CAAD 627/2016-T: Deduction of Autonomous Taxation from Special Payment on Account in IRC

ARBITRAL DECISION

Claimant: A…, S.A.

Respondent: TAX AND CUSTOMS AUTHORITY

I. STATEMENT OF FACTS

1. A…, S.A., (hereinafter referred to as Claimant) taxpayer No…, with registered office at…, …, No…, …-… …, filed on 20-10-2016 a petition for constitution of a Singular Arbitral Tribunal, pursuant to the provisions of subparagraph a) of No. 1 of Article 2 and Article 10, Nos. 1 and 2, both of Decree-Law No. 10/2011, of 20 January (hereinafter referred to as RJAT), and Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, in which the Tax and Customs Authority (hereinafter designated as AT or Respondent) is requested, with a view to declaring the nullity of the tacit rejection of the petition for official review and consequent annulment and reimbursement of the self-assessment of Corporate Income Tax (IRC) for the year 2011, in the amount of €9,302.24.

2. The petition for constitution of the Singular Arbitral Tribunal was accepted by His Excellency the President of CAAD and notified to the Respondent on 04-11-2016.

3. Pursuant to the provisions of subparagraph a) of No. 2 of Article 6 of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed periods, the undersigned was appointed as arbitrator and communicated to the Deontological Council and to the Administrative Arbitration Center (CAAD) the acceptance of the assignment within the period stipulated in Article 4 of the Deontological Code of the Administrative Arbitration Center.

4. On 21-12-2016, the parties were notified of such appointment and did not manifest their intention to refuse the arbitrator's appointment, in accordance with the combined provisions of Article 11, No. 1 subparagraphs a) and b) of RJAT and Articles 6 and 7 of the Deontological Code.

5. The Singular Arbitral Tribunal was constituted on 05-01-2017, in accordance with the provision of subparagraph c) of No. 1 of Article 11 of RJAT, as redacted by Article 228 of Law No. 66-B/2012, of 31 December.

6. On 08-02-2017, a ruling was issued inviting the Claimant to comment on the exception raised by the AT.

7. On 20-02-2017, the Claimant responded to the exception.

8. An arbitral ruling was issued on 27-02-2017, duly notified to the parties, which established the grounds for dispensing with the meeting referred to in Article 18 of RJAT, heard the witness indicated by the Claimant, granted to the parties the opportunity to submit written submissions and set a deadline for issuing and notifying the parties of the arbitral decision.

9. The Claimant submitted written submissions on 10-03-2017, in which it essentially reiterates the position adopted in its petition for arbitral ruling, and the Tax and Customs Authority submitted its submissions on 24-03-2017, in which it essentially refers to the content of its response.

10. In support of its petition, the Claimant invoked, in summary, and with relevance to what matters here, the following (which is cited principally by transcription):

a. (…) that it filed on 24 March 2016 the petition for official review of the self-assessment act of Corporate Income Tax relating to the period and taxation of 2012 (see Article 1 of the petition for arbitral ruling and document No. 1 attached thereto);

b. (…) having the petition been filed (…) on 24 March 2016, the presumption of tacit rejection was formed on 24 July 2016 (see Article 3 of the petition for arbitral ruling);

c. (…) with respect to the taxation period of 2012, the Claimant was the parent company of a group of companies taxed under the Special Regime for Group Taxation ("RETGS"), composed of the following companies:

i. The Claimant, as parent company of the Group;
ii. B…, Lda., with Tax Identification No…;
iii. C…, SGPS, S.A., with Tax Identification No…;
iv. D... S.A. with Tax Identification No…;
v. E…, S.A., with Tax Identification No…;
vi. F…, SGPS, S.A., with Tax Identification No…;
vii. G…, S.A. with Tax Identification No…,
viii. H…, SGPS, S.A. (H…), with Tax Identification No…, which joined the RETGS in the taxation period 2012; and
ix. I…, S.A. (I…), with Tax Identification No…, which joined the RETGS in the taxation period 2012 (see Article 39 of the petition for arbitral ruling);

d. The Claimant assumed the legal form of a limited company under Portuguese law, with registered office and effective management in Portugal and qualified, for Corporate Income Tax purposes, as a taxable person resident within the meaning of Article 2, No. 1, subparagraph a) of the Code of that tax (see Article 40 of the petition for arbitral ruling);

e. The group of companies dominated by the Claimant has as its main activity civil construction, public works, real estate promotion and related activities (see Article 41 of the petition for arbitral ruling and document No. 1A attached thereto):

f. The Claimant is subject to the general regime of Corporate Income Tax, adopting a taxation period coinciding with the calendar year (see Article 42 of the petition for arbitral ruling);

g. In fulfillment of the legal declarative obligations imposed (…) the Claimant submitted, on 31 May 2013, the Form 22 of the Group's Corporate Income Tax for the taxation period of 2012, (…) from which resulted the amount to be paid of €22,933.86 (see Article 43 of the petition for arbitral ruling);

h. According to the information made available in the Claimant's area on the AT website, the total amount of Special Payments on Account (PEC) that was entered in field 356 of table 10 of the Form Corporate Income Tax of the Group, still capable of deduction in the taxation period of 2012, corresponded to €9,302.24 (see Article 44 of the petition for arbitral ruling and documents Nos. 3 and 4 attached thereto);

i. (…) the Claimant understands that the amount paid as Special Payments on Account, and capable of deduction in the period of 2012, can and should be deducted from the total Corporate Income Tax collection formed by the autonomous taxation relating to the same period and identified above, for which reason the Claimant considers itself owed by the AT a total of €9,302.24 (see Article 53 of the petition for arbitral ruling);

j. (…) the Claimant further understands "that the amount of tax paid in the self-assessment in May 2013 is not correct, since the correct amount to be paid by the Claimant should have been €13,631.62: €22,933.86 - €9,302.24)" (see Article 54 of the petition for arbitral ruling);

1. The Claimant requests, as can be extracted from its petition, the annulment of the "decision of the Tax Authority, of tacit rejection of the petition for official review (…) by virtue of such decision being based on violation of the provision in Article 90 of the Code of Corporate Income Tax and consequently ordering the annulment of the self-assessments relating to the fiscal year 2011 with the consequent reimbursement of the amount of €9,302.40 (….), respectively increased by the respective indemnificatory interest provided for in Article 43 of the General Tax Law and in Article 61 of the Code of Tax Procedure and Process."

It further requests "that any application of the rule – No. 21 of Article 88 of the Corporate Income Tax Code – which implies an interpretation thereof to the effect that special payments on account are not deductible from autonomous taxation, be declared unconstitutional, for violation of the principle of non-retroactivity provided for in No. 3 of Article 103 of the Constitution, which is hereby expressly alleged"

—In summary conclusion (for which we are responsible) the Claimant concluded that, both the tacit rejection of the petition for official review, and the self-assessments of Corporate Income Tax (including the autonomous taxation rates) with reference to the year 2011 suffer from violation of law, in that the deduction of special payments on account from the part of the Corporate Income Tax collection corresponding to the autonomous taxation rates should not be prohibited.

—Arguing that autonomous taxation has the nature of Corporate Income Tax, since it is not excluded from the nature and regime of the tax, and should be included in the concept of "Corporate Income Tax collection," concluding that this should encompass not only the value of Corporate Income Tax but also that of autonomous taxation.

—The Claimant further comments on the addition of No. 21 to Article 88 of the Corporate Income Tax Code, effected by Law No. 7-A/2016 of 30 March in the manner that will be subject to assessment below.

1. The AT, duly notified to this effect, submitted its response timely, by exception and by opposition, and attached the administrative instructing file to the proceedings.

By opposition:

1. In its response by opposition, identifying the petition for arbitral ruling formulated by the Claimant as the latter's claim to be recognized the right to deduct the amounts paid as special payments on account from the collection produced by autonomous taxation, it alleges the following, in the sense of the lack of merit of the petition for arbitral ruling (which is cited principally by transcription),

13.1. (…) both jurisprudence and doctrine have already addressed, abundantly, the characterization of the figure "autonomous taxation" in Corporate Income Tax (and in Personal Income Tax) (see Article 80 of the response),

13.2. The considerations made in this regard reveal that the figure of autonomous taxation has been instrumental in the pursuit of diverse objectives ranging from the original purpose of preventing practices of evasion and fraud—through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the replacement of the taxation of accessory benefits in the form of representation expenses or the allocation of vehicles to workers and members of corporate bodies, in the sphere of their respective beneficiaries—to the purpose of preventing the phenomenon known as "dividend washing" (see No. 11 of Article 88 of the Corporate Income Tax Code) or of imposing, through taxation, the payment of income considered excessive (see No. 13 of the same provision) [see Article 81 of the response],

13.3. It is thus recognized that the autonomous character of these taxation, arising from the special configuration given to the material and temporal aspects of the tax events, requires, in certain areas, the exclusion or an adaptation of the general rules of application of Corporate Income Tax. (see Article 89 of the response),

13.4. (…) the integration of autonomous taxation in the Code of Corporate Income Tax (and Personal Income Tax) conferred a dualistic nature [1] in certain aspects, on the normative system of this tax, which was embodied, notably, in the framework in subparagraph a) of No. 1 of Article 90 of the Corporate Income Tax Code, in separate determinations of their respective collections, by virtue of their having followed different rules. (see Article 90 of the response),

13.5. And that is so, since in one case it involves the application of the rate(s) of Article 87 of the Corporate Income Tax Code to the taxable income determined according to the rules of Chapter III of the Code and, in another case, it involves the application of the rates to the values of the taxable incomes relating to the different realities contemplated in Article 88 of the Corporate Income Tax Code. (see Article 91 of the response),

13.6. (…) contrary to what is affirmed in point 9 of the declaration of dissent attached to the Arbitral Decision handed down in proceedings No. 697/2014-T, there is not a single Corporate Income Tax assessment [2], but rather two determinations:

That is, two distinct calculations which, although processed, pursuant to the provisions of subparagraph a) of No. 1 of Article 90 of the Corporate Income Tax Code, in the declarations referred to in Articles 120 and 121 of the same Code, are effected on the basis of different parameters, since each is materialized in the application of its own rates, provided for in Articles 87 or 88 of the Corporate Income Tax Code, to their respective taxable incomes determined equally in accordance with the rules specific thereto (see Articles 92 and 93 of the response),

13.7. (...) contrary to the reductive conclusion drawn from this statement that "the rule directed to the Corporate Income Tax collection contained in subparagraphs b) and c) (current c) and d)) of No. 2 of Article 90 of the Corporate Income Tax Code equally applies to them, as no obstacle to this is perceived in their special form of application and rates applicable," it is necessary that an interpretive exercise be undertaken in order to determine whether the regime of deductions from the Corporate Income Tax collection, as an integral part of the regime-rule of this tax and pre-existing the incorporation of autonomous taxation therein, also extends to the (multiple) collections of these taxation (see Article 97 of the response),

13.8. It should be clarified that the determination of autonomous taxation is effected on the basis of Articles 89 and 90 of the Code of Corporate Income Tax but, applying different rules for the calculation of the tax;

(1) in one case the determination operates by means of the application of the rates of Article 87 to the taxable income determined in accordance with the rules of Chapter III of the Code and,

(2) in the other case, various collections are determined depending on the diversity of the events that give rise to autonomous taxation (see Article 106 of the response),

13.9. Whence it results that the amount determined in accordance with the provisions of subparagraph a) of No. 1 of Article 90 does not have a unitary character, since it includes values calculated according to different rules, to which different purposes are also associated, for which reason the deductions provided for in the subparagraphs of No. 2 can only be effected against that part of the Corporate Income Tax collection with which there is a direct correspondence, in order to maintain the coherence of the structural framework of the regime-rule of the tax (see Article 107 of the response) (see Article 107 of the response),

13.10. When it comes to the deductions provided for in No. 2 of Article 90 of the Corporate Income Tax Code, the Claimant came to argue in the Petition – basing itself, with due respect, on a simplistic and decontextualized reading of this provision – that the expression "amount determined in accordance with the previous number" should be understood as encompassing the sum of the amount of Corporate Income Tax, determined on the taxable income determined in accordance with the rules of Chapter III and at the rates provided for in Article 87 of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in Article 88 (see Article 112 of the response),

13.11. The result of this interpretation would imply that, in the basis of calculation of payments on account defined in No. 1 of Article 105 of the Code of Corporate Income Tax – and in identical terms to those used in No. 2 of Article 90, namely:

"payments on account are calculated on the basis of the tax determined in accordance with No. 1 of Article 90 (…) –

—autonomous taxation would be included (see Article 113 of the response),

13.12. In good logic, it only makes sense to conclude that the respective basis of calculation corresponds to the amount of the Corporate Income Tax collection resulting from the taxable income that is identified with the profit/income of the fiscal year of the taxable person (see Article 117 of the response),

13.13. Accordingly, the delimitation of the content of the expression used by the legislator in No. 2 of Article 90 of the Corporate Income Tax Code "amount determined in accordance with the previous number", and in No. 1 of Article 105 of the Corporate Income Tax Code "tax determined in accordance with No. 1 of Article 90", should be made in a coherent manner (see Article 118 of the response),

13.14. Which is equivalent to saying that it corresponds to the amount of Corporate Income Tax calculated by applying the rates of Article 87 to the taxable income determined on the basis of profit and at the rates of Article 87 of the Code (see Article 120 of the response),

13.15. By simple consequence of the pertinent considerations that led to the conclusion that the deductions referred to in subparagraphs a) and b) of No. 2 of Article 90 of the Code of Corporate Income Tax are effected against the "amount determined in accordance with the previous number", understood as the amount of Corporate Income Tax determined on the basis of the taxable income determined in accordance with the rules contained in Chapter III and the rates of Article 87 of the same Code (see Article 133 of the response),

13.16. It is possible to extend such conclusion to the deduction relating to special payments on account (see Article 134 of the response),

13.17. (…) the legal nature of the PEC, revealed by its configuration as an "instrument or guarantee of payment of the tax on account of which it is exacted, and not as a tax in itself, as well as by the function associated with it in combating tax evasion and fraud, links indissolubly this payment to the amount of Corporate Income Tax determined on the taxable income determined on the basis of profit (Chapter III of the Code) (see Article 144 of the response).

13.18. In short, the interpretation of No. 2 of Article 90 in coherence with the nature and content of the deductions provided for in its subparagraphs, among which the PEC appears, should be made in light of the general objectives of Corporate Income Tax that lead it back, in its essence, to the taxation of the income of legal persons, determined in conformity with the rules of Chapter III of the respective Code (see Article 147 of the response),

13.19. For this reason, it is manifestly devoid of any basis the Claimant's claim for deduction of the amount supported by special payments on account from the collection produced by autonomous taxation in the year 2012 (see Article 148 of the response),

1. The parties have legal personality and capacity, are legitimate and are legally represented (Article 3, 6 and 15 of the Code of Tax Procedure and Process, by virtue of Article 29, No. 1, subparagraph a) of RJAT),

2. The proceedings do not suffer from defects, having been raised the exception of lack of material jurisdiction of the Arbitral Tribunal.

II. GROUNDS

A. STATEMENT OF FACTS

A.1. Facts taken as proven

a- The Claimant assumes the legal form of a limited company under Portuguese law, with registered office and effective management in Portugal, and qualified for Corporate Income Tax purposes as a taxable person resident as provided for in Article 2, No. 1, subparagraph a) of the Corporate Income Tax Code,

b- With respect to the taxation period of 2012, the Claimant was the parent company of a group of companies taxed under the Special Regime for Group Taxation ("RETGS") comprised of the following companies;

. the Claimant itself;
. B…, Lda., with Tax Identification No…;
. C…, SGPS, S.A., with Tax Identification No…;
. D... S.A. with Tax Identification No…;
. E…, S.A., with Tax Identification No…;
. F…, SGPS, S.A., with Tax Identification No…;
. G…, S.A. with Tax Identification No…,
. H…, SGPS, S.A. (H…), with Tax Identification No…, which joined the RETGS in the taxation period 2012; and
. I…, S.A. (I…), with Tax Identification No…, which joined the RETGS in the taxation period 2012,

c- The group of companies dominated by the Claimant has as its main activity civil construction, public works, real estate promotion and related activities,

d- On 31 May 2013, it submitted the Form 22 of Corporate Income Tax of the Group, with reference to the fiscal year 2012.

e. In the year 2012 the Claimant did not determine any Corporate Income Tax collection,

f. On 10 December 2015 the AT issued an official declaration No. 2015…, from which resulted the amount of tax to be paid of €9,401.78,

g- The Claimant filed on 24 March 2016 a petition for official review of the tax act of self-assessment of Corporate Income Tax, with reference to the taxation period of 2012,

h- Official review which was tacitly rejected,

i- Already after the formation of the tacit rejection of the petition for official review, the AT came in September 2016 to rule in the sense of rejecting the Claimant's claim, alleging and concluding, in very brief summary, that "autonomous taxation should not be considered for the purposes of the deductions referred to in No. 2 of Article 90 of the Corporate Income Tax Code, particularly because, although being related to Corporate Income Tax, they do not form part of the concept of collection."

j. On 20-10-2016, the Claimant filed the petition for constitution of Arbitral Tribunal, which gave rise to the present proceedings, formulating a petition for declaration of illegality of the decision of rejection of the petition for official review and annulment of the identified Corporate Income Tax assessment (see the information system for case management of CAAD)

A.2. Facts taken as not proven

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

A.3. Grounds for the statement of facts taken as proven and not proven

With respect to the statement of facts, the tribunal does not have to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision, to discriminate the proven facts from the unproven ones [(see Article 123, No. 2 of the Code of Tax Procedure and Process and Article 607, No. 3 of the Civil Procedure Code, applicable by virtue of Article 29, No. 1, subparagraphs a) and e) of RJAT)].

Thus, the facts pertinent to the judgment of the case are chosen and delineated on the basis of their legal relevance, which is established with regard to the various plausible solutions of the question(s) of law (see Article 596 of the Civil Procedure Code, applicable by virtue of Article 29, No. 1, subparagraph e) of RJAT).

Accordingly, having regard to the positions assumed by the parties, the documentary evidence produced in the file and the attached administrative file, the facts listed above are considered proven with relevance to the decision.

Question of lack of material jurisdiction of the Arbitral Tribunal

The dilatory exceptions prevent the tribunal from deciding the merits of the case and, having their appraisal an official and priority character, it is necessary to assess, immediately, the dilatory exception of lack of material jurisdiction of the tribunal raised by the Respondent.

—Position of the Tax and Customs Authority

The AT raises the exception of lack of material jurisdiction of this Arbitral Tribunal for the following reasons, in summary, and with relevance;

I. (…) having regard to the provisions in Articles 2, No. 1, subparagraph a) and 4, No. 1, both of RJAT, and in Articles 1 and 2, subparagraph a) both of Ordinance No. 112-A/2011, of 22.04, there exists the exception of lack of jurisdiction of the present Arbitral Tribunal to hear and decide the above petition,

ii. It is provided in Article 2, subparagraph a) of Ordinance 112-A/2011, that the binding of the AT to the jurisdiction referred to has as its object the appraisal of claims relating to taxes the administration of which is its responsibility, referred to in No. 1 of Article 2 of RJAT, "with the exception of claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payments on account which have not been preceded by recourse to the administrative process in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process,

iii. From the factuality (…) it results that in the situation sub judice, there was always a mandatory requirement for prior recourse to the gracious objection as provided for in No. 1 of Article 131 of the Code of Tax Procedure and Process,

IV. (…) jurisprudence has provided the understanding – which is not questioned – that, having regard to the administrative nature of the official review procedure, it is susceptible of being equated to the provision in Article 131, No. 1 of the Code of Tax Procedure and Process for the purpose of subsequent challenge of the respective decision of rejection,

V. However, such equation is legally prohibited in arbitral proceedings, being excluded from the material jurisdiction of arbitral tribunals the appraisal of claims relating to the declaration of illegality of self-assessment acts which have not been preceded by recourse to the administrative process in accordance with Articles 131 of the Code of Tax Procedure and Process, but only of official review as provided for in Article 78 of the General Tax Law,

VI. In effect, Article 2, subparagraph a) of Ordinance No. 112-A/201 literally excludes from the scope of the binding of the AT to arbitral jurisdiction, "(….) claims relating to the declaration of illegality of self-assessment acts (…) which have not been preceded by recourse to the administrative process in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process",

VII. There being no reference therein to the official review provided for in Article 78 of the General Tax Law,

VIII. That is, from the wording conferred on the cited legal provision it is evident that the legislator chose to restrict the jurisdiction in arbitral proceedings to claims which, being relating to the declaration of illegality of self-assessment acts, have been preceded, mandatorily, by the gracious objection provided for in Article 131 of the Code of Tax Procedure and Process,

IX. It is further noted that Ordinance No. 11-A/2011 was approved and published already after extensive and abundant jurisprudence that reaffirmed that, having regard to the administrative nature of the official review procedure, it is susceptible of being equated to the provision in Article 131, No. 1 of the Code of Tax Procedure and Process for the purpose of subsequent challenge of the respective decision of rejection.

X. Now, if the legislator did not provide, in Article 2 of that Ordinance, for the official review procedure as being equatable to recourse to the administrative process, especially to the gracious objection, for purposes of access to the petition for arbitral ruling, it was certainly because it did not intend to do so.

XI. In summary, having regard to the above, it is concluded that by virtue of that established in Article 2, subparagraph a) of Ordinance No. 112-A/2011, disputes which have as their object the declaration of illegality of self-assessment acts, as occurs in the situation sub judice, are excluded from the material jurisdiction of arbitral tribunals if they are not preceded by a gracious objection in accordance with Article 131 of the Code of Tax Procedure and Process.

Concluding the AT in this segment of its response that the Arbitral Tribunal is materially incompetent to hear the underlying petition, which constitutes a dilatory exception, preventing the tribunal's knowledge of the merits of the case and leading to its dismissal from the action.

—Position of the Claimant

The Claimant, invited to comment on the exceptions raised by the AT, came to assert, in summary, and with relevance the following:

i. (…) the AT came to invoke that pursuant to subparagraph a) of Article 2 of RJAT, the jurisdiction in arbitral proceedings was restricted to claims which are relating to the declaration of illegality of assessment/self-assessment acts, which have been preceded by the objection provided for in Article 131 of the Code of Tax Procedure and Process,

ii. if the AT's thesis were to prevail, we would have a limitation of a constitutional principle,

iii. the rule applicable, whether for judicial challenge or for arbitration, is that all acts to which the AT or has not yet ruled or still has not had any involvement be submitted to the scrutiny of the AT, for which reason it should be given the opportunity to rule before a third party entity – judicial tribunal or arbitral tribunal – rules on its legality,

iv. (…) the equation of the petition for review of the tax act to the gracious objection on self-assessment acts, source withholding acts and payments on account is manifest,

v. (…) the gracious objections necessary are justified by the need for prior administrative filtering before the judicial route, as acts are involved which are not authored by the AT but by the taxable person itself and in which the latter has still not had any involvement,

vi. (…) the best reading of subparagraph a) of No. 1 of Article 2 of RJAT is that if the arbitral tribunal is permitted to appraise the possible illegality of the assessment itself, that competence will also extend to cases in which the second-tier act is the rejection of the petition for review of the tax act, as no reason is seen for restricting.

—Decision on the question of material jurisdiction

Arbitral tribunals are constitutionally recognized as true tribunals (Article 209, No. 2 of the Constitution), and voluntary arbitration in general finds its legal basis in Law No. 63/2011, of 14 December, in force and which effected the revocation of Law No. 31/86, of 29 August, where it is provided that "the State and other legal persons under public law may enter into arbitration conventions, provided that they are authorized to do so by special law or if these have as their object disputes relating to relations of private law" (Article 1, No. 5)

The legislative authorization contained in Article 124 of Law No. 3-B/2010, of 28 April, relating to arbitration in tax matters, configures tax arbitration as an alternative means to the process of judicial challenge and the action for recognition of a right or legitimate interest enshrined in the Code of Tax Procedure and Process.

Pursuant to that authorization, Decree-Law No. 10/2011, of 20 January was approved, which regulates arbitration in tax matters.

According to its preamble, the jurisdiction of arbitral tribunals functioning under the aegis of CAAD was set in the following terms: the "jurisdiction of arbitral tribunals" encompasses the appraisal of the declaration of illegality of assessment of taxes, self-assessment, source withholding and payments on account, the declaration of illegality of acts of determination of taxable matter, of acts of determination of taxable income and of acts of setting patrimonial values, whenever the law does not assure the ability to raise the claim referred to.

The material scope of tax arbitration is defined in subparagraphs a) and b) of Article 2 of RJAT:

Article 2

Jurisdiction of arbitral tribunals and applicable law

1. The jurisdiction of arbitral tribunals comprises the appraisal of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, source withholding and payments on account;

b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to assessment of any tax, of acts of determination of taxable income and of acts of setting patrimonial values".

This jurisdiction of arbitral tribunals is, however, limited by the terms in which the AT came to express its intention to bind itself to this jurisdiction, embodied in Ordinance No. 112-A/2011, of 22 March, ordinance of binding this which already flowed from the provision in Article 4 of RJAT:

Article 4

Binding and functioning

"1. The binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an ordinance of the Government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes encompassed".

Thus, and in addition to others contained in subparagraphs b), c) and d), subparagraph a) of the No. of Article 2 of the Ordinance of Binding lists the claims that are expressly excluded within the scope of the binding of the AT to the jurisdiction of tax arbitral tribunals: "claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payments on account which have not been preceded by recourse to the administrative process in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process".

That is, the diploma that instituted arbitration in tax matters, containing a provision of broad arbitrability in tax matters, does not, however, as has already been written [3], have immediate operationality as it is conditional on the binding of the AT, in the precise terms provided for in Article 2 of Ordinance No. 112-A/2011, of 22 March.

Recalling again the cited decision, "The binding of the AT to the jurisdiction of arbitral tribunals is subject to a concrete limitation: claims arising from alleged illegality of self-assessment acts, source withholding acts or payments on account are expressly excepted from arbitration, except if their illegality has been previously raised, in accordance with Articles 131 et seq. of the Code of Tax Procedure and Process"

The question of the mandatory requirement of "recourse" prior to the administrative process, namely through the gracious objection in acts of self-assessment, source withholding and payments on account, and the "equation" of the petition for review provided for in Article 78 of the General Tax Law to the gracious objection, has been the subject of arbitral decisions in non-coinciding senses.

Recognizing that this is not the proper place for analysis and appraisal of the diverse positions that this subject has raised, it will nonetheless still be necessary, in a very brief note, that in this as in other arbitral proceedings in which the AT has raised the lack of material jurisdiction of tax arbitral tribunals, having as backdrop official review, the arguments have been basically; (i) the procedural means to react against the ruling of rejection of the petition for official review is the administrative action provided for and regulated in the Administrative Court Procedure Code and not judicial challenge, from which results the unsusceptibility of appraisal in the arbitral domain, (ii) the reference contained in subparagraph a) of Article 2 of the Ordinance of Binding, to the "administrative process in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process", is limited to the means provided therein and not to any other procedure, namely that of review provided for in Article 78 of the General Tax Law.

Anticipating the sense of the decision with respect to this particular segment, this Singular Arbitral Tribunal adopts a less restrictive perspective of the jurisdiction of tax arbitral tribunals, so that it includes the appraisal of the illegality arising from the act of rejection of the petition for review of the tax act.

It is adopted in this manner the sense of the decision and the legal grounds that underlay, among others [4] in proceedings No. 670/2015-T of CAAD, of 11-07-2015, subscribing, with due deference, to what is stated therein;

"(…) what is at issue is the jurisdiction or lack thereof of the arbitral tribunal for the immediate appraisal of the illegality of the rejection of a petition for official review submitted, in accordance with Article 78 of the General Tax Law and, mediately, the legality of the self-assessment underlying it, it being certain that, in the specific case, it is proven in the file that the Claimant did not submit any gracious objection prior to the filing of the arbitral petition. However, it is equally proven that the Claimant filed, instead, a petition for review in accordance with what is provided for in Article 78 of the General Tax Law and it is from the decision made [in the present file rejection of tacit rejection] in that recourse that it requests the respective declaration of illegality"

"The review of the tax act within the scope of the General Tax Law constitutes an administrative means of correcting errors in acts of assessment of taxes, which is admitted as a complement to the administrative and contentious means of challenging such acts, to be raised within the normal respective periods, which aims to allow the correction of injustices of taxation both in favor of the taxpayer and in favor of the administration (Judgment of the Supreme Administrative Court, of 12/97/2006 Process No. 402/2006)

Following the theses of that Judgment 117/2013-T, we subscribe to the understanding that "the act of rejection of a petition for official review of the tax act constitutes an administrative act, in the light of the definition provided in Article 120 of the Administrative Code [subsidiarily applicable in tax matters, by force of the provision in No. 2, subparagraph d) of the General Tax Law, 2, subparagraph d) of the Code of Tax Procedure and Process, and 29, No. 1, subparagraph d) of RJAT], as it constitutes a decision of an organ of the Administration which, pursuant to norms of public law, aimed to produce legal effects in an individual and concrete situation. On the other hand, it is also unquestionable that it is an act in tax matters as the application of norms of tax law is made therein.

Thus, that act of rejection of the petition for official review constitutes an "administrative act in tax matters".

In that case, the inevitable conclusion is to admit that tax judicial proceedings comprise the appraisal of the legality of administrative acts in tax matters, in the terms that are defined in Article 97 of the Code of Tax Procedure and Process, that is "judicial proceedings comprise:….e) the challenge of administrative acts in tax matters which involve the appraisal of the legality of the assessment act."

In an identical sense to what has just been cited, it is gathered from arbitral proceedings No. 117/2013-T, of 17/05/2013;

"(…) it is necessary, first and foremost, to clarify whether the declaration of illegality of acts of rejection of petitions for review of the tax act, provided for in Article 78 of the General Tax Law, is included in the competencies attributed to arbitral tribunals functioning in CAAD by Article 2 of RJAT.

In truth, in this Article 2 there is no express reference to these acts, contrary to what occurs with the legislative authorization on which the Government based itself for approving RJAT, which refers to "petitions for review of tax acts" and "administrative acts which involve the appraisal of the legality of assessment acts".

However, the formula "declaration of illegality of acts of assessment of taxes, self-assessment, source withholding and payments on account", used in subparagraph a) of No. 1 of Article 2 of RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In truth, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-tier act, which confirms an assessment act, incorporating its illegality.

The inclusion in the competence of tribunals functioning in CAAD of cases in which the declaration of illegality of the acts referred to therein is effected through the declaration of illegality of second-tier acts, which are the immediate object of the challenging claim, results with certainty from the reference that in that norm is made to self-assessment acts, source withholding acts and payments on account, which are expressly referred to as included among the competencies of arbitral tribunals. In effect, with respect to these acts it is imposed, as a rule, the mandatory gracious objection, in Articles 131 to 133 of the Code of Tax Procedure and Process, for which reason, in these cases, the immediate object of the challenging proceedings is, as a rule, the second-tier act which appraises the legality of the assessment act, act that, if it confirms it, must be annulled to obtain the declaration of illegality of the assessment act. The reference that in subparagraph a) of No. 1 of Article 10 of RJAT is made to No. 2 of Article 102 of the Code of Tax Procedure and Process, in which the challenge of acts of rejection of gracious objections is provided for, removes any doubt that the competencies of arbitral tribunals functioning in CAAD encompass cases in which the declaration of illegality of the acts referred to in subparagraph a) of that Article 2 of RJAT must be obtained as a consequence of the declaration of the illegality of second-tier acts.

Moreover, it was precisely in this sense that the Government, in Ordinance No. 112-A/2011, of 22 March, interpreted the competencies of arbitral tribunals functioning in CAAD, by excluding from the scope of those competencies the "claims relating to the declaration of illegality of self-assessment acts, source withholding acts and payments on account which have not been preceded by recourse to the administrative process in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process", which has the effect of restricting its binding to cases in which such recourse to the administrative process was utilized.

Having obtained the conclusion that the formula used in subparagraph a) of No. 1 of Article 2 of RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-tier act, it will also encompass cases in which the second-tier act is the rejection of a petition for review of the tax act, as no reason is seen for restricting, all the more so that, in cases in which the petition for review is made within the period of the gracious objection, it should be equated to a gracious objection."

Concluding the judgment we have just cited;

"(…) by permitting the law expressly that taxpayers opt for the gracious objection or for the official review of self-assessment acts and the petition for official review of the act being made within the period of the gracious objection being perfectly equatable to a gracious objection, as was mentioned, there cannot be any reason that can explain that a taxpayer who has opted for the review of the tax act cannot access the arbitral route.

For this reason, it is to be concluded that the Government members who issued Ordinance No. 112-A/2011, by making reference to Article 131 of the Code of Tax Procedure and Process with respect to petitions for declaration of illegality of assessment acts, stated imperfectly what they intended, as, intending to impose prior administrative appraisal before the contentious challenge of self-assessment acts, they ended up by including reference to Article 131 which does not exhaust the possibilities of administrative appraisal of such acts."

"(…) It is to be concluded, thus, that Article 2 subparagraph of Ordinance No. 112-A/2011, duly interpreted on the basis of the criteria of interpretation of law provided for in Article 9 of the Civil Code, and applicable to substantive and procedural tax norms, by force of Article 11, No. 1 of the General Tax Law, enables the submission of petitions for arbitral ruling with respect to self-assessment acts which have been preceded by a petition for official review"

Thus, without need for any other additional considerations, this Singular Arbitral Tribunal does not subscribe to the interpretation undertaken by the AT, with respect to Articles 2, No. 1, subparagraph a) and 4, No. 1 both of RJAT, and Articles 1 and 2, subparagraph a) of Ordinance No. 112-A/2011 of 22 March, the exception of "lack of material jurisdiction" of the present Arbitral Tribunal raised by the same thus lacking in merit.

B. ON THE LAW

—Appraisal of the merits of the case

—The central question that is the subject of the present proceedings to which a response falls, is reduced to whether the amounts paid as special payments on account can be deducted from the collection produced by autonomous taxation, or that is,

—Is it legally possible to deduct the amount of special payments on account (PEC) from the value of the collection of autonomous taxation (TA) determined in the self-assessment of Corporate Income Tax of a given fiscal year?

Both this question and that relating to the deduction of tax benefits (for example SIFIDE and CFEI) [5] have been raised in diverse decisions handed down within the scope of CAAD, appearing as a possible conclusion, in light of the diverse decisions handed down within the scope of CAAD, that the tendency and jurisprudential orientation (with obvious exceptions) go in the sense that special payments on account are not deductible from the value of the collection of autonomous taxation, determined in a given fiscal year.[6]

Before we confront the central question that the present file convokes, there must still be undertaken, albeit briefly, an excursus into the normative framework that underlies it (autonomous taxation, special payment on account).

—Of autonomous taxation (and the respective rules of assessment)

Since its introduction in the Portuguese fiscal legal order – in 1990, with the publication of Decree-Law No. 192/90, of 9 June, through the reform of Law 30-G/2000, of 29 December, which integrated its normative in the Code of Corporate Income Tax to the present moment, the regime of autonomous taxation has been the subject of diverse alterations, notably through successive modifications both of the rates and of the systematization and wording given to them, in the respective Codes on the taxes on incomes, that is both in the Corporate Income Tax Code and in the Personal Income Tax Code.

The normative evolution relating to autonomous taxation has come to encompass diverse realities, as immediately flows from the diverse numbers of the current Article 88 of the Corporate Income Tax Code, there subsisting, nevertheless, in the perspective of the legislator, the rationale of its creation;

—concerns for combating fraud and tax evasion (immediately stated in the preamble of Law No. 30-G/2000, of 29 December) and reasons of simplicity and efficacy in tax collection, objectives of avoiding the erosion of the taxable base in the case of tax on income of legal persons, determined that the legislator impose an equitable burden on all taxpayers with certain types of expenses, the regime of autonomous taxation, inserted in the Corporate Income Tax Code, coming to verify a significant expansion.

The Constitutional Court called upon to rule on diverse situations related to autonomous taxation (which are not convoked here) has been ruling on autonomous taxation, generically, in the sense that will be detailed below (in citation of the arbitral decision handed down within proceedings No. 113/2015-T of 30-12-2015), but that immediately, summarily, is anticipated, emphasizing from the declaration of dissent of His Excellency Counselor Vítor Gomes expressed in proceedings No. 204/2010 of the Constitutional Court the following:

"Although formally inserted in the Corporate Income Tax Code and the amount that enables it to collect is liquidated within its scope and by way of Corporate Income Tax, the norm in question concerns a fiscal imposition that is materially distinct from the taxation in that schedule (…). In effect, we are faced with autonomous taxation, as the very letter of the provision says. And that makes all the difference. It is not a question of taxing income at the end of the taxation period, but certain types of expenses in themselves, for understandable reasons of fiscal policy that the judgment points out (…)"

Also coming from the Constitutional Court:

"With this type of taxation it was intended, on one hand, to encourage the taxpayers subject to it to reduce as much as possible the expenses that affect the tax revenue negatively, and on the other hand, to prevent that, through these expenses, companies proceed to the disguised distribution of profits, especially dividends which, thus, would only be subject to Corporate Income Tax as profits of the company, as well as to combat the fraud and tax evasion that such expenses occasion not only in relation to Personal Income Tax or Corporate Income Tax, but also in relation to the corresponding contributions, both of employers and of workers, for social security" [7]

Being able to extract with respect to the rationale of autonomous taxation, and albeit exemplarily, the doctrine that emanates from the Supreme Administrative Court:

"the legislator created the rates of autonomous taxation with a view to penalizing the realization of certain expenses as they must be taxed in the person/company that bears the respective cost (…)"[8]

And further,

"In autonomous taxation the tax event that gives rise to the tax is instantaneous; it is exhausted in the act of realization of certain expenses that is subject to taxation (although the determination of the amount of tax, resulting from the application of the diverse rates of autonomous taxation to the diverse acts of realization of expenses considered, come to be effected at the end of a determined taxation period. But the fact that the determination of the tax is effected at the end of a determined period does not transform it into a periodic tax, of successive formation or of lasting character".[9]

The tax arbitral jurisprudence (e.g. proceedings 166/2014-T; 246/2013-T, 260/2013-T, 282/2013-T, 6/2014-T, 36/2014-T) has come to consider that autonomous taxation pertains systematically to the Corporate Income Tax and not to the Value Added Tax, to Personal Income Tax, or to any other tax of the Portuguese tax system.

Adopting the following understanding: "the rationale of autonomous taxation is not found in the simple collection of more tax, but aims primarily to discourage recourse to the type of expenses that it taxes, which by their nature are conducive to the payment of disguised income, and, ultimately, even to allow the recovery of some tax that ceased to be paid by the beneficiary of the income, transferring the responsibility for this to the person who pays that income, which confers on them a clear anti-abuse nature, manifestly, accessorily complementary to taxation according to the taxpaying capacity revealed by income, albeit only apparently to the detriment of the taxation of real income (read based on accounting). In short, with autonomous taxation what is intended is precisely to prevent an abusive utilization of certain expenses and distribution of dividends and in fraud of the norms that aim to reach the real income of taxable persons".[10]

The doctrine that has come to focus on this question does not diverge from that emanating from the jurisprudence indicated.

In this sense, exemplarily, SALDANHA SANCHES[11] (with reference to the then Article 81, No. 3, which provided for a rate of 10% on charges relating to representation expenses and those related to light passenger vehicles or mixed):

"In this type of taxation, the legislator seeks to answer the admittedly difficult question of the tax regime for expenses that are found in the zone of intersection of the personal sphere and the exclusively business sphere, so as to avoid in-kind remuneration more attractive for exclusively fiscal reasons or disguised distribution of profits. The provision presents a characteristic similar to that which we will find in the penalty against undocumented costs, with a rise in the rate when the situation of the taxable person does not correspond to a situation of fiscal normalcy. If in the declaration of the taxable person there is no profit, the cost can be subject to a negative valuation: for example, we have a rate of 15% applied when the taxable person had losses in the last two fiscal years and purchased a light passenger vehicle for more than €40,000 (Article 81, No. 4).

With this provision the system shows its dual nature, with an aggravated rate of autonomous taxation for certain special situations that it seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles which are, in principle, too costly when there are losses. One creates, here, a sort of presumption that these costs do not have a business purpose, and, for that reason, are subject to autonomous taxation. In summary, the cost is deductible, but the autonomous taxation reduces its fiscal advantage, since the basis of incidence is not net income, but rather a cost transformed – exceptionally – into an object of taxation."

According to RUI MORAIS[12] one will be faced with "a taxation that applies to certain expenses of taxable persons, which are had as constituting tax events".

"The objective seems to be to attempt to prevent (attenuating or eliminating the "advantage resulting from them in Corporate Income Tax") that, through these expenses, the taxable person uses for non-business purposes goods that generated fiscally deductible costs: or that remuneration be paid to third parties with evasion of the taxes that would be owed by these. The realization of such expenses implies an additional fiscal charge for those who incur in them because the law presumes that, thus, another person ceases to pay tax".

In a corresponding sense HELENA PEGADO MARTINS; "Article 88 provides for autonomous taxation of diverse expenses. Although they constitute "a distortion" in light of the characteristics inherent in Corporate Income Tax, as a direct tax that applies to the income of legal persons, they find justification in the objectives which they seek to pursue.

The generality of cases provided for in the provision ties either to situations of tax evasion (e.g., the case of undocumented expenses and those relating to payments to non-residents and there subject to a more favorable tax regime) or to situations of risk in which it is difficult to assess, with certainty, of the deductibility of the expense in light of Article 23 (case of representation expenses), or in which true income can be attributed to workers without the corresponding taxation in Personal Income Tax (case of allowances and charges with vehicles). The legislator opts, thus, for subjecting the expenses to autonomous taxation, as an alternative and more efficient form than the non-deductibility of a portion of the expense for purposes of determining taxable profit"[13]

On the other hand, it should be taken into account as it has already been written [14] that "autonomous taxation as flows from the very designation consists of a form of taxation which, notwithstanding it is found provided for in the Codes of taxes on income, namely in Corporate Income Tax, is materially distinct from those. First, it has a diverse tax event, given that it does not refer, strictly speaking, or at least at first sight, to the perception of income, but to certain expenses. This understanding is confirmed by the jurisprudence of the constitutional court, administrative court and arbitral tribunal, as well as by doctrine. Then, contrary to Corporate Income Tax in its general regime, autonomous taxation does not have a periodic nature and is not of successive formation, but approximating itself more to the taxes of single performance, given the circumstance that its general event, that is, the expenses on which it applies, arise in isolation in time."

—Of the special payment on account (PEC)

The special payment on account was introduced in our legal order through Decree-Law No. 44/98 of 3 March, by way of the addition to the Code of Tax on Income of Legal Persons (Corporate Income Tax Code) of two articles, 83 A) and 74 A).

Its preamble is clear as to the justification for its creation: "the evasive practices of concealment of income or of overstatement of costs are manifestly generators of serious distortions of the principles of equity and fiscal justice and of the very economic efficiency and injurious to the stability of tax revenues. From them results an unjust apportionment of the tax burden, all the more felt in that many taxable persons of Corporate Income Tax, during successive years, contributed little or almost nothing to the State Budget, continuing, however, to enjoy, at times in a privileged manner, the economic and social rights provided for in the Constitution.

In this context, the present diploma establishes a special payment on account, through a new mechanism, on the income of the years 1998 and following, for legal persons subject to Corporate Income Tax".

—Since its creation, through the reform introduced by Law No. 30-G/2000, of 29 December, followed by the alteration produced through the State Budget Law for 2003 (Law No. 31-B/2002, of 30 December) the regime of the special payment on account has been undergoing some alterations as to, notably, its basis of incidence, to the reimbursement in the circumstance of it not having been deducted from the tax, deductibility and respective periods, conditions of payment, its mandatory nature and others, whose analysis is not within the scope of the present file.

For what matters here, it will be important to bear in mind its mandatory character, in accordance with the provision of No. 1 of Article 106 of the Corporate Income Tax Code, as redacted by Law No. 3-B/2010 of 28 April:

"1- Without prejudice to the provision in subparagraph a) of No. 1 of Article 104, the subjects mentioned there are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates, or, in case they adopt a taxation period not coinciding with the calendar year, in the 3rd and 10th months of the respective taxation period."

Providing in Article 93 of the Corporate Income Tax Code, in its current redaction that: "the deduction referred to in subparagraph d) of No. 2 of Article 90 is effected against the amount determined in the declaration referred to in Article 120 of the same taxation period to which it relates, or, if insufficient, until the 6th following taxation period, after the deductions referred to in subparagraphs a) to c) of No. 2 are effected and with observance of No. 9, both of Article 90."

That being established;

Already cited and abundantly invoked in various judgments and arbitral decisions handed down within the scope of CAAD, which addressed the subject matter underlying the case, we do not hesitate also and with due deference, to bring to bear what was understood within proceedings No. 113/2015-T, for the correctness and relevance of what was stated therein, with which we identify:

"The fundamental question to which a response falls in this decision is whether the sums satisfied as special payments on account can be deducted in the tax on the income of legal persons resulting from the application of the rates of autonomous taxation.

Comparing the abundant jurisprudence referenced by the Claimant there is indeed a guiding line which should be highlighted which coincides with what this arbitral tribunal adopts: the tax calculated by applying the rates of autonomous taxation regulated in Article 88 of the Corporate Income Tax Code is also itself tax on the income of legal persons, i.e., the tax on the income of legal persons includes autonomous taxation.

If doubts existed the current wording of Article 23-A) Corporate Income Tax Code would dispel them,

(…)

The solution of the case sub judice requires that one go deeper and ascertain what is the regime applicable to Corporate Income Tax calculated through the rates of autonomous taxation. Tax on the income of legal persons originated inciding objectively on taxable profit, corresponding to this the difference between the net patrimony at the end and at the beginning of the taxation period.

(…)

It is thus that in the original conceptual structure of Corporate Income Tax the determination of taxable profit takes as its starting point the result of the fiscal year obtained through the technical rules of accounting, then introducing some corrections of positive or negative sense, so that this final result corresponded to taxable profit, i.e., to the real income that it was intended to tax (…). Clearly it neither regulated nor could regulate the treatment to be given to "autonomous taxation" which did not form part of the system, which was conceived in this simple structure; taking as a starting point the accounting result (Article 17-1 of Corporate Income Tax Code 1989), correcting it so as to reflect the income that it is intended to tax through rules qualitatively similar to those that applied at the official accounting plan then in force (Article 18 and following Corporate Income Tax Code, 1989), applying to it the general rate (Article 69.1 Corporate Income Tax Code 1989) and to the product thus obtained making the deductions from the taxation that in some way had already been supported or would have to be so through another fiscal system (Article 71-2 Corporate Income Tax Code 1989) (…)

(…)

One must now see how the "autonomous taxation" was inserted in this system.

The introduction in the complex of taxes on income of the application of the rates of autonomous taxation was made through Decree-Law No. 192/90 of 9 June, which stipulated that confidential or undocumented expenses would henceforth be autonomously taxed in Personal Income Tax and Corporate Income Tax.

(…)

All the elements indicate that the introduction of taxing expenses in Corporate Income Tax constituted initially an extravagant measure, outside the conceptual structure of Corporate Income Tax, created to honor the principle of taxation on real income balanced through the codified corrections. The said autonomy of this rate thus appears with great intensity; although it is incontrovertibly considered that its product is tax on the income of legal persons, it is no longer income that is directly taxed (as the Corporate Income Tax Code regulated) but rather expenses.

In these cases of dissonance there will be such conflicts which matter to resolve.

These conflicts result and are resolved through normative interpretation. Fundamentally there will have to be a resolution of the apparent conflict when the legislative thinking underlying the norm of the general regime of the tax on one hand and the norm specifying that regulating autonomous taxation on the other hand is not reconcilable, i.e., from its application there will be achieved an objective not pursued by the norm in question.

This conflict in the objectives to be achieved by each of the norms is evident at the moment when the so-called "autonomous taxation" were introduced in the Portuguese system.

(…)

It seems clear in light of these commands that in the period of 1990-2000 it was not conceivable to use potential fiscal credits to satisfy the obligation of tax determined by this title, under penalty of perverting the intent of the law.

In its general line of orientation the Corporate Income Tax Code post-reform maintained the principles that are in its genesis: begin from the accounting result and correct it in accordance with the rules established, now perfected by the experience of 12 years, to reach taxable profit.

In what is being investigated the Corporate Income Tax Code resulting from the reform came to contain its Article 69-A) with the heading "Rate of autonomous taxation", where it was regulated that confidential or undocumented expenses (No. 1) and representation expenses and charges related to light passenger vehicles, pleasure boats, touring aircraft, motorcycles and scooters (No. 2), would henceforth be autonomously taxed".

(…)

It is not seen that the reform of the Corporate Income Tax Code effected in 2000-2001 introduced any significant alteration in the Code. There was introduced only the mechanism of combating expenses considered undesired that already appeared in extravagant legislation, the spectrum of application was slightly broadened but in no way was the determination procedure adapted. It is thus believed that the characterization of the regime that previously applied was maintained, continuing to have to make the interpretation of the norms in such a way as to prevent effects contrary to the legislative rationale.

The successive alterations to this article did not affect in any way the (dis)equilibrium of the system, which was maintained until the date of the facts.

(…) In turn, in the judgment of the Constitutional Court No. 617/2012, with respect to "autonomous taxation", it was considered that: "with this type of taxation it was intended, on one hand, to encourage taxpayers subject to it to reduce as much as possible the expenses that negatively affect the tax revenue and, on the other hand, to prevent that, through these expenses, companies proceed to the disguised distribution of profits, especially of dividends which, thus, would only be subject to Corporate Income Tax as profits of the company, as well as to combat the fraud and tax evasions that such expenses occasion not only in relation to Personal Income Tax or Corporate Income Tax, but also in relation to the corresponding contributions, both of employer entities and of workers, to social security".

More than asserting the rationale of the imposition of autonomous taxation rates, the grounds of the cited judgment express well how its calculation is understood, by confrontation with the assessment of tax on income in accordance with the general rate:

Contrary to what happens in the taxation of income under Personal Income Tax and Corporate Income Tax, in which the totality of income earned in a determined year is taxed (which implies that only at the end thereof can the rate of tax be ascertained, as well as the bracket in which the taxpayer is inserted), in the case one taxes each expense effected, in itself considered, and subject to a determined rate, being the autonomous taxation ascertained in an independent manner from the Corporate Income Tax that is owed in each fiscal year, by not being directly related to the obtaining of a positive result, and for this reason, susceptible of taxation.

The aforementioned judgment also expresses clearly the instantaneous manner in which the tax event occurs and the absence of periodic, lasting or successive character in its formation.

For this reason it characterizes thus the operation of determination:

That operation of determination translates itself only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of the expenses effected in the determination of the rate.

It is believed that with the historical analysis, systematic framing and doctrinal and jurisprudential positions, the rationale of the norms that impose tax taxed autonomously and their perfect distinction from the objectives that inspire the general structure of the Corporate Income Tax Code has already been demonstrated. The line in which the conflict initiates is thus traced: as soon as the interpretation of the norm in question leads to a result that excludes the objectives that presided over its inclusion in the tax system. One has already seen which were one and the other.

It is recognized by all the actors who have to work tax law in general and in Corporate Income Tax in particular, the lesser coherence of the coexistence of "autonomous taxation" with the general regime of tax on the income of legal persons. The Claimant gives abundant evidence of this very matter. But with that difficulty recognized there will always be required to apply the law, ascertaining its sense through interpretation".

Continuing the identified decision, as to the PEC:

"In doctrine and in jurisprudence the regime of the PEC has always been held as a system to prevent tax evasion and to guarantee the payment of tax by all companies in activity. This line of orientation appears in the texts more conducive to the application of the regime in the tribunals, namely by the doctrinal work developed by the Constitutional Court. In this sense one can see in the motivation of its Judgment No. 494/2009, that the PEC in the form that was given to it in the Corporate Income Tax Code is "indissolubly linked to the fight against tax evasion and fraud", seeking to assure that the income manifested by taxpayers "correspond[s] to the real taxable income actually earned.

In doctrine (…) [Teresa Gil] gave duly documented account of the circumstances that surrounded the introduction of the PEC, namely of the difficulties in the application of the principle of taxation on real profit, established in the face of the "divergence that exists between the profits actually obtained and those that are declared by the companies and, therefore, subject to taxation". Although this author considers that the PEC is an insufficient measure to resolve the problem of tax evasion of this type, preferring the establishment of minimum collection, she mentions that the PEC was in fact the regime possible given the constitutional limits.

The current regime of the PEC is thus characterized by (i) having an indissoluble link to the fight against tax evasion and fraud: (ii) having been introduced in the Corporate Income Tax Code in March 1998, before the rates of autonomous taxation which only became part of its systematic in the reform of 2000-2001; (iii) in the conception of the PEC its deduction from the collection in the determination of Corporate Income Tax calculated on real income was provided for; (iv) the recovery of the credit resulting from the PEC is subject to conditions of obtaining the ratios of profitability inherent to the companies of the sector of activity in which they are inserted or to the justification of the credit situation by action of inspection made at the request of the taxable person (Article 87-3 Corporate Income Tax Code).

In summary, the credit for the amounts delivered as special payments on account does not constitute an exigible credit which taxable persons of Corporate Income Tax can dispose of. For them to be able to do so there must be met certain conditions".

Concluding:

"It now falls to appraise finally the fundamental argument which is that which results from the letter of the norm of Article 83-2/e, of the Corporate Income Tax Code [wording given by Law No. 60-A/2005, of 31.12 and Article 90 c) of the Corporate Income Tax Code, in the wording given by Law No. 3-B/2010, of 28.4 ] which permits that to the amount of tax on the income of legal persons determined be made the deduction relating to the special payment on account.

There does result in fact a conflict between the regime that regulates autonomous taxation and the deduction from the respective collection of the PEC. See the rationale of the norms in question. The method of determination of the tax appearing in the Corporate Income Tax Code is based on the principle of incidence on taxable profit; autonomous taxation applies to expenses individually considered whose rate is applicable to each expense, it being the case that "that operation of determination translates itself only in the aggregation, for purposes of collection, of the set of operations subject to autonomous taxation".

It is unequivocal that the system of determination is not the adequate one for the determination of autonomous taxation. But will it be to be concluded that the PEC deducted from the cited "aggregation of the set of operations subject to autonomous taxation" leads to a result irreconcilable for the system in question?

It falls to inquire of this line.

As was seen the PEC came to form part of the system of the Corporate Income Tax Code whose determination consigned in the then Article 83 was conceived to ascertain the tax directly incident on the income declared. When there is a fiscal loss the taxable person must still nevertheless support the PEC; this was moreover the reason for its introduction. If a determined company has successive fiscal losses, it will systematically support tax, as the system doubts its possibility of functioning in a permanently deficient situation, requiring it to satisfy provisionally (on account), a determined value.

It may reimburse it if it proves that this situation is common in its sector of activity or if the AT verifies the regularity of its declarations. This was the equilibrium that the Corporate Income Tax Code required to maintain a system based on the declarations made by the taxpayers."

(…) the tax resulting from autonomous taxation is founded solely on the pursuit of tax evasion by transfer of income and has a dissuasive and compensatory effect.

There does exist a truly irreconcilable conflict between the rationale of the PEC – the fight against evasion or the pressure for correction of declarations – and the application of its credits to the satisfaction of other obligations than those that result from the determination of Corporate Income Tax calculated on the taxable result.

In practical terms the possibility of deduction of the PEC to autonomous taxation would imply that even if a determined company were eternally in a situation of loss, no tax on its real income would have to be supported, whilst it applied the PEC to the satisfaction of autonomous taxation. Moreover the very autonomous taxation would lose its anti-abuse character, coming to confuse itself ultimately with the tax calculated on taxable profit. Now those are not the objectives of the system of taxation of the income of legal persons and the best interpretation of the norm contained in Article 83-2 of the Corporate Income Tax Code is not that which permits the deduction of special payments on account to the collection resulting from the application of the rates of autonomous taxation".

The decision in question, handed down within arbitral proceedings No. 113/2015-T, which we have just cited, concluded in the following sense:

"(…) the Claimant's claim must necessarily lack merit as the challenged determination complies with legality, as it is based on correct interpretation of the cited norm"

In light of what has been exposed, this Singular Arbitral Tribunal finds no decisive and determining reasons to decide in a different sense to that which has just been indicated, being moreover seconded by various other decisions handed down within the scope of CAAD, among which may be highlighted, by way of merely exemplary, those handed down in the following proceedings: 524/2016-T; 122/2016-T; 34/2016-T; 19/2016-T; 785/2015-T; 783/2015-T; 781/2015-T; 113/2015-T.

Additionally, it will always be said that this arbitral understanding in the sense of the non-deductibility of special payments on account from the collection resulting from autonomous taxation, is found in harmony with the new No. 21 added to Article 88 of the Corporate Income Tax Code by the 2016 State Budget Law.

—Of the addition of No. 21 to Article 88 of the Corporate Income Tax Code

The theses in confrontation in this segment evidenced in the petition for arbitral ruling formulated by the Claimant and the position expressed by the AT in its response, are of clear identification: (i) the Claimant rejects the interpretative nature of the normative in question and (ii) the Respondent argues in the contrary sense.

Thus,

Article 133 of the State Budget Law for 2016 (Law No. 7-A/2016, of 30 March), with entry into force the day immediately following, introduced No. 21 to Article 88 of the Corporate Income Tax Code, in the following sense:

"The determination of autonomous taxation in Corporate Income Tax is effected in accordance with the provisions of Article 89 and is based on the values and the rates that result from the provision in the previous numbers, no deductions whatsoever being made to the global amount determined"

Having further determined its Article 135 that such norm has an interpretative nature:

"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 Nos. 20 and 21 of Article 88 and to No. 8 of Article 117 of the Code of Corporate Income Tax has an interpretative nature".

Now, without prejudice to the express declaration of the legislator in the pointed sense, that is, the statement that one is before an interpretative law, there will be as a prior task to inquire whether it is so, it being anticipated that it is the understanding of this Singular Arbitral Tribunal the acceptance of the interpretative nature to the norm in question (No. 21 of Article 88 of the Corporate Income Tax Code) and that such fact does not constitute any violation of the principle of the prohibition of the retroactivity of fiscal law (No. 3 of Article 103 of the Constitution), nor violates the constitutional principle of legal certainty.

Let us see then;

—According to No. 1 of Article 13 of the Civil Code, "the interpretative law is integrated into the interpreted law, remaining saved, however, the effects produced by the performance of the obligation, albeit not homologated, or by acts of analogous nature".

In the teaching of Professors Pires de Lima and Antunes Varela [15], "interpretative laws are considered integrated into the interpreted law. This means that their effects retroact to the date of entry into force of the old law, everything occurring as if they had been published on the date on which the old law was published."

As Professor Baptista Machado states [16] "(…) the reason why the interpretative law applies to facts and situations prior thereto rests fundamentally on the fact that it, coming to enshrine and fix one of the possible interpretations of the Old Law (old law) with which the interested parties could and should count, is not susceptible of violating safe and legitimately based expectations

We can consequently say that are of interpretative nature those laws which, on points or questions in which the applicable legal rules are uncertain or their sense controversial, come to enshrine a solution that the courts could have adopted. It is not necessary that the law come to enshrine one of the prior jurisprudential currents or a strong prior jurisprudential current. All the more so that the interpretative law arises many times before such jurisprudential currents arrive to form themselves. But, if this is the case, and if, meanwhile, a uniform jurisprudential current has formed which made practically certain the sense of the old norm, then the new law that comes to enshrine a different interpretation of the same norm can no longer be considered truly interpretative (although it may be so by determination of the legislator), but innovative".

Continuing further; "For a new law to be truly interpretative two requirements are necessary, therefore; that the solution of the prior law be controversial or at least uncertain; and that the solution defined by the new law be situated within the framework of the controversy and be such that the judge or the interpreter could have arrived at it without exceeding the limits normally imposed on the interpretation and application of the law. If the judge or the interpreter, in the face of old texts, could not have felt themselves authorized to adopt the solution that the new law comes to enshrine, then the latter is decidedly innovative."

Now, as decided within proceedings No. 673/2015-T of CAAD, the acceptance of the interpretative nature to No. 21 of Article 88 of the Corporate Income Tax Code as is done in Article 135 of the State Budget Law for 2016, "passes the test" enunciated by this Author:

"—the solution that resulted from the literal content of Article 93, No. 1, of the Corporate Income Tax Code was controversial, as that arbitral decision evidences and the solution defined by the new law is situated within the framework of the controversy;

. the judge or the interpreter could have arrived at this solution without exceeding the limits normally imposed on the interpretation and application of the law, as the restrictive interpretation is admissible when there are reasons to conclude that the reach of the legal text betrays the legislative thinking or it is necessary to optimize the harmonization of conflicting interests that two norms seek to protect"

(…) "Moreover, it is not seen that the regime that results from Article 88, No. 21, of the Corporate Income Tax Code contains any contradiction (….): according to this new norm, the norms of the Corporate Income Tax Code relating to the manner of determination of autonomous taxation should be interpreted as provided therein and with respect to that part of the determination of Corporate Income Tax no deductions are made"

On the other hand further,

The non-retroactivity of fiscal law, as has been pointed out by the doctrine of the Constitutional Court, aims at the creation of retroactive taxes, its field of application being limited to matters of subjective, objective, temporal and territorial incidence.

Similarly, one cannot conclude that the definitive attribution of interpretative nature to the norm in question collides with the principle of legal certainty, subscribing to what is drawn from the arbitral proceedings which we have been following:

"[ […] in the specific case of special payments on account, one cannot conclude that one is not before a truly interpretative law, as there was no consolidated jurisprudence of the sense of its deductibility from the collection resulting from autonomous taxation and, on the contrary, the solution adopted by No. 21 of Article 88 could already previously be adopted by the tribunals, as it was by the Arbitral Tribunal that handed down the decision in CAAD proceedings No. 113/2015-T.

Thus, one cannot conclude that the authentic interpretation that is made of that Article 88, No. 21, by force of Article 135 of Law No. 7-A/2016, of 30 March, be violative of the constitutional principle of legal certainty, in what concerns that part of that norm which relates to the non-deductibility of special payments on account from the collection of autonomous taxation"

In light of the above, and there being no plausible reason for not adopting what has been stated, this Singular Arbitral Tribunal subscribes to the position in the sense of the interpretative character of the norm in question and, consequently for the non-violation of the constitutional principle of non-retroactivity or any other.

It is thus concluded, also for this reason, for the lack of merit of the petition for declaration of illegality of the decision of rejection of the official review, as well as for the declaration of illegality of the self-assessment of Corporate Income Tax relating to the fiscal year 2011 which constitute the petition of the Claimant.

III. REIMBURSEMENT OF AMOUNTS PAID AND INDEMNIFICATORY INTEREST

The Claimant formulates the petition for reimbursement of the amount paid, increased by indemnificatory interest counted until full reimbursement.

The reimbursement of amounts and the right to indemnificatory interest depend on the merit of the petition for declaration of illegality of the self-assessments.

Consequently, with the petition for declaration of illegality lacking in merit, the petitions for reimbursement and indemnificatory interest necessarily lack in merit.

IV. DECISION

In accordance with the above, this Singular Arbitral Tribunal decides as follows;

a. to dismiss the exception of "lack of material jurisdiction" of the Arbitral Tribunal,

b. to dismiss the petition for declaration of illegality of the rejection of the petition for official review of the tax act identified in the file,

c. to dismiss the petition for declaration of illegality and annulment of the self-assessment of Corporate Income Tax of 2012, in the amount of €9,302.24,

d. to absolve the Tax and Customs Authority of the petitions formulated,

e. to condemn the Claimant to payment of the costs of the proceedings.

V. VALUE OF THE PROCEEDINGS

In accordance with that provided in Articles 296, Nos. 1 and 2 of the Civil Procedure Code, approved by Law No. 37/2013, of 26 June, 97-A), No. 1, subparagraph a) of the Code of Tax Procedure and Process, and Article 3, No. 2 of the Regulation on Costs in Proceedings

[... document truncated in original ...]