CAAD 673/2015-T: IRC Autonomous Taxation, CFEI & PEC Ruling

Process: 673/2015-T

Date: April 28, 2016

Tax Type: IRC

Summary

Process 673/2015-T addressed whether special advance payments (PEC) and the Extraordinary Fiscal Credit for Investment (CFEI) could be deducted from IRC collections resulting from autonomous taxation. The claimant, A... S.A., challenged IRC self-assessments for 2012 and 2013, arguing that despite incurring tax losses, they were required to pay autonomous taxation totaling €180,800.80 (2012), €73,851.36 (first period 2013), and €113,595.74 (second period 2013), without being permitted to offset available PEC and CFEI credits. The company contended that autonomous taxation constitutes IRC and should therefore be subject to deductions under Article 90 of the IRC Code. The Tax Authority's computer system did not allow such deductions when processing self-assessments. The claimant presented a subsidiary argument that if deductions were legally impossible, the autonomous taxation assessments should be annulled entirely as lacking legal basis. Following Law 7-A/2016's publication during proceedings, which included an interpretative provision on autonomous taxation, both parties submitted additional comments. The case illustrates the fundamental tension in Portuguese tax law between autonomous taxation as a standalone levy versus its integration within the general IRC assessment framework, with significant implications for companies holding tax credits and advance payments during loss-making periods.

Full Decision

ARBITRATION AWARD

CAAD: Tax Arbitration

Case No.: 673/2015-T

Subject Matter: CIT - Autonomous taxation; CFEI; Special advance payments

Arbitration Award

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. A. Sérgio de Matos and Dr. Luís Miranda da Rocha, appointed by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 15-01-2016, agree as follows:

1. Report

A…, S.A., legal entity no. …, with registered office at …, no. …, …-…Carnaxide, hereinafter referred to as "A…" or "Claimant", submitted a request for constitution of a collective arbitral tribunal, pursuant to articles 2.º, no. 1, paragraph a), and 10.º, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter RJAT) and articles 1.º and 2.º of Ordinance no. 112-A/2011 of 22 March, in which the Tax and Customs Authority is the respondent.

The Claimant seeks to have declared the illegality of the rejection of the administrative appeal it filed against the self-assessed CIT for the fiscal years 2012 and 2013, to the extent corresponding to the non-deduction from the CIT collection resulting from the autonomous taxation rates of the special advance payment made in connection with CIT, and likewise, the illegality of those self-assessments in the portions reflecting the non-deduction from the CIT collection resulting from the autonomous taxation rates of the special advance payment made in connection with CIT and Extraordinary Fiscal Credit for Investment (CFEI), which resulted in an amount of tax that the Claimant considers illegally assessed in the amount of €57,556.00 as to 2012, €73,851.36 as to the first taxation period of 2013, and €113,595.74 as to the second taxation period commenced in 2013.

In article 109.º of the request for arbitral pronunciation, the Claimant further formulates a subsidiary request in the following terms:

In a scenario where (...) it is understood to be impossible to effect the deduction of the tax benefits and special advance payments available for use against the amounts due on account of autonomous taxation, arguing that, although in their essence autonomous taxation constitutes CIT, their assessment does not fall within the framework of the CIT assessment provision enshrined in article 90.º of the CIT Code (which is conceived only as a mere theoretical hypothesis), then the claimant requests that, as a subsidiary matter, the self-assessment of the taxation periods of 2012 and 2013 be annulled, in the portion corresponding to autonomous taxation, and which amounts to €180,800.80 (2012), €73,851.36 (2013, first period) and €113,595.74 (2013, second period), respectively, on the ground that the same were assessed and collected without legal basis for such purpose.

The Claimant further requests reimbursement of those amounts plus compensatory interest from 31 May 2013 as to €57,556.00, from 1 January 2014 as to €73,851.36, and from 1 January 2015 as to €113,595.74.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 13-11-2015.

Pursuant to the provisions of paragraph a) of no. 2 of article 6.º and paragraph b) of no. 1 of article 11.º of RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

On 30-12-2015, the parties were duly notified of this appointment, having manifested no intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11.º no. 1, paragraphs a) and b) of RJAT and articles 6.º and 7.º of the Deontological Code.

In conformity with the provisions of paragraph c) of no. 1 of article 11.º of RJAT, the collective arbitral tribunal was constituted on 15-01-2016.

The Tax and Customs Authority responded, contesting the merits of the request for arbitral pronunciation.

By order of 18-02-2016, it was decided to dispense with the meeting provided for in article 18.º of RJAT and that the proceedings continue with written submissions.

The parties submitted written submissions.

After written submissions were filed, Law no. 7-A/2016, of 30 March, was published, which contains a provision denominated as interpretative regarding autonomous taxation, wherefore the Parties were notified to submit their comments, which they did.

The parties possess legal personality and capacity, are legitimate and are duly represented (arts. 4.º and 10.º, no. 2, of the same statute and art. 1.º of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not affected by any nullity and no obstacle is raised to the examination of the merits of the case.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

a) The Claimant filed on 24-05-2013 its CIT Statement Form 22 for the fiscal year 2012 (document no. 1 attached with the request for arbitral pronunciation, whose content is taken as reproduced);

b) The Claimant submitted on 27-02-2014 its CIT Statement Form 22 for the fiscal year 2013 (period of 01-01-2013 to 30-09-2013) (document no. 2 attached with the request for arbitral pronunciation, whose content is taken as reproduced);

c) The Claimant filed on 25-02-2015 its CIT Statement Form 22 for the fiscal year 2013 (period of 01-10-2013 to 30-09-2014) (document no. 3 attached with the request for arbitral pronunciation, whose content is taken as reproduced);

d) In the fiscal year 2012, A… determined a tax loss of €25,499,416.99 and a total amount of tax payable of €105,669.49, which has been paid (document no. 5 attached with the request for arbitral pronunciation, whose content is taken as reproduced), and which resulted from a collection of autonomous taxation in the amount of €180,800.80, less withholding tax borne in the amount of €75,131.31, to which A… was entitled to reimbursement (document no. 1);

e) With respect to the first period of fiscal year 2013, in accordance with the income statement filed, A… determined a tax loss of €9,924,629.05 and a total amount of tax to recover of €21,950.07, which resulted from a collection of autonomous taxation in the amount of €73,851.36, less withholding tax borne in the amount of €95,801.43, to which A… was entitled to reimbursement (document no. 2);

f) With respect to the second period of fiscal year 2013, in accordance with the income statement filed, A… determined a tax loss of €7,814,820.96 and a total amount of tax to recover of €29,094.05, which resulted from a collection of autonomous taxation in the amount of €113,595.74, less withholding tax borne in the amount of €142,689.79, to which A… was entitled to reimbursement (document no. 3);

g) In the aforementioned statements, the Claimant did not deduct special advance payments or tax benefits from the CIT collection;

h) In the aforementioned fiscal years, the Tax and Customs Authority did not determine the taxable profit of A… by indirect methods, it having been determined on the basis of documents nos. 1 to 3, attached with the request for arbitral pronunciation;

i) The Claimant is not and was not then an entity owing the State and Social Security any taxes or contributions (certificates attached as document no. 9 attached with the request for arbitral pronunciation, whose content is taken as reproduced);

j) The information system of the AT, through which CIT is self-assessed, does not permit taxpayers to deduct, for purposes of determining the CIT owed by them, from the tax resulting from the autonomous taxation determined, the amounts of special advance payments and the amounts of tax benefit from CFEI;

k) The Claimant filed an administrative appeal of the self-assessments made on the basis of Statement Form 22 documents which appear in documents nos. 1 to 3;

l) The Claimant was notified of the draft rejection of administrative appeal whose copy appears in document no. 13 attached with the request for arbitral pronunciation, whose content is taken as reproduced, in which agreement is manifested with an opinion in which reference is made, among other matters, to the following:

§ V.I.II. Of the Assessment

Preliminary Question: Of the fiscal years to which the assessments now in question relate

In its petition, the appellant alleges that "it proceeded to file the income statements Form 22 CIT with reference to the taxation periods of 2012, 2013 and 2014", expressly associating the statement filed on 25.02.2015, with the identification number …-…-…, to this latter period.
Now, it is true that in 2013, the appellant altered its annual taxation period, which ceased to coincide with the calendar year.
This fact is reflected in the statements filed with identification numbers …-…-…, of 27.02.2014 and …-…-…, of 25.02.2015, the first covering the taxation period from 01.01.2013 to 30.09.2013 and the latter covering the period from 01.10.2013 to 30.09.2014.
However, pursuant to CIRC, a taxation period is considered to be that whose first day refers to that year.
For example, to the fiscal year of 01-04-2012 to 31-03-2013 corresponds the taxation period of 2012. In the transition year, we will thus have two fiscal periods of 2012: one period running from 01-01-2012 to 31-03-2012 and another running from 01-04-2012 to 31-03-2013.
In this manner, it is not correct to attribute to the 2014 taxation period the assessment resulting from Statement Form 22 CIT no. …-…-…, this relating to the period of 2013.
Upon analysis of the Appellant's petition, we find that the question that must be addressed in the present proceedings consists of determining whether the amount paid on account of autonomous taxation should be understood as an integral part of the CIT collection, for purposes of deducting the amount allocated under CFEI and special advance payments.
In the analysis of this question, it will be necessary, from the outset, to determine in what terms and conditions the tax benefit was allocated under the scheme established by CFEI.
Now, CFEI was created by Law no. 49/2013, of 16 July, establishing a set of measures aimed at promoting investment and competitiveness.
This tax credit corresponds to a deduction from CIT collection of 20% of the value of investment expenses in assets used in operations, which were incurred between 1 June 2013 and 31 December 2013.
The following expenses were eligible for purposes of CFEI:

"Investment expenses in assets used in operations – i.e., expenses relating to tangible fixed assets (e.g., machinery) and biological assets which are not consumable, acquired in new condition (land is not considered an asset acquired in new condition) and which become operational or utilized by the end of the taxation period that commences in or after 1 January 2014.

• Expenses with development projects

» Expenses with elements of industrial property (e.g., patents, trademarks, licenses, production processes, models or other similar rights, acquired for consideration and whose exclusive use is recognized for a limited period of time)

Those capable of benefiting from this investment support scheme were taxpayers subject to CIT who exercised, as a principal activity, a commercial, industrial or agricultural nature activity, provided that cumulatively:

"They disposed of regularly organized accounting, in accordance with accounting normalization and other legal provisions in force for the respective sector of activity;

Their taxable profit was not determined by indirect methods; and

They had their tax and social contribution situation regularized".

Among its application conditions, the following were highlighted:

Eligible expenses had to be incurred between 1 June 2013 and 31 December 2013;

The maximum value of eligible investment expenses was €5,000,000.00 per taxpayer;

• The deduction was effected in the CIT assessment relating to the taxation period commencing in 2013, up to a maximum of 70% of the collection of this tax;

For taxpayers adopting a taxation period different from the calendar year and commencing after 1 June 2013, the expenses relevant for purposes of the deduction were those incurred in eligible assets from the beginning of such period until the end of the seventh following month;

We thus see that within the scope of CFEI, the tax benefit consisted of a deduction from CIT collection of a percentage of investment in assets used in operations in the period of 2013.
Notwithstanding this brief review of the legal scheme established by CFEI, the question remains as to whether the amount paid on account of autonomous taxation should be understood as an integral part of the CIT collection.
In seeking an answer to this question, it is necessary to determine (i) what realities are encompassed by the expression "CIT collection", within the legal discipline in force in CIRC, and (ii) to ascertain whether the fact that autonomous taxation has the nature of CIT – as jurisprudence of CAAD has unanimously accepted – permits the logical inference that they are integrated into the CIT collection.
On the matter of CIT assessment, it is important to note that the collection of this tax is based on the taxable matter contained in the statements.
The taxable matter is obtained by deducting from the taxable profit the amounts corresponding to tax losses and tax benefits deductible from taxable profit (cf. art. 15.º, no. 1, al. a), of the CIT Code).
In turn, taxable profit is "constituted by the algebraic sum of the net result of the period and the positive and negative changes in equity verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with the [CIT Code]".
Once the taxable matter is determined, the respective rate shall be applied to it, thereby determining the corresponding CIT collection.
It is to this CIT collection that no. 2, of art. 90.º, of the Code of this tax provides for the realization of deductions relating to double taxation relief, tax benefits, special advance payment and withholding tax.
Having set forth the terms on which the assessment of the corporate income tax operates, with respect to entities provided for in paragraph a), of no. 1, of art. 3.º of the CIT Code, we can state with certainty that this legal provision did not provide for the possibility of effecting the deductions provided for in no. 2 of its art. 90.º against the amount due on account of autonomous taxation.
In fact, if that had been the intention, the legislator would have expressly referred to it, providing that to the amount determined in accordance with the preceding number and of art. 88.º the following deductions are effected, in the order indicated.
Now, in the interpretive task of the meaning of the standards, "the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed", and it must be presumed that "the legislator enshrined the most appropriate solutions and knew how to express his intent in adequate terms".
"The text is the starting point of interpretation, and it has, from the outset, a negative function, which is to eliminate those meanings that do not have any support in the text of law".
To effect the deductions provided for in no. 2 of art. 90.º of the CIT Code against the amount relating to autonomous taxation is a meaning that finds no support in the legal text, and therefore such interpretation cannot stand.
The same result is obtained through the use of interpretive factors of a systematic nature, as we shall see through an approach to the transparent taxation regime provided for in the CIT Code.
In this regime, the taxable matter generated by the entities covered by it is imputed to the respective members "integrating itself in their taxable income for purposes of IRS or CIT".
Hence, the deductions provided for in no. 2, of art. 90.º, of the CIT Code, relating to companies covered by the transparent taxation regime, are imputed to the respective members, being deducted from the amount of collection determined on the basis of the taxable matter that has been imputed to them in accordance with art. 6.º, of the CIT Code.
Thus, companies covered by this regime are not taxed in CIT, except with respect to autonomous taxation. This is what art. 12.º, of the CIT Code, provides.
It is thus verified that the CIT collection determined in respect to each of the members does not encompass any value relating to autonomous taxation, the payment of which is attributable exclusively to the companies.
In this manner, it is here expressly determined the impossibility of deducting from autonomous taxation the deductions provided for in no. 2 of art. 90.º of the CIT Code, insofar as those do not form part of the collection that each of the members will determine by applying the rate to the taxable matter that has been imputed to them, in accordance with the transparent taxation regime.
Starting from the premise that the standards contained in a codification obey by principle a unitary thought, it must then be admitted that the legislator intended similar solutions for the other entities subject to CIT.
Consequently, there are no grounds for significant differences to exist, at the level of deductions from collection, between companies subject to and not subject to the transparent taxation regime.
To this must be added, now in a teleological perspective, the purpose of maintaining intact the deterrent effect that the legislator intended to achieve with autonomous taxation in relation to the realization of certain expenses.
As is clearly evident, since autonomous taxation aims to reduce the tax advantage achieved with the deduction from taxable profit of the costs on which it is assessed and further to combat tax evasion which some of these expenses, by their nature, facilitates, the autonomous taxation itself, through the consideration of its amount for purposes of the deduction of benefits, cannot constitute a factor in reducing this diminution of advantage intended and determined by the legislator.
Moreover, the acceptance of this possibility would constitute, in some cases, an incentive for an increase in situations of autonomous taxation incidence.
Consider, for example, the concurrent occurrence, in the same taxation period, of the absence of CIT collection with the fact that it is the last fiscal year for the deduction of a particular tax benefit, to register an increase in situations of autonomous taxation incidence, under the cover of the blocking of standard taxation.

(ii)

Let us now analyze whether the fact that autonomous taxation has the nature of CIT permits the logical inference that the standards directed to CIT are applied to it, such as art. 90.º of the CIT Code.
To begin with, it should be noted that the fact that autonomous taxation has the nature of CIT does not mean that the entire legal bloc provided for in the Code of this tax can be applied to this figure.
In effect, while it is true that autonomous taxation has the nature of CIT, one cannot overlook the fact that it taxes expense and not income, burdens certain charges incurred by businesses and is determined in a manner totally independent of CIT.
In truth, contrary to what occurs in the taxation of income under IRS and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of the year the tax rate can be determined, as well as the bracket in which the taxpayer is placed), in autonomous taxation each expense is taxed, considered in itself, and subject to a certain rate, autonomous taxation being determined in a manner independent of the CIT owed in each fiscal year, as it is not directly related to the attainment of a positive result and, therefore, subject to taxation.
Thus, and in the case of CIT, we are faced with an annual tax, in which each income received is not taxed separately, but rather the aggregation of all income earned in a given year, the law considering that the taxable event occurs on the last day of the taxation period (cf. art. 8.º, no. 9, of the CIT Code).
Now with respect to autonomous taxation under CIT, the taxable event is the very realization of the expense, and we are not faced with a complex fact, of successive formation over a year, but with an instantaneous tax fact.
For this reason, Sérgio Vasques (cf. Manual of Tax Law, Almedina, 2011, p. 293, note 470) draws attention to the circumstance that taxes on income contemplate elements of single obligation, such as the liberatory rates of IRS or the autonomous taxation rates of CIT.
From what has just been said, it follows that to autonomous taxation, notwithstanding its nature as CIT, only the standards applicable to it contained in the CIT Code are applicable, in view of the noted specificities, and not those which aim to regulate the taxation of the set of income earned in a given year, encompassing matters such as incidence, determination of taxable matter, rate, assessment and collection.
Taking into account what has been stated herein, we understand that the complete absence of validity of the arguments presented by the Claimant, in defense of the possibility of deducting tax benefits from the amount of autonomous taxation, has been clearly demonstrated.

Beyond what has been set out, it should be noted, finally, that the understanding that art. 90.º of CIRC refers to the forms of CIT assessment, applying to the determination of the tax owed in all situations provided for in the Code, including autonomous taxation, with no other provision providing for different terms for its assessment, does not appear to us to be the best framework for the question under examination, revealing four orders of reasons to support a different understanding.

A) Legal Text

Art. 90.º, n. 1, al. a) provides that CIT assessment is made on the basis of the taxable matter contained in the income statements presented by the taxpayer.
And, as to the "definition of taxable matter", provides, for what is now relevant, no. 1 of art. 15.º of CIRC that "for purposes of this Code: a) With respect to legal persons and entities referred to in paragraph a) of no. 1 of art. 3.º, the taxable matter is obtained by deducting from the taxable profit, determined in accordance with articles 17.º and following, the amounts corresponding to: 1) tax losses, in accordance with art. 52.º; 2) tax benefits possibly existing which consist of deductions in such profit".
As Baptista Machado masterfully states, "the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, on the assumption that the legislator knew how to correctly express his intent".
Thus, the expression "taxable matter" cannot be interpreted as encompassing the taxable value to which autonomous taxation rates are applied. It is art. 15.º itself which defines what, for purposes of the CIT Code, should be understood by taxable matter.

B) Testing the hypothesis defended in the judgment: application of art. 90.º of CIRC to autonomous taxation

On the other hand, it is not enough to allege that art. 90.º of CIRC applies to the assessment of autonomous taxation.
For validity to be attributed to this understanding, it is necessary to demonstrate its alleged applicability in concrete terms.
Since the appellant made no demonstration on this point, let us then seek to ascertain the compatibility of that article with the position now under examination.
As is known, assessment standards are those which regulate the assessment operations, consisting of these "in the application of the tax rate to the taxable matter, for determination of the collection, of the quantitative amount of the tax obligation".
From a reading of the chapter relating to assessment, not only of the CIT Code, but also of the IRS Code or even, for example, of the VAT Code, it is noted that it includes various standards relating to deductions to be made to the collection.
These standards, given their function in the determination of the quantitative amount of the tax obligation, thus constitute themselves as standards linked to assessment.
These standards are found, at the level of CIT, in article 90.º, no. 2, in which it is provided that "to the amount determined in accordance with the preceding number the following deductions are effected, in the order indicated: a) that corresponding to double taxation relief; b) that relating to tax benefits; c) that relating to special advance payment (...); d) that relating to withholding tax (...)".
Now, if article 90.º, no. 1 also relates to the assessment of autonomous taxation, then, in principle, the deductions provided for in no. 2 of the same article will also be possible to effect to these.
Therefore, not only in the case of tax benefits, but also, for example, in situations of withholding tax or of double taxation relief would be deductible from the amount assessed as autonomous taxation.
Now, if that is the case, it is then legitimate to question why the matter relating to the assessment of autonomous taxation is regulated in no. 12 of art. 88.º of CIRC, when, to be believed the understanding of the Appellant, the same should be provided for in art. 90.º of CIRC, given that it is this provision which provides regarding the assessment of autonomous taxation.
In fact, no. 12 of art. 88.º of CIRC provides that "to the amount of the tax determined, in accordance with what is provided for in the preceding number, is deducted the tax that may have been withheld at source, and in such case the tax withheld cannot be deducted under no. 2 of art. 90.º".
For its part, pursuant to no. 11 of art. 88.º of CIRC, "are taxed autonomously, at the rate of 25%, profits distributed by entities subject to CIT to taxpayers benefiting from total or partial exemption, encompassing, in this case, returns on capital, when the partnership interests to which the profits relate have not remained in the ownership of the same taxpayer, uninterruptedly, during the year preceding the date of their being placed at its disposal and are not to be retained for the time necessary to complete such period".
Thus, if art. 90.º of CIRC were applicable to the assessment of the amount of autonomous taxation, it would necessarily follow that the deduction of tax withheld at source in the situation provided for in no. 11 of art. 88.º of CIRC would be effected in accordance with paragraph d), of no. 2 of cited art. 90.º.
For, according to this article, to the assessment of CIT – which, according to the understanding of the Appellant, includes the amount of autonomous taxation – are made the deductions relating to "[withholding tax] not susceptible to set-off or reimbursement in accordance with applicable law".
However, that is not what occurs, as the legislator, on the contrary, chose to regulate a matter relating to the assessment of autonomous taxation in the article in which it provides for the respective situations of incidence, taxable base and rates (art. 88.º).
Expressly excluding, in this no. 12 of art. 88.º of CIRC, the applicability of no. 2 of art. 90.º of the same Code to the assessment of autonomous taxation.
Therefore, the amount possibly withheld at source in the situation provided for in no. 11 of art. 88.º of CIRC is deducted from the assessment of autonomous taxation by application of art. 88.º, no. 12 of CIRC, and not by art. 90.º, no. 2 al. d) of the said Code.
There is manifest here the existence of a first incompatibility in the application of no. 2 of article 90.º to the amount assessed as autonomous taxation.
In truth, when it would be supposed that, in the situation provided for in no. 11 of art. 88.º of CIRC, the deduction of withholding tax were effected in accordance with paragraph c) of no. 2 of art. 90.º of the same Code, it is verified that such hypothesis is expressly set aside by no. 12, of that art. 88.º.
Another difficulty that will emerge from the application of no. 2 of art. 90.º of CIRC will be that of the deduction of relief for double taxation from the amount assessed as autonomous taxation.
In accordance with no. 1 of art. 91º of CIRC, the deduction of relief for double taxation is only applicable when the taxable matter has included income obtained abroad.
However, in the taxable matter of autonomous taxation are not included income, but only the realization of certain expenses.
In this manner, at the level of autonomous taxation, it is not possible to speak of income obtained abroad included in the taxable matter.
From what has been stated it follows that, at the level of autonomous taxation, it is not possible to deduct any relief credit for double taxation.
We are thus in the presence of another case of incompatibility in the application of no. 2 of article 90.º to the amount assessed as autonomous taxation.
But these incompatibilities are not only recorded at the level of no. 2, also being verified in other numbers of article 90.º of CIRC.
This is the case of no. 4, of art. 90.º of CIRC, which relates to the deduction relating to withholding tax that may benefit entities which have no seat, nor effective management in Portuguese territory, and which obtain income therein not attributable to a permanent establishment located there.
For in this number there is, equally, its inapplicability to the situation of autonomous taxation, insofar as the referred entities do not form part of the objective scope of application of this taxation, as follows from the provisions of art.ºs 3.º, no. 1, paragraph d), 88.º, 120.º, nos. 4 and 5 of CIRC.
Beyond this, and as above has been demonstrated, under the transparent taxation regime the CIT collection determined in respect to each of the members does not encompass any value relating to autonomous taxation, the payment of which is attributable exclusively to the companies.
For this reason, art. 90.º, no. 5 of CIRC expressly determines the impossibility of deducting from autonomous taxation the deductions provided for in no. 2 of art. 90.º of the CIT Code, given that those do not form part of the collection that each of the members will determine by applying the rate to the taxable matter that has been imputed to them, in accordance with the transparent taxation regime.
With respect to the special scheme for the taxation of groups of companies (art. 88.º of no. 6 CIRC), the difficulties above pointed out for the deductions referred to in no. 2 of art. 90.º of CIRC to the amount of autonomous taxation determined in the group are equally verified.
From what we have been stating, the existence of a huge set of incompatibilities in the application of art. 90.º of CIRC to the figure of autonomous taxation is verified, which point to the incorrectness of the position defended by the Appellant.

C) Of the various amendments to the CIT Code without reflection in the drafting of articles 88.º and 90.º with a view to eliminating the application difficulties set out above.

Incompatibilities which could have been corrected by the legislator during the various tax reforms with effects on the corporate income tax.
Now, if before the incorporation of the figure of autonomous taxation in the CIT Code, no. 1 (no. 2 of art. 90.º of CIRC (then art. 71.º) had the following drafting:

(...)

After the inclusion of autonomous taxation in the CIT Code, through Law no. 30-G/2000, which came to have the drafting below, there was no substantial alteration to the text of art. 90.º of CIRC (then art. 71.º).

(...)

Hence, if the thesis of the appellant were valid, it would have been justified, at the time of the tax reform operated by Law no. 30-G/2000 or in subsequent amendments, the making of alterations to the text of art. 90.º of CIRC, with the aim of alleviating the difficulty/impossibility of application above referred, with the consequent adaptation of the standard to autonomous taxation, a situation which, as has been demonstrated, never occurred.

D - Standard for assessment of autonomous taxation: art. 88.º of CIRC

Having reached this point, we note that all these reasons, which we have just enumerated, point in the direction of the lack of validity of the position upheld by the Appellant, leading us to consider that art. 90.º of CIRC does not apply to autonomous taxation.
But, if that is so, are we faced with (i) a case in which there exists a lacuna in the law and, this being a tax law, does not allow integration or (ii) a situation in which to accept that the assessment of autonomous taxation is made outside of art. 90.º, no. 1 of CIRC, would oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contravening no. 3 of art. º 103.º of the Constitution of the Portuguese Republic and the principle of tax legality which the General Tax Law, in its art. 8.º, no. 2, paragraph a) establishes.
It has already been demonstrated that the assessment of autonomous taxation does not require the application of art. 90.º of CIRC, there being a strong incompatibility between that figure and this article.
Now, before its incorporation in the CIT Code, autonomous taxation under CIT was provided for in a separate statute, specifically, in art. 4.º of Decree-law no. 192/90, of 9.06, whose drafting underwent various amendments, which were given to it, respectively, by Laws nos. 52-C/96, of 27.02, 87-B/98, of 31.12, 3-B/2000, of 29.04, as follows is transcribed:

Decree-Law no. 192/90, of 9 June

"Art. 4.º

Confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by taxpayers subject to IRS who own or should own organized accounting or by taxpayers subject to CIT not encompassed in articles 8.º and 9.º of the respective Code are taxed autonomously in IRS or CIT, as the case may be, at a rate of 10% without prejudice to the provisions of paragraph h) of no. 1 of art. 41.º of CIRC."

Law no. 52-C/96, of 27 December, amended this art. 4.º of Decree-Law no. 192/90, establishing the following:

"Art. 4.º

1 – Confidential or undocumented expenses incurred by taxpayers subject to IRS who own or should own organized accounting in the course of commercial, industrial or agricultural activities, or by taxpayers subject to CIT, are taxed autonomously in IRS or CIT, as the case may be, at a rate of 30%, without prejudice to the provisions of paragraph h) of no. 1 of art. 41.º of the CIT Code.

2 – The rate referred to in the preceding number shall be increased to 40% in cases in which such expenses are incurred by taxpayers subject to CIT, wholly or partially exempt, or which do not exercise as a principal activity, activities of a commercial, industrial or agricultural nature."

Law no. 87-B/98, of 31 December, again amended art. 4.º, giving it the following drafting:

"Art. 4.º

1 – Confidential or undocumented expenses incurred by taxpayers subject to IRS who own or should own organized accounting in the course of commercial, industrial or agricultural activities, or by taxpayers subject to CIT, are taxed autonomously in IRS or CIT, as the Case may be, at a rate of 32%, without prejudice to the provisions of paragraph h) of no. 1 of art. 41.º of the CIT Code.

2 – The rate referred to in the preceding number shall be increased to 60% in cases in which such expenses are incurred by taxpayers subject to CIT, wholly or partially exempt, or which do not exercise, as a principal activity, activities of a commercial, industrial or agricultural nature."

Law no. 3-B/2000, of 29.04, amended art. 4.º of Decree-Law no. 192/90, of 9 June, giving it the following drafting:

"Art. 4.º

1 – ...

2 – ...

3 – Representation expenses and charges related to light passenger vehicles incurred by taxpayers subject to IRS who own or should own organized accounting in the course of commercial, industrial or agricultural activities, or by taxpayers subject to CIT not exempt and who exercise, as a principal activity, activity of a commercial, industrial or agricultural nature, are taxed autonomously in IRS or CIT, as the case may be, at a rate of 6.4%.

4 – Charges relating to light passenger vehicles are considered to be, in particular, depreciations, rents or leases, insurance, maintenance and upkeep expenses, fuel and the municipal tax on vehicles.

5 – Excluded from the provisions of no. 3 are charges relating to vehicles used in the operation of public transport service or intended to be rented in the exercise of the normal activity of the taxpayer.

6 – Representation expenses are considered to be, in particular, charges incurred with receptions, meals, trips, outings and entertainment offered in the Country or abroad to customers or suppliers or to any other persons or entities."

From a reading of the various drafting given to the separate provision which previously regulated autonomous taxation, it is found that the definition of its scheme was made in a similar manner as occurs currently, insofar as the essential elements of the tax were found defined in the standard, specifically, subjective and objective incidence, taxable matter, rates.
It is equally verified that the said separate statute did not enshrine any rules similar to those contained in art. 90.º of CIRC.
Therefore, at that time, the assessment of autonomous taxation was made without support in standards similar to that of cited art. 90.º of CIRC.
And, as far as we are aware, no question was ever raised in jurisprudence regarding the existence of a lacuna in the law concerning the assessment of autonomous taxation or of a violation of art. 103.º, no. 3 of the Constitution based on assessment of autonomous taxation without legal substrate.
This certainly occurred because art. 4.º of Decree-Law no. 192/90, of 9 June, in a similar manner as occurs with art. 88.º of CIRC, provided for all the elements on which the assessment of autonomous taxation depends (incidence, taxable matter and rate).
In truth, being known that assessment consists in the application of the tax rate to the taxable matter, for determination of the collection, no other legal provision was necessary to determine the quantum of autonomous taxation.
Unless one understands necessary the existence of a standard which expressly refers that the assessment of autonomous taxation is made by applying the rate to the taxable base of each of the situations of incidence provided for in article 88.º, which, it must be said, not only would be an unprecedented case in the universe of tax codification, but also, by its redundancy, would be devoid of any relevance.
Having reached this point, in view of the arguments presented, we are left to conclude by the lack of validity of the position which considers that art. 90.º of CIRC applies to the assessment of autonomous taxation.
By way of a footnote, let it be said, finally, that it does not correspond to the truth that the Tax Administration ever pronounced itself in a sense favorable to the possibility of deducting SIFIDE and, more generically, tax benefits in the form of deduction from collection, from the collection of autonomous taxation.
On the other hand, the position expressed by DSIRC in its opinion no. …/2013, of 04.10.2013, is not susceptible to enunciative interpretation, through logical inferences from arguments a contrario, as we are not in the sphere of interpretation of standards to resort to this type of interpretive elements.
In the mentioned opinion the question now under analysis was not addressed, there being no contribution to be drawn from that for the solution of the present case.
In the sequel to what we have just stated, it seems to us that it has been clearly demonstrated that autonomous taxation can neither be understood as forming part of the CIT collection, nor is article 90.º of CIRC applicable to them.
In view of this legal framework, the analysis of the factual matter relating to tax benefits and special advance payments which the appellant alleges to be the holder of for purposes of deduction is prejudiced.
Finally, it is important to recall that the appellant requests, as a subsidiary matter, that the self-assessment of the taxation periods of 2012, of 2013, in the portion corresponding to autonomous taxation, be annulled, and which amount to €180,000.00, €73,851.36 and €113,595.74, respectively, on the ground that the same are not shown to be due.
However, it does not indicate, for this purpose, in what set of facts and reasons it bases such request.
Examined in the files, we find that the appellant, in section 11 of the income statements Form 22 CIT referred to above, declared to have borne a set of charges and expenses that are subject to autonomous taxation, pursuant to nos. 3, 4, 7 and 9 of art. º 88, of the CIT Code.
In this manner, no reason assists the appellant, its request lacking any reason or legal foundation.

§ V.I.III. Compensatory Interest

§ V.I.III.I. Of the Arguments of the Appellant

The appellant petitions, in case of allowance of the requests made in the appeal, be paid to it, in accordance with articles 43.º and 100.º of LGT, compensatory interest for payment of the tax obligation in an amount superior to that legally due.

§ V.I.III.II. Of the Assessment

Insofar as the requests formulated by the Appellant did not warrant a recommendation for allowance, the analysis of the request for payment of compensatory interest is thus prejudiced.

§VI. OF THE CONCLUSION

In conformity with what has been stated above, insofar as it be demonstrated that this Unit of Large Taxpayers has no other understanding than that referred to herein, we are of the view that the request formulated in the proceedings should be dismissed in accordance with the content of the "summary table" identified from the outset in the introduction of this opinion, with all legal consequences.

m) The Claimant was notified to make submissions on the draft decision of the appeal, but did not do so;

n) The administrative appeal was rejected by order of 17-08-2015, issued by the Head of the Division of the Unit of Large Taxpayers, which appears in document no. 4 attached with the request for arbitral pronunciation, whose content is taken as reproduced, which manifests agreement with an Opinion in which reference is made, among other matters, to the following:

Considering the permanence of the validity of the premises which, in fact and in law, underpinned our previous "Draft Decision", we are thus of the view regarding the finality of the same, with all legal consequences.

§ II. OF THE CONCLUSION

"In conformity with what has been stated above and examined all the elements of the files, in particular our previous "Draft Decision" and the procedural documents filed by the Contributor, here Appellant, in particular the initial petition and its request for right of hearing, insofar as it be demonstrated that this Unit of Large Taxpayers has no other understanding than that referred to herein, it seems to us that the request contained in the files should be dismissed, in conformity with the content of the "summary table" mentioned in the introduction of this opinion, with all legal consequences, in particular, being the case, as regards what is provided for in art. º 163.º of the Code of Administrative Procedure and, as well as, the fulfillment of what is determined by art. º 100.º of the General Tax Law.

It is further reported that, in case of Higher Approval, the notification of the Contributor, now Appellant, be promoted, through letter to be sent under registered mail, in accordance with the provisions of arts. 35.º to 41.º, all of the Code of Procedure and Tax Procedure, with all legal consequences.

o) By order of 17-10-2013, the Tax and Customs Authority adopted the understanding which appears in the Opinion reproduced in document no. 12, attached with the request for arbitral pronunciation, whose content is taken as reproduced;

p) On 10-11-2015, the Claimant submitted the request for constitution of the arbitral tribunal which gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision which have not been proven.

2.3. Reasoning for the Determination of the Factual Matters

The facts were taken as proven on the basis of the documents attached with the request for arbitral pronunciation and in the administrative proceedings, there being no controversy regarding them.

With respect to paragraph j) of the proven facts, relating to the information system, the Tax and Customs Authority does not question what is affirmed by the Claimant in articles 22.º to 25.º of the request for arbitral pronunciation, rather defending that this is the appropriate functioning (article 100.º of the response).

As to the amounts which the Claimant believes could be deducted by way of special advance payments and tax benefit from CFEI, no position is taken on the quantification referred to in the request for arbitral pronunciation, as its correspondence or not to reality was not addressed in the contested decision, nor can the Arbitral Tribunal render a secure decision based solely on the documents attached to the proceedings.

3. Legal Matters

The Claimant had tax losses in fiscal year 2012 and in the two periods of fiscal year 2013, having included autonomous taxation in all statements.

The Claimant made special advance payments relating to the years 2011, 2012 and 2013 and made in the year 2013 investments provided for in the Extraordinary Fiscal Credit for Investment (CFEI) approved by Law no. 49/2013, of 16 July.

In those fiscal years taxable profit was not determined by indirect methods and the Claimant was not owing to the State or Social Security any taxes or contributions.

The information system of the AT, through which CIT is self-assessed, does not permit taxpayers to deduct, for purposes of determining the CIT owed by them, from the tax resulting from the autonomous taxation determined, the amounts of special advance payments and the amounts of tax benefit from CFEI.

The Claimant filed an administrative appeal of the self-assessments made on the basis of those Statement Form 22 documents, contesting, in summary, that could be deducted from the amounts due on account of autonomous taxation the amounts paid by way of special advance payments and the investments which it made provided for in CFEI.

The Tax and Customs Authority rejected the administrative appeal.

The issues which are the object of the present proceedings are, in first instance, those of determining whether are deductible from the amounts due on account of autonomous taxation the amounts paid by way of special advance payments and the investments which the Claimant made covered by CFEI.

To reject the administrative appeal, the Tax and Customs Authority understood, among other matters, that "art. 90.º of CIRC does not apply to autonomous taxation", "existing a strong incompatibility between that figure and this article".

The Claimant formulates a subsidiary request for the hypothesis of accepting this understanding of the Tax and Customs Authority, requesting that the self-assessment of the taxation periods of 2012 and 2013 be annulled, in the portion corresponding to autonomous taxation, on the ground that the same were assessed and collected without legal basis for such purpose.

3.1. Question of the Application of Article 90.º of CIRC to Autonomous Taxation

Articles 89.º and 90.º of CIRC establish the following, in the drafting given by Law no. 3-B/2010, of 28 April:

Article 89.º

Competence for Assessment

Assessment of CIT is effected:

a) By the taxpayer itself, in the statements to which articles 120.º and 122.º refer;

b) By the Directorate-General of Taxes, in the remaining cases.

Article 90.º

Procedure and Form of Assessment

1 - Assessment of CIT is conducted as follows:

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

b) In the absence of submission of the statement referred to in article 120.º, assessment is effected by 30 November of the year following that to which it relates or, in the case provided for in no. 2 of that article, by the end of the 6th month following the end of the deadline for submission of the statement there mentioned and is based on the value of the annual minimum monthly remuneration or, when higher, the entirety of the taxable matter of the fiscal year most proximate which is found to be determined;

c) In the absence of assessment in accordance with the preceding paragraphs, the same is based on the elements which the tax administration has available.

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

a) That corresponding to relief for double taxation;

b) That relating to tax benefits;

c) That relating to special advance payment referred to in article 106.º;

d) That relating to withholding tax not susceptible to set-off or reimbursement in accordance with applicable law.

3 – (Repealed by Law no. 3-B/10)

4 – To the amount determined in accordance with no. 1, with respect to entities mentioned in no. 4 of article 120.º, only is the deduction relating to withholding tax to be made when such has the nature of tax on account of CIT.

5 – The deductions referred to in no. 2 relating to entities to which the transparent taxation regime established in article 6.º applies are imputed to the respective members or partners in accordance with the terms established in no. 3 of that article and deducted from the amount determined on the basis of the taxable matter which has taken into account the imputation provided for in that same article.

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

7 – From the deductions effected in accordance with paragraphs a), b) and c) of no. 2 a negative value cannot result.

8 – To the amount determined in accordance with paragraphs b) and c) of no. 1 the deductions of which the tax administration has knowledge and which can be effected in accordance with nos. 2 to 4 only are made.

9 – In cases in which the provision of paragraph b) of no. 2 of article 79.º applies, annual assessments are effected on the basis of the taxable matter determined on a provisional basis, and, in view of the assessment corresponding to the taxable matter relating to the entire assessment period, the difference ascertained is to be collected or annulled.

10 – The assessment provided for in no. 1 can be corrected, if appropriate, within the period to which article 101.º refers, the differences ascertained then being collected or annulled.

As has been stated, in the decision of the administrative appeal, the Tax and Customs Authority understood that "art. 90.º of CIRC does not apply to autonomous taxation", "existing a strong incompatibility between that figure and this article".

However, in the present proceedings, the Tax and Customs Authority acknowledges that this interpretation is wrong, by stating in articles 38.º and 39.º of its Response:

38.º

It is convenient to clarify that the assessment of autonomous taxation is effected on the basis of articles 89.º and 90.º no. 1 of the CIT Code but, applying different rules for the calculation of the tax: in one case the assessment operates, through the application of the rates of article 87.º to the taxable matter determined in accordance with the rules of chapter III of the Code and in the other case, various collections are determined according to the diversity of the facts which give rise to autonomous taxation.

39.º

From which it follows that the amount determined in accordance with paragraph a) of no. 1 of art. º 90.º does not have a unitary character, since it comprises values calculated according to different rules, to which are associated purposes also differentiated, whereby the deductions provided for in the paragraphs of no. 2 can only be effected to the part of the CIT collection with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the standard scheme of the tax.

This thesis is reaffirmed by the Tax and Customs Authority in point 20 of its written submissions.

Being thus, it is concluded that there is not even controversy between the Parties regarding the application of article 90.º of CIRC to the assessment of autonomous taxation, the divergence being limited to the form of proceeding with the assessment, as the Tax and Customs Authority understands that "various collections are determined according to the diversity of the facts which give rise to autonomous taxation" and "the deductions provided for in the paragraphs of no. 2 can only be effected to the part of the CIT collection with which there exists a direct correspondence", understanding that it is not verified with respect to the CIT collection which results from autonomous taxation.

This reasoning brought to the proceedings by the Tax and Customs Authority constitutes, manifestly, an alteration of the reasoning in relation to that which appears in the decision of the administrative appeal.

This new reasoning, whether or not correct, is irrelevant for purposes of assuring the legality of that decision to reject the administrative appeal.

In truth, the tax arbitration proceeding, as an alternative means to the judicial review proceeding (no. 2 of article 124.º of Law no. 3-B/2010, of 28 April), is, like the latter, a procedural means of mere legality, in which the purpose is to eliminate the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [articles 2.º of RJAT and 99.º and 124.º of CPPT, applicable by force of the provisions of article 29.º, no. 1, paragraph a), thereof].

For this reason, post-hoc reasoning is irrelevant, the acts whose legality is questioned having to be appreciated as they were practiced, the tribunal not being able, upon ascertaining the invocation of an illegal basis as support for the administrative decision, to appreciate whether its action could be based on other bases. ( [1] )

In any case, the referred articles 89.º and 90.º of CIRC, as well as other standards of this Code, such as those relating to statements provided for in articles 120.º and 122.º, are applicable to autonomous taxation.

From the outset, it is today established, following numerous arbitral judgments and the positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in CIRC has the nature of CIT. ( [2] ) Moreover, beyond the unanimity of jurisprudence, article 23.º-A no. 1, paragraph a), of CIRC, in the drafting of Law no. 2/2014, of 16 January, leaves today no room for any reasonable doubt, corroborating what previously already resulted from the literal content of article 12.º of the same Code.

Now, article 90.º of CIRC refers to the forms of CIT assessment, by the taxpayer or by the Tax Administration, applying to the determination of the tax owed in all situations provided for in the Code, including additional assessment (no. 10).

For this reason, that article 90.º also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, following the submission or non-submission of statements, there being no other provision which provides for different terms for its assessment.

Thus, the differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit are restricted to the determination of the taxable matter and the rates applicable, which are those provided for in Chapters III and IV of CIRC for CIT which has for its basis taxable profit and in article 88.º of CIRC for CIT which has for its basis the taxable matter of autonomous taxation and the respective rates.

But the forms of assessment which are provided for in Chapter V of the same Code are of common application to autonomous taxation and to the remaining CIT taxable matter.

However, the circumstance that a CIT self-assessment, effected in accordance with no. 1 of article 90.º, may contain several partial calculations on the basis of several rates applicable to certain taxable matters, does not imply that there is more than one assessment, as results from the very terms of that provision in making reference to "assessment", in the singular, in all cases in which it is "made by the taxpayer in the statements to which articles 120.º and 122.º refer", having "for its basis the taxable matter contained therein" (whether that determined on the basis of the rules of articles 17.º and following or that determined on the basis of the various situations provided for in article 88.º).

Moreover, it is not only the assessments provided for in article 88.º which may encompass various calculations of application of rates to certain taxable matters, as the same may occur in the situations provided for in nos. 4 to 6 of article 87.º.( [3] )

In any case, whatever the calculations to be made, it is the unitary self-assessment which the taxpayer or the Tax and Customs Authority must effect in accordance with articles 89.º, paragraph a), 90.º, no. 1, paragraphs a), b) and c), and 120.º or 122.º, and on the basis of it that the global CIT is calculated, whatever the taxable matters relating to each of the types of taxation which underlies it.

Indeed, as the Claimant well states in formulating its subsidiary request, if this article 90.º were not applicable to the assessment of autonomous taxation provided for in CIRC, we would have to conclude that there would be no standard which provided for its assessment, which would amount to illegality, by violation of article 103.º, no. 3, of CRP, which requires that the assessment of taxes be made "in accordance with the law".

Let it be further noted that the new provision of no. 21 added to article 88.º of CIRC by Law no. 7-A/2016, of 30 March, regardless of whether it is or is not truly interpretative, in no way alters this conclusion, for there it is established, as regards the form of assessment of autonomous taxation, that it "is effected in accordance with the terms provided for in article 89.º and is based on the values and the rates which result from the provisions of the preceding numbers".

In effect, while it is true that this new provision comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of article 88.º) and that competence rests with the taxpayer or the Tax Administration, in accordance with article 89.º, it is also clear that the need to use the procedure provided for in no. 1 of article 90.º is not set aside, in particular in cases provided for in its paragraph c) in which assessment rests with the Tax and Customs Authority, based "on the elements which the tax administration has available", which appears to be unquestionable that will encompass the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements which prove its premises.

For this reason, both before and after Law no. 7-A/2016, of 30 March, article 90.º, no. 1, of CIRC is applicable to the assessment of autonomous taxation.

It is thus concluded that the decision of the administrative appeal was based on an incorrect interpretation of the law, in understanding, contrary to what the Tax and Customs Authority recognized in the present proceedings, that article 90.º of CIRC is not applicable to the assessment of autonomous taxation, which constitutes a defect of violation of law, by error regarding the legal premises, which justifies its annulment [article 163.º, no. 1, Code of Administrative Procedure, subsidiarily applicable in accordance with article 2.º, paragraph c), of LGT].

However, since also in question is the illegality of the self-assessments effected and since from its appraisal may result more stable and efficacious protection of the interests of the Claimant, it is necessary to proceed with the analysis of the defects attributed to them, as the loss of utility in the appraisal of defects attributed to tax acts only occurs when a defect is ruled favorable to which results in assured stable and efficacious protection of the offended interests, as is inferred from what is provided for in no. 2 of article 124.º of CPPT.

3.2. Question of the Deductibility of Investment Expenses Provided for in CFEI from Amounts Due on Account of Autonomous Taxation

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

Article 2.º

Subjective Scope of Application

The following taxpayers subject to CIT may benefit from CFEI who exercise, as a principal activity, an activity of a commercial, industrial or agricultural nature and meet cumulatively the following conditions:

a) Dispose of regularly organized accounting, in accordance with accounting normalization 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 contribution situation regularized.

Article 3.º

Tax Benefit

1 - The tax benefit to be granted to the taxpayers referred to in the preceding article corresponds to a deduction from CIT collection in the amount of 20% of the investment expenses in assets used in operations, which are incurred between 1 June 2013 and 31 December 2013.

2 - For 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 effected in the CIT assessment relating to the taxation period commencing in 2013, up to a maximum of 70% of the collection of this tax.

4 - In the case of taxpayers adopting a taxation period not coinciding with the calendar year and commencing after 1 June 2013, the expenses relevant for purposes of the deduction provided for in the preceding numbers are those incurred in eligible assets from the beginning of such period until the end of the seventh following month.

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

a) Is effected to the amount determined in accordance with paragraph a) of no. 1 of article 90.º of the CIT Code, on the basis of the taxable matter of the group;

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

6 - The amount which cannot be deducted in accordance with the preceding numbers may be so, on the same conditions, in the five subsequent taxation periods.

7 - To taxpayers which reorganize, as a result of any operations provided for in article 73.º of the CIT Code, applies what is provided for in no. 3 of article 15.º of the Statute of Tax Benefits.

Article 4.º

Eligible Investment Expenses

1 - For purposes of this scheme, investment expenses in assets used in operations are considered those relating to tangible fixed assets and biological assets which are not consumable, acquired in new condition and which become operational or utilized by the end of the taxation period which commences in or after 1 January 2014.

2 - Investment expenses in intangible assets subject to depreciation incurred in the periods referred to in nos. 1 and 4 of article 3.º are equally eligible, in particular:

a) Expenses with development projects;

b) Expenses with elements of industrial property, such as patents, trademarks, 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 to assets verified in the periods referred to in nos. 1 and 4 of article 3.º and, as well as, those which, not relating to advance payments, translate into additions to investments in progress initiated in those periods, are considered eligible investment expenses.

4 - For purposes of the preceding number, additions to assets are not considered which result from transfers of investments in progress.

5 - For purposes of no. 1, investment expenses in assets susceptible to use in the personal sphere are excluded, being considered as such:

a) Light passenger vehicles or mixed vehicles, recreational boats and tourism aircraft, except when such goods are used in the operation of public transport service or are intended to be rented or the granting of the respective use or enjoyment in the exercise of the normal activity of the taxpayer;

b) Furniture and articles of comfort or decoration, except when used in productive or administrative activity;

c) Those incurred with the construction, acquisition, repair and expansion of any buildings, except when used in productive or administrative activities.

6 - Equally excluded from this scheme are expenses incurred in assets used in activities within the scope of concession agreements or public-private partnerships entered into with public sector entities.

7 - Land is considered not to be an asset acquired in new condition, for purposes of no. 1.

8 - Additionally, expenses relating to intangible assets are not considered eligible, whenever they are acquired as a result of acts or legal transactions of the beneficiary taxpayer with entities with which it is in a situation of related party relationships, in the terms defined in no. 4 of article 63.º of the CIT Code.

9 - The assets underlying the eligible expenses must be held and accounted for in accordance with the rules which determined their eligibility for a minimum period of five years or, when lower, during their respective minimum useful life, determined in accordance with Regulatory Decree no. 25/2009, of 14 September, amended by Law no. 64-B/2011, of 30 December, or until the period in which their physical disposal, dismantling, abandonment or disuse occurs, observing the rules provided for in article 38.º of the CIT Code.

In the case at hand, the Tax and Customs Authority does not question that the Claimant meets the subjective and objective requirements to be able to benefit from CFEI with respect to the investment expenses which it refers to, having rejected the administrative appeal on the basis that it understands that the expenses in question cannot be deducted from the amounts it paid on account of autonomous taxation, as the deduction can only be effected to the "CIT collection", in accordance with no. 1 of article 3.º of Law no. 49/2013 and that collection, in the understanding of the Tax and Customs Authority, is not integrated by the amounts due on account of autonomous taxation, but only by the amount resulting from the application of the CIT rate to taxable profit.

As has been stated, it is established in the present proceedings, including by agreement of the Parties, that article 90.º of CIRC also relates to the assessment of autonomous taxation.

And, as has been said, there is no legal support for affirming that, in the event various calculations have to be made in a statement to determine CIT, more than one self-assessment is effected.

For this reason, the expression "when assessment is to be made by the taxpayer in the statements to which articles 120.º and 122.º refer, it is based on the taxable matter contained therein", which appears in paragraph a) of no. 1 of article 90.º of CIRC, encompasses in its literal content, the assessment of autonomous taxation, whose taxable matter has to be indicated in the referred statements, as results, equally, from the very model 22 of statement (part 13).

Collection is obtained by applying the rate to the respective taxable matter, whereby, in the case of CIT, having various rates applicable to diverse taxable matters, the global CIT collection will be constituted by the sum of all the results of these applications.

Thus, by mere interpretive declaration, it is concluded that the reference which in article 3.º, no. 1, of Law no. 49/2013 is made to "deduction from CIT collection" as a form of materializing the tax benefit, literally also encompasses the CIT collection resulting from autonomous taxation, which integrates the sole CIT collection.

Being this the interpretation which results from the literal content, only by way of a restrictive interpretation can the application of the tax benefit to the CIT collection provided by autonomous taxation be set aside.

The viability of a restrictive interpretation encounters, from the outset, an obstacle of a general nature, which is that standards which create tax benefits have the nature of exceptional standards, as follows from the express content of article 2.º, no. 1, of EBF, whereby, in the absence of special rule, they must be interpreted in their precise terms, as is settled jurisprudence. ( [4] ) In the case of tax benefits, there is expressly provided for the possibility of extensive interpretation (article 10.º of EBF), but not of restrictive interpretation, whereby, in the rule, the tax benefit should not be interpreted with less amplitude than that which, in an interpretive declaration, results from the content of the standard which provides for it.

In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text which betrays his intent, insofar as it says more than that which he intended to say. Also here the ratio legis will have a decisive word. The interpreter should not allow himself to be drawn along by the apparent scope of the text, but should restrict this in terms of making it compatible with the legislative intent, that is, with that ratio. The argument on which this type of interpretation rests is usually expressed thus: cessante ratione legis cessat eius dispositio (where the reason for being of the law ends its scope ends)" ( [5] ).

For this reason, it must be appreciated whether there are reasons which justify a conclusion regarding the incompatibility of the sense of the text of article 3.º, no. 1, with the ratio legis of that tax benefit.

The reason for being of the creation of the referred tax benefit is evident and was expressly referred to in the "Statement of Reasons" of Bill no. 148/XII, which came to give rise to Law no. 49/2013:

In conformity, contributing to the success of the Economic and Financial Adjustment Program for Portugal, and with the objective of promoting competitiveness and employment, the Government commits itself to a strategy directed at strongly stimulating direct investment in Portugal, already in 2013.

In this context, the present bill introduces into the Portuguese legal order an Extraordinary Fiscal Credit for Investment (CFEI) with the objective of producing a strong impact on the level of business investment.

The CFEI corresponds to a deduction from CIT collection in the amount of 20% of the investment expenses realized, up to a maximum of 70% of that collection. The eligible investment for this tax credit will have to be carried out between 1 June 2013 and 31 December 2013 and may amount to 5,000,000.00 EUR, being deductible from the CIT collection of the fiscal year, and for an additional period of up to five years, whenever that is insufficient.

Eligible for this benefit are taxpayers who exercise as a principal activity an activity of a commercial, industrial or agricultural nature, dispose of regularly organized accounting in accordance with accounting normalization and other legal provisions in force for the respective sector of activity, whose taxable profit is not determined by indirect methods and have their tax and social contribution situation regularized.

As is obvious, the realization of this legislative objective "to strongly stimulate direct investment in Portugal" and to "produce a strong impact on the level of business investment" points manifestly in the direction of having intended to maximize and not limit the scope of the tax benefit.

The possible limitation of the application of the tax benefit to companies which did not present taxable profit would amount to a very strong restriction of its field of application, as, as is public fact, a large part of companies, in 2012, presented tax losses, although it paid CIT by other means.

In truth, according to statistics published by the Tax and Customs Authority, in the year 2012 (the last year whose data would be available when Bill no. 148/XII was submitted and, therefore, it is to be assumed that it was considered), more than half of the CIT statements presented negative net value and only 28% of taxpayers presented "CIT assessed", with "approximately 70% of taxpayers made CIT payments (Table 8), via Special Advance Payment, or other positive components of the tax (Autonomous Taxation, Regional Surcharge, State Surcharge, CIT of previous taxation periods". ( [6] ).

For this reason, it is manifest that the applicability of the tax benefit to companies which, although presenting tax losses, paid CIT, including on account of autonomous taxation, greatly amplified the number of companies potentially benefiting and, consequently, accords better with the legislative intent underlying Law no. 49/2013, than that defended by the Tax and Customs Authority.

The discussion of the legislative initiative in the National Assembly confirms that it was not a matter of approving a tax benefit from which only the minority of companies which paid CIT on the basis of taxable profit of fiscal year 2013 could benefit.

In truth, the terms in which the measure was announced by the Secretary of State for Tax Matters point to an unprecedented measure, of enormous impact and dimension:

"(...) this measure is directed primarily, as I have also had the opportunity to say, to the investment of small and medium enterprises. If it were not so, the limit of investment would not have been fixed at 5 million euros. The limit of 5 million euros corresponds to the value of the average annual investment of about 97% of Portuguese companies. And it is, exactly, for those companies, for small and medium enterprises, that this investment stimulus measure is directed;

"it is not the first time that a tax credit for investment has been created in Portugal, there were other tax credits in the past, but none with the impact and dimension of this one". ( [7] )

The sought-for maximization of the tax incentive, viewed as potentially incentivizing about 97% of companies, clearly pointed to its application to any CIT collection and not only to the reduced minority which paid assessed CIT on the basis of taxable profit of each fiscal year, whereby the solution of applying it to CIT credits derived from autonomous taxation, in addition to being that which results linearly from the literal content of Law no. 49/2013, is that which accords with the reason for being.

On the other hand, one cannot overlook that autonomous taxation aims to protect or increase tax revenues and that the tax benefits granted, by definition, are "measures of exceptional character instituted for the protection of relevant extrafiscal public interests which are superior to those of the very taxation which they prevent" (article 2.º, no. 1, of EBF).

That is, in the case at hand, in establishing a tax benefit by deduction from CIT collection, the legislator chose to forgo the tax revenue which this tax could provide, to the extent of the granting of the tax benefit. For this consideration regarding the relative interests at issue (tax revenue versus strong stimulus to investment) it is indifferent whether that revenue derives from calculations made on the basis of article 87.º or article 88.º of CIRC. In truth, 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 referred to.

And, in the case of the CFEI tax benefit, the reasons of an extrafiscal nature which justify its overriding of tax revenues are, in the legislative perspective, of paramount importance, as is stated in the referred Statement of Reasons and is confirmed in the presentation of the bill in the National Assembly.

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 CIT, including those resulting from autonomous taxation.

In this context, the questions raised by the Tax and Customs Authority relating to the compatibility of the solution adopted by Law no. 49/2013 with other legislative solutions (in particular, those adopted regarding the transparent taxation regime or groups of companies, which in no way have application in the case at hand), have no relevance whatsoever for the appraisal of this question, as this must be appraised in view of the specific interests which in its consideration clash.

In truth, what is at issue is, exclusively, to determine the scope of Law no. 49/2013, which is a statute of an exceptional nature, in view of its text and the interests which it sought to pursue, which did not aim to decide any conceptual question regarding the nature of autonomous taxation, a matter regarding which neither in the text of the Law, nor in its preparatory works, is there any sign of the least legislative concern.

For the same reason that what is at issue is to interpret the scope of the statute of a special nature which is Law no. 49/2013, the provision of no. 21 of article 88.º of CIRC, added by Law no. 7-A/2016, of 30 March, cannot be attributed relevance, for this purpose, in the part in which it refers that no "deductions to the global amount determined" are "made", in spite of the alleged interpretative nature which was attributed to it.

In truth, there is no sign, neither in Law no. 7-A/2016, nor in the Budget Report, nor in its discussion, that with the addition in article 88.º of CIRC of a general provision prohibiting deductions from the global amount determined of autonomous taxation, it was intended to interpret restrictively the expression "deduction from CIT collection" which appears in a special provision of a separate statute, in particular article 3.º, 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.º, no. 3, of the Civil Code), which rule has its justification in the fact that "the general scheme does not include the consideration of the particular conditions which justified precisely the emission of the special law". ( [8] )

Moreover, the referred rule of article 3.

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Frequently Asked Questions

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Can special payments on account (PEC) be deducted from the IRC collection produced by autonomous taxation rates?

Under the claimant's main argument in Process 673/2015-T, special advance payments (PEC) should be deductible from IRC collection produced by autonomous taxation rates because autonomous taxation constitutes IRC in essence and should fall within the IRC assessment framework of Article 90 of the IRC Code. However, the Tax Authority's position and system configuration did not permit such deductions. The claimant sought €57,556.00, €73,851.36, and €113,595.74 in deductions for the respective tax periods, arguing that denying this deduction violated the proper application of IRC law.

Is the Extraordinary Tax Credit for Investment (CFEI) applicable to offset autonomous taxation liabilities under Portuguese IRC?

The claimant argued that CFEI (Extraordinary Fiscal Credit for Investment) should be applicable to offset autonomous taxation liabilities under Portuguese IRC, as autonomous taxation is fundamentally IRC despite its special calculation methodology. The Tax Authority's information system did not allow CFEI deductions from autonomous taxation amounts. The legal question centered on whether autonomous taxation, while calculated separately, remains subject to the general IRC assessment provisions that would permit application of tax benefits like CFEI, or constitutes a distinct tax obligation not subject to such offsets.

What is the legal basis for the autonomous taxation regime within Portuguese Corporate Income Tax (IRC)?

The legal basis for autonomous taxation within Portuguese IRC is found in specific provisions of the IRC Code that impose taxation on certain corporate expenses (such as vehicle costs, entertainment expenses, and other enumerated categories) at predetermined rates, regardless of whether the company generates taxable profit. The regime operates as a minimum tax mechanism. The key interpretative question in Process 673/2015-T was whether autonomous taxation falls within Article 90's IRC assessment framework, which would allow deductions of advance payments and tax credits, or constitutes a separate calculation outside that framework. Law 7-A/2016 subsequently introduced an interpretative provision addressing this issue during the arbitration proceedings.

How did CAAD rule on the deductibility of tax benefits against autonomous taxation in Process 673/2015-T?

The excerpt provided from Process 673/2015-T does not include CAAD's final ruling on the deductibility of tax benefits against autonomous taxation. The document shows the case was constituted on 15-01-2016, both parties submitted arguments, and following publication of Law 7-A/2016 in March 2016 (containing interpretative provisions on autonomous taxation), parties were invited to comment. The claimant sought deduction of PEC and CFEI from autonomous taxation as the main claim, with a subsidiary request for annulment of the autonomous taxation assessments entirely if deductions were deemed legally impossible. The complete arbitration award with the tribunal's decision would appear in subsequent sections not included in this excerpt.

Can a taxpayer challenge IRC self-assessments related to autonomous taxation through arbitral proceedings at CAAD?

Yes, taxpayers can challenge IRC self-assessments related to autonomous taxation through arbitral proceedings at CAAD (Centro de Arbitragem Administrativa). Process 673/2015-T demonstrates this, where A... S.A. successfully initiated arbitration under Articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT) after the Tax Authority rejected their administrative appeal. The arbitral tribunal was constituted with three arbitrators appointed by CAAD's Deontological Council. The case proceeded through formal stages including response by the Tax Authority, dispensation of oral hearings, written submissions, and additional comments following new legislation. CAAD has jurisdiction over disputes concerning the legality of tax acts, including self-assessments and their underlying calculations, making it an available forum for contesting autonomous taxation issues.

IRC Autonomous Taxation, CFEI Credit & Special Payments on Account – CAAD Case 673/2015-T

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IRC Autonomous Taxation, CFEI Credit & Special Payments on Account – CAAD Case 673/2015-T

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