IRC Autonomous Taxation: Deductibility of PEC, SIFIDE and CFEI Tax Incentives (CAAD 727/2015-T)

ARBITRAL DECISION

The arbitrators Judge José Poças Falcão (president arbitrator), Dr. Hélder Faustino and Dr. José Carreira (member arbitrators), appointed by the Deontological Council of CAAD to form the Arbitral Tribunal, constituted on 27-02-2016, agree as follows:

I – Report

1. The Applicant A…, Unipessoal, Lda., legal entity no.…, with registered office at…, no. …/…, …, in …, hereby submits, pursuant to paragraph a) of article 2, no. 1 and paragraph a) of article 10, no. 1 of Decree-Law no. 10/2011, of 20 January ("Legal Regime of Tax Arbitration", hereinafter "LRTA") a request for arbitral pronouncement in which the Respondent is the Tax and Customs Authority (TA).

2. The claim that is the object of the request for arbitral pronouncement consists in the declaration of illegality of the tacit rejection of the administrative review petition and, consequently, the declaration of illegality of the acts of self-assessment of Corporation Income Tax ("CIT") to the extent corresponding to the non-deduction from the collection of CIT produced by the rates of autonomous taxation of the special payment on account in the scope of CIT and, as well, of tax incentives under the Extraordinary Tax Credit for Investment ("ETCI") and the benefit under the Fiscal Incentives System for Research and Business Development ("FIRD"), in the amounts of € 103,370.88, referring to the tax period of 2012, and € 154,043.98, referring to the tax period of 2013. In the alternative, it requests the declaration of illegality of the tax assessment issued on the basis of autonomous taxation.

2.1. The Applicant petitions:

a) the declaration of illegality of the tacit rejection of the administrative review petition presented and the consequent annulment of the acts of self-assessment of CIT, as regards the amounts of autonomous taxation rates in CIT of € 103,370.88 (2012) and € 154,043.98 (2013); and

b) the condemnation of the TA to the reimbursement of the tax unduly paid plus compensatory interest at the legal rate; and

c) in the alternative, should it be understood that article 90 of the CIT Code does not apply to autonomous taxation, the illegality of the assessments of autonomous taxation shall be declared, with the consequent reimbursement of the amounts in question and the payment of compensatory interest.

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the TA.

3.1. The Applicant did not proceed to appoint an arbitrator, therefore, pursuant to paragraph a) of article 6, no. 2 and paragraph b) of article 11, no. 1 of the LRTA, the President of the Deontological Council appointed the undersigned as arbitrators of the collective Arbitral Tribunal, who communicated acceptance of the appointment within the deadline.

3.2. On 27-01-2016, the parties were notified of the appointment of the arbitrators and raised no objection.

3.3. In accordance with the provisions of paragraph c) of article 11, no. 1 of the LRTA, the collective Arbitral Tribunal was constituted on 27-02-2016.

3.4. In these terms, the Arbitral Tribunal is duly constituted to examine and decide the subject matter of the case.

1. To support the request for arbitral pronouncement, the Applicant alleges, in summary, the following:

a) In light of the abundant arbitral jurisprudence on the matter, autonomous taxation should be qualified as CIT and, moreover, being therefore applicable not only article 45, no. 1, paragraph a), of the CIT Code – in the wording in force in the tax periods of 2012 and 2013 – but also article 90, among other norms directed at the assessment of CIT;

b) The collection of autonomous taxation cannot simultaneously be collection of CIT for the purposes of one article and not be collection of CIT for the purposes of another article, under penalty of flagrant contradiction by the interpreter;

c) To claim, thus, that autonomous taxation is not CIT and that the rules of assessment of the unified CIT regime do not apply to it, is to apply double standards according to convenience, and is to contradict all the immense and consistent arbitral jurisprudence referenced in the request for arbitral pronouncement;

d) Furthermore, taxable matter is something that is not lacking in autonomous taxation either: the matter, expenses and charges, on which its rates are levied, is its taxable matter, the matter producing its collection. Now, having autonomous taxation taxable matter, defined in its respective rule of incidence contained in the CIRC, it is not clear why the reference to taxable matter in said article 90 of the CIRC would exclude the collection produced by the rates of autonomous taxation in CIT;

e) Moreover, how would the exclusion by FIRD of the collection of CIT determined by indirect methods always exclude the collection produced by the rates of autonomous taxation in CIT? If this collection produced by the rates of autonomous taxation in CIT is determined based on indirect methods, certainly. But being determined on the basis of direct method, as was the case, there is no such legal obstacle to the deduction from it of the tax credit by FIRD;

f) In particular, as regards the SPAC, if it is CIT, if the SPAC is an advance payment on account of CIT, if its deduction from the collection of CIT is provided for, and if autonomous taxation is CIT, as it is, the result of the declarative interpretation of law, solidly anchored in abundant and unanimous jurisprudence, is that the SPAC is deductible from the collection of CIT generated by autonomous taxation;

g) Now, since autonomous taxation in CIT is collection of CIT, and shares the objective, purpose, spirit of CIT of ensuring taxation of actual income (substitutive taxation), as understood overwhelmingly by jurisprudence, there is nothing to oppose the application to this collection of the deduction of the SPAC;

h) It is irrelevant that autonomous taxation in CIT and CIT directly on profit are determined in different ways; here the matter at stake is a downstream moment, in which the respective primary collections are already determined;

i) It is not because the experience is this or that that the law loses its autonomy and nature of command, to become a reality commanded, in this case by habits, reflected or unreflected;

j) The Respondent further adds that there is no indexation of the use of the tax credit to the profitability of the investment: collection of CIT from any other source can be used to deduct the tax credit. Being that in the collection of CIT is included that of autonomous taxation in CIT, according to overwhelmingly dominant jurisprudence (no interpretive doubt subsists in this regard) of the courts, and according to the understanding of the TA itself;

k) On the other hand, as regards the intervention carried out by the State Budget Law for 2016 in the scope of autonomous taxation in CIT, if understood to be that its article 135 attributed interpretive nature also to the 2nd part of the new no. 21 of article 88 of the CIT Code, that is, also to the normative segment "with no deductions being made to the aggregate amount [of autonomous taxation in CIT] determined", introduced by the same Law (see article 133), and that therefrom would result the application of article 13 of the Civil Code as it prescribes the retroactive application of interpretive laws, it is to be believed that one would then be faced with a material unconstitutionality of said article 135 of the State Budget Law for 2016, due to violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3 of the Constitution, whether or not one has concluded (and it is understood that not), to be faced with a materially interpretive law;

l) Now, this unconstitutionality is related to the tax, with the collection, of autonomous taxation (and not with the putative "collection" of the SPAC), whose taxable fact occurred, closed, in the exercise(s) at issue here: assessment, determination, and payment, of more tax "autonomous taxation in CIT", should the retroactive prescription of the State Budget Law for 2016 that eliminates deductions from the collection of this tax be applied;

m) In conclusion, in the case of FIRD and ETCI (tax benefits), existing in the present case in an amount more than sufficient to accommodate the entirety of the deduction from the collection at issue here, any question around the special way of viewing the SPAC and the unconstitutionality does not arise: as regards FIRD and ETCI it is not by definition the deduction of the SPAC from the collection of autonomous taxation that is then at issue.

1. The TA presented a response, alleging, in summary, the following:

a) Autonomous taxation, notwithstanding being a collection in CIT, distinguishes itself by being levied not on profits, but rather on expenses incurred by the taxpayer or by third parties who maintain relations with it;

b) In light of its teleology, autonomous taxation, as an anti-abuse fiscal instrument, would be emptied of any practical content in the event that the thesis defended by the Applicant were accepted;

c) In fact, the legislature in creating autonomous taxation did so with the following purposes:

a. Combat tax evasion;

b. Tax income of third parties whose income increase would otherwise escape taxation;

c. Penalize, by fiscal means, the payment of income deemed excessive in light of the economic crisis situation.

d) In this measure, to admit – as the Applicant claims – the deduction of SPACs, or tax benefits, such as FIRD and ETCI from the collection of autonomous taxation inexorably amputates autonomous taxation in what were the principles and purposes upon which the legislature based its creation;

e) While respectfully considering the learned arbitral jurisprudence invoked by the Applicant, interpreting the current normative for autonomous taxation in the sense that is advocated is nothing more than an abrogative interpretation disguised as a legislative impulse, and may constitute, ultimately, a violation of the principle of separation of powers;

f) It must always be recalled, definitively dispelling the controversial question, the addition of number 21 to article 88 of the CIT Code, promoted by the State Budget Law for 2016 [1], pursuant to which: "The assessment of autonomous taxation in CIT is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the provisions of the previous numbers, with no deductions being made to the aggregate amount determined.";

g) The norm in question came to clarify by positivizing the understanding and practice adopted by doctrine and contributors in general, which were never questioned by the TA;

h) In fact, since its creation in the early 1990s and its subsequent legislative evolution, it was always peaceful understanding that autonomous taxation did not admit any deduction;

i) To adopt the position of the Applicant would always have as a logical consequence inherent to the functioning of CIT that the amounts determined as autonomous taxation, if understood as components of a single collection – which only by mere academic exercise is conceived – were taken into account in the calculation of payments on account;

j) In conclusion, the Applicant defends, on one hand, the existence of a collection where autonomous taxation would be included, so as to be able to benefit from the deductions in question and, on the other hand, draws no consequence as regards the calculation of payments on account, as an evident result of the act claimed by it;

k) Concludes, therefore, the TA by the legality of the tax acts contested by the Applicant which should, thus, be maintained.

1. As no production of constitutive evidence was requested, it was decided to dispense with the meeting provided for in article 18 of the LRTA, and the day 30-07-2016 was designated as the deadline for the pronouncement of the arbitral decision.

6.1. By order of 27-08-2016, it was decided to extend the deadline for the arbitral decision, with the day 27-09-2016 being fixed as the deadline for its notification.

1. It was further decided that the proceedings continue with successive written arguments.

2. The Applicant and the TA presented written arguments.

9. Preliminary Matters

9.1. The parties have legal capacity and personality, show themselves to be legitimate and are duly represented (articles 4 and no. 2 of article 10 of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March).

9.2. The tribunal is competent and duly constituted.

9.3. The proceedings are not affected by any nullities.

9.4. There are no other circumstances that prevent knowledge of the merits of the case.

10. Proven Facts

10.1. The following facts are proven, with relevance for the assessment and decision of the questions raised:

a) In the tax periods of 2012 and 2013, the Applicant was the dominant company of a group of companies subject to the Special Regime for Taxation of Groups of Companies ("SRTGC"), which integrated the following companies:

• B…, S.A. (NIF:..);

• C…, S.A. (NIF:…). This company was the incorporating company within a merger operation, registered on 13-02-2012, with tax and accounting effects as of 01-01-2012, and which involved the companies D…, S.A. (NIF:..) and E…, S.A. (NIF:..);

b) On 31-05-2013, the Applicant presented the Model 22 declaration of the group of companies for the tax period of 2012, to which the number …-… -… was assigned;

c) In said Model 22 declaration, the Applicant declared the following values:

• in field 311 of Table 9, the amount of € 669,911.94, as taxable matter;

• in field 358 of Table 10, the amount of € 0.00, as CIT assessed;

• in field 365 of Table 10, the amount of € 103,370.88, as autonomous taxation;

d) The amount of autonomous taxation declared was levied on the charges declared by the Applicant, in the name of the group of companies, in fields 420, 421, 414 and 415 of Table 11;

e) On 26-05-2014, the Applicant presented a replacement Model 22 declaration of the group of companies for the tax period of 2012, to which the number …-… -… was assigned;

f) In said Model 22 declaration, the Applicant declared the following values:

• in field 311 of Table 9, the amount of € 669,911.94, as taxable matter;

• in field 358 of Table 10, the amount of € 0.00, as CIT assessed;

• in field 365 of Table 10, the amount of € 103,370.88, as autonomous taxation;

g) The amount of autonomous taxation declared was levied on the charges declared by the Applicant, in the name of the group of companies, in fields 420, 421, 414 and 415 of Table 11;

h) On 30-05-2014, the Applicant presented the Model 22 declaration of the group of companies for the tax period of 2013, to which the number …-… -… was assigned;

i) In said Model 22 declaration, the Applicant declared the following values:

• in field 311 of Table 9, the amount of € 2,898,128.27, as taxable matter;

• in field 358 of Table 10, the amount of € 0.00, as CIT assessed;

• in field 365 of Table 10, the amount of € 154,043.98, as autonomous taxation;

j) The amount of autonomous taxation declared was levied on the charges declared by the Applicant, in the name of the group of companies, in fields 420, 421, 414 and 415 of Table 11;

k) On 20-04-2014, the Applicant presented a replacement Model 22 declaration of the group of companies for the tax period of 2013, to which the number …-… -… was assigned;

l) In said Model 22 declaration, the Applicant declared the following values:

• in field 311 of Table 9, the amount of € 4,906,437.97, as taxable matter;

• in field 358 of Table 10, the amount of € 0.00, as CIT assessed;

• in field 365 of Table 10, the amount of € 154,043.98, as autonomous taxation;

m) The amount of autonomous taxation declared was levied on the charges declared by the Applicant, in the name of the group of companies, in fields 420, 421, 414 and 415 of Table 11;

n) The amount of FIRD allocated/obtained available for use at the end of the tax period of 2012 amounted to € 2,751,765.15 and at the end of the tax period of 2013 amounted to € 1,568,755.63 (Model 22 declaration replacement declaration of the group of companies for the tax period of 2013 attached as Document no. 4 and certificates/declarations from the FIRD Certifying Commission attached as Document no. 7 attached to the request for arbitral pronouncement, the contents of which are considered as reproduced);

o) The amount of ETCI available in the tax period of 2013 amounted to € 166,353.78 (certification/detail attached as Document no. 8 attached to the request for arbitral pronouncement, the contents of which are considered as reproduced);

p) On the other hand, the amount of Special Payments on Account ("SPAC") available for use at the end of the tax period of 2012 amounted to € 114,958.12 and at the end of the tax period of 2013 amounted to € 98,016.37 (certification and proof of SPACs carried out attached as Documents no. 9 and no. 10 attached to the request for arbitral pronouncement, the contents of which are considered as reproduced);

q) In the tax periods referred to, the TA did not determine the taxable profit of the group of companies in question by indirect methods, having been determined on the basis of the Model 22 declarations presented (Documents no. 1 to no. 4 attached to the request for arbitral pronouncement, the contents of which are considered as reproduced);

r) The Applicant and the companies that integrate the group of companies in question were not then entity(ies) owing the State and Social Security any taxes or contributions (certificates attached as Document no. 11 attached to the request for arbitral pronouncement, the contents of which are considered as reproduced);

s) The computer system of the TA, through which CIT is self-assessed, does not allow taxpayers to deduct, for the purposes of the determination of the CIT owed by them, from the tax resulting from the autonomous taxation determined, the amounts of SPAC and the amounts of tax benefit of FIRD and ETCI;

t) On 29-05-2015, the Applicant presented an administrative review petition of the self-assessments made on the basis of the Model 22 declarations presented referring to the tax periods of 2012 and 2013;

u) On 29-09-2015, after the 4 months provided by law had elapsed, there being no decision of the petition presented, its tacit rejection was presumed;

v) On 03-12-2015, the Applicant presented the request for arbitral pronouncement that gave rise to the present proceedings.

10.2. Foundation of the Factual Matter

The proven factuality was based on the documents submitted with the request for arbitral pronouncement and in the instructory administrative proceeding (a copy of which was submitted by the TA), and the position assumed by the parties in the pleadings showing no essential disagreement regarding the relevant facts, restricting itself only to the interpretation and application of the Law to them.

10.3. There are no other facts with relevance for assessment of the merits of the case that have not been proven.

III.2. Legal Matter

III.2.1 Questions to be Decided

The claim that is the object of the request for arbitral pronouncement as drawn up by the Applicant consists in the declaration of illegality of the tacit rejection of the administrative review petition and, consequently, the declaration of illegality of the acts of self-assessment of Corporation Income Tax ("CIT") to the extent corresponding to the non-deduction from the collection of CIT produced by the rates of autonomous taxation of the special payment on account in the scope of CIT and, as well, of tax incentives under the Extraordinary Tax Credit for Investment ("ETCI") and the benefit under the Fiscal Incentives System for Research and Business Development ("FIRD"), in the amounts of € 103,370.88, referring to the tax period of 2012, and € 154,043.98, referring to the tax period of 2013.

The Applicant further alleges that, as regards the intervention carried out by the State Budget Law for 2016 in the scope of autonomous taxation in CIT, if understood to be that its article 135 attributed interpretive nature also to the 2nd part of the new no. 21 of article 88 of the CIT Code, that is, also to the normative segment "with no deductions being made to the aggregate amount [of autonomous taxation in CIT] determined", introduced by the same Law (see article 133), and that therefrom would result the application of article 13 of the Civil Code as it prescribes the retroactive application of interpretive laws, it is to be believed that one would then be faced with a material unconstitutionality of said article 135 of the State Budget Law for 2016, due to violation of the prohibition of retroactivity in tax matters provided for in article 103, no. 3 of the Constitution, whether or not one has concluded, to be faced with a materially interpretive law. This unconstitutionality is related, according to the Applicant, to the tax, with the collection, of autonomous taxation (and not with the putative "collection" of the SPAC"), whose taxable fact occurred, closed, in the exercise(s) at issue here: assessment, determination, and payment, of more tax "autonomous taxation in CIT", should the retroactive prescription of the State Budget Law for 2016 that eliminates deductions from the collection of this tax be applied.

The Applicant thus concludes that in the case of FIRD and ETCI (tax benefits), existing in the present case in an amount more than sufficient to accommodate the entirety of the deduction from the collection at issue here, any question around the special way of viewing the SPAC and the unconstitutionality does not arise: as regards FIRD and ETCI it is not by definition the deduction of the SPAC from the collection of autonomous taxation that is then at issue.

In the alternative, it requests the declaration of illegality of the tax assessment issued on the basis of autonomous taxation.

That is to say: it is sought, in summary, to submit to the assessment of the Tribunal the question of the application (or not) of the provisions of article 90 of the CIRC (wording of Law no. 3-B/2010, of 28-4, applicable to the case object of the proceedings) to the autonomous taxation provided for in article 88 of the same statute, as well as to the special payment on account (SPAC) and Extraordinary Tax Credit for Investment (ETCI).

In the alternative, in the event it is understood that article 90 of the CIRC is not applicable to autonomous taxation, that then "(...) the illegality of the assessments of autonomous taxation (and consequently annulled) be declared for absence of legal basis for its implementation [see article 8, no. 2, paragraph a), of the LGT, and article 103, no. 3, of the Constitution], with the consequent reimbursement of the same amounts and the payment of compensatory interest counted from the same dates (...)".

III.2.2 Analysis of the Questions

It will be important to recall, preliminarily, what has been understood by Jurisprudence for years, that is, that Courts do not have to assess all arguments formulated by the parties (See inter alia, Judgment of the Plenary of the 2nd Section of STA, of 7 June 95, case 5239, in DR – Appendix of 31 March 97, pages 36-40 and Judgment STA – 2nd Sec – of 23 April 97, DR/AP of 9 October 97, p. 1094).

This jurisprudential understanding is currently supported by the provisions of articles 607-2 and 3 of the CPC and 123-1st part of the CPPT, when they impose only on the Judge (or the Tribunal) that, after identifying the parties and the object of the dispute and enunciating the questions to be decided, ground the decision discriminating between proven and unproven facts and indicate, interpret and apply the corresponding rules for its final conclusion (decision).

The LRTA (DL no. 10/2011, of 20 January and amendments) likewise supports this understanding when, in article 22-2 of the LRTA, it provides that "(...) the provision of article 123, first part, of the CPPT regarding the judicial judgment (...) is applicable to the arbitral decision".

The object of the dispute boils down, in other words and essentially, to the assessment of the question of the (non)consideration of the collection arising from autonomous taxation for the purposes of the limit of the deductions provided for in article 90 of the CIRC (tax periods of 2012 and 2013).

Specifically, the Applicant defends its alleged right to deduct the amounts paid as special payment on account, FIRD and ETCI from the collection of CIT produced by autonomous taxation in the years 2012 and 2013.

The questions that are the object of the present proceedings are, in the first place, whether the amounts paid as special payments on account and the investments that the Applicant made covered by FIRD and ETCI are deductible from the amounts owed as autonomous taxation.

The assessment of this question of the application of article 90 of the CIRC to the assessment of autonomous taxation will commence, as the solution to it depends on the assessment of the question of the deductibility of FIRD, ETCI and special payments on account from the collection of those autonomous taxation.

III.2.3 Question of the Application of Article 90 of the CIRC to Autonomous Taxation

Articles 89 and 90 of the CIRC establish the following, in the wording given by Law no. 3-B/2010, of 28 April, which is applicable to the case:

Article 89

Competence for Assessment

The assessment of CIT is carried out:

a) By the taxpayer itself, in the declarations referred to in articles 120 and 122;

b) By the Tax Authority, in the remaining cases.

Article 90

Procedure and Form of Assessment

1 - The assessment of CIT is processed in the following manner:

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

b) In the absence of submission of the declaration referred to in article 120, the assessment is carried out by 30 November of the year following the one to which it refers or, in the case provided for in no. 2 of said article, by the end of the 6th month following the end of the deadline for submission of the declaration mentioned therein and is based on the annual amount of the minimum monthly remuneration or, where higher, the entirety of the taxable matter of the nearest fiscal year which is determined;

c) In the absence of assessment in accordance with the previous paragraphs, it is based on the elements available to the tax administration.

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

a) That corresponding to international double taxation;

b) That relating to tax benefits;

c) That relating to the special payment on account referred to in article 106;

d) That relating to withholdings at source not capable of compensation or reimbursement in accordance with the applicable legislation.

3 – (Repealed by Law no. 3-B/10)

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

5 – The deductions referred to in no. 2 concerning entities to which the fiscal transparency regime established in article 6 is applicable are imputed to the respective partners or members in accordance with the terms established in no. 3 of that article and deducted from the amount determined based on the taxable matter that took into account the imputation provided for in the same article.

6 – When the special taxation regime for groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are made in the amount determined concerning the group, in accordance with no. 1.

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

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

9 – In cases where the provisions of paragraph b) of no. 2 of article 79 are applicable, annual assessments are made based on taxable matter determined on a provisional basis, and, in relation to the assessment corresponding to the taxable matter relating to the entire assessment period, the difference determined shall be collected or cancelled.

10 – The assessment provided for in no. 1 can be corrected, if applicable, within the period referred to in article 101, collecting or cancelling the differences determined.

It should be noted from the outset that the essential question is not whether autonomous taxation is or is not CIT, as it is clear that the assessment of autonomous taxation is carried out on the basis of articles 89 and 90 no. 1 of the CIT Code but, in truth, applying different rules for calculating the tax:

(1) in one case the assessment operates, through the 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 determined according to the diversity of facts that give rise to autonomous taxation.

From this it follows that the amount determined in accordance with paragraph a) of no. 1 of article 90 does not have a unitary character, as it contains values calculated according to different rules, to which different purposes are associated, so the deductions provided for in the paragraphs of no. 2 can only be made to the part of the CIT collection with which there is a direct correspondence, so as to maintain the coherence of the conceptual structure of the standard regime of the tax.

It is concluded from this, if we understand correctly, that there is not even true controversy between the parties regarding the application of article 90 of the CIRC to the assessment of autonomous taxation, with the divergence being limited to the manner of proceeding with the assessment, as the TA understands, if we understand correctly, that various collections are determined according to the diversity of facts that give rise to autonomous taxation and the deductions provided for in the paragraphs of no. 2 can only be made to the part of the collection of CIT with which there is a direct correspondence, understanding that it does not exist in relation to the collection of CIT that results from autonomous taxation.

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

From the outset – it is reiterated – it is today peaceful, following abundant arbitral jurisprudence (much of it cited by the Applicant itself) and the positions assumed by the TA, that the tax collected on the basis of autonomous taxation provided for in the CIRC has the nature of CIT.

Moreover, beyond the unanimity of jurisprudence, article 23-A no. 1, paragraph a), of the CIRC, in the wording of Law no. 2/2014, of 16 January, leaves today no room for any reasonable doubt, corroborating what previously already resulted from the literal content of article 12 of the same Code.

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

Therefore, article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the TA, following the submission or not of declarations, and there is no other provision that provides for different terms for its assessment.

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

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

However, the fact that a self-assessment of CIT, carried out in accordance with no. 1 of article 90, may contain several partial calculations based on several applicable rates to certain taxable matters does not imply that there is more than one assessment, as results from the very terms of that rule when referring to "assessment", in the singular, in all cases where it is "made by the taxpayer in the declarations referred to in articles 120 and 122", having "as its basis the taxable matter contained therein" (whether that determined on the basis of the rules of articles 17 et seq. or that determined on the basis of the various situations provided for in article 88).

Moreover, it is not only the assessments provided for in article 88 that can encompass several calculations of application of rates to certain taxable matters, as the same can occur in the situations provided for in nos. 4 to 6 of article 87.

In any event, whatever calculations are to be made, it is a unitary self-assessment that the taxpayer or the TA must make in accordance with articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c), and 120 or 122, and on the basis of it that the overall CIT is calculated, whatever the taxable matters relating to each one of the types of taxation that may underlie it.

Moreover, if article 90 were not applicable to the assessment of autonomous taxation provided for in the CIRC, we would have to conclude that there would be no provision providing for its assessment, which would amount to illegality, due to violation of article 103, no. 3 of the CRP, which requires that the assessment of taxes be made "in accordance with the law".

It is further worth noting that the new no. 21 added to article 88 of the CIRC by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretive, in no way alters this conclusion, as it establishes, as regards the form of assessment of autonomous taxation, that it "is carried out in accordance with the provisions of article 89 and is based on the values and rates resulting from the provisions of the previous numbers".

In fact, if it is true that this new rule comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the text itself of the various provisions of article 88) and that competence falls to the taxpayer or the TA, in accordance with article 89, it is also clear that the need to use the procedure provided for in no. 1 of article 90 is not set aside, in particular in the cases provided for in its paragraph c) where assessment falls to the TA, on the "basis of elements available to the tax administration", which seems unquestionable that will encompass the possibility of assessing based on autonomous taxation, if the TA has elements that prove its assumptions.

Therefore, both before and after Law no. 7-A/2016, of 30 March, article 90, no. 1 of the CIRC is applicable, in the terms referred to, to the assessment of autonomous taxation, that is, with autonomous and distinct determination of the manner processed in accordance with said article 90.

From this it follows that the approach to the question from the (un)constitutional perspective raised by the Applicant is prejudicial.

III.2.4 The Question of Deductibility of Investment Expenses Provided for in FIRD and ETCI from Amounts Owed as Autonomous Taxation

Examining the norms that governed the system of fiscal incentives for research and business development[2], commonly called FIRD, in the circumstances of time that are relevant to the present proceedings, we verify that, according to article 4 (Scope of Deduction) of the statute:

"The taxpayers liable to CIT resident in Portuguese territory who engage, as the main or secondary activity, in an activity of an agricultural, industrial, commercial or services nature and non-residents with permanent establishment in that territory can deduct from the amount determined in accordance with article 90 of the CIT Code, and up to its concurrence, the value corresponding to expenses with research and development, in the part that has not been subject to financial participation of the State on a non-refundable basis, realized in the tax periods of 1 January 2011 to 31 December 2015, in a double percentage:

a) Base rate – 32.5% of the expenses realized in that period;

b) Incremental rate – 50% of the increase in expenses realized in that period in relation to the simple arithmetic mean of the two previous fiscal years, up to the limit of (euros) 1,500,000.

2 – (...)

3 - The deduction is made, in accordance with article 90 of the CIT Code, in the assessment relating to the tax period mentioned in the previous number.

4 - Expenses which, due to insufficient collection, cannot be deducted in the fiscal year in which they were realized may be deducted up to the 6th subsequent fiscal year".

FIRD allows companies to obtain a tax benefit, in CIT, proportional to the expense of investment in research and development (at the level of processes, products and organizational) that they can evidence, in the part that has not been subject to financial participation of the State on a non-refundable basis (See Law no. 55-A/2010 of 31 December, Decree-Law no. 82/2013 of 17 June and Law no. 83-C/2013 of 31 December.[3]

FIRD aims to increase the competitiveness of companies, supporting their efforts in Research and Development through the deduction from the CIT collection of the respective expenses.

It was created as a measure to stimulate the participation of the business sector in the overall research and development effort. The experience resulting from its application allows us to conclude that this mechanism has contributed to an increase in research and development activity by Portuguese companies.

This system of incentive underwent several revisions. In the regime applicable from 2011 (FIRD II) the introduction of some changes to the legislation hitherto in force aimed to make this regime more attractive to companies.

The benefit to be obtained with FIRD II thus translates into the possibility of deducting from the CIT collection determined in the fiscal year, an amount of tax credit that results from the sum of the following items:

• Base rate: 32.5% of the expenses realized in the fiscal year;

• Incremental rate: 50% of the increase in expenses realized in the fiscal year compared to the simple arithmetic mean of the expenses realized in the two previous fiscal years, up to the limit of € 1,500,000.

That is: it is, in essence, the possibility of deducting from the CIT collection determined in the fiscal year, the amount of tax credit verified. Expenses which, due to insufficient collection, cannot be deducted in the fiscal year in which they were realized can be deducted up to the eighth subsequent fiscal year.

The preliminary question in this respect and with a view to the object of the dispute is how to calculate the amount referred to in article 90 of the CIRC to which the value corresponding to expenses with research and development, in the part that has not been subject to financial participation of the State on a non-refundable basis, should then be deducted, in a double percentage: 32.5% of the expenses realized in the tax period and 50% of the increase in expenses realized in the tax period in relation to the simple arithmetic mean of the two previous fiscal years, up to the limit of 1,500,000 euros.

As regards the deduction of ETCI and as sustained by the Respondent, article 3, no. 5, paragraph a), of Law no. 49/2013 itself provides a clarifying response, 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 CIT 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 article 69:

"Where a group of companies exists, the dominant company may opt for the application of the special regime for determining taxable matter in relation to all companies in the group (...)", the calculation of which obeys, among others, the special rules provided for in articles 70 and 71, where no interference of autonomous taxation is detected, which, moreover, is determined autonomously by each company belonging to the group.

From which it follows that if the legislature clarified, in cases where the special regime for taxation of groups of companies is applied, that the part of the CIT collection to which the deduction of the tax benefit would be made was that calculated on the basis of the group's taxable matter, it would be difficult to understand that in cases where the company is taxed individually the deduction of the benefit were made from the CIT collection that included the part relating to autonomous taxation.

In conclusion: the norms that regulate the deduction of tax benefits, in this case, ETCI and FIRD integrate themselves by the way they operate and by the purposes attached to the benefits, in the structure of the standard regime of CIT, so they are not reconcilable with the ratio legis of autonomous taxation nor with their respective taxable events, and the proof is that the legislature itself took care to mark that dividing line in article 3, no. 5, paragraph a), of Law no. 49/2013.

Subsuming:

The Applicant seeks that the tax credits that, in the years 2012 and 2013, were recognized to it under FIRD ETCI be deducted from the collection produced by the autonomous taxation that burdened it in those fiscal years.

Now, examining the norms that governed FIRD II and ETCI, it is verified that the conjunction of these with article 90 of the CIRC, the values that represent the tax benefit under FIRD and ETCI are deducted from the amounts determined in accordance with article 90 of the CIT Code, and, in the case of FIRD, in the assessment concerning the tax period in which the expenses are realized for that purpose eligible and that, in the absence or insufficiency of collection determined in those terms, the expenses that cannot be deducted in the fiscal year in which they were realized "may be deducted up to the 6th subsequent fiscal year".

Now then, the collection referred to in article 90 when the assessment is to be made by the taxpayer (situation that occurs in the proceedings), is determined based on the taxable matter contained in that assessment/self-assessment [see article 90, no. 1, paragraph a) of the CIRC].

In this way, the credit in which FIRD and ETCI are translated is deducted only from the collection thus determined, that is, from the collection determined based on the taxable matter and not from the collection resulting from autonomous taxation.

That is: there is an express legal impediment in the CIT Code for the credits FIRD and ETCI arising to be deducted from autonomous taxation.

III. 6 - Developing and Historicizing Better the Question of the Nature of Autonomous Taxation and Its Degree of Connection with CIT

One must go back to the year 1990 to find the first intervention by the legislature in the sense of subjecting certain expenses to autonomous taxation, which occurred with the publication of Decree-Law no. 192/90, of 9 June, the fourth article of which provided that "confidential or undocumented expenses incurred in the scope of the exercise of commercial, industrial or agricultural activities by taxpayers liable to IRS who possess or should possess organized accounts or by taxpayers liable to CIT not covered in articles 8 and 9 of the respective Code are taxed autonomously in IRS or CIT, as the case may be, at a rate of 10%, without prejudice to the provisions of paragraph h) of no. 1 of article 41 of the CIRC."

This norm was subject to various subsequent changes which successively proceeded to increase the rate of taxation provided therein.

With this type of taxation it was intended, on one hand, to incentivize the taxpayers subject to it to reduce as much as possible the expenses that negatively affect tax revenue and, on the other hand, to prevent that, through these expenses, companies would proceed to disguised distribution of profits, especially dividends that would thus only be subject to CIT as company profits, as well as to combat the fraud and tax evasion that such expenses occasion not only in relation to IRS or CIT, but also in relation to the corresponding contributions, both of employers and workers, to social security.

Saldanha Sanches (Manual de Direito Fiscal, 3rd Edition, Coimbra Editor, 2007, page 407), regarding autonomous taxation provided for in article 81, no. 3 of the CIRC, wrote the following: "(...)In this type of taxation, the legislature seeks to respond to the admittedly difficult question of the tax regime for expenses that are found in the zone of intersection between the personal sphere and the business sphere, so as to prevent remuneration in kind more attractive for purely tax reasons or hidden distribution of profits. The norm presents a characteristic similar to what we will find in the legal sanction against undocumented costs, with an increase in the rate when the situation of the taxpayer does not correspond to a situation of fiscal normality. If in the taxpayer's declaration there is no profit, the cost can be subject to negative evaluation: for example, we have a rate of 15% applied when the taxpayer had losses in the two previous fiscal years and purchased a light passenger vehicle for more than € 40,000 (article 81, no. 4).

With this provision, the system shows its dual nature, with an aggravated rate of autonomous taxation for certain special situations that it seeks to discourage, such as the acquisition of vehicles for business purposes or vehicles in principle too costly when there are losses. Here, a sort of presumption is created that these costs do not have a business cause and, therefore, are subject to autonomous taxation. In summary, the cost is deductible, but autonomous taxation reduces its tax advantage, since here the basis of incidence is not a net income, but rather an exceptionally transformed – cost – into an object of taxation (...)" (our emphasis).

Contrary to what occurs in the taxation of income under IRS and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the tax bracket in which the taxpayer falls), in this case each expense incurred is taxed, considered in itself, and subject to a certain rate, being autonomous taxation determined independently of the CIT owed in each fiscal year, because it is not directly related to obtaining a positive result, and therefore liable to taxation.

Thus, and in the case of CIT, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income earned in a given year, the law considering that the taxable event of the tax is deemed to have occurred on the last day of the tax period (see article 8, no. 9 of the CIRC).

As for autonomous taxation in CIT, the taxable event of the tax is the very performance of the expense, we are not dealing with a complex fact, of successive formation over a year, but with an instantaneous taxable fact.

This characteristic of autonomous taxation directs us, thus, to the distinction between periodic taxes (whose taxable event is produced successively, through the passage of a certain period of time, usually annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single-obligation taxes (whose taxable event is produced instantaneously, emerges isolated in time, generating on the taxpayer an obligation of payment with a sporadic character).

In autonomous taxation, the taxable fact giving rise to the tax is instantaneous: it is exhausted in the act of carrying out a certain expense that is subject to taxation (although the determination of the amount of tax resulting from the application of the various rates of autonomous taxation to the various acts of expense realization considered, comes to be carried out at the end of a given tax period). But the fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of lasting character. That operation of assessment translates only into the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, the rate of which is applied to each expense, with no influence of the volume of expenses incurred in determining the rate.

In this case we are dealing with a single-obligation tax, falling on operations that are produced and exhausted instantaneously, in which the taxable event of the tax emerges isolated in time, originating, for the taxpayer, an obligation of payment with a sporadic character. That is, the rates of autonomous taxation here under analysis do not refer to a period of time, but to a moment: that of the isolated operation subject to the rate, without prejudice to the determination of the amount owed by economic agents subject to said "rate" being carried out periodically, at a given moment, together with other similar operations, without the joint assessment influencing its result.

For this reason, Sérgio Vasques (Manual de Direito Fiscal, Almedina, 2011, page 293, footnote 470) draws attention to the fact that income taxes contemplate single-obligation elements, such as the exempting rates of IRS or the autonomous taxation rates of CIT.

Autonomous taxation, according to its initial regulation, constituted as it were a surrogate of the non-deductibility regime previously provided for in the CIRC.

In fact, at its genesis lay the non-acceptance from a fiscal perspective of a percentage of certain expenses, with autonomous taxation constituting an alternative and more effective form of correction of costs whenever it is a matter of areas more prone to tax evasion (allowances, representation expenses, vehicle expenses, etc.).

Thus, it would not be reasonable, before even contrary to the reason that led the legislature to autonomously tax those expenses, that, through their deduction from taxable profit as expenses, the foundation for the existence of autonomous taxation would be eliminated.

Arbitral jurisprudence has decided to the effect that autonomous taxation belongs, by rule, systematically, to CIT, and not to VAT, to IRS, or to any other tax in the Portuguese tax system. This is the case, inter alia, of Arbitral cases nos. 166/2014-T, 246/2013-T, 260/2013-T, 282/2013-T, 6/2014-T, 36/2014-T and 697/2014-T.

They are, therefore, strongly linked to the taxpayers liable to income tax in question, and, more specifically, to the economic and business activity carried out by them. What is at issue, in autonomous taxation is, in fact, taxing certain expenses or charges (costs), viewed these in their relation with the general idea of actual and effective profit and taxation of income.

In fact, it seems to us beyond doubt that the mechanism of autonomous taxation of all the realities provided for in article 88 of the CIRC aims, primarily, to safeguard the general equilibria of the tax system itself, the specific equilibria of CIT and the revenue of the tax itself. That is, it aims to prevent that through the significant recognition of charges as those provided for in article 88, distortions affecting the system are not introduced and the expectation of what should be the "normal" revenue of the tax is not disappointed. In the case, as is equally well-known, what is at issue is discouraging the performance/recognition of these expenses, not least because, by their nature and purposes, they can be more easily subject to diversion to private consumption or correspond to charges that nonetheless also have, as specific and ultimate purpose, the avoidance of tax. Realities that present some degree of culpability since, while not directly violating the law, generate sensible and important imbalances on the general idea of justice, on the fundamental duty to contribute in proportion to one's means, of equality, of sacrifice, of proportionality of the measure of the tax in face of possible manifestations of wealth, of taxation of actual income and of justice.

Functioning differently from what constitutes the essential scope of CIT – which taxes income – autonomous taxation, it is reiterated, taxes certain specific expenses or charges – and constitutes an instrumental, accessory reality of that tax, in the just measure in which it is in function of it that they were instituted and are, therefore, capable of being recognized as having an instrumentality or accessory quality of purposes, rooted in the safeguarding of the objectives of the tax itself where they manifest themselves.

It is thus certain that autonomous taxation does not constitute CIT in the strict sense but is intertwined with it, and should be contained in the "other taxes" of which the final part of paragraph a) of no. 1 of article 45 of the CIRC gives us account [wording then in force and current article 23-A/1-a) of the CIRC) (our emphasis)].

As was considered in the judgment of the Constitutional Court on appeal of arbitral tax decision, "(...)autonomous taxation, although governed normatively in the scope of income tax, is materially distinct from taxation in CIT, to the extent that it falls not directly on the taxable profit of the company, but on certain costs that constitute, in themselves, a new taxable fact (which refers not to the perception of income but to the performance of expenses). And, in this way, autonomous taxation has inherent the idea of discouraging a practice which, beyond affecting equality in the distribution of public charges, could involve situations of lesser fiscal transparency, and is explained by a legislative intention to stimulate companies to reduce as much as possible expenses that negatively affect tax revenue (...)" [See Judgment no. 197/2016 of the Constitutional Court, in DR, 2nd Series, no. 99, of 23 May 2016].

Revelations of this functional connection, and within the framework of the legislature's intention as a whole, stand out, for example, from the discipline of article 12 of the CIRC regarding entities subject to the fiscal transparency regime, by not taxing them in CIT, "except as to autonomous taxation", a relationship that likewise manifests itself before no. 14 of article 88 of the CIRC, in the sense that the rates of autonomous taxation take into account whether the taxpayer presents a fiscal loss or not.

"Although formally inserted in the CIRC and the amount that it permits to collect is collected in its scope and as CIT, the norm in question concerns a fiscal imposition that is materially distinct from taxation in this schedule, (….). In fact, we are dealing with autonomous taxation, as the very letter of the precept says. And that makes all the difference. It is not a matter of taxing income at the end of the tax period, but certain types of expenses in themselves, for the understandable reasons of tax policy that the judgment points out.

In this way, the fact revealing taxable capacity that is intended to be achieved is the simple performance of that expense, at a given moment. Each expense is, for this purpose, an autonomous taxable fact, to which the taxpayer is subject, whether or not it has taxable income in CIT at the end of the period, it being irrelevant that this portion of tax is only to be assessed at a later moment and together with CIT (...)" [vote of the Judge of the Constitutional Court Vítor Gomes in the Judgment of that Court rendered in Case no. 2014/2010. This understanding was subsequently confirmed or reiterated by the Judgment of the Plenary of the CC no. 617/2012 - case no. 150/12, of 31/1/2013 and in the Judgment no. 197/2016 - case no. 465/2015, in addition to the cited Judgment no. 197/2016].

It was likewise recognized by the jurisprudence of the STA (2nd Section, case 830/11, of 21-03-2012) "that under the designation of autonomous taxation are hidden very diverse realities, including, in accordance with no. 1 of (then) article 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 incurred by taxpayers totally or partially exempt, or who do not engage, as a main activity, in activities of a commercial, industrial or agricultural nature (no. 2 of [then] article 81) and which are not considered as a cost in the calculation of income liable to CIT.

It should be noted however that already representation expenses and those related to light vehicles, pursuant to the provisions of (then) article 81 no. 3 of the CIRC and allowances are affected to business activity and "indispensable" so are fiscally accepted in some cases although within certain limits.

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

In judgment no. 310/12, of 20 June (Reporting Judge João Cura Mariano), the Constitutional Court reformulates the doctrine of Judgment no. 18/11 of the same Court, drawing closer to the dissenting vote of Counselor Vítor Gomes and the Judgment of the STA no. 830/11, in the following terms: "(...)Contrary to what occurs in the taxation of income under IRS and CIT, in which the set of income earned in a given year is taxed (which implies that only at the end of the same the tax rate can be determined, as well as the tax bracket in which the taxpayer falls), in this case each expense incurred is taxed, considered in itself, and subject to a certain rate, being autonomous taxation determined independently of the CIT owed in each fiscal year, because it is not directly related to obtaining a positive result, and therefore liable to taxation. (our emphasis).

Thus, and in the case of CIT, we are dealing with an annual tax, in which each income received is not taxed per se, but rather the aggregation of all income earned in a given year, the law considering that the taxable event of the tax is deemed to have occurred on the last day of the tax period (see article 8, no. 9 of the CIRC). As for autonomous taxation in CIT, the taxable event of the tax is the very performance of the expense, we are not dealing with a complex fact, of successive formation over a year, but with an instantaneous taxable fact. This characteristic of autonomous taxation directs us, thus, to the distinction between periodic taxes (whose taxable event is produced successively, through the passage of a certain period of time, usually annual, and tends to repeat itself over time, generating for the taxpayer the obligation to pay tax on a regular basis) and single-obligation taxes (whose taxable event is produced instantaneously, emerges isolated in time, generating on the taxpayer an obligation of payment with a sporadic character). In autonomous taxation, the taxable fact giving rise to the tax is instantaneous: it is exhausted in the act of carrying out a certain expense that is subject to taxation (although the determination of the amount of tax resulting from the application of the various rates of autonomous taxation to the various acts of expense realization considered, comes to be carried out at the end of a given tax period). But the fact that the assessment of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of lasting character. That operation of assessment translates only into the aggregation, for collection purposes, of the set of operations subject to that autonomous taxation, the rate of which is applied to each expense, with no influence of the volume of expenses incurred in determining the rate (...)"

Analyzed from yet another perspective, autonomous taxation must be considered in the context of specific anti-abuse norms and their similarity with the regime provided for in no. 1 of article 65 of the CIRC, in the 2011 wording ("the amounts paid or owed, in any capacity, to natural or legal persons resident outside Portuguese territory and there subject to a clearly more favorable tax regime are not deductible for the purposes of determining taxable profit, unless the taxpayer can prove that such charges correspond to actually realized operations and do not have an abnormal character or exaggerated amount").

Aiming autonomous taxation to reduce the tax advantage achieved with deduction from taxable profit of the costs on which it falls and yet combating the tax evasion that this type of expense, by its nature, potentiates, it cannot itself through its deduction from taxable profit as an expense of the fiscal year constitute a factor of reduction of that decrease of advantage intended and determined by the legislature.

Concluding: autonomous taxation, which falls on deductible charges in CIT, integrate the regime and are owed as of this tax, not constituting the expenses with payment of those autonomous taxation deductible charges for the purposes of determining taxable profit.

This understanding was also clarified by article 3 of Law no. 2/2014, of 16 January, which added article 23-A) to the CIRC (while its article 13 repealed article 45), with the following wording:

Article 23-A) – Charges Non-Deductible for Tax Purposes

"1. The following charges are not deductible for the purposes of determining taxable profit, even when recorded as expenses of the tax period:

a) CIT, including autonomous taxation, and any other taxes that directly or indirectly fall on profits".

There being no doubt as to the interpretive character of the transcribed precept, in accordance with the rules of legal hermeneutics, in practice, such a norm comes to express what the legislature always understood and continues to understand, that is that the charges resulting from the cost associated with autonomous taxation, is not relevant for the purposes of determining taxable profit.

Thus, in the case sub judice, there appears to be no violation by the TA of the rules of procedure and/or form of assessment provided for in article 90 of the CIRC with the disregard, for that purpose, of autonomous taxation assessed and paid by the applicant.

From this it follows that the intended illegality does not occur in the calculation of the collection relating to CIT in the applicant's fiscal years 2012 and 2013 for the purposes of deduction of the aforementioned eligible expenses in the scope of FIRD.

III. 7 - The SPAC – Special Payment on Account of CIT Finally Due

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

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

The provisionalness of the tax payment resided after all in the possibility of deducting the amounts paid as SPAC from CIT determined in the general terms, fixed in article 71 of the CIRC then in force (of which autonomous taxation was not yet a part), although this deduction was only possible if despite this operation the value of the tax to pay was positive (71-6 CIRC/1998). With no CIT to pay in the general terms, the SPAC value satisfied could be carried forward to the following fiscal year (74-A-1) or reimbursed later (74-A-2). It sought thus to ensure that the generality of taxpayers satisfied an amount on account of CIT, calculated provisionally on the volume of transactions of the previous fiscal year (83-A). Basically, it was fictioned that all companies would tend to have a taxable profit, calculated in accordance with the general parameters, equivalent to 1% of their transaction volume of the previous year, settling the account later, if this was not the case.

As well noted in the Arbitral Judgment rendered in Proc. 722/2015-T of CAAD, which we follow closely here, the reform of CIT carried out 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 carry forward of satisfied amounts be done only up to the fourth subsequent fiscal year (74-A-1 CIRC/2001). From this restrictive norm results, for the first time, the possibility of the SPAC transforming itself into minimum collection [in this sense, TERESA GIL, Pagamento Especial por Conta, Revista Fisco. Year XIV, (March 2003), no. 107-108, p. 12] when it would not be possible to deduct the satisfied amounts, by exhaustion of the carry forward period. In summary, it is possible to state that the changes introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had animated the introduction of the SPAC. Although on this occasion "autonomous taxation" was introduced into the CIRC, no mechanism of coordination between the two instruments was provided.

The third configuration of the SPAC is introduced by Law no. 32-B/2002, of 30 December, which in its article 27 introduced a new regime of deductibility of the SPAC in article 87, no. 3 of the CIRC, restoring the possibility of reimbursement of amounts delivered as special payment on account and not deducted in the annual CIT assessment. The character as a measure of pursuit of tax evasion was maintained here, although it was somewhat lightened, without abolishing it completely, the imprint of minimum collection, given the tight conditions imposed for reimbursement.

Article 104 of the CIRC (wording of DL no. 292/2009, of 13-10) provides that: "Entities that engage, as a main activity, in activity of a commercial, industrial or agricultural nature, as well as non-residents with permanent establishment in Portuguese territory, must proceed to pay the tax in the following terms:

a) In three payments on account, with due dates 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, in the 7th month, the 9th month and on the 15th day of the 12th month of the respective tax period;"

(…)

And article 106 of the CIRC (wording given by Law no. 66-B/2012, of 31-12) provides: "Without prejudice to the provisions of paragraph a) of no. 1 of article 104, the taxpayers 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 the taxable profit relates or, in the case of adopting a tax period not coinciding with the calendar year, in the 3rd and 10th months of the respective tax period."

From the foregoing results the obligation, for CIT taxpayers, to make payments on account of CIT that will be owed finally. As is known, the technique of payments on account consists, in general, in a mere mechanism of anticipation of the tax that will be owed finally. It is, as is peacefully accepted and well noted in the Arbitral Judgment rendered in case 722/2015-T of CAAD, and in others, "a means that has advantages for the State as it allows it to anticipate the receipt of the tax, while at the same time ensuring its collection at the moment or as the income is produced, without prejudice to the final determination and with observance of the determination of what is owed according to the method of general taxation by actual profit."

It is true that the reason for being of payments on account and the special payment on account, starting from this common trunk - since, unequivocally, both are the product of a taxation technique whereby the collection of the tax owed finally is anticipated – diverges although, even so, they present (in the second case), justifications somewhat differentiated. While the reason for being of payments on account exhausts itself, in our view, in the foundations above evidenced, the special payment on account, not losing sight of that purpose, has another that has been added to it. In fact, as well stated in the Arbitral Judgment case no. 113/2015-T, "in doctrine and jurisprudence the SPAC regime has always been regarded as a system to prevent tax evasion and to guarantee the payment of tax by all companies in activity." It is also what results from the doctrinal work developed by the Constitutional Court. From its judgment no. 494/2009, it results that the SPAC, in the cut that was given to it in the CIRC, is also "inseparably linked to the fight against tax evasion and fraud", seeking to ensure that the income manifested by taxpayers "correspond[ed] to the taxable income actually earned".[See Judgment of the Constitutional Court (plenary) no. 494/2009 of 29-09-2009, case no. 150/12].

The cited Judgment no. 494/2009 of the Constitutional Court identifies multiple scientific works that have pronounced in the same sense, as is the case of Teresa Gil (See ref. and loc. cit.), who gave account of the circumstances surrounding the introduction of the SPAC, namely the difficulties in application of the principle of taxation by actual profit, observed in face of the "divergence that exists between profits actually obtained and those declared by companies and, therefore, subject to taxation".

As has been said, and in this step, we make our own the summary invoked in the above-mentioned Arbitral Decision, in which the current regime of the SPAC is thus characterized by "(i) having inseparable connection to the fight against tax evasion and fraud; (ii) having been introduced into the CIRC in March 1998, before the rates of autonomous taxation which only became part of its systematics in the 2000-2001 reform; (iii) in the conception of the SPAC its deduction from the collection in the CIT assessment calculated on actual income was provided; (iv) the recovery of the credit resulting from the SPAC is subordinated to conditions of obtaining profitability ratios proper to companies in the sector of activity in which they operate or to justification of the credit situation by inspection action made at the request of the taxpayer (87-3 of the CIRC).

A subsequent question is whether these special reasons are such as to allow the deduction from the collection of autonomous taxation either tax benefits to which the taxpayer is entitled, either the SPAC itself. As to the former we have already pronounced ourselves above in the sense of such impossibility. As to the SPAC the fact is that it is nothing more than a payment on account of CIT that will (presumably) be owed finally by the taxpayer, although with some special characteristics. And thus it is CIT for all legal purposes, there being, however, special rules for its return.

Unlike autonomous taxation, which is collection owed by reason of behaviors that the law wishes to discourage and, therefore, penalize the recognition of certain expenses for the reasons indicated, in the SPAC what is at issue is guaranteeing that it is advanced as CIT and without prejudice to its deduction from the general collection of the tax, determined as an effect of the operation of assessment strictly speaking, a certain measure of the tax.

Now, as well stated in the Arbitral Judgment case 13/2015-T, "the SPAC became part of the CIT system whose assessment was conceived to determine the tax directly falling on declared income. When there is a fiscal loss the taxpayer nonetheless still has to bear the SPAC; that was after all the reason for its introduction. If a given company has successive fiscal losses, it will systematically bear tax, as the system doubts the possibility of its operation in a permanently deficit situation, requiring it to provisionally satisfy (on account), a given value. It may reimburse it if it proves that this situation is common in its sector of activity or if the TA verifies the regularity of its declarations. This was the balance that the CIRC required to maintain a system based on declarations made by taxpayers.

The tax resulting from autonomous taxation is based solely on the pursuit of tax evasion by income transfer and has the effect of dissuading and compensatory. If the deduction of the SPAC from the collection resulting from autonomous taxation is permitted, the purposes of the system in which the norm of 83-2-e CIRC is inserted will be defeated, as the product of the special payment on account that should remain "stalled" in the ownership of the Public Treasury will be affected to the extinction of the debt of the taxpayer resulting from autonomous taxation, thus lightening the intended pressure to prevent tax evasion "declarative". There is indeed an irreconcilable conflict between the ratio of the SPAC – the fight against evasion or pressure for correction of declarations – and the allocation of its credits to the satisfaction of other obligations than those resulting from the determination of CIT calculated on the taxable result.

In practical terms the possibility of deduction of the SPAC from autonomous taxation would imply that even if a given company were eternally in a loss situation, no tax on its actual income would have to be borne, while applying the SPAC to the satisfaction of autonomous taxation. Moreover the autonomous taxation themselves (See Judgment of the Constitutional Court no. 617/2012, cited) would lose their anti-abuse character, coming to confuse themselves after all with the tax calculated on taxable profit. Now those are not the objectives of the taxation system of income of legal persons and the best interpretation of the norm contained in article 83-2-e CIRC is not that one decidedly that which permits deducting special payments on account from the collection resulting from the application of the rates of autonomous taxation."

In sum, reasonable considerations, derived from the purposes that were intended to be achieved legislatively with the creation of the special payment on account, justify a restrictive interpretation of articles 90, no. 1, and 93, no. 3, of the CIRC, in particular of the reference that in the latter is made «to the amount determined in the declaration referred to in article 120 of the CIRC».

It is worth emphasizing that this understanding of Arbitral Jurisprudence is, once more, in harmony with the new no. 21 of article 88 of the CIRC added, as we saw, by Law no. 7-A/2016, of 30 March, by establishing that to the amount determined of autonomous taxation no «deductions are made».

Also, in this case, the legislature limited itself to adopting, clarifying it, a solution that the courts, with recourse to the rules in force and by application of legal hermeneutics criteria, were in a position to extract from the regime to apply, which is all that this collective did, in the case at bar.

In fact, although article 135 attributes, as already stated, interpretive nature to no. 21 of article 88 of the CIRC, which combined with article 13 of the Civil Code leads to its retroactive application, as was demonstrated from the argumentation above, the solution found by this collective did not need to make application of this new precept.

In the same sense goes the Arbitral Judgment above cited no. 673/2015-T, where on this point it was likewise concluded, among others, that...

[Document continues with conclusion regarding the decision of the tribunal]