Summary
Full Decision
ARBITRAL DECISION
Agree in Arbitral Tribunal
I – Report
1. A..., S.A., collective person no...., with registered office at..., ..., ... ... - ... ..., parent company of Fiscal Group B..., subject to the Special Regime for the Taxation of Groups of Companies, filed a request for the constitution of an arbitral tribunal, under the terms of article 2, no. 1, letter a), and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to assess the legality of the partial dismissal of the request for official review made against the corporate income tax self-assessment act, relating to the year 2010, in the amount of € 634,397.82, insofar as it does not admit the deduction from the corporate income tax collection produced by the autonomous taxation rates of fiscal benefits assessed within the scope of the System of Tax Incentives for Research and Business Development (SIFIDE) and special payments on account (PEC), also requesting the condemnation of the Tax Authority to the payment of compensatory interest.
The Applicant bases its request on the following grounds.
The Applicant is the parent company of Fiscal Group B..., which is subject to the special regime for the taxation of groups of companies provided for in articles 69 et seq. of the Corporate Income Tax Code, and in that capacity filed the aggregate corporate income tax declaration (form 22) for the year 2010, having proceeded to self-assess the autonomous taxation of that same year in the amount of € 694,826.54.
In the self-assessment, it was prevented from deducting the amounts of fiscal benefits recognized to the companies of the fiscal group under the system of fiscal incentives designated as SIFIDE, which amounted to € 278,652.75, as well as the accumulated amounts of PEC which amounted to € 355,745.07, and which corresponded to tax credits in an amount exceeding the collection of autonomous taxation.
The Applicant also had the necessary requirements to deduct the fiscal benefits, insofar as taxable income was not determined through indirect methods and its tax and contributory situation was regularized.
Furthermore, the corporate income tax collection provided for in article 45, no. 1, letter a), of the Corporate Income Tax Code comprises the collection of autonomous taxation in corporate income tax, being subject, as such, to the method of determination provided for in article 90 of that Code, whereby it was necessary to make, in relation to the amount determined, the deductions relating to fiscal benefits and special payment on account in accordance with letters b) and c) of no. 2 of that provision, in the version then in force.
Similarly, the Applicant could deduct from the corporate income tax collection resulting from autonomous taxation the amounts disbursed as special payments on account since these are tax credits that could allow the compensation of the tax due.
The stipulation in no. 12 of article 88 of the Corporate Income Tax Code, which only allows source tax withheld to be deducted from the part of the corporate income tax collection produced by no. 11 of article 88 of the Corporate Income Tax Code, is not relevant.
The Applicant further states that the provision of article 88, no. 21, of the Corporate Income Tax Code, in the version introduced by article 134 of Law no. 7-A/2016, of 30 March, has an innovative nature, despite its express qualification as an interpretative provision, becoming inapplicable to the situation of the present case by effect of the principle of prohibition of retroactivity of tax law and by violation of the principle of separation of powers and interdependence of organs of sovereignty and the principle of independence of the judicial power.
And should it be understood that article 90 of the Corporate Income Tax Code does not apply to autonomous taxation, the illegality of the autonomous taxation assessment should then be declared due to absence of legal basis for its implementation, in light of the provisions of articles 8, no. 2, letter a), of the General Tax Law and 103, no. 3, of the Constitution.
Consequently, it requests the declaration of illegality of the decision to partially dismiss the request for official review, as well as of the self-assessment of corporate income tax, relating to the year 2010, for the vice of violation of law, insofar as it prevents the deduction of fiscal benefits and special payments on account from the part of the corporate income tax collection corresponding to autonomous taxation rates, and, subsidiarily, the declaration of illegality of the autonomous taxation assessment due to absence of legal basis.
The Tax Authority, in its reply, invokes the exception of incompetence of the tribunal to assess decisions dismissing requests for official review, by considering that the binding to arbitral jurisdiction, under the terms of article 2, no. 1, letter a), of Ordinance 112-A/2011, of 22 March, is limited to the "declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Tax Code of Procedure and Process".
On the matter of impugnation, the Respondent maintains that the inclusion of autonomous taxation in the Corporate Income Tax Code, by its nature and purpose, has as its logical corollary the application of the general provisions specific to that tax which do not conflict with its special form of incidence, conferring a dualistic nature to the normative system of the tax which is embodied in the separate determination of the respective collections in accordance with different rules.
There being thus two distinct calculations, which, although processed in accordance with letter a) of no. 1 of article 90, are made on the basis of the application of different rates to their respective taxable amounts which are determined equally in accordance with specific rules.
The assessment of corporate income tax operates through the application of the rates of article 87 to the taxable amount determined in accordance with chapter III of the Code, whereas in relation to the assessment of autonomous taxation various collections are determined 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, being consequently unable to speak of a unitary system of corporate income taxation.
And in that sense the "amount determined in accordance with the preceding number", to which no. 2 of article 90 of the Corporate Income Tax Code refers, should be understood as comprising the sum of the amount of corporate income tax determined 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 fiscal benefits from the collection resulting from autonomous taxation would have a contradictory effect, allowing that the achievement of fiscal incentive objectives would come to eliminate autonomous taxation in relation to expenses that the legislator intended to discourage.
Similarly, for the basis of calculation of payments on account, defined in article 105, no. 1, of the Corporate Income Tax Code, only the corporate income tax determined by the taxable amount determined according to the rules of chapter III and the rates of article 87 is considered, which is identified with the profit/income of the taxpayer.
Being that the legal nature of special payment on account, as an instrument or guarantee of payment of the tax with a function associated with combating tax evasion and fraud, excludes that the sums delivered for that purpose may be assigned to the extinguishing of the debt resulting from autonomous taxation.
It adds that any interpretation that does not apply the provision contained in the State Budget Law for 2016 which added no. 21 to article 88 of the Corporate Income Tax Code, materially unconstitutional, by violation of the principle of legality, the principle of separation of powers, the principle of protection of legitimate expectations and the principle of equality, in its positive formulation of contributory capacity.
It concludes in the sense of the procedural exception of incompetence of the arbitral tribunal being upheld and the dismissal of the arbitral request.
2. In the course of the proceedings, the meeting referred to in article 18 of the Rules of Arbitral Procedure was dispensed with, as well as the production of witness evidence.
In submissions, the Applicant replied to the matter of exception and developed the arguments set out in the arbitral request. The Tax Authority, by considering there to be no new facts, reiterated its previous position.
3. The request for the constitution of the arbitral tribunal was accepted by the President of the Central Administrative Arbitration Center and notified to the Tax and Customs Authority in accordance with regulatory terms.
In accordance with the provisions of letter a) of no. 2 of article 6 and letter b) of no. 1 of article 11 of the Rules of Arbitral Procedure, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable time limit.
The parties were duly and timely notified of that designation and did not express any objection to it, in accordance with the combined provisions of article 11, no. 1, letters a) and b), of the Rules of Arbitral Procedure and articles 6 and 7 of the Code of Ethics.
Thus, in conformity with the provision of letter c) of no. 1 of article 11 of the Rules of Arbitral Procedure, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 28 February 2019.
The arbitral tribunal was regularly constituted.
The parties possess judicial personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and the procedural exception of incompetence of the arbitral tribunal was raised.
It is for us to assess and decide.
II – Reasoning
4. The factual matter relevant to the decision of the case is as follows:
a) The "Fiscal Group B..." composed of C..., S.A. (now designated D..., S.A.), E..., S.A., F..., S.A., G..., S.A. (now designated H..., S.A., I..., S.A. (now designated J..., S.A.), K..., S.A., is subject to the Special Regime for the Taxation of Groups of Companies;
b) In its capacity as parent company of Fiscal Group B..., the Applicant filed an aggregate corporate income tax declaration Form 22 for the year 2010, proceeding to self-assess autonomous taxation of that same year in the global amount of € 694,826.54;
c) The computer system did not allow the deduction from the corporate income tax collection of the amounts of fiscal benefits recognized to the companies of the fiscal group under the System of Tax Incentives for Research and Business Development (SIFIDE), with reference to the fiscal year 2010, in the amount of € 278,652.75, as well as the accumulated amounts of special payments on account, in the amount of € 424,306.00;
d) The Applicant filed a request for official review with respect to the self-assessment of autonomous taxation of the said year 2010, which was dismissed, by order of 20 September 2018 of the Deputy Director-General, under subdelegation of authority;
e) The decision to dismiss the request for official review was based on the non-deductibility of any amounts from the collection produced by autonomous taxation as it was contrary to the spirit of the system that, by force of the deductions referred to in article 90, no. 2, of the Income Tax Code, would eliminate the anti-abusive character that presided over the implementation of these taxation rates.
The Tribunal formed its conviction as to the factual matters proved on the basis of the documents attached to the petition and in the administrative proceedings attached by the Tax Authority.
Matter of Law
Incompetence of the arbitral tribunal
5. The Tax Authority raises the issue of material incompetence of the arbitral tribunal by considering that the decisions to dismiss requests for official review are excluded from the scope of tax arbitration.
At issue is the interpretation of the provision in article 2, no. 1, letter a), of Ordinance 112-A/2011, of 22 March, a regulation which, in application of article 4 of the Legal Framework of Tax Arbitration, regulates the scope of binding of the tax administration to the arbitral tribunals operating in the Central Administrative Arbitration Center. Under that provision, the services and bodies that make up the Tax Administration are bound to arbitral jurisdiction with respect to any of the types of claims identified in no. 1 of article 2 of that Framework, with the exception of those relating to the "declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Tax Code of Procedure and Process".
In the view of the Respondent, the recourse to the administrative route referred to in the regulatory provision only covers any of the means of administrative impugnation that are specifically provided for in the mentioned provisions of the Tax Code of Procedure and Process, to which the procedures of official review cannot be equated. And, in that sense, referring to the said provision of article 131 of the Tax Code of Procedure and Process to the necessary administrative impugnation of self-assessment acts, in the form of a gracious claim, the assessment of litigation resulting from the partial dismissal of a request for official review is not covered by tax arbitration.
The Tax Authority also qualifies as unconstitutional, by violation of the principles of the Rule of Law and separation of powers, as well as of the right of access to justice and legality, as a corollary the principle of indisponibility of tax credits, an extensive interpretation that expands the binding of the Tax Authority to arbitral jurisdiction beyond the cases legally provided for.
The question under analysis was already settled in the negative by widely majority case law of arbitral tribunals (among many, the ruling of 22 February 2016, Case no. 617/2015-T), which came to be endorsed by the ruling of 27 April 2017 of the Central Administrative Court of the South (Case no. 08599/17), and there is no reason to alter that understanding.
According to the provision in article 2, no. 1, of the Legal Framework of Tax Arbitration, the competence of arbitral tribunals comprises, among other claims, the assessment of the declaration of illegality of acts of tax assessment, self-assessment, source tax withholding and payment on account (letter a), albeit the law makes the binding of the tax administration to arbitral jurisdiction dependent on an ordinance of the Government members responsible for the areas of finance and justice, which shall establish, in particular, the type and maximum value of the disputes covered (article 4, no. 1).
This latter provision came to be regulated by Ordinance no. 112-A/2011 which, in its article 2, defines as the object of binding the assessment of the claims referred to in article 2, no. 1, of the Legal Framework of Tax Arbitration, with the exception – in the part now of concern – of "claims relating to the declaration of illegality of self-assessment acts, source tax withholding and payment on account that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Tax Code of Procedure and Process".
The mentioned provisions of articles 131 to 133 of the Tax Code of Procedure and Process seek to identify situations in which, in the matter of self-assessment, tax substitution and payments on account, there is necessary administrative impugnation. In the case of error in self-assessment, article 131 specifies that judicial impugnation "shall necessarily be preceded by a gracious claim made to the regional peripheral organ of the tax administration, within the period of two years counting from the presentation of the declaration". That provision, like all others to which Ordinance no. 112-A/2011 refers, has the unequivocal sense of making the prior administrative impugnation of the tax act a requirement for access to the jurisdictional route, and is in full consonance with the principle expressed in article 185 of the Administrative Procedure Code, according to which claims and administrative appeals are necessary or optional, depending on whether or not the possibility of access to the contentious means of impugnation or compulsion to perform a due act depends on their prior use (no. 1). The same provision clarifies that claims and appeals have an optional character, except where the law designates them as necessary (no. 2).
As everything leads to conclude, the necessary gracious claim provided for in the cited provisions of the Tax Code of Procedure and Process constitutes a requirement of contentious impugnability of the tax act, characterizing itself as an atypical procedural presupposition which, as such, becomes applicable regardless of whether judicial impugnation is to be made before an arbitral tribunal or a state tribunal.
On the other hand, the legal requirement of necessary administrative impugnation is intended to obtain, through a second-degree procedure, the reassessment of the legality of the impugned act, allowing the Administration to still take a definitive position on the matter before the interested party may raise a judicial dispute. Thus it is understood that necessary administrative impugnation automatically suspends the effects of the act (article 189, no. 1, of the Administrative Procedure Code) and that its use constitutes, for the individual, a procedural burden on which the guarantee of access to the contentious route depends.
It is also worth noting that the law allows the taxpayer, on its own initiative, to request the review of tax acts by the entity that performed them within the period of administrative claim and on the basis of any illegality (article 78, no. 1, of the General Tax Law).
The request for review also constitutes a second-degree procedure, which has the same legal effect as the necessary claim referred to in article 131 of the Tax Code of Procedure and Process, insofar as it allows the Administration to acknowledge the existence of illegality in the performance of the tax act, and which may trigger, in identical terms, in case of dismissal, recourse to the contentious route.
Conferring on the interested party by law two alternative means of administrative reaction against the tax act with identical legal effects, there is no reason why equivalence cannot be established between these means for the purpose of subjecting the dispute to arbitration.
As was clarified, the provision of article 2, letter a), of Ordinance no. 112-A/2011 is not intended to restrict tax arbitration to specific situations in which there has been a gracious claim of the tax act. What is intended is to prevent the recourse to the arbitral tribunal from occurring when the procedural presupposition of prior administrative impugnation is not fulfilled, when this is required, and thus to avoid that the claim be made before the arbitral jurisdiction still before a definitive taking of position by the Administration.
But, as we have seen, that is not a specific conditionalism of the arbitrability of disputes in tax matters, but a procedural requirement relating to the very nature of the judicial remedy, meaning that it is not possible to bring a request for judicial impugnation against the self-assessment act, in any jurisdiction, before that presupposition is fulfilled.
In all this context, it becomes clear that there is no obstacle whatsoever to the subjection of a tax dispute to arbitration when the Administration has been able to pronounce itself, in a second-degree procedure, on the matter of the judicial impugnation.
And in that sense the provision of no. 3 of article 131 of the Tax Code of Procedure and Process also points, by establishing that there is no need for prior claim when the matter constitutes "exclusively a matter of law and the self-assessment has been made in accordance with generic guidelines issued by the tax administration", evidencing that the submission of a dispute to a tribunal does not depend on necessary administrative impugnation when there has already been a definitive pronouncement on the legality of the legal situation created with the self-assessment act, even if that pronouncement translates into the mere issuance of generic instructions.
The Tax Authority further raises the issue of unconstitutionality of the provision of article 2, letter a), of Ordinance no. 112-A/2011, when interpreted so as to expand the scope of binding of the Administration to arbitral jurisdiction beyond the cases legally provided for, attributing to it the violation of the principles of the Rule of Law and separation of powers, as well as of the right of access to justice and legality, as a corollary the principle of indisponibility of tax credits.
The invoked violation of the principles of the Rule of Law and separation of powers and the right of access to justice and legality, by reference to articles 2, 20, 202, 203 and 266, no. 3, of the Constitution, without any other development or explanation, suggests that the Respondent understands the subjection of a dispute to an arbitral tribunal, outside the cases legally typified, as corresponding to the violation of a reservation of jurisdiction, with the consequent loss of characterization of the very jurisdictional activity of the arbitral tribunal.
It is important to begin by noting, for that purpose, that the Constitution, in its article 202, established a reservation of competence for the exercise of the jurisdictional function in favor exclusively of the courts, being able to distinguish therein between absolute reservation of jurisdiction, constituted by those situations which are substantially jurisdictional and cannot be settled by administrative organs or non-judicial entities, and relative reservation of jurisdiction, comprised of those other situations in which the guarantee of justice is satisfied by the possibility of judicial review through a means of impugnation or appeal to the courts.
As the Constitutional Court has underscored, the existence of a reservation of jurisdiction is also the corollary of the application of the principles of separation and interdependence of powers: being the competence of organs of sovereignty defined in the Constitution and these being required to observe the separation and interdependence established therein (articles 110, no. 2, and 111, no. 1), it must be concluded that the constitutional attribution of certain competence to a certain organ of sovereignty excludes the possibility of it being able to be legally attributed to any other, save explicit or implicit constitutional authorization (ruling no. 71/84).
Now, arbitral tribunals are one of the categories of tribunals expressly enshrined in the Constitution (article 209, no. 2), and, as has been recognized by constitutional case law, even though they are not state organs nor fit the definition of organs of sovereignty, "neither can they fail to be qualified as tribunals for other constitutional purposes" (rulings nos. 230/86, 52/92 and 250/96). And as a category of constitutionally enshrined tribunals, they are subject to the same limits that weigh on state courts, their decisions have jurisdictional nature, and arbitrators are subject to a status similar to that of judicial courts, with constitutional requirements of independence and impartiality being applicable to them as a means of ensuring confidence in arbitral jurisdiction.
On the other hand, as has been repeatedly affirmed, recourse to arbitration constitutes a fundamental right which, as such, is covered by the provision in article 20 of the Constitution, and the possibility of resolution of disputes through an arbitral tribunal chosen by the parties is itself a realization of the guarantee of access to the right and to the courts and of the principle of effective jurisdictional protection (cf. FAUSTO QUADROS, "Necessary, Obligatory, Forced Arbitration: brief note on the interpretation of article 182 of the Code of Procedure in the Administrative Courts", in Studies in homage to Miguel Galvão Teles, vol. II, Coimbra, 2012 p. 258, and RUI MEDEIROS, "Necessary Arbitration and Constitution, in Studies in memory of Councilor Artur Maurício, p. 1318, and, in identical terms, Constitutional Court rulings nos. 250/96 and 506/96).
And, in that regard, there is no reason to establish any differentiation in relation to necessary arbitration, since the Constitution, by recognizing the possibility of the existence of arbitral tribunals, does not distinguish between voluntary and necessary arbitral tribunals, legitimating the understanding that these tribunals may be constituted by citizens in the exercise of autonomy of will, but also can be created by the legislator itself for the judgment of a certain category of disputes, as a means of imposing on citizens necessary recourse to that means of jurisdictional composition of conflicts (rulings nos. 52/92, 757/95 and 262/98).
Furthermore, as a consequence of the general principle of law resulting from article 18, no. 1, of the Voluntary Arbitration Law, the arbitral tribunal may decide on its own competence, even if for that purpose it is necessary to assess the existence, validity or effectiveness of the arbitration convention or its applicability to the specific case, and the decision of the arbitral tribunal on its competence is only subject to the control of state courts by means of an impugnation request (cf. article 18, no. 9, of the Voluntary Arbitration Law). And that same principle cannot fail to be applied even in cases where the list of matters on which the arbitral tribunal may pronounce itself is legally defined, as is the case with tax arbitration.
The impugnation may also be based on the incompetence of the arbitral tribunal, based on improper pronouncement, when the arbitral sentence has pronounced on disputes that are not capable of arbitration in the face of the law (in this sense, the ruling of the Constitutional Court no. 177/2016, which judged unconstitutional letter c) of no. 1 of article 28 of the Legal Framework of Tax Arbitration, in the normative interpretation that the concept of "improper pronouncement" does not cover the impugnation of the arbitral decision on the grounds of incompetence of the arbitral tribunal, by concomitant violation of articles 20 and 209, no. 2, of the Constitution).
As is to be concluded, the arbitral tribunal, when deciding on its competence to assess a dispute submitted to it, is still exercising its jurisdictional function. And if the tribunal understands that it is competent to assess the question on the basis of a certain interpretation of a legal provision – in the case the provision of article 131 of the Tax Code of Procedure and Process –, that interpretation, albeit susceptible of being impugned before a state court by way of an annulment request, does not violate any of the constitutional principles invoked by the Respondent.
Deduction of fiscal benefit from the collection of autonomous taxation
6. The question to be decided is whether there is place in corporate income tax for the deduction from the collection produced by autonomous taxation rates of fiscal benefits assessed within the scope of the System of Tax Incentives for Research and Business Development (SIFIDE).
This question has come to be decided by the majority arbitral case law in the affirmative, using as the principal argument the method of assessment of corporate income tax even when autonomous taxation is at issue. The collection provided by autonomous taxation – it is stated – constitutes corporate income tax collection and the deduction of fiscal benefits is made in relation to the amount determined in accordance with article 90 of the Corporate Income Tax Code, which leads to the conclusion that the processing of tax assessment, as it results from the said article 90, applies to all situations provided for in the Code, including with respect to 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 their respective taxable amount, there being no legal support, in light of the provision in article 90, to distinguish between the collection from autonomous taxation and that resulting from income subject to corporate income tax.
In any case, the analysis of the question justifies a more precise characterization of the so-called autonomous taxation, in the line of what was decided, among others, in the rulings delivered in Cases nos. 641/2017-T, 7/2018-T and 492/2018-T, which will be followed here closely.
It should be said at the outset that autonomous taxation constitutes the principal exception to income taxation according to the principle of net income or real income, by which the income of natural persons is determined after deducting the expenses made for its obtention and the taxation of corporations is determined in accordance with the profit determined by 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 cover charges for vehicles, amounts paid to persons with more favorable tax treatment and representation expenses, and later charges for allowances or travel expenses.
With the State Budget Law of 2010 (Law no. 3-B/2010, of 28 April), autonomous taxation also came to include charges relating to indemnities paid to managers, administrators or partners by virtue of cessation of functions, and also charges relating to bonuses and other variable remuneration paid to managers, administrators or partners when these represent more than 25% of annual remuneration and have value exceeding € 27,500. Meanwhile, Law no. 55-A/2010, of 31 December, added a no. 14 to article 88, providing for the increase of the autonomous taxation rates provided for in that article by 10 percentage points for taxpayers who present tax loss in the tax period to which any of the tax facts referred to in the preceding numbers pertain.
The introduction of the autonomous taxation mechanism is justified, on the other hand, by referring to expenses whose tax regime is difficult to discern as they are found in a "zone of intersection of the private sphere and the business sphere" 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 tax fraud and evasion (SALDANHA SANCHES, op. cit., p. 407).
Furthermore, autonomous taxation, although regulated normatively under corporate income tax, is materially distinct from corporate income tax taxation, insofar as it does not directly affect the company's taxable profit, but rather certain expenses which constitute, in themselves, a new tax fact (which refers not to the perception of income but to the realization of expenses). And, in that way, autonomous taxation has inherent to it the idea of discouraging a practice which, beyond affecting equality in the distribution of public burdens, may involve situations of lesser tax transparency, and is explained by a legislative intention to encourage companies to reduce as much as possible the expenses that adversely affect tax revenue.
In those special situations listed in law, the legislator opted, therefore, for subjecting the expenses to autonomous taxation as an alternative and more effective form than the non-deductibility of the expense for purposes of determining taxable profit, all the more so that when the company suffers a tax loss, there will be no tax payment, frustrating the objective intended to be achieved which is to discourage the very realization of this type of expense.
However, through successive legal amendments, the legislator has come to expand the scope of autonomous taxation, having come to include charges relating to indemnities paid to managers, administrators or partners when these 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 of ensuring "a more just distribution of tax burdens and progressive improvement of business remuneration policies". As doctrine has recognized, these are autonomous taxation mechanisms that move away from the initial purpose of combating tax fraud and evasion – as was the case with undocumented expenses – but which could still fit the objective of limiting expenses that could be reflected in the collectible income of companies.
In this context, analyzing the question of autonomous taxation in light of the principle of corporate taxation according to real income and the principle of contributory capacity, the Constitutional Court, in ruling no. 197/2016, endorsed the following understanding.
"(...) corporate income tax and autonomous taxation are distinct taxes, with different basis of incidence and subject to specific rates. Corporate income tax applies to 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. On the contrary, in autonomous taxation in corporate income tax – according to constitutional case law itself –, the taxable fact of the tax is the very realization of the expense, characterizing itself as an instantaneous tax fact that arises isolated in time and generates an obligation of payment with an occasional character. For this reason it is understood that we are facing a tax of single obligation, as opposed to periodic taxes, whose taxable fact is produced in a successive manner over time, generating the obligation of tax payment with a regular character.
As is to be concluded, autonomous taxation, although provided for in the Corporate Income Tax Code and assessed jointly with corporate income tax 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 apply to certain expenses that constitute autonomous tax facts that the legislator, for reasons of fiscal policy, wished to tax separately by way of subjection to a predetermined rate that bears no relation to the volume of business of the company".
In identical sense, the ruling of the Constitutional Court no. 310/2012 drew attention to the materially distinct nature of autonomous taxation in relation to the corporate income tax, even though that fiscal imposition is formally inserted in the Corporate Income Tax Code.
In that regard, that judgment emphasized:
"Contrary to what happens in the taxation of income under personal income tax and corporate income tax, in which the aggregate of income obtained in a given year is taxed (which implies that only at the end of it can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case each expense made is taxed, in itself considered, and subject to a certain rate, with autonomous taxation being determined independently of the corporate income tax due in each fiscal year, by not being directly related to obtaining a positive result, and therefore subject to taxation.
Thus, and in the case of corporate income tax, we are faced with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, with the law considering that the taxable fact of the tax is deemed to occur on the last day of the tax period (cf. article 8, no. 9, of the Corporate Income Tax Code).
Already with respect to autonomous taxation in corporate income tax, the taxable fact of the tax is the very realization of the expense, not being faced with a complex fact of successive formation over a year, but with an instantaneous tax fact.
This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose taxable fact is produced in a successive manner, by the passage of a certain period of time, usually annual, and tends to repeat itself in time, generating for the taxpayer the obligation of paying tax with a regular character) and taxes of single obligation (whose taxable fact is produced instantaneously, arises isolated in time, generating on the taxpayer an obligation of payment with an occasional character).
In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of 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 realization of expense considered, comes to be made at the end of a given tax period). But the fact that the assessment of the tax is made at the end of a given period does not transform it into a periodic tax, of successive formation or of a lasting character. That operation of assessment merely translates into the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence of the volume of expenses made on the determination of the rate".
It is understood, in accordance with what has just been 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 fiscal advantage that could result from unjustified or excessive expenses. And, in this context, it would be entirely contrary to the unity of the legal system that fiscal benefits to be granted to taxpayers in corporate income tax were to be deducted from the collection resulting from the application of autonomous taxation rates.
As was noted, the rates of autonomous taxation have the nature of anti-abuse provisions and are intended to discourage certain special situations that seek to obtain a reduction of the tax burden by way of 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 insofar as it integrates, on the one hand, taxable amount based on taxable profit, and, on the other hand, taxable amount resulting from the application of autonomous taxation rates applicable to certain types of expenses.
Even though the assessment of the tax is made in an aggregated manner, on the basis of these two different components, it makes no sense that the general deductions to be made with respect to the amount of tax determined apply to the collection due by the application of autonomous taxation rates. In fact, deductions from the collection constitute one of the forms of embodying the principle of contributory capacity which has as one of its corollaries taxation according to real income. Being taxes on income, the objective deductions to be considered are those corresponding to expenses that can reasonably be considered necessary for the obtention of income and which are suited to the nature of each category of income, being required to be understood, in the case of business activities, the costs or losses incurred or borne by the taxpayer to obtain or guarantee the income subject to corporate income tax (SÉRGIO VASQUES, Manual of Tax Law, Coimbra, 2015, p. 299).
Certainly the law still admits deductions to taxable profit and, among them, those relating to fiscal benefits (article 90, no. 2, letter c)). However, it makes no sense that these deductions may occur in relation to the collection of autonomous taxation.
It should be recalled that autonomous taxation applies to certain expenses typified in tax law that have been made by the company, and only to those expenses, and is not intended to tax the business income that has been obtained in that economic period. And the legislator's objective – as was referred to – is to discourage the realization of expenses that may have a negative impact on tax revenue and artificially reduce the company's own contributory capacity.
The logic of autonomous taxation appears to be this. The company shows financial availability to make expenditures that involve situations of lesser tax transparency and adversely affect tax revenue. In that circumstance, the taxpayer should be in a position to bear an additional tax burden with respect to those same expenses (which could be avoided) and which is intended to compensate for the tax advantage that results from the reduction of taxable amount due to the realization of these expenses.
The expense constitutes an autonomous tax fact, generating a tax to which the taxpayer is subject regardless of whether or not obtained taxable income in corporate income tax in the same tax period. And, thus, the fact revealing contributory capacity is the very realization of the expense.
To admit that tax credits resulting from incentive or fiscal benefit situations could neutralize the sanctioning effect of autonomous taxation would be to distort the very concept of fiscal benefit and the principles of contributory capacity and fair distribution of the tax burden.
By their very nature, fiscal benefits are measures of an exceptional character instituted for the protection of extrafiscal public interests of relevance superior to that of taxation itself which prevent them, corresponding to situations in which the legislator, for technical or fiscal policy reasons, provides relief from certain manifestations of wealth that it intends to remove from normal taxation (article 2, no. 1, of the Code of Fiscal Benefits). The fiscal benefit is considered, on the other hand, as a fiscal expenditure insofar as it applies to a situation subject to taxation and is equivalent, in quantitative terms, to uncollected tax revenue.
It makes no sense, in this conditionalism, that deductions from the collection of the tax that result from fiscal benefits apply not only to taxable profit, but to expenses that the legislator intended to tax for reasons of tax transparency. What would lead to allowing fiscal benefit to be used to frustrate the objective intended to be achieved with autonomous taxation which is precisely to discourage the very realization of this type of expense.
Deduction of special payments on account from the collection of autonomous taxation
7. Based essentially on the same order of considerations, the Applicant further maintains the illegality of the tax self-assessment insofar as it does not admit the deduction of special payments on account from the collection of autonomous taxation. The special payment on account constitutes – according to the Applicant – an advance payment on the tax due which cannot fail to be deducted from corporate income tax collection, including that resulting from autonomous taxation, through the compensation of tax credits that such advance payments represent.
Also in this case it is important to begin by characterizing the figure of special payment on account, following the consolidated guidance of arbitral case law.
The special payment on account was instituted by Decree-Law no. 44/98, of 3 March, through the addition of article 83-A to the Corporate Income Tax Code, being justified through its explanatory memorandum as a measure to combat "evasive practices of concealment of income or inflation of costs" understood as "manifestly generating serious distortions of the principles of equity and tax justice and of economic efficiency itself and damaging the stability of tax revenue" and from which "results an unfair distribution of the tax burden".
The provisionary nature of the tax payment resided in the possibility of deducting the amounts paid as special payment on account from corporate income tax, determined in general terms, laid down in article 71 of the then applicable Corporate Income Tax Code, although that deduction was only possible if, despite that operation, the amount of tax to be paid was positive (article 71, no. 6, of the Corporate Income Tax Code/1998).
With no tax to be paid in general terms, the value of the special payment on account satisfied could be carried forward to the following fiscal year (article 74-A, no. 1) or reimbursed later (article 74-A, no. 2). It was sought to ensure that the generality of taxpayers satisfied a value on account of corporate income tax, calculated provisionally on the volume of business of the previous year (article 83-A).
In essence, it was fictitious that all companies would tend to have a taxable profit, calculated in accordance with general parameters, equivalent to 1% of their volume of business in the previous year, settling the account later if this was not the case.
The reform of corporate income tax made in 2000-2001, through Law no. 30-G/2000, of 29 December, reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained in business and imposed that the carrying forward of the amounts satisfied was to be made only up to the fourth subsequent fiscal year (article 74-A, no. 1, of the Corporate Income Tax Code/2001).
From this restrictive provision results, for the first time, the possibility of the special payment on account becoming a minimum collection when it was not possible to deduct the amounts satisfied, by exhausting the carrying forward period (in this sense, TERESA GIL, "Special Payment on Account", Fisco Journal, Year XIV (March 2003) no. 107-108, p. 12).
In summary, it is possible to state that the amendments introduced in that reform not only maintained but emphasized the emphasis on combating tax evasion that had motivated the introduction of the special payment on account. However, despite the autonomous taxation already existing at that time, no mechanism of articulation between the two instruments was provided for.
The third configuration of the special payment on account was introduced by Law no. 32-B/2002, of 30 December, which in its article 27 established a new regime for the deductibility of special payments on account in article 87, no. 3, of the Corporate Income Tax Code, restoring the possibility of reimbursement of the amounts delivered as special payment on account and not deducted in the annual corporate income tax assessment. The character of a measure to combat tax evasion was still maintained here, although the minimum collection mark was lightened, without abolishing it completely, in light of the tight conditions imposed for reimbursement.
Subsequent legislative evolution – although not already applicable to the situation at hand – did not alter the typical characterization of the special payment on account.
Referring again to the special payment on account, article 93, in the version applicable at the date of the facts, clarifies that the "deduction referred to in letter c) of no. 2 of article 90 is made to the amount determined in the declaration referred to in article 120 of its own tax period or, if insufficient, up to the 4th subsequent tax period, after the deductions referred to in letters a) and b) of no. 2 [intending to refer to double international taxation and special payment on account] and in compliance with no. 7, both of article 90".
That is, the deduction relating to special payment on account – like the deduction relating to fiscal benefits – is made on the amount of corporate income tax determined in accordance with that article 90, based on the taxpayer's tax return. And, on the other hand, deductions relating to special payment on account are only considered after deductions corresponding to double international taxation and fiscal benefits, and in any case from them a negative result cannot result, being that the safeguard that results from no. 7 of article 90 of the Corporate Income Tax Code is precisely justified.
As can be seen, the special payment on account maintained its anti-abusive function. Not only is the deduction made subsidiarily, but also it is only considered – after other deductions are discounted – up to the limit of corporate income tax collection determined in the tax period, implying that deductions can occur up to four subsequent economic years.
In ultimate analysis, the special payment on account may not be reimbursed either because the taxpayer demonstrates negative tax results or because he presents successively insufficient results to absorb the deduction, this because – as was said – the deduction cannot relieve the taxpayer of a tax payment which, at minimum, is embodied in the special payment on account itself.
8. As is known, payments on account correspond to a mechanism for anticipation of the tax that may become due in the end, allowing the moment of perception of income to be approximated to the moment of payment of the tax and to avoid the financial advantage that would result for the taxpayer if payment occurred only after the closing of the economic year. And independent of proceeding with payments on account throughout the year to which the tax relates, which constitutes the common model of payment, the taxpayer is still subject to special payment on account in the amount corresponding to 1% of the volume of business relating to the preceding tax period, with a minimum limit of €1,000 and a maximum limit of €70,000, in accordance with the rules of no. 2 of article 106.
Although payments on account correspond to a tax technique of anticipation of tax revenue, it is important to bear in mind – as has already been stated – the specific purpose of special payment on account as a means of avoiding tax evasion and ensuring payment of the tax by companies in business.
That purpose was noted in the ruling of the Court no. 494/2009, where it was recorded:
Notwithstanding that generic matrix, a reading of the legal regime of the special payment on account that is attentive to its genesis and evolution leads to the conclusion that it does not primarily obey the typical logic of a payment on account – that is, primarily, to ensure to the public revenue regular entries of treasury and, secondly, to protect the Fisco against variations of fortune of the debtor and produce a certain "anesthesia" fiscal –, rather being inextricably linked to the fight against tax evasion and fraud.
In that same sense, the doctrine points that in that judgment appears widely referenced: TERESA GIL, "Special payment on account", Fisco, no. 107-108, Year XIV, March, 2003, p. 11; LUÍS MARQUES, "The special payment on account within the scope of the special regime for the taxation of groups of companies", Fisco, no. 107-108, Year XIV, March, 2003, p. 3; JOSÉ JOÃO DE AVILLEZ OGANDO, "The constitutionality of the regime of special payment on account", Revista da Ordem dos Advogados, vol. 62, Part III, 2002, pp. 806 and also 821); SALDANHA SANCHES/ ANDRÉ SALGADO DE MATOS, "The special payment on account of corporate income tax: questions of constitutional conformity, Review of Tax Law and Management, July, 2003, p. 10.
The question that arises, in all this context, is whether special payments on account could be deducted from the corporate income tax collection produced by autonomous taxation, in application of the provision in article 90, no. 2, letter c), of the Corporate Income Tax Code.
And the answer appears to be unable to be different from that considered with respect to the deduction of fiscal benefits.
In fact, the method of determination of corporate income tax is based on the principle of incidence on taxable profit, whereas autonomous taxation applies to individually considered expenses to which the rate is applicable to each expense, and the assessment operation translates only into aggregation, for purposes of collection, of the set of operations subject to autonomous taxation.
As is strikingly stated in the ruling of the Constitutional Court no. 617/2012, "contrary to what happens in the taxation of income under personal income tax and corporate income tax, in which the aggregate of income obtained in a given year is taxed (which implies that only at the end of it can the tax rate be determined, as well as the bracket in which the taxpayer falls), in this case each expense made is taxed, in itself considered, and subject to a certain rate, with autonomous taxation being determined independently of the corporate income tax due in each fiscal year, by not being directly related to obtaining a positive result, and therefore subject to taxation".
Besides which autonomous taxation, which was initially contemplated separately in extravagant legislation (Decree-Law no. 192/90) and later came to be integrated into corporate income tax for reasons of tax practicability (Law no. 30-G/2000, which added article 69-A to the Corporate Income Tax Code), constitutes, itself, an anti-abusive measure in that it aims to encourage companies to reduce expenses that do not have economic rationality and which may favor evasion and tax fraud.
And, on the other hand, the introduction of special payment on account through Decree-Law no. 44/98, which added article 83-A to the Corporate Income Tax Code, had the parallel effect of avoiding "evasive practices of concealment of income or inflation of costs", subjecting companies to a minimum collection and limiting the possibility of reimbursing the advance payment of taxes by way of presenting negative or insufficient tax results.
And, as was considered in the arbitral decision delivered in Case no. 113/2015, followed by several other arbitral case law (among others, the rulings delivered in Cases nos. 535/2015, 504/2016 and 704/2016), admitting the deduction of special payments on account from autonomous taxation collection corresponded to frustrating the legislative purpose that inspired the legislator to set that particular legal regime, allowing that the amounts delivered to the Public Treasury for that purpose, to ensure the raising of a minimum collection, were assigned to the extinguishing of the tax debt resulting from autonomous taxation, neutralizing the legislative purpose that underlies the introduction of the new mechanism of special payment on account.
And – it is now added – that possibility would also have the negative effect of annulling the fiscal policy interests that presided over the creation of autonomous taxation, which – as was seen – was intended to reduce the fiscal advantage that the taxpayer could obtain through excessive spending or devoid of economic rationality. That is, the taxpayer could extinguish the legal sanction that autonomous taxation represents by affecting to the satisfaction of the tax obligation arising therefrom the special payments on account that were supposed to be part of the amount of tax determined on taxable profit.
It is therefore justified to adopt a restrictive interpretation of the provisions of articles 90, no. 2, letter c), and 93, no. 1, of the Corporate Income Tax Code so as to consider that deductions relating to special payments on account apply to the amount of tax directly determined on declared income, with the exclusion of costs that are the subject of autonomous taxation.
9. The Applicant further alludes to the innovative nature of the provision of article 88, no. 21, of the Corporate Income Tax Code, in the version introduced by article 134 of Law no. 7-A/2016, of 30 March, with the consequent inapplicability to the situation of the present case by violation of the principle of prohibition of retroactivity of tax law.
The said provision came to establish that "the assessment of autonomous taxation in corporate income tax is made in accordance with the provisions of article 89 and is based on the values and rates resulting from the provision in the preceding numbers, 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 Corporate Income Tax Code an interpretative nature.
The invocation of the pointed provision could raise the question of whether the provision, in the conditionalism 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 provisions of article 90, no. 2, letter c), of the Corporate Income Tax Code according to the general rules of legal hermeneutics, refraining from applying the provision of the said article 88, no. 21, of the Corporate Income Tax Code, and therefore, as that provision has not been used as the ratio decidendi, the violation of any parameter of constitutionality that refers to the alleged interpretative character of the law is not invocable, whether by reference to the principle of prohibition of retroactivity of tax law or to any of the other constitutional principles invoked (cf., among many, the rulings of the Constitutional Court nos. 319/94 and 524/98).
For all these reasons, the arbitral request is shown to be without merit.
10. The Applicant further submits a subsidiary request in order to obtain the annulment of the tax act of autonomous taxation assessment, should it be understood that article 90 of the Corporate Income Tax Code does not apply to this type of taxation, by considering that there is no legal basis for its implementation, invoking the provision in articles 8, no. 2, letter a), of the General Tax Law and 103, no. 3, of the Constitution.
If correctly understood, the Applicant proceeds from the presumption that, there being no place for deduction from the corporate income tax collection produced by autonomous taxation rates of fiscal benefits, there is also no legal basis for making the autonomous taxation assessment.
The argument is based on an evident misunderstanding.
The rates of autonomous taxation are provided for in article 88 of the Corporate Income Tax Code and it is that provision that allows the assessment of the corresponding tax, although that assessment arises aggregated to the assessment of corporate income tax. In considering that fiscal benefits are not deductible from the amount of tax determined resulting from the application of autonomous taxation rates, the tribunal is not affirming that the provision of article 90 is not applicable to autonomous taxation, but rather making an interpretation of article 90, no. 2, letter c), in the sense that the deduction from the collection of fiscal benefits does not apply to autonomous taxation.
Being certain that autonomous taxation does not cease to have legal support by that.
Terms in which the Applicant's request fails, being necessary to maintain the decision dismissing the gracious claim impugned, with the remaining requests for reimbursement of amounts paid and payment of compensatory interest being necessarily prejudiced.
III – Decision
Terms in which it is decided:
a) To judge without merit the arbitral request for declaration of illegality of the self-assessment of corporate income tax, relating to the fiscal year 2015, as well as the decision to dismiss the request for official review made with respect to the self-assessment act;
b) To judge prejudiced the requests for reimbursement of amounts paid and payment of compensatory interest.
Value of the Case
In accordance with the provision in articles 306, no. 2, and 297, no. 2 of the Civil Procedure Code, article 97-A, no. 1, letter a) of the Tax Code of Procedure and Process and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 634,397.82.
Costs
Under the terms of article 22, no. 4, of the Legal Framework of Tax Arbitration, the amount of costs is fixed at
€ 10,098.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, which is charged to the Applicant.
Notify.
Lisbon, 18 June 2019
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitrator Vogal
Carla Castelo Trindade
The Arbitrator Vogal
Maria do Rosário Anjos
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