CAAD 649/2018-T: Deduction of SIFIDE, RFAI and CFEI Tax Benefits Against Autonomous Taxation in IRC

ARBITRAL DECISION

The Arbitrators Councillor Jorge Lopes de Sousa (Arbitrator President), Dr. Olívio Mota Amador (Arbitrator Member) and Dr. Henrique Nogueira Nunes (Arbitrator Member), appointed by the Administrative Arbitration Centre to form an Arbitral Tribunal agree as follows:

1. - Report

1.1. A... SGPS S.A., legal entity no. ..., with registered office at ... no. ..., ...-... Lisbon, (hereinafter referred to as "Claimant") filed, on 19-12-2018, a request for constitution of an arbitral tribunal, under article 2, no. 1, paragraph a) and article 10, nos. 1 and 2 of the Legal Regime of Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LRAT") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, to declare the illegality and consequent annulment of the decision dismissing the administrative appeal, issued by the Deputy Director of the Tax Justice Area of the Large Taxpayers Unit, on 17-09-2018, as well as the self-assessment of IRC of Fiscal Group B..., relating to the fiscal year 2015, to the extent corresponding to the non-deduction from the IRC collection produced by the autonomous taxation rates of tax benefits in IRC determined under the System of Tax Incentives for Business Research and Development (SIFIDE), the Fiscal Support Regime for Investment (RFAI) and Extraordinary Tax Credit for Investment (CFEI) in the amount of € 9,220,322.96 (nine million, two hundred and twenty thousand, three hundred and twenty-two euros and ninety-six cents). Subsidiarily, it alleges that should it be understood that article 90 of the IRC Code does not apply to autonomous taxation, the illegality of the autonomous taxation assessment should be declared due to the absence of legal basis for its implementation (article 8, no. 2, paragraph a), of the General Tax Law and article 103, no. 3, of the CRP), with the consequent reimbursement of the same amount.

1.2. The request for constitution of the arbitral tribunal was accepted on 20-12-2018, and automatically notified to the Tax and Customs Authority (hereinafter referred to as "Respondent").

1.3. The Claimant did not proceed to appoint an arbitrator, so, under the provisions of paragraph a) of no. 2 of article 6 and paragraph a) of no. 1 of article 11 of the LRAT, the President of the CAAD Deontological Council appointed the president arbitrator and the auxiliary arbitrators of the collective arbitral tribunal, and the signatories communicated acceptance of the appointment within the applicable period.

1.4. The parties were notified of the appointments of the president arbitrator and auxiliary arbitrators on 08-02-2019, and did not manifest any intention to challenge any of them.

1.5. In accordance with the provisions of paragraph c) of no. 1 of article 11 of the LRAT, the Collective Arbitral Tribunal was constituted on 28-02-2019.

1.6. The Respondent, duly notified for this purpose by arbitral order of 28-02-2019, presented its defence on 03-04-2019, defending itself by contestation and transmitted on the same date the administrative file.

1.7. The Arbitral Tribunal by order of 05-04-2019, under the principles of the autonomy of the Arbitral Tribunal in conducting proceedings, expedition, simplification and procedural informality (articles 19, no. 2, and 29, no. 2, of the LRAT) dispensed with the holding of the meeting provided for in article 18 of the LRAT, the production of witness evidence and the holding of oral arguments. It also fixed 15-05-2019 as the date for the pronouncement of the arbitral decision.

1.8. The position of the Claimant, in accordance with the provisions of the request for constitution of the Arbitral Tribunal, is, in summary, as follows:

1.8.1. That it is not constitutionally admissible to perform a corrective interpretation of article 92 of the IRC Code in order to remove from the deductions from the collection provided therein the collection of autonomous taxation in IRC. In deductions from the collection, the substantive question of determining the quantum of the tax is at stake, so the interpreter is not authorized, whoever they may be, to correct the legal text, on the presumption that they know what the legislator would have wanted to express there (regarding autonomous taxation in IRC). The interpreter, whoever they may be and however great their wisdom, has no constitutional authority to, overriding the legal text, think that they know better than what the legislator reflected in the legal text.

1.8.2. That the interpreter only knows this: that an overwhelming consensus has been formed that autonomous taxation is IRC, that as a result of this the rule directed to the IRC collection contained in article 45 of the CIRC (since 2014, article 23-A, and before 2010, article 42) was applied which prevents its deduction from taxable income, and that consequently it is not possible to set aside another rule applicable to the collection of IRC, that of deductions from the same (article 90), from its application to the collection of IRC generated by autonomous taxation.

1.8.3. That it is not acceptable to simultaneously defend that autonomous taxation is a heterogeneous set with different purposes, and then take a small part of them (those affecting undocumented expenses and offshore payments) to argue from there with respect to all autonomous taxation, including the most common (on vehicles, allowances and representation expenses).

1.8.4. That even in the case of autonomous taxation on undocumented expenses and offshore payments, these also generate collections with the nature of IRC. What problem is envisaged in making this IRC collection available to settle accounts with IRC tax credits held by the taxpayer (by reason of tax incentives whose requirements they met)? No problem is identified. If there was abuse (the law presumes so in autonomous taxation), if there was tax evasion, this was automatically restored via autonomous taxation (and with quite heavy rates), so the problem of presumed evasion is resolved with this taxation (and probably more than resolved, given the automatic and indiscriminate character of autonomous taxation).

1.8.5. That it is unfounded to argue with the provisions of no. 12 of article 88 of the CIRC. On the contrary, what this no. 12 tells us is that from the outset withholding tax is deducted from the totality of the IRC collection in accordance with article 90, no. 2, of the IRC Code (which does not exclude any collection that qualifies as IRC collection), but by force of this no. 12 of article 88 of the IRC Code a certain and concrete withholding tax will be deducted only from the part of the IRC collection produced by no. 11 of article 88 of the IRC Code.

1.8.6. In the same way that the case law has understood, in an almost unanimous manner, that the collection of IRC provided for in (effective until 2013) article 45, no. 1, paragraph a), of the IRC Code, comprises, without need for any additional specification, the collection of autonomous taxation in IRC, one should also understand that the collection of IRC provided for in the same Code further ahead (article 90, no. 1, and no. 2, paragraphs b) and c), of the IRC Code, in the numbering in force in 2013) also encompasses the collection of autonomous taxation in IRC.

1.8.7. Therefore in its understanding it can, and should, conclude that article 135 of the State Budget Law of 2016 refers only to part 1 of the new no. 21 of article 88 of the IRC Code, an interpretation which on the negative side is authorized by the manifest incorrectness of the wording of that article 135, revealing the little care the legislator took to be precise, and which on the positive side is authorized by the presumption that the legislator adopted the most correct solutions and by the directive of interpretation in conformity with the Constitution.

1.8.8. Furthermore, the attribution of interpretative nature to a fiscal rule does not by itself trigger the application of the regime for the application of laws over time provided for in the Civil Code. In any case article 13 of the Civil Code and the prohibition of retroactivity contained therein only applies to interpretative rules, as opposed to false interpretative rules. And part 2 of the new no. 21 of article 88 of the IRC Code is, assuming it was really the legislator's intention to attribute an interpretative character to it, a false interpretative rule. Indeed, where is the rule interpreted, the object of the interpretation? No part of the State Budget Law 2016 results in the identification of the rule that part 2 of the new no. 21 of article 88 of the IRC Code would aim to interpret. What constitutes yet another symptom that one is dealing with a normative novelty, as opposed to an interpretative view of an old rule.

1.8.9. Which leads, in the understanding propounded by the Claimant, to yet another strong reason for considering that part 2 of the new no. 21 of article 88 of the IRC Code is not interpretative for purposes of application of law over time, that is, for purposes of activating the provisions of article 13 of the Civil Code. Indeed, how can both parts, 1 and 2, of the new no. 21 of article 88 of the IRC Code simultaneously be interpretative of what articles 89 and 90 of the IRC Code provide (both inserted in the same phase of IRC liquidation, post-acquisition of primary collection), in opposite senses? How can they simultaneously be interpretative in the sense that the IRC of article 89 also includes autonomous taxation (part 1 of no. 21 of article 88), and in the opposite sense that the IRC of article 90, at least that of its no. 2, does not include autonomous taxation?

1.8.10. One of the two prescriptions, either that of part 1 or that of part 2, of the new no. 21 of article 88 of the IRC Code, does not have, and does not necessarily have, by logical impossibility, an interpretative character.

1.8.11. Therefore, and necessarily, part 2 of the new no. 21 of article 88 of the IRC Code has an innovative character. And with this the first of the qualitative reasons presented above is reinforced: the logical impossibility detected, the antinomy, is only resolved if one interprets the attribution of interpretative nature to the new no. 21 of article 88 of the IRC Code, by article 135 of the State Budget Law 2016, as wanting to refer to part 1, and not to part 2, of the said no. 21.

1.8.12. If, notwithstanding all the reasons set out above, it is nevertheless understood that article 135 of the State Budget Law 2016 (Law no. 7-A/2016, of 30 March) attributed interpretative nature also to part 2 of the new no. 21 of article 88 of the IRC Code, it is believed that one would then be faced with material unconstitutionality of the said article 135 of the State Budget Law 2016, for violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3 of the Constitution, whether or not one has concluded that one is dealing with a materially interpretative law (see Constitutional Court judgment no. 172/00, and for violation, also, of the principle of separation of powers and the principle of independence of the judiciary).

1.8.13. Violation, then, also, of article 2 (democratic rule of law, and separation and interdependence of powers, the latter aspect in this case involving the perspective of interdependence – and consequently negation of excesses and occupation of space that does not belong to it – of the political-legislative power vis-à-vis the judicial power), of article 111, no. 1 (separation and interdependence of organs of sovereignty, which is also a material limit on revision – article 288, paragraph j), of the Constitution), and of article 203 (independence of courts, another material limit on revision – article 288, paragraph m), of the Constitution), all of the Constitution.

1.8.14. On this the aforementioned Constitutional Court judgment no. 267/2017, of 31 May 2017, which ruled unconstitutional the rule in question here, has already pronounced. And this judgment of unconstitutionality has already been reaffirmed in another case, in the Constitutional Court summary decision no. 11/2018, confirmed by Constitutional Court judgment no. 107/2018.

1.8.15. For the same reasons it is unconstitutional (i) the attribution by article 233 of the State Budget Law 2018 (Law no. 114/2017, of 29 December) of interpretative nature also to the addition to no. 21 of article 88 of the CIRC, of the normative segment "even though those deductions result from special legislation", introduced by the same State Budget Law 2018 (by its article 231), (ii) and consequent attribution of retroactive character to this new normative segment.

1.8.16. Subsidiarily, if it is understood that article 90 of the IRC Code does not apply to autonomous taxation, the illegality of the autonomous taxation assessment (and consequently its annulment) should then be declared due to the absence of legal basis for its implementation (see article 8, no. 2, paragraph a), of the General Tax Law, and article 103, no. 3, of the Constitution), with the consequent reimbursement of the same amount.

1.9. The position of the Respondent, expressed in its defence, can be summarized as follows:

1.9.1. That autonomous taxation although it is a collection in IRC is distinguished by the fact that it falls not on profits, but on expenses incurred by the taxpayer or by third parties with whom they have relations. Thus, in light of its teleology, autonomous taxation, as an anti-abuse fiscal instrument, would be emptied of any practical-tax content in the event the thesis defended by the Claimant were accepted.

1.9.2. That the legislator created autonomous taxation with the purpose of: a) combating tax evasion; b) the intention of taxing income of third parties whose income increase would otherwise be exempt from taxation; c) the penalization, by fiscal means, of payment of income deemed excessive in light of the economic crisis situation, of which traces still exist today. Now, to permit interpretative wanderings that would result in the admissibility of deduction of tax benefits (or special payment on account), as the Claimant seeks, inexorably amputates autonomous taxation in that which were the principles and purposes on which the legislator founded its creation.

1.9.3. Thus, the claims advanced rest on a construction without any legal support, relying on a forced attempt at interpretation abrogating the current regulation, terms in which the arguments wielded by the Claimant completely fail, and may, ultimately, constitute a violation of the principle of separation of powers.

1.9.4. That recently Constitutional Court judgment no. 197/2016, issued on 13 April 2016, in case no. 465/2015, regarding the rate applicable to expenses covered by no. 13 of article 88 of the CIRC, concluded that: "Autonomous taxation does not have any cumulative effect in relation to IRC and only applies to the expenses actually incurred and not to the business income subject to tax, and consequently it does not have the consequence that the appellant attributes to it of broadening the rate on the global taxation relating to the company's income. Indeed, autonomous taxation cannot be understood as an additional tax that the taxpayer should pay as IRC."

1.9.5. The State Budget for 2016 added number 21 to article 88 of the CIRC, attributing to it an interpretative character, where: "The assessment of autonomous taxation in IRC is carried out under the terms provided in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the overall amount determined." In light of the above, it should always be said that any doubts would be dispelled by that regulation. Indeed, regarding the interpretative effect conferred by article 135 contained in the State Budget Law for 2016, let us appeal to the good case law issued, among countless others, in arbitral cases nos. 722/2015 –T CAAD; 727/2015 – T CAAD; 785/2016 T CAAD and, as well, in the dissenting vote written by the distinguished Councillor Fernanda Maçãs in case no. 5/2016 T CAAD.

1.9.6. In sum, the legislator in adding no. 21 to article 88 of the CIRC merely adopted and reinforced the interpretative sense that already resulted from the existing rules. Given this, it results that the interpretative effect itself conferred by that Law would be, per se, unnecessary, since no other interpretation would be possible having in consideration the teleology and legal hermeneutics of the rules in question. What confers total legality, constitutionality and, above all, authenticity to that interpretative character.

1.9.7. It is also worth noting the equally unfounded argument that has been advanced (see Decision in case no. 740/2015-T) in the sense that the content of the expression contained in the SIFIDE II regulation approved by article 133 of Law no. 55-A/2010, of 31 December (no. 1 of article 4): "... amount of the IRC collection determined in accordance with paragraph a) of no. 1 of article 90 of the IRC Code and up to that extent...", only to the collection of IRC determined based on the taxable matter that originates from profit would mean making a restrictive interpretation of the rules on tax benefits and that article 10 of the Special Tax Benefits Statute does not explicitly provide for the possibility of restrictive interpretation. Well, even though article 10 of the Special Tax Benefits Statute admits extensive interpretation and prohibits analogy in the interpretation of rules on tax benefits, it does not prohibit recourse to restrictive interpretation and, for that very reason, in objectively justified situations its use is not excluded.

1.9.8. In this case, restrictive interpretation would even find support and full justification in the preservation of the objectives and philosophy underlying tax benefits for investment in general and SIFIDE in particular, given the perverse effects that can be achieved with the possibility of deducting tax credits to the collections of autonomous taxation in IRC.

1.9.9. Restrictive interpretation is permitted whenever there are weighty reasons for concluding that the sense and scope that would result from considering that the deductions referred to in no. 2 of article 90, which includes SIFIDE, could be made to the sum of collections of autonomous taxation, determined in accordance with paragraph a) of no. 1 of the same article, would betray the ratio legis or that it becomes necessary to reconcile the conflicting interests that two rules aim to protect.

1.9.10. It is reaffirmed that the rule (article 135 of Law no. 7-A/2016, of 30 March) that attributes interpretative character merely fixes an understanding that already had support in the letter and the ratio of the law and the rules regulating tax benefits have an exceptional nature and not a special nature.

1.9.11. On the other hand, the argument that the application of the provisions of no. 21 of article 88 to SIFIDE II would not be compatible with the constitutional principle of protection of legitimate expectations is equally to be set aside, to the extent that this fiscal benefit instrument aimed to incentivize IRC taxpayers to make investments in the period between 01-01-2011 and 31-12-2015, whereas the legislator merely adopted, by clarifying, an understanding that always had application by the generality of taxpayers and that was extracted from the existing legal provisions and that was only called into question as a result of some recent arbitral case law.

1.9.12. It is noted from the outset that the Respondent is aware of the existence of arbitral decisions, relating to SIFIDE, in which the panel considered the deduction of SIFIDE to the collection of Autonomous Taxation to be justified in that part. It is equally true, on the other hand, that there is no legal figure of judicial precedent in Portugal.

1.9.13. Saving due respect, the Respondent cannot conform to such a decision since it makes an interpretation and application of the legal rules subsumed to the case sub judice notoriously wrong. Above all, because such understanding derives from a skewed reading of the letter of the law and the interpretative character attributed to it by the State Budget Law for 2016, that is, no. 21 of article 88 of the CIRC.

1.9.14. It is reiterated that the taxation segments are distinct, although inserted in the same Code, and for that reason autonomous taxation is embedded in IRC, but does not merge with it, better, does not dissolve in its purposes. The understanding propounded by the Respondent merely reflects the purest interpretation of the law and its spirit, an interpretation that was always made by the Respondent and now incorporated in no. 21 of article 88 of the CIRC.

1.9.15. However, in light of the above, and to definitively resolve the divergent interpretations that have been made by the case law, Law no. 114/2017 of 29 December (State Budget for 2018), specifically its article 233, amended no. 21 of article 88 of the CIRC and provides that "The assessment of autonomous taxation in IRC is carried out under the terms provided in article 89 and is based on the values and rates resulting from the provisions of the preceding numbers, with no deductions being made to the overall amount determined, even though those deductions result from special legislation." Reaffirming the interpretative nature of that rule, in accordance with article 233 of the Law aforementioned.

1.9.16. As a subsidiary matter, the Claimant seeks the "illegality of autonomous taxation in its entirety (and its consequent annulment) due to the absence of legal basis for its implementation (…) with the consequent reimbursement of the same amounts. Now, in light of all the above, it becomes evident that the secondary claims advanced by the Claimant also completely fail.

1.10. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the LRAT.

The parties have procedural capacity and standing, demonstrate themselves to be legitimate and are regularly represented, in accordance with the provisions of articles 4 and 10, no. 2, of the LRAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

No exceptions requiring determination were raised.

The proceedings contain no defects.

Thus, there is no obstacle to determining the case.

Everything considered, it must be decided.

2. FACTS

2.1. Facts established as proven

The Claimant is a Holding Company (SGPS), incorporated on 28-03-2006, with the initial objective of aggregating in a new sub-holding company the set of holdings related to the development of the telecommunications service business in Portugal that comprised the Group previously known as C... . (see Document no. 6 attached to the request for arbitral pronouncement).

The Claimant, in 2015, was the dominant company of the so-called Fiscal Group B..., subject to the Special Taxation Regime for Groups of Companies (RETGS), provided for in articles 69 and following of the IRC Code (see Documents nos. 8, 9, 10, 11 and 12 attached to the request for arbitral pronouncement).

The Fiscal Group B... referred to in the previous paragraph was composed, in 2015, besides the Claimant itself in its capacity as dominant company, by the following companies:

D... S.A. – Tax ID...;

E..., S.A. – Tax ID... (whose corporate name at that date was F..., S.A.);

G... S.A. – Tax ID...;

H... SGPS, S.A. – Tax ID...;

I..., S.A. – Tax ID...;

J..., S.A. – Tax ID... (whose corporate name at that date was K..., S.A.);

L..., S.A. – Tax ID...;

M..., S.A. – Tax ID...;

N..., S.A. – Tax ID...;

O..., S.A. – Tax ID...;

P..., S.A. – Tax ID...;

Q…, S.A. – Tax ID… .

(see Documents nos. 1, 2, 3, 4 and 5 attached to the request for arbitral pronouncement)

The Claimant, on 30-05-2016, proceeded to file the income statement Model 22 of IRC, under no. ..., of its Fiscal Group for the fiscal year 2015, having proceeded to the self-assessment of autonomous taxation in IRC, in the amount of € 9,628,998.56 (see field 365 of table 10 of Statement Model 22 of IRC contained in Document no. 13 attached to the request for arbitral pronouncement);

The Claimant filed, on 02-10-2017, a statement of replacement of the income statement Model 22 of IRC, for the fiscal year 2015, under no. ..., which did not alter what is under discussion in the present arbitral proceedings (see Document no. 14 attached to the request for arbitral pronouncement).

Before the Tax Authority's computer system, it was not possible to deduct any of the amounts of fiscal benefits recognized to the companies in the Claimant's fiscal group, under SIFIDE, RFAI and CFEI, from the collection resulting from autonomous taxation in IRC;

According to the filed income statement, the Claimant, in fiscal year 2015, regarding the tax benefit called SIFIDE - System of Tax Incentives for Business Research and Development in table 073 of Annex D of Model 22 recorded the following amounts: € 14,057,263.59 – balance not deducted in prior period; € 3,401,741.10 – allocation of the period; € 0.00 – deduction of the period; - €17,459,004.60 – balance transferred to following period(s) (see Document no. 14 attached to the request for arbitral pronouncement);

According to the filed income statement, the Claimant, in fiscal year 2015, regarding the tax benefit called Fiscal Support Regime for Investment in table 074 of Annex D of Model 22 recorded the following amounts: € 14,799,229.09 – balance not deducted in prior period; € 0.00 – allocation of the period; € 0.00 – deduction of the period; € 14,799,229.09 – balance transferred to following period(s) (see Document no. 14 attached to the request for arbitral pronouncement);

According to the filed income statement, the Claimant, in fiscal year 2015, regarding the tax benefit called Extraordinary Tax Credit for Investment in table 076 of Annex D of Model 22 recorded the following amounts: € 2,788,461.47 – balance not deducted in prior period; € 0.00 – allocation of the period; € 0.00 – deduction of the period; - €2,788,461.47 – balance transferred to following period(s) (Document no. 14 attached to the request for arbitral pronouncement);

The amount of SIFIDE recognized to the companies in the Claimant's fiscal group available for use in fiscal year 2015 amounted to a total of € 14,541,345.18 (see Declarations of the SIFIDE Certifying Commission attached to the request for arbitral pronouncement as Document no. 17);

The amount of RFAI recognized to the companies in the Claimant's fiscal group available for use in fiscal year 2015 amounted to a total of € 14,684,086.42 (see Certification attached to the request for arbitral pronouncement as Document no. 18);

The amount of CFEI recognized to the companies in the Claimant's fiscal group available for use in fiscal year 2015 amounted to a total of € 2,788,461.47 (see Certification attached to the request for arbitral pronouncement as Document no. 20);

The companies making up the Claimant's fiscal group, which gave rise to SIFIDE, RFAI and CFEI fiscal benefits, were not then debtors to the State and Social Security for any taxes or contributions (see Certificates attached as Document no. 23 to the request for arbitral pronouncement).

The Claimant, on 31-05-2016 and 30-06-2016, paid respectively the sums of € 5,842,609.53 and € 75,366.43, referring to the self-assessment of IRC for fiscal year 2015 (see Document no. 30 attached to the request for arbitral pronouncement);

The Claimant, on 30-05-2018, filed an administrative appeal addressed to the Director of the Large Taxpayers Unit, which received no. ...2018..., to annul the self-assessment of IRC, relating to fiscal year 2015, for not accepting the impossibility of deducting SIFIDE, RFAI and CFEI from the IRC collection resulting from autonomous taxation.

The Claimant was notified, through an official communication from the Large Taxpayers Unit, of 23-09-2018, to exercise its right to prior hearing, in accordance with article 60, no. 1, paragraph b) of the General Tax Law, but did not do so;

The Claimant was notified, by official communication of 20-09-2018, of the decision dismissing the administrative appeal, identified in paragraph O) above, issued by the Director of the Central Service of the Large Taxpayers Unit, by delegation of authority, on 17-09-2018, set forth in Report no. .../2018 (See Document no. 15 attached to the request for arbitral pronouncement).

The Claimant, on 30-05-2018, filed an administrative appeal addressed to the Director of the Large Taxpayers Unit, which received no. ...2018..., to annul the self-assessment of IRC, relating to fiscal year 2015, for understanding that it should only have assessed autonomous taxation, in accordance with no. 14 of article 88 of the IRC Code, in the amount of €9,553,632.13;

The Claimant was notified, through an official communication from the Large Taxpayers Unit, of 31-07-2018, to exercise its right to prior hearing, in accordance with article 60, no. 1, paragraph b) of the General Tax Law, which was exercised by the Claimant on 13-08-2018;

The Claimant was notified, by official communication of 27-09-2018, of the decision partially granting the administrative appeal, identified in paragraph R) above, issued by the Head of Division of the Central Service of the Large Taxpayers Unit, by delegation of authority, on 24-09-2018, set forth in Report no. .../2018 (See Document no. 16 attached to the request for arbitral pronouncement).

As a result of the partial grant decision of the Claimant's administrative appeal, referred to in the preceding paragraph, in fiscal year 2015, from the total of autonomous taxation in IRC in the amount of € 9,628,998.56, the amount of € 408,675.60 is subtracted (see Document no. 16 attached to the request for arbitral pronouncement);

2.2. Facts established as not proven

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

2.3. Grounds for the established and not proven facts

Regarding the facts, it falls to the Tribunal to select the facts that matter for the decision and discriminate the established facts from the not established, not having to pronounce on everything that was alleged by the parties (see article 123, no. 2, of the Code of Tax and Procedural Process and article 607, no. 3, of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, paragraphs a) and e), of the LRAT).

In this way, the facts relevant to determining the case are chosen and selected based on their legal relevance, which is established taking into account the various plausible solutions of the legal questions raised (see article 596 of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, paragraph e), of the LRAT).

The Claimant indicated two witnesses in the request for arbitral pronouncement, although acknowledging that the matter at issue involves questions of law and, consequently, the means of proof of the facts invoked consist of the documents it attached (see nos. 233 and 234 of the request for arbitral pronouncement). Thus, the Arbitral Tribunal, on 05-04-2019, under the principles of the autonomy of the Arbitral Tribunal in conducting proceedings, expedition, simplification and procedural informality (articles 19, no. 2, and 29, no. 2, of the LRAT) dispensed with the production of witness evidence (see no. 1.7. above).

In these terms, having regard to the positions assumed by the parties, in light of article 110, no. 7, of the Code of Tax and Procedural Process, and the documentary evidence attached to the file, the facts set out above were considered proven, with relevance to the decision.

3. QUESTIONS OF LAW

3.1. Questions to be determined

The central question to be determined in the present arbitral proceedings is whether or not the Claimant has the right to proceed with the deduction from the IRC collection produced by the application of autonomous taxation rates of the tax benefits relating to SIFIDE, RFAI and CFEI.

In the event of a negative answer to the question described above, the question raised, on a subsidiary basis, by the Claimant of the alleged illegality of the autonomous taxation assessment due to the absence of legal basis for its implementation should be analyzed.

3.2. Application of law to the case sub judice

3.2.1. In analyzing the main question raised by the Claimant, it is necessary to begin by verifying whether the legal regime of autonomous taxation is compatible with the Claimant's claim, bearing in mind that the so-called autonomous taxation encompasses a vast and heterogeneous set of situations.

No. 3 of article 25 of Law no. 101/89, of 29 December, State Budget Law for 1990, granted legislative authorization to the Government, in the following terms: "The Government is authorized to assess autonomously in IRS or IRC, as the case may be, at an aggravated rate of 10% and without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the CIRC, confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized bookkeeping or by IRC taxpayers not covered under articles 8 and 9 of the respective Code"

Following this legislative authorization, autonomous taxation was created by article 4 of Decree-Law no. 192/90, of 9 June, with the following wording:

"Confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized bookkeeping or by IRC taxpayers not covered under articles 8 and 9 of the respective Code are assessed autonomously in IRS or IRC, as the case may be, at a rate of 10% without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the CIRC."

Through Law no. 30-G/2000 of 29 December, which was intended to reform income taxation and adopt measures aimed at combating tax evasion and fraud, article 69-A was added to the IRC Code under the heading "Autonomous taxation rate". Thus, only after ten years of the emergence of autonomous taxation did the legislator, through article 6 of the aforementioned Law no. 30-G/2000 of 29 December, decide to introduce article 69-A in the IRC Code, with the following content:

"1 - Confidential or undocumented expenses are assessed autonomously, at the rate of 50%, without prejudice to the provisions of paragraph h) of no. 1 of article 41.

2 - The rate referred to in the preceding number is raised to 70% in cases where such expenses are incurred by taxpayers totally or partially exempt, or who do not carry out, as a main activity, commercial, industrial or agricultural activities.

3 - The following are assessed autonomously, at the rate corresponding to 20% of the highest normal rate, representation expenses and charges related to light passenger vehicles, pleasure boats, private aircraft, motorcycles and mopeds, incurred or borne by taxpayers not exempt and who carry out, as a main activity, commercial, industrial or agricultural activities.

4 - Charges related to light passenger vehicles, pleasure boats, private aircraft, motorcycles and mopeds are understood to include, in particular, depreciation, rents or leases, insurance, maintenance and conservation expenses, fuels and taxes on their possession or use.

5 - Excluded from the provisions of no. 3 are the charges related to light passenger vehicles, pleasure boats, private aircraft, motorcycles and mopeds, assigned to the operation of public transport service, intended to be rented in the course of the taxpayer's normal activity, as well as depreciation related to vehicles for which the agreement provided for in no. 8 of paragraph c) of no. 3 of article 2 of the IRS Code has been entered into.

6 - Representation expenses are understood to include, in particular, the charges incurred with receptions, meals, trips, outings and entertainment offered in the country or abroad to customers or suppliers or to any other persons or entities.

7 - Subject to the regime of nos. 1 or 2, as the case may be, the rates applicable being, respectively, 35% or 55%, are the expenses corresponding to sums paid or due, under any title, to natural or legal persons resident outside Portuguese territory and subject there to a clearly more favorable tax regime, as defined in accordance with the Code, unless the taxpayer can prove that such charges correspond to transactions actually carried out and do not have an abnormal character or an exaggerated amount.

8 - Excluded from the provisions of no. 3 are the taxpayers to whom the regime provided for in article 46-A applies."

As RUI MORAIS aptly notes, it is difficult to discern the nature of this form of taxation and, even more, the reason why it was placed by the legislator in the codes of taxes on income (see Notes on IRC, Almedina, 2007, pp. 203).

The express consecration of "autonomous taxation rate" in the IRC Code does not necessarily imply identity of nature between autonomous taxation and IRC. Indeed, the fact that autonomous taxation is inserted in the IRC Code does not mean that the two realities cease to be different. Systematic insertion does not erase material differences.

The introduction of the autonomous taxation mechanism relates to expenses that are in a zone susceptible to confluence between the private sphere and the business sphere and aims to prevent that, through those expenses, businesses proceed to hidden distribution of profits or attribute income that may not be taxed in the sphere of the respective beneficiaries, and also aims to combat fraud and tax evasion.

In this regard, the Constitutional Court in judgment no. 310/12, of 20 June states that "(…) contrary to what happens in the taxation of income under IRS and IRC, in which the aggregate of income obtained in a given year is taxed (which means that only at the end of that year can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case each expense made is taxed, considered in itself, and subject to a certain rate, and autonomous taxation is determined independently of the IRC that is due in each fiscal year, for not being directly related to the obtaining of a positive result, and therefore liable to taxation. Thus, and in the case of IRC, we are facing an annual tax, in which each income received is not taxed per se, but rather the aggregate of all income obtained in a given year is taxed, the law considering that the taxable event occurs on the last day of the tax period (see article 8, no. 9, of the CIRC). However, with regard to autonomous taxation in IRC, the taxable event is the very performance of the expense, not being a complex fact, of successive formation over a year, but rather an instantaneous fiscal fact" And adds "(…) this characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose taxable event is produced in a successive manner, by the passage of a certain period of time, usually annual, and tends to repeat over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single-obligation taxes (whose taxable event is produced in an instantaneous manner, appears isolated in time, generating on the taxpayer an obligation to pay with an occasional character). In autonomous taxation, the fiscal fact that gives rise to the tax is instantaneous: it is exhausted in the act of performing a certain expense that is subject to taxation (although the determination of the amount of tax resulting from the application of the various autonomous taxation rates to the various acts of expense performance considered, will be effected at the end of a certain tax period). But the fact that the determination of the tax is effected at the end of a certain period does not transform it into a periodic tax, of successive formation or of permanent character. That operation of determination merely translates into the aggregation, for the purpose of collection, of the set of operations subject to that autonomous taxation, to which the rate is applied to each expense, with no influence of the volume of expenses incurred on the determination of the rate". (available at: www.tribunalconstitucional.pt/tc/acordaos)

This case law was reiterated in the Judgment of the Plenary no. 617/2012 (case no. 150/12, of 31 January 2013) and in judgment no. 197/2016 (case no. 465/2015, of 23 May 2016).

In this latter judgment it is stated: "IRC applies to income obtained and profits directly attributable to the exercise of a certain economic activity, by reference to the annual period, and therefore taxes the aggregate of all income obtained in the tax period. By contrast, in autonomous taxation in IRC – according to constitutional case law itself -, the taxable event is the very performance of the expense, characterized as an instantaneous fiscal fact that appears isolated in time and generates an obligation of payment with an occasional character. For this reason it is understood that we are dealing with a single-obligation tax, as opposed to periodic taxes, whose taxable event occurs in a successive manner over time, generating the obligation to pay tax on a regular basis (judgment of the Constitutional Court no. 310/2012). As can be concluded, autonomous taxation, although provided for in the CIRC and assessed together with IRC for purposes of collection, has nothing to do with the taxation of income and profits attributable to the exercise of the company's economic activity, since they apply to certain expenses that constitute autonomous fiscal facts that the legislator, for reasons of fiscal policy, wanted to assess separately by subjecting them to a predetermined rate that has no relationship with the company's turnover (judgment of the Administrative Supreme Court of 12 April 2012, Case no. 77/12)." (Judgment of the Constitutional Court no. 197/2016, of 13 April 2016, issued in case no. 465/2015: available at: www.tribunalconstitucional.pt/tc/acordaos)

Also, the case law of the Administrative Supreme Court considered that "(…) under the designation of autonomous taxation are hidden very diverse realities, including, under the terms of no. 1 of (then) article 81 of the CIRC, confidential or undocumented expenses, which are assessed autonomously, at the rate of 50%, which will be raised to 70%, in cases of expenses incurred by taxpayers totally or partially exempt, or who do not carry out, as a main activity, commercial, industrial or agricultural activities (no. 2 of [then] article 81) and which are not considered as a cost in calculating taxable income in IRC. It should be noted, however, that already representation expenses and those related to light passenger vehicles, under the provisions of (then) article 81 no. 3 of the CIRC and allowances are assigned to business activity and necessary for which reason they are fiscally accepted in some cases even if within certain limits" (See Judgment of 21-03-2012 (2nd section) case no. 830/11).

It is important to note that legal scholarship emphasized the function of autonomous taxation in discouraging certain practices and penalizing certain behaviors of presumptively evasive taxpayers. Indeed, SALDANHA SANCHES stated, "(…) in this type of taxation, the legislator seeks to address the admittedly difficult question of the fiscal regime for expenses that are in the zone of intersection between the personal sphere and the business sphere, so as to prevent remuneration in kind more attractive for fiscal reasons only or hidden distribution of profits. The rule presents a characteristic similar to what we will find in the sanction of law against undocumented costs, with a rate increase when the situation of the taxpayer does not correspond to a situation of fiscal normality." (see Manual of Fiscal Law, 3rd ed., Coimbra Publisher, 2007, p. 406).

Already CASALTA NABAIS notes that, "(…) this is a taxation that is explained by the need to prevent and avoid that, through those expenses, businesses proceed to hidden distribution of profits, especially of dividends that would thus be subject to IRC as profits of the company, as well as combat the fraud and tax evasion that such expenses cause " (See Fiscal Law, 6th ed., p. 614).

As can be verified, the case law of the Constitutional Court and the Administrative Supreme Court and legal scholarship have adopted the position of materially distinguishing autonomous taxation from IRC taxation, despite being normatively regulated in the same place.

The same position has been followed by numerous Arbitral Decisions, without prejudice to the recognition that there is also vast case law of CAAD in the opposite sense.

In this regard, the present Arbitral Tribunal endorses the position expressed in Arbitral Decision no. 111/2018-T, of 10 January 2019, in stating:

"In IRC the aim is taxation of income under scrutiny of taxpaying capacity.

Autonomous taxation, by contrast, had, at least originally, two very different objectives always under the legitimization of the principle of tax equality.

The first was to tax in the business sphere what could not be taxed under IRS and the second was to discourage the performance of certain expenses or certain behaviors. In this regard, Professor Saldanha Sanches even stated that "In this type of taxation, the legislator seeks to address the admittedly difficult question of the fiscal regime that is in the zone of intersection between the personal sphere and the business sphere" further adding that in the "''(...) designation of 'autonomous taxation' hide very diverse realities (...)'''" (Manual of Fiscal Law, 3rd edition (2007), Coimbra Publisher, p. 406/7). Professor Guilherme de Oliveira Martins states that autonomous taxation "(…) essentially performs two functions: on the one hand, to prevent erosion of the tax base in IRC, by imposing taxation on charges that can be deducted by IRC taxpayers, but which, if deducted, transform themselves into an increase in taxation, thus intending to serve as a deterrent to spending on such charges; other types of autonomous taxation aim, purely and simply, to penalize behaviors presumptively evasive or fraudulent of taxpayers, embodying an anti-abuse mechanism.".

In this sense, the arbitral decision issued by the panel presided over by Councillor Carlos Alberto Cadilha under case no. 641/2017-T: "the autonomous taxation rates have the nature of anti-abuse rules and are intended to discourage certain special situations aimed at obtaining a reduction in the fiscal burden by deducting costs that are presumed not to be determined by a business cause".

Autonomous taxation targets only certain expenses typified in fiscal law, and not the taxation of business income that has been earned in the respective economic year, they thus aim to tax an advantage obtained, usually via the performance of these expenses and which consequently results in the decrease of taxable profit. IRC, for its part, aims to tax the actual income of the taxpayer having regard to their taxpaying capacity.

It is to be remembered that it is unanimously accepted both by case law and by legal scholarship that the autonomous taxation rates of IRC (and IRS) are a tax of single obligation distinct from IRC and IRS themselves, taxes of successive formation. It is also to be remembered that the autonomy of autonomous taxation rates results from their possessing a taxable event radically distinct from IRS/IRC, from obeying their own liquidation rules and from serving very specific purposes.

The legislator has been expanding the scope of autonomous taxation, having come to include charges relating to indemnifications paid to managers, administrators or partners when they cease functions, and also charges relating to bonuses and other variable remuneration paid to managers, administrators or partners when these exceed certain thresholds. What is shown to be justified as a way to ensure "a more just distribution of tax charges and a gradual moralization of the remuneration policies of companies".

Indeed, the purposes of autonomous taxation are today varied, but, in what they have of most importance, it is insisted, they serve to guarantee tax equality by ensuring the subjection to tax of values that, being expense in the business sphere, prefigure income in the sphere of third parties and preventing abusive planning by resort to tax havens. These objectives are of paramount importance to guarantee the fair distribution of income and wealth that article 103, no. 1, CRP appeals to."

3.2.2. It is now important to verify whether, faced with the legal framework applicable to fiscal year 2015, it was possible or not to make deductions in the calculation of autonomous taxation.

For purposes of legal framework, it is necessary to have regard to the provisions of articles 89 and 90 of the IRC Code which, in the wording given to them by Law no. 2/2014, of 16 January, in force in 2015, established the following:

"Article 89

Competence for assessment

IRC is assessed:

a) By the taxpayer themselves, in the statements referred to in articles 120 and 122;

b) By the Tax and Customs Authority, in other cases.

Article 90

Procedure and form of assessment

1 - The assessment of IRC is carried out as follows:

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

b) In case of failure to file the statement referred to in article 120, the assessment is made by 30 November of the year following that to which it relates or, in the case provided for in no. 2 of that article, by the end of the 6th month following the end of the deadline for filing the statement mentioned there and is based on the annual amount of minimum monthly remuneration or, when higher, the full taxable matter of the closest fiscal year that is determined;

c) In case of failure to assess in accordance with the preceding paragraphs, the same is based on the elements available to the fiscal administration.

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

a) That corresponding to international legal double taxation;

b) That corresponding to international economic double taxation;

c) That relating to tax benefits;

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

e) That relating to withholdings at source not susceptible to offset or reimbursement under the applicable legislation.

3 – (Repealed)

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

5 - The deductions referred to in no. 2 with respect to entities to which the tax transparency regime established in article 6 is applicable are imputed to the respective partners or members in accordance with the terms established in no. 3 of that article and deducted from the amount determined based on taxable matter that took into account the imputation provided for in the same article.

6 - When the special taxation regime for groups of companies applies, the deductions referred to in no. 2 relating to each of the companies are made in the amount determined with respect to the group, in accordance with no. 1.

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

8 - With respect to taxpayers covered by the simplified regime for determining taxable matter, to the amount determined in accordance with no. 1 only the deductions provided for in paragraphs a) and e) of no. 2 are to be made.

9 - From the deductions made in accordance with paragraphs a) to d) of no. 2 no negative value can result.

10 - To the amount determined in accordance with paragraphs b) and c) of no. 1 only the deductions of which the fiscal administration is aware and which can be made in accordance with nos. 2 to 4 are made.

11 - In cases where the provisions of paragraph b) of no. 2 of article 79 are applicable, annual assessments are made based on taxable matter determined with provisional character, and, in light of the assessment corresponding to taxable matter for the entire assessment period, the difference determined is collected or canceled.

12 - The assessment provided for in no. 1 can be corrected, if appropriate, within the period referred to in article 101, collecting or canceling the differences determined"

Thus, articles 89 and 90, no. 1, of the IRC Code converge the assessment of two forms of taxation relating to the same tax, but distinct, namely, traditional IRC, or stricto sensu, and autonomous taxation. As Arbitral Decision no. 174/2016-T, of 19 November 2016 very well notes "(…) the complexity generated by successive changes in the architecture of the CIRC led (...) to an atypical normative building, in which one could discern a core corresponding to what one could call IRC tout court (or in the strict sense), which the Claimant wants to be all that is designated as IRC, and a periphery that integrates "marginal" regulations, largely subtracted from the logic, nature and principles of IRC tout court, but which, nonetheless, still situate themselves in the "gravitational field" of that."

Due to the systematic insertion and functional link to IRC, autonomous taxation is collected in the course of the assessment of this tax without, however, losing its character and losing its own dogmatic root. Thus, autonomous taxation, which applies to certain expenses, operates differently from what constitutes the scope of IRC by taxing income.

Consequently, deduction from the collection is a reality inherent to IRC as a tax shaped by the principles of taxpaying capacity and taxation of actual income. This is not the case, however, with respect to the collection due by autonomous taxation, indeed the deduction of such charges, if it occurred, was susceptible to eliminating the anti-abuse sense that characterizes it (see 3.2.1. above).

In the view of this Tribunal, no. 1 of article 90, which encases the assessment procedure, applies both to IRC and to autonomous taxation. The fact that the assessment procedure provided for in no. 1 of article 90 of the CIRC applies also to autonomous taxation does not directly and necessarily imply that the same occurs with no. 2 of that article 90.

Now, the common feature to all the realities reflected in the deductions referred to in no. 2 of article 90 of the IRC Code resides in the fact that they relate to income or expenses incorporated in taxable matter determined based on the taxpayer's profit or advance payments of tax, and are therefore entirely unrelated to the realities that integrate the taxable facts of autonomous taxation. Indeed, no. 2 of article 90 – which encases the form of assessment – reports only to cases of taxable matter referred to in article 15 of the IRC Code, that is, to IRC.

In sum, for this Tribunal it appears that in the calculation of autonomous taxation no deductions are possible, and its respective assessment is effected in accordance with articles 89 and no. 1 of article 90 of the IRC Code. The legislator in no. 2 of article 90 of the IRC Code refers only to taxable matter contained in article 15 of the CIRC. Thus, and concluding here, it cannot be, it is believed, following the solution to obtain for the question to be determined, obliterate that, notwithstanding they do indeed converge in the form of assessment regulated in articles 89 and 90/1 of the applicable CIRC, autonomous taxation and IRC stricto sensu (or traditional), come from upstream, from profoundly distinct geographies, a fact that cannot but be duly weighed and taken into account.

3.2.3. It is now important to analyze whether the investment support regimes of SIFIDE, RFAI and CFEI, of which the Claimant is a beneficiary, and which are implemented in deductions from the collection of IRC, relate to or not to the collection of IRC stricto sensu, that is, for whose determination autonomous taxation does not concur.

In terms of framework, it should first be noted the following:

SIFIDE was created by Law no. 40/2005, of 3 August, to apply in the years 2006 to 2010. It was subject to amendment by Law no. 10/2009, of 10 March, and renewed to apply until 2015, with the designation of SIFIDE II, through article 133 of Law no. 55-A/2010, of 31 December. It was again amended by articles 163 and 164 of Law no. 64-B/2011, of 30 December. With the approval of the Fiscal Code of Investment, through Decree-Law no. 82/2013, of 17 June, SIFIDEI came to appear in its articles 35 to 42. Its validity was extended until 2020 through amendments contained in articles 211 and 212 of Law no. 83-C/2013, of 31 December.

RFAI was created by Law no. 10/2009, of 10 March, to apply in 2009, having its validity successively extended until 31 December 2013 by the respective Budget Laws (article 116 of Law no. 3-B/2010, of 28 April, article 134 of Law no. 55-A/2010, of 31 December, article 162 of Law no. 64-B/2011, of 30 December and article 232 of Law no. 66-B/2012, of 31 December). Like SIFIDE it came to appear in the Fiscal Code of Investment in articles 23 to 26.

CFEI was approved by Law no. 49/2013 of 16 July.

The Arbitral Tribunal endorses the position adopted by Arbitral Decision no. 111/2018-T, of 10 January 2019, when it states: "(…) the legislator of the SIFIDE regime, in making this express reference to the amount determined in accordance with article 90 of the IRC Code, is referring to the proper IRC collection for whose determination autonomous taxation does not concur precisely because they do not enter into the determination either of taxable profit, or of taxable matter, and, as a consequence, do not concur for the IRC assessed.

It is perceptible that, although the SIFIDE article refers to article 90 as a whole refers to the amount determined in accordance with no. 2 of article 90, and this only applies, as is already known, to IRC.

The deduction relating to tax benefits (paragraph c) of no. 2 of article 90), when it comes to investment benefits - as is the case with SIFIDE -, has underlying the philosophy that the benefit constitutes a prize whose amplitude varies with the profitability of investments, since the higher the profit/taxable matter of IRC the greater will be the capacity to make the deduction. And this is the logic of the SIFIDE fiscal benefit that justifies and legitimates the derogation to the principle of tax equality.

Thus, there is no conceptual error nor any contradiction between what has just been exposed and the fact that the SIFIDE regime establishes that the same are implemented in deductions from collections determined in accordance with article 90 of the IRC Code, that is, from IRC. It is because in the view of this tribunal both autonomous taxation and IRC are assessed in accordance with no. 1 of article 90 of the IRC Code. However of the two realities the only one that is susceptible to deduction from the collection – that is to implementation of the benefit is, both for literal reasons (because no. 2 of article 90 applies solely to IRC) and for material reasons (the benefit is only effectuated if there is profit so as to reward the profitability of the investment), is the collection of IRC that as we have seen is different and distinct from autonomous taxation. The result of autonomous taxation, determined in an autonomous/independent/separate manner, does not concur for the IRC collection, on the contrary, it must accrue to the assessed IRC for purposes of determining the value to be paid or recovered, which embodies a very different result. Note in this regard that autonomous taxation (aggravated) is immediately due in the case of taxpayers presenting fiscal losses."

And the cited Arbitral Decision continues: "(…) the Tribunal performs not a restrictive interpretation of article 4 of SIFIDE II but only a teleological and systematic interpretation of the provisions both of SIFIDE and of the IRC Code so as to save the regime from the constitutional conformity test, specifically regarding the violation of the principle of tax equality. For we can never forget that the rules that discipline benefits like SIFIDE possess an exceptional nature and can only be recognized as valid when the derogation they bring to the principle of equality is necessary, adequate and proportionate to the extra-fiscal purpose underlying them.

It is not worth, therefore, getting into the discussion, as it is irrelevant, of whether or not we are dealing with a fiscal benefit whose justification is legislatively considered more relevant than the obtaining of fiscal revenues. Of course yes, otherwise the SIFIDE regime would not have been approved. The question is that of knowing what fiscal revenue was ceded in function of investment? Revenues stemming from a tax that admits deductions and that obeys the principle of taxpaying capacity and that rewards who invests, but who generates tax admitting that who obtains more profit can invest more. Or what was intended (and admitted) was to cede revenue stemming from a tax on spending that under the aegis of the principle of tax equality obliges whoever has deviant behaviors – like payment with allowances or representation expenses, or even payments to entities resident in tax havens – to stop paying that tax by virtue of having investment expenses?

There are no doubts that it was the first.

That much so that the amendment introduced by the State Budget Law for 2018 amended the wording of article 88 of the IRC Code in the sense that no deductions are made to the amount due for autonomous taxation even if these derive from special legislation like SIFIDE. Now, even without resorting to the interpretative character given by the legislator again to no. 21 of article 88 of the IRC Code it is clear that the legislator – which it should be recalled, is always the same, the National Assembly –, wanted to clarify what anyway already resulted from the law.

And until here, if there were no sign, neither in Law no. 7-A/2016, nor in the Budget Report for 2016, nor in its discussion, that with the addition to article 88 of the CIRC of a general rule prohibiting deductions to the overall amount determined for autonomous taxation, it was intended to restrictively interpret the expression «deduct to the amount determined in accordance with article 90 of the IRC Code» that appears in a special rule of an individual statute, like SIFIDE II, it is now clear with the new wording of no. 21 of the article that no deductions are permitted to the collection of autonomous taxation even if these derive from special legislation.

In the thesis that this Tribunal supports, the legislator, in adding this no. 21 to article 88 of the CIRC, with the content mentioned, merely adopted and reinforced the interpretative sense that already resulted from the existing rules."

This Tribunal understands that with regard to the question of the deductibility of investment expenses provided for in CFEI and RFAI the understanding that was left exposed with respect to SIFIDE applies, with no reasons that justify a different position.

Having regard to the reasons underlying the existence of autonomous taxation it is hardly admissible to deduct fiscal benefits from autonomous taxation collection, under penalty of violation of the principle of tax equality.

Indeed, having the regime of autonomous taxation a function of discouraging behaviors presumptively evasive, this Tribunal finds no justifying reason for this discouragement to vanish in favor of a fiscal benefit. It would be to admit that tax credits resulting from fiscal benefit could neutralize the deterrent effect of certain behaviors presumptively evasive of autonomous taxation, distorting the very concept of fiscal benefit and the principles of taxpaying capacity and just distribution of the fiscal burden.

It is concluded, in light of all that has been expounded, that the main arbitral claim should fail.

3.2.4. As a subsidiary claim, the Claimant requests that the self-assessment relating to the tax period 2015 be annulled, in the part corresponding to autonomous taxation, for the reason that the same were assessed and collected without legal basis for the purpose, if it is understood that their assessment has no framework in the norm for assessment of IRC enshrined in article 90 of the IRC Code, since in that case these were assessed and collected without legal basis for the purpose (article 8, no. 2, paragraph a), of the General Tax Law, article 103, no. 3, of the CRP).

Now, as appears from the above exposition, this Tribunal understands that the assessment of autonomous taxation occurred based on no. 1 of article 90 of the applicable IRC Code, so that there manifestly existed legal basis for the purpose, and therefore this subsidiary claim also fails, and no violation of the provisions of article 103, no. 3, of the CRP is verified.

3.2.5. Thus, for the reasons expounded, this Tribunal denies relief to the arbitral claim of declaration of illegality of the IRC self-assessment, relating to fiscal year 2015, in the part produced by autonomous taxation, and maintains the dismissal of the administrative appeal now being challenged.

The arbitral claim of declaration of illegality of the challenged IRC self-assessment for fiscal year 2015 failing, the claim made by the Claimant regarding the return of the amounts paid is equally moot.

Although the Respondent in its Defence contests the right to compensatory interest on the part of the Claimant (see no. 115 to 121 of the Defence), it appears that the Claimant did not make a specific request regarding compensatory interest, however that alleged claim would always be rendered moot by the failure of the main claim.

4. DECISION

For these reasons, it is decided in this Arbitral Tribunal:

a) To judge as unfounded the claim for arbitral pronouncement of declaration of illegality of the IRC self-assessment, relating to fiscal year 2015, as regards the possibility of deducting tax benefits relating to SIFIDE, RFAI and CFEI from autonomous taxation collection;

b) To maintain the decision dismissing the