Process: 641/2017-T

Date: June 14, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

The CAAD arbitral decision 641/2017-T addresses whether tax benefits from investment and R&D incentive schemes (SIFIDE II, RFAI, and CFEI) can be deducted from IRC autonomous taxation amounts. A... SGPS S.A., as parent company of a tax group under the special group taxation regime (RETGS), self-assessed €1,848,603.30 in autonomous taxation for 2014 but was prevented from deducting €33.6 million in accumulated tax credits against this liability. The taxpayer argued that Article 90 of the IRC Code requires all tax benefits to be deducted from total IRC collection, which includes autonomous taxation. The Tax Authority contended that IRC operates as a dualistic system: regular IRC and autonomous taxation constitute separate calculations with distinct taxable bases, rates, and purposes. Autonomous taxation aims to discourage certain expenses through punitive rates, while tax benefits incentivize desired behaviors like R&D investment. Allowing benefit deductions against autonomous taxation would contradict the legislator's intent by eliminating taxation on expenses the law seeks to discourage. The Authority argued that 'amount calculated' in Article 90(2) refers to the sum of both calculations, but deductions apply only to regular IRC collection, not autonomous taxation amounts. The tribunal must determine whether the IRC Code's structure permits this interpretation or whether autonomous taxation lacks legal basis if benefit deductions cannot apply. This decision has significant implications for corporate groups managing substantial tax credits and autonomous taxation liabilities, affecting tax planning strategies for companies utilizing Portuguese fiscal incentive regimes.

Full Decision

Arbitral Decision

The Arbitral Tribunal agrees:

I – Report

  1. A... SGPS S.A., legal entity no. ..., with registered office at ..., no. ..., ...-... Lisbon, filed a request for constitution of an arbitral tribunal, under the provisions of article 2, no. 1, paragraph a), and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to examine the legality of the dismissal of the administrative complaint filed against the act of self-assessment of Corporate Income Tax (IRC), relating to the financial year 2014, insofar as it does not admit the deduction from IRC collection produced by the autonomous taxation rates of tax benefits calculated under the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI), and the Extraordinary Fiscal Credit for Investment (CFEI).

The request is based on the following grounds:

The Claimant is the parent company of Group B..., which is subject to the special taxation regime for groups of companies provided for in articles 69 et seq. of the IRC Code, and as such submitted the consolidated IRC declaration (model 22) for the year 2014, having proceeded to self-assess the autonomous taxation rates of that same year in the amount of € 1,848,603.30.

In the self-assessment, it was prevented from deducting the amounts of tax benefit recognised to companies in the fiscal group under the system of tax incentives designated as SIFIDE II, RFAI and CFEI, which amounted to € 14,057,263.59, € 16,801,964.82 and € 2,788,461.47, respectively, and which corresponded to tax credits in an amount far exceeding the collection of autonomous taxation rates.

The Claimant also had the necessary requirements to deduct the tax benefits, in that the taxable profit was not determined through indirect methods and its fiscal and contributive situation was properly regularised.

Furthermore, the IRC collection provided for in article 45, no. 1, paragraph a), of the IRC Code comprises, without need for any additional specification, the collection of autonomous taxation rates in IRC, being subject, as such, to the method of calculation provided for in article 90 of that Code, whereby deductions relating to tax benefits had to be made in relation to the amount calculated, in the terms of paragraph c) of no. 2 of that provision.

And should it be understood that article 90 of the IRC Code does not apply to autonomous taxation rates, then the illegality of the assessment of autonomous taxation rates should be declared due to absence of legal basis for its implementation, having regard to the provisions of articles 8, no. 2, paragraph a), of the General Tax Law (LGT) and 103, no. 3, of the Constitution.

It consequently requests the declaration of illegality of the decision dismissing the administrative complaint, as well as of the IRC self-assessment, relating to the financial year 2014, on grounds of breach of law, insofar as it bars the deduction of tax benefits from the part of IRC collection corresponding to autonomous taxation rates, and, subsidiarily, the declaration of illegality of the assessment of autonomous taxation rates due to absence of legal basis.

The Tax Authority, in its reply, considers that the inclusion of autonomous taxation rates in the IRC Code, by their nature and purpose, has as its logical corollary the application of the general rules specific to that tax which do not conflict with its special form of incidence, conferring a dualistic nature on the normative system of the tax that is embodied in the separate calculation of their respective collections in accordance with different rules.

There being thus two distinct calculations, which, although processed in accordance with paragraph a) of no. 1 of article 90, are carried out on the basis of the application of different rates to their respective taxable bases which are determined equally in accordance with specific rules.

The assessment of IRC operates through the application of the rates of article 87 to the taxable base determined in accordance with chapter III of the Code, whereas in relation to the assessment of autonomous taxation, various collections are calculated in accordance with the rates provided for in article 87, resulting from the provisions of articles 88 and 89, depending on the diversity of facts that give rise to the assessment of autonomous taxation, and therefore one cannot speak of a unitary system of IRC taxation.

And in that sense the "amount calculated in accordance with the preceding paragraph", to which no. 2 of article 90 of the IRC Code refers, should be understood as encompassing the sum of the amount of IRC calculated in accordance with the rules of chapter III of the Code by application of the rates provided for in article 87 and the amount of autonomous taxation, calculated on the basis of the rules provided for in article 88.

Otherwise, the deduction of tax benefits from the collection resulting from autonomous taxation would have a contradictory effect, allowing the realisation of fiscal incentive objectives to come to eliminate autonomous taxation in relation to expenses that the legislator intends to discourage.

It concludes for the dismissal of the request.

  1. Following the proceedings, the meeting referred to in article 18 of the Regulations of the Tax Arbitration Court (RJAT) was dispensed with, as was the production of witness evidence.

In submissions, the parties reiterated their previous positions.

  1. The request for constitution of the arbitral tribunal was accepted by the President of the Arbitral Court (CAAD) and notified to the Tax and Customs Authority in accordance with regulatory procedures.

In accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

The parties were duly and timely notified of this appointment and did not express any wish to decline it, in accordance with article 11, no. 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 15 February 2018.

The arbitral tribunal was duly constituted and is materially competent, in light of the provisions of articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same decree-law and 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

It is within the jurisdiction of the tribunal to examine and decide.

II – Grounds

  1. The material facts relevant to the decision of the case are as follows:

a) Group B..., composed of C... S.A., D..., S.A., E... S.A., F... SGPS, S.A. (F...), G..., S.A. (G...), H..., S.A., I..., S.A. (I...), J..., S.A. (J...), K..., S.A., L..., S.A. (L...), M..., S.A., N..., S.A., of which A... SGPS S.A. is the parent company, is subject to the Special Regime for the Taxation of Groups of Companies (RETGS).

b) In its capacity as parent company of Fiscal Group B..., the Claimant submitted a consolidated IRC declaration, Model 22, for the financial year 2014, proceeding to self-assess the autonomous taxation rates of that same year in the global amount of € 1,848,603.30.

c) The computer system did not allow the deduction from IRC collection of the amounts of tax benefit recognised to companies in the fiscal group under the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI), and the Extraordinary Fiscal Credit for Investment (CFEI), with reference to the financial year 2014, in the partial amounts of € 14,057,263.59, € 16,801,964.82 and € 2,788,461.47, respectively.

d) The Claimant filed an administrative complaint against the self-assessment of autonomous taxation rates of the aforementioned financial year 2014, which was dismissed by decision dated 6 September 2017 of the Head of Division of Tax Management and Assistance of the Large Taxpayers Unit.

e) Having been notified on 1 August 2017 of the draft decision, the Claimant did not exercise the right to be heard.

f) The decision dismissing the administrative complaint was based on the non-deductibility of credits resulting from the tax benefits of SIFIDE, RFAI and CFEI from the collection of autonomous taxation.

The Tribunal formed its conviction as to the proven facts on the basis of documents attached to the petition and those contained in the administrative file submitted by the Tax Authority with its reply.

Matter of Law

  1. The question to be decided is whether there is grounds in IRC for the deduction from the collection produced by autonomous taxation rates of tax benefits calculated under the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI), and the Extraordinary Fiscal Credit for Investment (CFEI).

This question has been decided by the majority of arbitral jurisprudence in the affirmative, using as the principal argument the method of assessment of IRC even when autonomous taxation is at issue. The collection provided by autonomous taxation – it is argued – constitutes IRC collection and the deduction of tax benefits is carried out in relation to the amount calculated in accordance with article 90 of the IRC Code, which leads to the conclusion that the processing of the assessment of the tax, as it results from the aforementioned article 90, applies to all situations provided for in the Code, including as regards autonomous taxation. Starting from this central idea, it is concluded that the autonomy of this type of taxation is restricted to the applicable rates and the respective taxable base, there being no legal support, in light of the provisions of article 90, for distinguishing between the collection resulting from autonomous taxation and that resulting from income subject to IRC.

In any case, the analysis of the question justifies a more precise characterisation of the so-called autonomous taxation rates.

It should first be said that autonomous taxation constitutes the principal exception to taxation of income according to the principle of net income or actual income, by which the income of individuals is calculated after deducting expenses incurred in obtaining it and the taxation of companies is determined in accordance with profit calculated from accounting (Saldanha Sanches, Manual of Tax Law, 3rd edition, Coimbra, p. 406).

As has been frequently noted, autonomous taxation initially referred to confidential and undocumented expenses (article 4 of Decree-Law no. 192/90, of 9 June), later coming to include charges for vehicles, amounts paid to persons with more favourable tax treatment and representation expenses, and later, expenses for allowances or travel expenses.

With the 2010 State Budget Law (Law no. 3-B/2010, of 28 April), autonomous taxation came to include charges relating to indemnities paid to managers, administrators or partners upon cessation of functions, and likewise, charges relating to bonuses and other variable remuneration paid to managers, administrators or partners when these represent a share exceeding 25% of annual remuneration and have a value exceeding € 27,500. Meanwhile, Law no. 55-A/2010, of 31 December, added a no. 14 to article 88, providing for an increase in the autonomous taxation rates provided for in that article by 10 percentage points for taxpayers that report a fiscal loss in the tax period to which any of the facts referred to in the preceding paragraphs pertain.

The introduction of the autonomous taxation mechanism is justified, on the other hand, by its reference to expenses whose tax treatment is difficult to discern because they are found in a "zone of intersection between the private and business spheres" and is intended to prevent and avoid that, through these expenses, companies proceed to hidden distribution of profits or attribute income that may not be taxed in the sphere of their respective beneficiaries, also having the objective of combating fraud and tax evasion (Saldanha Sanches, op. cit., p. 407).

Furthermore, autonomous taxation, although regulated normatively in the context of income tax, is materially distinct from IRC taxation, in that it does not bear directly on the taxable profit of the company, but on certain expenses which constitute, in themselves, a new tax fact (which refers not to the perception of income but to the incurrence of expenses). And thus, autonomous taxation has embedded in it the idea of discouraging a practice which, beyond affecting the equality in the distribution of public burdens, may involve situations of lesser fiscal transparency, and is explained by a legislative intent to encourage companies to reduce as much as possible the expenses that negatively affect fiscal revenue.

In those special situations listed in law, the legislator therefore opted for subjecting the expenses to autonomous taxation as an alternative form more effective than the non-deductibility of the expense for purposes of determining taxable profit, all the more so since when the company incurs a fiscal loss, there will be no tax payment, frustrating the objective intended to be achieved, which is to discourage the very incurrence of this type of expense.

However, through successive legislative amendments, the legislator has come to expand the scope of autonomous taxation, coming to include charges relating to indemnities paid to managers, administrators or partners when these cease functions, and likewise, charges relating to bonuses and other variable remuneration paid to managers, administrators or partners when these exceed certain thresholds. Which is justified as a way of ensuring "a more just distribution of tax burdens and a progressive moralization of the companies' remuneration policies". As the doctrine has recognised, these are cases of autonomous taxation mechanisms that depart from the initial purpose of combating fraud and tax evasion – as was the case with undocumented expenses – but which may still fit within the objective of limiting expenses that may be reflected in the collectable income of companies.

In this context, analysing the question of autonomous taxation in light of the principle of taxation of companies according to actual income and the principle of ability to pay, the Constitutional Court, in judgment no. 197/2016, endorsed the following understanding:

"(...) IRC and autonomous taxation are separate taxes, with different bases of incidence and subject to specific rates. IRC bears on income obtained and profits directly attributable to the exercise of a certain economic activity, by reference to the annual period, and thus taxes the aggregation of all income obtained in the tax period. By contrast, in autonomous taxation in IRC – according to the very constitutional jurisprudence – the taxable event is the very incurrence of the expense, characterised as an instantaneous tax fact that appears isolated in time and generates a payment obligation with a sporadic character. This is why it is understood that we are facing a tax of single obligation, by contrast with periodic taxes, whose taxable event occurs successively over time, generating a tax payment obligation with a regular character.

As is to be concluded, autonomous taxation, although provided for in the IRC Code and assessed jointly with IRC for purposes of collection, has nothing to do with the taxation of income and profits attributable to the economic exercise of the company, since they bear on certain expenses that constitute autonomous tax facts that the legislator, for reasons of tax policy, wished to tax separately by subjecting them to a predetermined rate that has no relation to the volume of business of the company".

In the same sense, the judgment of the Constitutional Court no. 310/2012, which found unconstitutional, for breach of the principle of non-retroactivity of tax law, the norm of article 5, no. 1, of Law no. 64/2008, of 5 December, insofar as it makes retroactive to 1 January 2008 the effects of increases in autonomous taxation rates, drew attention to the materially distinct nature of autonomous taxation in relation to income tax on legal entities, even though this tax imposition is formally inserted in the IRC Code.

To that end, that judgment stated:

"By contrast with what happens in the taxation of income under PIT and IRC, in which the aggregate of income earned in a given year is taxed (which means that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer is placed), in this case each expense incurred is taxed, in itself, and subject to a determined rate, autonomous taxation being calculated independently of the IRC that is owing in each financial year, because it is not directly related to the obtaining of a positive result, and therefore taxable.

Thus, and in the case of IRC, we are facing an annual tax, in which each income perceived is not taxed per se, but rather the aggregation of all income obtained in a given year, the law considering that the taxable event is deemed to occur on the last day of the tax period (see article 8, no. 9, of the IRC Code).

Whereas as regards autonomous taxation in IRC, the taxable event is the very incurrence of the expense, and we are not facing a complex fact, of successive formation over a year, but facing an instantaneous tax fact.

This characteristic of autonomous taxation thus points us to the distinction between periodic taxes (whose taxable event occurs successively, by the passage of a given period of time, usually annually, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single obligation taxes (whose taxable event occurs instantaneously, appears isolated in time, generating on the taxpayer a payment obligation with a sporadic character).

In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of incurring a certain expense that is subject to taxation (although the calculation of the amount of tax, resulting from the application of the various autonomous taxation rates to the various acts of incurring of expense considered, will be made at the end of a given tax period). But the fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of lasting character. This operation of assessment translates only into aggregation, for purposes of collection, of the set of operations subject to this autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of expenses incurred in the determination of the rate".

It is understood, in the terms just set out, that the basis of incidence of autonomous taxation does not translate into net income, but into a deductible cost exceptionally transformed into an object of taxation, corresponding to a legal sanction that is intended to reduce the tax advantage that could result from unjustified or excessive expenses. And in this framework, it would be entirely contrary to the unity of the legal system that tax benefits to be granted to taxpayers in IRC come to be deducted from the collection resulting from the application of autonomous taxation rates.

As has been noted, autonomous taxation rates have the nature of anti-abuse rules and are intended to discourage certain special situations aimed at obtaining a reduction of the tax burden by deduction of costs that are presumed not to be determined by a business cause. Furthermore, the normative system of the tax has a dualistic nature in that it integrates, on one side, the taxable base based on taxable profit, and on the other side, the taxable base resulting from the application of autonomous taxation rates bearing on a certain type of expense.

Although the assessment of the tax is carried out in an aggregated form, on the basis of these two different components, it makes no sense that the general deductions to be made in relation to the amount of tax determined bear on the collection owed by the application of autonomous taxation rates. Indeed, deductions from collection constitute one of the ways to give effect to the principle of ability to pay which has as one of its corollaries taxation according to actual income. Being taxes on income, the objective deductions to be considered are those corresponding to expenses that can reasonably be considered necessary for the earning of income and that are suited to the nature of each category of income, and in the case of business activities, should be understood as the expenses or losses incurred or borne by the taxpayer to obtain or secure income subject to IRC (Sérgio Vasques, Manual of Tax Law, Coimbra, 2015, p. 299).

It is certainly true that the law still permits deductions from taxable profit and, among them, those relating to tax benefits (article 90, no. 2, paragraph c)). There is no place, however, for these deductions to be made in relation to the collection of autonomous taxation.

It should be recalled that autonomous taxation bears on certain expenses specified in tax law that have been incurred by the company, and only on those expenses, and is not aimed at the taxation of business income that has been earned in the respective economic year. And the legislator's objective – as mentioned – is to discourage the incurrence of expenses that may negatively affect fiscal revenue and artificially reduce the company's own ability to pay.

The logic of autonomous taxation appears to be this. The company demonstrates financial availability to incur expenses that involve situations of lesser fiscal transparency and negatively affect fiscal revenue. In this circumstance, the taxpayer should be in a position to bear an additional tax burden in relation to those same expenses (which could be avoided) and which is intended to compensate for the tax advantage that results from the reduction of the taxable base by virtue of the incurrence of these expenses.

The expense constitutes an autonomous tax fact, generating a tax to which the taxpayer is subject independently of whether or not they have obtained taxable income in IRC in the same tax period. And thus, the fact revealing ability to pay is the very incurrence of the expense.

To admit that credits resulting from situations of incentive or tax benefit could neutralise the sanction effect of autonomous taxation would be to distort the very concept of tax benefit and the principles of ability to pay and just distribution of the tax burden.

By their very nature, tax benefits are exceptional measures instituted for the protection of relevant extra-fiscal public interests that are superior to those of taxation itself which prevent them, corresponding to situations in which the fiscal legislator provides relief, for technical or tax policy reasons, to certain manifestations of wealth that it wishes to exclude from normal taxation (article 2, no. 1, of the Tax Benefits Framework Law). Tax benefit is furthermore considered as a fiscal expenditure in that it bears on a situation subject to taxation and is equivalent, in quantitative terms, to fiscal revenue not collected.

It makes absolutely no sense, in this conditionality, that the deductions from tax collection resulting from tax benefits bear not only on taxable profit but on expenses that the legislator intended to tax for reasons of fiscal transparency. Which would lead to allowing tax benefit to be used to frustrate the objective intended to be achieved with autonomous taxation, which is precisely to discourage the very incurrence of this type of expense.

  1. In the present case, the Claimant imputes to the decision dismissing the administrative complaint and to the IRC self-assessment act the defect of breach of law insofar as they do not admit the deduction from IRC collection produced by autonomous taxation rates of tax benefits calculated under SIFIDE, RFAI and CFEI.

At issue is the system of tax incentives for research and business development II, abbreviated as SIFIDE II, effective for the tax periods 2011 to 2015, approved by article 133 of Law no. 55-A/2010, of 31 December, the fiscal regime for investment support carried out in 2009, approved by Law no. 10/2009, of 10 March (RFAI) and the extraordinary fiscal credit for investment, established by Law no. 49/2013, of 16 July (CFEI).

With regard to SIFIDE II, the law permits taxpayers subject to IRC resident in Portuguese territory who exercise, whether as their principal activity or not, an activity of an agricultural, industrial, commercial or service nature, and non-residents with permanent establishment in that territory, to deduct from the amount calculated in accordance with article 90 of the IRC Code, and up to its amount, the value corresponding to expenses with research and development, in the part not subject to financial contribution by the State on a non-refundable basis, incurred in the tax periods from 1 January 2011 to 31 December 2015, in a dual percentage: a) base rate – 32.5% of the expenses incurred in that period; b) incremental rate – 50% of the increase in expenses incurred in that period over the simple arithmetic average of the two preceding financial years, up to the limit of € 1,500,000. There is also room in certain situations for an increase in this rate.

The fiscal incentive for investment, under the terms of Law no. 10/2009, in addition to involving various types of exemptions, is processed by deduction from IRC collection, up to 25% of the same, of the following amounts, for investments made in regions eligible for support within the scope of incentives with a regional purpose: i) 20% of the relevant investment, in relation to investment up to the amount of € 5,000,000; ii) 10% of the relevant investment, in relation to investment of an amount exceeding € 5,000,000.

The tax benefit to be granted to taxpayers under the CFEI, as provided for in article 3, no. 1, of Law no. 49/2013, corresponds to a deduction from IRC collection in the amount of 20% of investment expenses in assets for operation, the subsequent no. 5 determining that, in the case of application of the special regime for taxation of groups of companies, the deduction is made to the amount calculated in accordance with paragraph a) of no. 1 of article 90 of the IRC Code, on the basis of the taxable base of the group.

In any case, the law orders the deduction of amounts resulting from tax incentives from IRC collection or from the amount calculated in accordance with article 90 of the IRC Code, and should be understood that the reference is made to the assessment procedure referred to in that same provision of the Code. The specific norms that regulate tax incentives do not contain, as such, a special regime as regards the method by which the deduction from collection should be processed, whereby there should be deduction of tax benefits from the amount of tax calculated as provided for in article 90, no. 2, paragraph c).

The point is that this provision, as has been hinted, cannot be interpreted in the sense of encompassing autonomous taxation since we are dealing there with a taxation distinct from IRC and in relation to which it would make absolutely no sense to apply deductions on grounds of tax benefit.

To this end, the Claimant also refers to the innovative nature of the norm of article 88, no. 21, of the IRC Code, as amended by article 134 of Law no. 7-A/2016, of 30 March, with the consequent inapplicability to the situation in question by breach of the principle of prohibition of retroactivity of tax law.

The aforementioned norm came to establish that "the assessment of autonomous taxation in IRC is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the provisions of the preceding paragraphs, with no deductions being made to the global amount determined". And the subsequent article 135 of the same Law confers on the cited provision of article 88, no. 21, of the IRC Code an interpretative nature.

The invocation of the noted provision could raise the question of whether the norm, in the conditionality of the case, could be qualified as interpretative and whether the retroactive effect of that qualification could call into question the principle of prohibition of retroactivity of tax law.

However, the tribunal, in order to reach the solution of the case, limited itself to interpreting the provision of article 90, no. 2, paragraph c), of the IRC Code according to the general rules of legal hermeneutics, refraining from applying the provision of the aforementioned article 88, no. 21, of the IRC Code, whereby, as that provision has not been used as ratio decidendi, the breach of any constitutional parameter that refers to the purported interpretative character of the law is not invocable (among many, the judgments of the Constitutional Court nos. 319/94 and 524/98).

  1. The Claimant further submits a subsidiary request in order to obtain the annulment of the tax act assessing autonomous taxation, should it be understood that article 90 of the IRC Code does not apply to this type of taxation, on the grounds that there is no legal basis for its implementation, invoking the provisions of articles 8, no. 2, paragraph a), of the General Tax Law (LGT) and 103, no. 3, of the Constitution.

If understood correctly, the Claimant assumes that, there being no place for deduction from IRC collection produced by autonomous taxation rates of tax benefits, there is also no legal basis for assessing autonomous taxation.

The argument is based on an evident misunderstanding.

The autonomous taxation rates are provided for in article 88 of the IRC Code and it is that provision that permits the assessment of the corresponding tax, although that assessment arises aggregated with the assessment of IRC. In considering that tax benefits are not deductible from the amount of tax determined resulting from the application of autonomous taxation rates, the tribunal is not asserting that the provision of article 90 is not applicable to autonomous taxation, but rather making an interpretation of article 90, no. 2, paragraph c), in the sense that the deduction from collection of tax benefits does not bear on autonomous taxation.

It being certain that autonomous taxation does not cease thereby to have legal support.

In these terms, the Claimant's request is without merit, and the decision dismissing the administrative complaint challenged must be upheld, necessarily rendering moot the remaining requests for refund of the amounts paid and payment of compensatory interest.

III – Decision

In these terms, the decision is:

a) To dismiss the arbitral request for declaration of illegality of the decision dismissing the administrative complaint filed against the IRC self-assessment act, relating to the financial year 2014, insofar as it does not admit the deduction from IRC collection produced by autonomous taxation rates of tax benefits calculated under the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Regime for Investment Support (RFAI), and the Extraordinary Fiscal Credit for Investment (CFEI);

b) To render moot the requests for refund of the amounts paid and payment of compensatory interest;

c) To condemn the Claimant to pay the costs of the present proceedings.

IV – Value of the Case

In accordance with the provisions of articles 306, no. 2, and 297, no. 2 of the Civil Procedure Code (CPC), article 97-A, no. 1, paragraph a) of the Tax Procedure Code (CPPT), and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 1,848,603.30.

V – Costs

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at € 24,174.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, borne by the Claimant.

Notify.

Lisbon, 14 June 2018

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitrator Member

Cristina Aragão Seia

The Arbitrator Member

André Sousa Tavares

Frequently Asked Questions

Automatically Created

Can tax benefits like SIFIDE, RFAI, and CFEI be deducted from the IRC collection generated by autonomous taxation?
The central question was whether tax benefits from SIFIDE II, RFAI, and CFEI could be deducted from IRC collection attributable to autonomous taxation. The taxpayer held that Article 90 of the IRC Code mandates deduction of all tax benefits from total IRC collection without distinguishing between regular IRC and autonomous taxation components. The Tax Authority argued that IRC operates as a dual system where autonomous taxation serves a distinct punitive purpose and should not be reduced by incentive-based tax benefits, as this would contradict the legislative intent to discourage certain expenditures through autonomous taxation while simultaneously encouraging investment through benefit schemes.
How does Article 90 of the IRC Code apply to the calculation of autonomous taxation and benefit deductions?
Article 90 of the IRC Code establishes the calculation methodology for IRC collection and deductions. The taxpayer interpreted Article 90(2) as requiring all tax benefit deductions to apply against the total 'amount calculated' under Article 90(1)(a), which encompasses both regular IRC and autonomous taxation. The Tax Authority countered that while Article 90(1)(a) provides the calculation framework, the 'amount calculated' consists of two separate computations: regular IRC (calculated per Chapter III using Article 87 rates) and autonomous taxation (calculated under Articles 88-89 with specific rates for different expense categories). Under this interpretation, tax benefit deductions apply only to the regular IRC component, not to autonomous taxation amounts.
What was the outcome of the CAAD arbitral decision 641/2017-T regarding autonomous taxation deductions?
Based on the structure of the decision presented, the tribunal must resolve whether autonomous taxation falls within the scope of tax benefit deductions under Article 90 of the IRC Code. The taxpayer additionally raised a subsidiary argument that if Article 90 does not permit benefit deductions against autonomous taxation, then autonomous taxation itself lacks legal basis under Articles 8(2)(a) of the General Tax Law and 103(3) of the Portuguese Constitution. The tribunal's resolution would determine whether the Tax Authority's dualistic interpretation of IRC calculation is legally sustainable or whether the unified interpretation advocated by the taxpayer prevails, potentially requiring either allowance of the deductions or invalidation of the autonomous taxation assessment.
Is there a legal basis for collecting autonomous taxation in IRC if Article 90 deduction rules do not apply?
The legal basis question arises from the taxpayer's subsidiary argument. If the tribunal accepts that Article 90 does not permit deductions of tax benefits from autonomous taxation, the taxpayer contends this creates a constitutional and legal deficiency. Article 8(2)(a) of the General Tax Law requires that tax collection have explicit legal basis, while Article 103(3) of the Portuguese Constitution mandates that no tax may be charged without prior legislative authorization. The taxpayer argues that if autonomous taxation exists as a completely separate regime immune from the general IRC calculation rules in Article 90, it potentially lacks adequate legal foundation. This subsidiary claim seeks invalidation of the autonomous taxation assessment itself rather than merely obtaining the benefit deductions.
Can companies under the special group taxation regime (RETGS) deduct fiscal incentive credits against autonomous taxation amounts?
Companies under RETGS face particular complexity with this issue because the parent company files consolidated returns and manages tax attributes for the entire group. In this case, A... SGPS S.A. held €33.6 million in combined tax credits from SIFIDE, RFAI, and CFEI benefits earned by group members against only €1.8 million in autonomous taxation liability. The outcome determines whether groups can strategically use accumulated investment and R&D credits to eliminate autonomous taxation on discouraged expenses, or whether these represent fundamentally separate tax obligations. For RETGS groups with substantial investment activities generating significant tax credits alongside operations incurring autonomous taxation (such as vehicle expenses, entertainment costs, or payments to tax haven entities), the decision establishes critical parameters for tax planning, credit utilization strategies, and the effective value of fiscal incentive programs.