Autonomous Taxation Deductions: Can PEC and SIFIDE Credits Offset IRC Surcharges? (CAAD 722/2015-T)

ARBITRATION DECISION

The Arbitrators Counsellor Maria Fernanda dos Santos Maçãs (President), Professor Doctor João Ricardo Catarino (Member) and Dr. Luís Alberto Ferreira Alves (Member), appointed by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Collective Arbitral Tribunal, decided as follows:

I. REPORT

1.1

A…, S.A. (formerly designated B… – …, S.A.), legal entity no. …, with registered office at …, Core …, Plot …, …-…, municipality of … (hereinafter referred to as "Claimant"), submitted a request for arbitration pronouncement and establishment of a Collective Arbitral Tribunal, pursuant to the provisions of Article 4 and Article 10, no. 2 of Decree-Law no. 10/2011, of January 20 [Legal Regime of Tax Arbitration (RJAT)], in which the Tax and Customs Authority (hereinafter referred to as "Respondent") is the respondent.

1.2

The Claimant seeks to have the Collective Arbitral Tribunal declare the illegality and annul the Self-assessments of Corporate Income Tax [IRC], including autonomous taxation rates, of Fiscal Group C... relating to the fiscal years of 2012 and 2013, with respect to the amounts of autonomous taxation rates in IRC of €63,446.65 (2012) and €63,185.30 (2013).

1.3

The request for establishment of the Collective Arbitral Tribunal was accepted by the President of CAAD and immediately notified to the Respondent on December 11, 2015.

1.4

Given that the Claimant did not appoint an arbitrator, pursuant to Article 6, no. 2, paragraph a) of the RJAT, the undersigned arbitrators were appointed by the President of the Deontological Council of CAAD, and the appointment was accepted within the time limit and in the terms legally provided for.

1.5

On January 27, 2016, the Parties were duly notified of such appointment, and did not manifest their intention to refuse the appointment of the arbitrators, pursuant to Article 11, no. 1, paragraphs a) and b) of the RJAT, combined with Articles 6 and 7 of the Deontological Code.

1.6

In accordance with the provision of paragraph c), no. 1, Article 11 of the RJAT, the Collective Arbitral Tribunal was constituted on February 11, 2016.

1.7

In the Arbitration Petition, which it submitted, the Claimant invoked, in summary:

a) The acts subject to the request for arbitration pronouncement are the dismissal of the above-identified administrative appeal and, consequently (and in final or ultimate terms), the acts of self-assessment of IRC of Fiscal Group C… relating to the fiscal years of 2012 and 2013, to the extent corresponding to the non-deduction from the collection of IRC produced by autonomous taxation rates of amounts of special payments on account ("PEC") made in respect of IRC and, likewise, of amounts of the tax benefit relating to the System of Fiscal Incentives for Business Research and Development ("SIFIDE"), or, subsidiarily, to the extent that the assessment of autonomous taxation is improper.

b) It is intended to submit to the appraisal of the Arbitral Tribunal (i) the legality of such dismissal of the administrative appeal, insofar as it disregards recognition of illegality (by improper removal of deduction from the collection or, subsidiarily, by pure and simple improper assessment of autonomous taxation) of that portion of the self-assessments of IRC relating to the fiscal years of 2012 and 2013 of Fiscal Group C..., and (ii) the legality of that portion of the self-assessments of IRC relating to these fiscal years of 2012 and 2013, more specifically illegality with respect to the amounts of €63,446.65 (2012) and €63,185.30 (2013) (as shall be quantified below), in a total of €126,631.95.

c) In accordance with the declaration of income filed, in the fiscal year of 2012, Fiscal Group C... calculated a tax amount payable of €53,586.12, which has been paid (Doc. no. 5), which resulted from a collection of autonomous taxation rates in the amount of €63,446.65, less tax withholdings borne in the amount of €9,860.53 to which the reimbursement of A… was entitled (Doc. no. 1).

d) With respect to the fiscal year of 2013, in accordance with the declaration of income filed, Fiscal Group C… calculated a tax amount payable of €63,177.06, which has been paid (Doc. no. 6), which resulted from a collection of autonomous taxation rates of €63,185.30, plus municipal levy borne in the amount of €18.71, and less tax withholdings borne in the amount of €26.95 to which the reimbursement of A… was entitled (Doc. no. 3).

e) The AT's IT system reveals anomalies embodied in the flagging of discrepancies ("errors") that prevent the claimant from entering the value relating to the said autonomous taxation rates in IRC, cleansed, i.e., deducted, within the scope of the IRC collection resulting from the application of these rates, (i) both from the amounts of tax benefit recognized to companies of Fiscal Group under SIFIDE[1], in the form of an imputable tax credit to the IRC collection, (ii) as well as from the amounts of PEC accumulated by Fiscal Group, which resulted in an excess of tax paid by reference to the fiscal years of 2012 and 2013 at issue.

f) The amount of SIFIDE, assigned/obtained, available for use at the end of fiscal year 2012 amounted to €104,536.77, and at the end of 2013 amounted to €115,869.75, as certified by Declarations from the SIFIDE Certifying Commission attached hereto as Doc. no. 7.

g) In respect of PEC there remains an accumulated amount to be deducted from the IRC collection that amounted in 2012 to €6,500.30, and in 2013 amounted to €15,696.86, as certified and evidenced by PEC made, obtained directly from the tax authority portal attached hereto as Docs. no. 8 and 9.

h) Fiscal Group holds IRC credits to offset against their respective collection, as well as PEC, in an amount far exceeding the collection of autonomous taxation rates in IRC for the fiscal years of 2012 and 2013, a collection which, as mentioned above, amounted to €63,446.65 and €63,185.30, respectively, and this offset (which the AT's IT system does not permit) should be made starting with the tax benefits acquired the longest ago and only subsidiarily reaching the PEC, following the order of deduction provided by law.

i) AT has always calculated taxable profit in normal terms, via submission of model 22 (see Docs. nos. 1 to 3).

j) The question to be clarified is: does or does not Fiscal Group C… have the right to proceed with the deduction, also from the collection of IRC produced by the application of autonomous taxation rates, of the aforesaid SIFIDE and PEC?

k) Taking into account the overwhelming arbitration jurisprudence that today qualifies autonomous taxation as IRC, the claimant sees nothing in the law that would prevent the offset of these IRC credits for SIFIDE, and likewise of PEC, also from the portion of the IRC collection produced by autonomous taxation rates.

l) In the same way that jurisprudence has understood, in a practically unanimous manner, that the collection of IRC provided for in (in force until 2013) Article 45, no. 1, paragraph a) of the CIRC, comprises, without need of any additional specification, the collection of autonomous taxation rates in IRC, so must it also be understood that the collection of IRC provided for in the same code a few meters further on (Article 90, no. 1, and no. 2, paragraphs b) and c), in the version in force in 2013) also encompasses the collection of autonomous taxation rates in IRC. Hence the denial of deduction of SIFIDE and PEC from the collection of IRC of autonomous taxation rates violates paragraphs b) and c) of no. 2 of Article 90 of the CIRC (prior to 2010, Article 83; and from 2014 became paragraphs c) and d) of the said no. 2 of Article 90 of the CIRC).

m) Being understood by all those who matter (AT and courts) that autonomous taxation is IRC (and it is because it is that Article 90 of the CIRC applies to it, directed exclusively to IRC and no other tax), it should be immaterial whether the benefit rule refers to what is determined in application of Article 90 of the CIRC (and therefore indirectly, but necessarily, to IRC), as is the case with SIFIDE, or directly to IRC, as is the case with PEC.

n) As to the possibility of deducting tax credit for tax benefit (SIFIDE) or PEC from the collection of autonomous taxation rates, the IRC Services Directorate ("DSIRC") has recently opined at the request of another taxpayer, having then ruled out deductions from the collection of autonomous taxation rates only with respect to tax credits for international double taxation (Doc. no. 14). When there is a fiscal group, as is the case here, AT's understanding is that what matters in autonomous taxation is the perspective of the fiscal group as a whole, as opposed to the perspective of the companies that comprise it individually considered (see point 6 of Doc. no. 15 attached hereto).

o) The reasoning used by AT to decide this specific case unfavorably is contained both in the dismissal of the administrative appeal (Doc. no. 4) and in the draft decision dismissing the administrative appeal attached hereto as Doc. no. 16. It is very summary reasoning that merely contradicts all the jurisprudence listed above and, likewise, the understanding that AT in other instances sustained in alignment with that jurisprudence (which moreover was formed in alignment with the position and intention of AT).

p) AT labors under a tremendous misunderstanding in its dismissal of the administrative appeal: contrary to what it writes on p. 6/7 of Doc. no. 4, the arbitration decisions cited have nothing to do with the deduction or non-deduction of PEC from the taxable profit of IRC. They concern exclusively the deduction of the collection of autonomous taxation rates from the taxable profit of IRC, and AT and courts denied such deduction unanimously invoking for this purpose that IRC includes autonomous taxation rates. Hence the application also to autonomous taxation of the normative provision directed to IRC contained in Article 45, no. 1, paragraph a) of the CIRC, in the version in force until 2013. Its refusal now to apply Article 90 of the same code to autonomous taxation, also directed to IRC, is an inconsistency and a contradiction.

q) It should not be said either, as AT does (see § 2, page 7/7, Doc. no. 4), that there would be no legal support in Article 90 of the CIRC to effect the deductions from the IRC collection provided therein, with respect to the collection produced by autonomous taxation rates. Indeed (and this is obvious), given that it is an undisputed prerequisite for AT and for the courts that autonomous taxation rates are in question regarding IRC, why does AT feel entitled to say that they cease to be so when the CIRC refers to the collection of IRC in its Article 90? And, related to this point, do not autonomous taxation rates also have their taxable matter, defined in their respective incidence rule, contained in the CIRC? Yes. What is it, then, that the reference to taxable matter in said Article 90 of the CIRC removes the collection produced by autonomous taxation rates in IRC, as has been heard from AT in proceedings on this same subject? There is/is taxable matter in autonomous taxation (evidently there is!) when it comes to developing a certain line of argument, but it eclipses itself, i.e., autonomous taxation rates cease to have taxable matter, when AT tries to convince that Article 90 of the CIRC would not encompass the collection of autonomous taxation rates in IRC.

r) Unlike all other known taxes, autonomous taxation rates would not need normative provisions relating to competence for their assessment, timing for such assessment, the manner of processing such assessment (on any sheet of paper, freely? Submitted how and to whom?), etc. It will, therefore, be at the whim of the customer (taxpayer) or the house (AT), one or the other. And the defense by AT of this absurdity, for what? All to try to sustain, once again, that Article 90 of the CIRC (and following) would not apply to autonomous taxation rates and, consequently, that the deductions from the collection provided in that Article 90 of the CIRC would not apply to their collection obtained according to the rules of the former Article 88 of the CIRC.

s) Now, the reasons that led the IRC Services Directorate to rule out the possibility of deducting the tax credit for DTI from the collection of autonomous taxation rates are not extensible to the remaining realities, namely to credits arising from SIFIDE, which curiously, and similarly to autonomous taxation rates, results from the application of a percentage to certain expenses (of investment), or to PEC. Thus, and to the extent that the request for pronouncement placed before the IRC Services Directorate also focused on that reality (deduction of SIFIDE from the collection of autonomous taxation rates and PEC), the claimant cannot conclude anything other than what was maintained by it in the administrative appeal and reiterated here: namely, that the Services chose to refer only (and base by reference) to the situation in which their understanding is discordant with that of the taxpayer who requested their opinion. Otherwise, it would have to be admitted that the IRC Services Directorate chose not to pronounce, deliberately, on a question that was placed for its appraisal, which would constitute manifest violation of the principle of decision provided for in Article 56 of the General Tax Law.

t) The claimant paid tax in an amount exceeding what was legally due (see Docs. nos. 1, 3, 5 and 6), so, once the illegality of the (self-)assessments is declared in the portion petitioned here, the claimant is entitled not only to the respective reimbursement, but also, pursuant to Article 43 of the General Tax Law ("LGT"), to indemnificatory interest. Such interest calculated on the following amounts and from the following dates, until full reimbursement of the amount of improperly paid tax (autonomous taxation in respect of IRC):
i) fiscal year of 2012: interest on €53,586.12 improperly paid on May 27, 2013 (Doc. no. 5), counted from this date, and interest on the remaining €9,860.53 which should have been reimbursed by August 31, 2013 (Doc. no. 1, and Article 104, no. 6 of the CIRC), counted from September 1, 2013, in a total base for interest calculation of €63,446.65;
ii) fiscal year of 2013: interest on €63,185.30 improperly paid on May 26, 2014 (see Doc. no. 6), counted from this date.

u) Moreover, the error that affects the (self-)assessments against which complaint is made results from an error by the Services regarding the legal prerequisites that informationally conditioned the completion of the declarations (Model 22) of self-assessment, as mentioned above. In these circumstances – error attributable to the Services – the claimant should be recognized as having the right to compensation for losses resulting from payment of tax in excess of the amounts mentioned above.

v) Both the dismissal of the above-mentioned administrative appeal and the self-assessments of IRC (including their autonomous taxation rates) relating to the fiscal years of 2012 and 2013, suffer from the substantive defect of violation of law, insofar as the deduction of SIFIDE and PEC should not be denied from the portion of the IRC collection corresponding to autonomous taxation rates, starting with SIFIDE and, secondly, by the oldest. Accordingly, there should: be declared the illegality and annulled the dismissal of the administrative appeal insofar as it refused the annulment of the illegal portion, in the terms discussed here, of the self-assessments of IRC in the portions produced by autonomous taxation rates, of the fiscal years of 2012 and 2013, thereby violating the principle of legality; be declared the illegality of these self-assessments (and consequently be annulled), in the portions corresponding to the amounts of €63,446.65 (2012) and €63,185.30 (2013); consequently be recognized the right to reimbursement of these amounts and, likewise, the right to indemnificatory interest for payment of improperly assessed tax, counted, until full reimbursement, with respect to €63,446.65 (fiscal year of 2012), from May 27, 2013 as to €53,586.12, and from September 1, 2013 as to the remaining €9,860.53, and with respect to €63,185.30 (fiscal year of 2013) from May 26, 2014; subsidiarily, should it be understood that Article 90 of the CIRC does not apply to autonomous taxation rates, there should then be declared the illegality of the assessments of autonomous taxation rates (and consequently be annulled) for absence of legal basis for their implementation (see Article 8, no. 2, paragraph a) of the LGT, and Article 103, no. 3 of the CRP), with the consequent reimbursement of the same amounts and the payment of indemnificatory interest counted from the same dates.

1.8

The AT submitted its response and attached the administrative record, alleging, in order to establish the lack of merit of the request for arbitration pronouncement, in essence, the following:

a) To resolve the disputed question in this proceeding, it is important to begin by analyzing the legal nature of autonomous taxation rates and their articulation with the general rules of the tax in which they are integrated.

b) The considerations made in this regard reveal that the figure of autonomous taxation rates has been instrumentalized for the pursuit of diverse objectives, ranging from the original purpose of preventing practices of evasion and fraud – through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the replacement of taxation of incidental benefits in the form of representation expenses or allocation of vehicles to employees and members of the governing bodies, in the sphere of their respective beneficiaries – to the purpose of preventing the phenomenon designated as "dividend washing" (see no. 11 of art. 88 CIRC) or of burdening, by way of taxation, the payment of income considered excessive (see no. 13 of the same provision). It is thus recognized that the autonomous character of these taxation rates, resulting from the special configuration given to the material and temporal aspects of the tax-triggering events, imposes, in certain domains, the removal or an adaptation of the general rules of application of IRC.

c) The integration of autonomous taxation rates into the Corporate Income Tax Code (and the Personal Income Tax Code), conferred a dualistic nature[2], in certain aspects, on the normative system of this tax, which was embodied, notably, in the context of paragraph a) of no. 1 of art. 90 of the CIRC, in separate calculations of their respective collections, by force of them being subject to different rules. And that is so, because in one case, it concerns the application of the rate(s) of art. 87 of the CIRC to the taxable matter determined in accordance with the rules contained in Chapter III of the Code and, in another case, it concerns the application of the rates to the values of the taxable matters relating to the different realities contemplated in art. 88 of the CIRC.

d) Contrary to what is stated in point 9 of the dissenting opinion attached to the Arbitration Decision rendered in case no. 697/2014-T, there is not a single assessment of IRC[3], but rather two calculations; That is, two distinct calculations which, although processed, in accordance with paragraph a) of no. 1 of art. 90 of the CIRC, in the declarations referred to in Articles 120 and 122 of the same code, are carried out on the basis of different parameters, since each one is materialized in the application of its own rates, provided for in Articles 87 or 88 of the CIRC, to the respective taxable matters determined equally in accordance with their own rules.

e) Contrary to the reductive conclusion drawn from this statement that "the provision directed to the IRC collection contained in paragraphs b) and c) (current c) and d)) of no. 2 of article 90 of the CIRC equally applies to them, as no obstacle to this is seen in its special form of incidence and applicable rates", an interpretive exercise must be carried out to determine whether the regime of deductions from the IRC collection, as an integral part of the general-rule system of this tax and pre-existing the incorporation therein of autonomous taxation rates, also projects onto the (multiple) collections of these taxation rates.

f) It should be clarified that the assessment of autonomous taxation rates is carried out based on Articles 89 and 90 no. 1 of the Corporate Income Tax Code but, applying different rules for the calculation of the tax: (1) in one case the assessment operates, by application of the rates of Article 87 to the taxable matter determined in accordance with the rules of Chapter III of the Code and (2) in the other case, various collections are calculated depending on the diversity of facts that give rise to autonomous taxation.

g) From which it follows that the amount determined in accordance with paragraph a) of no. 1 of art. 90 does not have a unitary character, since it comprises values calculated in accordance with different rules, to which are also associated differentiated purposes, so the deductions provided for in the paragraphs can only be made to that part of the collection of IRC with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the general-rule regime of the tax.

h) When it comes to the deductions provided for in no. 2 of art. 90 of the CIRC, the Claimant seeks – anchoring itself, with due respect, in a simplistic and decontextualized reading of this normative provision – that the expression "amount calculated in accordance with the previous number" should be understood as encompassing the sum of the amount of IRC, calculated on the taxable matter determined in accordance with the rules of Chapter III and to the rates provided for in art. 87 of the same Code, and the amount of autonomous taxation, calculated based on the rules provided for in art. 88. Now, the result of this interpretation would imply that, in the basis for calculating payments on account defined in no. 1 of art. 105 of the Corporate Income Tax Code – and in terms identical to those used in no. 2 of art. 90, namely: "Payments on account are calculated based on the tax assessed in accordance with no. 1 of art. 90 (…)" – autonomous taxation rates would be included. Indeed, for the basis for calculating payments on account only the IRC calculated based on the taxable matter determined in accordance with the rules of Chapter III and the rates of art. 87 of the respective Code is considered.

i) In sound logic, it only makes sense to conclude that the respective basis for calculation corresponds to the amount of the IRC collection resulting from the taxable matter that is identified with the profit/income of the taxable person's fiscal year. Accordingly, the delimitation of the content of the expression used by the legislator in no. 2 of art. 90 of the CIRC, "amount calculated in accordance with the previous number", and in no. 1 of art. 105 of the CIRC, "tax assessed in accordance with no. 1 of art. 90", must be done in a coherent manner. Which is equivalent to saying that it corresponds to the amount of IRC calculated by applying the rates of art. 87 to the taxable matter determined on the basis of profit and the rates of art. 87 of the Code.

j) Also, for deductions from the collection by way of tax benefits, the amount to which they are made can only relate to the tax assessed on the basis of the taxable matter, determined based on the rules of Chapter III and the rates provided for in art. 87 of the CIRC. This, under penalty of an incongruity resulting from the subversion of the necessary interconnection that, on the material level, must exist between the objectives pursued by the benefits and the very magnitude represented by profit.

k) Starting with the deduction relating to tax benefits (paragraph b) of no. 2 of art. 90), when it comes to investment benefits – as is the case with SIFIDE – it has underlying the philosophy[4] that the benefit constitutes a prize whose amplitude varies with the profitability of investments, because, the higher the profit/taxable matter of IRC, the greater the capacity to effect the deduction. There is, therefore, an inseparable link between the amount of the tax credit for investment and that part of the IRC collection calculated on the taxable matter based on profit and, otherwise, the necessary articulation that, on the material level, must exist between the objectives pursued by tax benefits and their impact on the very magnitude that serves as the basis for calculating the taxable matter and the collection – profit – would be subverted.

l) To designate the same magnitude, both no. 1 of art. 92 and no. 1 of art. 105 of the Corporate Income Tax Code, refer to "tax assessed in accordance with no. 1 of article 90" and on its content, both AT and taxpayers in general, have always reported the calculations provided for in these provisions – result of the assessment and payments on account, respectively – to that part of the IRC collection that has as its basis the taxable matter determined based on profit. With respect to the deduction of CFEI the very art. 3, no. 5, paragraph a) of Law no. 49/2013, provides a clarifying answer, by prescribing that "Applying the special regime for taxation of groups of companies, the deduction provided for in no. 1: a) Is made to the amount determined in accordance with paragraph a) of no. 1 of article 90 of the Corporate Income Tax Code, based on the taxable matter of the group;". Now, the taxable matter of the group can only be that referred to in no. 1 of art. 69 "Where there is a group of companies, the parent company may opt for the application of the special regime for determining the taxable matter in relation to all companies in the group.", whose calculation is subject, among others, to the special rules provided for in Articles 70 and 71, where no interference with autonomous taxation is detected which, moreover, are determined autonomously by each company belonging to the group.

m) Having examined the rules governing the system of fiscal incentives for business research and development[5], commonly known as SIFIDE, in the circumstances of time that are relevant to the present proceedings, we find that, according to Article 4 (Scope of the deduction) of the decree: (…) That is, in summary: the values that represent the tax benefit in the scope of SIFIDE are deducted "from the amounts determined in accordance with article 90 of the Corporate Income Tax Code, and to the extent thereof" (our emphasis) and in the assessment relating to the period of taxation in which the expenses that are eligible for this purpose are incurred and that, in the absence or insufficiency of collection calculated in those terms, the expenses that cannot be deducted in the year in which they were incurred "may be deducted up to the 6th immediately following fiscal year". Well, the collection referred to in article 90 when the assessment should be made by the taxpayer (situation that occurs in the present case), is calculated based on the taxable matter that appears in that assessment/self-assessment [cf. article 90, no. 1, paragraph a) of the CIRC]. Being the credit that translates to SIFIDE deducted only from the collection thus calculated, that is, from the collection calculated based on the taxable matter [it is what is provided for in article 5, paragraph a) of the regulation of SIFIDE, expressly preventing that the credits arising from it be deducted when the taxable profit is determined by indirect methods].

n) The autonomous character of these taxation rates is manifest, resulting from the special configuration given to the material and temporal aspects of the tax-triggering events, which impose, in certain domains, the removal or an adaptation of the general rules of application of IRC. The autonomous character of these taxation rates is manifest, resulting from the special configuration given to the material and temporal aspects of the tax-triggering events, which impose, in certain domains, the removal or an adaptation of the general rules of application of IRC. Because the integration of autonomous taxation rates into the Corporate Income Tax Code (and the Personal Income Tax Code), conferred a dualistic nature[6], in certain aspects, on the normative system of this tax, which was embodied, notably, in the context of paragraph a) of no. 1 of art. 90 of the CIRC, in separate calculations of their respective collections, by force of them being subject to different rules.

o) That is, in one (1) case, it concerns the application of the rate(s) of art. 87 of the CIRC to the taxable matter determined in accordance with the rules contained in Chapter III of the Code and, in another (2) case, it concerns the application of the rates to the values of the taxable matters relating to the different realities contemplated in art. 88 of the CIRC. By which there is not a single assessment of IRC[7], but rather two calculations; i.e., there exist two distinct calculations which, although processed, in accordance with paragraph a) of no. 1 of art. 90 of the CIRC, in the declarations referred to in Articles 120 and 122 of the same code, are carried out on the basis of different parameters, since each one is materialized in the application of its own rates, provided for in Articles 87 or 88 of the CIRC, to the respective taxable matters determined equally in accordance with their own rules. From which it irrefutably follows the impossibility of making any deduction of credits resulting from SIFIDE from the collection produced by autonomous taxation rates, under penalty of subverting the entire teleology that was present at its genesis.

p) By simple consequence of the considerations established in the previous points, which led to the conclusion that the deductions referred to in paragraphs a) and b) of no. 2 of article 90 of the Corporate Income Tax Code are made from the "amount calculated in accordance with the previous number", understood as the amount of IRC calculated based on the taxable matter determined in accordance with the rules contained in Chapter III and the rates of art. 87 of the same Code and, descending to the specific case, it is possible to extend such conclusion to the deduction relating to payments on account. In any case, it is also possible to reach the same conclusion if one considers the nature of the special payment on account (PEC), defined as an advance payment delivered to the State on account of the tax ultimately due, which may be made in two installments (art. 106, no. 1, CIRC) and whose calculation takes as its starting point the volume of turnover of the taxable person relating to the prior fiscal period (no. 2).

q) Although the PEC differs, in terms of calculation rules, from payments on account – since these have as their basis for calculation the tax assessed in accordance with no. 1 of art. 90 of the CIRC, relating to the immediately prior fiscal period (no. 5 of art. 105 CIRC) – it should be noted that these regimes have in common the nature of advanced payment of IRC;

r) The legal nature of the PEC, revealed by its configuration as "an instrument or guarantee of payment of the tax by which it is required, and not as an imposition to itself" (see the Supreme Administrative Court Decision cited above), as well as by the function associated with it in combating tax evasion and fraud, links this payment inseparably to the amount of IRC calculated on the taxable matter determined based on profit (Chapter III of the Code). From which it follows that the credit for amounts delivered as a special payment on account does not constitute a credit that taxable persons of IRC can dispose of.

s) In sum, the interpretation of no. 2 of art. 90 in coherence with the nature and content of the deductions provided for in its paragraphs, among which the PEC figures, must be done in light of the general objectives of IRC which are reduced, in their essence, to the taxation of income of legal persons, determined in conformity with the rules of Chapter III of the respective code. Being, for this reason, manifestly devoid of any basis the pretension of the now Claimant of deduction of the amount borne in respect of special payment on account from the collection produced by autonomous taxation rates in the years of 2012 and 2013.

t) In this respect it is appropriate to clarify, in support of truth – which we believe is presented distorted in the Petition – what AT actually understood, within the scope of Information no. …/2013, dated 04.10.2013, from the IRC Services Directorate (attached to the Petition). In various passages of that Petition the Claimant alleges that AT would have already taken a position in favor of its pretension, precisely through the aforementioned Information. However, as this Tribunal will easily verify, such did not occur.

u) Indeed, as is apparent from the content of the cited Information, AT opined, solely, on: the possibility of the tax credit for the elimination of international double taxation, by force of Convention in force with the source country of the income, being deducted from the sum resulting from the IRC assessed in accordance with the rules of the Corporate Income Tax Code and the amount of the municipal levy assessed, in accordance with the respective legislation; the inclusion of state surcharge for purposes of the application of what is provided for in paragraphs a) and b) of no. 2 of art. 91 and no. 1 of art. 91, of the Corporate Income Tax Code; the disregard of autonomous taxation rates in the amount determined in accordance with no. 1 of art. 90 for purposes of deduction of any tax credit for international double taxation. Given this, one cannot attribute to AT a position in a certain sense – which curiously appears in the Petition as favorable to the Claimant's pretension – when, on the subject matter at hand, there was no pronouncement whatsoever that leads to the conclusion that the understanding expressed in the completion of the periodic declaration of income, model 22, was altered, which, as we have seen and demonstrated, completely rules out the possibility of deduction of special payments on account from the amount of autonomous taxation rates.

v) Again the Claimant errs when in the Petition it states that "(…) intentionally or inadvertently, the IRC Model 22 declaration and its articulation with the programming of AT's IT system prevents the deduction from the collection related to autonomous taxation rates in IRC, entered in field 365 of table 10 of the Model 22 declarations (…) of special payments on account still to be deducted from the IRC collection, starting with the oldest."

w) The IT system cannot permit or enshrine what the law does not provide, i.e., the system and AT's IT applications should be a mere reflection of the legal provisions in force at each moment. Accordingly, the aforementioned IT applications must be subject to adjustments whenever justified, whether as a result of some legislative change, whether a uniform position (superiorly sanctioned) is assumed by AT, or when some omission/error is detected therein.

x) Even if the merit of the request regarding interest payment were to be configured – which it is not, since the improcedence of the main request necessarily entails the improcedence of the interest request – in the situation before us in this proceeding, its calculation would have as its initial term the date on which the decision dismissing the administrative appeal occurred, and never, the moment indicated by the Claimant in its request.

y) It will always have to be brought into focus, definitively dissipating the disputed question, the content of Article 117, which added number 21 to Article 88 of the CIRC, with the effects provided for in Article 119 of all the Draft Law of the State Budget for 2016, approved on 16.03.2016, in which it is advocated, with an interpretive character, that "The assessment of autonomous taxation rates in IRC is made in accordance with the terms provided for in article 89 and is based on the values and rates that result from the provisions in the previous numbers, with no deductions being made to the total amount calculated." Such rule came to clarify, by positive enactment, as was evidenced above, the understanding and practice profiled peacefully by doctrine and by taxpayers in general, which were never called into question by AT, so any dissonant interpretation will be materially unconstitutional. Indeed, since the creation of Autonomous Taxation, in the early 1990s, and its legislative evolution, it has always been peaceful among "those who matter" that autonomous taxation rates did not admit any deduction.

1.9

The Claimant being notified to report whether it maintained interest in the examination of witnesses rolled by it, it reported to the Tribunal that it waived the testimonial evidence.

1.10

By order dated April 7, 2016, the Tribunal, no exceptions having been invoked and there being no need for the production of constitutive evidence, dispensed with the holding of the meeting provided for in Article 18 of the RJAT, by force of the principles of celerity, simplification and informality. It further designated August 11, 2016, as the deadline for rendering the arbitration decision.

1.11

By way of closing arguments, the Claimant and the Respondent argued, in essence, for the positions they sustained in the initial petition and response, respectively.

II. DISMISSAL OF PRELIMINARY OBJECTIONS

2.1

The request for arbitration pronouncement is timely, since it was presented within the time limit provided for in paragraph a) of no. 1 of Article 10 of the RJAT.

2.2

The parties enjoy legal personality and capacity, are legitimate as to the request for arbitration pronouncement and are duly represented, in accordance with the provisions of Articles 4 and 10 of the RJAT and Article 1 of Regulation no. 112-A/2011, of March 22.

2.3

The Tribunal is competent to appraise the request for arbitration pronouncement formulated by the Claimant.

2.4

No preliminary objections were raised that require ruling.

2.5

No procedural defects are apparent, so the merits must be addressed.

III. MERITS

III.1. FACTUAL MATTERS

§1. Proven Facts

The following facts are adjudged proven:

a) On May 27, 2013 and May 26, 2014 the herein claimant proceeded to submit the declarations of Corporate Income Tax ("IRC") Model 22 of its Fiscal Group, relating to the fiscal years of 2012 and 2013, and also submitted a substitute declaration on May 24, 2014, with reference to the fiscal period of 2012 (Docs 1 to 3) having at those moments proceeded with the self-assessment of autonomous taxation rates in IRC for these same years of 2012 and 2013, in the amounts, respectively, of €63,446.65 (2012) and €63,185.30 (2013), respectively (Docs 1 to 3).

b) The claimant delivered on May 27, 2013 the IRC Model 22 declaration relating to the fiscal year 2012 of its Fiscal Group, and on May 26, 2014 the IRC Model 22 declaration of its Fiscal Group relating to fiscal year 2013, and also submitted a substitute declaration on May 24, 2014, with reference to the fiscal period of 2012 (cf. Docs. nos. 1 to 3).

c) In accordance with the declaration of income filed, in fiscal year 2012, Fiscal Group C... calculated a tax amount payable of €53,586.12, which has been paid (Doc. no. 5), which resulted from a collection of autonomous taxation rates in the amount of €63,446.65, less tax withholdings borne in the amount of €9,860.53 to which reimbursement of A… was entitled (Doc. no. 1).

d) With respect to fiscal year 2013, in accordance with the declaration of income filed, Fiscal Group C… calculated a tax amount payable of €63,177.06, which has been paid (Doc. no. 6), which resulted from a collection of autonomous taxation rates of €63,185.30, plus municipal levy borne in the amount of €18.71, and less tax withholdings borne in the amount of €26.95 to which reimbursement of A… was entitled (Doc. no. 3).

e) The amount of SIFIDE, assigned/obtained, available for use at the end of fiscal year 2012 amounted to €104,536.77, and at the end of 2013 amounted to €115,869.75, as certified by Declarations from the SIFIDE Certifying Commission (cf. Doc. no. 7).

f) In respect of PEC there remains an accumulated amount to be deducted from the IRC collection that amounted in 2012 to €6,500.30, and in 2013 amounted to 15,696.86, as certified and evidenced by PEC made, obtained directly from the tax authority portal attached hereto as Docs. no. 8 and 9.

g) On May 25, 2015 the claimant filed an administrative appeal against the said self-assessments relating to fiscal years 2012 and 2013 and on September 28, 2015 the claimant was notified of the dismissal of the above-mentioned administrative appeal (Doc. 4).

h) The companies comprising the Fiscal Group at the origin of SIFIDE are not and were not, at that time, entities owing to the State and social security any taxes or contributions (cf. certificates attached as Doc. no. 10 and articles 5, paragraph a) and 6, no. 2, second part, of Law no. 40/2005, of August 3).

§2. Reasoning as to Factual Matters

With respect to the proven factual matters, the Tribunal's conviction was based on the free appraisal of the positions assumed by the parties in respect of fact and on the content of documents attached to the proceedings, not contested by the Parties, as well as on analysis of the administrative record.

III.2. LEGAL MATTERS

The central question to be decided, as posed by the Claimant, is whether the self-assessments of IRC (including their autonomous taxation rates) relating to fiscal years 2012 and 2013, suffer from the substantive defect of violation of law, subject to impugnation because, according to its understanding, the deduction of SIFIDE and PEC should not be denied from the portion of the IRC collection corresponding to autonomous taxation rates.

According to the Claimant's argument, the collection of IRC, provided for in Article 90, nos. 1 and 2, paragraphs b) and c), in the version in force in 2013, also encompasses the collection of autonomous taxation rates in IRC. The Claimant further alleges that, should it be understood that Article 90 of the CIRC does not apply to autonomous taxation rates, then subsidiarily it should be declared the illegality of the assessments of autonomous taxation rates (and consequently be annulled) for absence of legal basis for their implementation, based on Article 8, no. 2, paragraph a) of the LGT and Article 103, no. 3 of the CRP.

The response to the problem posed presupposes, from the outset, that the evolution of the figure of autonomous taxation rates be analyzed with a view to ascertaining whether its legal regime (comprising nature and raison d'être) is compatible with the Claimant's pretension.

Let us see.

III.2.1.1. The Nature of Autonomous Taxation Rates in Jurisprudence and Doctrine

In the sense of autonomous taxation taxing expense and not income, reference is made, among other things, to the dissenting opinion of the Honorable Counsellor Vítor Gomes, appended to Constitutional Court Decision no. 204/2010, in which he states, referring to Autonomous Taxation Rates:

"Although formally inserted in the CIRC and the amount that allows it to be collected is assessed within its scope and as part of IRC, the norm in question concerns a fiscal imposition that is materially distinct from taxation in this heading, (….). Indeed, we are faced with an autonomous taxation, as the very letter of the provision says. And that makes all the difference. It is not a matter of taxing income at the end of the fiscal period, but rather certain types of expenses in themselves, for the understandable reasons of fiscal policy that the decision points out.

In this way, the fact revealing tax capacity that is intended to be reached is the simple realization of such expense, at a determined moment. Each expense is, for this purpose, an autonomous tax-triggering event, to which the taxpayer is subject, whether or not they end up having taxable income in IRC at the end of the period, being irrelevant that this portion of tax only comes to be assessed at a later moment and jointly with the IRC."

It was likewise recognized by jurisprudence of the Supreme Administrative Court (2nd section, case 830/11, of 21-03-2012) "that under the designation of autonomous taxation rates are hidden very diverse realities, including, in accordance with no. 1 of the (then) art. 81 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 made by taxable persons totally or partially exempt, or who do not exercise, as their principal activity, activities of a commercial, industrial or agricultural nature (no. 2 of [then] art. 81) and which are not considered as cost in calculating the taxable income in IRC.

It should be noted, however, that representation expenses and those related to light passenger vehicles, in accordance with what is provided for in (then) art. 81 no. 3 of the CIRC and meal allowances are affected by business activity and "indispensable" so they are fiscally accepted in some cases yet within certain limits.

For its part, the Constitutional Court, in its Decision no. 18/11, tells us that there exist facts subject to autonomous taxation, which correspond to "charges demonstrably indispensable for the realization of income" and that for this reason the prohibition on retroactive application of the new law does not apply, since such charges would have been incurred regardless of the applicable tax regime: this means that autonomous taxation also falls on charges that correspond to the core of the concept of actual income, net income and compliance with accounting obligations. This argument of the Constitutional Court, regarding the retroactive application of the tax law to autonomous taxation rates (and this matter of the application of the law over time is not within the scope of this decision), interests us only to point out that the Court recognizes that this regime constitutes a limitation on the taxation of actual income (which is guaranteed by art. 104 no. 2 of the CRP).

In a recent Decision (no. 310/12, of June 20, Rapporteur Counsellor João Cura Mariano), the Constitutional Court comes to reformulate the doctrine of Decision no. 18/11, approaching the then dissenting opinion of Counsellor Vítor Gomes and the Supreme Administrative Court Decision no. 830/11, all cited in the previous paragraphs, in the following terms. "Contrary to what happens in the taxation of income under IRS and IRC, in which the totality of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate and the bracket in which the taxpayer is placed be determined), in this case one taxes each expense effected, in itself considered, and subject to a certain rate, being autonomous taxation determined independently of the IRC which is due in each fiscal year, for not being directly related to the obtaining of a positive result, and for this reason, subject to taxation.

Thus, and in the case of IRC, we are faced with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income obtained in a given year, the law considering that the tax-triggering event is deemed to occur on the last day of the fiscal period (cf. article 8, no. 9 of the CIRC). As for autonomous taxation in IRC, the tax-triggering event is the very realization of the expense, we are not faced with a complex fact, of successive formation over a year, but rather with an instantaneous tax-triggering event. This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose tax-triggering event occurs successively, by the passage of a certain period of time, usually annual, and tends to repeat over time, generating for the taxpayer the obligation to pay tax regularly) and single-obligation taxes (whose tax-triggering event occurs instantaneously, appears isolated in time, generating on the taxpayer an obligation of avulsive payment). In autonomous taxation, the tax-triggering event 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 calculation of the amount of tax, resulting from the application of the various taxation rates to the various acts of realization of expense considered, is to be carried out at the end of a certain fiscal period). But the fact that the assessment of the tax is effected at the end of a certain period does not transform it into a periodic tax, of successive formation or of lasting character. That operation of assessment translates only in the aggregation, for purposes of collection, of the set of operations subject to such autonomous taxation, to which the rate is applied to each expense, there being no influence of the volume of expenses effected on the determination of the rate."

Jurisprudence reiterated by the Plenary Decision, in Decision no. 617/2012, case no. 150/12, of 31/1/2013 and in Decision no. 197/2016, case no. 465/2015.

With respect to doctrine we find that, in essence, the concept and nature of autonomous taxation rates does not substantially depart from the understanding of jurisprudence produced by the Constitutional Court.

As RUI MORAIS states, "this concerns a taxation that bears on certain expenses of taxable persons, which are regarded as constituting tax-triggering facts. It is difficult to discern the nature of this form of taxation and, even more so, the reason why it appears provided for in the codes of income taxes." (RUI DUARTE MORAIS, Notes on IRC, Almedina, 2009, pp. 202-203).

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO states that "it is not properly IRC – which aims to tax the income of legal persons and not expense made by them – but rather the replacement of a taxation of "implicit" income of natural persons, which is considered not directly enforceable". Also CASALTA NABAIS considers that it "concerns a taxation on expense and not on income" (CASALTA NABAIS, Tax Law, 6th Ed., p. 614. In the same sense, see ANA PAULA DOURADO, Tax Law, Lectures, 2015, p. 237).

In sum, some doctrine and jurisprudence of the superior courts and the Constitutional Court consider that autonomous taxation rates are autonomous tax-triggering facts, which bear on expense. Thus, despite being formally inserted in the Corporate Income Tax Code, they concern a taxation distinct from the tax on income of legal persons.

Furthermore, it is accepted by the generality of doctrine and jurisprudence that autonomous taxation rates aim to prevent abusive practices of remuneration of workers, managers and shareholders/stockholders of the company. As SALDANHA SANCHES states, "In this type of taxation, the legislator seeks to respond to the admittedly difficult question of the tax regime of expenses that are found in the zone of intersection of the personal sphere and the business sphere, so as to prevent remuneration in kind more attractive for exclusively fiscal reasons or the hidden distribution of profits. The rule presents a characteristic similar to what we will find in the sanction against undocumented costs, with a rate increase when the situation of the taxable person does not correspond to a situation of fiscal normalcy." (SALDANHA SANCHES, Manual of Tax Law, 3rd Ed., Coimbra Editor, 2007, p. 406). "It is a form of taxation that is explained by the need to prevent and avoid that, through such expenses, companies proceed with the hidden distribution of profits, especially dividends that would thus be subject to IRC as profits of the company, as well as combat the fraud and tax evasion that such expenses occasion…"(CASALTA NABAIS, Idem, p. 614).

III.2.1.2. Evolution of the Figure of Autonomous Taxation Rates

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

"3 - The Government is hereby authorized to autonomously tax at an increased rate of 10% without prejudice to what is provided in paragraph h) of no. 1 of article 41 of the CIRC, confidential or undocumented expenses made in the exercise of commercial, industrial or agricultural activities by IRS taxable persons who hold or should hold organized accounting or by IRC taxable persons not covered by Articles 8 and 9 of the respective Code."

As is well known, the origin in the Portuguese fiscal legal system of autonomous taxation rates dates back to 1990, with the publication of Decree-Law no. 192/90, of June 9, where specifically in its article 4, with respect to confidential or undocumented expenses, an autonomous taxation at the rate of 10% was established, and, with respect to representation expenses and charges related to light passenger vehicles, a rate of 6.4%. Implementing this legislative authorization, the Government approved Decree-Law no. 192/90, in which it included, outside the Personal and Corporate Income Tax codes, a rule on autonomous taxation in which the following was established:

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

Article 4

Confidential or undocumented expenses made in the exercise of commercial, industrial or agricultural activities by IRS taxable persons who hold or should hold organized accounting or by IRC taxable persons not covered by Articles 8 and 9 of the respective Code are autonomously taxed in IRS or IRC, as the case may be, at a rate of 10% without prejudice to what is provided in paragraph h) of no. 1 of article 41 of the CIRC.

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

With the approval of Law no. 30-G/2000, of December 29, the decree that enshrined "autonomous taxation rates" was repealed, adding to the CIRC article 69-A – corresponding to the date of the facts underlying (2012 and 2013) to article 88, where, in addition to the maintenance of the incidence of these to undocumented expenses, representation expenses and vehicle expenses, the same was extended to other situations of diverse nature.

We can thus draw two principal conclusions:

(i) The first is that autonomous taxation rates bear both on deductible charges and on non-deductible charges in respect of IRC;

(ii) The second is that autonomous taxation rates aim to prevent the erosion of the tax base in respect of IRC, by imposing taxation on charges that may be deducted by IRC taxable persons but that, being deducted, transform themselves into an aggravation of taxation, thus intending to serve as a disincentive to such charge expenses.

With respect to autonomous taxation on non-deductible expenses, if its deductibility were admitted, the deductibility of a charge not indispensable for the realization of income subject to tax or for the maintenance of the income-producing source would be admitted.

Being able to be regarded as settled, and for what will be relevant in the sense of the decision to be rendered within the scope of the present proceedings, the following premises:

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

(ii) autonomous taxation rates in IRC bearing on certain charges of IRC taxable persons should be understood as payments independent of the existence or not of taxable matter;

(iii) interpreted as payments, associated with IRC, or at least related to it, being able to be understood as an exception with respect to the principle of taxation of legal persons in accordance with actual and effective profit calculated (article 3 of the CIRC),

(iv) in autonomous taxation, the tax-triggering fact that gives rise to taxation is instantaneous: it is exhausted in the act of realization of certain expenses that are subject to taxation (although the calculation of the amount of tax resulting from the various taxation rates to the various acts of realization of expenses considered, is to be effected at the end of a certain fiscal period);

(v) the fact that the assessment of the tax is effected at the end of a certain period does not transform it into a periodic tax, of successive formation or of lasting character. That operation of assessment translates only in the aggregation, for purposes of collection, of the set of operations subject to such taxation, to which the rate is applied to each expense, there being no influence of the volume of expenses effected on the determination of the rate;

(vi) autonomous taxation is not equivalent to the non-deductibility of expenses realized by the IRC taxable person.

It is recognized here, thus, those characteristics that doctrine has been pointing to autonomous taxation rates for some years now, such as:

a) Autonomous taxation only makes sense because costs/expenses are relevant as negative components of taxable profit of IRC. This is what motivates IRC taxable persons to report as high a value as possible of such expenses to decrease the taxable matter of IRC, the collection and, consequently, the tax to pay;

b) It is intended to discourage such type of expenses in taxable persons that present negative results but which, regardless thereof, continue to evidence expense structures little or not at all compatible with the financial health of their companies;

c) It is, in more general terms, 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 considered unfavorably as it is admittedly 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 reporting is known.

III.2.1.3. The Cause and Function of Autonomous Taxation Rates in IRC

It is settled that autonomous taxation rates are rooted, as has been touched upon, in the need to prevent abuse with respect to the reporting of certain charges or expenses and which may readily be subject to diversion to private consumption or which are, in some way, susceptible of formally configuring an expense of the legal person but which, substantially, represent or may configure abuses in order to minimize the actual amount of the tax.

Aware of this difficulty, which is often encountered in effecting a rigorous separation of these two realities, it was successively "grafted", as described above, into the regime of taxation of actual and effective profit established in the CIRC, as the general standard, an autonomous regime of taxation of certain expenses, wholly or partly undesired and undesirable that contaminate the terms of the tax duty, which thus arises configured below the actual tax capacity of the entity that reports it as such.

In these terms, in the ontology of things it can be affirmed that autonomous taxation rates arise integrated into the IRC regime, are calculated and due within the scope of the legal relationship of tax on income of legal persons and it is within the framework thereof that their calculation is effected. But they are not "IRC", tout court as the Claimant laconically and definitively affirms. For them to be they would, first and foremost, have to tax income, and that is not what happens, at any time, so, in this respect, we do not believe it necessary to deliberate more deeply. Although there exists – it is not denied – a manifest instrumentality between IRC and the income taxation model in Portugal and autonomous taxation rates, a fact moreover well evidenced in jurisprudence of the Superior Courts and, in particular, the Constitutional Court, the prevalent understanding is that autonomous taxation rates tax expenses.

Indeed, they are an instrument that, deviating and introducing some measure of distortion in a system that claims to tax actual and effective income, after all also taxes expenses, deductible or not in IRC. Without this violating the constitutional dictates given that the applicable rule (art. 104, no. 2 of the CRP) declares imperative the taxation of companies "fundamentally" on their actual income, without prejudice either to situations of taxation according to profits or actual income when calculated by indirect methods, or to situations of taxation of expenses subject to autonomous taxation by express choice of law, the establishment of technical solutions such as the special payment on account and the specific rules aimed at its reimbursement.

It is worth recalling, in this respect, that neither fiscal systems nor concrete models of imposition correspond to pure models, free from elements extraneous to the founding system itself, of values, or to the general regime of any tax abstractly considered. All taxes possess characteristics or solutions which, when viewed in isolation, may objectively represent a mischaracterization of the model as it was conceived in the purity of concepts, but which, when articulated with the model, it is found that they contribute to its effectiveness, and confer or strengthen its coherence on it.

Such solutions, more pragmatic or specific, do not violate such essential valuative dictates, whether they be of revenue protection or densification of general valuative ideals (of the tax system) or specific to the tax, as is the case of the need for avoidance of abuse. Provided that they themselves are not of such relevance that they abjure the model of general taxation or structurally falsify the values in which it is rooted.

Although, in this case, the option of fundamental law and ordinary law, by consequence, has been clearly in the sense of taxing the income of legal persons and, in the possible forms of calculating this, the taxation of actual and effective income has been chosen as the manifestation of the highest standard of tax justice, the truth is that the system has always known deviations more or less relevant. Either because certain expenses are not considered as such by tax law although they may objectively be imputable to a commercial activity, or because tax law, recognizing such essentiality, fears the occurrence of abuses, as is the case with autonomous taxation, speaking generically.

In part this departure from the purity of concepts is an inevitable consequence of the complexity of relations in life, whether because pure fiscal imposition models are more costly to implement and manage since they require much more refined relevant information, or 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. All to prevent fiscal models from being excessively complex and costly ceasing to reach the realities and practices that mitigate the tax burden or contribute to poor distribution thereof.

Now, from this balancing of the values that support the duty to establish/bear tax with the realities of life may result the need to establish limits (fiscal or other) on the behavior of taxable persons, in order to maintain within general standards of equilibrium, the legal solutions of the system.

On the other hand, it is important to bear in mind, because this is relevant for purposes of the decision to be taken, that TA's constitute anti-abuse rules directed to rationalize specific behavior of taxpayers in respect of the tax duty, by which they traditionally managed to achieve a tax amount inferior to what evidenced their tax capacity actually revealed but which, by virtue of such abusive behavior was susceptible of being mitigated or eliminated. And with evident violation or postponement of the principle of justice, of fair distribution of the tax burden by those who evidence tax capacity.

Consequently, it makes sense to admit that general deductions are made from the tax collection, which are permitted by law to give effective sense to the principle of taxation of actual and effective income. But that, with respect to the collection due by autonomous taxation rates, such deduction ceases to make sense because, not taxing profits, but expenses, the question of justice in the distribution of the general tax burden does not arise with respect to them, so it would be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive sense that imbues them; the deterrent of deviant behaviors that their institution represses or remedies.

Now, autonomous taxation rates, as seems clear, do not have a markedly revenue-producing purpose, that is, do not aim, primarily, at the obtaining of (more) fiscal revenue, although this may not be an negligible aspect, verifiable. They aim to dissuade behaviors, practices or options of companies rooted in reasons essentially of a nature of fiscal economy, revenue. On the other hand, they preserve the equilibria of the regime of taxation of legal persons, 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 they force, through such general anti-abuse clauses, the maintenance of a healthy correlation between volumes of business, taxable profits and tax ultimately due by entities subject to IRC, in line with the levels of average effective tax burden that falls on different groups of taxpayers, within the Portuguese fiscal system and, even, comparatively with that of OECD member states or elsewhere.

Autonomous taxation rates, including those provided for in al. b) of no. 13 of art. 88 of the CIRC have, therefore, a general disciplinary function that is not unrelated to the systemic purposes of the tax. And this because they – autonomous taxation rates – as an anti-abuse mechanism, are not unrelated to the general purposes of the fiscal system.

The adoption of legal regimes that limit the nefarious effects resulting from behaviors affecting the balanced distribution of the tax burden on different groups of taxpayers does not constitute merely an option of the legislator, but is, rather, a strict obligation, as a result of the obligation to design and make the system function as a whole in a balanced manner. Autonomous taxation rates introduce, certainly, taxation mechanisms which, naturally, will displease their addressees, but prevent or limit the nefarious effects of abusive practices that would harm others and are, for that reason, necessary to the preservation of the equilibria of the system. Now, companies, just like natural persons, are also subject and with the same intensity to the general duty to pay taxes and, in this measure, tax law cannot fail to enshrine mechanisms that limit deviant procedures. Precisely because each should bear tax according to ability, that is, according to their actual revealed tax capacity.

It is important to note that in our days, the regime of taxation according to actual and effective income has been adopted as the general rule for legal persons. Now, this does not constitute merely a mere option of operation of the fiscal system, among several other possible ones. It is, rather, a concrete manifestation of the modernity and maturity of a fiscal system that requires of its addressees/beneficiaries a maturity of the same stature as it also represents a new form of ethical and social responsibility toward the phenomenon of taxation (regarding questions on the limits of morality before taxation see SUSANNE LANDREY, STEF VAN WEEGHEL and FRANK EMMERINK). For there exists a deep and undeniable interconnection between law and morality (JOÃO BAPTISTA MACHADO, Introduction to Law and Discourse Legitimizing, Almedina, 9th Reprint pp. 50 and seq.).

As SALDANHA SANCHES aptly pointed out, cited in Arbitration Decision 187/2013-T, pp. 28, that autonomous taxation rates constitute a form of preventing abusive conduct: "... that the "normal" operation of the tax system was incapable of preventing, being that other, including forms more onerous for the taxpayer, were possible. This anti-abuse character of autonomous taxation rates will be not only coherent with its "anti-systemic" nature (as happens with all such rules), as with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by jurisprudence citing it. They "will then materially underlie a presumption of "partial" entrepreneurial nature of the expenses on which they bear, in function of the above-noted circumstance that such expenses are situated in a gray line separating what is business expense, productive, from what is private consumption expense, being that, notoriously, in many cases, the expense will even in reality have a dual nature (part business, part private)" (Arbitration Decision of CAAD 210/13-T speaks of "expenses that share among themselves a risk of not being business expenses, that is, a risk of not being realized for business purposes, but rather extra-business or private purposes".

All these considerations invoke what seems to us to be the true sententia legis, given that the discovery of the true sense of the law constitutes an imperative, as it is important to ensure that the interpreter's activity reaches an interpretive sense by which the law manifests its most beneficial, most profitable and most salutary sense, in the words of FRANCESCO FERRARA, in his Interpretation and Application of Laws, Arménio Amado, publishers, 1978, p. 137 and seq. On the other hand, the logical sense of interpretation does not lead us except in the sense that autonomous taxation rates are based on a logic according to which the law intends to prevent or discourage such legal persons from relevantly (abusively) reporting as expenses values relating to bonuses or variable remuneration. It is the reporting as expense for purposes of IRC, in its entirety, that is intended to be discouraged.

Appealing to the ratio legis it is clear that autonomous taxation rates are levied within the IRC assessment process in accordance with a root and dogmatic of their own that lead to the total tax collection not being a unitary reality but a composite one (MANUEL DE ANDRADE, Essay on the Theory of Interpretation of Laws). Thus, it is possible in it to discern the tax collection properly so-called, resulting from the general mechanics of IRC calculation, which is due with constitutional foundation based on the general duty of each (in which are encompassed legal persons) to contribute to public expenditures according to their means (art. 103, no. 1 of the CRP). All in respect and compliance with the principles of justice, equality and the duty to pay tax according to actual revealed tax capacity. And from which are deducted the amounts referred to in Article 90 of the CIRC and in the terms and ways referenced there.

To this general collection, rooted in this foundational basis, is added the specific collection, due by autonomous taxation rates, which has, as was made clear, a root, a sense and its own foundation, which is to discourage the adoption of the behaviors taxed by them, listed in art. 88 of the code, which constitutes, as is settled doctrine, an anti-abuse rule, which allows us to invoke here all the dogmatic of its own on which it is based. Being that, in this case, because it is a matter of complying with purposes that go beyond the purely revenue-producing ends of the tax, to be situated in the field of behaviors that the law considers abusive and/or undesirable, it seems clear to us that it does not make sense to make deductions to it, under penalty of emptying, in practice, of any sense the anti-abusive regime created.

Given what has been expounded, we are now in a position to analyze the Claimant's request, regarding the legality of the deduction of SIFIDE and PEC from that portion of the IRC collection corresponding to autonomous taxation rates.

III.2.2. Regarding the Non-Deductibility of SIFIDE

It was concluded that the collection of autonomous taxation rates has a different root, which cannot, under penalty of subversion of the order of values, permit the deduction of tax benefits, under penalty of mischaracterization of the principles specifically intended to be pursued.

Indeed, having the regime of autonomous taxation rates a function of discouraging abusive behaviors, there is no logical reason why this discouragement could, thereafter, vanish, which would occur if it were possible to deduct, from the collection of autonomous taxation rates, fiscal incentives, as the Claimant intends. Such possibility would result in a dual effect that is strange: on one hand it could, in the limit, eliminate the collection resulting from autonomous taxation rates and, on the other, would propitiate the deduction of a certain fiscal benefit (in this case, SIFIDE is at issue[8], for the fulfillment of the objectives or adoption of the conducts fixed in the rule granting the right to the fiscal benefit) to a tax that has a specifically anti-abuse function, of mitigation of behaviors that are fiscally and socially undesirable.

From the combination of these possibilities would result a contradictory, illegal and unethical result, precisely because the same tax law would permit, within the framework of the same fiscal system, to relieve the taxpayer of the burden of paying a tax that is precisely due for the adoption of abusive, undesirable and discouraged conducts (reporting as expenses the expenses provided for in art. 88 of the CIRC).

It is concluded, in this way, by the illegality of the deductibility of SIFIDE from the collection of autonomous taxation rates, without necessity of resorting to the interpretive character given by Article 135 of Law no. 7-A/2016, of March 30 (State Budget for 2016), to Article 21 of Article 88 of the CIRC, which now has the following content: "21 - The assessment of autonomous taxation rates in IRC is effected in accordance with the terms provided for in Article 89 and is based on the values and rates that result from the provisions in the previous numbers, with no deductions being made to the total amount calculated."

In sum, the legislator in adding this no. 21 to Article 88 of the CIRC with the content mentioned merely limited itself to adopting and reinforcing the interpretive sense that already resulted from the rules in force as was demonstrated by the above reasoning.

Accordingly, the Claimant is not correct, for the reasons and with the grounds invoked, with respect to the possibility of deduction of the tax benefit relating to SIFIDE from the collection of autonomous taxation rates.

III.2.3. The Evolution of PEC – Special Payment on Account of IRC Due as Final and Its Regime

The genesis and evolution of PEC develop in three stages, namely (i) the regime that runs from its birth until the year 2000; (ii) the regime applicable to the fiscal years of 2001 and 2002; and the regime subsequent which has been in effect until today.

In its initial version the PEC was presented as a tool for system improvement, which was and is very much based on the declaration of income by taxpayers. Its introduction into the fiscal system was simultaneous with the reduction of the general IRC rate by two percentage points. The occurrence of the two facts is not coincidence; on the one hand, the rate applicable to tax-paying taxpayers was reduced; through PEC the special payment of a sum as a title of tax was promoted, albeit provisionally, by taxable persons who despite continuing to develop their activity year after year, persisted in declaring negative or null income, escaping effective taxation. It is therefore, as a measure to combat the "evasive practices of concealment of income or overstatement of costs" that PEC was justified in the preamble of Decree-Law no. 44/98, of March 3, which established it.

The provisional nature of the tax payment lay in fact in the possibility of deducting the sums paid as PEC from IRC calculated in general terms, fixed in article 71 of the then effective CIRC (of which autonomous taxation rates did not yet form a part), although such deduction was only possible if, despite this operation, the value of the tax to pay was positive (71-6 CIRC.1998). With no IRC to pay in general terms, the value of the PEC satisfied could be reported to the following fiscal year (74-A-1) or reimbursed later (74-A-2). An attempt was thus made to ensure that the generality of taxable persons satisfied a value on account of IRC, provisionally calculated on the volume of business of the prior fiscal year (83-A). In essence, it was fictionally assumed that all companies would have by tendency a taxable profit, calculated in accordance with the general parameters, equivalent to 1% of its volume of business of the prior year, settling the account later if this was not so.

The reform of IRC effected in 2000-2001 through Law no. 30-G/2000, of December 29 reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained active and required that the report of the sums satisfied be done only to the fourth subsequent fiscal year (74-A-1 CIRC.2001). From this restrictive rule results, for the first time, the possibility of the PEC transforming itself into a minimum collection (TERESA GIL, Special Payment on Account, Tax Journal. Year XIV, (March 2003), no. 107-108, p. 12) when it was not possible to deduct the sums satisfied, by exhaustion of the reporting period. In summary it is possible to affirm that the alterations introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had animated the introduction of PEC. Although at this occasion "autonomous taxation rates" were introduced into the CIRC, no mechanism for articulation between the two instruments was provided.

The third configuration of the PEC is introduced by Law no. 32-B/2002, of December 30, which in its article 27 introduced a new regime of deductibility of PEC into article 87, no. 3 of the CIRC, restoring the possibility of reimbursement of sums delivered as a special payment on account and not offset in the annual IRC assessment. It was maintained even here the character of a measure of pursuit of tax evasion, although the stamp of minimum collection has been alleviated, without abolishing it completely, in light of the tight conditions imposed for reimbursement.

Article 104 of the CIRC provides that: "Entities that exercise, as their principal activity, commercial, industrial or agricultural activity, as well as non-residents with a permanent establishment in Portuguese territory, shall proceed to payment of tax as follows:

a) In three payments on account, with due dates in July, September and December 15 of the same year to which the taxable profit relates or, in the cases of nos. 2 and 3 of Article 8, in the 7th month, the 9th month and on the 15th day of the 12th month of the respective fiscal period;"

(…)

And art. 106 of the CIRC provides: "Without prejudice to what is provided in paragraph a) of no. 1 of Article 104, the taxable persons mentioned therein are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates or, in the case of those adopting a fiscal period not coinciding with the calendar year, in the 3rd and 10th months of the respective fiscal period."

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