Autonomous Taxation Deductions in IRC: RFAI, CFEI, SIFIDE & PEC Under Article 90 CIRC – CAAD Case 672/2016-T

CAAD TAX ARBITRATION DECISION - ENGLISH TRANSLATION

The arbitrators José Baeta de Queiroz (chairperson), João Taborda da Gama (appointed by the claimant) and Nuno Maldonado Sousa (appointed by the respondent) hereby agree:

I. REPORT

A…, S.A., formerly designated B…, S.A., legal entity number …, with headquarters in Maia, covered by the local peripheral services of the Maia tax office, came, on 08/11/2016, in its capacity as a company that succeeded by universal title through merger to C…, Ltd., legal entity no. …, with headquarters in Loures, the dominant company and responsible for the self-assessment of corporate income tax (IRC) of the tax group to which, during the 2014 tax period, the special regime for taxation of groups of companies (RETGS) was applicable, and which was composed of itself and the companies B…, S.A. (now A…, S.A.), and D…, S.A., invoking articles 2, no. 1, subparagraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (RJAT), and 1 and 2 of Ordinance no. 112-a/2011 of 22 March, to request the constitution of an arbitral tribunal, formulating the following request:

"it should be declared the illegality of the rejection of the administrative review petition above identified and, likewise, the illegality of the self-assessment of IRC, including autonomous taxation rates, of the tax group E…, relating to the 2014 fiscal year, with respect to the amount of autonomous taxation rates in IRC of € 350.421,21, with its consequent annulment in this part, by improper disallowance of deductions from the collected amount, considering the manifest illegality of the assessment in this part, with all legal consequences, namely the reimbursement to the claimant of this sum, plus compensatory interest at the legal rate, counted until complete reimbursement, from 1 September 2015.

Subsidiarily, should it be understood that article 90 of the CIRC does not apply to autonomous taxation, then the illegality of the assessment of autonomous taxation (and consequently its annulment) should be declared due to absence of legal basis for its execution (cf. article 8, no. 2, subparagraph a), of the General Tax Law (LGT), and article 103, no. 3, of the Constitution), with the consequent reimbursement of the same amount and the payment of compensatory interest counted from the same date."

João Taborda da Gama was appointed as arbitrator, who duly accepted the appointment, as likewise occurred with the arbitrator chosen by the Tax Authority and Customs Authority (AT), Nuno Maldonado de Sousa, and with the chairperson arbitrator, José Baeta de Queiroz, appointed by the Ethical Board of CAAD.

The arbitral tribunal was constituted on 21/02/2017.

Duly notified, the AT responded, defending itself by objection, and attached the relevant administrative proceedings.

The meeting referred to in article 18 of the RJAT was waived, as it was not deemed necessary, and the parties were invited to submit written submissions, which they did.

The tribunal set 21/06/2017 as the date for issuing the decision, which was subsequently postponed to 14/08/2017.

II. PROCEDURAL SUITABILITY

The tribunal is competent and was regularly constituted.

The parties have legal standing and capacity, are legitimate, and are regularly represented.

There are no exceptions, nullities, or prior questions that prevent consideration of the merits of the case.

III. GROUNDS FOR THE CLAIM

The Claimant alleges that it submitted the IRC Form 22 declaration of its Tax Group for the 2014 fiscal year, having proceeded with the self-assessment of autonomous taxation rates in IRC in the amount € 350.421,21, and that it further submitted a substitute declaration which did not alter what is discussed here, and having filed an administrative review petition, which was rejected.

It contests the rejection of the administrative review petition and the stated act of self-assessment of IRC of the Group, in that it did not allow the non-deduction from the collected amount of IRC produced by the autonomous taxation rates of the special payment on account made in IRC and, likewise, of Extraordinary Investment Tax Credit (CFEI), of the benefit under the Tax Incentive System for Business Research and Development (SIFIDE) and of the Special Investment Support Regime (RFAI), which resulted in tax improperly assessed in the 2014 fiscal year in the amount of € 350.421,21, or, subsidiarily, in that it is unlawful to assess autonomous taxation.

The amount of SIFIDE available for use at the end of the 2014 fiscal year was € 1.735.961,38, that of CFEI was € 166.353,78, and that of RFAI was € 678.572,61.

With respect to special payments on account (PEC) there remains an accumulated amount to be deducted from the IRC collected amount which amounts in 2014 to € 222.252,93.

Now, the collected amount of IRC as provided in (in force until 2013) article 45, no. 1, subparagraph a), of the CIRC, comprises autonomous taxation rates in IRC, and the collected amount provided in article 90, no. 1, and no. 2, subparagraphs b) and c), of the CIRC, in the version in force in 2013, subparagraphs c) and d) in 2014, also includes that of autonomous taxation rates in IRC. Whence the denial of the deduction of SIFIDE, CFEI, RFAI and PEC from the collected amount in IRC of autonomous taxation violates subparagraphs c) and d) of no. 2 of article 90 of the CIRC.

If it is understood that in that article 90 of the CIRC the collected amount of IRC resulting from autonomous taxation (determined in accordance with article 88) is not included, but only the collected amount of IRC resulting from taxable profit (determined in accordance with article 87), one would have to conclude that the assessment of the autonomous taxation itself is, by force of both article 8, no. 2, subparagraph a), of the General Tax Law (LGT), and article 103, no. 3, of the Constitution of the Portuguese Republic (CRP).

Considering that it is not possible to deduct the tax benefits available for use, or the deduction of PEC, to the amounts owed as autonomous taxation rates, their assessment lacks a framework in the IRC assessment rule enshrined in article 90 of the CIRC, then it requests, on a subsidiary basis, that the self-assessment of IRC of the 2014 tax period of C… and its respective tax group be annulled, in the portion corresponding to autonomous taxation rates, on the ground that these were assessed and collected without legal basis for such purpose.

The State Budget Law for 2016 (Law no. 7-A/2016, of 30 March) reiterated that article 89 of the CIRC also applied to the assessment of autonomous taxation rates (part 1 of the new no. 21 of article 88 of the CIRC). Inexplicably, it did not expressly reiterate that article 90 of the CIRC also applies to the assessment of autonomous taxation rates, which, given the tenor of its no. 1, which specifies what had been announced in the preceding article 89, the Claimant does not understand.

The legislator in the 2016 State Budget Law opted to remove the application of part of the provision in article 90 of the CIRC for the collected amount of IRC, to the collected amount of autonomous taxation in IRC (part 2 of the new no. 21 of article 88 of the CIRC).

In contradiction with what is suggested by the text of article 135 of the 2016 State Budget Law, with respect to no. 21 of article 88 of the CIRC, the 2016 State Budget Law did not merely alter a pre-existing provision. No. 21 is entirely a new provision.

It argues that the legislator, when assigning an interpretative character "to the wording given by this law to no. 21 of article 88 of the CIRC," article 135 of the 2016 State Budget Law intends to refer to part 1, and not to part 2 of that no. 21.

The regime for the temporal application of laws provided for in the Civil Code (which includes its article 13) does not apply with respect to matters that have a specific regime for this purpose, in compliance with distinct principles, as is the case (currently) with taxes: cf. article 12 of the LGT and article 103, no. 3, of the CRP.

Whence the conclusion that the assignment of an interpretative nature to a tax rule does not by itself trigger the application of the regime for temporal application of laws provided for in the Civil Code.

Both article 89 and article 90, nos. 1 and 2, of the CIRC, refer to IRC, to all IRC. Both parts, 1 and 2, of the new no. 21 of article 88 of the CIRC, cannot simultaneously be interpretative of what articles 89 and 90 of the CIRC provide, in opposite senses - in the sense that the IRC of article 89 also includes autonomous taxation rates (part 1 of no. 21 of article 88), and in the opposite sense that the IRC of article 90, at least that of its no. 2, does not include autonomous taxation rates. Only part 1 has an interpretative nature. Part 2 of the new no. 21 of article 88 of the CIRC has an innovative character.

Should it be understood (i) that article 135 of the 2016 State Budget Law (Law no. 7-A/2016, of 30 March) assigned an interpretative nature also to part 2 of the new no. 21 of article 88 of the CIRC, that is, also to the normative segment "with no deductions being made to the global amount [of autonomous taxation in IRC] determined," introduced by the same 2016 State Budget Law (by its article 133), (ii) and that from this would result the application of article 13 of the Civil Code as it prescribes the retroactive application of interpretative laws, one would then be faced with a substantive unconstitutionality of the stated article 135 of the 2016 State Budget Law, by violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3 of the Constitution, whether one has concluded or not (and understands that not), being faced with a materially interpretative law, and by violation, also, of the principle of separation of powers and the principle of independence of the judiciary.

Violation, also, of articles 2, 111, no. 1, 288, subparagraph j), 203, 288, subparagraph m), all of the CRP.

Finally, the Claimant understands that, having paid tax in an amount exceeding the legally due amount, declared that the illegality of the (self-)assessment in the part petitioned be declared, it has the right not only to its reimbursement, but also, under article 43 of the LGT, to compensatory interest, calculated on € 350.421,21, which should have been reimbursed by 31 August 2015, counted from 1 September 2015. It invokes that the error affecting the (self-)assessment results from an error by the Authorities as to the legal assumptions that conditionally programmed the completion of the self-assessment declarations (Form 22), aggravated further by the rejection of the administrative review petition.

IV. GROUNDS OF THE TAX AUTHORITY AND CUSTOMS AUTHORITY

The AT contradicts the grounds alleged by the Claimant, reaffirming the position taken when deciding on the administrative review petition:

"(...) an article 21 was introduced to article 88 of the CIRC by article 133 of Law no. 7-A/2016, of 30 March (State Budget Law for 2016), with the following wording: 'The assessment of autonomous taxation rates in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates resulting from the provision of the preceding numbers, with no deductions being made to the global amount determined.'

In accordance with article 135 of the same Law, the said amendment has an interpretative nature, an interpretation that clarifies the manner of assessment of IRC resulting from the application of that article of the CIRC, in the sense that to that tax are not deductible, among others, the tax benefits mentioned in the administrative review petition or the special payments on account.

It argues that autonomous taxation rates have an autonomous character, resulting from the special configuration given to the material and temporal aspects of the tax events, which requires, in certain areas, the removal or an adaptation of the general rules of application of IRC.

The determination of the two collected amounts independently implies that, in one case, it is the application of the rate(s) of article 87 of the CIRC to the taxable base determined in accordance with the rules contained in Chapter III of the Code, i.e., having as its starting point the profit of the entity and, in the other case, it is the application of the rates to the values of the taxable bases relating to the different realities contemplated in article 88 of the CIRC.

When, in the assessment process, there is an assessment of IRC based on the taxable base which has profit as its foundation and an assessment of autonomous taxation rates, the amount globally determined, in accordance with subparagraph a) of no. 1 of article 90, does not have a unitary character, so that from such differentiation the necessary consequences must be drawn in the realm of the deductions provided for in the subparagraphs of no. 2, in the sense that they can only be made to the portion of the collected amount of IRC with which there is a direct correspondence.

The delimitation of the content of the expression used by the legislator in no. 2 of article 90 of the CIRC, "amount determined in accordance with the preceding number," and in no. 1 of article 105 of the CIRC, "tax assessed in accordance with no. 1 of article 90," should be made coherently - it corresponds to the amount of IRC calculated by the application of the rates of article 87 to the taxable base determined on the basis of profit and on the rates of article 87 of the Code.

Also for the deductions from the collected amount as to tax benefits, the amount to which they are made can only relate to the tax assessed on the basis of the taxable base determined on the basis of the rules of Chapter III and the rates provided for in article 87 of the CIRC under penalty of incoherence.

The provisions that regulate the deduction of tax benefits for investment are integrated into the structure of the standard regime of IRC, so that they are not reconcilable with the ratio legis of autonomous taxation rates nor with their respective tax events.

Any doubts about the controversial question were dispelled with the interpretative nature attributed by article 135 of Law no. 7-A/2016, of 30 March, to the provision of no. 21 added to article 88 of the IRC Code by article 133 of the same Law.

As for the PEC, its legal nature, revealed by its configuration as "an instrument or guarantee of payment of the tax for which it is required, and not as a tax in itself," as well as by the function associated with it in combating tax evasion and fraud, links this payment indissolubly to the amount of IRC determined on the taxable base determined on the basis of profit.

V. FACTS

Established Facts

1. A…, S.A., TIN …, as the acquiring company, was the recipient of the global transfer of assets of the acquired company C…, Ltd., TIN …, through a merger agreed on 04.01.2016. [RI, address: doc. 1]

2. C…, Ltd., TIN … was, in 2014, the dominant company of the group of companies of which the companies A…, S.A., TIN … and D…, S.A., TIN… were also members. [RI, address. PA, II: 5]

3. The group began taxation under the RETGS on 01-01-2012, the regime being applicable to the 2012 fiscal year, being then composed of C…, LDA., TIN … as the dominant company and the dominated companies [R-AT, 7th PA, II: 5].

4. On 29.05.2015 C…, Ltd., proceeded to file the IRC Form 22 declaration for the 2014 fiscal year (1st declaration of the period), indicating in its respective box 4.2 that the taxation regime was that of "groups of companies" and that it was the dominant company. [RI, 2nd and 13th: doc. 3]

5. When it filed the IRC declaration for the 2014 fiscal year on 29.05.2015, C…, Ltd., entered in box 10 corresponding to "tax calculation," in line 365, relating to "autonomous taxation rates," the amount of € 350.421,21. [RI, 2nd: doc. 3]

6. On 26.05.2016, C…, Ltd., filed a substitute declaration relating to the 2014 fiscal year maintaining its declarations as to the taxation regime and value of autonomous taxation rates. [RI, 2nd and 13th: doc. 4]

7. On the dates indicated, the Certification Commission for Tax Incentives for Business R&D issued a declaration "for the purposes of the provisions of Law no. 40/2005 of 3 August – article 3" whereby it certified that D…, S.A., TIN …, carried out research and development activities in the years mentioned and recommended the attribution to the company of the following tax credit values, totaling 921.060,61 €:

1. On the dates indicated, the Certification Commission for Tax Incentives for Business R&D issued a declaration "for the purposes of the provisions of Law no. 40/2005 of 3 August – article 3" whereby it certified that A…, S.A., TIN …, carried out research and development activities in the years mentioned and recommended the attribution to the company of the following tax credit values, totaling 141.951,46 €: [RI, 16th: doc. 7, pp. 82 and 84 of the pdf)]

1. C…, Ltd. made the following special payments on account on the dates indicated, totaling 222.252,93 €: [RI, 19th: doc.11 (pp. 17-20 of the pdf)]

1. In accordance with a certificate issued by the AT on 19.03.2015, D…, S.A., TIN … and B…, S.A., TIN…, "have their tax situation regularized, as they are not debtors to the Public Treasury of any taxes, tax obligations or legal surcharges." [RI 23rd: doc. 13, (fls. 43 and 99 of the pdf)].

2. As stated in the certificate issued by the AT on 13.02.2015, C…, Ltd., TIN …"has its tax situation regularized, as on this date, it is not a debtor to the Public Treasury of any taxes, tax obligations or legal surcharges." [RI 23rd: doc. 13 (fls. 52 and 103 of the pdf)].

3. By means of a certificate issued on 18.05.2015 by the AT, it declares that C…, Ltd., TIN…"has its tax situation regularized, as on this date, it is not a debtor to the Public Treasury of any taxes, tax obligations or legal surcharges." [RI 23rd: doc. 13 (104 of the pdf)].

4. Social Security issued, on 23.03.2015, a certificate stating that C…, Ltd., TIN…, "has its social security contribution situation regularized with Social Security". [RI 23rd: doc. 13 (fls. 71 of the pdf)].

5. Also D…, S.A., TIN…, "has its social security contribution situation regularized with Social Security," as stated in a certificate issued on 01.04.2015 by Social Security [RI 23rd: doc. 13 (fls. 105 of the pdf)].

6. The same applies to B…, S.A., TIN…, as stated in a certificate issued by Social Security on 23.03.2015. [RI 23rd: doc. 13 (fls. 108 of the pdf)].

7. C…, Ltd. filed on 16.11.2015 an administrative review petition against the self-assessment of IRC for the 2014 fiscal year made in the income declaration Form 22 of the group taxed under the Special Regime for Taxation of Groups of Companies (RETGS). [R-AT, 6th PA, I: 1-41]

8. C…, Ltd. was notified of a draft rejection of the administrative review petition and on 10 August 2016 was notified of its rejection. [RI, 3rd and 10th and 12th R_AT. PA, II: 24-31]

9. In the reasoning for the rejection of the administrative review petition it states that: [R-AT, 9th PA, II: 26-30]

"The petitioner alleges that to the amount of autonomous taxation rates, calculated in the income declaration relating to the group, deductions from the collected amount provided for in no. 2 of article 90 of the CIRC should be able to be made, as these autonomous taxation rates should be considered as IRC.

In fact, it is IRC, but assessed through autonomous taxation of various expenses, as provided in article 88 of the CIRC, that is, assessed autonomously.

In relation to what is alleged in the petition, an article 21 was introduced to article 88 of the CIRC by article 133 of Law no. 7-A/2016, of 30 March (State Budget Law for 2016), with the following wording: 'The assessment of autonomous taxation rates in IRC is carried out in accordance with the terms provided for in article 89 and is based on the values and rates resulting from the provision of the preceding numbers, with no deductions being made to the global amount determined.'

'In accordance with article 135 of the same Law, the said amendment has an interpretative nature.

This interpretation, made by the Law, comes to clarify the manner of assessment of IRC resulting from the application of that article of the IRC Code, in the sense that to that tax are not deductible, among others, the tax benefits mentioned in the petition or the special payments on account.'"

Facts Not Proven

Of the facts alleged, relevant to the legal decision, none remained unproven.

VI. MATTERS TO BE DECIDED

1. Autonomous Taxation Rates and IRC Collected Amount

The question submitted to the Arbitral Tribunal is to assess whether the Claimant has the right to proceed with the deduction, also to the collected amount of IRC produced by the application of autonomous taxation rates, of the tax credit of SIFIDE, CFEI, RFAI and the special payment on account, and, in the affirmative case, whether the self-assessment of IRC for the 2014 fiscal year is illegal.

Submitted to the Tribunal is also, on a subsidiary basis, should it give a negative answer to the first question, the question of any illegality and consequent annulment of the assessment of autonomous taxation rates, due to absence of legal basis for their assessment.

The Tribunal is further called upon to rule on the right to compensatory interest on the amounts paid as a result of the self-assessment in question.

It falls to decide, therefore, as to the merits of the request for an arbitral decision on the IRC assessment sub judice and any right of the Claimant to compensatory interest.

In this decision we will follow very closely what was decided in proceedings no. 749/2015-T, of 15 July 2016, and no. 360/2016-T, of 16 February 2017, presided over by the same arbitrator who also acts in that capacity here.

Let us see:

The regime of autonomous taxation rates in force during the 2014 fiscal year is the result of numerous legislative changes.

The subjection of certain expenses to autonomous taxation arose with Decree-Law no. 192/90, of 2 June, in a context of penalizing the taxation of confidential expenses or those not documented incurred by enterprises.

Subsequently, autonomous taxation rates were included in the IRC Code through Law no. 30-G/2000, of 29 December, which came to integrate the provision of autonomous taxation rates in the instrument that regulates IRC.

Since then, the regime of autonomous taxation rates has been undergoing a process of progressive expansion, partly dictated by the apparent continuous intention to increase tax revenue through this mechanism.

Having regard to article 88 of the IRC Code, autonomous taxation rates apply, roughly speaking, to the following realities: undocumented expenses; charges relating to vehicles; representation expenses; allowances; amounts paid to non-residents; profits distributed by entities subject to IRC to taxpayers who benefit from exemption; expenses or charges relating to indemnifications or any compensation due not related to the contractual relationship; and also expenses or charges relating to bonuses and other variable remuneration paid to managers, administrators or directors.

The State Budget Law for 2014 introduced some changes to the provision of autonomous taxation rates, which, however, were not only not particularly relevant but offer no contribution to the present discussion.

Article 23-A, no. 1, subparagraph a), of the IRC Code, in the wording of Law no. 2/2014, of 16 January, leaves no room for any reasonable doubt. In fact, the wording of the said rule introduced by Law no. 2/2014, of 16 January, provides that "IRC, including autonomous taxation rates, and any other taxes that directly or indirectly affect profits" are not fiscally deductible. The positioning of the two commas in the letter of the law, one before and another after the expression "including autonomous taxation rates," contained in the current wording of the cited article 23-A, no. 1, subparagraph a), of the CIRC, removes the possibility of arguing that autonomous taxation rates are not (part of) IRC.

That is, in the current wording of article 23-A, no. 1, subparagraph a) of the IRC Code, the legislator not only clarifies that autonomous taxation rates are part of IRC, if not as a tax strictly speaking, at least in terms of being part of the same unitary tax regime, but also that they should receive the same treatment for the purposes of calculating taxable profit.

Moreover, this understanding corroborates what, at the time of the facts, resulted from the literal meaning of article 12 of the IRC Code, according to which "companies and other entities to which, in accordance with article 6, the transparent taxation regime is applicable, are not taxed in IRC, except as to autonomous taxation rates," from which it is also concluded that autonomous taxation rates are IRC (they are a part of IRC).

That is, and in summary, the legislator understood, and continues to understand, that autonomous taxation rates are part of IRC, if not as a tax strictly speaking, at least in terms of being part of the same unitary tax regime.

It should also be borne in mind that the provision of article 45 of the CIRC is situated in a context of broad legislative discretion. That is, in the definition of what are or are not deductible expenses for tax purposes, the tax legislator enjoys broad interpretive freedom. Hence, it cannot be said that it is prohibited to the legislator, by the "nature" of autonomous taxation rates, to exclude them from deductible expenses for tax purposes.

It is understood, thus, that it will be lawful for the legislator to include or exclude autonomous taxation rates from that category of deductible expenses for tax purposes, irrespective of the "nature" that doctrine or case law may perceive in them.

The question, properly situated, will then be to determine what is the intention of the legislator, expressed in the legislative text, understood in its entirety.

And from this perspective, the combination of the tenor of article 12 of the CIRC with article 45, no. 1, subparagraph a) of the same, will leave little doubt as to the legislative understanding that autonomous taxation rates, if they do not constitute IRC strictly speaking, will certainly form part of the regime of that tax, and will be due by that title.

Moreover, nor is the result, apparently so counterintuitive and striking, of the possible payment of tax through autonomous taxation rates that now occupy us, even in the absence of a (positive) income at the end of the tax period, something rare in the IRC regime. In fact, in some cases of withholding at source as a final payment, it may occur that the holder of income subject to that withholding has had expenses that exceed the income. Also in the case of the operationality of some of the specific anti-abuse clauses (articles 63 to 67 of the CIRC), by force of the consideration of expenses, it may occur that taxpayers are taxed on a fictitious taxable profit, in that there may be a question of the disregard of expenses, actually borne, but disregarded as abusive. It may occur, thus, that a taxpayer has to pay IRC, notwithstanding having had, in reality, losses. Examples that may raise the question of their compatibility with the principle of taxation in accordance with real profit, which cannot fail to be made on a case-by-case basis.

One recognizes here, evidently, those characteristics that doctrine has been pointing out to the autonomous taxation rates in question for some years now, such as:

a) Autonomous taxation only makes sense because the expenses/costs, in most situations, have relevance as negative components of the taxable profit of IRC and it is this that motivates IRC taxpayers to report as high a value as possible of those expenses to reduce the taxable base of IRC, the collected amount and, consequently, the tax to pay;

b) It is about treating unfavorably those expenses which, by their nature, are easily diverted from private consumption to business use;

c) It is intended to discourage this type of expense in taxpayers that show negative results but that continue to show consumption structures difficult to reconcile with the financial health of their enterprises;

d) To model the tax system so that it shows a certain balance, with a view to a better distribution of the effective tax burden among taxpayers and types of income;

e) To materialize the recognition that it is not easy to determine the exact measure of the component of some of these expenses that corresponds to private consumption.

Autonomous taxation rates are based on the presumption of the existence of income that may not be being taxed, not only in IRC but also in personal income tax (IRS). As explained in the decision of the Arbitral Tribunal issued in the context of Proceeding no. 209/2013-T, which decided negatively on the question of the deductibility of autonomous taxation rates as a tax cost under IRC, "it is a form of, indirectly and through the expense, taxing income."

The part of the IRC collected amount that comes from autonomous taxation rates is calculated from the elements of the tax defined in article 88 of the CIRC inserted in 'Chapter IV – Rates'. This article delimits the taxable base of autonomous taxation rates, on the one hand, and, on the other hand, lists the rates of autonomous taxation rates, which are various, depending on the nature of the taxable base to which they apply; as they depend on the type of IRC taxpayer (e.g., non-profit entity, exempt entities, entity that pursues as its main activity a commercial, industrial or agricultural activity), and are also dependent on the entity's own economic performance as an IRC taxpayer, assuming different percentages when a fiscal profit or loss is determined. The collected amount that comes from autonomous taxation rates is a function of the taxable result, being calculated from two expressions that are the product of the taxable base by a rate dependent on the taxable result: a higher rate when a fiscal loss is determined and another, lower, when the taxable result is positive.

Thus, the collected amount coming from autonomous taxation rates cannot be determined instantaneously and immediately following the incurring of the expense, as it depends on the result itself which is - contrary to what the AT claims and with support from the decision issued in Arbitral Proceeding no. 113/2015-T - of successive formation.

Also some expenses that do not coincide with the expenses that extinguish and that are subject to autonomous taxation, namely depreciations, are of continuous formation.

Given this, the essential question that interests us to resolve is whether the assessment of autonomous taxation rates is "determined in accordance with article 90 of the CIRC," because, if it is, one would have to conclude that the deductions provided for in no. 2 of article 90 of the IRC Code may also be made to the collected amount coming from autonomous taxation rates.

The rule in question is that of article 90 of the CIRC, with subparagraph a) being the one that applies to assessment made by the taxpayer (self-assessment). This was the wording of the article on 31.12.2014:

"Article 90

Procedure and Form of Assessment

1 — The assessment of IRC proceeds in the following terms:

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

(…)

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

a) The one corresponding to international legal double taxation;

b) The one corresponding to international economic double taxation;

c) The one relating to tax benefits;

d) The one relating to the special payment on account referred to in article 106;

e) The one relating to withholdings at source not susceptible to compensation or reimbursement in accordance with applicable legislation.

3 — (Revoked).

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

5 — The deductions referred to in no. 2 regarding entities to which the transparent taxation 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 base that took into account the imputation provided for in the same article.

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

7 — From the deductions made in accordance with subparagraphs a), b) and c) of no. 2 no negative value may result.

8— Regarding taxpayers covered by the simplified regime for determination of the taxable base, to the amount determined in accordance with no. 1 only the deductions provided for in subparagraphs a) and e) of no. 2 are to be made.

9— From the deductions made in accordance with subparagraphs a) to d) of no. 2 no negative value may result.

10 — To the amount determined in accordance with subparagraphs b) and c) of no. 1 only the deductions of which the tax administration has knowledge and which may be made in accordance with nos. 2 to 4 are made.

11 — In cases in which the provision in subparagraph b) of no. 2 of article 79 applies, annual assessments are made based on the taxable base determined on a provisional basis, and, in view of the assessment corresponding to the taxable base relating to the entire tax period, the difference ascertained is collected or annulled.

12 — The assessment provided for in no. 1 may be corrected, if necessary, within the period referred to in article 101, and the differences ascertained are then collected or annulled."

Thus, article 90 of the CIRC refers to the forms of IRC assessment, by the taxpayer or by the Tax Administration, and aims to determine the tax due in all situations provided for in the Code, including additional assessment.

The IRC Code refers, in its current version, expressly to autonomous taxation rates only in five articles, namely in article 12 (by excluding autonomous taxation rates from the exemption of IRC applicable to entities covered by the transparent taxation regime), in article 23-A, no. 1 (by specifying that autonomous taxation rates are not deductible for purposes of determining taxable profit), in article 88 (by establishing the rates and delimiting the taxable base of autonomous taxation rates), in article 117, no. 6 (regarding the declaration obligation of exempt IRC entities under article 9, when autonomous taxation rates apply) and in article 120, no. 9 (as to the periodic income declaration). There is no other explicit reference to autonomous taxation rates in the CIRC.

In fact, the current wording differs from that in force until 31.12.2014 only in the novelty of article 23-A, which comes to establish that the expenses associated with autonomous taxation are not deductible for purposes of determining taxable profit, even when recorded as expenses of the tax period, with certain expenses being deducted, and the wording of subparagraph a) is clarifying: "IRC, including autonomous taxation rates, and any other taxes that directly or indirectly affect profits." That is, not only does the legislator express that IRC includes autonomous taxation rates, but there are no other provisions in the CIRC, specifically in the chapters dealing with incidence (Chapter I), assessment (Chapter V) and payment (Chapter VI) with any other express references to autonomous taxation rates, from which it is necessary to conclude that they are subject, in a general manner, to the other articles provided for in the CIRC.

There was no other article in the CIRC, besides article 90, that distinguishes the process of assessment of autonomous taxation rates from the rest of IRC. And, in these terms, the assessment of both - autonomous taxation rates and the rest of IRC - is single and has the same legal support.

Autonomous taxation rates did not result from a process distinct from the assessment of the tax.

Understood that autonomous taxation rates are (part of) IRC, it is understood that there is a single IRC assessment, including the part that comes from autonomous taxation rates. There is a single IRC assessment that comprises two parts: the assessment of autonomous taxation rates and that of the rest of IRC, each one with a taxable base determined in its own manner and with its own taxation rates, but both assessed in accordance with article 90 of the CIRC. If there is a single assessment, it is concluded that the part of the collected amount that comes from autonomous taxation rates is an integral part of the IRC collected amount.

On the contrary, in no other article of the CIRC was there a reference to the assessment of autonomous taxation rates as a distinct process. To accept that the collected amount of autonomous taxation rates is not included in article 90 of the CIRC would be to accept that there is a gap in the law and, being this a tax law, does not allow for integration.

In this sense, goes Judgment no. 775/2015-T, of 28 June 2016, in stating that "to accept that the assessment of autonomous taxation rates is outside article 90, no. 1 of the CIRC and, therefore, to remove from its collected amount the deductibility of the PEC provided for in subparagraph c) of no. 2 and of SIFIDE provided for in subparagraph b) of no. 2, would be to oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contradicting no. 3 of article 103 of the Constitution of the Portuguese Republic and the principle of tax legality that the General Tax Law, in its article 8, no. 2, subparagraph a), establishes. If the Tax Authority and Customs Authority assumed that the collected amount of autonomous taxation rates was calculated outside article 90 of the CIRC, it should indicate on what basis of assessment rule it did so. There being no rule on assessment of autonomous taxation rates separate, it seems one must accept that the IRC collected amount encompasses it, being included in article 90, no. 1 of the CIRC, being, therefore, the special payment on account referred to in subparagraph c) of no. 2 and SIFIDE referred to in subparagraph b) of no. 2 deductible."

Note, furthermore, that in the following numbers of that article 90 of the IRC Code the legislator was concerned with enunciating various exceptions and limits to the deductibility rules of no. 2. In no. 4, when it provides that "only the deduction relating to withholdings at source is to be made when these have the nature of tax on account of IRC," which is revealing: one understands that it is so, because it is to the IRC collected amount that one intends to deduct them, or, in no. 7, when it prescribes that from the deductions to the collected amount a), b) and c) of no. 2 no negative value may result, without distinguishing the collected amount resulting from the application of autonomous taxation rates.

In none of them and in no other rule was there any reference to any limitation on the deductibility of RFAI, SIFIDE, CFEI or PEC to the part of the IRC collected amount that results from autonomous taxation rates, being, therefore, necessary to conclude that it did not intend to do so.

Note, moreover, that, although article 90 was amended by Law no. 2/2014, of 16 January, which republished the CIRC, what has been said here not only endures but, from an interpretative point of view, even comes out reinforced, inasmuch as the legislator added some limitations and exceptions to the deductions from the collected amount provided for in number 2 and once again did not refer to the part of the collected amount that results from the application of autonomous taxation rates.

Therefore, article 90 of the IRC Code also applies to the assessment of the amount of autonomous taxation rates, which is determined by the taxpayer or by the Tax Administration, there being no other provision that provides for different terms for its assessment. The autonomy of autonomous taxation rates is restricted to the applicable rates and their respective taxable base, but the determination of their amount is made in accordance with article 90 of the IRC Code.

The differences between the determination of the amount resulting from autonomous taxation rates and the collected amount resulting from taxable profit, rests on the determination of the taxable base and the rates, provided for in Chapters III and IV of the CIRC, but not on the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation rates and the rest of the IRC collected amount.

For this reason, being article 90 inserted in this Chapter V, there is no legal support for making a distinction between the collected amount coming from autonomous taxation rates and the rest of the IRC collected amount, due to the fact that the rates and the forms of determination of the taxable base are distinct.

And, as has been said, there is no legal support to affirm that, in the event that multiple calculations have to be made in a declaration to determine IRC, more than one self-assessment is made.

Therefore, the expression "when the assessment is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable base stated therein," which appears in subparagraph a) of no. 1 of article 90 of the CIRC, encompasses in its literal meaning the assessment of autonomous taxation rates, whose taxable base must be indicated in the said declarations, as results, also from the Form 22 declaration itself.

The collected amount is obtained by applying the rate to the respective taxable base, so that, in the case of IRC, there being various rates applicable to different taxable bases, the global IRC collected amount will be constituted by the sum of all the results of these applications.

It further follows that, irrespective of the calculations to be made, the self-assessment that the taxpayer or the AT must make in accordance with articles 89, subparagraph a), 90, no. 1, subparagraphs a), b) and c) and 120 or 122 is unitary, and based on it the global IRC is calculated, whatever the taxable bases relating to each of the types of taxation underlying it.

Furthermore, one cannot see, in the possible anti-abuse nature that some autonomous taxation rates assume, an explanation for their removal from the respective collected amount, as there is no legal support to remove the deductibility from the collected amount arising from corrections based on provisions of an unquestionably anti-abuse nature.

The purpose of autonomous taxation rates is dual. They aim to tax real income, correcting taxable income to bring it closer to that income and, at the same time, they seek to penalize taxpayers who, through the realization of certain expenses, end up reducing taxable income.

As can be read in Judgment no. 617/12 of the Constitutional Court, showing its dual nature, with an aggravated rate of autonomous taxation for certain special situations that are sought to be discouraged, creates a sort of presumption that these costs do not have a business cause and, therefore, are subject to autonomous taxation. "In summary," says the Constitutional Court, "the cost is deductible, but autonomous taxation reduces its tax advantage, since, here, the basis for taxation is not a net income, but rather a cost transformed – exceptionally – into an object of taxation."

Being that the legal regime of autonomous taxation rates in question only makes sense in the context of taxation under IRC. That is, disconnected from the legal regime of this tax, they will completely lack sense. Their existence, their purpose, their explanation, ultimately their juridicity, is only understandable and acceptable within the framework of the legal regime of IRC. For even if one accepted that the tax fact is each of the singular expenses legally typified, the fact is that these are not, qua tale, the final object of taxation, the reality that one intends to burden with the tax.

If it were so, all expenses provided for would have to be taxed, realized by all subjects and not just by some of them.

That is, autonomous taxation rates are indissolubly linked to the subjects of the respective income tax, and, more specifically, to the economic activity carried out by them, which is even more evident when one thinks of the link that, although it has varied in successive legislative changes, autonomous taxation rates had and still have some connection with deductibility – and the actual deduction – of the expenses taxed. They are, in essence, special rules on the deductibility of certain costs.

This circumstance, it is believed, is elucidative of the intertwining existing between these and IRC (in this case), and justifies not only their inclusion in the CIRC, but equally their integration, by full right, as part of the legal regime of IRC.

The autonomous taxation rates now in question are, as such, undoubtedly understood by the legislator as a form of preventing certain abusive actions, that the normal functioning of the tax system was incapable of preventing or that would be more burdensome or laborious for the tax administration or, indeed, possibly for the taxpayer.

This anti-abuse character of autonomous taxation rates will be not only coherent with its "anti-systemic" nature (as happens with all provisions of the kind), but also with a presumptive nature.

From this perspective, as is stated in the decision issued by the Arbitral Tribunal in proceeding no. 187/2013-T, autonomous taxation rates in analysis will then have underlying a presumption of partial business character of the expenses on which they affect, on the basis of the above-mentioned fact that such expenses are situated on a line between what is business expense, productive, and what is private expense, consumption, being that, notably, in many cases, the expense will even have in reality a dual nature (part business, part private).

Confronted with this difficulty, the legislator, instead of simply removing its deductibility, or reversing the burden of proof of the relation of the expenses in question to business activity, opted for the currently in force regime.

This presumption of partial business character should, in coherence, be considered as covered by the possibility of avoidance resulting from article 73 of the LGT, whether by the taxpayer or by the Tax Administration, which appears to conform with an adequate distribution of the burden of proof, in that autonomous taxation rates affect expenses whose relation to the activity pursued may not be, prima facie, evident, and it will be the taxpayer who will be better positioned to demonstrate that such a requirement is verified in concreto. For its part, the Tax Administration itself, should it see fit and consider that the case justifies the inherent expenditure of resources, may always demonstrate that, regarding the expenses in question, and even if autonomous taxation has affected them, the general requirement of article 23, no. 1 of the CIRC is not verified, specifically its indispensability for the realization of income subject to tax or for the maintenance of the source producing it.

Given all that has been stated above, we consider that the autonomous taxation rates in question are part of the IRC regime and that their respective assessment is made in accordance with article 90 of the respective Code.

2. On the Deductibility of the SIFIDE Tax Credit from the Amount Due as Autonomous Taxation

Having regard to the framework set out in the preceding section, the first concrete question that arises in this regard is whether the tax credits recognized to the claimant in 2014, under SIFIDE, may also be deducted from the collected amount produced by the autonomous taxation rates that burden it in this fiscal year, to the extent that they cannot be deducted from the rest of the collected amount.

To answer this question it is important to refer to article 38 of the Investment Tax Code, in the wording at the time of the facts, which provided that:

"1 - IRC taxpayers resident in Portuguese territory who exercise, as their main activity, an activity of an agricultural, industrial, commercial and services nature and non-residents with permanent establishments in that territory may deduct to the amount of the IRC collected determined in accordance with subparagraph a) of no. 1 of article 90 of the IRC Code, and up to its concurrent amount, the value corresponding to expenses with research and development, in the part that has not been subject to financial contribution from the State on a non-repayable basis, realized in tax periods with commencement between 1 January 2014 and 31 December 2020, in a double percentage. (…)

2 - For IRC taxpayers that fall within the category of micro, small or medium enterprises, as defined in Recommendation no. 2003/361/CE, of the Commission, of 6 May 2003, that have not yet completed two fiscal years and that have not benefited from the incremental rate fixed in subparagraph b) of the preceding number, a 15% increase applies to the base rate fixed in subparagraph a) of the preceding number.

3 - The deduction is made, in accordance with article 90 of the IRC Code, in the assessment relating to the tax period mentioned in the preceding number. (…)"

Article 39 added:

"Only the following IRC taxpayers may benefit from the deduction referred to in the preceding article, who cumulatively meet the following conditions:

a) Their taxable profit is not determined by indirect methods;

b) They are not debtors to the State and social security of any contributions, taxes or quotations, or have their payment properly assured."

In fact, that instrument does not state that the credits arising from it are deductible to any and all IRC collected amount, but rather defines the scope of the deduction by alluding, in its no. 1 of article 38, "to the amount determined in accordance with article 90 of the IRC Code, and up to its concurrent amount".

No. 3 of the same article confirms that it is to the amount that is determined in accordance with article 90 of the IRC Code that is relevant to make the deduction by saying that "the deduction is made, in accordance with article 90 of the IRC Code, in the assessment relating to the tax period mentioned in the preceding number."

Thus, by mere declarative interpretation, it is concluded that the reference made in article 38, no. 1 and 3 to the "deduction (…) in accordance with article 90 of the IRC Code (…)" as a way to materialize the tax benefit encompasses, literally also the collected amount of IRC resulting from autonomous taxation rates, which is part of the single IRC collected amount.

The fact that article 39 of the Investment Tax Code removes the benefit when taxable profit is determined by indirect methods and autonomous taxation rates include situations where it aims indirectly at the taxation of profits (namely, by not giving relevance or discouraging facts capable of reducing them), has no relevance for this purpose, as the concept of "indirect methods" has a precise scope in tax law, which is made concrete in article 90 of the LGT (besides special provisions), referring to means of determining taxable profit, whose use is not provided for in the calculation of the taxable base of autonomous taxation rates provided for in article 88 of the CIRC.

On the other hand, if it is the need to use indirect methods that removes the possibility of enjoying the benefit, one cannot justify that removal in relation to the collected amount of autonomous taxation rates, which is determined by direct methods.

Furthermore, one cannot see, in the possible anti-abuse nature that some autonomous taxation rates assume, an explanation for their removal from the respective collected amount within the scope of deductibility of the SIFIDE benefit, as there is no legal support to remove the deductibility from the collected amount arising from corrections based on provisions of an unquestionably anti-abuse nature, such as those relating to transfer pricing or undercapitalization. When the legislator wants to remove deductibility it must say so expressly.

Furthermore, the fact that the deductibility of the SIFIDE tax benefit is limited to the collected amount of article 90 of the CIRC, up to its concurrent amount, does not allow concluding that the tax credit is only deductible if there is taxable profit, as what that fact requires is that there is IRC collected amount, which may exist even without taxable profit, specifically by force of autonomous taxation rates.

Thus, pointing to the literal tenor of article 38 of SIFIDE in the sense that the deduction also applies to the IRC collected amount derived from autonomous taxation rates determined in accordance with article 90 of the CIRC, only by way of a restrictive interpretation may the application of that tax benefit be removed from the IRC collected amount provided by autonomous taxation rates.

The viability of a restrictive interpretation finds, from the outset, an obstacle of a general nature, which is that provisions creating tax benefits have the nature of exceptional provisions, as results from the expressed tenor of article 2, no. 1, of the Tax Benefits Statute (EBF), so that, in the absence of a special rule, should be interpreted in their precise terms, as is settled jurisprudence. In the case of tax benefits, the possibility of extensive interpretation is expressly provided for (article 10 of the EBF), but not of restrictive interpretation, so that, as a general rule, the tax benefit should not be interpreted with less breadth than that which, in a declarative interpretation, results from the tenor of the provision that provides for it.

In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text that betrays its thought, insofar as it says more than what it intended to say. Also here the ratio legis will have a decisive word. The interpreter should not allow itself to be drawn by the apparent scope of the text, but should restrict it so as to make it compatible with the legislative thought, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends there ends its scope)"[1].

As a basis for a restrictive interpretation, one may venture the fact that some autonomous taxation rates aim to discourage certain taxpayer behaviors susceptible to affecting taxable profit, and consequently reducing tax revenue, and their discouraging force will be attenuated by the possibility of the respective collected amount being subject to deductions. Therefore, one must assess whether there are reasons that justify a conclusion about the incompatibility of the sense of the text of article 36 with the ratio legis of that tax benefit. But the discouragement of such behaviors is justified only by concerns to protect tax revenue and the tax benefits granted are, by definition, "exceptional measures instituted to protect relevant non-fiscal public interests that are superior to those of the tax itself that prevent them" (article 2, no. 1, of the EBF). And, in the case of the SIFIDE tax benefits, the reasons of a non-fiscal nature that justify their superposition to tax revenues are, in the legislative perspective, of enormous importance, as is inferred from the reasoning in the State Budget Report for 2011: "II.2.2.4.4. Tax Incentive System for Research and Development in Business II (SIFIDE). Given that one of the strengths of competitiveness in Portugal goes through investment in technological capacity, in scientific employment and in conditions of assertion in the European space, the Proposed State Budget for 2011 proposes to renew SIFIDE (Tax Incentive System for Business Research and Development), now in the SIFIDE version, to be in force in the periods 2011 to 2015, enabling deduction from the IRC collected for companies that invest in R&D (research and development capacity). Given the positive balance of tax incentives for business R&D and considering also the evolution of the support system of other countries, it was decided to revise and reintroduce for another five tax periods this support system. Business R&D is a decisive fact not only of its own assertion as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in various recent international reports. It is in this context that, in the international panorama, the OECD has considered since 2001 Portugal as one of the three countries with the most significant progress in business R&D. Being the current national system, comparatively to other systems using deduction from the collected and the distinction between base rate and incremental rate, one of the most attractive and competitive."

Being business research and development "a decisive fact not only of its own assertion as competitive structures, but of productivity and long-term economic growth," it is understood that preference has been given to encouraging investment in technological capacity, scientific employment and conditions for assertion in the European space, which, in the long term lead to obtaining higher tax revenues.

The importance that, in the legislative perspective, was recognized to this tax benefit provided for in SIFIDE is also decisively confirmed by the fact that it is indicated as being specially excluded from the general limit to the relevance of tax benefits in IRC, which is indicated in article 92 of the CIRC, in the wording at the time of the facts. For this reason, it is also, by this route, certain that one is faced with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, inferring from that article 92 that the legislative intention to encourage investments in research and development provided for in SIFIDE is so firm that it goes to the point of not even establishing any limit to the deductibility of the IRC collected amount, despite this tax regime having been created and applied in a period of notorious difficulties in public finances.

Thus, there is no legal basis, namely in light of the legislative intention that can be detected, to, on the basis of a restrictive interpretation, remove the deductibility of the SIFIDE tax benefit to the collected amount of autonomous taxation rates that results directly from the letter of article 38, no. 1, of the respective instrument, combined with article 90 of the CIRC.

As has been said, by establishing a tax benefit by deduction from the IRC collected amount, the legislator opted to dispense with the tax revenue that this tax could provide, in the measure of the granting of the tax benefit. For this weighing of the relative interests at stake (tax revenue versus strong incentive to investment) it is irrelevant whether that revenue comes from calculations made on the basis of article 87 or article 88 of the CIRC. In fact, whatever the form of calculation of that tax revenue, one is faced with money whose collection the legislator considered to be less important than the pursuit of the economic purpose mentioned. Of the two alternatives that faced the legislator regarding encouragement of investments provided for in SIFIDE, which were, on the one hand, to keep intact the revenues from IRC (including those of autonomous taxation rates) and not see investment in research and development encouraged and, on the other hand, to achieve that encouragement with loss of IRC revenues, the weighing that necessarily underlies SIFIDE is that of opting for the creation of the incentive with prejudice to revenues. And, naturally, being the creation of the incentive to investment better, in the legislative perspective, than the collection of revenues, one does not see how it could be relevant that the IRC revenues that are lost to achieve the incentive come from the general taxation of IRC provided for in no. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation rates provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenues and the relative weighing that can be made of the conflicting interests is identical, whatever the forms of determining the amount of IRC from which one refrains to create the incentive.

And, in the case of the SIFIDE tax benefit, the reasons of a non-fiscal nature that justify the incentive with loss of revenue are very strong, as one considers that the incentivized investments are a decisive fact in the country's future competitiveness.

For this reason, it is certain that one is faced with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues from IRC, whatever the basis for its calculation, as what is at stake is always whether or not to forego a certain amount of money to create an investment incentive.

In this context, the nature of autonomous taxation rates and the solutions legislatively adopted, in general, regarding them, have no relevance for the assessment of this question, as it must be assessed in light of the specific interests that clash in its weighing.

In fact, what is at stake is, exclusively, to determine the scope of SIFIDE, which establishes a regime of an exceptional nature, which aimed to pursue certain public interests, and not to contribute to the decision of any conceptual question about the nature of autonomous taxation rates, a matter on which neither in the text of the law nor in the State Budget Report for 2011 is the least legislative concern visible.

By the foregoing, converging the literal and rational elements of the interpretation of article 38 of the Investment Tax Code in the sense that the investment expenses provided for therein are deductible to "the amount determined in accordance with article 90 of the IRC Code, and up to its concurrent amount," it is to be concluded that they are deductible to the entirety of that collected amount, which encompasses, in addition to that derived from the taxation of profits in each fiscal period, that resulting from other positive components of the tax, namely autonomous taxation rates, state surtax and IRC from previous tax periods.

Thus, the deduction of SIFIDE from the IRC collected amount, which includes in it necessarily the portion coming from autonomous taxation rates, must be accepted.

It is found, however, that the IT system does not allow the deduction of SIFIDE from the part of the IRC collected amount coming from autonomous taxation rates. The fact that the forms of determination of the taxable base and of the rates of autonomous taxation rates of IRC are established separately and are different from those of the rest of IRC does not appear to be a sufficient reason, nor to have legal support, for the existing IT solution.

These considerations that we have developed for SIFIDE are, with the necessary adaptations, transposable to the other two benefits at issue present in the case at hand - RFAI and CFEI - as we will see in the next sections.

3. On the Deductibility of the RFAI Tax Credit from the Amount Due as Autonomous Taxation

As to the deductibility of RFAI the same arguments developed above for SIFIDE apply, as well as what was decided in Arbitral Decision no. 740/2015-T, of 16 May 2015, of CAAD, specifically on RFAI, which we follow here.

The Special Regime for Investment Support was approved by article 13 of Law no. 10/2009, which article 116 of Law no. 3-B/2010, of 28 April (State Budget Law for 2010) kept in force regarding 2010, which article 134 of Law no. 55-A/2010, of 31 December (State Budget Law for 2011), kept in force regarding 2011, which article 162 of Law no. 64-B/2011, of 30 December (State Budget Law for 2012), kept in force regarding 2012, which article 232 of Law no. 66-B/2012, of 31 December (State Budget Law for 2013), kept in force regarding 2013, and which meanwhile and since has been integrated into the Investment Tax Code (Decree-Law no. 82/2013, of 17 June, and Decree-Law no. 162/2014, of 31 October)).

With regard to IRC, the said regime was translated into a tax benefit provided for in the Investment Tax Code, which establishes the following, as far as is relevant here:

"Article 22

Scope of Application and Definitions

1 - RFAI applies to IRC taxpayers that exercise an activity in the sectors specifically provided for in no. 2 of article 2, taking into account the activity codes defined in the ordinance provided for in no. 3 of the said article, with the exception of activities excluded from the sectoral scope of application of OAR and RGIC.

2 - For the purposes of this regime, relevant applications are considered investments in the following assets, provided that they are allocated to the exploitation of the enterprise:

a) Tangible fixed assets, acquired in a new state, with the exception of:

i) Land, except in the case of being intended for the exploitation of mining concessions, natural mineral waters and spring water, quarries, clay pits and sand pits in investments in the extractive industry;

ii) Construction, acquisition, repair and expansion of any buildings, except if they are manufacturing facilities or allocated to tourist activities, audiovisual production or administrative activities;

iii) Light passenger vehicles or mixed vehicles;

iv) Furniture and comfort or decoration articles, except hotel equipment allocated to tourist exploitation;

v) Social facilities;

vi) Other investment goods that are not allocated to the exploitation of the enterprise;

b) Intangible assets, constituted by expenses with technology transfer, namely through the acquisition of patent rights, licenses, "know-how" or technical knowledge not protected by patent.

3 - In the case of IRC taxpayers that do not fall within the category of micro, small and medium enterprises, as defined in Recommendation no. 2003/361/CE, of the Commission, of 6 May 2003, the relevant applications referred to in subparagraph b) of the preceding number cannot exceed 50% of the relevant applications.

4 - May benefit from the tax incentives provided for in this chapter the IRC taxpayers that cumulatively meet the following conditions:

a) Have an accounting system regularly organized, in accordance with accounting standardization and other legal provisions in force for the respective sector of activity;

b) Their taxable profit is not determined by indirect methods;

c) Maintain in the enterprise and in the region for a minimum period of three years from the date of investments, in the case of micro, small and medium enterprises as defined in Recommendation no. 2003/361/CE, of the Commission, of 6 May 2003, or five years in other cases, the goods subject to the investment or, when shorter, during their respective minimum useful life period, determined in accordance with Regulatory Decree no. 25/2009, of 14 September, amended by Laws nos. 64-B/2011, of 30 December, and 2/2014, of 16 January, or until the period in which their respective physical removal, dismantlement, abandonment or inutilization occurs, observing the rules provided for in article 31-B of the IRC Code;

d) Are not debtors to the State and social security of any contributions, taxes or quotations or have the payment of their debts properly assured;

e) Are not considered enterprises in difficulty in accordance with the Commission communication - Guidelines on aid for rescue and restructuring of non-financial enterprises in difficulty, published in the Official Journal of the European Union, no. C 249, of 31 July 2014;

f) Carry out relevant investment that provides for the creation of jobs and their maintenance until the end of the minimum period for maintaining the goods subject to investment, in accordance with subparagraph c).

5 - Realized investment is considered to be the corresponding additions, verified in each tax period, of tangible fixed assets and intangible assets and also that, having the nature of tangible fixed asset and not relating to advances, translates into additions to investments in progress.

6 - For the purposes of the preceding number, additions of assets that result from transfers of investments in progress carried forward from earlier periods are not considered, except if they are advances.

7 - In eligible regions for aid in accordance with subparagraph c) of no. 3 of article 107 of the Treaty on the Functioning of the European Union listed in the table of article 43, in the case of enterprises that do not fall within the category of micro, small and medium enterprises, as defined in Recommendation no. 2003/361/CE, of the Commission, of 6 May 2003, only the investments in a new economic activity may benefit from RFAI, that is, an investment in tangible and intangible assets related to the creation of a new establishment, or to the diversification of the activity of an establishment, on condition that the new activity is not the same or a similar activity to that previously carried out in the establishment.

Article 23

Tax Benefits

1 - To the IRC taxpayers provided for in no. 1 of the preceding article, the following tax benefits are granted:

a) Deduction from the IRC collected determined in accordance with subparagraph a) of no. 1 of article 90 of the IRC Code, of the following amounts of the relevant applications:

1. In the case of investments made in eligible regions in accordance with subparagraph a) of no. 3 of article 107 of the Treaty of Functioning of the European Union listed in the table provided for in no. 1 of article 43:

i) 25% of the relevant applications, regarding the investment made up to the amount of (euro) 5 000 000,00;

ii) 10% of the relevant applications, regarding the part of the investment made that exceeds the amount of (euro) 5 000 000,00;

1. In the case of investments in eligible regions in accordance with subparagraph c) of no. 3 of article 107 of the Treaty of Functioning of the European Union listed in the table provided for in no. 1 of article 43, 10% of the relevant applications;

b) Exemption or reduction of property tax (IMI), for a period up to 10 years from the year of acquisition or construction of the property, regarding the properties used by the promoter within the scope of investments that constitute relevant applications, in accordance with article 22;

c) Exemption or reduction of property transfer tax (IMT) regarding the acquisitions of properties that constitute relevant applications in accordance with article 22;

d) Exemption of Stamp Duty regarding the acquisitions of properties that constitute relevant applications in accordance with article 22

2 - The deduction referred to in subparagraph a) of the preceding number is made in the IRC assessment relating to the tax period in which the relevant applications are made, with the following limits:

a) In the case of investments made in the tax period of beginning of activity and in the two following tax periods, except when the enterprise results from a scission, up to the concurrent amount of the total IRC collected determined in each of those tax periods;

b) In other cases, up to the concurrent amount of 50% of the IRC collected determined in each tax period.

3 - When the deduction referred to in the preceding number cannot be made in full due to insufficient collected amount, the amount still not deducted may be deducted in the assessments of the 10 following tax periods, up to the concurrent amount of the IRC collected determined in each of those tax periods, in the case of investments covered by subparagraph a) of the preceding number or with the limit provided for in subparagraph b) of the same number, in the cases provided for there.

4 - For the purposes of the provisions in subparagraphs b) and c) of no. 1, the exemptions or reductions provided for there are conditioned on recognition, by the competent municipal assembly, of the interest of the investment for the region.

5 - The tax benefits provided for in the preceding numbers must respect the maximum limits applicable to aid for regional purposes in force in the region in which the investment is made, in accordance with article 43.

6 - If investments benefit from other State aid, the calculation of the limits referred to in the preceding number must take into account the total amount of State aid for regional purposes granted to the investment in question, from all sources.

7 - For the purposes of the preceding number, taxpayers are subject to special control procedures for the amount of State aid for regional purposes granted to the investment, in accordance with terms to be defined by ordinance of the government member responsible for the areas of finance and the economy."

As can be seen from article 23, no. 1 subparagraph a) of the Investment Tax Code, the tax benefit is materialized through "deduction from the IRC collected." There is agreement of the Parties that this expression does not have substantially different scope from that used in SIFIDE which is "amount determined in accordance with article 90 of the IRC Code." ([2])

For what has already been referred to above, the collected amount derived from autonomous taxation rates provided for in the CIRC is "IRC collected amount," so that the expression used in RFAI does not exclude the deduction of eligible investments from the collected amount provided by those taxation rates.

Also with respect to this tax benefit, what has been mentioned above applies regarding the prevalence of the interests that the tax benefit aims to achieve over the interest in obtaining tax revenues, for which we refer.

Therefore, also on this question, the request for arbitral pronouncement is justified.

4. On the Deductibility of the CFEI Tax Credit from the Amount Due as Autonomous Taxation

We apply here the reasoning already elaborated as to SIFIDE and RFAI above, made concrete in a similar manner for CFEI in Proceeding no. 673/2016 of 28 April 2016, which we follow closely.

CFEI was approved by Law no. 49/2013, of 16 July, which establishes the following, as far as is relevant here:

"Article 2

Subjective Scope of Application

The following IRC taxpayers may benefit from CFEI: those who exercise, as their main activity, a commercial, industrial or agricultural activity and who cumulatively meet the following conditions:

a) Have accounting regularly organized, in accordance with accounting standardization and other legal provisions in force for the respective sector of activity;

b) Their taxable profit is not determined by indirect methods;

c) Have their tax and social security situation regularized.

Article 3

Tax Incentive

1 - The tax benefit to be granted to the taxpayers referred to in the preceding article corresponds to a deduction from the IRC collected in the amount of 20% of investment expenses in assets allocated to exploitation, which are made between 1 June 2013 and 31 December 2013.

2 - For the purposes of the deduction provided for in the preceding number, the maximum amount of eligible investment expenses is 5 000 000,00 EUR, per taxpayer.

3 - The deduction provided for in the preceding numbers is made in the IRC assessment relating to the tax period commencing in 2013, up to the concurrent amount of 70% of the collected amount of this tax.

4 - In the case of taxpayers who adopt a tax period not coinciding with the calendar year and with commencement after 1 June 2013, the expenses relevant for the purposes of the deduction provided for in the preceding numbers are those made in eligible assets from the beginning of the said period until the end of the seventh following month.

5 - If the special regime for taxation of groups of companies applies, the deduction provided for in no. 1:

a) Is made to the amount determined in accordance with subparagraph a) of no. 1 of article 90 of the IRC Code, based on the taxable base of the group;

b) Is made up to 70% of the amount mentioned in the preceding subparagraph and cannot exceed, in relation to each company and per fiscal year, the limit of 70% of the collected amount that would be determined by the company that realized the eligible expenses, if the special regime for taxation of groups of companies did not apply.

6 - The amount that cannot be deducted in accordance with the preceding numbers may be deducted, in the same conditions, in the five subsequent tax periods.

7 - To taxpayers who reorganize, as a result of any operations provided for in article 73 of the IRC Code, the provision in no. 3 of article 15 of the Tax Benefits Statute applies.

Article 4

Eligible Investment Expenses

1 - For the purposes of this regime, investment expenses in assets allocated to exploitation are considered those relating to tangible fixed assets and biological assets that are not consumable, acquired in a new state and that come into operation or use by the end of the tax period commencing in or after 1 January 2014.

2 - Investment expenses in intangible assets subject to depreciation made in the periods referred to in nos. 1 and 4 of article 3 are also eligible, namely:

a) Expenses with development projects;

b) Expenses with elements of industrial property, such as patents, marks, licenses, production processes, models or other similar rights, acquired for consideration and whose exclusive use is recognized for a limited period of time.

3 - Investment expenses corresponding to additions of assets verified in the periods referred to in nos. 1 and 4 of article 3 are considered eligible and also those which, not relating to advances, translate into additions to investments in progress initiated in those periods.

4 - For the purposes of the preceding number, additions of..."

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