CAAD 630/2016-T: Autonomous Taxation IRC and SIFIDE Tax Benefits Challenge 2013-2014

ENGLISH TRANSLATION

Claimant: A…, SA

Respondent: Tax and Customs Authority

Arbitral Decision

I – REPORT

A) The Parties and Constitution of the Arbitral Tribunal

A…, SA, taxpayer no. …, with registered address at Rua … …, …-…, … (hereinafter referred to as "Claimant"), requested the constitution of an Arbitral Tribunal, pursuant to article 2, no. 1, subparagraph 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 contest the tacit dismissal of the administrative complaint presented to challenge the self-assessment of Corporate Income Tax (CIT) for the tax years 2013 and 2014, as well as the assessment acts themselves relating to autonomous taxation assessments of CIT, in the total amount of €39,833.42, seeking their annulment.

In the present arbitral petition, the Claimant contests the following autonomous taxation assessments of CIT:

• Self-assessment of CIT – autonomous taxation, tax year 2013 in the amount of €16,741.21;

• Self-assessment of CIT – autonomous taxation, tax year 2014, in the amount of €23,092.21;

The total amount of self-assessed tax is therefore €39,833.42, which was paid in full by the Claimant.

The petition for constitution of the Arbitral Tribunal was submitted by the Claimant on 21-10-2016, was accepted by the President of the CAAD and notified to the Tax and Customs Authority. The Claimant opted not to appoint an arbitrator, and therefore, pursuant to article 6, no. 1, of the RJAT, the undersigned arbitrator was appointed by the Deontological Council of the Administrative Arbitration Centre on 21-12-2016 to constitute the sole Arbitral Tribunal. Thus, in accordance with the provisions of subparagraph c), no. 1, article 11, of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 05-01-2017 and, on the same date, an arbitral order was issued instructing the Tax and Customs Authority (TA) to submit its reply within the legal period, in the terms and for the purposes of articles 17, nos. 1 and 2 of the RJAT.

On 02-02-2017, the Respondent submitted its reply and the respective Administrative Process (AP), which are deemed fully reproduced. On 09-02-2017 an arbitral order was issued for the parties to pronounce themselves on the necessity of producing testimonial evidence indicated, as well as on the necessity of holding the hearing referred to in article 18 of the RJAT, since, upon examination of the pleadings and documents submitted, it was concluded that the essential issues under debate are exclusively matters of law, with no divergence regarding the facts at issue in the proceedings. In the same order, two alternative dates were indicated for holding the hearing.

Following the arbitral order mentioned above, the parties pronounced themselves in favor of dispensing with the production of testimonial evidence and the holding of the hearing provided for in article 18 of the RJAT. Accordingly, by arbitral order issued on 22-02-2017, pursuant to articles 16, subparagraph c), 19 and 29, no. 2 of the RJAT, the Tribunal dispensed with said hearing, set a period of 15 days, equal and successive, for the parties to submit, if they wished, their written arguments, indicated 31 March 2017 as the probable date for issuing the arbitral decision, and warned of the payment of the subsequent arbitration fee. The Claimant submitted its arguments on 02-03-2017 and the Respondent on 03-03-2017, in which they reiterate the positions previously expressed in the arbitral petition and in the reply.

B) THE PETITION FORMULATED BY THE CLAIMANT

The Claimant formulates the present petition for arbitral pronouncement seeking a declaration of illegality of the presumed (tacit) dismissal of the administrative complaint submitted and, in consequence, seeks the declaration of illegality of the self-assessment acts of CIT, relating to the tax years 2013 and 2014, whose annulment it requests, petitioning for the reimbursement of the values paid plus indemnatory interest. The issue at stake in the proceedings is to determine whether the Claimant has the right to deduct the tax benefits to which it is entitled, by virtue of having been approved within the scope of SIFIDE, by deduction from the CIT collected resulting from autonomous taxation assessments in the said tax years (2013 and 2014).

It is the position of the TA that such deduction is not possible, and that the nature of autonomous taxation assessments does not allow for such possibility of deduction of tax benefits, as the Claimant alleges.

The assessments issued were paid by the Claimant, which, even by virtue of the system of incentives of which it is a beneficiary, had the obligation to maintain its tax situation in order.

In summary, to support its petition the Claimant alleges that the collection of autonomous taxation assessments is carried out in accordance with and for the purposes of article 90 of the CIT Code and for that reason should be considered for all legal purposes as CIT collection and accordingly, the provisions of subparagraph c) of no. 2 of article 90 of the CIT Code must be applied, which provides that to the amount determined in accordance with article 90, no. 1 are made the deductions contained in no. 2, among which the one relating to tax benefits (subparagraph c) of no. 2 of article 90).

It invokes, in defense of its position, various arbitral jurisprudence, namely that contained in the decisions issued in cases 219/2015-T and no. 370/2015-T, in which it was recognized that tax credits resulting from investments made by the taxpayer, designated in particular, attributed within the scope of SIFIDE, may be deducted from the portion of CIT collection that results from the application of article 88 of the CIT Code, that is, from the collection of autonomous taxation assessments.

It concludes by petitioning for the declaration of illegality of the tacit dismissal of the Administrative Complaint and of the self-assessments contested, with reference to the tax years 2013 and 2014, with the legal consequences, namely the processing of reimbursement of the amount paid, plus indemnatory interest.

C – THE REPLY OF THE RESPONDENT

The Respondent TA, duly notified for that purpose, timely submitted its reply in which, in defense of the contested acts, alleges that the Claimant's claim should be dismissed, since it considers that the collection referred to in article 90 of the CIT Code, in case of self-assessment, is determined on the basis of the tax base contained in that assessment/self-assessment, as provided in its subparagraph a). The credit that constitutes SIFIDE is deducted, and only, from the collection determined on the basis of the tax base, as provided in article 5, subparagraph a) of the law governing SIFIDE, which prevents the credits resulting from it from being deducted when taxable income is determined by indirect methods. Even less, alleges the TA, may it be deducted from autonomous taxation assessments which are determined autonomously and distinctly from the determination carried out in accordance with article 90 of the CIT Code. It invokes the historical development of the regime of non-deductibility of expenses that led to autonomous taxation assessments.

It concludes, in summary, that it would be contrary to the spirit of the system to allow that, by force of the deductions referred to in no. 2 of article 90 of the CIT Code, this anti-abusive character that presided over the implementation of autonomous taxation assessments in the CIT system would be removed or at least distorted. Pleading for the disregard of autonomous taxation assessments for the purpose of the deductions referred to in no. 2 of article 90 of the CIT Code, it reaffirms the legality of the contested acts with the consequent dismissal of the arbitral petition. It also contests the request for indemnatory interest.

II - PROCEDURAL PREREQUISITES

The Arbitral Tribunal is properly constituted. It is materially competent, pursuant to article 2, no. 1, subparagraph a) of the RJAT. The parties have legal standing and capacity, are legitimate and are duly represented (see articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112/2011, of 22 March).

The process is not marred by defects that would invalidate it.

Taking into account the administrative tax process, the documentary evidence submitted in the proceedings, it is necessary to establish the factual matter relevant to understanding the decision, which is established as follows.

III – Factual Matter

A) Proven Facts

As relevant factual matter, this tribunal establishes as certain the following facts:

The Claimant is, for purposes of taxation under CIT, an entity subject to and not exempt from CIT.

The Claimant's corporate purpose is: the provision of consultancy, technical and maintenance services in the area of informatics, production and development, marketing and representation of computer programs, distribution, marketing and supply of computer systems, multimedia production and aerospace technologies, of civil, military scope, engineering, development, design, production, supply, installation and integration of electrical, electronic and mechanical installations and telecommunications supervision systems, including low-voltage electrical installations, low-voltage electrical networks, low-voltage electrical networks and transformation substations, telecommunications infrastructure, telematics developments, support installations and signaling in transport systems and other mechanical and electromechanical installations, general construction of all types of works, both buildings and public works, their maintenance and repair. Import and export.

With reference to the tax years 2013 and 2014, the Claimant carried out the corresponding self-assessments of CIT by submitting Model 22 declarations, which it attached to the proceedings.

With reference to the tax year 2013, as a result of the income declaration submitted, the Claimant was notified to make payment of tax in the amount of €16,741.21, which corresponds entirely to the amount of autonomous taxation assessments levied in that tax year.

With reference to the tax year 2014, as a result of the income declaration submitted, the Claimant was notified to make payment of tax in the amount of €23,092.21, which corresponds entirely to the amount of autonomous taxation assessments levied in that tax year.

Amounts paid by the Claimant, as evidenced by the declarations attached to the proceedings, demonstrating its tax situation was in order at the date when the tax credits were attributed under SIFIDE.

The Claimant, in the scope of its activity, undertakes substantial investments related to research and development, and therefore submitted an application to the System of Tax Incentives for Research and Development (SIFIDE), approved in accordance with Law no. 40/2005 of 3 August.

The applications were approved and the Claimant was attributed tax credits in the amounts of €385,920.00 with reference to the tax year 2013 and €147,947.12 with reference to the tax year 2014.

The Claimant became aware of the decision attributing the tax credits after the submission of the respective Model 22 declarations.

The Claimant submitted on 29-04-2016 the mandatory prior administrative complaints to contest the assessments relating to the tax years 2013 and 2014, alleging that to the assessment of autonomous taxation carried out in accordance with article 90 of the CIT Code, in accordance with subparagraph c) of no. 2, the tax benefit (SIFIDE tax credit) should be deducted from the collection of autonomous taxation assessments.

The Claimant was notified on 03-10-2016 to pronounce itself on the merits regarding the draft decision and dismissal of the Administrative Complaints.

The Claimant did not exercise this right of hearing, considering that the legal period for the presumption of tacit dismissal had already been exceeded.

Until the date of submission of the arbitral petition (21-10-2016) the Administrative Complaints had not been decided.

B) UNPROVEN FACTS

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

C) JUSTIFICATION OF PROVEN FACTS

The facts established as proven are based on the documentary evidence that the parties submitted in the present proceedings. The Tribunal does not have to pronounce on everything that was alleged by the parties, and should select the facts that matter for the decision and discriminate the proven matter from the unproven matter [see article 123, no. 2, of the Tax Procedural and Procedural Code and article 607, no. 3 of the Civil Procedure Code (CPC), applicable by virtue of article 29, no. 1, subparagraphs a) and e), of the RJAT]. In this way, the facts relevant to the adjudication of the case are chosen and selected according to their legal relevance, which is established with regard to the various plausible solutions of the legal question(s) [see former article 511, no. 1, of the CPC, corresponding to current article 596, applicable by virtue of article 29, no. 1, subparagraph e), of the RJAT]. Taking into account the positions assumed by the parties, the documentary evidence and the AP submitted in the proceedings, the facts listed above were considered proven, with relevance to the decision, moreover consensually recognized and accepted by the parties.

IV – ON THE LAW

Having established, as stated above, the factual matter, it is necessary to consider the legal question raised by the Claimant, which consists in determining whether the tax credits that were recognized to the Claimant under SIFIDE can or cannot be deducted from the portion of the collection determined by autonomous taxation assessments, with reference to the tax years 2013 and 2014. This is the essential question that is the object of the present Petition for Arbitral Pronouncement that falls to be considered and decided.

With reference to the tax years in question, the System of Tax Incentives for Research and Development II (SIFIDE II)[1] was in effect, approved by article 133 of Law no. 55-A/2010, of 31 December, in force between 2011 and 2015. This statute establishes, for CIT taxpayers covered by the SIFIDE incentive system, that is, those who have submitted the necessary application, proven the verification of the legal requirements for its approval, the recognition of the respective tax benefits (tax credits).

Under this incentive regime, article 4 of SIFIDE provides:

"1- CIT taxpayers resident in Portuguese territory who exercise, as main activity or not, an activity of agricultural, industrial, commercial and services nature and non-residents with permanent establishment in that territory may deduct from the amount determined in accordance with article 90 of the CIT Code, and up to its concurrence, the value corresponding to research and development expenses, in the part that has not been the subject of financial support from the State on a non-repayable basis, carried out in the taxation 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 compared to the simple arithmetic average of the two preceding tax years, up to the limit of (euro) 1,500,000.

 (...)

3 - The deduction is made, in accordance with article 90 of the CIT Code, in the assessment relating to the taxation period mentioned in the previous number."

It results from the provisions of the law, in an unequivocal manner, a reference to article 90 of the CIT Code, which establishes the rule for assessment of CIT, including the part that comes from autonomous taxation assessments.

Now, it is article 4 of SIFIDE that defines the scope of the deduction of the tax benefit, by referring to the fact that the taxpayers covered by the tax benefit may make its deduction from the amount determined in accordance with article 90 of the CIT Code, and up to its concurrence.

Accordingly, the literal element leaves no doubt and leads us to conclude that the question to be resolved centers, therefore, on the interpretation and application of this rule which refers to the fact that the amounts in which SIFIDE is expressed are deducted "from the amounts determined in accordance with article 90 CIT Code, and up to its concurrence (...)". Thus, the question of whether article 90 of the CIT Code is or is not applicable is answered. We have no doubt that it is.

Given this, some reflection is necessary on the meaning and scope of the application of article 90, in the specific case at hand, that is, on the question of whether CIT determined by autonomous taxation assessments will or will not fall within the scope of the provisions of article 90 and the possibility of deducting the respective tax benefit. It is precisely on this specific question that the parties disagree, giving rise to the present dispute.

This question presupposes some considerations on the nature of autonomous taxation assessments, which have given rise to much controversy in doctrine and jurisprudence, particularly as to their true nature.

It should be said that on this question and addressing legal problems very similar to what we are now treating, there is already extensive arbitral jurisprudence, notably the arbitral decisions issued in cases 113/2015-T; 697/2014-T (with dissenting opinion); 219/2015-T, 370/2015-T; 369/2015-T; 673/2015-T, 722/2015-T, without prejudice to others.

There is no doubt that the controversy about the nature of autonomous taxation assessments is still a matter of discussion between current doctrine and jurisprudence, but it seems inescapable that the provisions of article 90 of the CIT Code is the only rule of reference in this matter, since there is no other provision that provides otherwise or excludes its application, as will be demonstrated.

As the Claimant alleges, citing the dissenting opinion contained in Decision 607/2014-T, "the CIT Code refers, expressly to autonomous taxation assessments in only five articles, namely:

In article 12 of the CIT Code, which excludes autonomous taxation assessments from the CIT exemption applicable to entities covered by the transparent taxation regime, provided for in article 6 of the CIT Code;

In article 23-A, no. 1, which provides that autonomous taxation assessments are not deductible for purposes of determining taxable income;

In article 88, which establishes the rates and delimits the tax base of autonomous taxation assessments);

In article 117, no. 6, which provides for the declaration obligation of exempt entities under article 9, when there is autonomous taxation assessment;

And, in article 120, no. 9, regarding the periodic declaration of income."

There is no other express reference to autonomous taxation assessments in the CIT Code. They are subject, in a generic manner, to the other articles provided in the CIT Code, including article 90. In fact, the TA recognizes this itself, although it defends, so to speak, a restrictive interpretation of the provisions of this norm, particularly the provisions of its no. 2, when it comes to the deduction of tax benefits, as is the case here.

In the present proceedings, therefore, the nature of autonomous taxation assessments is not in dispute, since the parties assume it is taxation under CIT, disagreeing only on the deduction of tax benefits. Accordingly, it must be borne in mind that the CIT collection that comes from autonomous taxation assessments is calculated from the elements and tax rates defined in article 88 of the CIT Code. But for the procedure of assessment of tax there is only and solely the rule of article 90 of the CIT Code. This article delimits the tax base of autonomous taxation assessments and enumerates the rates of autonomous taxation assessments, which are different, depending on the nature of the tax base to which they apply, the type of taxpayer and the economic results of the taxpayer (whether or not profit was obtained). This last aspect assumes fundamental importance, since the different and possible applicable rates depend on ascertaining profit or tax loss in the tax year. It results from the provisions of the law (article 88 of the CIT Code) that the CIT collection determined by autonomous taxation assessments is a function of the taxable result and, consequently, can only be ascertained after the close of the tax year, since only then will we know which rates are applicable. Therefore, strictly speaking, the assessment of CIT is single, although composed of a portion that is determined by application of the rates provided for autonomous taxation assessments, always in accordance with the legally provided technique for ascertaining tax.[2]

Now, if the collection coming from autonomous taxation assessments depends on what results for the remaining taxable income (positive or negative), it cannot be said that it is "determined instantaneously, coinciding with the realization of the expense", since the rate of incidence in each case is only known at the end of the taxation period. Being so, it is evident that the assessment occurs, only and solely, after the successive formation of all taxable income under CIT[3]. Any other understanding would be contrary to the provisions of the law, and we cannot forget that the rules for determining the tax base and assessment of tax are protected by the principle of tax legality, enshrined in article 103 of the Constitution.

Moreover, what is discussed here, having as reference the cause of action and the response thereto provided by the TA, is not the nature of autonomous taxation assessments, but the question of whether the deduction (or not) of the tax credit resulting from SIFIDE from CIT collection generated by autonomous taxation assessment. For the parties, as results from their respective pleadings, autonomous taxation assessments are considered taxation under CIT, although by application of its own rules. It is certain, however, that we cannot overlook that this question is presupposed throughout the discussion that will lead to the decision of the question raised in the proceedings.

As Saldanha Sanches refers: "In this type of taxation [autonomous], the legislator seeks to respond to the recognized difficult question of the tax regime that is found in the intersection of the personal sphere and the business sphere, so as to avoid in-kind remuneration more attractive for exclusively fiscal reasons or the hidden distribution of profits." (cf. "Manual de Direito Fiscal", 3rd Edition, Coimbra Editora, 2007, p. 406). Now, this is a central question in the determination of taxable income, under CIT and its subsequent assessment. The legislator opted for a legislative technique that passes by autonomizing certain types of costs already reflected in accounting, subjecting them to different rates than the general tax rates. Thus, these expenses or costs are relevant for purposes of determining taxable income and, therefore, to prevent abuse the legislator, instead of not allowing their deduction as a cost, corrects possible abuse after the fact by the incidence of autonomous taxation rates, which, in turn, depend on the result of the tax year. What it aims to achieve, in any case, is the income that by way of cost incurred reverted to third parties without tax incidence. Although it had other alternatives, this was the fiscal technique chosen by the legislator. The tribunal must respect this choice and decide in accordance with this assumption.

See also, in this regard, the analysis contained in the arbitral decisions issued in cases nos. 370/2015-T, 369/2015-T or 673/2015-T which is entirely subscribed to.

It is concluded that the legislator, confronted with the admissibility or not of this type of expenses (among which we find situations profoundly diverse from each other, some perfectly opaque, such as the case of confidential or undocumented expenses, and others that have manifest relation with the activity exercised, as for example happens with travel expenses or vehicles, but can slide into some exaggeration and allow remuneration to third parties without tax impact), opted to consider that the same should be deductible under CIT but, subsequently, subject to autonomous taxation, as a way to moralize some possible abuse or excess. This was the legislator's choice from which it is extracted 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 not entirely coherent 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 CIT that these two moments occur, and its autonomization under taxation is justified by the differentiation of applicable rates with an extra penalty (if we may say so) when the taxpayer presents a loss, with the clear intention of combating abuse and excess.

Given the above, although it is recognized that the autonomous taxation assessment regime constitutes, within the CIT framework, as regards the form of ascertainment of taxation, a special regime, different, perhaps somewhat strange to the dynamics of an income tax on legal persons, this does not remove it from its intrinsic nature as a regime of taxation of the income of legal persons. In other words, the legislator taxes autonomously these expenses to tax the income that they may represent for their respective beneficiaries, escaping, however, in that respect from the taxation that would be due. In this way it moralizes and discourages the "covert remuneration" of which Saldanha Sanches spoke, in the excerpt cited.

Having therefore established that it is CIT, it remains to consider the fundamental question of whether article 90 is or is not applicable and whether the tax benefits resulting from SIFIDE II are or are not deductible from the CIT collection determined by autonomous taxation assessments.

Article 90 of the CIT Code provides, as amended by Law no. 3-B/2010 of 28-04 (version in force for the tax years 2013 and 2014):

"Article 90

Procedure and form of assessment

1- The assessment of CIT proceeds as follows:

a) When the assessment is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the tax base shown therein.

(…)

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

(…)

c) The one relating to tax benefits

(…)

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

Given the provisions of the law for the procedure of assessment under CIT, in which is integrated the assessment of the portion designated as autonomous taxation assessment, all as well explained by Model 22 used for that purpose, we are led to conclude that tax benefits are deductible from CIT collection, even if this results from autonomous taxation assessments.

Note that the article referring to these latter (article 88 of the CIT Code – autonomous taxation rates) is inserted in Chapter IV of the CIT Code (Rates), evidencing the conclusion we reached, namely that it is CIT determined by the application of differentiated rates to certain portions of expenses (costs) that are autonomized, only and solely, for that purpose. Therefore, the assessment of autonomous taxation assessments is made by the application of the assessment procedure provided for in article 90 of the CIT Code, since there is no other rule we can invoke for that purpose.

In this way, the answer to the first part of the question posed to the Tribunal in the present proceedings is affirmative, that is, the rule of article 90 of the CIT Code is applicable to the assessment of autonomous taxation assessments.

It remains to analyze the second part of the question to be decided by this Tribunal and which consists in answering the question of whether the tax benefits resulting from the application of the SIFIDE II regime are or are not deductible in the concrete case. From the position of the parties expressed in their respective pleadings it results that both consider the rule of article 90 of the CIT Code applicable, only disagreeing as to the consideration of tax benefits and in concrete the tax credit resulting from SIFIDE II. The Respondent (TA) considers that the provisions of subparagraph c), no. 2, of article 90, only allows the deduction of tax benefits from CIT collection determined by the general rules of CIT, excluding the collection that may result from autonomous taxation assessments.

This is, truly, the point of discord between the parties. Let us see then.

On this specific question, at least the Arbitral Tribunals constituted in cases nos. 370/2015-T, 369/2015-T and 673/2015-T have already pronounced, recognizing that tax benefits are deductible, also from the collection determined by application of autonomous taxation rates. We follow this jurisprudence, considering it to be the only one in accordance with the letter and spirit of the law, since being at the heart of matters protected by the principle of tax legality, if the legislator's thinking were otherwise it should have stated it clearly and, in that case, it should have excluded the deduction of benefits from CIT determined by autonomous taxation, which manifestly does not result from the law.

Furthermore, the legislator provides, in no. 7, of article 90, that no negative value can result from that deduction, therefore, if he wanted to say something more, he would add, before or after, that the deduction could not relate to the amount of CIT determined by autonomous taxation assessment. He did not say so, despite having pronounced on the limits to the deduction of tax benefits.

Furthermore, with manifest relevance in defense of this interpretation, is what the legislator expressed in article 92 of the CIT Code.

Thus, in article 92 the legislator established that:

"1-(…) the tax assessed in accordance with no. 1 of article 90, net of the deductions provided for in subparagraphs a) to c) of no. 2 of that article, cannot be less than 90% of the amount that would be ascertained if the taxpayer did not benefit from the tax benefits and from the regime provided for in no. 13 of article 43.

2- The following are excluded from the provisions of the previous number:

(…)

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

That is, the legislator deliberately and consciously wanted to give this type of tax benefits preferential treatment, naturally, for extra-fiscal reasons, which relate to the period of exceptional economic crisis that the country was experiencing and still experiences, in order to protect the companies that contribute most to investment of high technological potential. From the provisions of no. 2, of article 92 of the CIT Code, it is evident the exceptional character that it attributes to the SIFIDE benefit, which results from double protection, since it also received in this legal norm extra protection, compared to other tax benefits that did not receive identical treatment. The legislator attributed, therefore, to this benefit an exceptional and prevailing nature over many other tax benefits, and the reasons that led it to enshrine such benefit are exclusively determined by objectives of economic policy that it is not the Tribunal's role to assess or judge. In truth, it is not the role of tribunals to investigate the economic policies of Governments or the way they try to reconcile difficult economic indicators, especially when the country needs to encourage economic growth. Regarding the argument that invokes principles of redistributive and social justice, they can and should be fulfilled by the use of multiple, integrated policies, and it is certain that this function falls much more within the scope of Personal Income Tax than that of CIT. Wherefore, well or ill, there are extra-fiscal options underlying this type of incentive regime that it is not the role of Tribunals to investigate.

As to the argument alleged by the Respondent based on article 5 of SIFIDE, which expressly excludes the deduction of the tax benefit in cases where there has been determination of taxable income by resort to indirect methods, the same does not hold, since the situation presented there is not similar or even comparable to that of situations contemplated with autonomous taxation assessment. There a situation of tax evasion was verified that determined resort to indirect methods which justifies, without shadow of doubt, the exclusion. Now, this situation is not comparable to those which the legislator determined as susceptible to autonomous taxation assessment, which are perfectly declared and in conformity with material truth, accounting and are, furthermore, accepted for tax purposes, including those of application of the autonomous rates to which they are subject. All in accordance with the provisions of the law.

We do not agree, finally, with the brilliant considerations contained in the recent arbitral decision issued in case 722/2015-T, of 28-06-2016, expressed in concrete as to the question of the deduction of tax credits resulting from SIFIDE II from the collection of autonomous taxation assessments, since there the discussion is essentially about the nature of autonomous taxation assessment which, in the opinion defended there, does not constitute taxation under CIT but rather of expense. Neither do we subscribe, with due respect, to its justification, since the same has no correspondence in the law. Being worthy of praise the high quality of the arguments adduced, in truth, they pass through reasons of tax, economic and perhaps social policy, debatable and which, in any case, imply the taking of decisions that pass to the legislative and governmental power. The role of tribunals is to apply the law in force at the time of the tax facts, in accordance with the applicable hermeneutic principles.

Returning to the case of the present proceedings, we have no doubt that confronting the provisions of articles 90 and 92 of the CIT Code, as stated above, as well as the provisions of article 4 of the diploma regulating SIFIDE, it is concluded that in light of the law in force at the time of the tax facts and taking into account the factual basis established, the tax benefits resulting from SIFIDE II are deductible from CIT collection, even if determined under autonomous taxation assessments.

As is well stated in the dissenting opinion expressed in Decision 697/2014-T, already referenced, "to accept that the assessment of autonomous taxation assessments was excluded from article 90, no. 1 of the CIT Code, would oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contradicting 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, subparagraph a), establishes."

The jurisprudence expressed in the Decision issued in case no. 370/2015-T is subscribed to, when it is stated that "the literal element of the rule does not exclude the interpretation made by the Claimant, since that the deductibility of the tax benefit in question from the collection of autonomous taxation assessments finds a "minimum of verbal correspondence" in the legislative text (article 9, no. 2, of the Civil Code).

It is certain that autonomous taxation assessments, in addition to aiming to ensure a minimum collection relative to entities that present losses (a question that does not arise in the concrete case), aim to reduce "tax participation" in certain expenses and, possibly, to discourage their realization, such objectives being less achieved with the possibility of the respective collection being subject to deductions.

But, on the other hand, tax benefits are measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation that they prevent (article 2, no. 1, of the Tax Benefits Status).

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 tax benefit are, by nature, superior to those of the taxation that they prevent.

Such is, even more, manifest with regard to investment tax incentives, since they constitute a true public promise, in the sense that taxpayers who adopt certain behaviors, supposedly of great economic and social interest, are guaranteed a certain "tax reward".

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

Given this, on the fundamental question at hand it is to be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretive task requires something more, that is, from the text of the rule it is necessary to discover the underlying "ratio legis", "a task of interconnection and valuation that escapes the literal domain", in other words "the jurist must always have before his eyes the purpose of the law, that is, the practical result that it proposes to achieve". Considering all the elements of interpretation of the legal rule mentioned here, it is concluded that tax benefits are deductible from CIT collection, even in the part that is determined by autonomous taxation assessments.

It is important to recall that tax benefits are "measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests, which the legislator considers superior to those of the taxation that they prevent, as indicated by article 2, no. 1, of the Tax Benefits Status. In the case of SIFIDE, it was the legislator's intention to superimpose the reasons of an extra-fiscal nature of the tax benefit over the actual collection of CIT revenue, which deliberately and consciously neglected in favor of investment in research and development expenses. This understanding is confirmed by the provisions of article 92, no. 2, of the CIT Code, when it excludes the benefits of SIFIDE from the deduction limit referred to in that article.

Combining the provisions of article 4 of the diploma that approved SIFIDE with the provisions of article 90 of the CIT Code, it is concluded that there is no legal basis for excluding the deductibility of the SIFIDE tax benefit from CIT collection, including the part that comes from autonomous taxation assessments.

And, in these terms, the assessment is single, that is, it relates to autonomous taxation assessments and remaining CIT, and is based on the same legal ground. The Model 22 declaration contains in itself a single CIT assessment, which in part incorporates the assessment of autonomous taxation assessments. It is certain that the assessment of autonomous taxation assessments and that of the remaining CIT obey distinct rules, different rates, and each has its tax base determined in accordance with its own rules, legally provided, but both obey the assessment processed in accordance with article 90 of the CIT Code. In these terms, and as well expressed in the dissenting opinion of Arbitral Judge Leonor Fernandes Ferreira, in case no. 697/2014-T, "there being a single assessment, it is concluded that the part of the collection that comes from autonomous taxation assessments is an integral part of CIT collection. To the contrary, no reference to the assessment of autonomous taxation assessments as a distinct process is found in any other article of the CIT Code. To accept that the collection of autonomous taxation assessments is not included in article 90 of the CIT Code, would be to accept that there is a lacuna in the law and, being this a tax law, it does not allow for completion."

For all that has been stated above, ascertaining that the Respondent assumed that the collection of autonomous taxation assessments does not allow the deduction of tax benefits determined by application of the SIFIDE II regime, in the terms in which they were recognized to the Claimant, and denied (tacitly) the right to the deduction of the tax benefit, this is equivalent to the practice of an illegal act by violation of law. The same is to say that the Claimant is right when it claims the illegality of the self-assessment acts, contested in the present proceedings.

The Claimant also alleged that it only became aware of the attribution of tax credits after the deadline for replacing the Model 22 declaration, which led to the submission of the prior mandatory administrative complaints. Moreover, it alleged that, besides this, the computer system does not allow the deduction of SIFIDE credits from the portion of CIT collection from autonomous taxation assessments. The fact that the forms of determination of the tax base and the rates of autonomous taxation assessments of CIT are established separately and are different from those of the remaining CIT does not seem to be sufficient reason, nor have legal support, for the existing computer solution.

Arrived at this point, it remains to conclude that the tax benefit recognized to the Claimant, embodied in the tax credits recognized for the tax years 2013 and 2014, may be deducted from CIT collection, including in the portion from autonomous taxation assessments. The self-assessment act being contested in accordance with the legally provided terms and the assessment not being corrected, the illegality subsists, which requires the annulment of the contested assessment acts, the Claimant's petition therefore being grounded.

V - Indemnatory Interest

The Claimant accumulates, with the petition for annulment of the tax acts that are the object of the present proceedings, the petition for conviction of the TA in the payment of indemnatory interest.

Given the grounding of the petition for annulment, the values paid should be restituted to the Claimant, relating to the annulled tax acts. In the case at hand, it is manifest that the illegality of the assessment acts, whose amount the Claimant paid, is attributable to the TA, which, on its own initiative, practiced them without legal support.

Consequently, the Claimant is entitled to indemnatory interest, in accordance with articles 43, no. 1, of the General Tax Law and 61 of the Tax Procedural and Procedural Code. Indemnatory interest is owed, from the date of the payments shown to have been made, and calculated on the basis of the respective amount, until its full restitution to the Claimant, at the legal rate, in accordance with articles 43, nos. 1 and 4, and 35, no. 10, of the General Tax Law, 61 of the Tax Procedural and Procedural Code and 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (without prejudice to any subsequent alterations to the legal rate).

In accordance with the provisions of subparagraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim against which no recourse or appeal lies binds the tax administration from the end of the period provided for appeal or recourse, such administration being required, in the exact terms of the grounding of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of sentences of the judicial tax tribunals, to "restore the situation that would exist if the tax act that is the object of the arbitral decision had not been practiced, adopting the acts and operations necessary for that purpose", which is in harmony with the provisions of article 100 of the General Tax Law [applicable by virtue of the provisions of subparagraph a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial grounding of an administrative complaint, judicial challenge or recourse in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that was the object of the litigation, including the payment of indemnatory interest, if applicable, from the end of the execution period of the decision".

Although article 2, no. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in the CAAD, making no reference to convicting decisions, it should be understood that the powers that in judicial challenge proceedings are attributed to the tax tribunals are comprehended in its competences, being this the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the RJAT and in which it is proclaimed, as a first directive, that "the tax arbitral process must constitute a procedural means alternative to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge process, although it is essentially a process of annulment of tax acts, admits the conviction of the tax administration in the payment of indemnatory interest, as is inferred from article 43, no. 1, of the General Tax Law, in which it is established that "indemnatory interest is owed when it is determined, in an administrative complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due" and from article 61, no. 4 of the Tax Procedural and Procedural Code (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the initial wording), which provides that "if the decision recognizing the right to indemnatory interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT in stating that "payment of interest, regardless of its nature, is owed, in the terms provided for in the general tax law and in the Tax Procedural and Procedural Code" should be understood as allowing the recognition of the right to indemnatory interest in the arbitral process. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the contested assessment acts, there is occasion for reimbursement of the tax, by virtue of the aforementioned articles 24, no. 1, subparagraph b), of the RJAT and 100 of the General Tax Law, since this is essential to "restore the situation that would exist if the tax act that is the object of the arbitral decision had not been practiced", in the portion corresponding to the correction that was considered illegal.

The TA must therefore execute the present arbitral decision, in the terms of article 24, no. 1, of the RJAT, and restore to the Claimant the amounts that have been paid unduly, plus the respective indemnatory interest, at the supplementary legal rate for civil debts, in accordance with articles 35, no. 10, and 43, nos. 1 and 5, of the General Tax Law, 61 of the Tax Procedural and Procedural Code, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or statute or statutes that succeed it), counted until the processing of the credit note, in which they are included (article 61, no. 5, of the Tax Procedural and Procedural Code).

VI - DECISION

In these terms, this Arbitral Tribunal decides:

a) To render fully grounded the arbitral petition formulated and, in consequence, to annul the act of tacit dismissal of the administrative complaints, as well as the assessments that are the object of the challenge in the present proceedings;

b) To condemn the TA to restore to the Claimant the amounts of tax unduly paid, plus indemnatory interest, in the terms stated above;

c) To condemn the losing party in the costs of the proceedings.

VALUE OF THE PROCEEDINGS

The value of the proceedings is set at €39,833.42, in accordance with article 97-A, no. 1, a), of the Tax Procedural and Procedural Code, applicable by virtue of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

The arbitration fee is set at €1,836.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the losing party, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforementioned Regulation.

Notify.

Lisbon, 3 April 2017

The Arbitral Tribunal,

(Maria do Rosário Anjos)

[1] SIFIDE was approved by Law no. 40/2005, of 3 August, to be in force between 2006 and 2010; subsequently Law 55-A/2010, of 31 December, in its article 133, instituted SIFIDE II to be in force between 2011 and 2015, amended by Law 64-B/2011 of 30 December.

[2] In this sense, the provisions of article 23-A, no. 1, subparagraph a), of the CIT Code also contribute, in the wording given by Law no. 2/2014, of 16 January, from which it is concluded, by literal interpretation, that autonomous taxation assessments are CIT. It further reinforces the understanding according to which with autonomous taxation assessments the legislator's objectives were and are to combat abuses with negative impact on the formation of taxable income, and therefore, truly it is this taxable income that the legislator wants to reach.

[3] It is to be noted that the discussion about the nature of autonomous taxation assessment (income or expense?) in the terms in which it has been stated by some doctrine and jurisprudence would require knowledge of the problem in a much broader perspective, from which the analysis of its conformity with the requirements resulting from the VAT Directive and its implications could not escape.