Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A…, Lda., with registered office at …, … –…, …, legal entity with identification number …, belonging to the Tax Service of Vila Franca de Xira -…, submitted, pursuant to the provisions of articles 99, paragraph a), of the Code of Procedure and Tax Process ("CPPT"), 2, no. 1, paragraph a) and 10, nos. 1, paragraph a), and 2, both of the Legal Regime of Arbitration in Tax Matters ("RJAT"), a request for arbitral ruling with a view to the annulment of the acts of rejection of the Administrative Appeal as well as the implicit rejection of the Hierarchical Appeal filed against the rejection of said Administrative Appeal relating to the self-assessments of Corporate Income Tax ("IRC") for the tax periods 2013 and 2014, object of Liquidation no. 2014 … and Liquidation no. 2015 …, respectively.
The request is thus formulated:
a) "(…) the acts of explicit rejection of the Administrative Appeal and implicit rejection of the Hierarchical Appeal must be annulled, as well as the self-assessments of IRC with nos. 2014 … and 2015 …, relating to the tax periods 2013 and 2014, respectively, in the part relating to autonomous taxation, on the grounds of the non-deduction of SIFIDE;
b) Subsidiarily, the acts of explicit rejection of the Administrative Appeal and implicit rejection of the Hierarchical Appeal must be annulled, as well as the self-assessments of IRC with nos. 2014 … and 2015 …, relating to the tax periods 2013 and 2014, respectively, in the part relating to autonomous taxation, on the grounds of the non-deduction of PEC;
c) The AT to be ordered to reimburse the amounts of €127,872.78 and €59,853.93, relating to autonomous taxation paid, respectively in the tax periods 2013 and 2014, on the grounds of the non-deduction of SIFIDE;
d) Subsidiarily, the AT to be ordered to reimburse the amount of €140,000.00, relating to autonomous taxation paid in the tax periods 2013 and 2014, on the grounds of the non-deduction of PEC to the assessed collection, or, in the event that the challenge to IRC liquidations for 2011 and 2012 is ruled unfounded within the scope of the request for arbitral ruling submitted on this same date and whose case number the Claimant will inform these proceedings as soon as it has knowledge thereof, the AT to be ordered to reimburse the amount of €280,000.00, relating to autonomous taxation paid in the tax periods 2011 to 2014, on the grounds of the non-deduction of PEC;
e) The AT to be ordered, pursuant to the provisions of article 43 of the General Tax Law, to pay indemnification interest to the claimant herein, accrued and accruing until actual and full payment.
The Tax and Customs Authority (hereinafter referred to only as "Respondent") is the Respondent.
To support its request, the Claimant alleged:
The Claimant is a company that provides products and services to meet the energy storage needs of the industrial and transport markets, possessing extensive experience, advanced research and development capabilities, as well as the knowledge and capacity to offer all types of solutions for energy storage.
Belonging to Group B…, one of the world's largest manufacturers and distributors of batteries, the Claimant is, in Portugal, an entity subject to and not exempt from IRC.
Thus, in the tax periods in question – 2013 and 2014 – the Claimant carried out the corresponding self-assessments of IRC, having submitted Model 22 declarations respectively on August 22, 2014 and August 21, 2015, in which it reported tax loss (see documents nos. 1 and 2, attached and deemed fully reproduced for all legal purposes).
In the course of its activity, the Claimant incurred, in the said tax periods, expenses subject to autonomous taxation, pursuant to article 88 of the Corporate Income Tax Code ("CIRC"), in the amounts of €127,872.78, in 2013, and €59,853.93, in 2014, which were self-assessed and fully paid (see documents nos. 3 and 4, attached and deemed fully reproduced for all legal purposes).
Since the activity carried out by the Claimant involves making substantial investments related to research and development, it applied, in the tax periods from 2009 to 2011, to the System of Tax Incentives for Business Research and Development (SIFIDE), having been granted tax credits (see documents nos. 5 to 7, attached and deemed fully reproduced for all legal purposes).
In the tax periods 2013 and 2014, the Claimant made the following special payments on account (PEC) of IRC (see document no. 8, attached and deemed fully reproduced for all legal purposes):
| Tax Year | Installment | Amount (€) |
|---|---|---|
| 2013 | 1st Installment | 35,000.00 |
| | 2nd Installment | 35,000.00 |
| 2014 | 1st Installment | 35,000.00 |
| | 2nd Installment | 35,000.00 |
Additionally, due to insufficient collection, the claimant liquidated the amount of €70,000.00, both in 2011 and in 2012, which remained carried forward in the years 2013 and 2014 (see document no. 8).
Pursuant to the provisions of paragraphs c) and d) of no. 2 of article 90 of the CIRC, deductions relating to tax benefits and PEC must be made up to the limit of the IRC collection assessed in the relevant tax period.
Now, in the tax periods in question – 2013 and 2014 – the IRC collection corresponded exclusively to the amounts assessed as autonomous taxation, since, as mentioned, the Claimant presented tax losses.
Due to technical impossibility of the Model 22 declaration and the computer system used by the Tax and Customs Authority (AT), the Claimant was unable to deduct the amounts of SIFIDE and PEC to the collection assessed in the tax periods 2013 and 2014, which related exclusively to the amounts assessed (and paid) as autonomous taxation.
In this regard and regarding PEC liquidated in 2011 and 2012, in the total amount of €140,000.00, which remained carried forward in 2013 and 2014, the Claimant submitted, on this same date, a request for arbitral ruling to examine the legality of IRC liquidations for 2011 and 2012, with identical grounds to those underlying the present dispute, and whose decision to be rendered may have repercussions on the present challenge.
In this sense, the Claimant will inform the present proceedings, as soon as it has knowledge thereof, of the case number assigned to said request for arbitral ruling, which should be taken into account in the event that the main request concerning the illegality of IRC liquidations for 2013 and 2014 due to the impossibility of deducting SIFIDE is ruled unfounded.
Thus, in light of the factuality described above, on March 28, 2016, the Claimant submitted, to the IRC Services Directorate, an administrative appeal of the self-assessments of IRC, relating to the tax periods 2013 and 2014 (see document no. 9, attached and deemed fully reproduced for all legal purposes).
It so happens that, upon reaching July 28, 2016, coinciding with the end of the period for conclusion of the tax procedure (see article 57, no. 1, of the General Tax Law ("LGT")), the AT did not issue any decision on the Administrative Appeal submitted by the Claimant, with its rejection being presumed, for purposes of hierarchical appeal (see article 57, no. 5, of the LGT).
The hierarchical appeal was filed on August 22, 2016 (see document no. 10, attached and deemed fully reproduced for all legal purposes), so, pursuant to the provisions of articles 20, no. 1, and 66, no. 5, both of the CPPT, the respective decision should have occurred by October 21, 2016,
Which did not happen,
Consequently, its implicit rejection is presumed.
However, after the legal period for decision of the Administrative Appeal had elapsed, on September 21, 2016, the AT notified the Claimant of the draft decision rejecting the Administrative Appeal (see document no. 11, attached and deemed fully reproduced for all legal purposes).
Since the Claimant did not submit any statement in the hearing of rights, said draft decision was converted into a final decision explicitly rejecting the Administrative Appeal, rendered by decision of the Head of the Finance Directorate Division, dated December 23, 2016 (see document no. 12, attached and deemed fully reproduced for all legal purposes).
Which was notified to the Claimant on January 2, 2017 (see document no. 13, attached and deemed fully reproduced for all legal purposes).
However, without making any mention of the hierarchical appeal filed against the implicit rejection of the Administrative Appeal that had by then been formed.
Therefore, as a precaution, the subject matter of the present request for arbitral ruling includes the annulment not only of the act of explicit rejection of the Administrative Appeal, dated December 23, 2016, but also the act of implicit rejection of the hierarchical appeal filed against the implicit rejection of the Administrative Appeal.
The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD and automatically notified to the Respondent in accordance with regulatory procedures.
Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012, of December 31, the Deontological Council of CAAD appointed as arbitrators of the collective arbitral tribunal Judge José Poças Falcão, Dr. Hélder Faustino and Dr. Armando Tavares, who communicated their acceptance of the appointment within the legal period.
The Parties, duly notified, did not manifest, in accordance with the legal terms and period, willingness to refuse the appointment of the arbitrators (article 11, no. 1, paragraphs a) and b) of the RJAT, in conjunction with articles 6 and 7 of the Deontological Code).
In accordance with the provision of paragraph c), of no. 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on March 28, 2017.
Notified, the AT submitted a response in which, contradicting the position of the claimant and defending its previous positions, considered, in essence, that given in particular the nature and purpose of autonomous taxation it is not possible to admit, under penalty of subversion of the order of values and contrary to constitutional principles, the deduction of tax benefits from amounts owed as autonomous taxation, under penalty of mischaracterizing the principles specifically intended to be pursued, whether with incentives or with autonomous taxation. It also invoked the Jurisprudence of the Constitutional Court from the dissenting vote of Judge Vítor Gomes in decision no. 204/2010, namely decisions nos. 310/2012 of June 20 and 617/2017 (Plenary of the TConst) of December 19, 2012 and 197/2016, of April 13, 2016.
II – PRELIMINARY SANATION
10. This arbitral tribunal is materially competent.
11. No exceptions were raised.
12. The Parties enjoy legal personality and capacity, are legitimate as to the request for arbitral ruling and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of March 22.
13. There are no nullities, so the merits must be examined.
III. MERITS
FACTUAL MATTERS
§1. Proven Facts
14. The Tribunal considers the following facts proven:
a) The Claimant submitted for the tax periods – 2013 and 2014 – the corresponding self-assessments of IRC, having submitted Model 22 declarations respectively on August 22, 2014 and August 21, 2015, in which it reported tax loss (see documents nos. 1 and 2, attached with the request for arbitral ruling, whose contents are deemed reproduced).
b) In the year 2013 the Claimant determined an amount of tax to pay of €109,108.41, which resulted from a collection of autonomous taxation in IRC of €127,872.78, minus withholdings at source supported in the amount of €18,764.37 (document no. 1 attached with the request for arbitral ruling, whose contents are deemed reproduced).
c) In the year 2014 the Claimant determined an amount of tax to pay of €47,731.20, which resulted from a collection of autonomous taxation in IRC of €59,853.93, minus withholdings at source supported in the amount of €12,122.73 (document no. 2 attached with the request for arbitral ruling, whose contents are deemed reproduced).
d) The amounts mentioned were self-assessed and fully paid (see documents nos. 3 and 4, attached with the request for arbitral ruling, whose contents are deemed reproduced).
e) The Claimant applied, in the tax periods from 2009 to 2011, to the System of Tax Incentives for Business Research and Development (SIFIDE), having been granted tax credits (see documents nos. 5 to 7, attached with the request for arbitral ruling, whose contents are deemed reproduced).
f) In the tax periods from 2011 to 2014, the Claimant made special payments on account (PEC) of IRC in the amount of €70,000/year, corresponding to a total of €280,000 for the said four tax periods (see document no. 8, attached with the request for arbitral ruling, whose contents are deemed reproduced).
g) The Claimant submitted on March 28, 2016, to the IRC Services Directorate, an administrative appeal of the self-assessments of IRC, relating to the tax periods 2013 and 2014 (see document no. 9 attached with the request for arbitral ruling, whose contents are deemed reproduced).
h) Until July 28, 2016, coinciding with the end of the period for conclusion of the tax procedure (see article 57, no. 1, of the General Tax Law ("LGT"), the AT had not issued a decision on the Administrative Appeal submitted by the Claimant [with its rejection thus being presumed, for purposes of hierarchical appeal].
i) The hierarchical appeal was filed on August 22, 2016 (see document no. 10, attached with the request for arbitral ruling, whose contents are deemed reproduced), so, pursuant to the provisions of articles 20, no. 1, and 66, no. 5, both of the CPPT, the respective decision should have occurred by October 21, 2016, which did not happen [with implicit rejection being presumed].
j) On September 21, 2016, the AT notified the Claimant of the draft decision rejecting the Administrative Appeal (see document no. 11, attached with the request for arbitral ruling, whose contents are deemed reproduced).
k) Since the Claimant did not submit any statement in the hearing of rights, said draft decision was converted into a final decision explicitly rejecting the Administrative Appeal, rendered by decision of the Head of the Finance Directorate Division, dated December 23, 2016 (see document no. 12, attached with the request for arbitral ruling, whose contents are deemed reproduced), which was notified to the Claimant on January 2, 2017 (see document no. 13, attached with the request for arbitral ruling, whose contents are deemed reproduced).
l) On January 18, 2017 the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present proceedings.
§ 2. Unproven Facts
There are no facts relevant to the decision that have not been proven.
§ 3. Reasoning for the Determination of Factual Matters
In determining the above factual framework, consideration was given to the principle that the judge (arbitrator or Tribunal) does not have the duty to decide on all the matters alleged, but rather has the duty to select only those that matter for the decision, taking into account the cause (or causes) of action that grounds the request formulated by the plaintiff (see articles 596, no. 1 and 607, nos. 2 to 4, of the Civil Code, as amended by Law 41/2013, of June 26) and to record whether it considers it proven or unproven (see article 123, no. 2, of the CPPT).
It was also considered that, in light of the principle of free evaluation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the proceedings and in accordance with its life experience and knowledge of persons (see article 607, no. 5, of the CPC, as amended by Law 41/2013, of June 26). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents - see article 371 of the Civil Code) does the principle of free evaluation of evidence not govern the appreciation of the evidence produced.
In the case sub judice, the conviction of the Tribunal was based on the free evaluation of the positions assumed by the Parties on factual grounds, on the copy of the Administrative File attached by the AT and on the contents of the documents annexed to the proceedings and not challenged.
III.2. LEGAL MATTERS
§1. Questions to be Decided
It is sought, in summary, to submit to the Tribunal's consideration the question of the application (or not) of the provision of article 90 of the CIRC (as amended by Law no. 3-B/2010, of April 28, applicable in the case of these proceedings) to autonomous taxation provided for in article 88, of the same statute, as well as to special payment on account (PEC) and SIFIDE.
Subsidiarily, the Claimant requests the annulment of the acts of explicit rejection of the Administrative Appeal and implicit rejection of the Hierarchical Appeal, as well as the self-assessments of IRC with nos. 2014 … and 2015 …, relating to the tax periods 2013 and 2014, respectively, in the part relating to autonomous taxation, on the grounds of the non-deduction of PEC, with the AT being ordered to reimburse the amounts of €127,872.78 and €59,853.93, relating to autonomous taxation paid, respectively in the tax periods 2013 and 2014, on the grounds of the non-deduction of SIFIDE and, additionally subsidiarily, requests the ordering of the AT to reimburse the amount of €140,000.00, relating to autonomous taxation paid in the tax periods 2013 and 2014, on the grounds of the non-deduction of PEC to the assessed collection, or, citing, "(…) in the event that the challenge to IRC liquidations for 2011 and 2012 is ruled unfounded within the scope of the request for arbitral ruling submitted on this same date and whose case number the Claimant will inform these proceedings as soon as it has knowledge thereof, the AT to be ordered to reimburse the amount of €280,000.00, relating to autonomous taxation paid in the tax periods 2011 to 2014, on the grounds of the non-deduction of PEC (…)";
In other words and in summary: what is at issue is essentially the question of the (dis)consideration of collection resulting from autonomous taxation for purposes of the limit of deductions provided for in article 90 of the CIRC.
Let us examine:
The Claimant maintains that it has the right to deduct the amounts paid as special payment on account and SIFIDE to the IRC collection produced by autonomous taxation in the years 2011 to 2014.
The computer system of the AT, through which IRC is self-assessed, does not allow taxpayers to deduct, for purposes of determining the IRC owed by them, to the tax resulting from the autonomous taxation assessed, the amounts of special payments on account and the amounts of tax benefit from SIFIDE.
The Claimant submitted an administrative appeal of the self-assessments made on the basis of Model 22 declarations relating to the years 2012 and 2013, arguing, in summary, that to the amounts owed as autonomous taxation could be deducted the sums paid as special payments on account and the investments it made covered by SIFIDE.
The Tax and Customs Authority rejected the administrative appeal.
The questions that are the subject of the present proceedings are, in the first place, whether the amounts paid as special payments on account and the investments made by the Claimant covered by SIFIDE are deductible from the amounts owed as autonomous taxation.
We shall begin by examining the question of the application of article 90 of the CIRC to the liquidation of autonomous taxation, since its solution depends on the examination of the question of the deductibility of SIFIDE and special payments on account to the collection of such autonomous taxation.
Question of the Application of Article 90 of the CIRC to Autonomous Taxation
Articles 89 and 90 of the CIRC establish the following, in the wording given by Law no. 3-B/2010, of April 28 and which is applicable to the case of these proceedings:
Article 89
Competence for Liquidation
The liquidation of IRC is effected:
a) By the taxpayer itself, in the declarations referred to in articles 120 and 122;
b) By the General Directorate of Taxes, in other cases.
Article 90
Procedure and Form of Liquidation
1 - The liquidation of IRC proceeds as follows:
a) When the liquidation is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable matter contained therein;
b) In the absence of submission of the declaration referred to in article 120, the liquidation is effected by November 30 of the following year to which it relates or, in the case provided for in no. 2 of said article, by the end of the 6th month following the deadline for submission of the declaration therein mentioned and is based on the annual value of minimum monthly remuneration or, when greater, the whole of the taxable matter of the closest fiscal year that is determined;
c) In the absence of liquidation in accordance with the preceding paragraphs, it is based on the elements available to the tax 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 double international taxation;
b) That relating to tax benefits;
c) That relating to special payment on account referred to in article 106;
d) That relating to withholdings at source not susceptible to compensation or reimbursement under applicable legislation.
3 – (Repealed by Law no. 3-B/10)
4 – To the amount determined in accordance with no. 1, regarding the entities mentioned in no. 4 of article 120, only the deduction relating to withholdings at source when these have the nature of tax in installment of IRC is to be made.
5 – The deductions referred to in no. 2 regarding entities to which the fiscal transparency regime established in article 6 applies 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 the taxable matter that took into account the imputation provided for in that 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 regarding the group, in accordance with no. 1.
7 – The deductions made in accordance with paragraphs a), b) and c) of no. 2 cannot result in a negative value.
8 – To the amount determined in accordance with paragraphs b) and c) of no. 1 only those deductions are made of which the tax administration has knowledge and which can be made in accordance with nos. 2 to 4.
9 – In cases where the provision of paragraph b) of no. 2 of article 79 is applicable, liquidations are made annually based on the taxable matter determined with a provisional character, and, in view of the liquidation corresponding to the taxable matter relating to the entire liquidation period, the difference determined is to be collected or cancelled.
10 – The liquidation provided for in no. 1 may be corrected, if appropriate, within the period referred to in article 101, with the differences determined being collected or cancelled.
Let it be noted from the outset that the essential question is not whether autonomous taxation is or is not IRC, it being clear that the liquidation of autonomous taxation is carried out on the basis of articles 89 and 90 no. 1 of the IRC Code, but rather, in truth, applying different rules for the calculation of the tax:
(1) in one case liquidation operates, through the application of the rates of article 87 to the taxable matter determined in accordance with the rules of chapter III of the Code and
(2) in the other case, various collections are determined depending on the diversity of facts that give rise to autonomous taxation.
From this it results that the amount determined in accordance with paragraph a) of no. 1 of article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which differentiated purposes are also associated, so the deductions provided for in the paragraphs of no. 2 can only be made to the part of the IRC collection with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the general regime of the tax.
From this it is concluded, if we understand correctly, that there is not even controversy between the Parties regarding the application of article 90 of the CIRC to the liquidation of autonomous taxation, with the divergence being limited to the manner of proceeding with the liquidation, as the Tax and Customs Authority understands, if we understand correctly, that various collections are determined depending on the diversity of facts that give rise to autonomous taxation and the deductions provided for in the paragraphs of no. 2 can only be made to the part of the IRC collection with which there is a direct correspondence, understanding that it does not occur regarding the IRC collection that results from autonomous taxation.
In any case, the said articles 89 and 90 of the CIRC, as well as other provisions of this Code, such as those relating to the declarations provided for in articles 120 and 122, are applicable to autonomous taxation.
Immediately – it is reaffirmed – it is now settled, following abundant arbitral jurisprudence (much of it cited by the Claimant itself) and the positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in the CIRC has the nature of IRC.
Moreover, beyond the unanimity of jurisprudence, article 23-A no. 1, paragraph a) of the CIRC, as amended by Law no. 2/2014, of January 16, leaves today no room for any reasonable doubt, corroborating what previously resulted from the literal wording of article 12 of the same Code.
Well then, article 90 of the CIRC refers to the forms of liquidation of IRC, by the taxpayer or by the Tax Administration, applying to the determination of the tax owed in all situations provided for in the Code, including additional liquidation (no. 10).
For this reason, that article 90 also applies to the liquidation of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, following the submission or non-submission of declarations, there being no other provision that provides for different terms for its liquidation.
Thus, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are restricted to the determination of the taxable matter and the applicable rates, which are those provided for in Chapters III and IV of the CIRC for IRC based on taxable profit and in article 88 of the CIRC for IRC based on the taxable matter of autonomous taxation and the respective rates.
But the forms of liquidation provided for in Chapter V of the same Code are of common application to autonomous taxation and the remaining taxable matter of IRC.
However, the fact that a self-assessment of IRC, made in accordance with no. 1 of article 90, may contain several partial calculations based on various rates applicable to certain taxable matters does not imply that there is more than one liquidation, as results from the very terms of that provision when referring to "liquidation", in the singular, in all cases where it is "made by the taxpayer in the declarations referred to in articles 120 and 122", having "as its basis the taxable matter contained therein" (whether that determined in accordance with the rules of articles 17 and following or that determined in accordance with the various situations provided for in article 88).
Moreover, it is not only the liquidations provided for in article 88 that may encompass various calculations of application of rates to certain taxable matters, as the same may occur in the situations provided for in nos. 4 to 6 of article 87.
In any case, whatever the calculations to be made, the self-assessment that the taxpayer or the Tax and Customs Authority must make in accordance with articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c), and 120 or 122, is unitary, and based on it the global IRC is calculated, whatever the taxable matters relating to each type of taxation underlying it.
Moreover, if this article 90 were not applicable to the liquidation of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no rule providing for its liquidation, which would amount to illegality, by violation of article 103, no. 3, of the Constitution, which requires that the liquidation of taxes be made "in accordance with law".
It should also be noted that the new provision of no. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of March 30, regardless of whether or not it is truly interpretative, does nothing to alter this conclusion, since it establishes, with regard to the form of liquidation of autonomous taxation, that it "is effected in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provision in the preceding numbers".
Indeed, while it is true that this new provision comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of article 88) and that competence lies with the taxpayer or the Tax Administration, in accordance with article 89, it is also clear that it does not depart from the need to use the procedure provided for in no. 1 of article 90, namely in the cases provided for in its paragraph c) where liquidation lies with the Tax and Customs Authority, with "based on the elements available to the tax administration", which seems unquestionably to encompass the possibility of liquidating based on autonomous taxation, if the Tax and Customs Authority has elements that prove its requirements.
For this reason, both before and after Law no. 7-A/2016, of March 30, article 90, no. 1, of the CIRC is applicable, in the terms stated, to the liquidation of autonomous taxation, or rather, with autonomous and distinct determination from that processed in accordance with the cited article 90.
The Question of the Deductibility of Investment Expenses Provided for in SIFIDE to Amounts Owed as Autonomous Taxation
Having examined the rules governing the system of tax incentives for business research and development, commonly known as SIFIDE, in the circumstances of time relevant to the present proceedings, we find that, according to article 4 (Scope of deduction) of the statute:
"Taxpayers of IRC resident in Portuguese territory who carry out, as the principal activity or not, an activity of an agricultural, industrial, commercial or service nature and non-residents with permanent establishment in that territory may deduct from the amount determined in accordance with article 90 of the IRC Code, and up to its limit, the value corresponding to expenses with research and development, in the part that has not been the subject of financial contribution by the State on a grant basis, carried out in the tax periods from January 1, 2011 to December 31, 2015, in a twofold percentage:
a) Base rate – 32.5% of expenses incurred in that period;
b) Incremental rate – 50% of the increase in expenses incurred in that period compared to the simple arithmetic average of the two preceding years, up to the limit of €1,500,000.
2 – (…)
3 - The deduction is made, in accordance with article 90 of the IRC Code, in the liquidation relating to the tax period mentioned in the preceding number.
4 - Expenses that, due to insufficient collection, cannot be deducted in the year in which they were incurred may be deducted until the 6th immediate following year".
SIFIDE allows companies to obtain a tax benefit, in the context of IRC, proportional to the investment expense in research and development (at the level of processes, products and organizational) that they can demonstrate, in the part that has not been the subject of financial contribution by the State on a grant basis (see Law no. 55-A/2010 of December 31, Decree-Law no. 82/2013 of June 17 and Law no. 83-C/2013 of December 31).
SIFIDE aims to increase the competitiveness of companies, supporting their effort in Research and Development through the deduction from the IRC collection of the respective expenses.
It was created as a measure to stimulate the participation of the business sector in the overall research and development effort. The experience resulting from its application allows us to conclude that this mechanism has contributed to an effective increase in research and development activity by Portuguese companies.
This incentive system underwent various revisions. In the regime in force from 2011 (SIFIDE II) the introduction of some amendments to the previously applicable legislation aimed to make that regime more attractive for companies.
The benefit to be obtained with SIFIDE II results in the possibility of deducting from the IRC collection assessed in the year, an amount of tax credit resulting from the sum of the following items:
• Base rate: 32.5% of expenses incurred in the year;
• Incremental rate: 50% of the increase in expenses incurred in the year compared to the simple arithmetic average of expenses incurred in the two preceding years, up to the limit of €1,500,000.
That is: it is, essentially, the possibility of deducting from the IRC collection assessed in the year, the amount of tax credit verified. Expenses that, due to insufficient collection, cannot be deducted in the year in which they were incurred may be deducted until the eighth immediate following year.
The prior question in this regard and with a view to the subject matter of the dispute is how to calculate the amount referred to in article 90 of the CIRC to which the value corresponding to expenses with research and development should then be deducted, in the part that has not been the subject of financial contribution by the State on a grant basis, in a twofold percentage: 32.5% of expenses incurred in the tax period and 50% of the increase in expenses incurred in the tax period compared to the simple arithmetic average of the two preceding years, up to the limit of €1,500,000.
Subsuming:
The claimant requests that the tax credits recognized to it under SIFIDE be deducted from the collection produced by the autonomous taxation that burdened it in the respective tax years.
Now, having examined the rules governing SIFIDE II, it is noted that, according to article 4 (Scope of deduction) of the statute in conjunction with article 90 of the CIRC, the values that translate the tax benefit in the context of SIFIDE are deducted "from the amounts determined in accordance with article 90 of the IRC Code, and up to its limit" (underlining ours) and in the liquidation relating to the tax period in which the eligible expenses are incurred and that, in the absence or insufficiency of collection assessed in those terms, expenses that cannot be deducted in the year in which they are incurred "may be deducted until the 6th immediate following year".
Well then, the collection to which article 90 refers when the liquidation is to be made by the taxpayer (a situation that occurs in these proceedings) is assessed on the basis of the taxable matter contained in that liquidation/self-assessment [see article 90, no. 1, paragraph a) of the CIRC].
In this way, the credit in which SIFIDE translates is deducted only from the collection thus assessed, that is, the collection assessed on the basis of the taxable matter (see article 5, paragraph a), of the cited Law governing SIFIDE) and not from the collection resulting from autonomous taxation.
That is: there is an express legal impediment in the IRC Code for the credits stemming therefrom (SIFIDE) to be deducted from autonomous taxation.
Autonomous Taxation
As regards autonomous taxation itself, it is reaffirmed that it is assessed autonomously and distinctly from the assessment carried out in accordance with article 90 of the CIRC.
As decided in the Decision of the Constitutional Court no. 310/2012, IRC and autonomous taxation are distinct taxes, with different taxable base and subject to specific rates. IRC 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 other hand, in autonomous taxation in IRC - according to constitutional jurisprudence itself (see, e.g., Decision no. 617/2012 (Plenary) – the fact giving rise to 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 to pay with a sporadic character. For this reason it is understood that we are facing a tax of single obligation, as opposed to periodic taxes, whose fact giving rise is produced in successive manner over time, generating for the taxpayer the obligation to pay tax with a regular character.
Thus autonomous taxation, although provided for in the CIRC and liquidated, as seen, together with IRC for purposes of collection, has nothing to do with the taxation of income or with profits attributable to the economic exercise of the company, since it applies to certain expenses that constitute autonomous tax facts that the legislator, for reasons of tax policy, wanted to tax separately by subjecting them to a predetermined rate that has no relationship with the volume of business of the company (see Decision of the High Administrative Court of April 12, 2012, Case no. 77/12).
Developing and further historicizing the question of the nature of autonomous taxation and its degree of connection with IRC:
One must go back to the year 1990 to find the first legislative intervention to subject certain expenses to autonomous taxation and which occurred with the publication of Decree-Law no. 192/90, of June 9, whose article 4 provided that "confidential or undocumented expenses made in the course of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by IRC taxpayers not included in articles 8 and 9 of the respective Code are taxed autonomously in IRS or IRC, as the case may be, at a rate of 10%, without prejudice to the provision of paragraph h) of no. 1 of article 41 of the CIRC."
This provision was subject to several subsequent amendments that successively increased the taxation rate provided therein.
With this type of taxation it was intended, on the one hand, to encourage the taxpayers subject to it to reduce as much as possible the expenses that adversely affect tax revenue and, on the other hand, to prevent that, through such expenses, companies would carry out disguised distribution of profits, especially dividends that would thus only be subject to IRC as profits of the company, as well as to combat the fraud and tax evasion that such expenses occasion not only in relation to IRS or IRC, but also in relation to the corresponding contributions, both of employers and employees, to social security.
Saldanha Sanches (Manual of Tax Law, 3rd Edition, Coimbra Editora, 2007, p. 407), regarding autonomous taxation provided for in article 81, no. 3, of the CIRC, wrote as follows: "(…) In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax treatment of expenses that are in the intersection zone of the personal sphere and the business sphere, in order to avoid remuneration in kind more attractive for purely fiscal reasons or hidden distribution of profits. The provision presents a characteristic similar to what we will find in the legal sanction against undocumented costs, with an increase in the rate when the taxpayer's situation does not correspond to a situation of fiscal normality. If in the taxpayer's declaration there is no profit, the cost may be subject to negative valuation: for example, we have a rate of 15% applied when the taxpayer had losses in the two preceding years and purchased a light passenger vehicle for more than €40,000 (article 81, no. 4).
With this provision, the system shows its dual nature, with an increased rate of autonomous taxation for certain special situations that one seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles supposedly too expensive when there are losses. One creates here a kind of presumption that these costs do not have a business cause and, for this reason, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its fiscal advantage, since here the base of incidence is not a net income, but rather a cost transformed – exceptionally – into an object of taxation (…)" (underlining ours).
Contrary to what happens in the taxation of income in the context of IRS and IRC, where the aggregate of income earned in a certain year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer falls), in the case each expense made is taxed, considered in itself, and subject to a certain rate, with autonomous taxation being assessed independently of the IRC that is owed in each year, because it is not directly related to the achievement of a positive result, and therefore, subject to taxation.
Thus, in the case of IRC, we are facing an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a certain year, with the law considering that the fact giving rise to the tax is deemed to occur on the last day of the tax period (see article 8, no. 9, of the CIRC).
Now as regards autonomous taxation in IRC, the fact giving rise to the tax is the very realization of the expense, we are not facing a complex fact, of successive formation over a year, but rather an instantaneous tax fact.
This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose fact giving rise is produced in a successive manner, by the passage of a certain period of time, as a rule annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and taxes of single obligation (whose fact giving rise is produced in an instantaneous manner, arises isolated in time, generating on the taxpayer an obligation to pay with a sporadic character).
In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various rates of autonomous taxation to the various acts of realization of expense considered, is to be carried out at the end of a certain tax period). But the fact that the liquidation of the tax is carried out at the end of a certain period does not transform it into a periodic tax, of successive formation or of a lasting character. This operation of liquidation translates only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence from the volume of expenses incurred in the determination of the rate.
In this case we are facing a single obligation tax, applying to operations that occur and are exhausted in an instantaneous manner, in which the fact giving rise to the tax arises isolated in time, originating, for the taxpayer, an obligation to pay with a sporadic character. That is, the autonomous taxation rates here in analysis do not refer to a period of time, but to a moment: that of the isolated operation subject to the rate, without prejudice to the determination of the amount owed by economic agents subject to the said "rate" being carried out periodically, at a certain moment, together with other similar operations, without the joint liquidation influencing its result.
For this reason, Sérgio Vasques (Manual of Tax Law, Almedina, 2011, p. 293, note 470) calls attention to the fact that taxes on income contemplate elements of single obligation, such as the liberatory rates of IRS or the autonomous taxation rates of IRC (underlining ours).
Autonomous taxation, in accordance with its initial regulation, constituted as it were a substitute for the regime of non-deductibility previously provided for in the CIRC.
Indeed, at its genesis was the non-acceptance by the tax authorities of a percentage of certain expenses, with autonomous taxation constituting an alternative and more effective form of correction of costs whenever it is an area more prone to tax evasion (daily allowances, representation expenses, vehicle expenses, etc.).
Thus, it would not be reasonable, it would even be contrary to the reason that led the legislator to autonomously tax those expenses, that through their deduction from taxable profit as expenses the grounds for the existence of autonomous taxation be eliminated.
Arbitral jurisprudence has decided that autonomous taxation belongs, as a rule, systematically, to IRC, and not to VAT, to IRS, or to any other tax of the Portuguese fiscal system. This is the case, among others, in the decisions rendered in arbitral proceedings nos. 166/2014-T, 246/2013-T, 260/2013-T, 282/2013-T, 6/2014-T, 36/2014-T and 697/2014-T, 727/2015-T, 785/2015-T.
Autonomous taxation is thus strongly linked to the taxpayers of the respective income tax, and more specifically to the economic and business activity carried out by them. What is at issue in that context is indeed the taxation of certain expenses or charges (costs), viewed in their relationship with the general idea of real and effective profit and the taxation of income.
Indeed, it seems to us beyond doubt that the mechanism of autonomous taxation of the set of realities provided for in article 88 of the CIRC is primarily intended to safeguard the general balances of the fiscal system itself, the specific balances of IRC and the revenue of the tax itself. That is, it is intended to prevent that through the significant relief of charges such as those provided for in article 88, distortions affecting the system are not introduced and the expectation about what should be the "normal" revenue of the tax is not frustrated (underlining ours). That is: what is at issue is to discourage the realization / relief of such expenses, first and foremost because, by their nature and purposes, they can be more easily subject to diversion to consumption that, in essence, is private or corresponds to charges that do not cease to also have, as a specific and ultimate purpose, the avoidance of tax. Realities that present some measure of reprehensibility inasmuch as, not directly violating the law, they generate sensible and important imbalances over the general idea of justice, over the fundamental duty to contribute in proportion to one's assets, of equality, of sacrifice, of proportionality of the measure of the tax in the face of possible manifestations of wealth, of taxation of real income and of justice.
Functioning in a way different from what constitutes the essential scope of IRC – which taxes income – autonomous taxation, it is reaffirmed, taxes certain specific expenses or charges – and constitutes an instrumental reality, accessory to that tax, to the extent that it is in function of it that they were instituted and are, therefore, capable of being recognized as having an instrumentality or accessoriness of purposes, rooted in the safeguarding of the ends of the tax itself where they manifest.
It is thus certain that autonomous taxation does not constitute IRC in the strict sense but are imbricated with it (IRC), and should be contained in the "other taxes" of which the end part of paragraph a) of no. 1 of article 45 of the CIRC gives us account [wording then in force and current article 23-A/1-a), of the CIRC] (underlining ours).
As was considered in a relatively recent decision of the Constitutional Court in appeal of an arbitral tax decision, "(…) autonomous taxation, although regulated normatively in the context of income tax, is materially distinct from taxation in IRC, insofar as it applies not directly to the taxable profit of the company, but to certain expenses that constitute, in themselves, a new tax fact (which refers not to the receipt of income but to the realization of expenses). And thus, autonomous taxation has inherent the idea of discouraging a practice that, beyond affecting equality in the distribution of public charges, may involve situations of less fiscal transparency, and is explained by a legislative intent to encourage companies to reduce as much as possible the expenses that negatively affect tax revenue (…)" [see Decision no. 197/2016 of the Constitutional Court, in Official Gazette, 2nd Series, no. 99, of May 23, 2016].
Revelations of this functional connection, and within the framework of the legislator's overall intention, stand out, for example from the discipline of article 12 of the CIRC regarding entities subject to the fiscal transparency regime, by not taxing them in IRC, "except as to autonomous taxation", a relationship that also manifests itself in light of no. 14 of article 88 of the CIRC, to the effect that autonomous taxation rates take into account whether or not the taxpayer presents a fiscal loss.
"Although formally inserted in the CIRC and the amount it allows to raise is liquidated within its scope and as IRC, the provision in question respects an imposition that is materially distinct from taxation in this category, (….). Indeed, we are facing autonomous taxation, as the very letter of the provision says. And that makes all the difference. It is not a matter of taxing income at the end of the tax period, but certain types of expenses in themselves, for the understandable reasons of tax policy that the decision points out.
Thus, the fact revealing tax capacity that one seeks to achieve is the simple realization of that expense, at a given moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not they will have taxable income in IRC at the end of the period, with it being irrelevant that this installment of tax only comes to be liquidated at a later moment and together with IRC (…)" [vote of the Judge of the Constitutional Court Vítor Gomes in a Decision of that Court rendered in Case no. 2014/2010. This understanding was subsequently confirmed or reiterated by the Decision of the Constitutional Court Plenary no. 617/2012 - case no. 150/12, of January 31, 2013 and in Decision no. 197/2016 - case no. 465/2015, in addition to the cited Decision no. 197/2016].
It was also recognized by the jurisprudence of the High Administrative Court (2nd section, case 830/11, of March 21, 2012) "that under the designation of autonomous taxation hidden are very diverse realities, including, in accordance with no. 1 of the (then) article 81 of the CIRC, confidential or undocumented expenses, which are taxed 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 the principal activity, commercial, industrial or agricultural activities (no. 2 of [then] article 81) and which are not considered as cost in the calculation of income taxable in IRC.
It should be noted, however, that expenses for representation and those related to light vehicles, in accordance with the provision of the (then) article 81 no. 3 of the CIRC and daily allowances are affected by business activity and "indispensable" so are fiscally accepted in some cases although within certain limits.
For its part, the Constitutional Court, in its Decision no. 18/11, tells us that there are facts subject to autonomous taxation, which correspond to "charges demonstrably indispensable to the realization of income" and that therefore the prohibition of retroactive application of the new law does not apply, since such charges would have been incurred regardless of the applicable tax regime: this means that autonomous taxation also applies to charges that correspond to the core of the concept of real income, net income and compliance with accounting obligations. This argument of the Constitutional Court, regarding the retroactive application of tax law to autonomous taxation (and this matter of the application of law over time is not within the scope of this decision), interests us only to note that the Court recognizes that this regime constitutes a limitation to the taxation of real income (which is guaranteed by article 104 no. 2 of the Constitution).
In decision no. 310/12, of June 20 (Rapporteur João Cura Mariano), the Constitutional Court reformulates the doctrine of Decision no. 18/11, moving closer to the said dissenting vote of Judge Vítor Gomes and the Decision of the High Administrative Court no. 830/11, all cited in the preceding paragraphs, as follows: "(…) Contrary to what happens in the taxation of income in the context of IRS and IRC, where the aggregate of income earned in a certain year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer falls), in the case each expense made is taxed, considered in itself, and subject to a certain rate, with autonomous taxation being assessed independently of the IRC that is owed in each year, because it is not directly related to the achievement of a positive result, and therefore, subject to taxation.
Thus, in the case of IRC, we are facing an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a certain year, with the law considering that the fact giving rise to the tax is deemed to occur on the last day of the tax period (see article 8, no. 9, of the CIRC). Now as regards autonomous taxation in IRC, the fact giving rise to the tax is the very realization of the expense, we are not facing a complex fact, of successive formation over a year, but rather an instantaneous tax fact. This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose fact giving rise is produced in a successive manner, by the passage of a certain period of time, as a rule annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with a regular character) and taxes of single obligation (whose fact giving rise is produced in an instantaneous manner, arises isolated in time, generating on the taxpayer an obligation to pay with a sporadic character). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of certain expense that is subject to taxation (although the determination of the amount of tax, resulting from the application of the various rates of autonomous taxation to the various acts of realization of expense considered, is to be carried out at the end of a certain tax period). But the fact that the liquidation of the tax is carried out at the end of a certain period does not transform it into a periodic tax, of successive formation or of a lasting character. This operation of liquidation translates only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, with no influence from the volume of expenses incurred in the determination of the rate (…)"
Analyzed further from another perspective, one must consider autonomous taxation in the context of specific anti-abuse provisions and its similarity with the regime provided for in no. 1 of article 65 of the CIRC, in the 2011 wording ("amounts paid or owing, on any account, to natural or legal persons resident outside Portuguese territory and there subject to a clearly more favorable tax regime, are not deductible for purposes of determining taxable profit, unless the taxpayer can prove that such charges correspond to operations effectively carried out and do not have an abnormal character or an exaggerated amount").
Since autonomous taxation aims to reduce the fiscal advantage achieved with the deduction from taxable profit of the costs on which it applies and also to combat the tax evasion that this type of expense, by its nature, potentiates, it cannot itself through its deduction from taxable profit as an expense of the year constitute a factor reducing that reduction in advantage intended and determined by the legislator.
Concluding: autonomous taxation, which applies to charges deductible in IRC, integrates the regime and is owed as title of this tax, with the expenses for the payment of such autonomous taxation not constituting charges deductible for purposes of determining taxable profit.
This understanding was legally and more recently clarified by article 3 of Law no. 2/2014, of January 16, which added article 23-A to the CIRC (at the same time that its article 13 repealed article 45), with the following wording:
Article 23-A - Charges Not Deductible for Tax Purposes
"1. The following charges are not deductible for purposes of determining taxable profit, even when recorded as expenses of the tax period:
a) IRC, including autonomous taxation, and any other taxes that directly or indirectly apply to profits".
With no doubts remaining as to the interpretative character of the provision transcribed, in accordance with the rules of legal hermeneutics, in practice, such provision comes to express what the legislator has always understood and continues to understand, that is, that the charges resulting from the cost associated with autonomous taxation are irrelevant for purposes of determining taxable profit.
Thus, in the case sub judice, there appears to be no violation by the AT of the rules of procedure and/or form of liquidation provided for in article 90 of the CIRC with the disregard, for this purpose, of the autonomous taxation liquidated and paid by the claimant.
Therefore, there is no intended illegality in the calculation of the collection relating to IRC in the claimant's years 2013 and 2014 for purposes of the deduction of the aforementioned eligible expenses within SIFIDE.
The Evolution of PEC – Special Payment on Account of IRC owed at the end and its regime
The genesis and evolution of PEC develops in three stages, namely (i) the regime from its inception until the year 2000; (ii) the regime applicable to the years 2001 and 2002; and the subsequent regime that has been in effect until today.
In its initial version PEC was presented as a tool for improvement of the system, which was and is largely based on the declaration of income by taxpayers. Its introduction into the tax system was simultaneous with the reduction of the general rate of IRC by two percentage points. The occurrence of the two facts is not a coincidence; on the one hand, the rate applicable to taxpayers paying tax was reduced; through PEC the special payment of a sum was promoted as tax, albeit provisionally, by taxpayers who, despite continuing to carry out their activity year after year, persisted in declaring negative or nil income, escaping actual taxation. It is thus, as a measure to combat "evasive practices of concealing income or inflating costs" that PEC was justified in the preamble of Decree-Law no. 44/98, of March 3, which established it.
The provisional nature of the payment of the tax lay in fact in the possibility of deducting the amounts paid as PEC from the IRC assessed in general terms, fixed in article 71 of the CIRC then in force (which did not yet include autonomous taxation), although that deduction was only possible if despite this operation the value of the tax to pay was positive (71-6 CIRC.1998). In the absence of IRC to pay in general terms, the value of the PEC paid could be carried forward to the following year (74-A-1) or reimbursed later (74-A-2). It was sought thus to ensure that the generality of taxpayers satisfied value for IRC, calculated provisionally on the volume of business of the previous year (83-A). Basically, it was assumed that all companies would tend to have taxable profit, calculated in accordance with general parameters, equivalent to 1% of their business volume of the previous year, settling the account subsequently if this were not the case.
As is well noted in the Arbitral Decision rendered in Case 722/2015-T, of CAAD, which we closely follow here, the reform of IRC carried out in 2000-2001 through Law no. 30-G/2000, of December 29, reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained active and imposed that the carryforward of the amounts paid be made only until the fourth subsequent year (74-A-1 CIRC/2001). From this restrictive provision results, for the first time, the possibility of PEC becoming minimum collection (in this sense, TERESA GIL, Special Payment on Account, Revista Fisco. Year XIV, (March 2003), no. 107-108, p. 12) when it was not possible to deduct the amounts paid, due to exhaustion of the carryforward period. In summary, it is possible to state that the changes introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had animated the introduction of PEC. Although on this occasion "autonomous taxation" was introduced into the CIRC, no mechanism for coordination between the two instruments was provided.
The third configuration of PEC is introduced by Law no. 32-B/2002, of December 30, which in its article 27 introduced a new regime of deductibility of PEC in article 87, no. 3, of the CIRC, restoring the possibility of reimbursement of amounts paid as special payment on account and not deducted in the annual IRC liquidation. Here too was maintained the character of a measure for the pursuit of tax evasion, although it was alleviated, without completely abolishing, the aspect of minimum collection, in light of the tight conditions imposed for reimbursement.
Article 104 of the CIRC provides: "Entities that carry out, as the principal activity, an activity of a commercial, industrial or agricultural nature, as well as non-residents with permanent establishment in Portuguese territory, must proceed to the payment of tax as follows:
a) In three payments on account, due in July, September and December 15 of the same year to which taxable profit relates or, in the cases of nos. 2 and 3 of article 8, in the 7th month, in the 9th month and on the 15th day of the 12th month of the respective tax period;"
(…)
And article 106 of the CIRC provides: "Without prejudice to the provision of paragraph a) of no. 1 of article 104, the taxpayers mentioned therein are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates or, in the case of adopting a tax period not coincident with the calendar year, in the 3rd and 10th months of the respective tax period."
From the foregoing results the obligation, for IRC taxpayers, to make payments on account of the IRC that will be owed at the end. As is known, the technique of payments on account consists, in general, in a mere mechanism for anticipation of the tax that may be owed at the end. It is, as is peacefully accepted and was emphasized in the Arbitral Decision rendered in case 722/2015-T of CAAD, and in others, "a means that has advantages for the State since it allows it to anticipate the receipt of tax, while ensuring its collection at the moment or as income is produced, without prejudice to the final assessment and with observance of the assessment of what is owed according to the method of taxation by real profit."
It is true that the reason for payments on account and special payment on account, departing from this common root - since, unequivocally, both are the product of a tax technique by which the collection of tax owed at the end is anticipated – diverges since, nevertheless, they present (in the second case), somewhat differentiated justifications. While the reason for payments on account exhausts itself, in our view, in the fundaments evidenced above, already special payment on account, without losing sight of that purpose, has yet another which has been added to it. Indeed, as rightly referred to in the Arbitral Decision rendered in case no. 113/2015-T, "in doctrine and jurisprudence the regime of PEC has always been regarded as a system to avoid tax evasion and to ensure the payment of tax by all companies in activity." This is also what results from the doctrinal work developed by the Constitutional Court. In the cut given to it in the CIRC, it is also "inextricably linked to the fight against evasion and tax fraud", seeking to ensure that the income manifested by taxpayers "correspond[s] to the income really earned". [see Decision of the Constitutional Court (plenary) no. 494/2009 of September 29, 2009, case no. 150/12, available, like the others cited, at < http://www.tribunalconstitucional.pt/tc/acordaos/20090494.html>.
This Decision no. 494/2009 of the Constitutional Court identifies multiple scientific works that pronounced themselves in the same sense, as is the case of Teresa Gil (ob. and loc. Cited), who gave account of the circumstances surrounding the introduction of PEC, namely the difficulties in applying the principle of taxation by real profit, noted in light of the "divergence that exists between the profits actually obtained and those declared by companies and, therefore, subject to taxation".
As has been said, and in this step, we make our own the summary invoked in the above mentioned Arbitral Decision, in which the current PEC regime is thus characterized as "(i) having an inextricable connection to the fight against evasion and tax fraud; (ii) having been introduced into the CIRC in March 1998, before the autonomous taxation rates that only became part of its systematic in the 2000-2001 reform; (iii) in the design of PEC its deduction to the collection in the liquidation of IRC calculated on real income was provided; (iv) the recovery of the credit resulting from PEC is subordinate to conditions for obtaining profitability ratios specific to companies in the sector of activity in which they operate or justification of the credit situation by inspection action undertaken at the request of the taxpayer (87-3 of the CIRC).
The subsequent question is whether these special reasons are such as to allow the deduction to the collection of autonomous taxation of either tax benefits to which the taxpayer is entitled or the PEC itself. As to the former, we have already pronounced ourselves above to the effect of such impossibility. As for the PEC, the fact is that it is nothing more than a payment on account of the IRC that will (presumably) be owed at the end by the taxpayer, albeit with some special characteristics. And, therefore, it is IRC for all legal purposes, although there are special rules for its return.
Unlike autonomous taxation, which is collection owed by reason of behaviors that the law wishes to discourage and, therefore, penalize the relief of certain expenses for the reasons indicated, in PEC what is at issue is to ensure that certain amount is advanced as title of IRC and without prejudice to its deduction from the general collection of the tax, assessed by the effect of the operation of liquidation strictly speaking.
Now, as rightly referred to in the Arbitral Decision case 13/2015-T, "the PEC became part of the system of IRC whose liquidation was designed to assess the tax directly applicable to the income declared. When there is a tax loss, the taxpayer still has to bear PEC; this was indeed the reason for its introduction. If a particular company has successive tax losses, will systematically bear tax, since the system doubts its ability to operate in a permanently deficit situation, requiring it to provisionally satisfy (on account) a certain amount. It may be reimbursed if it proves that this situation is common in its sector of activity or if the AT verifies the regularity of its declarations. This was the balance that the CIRC required to maintain a system based on the declarations made by taxpayers.
Now the tax resulting from autonomous taxation is founded solely on the pursuit of tax evasion by transfer of income and has the dissuasive and compensatory effect. If the deduction of PEC to the collection resulting from autonomous taxation is allowed, the purposes of the system in which the provision of article 83-2-e CIRC is inscribed will be frustrated, since the product of the special payment on account that should remain "stationary" in the ownership of the Public Treasury will be affected to the extinction of the debt of the taxpayer resulting from autonomous taxation, thus lightening the intended pressure to avoid tax evasion "declarative". There is indeed an irreconcilable conflict between the ratio of PEC – the fight against evasion or pressure for correction of declarations – and the allocation of its credits to the satisfaction of other obligations that are not those resulting from the assessment of IRC calculated on the result taxable.
In practical terms, the possibility of deduction of PEC to autonomous taxation would imply that even if a particular company were eternally in a deficit situation, it would have no tax on its real income to bear, as long as it applied PEC to the satisfaction of autonomous taxation. Moreover, the autonomous taxation itself (see Decision of the Constitutional Court no. 617/2012, cited) would lose its anti-abuse character, coming to be confused in fact with the tax calculated on taxable profit. Now these are not the objectives of the system of taxation of the income of legal entities and the best interpretation of the provision contained in article 83-2-e CIRC is not that one which allows the deduction of special payments on account from the collection resulting from the application of autonomous taxation rates."
In summary, weighty reasons, derived from the purposes it was intended to achieve legislatively with the creation of special payment on account, justify a restrictive interpretation of articles 90, no. 1, and 93, no. 3, of the CIRC, especially the reference made in the latter to "the amount assessed in the declaration referred to in article 120 of the CIRC".
It should be noted that this arbitral understanding is, once again, in harmony with the new no. 21 of article 88 of the CIRC added, as we have seen, by Law no. 7-A/2016, of March 30, in establishing that to the amount assessed of autonomous taxation are not "made any deductions" (underlining ours).
Also, in this case, the legislator merely adopted, clarifying it, a solution that the courts, with recourse to the applicable rules and by application of the criteria of legal hermeneutics, were in a position to extract from the regime to be applied, which is all this collective has done, in the case of these proceedings.
Indeed, although article 135 assigns, as has already been said, an interpretative nature to no. 21 of article 88 of the CIRC, which, combined with article 13 of the Civil Code, leads to its retroactive application, as has been demonstrated from the argument above, the solution found by this collective did not need to apply this new provision.
In the same sense goes the Arbitral Decision no. 673/2015-T, where in this regard it was also concluded, among other things, that the solution already resulted from the literal wording of article 93, no. 1, of the CIRC, "(…) without exceeding the limits normally imposed on the interpretation and application of the law, since restrictive interpretation is admissible when there are weighty reasons to conclude that the scope of the legal text betrays the legislative intent or it is necessary to optimize the harmonization of conflicting interests that two rules seek to protect."
Having examined the facts and the Claimant's request to see deducted to the part of the IRC collection produced by the autonomous taxation rates of the PEC made in the context of IRC, in light of all that has been stated, such request cannot fail to be unfounded.
For the reasons stated above, the Claimant's requests must inevitably be unfounded, since the contested liquidations comply with legality as they are based on correct application and interpretation of the cited rules.
Subsidiary Requests
Formally a subsidiary request is what is presented to the Tribunal to be considered only in the event that a prior request is not founded (see article 554-1 of the CPC, applicable ex vi article 29 of the RJAT).
In the case sub judice the "subsidiary requests" are formulated not to be considered only if the main request is not upheld but only, if we understand correctly, for the eventuality that certain understandings or interpretations of the Law be not endorsed by the Tribunal or preventing the possible dismissal of a request for arbitral ruling in an alleged pending proceeding.
There are thus, in formal and proper sense, on the one hand no true subsidiary requests and, on the other, the Claimant has never even demonstrated the pendency of another arbitral proceeding and/or the decision rendered therein.
In any case, the legal framework of the issues raised was fully and previously carried out in terms of prejudicing any other considerations.
As for the requests for reimbursement of the amounts of €127,872.78 and €59,853.93 [see paragraph c) of the request] and for ordering the AT to pay indemnification interest in accordance with article 43 of the General Tax Law [see paragraph e) of the request], the examination and decision on the same is prejudiced by the unfoundedness of the requests for annulment of the mentioned acts of explicit rejection of the administrative appeal and implicit rejection [see paragraphs a) and b) of the request for arbitral ruling].
III DECISION
In accordance with the foregoing, the Arbitral Tribunal agrees to:
a) Rule as unfounded the requests for declaration of illegality and annulment of the acts of explicit rejection of the administrative appeal and implicit rejection of the hierarchical appeal mentioned and, consequently, of the self-assessments of IRC nos. 2014 … and 2015 …, relating to the tax periods 2013 and 2014 [see paragraphs a) and b) of the request];
b) Rule as unfounded and/or prejudiced the requests for ordering the AT formulated in c), d) and e) of the request and
c) Order the Claimant to pay the costs of the proceedings.
Value of the Proceedings
In accordance with the provision of article 306, nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 47/2013, of June 26, 97-A), no. 1, paragraph a) of the Code of Procedure and Tax Process, and article 3, no. 2 of the Regulation of Costs in Arbitration Proceedings in Tax Matters, the value of the proceedings is fixed at €187,126.71
Costs
In accordance with articles 12, no. 2, 22, no. 4 of the RJAT, and articles 2 and 4 of the Regulation of Costs in Arbitration Proceedings in Tax Matters, and Table I annexed thereto, the amount of costs is fixed at €3,672.00, to be borne by the Claimant, in accordance with the ordering above.
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Lisbon, September 11, 2017
The Collective Arbitral Tribunal,
José Poças Falcão
(Presiding Arbitrator)
Hélder Faustino
(Adjunct Arbitrator)
Armando Tavares
(Adjunct Arbitrator)
[1] Law no. 40/2005, of August 3 to be in effect between 2006 and 2010, Law no. 55-A/2010, of December 31 (article 133) institutes SIFIDE II to be in effect between 2011 and 2015, amended by Law no. 64-B/2011, of December 30.
[2] It is important to note briefly that the System of Tax Incentives for Business Research and Development aims to increase the competitiveness of companies, supporting their effort in Research and Development through the deduction from the IRC collection of the respective expenses. SIFIDE was created in 1997 as a measure to stimulate the participation of the business sector in the overall R&D effort. The experience resulting from its application allows us to conclude that this mechanism has contributed to an effective increase in R&D activity by Portuguese companies. The incentive system underwent several revisions.
SIFIDE II came into effect from 2011 with the introduction of some amendments to the legislation that make it even more attractive for companies. The State Budget Law for 2011 – Law no. 55-A/2010, of December 31, subsequently amended by Law 83-C/2013 of December 31, instituted SIFIDE II, which replaced SIFIDE, with the objective of continuing to increase the competitiveness of companies, supporting their efforts in R&D. The System of Tax Incentives for Business Research and Development II, to be in effect in the period 2013 to 2020, aims to support Research and Development activities, related to the creation or improvement of a product, a process, a program or equipment, that present a substantial improvement and that do not result merely from simple use of the current state of existing techniques.
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