Process: 626/2017-T

Date: July 14, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Process 626/2017-T addressed whether SIFIDE (System of Fiscal Incentives for Research and Business Development) and RFAI (Special Tax Regime for Investment Support) tax benefits can be deducted from IRC autonomous taxation for fiscal years 2014 and 2015. The claimant A... S.A. challenged the rejection of an administrative review petition regarding self-assessed IRC, arguing that autonomous taxation is a component of IRC itself, and therefore tax benefits should be deductible under Articles 89-90 of the CIRC (Corporate Income Tax Code). The company contended that established case law confirms autonomous taxation constitutes IRC, making fiscal incentives applicable. The claimant further argued that Article 135 of the 2016 State Budget Law, which added paragraph 21 to Article 88 CIRC, should be interpreted as referring only to the first part of the provision, or alternatively, that its retroactive application violates constitutional principles under Article 103 of the Portuguese Constitution regarding non-retroactivity in tax matters. The arbitration was constituted under Decree-Law 10/2011 (RJAT) on February 7, 2018, with the claimant seeking annulment of autonomous taxation amounts of €23,472.93 (2014) and €29,700.12 (2015), plus reimbursement with compensatory interest. The case centered on whether the legislative change constituted an interpretative or innovative norm, with significant implications for separation of powers and judicial independence principles.

Full Decision

Arbitral Decision

I – REPORT

The Parties and the Constitution of the Arbitral Tribunal

A..., S.A., (hereinafter referred to as "claimant" or "A...") legal entity no. ..., with registered office at ..., no. ..., ..., ...-..., municipality of Vale de Cambra, requested the constitution of an Arbitral Tribunal, pursuant to the provisions of Article 2, no. 1, paragraph a) and Article 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as "RJAT") and Ordinance no. 112 – A/2011, of 22 March, to challenge the decision rejecting the administrative review petition mentioned above, and, consequently (and in final or ultimate terms), the self-assessed IRC acts of the claimant relating to the years 2014 and 2015, to the extent corresponding to the non-deduction from the IRC collection resulting from autonomous taxation rates of fiscal incentives in IRC, namely the fiscal benefits determined under the System of Fiscal Incentives for Research and Business Development (SIFIDE) and the Special Tax Regime for Investment Support (RFAI), or, alternatively, to the extent that the autonomous taxation is incorrectly assessed.

The request for constitution of the Arbitral Tribunal was submitted by the Claimant on 29-11-2017, was immediately accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority. The Claimant chose not to designate an arbitrator, wherefore, pursuant to the provisions of no. 1, Article 6 of RJAT, the undersigned was designated by the Deontological Council of the Center for Administrative Arbitration on 18-01-2018 as arbitrator to constitute the sole Arbitral Tribunal. Thus, in accordance with the provisions of paragraph c), no. 1, Article 11, of RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 07-02-2018. On 08-02-2018 an arbitral order was issued, immediately notified to the Tax and Customs Authority (AT), to submit a response within the legal time limit, in accordance with and for the purposes of the provisions of nos. 1 and 2 of Article 17 of RJAT.

On 13-03-2018 the Respondent submitted its response to the file, which is deemed to be fully reproduced. By arbitral order of 27-03-2018, the Claimant was notified to comment on the production of the testimonial evidence indicated and possible waiver of the meeting provided for in Article 18 of RJAT, as requested by AT in its response, taking into account that there is no divergence regarding the factual matters contained in the file, but rather regarding the legal issues raised by the parties.

By request of 02-04-2018, the Claimant waived testimonial evidence and expressed its approval regarding the waiver of the meeting. Accordingly, an arbitral order was issued on 10-04-2018, dispensing with the holding of the meeting provided for in Article 18 of RJAT, setting a period of 15 days, equal and successive, for the parties to submit, if they wish, their written pleadings, indicating as foreseeable the issuance of the arbitral decision by 20-06-2018. By arbitral order of 20 June 2018 a new date was set for the issuance of the arbitral decision by 15 July 2018, within the time limit provided for in Article 21 of RJAT.

The Claimant submitted its pleadings on 20-04-2018 and the Respondent on 23-04-2018. On 11-05-2018 the Respondent submitted the missing Administrative File to the record. The parties, in their respective pleadings, reiterate the positions stated in the initial pleadings. On 06-06-2018 the Claimant paid the subsequent court fee.

B) THE CLAIM FILED BY THE CLAIMANT

The Claimant submits the present request for arbitral decision seeking the illegality of the rejection of the administrative review petition regarding the self-assessed IRC of the years 2014 and 2015, in the part referring to the non-deduction from the IRC collection resulting from autonomous taxation rates of fiscal incentives in IRC (benefit under the System of Fiscal Incentives for Research and Business Development – SIFIDE and the Special Tax Regime for Investment Support – RFAI), or, alternatively, to the extent that the autonomous taxation is incorrectly assessed. It requests, in summary, the declaration of illegality and annulment of the rejection of the administrative review petition and the declaration of illegality and consequent annulment of the self-assessed IRC acts, including autonomous taxation rates, relating to the years 2014 and 2015, with respect to the amounts of autonomous taxation rates in IRC of € 23,472.93 (2014) and € 29,700.12 (2015), respectively, with their consequent annulment.

It finally requests, and in consequence, the reimbursement of these paid amounts and, as well, the payment of compensatory interest for the payment of tax incorrectly assessed, counted until full reimbursement, from 1 September 2015 and 1 September 2016. Alternatively, the illegality of the assessment of autonomous taxation due to absence of legal basis.

As the basis for its claim, the Claimant invokes, in summary, that it is settled case law that autonomous taxation in IRC is IRC and that the rules for assessment of IRC contained in Article 89 and et seq. of the CIRC apply to it, wherefore the fiscal benefits in question can and should be deducted from the autonomous taxation assessed. It further understands that it can and should be concluded that Article 135 of the State Budget Law for 2016 refers only to the first part of the new no. 21 of Article 88 of CIRC, an interpretation which negatively is authorized by the manifest incorrectness of the wording of that Article 135, revealing the little care that the legislator had in being precise and which positively is authorized by the presumption that the legislator adopted the most correct solutions and by the principle of interpretation in accordance with the Constitution. On the other hand, the attribution of an interpretative nature to a fiscal norm does not by itself trigger the application of laws in time provided for in the Civil Code, specifically, it does not apply with respect to matters that have a specific regime for that purpose, in obedience to distinct principles, as is the case, currently, with taxes. In fact, the Claimant continues, how can both parts, 1 and 2, of the new no. 21 of Article 88 of CIRC simultaneously be interpretative of what Articles 89 and 90 of CIRC provide, after obtaining collection in opposite senses?

It concludes that necessarily part 2 of the new no. 21 of Article 88 of CIRC has an innovative character; and if, notwithstanding, it is understood that Article 135 of the State Budget Law 2016 attributed an interpretative nature also to part 2 of the new no. 21 of Article 88 of CIRC, then, by application of Article 13 of the Civil Code, there is a material unconstitutionality of the said Article 135 of the State Budget Law 2016, by violation of the principle of non-retroactivity in tax matters provided for in Article 103 of the Constitution and also by violation of the principle of separation of powers and the principle of independence of the judicial power.

In its pleadings, the Claimant reiterates everything contained in the arbitral request, reinforcing that, despite containing some specificities compared to the general regime, autonomous taxation are components of IRC. It invokes this as the prevailing understanding of doctrine and case law, especially arbitral case law, highlighting arbitral awards no. 775/2015-T, no. 744/2015-T, no. 748/2015-T and no. 740/2015-T. Thus, it understands that, since autonomous taxation is IRC – assessed on the basis of no. 1 of Article 90 of CIRC – the amounts corresponding to SIFIDE can be deducted from the same, based on paragraph b) of no. 2 of that provision. The norm of no. 21 added to Article 88 of CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretative, in no way alters this conclusion, as it establishes, regarding the form of assessment of autonomous taxation, that it "is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the provisions of the preceding numbers".

For all these reasons, it petitions for the approval of the claim with the consequent declaration of annulment of the rejection act and the underlying assessment, with the legal consequences of reimbursement of the amount paid plus compensatory interest.

C – THE RESPONDENT'S RESPONSE

The Respondent AT, duly notified for that purpose, timely submitted its response in which, in defense of the challenged acts, it alleges that the Claimant's claim should be rejected, for the reasons invoked in the grounds for rejection of the administrative review petition, which it reproduces and sustains as adequate to the law in force.

From the point of view of AT none of these arguments should succeed, as is well evidenced by the content of its response which is deemed to be fully reproduced here.

In essence, what is at issue in the case is determining whether the Claimant has the right to deduct the tax credit resulting from fiscal benefits approved under SIFIDE, by deduction from the IRC collection produced by autonomous taxation rates, in the years 2014 and 2015. AT understands that no, that such deduction is not possible and that the nature of autonomous taxation does not allow for such possibility of deduction of fiscal benefits, contrary to what the Claimant alleges.

In summary, to justify the rejection of the petition submitted, AT alleges that the credit to which SIFIDE translates is deducted from the collection assessed on the basis of taxable income. Therefore, it cannot be deducted from autonomous taxation, which is determined in an autonomous and distinct manner from the assessment carried out in accordance with the provisions resulting from Article 90 of CIRC. It invokes the historical path of the regime of non-deductibility of expenses that led to autonomous taxation. It adds in defense of its position, despite recognizing that the issue is controversial and arbitral case law is divergent, the jurisprudential understanding set forth in the arbitral decisions issued in cases nos. 722/2015-T, 785/2015-T, 727/2015-T and 443/2016-T.

It thus understands, AT, and on this basis justifies the rejection of the administrative review petition, that the reasons underlying the benefit in question rest on an award whose amplitude varies depending on the profitability of the investments, so that the greater the profit, the greater the capacity to make the deduction, with an inseparable link between the amount of the tax credit per investment and the part of the IRC collection calculated on the taxable income based on profit. Finally, it also invokes no. 21 of Article 88 of CIRC, added by law no. 7-A/2016, of 30 March and the interpretative nature of Article 135 of Law no. 7-A/2016 of 30/03.

It further argues that it would be contrary to the spirit of the system to allow, by virtue of the deductions referred to in no. 2 of Article 90 of CIRC, the removal or at least the perversion of that anti-abusive character that presided over the implementation of autonomous taxation in the IRC system. Arguing for the disregard of autonomous taxation for the purposes of the deductions referred to in no. 2 of Article 90 of CIRC. It reaffirms the legality of the impugned tax acts and contests the request for compensatory interest. In its pleadings it renews the arguments previously set forth in the Response submitted.

II - PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is regularly constituted. It is materially competent, pursuant to Article 2, no. 1, paragraph a) of RJAT. The Parties have legal personality and capacity, are legitimate and are properly represented (cfr. Articles 4 and 10, no. 2 of RJAT and Article 1 of Ordinance no. 112/2011, of 22 March).

The proceedings do not suffer from defects that invalidate them.

Taking into account the administrative tax procedure, the documentary evidence attached to the file, it is necessary to establish the factual matter relevant to the understanding of the decision, which is established as follows.

III – FACTUAL MATTER

Proven Facts

As relevant factual matter, this tribunal considers the following facts to be established:

  • The Claimant is, for purposes of taxation in IRC, an entity subject to and not exempt from IRC.

  • On 29 May 2015 the claimant proceeded to submit the income tax return Form 22 of Corporate Income Tax ("IRC") for the year 2014, having proceeded to self-assess and pay autonomous taxation in IRC for that same year 2014, in the amount of € 26,160.35

  • On 31 May 2016 a Form 22 income tax return, as replacement, was submitted from which the autonomous taxation was reduced to € 23,472.93

  • On 31 May 2016 the herein claimant proceeded to submit the income tax return Form 22 of Corporate Income Tax ("IRC") for the year 2015, having proceeded to self-assess and pay autonomous taxation in IRC for that same year 2015, in the amount of € 29,700.12;

  • The AT's information system does not allow, with respect to the tax resulting from the application of autonomous taxation rates in IRC, that the claimant enter the value relating to fiscal benefits of which it is a beneficiary;

  • In the period in question (years 2014 and 2015) the claimant was a beneficiary of an amount of SIFIDE, assigned/obtained, available for use at the end of the year, of € 175,399.13 in 2014 and € 206,157.47, in 2015, respectively, as certified attached to the file (doc. 7 attached to the arbitral request)

  • The claimant had in IRC a cumulative amount of RFAI to be deducted from the IRC collection which amounted in the years 2014 and 2015 to € 269,004.65 (2014) and € 437,590.14 (2015), respectively, as certified attached to the file;

  • The Claimant paid the amounts of autonomous taxation assessed with reference to the years 2014 and 2015, described in paragraphs c) and d) of the established factual matter, as evidenced by the supporting documents attached to the file;

  • The herein claimant submitted, on 29/05/17 an administrative review petition against the self-assessment of IRC for the years 2014 and 2015, arising from the failure to deduct from the IRC collection the amount corresponding to the autonomous taxation of the value of the fiscal benefits.

  • In such petition, the then appellant alleged that to the amount of autonomous taxation, calculated in the income tax return, the deductions from the collection provided for in Article 90 of CIRC should be able to be made, as that autonomous taxation should be considered as IRC;

  • By order of 12/10/17 the draft decision was confirmed as final, with the administrative review petition being rejected;

  • On 29/11/2017 the present arbitral request was submitted.

UNPROVEN FACTS

With relevance to the decision, there are no facts that should be considered as unproven.

GROUNDS FOR THE PROVEN FACTS

The facts deemed proven have basis in the documentary evidence that the parties submitted to the present case, with relevance to all the documentary evidence attached to the arbitral request, confirmed by the documentary evidence extracted from the Administrative File submitted by the respondent AT.

It should also be noted that the Tribunal does not have to rule on everything alleged by the parties, and should select the facts that are important to the decision and distinguish the proven matter from the unproven matter [cfr. Article 123, no. 2, of CPPT and Article 607, no. 3 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, no. 1, paragraphs a) and e), of RJAT]. In this way, the facts relevant to the adjudication of the case are chosen and determined according to their legal relevance, which is established in view of the various plausible solutions to the legal question(s) [cfr. previous Article 511, no. 1, of CPC, corresponding to the current Article 596, applicable by virtue of Article 29, no. 1, paragraph e), of RJAT]. Having regard to the positions taken by the parties, the documentary evidence and the Administrative File attached to the case, it was deemed proven, with relevance to the decision, the facts listed above, which moreover are consensually recognized and accepted by the parties.

IV – THE LAW

Having established, as stated above, the factual matter, it is necessary to address the legal question raised by the Claimant, which consists of determining whether the tax credit that was recognized to the Claimant, under SIFIDE and RFAI, can or cannot be deducted from the part of the collection assessed through autonomous taxation, with reference, respectively, to the years 2014 and 2015. This is the primary and essential question to be decided in the present case. In connection with this question, the claimant raises others, namely unconstitutionality issues, the determination of which is necessarily subsidiary to the main question under consideration.

Given this, it is necessary to decide.

With reference to the tax year in question, the System of Fiscal Incentives for Research and Business Development II (SIFIDE II) was in force, approved by Article 133 of Law no. 55-A/2010, of 31 December, in effect between 2011 and 2015. This statute establishes, for taxpayers subject to IRC covered by the SIFIDE incentive system, that is, those who have submitted the necessary application, proved the verification of the legal requirements for its approval, the recognition of the respective fiscal benefits (tax credits). The existing tax credit arises from its recognition, in 2012, by virtue of investments made in research and development expenses that are eligible and recognized as such.

Under the terms of the incentive regime in question, Article 4 of SIFIDE provides:

"1 - Corporate income taxpayers resident in Portuguese territory who carry on, as a principal or secondary activity, an activity of an agricultural, industrial, commercial or service nature and non-residents with permanent establishment in that territory may deduct from the amount determined in accordance with Article 90 of the IRC Code, and up to its extent, the value corresponding to expenses with research and development, in the part that has not been subject to financial contribution by the State on a non-repayable basis, incurred in the tax periods from 1 January 2011 to 31 December 2015, in a double percentage:

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

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

(...)

3 - The deduction is made, in accordance with Article 90 of the IRC Code, in the assessment relating to the tax period mentioned in the preceding number."

It follows from the law, in an unequivocal manner, a reference to Article 90 of CIRC, which establishes the rule for assessment of IRC, including the part that comes from autonomous taxation. It also follows from the letter of the law, in the aforementioned Article 4 of SIFIDE, which defines the scope of the deduction of the fiscal benefit, that taxpayers covered by the fiscal benefit may effect its deduction from the amount determined in accordance with Article 90 of the IRC Code and up to its extent.

In this way, the literal element leaves no doubt and leads us to conclude that the question to be resolved centers on, therefore, the interpretation and application of this norm, which states that the amounts to which SIFIDE translates are deducted "from the amounts determined in accordance with Article 90 CIRC, and up to its extent (...) ".

The question is thus answered as to whether Article 90 of CIRC is or is not applicable in the case sub judice, and the answer is affirmative, as the letter of the law leaves no doubt about the application of this legal provision, expressly referred to by the legislator as applicable.

However, despite what has been set out, it must be said that some reflection is required on the meaning and scope of the application of Article 90, in the concrete case of the present file, that is, the question of whether the IRC determined by autonomous taxation would or would not fall within the scope of the ratio legis of the norm, namely whether the reference to Article 90 would be restricted to the collection determined without consideration of autonomous taxation, or whether, on the contrary, the latter should also be included in the concept of IRC collection, for the purposes sought.

The controversy that opposes the parties in the present litigation concerns specifically the interpretation of this provision and the ratio legis underlying the tax regime of autonomous taxation.

This question presupposes some considerations on the nature of autonomous taxation, which have raised much controversy in doctrine and case law, especially regarding their true nature. On this question and addressing legal problems very similar to what we are now dealing with, there is already extensive arbitral case law, highlighting the arbitral decisions issued in cases 113/2015-T; 697/2014-T (with a dissenting vote); 219/2015-T, 370/2015-T; 369/2015-T; 673/2015-T, 722/2015-T, 727/2015-T; 740/2015-T, 744/2015-T, 748/2015-T, 775/2015-T, 443/2016-T, 45/2018-T (with a dissenting vote), without prejudice to others.

The analysis of the above-mentioned arbitral case law reveals the existence of a divergence of understanding regarding the essential issue under debate. The discussion around the nature of autonomous taxation has led to divergence as to the deductibility or non-deductibility of fiscal benefits from the amount assessed under this tax. Even accepting that it is IRC, according to one of the theses in issue, autonomous taxation aims to punish or combat a certain type of expenses, wherefore they have a special or differentiated nature that does not allow the deduction of fiscal benefits from the amount assessed under this tax.

The other thesis, which we follow, understands that such deductibility follows from the law.

Thus, it is necessary to distinguish a first question which passes by assessing the tax legal regime applicable to the tax years in question (2014 and 2015) after which it is necessary to assess the second question, that is, the possible application (or not) of no. 21 of Article 88 of CIRC, introduced by the State Budget Law for 2017. For ease of exposition the two questions will be analyzed below.

Now, defined in these terms the contours of the controversial question, it seems unavoidable that, at the time of the tax events (2014 and 2015) the provision of Article 90 of CIRC was the only reference norm to support the assessment, in the absence of any other provision that provides otherwise or that excludes its application, as will be demonstrated.

It should be noted that, according to legal hermeneutics, the interpreter and applier of the law in force must presume that the legislator knew how to express clearly, coherently and rationally its will.

Thus, in this line of thinking, it is obvious that the legislator had the opportunity to define with clarity and rigor the scope of the fiscal benefit arising from the consideration of expenses incurred in investment for research and development, with high economic potential, whereby, if it desired that this benefit be conditional only and exclusively to cases where the beneficiary companies presented fiscal profits (positive collections), it could and should expressly consider such condition in the legislative statute of reference (SIFIDE, as well as in RFAI). The fact is that it did not.[2] except in 2016, by the State Budget Law (LOE) for 2017, Law No. 7-A/2016 of 30/03, by which, through Article 133, Article 88 of CIRC came to be added with its current no. 21. Now discussing itself, whether this provision is or is not merely interpretative or truly innovative, which appears essential to assess its retroactive application, as the respondent AT claims.

Furthermore, this is not a case of absence of reflection on this specific question, lapse or insufficiency of the letter of the law, especially since it expressly mentioned that the deduction "is made, in accordance with Article 90 of the IRC Code, in the assessment relating to the tax period mentioned in the preceding number". Now, in setting forth in the legislative statutes of reference its thinking regarding the regime to which it subjected the fiscal benefits in question, the legislator did not fail to weigh the application of Article 90 of CIRC and, if it did, it well knew that autonomous taxation are inserted in IRC and, consequently, by not expressly excluding the possibility of deduction from the value of IRC assessed through autonomous taxation, it was surely because it considered that the benefits to the economy and collective well-being generated by investment in that particular type of activity should be considered as a higher good than the collection of tax revenue enhanced by autonomous taxation. We know well that the reasons for fiscal policy underlying the incentives granted by the legislator cannot be challenged.

Following the Arbitral Award issued in case no. 740/2015-T, regarding the applicability of Article 90 of CIRC to the assessment of autonomous taxation: "These Articles 89 and 90 of CIRC, as well as other norms of this code (...) are applicable to autonomous taxation. Firstly, it is settled, following extensive arbitral case law and the positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in CIRC has the nature of IRC".

Also in this regard, we fully adhere to the case law set forth in the recent Award 45/2018-T, of 18-06-2018, which is reproduced below:

"The aforementioned Articles 89 and 90 of CIRC, as well as other norms of this Code, such as those relating to the statements provided for in Articles 120 and 122, are applicable to autonomous taxation.

In fact, it is today settled, following extensive arbitral case law and the positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in CIRC has the nature of IRC. Moreover, beyond case law, Article 23-A no. 1, paragraph a), of CIRC, as amended by Law no. 2/2014, of 16 January, leaves no room today for any reasonable doubt, corroborating what already previously resulted from the literal wording of Article 12 of the same Code.

Now, Article 90 of CIRC refers to the forms of assessment of IRC, by the taxpayer or by the Tax Administration, applying to the determination of the tax due in all the situations provided for in the Code.

Therefore, that Article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, following the submission or non-submission of statements, there being, with force in the year 2014, no other provision that provides for different terms for its assessment.

Thus, in the year 2014, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are restricted to the determination of the taxable matter and the applicable rates, which are those provided for in Chapters III and IV of CIRC for IRC that has as its basis the taxable profit and in Article 88 of CIRC for IRC that has as its basis the taxable matter of autonomous taxation and the respective rates.

But the forms of assessment provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remainder of the taxable matter of IRC.

However, the circumstance that an IRC assessment, carried out in accordance with no. 1 of Article 90, may contain several partial calculations, based on several rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that norm when making reference to "assessment", in the singular, in all cases in which it is "made by the taxpayer in the statements referred to in Articles 120 and 122", having "as its basis the taxable matter that appears in them" (whether determined on the basis of the rules of Articles 17 and et seq. or determined on the basis of the various situations provided for in Article 88).

Moreover, it is not only the assessments provided for in Article 88 that may encompass several calculations of the application of rates to certain taxable matters, as the same may occur in the situations provided for in nos. 4 to 6 of Article 87. ( [3] )

In any case, whatever calculations are to be made, it is a single assessment that the taxpayer or the Tax and Customs Authority must make in accordance with Articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c), and 120 or 122, and based on it that the total IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it may be.

Moreover, if this Article 90 were not applicable to the assessment of autonomous taxation provided for in CIRC, we would have to conclude that there would be no provision that, in 2012, provided for its assessment, which would lead to illegality, by violation of Article 103, no. 3, of the Constitution, which requires that the assessment of taxes be made "in accordance with the law".

And, also, as to the implications of the application of the State Budget Law for 2017, by introducing the current no. 21 of Article 88 of CIRC, it is also adhered to the case law set forth in the aforementioned Arbitral Award no. 45/2018-T, in concluding as follows:

"It should also be noted that the new norm of no. 21 added to Article 88 of CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it can be qualified as truly interpretative ( [4] ), in no way alters this conclusion, as it establishes, regarding the form of assessment of autonomous taxation, that it "is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the provisions of the preceding numbers". In fact, if it is true that this new norm comes to clarify how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of Article 88) and that the competence lies with the taxpayer or the Tax Administration, in accordance with Article 89, it is also clear that the need to use the procedure provided for in no. 1 of Article 90 is not excluded, namely in cases provided for in its paragraph c) in which the assessment is the responsibility of the Tax and Customs Authority, with "basis the elements that the tax administration has", which will include the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements that prove its requirements.

The same applies to the wording given to that no. 21 of Article 88 by Law no. 114/2017, of 29 December.

Therefore, both before and after Law no. 7-A/2016, of 30 March, and Law no. 114/2017, of 29 December, Article 90, no. 1, of CIRC is applicable to the assessment of autonomous taxation."

This is the position that seems adequate and correct to us.

Notwithstanding what has been set out, it is certain that on this question there is also some jurisprudential controversy, as can be seen from the analysis, for example of the arbitral award issued in case no. 607/2014. But as the dissenting opinion recorded in this Award well states, to which we adhere, "the CIRC refers expressly to autonomous taxation in only five articles, namely:

  • In Article 12 of CIRC, which excludes autonomous taxation from the exemption of IRC applicable to entities covered by the transparent tax regime, provided for in Article 6 of CIRC;

  • In Article 23-A, no. 1, which provides that autonomous taxation is not deductible for purposes of determining taxable profit;

  • In Article 88, which establishes the rates and delimits the taxable matter of autonomous taxation);

  • In Article 117, no. 6, which provides for the declaratory obligation of entities exempt from IRC under Article 9, when autonomous taxation is applicable;

  • And, in Article 120, no. 9, regarding the periodic statement of income."

In fact, following the same line of reasoning expressed in the aforementioned dissenting vote, there is no other explicit reference to autonomous taxation in CIRC. They are subject, generically, to the other provisions provided for in CIRC, including Article 90. Moreover, AT itself recognizes this, although it argues for a restrictive interpretation of what is provided for in this provision, particularly the provision in its no. 2, when the deduction of fiscal benefits is at issue, as occurs in the case under consideration, allegedly because it understands that otherwise the anti-abuse purpose of autonomous taxation is perverted.

Now, regardless of this objection possibly making some sense, it is not within AT's power, in the exercise of its power to meddle or go beyond the purposes that the legislator considered and set forth in law. In other words, those who exercise executive power must limit themselves to complying with and obeying the law (which sometimes awakens our discord and perplexity by the options it enunciates), but it must always be said that the principle of separation of powers, as a structuring principle of the Democratic Rule of Law, does not allow the applicator, nor the judge, to alter the meaning that objectively and consciously results from the law. It will thus be the task of the legislator to alter the law, if and when, it deems it appropriate.

Moreover, in the present case, what is not therefore in discussion is the nature of autonomous taxation, since the parties assume it is taxation under IRC, disagreeing only as to the deduction of fiscal benefits. Now, thus being the case, it must be taken into account that the IRC collection from autonomous taxation is calculated from the elements and tax rates defined in Article 88 of CIRC. The procedure for assessment of the tax obeys only and exclusively the provision of Article 90 of CIRC, which delimits the taxable matter of autonomous taxation and enunciates the rates of autonomous taxation, which are diverse, depending on the nature of the taxable matter to which they apply, the type of taxpayer and the economic results of the taxpayer (whether profit or loss was obtained). This latter aspect assumes fundamental importance, as the different and possible applicable rates depend on determining profit or tax loss in the year. It follows from the provision of Article 88 of CIRC that the IRC collection, determined by autonomous taxation, is a function of the taxable result and, consequently, can only be determined after the close of the year, since only then will we know which rates apply. Therefore, strictly speaking, the assessment of IRC is unique, although composed of a part that is determined by the application of the rates provided for autonomous taxation, always in accordance with the technique for tax determination legally provided.[5]

Now, if the collection from autonomous taxation depends on what comes to result from the remainder of taxable profit (positive or negative), one cannot say, as AT claims, that it is determined instantaneously, coinciding with the occurrence of the expense, since the rate of incidence in each case is only known at the end of the tax period.

Being thus, it is evident that the assessment occurs, only and exclusively, after the successive formation of all taxable income under IRC[6]. Any other understanding would be contrary to what is provided for in the law, and we cannot forget that the rules for determination of the taxable matter and tax assessment are protected by the principle of tax legality, enshrined in Article 103 of the Constitution.

It should be emphasized again that the controversial question, having as reference what has been alleged by the procedural parties, is not the nature of autonomous taxation, but the question of whether the tax credit resulting from SIFIDE can or cannot be deducted from the IRC collection generated by autonomous taxation. Both the claimant and the respondent assume, as results from their respective pleadings, that autonomous taxation are IRC.

As Saldanha Sanches states: "In this type of taxation [autonomous], the legislator seeks to respond to the admittedly difficult question of the tax regime that is found in the zone of intersection of the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for exclusively fiscal reasons or hidden distribution of profits." [7]

This is, therefore, a central question in the determination of taxable profit, under IRC and its subsequent assessment. The legislator chose a legislative technique that passes through autonomizing certain types of costs already recorded in the accounts, subjecting them to rates different from the general rates of the tax. Thus, these expenses or costs are relevant in determining taxable income and, to prevent abuse, the legislator, instead of not allowing their deduction as a cost, corrects them through the incidence of autonomous taxation rates, which, in turn, depend on the result of the year.

What is aimed at, in any case, is the income that, through the cost realized, reverted to third parties without incidence of taxation. Although it had other alternatives, this was the fiscal technique chosen by the legislator. The court must respect this choice and decide in accordance with this assumption. See also, in this regard, the analysis set forth in the arbitral decisions issued in cases nos. 370/2015-T, 369/2015-T, 673/2015-T, 630/2016-T or 45/2018-T, which we fully subscribe to.

Once again, by choice, the legislator confronted with the admissibility or otherwise of this type of expenses (among which we find situations deeply diverse from each other, some completely opaque, such as the case of confidential or undocumented expenses, and others that have manifest relation to the activity exercised, as for example occurs with travel expenses or vehicles, but can slide into some exaggeration and make it possible for remuneration to third parties without fiscal impact), chose to consider that the same should be deductible under IRC but, subsequently, subject to autonomous taxation, as a way to moralize any possible abuse or excess. It was in this way that the legislator combated the possible abuses to which AT alludes.

From what has been set out, it is concluded that these expenses are, at a first moment, relevant as deductible costs, to be, at a second moment, subject to autonomous taxation. The choice may be criticizable, perhaps confusing and somewhat incoherent with the rigor that legal technique imposes, but in the reconciliation between legal rigor and accounting technique this was the solution that the legislator decided to adopt. It is certain that the legislator makes clear that it is under IRC that these two moments occur, and their autonomization under taxation is justified by the differentiation of applicable rates, aggravated when the taxpayer presents a loss, with the clear intention of combating abuse and excess.

In light of the above, although it is recognized that the autonomous taxation regime, in the framework of IRC, as regards the form of determining the taxation, a special, different and somewhat strange regime to the dynamics of a tax on income, this does not remove it from its intrinsic nature of a regime for taxation of the income of legal entities. The legislator taxes autonomously these expenses in order to tax the income that they may represent for the respective beneficiaries escaping, however, at that level to the taxation that would be due.[8] In this way it moralizes and discourages the "masked remunerations" of which Saldanha Sanches spoke, in the excerpt cited.

Having resolved the question of the nature of autonomous taxation, taking as established that it is IRC, it remains to conclude that Article 90 of CIRC is applicable, see what Article 90 of CIRC provides, in the wording introduced by Law no. 3-B/2010 of 28-04 (version in force for the years 2014 and 2015):

"Article 90

Procedure and form of assessment

1 - The assessment of IRC is processed as follows:

a) When the assessment must be made by the taxpayer in the statements referred to in Articles 120 and 122, it is based on the taxable matter that appears in them.

(...)

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

(...)

c) The deduction relating to fiscal benefits

(...)

7 – From the deductions made in accordance with paragraphs a), b) and c) of no. 2 no negative value can result."

The procedure for assessment of IRC, in which is integrated the assessment of the parcel designated by autonomous taxation, as indeed results quite explicitly in the model of the tax statement (Form 22) used for that purpose, determines the conclusion that fiscal benefits are deductible from the IRC collection, even if it results from autonomous taxation, as even in this case we are faced with IRC collection.

It should be noted that Article 88 of CIRC (autonomous taxation rates) is inserted in Chapter IV of CIRC (Rates), evidencing the conclusion we have reached, that is, it is IRC, which is determined by the application of differentiated rates to certain parcels of expenses (costs) that are autonomized, only and exclusively, for that purpose. Therefore, the assessment of autonomous taxation is made by the application of the same and single assessment procedure provided for in the law, specifically in Article 90 of CIRC, as there is no other provision that we can invoke for that purpose.

Having resolved this first question, let us move to the following, that is, the question of whether the fiscal benefits resulting from the application of the SIFIDE regime are or are not deductible in the specific case. On this specific question arbitral tribunals constituted with the CAAD have already ruled, in various awards and decisions, the aforementioned ones. In all the cases already mentioned, it was decided that fiscal benefits are deductible, also, from the collection determined by the application of autonomous taxation rates. We follow, therefore, this case law, considering it to be the only one consistent with the letter and spirit of the law. This is a matter clearly covered by the principle of tax legality, whereby, if the legislator's thinking were different, it should have stated it clearly. That is, if his understanding was different, he should have excluded the deduction of benefits from the IRC determined by autonomous taxation, as we have seen, such exclusion does not result from the law.

Furthermore, in no. 7 of Article 90, the legislator provides that "from the deductions made in accordance with paragraphs a), b) and c) of no. 2 no negative value can result." Now, it seems evident that, if the legislator wanted to say something more, he would add, before or after, that the deduction could not relate to the value of IRC determined by autonomous taxation. He did not say so, despite having ruled on the limits to the deduction of fiscal benefits.

Also in defense of this interpretation, the legislator set forth in Article 92 of CIRC the following:

"1 - (...) the tax assessed in accordance with no. 1 of Article 90, net of the deductions provided for in paragraphs a) to c) of no. 2 of the same article, cannot be less than 90% of the amount that would be determined if the taxpayer did not enjoy the fiscal benefits and the regime provided for in no. 13 of Article 43.

2 - The following fiscal benefits are excluded from the provision of the preceding number:

(...)

b) The system of fiscal incentives for research and business development SIFIDE II provided for in the Tax Code of Investment."

Once again, the legislator, deliberately and consciously, wanted to give this type of fiscal benefits preferential treatment, naturally, for extrafiscal reasons, which are related to the period of economic crisis that the country was going through, in order to protect the companies that most contribute to the investment of high technological potential. From the provision of no. 2 of Article 92 of CIRC, it is evident the exceptional character that it attributes to the SIFIDE benefit, which results doubly protected, as it also received in this legal provision an extra protection, compared to other fiscal benefits that did not merit the same treatment. The legislator thus attributed to this benefit an exceptional and prevalent nature over many other fiscal benefits, and the reasons that led it to establish such a benefit are exclusively determined by objectives of economic policy that it is not for the Tribunal to assess or judge. In fact, it is not the task of the courts to examine the economic policies of Governments or the way in which they attempt to reconcile difficult economic indicators, especially when the country needs to encourage economic growth. As for the argument that invokes the principles of distributive and social justice, they can and should be fulfilled by the use of multiple, integrated policies, it being certain that that function lies much more within the scope of IRS than of IRC. Whereby, for better or worse, there are extrafiscal options underlying this type of incentive regime that it is not for the Courts to examine.

We do not therefore accompany the considerations contained in the arbitral award issued in case 722/2015-T, of 28-06-2016, set forth in concrete regarding the question of the deduction of tax credits resulting from SIFIDE II from the collection of autonomous taxation, in that what is discussed there is essentially the nature of autonomous taxation which, in the opinion defended there, does not translate to taxation under IRC but rather to expense taxation. Now, this understanding raises, moreover, other questions that are not relevant to discuss now, as if it were understood that we are faced with taxation of expense, it would be arguable the possible violation of European Union law on the ground of taxation of expense, reserved, as it is known, to the scope of value added tax. But, as we have seen, this is not our understanding, as we are faced with taxation of income, although determined indirectly, that is, by extrapolation of certain expenses borne by the company throughout the year.

Returning to the case of the present file, we have no doubt that confronting the provision of Articles 90 and 92 of CIRC, in the terms stated above, as well as what is established in Article 4 of the statute regulating SIFIDE, it is concluded that in light of the law in force at the time of the tax events and taking into account the established factuality, the fiscal benefits resulting from SIFIDE II are deductible from the IRC collection, even if determined under autonomous taxation. The same understanding is reached under RFAI, for the same reasons already set out.

As is well stated in the dissenting vote expressed in Award 697/2014-T, already referenced, "to accept that the assessment of autonomous taxation was excluded from Article 90, no. 1 of CIRC, 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 tax legality that the General Tax Law, in its Article 8, no. 2, paragraph a), establishes."

We subscribe to the case law set forth in the Award issued in case no. 370/2015-T, when it is stated that "the literal element of the norm does not exclude the interpretation made by the Claimant, as the deductibility of the fiscal benefit in question from the collection of autonomous taxation finds a "minimum verbal correspondence" in the legislative text (Article 9, no. 2, of the Civil Code).

It is true that autonomous taxation, in addition to aiming to guarantee a minimum collection relative to companies that present losses, aims to reduce the "tax participation" in certain expenses and, possibly, discourage their realization, and such objectives will be less achieved with the possibility of the respective collection being subject to deductions.

But, on the other hand, fiscal benefits are exceptional measures instituted to protect extrafiscal public interests that are superior to those of the taxation they prevent (Article 2, no. 1, of the Statute of Fiscal Benefits).

In the confrontation between these two objectives, it is the law itself that indicates to us what should prevail. The public interests that determine the creation of a fiscal benefit are, by nature, superior to those of the taxation they prevent.

This is, moreover, much more evident regarding incentives for investment taxation, as they constitute a true public promise, in the sense that to taxpayers who adopt certain behaviors, supposedly of great economic and social interest, a certain "fiscal reward" is guaranteed.

An interpretation of the law, not expressly imposed by the legal text, that restricts the "benefit" of the fiscal benefits in question would strike at the credibility of the "legislative promises" in fiscal matters, would be, in short, contrary to the principle of confidence, inherent in the idea of a Rule of Law."

Given this, regarding the fundamental question under consideration it will be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretative task requires something more, that is, starting from the text of the norm it is necessary to discover the "ratio legis" underlying it, "a task of interconnection and valuation that escapes the literal domain", in other words "the jurist must always have before his eyes the scope of the law, that is, the practical result that it proposes to achieve". Considering all the elements of interpretation of the legal norm mentioned here, it is concluded that fiscal benefits should be deducted from the IRC collection, even in the part that is determined by autonomous taxation.

It is important to recall that fiscal benefits are "exceptional measures instituted to protect relevant extrafiscal public interests, which the legislator considers superior to those of the taxation they prevent, as indicated by Article 2, no. 1, of the Statute of Fiscal Benefits. In the case of SIFIDE, it was the legislator's intention to superimpose the reasons of an extrafiscal nature of the fiscal benefit over the collection of IRC itself, which it deliberately and consciously disregarded in favor of investment in research and development expenses. This understanding is confirmed by the provision of Article 92, no. 2, of CIRC, when it excludes SIFIDE benefits from the limit on deduction referred to in that article.

Combining the provision of the statute approving SIFIDE and RFAI, with the provision of Article 90 of CIRC, it is concluded that there is no legal basis to exclude the deductibility of the fiscal benefit of SIFIDE from the IRC collection, including the part that comes from autonomous taxation.

And, in these terms, the assessment is unique, that is, it concerns autonomous taxation and the remainder of IRC, and is based on the same legal support. Form 22 contains, in itself, a single assessment of IRC, which in part incorporates the assessment of autonomous taxation. It is true that the assessment of autonomous taxation and the remainder of IRC obey different rules, different rates, and each has its taxable matter determined according to its own legally provided rules, but both obey the assessment processed in accordance with Article 90 of CIRC. In these terms, and as was well expressed in the dissenting vote of Judge Arbitrator Leonor Fernandes Ferreira, in case no. 697/2014-T, "with a single assessment, it is concluded that the part of the collection that comes from autonomous taxation is an integral part of the IRC collection. Otherwise, no other article of CIRC provides for a reference to the assessment of autonomous taxation as a distinct process. To accept that the collection of autonomous taxation is not included in Article 90 of CIRC would be to accept that there is a gap in the law and, this being a fiscal law, does not allow for supplementation."

For all the foregoing, it is concluded that, at least until Law no. 7-A/2016, of 30 March, there was no legal provision that indicated any special procedure for assessment of IRC resulting from autonomous taxation, whereby, under penalty of unconstitutionality by violation of no. 3 of Article 103, as the assessment is not carried out "in accordance with the law", the procedure provided for in Article 90 of CIRC had to be applied. Now, the IRC collection, whether resulting from taxable profit or resulting from autonomous taxation, being determined through the assessment procedure provided for in Article 90 of CIRC, the deductions provided for in no. 2 of the same article are potentially applicable to such collection, which refer "to the amount determined in accordance with the preceding number", without any distinction regarding the nature of the types of IRC collection that are included in that amount.

It is thus concluded that from the literal wording of no. 2 of Article 90 of CIRC, there results no obstacle to the application of deductions to the part of the amount determined in accordance with no. 1 derived from autonomous taxation.

As is well stated in the Decision of the Constitutional Court no. 267/2017, of 31-05-2017, issued in case no. 466/16, "the autonomy of the taxation in question regarding its basis of incidence, regarding the applicable rates and even regarding the time of payment, by itself, does not determine – neither logically nor legally – the irrelevance of the collection obtained with autonomous taxation within the framework of the determination of the collection of IRC itself – a question regulated, in general, in Article 90, no. 1, of CIRC – namely regarding the integration of that into this latter and, consequently, regarding the admissibility of consideration of the value of that collection for the purpose of carrying out the deductions legally provided for in Article 90, no. 2, of CIRC. Such question, in the absence of a specific provision to the contrary – as that which, for example, came to be established in Article 88, no. 21, of CIRC – is part of the legislative configuration of IRC itself, in this included the relevance or irrelevance, for purposes of determining the final IRC collection, of the amounts paid as autonomous taxation"

In fact, only with Law no. 7-A/2016, of 30 March, which added to Article 88 of CIRC a no. 21, did a provision come to exist in which the possibility of application of the deductions provided for in no. 2 of Article 90 of CIRC to the amount determined with autonomous taxation is excluded, establishing that: "The assessment of autonomous taxation in IRC is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the global amount determined."

In the final part of this provision, the scope of application of the deductions provided for in Article 90, no. 2, of CIRC is restricted to the IRC collection derived from taxable profit. Law no. 114/2017, of 29 December, came to reaffirm the exclusion of the applicability of the deductions provided for in no. 2 of Article 90 of CIRC to the IRC collection resulting from autonomous taxation by establishing that: "The assessment of autonomous taxation in IRC is carried out in accordance with the provisions of Article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the global amount determined, even if those deductions result from special legislation."

To this no. 21 of Article 88 of CIRC was attributed an interpretative nature, by Article 135 of Law no. 7-A/2016 and by Article 233 of Law no. 114/2017, respectively. However, the Constitutional Court, in the aforementioned Decision no. 267/2017, already affirmed the unconstitutionality of that Article 135 to the extent that, by effect of the merely interpretative character that it attributes to the 2nd part of no. 21 of Article 88 of CIRC, it excludes the possibility of deduction from the global amount resulting from autonomous taxation assessed in a given year under IRC of deductions permitted in tax years prior to 2016.

This decision of the Constitutional Court was based on no. 3 of Article 103 of the Constitution, which establishes that no one can be obliged to pay taxes of a retroactive nature, from which the Constitutional Court understood to result that "the legislator cannot create taxes of such nature or introduce in existing taxes modifications that, with retroactive effects, aggravate them" and that "what is at issue is the prohibition of establishing new legal consequences that constitute ex novo or aggravate already defined fiscal situations, namely the amount due as a certain tax and previously defined by reason of the verification of all relevant facts in light of the law applicable before the establishment of new legal consequences".

Thus, also in the line of this case law, and citing (once again) Arbitral Award no. 45/2018-T, for being manifestly explicit in addressing the central questions also under analysis in the present file "the constitutionality of the restrictive interpretation of no. 2 of Article 90 of CIRC, so as to exclude the possibility of deductions from the IRC collection resulting from autonomous taxation, depends on it already having to be effected in view of the regime prior to that law no. 7-A/2016, as it is constitutionally inadmissible the retroactive unfavorable application to taxpayers of fiscal norms from which results obligation to payment of taxes.

It should be noted, however, from the outset, that the new wording given by Law no. 114/2017 to no. 21 of Article 88 of CIRC, by excluding the possibility of deductions from the global amount of autonomous taxation "even if those deductions result from special legislation" clarifies, with an interpretative nature (in this part without problems of constitutionality, as it is retroactivity favorable to taxpayers), that there was special legislation from which resulted that deductions were made from the amount of autonomous taxation, coming thus, to recognize, with the legislative authority of an authentic interpretation, what was already being patiently and repeatedly explained by the majority arbitral case law (as it was justified and is justified in view of the difficulties demonstrated by the Tax and Customs Authority in Article 127 of its pleadings, in which it confesses that, for it, these are "incomprehensible and unintelligible theses").

For that reason, being constitutionally inadmissible, by what the Constitutional Court referred to in the aforementioned award, that this new law comes to exclude the possibility of deductions admissible in view of the legislation in force until the entry into force of Law no. 7-A/2016, the question that arises, in order to resolve the issues of legality of the assessment and of the decision on the administrative review petition that are raised in the present case, is whether, before this law, a restrictive interpretation should already have been made which was made explicit in it, should restrictions already have been made to the application of the deductions provided for in no. 2 of Article 90 of CIRC to the part of the IRC collection resulting from autonomous taxation. In fact, the fact that the letter of no. 2 of Article 90 points in the direction of the application of deductions from the collection resulting from autonomous taxation, that deductibility, does not exclude the possibility of restrictive interpretation, if "the interpreter reaches the conclusion that the legislator adopted a text that betrays his thinking, to the extent that it says more than what he intended to say. Also here the ratio legis will have a decisive word. The interpreter should not be carried away by the apparent scope of the text, but should restrict this in terms of making it compatible with the legislative thinking, 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 basis for a restrictive interpretation could, in a first analysis, be ventured the fact that some autonomous taxation, namely some of those that have as a basis of incidence "expenses" or "charges" ( ), aim to discourage certain behaviors of taxpayers susceptible of affecting taxable profit, and consequently, of diminishing tax revenue, and their discouraging force will be attenuated with the possibility of the respective collection being subject to deductions.

However, as was legislatively recognized by the wording given to no. 21 of Article 88 by Law no. 114/2017 (here with force interpretative constitutionally irreproachable in view of Article 103, no. 3, of the Constitution), there is special legislation from which result deductions from the collection derived from autonomous taxation, which are necessarily situations in which legislatively preference was given to satisfaction of the interests that justify the deductions in relation to those aimed at with autonomous taxation, which occurs with the provisions on deductible fiscal benefits from the IRC collection. On the other hand, the nature of anti-abuse norms, intended to prevent fraud and tax evasion, does not exclude the possibility of deductions from the IRC collection that with the application of such norms will be determined, which is manifest regarding the collection provided by corrections based on norms of an unquestionably anti-abuse nature, such as, for example, those relating to transfer pricing or thin capitalization and also the corrections resulting from the application of the general anti-abuse provision provided for in Article 38, no. 2, of the General Tax Law. Further on the other hand, it is also evident that the anti-abuse nature of some of the autonomous taxation that aim to discourage expenses and prevent tax evasion could not serve to justify the non-deduction of fiscal benefits from all the IRC collection resulting from autonomous taxation, as the one provided for in no. 11 of Article 88 of CIRC does not relate to expenses or charges, but rather to "profits", being a form of taxation of profit complementary or alternative to that provided for the generality of income. Furthermore, the autonomous taxation provided for in no. 8 of Article 88 does not have underlying any intention of discouraging the carrying out of the operations to which it refers, but rather to impose on taxpayers special duties of proof in situations in which the more favorable taxation of the recipients of the expenses may raise doubts about the reality and normality of the operations, as autonomous taxation is excluded "if the taxpayer can prove that they correspond to operations actually carried out and do not have an abnormal character or an exaggerated amount". Furthermore, even in relation to some autonomous taxation that relates to expenses, it would not be compatible with the constitutional principles of proportionality and equality to impose taxation on the basis of a hypothetical legislative intention to discourage the use of motorcycles for certain activities for which they are indispensable, as occurs with spectacles with motorcycles, or for which they have evident adequacy, their use corresponding to manifest good business management ( ) and would be especially inconceivable to include within the scope of that discouraging intention the very payment of "taxes relating to their possession or use", to which the final part of no. 5 of Article 88 refers, which should even be ensured coercively by the Tax and Customs Authority, in case the taxpayer feels discouraged to make that payment.

Thus, the understanding that all autonomous taxation aims to tax expenses or discourage or sanction behaviors, which may result from a first cursory analysis, encounters, in a more incisive perception, an inescapable lack of correspondence with reality, being more coherent, as a global explanation, the idea that we are "faced with a mechanism whose ultimate objective is to contribute to the "normalization" of taxation under IRC, that is, to the functioning of this tax in its purest form and closest to its roots as a tax on profit obtained by legal entities. In that sense, autonomous taxation are nothing more than auxiliary mechanisms of the central axis of IRC, which is to tax profits while allowing the deduction of the expenses in which taxpayers must incur with a view to the realization of taxable income". ( )

As is also stated in the arbitral award issued in case no. 59/2014-T, autonomous taxation in IRC should be considered a form of taxation of business income: "The Explanatory Memorandum contained in Proposal no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no room for doubt that it is a conscious and intended expansion of previously existing distortions, as it was understood that they were necessary, in short, to compensate other distortions resulting from significant fraud and tax evasion and, thus, increase the equity of the distribution of the tax burden between citizens and companies".

"Autonomous taxation directly affecting certain expenses, within the scope of taxes that originally related only to income, are considered distortions of the system of direct taxation of income that IRC aimed at, but a value that was legislatively considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice for these forms of taxation, as they are in accordance with the principles of equity, efficiency and simplicity." (...)

But this indirect taxation is nevertheless carried out within the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as a corollary the application of the general provisions specific to this tax, which do not conflict with its special form of incidence.

Thus, while it is true that autonomous taxation constitute a different form of imposing taxes on companies, which could consist of autonomous regulation or be arranged in the Code of Stamp Tax, it is also no less true that the legislative choice to include such taxation in CIRC reveals an intention to consider such taxation as inserted in IRC, which may be justified by being an indirect form, but, from the legislative perspective, equitable, simple and efficient, of taxing business income that escapes the regime of taxation with direct incidence on income.

In fact, autonomous taxation under IRC, in view of the increasing breadth that the legislator has been giving them ( ), in order to be compatible with the constitutional principle of taxation of companies fundamentally affecting their real income (Article 104, no. 2, of the Constitution), should be understood as indirect forms of taxing business income, through the taxation of certain expenses and charges that reveal capacity to pay.

For that reason, being autonomous taxation provided for in CIRC, ultimately, indirect forms of taxing business income, it is not seen that there is necessarily incompatibility between them and the general rules that provide for the form of carrying out IRC assessment. In any case, a restrictive interpretation can only result, in view of the wording of CIRC prior to Law no. 7-A/2016, from the conclusion that the text of no. 2 of Article 90, in some measure, does not correspond to the legislative thinking, namely if it can be concluded that the reason justifies some or some of the deductions, only is it compatible with its application to the IRC collection resulting from taxable profit.

And, naturally, in view of the constitutional prohibition of the application of retroactive exclusion of the global deductibility to situations prior to Law no. 7-A/2016, the deductions will be applied when they result from the special legislation referred to in the wording of no. 21 of Article 88 introduced by Law no. 114/2017. At least in these cases in which the deductions result from special law, will be excluded necessarily the possibility of excluding them by means of a restrictive interpretation of no. 2 of Article 90, as it is that special law, precisely because it is such, which imposes its application, as special laws prevail over general laws in their specific domains of application.

In this manner, it remains to assess each of the situations in which the Claimant intends to effect deduction from the IRC collection resulting from autonomous taxation.

Deductibility of investment expenses provided for in SIFIDE II from IRC collection derived from autonomous taxation

SIFIDE - System of fiscal incentives for research and development was created by Law no. 40/2005, of 3 August, with force provided for the years 2006 to 2010, but was reformulated by Article 133 of Law no. 55-A/2010 of 31 December to apply until 2015 as System of fiscal incentives for research and business development II (SIFIDE II). Subsequently, it was amended by Articles 163 and 164 of Law 64-B/2011 of 30 December, and transferred to Articles 33 to 40 of the Tax Code of Investment, republished by Decree-Law no. 82/2013, of 17 June. Articles 33, 35, 36 and 38 of the Tax Code of Investment were amended by Law no. 83-C/2013 (Articles 211 and 212), increasing the period of force until 2020 (in no. 1 of that Article 36). Already in 2014, Decree-Law no. 162/2014, of 31 October, approved a new Tax Code of Investment, in which it integrated SIFIDE II. Regarding the scope of the deduction, Article 4

Frequently Asked Questions

Automatically Created

Can SIFIDE and RFAI tax benefits be deducted against the IRC autonomous taxation component?
The claimant argued that SIFIDE and RFAI tax benefits can be deducted from IRC autonomous taxation because autonomous taxation is itself a component of IRC assessed under Article 90(1) of the CIRC. The company contended that since autonomous taxation falls within the IRC framework, fiscal benefits determined under these incentive systems should be deductible pursuant to Article 90(2)(b) CIRC. This interpretation was supported by prevailing doctrine and arbitral case law, including CAAD decisions 775/2015-T, 744/2015-T, 748/2015-T, and 740/2015-T, which consistently treated autonomous taxation as IRC subject to the general assessment rules in Articles 89 and following of the CIRC.
How does autonomous taxation relate to the main IRC tax liability for benefit deduction purposes?
For benefit deduction purposes, the claimant argued that autonomous taxation relates to the main IRC liability as an integral component of the overall IRC assessment. While autonomous taxation contains specificities compared to the general regime, it remains governed by IRC assessment rules under Articles 89-90 of the CIRC. The company maintained that fiscal benefits apply to the total IRC collection, which includes both the standard corporate tax and autonomous taxation components. The respondent Tax Authority, however, took the position that autonomous taxation operates as a separate mechanism with distinct rules that preclude the deduction of tax incentives like SIFIDE and RFAI, particularly following legislative clarifications in the 2016 State Budget Law.
What was the outcome of CAAD process 626/2017-T regarding tax incentives and autonomous taxation?
The excerpt does not provide the final outcome of CAAD Process 626/2017-T, as it contains only the initial report section and parties' arguments. The arbitral tribunal was constituted on February 7, 2018, with a decision initially scheduled for June 20, 2018, later extended to July 15, 2018. The claimant sought annulment of autonomous taxation amounts totaling €23,472.93 for 2014 and €29,700.12 for 2015, arguing that SIFIDE and RFAI benefits should be deductible from autonomous taxation. The parties waived the oral hearing, submitting written pleadings by April 2018. The case involved fundamental questions about the nature of autonomous taxation, the interpretative versus innovative character of Article 135 of the 2016 State Budget Law, and potential constitutional issues regarding retroactivity in taxation.
What is the legal basis for challenging IRC self-assessments through CAAD arbitration in Portugal?
The legal basis for challenging IRC self-assessments through CAAD arbitration is established in Article 2(1)(a) and Article 10(1)(2) of Decree-Law 10/2011 of January 20 (RJAT - Legal Regime of Administrative Arbitration in Tax Matters), as complemented by Ordinance 112-A/2011 of March 22. Taxpayers can request constitution of an arbitral tribunal to challenge decisions rejecting administrative review petitions (recurso hierárquico) and, consequently, the underlying self-assessed tax acts. The arbitration process provides an alternative dispute resolution mechanism to judicial courts for tax matters. In this case, A... S.A. filed the arbitration request on November 29, 2017, which was accepted by the CAAD President and led to the constitution of a sole arbitral tribunal following the taxpayer's choice not to designate a specific arbitrator.
Can taxpayers file a gracious complaint before arbitration to dispute SIFIDE and RFAI benefit calculations?
Yes, taxpayers must file a gracious complaint (pedido de revisão oficiosa or recurso hierárquico) before pursuing CAAD arbitration to dispute SIFIDE and RFAI benefit calculations. The claimant in this case first submitted an administrative review petition challenging the self-assessed IRC acts for 2014 and 2015. Only after the Tax Authority rejected this administrative review could the company request constitution of an arbitral tribunal under RJAT to challenge both the rejection decision and the underlying self-assessments. This prior administrative procedure is generally required before accessing arbitration, reflecting the principle of administrative precedence. The arbitration specifically addressed whether fiscal incentives under SIFIDE and RFAI could be deducted from IRC autonomous taxation, following the unsuccessful administrative review at the Tax Authority level.