CAAD 61/2017-T: RFAI/SIFIDE Deduction from Autonomous Taxation IRC

Process: 61/2017-T

Date: September 28, 2017

Tax Type: IRC

Summary

CAAD Decision 61/2017-T addresses whether tax credits under RFAI (Regime Fiscal de Apoio ao Investimento) and SIFIDE (Sistema de Incentivos Fiscais em Investigação e Desenvolvimento Empresarial) can be deducted from autonomous taxation (tributações autónomas) under IRC for corporate groups under the RETGS regime. The case involved a tax group for the 2011 fiscal year challenging €103,654.04 in autonomous taxation. A critical preliminary issue concerned CAAD's jurisdiction: whether an official review request (revisão oficiosa) filed after the gracious objection deadline could satisfy the prerequisite for arbitral jurisdiction. The tribunal ruled affirmatively, citing precedent that administrative means under Article 2(a) of Regulatory Order 112-A/2011 should be interpreted broadly to include official review requests, not just gracious objections under CPPT Articles 131-133. The tribunal reasoned that restricting access to CAAD arbitration more narrowly than access to tax courts would contradict the legislative intent that tax arbitration serve as an alternative to judicial challenge. On the merits, the applicant argued Article 90 CIRC allows deduction of tax credits from autonomous taxation assessments, or alternatively, that autonomous taxation lacks constitutional and legal basis under Article 103(3) of the Constitution and Article 8(2)(a) LGT. The decision reinforces that procedural formalism should not obstruct substantive justice in tax disputes, particularly where taxpayers utilize available administrative remedies before seeking arbitration. This ruling has significant implications for corporate groups under RETGS navigating complex interactions between tax incentive regimes and autonomous taxation obligations.

Full Decision

ARBITRAL DECISION

The undersigned arbitrators José Baeta de Queiroz, João Taborda da Gama and Henrique Fiúza agree as follows:

I. REPORT

A…– SOCIAL PARTICIPATION HOLDING COMPANY, S.A., legal entity number …, with registered office at …, …, covered by the local peripheral services of the tax office of …, filed on 17/01/2017, in its capacity as dominant company and responsible for the self-assessment of corporate income tax (IRC) of the tax group to which, in the taxation period of 2011, the special regime for taxation of group companies (RETGS) was applicable, and which was composed of itself and by the companies B…, S.A., C…, S. A., D…, Ltd., E…, Ltd., F…, S. A., G…, S.A., H…, Ltd., I…, S. A. and J…, S. A., invoking articles 2, no. 1, subsection a), and 10, nos. 1 and 2, of decree-law no. 10/2011 of 20/01 (RJAT), and 1 and 2 of regulatory order no. 112-A/2011 of 22/03, a request for constitution of an arbitral tribunal, formulating the following claim:

"it should be declared the illegality of the dismissal of the aforementioned official review request better identified and, as well, the illegality of the self-assessment of IRC, including autonomous taxation rates, of Tax Group K…, relating to the financial year 2011, as regards the amount of autonomous taxation rates in IRC of € 103,654.04, with its consequent annulment in this part, by improper removal of the deduction from the assessment, given the manifest illegality of the assessment in this part, with all legal consequences, namely the reimbursement to the applicant of this amount, plus compensatory interest at the legal rate counted, until full reimbursement, from 1 September 2012.

Alternatively, should it be considered that article 90 of the CIRC does not apply to autonomous taxation, then it should be declared the illegality of the assessment of autonomous taxation (and be consequently annulled) due to absence of legal basis for its effectuation (cf. article 8, no. 2, subsection a), of the LGT, and article 103, no. 3, of the Constitution), with the consequent reimbursement of the same amount and the payment of compensatory interest counted from the same date".

The applicant did not exercise the faculty of designating an arbitrator, with the President of the Deontological Council of CAAD appointing the undersigned, who accepted the assignment within the legal deadline, without objection from either the Applicant or the Respondent.

The arbitral tribunal was constituted on 28/03/2017.

Notified for this purpose, the Tax Authority responded, defending itself by exception and by challenge, and attached the pertinent administrative file.

The meeting referred to in article 18 of the RJAT was dispensed with, as it was not considered necessary, and the parties were invited to submit written submissions, which they did.

The tribunal set 28/09/2017 as the date for pronouncement of the decision.

II. CLARIFICATION

It is first necessary to decide whether the tribunal is competent, a competence that the Respondent contests, because the Applicant's claim was formulated following a request for official review, filed when the deadline for submitting a gracious objection had already expired.

The Applicant contests this position by stating, in summary, that, in cases of self-assessment, the law is satisfied with the submission of the matter to the Tax Authority, it being equivalent whether it be through the means of gracious objection or official review request.

On this matter there is already substantial case law from CAAD, although not all in the same direction.

We have aligned ourselves with the orientation advocated by the Applicant, with the grounds that, by transcription, are extracted from the judgment rendered on 20/10/2016 in case 134/2017-T:

"The Respondent sustains, in its response, that the binding of the Tax Administration to the Arbitral Tribunal depends, in cases of self-assessment – as is the case in the present proceedings – on prior recourse to the administrative means provided in articles 131 to 133 of the Code of Tax Procedure and Process.

The Applicant, not challenging this rule nor having denied that it did not submit any prior objection, defends itself through the alleged equivalence of the request for official review of the tax act, having been this the means it chose to challenge through the administrative route the acts here impugned.

It is this, then, and it is simple, in our view, the vexata quaestio: the enumeration provided for in the RJAT, when referring to the prior administrative contentious means as being those provided in articles 131 to 133 of the CPPT, is exhaustive, or does this rule admit that the challenge was preceded by other means of gracious attack, other than these?

Let us see:

By virtue of the referral in no. 1 of article 4 of the RJAT, the binding of the Tax Authority to the jurisdiction of Arbitral Tribunals constituted in accordance with that diploma is dependent on the provisions of Regulatory Order no. 112-A/2011, namely as regards the type and maximum value of the disputes covered.

Article 2, subsection a) of Regulatory Order 112-A/2011 provides that the binding of the Tax Authority to the aforementioned jurisdiction has as its object the examination of claims relating to taxes the administration of which is incumbent upon it, referred to in no. 1 of article 2 of the RJAT, "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 means in accordance with articles 131 to 133 of the Code of Tax Procedure and Process".

However, among the reasons advanced by the Respondent, no substantial reason appears for why, given the conditions and specificities inherent to each of the gracious means in question, the legality of self-assessment acts should not be cognizable in arbitral proceedings, in the same manner in which tax courts are bound. Moreover, even a strictly literal interpretation, provided it is properly contextualized, would not lead to the result advocated by the Respondent.

In fact, the expression employed by the rule in question is parallel to the actual rule of article 131/1 of the CPPT, which should be understood as a concretization of the legislatively recognized intention that the tax arbitral process constitutes an alternative procedural means to the judicial challenge process.

The rule of subsection a) of article 2 of Regulatory Order 112-A/2011, of 22 March, should also be understood as explained by the circumstance that, in its absence – and given the tenor of article 2 of the RJAT – it would appear possible the direct challenge of self-assessment acts without the precedence of prior administrative pronouncement.

That is to say, taking into account that in view of the RJAT it was not configured as necessary any administrative intervention prior to the arbitral challenge of a self-assessment, the content of the Regulatory Order must be interpreted as equating – in this matter – the tax arbitral process to the judicial challenge process and not, as would result from the position sustained by the Respondent, reversing from 80 to 8, taking on an impugnability broader than that possible in the Tax Courts, and transmuting it into a more restricted one.

Thus, no reason is seen for interpreting one and the other rule differently, all the more so since the letter of the rule of Regulatory Order 112-A/2011, of 22 March, turns out to be less restrictive than that of the CPPT, in that it does not integrate the expression "compulsorily", nor does it refer to "gracious objection", but to "administrative means".

Hence it is possible to have a reading of the very letter of the law that is contained in the sense that only 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 means in terms compatible with articles 131 to 133 of the CPPT is excluded from the scope of tax arbitral jurisdiction.

And it is this reading that is subscribed to, following the Judgment rendered in case 48/2012-T of CAAD and subsequent arbitral case law, namely in cases 670/2015 and 122/2016, and it is not conceived, to the extent that the interpretation effected is contained in the letter of the law, that therefrom may result the violation of any constitutional provision, especially those indicated in articles 2, 3, no. 2, 111 and 266, no. 2, all of the Constitution of the Portuguese Republic (CRP)".

Thus, and in view of all of the above, which is endorsed, the Respondent being without merit on this matter, the exception of incompetence of the Arbitral Tribunal is judged to be without merit.

The Tribunal was regularly constituted, the parties have legal personality and capacity, are shown to be entitled and are regularly represented.

There are no further exceptions to decide, nor nullities or questions that constitute an obstacle to the examination of the merits of the case.

III. FACTUAL MATTERS

A) The Applicant A…, S.A., is the dominant company and responsible for the self-assessment of the corporate income tax (IRC) of the tax group to which, in the taxation period of 2011, the special regime for taxation of group companies (RETGS) was applicable.

B) The group was composed of itself and by the companies B…, S.A., C…, S. A., D…, Ltd., E…, Ltd., F…, S. A., G…, S.A., H…, Ltd., I…, S. A. and J…, S. A..

C) The applicant filed on 30 May 2012 the IRC declaration Model 22 relating to the financial year 2011 of its tax group and subsequently a substitute declaration, having assessed autonomous taxation in IRC in the amount of € 103,654.04.

D) The Tax Authority's computer system, through which IRC is self-assessed, did not allow the Applicant to deduct SIFIDE and RFAI from the IRC resulting from autonomous taxation.

E) The amount of SIFIDE, available for utilization at the end of the financial year 2011, amounted to € 1,397,944.19, and that of RFAI to € 958,693.58.

F) The applicant requested official review of the self-assessment on 15 March 2016, with this request being dismissed by order of 6 October of the same year.

G) The companies that were part of the tax group at the origin of SIFIDE and RFAI are not and were not then entities owing to the State and to social security any taxes or contributions.

H) It appears from the information set out in the contested order:

"The rules applicable to autonomous taxation should not be contrary to the spirit that determined them.

And in order to respect that purpose which established them, it is necessary to evaluate the legislator's intention taking into account all factors.

Thus, given that autonomous taxation aims to reduce the tax advantage achieved by the deduction in tax results of expenses on which it is levied and also to combat tax evasion which this type of expenses, by their nature, encourages, it cannot, through the deduction of a tax benefit, permit the limitation of that reduction in advantage intended and determined by the legislator.

The legislator imposes the payment of autonomous taxation irrespective of the existence of taxable matter, or not, for IRC purposes.

Indeed, when a situation of losses occurs, and therefore no taxable matter is assessed and consequently no tax payment, these autonomous taxation rates are even increased.

Thus, it would be contrary to the spirit of the system to permit that, by force of the deductions referred to in no. 2 of article 90 of the CIRC, that anti-abusive character which presided over the implementation of autonomous taxation in the IRC system be removed from autonomous taxation.

Furthermore, and without prejudice to what has been set out above, it must be stressed that this understanding was recently subject to legislative consecration, as article 133 of Law no. 7/2016, of 30 March (State Budget Law for 2016) added to article 88 of the CIRC no. 21 with the following wording: "The assessment of autonomous taxation in IRC is/ carried out in accordance with the terms provided in article 89 and is based on the values and rates that result from the provisions in the preceding numbers, no deductions whatsoever being made to the overall amount assessed." , this rule having an interpretative nature in accordance with the provisions of article 135 of the aforementioned Law.

In conformity with the foregoing it is concluded that the tax credit relating to tax benefits, whether the value relating to the own financial year or that which results from the impossibility of deduction in prior periods — is not susceptible to being offset against the amount of autonomous taxation due in each taxation period.

Wherefore, the present request should be dismissed to the extent that, contrary to what is advocated by the Applicant, no error is apparent in the self-assessment susceptible of leading to the correction of the tax act in question".

And furthermore:

"Article 90, no. 1 subsection a) of the CIRC states that the assessment of IRC is based on the taxable matter shown in the declarations referred to in articles 120 and 122 of the same diploma.

And in its no. 2 that: 'To the amount assessed in accordance with the preceding number the following deductions are made, in the order indicated:

The one corresponding to international legal double taxation;

The one corresponding to international economic double taxation;

That relating to tax benefits;

That relating to the special payment on account referred to in article 106;

That relating to withholdings at source not susceptible to compensation or reimbursement in accordance with applicable legislation',

The taxable matter is obtained by deducting from the taxable profit the amounts corresponding to tax losses and tax benefits deductible from taxable profit (cf. article 15, no. 1, subsection a), of the CIRC). For its part, taxable profit is constituted by the algebraic sum of the net result of the period and the positive and negative variations in assets verified in the same period and not reflected in that result, determined on the basis of accounts and possibly corrected in accordance with this Code" (cf. article 17 no. 1 of the CIRC).

Once the taxable matter is assessed, the respective IRC rate, provided for in article 87 of the CIRC, as of the date of the respective taxable events, shall be applied to it, thereby calculating the corresponding assessment of IRC.

It is only to the amount of the IRC assessment calculated in accordance with no. 1 of article 90 of the CIRC that the deductions indicated in its no. 2 are made, in the order designated and taking into account the other limitations legally established by the CIRC.

Now autonomous taxation has a completely "autonomous" and distinct assessment from the assessment of the assessment carried out in accordance with no. 1 of article 90 of the CIRC: It is settled that autonomous taxation taxes certain expenses and specific charges and not income, they are taxes that penalize certain charges incurred by companies, as has already been referred to above, therefore, they are assessed independently from the assessment of the IRC assessment.

It is also the understanding of these services that autonomous taxation forms part of the IRC regime and is due by title of this tax, but does not constitute IRC in the strict sense. Thus, from the outset we find that the legislator has incorporated autonomous taxation, effectively and unequivocally in the IRC regime as results from the tenor of article 12 of the CIRC and, currently, of subsection a) of no. 1 of article 23-A of the same code.

Now the same does not result from nos. 1 and 2 of article 90 of the CIRC in which, from the outset, there is no reference to autonomous taxation

To effect the deductions provided for in no. 2 of article 90, more specifically the deduction of tax benefits by insufficient assessment and if they are still available for deduction, to the amount relating to autonomous taxation is a sense that finds no support in the legal text, and therefore cannot be accepted such interpretation, as prescribed by article 9 nos. 2 and 3 of the Civil Code.

In fact, if that had been the legislator's intention, it would have stated so expressly, providing to the effect that 'to the amount assessed in accordance with the preceding number and article 88 the following deductions are made, in the order indicated'.

As has already been stated, the birth of the tax obligation in autonomous taxation is materially distinct from the fact that generates the tax imposition in the area of IRC — whereas in one it results from an instantaneous fact, in the other it is via a continuous fact, whereas in one certain types of expenses are taxed, in the other income is taxed. Whence it follows that tax may be due by title of autonomous taxation, independently of the existence of an IRC assessment or even of taxable profit (ex: article 12 of the CIRC - fiscal transparency companies).

Given that autonomous taxation aims to reduce the tax advantage achieved by the deduction of expenses on which it is levied and also combat tax evasion which this type of expenses by its nature encourages, giving it an anti-abuse character, it would be contrary to the spirit of the system to permit that. by force of the deductions referred to in no. 2 of article 90 of the CIRC, that anti-abuse character which presided over the implementation of autonomous taxation in the IRC system be removed from autonomous taxation".

Grounds for facts proved

The tribunal formed its conviction based on the examination of the documents attached to the file, whose authenticity and veracity were not called into question.

Facts not proved

With relevance to the decision of the case, no fact remained unproved.

IV. GROUNDS FOR THE REQUEST

The Applicant alleges that it submitted the IRC declaration Model 22 of its Tax Group relating to the financial year 2011, and at that time proceeded to the self-assessment of autonomous taxation in IRC, in the amount of € 103,654.04.

It filed a request for official review, which was dismissed.

It challenges that dismissal and the aforementioned act of self-assessment of IRC of the Group, to the extent that it did not permit the deduction from the part of the IRC assessment produced by autonomous taxation rates of the benefit under the System of Tax Incentives for Research and Business Development (SIFIDE) and the Special Support Regime for Investment (RFAI), which resulted in tax being illegally assessed in the financial year 2011 in the said amount, or, alternatively, to the extent that autonomous taxation is illegally assessed.

Now, the IRC assessment provided for in (in force until 2013) article 45, no. 1, subsection a), of the CIRC, comprises autonomous taxation in IRC, and the assessment provided for in article 90, no. 1, and no. 2, subsections b) and c), of the CIRC, in the wording in force in 2011. Whence the denial of the deduction of SIFIDE and RFAI from the IRC assessment of autonomous taxation violates subsections b) and c) of no. 2 of article 90 of the CIRC (previously to 2010 article 83).

Understanding that in that article 90 of the CIRC the IRC assessment resulting from autonomous taxation is not included (calculated in accordance with article 88), but only the IRC assessment resulting from taxable profit (calculated in accordance with article 87), it would have to be concluded that the assessment of the autonomous taxation itself is, in itself, illegal, by force of both article 8, no. 2, subsection a), of the General Tax Law, and article 103, no. 3, of the Constitution of the Portuguese Republic.

Understanding that it is not possible to deduct tax benefits for application to amounts due by title of autonomous taxation, its assessment has no framework in the IRC assessment rule enshrined in article 90 of the IRC Code, then requests, on a subsidiary basis, that the self-assessment of the taxation period 2011 be annulled, in the part corresponding to autonomous taxation, on the grounds that the same were assessed and collected without legal basis for so doing.

The State Budget Law for 2016 (Law no. 7-A/2016, of 30 March reiterated that article 89 of the CIRC also applied to the assessment of autonomous taxation (part 1 of the new no. 21 of article 88 of the CIRC). Inexplicably, it did not expressly reiterate that article 90 of the CIRC also applies to the assessment of autonomous taxation, which, given from the outset the tenor of its no. 1, which concretizes what had been announced in the preceding article 89, the Applicant does not understand.

The legislator in the context of the State Budget Law for 2016 chose to exclude the application of part of the provisions of article 90 of the CIRC to the IRC assessment, to the assessment of autonomous taxation in IRC (part 2 of the new no. 21 of article 88 of the CIRC).

In contradiction with what is suggested by the text of article 135 of the State Budget Law for 2016, as regards no. 21 of article 88 of the CIRC, the State Budget Law for 2016 did not merely alter a pre-existing provision. No. 21 is in its entirety a new provision.

It contends that the legislator, when it attributed an interpretative character "to the wording given by the present law to no. 21 of article 88 of the CIRC", article 135 of the State Budget Law for 2016 meant to refer to part 1, and not to part 2 of the said no. 21.

The regime for the application of laws over time provided for in the Civil Code (which includes article 13 thereof), does not apply as regards matters that have a special regime for the purpose, in obedience to distinct principles, as is the case (currently) of taxes: cf. article 12 of the LGT and article 103, no. 3, of the Constitution.

Whence the conclusion that the attribution of an interpretative nature to a tax rule does not by itself trigger the application of the regime for the application of laws over time provided for in the Civil Code.

Both article 89 and article 90, nos. 1 and 2, of the CIRC, refer to IRC, to all IRC. Both parts, 1 and 2, of the new no. 21 of article 88 of the CIRC, cannot simultaneously be interpretative of what articles 89 and 90 of the CIRC provide, in opposite senses - in the sense that the IRC of article 89 also includes autonomous taxation (part 1 of no. 21 of article 88), and in the opposite sense that the IRC of article 90, at least that of its no. 2, does not include autonomous taxation. Only part 1 has an interpretative nature. Part 2 of the new no. 21 of article 88 of the CIRC has an innovative character.

If it is understood (i) that article 135 of the State Budget Law for 2016 (Law no. 7-A/2016, of 30 March) attributed an interpretative nature also to part 2 of the new no. 21 of article 88 of the CIRC, that is, also to the normative segment "no deductions whatsoever being made to the overall amount [of autonomous taxation in IRC] assessed", introduced by the same State Budget Law for 2016 (by its article 133), (ii) and that therefrom would result the application of article 13 of the Civil Code as it prescribes the retroactive application of interpretative laws, then one is faced with a material unconstitutionality of the said article 135 of the State Budget Law for 2016, for violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3 of the Constitution, whether or not it has been concluded (and it understands that it has not) that one is faced with a materially interpretative law, and for violation, also, of the principle of separation of powers and of the principle of independence of the judicial power.

Violation, also, of articles 2 (democratic rule of law, and separation and interdependence of powers, and as regards this latter aspect in the case there is at issue the perspective of interdependence – and consequently negation of excesses and occupation of space that does not belong to it – of the political-legislative power facing the judicial power), 111, no. 1 (separation and interdependence of organs of sovereignty, which is still a material limit on review – article 288, subsection j), of the Constitution), and 203 (independence of courts, another material limit on review – article 288, subsection m)), all of the Constitution.

Finally the Applicant understands that, having paid tax in an amount exceeding that legally due, declared that the illegality of the (self-)assessment in the part petitioned, it has the right not only to the respective reimbursement but, also, under article 43 of the General Tax Law ("LGT"), to compensatory interest, calculated on € 103,654.04, counted from 1 September 2012. It invokes that the error from which the (self-)assessment suffers results from error by the Services on the assumptions of law that conditioned informatically the completion of the declarations (Model 22) of self-assessment, aggravated further by the dismissal of the request for official review.

GROUNDS OF THE TAX AUTHORITY AND CUSTOMS

The Tax Authority contradicts the grounds alleged by the Applicant, reaffirming the position assumed when deciding on the request for official review.

Beyond the development of the arguments expended in the response, the grounds of the position of the Tax Authority are, natural and necessarily, those contained in the order dismissing the request for official review, transcribed in the factual matters.

The Tax Authority points out that "The computer system cannot permit or enshrine what the law does not provide, i.e., the Tax Authority's computer systems and applications should be a mere reflection of the legal provisions in force at each moment".

It adds, finally, that compensatory interest would never be due from the date indicated by the Applicant, but only from the dismissal of the request for official review.

V. THE LAW

1.1. Autonomous taxation and IRC assessment

The question submitted to the examination of the Arbitral Tribunal is to ascertain whether the Applicant has the right to proceed with the deduction, also from the IRC assessment produced by the application of autonomous taxation rates, of the tax credit from SIFIDE and RFAI, and if so, whether the self-assessment of IRC for the financial year 2011 is illegal.

Also submitted to the Tribunal is, on a subsidiary basis, should it give a negative answer to the first question, the question of the possible illegality and consequent annulment of the assessment of autonomous taxation, for absence of legal basis for its assessment.

The Tribunal is also called upon to pronounce itself on the right to compensatory interest on the amounts paid as a consequence of the self-assessment at issue.

It is therefore necessary to decide on the merits of the request for arbitral decision on the assessment of IRC sub judice and the possible right of the Applicant to compensatory interest.

In this decision we shall follow very closely what was decided in cases no. 749/2015-T, of 15 July 2016, and no. 360/2016-T, of 16 February 2017, presided over by the same arbitrator who also acts in that capacity here.

Let us see:

The regime of autonomous taxation in force in the financial year 2011 is the result of numerous legislative changes.

The subjection of certain expenses to autonomous taxation emerged with Decree-Law no. 192/90, of 2 June, in a context of penalizing the taxation of confidential or undocumented expenses incurred by companies.

Subsequently, autonomous taxation was included in the IRC Code, through Law no. 30-G/2000, of 29 December, which integrated the provision of autonomous taxation in the diploma that regulates IRC.

Since then, the regime of autonomous taxation has been undergoing a process of progressive expansion, partly dictated by the apparent continuous intention to increase tax revenue through this mechanism.

Taking into account article 88 of the IRC Code, autonomous taxation generally applies to the following realities: undocumented expenses; charges relating to vehicles; representation expenses; allowances; payments made to non-residents; profits distributed by entities subject to IRC to taxpayers who benefit from exemption; expenses or charges relating to indemnities or any compensation owed not related to the contractual relationship; and also expenses or charges relating to bonuses and other variable remuneration paid to managers, administrators or directors.

The State Budget Law for 2014 introduced some changes in the provision of autonomous taxation, which, however, were not only not especially relevant but also offer no contribution to the present discussion.

Article 23-A, no. 1, subsection a), of the IRC Code, in the wording of Law no. 2/2014, of 16 January, leaves no room for any reasonable doubt. In fact, the wording of the said rule introduced by Law no. 2/2014, of 16 January, provides that "IRC, including autonomous taxation, and any other taxes which directly or indirectly affect profits" are not fiscally deductible. The positioning of the two commas in the letter of the law, one before and the other after the expression "including autonomous taxation", contained in the current wording of the cited article 23-A, no. 1, subsection a), of the CIRC, rules out the possibility of arguing that autonomous taxation is not (part of) IRC.

That is, in the current wording of article 23-A, no. 1, subsection a) of the IRC Code, the legislator not only clarifies that autonomous taxation forms part of IRC, if not as a tax stricto sensu, at least in terms of forming part of the same unitary tax regime, but also that it should be given the same treatment for purposes of calculating taxable profit.

Indeed, this understanding corroborates what, at the date of the facts, resulted from the literal tenor of article 12 of the IRC Code, according to which "companies and other entities to which, in accordance with article 6, the fiscal transparency regime is applicable, are not taxed in IRC, except as regards autonomous taxation", from which it is also concluded that autonomous taxation is IRC (it is part of IRC).

That is, and in summary, the legislator understood, and continues to understand, that autonomous taxation forms part of IRC, if not as a tax stricto sensu, at least in terms of forming part of the same unitary tax regime.

It must be borne in mind, moreover, that the rule of article 45 of the CIRC, in the wording in force at the date of the facts (and whose regime is currently contained in article 23-A) is situated in a context of broad legislative discretion. That is, in the definition of what are deductible or non-deductible charges for tax purposes, the tax legislator enjoys broad discretionary power. Hence, it cannot be said that it is forbidden to the legislator, by the "nature" of autonomous taxation, to exclude it from the category of charges deductible for tax purposes.

It is thus understood that it will be legitimate for the legislator to include or exclude autonomous taxation from that category of charges deductible for tax purposes, independently of the "nature" that doctrine or case law may perceive in them.

The question, properly framed, will then be to determine what the legislator's intention is, expressed in the legislative text, understood as a whole.

And from this perspective, the combination of the tenor of article 12 of the CIRC with article 45, no. 1, subsection a) of the same, will leave no great doubts as to the legislative understanding that autonomous taxation, if it does not constitute IRC stricto sensu, will certainly form part of that tax regime, and will be due by that title.

Moreover, even the apparently so counterintuitive and striking result of tax payment via the autonomous taxation which now occupies us being possible, even in the absence of a (positive) income at the end of the taxation period, is not a rare thing in the IRC regime. In fact, in some cases of withholding at source as a final matter, it may occur that the holder of the income subject to that withholding had expenses exceeding the income. Also in the case of the operability of some of the specific anti-abuse clauses (articles 63 to 67 of the CIRC), by force of the consideration of costs, it may occur that taxpayers are taxed on a fictitious taxable profit, in that there may be disregard of costs, actually incurred, but disregarded as abusive. It may thus be that a taxpayer has to pay IRC, despite having had, in reality, losses. Examples which may raise the question of their compatibility with the principle of taxation according to real profit which cannot but be made case by case.

Recognized here, evidently, are those characteristics which for some years now doctrine has been pointing to as regards autonomous taxation in question, such as:

autonomous taxation only makes sense because costs/expenses, in most situations, count as negative components of the IRC taxable profit and it is this that motivates IRC taxpayers to report as high a value as possible of such expenses to reduce the IRC taxable matter, the assessment, and consequently the tax to pay;
it is a matter of treating unfavorably those expenses which, by their nature, are easily diverted from private consumption to business;
it is intended to discourage this type of expenses in taxpayers who present negative results, but who continue to show consumption structures difficult to reconcile with the financial health of their companies;
to model the tax system so that it reveals a certain balance, with a view to a better distribution of the effective tax burden among taxpayers and types of income;
to materialize the recognition that it is not easy to determine the exact extent of the component of some of these expenses that corresponds to private consumption.

Autonomous taxation is based on the presumption of the existence of income which may not be being taxed, not only in the context of IRC but also of Personal Income Tax. As is explained in the decision of the Arbitral Tribunal rendered in Case no. 209/2013-T, which decided negatively on the question of the deductibility of autonomous taxation as a tax cost in the context of IRC, "it is a matter of (…) a way of, indirectly and through the expense, taxing the income".

The part of the IRC assessment that comes from autonomous taxation is calculated on the basis of the elements of the tax defined in article 88 of the CIRC inserted in 'Chapter IV – Rates'. This article delimits the taxable matter of autonomous taxation, on the one hand, and, on the other hand, lists the rates of autonomous taxation, which are various, depending on the nature of the taxable matter to which they apply; because they depend on the type of taxpayer (e.g., non-profit entity, exempt entities, entity that carries on as its main activity a commercial, industrial or agricultural activity), and are also dependent on the own economic performance of the IRC taxpayer, by assuming different percentages when a tax loss or tax profit is assessed. The assessment deriving from autonomous taxation is a function of the taxable result, being calculated on the basis of two expressions which are the product of the taxable matter by a rate dependent on the taxable result: a higher rate when a tax loss is assessed and another, lower, when the taxable result is positive.

Thus, the assessment deriving from autonomous taxation cannot be determined in an instantaneous manner immediately after having incurred the expense, as it depends on the result itself which is - contrary to what the Tax Authority claims and with support in the decision rendered in Arbitral Case no. 113/2015-T - of successive formation.

Also some expenses that do not coincide with the expenses that extinguish and which are subject to autonomous taxation, namely depreciation, are of continuous formation.

Given this, the essential question which is of interest to resolve is whether the assessment of autonomous taxation is "calculated in accordance with article 90 of the CIRC", for, if it is, it will have to be concluded that the deductions provided for in no. 2 of article 90 of the IRC Code may also be effected to the assessment deriving from autonomous taxation.

The rule in issue is that of article 90 of the CIRC, being subsection a) the one that applies to assessment made by the taxpayer (self-assessment). This was the wording of the article on 31.12.2011:

"Article 90

Procedure and form of assessment

1 — The assessment of IRC proceeds as follows:

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

(…)

2 — To the amount assessed in accordance with the preceding number the following deductions are made, in the order indicated:

a) That corresponding to international legal 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 withholdings at source not susceptible to compensation or reimbursement in accordance with applicable legislation.

3 — (Repealed).

4 — To the amount assessed in accordance with no. 1, relating to the entities mentioned in no. 4 of article 120, only the deduction relating to withholdings at source when these have the nature of tax withheld on account of IRC is to be effected.

5 — The deductions referred to in no. 2 relating to entities to which the fiscal transparency regime established in article 6 applies are imputed to their respective partners or members in accordance with the terms established in no. 3 of that article and deducted from the amount assessed on the basis of taxable matter which took into account the imputation provided for in the same article.

6 — When the special regime for taxation of group companies applies, the deductions referred to in no. 2 relating to each of the companies are effected in the amount assessed relating to the group, in accordance with no. 1.

7 — From the deductions effected in accordance with subsections a), b) and c) of no. 2 there cannot result a negative value.

8— To the amount assessed in accordance with subsections b) and c) of no. 1 only deductions are made of which the tax authority has knowledge and which can be effected in accordance with nos. 2 to 4.

9— In cases where the provision of subsection b) of no. 2 of article 79 applies, annual assessments are made on the basis of taxable matter determined on a provisional basis, and, in view of the assessment corresponding to the taxable matter relating to the entire assessment period, the difference assessed shall be collected or annulled.

10 — The assessment provided for in no. 1 may be corrected, if applicable, within the deadline referred to in article 101, and the differences assessed shall then be collected or annulled".

Thus, article 90 of the CIRC refers to the forms of IRC assessment, whether by the taxpayer or by the Tax Administration, and aims to calculate the tax due in all situations provided for in the Code, including additional assessment.

The IRC Code refers, in its current version, expressly, to autonomous taxation only in five articles, namely in article 12 (by excluding autonomous taxation from the IRC exemption applicable to companies covered by the fiscal transparency regime), in article 23-A, no. 1 (by explaining that autonomous taxation is not deductible for purposes of determining taxable profit), in article 88 (by establishing the rates and delimiting the taxable matter of autonomous taxation), in article 117, no. 6 (with regard to the declaration obligation of exempt entities from IRC under article 9, when autonomous taxation arises) and in article 120, no. 9 (as regards the periodic income declaration). There is no other explicit reference to autonomous taxation in the CIRC.

Indeed, the current wording differs from that which was in force until 31.12.2011 only in the novelty of article 23-A, which establishes that charges associated with autonomous taxation, even when accounted for as expenses of the taxation period, determined certain charges, are not deductible for purposes of determining taxable profit, and the wording of subsection a) is clarifying: "IRC, including autonomous taxation, and any other taxes which directly or indirectly affect profits". That is, not only does the legislator express that IRC includes autonomous taxation, but there are no provisions in the CIRC, in particular, in the chapters dealing with incidence (Chapter I), assessment (Chapter V) and payment (Chapter VI) any other explicit references to autonomous taxation, from which it is necessary to conclude that they are subject, in a generic manner, to the other provisions provided for in the CIRC.

There was no other article in the CIRC, besides article 90, in which the process of assessment of autonomous taxation is distinguished from the remainder of IRC. And, in these terms, the assessment of both - autonomous taxation and remainder IRC - is single and has the same legal support.

Autonomous taxation did not result from a distinct process of assessment of the tax.

Understanding that autonomous taxation is (part of) IRC, it is understood that IRC assessment is single, including the part that comes from autonomous taxation. There is a single IRC assessment that comprises two parts: the assessment of autonomous taxation and that of the remainder of IRC, each with taxable matter determined in its own way and with its own taxation rates, but both assessed in accordance with article 90 of the CIRC. There being a single assessment, it is concluded that the part of the assessment deriving from autonomous taxation is an integral part of the IRC assessment.

On the other hand, no other article of the CIRC contained the reference to the assessment of autonomous taxation as a distinct process. To accept that the assessment of autonomous taxation is not included in article 90 of the CIRC, would be to accept that there is a lacuna in the law and, being this a tax law, it does not permit integration.

In this sense, goes Judgment no. 775/2015-T, of 28 June 2016, when it states that "to accept that the assessment of autonomous taxation is outside article 90 no. 1 of the CIRC and, therefore, to exclude from its assessment the deductibility of PEC provided for in subsection c) of no. 2 and of SIFIDE provided for in subsection b) of no. 2, would oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contrary to no. 3 of article 103 of the Constitution of the Portuguese Republic and the principle of legality of taxation which the General Tax Law, in its article 8, no. 2, subsection a), establishes. If the Tax Authority and Customs assumed that the assessment of autonomous taxation was calculated outside article 90 of the CIRC, it should indicate on what basis of assessment law it did so. There being no rule on separate assessment of autonomous taxation, it seems that it must be accepted that the IRC assessment encompasses it, being included in article 90 no. 1 of the CIRC, and therefore the special payment on account referred to in subsection c) of no. 2 and SIFIDE referred to in subsection b) of no. 2 are deductible."

Note, moreover, that in the following numbers of that article 90 of the IRC Code the legislator was concerned to enumerate various exceptions and limitations to the deductibility rules of no. 2. In no. 4, when it provides that "only the deduction relating to withholdings at source when these have the nature of tax withheld on account of IRC shall be effected", which is revealing: it is understood that this is so, because it is from the IRC assessment that it is intended to deduct them, or, in no. 7, when it prescribes that from the deductions to the assessment a), b) and c) of no. 2 there cannot result, in a general manner and without distinguishing the assessment resulting from the application of autonomous taxation rates, a negative value.

In none of them and in no other rule was any limitation referred to the deductibility of RFAI or SIFIDE to the part of the IRC assessment that results from autonomous taxation, and it is therefore necessary to conclude that it did not intend to do so.

Note, moreover, that, although article 90 was amended by Law no. 2/2014, of 16 January, which republished the CIRC, what has been said here not only persists but, from an interpretative point of view, even becomes reinforced, in that the legislator added some limitations and exceptions to the deductions to the assessment provided for in no. 2 and again did not refer to the part of the assessment that results from the application of autonomous taxation rates.

Therefore, article 90 of the IRC Code also applies to the assessment of the amount of autonomous taxation, which is assessed by the taxpayer or by the Tax Administration, there being no other provision that provides for different terms for its assessment. The autonomy of autonomous taxation is restricted to the applicable rates and the respective taxable matter, but the assessment of its amount is effected in accordance with article 90 of the IRC Code.

The differences between the determination of the amount resulting from autonomous taxation and the assessment resulting from taxable profit, rests on the determination of the taxable matter and the rates, provided for in Chapters III and IV of the CIRC, but not on the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation and the remainder of the IRC assessment.

Therefore, as article 90 is inserted in this Chapter V, no legal support is seen for making a distinction between the assessment deriving from autonomous taxation and the remainder of the IRC assessment, on the grounds that the rates and forms of determination of the taxable matter are different.

And, as has been said, there is no legal support for claiming that, in the event that several calculations have to be made in a declaration to determine IRC, more than one self-assessment shall be effected.

Therefore, the expression "when the assessment is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable matter contained therein", contained in subsection a) of no. 1 of article 90 of the CIRC, encompasses in its literal tenor, the assessment of autonomous taxation, whose taxable matter must be indicated in the aforementioned declarations, as results, even from the declaration Model 22 itself.

The assessment is obtained by applying the rate to the respective taxable matter, so that, in the case of IRC, there being several rates applicable to various taxable matters, the overall IRC assessment will be constituted by the sum of all the results of these applications.

Moreover, irrespective of the calculations to be made, the self-assessment that the taxpayer or the Tax Authority must effect in accordance with articles 89, subsection a), 90, no. 1, subsections a), b) and c) and 120 or 122, is unitary, and on the basis of it is calculated the overall IRC, whatever the taxable matters relating to each of the types of taxation underlying it.

Furthermore, it cannot be seen in the possible anti-abuse nature which some autonomous taxation assumes, an explanation for its exclusion from the respective assessment, as there is no legal support for excluding the deductibility from the assessment provided by corrections based on rules of a nature unquestionably anti-abuse.

The purpose of autonomous taxation is dual. They aim to tax real income, thereby correcting taxable income to approximate it to that real income and, at the same time, seek to penalize taxpayers who through the realization of certain expenses end up reducing taxable income.

As can be read in Judgment no. 617/12 of the Constitutional Court, it shows its dual nature, with an increased rate of autonomous taxation for certain special situations that it seeks to discourage, creates a kind of presumption that these costs do not have a business cause and are therefore subject to autonomous taxation. "In summary", says the Constitutional Court, "the cost is deductible, but autonomous taxation reduces its tax advantage, since here the basis of incidence is not a net income, but, rather, a cost transformed – exceptionally – into an object of taxation.".

Being that the legal regime of autonomous taxation in question only makes sense in the context of taxation in the context of IRC. That is, divorced from the legal regime of this tax, they will lack, completely, sense. Their existence, their purpose, their explanation, ultimately, their juridicity, is only understandable and acceptable within the framework of the legal regime of IRC. For even if it were accepted that the taxable event imposing the tax is each of the singular expenses legally typified, the fact is that these are not, as such, the final object of taxation, the reality which it is intended to aggravate with the tax.

If it were thus, all the expenses provided for would have to be taxed, realized by all subjects and not only by some of them.

That is, autonomous taxation is indissociable from the subjects of the income tax in question, and more specifically, from the economic activity carried out by them, which is even more evident when one thinks of the connection which, although it has varied in successive legislative amendments, autonomous taxation had and still has some connection with deductibility – and the actual deduction – of taxed expenses. They are, in essence, special rules for the deductibility of certain costs.

This circumstance, it is believed, is elucidative of the imbrication which exists between them and IRC (in the case), and justificatory not only of their inclusion in the CIRC, but also of their integration, by full right, as part of the legal regime of IRC.

Autonomous taxation now in question is, as such, unquestionably understood by the legislator as a way of preventing certain abusive acts, which the normal functioning of the taxation system was unable to prevent or which would be more onerous or laborious for the tax administration or, even, possibly, for the taxpayer.

This anti-abuse character of autonomous taxation will be not only coherent with its "anti-systemic" nature (as happens with all rules of the kind), but with a presumptive nature.

In this perspective, as is referred in the decision rendered by the Arbitral Tribunal in case no. 187/2013-T, autonomous taxation now under analysis, will then have underlying a presumption of partial business nature of the expenses on which it is levied, in function of the above-mentioned circumstance of such expenses being situated in a gray line that separates what is business expense, productive, from what is private expense, consumption, and, notoriously, in many cases, the expense will itself have in reality a dual nature (partly business, partly private).

Confronted with this difficulty, the legislator, instead of simply excluding its deductibility, or reversing the burden of proof of the relation of the expenses in question to business activity, chose to enshrine the regime currently in force.

This presumption of partial business nature should, in coherence, be considered as covered by the possibility of evasion resulting from article 73 of the LGT, whether by the taxpayer or by the Tax Administration, which appears to be in accordance with an adequate distribution of the burden of proof, in that, affecting autonomous taxation in question expenses whose relation to the activity pursued may not be, prima facie, evident, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in concreto. For its part, the Tax Administration itself, should it see fit and consider that the case justifies the inherent expenditure of resources, may always demonstrate that, as regards the expenses in question, and even though autonomous taxation has been levied on them, the general requirement of article 23, no. 1 of the CIRC is not met, namely its indispensability for the realization of income subject to tax or for the maintenance of the productive source.

In light of all that has been set out above, we consider that autonomous taxation in issue forms part of the IRC regime and that its assessment is effected in accordance with article 90 of its Code.

1.2. As to the deductibility of the SIFIDE tax credit from the amount due by title of autonomous taxation

Given the framework set out in the preceding point, the first concrete question that arises in this context is whether the tax credits recognized to the applicant in the year 2011, under SIFIDE, can also be deducted from the assessment produced by autonomous taxation that burdens it in that financial year, to the extent that they cannot be deducted from the remainder of the assessment.

To answer this question it is important to note that, in the wording at the date of the facts, article 4 of the System of Tax Incentives for Research and Business Development II (SIFIDE II), approved by article 133 of Law no. 55-A/2010, of 31 December (State Budget for 2011), which stated:

"1 - IRC taxpayers resident in Portuguese territory who carry on, as their main activity or not, an activity of an agricultural, industrial, commercial and services nature and non-residents with permanent establishment in that territory may deduct from the amount assessed in accordance with article 90 of the IRC Code, and up to its extent, the value corresponding to expenses with research and development, to the extent not been the subject of financial contribution from the State on a non-refundable basis, incurred in the taxation periods from 1 January 2011 to 31 December 2015, in a double percentage::. (…)

2 - For IRC taxpayers who are SMEs in accordance with the definition contained in article 2 of Decree-Law no. 372/2007, of 6 November, who have not yet completed two financial years and who have not benefited from the incremental rate fixed in subsection b) of the preceding number, an increase of 10% applies to the base rate fixed in subsection a) of the preceding number..3 - The deduction is made, in accordance with article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding number. . (…)"

Article 5 added:

"Only those IRC taxpayers who meet cumulatively the following conditions may benefit from the deduction referred to in article 4:

a) That their taxable profit is not determined by indirect methods;

b) That they are not debtors to the State and to social security of any taxes or contributions, or have their payment properly secured.."

In fact, that diploma does not state that the credits deriving from it are deductible from every IRC assessment, but instead defines the scope of the deduction by referring, in its no. 1 of article 4, "to the amount assessed in accordance with article 90 of the IRC Code, and up to its extent".

No. 3 of the same article confirms that it is to the amount assessed in accordance with article 90 of the IRC Code that is relevant to implement the deduction by stating that "the deduction is made, in accordance with article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the preceding number".

Thus, by mere declarative interpretation, it is concluded that the reference which in article 4, nos. 1 and 3 is made to the "deduction (…) in accordance with article 90 of the IRC Code (…)" as a way of materializing the tax benefit, encompasses, literally also the IRC assessment resulting from autonomous taxation, which forms part of the single IRC assessment.

The fact that article 5 of the Regime excludes the benefit when taxable profit is determined by indirect methods and autonomous taxation includes situations in which it aims indirectly at the taxation of profits (namely, by not giving relevance or by demotivating facts susceptible to reducing them), is of no relevance for this purpose, as the concept of «indirect methods» has a precise scope in tax law, which is concretized in article 90 of the LGT (in addition to special rules), referring to means of determining taxable profit, whose use is not provided for in the calculation of the taxable matter of autonomous taxation provided for in article 88 of the CIRC.

On the other hand, if it is the need to make use of indirect methods that excludes the possibility of benefiting from the benefit, the exclusion of that from the assessment of autonomous taxation, which is determined by direct methods, cannot be justified.

Moreover, it cannot be seen in the possible anti-abuse nature which some autonomous taxation assumes an explanation for its exclusion from the respective assessment of the scope of deductibility of the SIFIDE benefit, as there is no legal support for excluding the deductibility from the assessment provided by corrections based on rules of a nature unquestionably anti-abuse, such as those relating to transfer pricing or undercapitalization. When the legislator wants to exclude deductibility it must do so expressly.

On the other hand, the fact that the deductibility of the SIFIDE tax benefit is limited to the assessment of article 90 of the CIRC, up to its extent, does not allow concluding that the tax credit is only deductible if there is taxable profit, as what that fact requires is that there is an IRC assessment, which may exist even without taxable profit, namely by force of autonomous taxation.

Thus, pointing the literal tenor of article 4 of SIFIDE to the effect that the deduction also applies to the IRC assessment derived from autonomous taxation calculated in accordance with article 90 of the CIRC, only by way of a restrictive interpretation may the application of that tax benefit be excluded from the IRC assessment provided by autonomous taxation.

The feasibility of a restrictive interpretation encounters, from the outset, an obstacle of a general nature, which is that rules creating tax benefits have the nature of exceptional rules, as results from the express tenor of article 2, no. 1, of the Tax Benefits Status (EBF), wherefore, in the absence of a special rule, they should be interpreted in their precise terms, as is settled case law. In the case of tax benefits, the possibility of extensive interpretation is provided for expressly (article 10 of the EBF), but not of restrictive interpretation, wherefore, in general, the tax benefit should not be interpreted with less scope than that which, in a declarative interpretation, results from the tenor of the rule providing for it.

In any event, a restrictive interpretation is only justified when "the interpreter comes to the conclusion that the legislator adopted a text that betrays his thought, in that it says more than what he intended to say. Also here the ratio legis will have a decisive word. The interpreter should not let himself be carried away by the apparent scope of the text, but should restrict it in terms of making it compatible with the legislative thought, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for the law ends, its scope ends)".

As a ground for a restrictive interpretation may be ventured the fact that some autonomous taxation aims to discourage certain taxpayer behaviors susceptible to affecting taxable profit, and, consequently, reduce tax revenue, and its deterrent force will be attenuated with the possibility of the respective assessment being subject to deductions. Therefore, it is necessary to consider whether there are reasons justifying a conclusion on the incompatibility of the sense of the text of article 90 of the CIRC, with the ratio legis of that tax benefit. But the deterrent of such behaviors is justified only by concerns for the protection of tax revenue and tax benefits granted, by definition, are "measures of an exceptional character instituted for the protection of public interests of relevance beyond taxation itself that prevent it" (article 2, no. 1, of the EBF). And, in the case of SIFIDE tax benefits, the reasons of an extra-fiscal nature justifying their superposition to tax revenue are, from a legislative perspective, of enormous importance, as is inferred from the reasoning in the Report of the State Budget for 2011: "II.2.2.4.4. System of Tax Incentives for Research and Business Development II (SIFIDE). Taking into account that one of the assets of competitiveness in Portugal passes through investment in technological capacity, in scientific employment and in conditions of affirmation in the European space, the Proposed State Budget for 2011 proposes to renew SIFIDE (System of Tax Incentives for Research and Business Development), now in the SIFIDE version, to be in force in the periods 2011 to 2015, enabling the deduction from the IRC assessment for companies that invest in R&D (research and development capacity). Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system of other countries, it was decided to review and reintroduce for another five taxation periods this support system. The R&D of companies is a decisive fact not only of their own affirmation as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in several recent international reports. It is in this context that, in the international scenario, the OECD has considered since 2001 Portugal as one of the three countries with the most significant progress in business R&D. Being the current national system, comparatively to other systems using deduction from assessment and the distinction between base rate and incremental rate, is one of the most attractive and competitive."

Being business research and development "a decisive fact not only of their own affirmation as competitive structures, but of productivity and long-term economic growth", it is understood that preference has been given to incentivizing investment in technological capacity, in scientific employment and in conditions of affirmation in the European space, which, in the long term is reconverted to obtaining greater tax revenue.

The importance which, from a legislative perspective, was recognized to this tax benefit provided for in SIFIDE, is also decisively confirmed by the fact that it is indicated as being specially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in article 92 of the CIRC, in the wording at the date of the facts. Therefore, it is also by this means, safe to say that one is faced with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenue, inferring from that article 92 that the legislative intention of incentivizing investments in research and development provided for in SIFIDE is so firm that it even goes to the point of not even establishing any limit to the deductibility from the IRC assessment, despite this tax regime having been created and applied in a period of notorious difficulties in public finances.

Thus, no legal ground is seen, in particular in view of the legislative intention that it is possible to detect, for, on the basis of a restrictive interpretation, excluding the applicability of that tax benefit from the assessment of autonomous taxation that results directly from the letter of article 4 of the respective diploma, combined with article 90 of the CIRC.

As has been said, by establishing a tax benefit by deduction from the IRC assessment, the legislator chose to waive the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this consideration of the relative interests at stake (tax revenue versus strong stimulus to investment) it is indifferent that that revenue comes from calculations made on the basis of article 87 or article 88 of the CIRC. In fact, whatever form of calculation of that tax revenue, one is faced with money the collection of which the legislator considered to be less important than the pursuit of the referred economic purpose. Of the two alternatives which appeared before the legislator as regards the incentive to investments provided for in SIFIDE, which were, on one hand, maintaining intact the revenue deriving from IRC (including that from autonomous taxation) and not seeing investment in research and development incentivized and, on the other hand, achieving that incentive with loss of IRC revenue, the consideration necessarily underlying SIFIDE is that of opting for the creation of the incentive to the detriment of revenue. And, naturally, being the creation of the incentive to investment better, from a legislative perspective, than the collection of revenue, it is not seen how it can be relevant that the IRC revenue which is lost to achieve the incentive comes from the general taxation of IRC provided for in no. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenue and the relative consideration which can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC of which one abstains to create the incentive.

And, in the case of the SIFIDE tax benefit, the reasons of an extra-fiscal nature justifying the incentive with loss of revenue are very strong, as it is considered that the investments incentivized are a decisive fact in the future competitiveness of the country.

Therefore, it is safe to say that one is faced with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenue from IRC, whatever the basis of its calculation, as what is at stake is always to abstain from or not a certain amount of money to create an investment incentive.

In this context, the nature of autonomous taxation and the solutions legislatively adopted, in general, regarding them, have no relevance whatsoever for the examination of this question, as this must be examined in view of the specific interests which in its consideration are in conflict.

In fact, what is at stake is, exclusively, determining the scope of SIFIDE, which establishes a regime of an exceptional nature, which aimed to pursue certain public interests, and not to contribute to the decision of any conceptual question on the nature of autonomous taxation, a matter on which there is no sign either in the text of the law or in the Report of the Budget for 2011, the least legislative concern.

By the foregoing, converging the literal and rational elements of the interpretation of article 4 of the Regime of SIFIDE to the effect that the investment expenses provided for therein are deductible from "the amount assessed in accordance with article 90 of the IRC Code, and up to its extent", it is to be concluded that they are deductible from the entirety of that assessment, which encompasses, in addition to, that deriving from the taxation of profit in each fiscal period, that resulting from other positive components of the tax, in particular from autonomous taxation, state surcharge and IRC of prior taxation periods.

Thus, the deduction of SIFIDE from the IRC assessment, including necessarily the portion deriving from autonomous taxation, must be accepted.

It is verified, however, that the computer system does not permit the deduction of SIFIDE from the part of the IRC assessment deriving from autonomous taxation. The fact that the forms of determination of the taxable matter and the rates of autonomous taxation of IRC are established separately and are different from those of the remainder of IRC does not appear to be sufficient reason, nor has legal support, for the existing computer solution.

These considerations which we have developed for SIFIDE are, with the necessary adaptations, transposable to the other benefit at issue in the case at hand - RFAI – as we shall see in the next point.

1.3. As to the deductibility of the RFAI tax credit from the amount due by title of autonomous taxation

As to the deductibility of RFAI the same arguments developed above as to SIFIDE apply, as well as what was decided in Arbitral Decision no. 740/2015-T, of 16 May 2015, of CAAD, specifically on RFAI, which we follow here.

The Special Support Regime for Investment was approved by article 13 of Law no. 10/2009, of 10 March, which article 116 of Law no. 3-B/2010, of 28 April (State Budget Law for 2010) maintained in force with respect to 2010, which article 134 of Law no. 55-A/2010, of 31 December (State Budget Law for 2011), maintained in force with respect to 2011, which article 162 of Law no. 64-B/2011, of 30 December (State Budget Law for 2012), maintained in force with respect to 2012, which article 232 of Law no. 66-B/2012, of 31 December (State Budget Law for 2013), maintained in force with respect to 2013, and which in the meantime and since then was integrated in the Tax Code of Investment (Decree-Law no. 82/2013, of 17 June, and Decree-Law no. 162/2014, of 31 October)).

As regards IRC, the said regime resulted in a tax benefit provided for in Law no. 10/2009, of 10 March, which establishes the following, as far as is relevant here:

"Article 2

Scope of application and definitions

1 - RFAI 2009 applies to IRC taxpayers who carry on, as their main activity, an activity:

a) In the agricultural, forestry, agro-industrial, energy and tourism sectors and also in extractive or transforming industry, with the exception of the iron and steel, shipbuilding and synthetic fibers sectors, as defined in article 2 of Regulation (EC) no. 800/2008, of the Commission, of 6 August;

b) In the scope of new generation broadband networks.

2 - For purposes of this regime, the following investments are considered as relevant provided that they are assigned to the operation of the company:

a) Investment in tangible fixed assets, acquired in a new state, with the exception of:

i) Land, except where intended for the operation of mining concessions, natural and spring mineral waters, quarries, clay pits and sand pits in extractive industry projects;

ii) Construction, acquisition, repair and extension of any buildings, except if they are manufacturing installations or assigned to administrative activities;

iii) Light passenger or mixed vehicles;

iv) Furniture and articles of comfort or decoration, except hotel equipment assigned to tourism exploitation;

v) Social equipment, with the exception of those which the company is obliged to have by legal determination;

vi) Other investment assets not directly and indispensably associated with the productive activity carried out by the company;

b) Investment in intangible fixed assets, constituted by expenses with technology transfer, namely through the acquisition of rights of patents, licenses, "know-how" or technical knowledge not protected by patent.

3 - May benefit from the tax incentives provided for in this regime IRC taxpayers who meet cumulatively the following conditions:

a) That they have accounts regularly organized, in accordance with accounting normalization and other legal provisions in force for the respective sector of activity;

b) That their taxable profit is not determined by indirect methods;

c) That they maintain in the company and in the region for a minimum period of five years the assets subject to the investment;

d) That they are not debtors to the State and to social security of any contributions, taxes or fees or have the payment of their debts properly secured;

e) That they are not considered companies in difficulty in accordance with the communication of the Commission - guidelines on community aid for companies in difficulty, published in the Official Journal of the European Union, no. C 244, of 1 October 2004;

f) That they carry out relevant investment that provides for the creation of jobs and their maintenance until the end of the deduction period contained in nos. 2 and 3 of article 3

4 - In the case of IRC taxpayers who do not fall within the category of micro, small and medium enterprises, as defined in annex i of Regulation (EC) no. 800/2008, of the Commission, of 6 August, the investment expenses referred to in subsection b) of no. 2 cannot exceed 50 % of the relevant investments.

5 - Investment realized in 2009 is considered to be that corresponding to the additions, verified in that financial year, of fixed assets and also that which, having the nature of tangible fixed asset and not relating to advances, is translated into additions to fixed assets in progress.

6 - For purposes of the preceding number, additions of fixed assets that result from transfers of fixed assets in progress carried forward from prior financial years are not considered, except if they are advances.

Article 3

Tax benefits

1 - To IRC taxpayers resident in Portuguese territory or who have permanent establishment there, who carry on as their main activity a commercial, industrial or agricultural activity covered by no. 1 of the preceding article who effect, in 2009, investments considered relevant, the following tax benefits are granted:

a) Deduction from the IRC assessment, and up to the extent of 25 % of the same, of the following amounts, for investments made in regions eligible for support under regional support incentives:

   i) 20 % of the relevant investment, relating to investment up to the amount of € 5 000 000;

   ii) 10 % of the relevant investment, relating to investment of a value exceeding € 5 000 000;

b) Exemption from municipal real estate tax, for a period up to five years, relating to real property of its ownership which constitutes relevant investment;

c) Exemption from municipal tax on onerous transfers of real property relating to acquisitions of real property which constitutes relevant investment;

   d) Exemption of stamp duty relating to acquisitions of real property which constitutes relevant investment.

2 - The deduction referred to in subsection a) of the preceding number is effected in the assessment relating to the taxation period that begins in 2009.

3 - When the deduction referred to in the preceding number cannot be entirely effected due to insufficient assessment, the amount not yet deducted may be done so, in the same conditions, in the assessments of the following four financial years.

4 - For purposes of the provisions of subsections b) and c) of no. 1, the exemptions provided for therein are conditional on recognition, by the competent municipal assembly, of the interest of the investment for the region.

5 - The total amount of tax incentives granted in accordance with the preceding numbers cannot exceed the amount which results from the application of the maximum limits applicable to investment with regional purpose for the period 2007-2013, in force in the region in which the investment is made, contained in article 7."

As is seen from article 3, no. 1 subsection a) of Law no. 10/2009, of 10 March, the tax benefit is materialized through "deduction from the IRC assessment". There is agreement of the Parties that this expression does not have substantially different scope from that which is used in SIFIDE which is "amount assessed in accordance with article 90 of the IRC Code".

For what has already been referred to above, the assessment deriving from autonomous taxation provided for in the CIRC is "IRC assessment", wherefore the expression used in RFAI does not exclude the deduction of eligible investments from the assessment provided by those taxation rates.

Also in relation to this tax benefit applies what was referred to above on the prevalence of the interests which the tax benefit aims to reach over the interest in obtaining tax revenue, to which we refer.

Therefore, also as to this question, the request for arbitral pronouncement is well founded.

1.4 The wording given to article 88 of the CIRC by Law no. 7-A/2016, of 30 March

Having reached here, it is necessary to analyze the question of no. 21 of article 88 of the CIRC, introduced by the Law approving the State Budget for 2016 (Law 7-A/2016, of 30 March). In fact, several numbers were added to article 88 of the CIRC by this Law, referring to autonomous taxation, including number 21, according to which "The assessment of autonomous taxation in IRC is effected in accordance with the terms provided in article 89 and is based on the values and rates that result from the provisions in the preceding numbers, no deductions whatsoever being made to the overall amount assessed." And, in article 135 of Law 7-A/2016, of 30 March, the legislator provides that "the wording given by the present law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to numbers 20 and 21 of article 88 and to no. 8 of article 117 of the IRC Code has an interpretative nature."

The Tax Administration understands that the new wording of article 88 prevents the deduction, in accordance with article 90, of SIFIDE from the assessment that results from autonomous taxation. Given that assessments of IRC for the financial years 2011 are at issue, it is thus important to analyze what effect that number and the interpretative character which is attributed by the legislator to its introduction in 2016 have on the facts at issue.

The principle of non-retroactivity is in force in national substantive codification, which is constitutionally enshrined as regards tax law. It happens that an interpretative law is not, says article 13, no. 1, of the Civil Code, retroactive.

Under the terms prescribed therein, for a new law – as is, in the case at hand, number 21 of article 88 of the CIRC - to be truly interpretative two requirements are necessary: that the solution of prior law be controversial or at least uncertain: and it is a fact that the decision which it falls to this Tribunal to render has a controversial character.

Necessary, however, is also that the solution defined by the new law falls within the framework of the controversy and is such that the judge or the interpreter could arrive at it without exceeding the limits normally imposed on the interpretation and application of the law. Wherefore if the judge or the interpreter, in the face of old texts, could not feel authorized to adopt the solution which the new law comes to enshrine, then the latter is decidedly innovative.

It is not enough, however, that the legislator expressly confers on the new law an interpretative character for it to apply to the controversial question that had arisen before the entry into force of the new law, putatively interpretative, for the judge to be obliged to apply it to the concrete case. It is necessary that the judge felt enabled, in the face of the old text, to adopt the solution which the law now advocates. Interpretative rule, therefore, is a rule which does not alter any content or element of the rule interpreted, comes only to translate its meaning.

A rule which alters the sense, content or the scope of the rule interpreted will not be interpreting, rather modifying the rule, creating a new norm, instituting new rights, duties and obligations.

Being certain that even the interpretative rule must respect acquired rights under the force of the rule interpreted, particularly in questions as regards which the prohibition of retroactivity is specially enshrined in the Constitution, as is the case in tax law, whose retroactivity is prohibited by no. 3 of article 103 of the CRP.

In this context, the issuance by the legislator of an interpretative law, with retroactive effects, is only conceivable when, without any doubt, it is limited to simply reproducing (= producing again), although with another enunciation, the normative content interpreted, without modifying or limiting its sense or its scope. This, it is well understood, is a hypothesis of difficult conception, almost inconceivable, except on the theoretical plane, all the more so when one considers that the content of a normative enunciation generally demands systematic interpretation, and cannot be defined in isolation.

In the case sub judice, by all that has been left already explained above, it is understood that the text of the law in force at the date of the facts in issue did not permit concluding that the deduction of SIFIDE and RFAI from the part of the IRC assessment resulting from autonomous taxation was forbidden.

This is because, as we have said above, the legislator at no point pointed to that solution and, in article 90 of the CIRC, did not distinguish, as regards the deductions, between the assessment resulting from the application of the rates of the Article 87 and the assessment resulting from the application of autonomous taxation rates.

Now, Law 7-A/2016, of 30 March, in its article 133, introduced number 21 in article 88 of the CIRC, in the following terms: "The assessment of autonomous taxation in IRC is effected in accordance with the terms provided in article 89 and is based on the values and rates that result from the provisions in the preceding numbers, no deductions whatsoever being made to the overall amount assessed."

In the case at hand, it is our understanding that part 1 of number 21 of article 88 of the CIRC - "The assessment of autonomous taxation in IRC is effected in accordance with the terms provided in article 89 and is based on the values and rates that result from the provisions in the preceding numbers" – is interpretative of the prior law, in the sense that it confirms that article 89 applies to the assessment of autonomous taxation, something that, as discussed above regarding the deductions relating to article 90, was already implicit in the prior law.

As to part 2 of the same provision - "no deductions whatsoever being made to the overall amount assessed" - we understand that this is an innovative provision, as, under the prior law and as extensively argued above, it was possible to hold that the deductions provided for in article 90, no. 2 of the CIRC could be applied to the assessment resulting from autonomous taxation.

And indeed, it appears coherent that the legislator would have attributed an interpretative character only to part 1, which confirms what was already in the prior law, and not to part 2, which introduces a new rule.

Accordingly, given that only part 1 of number 21 of article 88 of the CIRC has an interpretative character, and part 2 introduces a new rule, the provisions of article 13 of the Civil Code do not justify the retroactive application of part 2 to facts which occurred prior to the entry into force of Law 7-A/2016, of 30 March.

Accordingly, as far as the financial year 2011 is concerned, it must be concluded that the assessment of autonomous taxation could have been subject to the deductions provided for in article 90, no. 2 of the CIRC, particularly the deduction of SIFIDE and RFAI.

2. FINAL ASSESSMENT

For all the reasons set out above, the assessment of the applicant's autonomous taxation was illegal in the amount claimed, as it did not permit the deduction of the SIFIDE credit.

As to the deduction of the RFAI, the same applies.

The applicant is therefore entitled to the reimbursement of the sum assessed as autonomous taxation, which corresponds to € 103,654.04.

RULING

Accordingly, we decide:

To declare the illegality of the self-assessment of autonomous taxation in IRC of the Tax Group A…, relating to the financial year 2011, in the amount of € 103,654.04, for failure to permit the deduction of the SIFIDE and RFAI tax credits;
To annul the said self-assessment in that amount;
To order the reimbursement to the applicant of the said amount of € 103,654.04, plus compensatory interest at the legal rate, calculated from 1 September 2012 until full reimbursement.
To reject any claim for compensatory interest accruing prior to 1 September 2012.

Rendered on 28 September 2017.

José Baeta de Queiroz
João Taborda da Gama
Henrique Fiúza

Frequently Asked Questions

Automatically Created

Can tax credits like RFAI and SIFIDE be deducted from autonomous taxation (tributações autónomas) under Portuguese IRC?

The decision addresses whether RFAI and SIFIDE tax credits can offset autonomous taxation under Article 90 of the CIRC. The applicant claimed these investment and R&D tax credits should be deductible from the €103,654.04 autonomous taxation assessment, arguing Article 90 CIRC permits such deductions. Alternatively, if deduction is denied, the applicant contended autonomous taxation lacks legal basis under Article 8(2)(a) LGT and constitutional foundation under Article 103(3). The excerpt does not reveal the tribunal's final ruling on this substantive issue, but establishes CAAD's jurisdiction to decide it.

What is the legal basis for challenging autonomous taxation in IRC self-assessments through CAAD arbitration?

Challenging autonomous taxation through CAAD requires prior administrative review under Article 2(a) of Regulatory Order 112-A/2011, referencing CPPT Articles 131-133. The tribunal clarified that 'administrative means' includes both gracious objections (reclamação graciosa) and official review requests (revisão oficiosa). The legal basis derives from Article 2(1)(a) and Articles 10(1)-(2) of RJAT (Decree-Law 10/2011), establishing arbitral jurisdiction over tax disputes. The tribunal interpreted procedural requirements functionally rather than formalistically, ensuring tax arbitration serves as a genuine alternative to judicial challenge without imposing stricter access conditions than tax courts.

How does the RETGS special group taxation regime affect autonomous taxation obligations for corporate groups?

Under RETGS (Regime Especial de Tributação de Grupos de Sociedades), the dominant company assumes responsibility for IRC self-assessment for the entire tax group. In this case, the dominant company filed the arbitration request on behalf of a group comprising ten companies for the 2011 taxation period. Autonomous taxation applies to the group level, with the dominant company liable for assessment accuracy. RETGS affects autonomous taxation by consolidating fiscal obligations, but does not eliminate autonomous taxation requirements. The regime's complexity necessitates careful application of tax credits and deductions at the group level, particularly regarding whether incentive regimes like RFAI and SIFIDE offset autonomous taxation liabilities.

Can a taxpayer request official review (revisão oficiosa) of autonomous taxation amounts after the standard deadline has expired?

The tribunal ruled that official review requests (revisão oficiosa) satisfy the prerequisite for CAAD arbitration even when filed after the gracious objection deadline expires. This decision interprets Article 2(a) of Regulatory Order 112-A/2011 broadly, treating 'administrative means' as encompassing various gracious remedies, not exclusively Article 131 CPPT gracious objections. The tribunal emphasized that tax arbitration should parallel judicial challenge accessibility, not impose stricter procedural barriers. This ruling allows taxpayers who missed gracious objection deadlines to access CAAD arbitration through official review requests, provided they pursued administrative remedies before seeking arbitral resolution.

What are the consequences of unlawful autonomous taxation under Article 90 of the CIRC and Article 103(3) of the Portuguese Constitution?

Unlawful autonomous taxation triggers several consequences under Portuguese tax law. Article 90 CIRC governs tax credit deductions from assessments, potentially requiring reimbursement of €103,654.04 plus compensatory interest from September 1, 2012. Article 103(3) of the Constitution mandates that no tax may be charged without legal authorization, creating a constitutional validity requirement. Article 8(2)(a) LGT requires legal basis for all tax assessments. If autonomous taxation lacks proper legal foundation or improperly excludes legitimate deductions, consequences include: annulment of the illegal portion, reimbursement of excess amounts paid, payment of compensatory interest at legal rates, and potential invalidation of the entire assessment if constitutional or statutory requirements are not met.

Autonomous Taxation Deductions Under IRC: CAAD Arbitral Decision on RETGS Group Tax Self-Assessment

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I. REPORT

II. CLARIFICATION

III. FACTUAL MATTERS

IV. GROUNDS FOR THE REQUEST

GROUNDS OF THE TAX AUTHORITY AND CUSTOMS

V. THE LAW

1.1. Autonomous taxation and IRC assessment

1.2. As to the deductibility of the SIFIDE tax credit from the amount due by title of autonomous taxation

1.3. As to the deductibility of the RFAI tax credit from the amount due by title of autonomous taxation

1.4 The wording given to article 88 of the CIRC by Law no. 7-A/2016, of 30 March

2. FINAL ASSESSMENT

RULING

Frequently Asked Questions

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Table of Contents

Autonomous Taxation Deductions Under IRC: CAAD Arbitral Decision on RETGS Group Tax Self-Assessment

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I. REPORT

II. CLARIFICATION

III. FACTUAL MATTERS

IV. GROUNDS FOR THE REQUEST

GROUNDS OF THE TAX AUTHORITY AND CUSTOMS

V. THE LAW

1.1. Autonomous taxation and IRC assessment

1.2. As to the deductibility of the SIFIDE tax credit from the amount due by title of autonomous taxation

1.3. As to the deductibility of the RFAI tax credit from the amount due by title of autonomous taxation

1.4 The wording given to article 88 of the CIRC by Law no. 7-A/2016, of 30 March

2. FINAL ASSESSMENT

RULING

Frequently Asked Questions

Tags

FRESH Legal Group

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