CAAD 704/2016-T: PEC Deductions from Autonomous Taxation in IRC – Interpretive Law Ruling

ARBITRAL DECISION

The Arbitrators Maria Fernanda dos Santos Maçãs (Presiding Arbitrator), Diogo Bonifácio and Maria Isabel Guerreiro, appointed by the Deontological Council of the Centre for Administrative Arbitration to form this Arbitral Tribunal, hereby agree as follows:

I. Report

1. The company A… – SOCIEDADE GESTORA DE PARTICIPAÇÕES SOCIAIS, S.A. (hereinafter only "Claimant"), legal entity no…, with registered office at Rua …, n.º…, …-…, …, with share capital of € 837,880.00, came, pursuant to the provisions of articles 2º, no. 1, paragraph a) and 10º, no. 1, paragraph a), of Decree-Law no. 10/2011, of 20 January, legislation that approved the Legal Regime of Tax Arbitration (hereinafter only "RJAT"), as well as the provisions of articles 1º and 2º, of Ordinance no. 112-A/2011, of 22 March, to submit a petition for the constitution of an arbitral tribunal, in which the Tax and Customs Authority is Respondent (hereinafter only "Respondent" or "TA").

2. Within the scope of the arbitral pronouncement petition presented by it, the Claimant petitioned for a declaration of illegality of the decisions dismissing the hierarchical appeal and the administrative complaints filed against the self-assessment acts of Corporate Income Tax (IRC) of "Fiscal Group B…", relating to the years 2014 and 2015, in the part corresponding to Autonomous Taxation, respectively, in the amounts of € 69,328.04 (year 2014) and € 72,765.75 (year 2015).

3. The Claimant chose not to appoint an arbitrator, having requested such appointment from the Deontological Council of CAAD, in accordance with the provisions of articles 6º, no. 1 and 11º of the RJAT.

4. The petition for the constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the TA on 13/12/2016, with the Parties being notified, on 25/01/2017, of the arbitrators appointed by the Deontological Council of CAAD.

5. Following acceptance by the appointed arbitrators, this Arbitral Tribunal was constituted on 09/02/2017, in accordance with the provisions of articles 2.º, no. 1, paragraph a), 5º, 6º, no. 1, and 11º, no. 1, all of the RJAT (as amended by art. 228.º, of Law no. 66-B/2012, of 31 December).

6. Through an arbitral order of 15/03/2017, the Arbitral Tribunal Meeting referred to in article 18.º of the RJAT was waived, under the principle of the Tribunal's autonomy in conducting the proceedings and in order to promote speed, simplification and informality thereof. It was also set as the date for pronouncing the Arbitral Decision 9 August 2017.

7. The hearing of witnesses was also waived, as there was no disputed matter of fact and these were exclusively legal questions, in which both parties concurred, accepting such waiver.

8. The parties submitted written arguments.

9. The Claimant invokes in summary the following:

i) The conclusion that the norm of the IRC Code that provides for deductions from the tax in IRC (article 90.º, no. 2) encompasses the collection in IRC of autonomous taxation, is a requirement, first and foremost, of the letter of the law itself, as understood by the TA itself and by overwhelming tax jurisprudence: both the TA and the arbitral tribunals in dozens of arbitral decisions that upheld the TA's position, understand that the collection of autonomous taxation in IRC is IRC, including in the purposes or function that it serves (combating, through compensatory taxation, expenses and charges of questionable business character, at least in their entirety, but nevertheless deducted by companies in calculating their taxable profit in IRC);

ii) And it is also a requirement of the principle of coherence and systematic interpretation: one cannot simultaneously conclude (without law that, previously, creates the dissonance) that when the IRC Code refers to the collection of IRC in its article 45.º, no. 1, paragraph a) (in the wording and numbering in force until 2013), it includes therein, without need of separate naming, the collection of autonomous taxation in IRC (and so concluded overwhelming tax jurisprudence, at the request of the TA;

iii) And in articles further ahead (article 90.º, no. 2, of the IRC Code) conclude, in opposition, that the collection of IRC does not encompass the collection of autonomous taxation in IRC;

iv) That this interpretative incoherence is unsustainable was the conclusion, up to the State Budget Law for 2016 (LOE 2016), of 4 arbitral decisions involving 8 arbitrators, to whose understanding still another ninth arbitrator adhered in a dissenting vote in a fifth arbitral decision also dated prior to the entry into force of LOE 2016;

v) From this consensus, a minority current deviated consisting of this fifth arbitral decision and an arbitral decision (singular tribunal), both dated prior to the entry into force of LOE 2016 (and until this date there are no more arbitral decisions or awards on the scope of application of article 90.º, no. 2, of the IRC Code). Divergent decisions which together obtained the adherence of only two arbitrators;

vi) The argumentative attempt used to exclude the collection of autonomous taxation in IRC from the norm that provides for deductions from the collection, is not persuasive. It fails in the attempt to justify the interpretative dissonance, the break with what is required by the principle of coherence and systematic interpretation, and the particularities that it attempts to invoke from various angles to distinguish do not withstand examination either;

vii) Therefore, whether from the perspective of a count of opinions up to LOE 2016 (number of arbitral decisions in each of the opposing fields), or from a substantive or material perspective, one can and should conclude that the correct interpretation (based on respect for the principle of coherence required of the interpreter/applicator of the law) was that in the collection of IRC to which no. 2 of article 90.º of the CIRC is directed encompasses the collection of autonomous taxation in IRC;

viii) But there is more: where is the rule being interpreted, the object of interpretation in the LOE 2016 norm that altered this state of affairs? From no part of LOE 2016 does the rule that part 2 of the new no. 21 of article 88.º of the CIRC would aim to interpret emerge identified. Which constitutes yet another strong symptom that one is facing a normative novelty, as opposed to an interpretative vision of an old rule;

ix) And there is even more: both article 89.º and article 90.º, nos. 1 and 2, of the CIRC, refer to IRC, to all of the IRC (neither makes any reservation), and both are inserted in the same logical phase of the regulation of IRC collection, after obtaining the primary collection (ascertained in accordance with the preceding eighty-eight articles, which include that of autonomous taxation);

x) In this context (which is the real one), how can both parts, 1 and 2, of the new no. 21 of article 88.º of the CIRC (introduced by LOE 2016), be simultaneously interpretative of what articles 89.º and 90.º of the CIRC provide, in opposite directions? How can they be simultaneously interpretative (in the terms of article 135.º of LOE 2016) in the sense that the IRC of article 89.º also includes autonomous taxation (part 1 of no. 21 of article 88.º), and in the opposite sense that the IRC of article 90.º, at least that of its no. 2, does not include autonomous taxation?;

xi) They cannot, that is a logical and systemic impossibility. One of the two prescriptions, either that of part 1, or that of part 2, of the new no. 21 of article 88.º of the CIRC, does not have, and does not necessarily have, due to logical impossibility, interpretative character;

xii) And knowing from the overwhelming jurisprudence, accompanied by the TA, to the effect of qualifying the collection of autonomous taxation in IRC as having the nature of IRC (as per Act 2 of this history, reported above), it is easy to conclude that in this duality of prescriptions of opposite direction which has interpretative nature is part 1. And that therefore, and necessarily, part 2 of the new no. 21 of article 88.º of the CIRC has innovative character (counter-current, in this case against the inclusion of the primary collection of autonomous taxation in the collection of IRC);

xiii) For all these reasons, some of which alone would be sufficient, it is believed, the claimant believes it has been able to demonstrate that the exclusion of deductions from the collection of autonomous taxation contained in the second part of the new no. 21 of article 88.º of the IRC Code, introduced by LOE 2016, is not materially interpretative;

xiv) But even if there were no certainty as to the absence of interpretative character in the new rule, given the guarantor role, with constitutional dignity, of the prohibition of retroactivity of tax law, reasonable doubt is sufficient: at a minimum, it transfers the burden (if it was not always there, given the general rules of burden of proof) to he who claims the interpretative nature of a tax law and thereby intends to apply it retroactively without the opposition of the constitutional rule that prohibits it, of showing (eliminating reasonable doubt) that it really is, in substance, beyond mere proclamation, its nature;

xv) As demonstrated, a rule such as that introduced by LOE 2016 (the new no. 21 of article 88.º of the CIRC), which prevents there being deductions from the collection on the collection of autonomous taxation in IRC, is one of the types of rule (among many others, as exemplified above) that interferes with the amount of tax to be paid by reference to the tax fact/fiscal year in question. Which, causing an increase in the tax to be paid, as occurs, is subject to the prohibition of retroactivity provided in article 103.º, no. 3, of the Constitution;

xvi) Without the interference of LOE 2016, before LOE 2016, various arbitral decisions in the exercise of the function of judging with impartiality and fairness what the law in force says at the date of the facts (prior to 2016), understood that the scope of application of article 90.º of the CIRC and of the deductions from the collection provided therein encompassed the collection of autonomous taxation in IRC. A function of judging which, it is added, is sovereign power that in its exercise can neither be nor should be conditioned by the other sovereign powers;

xvii) It is believed that it should be rejected that LOE 2016 dictates to the judge how the law in force at the date of facts prior to 2016 should be judged/interpreted. This is because where the Fundamental Law prohibits the legislature from altering the past normative order, it is not constitutionally permitted for it to do so by dictating to the sovereign function of judging how that past normative order should be understood;

xviii) With effect and in the first place, the claimant wishes to remind that the constitutional prohibition in question does not distinguish between more tax applicable to the past by force of law said to be interpretative, and more tax applicable by force of law that does not claim such;

xix) And there is reason to respect that indifference. With effect, if today's legislature has need to approve new law that clarifies what in its understanding was intended by the legislature that made the law of the past, it is because it detected the risk that this understanding of the legislature in the past not be shared either by the addressees of that old law or, above all, by the organs of sovereignty that have as their mission, and with independence from the legislative power or any other, to decide what the law says;

xx) Now, if so the new law with pretension to fix the meaning of the legal framework prior to it, necessarily adds new legal reality to that framework. One can insist on using the terminology that it does so interpretatively, but what cannot be denied is that this "interpretation" adds to what existed previously, even if one could conclude that, contrary to the opposite interpretation, it respects the limits (rules) of interpretation: it chooses one interpretative option (which originates more tax, in this case) and excludes the other, thereby conditioning, moreover, the tax applicable. Tax which, if it is intended to apply it to the past, violates the constitutional prohibition of retroactivity;

xxi) From an equivalent angle: by excluding the opposite interpretation of the old law by those who should (the courts, ultimately) which did not generate this tax, the new law, necessarily (and that is its objective), generates tax. With which the claim of its application to the past also necessarily violates the constitutional prohibition of retroactivity in tax matters;

xxii) Otherwise, as has already been said, the applicator of the Constitution will be flinging wide open the window to that (prohibition of retroactivity in tax matters) to which the Constitution closed the door;

xxiii) But even more. In tax matters the legislature wanted enhanced protection: only taxes authorized by Parliament are allowed, and Parliament itself is prohibited from authorizing taxes for the past;

xxiv) It is worth recalling here the decision of the Constitutional Court no. 172/00. In summary, as this Constitutional Court decision expressed it, the constitutional reinforcement of protection against legislative power contained in the prohibition of retroactivity of its laws, is a reinforcement of legal certainty and protection of trust that does not accord with interference in the process of law application by the organs invested with it, which precludes the admissibility of interpretative laws in matters under that constitutional protection. Whether the interpretative laws are authentic, or not, whatever is understood by authentic, a question in itself with respect to which it will hardly be possible to eliminate imprecision and discussion;

xxv) In conclusion, the claimant understands that the attribution by article 135.º of LOE 2016 (Law no. 7-A/2016, of 30 March) of interpretative nature also to part 2 of the new no. 21 of article 88.º of the CIRC, that is, also to the normative segment "with no deductions being made to the global amount [of autonomous taxation in IRC] ascertained", introduced by the same LOE 2016 (by its article 133.º), (ii) and consequent attribution of retroactive character to this new tax rule, constitutes a material unconstitutionality of the said article 135.º of LOE 2016, by violation of the prohibition of retroactivity in tax matters provided in article 103.º, no. 3, of the Constitution, whether it has been concluded, whether or not (and it is understood that not), that one is facing a materially interpretative law;

xxvi) And by violation, also, of the principle of separation of legislative and judicial powers and of the principle of independence of the judicial power, reinforced as they always are whenever one is faced with matter subject to the constitutional prohibition of retroactivity of new laws;

xxvii) Violation, therefore, also, in articulation with the prohibition of retroactivity, of article 2.º (Democratic rule of law, and separation and interdependence of powers, and as to this latter aspect in the case at hand the perspective of interdependence – and therefore negation of excesses and of occupation of space that does not belong to it – of legislative-political power vis-à-vis judicial power) is at stake, of article 111.º, no. 1 (separation and interdependence of organs of sovereignty, which is still a substantive limit of revision – article 288.º, paragraph j), of the Constitution), and of article 203.º (independence of the courts, another substantive limit of revision – article 288.º, paragraph m), of the Constitution), all of the Constitution.

1. For its part, the Respondent submitted a Response, defending itself by challenge, sustaining its position and the lack of merit of the Claimant's claim in the following conclusions:

i) Autonomous taxation, contrary to what is supported in the learned arbitral jurisprudence and in the TA's argumentation, despite being a collection in IRC, is distinguished by the fact that it does not apply to profits but, rather, to expenses incurred by the taxpayer or by third parties who maintain relationships with him;

ii) In view of its teleology, autonomous taxation, as an anti-abuse fiscal instrument, would be emptied of any practical-tax content in the event of accepting the thesis defended by the Claimant in its very extensive and verbose excursuses – which only as a mere academic exercise would be conceded;

iii) Under pain of subverting the purposes of autonomous taxation, by conferring on it, with this interpretation, a null effect, in accordance with what the TA has been exhaustively arguing;

iv) Now, law and its interpretation do not accord with mere appearances or valuations constructed around the conveniences of the theses of those who defend them, without keeping in view the hermeneutics of the teleology of the normative at issue;

v) Again, it is reiterated, that the admissibility of an interpretation of this nature would allow an inadmissible limitation of the freedom of configuration of the legislative initiative, which in creating autonomous taxation did so with a purpose that belongs to the plane of evidence, i.e.: a) the fight against tax evasion; b) the intention to tax income of third parties whose income increase would otherwise be removed from taxation; c) the penalization, through the tax route, of the payment of income considered excessive in view of the economic crisis conjuncture of which, even today, traces remain;

vi) Which is why, to allow interpretative flights of fancy that would result in the admissibility of deduction of Special Payments on Account (PEC) from the collection of autonomous taxation – similar to what the law allows for the collection of IRC – as the Claimant claims, inexorably amputates autonomous taxation in that which were the principles and purposes on which its creation by the legislature was based;

vii) Therefore, the claims adduced are based, with due respect, on a fantastic and fallacious construction without any legal underpinning, grounding itself in some forced attempt at interpretation abrogating the rule in force, terms in which the arguments wielded by the Claimant utterly fail;

viii) The interpretation propounded by the Claimant, save the respect for different and antagonistic understanding, is nothing more than a violation of the rules in force for the appraisal of tax;

ix) Which is why, respectfully considering the learned arbitral jurisprudence invoked by the Claimant (deconstructed and reconstructed at the whim of its fictional argumentative ideology), to interpret the rule in force for autonomous taxation in the sense that is propounded in the fallacy accepted and defended by the latter, is nothing more than, repeat it ad nauseam, an abrogating interpretation disguised as legislative impulse, and may constitute, in final analysis, a violation of the principle of separation of powers;

x) And if doubts subsisted about the autonomy of Autonomous Taxation, let us overcome the pleonasm, pay attention to the declaration of dissent of judge Vítor Gomes in the Decision of the CC no. 18/2011, proc. 204/2010, where the same states that «Although formally inserted in the CIRC and the amount it permits to collect is liquidated within its scope and by way of IRC, the rule in question [art.º 88.º] concerns a fiscal imposition that is materially distinct from the taxation in this schedule, (…)» and further «With effect, we are faced with autonomous taxation, as the very letter of the rule says. And that makes all the difference.(…)» (bold ours);

xi) Finally, and without dispensing, one will always have to call to account, permanently clearing up the controversial question, the content of article 133.º, which added no. 21 to article 88.º of the CIRC, with the effects provided in article 135.º, both contained in the State Budget Law for 2016, published on 30.03.2016, entering into force the following day, in which it is provided, with interpretative character, that «The liquidation of autonomous taxation in IRC is carried out in accordance with the terms provided in article 89.º and is based on the values and rates that result from the provisions in the preceding numbers, with no deductions being made to the global amount ascertained.»;

xii) This rule came to clarify, positivizing, as was evidenced above, the understanding and practice peacefully followed by doctrine and taxpayers in general, which were never questioned by the TA, which is why any divergent interpretation will be materially unconstitutional;

xiii) With effect, since the creation of Autonomous Taxation, in the early 1990s, and its legislative evolution, it was always peaceful among "those who matter" that autonomous taxation did not admit any deduction;

xiv) To adopt the position of the Claimant, as mentioned above, would always have as a logical consequence inherent to the functioning of IRC that the amounts ascertained by way of autonomous taxation, if understood as comprising a single collection – which can only be conceived as a mere academic exercise – be taken into account in the calculation of payments on account;

xv) A logical consequence that was completely obscured from the Claimant's discourse, whether in a real or merely intentional plane;

xvi) Now, save the due respect, the Claimant seems to "suffer from the same ailment" that it imputes to the Respondent, seeking the best of both worlds, in that it is evident the existence of two weights and two measures in its behavior, on the one hand it defends the existence of a collection where autonomous taxation will be included, so as to be able to benefit from the deductions better described, on the other hand, it draws no consequence regarding the calculation of payments on account, as an obvious consequence of the act it claims;

xvii) In view of that, the tax acts challenged by the now Claimant do not merit censure, and the same should remain valid in the legal order.

II. Proceedings

The tribunal is competent and is regularly constituted.

The parties have legal capacity and standing, being duly represented.

The procedural means is the appropriate one and does not suffer from nullities.

Nor were any exceptions or preliminary questions invoked that would obstruct the determination of the merits of the case.

III. Matters of Fact Considered Established

Having regard to the position taken by the parties, the documentary evidence and the tax audit file attached to the records, the following facts are considered proven, with relevance to the decision:

A) The Claimant proceeded with the delivery, on 29 May 2015, of the IRC Form 22 declaration relating to the fiscal year 2014 of the fiscal group to which it belongs, according to which it ascertained an amount of autonomous taxation of € 69,328.04 (See Doc. no. 1 attached with the arbitral petition);

B) On 10 November 2015, the Claimant would present, for the same fiscal year 2014, an amended declaration, in which the amount of autonomous taxation was maintained, the value of the municipal surcharge having been corrected (See doc. no. 2 attached with the arbitral petition);

C) On 30 May 2016, the Claimant presented the IRC Form 22 declaration for fiscal year 2015, in which an amount of autonomous taxation of € 72,765.75 was ascertained (See Doc. no. 3 attached with the arbitral petition);

D) According to the information provided by the Certified Public Accountant and also the payment receipts that were attached to the arbitral petition as Docs. nos. 7, 8 and 9, the Claimant had at its disposal, in fiscal years 2014 and 2015, the possibility of deduction from the collection of IRC of the amounts of Special Payments on Account effected and not deducted, which would amount, respectively, to € 413,045.04 and € 426,941.06 (See Docs. nos. 9, 10 and 11 attached with the arbitral petition);

E) The Claimant filed an administrative complaint against the act of self-assessment of IRC for fiscal year 2014, in which it claimed the right to proceed with the deduction, from the collection of IRC produced by the application of the rates of autonomous taxation, of the said Special Payments on Account, having been notified, on 27/06/2016, of the respective decision dismissing it (See Doc. no. 4 attached with the arbitral petition);

F) From this decision the Claimant filed a Hierarchical Appeal, on 11/07/2016 (See Doc. no. 5 attached with the arbitral petition);

G) By reason of the Hierarchical Appeal lodged against the dismissal of the Administrative Complaint of IRC for 2014 not having been decided, within the respective legal deadline, the Claimant presumed its tacit dismissal;

H) With the same grounds, the Claimant filed an administrative complaint against the act of self-assessment of IRC for fiscal year 2015, having been notified, on 26/10/2016, of the respective decision dismissing it (See Doc. no. 6 attached with the arbitral petition);

No other facts with relevance for the final decision were proven.

IV. Law

A) Questions to be decided

First of all, it is important to note that Tribunals, here included Arbitral Tribunals, do not have to appreciate all arguments presented by the parties, as evidenced by way of example from the Decision of the Plenary of the 2nd Section of the Administrative Supreme Court, of 07/06/1995, delivered in appeal no. 5239.

Thus and having regard to what was alleged, either in the arbitral petition or in the final written arguments, with the presentation of this petition present the Claimant is seeking a declaration of illegality of the dismissal of the administrative complaints and the hierarchical appeal mentioned above and, as well, the IRC self-assessments and respective autonomous taxation rates, relating to fiscal years 2014 and 2015, on the grounds that it should not be prevented from the possibility of deducting the Special Payment on Account from the part of the IRC collection corresponding to autonomous taxation rates.

In view of this, it requests that:

i) The illegality be declared, annulling, the dismissal of the administrative complaints and the hierarchical appeal in question, insofar as they refuse the annulment of the illegal part, in the terms discussed herein, of the IRC self-assessments in the part produced by autonomous taxation rates, of fiscal years 2014 and 2015, thereby violating the principle of legality;

ii) The illegality of such self-assessments be declared, consequently being annulled, in the parts corresponding to the amounts of € 69,328.04 (2014) and € 72,765.75 (2015);

iii) The right to reimbursement of the aforementioned amounts be recognized, as well as, the amount of € 231.31, with reference to late payment interest paid regarding the IRC model 22 declaration for 2015, and, as well, the right to indemnity interest for the payment of unduly assessed tax, counted, until full reimbursement, as regards € 69,328.04 (2014) from 1 September 2015, and counted as regards € 72,765.75 (2015) from 21 September 2016 as to € 25,133.50, and from 1 September 2016 as to the remaining € 47,632.25;

iv) Subsidiarily, if it is understood that article 90.º of the CIRC does not apply to autonomous taxation, the illegality of the liquidations of autonomous taxation (and consequently annulled) be declared, for lack of legal basis for its execution (see article 8.º, no. 2, paragraph a), of the LGT, and article 103.º, no. 3, of the CRP), with the consequent reimbursement of the same amounts and payment of indemnity interest counted from the same dates.

These are the questions to be decided.

B) On the nature of autonomous taxation in national jurisprudence and doctrine

As results from the legal and factual framework effected above, the question that the Tribunal will have to decide is whether there exists the possibility of deduction of PEC from the part of the IRC collection corresponding to autonomous taxation, which presupposes, from the outset, the historical analysis of the evolution of the figure of autonomous taxation, its nature and its reason for being.

First and foremost, it should be noted that, having regard to the position adopted in Arbitral Decisions no. 722/2016-T, of 28 June 2016, no. 443/2016 of 23 February 2017 and no. 504/2016-T, of 21 March 2017, whose panels were presided over by the Presiding Arbitrator here also present (and for which we hereby refer), this Tribunal understands, together with the remaining jurisprudence in that sense, that autonomous taxation aims to tax expense and not income.

This position is equally assumed by His Excellency Counselor Vítor Gomes (dissenting vote appended to Decision no. 204/2010 of the Constitutional Court), according to which he states, referring to autonomous taxation, that "although formally inserted in the CIRC and the amount it permits to collect is liquidated within its scope and by way of IRC, the rule in question concerns a fiscal imposition that is materially distinct from the taxation in this schedule (…..)".

Still according to such understanding, "With effect, we are faced with autonomous taxation (…) and that makes all the difference. It is not about taxing income at the end of the taxable period, but rather certain types of expenses in themselves, for understandable reasons of fiscal policy that the decision points out".[1]

Adding that "in this way, the fact revealing taxable capacity that one wishes to attain is the simple realization of that expense, at a certain moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not he comes to have taxable income in IRC at the end of the period, being irrelevant that this portion of tax only comes to be liquidated at a later moment and together with the IRC" (emphasis ours).

As was noted, it was also recognized by the jurisprudence of the Administrative Supreme Court (STA) "that under the designation of autonomous taxation are hidden very diverse realities, including, in the terms of no. 1 of the (then) art.º 81.º of the CIRC, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in cases of expenses incurred by taxpayers totally or partially exempt, or who do not engage, as their main occupation, in activities of commercial, industrial or agricultural nature (no. 2 of the [then] art.º 81.º) and which are not considered as a cost in the calculation of taxable income in IRC. It should be noted, however, that representation expenses and those related to light vehicles, in accordance with the provisions in the (then) art. 81.º no. 3 of the CIRC and travel allowances are affected to business activity and indispensable which is why they are fiscally accepted in some cases even if within certain limits".[2]

Still regarding the position that was being assumed by the Constitutional Court, it is important to mention Decision no. 18/11, according to which the following was stated: "there are facts subject to autonomous taxation, which correspond to expenses provably indispensable to the realization of profits and (…) this means that autonomous taxation also falls on expenses that correspond to the core of the concept of real income, net income and compliance with accounting obligations" (emphasis ours).

More recently, the Constitutional Court came to reformulate the doctrine of the aforementioned Decision no. 18/11, drawing closer to the then dissenting vote of Counselor Vítor Gomes and Decision of the STA no. 830/11 (also cited above), to the effect of understanding that "contrary to what happens in the taxation of income under IRS and IRC, in which the aggregate of income earned in a given year is taxed (which implies that only at the end of it can the tax rate be ascertained, as well as the bracket in which the taxpayer falls), in this case each expense incurred is taxed, in itself considered, and subject to a determined rate, autonomous taxation being ascertained independently of the IRC that is owed in each fiscal year, by not being directly related to the achievement of a positive result, and therefore, capable of being taxed. Thus, and in the case of IRC, we are faced with an annual tax, in which each income received per se is not taxed, but rather the aggregation of all income obtained in a given taxable period, the law considering that the tax fact is deemed to have occurred on the last day of the taxable period (see article 8.º, no. 9, of the CIRC). Already with regard to autonomous taxation in IRC, the tax fact is the very realization of the expense, not being faced with a complex fact, of successive formation over a year, but rather with an instantaneous tax fact" (emphasis ours).

As was well noted in that Decision of the Constitutional Court "this characteristic of autonomous taxation refers us, thus, to the distinction between periodic taxes (whose tax fact occurs successively, by the passage of a determined period of time, as a rule annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax with regular character) and single obligation taxes (whose tax fact occurs instantaneously, arises isolated in time, generating on the taxpayer an obligation of payment with an ad hoc character). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of certain expense that is subject to taxation (although, the appraisal of the amount of tax, resulting from the application of the diverse rates of autonomous taxation to the diverse acts of realization of expense considered, comes to be effected at the end of a certain taxable period). But the fact that the liquidation of tax is effected at the end of a certain period does not transform it into a periodic tax, of successive formation or of durable character. That operation of liquidation translates into nothing more than the aggregation, for purposes of collection, of the aggregate of operations subject to that autonomous taxation, to whose taxation the rate is applied to each expense, there being no influence of the volume of expenses incurred in the determination of the rate" (emphasis ours). [3]

On the part of doctrine and in the essential, the understanding has not strayed, regarding the concept and nature of autonomous taxation, from constitutional jurisprudence, in particular, from that mentioned above.

With effect, RUI MORAIS considers that "what is at issue is a taxation that falls on certain expenses of taxpayers, which are regarded as constituting tax facts. It is difficult to discern the nature of this form of taxation and, even more, the reason why it appears provided in the codes of income taxes".[4]

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO understands that "it is not properly IRC – which aims to tax the income of legal entities and not expenses incurred by them -, but the substitution of a taxation of "implicit" income of natural persons, which is considered not directly executable".[5]

That is, some doctrine and jurisprudence, here including that of the Constitutional Court, have come to consider that autonomous taxation is autonomous tax facts, which fall on expense, which is why, despite being formally inserted in the IRC Code, they concern a taxation distinct from the income tax. This is because they are considered to aim to prevent abusive practices in the remuneration of workers, managers and partners/shareholders of the company.

In this sense, see SALDANHA SANCHES, for whom "in this type of taxation, the legislature seeks to respond to the admittedly difficult question of the tax treatment of expenses that are in the zone of intersection between the personal sphere and the business sphere, so as to avoid remuneration in kind more attractive for exclusively fiscal reasons or hidden distribution of profits. The rule presents a characteristic similar to that which we will find in the legal sanction against undocumented costs, with a rate increase when the situation of the taxpayer does not correspond to a situation of fiscal normalcy."[6]

CASALTA NABAIS also considered the following: "it is a taxation that is explained by the necessity of preventing and avoiding that, through these expenses, companies proceed with the disguised distribution of profits, especially dividends which, thus, would be subject to IRC as profits of the company, as well as combating fraud and tax evasion that such expenses occasion (…)".[7]

In the same sense, also, see ANA PAULA DOURADO (Tax Law, Classes, 2015, p. 237).

C) On the evolution of the figure of autonomous taxation

In the original wording of the IRC Code (approved by Decree-Law no. 442-B/88, of 30 November), no express or implicit reference was made to autonomous taxation. Only with Law no. 101/89, of 29 December, which approved the State Budget for 1990, was a first reference to autonomous taxation made within the scope of IRC, through the legislative authorization contained in no. 3 of its article 15.º, in which the following is provided:

3 - The Government is hereby authorized to tax autonomously in IRS or IRC, as the case may be, at an increased rate of 10% and without prejudice to the provision in paragraph h) of no. 1 of article 41.º of the CIRC, confidential or undocumented expenses incurred within the framework of the exercise of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by IRC taxpayers not covered under articles 8.º and 9.º of the respective Code.

As is well known, the origin of autonomous taxation in the Portuguese tax legal system dates back to 1990, with the publication of Decree-Law no. 192/90, of 9 June, according to which (in its article 4º), autonomous taxation was established: a) At the rate of 10% relating to confidential or undocumented expenses and; b) At the rate of 6.4%, regarding representation expenses and charges related to light passenger vehicles.

It was with the approval of Decree-Law no. 192/90 (and implementing that legislative authorization), that a rule on autonomous taxation was included in the margins of the IRS and IRC codes, in the terms of which "confidential or undocumented expenses incurred within the framework of the exercise of commercial, industrial or agricultural activities by IRS taxpayers who possess or should possess organized accounting or by IRC taxpayers not covered under articles 8.º and 9.º of the respective Code are taxed autonomously in IRS or IRC, as the case may be, at a rate of 10% without prejudice to the provision in paragraph h) of no. 1 of article 41.º of the CIRC".

This rule and, in general, the regime of autonomous taxation, came to be the subject of various amendments (e.g. Law no. 52-C/96, of 27 December, Law no. 87-B/97, of 31 December, Law no. 3-B/2000, of 4 April and Law no. 30-G/2000, of 29 December), in particular, through successive modifications, both of the rates and of the systematization and wording conferred on them, in the respective codes on income taxes (that is, both in the IRC Code and in the IRS Code).

With the approval of Law no. 30-G/2000, of 29 December, the decree that enshrined "autonomous taxation" was revoked, adding to the IRC Code article 69º-A [corresponding at the date of the facts underlying (2011 and 2012) to article 88º] in which, in addition to the maintenance of incidence of these on undocumented expenses, on representation expenses and on vehicle expenses, such was extended to other situations of diverse nature.

As a result of this analysis of the evolution of the figure of autonomous taxation, the Tribunal believes it can draw, from the outset, two conclusions:

i) The first is that autonomous taxation falls on both deductible charges and non-deductible charges under IRC;

(ii) The second is that autonomous taxation aims to prevent erosion of the tax base under IRC, imposing taxation on charges that may be deducted by IRC taxpayers but which, by being so, become an increase in taxation, thereby seeking to serve as a disincentive to expenditure on such charges.

In relation to autonomous taxation on non-deductible expenses, if one were to admit their deductibility, one would be admitting the deductibility of a charge not indispensable for the realization of income subject to tax or for the maintenance of the productive source.

In this way, it may be considered as established, and in terms of what will be relevant for the decision to be made within the scope of these proceedings, the following presuppositions:

i) The autonomous taxation of IRC, anchored in the diverse numbers and paragraphs of article 88º of the IRC Code, translate diverse situations, to which also different taxation rates apply;

ii) Autonomous taxation of IRC, falling on certain charges of IRC taxpayers, should be understood as independent payments from the existence or non-existence of taxable matter;

iii) Interpreted as payments, associated with IRC, or at least related to it, and capable of being understood as an exception regarding the principle of taxation of legal entities in accordance with the real and effective profit ascertained (article 3º of the IRC Code);

iv) In autonomous taxation, the tax fact that gives rise to taxation is instantaneous, that is, it is exhausted in the act of realization of certain expenses that are subject to taxation (although the appraisal of the amount of tax resulting from the diverse rates of taxation on the diverse acts of realization of expenses considered comes to be effected at the end of a certain taxable period);

v) The fact that the liquidation of tax is effected at the end of a certain period does not transform it into a periodic tax, of successive formation or of durable character, since that operation of liquidation translates into nothing more than the aggregation, for purposes of collection, of the aggregate of operations subject to that taxation, to whose taxation the rate is applied to each expense, there being no influence of the volume of expenses incurred in the determination of the rate;

vi) Autonomous taxation is not equivalent to non-deductibility of expenses incurred by the IRC subject.

In that measure, the characteristics that, for some years now, doctrine has been imputing to autonomous taxation are recognized, in particular, that:

a) Autonomous taxation only makes sense because costs/expenses are components negative of the taxable profit of IRC, and that is what motivates IRC taxpayers to disclose a value as high as possible of such expenses to diminish the taxable matter of IRC, the collection and, consequently, the tax to be paid;

b) With the tax treatment associated, it is intended to discourage this type of expenses in taxpayers that present negative results but that, regardless thereof, continue to evidence consumption structures little or not at all compatible with the financial health of their companies;

c) It is, in more general thesis, to model the tax system so that it reveals a certain balance with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) Certain expenses are regarded unfavorably in which, admittedly, it is not easy to determine the exact measure of the component that corresponds to private consumption and regarding which the general practice of abuse in their accounting is known.

D) On the cause and function of autonomous taxation in IRC

It is uncontested that autonomous taxation stems, as was touched upon, from the necessity of avoiding abuses as to the accounting of certain charges or expenses and that may easily be subject to diversion to private consumption or that, in some way, are capable of configuring, formally, an expense of a legal entity but which, substantially, represent or may configure abuses that aim to minimize the real measure of the tax.

Aware of this difficulty of, often, making a rigorous separation of these two realities, was successively "grafted", as described above, into the regime of taxation of real and effective profit established in the IRC Code, as the general standard, an autonomous regime of taxation of certain expenses, in whole or in part undesired and undesirable, that contaminate the terms of the tax obligation that, thus, emerges configured below the real taxable capacity of the entity that accounts for it as such.

In these terms, it can be stated that autonomous taxation appears integrated into the IRC regime, are ascertained and owed within the scope of the legal relationship of tax on the income of legal entities and it is, within this framework, that their appraisal is effected. But they are not IRC, pure and simple, as the Claimant laconically and definitively states.

With effect, for them to be so considered they would, from the outset, have to tax income and that, as we have seen, is not what happens, at any moment.

In truth, although there exists an evident instrumentality between IRC and the model of taxation of income in Portugal and autonomous taxation (a fact, moreover, well evidenced in the jurisprudence of the Superior Courts and, in particular, of the Constitutional Court), the understanding prevails that autonomous taxation taxes expenses.

With effect, autonomous taxation is an instrument that (straying from and introducing some measure of constraint in a system that declares it taxes real and effective incomes), after all also taxes expenses, deductible or not under IRC, without therewith violating the constitutional precepts already since the applicable rule (art.º 104.º, no. 2 of the CRP) declares imperative the taxation of companies "fundamentally" on their real income, without prejudice to either the situations of taxation according to profits or real income (when ascertained by indirect methods), or the situations of taxation of expenses subject to autonomous taxation (by express choice of law), the establishment of technical solutions (such is the case of PEC) and the rules specific to their return.

In this scope, it is worth still recalling that, neither tax systems, nor models of concrete imposition correspond to pure models, free of elements of strangeness to the foundational system itself, of values, or to the general regime of any tax abstractly considered. With effect, all taxes possess characteristics or solutions that, when viewed in isolation, may represent objectively a mischaracterization of the model as in the purity of concepts it was conceived but which, when articulated with the model, it is verified that they contribute to its effectiveness, and confer or reinforce its coherence.

These solutions, more pragmatic or specific, do not wound such essential valuative dictates, whether they be of protection of revenue or of densification of the general valuative ideals (of the tax order) or specific of the tax (as is the case of the necessity of preventing abuses) provided that, they themselves, are not of such relevance that they abjure the model of taxation-rule or structurally falsify the values in which it is grounded.

In the situation in question, despite the choice of fundamental law and ordinary law, in consequence, having been clearly in the direction of taxing the income of legal entities and, in the possible forms of appraisal thereof, the taxation of real and effective income has been chosen as a manifestation of the highest standard of tax justice, the truth is that the system has always known more or less relevant deviations, whether because certain expenses are not considered as such by tax law (although objectively they may be attributable to a commercial activity), whether because tax law, recognizing this essentiality, fears the occurrence of abuses (as is the case of autonomous taxation, generically speaking).

In part, this departure from the purity of concepts is an inevitable consequence of the complexity of life relationships, whether because pure fiscal imposition models are more burdensome to implement and manage as they require much more refined relevant information, whether because in the field of taxes, as in other fields of life, one must temper the ideal of justice enshrined with solutions of normative reasonableness in the qualification of relevant facts and technique in the solutions and requirements to be established, with the objective of preventing tax models from being excessively complex and burdensome ceasing to reach realities and practices that mitigate the tax burden or contribute to a poor distribution thereof.

From this balancing of the values that support the duty to establish/support tax with the realities of life may result the necessity of establishing limits (tax or other) to the behavior of taxpayers, with the objective of maintaining within general standards of balance, the legal solutions of the system.

On the other hand, it is important to bear in mind (because that is relevant for purposes of the decision to be taken) that autonomous taxation configures anti-abuse rules aimed at rationalizing specific behaviors of taxpayers (in relation to the tax obligation) by which, traditionally, they achieved a measure of tax inferior to what evidenced their taxable capacity effectively revealed but that, by virtue of these abusive behaviors was capable of being mitigated or eliminated, with evident violation or postponement of the principle of justice, of fair distribution of the tax burden by those who reveal taxable capacity.

Consequently, it makes sense to admit that general deductions are made from the collection of the tax, which are permitted by law to give effective meaning to the principle of taxation of real and effective income.

But, regarding the collection owed by autonomous taxation, this general deduction ceases to make sense because, not taxing profits, but expenses, does not arise, regarding them, the question of justice in the distribution of the general burden of the tax, which is why it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abuse sense that pervades them, that is, the disincentive of deviant behaviors that their institution represses or resolves.

Now, autonomous taxation, as seems clear, does not have a markedly financial purpose, that is, does not aim, primarily, at obtaining (more) tax revenue, although this may not be a negligible aspect, verifiable. They aim to dissuade behaviors, practices or options of companies rooted in reasons essentially of the nature of tax savings, financial, and, on the other hand, preserve the balances specific to the regime of taxation of legal entities, avoiding distortions not only at the level of taxable results, as waves of deviant behaviors, affecting the legal expectation of revenue, in each economic year.

And, through these general anti-abuse clauses, they force the maintenance of a healthy correlation between the volumes of business, taxable profits and tax due ultimately by entities subject to IRC, in line with the levels of average effective tax burden that falls on the different groups of taxpayers, within the Portuguese tax system and, indeed, comparatively with that of member states of the OECD or outside it.

In this way, autonomous taxation, including those provided in paragraph b), of no. 13, of art.º 88.º of the IRC Code have, therefore, a general disciplinary function that is not unrelated to the systemic purposes of the tax, all the more since, as an anti-abuse mechanism, autonomous taxation is not unrelated to the general purposes of the tax system.[8]

In these terms, the adoption of legal regimes that limit the harmful effects that result from behaviors affecting the balanced distribution of the tax burden on the different groups of taxpayers does not constitute merely an option of the legislature but, rather, is a strict obligation, resulting in the obligatory need to design and make the system function as a whole in a balanced manner.

Moreover, autonomous taxation introduces taxation mechanisms that, naturally, will displease their addressees, but prevent or limit the harmful effects of abusive practices that would harm others and are, therefore, necessary to preserve the balances of the system.

Now, companies, just like natural persons, are also subject and with the same intensity to the general duty of paying taxes and, in this measure, tax law cannot fail to establish mechanisms that limit deviant procedures since everyone must support tax according to their ability, that is, according to their taxable capacities revealed.

Add to this that, in view of the adoption, as a general rule, of the regime of taxation according to real and effective income, for legal entities, this does not constitute a mere option of functioning of the tax system from among several other possible ones. It is, rather, a concrete manifestation of the modernity and maturity of a tax system that demands of its addressees/beneficiaries a maturity of the same stature because it also represents a new form of ethical and social accountability before the tax phenomenon. [9]

As considered, once more, SALDANHA SANCHES (cited in Arbitral Decision 187/2013-T, pp. 28): "autonomous taxation constitutes a way of preventing abusive actions "(...) that the normal functioning of the taxation system was incapable of preventing, being that others, including more burdensome forms for the taxpayer, were possible. This anti-abuse character of autonomous taxation, will be not only coherent with its "anti-systemic" nature (as happens with all rules of the kind), as with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the jurisprudence that cites it. They will then materially have underlying a presumption of partial entrepreneurship of the expenses on which they fall, in function of the above-pointed circumstance that such expenses are located in a gray line that separates that which is business expense, productive, from that which is private expense, consumption, and that, notoriously, in many cases, the expense will have in reality even a dual nature (part business, part private)". [10]

All these considerations summon what seems to us to be the true sententia legis, given that the discovery of the true meaning of the law constitutes an imperative, since it is important to assure that the activity of the interpreter achieves an interpretative sense by which the law displays its most beneficial, most fruitful and most salutary sense, in the words of FRANCESCO FERRARA.[11]

On the other hand, the logical sense of interpretation leads us only in the direction of considering that autonomous taxation is grounded in a logic according to which the law intends to prevent or discourage such legal entities from accounting (abusively) as expenses values relating to bonuses or variable remuneration. Thus, it is the accounting as an expense for IRC purposes, in its entirety, that is intended to be discouraged.

In this way and calling upon the ratio legis, it seems evident that autonomous taxation is collected, within the process of liquidation of IRC, according to its own root and dogmatics that lead to the total collection of tax not being a unitary reality but composite.[12] With effect, in it it is possible to discern the collection of proper tax, resulting from the general mechanics of appraisal of IRC, which is owed based on a constitutional foundation grounded in the general duty of everyone (encompassing in this legal entities) to contribute to public expenses according to their assets (art.º 103.º, no. 1 of the CRP).

All in respect of and in compliance with the principles of justice, equality and the duty to pay tax according to revealed taxable capacity. And from which the amounts referred to in article 90.º of the IRC Code are deducted and in the terms and modes referenced therein.

And to this general collection, grounded in this foundational order basis, is added the specific collection, owed by autonomous taxation, which has, as has been made clear, its own root, sense and basis, which is to discourage the adoption of the behaviors taxed by them, practices or options of companies rooted in reasons essentially of the nature of tax savings, financial, and, on the other hand, preserve the balances proper to the regime of taxation of legal entities, avoiding distortions not only at the level of taxable results, as waves of deviant behaviors, affecting the legal expectation of revenue, in each economic year.

In this case, because it is a matter of fulfilling purposes that go beyond the purely financial ends of the tax, to situate itself in the field of behaviors that the law considers abusive and/or undesired, it seems clear that it does not make sense for deductions to be made to it, under pain of emptying, in practice, the anti-abusive regime created of any sense.

Having regard to all the foregoing, this Tribunal is in a position to analyze the Claimant's petition, regarding the legality of deduction of PEC from the part of the IRC collection corresponding to autonomous taxation rates, in fiscal years 2014 and 2015.

E) The evolution of PEC and its regime

The genesis and evolution of PEC develop in three stages, namely (i) the regime from its inception until the year 2000; (ii) the regime applicable to fiscal years 2001 and 2002; and the subsequent regime which is in force until today.

In its initial version, PEC was presented as a tool for system improvement, which was and is heavily based on the declaration of income by taxpayers. Its introduction in the tax system was simultaneous with the reduction of the general IRC rate by two percentage points.

The occurrence of those two facts is not a coincidence, since, on the one hand, the rate applicable to tax-paying contributors was reduced, on the other hand, through PEC, special payment of amount was promoted by way of tax, albeit provisionally, by taxpayers who, despite continuing to engage in their activity year after year, persisted in declaring negative or null income, escaping effective taxation.

In these terms, it was, therefore, as a measure to combat "evasive practices of concealment of income or inflating of costs" that PEC was justified in the preamble of Decree-Law no. 44/98, of 3 March (legislation that established it).

The temporariness of the payment of tax resided after all in the possibility of deducting the amounts paid as PEC from IRC, ascertained in general terms, set out in article 71.º of the then-current CIRC (which did not yet include autonomous taxation), although this deduction was only possible if, despite this operation, the value of the tax to be paid was positive (as per article 71º, no. 6 of the CIRC/1998).

In the absence of IRC to be paid in general terms, the value of PEC satisfied could be reported to the following fiscal year (as per article 74º-A, no. 1) or reimbursed later (as per article 74º-A, no. 2). An attempt was made to guarantee that the generality of taxpayers satisfied value on account of IRC, calculated provisionally on the volume of business of the previous fiscal year (as per article 83º-A).

In essence, it was fictioned that all companies would have by tendency a taxable profit, calculated in accordance with the general parameters, equivalent to 1% of their volume of business in the previous year, settling the account later if such was not the case.

The reform of IRC operated in 2000-2001, through Law no. 30-G/2000, of 29 December, reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained in activity and imposed that the reporting of amounts satisfied was to be done only up to the fourth subsequent fiscal year (as per article 74º-A, no. 1, of the IRC Code/2001).

From this restrictive rule results, for the first time, the possibility of PEC becoming minimum collection when it was not possible to deduct the amounts satisfied, because the reporting period was exhausted.[13]

In summary, it is possible to state that the alterations introduced in this reform not only maintained but accentuated the emphasis of combating tax evasion that had motivated the introduction of PEC. However, despite "autonomous taxation" being introduced in the CIRC on this occasion, no mechanism for articulation between the two instruments was provided for.

The third configuration of PEC was introduced by Law no. 32-B/2002, of 30 December, which in its article 27.º introduced a new regime of deductibility of PEC in article 87.º, no.3, of the CIRC, restoring the possibility of reimbursement of amounts delivered as PEC and not offset in the annual IRC liquidation. The character of a measure of persecution of tax evasion was maintained here as well, although it was eased, without completely abolishing it, the hallmark of minimum collection, in view of the narrow conditioning imposed for reimbursement.

Article 104.º of the CIRC provides that "entities that engage, as their main occupation, in activities of commercial, industrial or agricultural nature, as well as non-residents with a permanent establishment in Portuguese territory, must proceed with the payment of the tax (…) in three payments on account, due in July, September and 15 December of the year to which the taxable profit relates or, in the cases of nos. 2 and 3 of article 8.º, in the 7th month, the 9th month and on the 15th day of the 12th month of the respective taxable period (…)".

And art.º 106.º of the CIRC provides that "without prejudice to the provision in paragraph a) of no. 1 of article 104.º, the taxpayers mentioned therein are subject to a special payment on account, to be made during the month of March or in two instalments, during the months of March and October of the year to which it relates or, in the case of adopting a taxable period not coinciding with the calendar year, in the 3rd and 10th months of the respective taxable period".

From the foregoing results the obligation, for IRC taxpayers, to make payments on account of IRC that will be owed ultimately.

As is known, the technique of payments on account consists, in general, in a mere mechanism of anticipation of the tax that comes to be owed ultimately. With effect, it is, as is peacefully accepted, a means that has advantages for the State as it permits it to anticipate the receipt of the tax, while assuring its collection at the moment or as income is produced, without prejudice to the final appraisal and with observance of what is owed, in accordance with the general method of taxation by real profit.

It is true that the reason for the existence of payments on account and PEC, departing from this common trunk (as, unequivocally, both are the product of a tax technique by which the collection of the tax owed ultimately) is anticipated. However, still, they present (in the second case), somewhat differentiated justifications.

First and foremost, regarding the reason for the existence of payments, in the case of payments on account, since these are exhausted, in our opinion, in the grounds evidenced above, but already PEC, not losing sight of this purpose, has still another that was added to it.

As is well referred to in Arbitral Decision delivered within the scope of process no. 113/2015-T, "in doctrine and in jurisprudence the regime of PEC has always been regarded as a system to prevent tax evasion and to guarantee the payment of tax by all companies in activity".

And it is also that which results from the doctrinal work developed by the Constitutional Court in that from its Decision no. 494/2009 results evidenced that PEC, in the cut given to it in the CIRC, is also "inseparably linked to the fight against tax evasion and fraud", seeking to guarantee that the income manifested by taxpayers "correspond[s] to the income actually earned". [14]

In truth, the cited Constitutional Court Decision identifies multiple scientific works that have pronounced themselves in the same sense, such is the case of Teresa Gil, (ob. and loc. cit.), which gave account of the circumstances surrounding the introduction of PEC, specifically of the difficulties in the application of the principle of taxation by real profit, noted in view of the "divergence that exists between the profits actually obtained and those that are declared by companies and, therefore, subject to taxation".

At this point, we make our own the synthesis invoked in the above-referred Arbitral Decision, in which the current regime of PEC is thus characterized by "(i) having an inseparable link to the fight against tax evasion and fraud; (ii) having been introduced in the CIRC in March 1998, before the autonomous taxation rates which only came to be part of its systematics in the reform of 2000-2001; (iii) in the conception of PEC its deduction from the collection in the liquidation of IRC calculated on real income was provided for; (iv) the recovery of credit resulting from PEC is subordinated to conditions of obtaining profitability ratios specific to companies in the sector of activity in which they operate or to the justification of the credit situation by inspection action made at the request of the taxpayer (87º-3 of the CIRC)".

The subsequent question is whether these special reasons call for the possibility of deducting, from the collection of autonomous taxation, the PEC itself, since it is nothing more than a payment on account of IRC that will (presumably) be owed ultimately by the taxpayer, albeit with some special characteristics. And, therefore, he is IRC for all legal purposes having, however, special rules for his return.

Unlike autonomous taxation, which is collection owed by reason of behaviors that the law wishes to discourage and, therefore, penalize the accounting of certain expenses for the reasons indicated, in PEC what is at issue is guaranteeing that it is advanced by way of IRC, and without prejudice to its deduction from the general collection of the tax, ascertained as a result of the operation of liquidation stricto sensu, a certain measure of the tax.

As is well referred to in Arbitral Decision delivered within the scope of process 113/2015-T, above referred, "PEC came to be part of the system of IRC whose liquidation was conceived to ascertain the tax directly falling on the declared income. When there is a fiscal loss the taxpayer still has to support PEC; that was after all the reason for its introduction. If a certain company has successively fiscal losses, will systematically support tax, as the system doubts its possibility of functioning in a permanently deficit situation, requiring it to satisfy provisionally (on account), a certain value.

He may reimburse it if he proves that this situation is common in his sector of activity or if the TA verifies the regularity of his declarations. This was the balance that the CIRC required to maintain a system based on the declarations made by taxpayers. Already the tax resulting from autonomous taxation is based solely on the persecution of tax evasion by transfer of income and has the dissuasive and compensatory effect. If deduction of PEC from the collection resulting from autonomous taxation is permitted, the purposes of the system in which the rule of 83º-2-e CIRC is inserted will be thwarted, as the product of the special payment on account that should remain "stationary" in the ownership of the Public Treasury will be affected to the extinction of the taxpayer's debt resulting from autonomous taxation, thereby easing the intended pressure to prevent "declarative" tax evasion. There is effectively an irreconcilable conflict between the ratio of PEC – the fight against evasion or pressure to correct declarations – and the affectation of its credits to the satisfaction of other obligations that are not those resulting from the appraisal of IRC calculated on the taxable result.

In practical terms the possibility of deduction of PEC from autonomous taxation would imply that even if a certain company were eternally in a loss situation, no tax on its real income would it have to support, while applying PEC to the satisfaction of autonomous taxation. Furthermore autonomous taxation itself (See Constitutional Court Decision no. 617/2012, cited) would lose its anti-abuse character, coming to be confused after all with the tax calculated on taxable profit.

Now those are not the objectives of the taxation system of the income of legal entities and the better interpretation of the rule contained in article 83º-2-e CIRC is not that one decidedly that permits deducting special payments on account from the collection resulting from the application of the autonomous taxation rates".

In summary, weighty reasons, derived from the purposes intended to be achieved legislatively with the creation of PEC, justify a restrictive interpretation of articles 90.º, no. 1, and 93.º, no. 3, of the CIRC, in particular of the reference made in the latter to "the amount ascertained in the declaration referred to in article 120.º of the CIRC".

It is noteworthy that this arbitral understanding is once again in harmony with the new no. 21 of article 88.º of the CIRC added, as we have seen, by Law no. 7-A/2016, of 30 March, in establishing that to the amount ascertained of autonomous taxation no "deductions are made".

Also, in this case, the legislature limited itself to accepting, clarifying it, a solution that the courts, with recourse to the rules in force and by application of the criteria of legal hermeneutics were in a position to extract from the applicable regime, which is what this panel limited itself to doing, in the case at bar.

Finally, it should be noted that, although article 135.º of the 2016 Budget Law assigns, as has resulted evidenced, interpretative nature to no. 21 of article 88.º of the CIRC (which combined with article 13.º of the Civil Code leads to its retroactive application), the solution found by this panel did not need to apply this new rule, thus falling away, the unconstitutionalities that the Claimant imputes to the said rule.

In the same sense, see Arbitral Decision no. 673/2015-T, where for this purpose it was also concluded that the solution already resulted from the literal content of article 93.º, no.1, of the CIRC, "(…) without exceeding the limits normally imposed on the interpretation and application of law, as restrictive interpretation is admissible when there are weighty reasons to conclude that the scope of the legal text betrays the legislative intent or is necessary to optimize the harmonization of conflicting interests that two rules aim to protect".

Thus, having appraised the facts and the Claimant's claim, to the effect of seeing deducted from the part of the IRC collection, produced by autonomous taxation rates, the amount of PEC effected under IRC, in light of everything set forth above, the petition cannot but be found to lack merit.

V. Other Petitions

In the absence of merit of the petition for declaration of illegality of the acts of liquidation in question, the petitions made by the Claimant for reimbursement of amounts paid and respective indemnity interest are also prejudiced.

VI. Decision

In view of the foregoing, this Arbitral Tribunal decides:

a) To find the arbitral petition for declaration of illegality of the IRC self-assessments, in the parts relating to autonomous taxation of fiscal years 2014 and 2015, which constitute the object of this action, to be wholly lacking in merit;

b) Consequently, to find lacking in merit the petition for reimbursement of the amounts of € 69,328.04 (2014) and € 72,765.75 (2015), as well as, the petition for reimbursement of the amount of € 231.31, with reference to late payment interest paid regarding the IRC model 22 declaration for 2015, and, as well, the right to indemnity interest;

c) To maintain the decision dismissing the administrative complaints relating to the tax acts of self-assessment of IRC for fiscal years 2014 and 2015;

d) To condemn the Claimant to the payment of the costs of this proceeding.

VII. Value of the proceeding:

The value of the proceeding is fixed at € 142,093.79, in accordance with the provision in article 97.º-A, no. 1, paragraph a), of the Code of Procedure and Tax Proceeding, applicable by virtue of the provision in paragraphs a) and b), of no. 1, of article 29.º, of the RJAT and no. 2 of article 3.º of the Costs Regulation in Tax Arbitration Proceedings.

VIII. Costs:

The value of the costs of the proceeding is fixed at € 3,060.00, in accordance with Table I of the Costs Regulation for Tax Arbitration Proceedings, to be paid by the Claimant.

Notify.

Lisbon, 18 July 2017

The Presiding Arbitrator,

Fernanda Maçãs

Diogo Bonifácio (member-reporter)

Maria Isabel Guerreiro (member), with declaration of dissent

Declaration of Dissent

I agree with the sense of the decision reached in this Process 704/2016-T, which corresponds to the non-deduction of the amount of Special Payments on Account from the part of the IRC collection produced by autonomous taxation rates, in view of the addition of no. 21 to article 88º of the IRC Code, considering its interpretative nature, all the more so by the decision which I signed in Process 219/2015-T, prior to the introduction of that addition by Law no. 7-A/2016, of 30 March (Budget Law for 2016).

Maria Isabel Guerreiro

[1] In the same sense, see also the "Dissenting Vote" of the same Presiding Arbitrator, appended to Arbitral Decision no. 5/2106-T, of 27 July 2016 (and for whose content we hereby refer).

[2] See process no. 830/11, of 21-03-2012 (2nd section).

[3] In this sense, see Decision no. 310/12, of 20 June (Rapporteur Counselor João Cura Mariano), jurisprudence reiterated by the Plenary Decision, in Decision no. 617/2012 (process no. 150/12, of 31 January 2013) and in Decision no. 197/2016 (process no. 465/2015, of 23 May 2016).

[4] See RUI DUARTE MORAIS, in "Notes on IRC", Almedina, 2009, pp. 202-203.

[5] Also CASALTA NABAIS considers that it "is a taxation on expense and not on income" (in "Tax Law, 6.th Ed., p. 614) and, in the same sense, see ANA PAULA DOURADO (in "Tax Law, Classes", 2015, p. 237).

[6] See SALDANHA SANCHES, in "Manual of Tax Law", 3rd Ed., Coimbra Editora, 2007, p. 406.

[7] See CASALTA NABAIS, Idem, p. 614.

[8] With effect, as is referred to in Constitutional Court Decision no. 197/2916, of 23 May, "(…) IRC and autonomous taxation are distinct taxes, with different tax base and subject to specific rates. IRC falls on income obtained and profits directly attributable to the exercise of a certain economic activity, by reference to the annual period, and therefore taxes the aggregation of all income obtained in the taxable period. On the contrary, in autonomous taxation in IRC – according to constitutional jurisprudence itself – the tax fact is the very realization of the expense, being characterized as an instantaneous tax act that arises isolated in time and generates an obligation of payment with an ad hoc character (…)".

Moreover, as is referred to in the STA Decision, of 12 April 2012 (process no. 77/12), cited in the above-referred Decision, "(…) autonomous taxation, although provided in the CIRC and liquidated together with IRC for purposes of collection, has nothing to do with the taxation of income and profits attributable to the economic exercise of the company, since they fall on certain expenses which constitute autonomous tax facts which the legislature, for reasons of tax policy, wished to tax separately by subjecting them to a predetermined rate that has no relationship with the company's volume of business (…)".

[9] Regarding questions on the limits of morality facing the tax see SUSANNE LANDREY, STEF VAN WEEGHEL and FRANK EMMERINK). Regarding the deep and indisputable interlink between law and morality, see JOÃO BAPTISTA MACHADO, Introduction to Law and Legitimating Discourse, Almedina, 9th Reprint pp. 50 et seq.

[10] The CAAD Arbitral Decision no. 210/13-T states that the "expenses (…) share among themselves a risk of non-entrepreneurship, that is, a risk of not being realized for business purposes, but rather for extra-business or private purposes".

[11] In "Interpretation and Application of Laws", Arménio Amado, publishers, 1978, p. 137 et seq.

[12] See MANUEL DE ANDRADE, in "Essay on the Theory of Interpretation of Laws".

[13] In this sense, see TERESA GIL, in "Special Payment on Account", Tax Magazine. Year XIV, (March 2003), no. 107-108, p. 12).

[14] In this sense, see Constitutional Court (Plenary) Decision no. 494/2009 of 29-09-2009, process no. 150/12 (VÍTOR GOMES), available at http://www.tribunalconstitucional.pt/tc/acordaos/20090494.