be error imputable to the services in cases in which, although the assessment is made based on the taxpayer's declaration, the taxpayer has followed, in its procedure, the generic guidance of the tax administration, duly published".

The self-assessments were carried out by the taxpayer and the taxpayer does not argue, much less prove, error imputable to the services in the self-assessment, that is, that the structure of the IRC Model 22 Declaration did not allow the Claimant to carry out the self-assessment by deducting the Special Payments on Account in question, which would make this situation equivalent to that stated in no. 2 of the article cited above.

However, the application for indemnity interest requested by the Claimant does succeed, but only with a starting date on the date on which the tacit rejection of the application for ex officio revision of the tax acts in question occurred.

5. Ruling

Accordingly, this Arbitral Tribunal resolves to:

  • Judge the application for arbitral pronouncement as wholly successful, annulling the decision of the TA to tacitly reject the applications for ex officio revision of the tax acts identified above, determining the annulment of the self-assessments of IRC relating to 2011 and 2012, in the total amount of €6,670.26, corresponding to €2,689.48 for the tax year 2011 and €3,980.78 for the tax year 2012.

  • Judge the application for payment of indemnity interest as successful, with a starting date on the date on which the tacit rejection of the applications for ex officio revision of the tax acts in question is presumed to have occurred, until reimbursement of the outstanding tax.

6. Process Value

In accordance with the provisions of article 306, no. 2, of the CPC, 97-A, no. 1, paragraph a), of the TCPP and 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings, the process value is fixed at €6,670.26.

7. Costs

In accordance with articles 12, no. 2, and 22, no. 4, of the LRAT, the amount of costs is fixed at €612.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 13-10-2017

The Arbitrator

(André Bacelar Gonçalves)

Frequently Asked Questions

Automatically Created

Can autonomous taxation amounts be deducted from the special payment on account (PEC) under Portuguese IRC?
According to the claimant's arguments in CAAD Decision 602/2016-T, autonomous taxation amounts should be deductible from Special Payments on Account (PEC) under Portuguese IRC. The claimant contended that article 90 of the IRC Code requires PECs to be deducted from total IRC collection, which encompasses IRC stricto sensu, state surcharge, and autonomous taxation. This interpretation aligns with the constitutional principle of taxation on actual profit, ensuring advance payments do not exceed final tax liability. The claimant cited favorable CAAD precedents (cases 769/2014-T and 219/2015-T) supporting this position, though the Tax Authority contested the tribunal's jurisdiction over this matter.
What is the role of the CAAD arbitral tribunal in disputes over IRC self-assessment deductions?
The CAAD arbitral tribunal serves as an alternative dispute resolution forum for Portuguese tax disputes under the Legal Regime for Arbitration in Tax Matters (LRAT - Decree-Law 10/2011). In Decision 602/2016-T, the tribunal exercised jurisdiction over the legality of Tax Authority decisions regarding IRC self-assessment deductions, specifically examining tacit rejection of ex officio revision applications. The tribunal reviews whether the Tax Authority properly applied tax law provisions concerning deductions of Special Payments on Account from autonomous taxation. However, the Tax Authority raised a preliminary exception challenging the tribunal's material competence to decide this specific issue, highlighting ongoing jurisdictional debates about CAAD's scope of authority in technical IRC assessment matters.
How does the official review (revisão oficiosa) procedure apply to IRC self-assessment errors in Portugal?
The ex officio review (revisão oficiosa) procedure under Portuguese tax law allows correction of tax assessment errors even after standard appeal deadlines expire. Article 78 of the General Tax Code (Código Geral Tributário) permits taxpayers to request ex officio revision, which the Tax Authority must conduct when legal requirements are met. In Decision 602/2016-T, the claimant filed revision requests in March 2016 for 2011-2012 tax years, arguing that self-assessment errors regarding PEC deductions are attributable to tax services under article 43(2) of the GTC. The Supreme Administrative Court has confirmed that taxpayers may initiate this procedure within four years or anytime if payment has not been made, requiring proper substantiation of the claimed error.
What were the tax periods and amounts at issue in CAAD decision 602/2016-T on autonomous taxation and PEC?
CAAD Decision 602/2016-T involved Corporate Income Tax (IRC) for tax periods 2011 and 2012. For 2011, the claimant sought to deduct Special Payments on Account (PEC) of €2,689.48 against autonomous taxation of €25,940.73. For 2012, the amounts were PEC of €3,980.78 against autonomous taxation of €17,948.86. The total disputed amount was €6,670.26, representing PEC payments the company claimed should have been deducted from autonomous taxation obligations but were not recognized by the Tax Authority. The claimant filed IRC Model 22 declarations on 30 November 2012 (for 2011) and 29 November 2013 (for 2012), later requesting ex officio revision on 15 March 2016.
Does the Portuguese Tax Authority have jurisdiction to review autonomous taxation deductions after the standard appeal deadline has passed?
Under Portuguese tax law, the Tax Authority has jurisdiction to review tax assessments through ex officio revision procedures even after standard appeal deadlines have passed. Article 78 of the General Tax Code establishes that revision can occur within four years or at any time if payment has not been made. In Decision 602/2016-T, the claimant invoked this mechanism by filing ex officio revision requests on 15 March 2016 for 2011-2012 tax years. The Supreme Administrative Court has recognized the TA's duty to conduct such revisions when legal requirements are met, particularly when self-assessment errors are attributable to tax services. However, the Tax Authority raised jurisdictional objections, questioning whether CAAD's arbitral tribunal had competence to review the specific technical issue of PEC deductions from autonomous taxation.