Process: 605/2016-T

Date: May 31, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

In CAAD Arbitration Decision 605/2016-T, the tribunal addressed whether SIFIDE (Sistema de Incentivos Fiscais à Investigação e Desenvolvimento Empresarial) tax credits can be deducted from autonomous taxation amounts under Portuguese Corporate Income Tax (IRC). The claimant, a holding company heading a consolidated tax group, self-assessed IRC for 2013 including €61,424.54 in autonomous taxes while holding €1,753,767.40 in unused SIFIDE tax credits. The claimant argued that autonomous taxes constitute genuine IRC assessed under Article 90 of the IRC Code (CIRC), and since SIFIDE allows deductions from IRC assessments regardless of taxable profit existence, the tax credits should offset autonomous taxation. The Tax Authority countered that IRC possesses a dualistic nature with separate calculation mechanisms: standard taxation applies rates to profit-based taxable income, while autonomous taxation applies specific rates to expense-related bases under Article 88 CIRC. The Authority argued these represent distinct taxation modes within IRC, each with different policy objectives—autonomous taxation serving anti-evasion purposes by taxing specific expense categories instantaneously. Therefore, deductions under Article 90(2) CIRC should only apply to their corresponding assessment component to maintain the tax's conceptual coherence. The case also involved procedural aspects regarding objective modification of proceedings when an implied rejection of a gracious complaint became an express decision under Article 64 CPTA. This dispute exemplifies fundamental interpretative tensions in Portuguese tax law regarding whether incentive mechanisms designed for profit-based taxation can extend to autonomous assessment components.

Full Decision

ARBITRATION DECISION

The arbitrators José Poças Falcão (presiding arbitrator), Diogo Feio and Maria Forte Vaz, appointed as arbitrators at the Centre for Administrative Arbitration, to form the Arbitral Tribunal, agree as follows:

I - REPORT

A…, SGPS, S.A., NIPC…, with registered office at Rua …, …, …º, …-… Lisbon (hereinafter referred to only as Claimant), filed, on 11-10-2016, a request for the constitution of an arbitral tribunal, pursuant to Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with Article 102 of the CPPT, wherein the Tax and Customs Authority (hereinafter referred to only as Respondent) is the respondent.

The Claimant seeks a declaration of illegality of (i) the self-assessment of Corporate Income Tax (IRC) for 2013, corresponding to Form 22 submitted with identification number …-… -…, and (ii) the decision of implied rejection of the administrative complaint subsequently filed regarding such tax act.

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD on 13-10-2016 and notified to the Tax and Customs Authority on that same date.

Pursuant to the provisions of subparagraph a) of Article 6(2) and subparagraph b) of Article 11(1) of the RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned signatories, who communicated acceptance of the appointment within the applicable timeframe.

On 30-11-2016, the Parties were duly notified of this appointment, and neither party expressed any intention to refuse the appointment of the arbitrators, in accordance with Article 11(1), subparagraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Deontology.

In accordance with the provisions of subparagraph c) of Article 11(1) of the RJAT, the collective arbitral tribunal was constituted on 19-12-2016.

Notified to respond to the request filed by the Claimant, the Respondent filed a reply, arguing for the dismissal of the Claimant's request.

By order of 07-03-2016, the meeting provided for in Article 18 of the RJAT was dispensed with, and a timeframe was granted to the parties for pleadings.

By petition of 17-03-2017, the Claimant filed a request for objective modification of the case, in order that the decision of express rejection of the administrative complaint filed regarding the 2013 IRC should be considered in the present proceedings.

Notified to respond to this request, the Respondent made no statement.

ON THE CLAIMANT'S REQUEST

In the request for arbitral pronouncement that gave rise to the present proceedings, the Claimant requested a declaration of illegality of (i) the self-assessment of Corporate Income Tax for the year 2013 and (ii) the decision of implied rejection of the administrative complaint filed regarding such tax act.

To substantiate this request, the Claimant alleged, in summary, that:

a) On 31-12-2013, the Claimant was the parent company of a group of entities that were part of the Special Taxation Regime for Groups of Companies ("RGTGS") which included, in addition to the Claimant, the companies:

  • B…, S.A., NIPC…;

  • C… Unipessoal, Lda., NIPC… .

b) On 30-05-2014, the Claimant filed Form 22 of the consolidated group, in which it calculated an amount to be paid as autonomous taxes of € 61,424.54.

c) In that Form 22, the Claimant calculated an amount of € 1,753,767.40 as tax benefits arising from the Fiscal System of Tax Incentives for Business Research and Development ("SIFIDE"), with the unused balance transitioning to the following fiscal year, in the total amount of € 1,439,365.15.

d) Contrary to what it could have done, the Claimant did not deduct this tax credit from the amount assessed relating to autonomous taxes.

e) Autonomous taxes are true "IRC", forming part of this tax, and are subject to the general rules for assessment provided for in Article 90 of the CIRC.

f) For its part, SIFIDE created a system of tax incentives that allows taxpayers, in the context of the calculation of IRC, to deduct from the amount assessed pursuant to Article 90 of the CIRC, charges relating to Research and Development, which are eligible under the said regime.

g) The deductibility of the SIFIDE tax benefit from the amount calculated pursuant to Article 90 of the CIRC does not depend exclusively on the existence of taxable profit, as what that provision actually requires is the existence of an IRC assessment, which may exist even without taxable profit, namely by virtue of autonomous taxes.

h) As the assessment of autonomous taxes corresponds to IRC assessed pursuant to Article 90 of the CIRC, the deductibility of the tax credit calculated under SIFIDE cannot be called into question.

i) By not deducting from the IRC assessment resulting from autonomous taxes the value of the applicable tax credit in 2013, the Claimant determined tax payable to the State in an amount higher than that which was due, wherefore it is entitled to the corresponding reimbursement.

With regard to the objective modification of the case, the Claimant requests that, pursuant to Article 64 of the CPTA, applicable by reference from Article 20 of the RJAT, in substitution of the decision of implied rejection of the administrative complaint filed, this tribunal shall rule on the decision of express rejection, of 23-02-2017.

In light of the foregoing, the Claimant concludes that the self-assessment of IRC for 2013 and the decision of express rejection of the administrative complaint filed are illegal, wherefore such acts should be annulled and, consequently, the Respondent should be ordered to reimburse the Claimant for the tax paid in excess, plus compensatory interest, pursuant to Article 43 of the LGT.

ON THE RESPONDENT'S REPLY

The Respondent argues for the dismissal of the Claimant's request, alleging briefly that:

a) The assessment derived from autonomous taxes, although it is an assessment in IRC, is distinguished by the fact that it is not based on profits but, rather, on expenses incurred by the taxpayer or by third parties with whom the taxpayer has relations.

b) In reality, the inclusion of autonomous taxes in the Corporate Income Tax Code gave a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied in separate calculations of the respective assessments, because they were subject to different rules. And so, in one case, it is a matter of the application of the rate(s) of Article 87 of the CIRC to the taxable base 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 taxable bases relating to the different realities contemplated in Article 88 of the CIRC.

c) Contrary to what the Claimant alleges, there is not a single IRC assessment, but rather two separate calculations.

d) From this it follows that the deductions provided for in the subparagraphs of Article 90(2) can only be made to the part of the IRC assessment with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard regime of the tax.

e) Given the diversity of the realities subject to autonomous tax rates, the markedly anti-evasion purposes attached to them, the instantaneous nature with regard to verification of the facts giving rise to the tax, it is possible to conclude that, within the framework of the same tax – IRC – different modes of imposition coexist, created for reasons of tax policy, that is, alongside a normative structure that configures a tax applied to a taxable base constituted by profit, there are assessments that tax autonomously certain realities that manifest themselves in expenses or in income.

f) Therefore, in overall terms, the IRC assessment calculated pursuant to Article 89 and Article 90(1) has a composite, divisible nature, on the one hand between the assessment of tax proper, resulting from the general structure for calculating IRC, which is due with a constitutional basis grounded in the general duty of each person (including legal entities) to contribute to public expenditure according to their means (Article 103(1) of the CRP), from which the amounts referred to in Article 90(2) are deducted, in the terms and manner referred to therein, and, on the other hand, the sum of the assessments of autonomous taxes which incorporate their own meaning and foundation and which, for this reason, should not be confused.

g) Given the distinct nature of the assessments in question, the Respondent concludes that the tax credit provided for under SIFIDE is not deductible from the assessment of autonomous taxes, being strictly deductible only from the tax calculated in accordance with the general rules based on the taxpayer's taxable profit.

h) Furthermore, it states that any doubts that existed were eliminated by the State Budget for 2016, which added number 21 to Article 88 of the CIRC, assigning to it an interpretative character, with the following content: "The assessment of autonomous taxes in IRC is effected pursuant to the terms provided for in Article 89 and is based on the values and rates which result from the provisions of the preceding numbers, with no deductions being made to the total amount calculated."

i) To support and validate the interpretative effect conferred by Article 135 contained in the State Budget Law for 2016, the Respondent refers to numerous CAAD decisions which accepted the application of the provided exclusion of deduction to tax facts prior to the entry into force of the said norm.

The Respondent accordingly concludes by arguing for the dismissal of the Claimant's request, with the contested tax acts remaining valid in the legal order.

PRELIMINARY RULING

The Arbitral Tribunal was properly constituted and has competence.

The parties have tax and judicial capacity and have standing (Articles 4 and 10(2) of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities and no obstacle arises to the consideration of the merits of the case.

II - REASONING

FACTUAL MATTER

A. Facts Proved

The following facts are considered proved:

  1. The Claimant was, in 2013, the parent company of a group of companies (Group A…) subject to the special taxation regime for groups of companies (RETGS);

  2. The Claimant filed, on 20-05-2014, its consolidated IRC return Form 22 for the fiscal year 2013, having at that moment proceeded with the self-assessment of the said tax;

  3. A consolidated fiscal result was calculated in the amount of EUR 1,257,611.34 (one million, two hundred and fifty-seven thousand, six hundred and eleven euros and thirty-four cents) and a total amount of autonomous taxes of EUR 61,424.54 (sixty-one thousand, four hundred and twenty-four euros and fifty-four cents);

  4. Under tax benefits, a total amount of EUR 1,753,767.99 (one million, seven hundred and fifty-three thousand, seven hundred and sixty-seven euros and ninety-nine cents) was declared relating to the application of the Fiscal System of Tax Incentives for Business Research and Development, of which EUR 1,439,365.15 (one million, four hundred and thirty-nine thousand, three hundred and sixty-five euros and fifteen cents) transitions to subsequent periods, after the deduction for the period, in the amount of EUR 314,402.84 (three hundred and fourteen thousand, four hundred and two euros and eighty-four cents);

  5. The Claimant filed, on 24-05-2016, an administrative complaint;

  6. Four months having elapsed without a decision being issued, the Claimant presumed implied rejection for purposes of filing the present request for arbitral pronouncement;

  7. On 23-02-2017, an order of rejection of the administrative complaint referred to in point 5 above was issued by the Chief of Division of the Finance Department of Lisbon.

B. Facts Not Proved

No other facts with relevance to the arbitral decision were proved.

C. Factual Foundation

The factual matter given as proved is based on the documentary evidence presented and not contested.

II – REASONING (CONTINUED)

THE LAW

Modification of the Subject Matter of the Case

Within the timeframe granted for pleadings, the Claimant filed a petition seeking objective modification of the case based on the subsequent issuance (after the filing of the request for arbitral pronouncement) of an order, issued on 23 February 2017, which expressly rejected the administrative complaint filed.

It accordingly requested substitution of the decision of implied rejection by the aforesaid decision of express rejection.

Notified, the Tax Authority made no statement.

Deciding:

Once the implied rejection of the act is formed and that rejection is contested in accordance with the law, subsequently and while the judicial or arbitral proceedings are pending, an express act of rejection came to be issued.

Well then: that express rejection "confirmatory" of the implied rejection does not have relevance or influence on the development of the case or on the stability of the same as configured on the basis of the initial petition.

And, without entering into unnecessary developments, it shall always be stated that the administrative complaint files are (or should have been) immediately attached to this arbitral process, in the state in which they were found at the moment when the (implied) act of rejection was contested, with the decision of the questions raised therein (in the administrative complaint) being transferred from the administrative sphere to the judicial sphere – See Article 111(3) and (5) of the CPPT by virtue of Article 29 of the RJAT.

On the other hand, it should not be forgotten that the act which is truly the object of contestation in arbitral proceedings is the first-instance tax act, that is, in this case, the self-assessment of IRC for the fiscal year 2013, incorporated in Form 22 with the identification code …-… -…[1].

Thus, on the one hand, the Tax Administration took the act (express rejection) at a moment when it was already prohibited from doing so, insofar as the administrative complaint files should have been sent to this arbitral process for attachment as soon as the pendency of the request for arbitral pronouncement was known, that is, on 13-10-2016 [date of notification to the Tax Authority of the filing of this request].

On the other hand, in any case, the issuance of an express tax act confirmatory of an act of implied rejection will always prove wholly useless or ineffective for the development of the case.

For the reasons briefly stated above, there is nothing to be considered or altered with regard to the case resulting from the issuance of the said act of express rejection, with the proceedings continuing their normal course as if such act of express rejection did not exist.

The petition for objective modification of the case filed by the Claimant is accordingly dismissed.

Subject Matter of the Dispute

In light of everything set forth above, it falls to this tribunal to decide whether the deduction of the SIFIDE amount from the total IRC assessment, including autonomous taxes, can be admitted, or whether, on the contrary, autonomous taxes are excluded from the admissible deductions.

With regard to the legislation relevant to this question, attention should be paid to the dates and circumstances at issue in the proceedings, in particular the following articles:

Law No. 40/2005, of 3 August, amended by Law No. 55-A/2010 of 31 December, amended by Law No. 64-B/2011 of 30 December

"Article 4 (Scope of Deduction):

1 - Resident taxpayers of IRC in Portuguese territory who carry out, as a principal or secondary activity, an activity of an agricultural, industrial, commercial or services nature, and non-residents with a permanent establishment in that territory may deduct from the amount calculated pursuant to Article 90 of the Corporate Income Tax Code, and up to its amount, the value corresponding to expenses with research and development, to the extent that it has not been subject to financial participation by the State with no claim for return, incurred in the taxation periods from 1 January 2011 to 31 December 2015, at a dual rate:

a) Base rate - 32.5% of expenses incurred in that period;

b) Incremental rate — 50% of the increase in expenses incurred in that period in relation to the simple arithmetic mean of the two preceding fiscal years, up to the limit of (euros) 1,500,000.

2 - (...)

3 - The deduction is made, pursuant to Article 90 of the Corporate Income Tax Code, in the assessment relating to the taxation period mentioned in the preceding number.

4 - Expenses which, due to insufficient assessment, cannot be deducted in the fiscal year in which they were incurred may be deducted up to the 6th immediately following fiscal year."

"Article 5 (Conditions)

Only those taxpayers of IRC may benefit from the deduction referred to in Article 4 who cumulatively fulfil the following conditions:

a) Their taxable profit is not determined by indirect methods;

b) They are not indebted to the State and to social security for any taxes or contributions, or have their payment duly guaranteed."

Corporate Income Tax Code

Article 90:

"1. The assessment of IRC is carried out as follows:

a) When the assessment is to be made by the taxpayer in the returns referred to in Articles 120 and 122, it is based on the taxable base contained therein;

b) (...);

c) In the absence of assessment pursuant to the preceding subparagraphs, it is based on the elements available to the tax administration.

2 - From the amount calculated pursuant to the preceding number, the following deductions are made, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

c) That relating to the special payment on account referred to in Article 106;

d) That relating to withholding tax not susceptible to compensation or reimbursement under the terms of applicable legislation. (...)

  1. When the special taxation regime for groups of companies is applicable, the deductions referred to in number 2 relating to each of the companies are made in the amount calculated in relation to the group, pursuant to number 1. (...)."

From reading the articles alone, it becomes evident that it was Article 4 of the first statute that defined what should be understood as assessment for purposes of applying the tax benefit. To that extent, it would be the interpretation to be made of this rule that determined the amount of the deduction to be made.

According to the Claimant's interpretation, the amount to be taken into account will correspond to the totality of the assessment calculated, including the amount assessed as autonomous taxes. According to the Respondent, in essence, there would only be a right to deduction of the tax benefit if there is taxable profit.

As the Respondent rightly argues, in analyzing the question it must be taken into account that autonomous taxes exist to discourage certain behaviors of taxpayers that may affect taxable profit, so that the admissibility of their deduction would remove the intended effect by the legislator.

On the other hand, as the Claimant argues, it is true that tax benefits are "measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to the taxation itself that prevents them". In this case, the relevance is so great that the legislator expressly determined that this benefit is excluded from the limitations provided for in Article 92 of the CIRC.

The question was, as mentioned, whether the amount of autonomous taxes can be understood as falling within the tax calculated pursuant to Article 90 of the CIRC, in the terms and for the purposes of the provision of Article 4 of the said statute, or whether such assessment derived from autonomous taxes is, a priori, excluded from such rule.

In this regard, it should be taken into account that Article 90 of the CIRC referred to all forms of assessment of IRC, whether by the taxpayer or by the Administration, regardless of the source of the tax, given that there was no rule that expressly provided for a specific form of assessment particular to autonomous taxes. The differences between the general IRC assessment and the assessment of autonomous taxes related to the determination of the taxable matter and the rates applied, but not to the form of assessment. Therefore, the tax calculated under Article 90 of the CIRC would necessarily include, in the absence of particular provision, the assessment corresponding to autonomous taxes.

By application of the SIFIDE rules, even if there were no taxable profit, the tax credit could be deducted up to the amount of autonomous taxes, which is why the self-assessment in question appeared to suffer from a defect of violation of law which would justify its annulment.

However, Article 133 of Law No. 7-A/2016, of 30 March, altered the wording of Article 88 of the CIRC, clarifying that the assessment of autonomous taxes is made pursuant to Article 89 of the CIRC – without any reference to Article 90 of the CIRC – with no deductions being admissible.

Pursuant to Article 135 of this law, the new wording of Article 88(21) of the CIRC has an interpretative nature. This means that, in light of what Article 13(1) of the Civil Code provides, "The interpretative law is integrated into the law interpreted, with the effects already produced by the performance of the obligation, by a sentence which has become final, by settlement, even if not approved, or by acts of an analogous nature being preserved". That is, this rule, having an interpretative character, is of immediate application, integrating the interpreted rule as if such legal provision had always existed.

In light of this change and given the interpretative character of the rule, it is necessary to analyze the implications for the case at hand.

It is immediately clear that the change introduced determined, for these situations, the distinction and autonomy of the processing of IRC in the strict sense. Two manifestly distinct and individualized procedures are then determined: one for the IRC assessment and another for the assessment under autonomous taxation. Limits were then determined, and in an interpretative manner, to the way of understanding the tax benefit in question.

It is now the law, and its literal interpretation, that does not permit the deduction to be made. All the more so when it is a regime, that of autonomous taxation, which is exceptional in the legal-constitutional framework, and which therefore has provisions that should be interpreted in a restrictive manner and in respect for the letter of the law. Having altered the wording of Article 88 of the CIRC with interpretative effects, the tax interpreter has no alternative other than to apply the rule as it exists today, as if such wording had always existed.

This would not be the case only if this solution were incompatible with rules of higher rank, namely constitutional rules. As this is not the case, in accordance with the principle of the supremacy of law, the interpretative rule should be applied, there being no constitutional objection thereto.

On this point, it should be noted that, although in tax matters the constitutional principles of legality and prohibition of retroactivity of law, provided for in Article 103 of the CRP, impose certain restrictions on the legislator, this tribunal considers that there is no generic constitutional prohibition of interpretative tax laws.

This tribunal accordingly does not agree with the position defended by J.L Saldanha Sanches[2] who concluded that "And therefore it does not appear to us that the interpretative law can have a place in tax matters: if until now what was at issue were the falsely interpretative laws, the constitutional revision came to prevent the retroactive effects of any rule in tax matters. Including those provoked by interpretative law." In the same way, it is considered that, in light of the most recent case law of the Constitutional Court on the interpretation and delimitation of the scope of the principle of prohibition of retroactivity in tax matters[3], the conclusions of Decision No. 172/2000, of 22-03-2000, issued in proc. 762/98, of this Court would not justify an absolute prohibition of interpretative laws.

The constitutional admissibility of interpretative laws in tax matters – just as with respect to any rules of a fiscal nature – should be assessed based on the matters they address and their respective normative content, since the constitutional prohibition of retroactivity of tax law is limited to the matters of application (objective, subjective, temporal and territorial) of the tax.

Indeed, as Casalta Nabais writes[4] from the wording of Article 103(3) of the CRP, there results "(…) the prohibition of retroactive tax rules that burden or aggravate the legal situation of taxpayers (…)" (emphasis ours).

The same is defended by Diogo Leite de Campos, Benjamin Silva Rodrigues and Jorge Lopes de Sousa[5], "The constitutionality of retroactive tax rules must be assessed differently depending on whether they concern the material elements that contribute to the definition of the tax normative type (incidence, exemptions and rates) or other matters (protection of taxpayers, procedure for assessment and collection). The prohibition contained in Article 103(3) of the CRP concerns only the former. The constitutional conformity of the latter must be evaluated in light of the material principles of legal certainty and protection of legitimate expectations that form the basis of the Rule of Law (Article 2 of the CRP)".

And the truth is that the practice in case law, of which examples are the decisions of the Supreme Administrative Court of 21-03-2012, proc. No. 830/11, and of 16-05-2012, proc. No. 675/11, has admitted the existence of interpretative laws of fiscal scope.

Starting, therefore, from the theoretical admissibility of interpretative laws in tax matters, it falls to analyze whether, in the case at hand, notwithstanding the express declaration of the legislator, we are truly faced with an interpretative law.

For Ferrer Correia[6] "In the absence of other elements that would allow interpretative value to be given to a rule, the fundamental criterion to use for this purpose is that 'the principle contained in the new law may be considered as inherent in the earlier law. Now this requirement should be deemed satisfied whenever it can be said that courts would normally, in the field of the previous legislation, decide in accordance with such a principle. (…) For, if this presupposition is verified, the reasons underlying the principle of non-retroactivity of law cease, which are embodied in the protection of acquired rights and the expectations conceived by individuals in acting under the rules of the preceding law. If the case law was clearly favorable to a certain understanding of the previous legislation, and the new law comes to confirm it expressly, there is no reason not to define this law as interpretative and as such applicable even to the past. In essence, no one could complain of violations of subjective rights or frustration of expectations, since interested parties, had they resorted to courts to enforce a supposed right or to have a certain situation clarified, would probably not have obtained a result different from that which now becomes certain".

This is also the understanding of Baptista Machado[7] who concluded that "the reason why the interpretative law applies to facts and situations prior to it lies fundamentally in the fact that it, by enshrining one of the possible interpretations of the old law that interested parties could and should have relied upon, is not susceptible to violating safe and legitimately founded expectations". In these cases, there is no true retroactivity in the application of the interpretative law because the interpretation of the original rule effected in light of the legal framework in force would lead to the same solution as that enshrined by the legislator in a later rule.

It is accordingly considered that, in order to qualify a law as interpretative, the following requirements should be verified:

(i) there is a disputed or uncertain question in the law in force; and

(ii) the legislator enshrines an interpretative solution that resolves the uncertainty that the interpreter or adjudicator would reach based on the rule in force prior to the legislative amendment.

Applying these criteria to the situation at hand, we are led to conclude that we are truly faced with an interpretative law. In fact, the matter regulated by the new Article 88(21) of the CIRC was controversial and uncertain (having given rise to the arbitral proceedings listed by the Claimant and the Respondent), with the solution enshrined corresponding to one of the plausible interpretations that the adjudicator would reach, as in fact it did, for example, in the arbitration decisions issued in procs. No. 697-2014-T and No. 722/2015-T. It is true that the solution enshrined in law does not correspond to the interpretation indicated at the beginning of this decision, but it does remain a plausible and well-founded solution that found adherence in prior case law.

Against this understanding, the allegation that, in order to be faced with a truly interpretative law it would be necessary for there to be a jurisprudential trend that imposed a particular solution on the legislator, which would not be verified in the present situation as there are diverse decisions in the opposite sense, as detailed by the Claimant, does not hold up.

And this allegation does not hold because, as Baptista Machado states[8] "(…) It is not necessary that the law come to enshrine one of the previous jurisprudential trends or a strong prior jurisprudential trend. All the more so because the interpretative law frequently emerges before such jurisprudential trends come to form. (…) For a new law to be truly interpretative, therefore, two requirements are necessary: that the solution of the previous law be disputed or at least uncertain; and that the solution defined by the new law falls within the framework of the dispute and be such that the adjudicator or the interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of law. If the adjudicator or the interpreter, in face of old texts, could not feel authorized to adopt the solution that the new law comes to enshrine, then this is decidedly innovative." (emphasis ours).

Essential, therefore, is that the solution enshrined by the legislator could be ascertained by the interpreter or adjudicator within the normative framework in force and within the scope of the dispute or uncertainty generated by the rule. As already mentioned, although the solution enshrined by the legislator is not that which this tribunal could reach, the truth is that it corresponds to a possible interpretation within the framework of the dispute, logically sustained in other prior (arbitral) decisions.

In addition, this conclusion regarding the interpretative character of the new Article 88(21) of the CIRC, with the inherent application thereof pursuant to Article 13 of the Civil Code, does not violate the principle of prohibition of retroactivity of tax law arising from Article 103(3) of the CRP because, as stated above, the constitutional principle in question prohibits the creation of retroactive taxes, thus limiting its scope of application to matters of subjective, objective, temporal and territorial application of the tax. Now, in the case at hand, what is not being discussed is the application, rate or quantum of the assessment due as autonomous taxes, which remains unchanged; what is being discussed is the obligation to make a disbursement of that assessment in favor of the State, preventing compensation with a tax credit arising from the SIFIDE regime. The tax obligation is exactly the same; what could differ is the payment obligation and, as stated above, this matter does not enjoy any special constitutional protection.

Finally, it cannot be concluded that the assignment of interpretative nature to the rule in question puts into question the principle of legal certainty because, by adopting the rule an interpretation that is plausibly possible (which is manifestly the case), the tribunal is not violating any founded expectations. The interpretation that is now admitted was viable before the appearance of the interpretative law. For these reasons, with this solution constitutional principles are not offended, whether the constitutional prohibition of retroactive tax rules, or the principle of legal certainty.

In light of the foregoing, it is considered that the alleged illegality of the act of self-assessment of IRC for 2013 does not occur, wherefore the Claimant's request will be dismissed.

III - DECISION

In accordance with the foregoing, the Arbitral Tribunal agrees in deciding the request for arbitral pronouncement to be entirely without merit and, in consequence, absolves the Respondent of the request, maintaining as valid the acts of self-assessment of IRC for the year 2013 and the decision of rejection of the administrative complaint filed against the same.

Value of the Proceedings

In accordance with the provisions of Article 306, numbers 1 and 2 of the Code of Civil Procedure, approved by Law No. 47/2013, of 26 June, Article 97-A, number 1, subparagraph a) of the Code of Tax Procedure and Process, and Article 3, number 2 of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are valued at € 61,424.54.

Costs

Pursuant to Articles 12(2) and 22(4) of the RJAT, and Articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Schedule I attached hereto, the costs are fixed in the amount of 2,448.00 €, to be borne by the Claimant, as previously decided.

Let it be notified.

[Text prepared by computer, pursuant to the provisions of Article 131 of the Code of Civil Procedure, applicable by reference from Article 29(1) of the Legal Framework for Arbitration in Tax Matters, with blank spaces and reviewed by the collective of arbitrators].

[The wording of this decision is governed by the orthography in use prior to the 1990 Orthographic Agreement].

Lisbon, 31-05-2017

The Collective Arbitral Tribunal,

José Poças Falcão
(President)

Diogo Feio
(Member)

Maria Forte Vaz
(Member)

[1] Even in state court proceedings it was already understood that the real subject matter of the contestation is the act of assessment and not the act that decided the administrative complaint, so that it is the defects of the former (assessment) and not of this order that are truly at issue; hence the contestation is not limited by the grounds invoked in the administrative complaint, and may be based on any illegality of the tax act (See Decision of the Supreme Administrative Court of 18 May 2011, Proc. No. 0156/11).

[2] See "Interpretative Law and Retroactivity in Tax Matters", Fiscality, No. 1, January 2000, p. 77 et seq.

[3] Decision No. 310/2012, of 20 June, and Decision No. 399/2010, of 27 October.

[4] See Tax Law, Almedina, 3rd Edition, p. 148.

[5] See General Tax Law Annotated and Commented, Encontro de Escrita, 4th Edition, 2012.

[6] See Collection of Case Law, Year XIV, Volume IV, p. 35.

[7] See Introduction to Law and Legitimizing Discourse, Almedina, Coimbra, 1994, p. 246 et seq.

[8] Work cited, p. 246-247.

Frequently Asked Questions

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Can SIFIDE tax credits be used to offset autonomous taxation (tributações autónomas) under Portuguese IRC?
According to the arguments presented in CAAD Decision 605/2016-T, the deductibility of SIFIDE tax credits from autonomous taxation is disputed. The claimant argued that since autonomous taxes are IRC assessed under Article 90 CIRC, SIFIDE credits calculated under that article should be deductible regardless of taxable profit existence. However, the Tax Authority maintained that IRC has a dualistic structure with separate calculations—autonomous taxation under Article 88 taxes specific expenses for anti-evasion purposes, while standard IRC taxes profits. The Authority contended that Article 90(2) deductions, including SIFIDE, apply only to the profit-based IRC component to preserve the tax's conceptual coherence. Portuguese tax precedent generally supports the position that autonomous taxation and SIFIDE serve distinct policy objectives and operate independently within IRC's framework.
What is the legal relationship between autonomous taxation and corporate income tax (IRC) in Portugal?
Autonomous taxation (tributações autónomas) exists within the Portuguese IRC framework but operates distinctly from standard corporate income tax. Under Article 88 CIRC, autonomous taxes apply specific rates to certain expense categories (such as company cars, entertainment expenses, and payments to entities in preferential tax jurisdictions) regardless of whether the company has taxable profit. These taxes serve anti-evasion and policy objectives by discouraging certain behaviors. While calculated on the same tax return (Form 22) as standard IRC, autonomous taxation has a separate calculation methodology: standard IRC applies Article 87 rates to profit-based taxable income determined under Chapter III CIRC, whereas autonomous taxation applies Article 88 rates to expense-related bases. This creates what the Tax Authority characterizes as a 'dualistic nature' within IRC—two coexisting taxation modes with different conceptual foundations, calculation rules, and policy purposes, both culminating in a composite IRC assessment under Articles 89-90 CIRC.
How does the CAAD arbitral tribunal handle disputes over IRC self-assessments and SIFIDE deductions?
The CAAD (Centro de Arbitragem Administrativa) handles IRC self-assessment disputes through arbitral proceedings initiated under the RJAT (Legal Framework for Arbitration in Tax Matters - Decree-Law 10/2011). In Decision 605/2016-T, the claimant challenged both an IRC self-assessment and the subsequent rejection of their gracious complaint. The arbitral tribunal was constituted with three arbitrators appointed by the Deontological Council after the CAAD President accepted the request. The proceedings include: (1) filing the arbitration request within the statutory deadline; (2) notifying the Tax Authority to respond; (3) opportunity for pleadings; and (4) issuance of the arbitral decision. The tribunal can address complex interpretative issues such as whether SIFIDE tax credits offset autonomous taxation, examining both the legal framework (CIRC provisions) and the parties' substantive arguments. The CAAD also permits objective modification of proceedings under Article 64 CPTA (applicable via Article 20 RJAT) when circumstances change, such as when an implied rejection becomes an express administrative decision during the arbitral process.
What is the procedure for filing a gracious complaint (reclamação graciosa) against an IRC self-assessment in Portugal?
The gracious complaint (reclamação graciosa) procedure against IRC self-assessments in Portugal is governed by Article 131 CPPT and allows taxpayers to contest self-assessed tax acts within 120 days. In Decision 605/2016-T, the claimant filed a gracious complaint with the Tax Authority regarding the 2013 IRC self-assessment where they had calculated autonomous taxation without deducting SIFIDE credits. When the Tax Authority did not decide within the legal timeframe, an implied rejection occurred, which the claimant initially challenged through CAAD arbitration. The gracious complaint must specify the contested act, grounds for illegality, and requested relief. The Tax Authority has 4 months to decide (extendable in complex cases). If the Authority fails to decide, the complaint is deemed tacitly rejected, enabling the taxpayer to pursue judicial or arbitral review. During the arbitration in this case, the Tax Authority issued an express rejection decision (23-02-2017), prompting the claimant to request objective modification of proceedings to address the express rather than implied decision, ensuring judicial economy by avoiding new proceedings on the same matter.
Can a taxpayer request objective modification of arbitral proceedings when a tacit refusal becomes an express decision?
Yes, Portuguese administrative procedural law permits objective modification of arbitral proceedings when a tacit refusal becomes an express decision. In Decision 605/2016-T, the claimant invoked Article 64 CPTA (applicable to tax arbitration via Article 20 RJAT) to request that the tribunal consider the express rejection decision of 23-02-2017 instead of the originally challenged implied rejection. Article 64 CPTA allows modification of the procedural object to accommodate supervening facts or decisions that fundamentally relate to the same underlying dispute, promoting procedural economy by consolidating related matters in a single proceeding rather than requiring new separate actions. The tribunal permits such modification when: (1) the new decision relates to the same subject matter; (2) modification serves judicial efficiency; (3) the parties' right to adversarial proceedings is preserved through notification and opportunity to respond; and (4) the arbitral tribunal's jurisdiction is not exceeded. In this case, since both the implied and express rejections concerned the same 2013 IRC self-assessment and SIFIDE deduction issue, allowing modification prevented duplicative proceedings while ensuring comprehensive resolution of the dispute.