Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A) The Parties and the Constitution of the Arbitral Tribunal
A…, SA, taxpayer no.…, with registered office at …–…, … … …(hereinafter referred to as the "Claimant"), requested the constitution of an Arbitral Tribunal, pursuant to the provisions of article 2, no. 1, subsection a) and article 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as "RJAT") and Ordinance no. 112 – A/2011, of 22 March, to challenge the rejection of the administrative complaint regarding the Corporate Income Tax ("IRC") assessment no. 2014…, relating to the financial year 2013, in the total amount of €32,825.65, seeking its annulment.
The request for constitution of the Arbitral Tribunal was submitted by the Claimant on 14-11-2016, and was immediately accepted by the Illustrious President of CAAD and notified to the Tax and Customs Authority. The Claimant chose not to appoint an arbitrator, and therefore, pursuant to the provisions of no. 1, article 6 of RJAT, the undersigned was appointed by the Deontological Council of the Centre for Administrative Arbitration on 17-01-2017 as arbitrator to constitute the singular Arbitral Tribunal. Thus, in accordance with the provisions of subsection c), no. 1, article 11, of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 01-02-2017. On 08-02-2017, an arbitral order was issued, immediately notified to the Tax and Customs Authority (AT), to submit a reply within the legal period, in accordance with and for the purposes of the provisions of nos. 1 and 2 of article 17 of RJAT.
On 07-03-2017, the Respondent submitted its reply and on 8-02-2017, the respective Administrative Proceeding (PA), which are deemed to be fully incorporated herein. By arbitral order of 13-03-2017, the meeting provided for in art. 18 of RJAT was scheduled for 23-03-2017, at 10:30 am, intended for the examination of witnesses, oral arguments and other procedural matters. On 17-03-2017, the Claimant requested the postponement of the meeting due to unavailability for the scheduled date. In accordance with this, an arbitral order was issued rendering the scheduled date without effect. The parties were invited to pronounce themselves on the possibility of waiving the meeting and the production of witness evidence, given that the disputed matter is limited to questions of law. By requests submitted to the record on 29-03-2017 and 30-03-2017, the Respondent and Claimant, respectively, pronounced themselves in favor of waiving the holding of the meeting provided for in article 18 of RJAT, with waiver of the examination of the appointed witnesses and continuation of the case for written submissions and final decision. In accordance with this, an arbitral order was issued on 06-04-2017 waiving the holding of the meeting, fixing a deadline for written submissions and a date for the delivery of the arbitral decision until 01-06-2017.
The Claimant and Respondent submitted their respective written submissions to the record on 18-04-2017 and 28-04-2017, respectively, in which they reiterate the positions previously set out in their respective pleadings.
B) THE REQUEST FORMULATED BY THE CLAIMANT
The Claimant files the present request for arbitral pronouncement asserting the illegality of the rejection of the administrative complaint submitted against the assessment act of autonomous taxations relating to the year 2013, and consequently, seeks the declaration of illegality of these tax acts, whose annulment it requests, petitioning for the reimbursement of the amount unduly paid, plus compensatory interest.
What is at issue is to determine whether the Claimant has the right to deduct the tax credit resulting from the tax benefits approved under SIFIDE, by deduction from the IRC collection produced by autonomous taxations, in the aforementioned financial year 2013. The assessment issued was paid by the Claimant.
It is the understanding of AT that such deduction does not appear possible and that the nature of autonomous taxations does not permit such possibility of deduction of tax benefits, contrary to what the Claimant alleges.
In summary, to justify the rejection of the complaint submitted, AT argues that the credit in which SIFIDE is translated is deducted from the collection calculated based on taxable matter. Therefore, it cannot be deducted from autonomous taxations, which are determined autonomously and distinctly from the calculation carried out in accordance with the terms arising from article 90 of CIRC.
It invokes the historical course of the regime of non-deductibility of expenses that led to autonomous taxations.
In short, AT understands, and on this basis justifies the rejection of the administrative complaint, that the reasons underlying the benefit in question are based on a premium whose scope varies according to the profitability of investments, so that the greater the profit, the greater the capacity to make the deduction, with an inseparable link between the amount of the tax credit per investment and the portion of the IRC collection calculated on the taxable matter based on profit. Finally, it also invokes no. 21 of article 88 of CIRC, added by law no. 7-A/2016, of 30 March.
It further argues that it would be contrary to the spirit of the system to permit that, by force of the deductions referred to in no. 2 of article 90 of CIRC, the anti-abusive character that presided over the implementation of autonomous taxations in the IRC system be removed, or at least distorted. Arguing for the disregard of autonomous taxations for the purpose of the deductions referred to in no. 2 of article 90 of CIRC. It reaffirms the legality of the disputed tax acts.
In its request, the Claimant argues that, despite containing some specificities compared to the general regime, autonomous taxations are components of IRC. It invokes this being the dominant understanding of doctrine and jurisprudence, particularly arbitral, highlighting Arbitral Awards nos. 775/2015-T, no. 744/2015-T, no. 748/2015-T and no. 740/2015-T. It emphasizes the grounds set forth in this latter decision, given the similarity with the concrete case being discussed in the present proceedings. Thus, concluding, in harmony with the decision set forth in this latter Arbitral Award, that "being autonomous taxations IRC – assessed on the basis of no. 1 of article 90 of CIRC –, the amounts corresponding to SIFIDE can be deducted therefrom, on the basis of subsection b) of no. 2 of said provision. The norm of no. 21 added to article 88 of CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretative, in no way alters this conclusion, since there it is established, with respect to the form of assessment of autonomous taxations, that it "is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the provisions of the preceding numbers". For all these reasons, it petitions for the acceptance of the request with the consequent declaration of annulment of the act of rejection and the underlying assessment, with the legal consequences of reimbursement of the amount paid plus compensatory interest.
C – THE RESPONSE OF THE RESPONDENT
The Respondent AT, duly notified for this purpose, timely submitted its reply in which, in defense of the disputed acts, argues that the Claimant's claim should fail, for the reasons invoked in the justification for the rejection of the administrative complaint, which it reproduces and upholds as appropriate to the law in force.
It further contests the request for compensatory interest.
In its submissions, it renews the argumentation previously set forth in the Reply submitted.
II - PROCEDURAL REQUIREMENTS
The Arbitral Tribunal is properly constituted. It is materially competent, pursuant to article 2, no. 1, subsection a) of RJAT. The Parties have legal personality and capacity, are legitimate and are legally represented (cf. articles 4 and 10, no. 2 of RJAT and art. 1 of Ordinance no. 112/2011, of 22 March).
The case does not suffer from defects that would invalidate it.
Taking into account the administrative tax proceeding, the documentary evidence submitted to the record, it is necessary to establish the factual matter relevant to the understanding of the decision, which is established as follows.
III – Factual Matter
A) Established Facts
As relevant factual matter, this tribunal considers the following facts as established:
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The Claimant is, for purposes of taxation under IRC, an entity subject to and not exempt from IRC.
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With reference to the financial year 2013, the Claimant presented on 31-03-2014 the income statement Form 22, relating to IRC for the tax period of 2013, in which it determined tax losses in the amount of €652,367.44 and a collection of €0.00.
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As a result of the income statement presented, the Claimant determined an amount of €32,825.65, corresponding to autonomous taxations, having self-assessed and paid the amount of €31,326.95.
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The Claimant obtained a tax credit of €595,801.76 resulting from the system of tax incentives for research and business development, commonly known as SIFIDE, approved pursuant to Law no. 40/2005 of 3 August.
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Given the insufficiency of IRC collection in the year 2013 and despite the autonomous taxations determined, the Claimant did not deduct any amount relating to this tax credit.
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The Claimant submitted on 29-03-2016, the administrative complaint to contest and annul the assessment relating to the financial year 2013, alleging that to the assessment of autonomous taxation carried out in accordance with article 90 of CIRC, pursuant to subsection c) of no. 2, the tax benefit (SIFIDE tax credit) should be deducted from the collection of autonomous taxations, which was rejected, as shown in document no. 1 attached to the arbitral request and the PA submitted by AT.
B) FACTS NOT PROVEN
There are no facts that should be considered as not proven relevant to the decision.
C) JUSTIFICATION OF ESTABLISHED FACTS
The established facts are based on the documentary evidence that the parties submitted to the present proceeding.
The Tribunal does not have to pronounce on everything alleged by the parties, and should select the facts that matter to the decision and distinguish the proven matter from the unproven matter [cf. art. 123, no. 2, of CPPT and art. 607, no. 3 of the Code of Civil Procedure (CPC), applicable by force of art. 29, no. 1, subsections a) and e), of RJAT]. Thus, the facts relevant to the judgment of the case are chosen and delineated according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of Law [cf. former article 511, no. 1, of CPC, corresponding to current article 596, applicable by force of article 29, no. 1, subsection e), of RJAT]. Having regard to the positions assumed by the parties, the documentary evidence and the PA submitted to the record, the facts listed above were considered proven, with relevance to the decision, and moreover consensually recognized and accepted by the parties.
IV – ON THE LAW
Having established, in the above terms, the factual matter, it is necessary to address the legal question raised by the Claimant, which consists of determining whether the tax credit that was recognized to the Claimant, under SIFIDE, can or cannot be deducted from the portion of the collection calculated by autonomous taxations, with reference to the financial year 2013. This is the essential question subject to the present Request for Arbitral Pronouncement that it is incumbent upon us to assess and decide.
With reference to the financial year in question, the System of Tax Incentives for Research and Business Development II (SIFIDE II)[1] approved by article 133 of Law no. 55-A/2010, of 31 December, which was in force between 2011 and 2015, applied. This act establishes, for IRC taxpayers covered by the SIFIDE incentive system, that is, those who have submitted the necessary application and proven compliance with the legal requirements for its approval, the recognition of the respective tax benefits (tax credits). The existing tax credit derives from its recognition, in 2012, by force of investments made in eligible research and development expenses and recognized as such.
Pursuant to the incentive system in question, article 4 of SIFIDE provides:
"1- IRC taxpayers resident in Portuguese territory who carry on, whether as their principal activity or not, an activity of agricultural, industrial, commercial or service nature, and non-residents with a permanent establishment in that territory may deduct from the amount determined in accordance with article 90 of the IRC Code, and up to its concurrence, the value corresponding to research and development expenses, in the part that has not been subject to financial contribution from the State as a grant, carried out in the tax periods from 1 January 2011 to 31 December 2015, in a double percentage:
a) Base rate - 32.5% of expenses incurred in that period;
b) Incremental rate - 50% of the increase in expenses incurred in that period compared to the simple arithmetic average of the two preceding financial years, up to the limit of (euro) 1,500,000.
(...)
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."
It results from the provisions of the law, unequivocally, a referral to article 90 of CIRC, which establishes the rule for assessment of IRC, including the portion that derives from autonomous taxations.
From the letter of the law, in the aforementioned article 4 of SIFIDE, which defines the scope of the deduction of the tax benefit, it results that the taxpayers covered by the tax benefit can make their deduction from the amount determined in accordance with article 90 of the IRC Code, and up to its concurrence.
Accordingly, the literal element leaves no doubts and leads us to conclude that the question to be resolved centers, therefore, on the interpretation and application of this norm, which states that the amounts in which SIFIDE is translated are deducted "from the amounts determined in accordance with article 90 of CIRC, and up to its concurrence (...)". The question of whether or not article 90 of CIRC is applicable in the case sub judice is thus answered, and the answer is affirmative, since the letter of the law leaves no doubts about the application of this legal provision, expressly referred to by the legislator as applicable.
However, notwithstanding what is set forth above, it must be said that some reflection is warranted on the meaning and scope of the application of said article 90, in the concrete case of these proceedings, that is, on the question of whether the IRC determined by autonomous taxations would be within the scope of the ratio legis, namely whether the reference to article 90 would be restricted to the collection determined without consideration of autonomous taxations, or whether, on the contrary, these would also be included in the concept of IRC collection, for the purposes intended. Therein lies the controversy that opposes the parties in the present litigation. This question requires some considerations on the nature of autonomous taxations, which have given rise to much controversy in doctrine and jurisprudence, particularly as to their true nature.
On this question and addressing legal problems very similar to what we now address, there is already numerous arbitral jurisprudence, notably the arbitral decisions handed down in cases 113/2015-T; 697/2014-T (with dissenting opinion); 219/2015-T, 370/2015-T; 369/2015-T; 673/2015-T, 722/2015-T, 775/2015-T, 744/2015-T, 748/2015-T and 740/2015-T, without prejudice to others.
Given the above, and having defined the contours of the disputed question, it is unavoidable that the provisions of article 90 of CIRC are the only provision of reference in this respect, as there is no other provision that disposes differently or that excludes its application, as will be demonstrated. It should be noted that, according to legal hermeneutics, the interpreter and applicator of the law in force must presume that the legislator knew how to express clearly, coherently and rationally its intention.
Thus, along this line of thought, it is obvious that the legislator had the opportunity to define with clarity and rigor the scope of the tax benefit arising from the consideration of expenses incurred in research and development investment, with high economic potential, and therefore, if it wished this benefit to be conditioned only and solely to cases in which the beneficiary companies presented tax profits (positive collections), it could and should expressly consider such condition in the legislative act of reference. It is certain that it did not do so.
Moreover, it is not a matter of absence of reflection on this specific question, oversight or insufficiency of the letter of the law, all the more so as it expressly stated 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". By setting forth in the legislative acts of reference its thinking regarding the regime to which it subjected the tax benefits in question, the legislator did not fail to consider the application of article 90 of CIRC, and if it did, it certainly knew that autonomous taxations are part of IRC and, consequently, by not expressly excluding the possibility of deduction from the amount of IRC determined by autonomous taxations, it was certainly because it considered that the benefits to the economy and collective welfare generated by investment in that particular type of activity should be considered as a higher good than the collection of tax revenue enhanced by autonomous taxations. We are well aware that the reasons underlying fiscal policy incentives granted by the legislator are not subject to judicial review.
As the Claimant well argues, citing the arbitral decision handed down in case no. 740/2015-T, with respect to the applicability of article 90 of CIRC to the assessment of autonomous taxations: "These articles 89 and 90 of CIRC, as well as other provisions of this code (…) are applicable to autonomous taxations. It is straightforward, following numerous arbitral jurisprudence and the positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxations provided for in CIRC has the nature of IRC". This is the position that seems appropriate and correct to us.
Notwithstanding the foregoing, it is true that on this question there is also some jurisprudential controversy, as can be seen by analyzing, for example, the arbitral decision handed down in case no. 607/2014. But as clearly results from the dissenting opinion set out in this decision, to which we adhere, "CIRC refers, expressly, to autonomous taxations in only five articles, namely:
In art. 12 of CIRC, which excludes autonomous taxations from the IRC exemption applicable to entities covered by the transparent tax regime, provided for in article 6 of CIRC;
In art. 23-A, no. 1, which provides that autonomous taxations are not deductible for purposes of determining taxable profit;
In art. 88, which establishes the rates and defines the taxable matter of autonomous taxations);
In art. 117, no. 6, which provides for the obligation of entities exempt from IRC under art. 9 to make a declaration, when autonomous taxations apply;
And in art. 120, no. 9, regarding the periodic income statement."
In fact, following the same line of reasoning expressed in the aforementioned dissenting opinion, there is no other explicit reference to autonomous taxations in CIRC. They are subject, in a generic way, to the other provisions provided for in CIRC, including article 90. Furthermore, AT acknowledges this, although it defends a restrictive interpretation of the provisions of this provision, particularly its no. 2, when the deduction of tax benefits is at issue, as is the case here, allegedly because it understands that otherwise the anti-abuse purpose of autonomous taxations is distorted.
Now, regardless of this objection having some merit, it is not incumbent upon AT, in the exercise of its power, to interfere or go beyond the purposes that the legislator considered and set forth in law. In other words, whoever exercises executive power should limit itself to comply with and obey the law (which sometimes awakens discord and perplexity for us due to the choices it sets forth), but it must always be said that the principle of separation of powers, as a structuring principle of the Democratic Rule of Law, does not permit the applicator, nor the judge, to alter the meaning that objectively and consciously results from the law. It will be incumbent upon the legislator to alter the law, if and when it deems it appropriate.
Moreover, in the present proceedings, the nature of autonomous taxations is not, therefore, in discussion, since the parties assume it to be taxation under IRC, both concede that its calculation obeys distinct rates, diverging only regarding the deduction of tax benefits. Now, therefore, it is necessary to take into account that the IRC collection arising from autonomous taxations is calculated from the elements and tax rates defined in article 88 of CIRC. The procedure for assessment of the tax obeys only and exclusively the provision of article 90 of CIRC, which defines the taxable matter of autonomous taxations and sets forth the rates of autonomous taxations, which are diverse, depending on the nature of the taxable matter to which they apply, the type of taxpayer and the economic results of the taxpayer (whether or not a profit was obtained). This latter aspect is of fundamental importance, since the different and possible applicable rates depend on determining whether there is a tax profit or loss in the financial year. It results from the provisions of article 88 of CIRC that the IRC collection, determined by autonomous taxations, is a function of the taxable result and, consequently, can only be calculated after the end of the financial year, since only then will we know which rates apply. Therefore, strictly speaking, the IRC assessment is unique, although composed of a portion that is determined by application of the rates provided for autonomous taxations, always in accordance with the legally provided technique for calculating tax.[2]
Now, if the collection resulting from autonomous taxations depends on what will result for the rest of taxable profit (positive or negative), it cannot be said, as AT claims, that it is determined instantaneously, coinciding with the realization of the expense, since the rate of incidence in each case is only known at the end of the tax period.
Being so, it is evident that the assessment occurs, only and exclusively, after the successive formation of all taxable income under IRC.[3] Any other understanding would be contrary to the provisions of the law, and we cannot forget that the rules for determining taxable matter and assessment of the tax are protected by the principle of fiscal legality, enshrined in article 103 of the Constitution.
It should be noted, once again, that the disputed question, having as reference what was alleged by the procedural parties, is not the nature of autonomous taxations, but the question of whether the tax credit resulting from SIFIDE can or cannot be deducted from the IRC collection generated by autonomous taxation. Both the claimant and respondent assume, as results from their respective pleadings, that autonomous taxations are IRC.
As Saldanha Sanches states: "In this type of taxation [autonomous], the legislator seeks to respond to the recognizedly difficult question of the tax regime that lies in the zone of intersection between the personal sphere and the business sphere, in order to avoid remuneration in kind more attractive for exclusively fiscal reasons or hidden distribution of profits."[4]
This is therefore a central question in determining taxable profit under IRC and its subsequent assessment. The legislator opted for a legislative technique that consists of autonomizing certain types of costs already accounted for, subjecting them to rates different from the general tax rates. Thus, such expenses or costs are relevant to determining taxable income and, to prevent abuse, the legislator, instead of not allowing their deduction as a cost, corrects them by the incidence of autonomous taxation rates, which, in turn, depend on the result of the financial year. What he seeks to attain, in any case, is the income that, via the cost incurred, reverted to third parties without tax incidence. Although he had other alternatives, this was the fiscal technique chosen by the legislator. The tribunal must respect this choice and decide in accordance with this assumption. See, also in this regard, the analysis set forth in the arbitral decisions handed down in cases nos. 370/2015-T, 369/2015-T, 673/2015-T, 630/2016-T, which we fully endorse.
Once again, by option, the legislator confronted with the admissibility or otherwise of this type of expenses (among which we find situations deeply diverse from each other, some perfectly opaque, such as the case of confidential or undocumented expenses, and others that have manifest relation to the activity carried out, as for example happens with travel expenses or vehicles, but can slide into some exaggeration and enable remuneration to third parties without fiscal impact), opted to consider that they should be deductible under IRC but, subsequently, be subject to autonomous taxation, as a way of moralizing any eventual abuse or excess. It was in this way that the legislator combated the potential abuses to which AT alludes.
From what is set forth above, it is concluded that these expenses are, in a first moment, relevant as deductible costs, to be, in a second moment, subject to autonomous taxation. The option may be open to criticism, perhaps confusing and not very coherent with the rigor that legal technique imposes, but in the reconciliation between legal rigor and accounting technique, this was the solution that the legislator decided to adopt. It is certain that the legislator makes clear that it is under IRC that these two moments occur, and their autonomization under taxation is justified by the differentiation of applicable rates, aggravated when the taxpayer presents a loss, with the clear intention of combating abuses and excesses.
Given the foregoing, although it is recognized that the regime of autonomous taxations constitutes, within the framework of IRC, as regards the form of calculation of taxation, a special regime, different and somewhat strange to the dynamics of a tax on income, this does not remove it from its intrinsic nature of a regime of taxation of the income of legal entities. The legislator taxes autonomously these expenses to tax the income that they may represent for the respective beneficiaries, escaping, however, in that respect, to the taxation that would be due.[5] In this way it moralizes and discourages the "disguised remuneration" of which Saldanha Sanches spoke in the passage cited.
Having resolved the question of the nature of autonomous taxations, taking it as established that it is IRC, it remains to conclude that article 90 of CIRC is applicable, let us see what article 90 of CIRC provides, in the wording introduced by Law no. 3-B/2010 of 28-04 (version in force for the financial years 2013 and 2014):
"Article 90
Procedure and form of assessment
1- The assessment of IRC is carried out as follows:
a) When the assessment is to be made by the taxpayer in the statements referred to in articles 120 and 122, it is based on the taxable matter contained therein.
(...)
2- From the amount determined in accordance with the preceding number, the following deductions are made, in the order indicated:
(...)
c) That relating to tax benefits
(...)
7 – From the deductions made pursuant to subsections a), b) and c) of no. 2, a negative amount cannot result."
The procedure for assessment of IRC, in which is integrated the assessment of the portion designated as autonomous taxation, as clearly results in the tax statement model (Form 22) used for this purpose, determines the conclusion that tax benefits are deductible from the IRC collection, even if this results from autonomous taxations, since even in this case we are dealing with IRC collection.
Note that article 88 of CIRC (autonomous taxation rates) is inserted in Chapter IV of CIRC (Rates), evidencing the conclusion we have reached, that is, it is IRC, which is determined by the application of differentiated rates to certain portions of expenses (costs) that are autonomized, only and solely, for this purpose. Therefore, the assessment of autonomous taxations is carried out by the application of the same and single procedure for assessment provided for in law, specifically in article 90 of CIRC, since there is no other provision we can invoke for this purpose.
It remains, finally, to analyze the second question to be decided by this Tribunal, that is, whether the tax benefits resulting from the application of the SIFIDE regime are or are not deductible in the concrete case. On this specific question, the Arbitral Tribunals constituted within CAAD have already pronounced themselves, in various decisions, already cited above. In all the cases already mentioned, it was decided that tax benefits are deductible, also from the collection determined by application of the autonomous taxation rates. We therefore follow this jurisprudence, as we consider it to be the only one consistent with the letter and spirit of the law. This is a matter clearly covered by the principle of fiscal legality, and therefore if the legislator's thinking was otherwise, it should have stated it clearly. That is, if its understanding was otherwise, it should have excluded the deduction of benefits from IRC determined by autonomous taxation, since, as we have seen, such exclusion does not result from the law.
Moreover, in no. 7 of article 90, the legislator provides that "from the deductions made pursuant to subsections a), b) and c) of no. 2, a negative amount cannot result." Now, it is evident that if the legislator wanted to say something more, it would add, before or after, that the deduction could not apply to the value of IRC determined by autonomous taxation. It did not say so, despite pronouncing on the limits to the deduction of tax benefits.
Moreover, with manifest relevance in support of this interpretation, is what the legislator set forth in article 92 of CIRC.
Thus, in article 92, the legislator came to establish that:
"1- (...) the tax assessed in accordance with no. 1 of article 90, net of deductions provided for in subsections a) to c) of no. 2 of that article, cannot be less than 90% of the amount that would be determined if the taxpayer did not enjoy the tax benefits and the regime provided for in no. 13 of article 43.
2- The following tax benefits are excluded from the provisions of the preceding number:
(...)
b) The system of tax incentives for research and business development SIFIDE II provided for in the Tax Investment Code."
Once again, the legislator deliberately and consciously wished to give this type of tax benefits preferential treatment, naturally, for extrafiscal reasons, related to the period of exceptional economic crisis that the country was going through, in order to protect the companies that contribute most to investment with high technological potential. From the provisions of no. 2 of article 92 of CIRC, it is evident the exceptional character that it attributes to the SIFIDE benefit, which results doubly protected, since it also received in this legal provision an additional protection, compared to other tax benefits that did not receive equal treatment. The legislator attributed, therefore, to this benefit an exceptional nature and prevalence over many other tax benefits, and the reasons that led it to establish such benefit are exclusively determined by objectives of economic policy that it is not for the Tribunal to assess or judge. In fact, it is not for the courts to question the economic policies of Governments or the way they try to reconcile the difficult economic indicators, particularly when the country needs to encourage economic growth. As for the argument that invokes the principles of redistributive and social justice, they can and should be fulfilled by the use of multiple integrated policies, and it is certain that that function falls much more within the scope of Personal Income Tax than of IRC. Thus, whether well or poorly, there are extrafiscal options underlying this type of incentive regime that it is not for the Tribunals to question. For this reason, the alleged contradictory effects and the resulting distortions are consequences of the options or choices that the legislator understood to privilege in a determined economic and social context.
Nor does the argument extracted from the form of calculation of provisional payments, invoked by AT, hold. It seems obvious that these could not have as reference the value of autonomous taxations, but this question is not relevant to the decision of the present proceedings.
Finally, AT invoked the jurisprudence set forth in the arbitral decision handed down in case 722/2015-T, of 28-06-2016, regarding the question of the deduction of tax credits resulting from SIFIDE II from the collection of autonomous taxations. Now, as already referred to in the arbitral decision handed down in case no. 630/2016-T of 27 March 2017, we do not agree with the understanding defended there regarding the nature of autonomous taxation, nor do we endorse, with due respect, its justification, since it does not have correspondence in the law. While commending the elevated quality of the arguments advanced, in fact, they pass through considerations of fiscal, economic and social policy, which the legislative power disregarded or valued differently. And, in fact, having the possibility of altering the law or correcting its meaning, it chose not to do so, keeping the law unchanged. It is incumbent upon the courts to apply the law in force at the time of the tax facts, in accordance with the applicable hermeneutical principles.
For all of the foregoing, we have no doubt that, confronting the provisions of articles 90 and 92 of CIRC, in the above terms, as well as what is established in article 4 of the act regulating SIFIDE, it is concluded that in light of the law in force at the time of the tax facts and taking into account the established factual matter, the tax benefits resulting from SIFIDE II are deductible from the IRC collection, even if determined under autonomous taxations.
As well stated in the dissenting opinion expressed in Award 697/2014-T, already referenced, "accepting that the assessment of autonomous taxations was excluded from art. 90, no. 1 of CIRC, would be to oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contrary to no. 3 of art. 103 of the Constitution of the Portuguese Republic and the principle of tax legality that the General Tax Law, in its art. 8, no. 2, subsection a), establishes."
We endorse the jurisprudence set forth in the decision handed down in case no. 370/2015-T, when it states that: "The literal element of the norm does not exclude the interpretation made by the Claimant, since the deductibility of the tax benefit in question from the collection of autonomous taxations finds a 'minimum of verbal correspondence' in the legislative text (art. 9, no. 2, of the Civil Code). It is true that autonomous taxations, in addition to having the objective of ensuring a minimum collection relative to companies that present losses (an issue that does not arise in the concrete case), aim to reduce "tax participation" in certain expenses and, possibly, discourage their realization, and such objectives will be less achieved with the possibility of the respective collection being subject to deductions. But, on the other hand, tax benefits are measures of an exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to those of the taxation they prevent (article 2, no. 1, of the EBF).
In the confrontation between these two objectives, it is the law itself that indicates what should prevail. The public interests that determine the creation of a tax benefit are, by nature, superior to those of the taxation that they prevent.
This is, all the more, manifest regarding tax incentives for investment, since they constitute a genuine public promise, in the sense that for taxpayers who adopt certain behaviors, allegedly of the greatest economic and social interest, a certain "tax reward" is guaranteed.
An interpretation of the law, not expressly imposed by the legal text, that restricts the "enjoyment" of the tax benefits in question would undermine the credibility of "legislative promises" in fiscal matters, would, in short, be contrary to the principle of confidence, inherent in the idea of Rule of Law."
Given this, on the fundamental question at issue, both in light of the letter of the law (which, while the first limit of interpretation, is not the only one) and in light of its "ratio legis", it is the understanding of this Tribunal that it is to be admitted that the tax benefit resulting from SIFIDE can be deducted from the IRC collection, even in the part that is determined by autonomous taxations. Tax benefits are "measures of an exceptional character instituted for the protection of relevant extrafiscal public interests", which the legislator considers superior to those of the taxation they prevent, as indicated by article 2, no. 1, of the Statute of Tax Benefits. In the case of SIFIDE, it was the legislator's intention to place the reasons of an extrafiscal nature of the tax benefit above the very collection of IRC revenue, which it deliberately and consciously preferred in favor of investment in research and development expenses. This understanding is confirmed by the provision of art. 92, no. 2, of CIRC, when it excludes the benefits of SIFIDE from the deduction limit referred to in that article.
Combining the provision of article 4 of the act approving SIFIDE with the provision of article 90 of CIRC, it is concluded that there is no legal basis for excluding the deductibility of the SIFIDE tax benefit from the IRC collection, including the part that derives from autonomous taxations.
And, in these terms, the assessment of IRC is unique, that is, it respects the autonomous taxations and remaining IRC (portions subject to different calculation rules) and has the same legal support. Form 22 statement itself contains a single IRC assessment, which, in part, incorporates the assessment of autonomous taxations. It is true that the assessment of autonomous taxations and that of the remaining IRC obey distinct rules, different rates, and each has its taxable matter determined in accordance with its own legally provided rules, but both obey the assessment carried out in accordance with art. 90 of CIRC. In these terms, and as well expressed in the dissenting opinion of Arbitral Judge Leonor Fernandes Ferreira, in case no. 697/2014-T, "there being a single assessment, it is concluded that the portion of collection that derives from autonomous taxations is an integral part of IRC collection. Otherwise, it is not found in any other article of CIRC the reference to the assessment of autonomous taxations as a distinct process. Accepting that the collection of autonomous taxations is not included in art. 90 of CIRC, would be to accept that there is a gap in the law and, being this a fiscal law, it does not permit integration."
The rejection of the administrative complaint is, therefore, illegal, as well as the underlying assessment, since they are based on the erroneous understanding that the collection of autonomous taxations does not permit the deduction of tax benefits determined by application of the SIFIDE II regime, in the terms in which they were recognized to the Claimant, preventing it from exercising the right to deduct the tax benefit. Thus, the Claimant is right, when it claims the illegality of the acts disputed in the present proceedings.
Therefore, the rejection of the administrative complaint suffers from a defect of violation of law, as well as the tax assessment that is at its origin, and therefore the arbitral request is granted, with the consequent annulment of the assessment act.
V - Compensatory Interest
The Claimant combines, with the request for annulment of the tax acts subject to the present proceedings, the request for condemning AT to payment of compensatory interest.
Given the acceptance of the request for annulment, the amounts paid should be refunded to the Claimant, relating to the tax acts annulled. In the case at issue, it is manifest that the illegality of the assessment acts, whose amount the Claimant paid, is attributable to AT, which, by its initiative, carried them out without legal support.
Consequently, the Claimant is entitled to compensatory interest, in accordance with articles 43, no. 1, of LGT and 61 of CPPT. Compensatory interest is due, from the date of the payments that were made, and calculated based on the respective amount, until its full refund to the Claimant, at the legal rate, in accordance with articles 43, nos. 1 and 4, and 35, no. 10, of LGT, 61 of CPPT and 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).
In accordance with the provision of subsection b) of art. 24 of RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, with the latter being required, in the exact terms of the acceptance of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of decisions of tax courts, to "restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out, adopting the necessary acts and operations for that purpose", which is in harmony with the provision of art. 100 of LGT [applicable by force of the provision of subsection a) of no. 1 of art. 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial acceptance of an administrative complaint, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation subject to the litigation, comprising the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".
Although art. 2, no. 1, subsections a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating within CAAD, making no reference to condemning decisions, it should be understood that the competencies include the powers that in judicial challenge proceedings are attributed to the tax courts, this being the interpretation that accords with the meaning of the legislative authorization on which the Government based itself to approve RJAT and in which it proclaims, as a first directive, that "the tax arbitration procedure should constitute an alternative procedural means to judicial challenge proceedings and to the action for the recognition of a right or legitimate interest in fiscal matters".
The judicial challenge procedure, although it is essentially a procedure for annulment of tax acts, admits the condemnation of the tax administration to payment of compensatory interest, as is inferred from art. 43, no. 1, of LGT, in which it is established that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount higher than that legally due", and art. 61, no. 4 of CPPT (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the initial wording), which "if the decision recognizing the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period of voluntary execution".
Thus, no. 5 of art. 24 of RJAT in stating that "the payment of interest, regardless of its nature, is due, in accordance with the provisions of the general tax law and the Code of Tax Procedure and Process" should be understood as permitting the recognition of the right to compensatory interest in the arbitration procedure. In the case at issue, it is manifest that, following the declaration of illegality and consequent annulment of the disputed assessment acts, there is grounds for reimbursement of the tax, by force of the aforementioned art. 24, no. 1, subsection b), of RJAT and 100 of LGT, as this is essential to "restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out", in the part corresponding to the correction that was considered illegal.
Therefore, AT should give effect to the present arbitral decision, in accordance with art. 24, no. 1, of RJAT, and refund to the Claimant the amounts that have been unduly paid, plus the respective compensatory interest, at the legal supplementary rate of civil debts, in accordance with articles 35, no. 10, and 43, nos. 1 and 5, of LGT, 61 of CPPT, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or the act or acts that succeed it), counted until the processing of the credit note, in which they are included (art. 61, no. 5, of CPPT).
VI - DECISION
For these reasons, this Arbitral Tribunal decides:
a) To fully accept the arbitral request filed and, consequently, annul the act rejecting the administrative complaint, as well as the assessment subject to challenge in the present proceedings;
b) To condemn AT to refund to the Claimant the amount of tax unduly paid, plus compensatory interest;
c) To condemn the unsuccessful party to payment of the costs of the proceeding.
CASE VALUE
The case value is fixed at €32,825.65, in accordance with article 97-A, no. 1, a), of CPPT, applicable by force of subsections a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
COSTS
The arbitration fee is fixed at €1,836.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the unsuccessful party, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.
Notify accordingly.
Lisbon, 1 June 2017
The Arbitral Tribunal,
(Maria do Rosário Anjos)
[1] SIFIDE was approved by Law no. 40/2005, of 3 August, to be in force between 2006 and 2010; subsequently Law 55-A/2010, of 31 December, in its art. 133, established SIFIDE II to be in force between 2011 and 2015, amended by Law 64-B/2011 of 30 December.
[2] In this sense, the provision of article 23-A, no. 1, subsection a), of CIRC, in the wording given by Law no. 2/2014, of 16 January, also contributes, from which it is concluded, by literal interpretation, that autonomous taxations are IRC. It further reinforces the understanding that with autonomous taxations the objectives of the legislator were and are to combat abuses with negative impact on the formation of taxable income, and therefore, truly, it is this taxable income that the legislator seeks to reach.
[3] It should be noted that the discussion about the nature of autonomous taxation (income or expense?) as it has come to be stated by some doctrine and jurisprudence would require knowledge of the problem from a much broader perspective, from which could not escape the analysis of its conformity with the requirements resulting from the VAT Directive and its implications.
[4] cf. "Manual de Direito Fiscal", 3rd Edition, Coimbra Publisher, 2007, p. 406
[5] In this sense, cf. Rui Duarte Morais, in "Apontamentos de IRC", Almedina, p. 202.
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