Process: 669/2016-T

Date: June 13, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Process 669/2016-T addresses the critical question of whether RFAI contractual investment tax credits can be deducted from autonomous taxation (tributações autónomas) under Portuguese IRC for fiscal years 2013 and 2014. The claimant self-assessed IRC including autonomous taxation but encountered Tax Authority system errors preventing deduction of fiscal benefits from the autonomous taxation component, resulting in alleged overpayment. The core legal dispute centers on the interpretation of Article 90 IRC Code: the claimant argues that since prevailing arbitral jurisprudence qualifies autonomous taxation as IRC, fiscal benefits operating through collection deduction should apply to both regular IRC and autonomous taxation collections. The Tax Authority rejected the administrative complaint, defending its system's approach. The claimant presents alternative grounds: if Article 90 excludes autonomous taxation from benefit deduction, then autonomous taxation itself violates Article 103(3) of the Portuguese Constitution requiring taxes to be assessed in accordance with law. The claimant relies heavily on majority arbitral precedents supporting deductibility and challenges the relevance of the 2016 legislative amendment introducing Article 88(21) IRC Code, arguing it represents innovative legislation rather than interpretative clarification and cannot apply retroactively to 2013-2014 tax years without violating constitutional prohibitions on tax retroactivity. The claimant seeks annulment of both the rejection decision and underlying self-assessment acts, plus reimbursement with compensatory interest calculated from original payment dates.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. On 4 November 2016, the Claimant, A…, S.A., with registered office at …, …, legal entity no. …, requested the CAAD to constitute an arbitral tribunal, in accordance with article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling the decision rejecting the administrative complaint and, likewise, the self-assessment acts for Corporate Income Tax that were the subject thereof, relating to the fiscal years 2013 and 2014.

The Claimant, alleging that it has paid the amounts of the self-assessments in question, further petitions for condemnation of the Respondent to reimburse it, plus compensatory interest at the legal rate, calculated from 1 September 2014 and 1 September 2015, respectively, until full reimbursement.

  1. The request to constitute the arbitral tribunal was accepted by the Honourable President of the CAAD and notified to the Tax and Customs Authority.

In accordance with the terms and for the purposes of the provisions in no. 1, article 6, of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed as arbitrator, who communicated acceptance of the mandate to the Deontological Council and to the Administrative Arbitration Centre within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 26 January 2017.

  1. The grounds presented by the Claimant in support of its claim were, summarily, as follows:

  • The Claimant filed on 30 May 2014 its Corporate Income Tax Declaration Form 22 for the fiscal year 2013 and on 29 May 2015, its Corporate Income Tax Declaration Form 22 for the fiscal year 2014, having at those times proceeded to self-assess the said tax (including autonomous taxation), which has been paid.

  • It happens that the Tax Authority's computer system shows anomalies substantiated in flagging divergences ("errors") which prevented the Claimant from entering the amount relating to the said autonomous taxation rates in Corporate Income Tax, net, i.e., deducted, within the scope of the Corporate Income Tax collection resulting from the application of these rates, of the amounts of contractual fiscal benefits recognized to the Claimant, in the form of tax credit deductible from Corporate Income Tax collection, which resulted in an excess of tax paid by reference to the fiscal years 2013 and 2014 in question here.

  • Given the overwhelming arbitral jurisprudence that today qualifies autonomous taxation as Corporate Income Tax, the Claimant absolutely sees nothing in the law that precludes the deduction of the fiscal benefit also from the part of Corporate Income Tax collection produced by autonomous taxation.

  • In proceedings for administrative complaint, the Tax Authority, through rejection of the petition, chose to sanction what results from its computer system.

  • If the Tax Authority understands that article 90 of the Corporate Income Tax Code does not include the Corporate Income Tax collection resulting from autonomous taxation (calculated in accordance with article 88), but only the Corporate Income Tax collection resulting from taxable profit (calculated in accordance with article 87), it would always have to conclude nonetheless that, after all, the assessment of autonomous taxation itself is, in itself, illegal, by force of both article 8, no. 2, subparagraph a), of the General Tax Law, and article 103, no. 3, of the Constitution: "No one may be obliged to pay taxes that have not been established in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not made in accordance with law." (article 103, no. 3, of the Constitution; our emphasis).

  • And by force of this illegality, the autonomous taxation assessments in question would in any case have to be annulled, now based on this other reason.

  • The prevailing arbitral jurisprudence, when called upon to resolve the issue to be decided in the present claim, has always understood that, precisely because article 90 of the Corporate Income Tax Code applies, fiscal benefits operating through deduction from the Corporate Income Tax collection, such as contractual fiscal benefits, should be deductible from the autonomous taxation collection.

  • Furthermore, the only arbitral jurisprudence that before the introduction of the new no. 21 of article 88 of the Corporate Income Tax Code in 2016 concluded that fiscal benefits would not be deductible from the autonomous taxation collection, concluded thus because precisely "with regard to autonomous taxation, it should be noted that these are calculated autonomously and distinctly from the calculation processed in accordance with article 90 of the Corporate Income Tax Code" (cf. arbitral decision in case no. 697/2014, of 13 May 2015).

  • Therefore, the Tax Authority cannot even attempt to assert that the interpretation expressed in the sole isolated decision that, before the legislative amendment introduced by the new no. 21 of article 88 of the Corporate Income Tax Code, concluded for the non-deductibility of fiscal benefits from autonomous taxation collection, was the one to which the legislator would allegedly be adhering.

  • Until the introduction of the new no. 21 of article 88 of the Corporate Income Tax Code in 2016, no interpreter or adjudicator concluded that, given the application of article 90 of the Corporate Income Tax Code to the assessment of autonomous taxation, then fiscal benefits operating through deduction from the collection were not susceptible of deduction from the collection of autonomous taxation.

  • Reason why a solution of the legislator cannot in any way be attributed interpretative nature when no interpreter or adjudicator arrived at or reached this when the issue was broadly discussed by taxpayers, the Tax Authority and arbitral tribunals.

  • The legislator therefore decided in an innovative manner on the issue, in a solution against the arbitral jurisprudence until then established on the same, whether the clearly majority one in favour of the deduction of fiscal benefits from the autonomous taxation collection and even against the jurisprudence that denied this deductibility as the legislator adopts a solution contrary to the interpretation thereof.

  • And, therefore, the fact that it is said that the new norm has interpretative nature is absolutely irrelevant to the present claim because it is the Courts (or else the principle of separation of powers would be violated) that must define whether a given norm is or is not interpretative and it has already been demonstrated that no one interpreted the issue to be decided in the terms that flow from the legislative amendment of the legislator in 2016.

  • To claim otherwise is to say that what the legislator in fact intends is to apply retroactively a new norm with entry into force on 31 March 2016, to tax facts of 2013 and 2014.

  • Furthermore, as Professor Dr. Saldanha Sanches laconically concludes "we do not believe that an interpretative law can take place in tax matters: if until now what was at issue were the falsely interpretative laws, the constitutional revision has come to prevent the retroactive effects of any norm in tax matters. Including those caused by interpretative law." (cf. "Interpretative Law and Retroactivity in Tax Matters", Tax Review, no. 1, January 2000, p.77 et seq.).

  • It is inescapable to conclude, as the majority arbitral jurisprudence already does, that the new no. 21 of article 88 of the Corporate Income Tax Code, added on 31 March 2016, has no relevance whatsoever in the present claim, and it must be concluded in favour of the deductibility of the Claimant's contractual fiscal benefits from the autonomous taxation collection of the fiscal years 2013 and 2014.

  • The Claimant paid with respect to the fiscal years 2013 and 2014 tax in an amount superior to that legally due, so that, the illegality of the (self-)assessment being declared in the part claimed here, the Claimant is entitled not only to the respective reimbursement, but, also, under article 43 of the General Tax Law (LGT), to compensatory interest.

  • This interest calculated on the amount of tax unduly paid, in the value of €18,301.89 and €22,878.22, respectively, calculated from the end of the date for official reimbursement of the tax, i.e., from 1 September 2014 and 1 September 2015, until full reimbursement of the said amount.

  1. The Tax and Customs Authority, called upon to pronounce itself, contested the Claimant's claim, defending itself by objection, in summary, with the following grounds:

  • The integration of autonomous taxation into the Corporate Income Tax Code (and Personal Income Tax Code) conferred a dualistic nature, in certain aspects, to the regulatory system of this tax, which was embodied, namely, in the framework of subparagraph a) of no. 1 of article 90 of the Corporate Income Tax Code, in separate calculations of the respective collections, by force of obeying different rules.

  • In one case, it is the application of the rate(s) of article 87 of the Corporate Income Tax Code to the taxable matter determined according to the rules contained in Chapter III of the Code and, in another case, it is the application of the rates to the values of the taxable matters relating to the different realities contemplated in article 88 of the Corporate Income Tax Code.

  • There is not a single assessment of Corporate Income Tax, but rather two calculations, two distinct assessments which, although processed, in accordance with subparagraph a) of no. 1 of article 90 of the Corporate Income Tax Code, in the declarations referred to in articles 120 and 122 of the same code, are carried out on the basis of different parameters, as each materializes in the application of its own rates, provided for in articles 87 or 88 of the Corporate Income Tax Code, to the respective taxable matters determined likewise in accordance with their own rules.

  • Given the diversity of the realities subject to autonomous taxation rates, the markedly anti-evasion purposes to which it is bound, the instantaneous nature regarding the verification of taxable facts, it is possible to conclude – in line with some doctrine and the jurisprudence of the courts and the Constitutional Court that, within the same tax – Corporate Income Tax – different modes of taxation coexist created for reasons of fiscal policy, i.e., alongside a regulatory structure that configures a tax levied on a taxable base constituted by profit, there are impositions that tax autonomously certain realities that manifest themselves in expenses or in income.

  • With regard to the deduction relating to fiscal benefits (subparagraph b) of no. 2 of article 90), when it comes to investment benefits – as is the case with contractual fiscal benefits -, there is an underlying philosophy that the benefit constitutes a reward whose amplitude varies with the profitability of the investments, since, the higher the profit/taxable matter of Corporate Income Tax, the greater will be the capacity to effect the deduction.

  • There is, therefore, an indissoluble link between the amount of the investment tax credit and the part of Corporate Income Tax collection calculated on the taxable matter based on profit and, were it not thus, the necessary articulation that, in the material sphere, must exist between the objectives pursued by fiscal benefits and their impact on the very magnitude that serves as the basis for calculating the taxable matter and the collection - profit - would be subverted.

  • Whence it follows the impossibility of proceeding to any deduction of credits resulting from fiscal benefits from the collection produced by autonomous taxation, under penalty of subverting the entire teleology that was present at its genesis.

  • It must therefore be concluded that there are diverse reasons that prevent fiscal benefits from being deducted from the amount of autonomous taxation collections, particularly and in what concerns us here, contractual fiscal benefits.

  • And the reasons relate, in the first place, to the autonomy of the collections calculated on the basis of the values and rates referred to in article 88, as is now expressly stated in no. 21 of that article, as with the interaction that it establishes between the taxable base of Corporate Income Tax constituted by profit and the nature and objectives of the fiscal benefits in question, from which it follows that the legislator, in adding this no. 21 to article 88 of the Code, does nothing more than embrace and make explicit the interpretation that already resulted from the relevant legal provisions.

  • Without dispensing,

  • The State Budget for 2016 added number 21 to article 88 of the Corporate Income Tax Code, assigning to it an interpretative character, which established the following:

"The assessment of autonomous taxation in Corporate Income Tax is carried out in accordance with the terms provided in article 89 and is based on the values and rates that result from the provisions in the preceding numbers, with no deductions being made from the total amount calculated." so that if there were any doubts, these were dispelled by this normative provision.

  • Finally, since there is no error attributable to the services in the assessment of the tax, no right to compensatory interest should be recognized to the Claimant.
  1. Given the non-existence of any situation provided for in article 18, no. 1, of the RJAT, which would make necessary the arbitral meeting provided for therein, the holding of the same was dispensed with, on the basis of the prohibition of performing useless acts.

The holding of oral arguments was also dispensed with, in accordance with article 18, no. 2, of the RJAT, "a contrario".

  1. The tribunal is materially competent and is regularly constituted in accordance with the RJAT.

The parties have legal personality and capacity, are entitled to sue, and are legally represented.

The proceedings do not suffer from defects that would render it invalid.

  1. It is necessary to resolve the following questions:

a) Whether the self-assessments and the decision rejecting the administrative complaint, which are the subject of the present proceedings, are illegal and, without further consequence, should be annulled.

b) If affirmative, whether the Claimant should be recognized the right to reimbursement of the taxes in question, increased by compensatory interest.

II – THE MATERIAL FACTS ESTABLISHED

  1. The following facts are considered proven:

a) The company B…, S.A filed on 30 May 2014 its Corporate Income Tax Declaration Form 22 for the fiscal year 2013 having, at that time, proceeded to self-assess the said tax, including autonomous taxation.

b) The company B…, S.A filed on 29 May 2015 its Corporate Income Tax Declaration Form 22 for the fiscal year 2014 and subsequent amended declaration having, at that time, proceeded to self-assess the said tax, including autonomous taxation.

c) The tax obligations arising from the autonomous taxation in question have been fulfilled by set-off against the amount of Corporate Income Tax to be recovered as a result of advance payments, additional advance payments made by the company B…, S.A and also by withholdings at source that were made to it.

d) The Tax Authority's computer system flagged divergences ("errors") which prevented the company B…, S.A from entering the amount relating to the said autonomous taxation rates in Corporate Income Tax, net, within the scope of the Corporate Income Tax collection resulting from the application of these rates, of the amounts of contractual fiscal benefits recognized to the Claimant, in the form of tax credit deductible from Corporate Income Tax collection.

e) The company B…, S.A calculated an autonomous taxation collection of €18,301.89 in 2013 and an autonomous taxation collection of €22,878.22 in 2014.

f) The company B…, S.A had contractual fiscal benefits available for deduction from the Corporate Income Tax collection in an amount exceeding the amount of the autonomous taxation in question.

g) On 30 May 2016 the company B…, S.A presented an administrative complaint against the self-assessment acts mentioned.

h) By decision issued on 4 August 2016 the administrative complaint was rejected, with the information provided in the proceedings and subject to a statement of agreement in the rejection decision, namely, the following:

i) On 28 June 2016 a public deed of merger was executed between the company B…, S.A and the herein Claimant by incorporation of the former into the latter, an act which was subject to Commercial Registration effected on 30 June 2016.

With interest for the resolution of the case, there are no unproven facts.

  1. The tribunal's conviction regarding the resolution of the material facts was based on the documents contained in the file, it being noted that there is complete agreement between the parties regarding the material facts, with disagreement limited to the legal matters.

III - APPLICABLE LAW

  1. During the fiscal period of 2013, article 3, no. 1, subparagraph a), of the Fiscal Incentive Framework, approved by article 133 of Law no. 10/2009, of 10 March, with validity successively extended until 31 December 2013, by Law no. 3-B/2010, of 28 April (cf. its article 116), by Law no. 55-A/2010, of 31 December (cf. its article 134), by Law no. 64-B/2011, of 30 December (cf. its article 162) and by Law no. 66-B/2012, of 31 December (cf. its article 232), was in force and subsequently transferred to articles 23 et seq. of the Tax Code for Investment approved by Decree-Law no. 82/2013, of 17 June, which, among other amendments, extended the validity of the Fiscal Incentive Framework until 2017.

The central issue to be decided, as posed by the Claimant, is whether the Corporate Income Tax self-assessments (including its autonomous taxation rates) relating to the fiscal years 2013 and 2014, suffer from the material defect of violation of law, subject to challenge because, according to its understanding, the deduction of the fiscal benefit stemming from the Fiscal Incentive Framework should not be precluded from the part of the Corporate Income Tax collection corresponding to autonomous taxation rates.

This issue has already been the subject of extensive arbitral jurisprudence which, predominantly, has decided in favour of the deductibility of fiscal benefits from the collection resulting from autonomous taxation. In this sense were the decisions issued in cases 769/2014-T, 219/2015-T, 369/2015-T, 370/2015-T, 637/2015-T, 673/2015-T, 740/2015-T, 749/2015-T, 784/2015-T.[1]

As can be read in the CAAD award no. 219/2015-T, whose understanding is shared:

"Thus, the issue that needs to be resolved is, regardless of the nature of the tax to which autonomous taxation refers, whether the amount of autonomous taxation is 'calculated in accordance with article 90 of the Corporate Income Tax Code', since, if it is, it must be concluded that, to determine the limit of the deduction, the collection arising from autonomous taxation is taken into account.

Article 90 of the Corporate Income Tax Code refers to the forms of assessment of Corporate Income Tax, by the taxpayer or by the Tax Administration, applying to the assessment of the tax due in all situations provided for in the Code, including additional assessment (no. 10).

Therefore, it also applies to the assessment of the amount of autonomous taxation, which is calculated by the taxpayer or by the Tax Administration in accordance with article 90 of the Corporate Income Tax Code, there being no other provision that provides for different terms for its assessment. Its autonomy is restricted to the applicable rates and to the respective taxable matter, but the assessment of its amount is carried out in accordance with article 90.

The differences between the determination of the amount resulting from autonomous taxation and the amount resulting from taxable profit reside in the determination of the taxable matter and in the rates, provided for in Chapters III and IV of the Corporate Income Tax Code, but not in the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation and to the remaining taxable matters of Corporate Income Tax.

Therefore, since it is to article 90, inserted in this Chapter V, that the reference is made in article 3, no. 1, of the Fiscal Incentive Framework, no legal support is found to make a distinction between the collection arising from autonomous taxation and the remaining Corporate Income Tax collection, due to the fact that the rates and the forms of determination of the taxable matter are distinct.

(…)

On the other hand, the fact that the deductibility of the fiscal benefit (….) is limited to the collection of article 90 of the Corporate Income Tax Code, up to its amount, does not allow the conclusion that the fiscal credit is only deductible if there is taxable profit, as what that fact requires is that there is Corporate Income Tax collection, which can exist even without taxable profit, namely by force of autonomous taxation".

We have, therefore, that the literal element of the norm does not exclude the interpretation made by the Claimant, as the deductibility of the fiscal benefit in question from the autonomous taxation collection finds a "minimum of verbal correspondence" in the legislative text (article 9, no. 2, of the Civil Code).

It is true that autonomous taxation, in addition to aiming to guarantee a minimum collection relative to companies that present losses (a question that does not arise in the present case), aims to reduce the "tax participation" in certain expenses and, possibly, to discourage its realization, and such objectives would be less achieved with the possibility of the respective collection being subject to deductions.

But, on the other hand, fiscal benefits are "exceptional measures established for the protection of relevant extra-fiscal public interests that are superior to those of the taxation that they prevent" (article 2, no. 1, of the Fiscal Benefits Framework).

In the confrontation between these two objectives, the law itself indicates to us what should prevail. The public interests that determine the creation of a fiscal benefit are, by nature, superior to those of the taxation that they prevent.

This is, furthermore, even more evident with regard to fiscal incentives for investment, since they constitute a genuine public promise, to the effect that to taxpayers who adopt certain behaviours, supposedly of the greatest economic and social interest, a certain "fiscal reward" is guaranteed.

An interpretation of the law, not expressly imposed by the legal text, which restricts the "use" of the fiscal benefits in question would damage the credibility of the "legislative promises" in tax matters, would, in short, be contrary to the principle of trust, inherent in the idea of a Rule of Law."

Supporting this understanding, it is consequently understood that before the Law that approved the State Budget for 2016 (Law 7-A/2016, of 30 March) the deduction sought by the Claimant was not precluded.

  1. It is further necessary to analyze the issue of no. 21, article 88, of the Corporate Income Tax Code, introduced by that Law.

In fact, according to this number "The assessment of autonomous taxation in Corporate Income Tax is carried out in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions in the preceding numbers, with no deductions being made from the total amount calculated."

On the other hand, article 135 of Law 7-A/2016, of 30 March, establishes that "the wording given by the present law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to numbers 20 and 21 of article 88 and to no. 8 of article 117 of the Corporate Income Tax Code has an interpretative nature."

The Tax Administration understands that the new wording of article 88 precludes the deduction, in accordance with article 90, of contractual fiscal benefits stemming from the Fiscal Incentive Framework, from the collection resulting from autonomous taxation.

However, as can be read in the arbitral decision issued in Case no. 5/2016-T:

"Law no. 7-A/2016, of 30 March (State Budget Law for 2016), added numbers 20 and 21 of article 88 to the Corporate Income Tax Code, and the legislator has recognized an interpretative nature to the norms contained therein.

Number 21 of article 88 of the Corporate Income Tax Code provides the following:

'The assessment of autonomous taxation in Corporate Income Tax is carried out in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions in the preceding numbers, with no deductions being made from the total amount calculated.'

From the analysis of this norm we can draw the following conclusions:

i) It does not alter the legal framework of SIFIDE nor of the Fiscal Incentive Framework;

ii) It does not have as its object the authentic interpretation of norms contained in SIFIDE nor in the Fiscal Incentive Framework;

iii) The provision contained in SIFIDE of deductions 'from the amount calculated in accordance with Article 90 of the Corporate Income Tax Code' remains valid;

iv) The provision contained in the Fiscal Incentive Framework of deductions 'from the Corporate Income Tax collection' remains valid;

v) The nature of 'autonomous taxation rates' is not altered;

vi) The procedure and form of assessment are not altered;

vii) Deductions from the amount of autonomous taxation calculated are now expressly precluded, which does not prevent deductions from Corporate Income Tax collection (which includes the result of autonomous taxation) provided for in SIFIDE and the Fiscal Incentive Framework from being made.

As is affirmed in the Arbitral Award issued in Case no. 673/2015-T, with regard to the Extraordinary Investment Tax Credit:

'[f]or the same reason that what is at issue is to interpret the scope of the special nature diploma that Law no. 49/2013 is, relevance cannot be attributed, for this purpose, to the norm of no. 21 of article 88 of the Corporate Income Tax Code, added by Law no. 7-A/2016, of 30 March, in the part in which it states that no 'deductions are made from the total amount calculated', notwithstanding the purported interpretative nature attributed to it'.

Also according to this Award:

'there is no sign, neither in Law no. 7-A/2016, nor in the Budget Report, nor in its discussion, that with the addition to article 88 of the Corporate Income Tax Code of a general norm prohibiting deductions from the total amount calculated of autonomous taxation, it was intended to interpret restrictively the expression 'deduction from the Corporate Income Tax collection' that appears in a special norm of a separate diploma, namely article 3, no. 1, of Law no. 49/2013.

And, in the absence of an unequivocal intention to the contrary, the rule applies that general law does not alter special law (article 7, no. 3, of the Civil Code), which has its justification in the fact that 'the general framework does not include consideration of the particular conditions that precisely justified the issuance of the special law.

By the foregoing, converging the literal and rational elements of the interpretation of article 3, no. 1, of Law no. 49/2013 to the effect that the investment expenses provided for in the Extraordinary Investment Tax Credit are deductible from the 'Corporate Income Tax collection', it must be concluded that they are deductible from the entirety of that collection, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that which results from the special advance payment and other positive components of the tax, namely autonomous taxation, state surtax and Corporate Income Tax of prior taxation periods'.

This reasoning is transposable, with the necessary adaptations, to the present case.

Thus, the norm contained in no. 21 of article 88 of the Corporate Income Tax Code, to which an interpretative nature was attributed, does not prevent deductions from the Corporate Income Tax collection (i.e., from the entirety of the collection calculated by the application of article 90 of the Corporate Income Tax Code) of amounts under SIFIDE and the Fiscal Incentive Framework.

In effect, the interpreter and applier of the law may disagree with the legislator's choices, what it cannot do is alter the legislative solutions adopted. Now the legislator refers in the Fiscal Incentive Framework to the deduction 'from the Corporate Income Tax collection' and in SIFIDE refers to the deduction 'from the amount calculated in accordance with Article 90 of the Corporate Income Tax Code', which, in both cases, is manifestly distinct from 'deduction from the Corporate Income Tax taxable matter'. The legislator could, both in the Fiscal Incentive Framework and in SIFIDE, have adopted this solution; the truth is that it did not, and it is not incumbent upon the interpreter to correct the legislator's hand.

As José de Oliveira Ascensão states, '[h]owever desirable a change in the normative system may appear, that change belongs to the sources of law, not to the interpreter. This captures the meaning of the source as it objectively presents itself at the present moment, without anteceding any other meaning to it. Weighty reasons of security and defense against arbitrariness found this conclusion'.

Thus, in order for the deductions provided for in the Fiscal Incentive Framework and SIFIDE to cease being made from the Corporate Income Tax collection (to which autonomous taxation also contributes) the legislator, should it so wish, must alter the special legal frameworks that provide for them."

One also agrees with the position manifested in this award as well as in the award cited therein, issued in case no. 673/2015-T.

  1. Even if it were not thus, given that there are at issue assessments of Corporate Income Tax for the fiscal years 2013 and 2014, it would further be necessary to analyze what effect the new number 21 of article 88 of the Corporate Income Tax Code and the interpretative character attributed by the legislator to its introduction in 2016 would have on the facts in question, having regard to the principle of non-retroactivity, which is constitutionally enshrined in article 103, no. 3, of the Constitution of the Portuguese Republic.

As Inocêncio Galvão Telles writes "Authentic interpretation represents a risky instrument in the hands of a less scrupulous legislator. Under the guise of being interpretative, a new principle can be introduced which, nevertheless, will count as if it were the actual meaning of the preceding law. One understands the danger of this mode of proceeding and the inconveniences it is capable of causing. It is a danger inherent in interpretative laws, which are, by their very nature, retroactive"[2]

For his part, Miguel Teixeira de Sousa tells us that "In accordance with what is established in article 13, no. 1, of the Civil Code, the interpretative law integrates itself into the law interpreted, that is, it is fictioned that the meaning established by the interpretative law coincides with the sole meaning that the interpreted law always contained. This is why the interpretative law is a retroactive law.

In cases where retroactivity is constitutionally excluded there cannot be a retroactive interpretative law".[3]

We further say the late Professor José Luís Saldanha Sanches that "(…) the constitutional legislator decided to introduce in no. 3 of article 103 of the Portuguese Constitution a constitutional prohibition of retroactivity.

(…)

(…) therefore we do not believe that the interpretative law can have place in tax matters: if until now what was at issue were the falsely interpretative laws, the constitutional revision has come to prevent the retroactive effects of any norm in tax matters"[4]

In light of the doctrine cited, which is here followed, regardless of the interpretative character of no. 21, article 88, of the Corporate Income Tax Code, introduced by the Law that approved the State Budget for 2016 (Law 7-A/2016, of 30 March), the same would always be inapplicable in the present case by force of article 103, no. 3, of the Portuguese Constitution.

In fact, as is plain to see, if in the face of the prior wording of article 88 of the Corporate Income Tax Code the legal regime in force allowed an interpretation different from that established by the purported interpretative law, as demonstrated by extensive arbitral jurisprudence, a norm that imposes a different interpretation, intended to produce effects on facts that occurred entirely at a moment prior to the entry into force of the new wording of the law, has, necessarily, a retroactive nature, precluded in tax matters by the Constitution.[5]

In such terms it is concluded that the Corporate Income Tax self-assessment acts relating to the fiscal years 2013 and 2014, to the extent corresponding to the non-deduction of the fiscal benefits provided for in the Fiscal Incentive Framework from the Corporate Income Tax collection, in the amounts of €18,301.89, and €22,878.22, respectively, suffer from the defect of violation of law, which justifies their annulment, the same occurring with the decision of the administrative complaint, to the extent that it did not recognize this illegality.

The analysis of the issue raised by the Claimant regarding the possible illegality and consequent annulment of the autonomous taxation assessment, due to lack of legal basis for its assessment, is thus rendered moot.

  1. The Claimant further requested condemnation of the Respondent to reimburse the amounts corresponding to the value of the deductions from the collection, as well as the respective compensatory interest from 1 September 2014 (tax for 2013) and 1 September 2015 (tax for 2014) until full reimbursement.

Let us see.

In accordance with the provisions of subparagraph b) of article 24 of the RJAT, an arbitral decision on the merits of a claim for which there is no resort or objection binds the tax administration from the end of the deadline provided for resort or objection, the administration being obliged, in the exact terms of the substantiation of the arbitral decision in favour of the taxpayer and until the end of the deadline provided for the spontaneous execution of the decisions of the tax courts, to "restore the situation that would have existed if the tax act subject of the arbitral decision had not been performed, adopting the necessary acts and operations for this purpose", which is in keeping with the provision of article 100 of the General Tax Law (applicable by force of the provision in subparagraph a) of no. 1 of article 29 of the RJAT) which establishes that "the Tax Administration is obliged, in case of full or partial substantiation of an administrative complaint, judicial objection or appeal in favour of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2, no. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in the CAAD, making no reference to condemnatory decisions, it should be understood that the powers which in judicial objection proceedings are attributed to the tax courts are included in its competences, this being the interpretation that is in keeping with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first guideline, that "the tax arbitration process should constitute an alternative procedural means to the judicial objection process and to the action for the recognition of a right or legitimate interest in tax matters".[6]

The judicial objection process, although it is essentially a process for annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as is evident from article 43, no. 1, of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in an administrative complaint or judicial objection, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due" and from article 61, no. 4 of the Tax Procedural and Procedural Code (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the initial wording), which states that "if the decision that recognized the right to compensatory interest is judicial, the deadline for payment is calculated from the beginning of the deadline for its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT in establishing that "payment of interest, regardless of its nature, is due in accordance with the terms provided for in the general tax law and the Code of Tax Procedure and Process" should be understood as allowing recognition of the right to compensatory interest in the arbitral process.

In the present case, it is evident that following the illegality of the self-assessment acts there is cause for reimbursement of the tax, by force of the said articles 24, no. 1, subparagraph b), of the RJAT and 100 of the General Tax Law, as this is essential to "restore the situation that would have existed if the tax act subject of the arbitral decision had not been performed".

With regard to compensatory interest, this claim must be evaluated in light of article 43 of the General Tax Law.

The tax obligations arising from the autonomous taxation in question have been fulfilled by set-off against the amount of Corporate Income Tax to be recovered as a result of advance payments, additional advance payments made by the company B…, S.A. and also by withholdings at source that were made to it.

In accordance with article 43 of the General Tax Law:

1 – Compensatory interest is due when it is determined, in an administrative complaint or judicial objection, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due.

2 - There is also considered to be error attributable to the services in cases in which, although the assessment is made on the basis of the declaration of the taxpayer, this has followed, in its completion, the generic guidelines of the tax administration, duly published.

It is evident from the proven facts that the Tax Authority's computer system flagged divergences ("errors") which prevented the Claimant from entering the amount relating to the said autonomous taxation rates in Corporate Income Tax, net, from the scope of the Corporate Income Tax collection resulting from the application of these rates, of the amounts of contractual fiscal benefits recognized to the Claimant, in the form of tax credit deductible from Corporate Income Tax collection.

In these circumstances, since the Claimant could not effect the assessment in accordance with the Law as such was not permitted by the computer system of the Respondent, it cannot but be considered to occur error attributable to the services, in light of article 43, no. 2, of the General Tax Law.

In fact, given that error attributable to the services is considered to occur in cases in which, although the assessment is made on the basis of the declaration of the taxpayer, this has followed, in its completion, the generic guidelines of the tax administration, duly published, by equality or a fortiori, it cannot but be considered that error attributable to the services occurs when the very computer system of the Respondent requires the submission of the declaration in the terms in which it was made.

In a similar sense was the decision issued in case 673/2015-T, where one can read:

"With regard to the two self-assessments for the year 2013, which were made by the Claimant, it is to be understood that the error affecting it in the part respecting the non-deduction of the Extraordinary Investment Tax Credit is attributable to the Tax Administration, by the fact that it has been proven that the structure of the Corporate Income Tax Declaration Form 22 did not allow the Claimant to make the self-assessment by deducting the Extraordinary Investment Tax Credit benefit from the amount of autonomous taxation. This is a situation which, for the purposes of no. 2 of article 43 of the General Tax Law, is equivalent to the completion of the declaration according to 'the generic guidelines of the tax administration', as these are underlying the computer system for submitting declaration form 22, which prevent the deduction of the Extraordinary Investment Tax Credit from the amount of autonomous taxation."

On the other hand, also the maintenance of the illegal situation, i.e., the decision of the administrative complaint, is attributable to the Tax Administration, which rejected it on its own initiative.

From the self-assessments in question, were the deduction of the Fiscal Incentive Framework from the Corporate Income Tax collection associated with autonomous taxation to be considered, there would result tax to be recovered at this heading of €18,301.89 relating to 2013 and €22,878.22 relating to 2014, which should have been reimbursed by 31 August 2014 and 31 August 2015, respectively, in accordance with no. 3 of article 104 of the Corporate Income Tax Code.

Consequently, the Claimant is entitled to compensatory interest, in accordance with article 43, no. 1, of the General Tax Law and article 61 of the Tax Procedural and Procedural Code, calculated from 1 September 2014 regarding €18,301.89, and from 1 September 2015 regarding €22,878.22, at the legal default rate, in accordance with articles 43, nos. 1 and 35, no. 10 of the General Tax Law, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the Tax Procedural and Procedural Code, article 559 of the Civil Code and Ministerial Order no. 291/2003, of 8 April (or such other order or orders as may alter the legal rate), from those dates until full payment.

Thus, the Tax and Customs Authority must give effect to the present decision, in accordance with article 24, no. 1, of the RJAT, reimbursing the amounts paid by the Claimant relating to the annulled self-assessments, with compensatory interest, at the legal rate.

Compensatory interest is due from the date of payment until the date of processing of the credit note, in which they are included (article 61, no. 5, of the Tax Procedural and Procedural Code).

IV - DECISION

In light of the foregoing, it is decided to judge the Claimant's main claims entirely substantiated and, in consequence:

  • To declare the illegality of the decision rejecting the administrative complaint which is the subject of the present proceedings and to annul it for having rejected the Claimant's claim;

  • To annul, as illegal, the self-assessments in question, in the amounts of €18,301.89, and €22,878.22, respectively;

  • To condemn the Respondent to reimburse the Claimant in the amounts of €18,301.89, €22,878.22 and, furthermore, to pay it compensatory interest at the legal default rate, calculated from 1 September 2014 regarding €18,301.89, and from 1 September 2015 regarding €22,878.22, until effective and full payment.

Value of the action: €41,180.11 (forty-one thousand one hundred and eighty euros and eleven cents) - in accordance with the provisions of article 306, no. 2, of the Code of Civil Procedure and article 97-A, no. 1, subparagraph a), of the Tax Procedural and Procedural Code and article 3, no. 2, of the Regulation on Court Costs in Arbitration Proceedings.

Costs by the Respondent, in the amount of €2,142.00 (two thousand one hundred and forty-two euros) in accordance with no. 4 of article 22 of the RJAT.

Let it be notified.

Lisbon, 13 June 2017

The Arbitrator

Marcolino Pisão Pedreiro

[1] In contrary sense were the arbitral decisions issued in cases 697/2014-T and 722/2015-T (all these arbitral decisions are available at "https://caad.org.pt/tributario/decisoes/")

[2] INTRODUCTION TO THE STUDY OF LAW, Vol. I, 11th Edition, 2001, Coimbra Publisher, p. 242.

[3] INTRODUCTION TO LAW, Almedina, 2012, p. 290.

[4] Tax Review, no. 1, January 2000, pp. 87-88.

[5] In this sense, although with reasoning not entirely coinciding cf. the arbitral decision issued in case 749/2015-T (https://caad.org.pt/tributario/decisoes/")

[6] On this question see Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, pp. 110-116).

Frequently Asked Questions

Automatically Created

Can RFAI investment tax credits be deducted against autonomous taxation (tributações autónomas) under Portuguese IRC?
According to the claimant's position supported by majority arbitral jurisprudence prior to 2016, RFAI contractual fiscal benefits should be deductible from autonomous taxation under Article 90 IRC Code, since autonomous taxation qualifies as IRC. The Tax Authority disputed this interpretation. The 2016 legislative amendment introducing Article 88(21) IRC Code addressed this issue, but the claimant argues it cannot apply retroactively to 2013-2014 fiscal years as it represents innovative legislation rather than mere interpretative clarification, which would violate constitutional prohibitions on tax retroactivity.
What did CAAD rule in Process 669/2016-T regarding the deduction of fiscal benefits from autonomous taxation?
Process 669/2016-T was constituted on 26 January 2017 to adjudicate the claimant's challenge to the Tax Authority's rejection of an administrative complaint regarding IRC self-assessments for 2013-2014. The claimant sought annulment of both the rejection decision and the underlying self-assessment acts, plus reimbursement with compensatory interest. The excerpt provided contains the claimant's arguments supporting deductibility of RFAI benefits from autonomous taxation based on Article 90 IRC Code and prevailing arbitral jurisprudence, but does not include the tribunal's final ruling.
Are autonomous taxations (tributações autónomas) classified as IRC for the purpose of applying tax benefit deductions in Portugal?
Yes, according to the claimant and what is described as 'overwhelming arbitral jurisprudence' cited in this decision, autonomous taxation (tributações autónomas) is qualified as Corporate Income Tax (IRC). This classification is fundamental to the legal argument that fiscal benefits deductible from IRC collection under Article 90 IRC Code should equally apply to the IRC collection component generated by autonomous taxation rates, not merely to collection from taxable profit under Article 87 IRC Code.
What is the procedure for challenging IRC self-assessments through administrative complaint (reclamação graciosa) and tax arbitration at CAAD?
The procedure involves first filing an administrative complaint (reclamação graciosa) with the Tax Authority challenging the self-assessment acts. If the Tax Authority rejects the complaint, taxpayers can request constitution of an arbitral tribunal at CAAD under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Following acceptance, the President of the Deontological Council appoints an arbitrator, the tribunal is constituted, and proceedings commence according to RJAT provisions, typically within specific statutory deadlines.
Is a taxpayer entitled to compensatory interest (juros indemnizatórios) when an IRC overpayment results from denied RFAI deductions?
Yes, taxpayers are entitled to claim compensatory interest (juros indemnizatórios) at the legal rate when IRC overpayments result from denied deductions. In this case, the claimant petitioned for compensatory interest calculated from the original payment dates (1 September 2014 for fiscal year 2013 and 1 September 2015 for fiscal year 2014) until full reimbursement of the principal amounts overpaid due to the Tax Authority's refusal to allow RFAI benefit deductions from autonomous taxation. This follows the general principle that taxpayers deserve compensation for amounts unduly retained by the State.