Autonomous Taxation IRC 2012: Deduction of Special Payments on Account from Autonomous Tax Collection

ARBITRAL DECISION

I. REPORT

A..., LDA, legal entity no. ..., with registered office at..., no. ..., in Lisbon, with a capital of €100,000.00, filed a petition for the constitution of a single Arbitral Tribunal, in accordance with the combined provisions of articles 2nd and 10th of Decree-Law no. 10/2011, of 20th January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (hereinafter AT or Respondent) is required, with the objective of obtaining a declaration of illegality of the act of rejection of the administrative complaint presented and, consequently, of the self-assessed corporate income tax act (IRC) for the financial year 2012, in the amount of €13,901.43.

The petition for constitution of the Arbitral Tribunal was accepted by the Illustrious President of CAAD on 22nd December 2015 and automatically notified to the AT.

In accordance with the provisions of paragraph c) of article 11 of RJAT, the single Arbitral Tribunal was constituted on 22nd February 2016.

The AT responded, defending the dismissal of the petition.

The meeting referred to in article 18 of RJAT was dispensed with, given the nature of the matter contained in the case files.

The Arbitral Tribunal is duly constituted and materially competent, in accordance with paragraph a) of article 2 of RJAT.

The parties have legal personality and capacity, are legitimately entitled, and are represented (article 4 and article 10, paragraph 2 of RJAT and article 1 of Regulatory Decree no. 112/2011, of 22nd March).

There are no nullities, exceptions or preliminary questions that prevent the immediate consideration of the merits of the case.

II. STATEMENT OF FACTS

Based on the elements contained in the proceedings attached to the case files, the following facts are considered proven:

A. The Claimant filed on 17th May 2013 the IRC Declaration Form 22 for the financial year 2012, having calculated an amount of autonomous taxation in IRC of €13,901.43 (Document no. 1);

B. The Claimant made payment of the IRC calculated in the said declaration for the financial year 2012 (Document no. 3);

C. To the tax resulting from the application of autonomous taxation rates in IRC, the Claimant was unable to enter the value relating to the said autonomous taxation rates in IRC due to a limitation of the AT's computer system;

D. The AT's computer system did not allow the Claimant to deduct, within the scope of the IRC collection resulting from the application of autonomous taxation rates, the accumulated special payment on account amounts;

E. Consequently, the Claimant calculated a tax credit paid by reference to the 2012 fiscal year, in the form of special payments on account (PEC), in the amount of €27,848.08 (Documents no. 4 and 5);

F. The Claimant made PEC payments in an amount exceeding the collection of autonomous taxation in IRC for the financial year 2012, which amounted to €13,901.43.

G. On 15th May 2015, an administrative complaint of the self-assessed act already identified was filed;

H. The AT did not rule on the administrative complaint until the date of submission of the present arbitral petition.

Taking into account the positions assumed by the parties, in light of article 110, paragraph 7 of CPPT and the documentary evidence attached to the case files, the facts listed above are considered proven, with relevance to the decision.

III. LAW

The main issue that arises in the present proceedings is whether the amounts paid in the form of special payments on account by the Claimant can be deducted from the collection produced by autonomous taxation rates, in the context of IRC.

To this end, the Claimant alleges in its petition for arbitral ruling the following:

1. The IRC collection provided for in article 90, paragraph 1, and paragraph 2, letter c), of the IRC Code, in the version in force in 2013, also encompasses the collection of autonomous taxation in IRC;

2. If it is understood that autonomous taxation is IRC, it is irrelevant whether the benefit rule refers to what is calculated in application of article 90 of the IRC Code (as is the case with SIFIDE), or directly to IRC, as is the case with PEC.

3. Arbitral jurisprudence has held that autonomous taxation relating, at least, to vehicle expenses, allowances and representation expenses causes is a substitute (or complement) for the non-deductibility of expenses in IRC, therefore the nature of the collection produced by these autonomous taxation is IRC.

4. For the same reason, this taxpayer requests that, coherently, it be concluded that the IRC collection constituted by these autonomous taxation is available, alongside the remainder of the IRC collection, in the operation of deductions from the collection provided for in article 90 of the IRC Code, among which is the deduction of PEC.

5. Whether in the decision matrix generated in case no. 59/2014-T, or in the decision matrices (followed in many other decisions) generated in cases no. 80/2014-T and 187/2013-T, what stands out is this:

a) autonomous taxation relating to vehicle expenses, representation expenses and allowances are IRC (and in cases no. 6/2014-T and 80/2014-T the autonomous taxation on managers' bonuses was integrated in the same classification, which was also at issue there, the same having occurred in other cases regarding this taxation, and equally regarding autonomous taxation on indemnities to managers for cessation of duties, of which cases no. 659/2014-T and 697/2014-T are examples);

b) they further tax income, as they are a substitute for the alternative measure of increasing taxable income via the non-deductibility of the expense or charge on which autonomous taxation is imposed (see in particular cases no. 80/2014-T and 187/2013-T);

c) because they are IRC, the general rule directed at the collection (calculated tax) of IRC contained in paragraph a) of article 45 of the IRC Code should be applied to them;

d) extracting a more general rule, as the decision issued in case no. 59/2014-T does, "autonomous taxation of which legal entities are taxable persons are considered IRC, therefore the rules of the IRC Code that do not conflict with their special form of incidence and applicable rates shall be applicable to them".

1. If autonomous taxation were (after all) not IRC for purposes of article 90 of the IRC Code, as the AT has come to claim in other proceedings concerning deductions from collection (which is not unfamiliar to the AT in those proceedings, which must administer the annual assessment of TA – see Doc. no. 11), on what basis then has the assessment and been made of autonomous taxation?

2. Therefore, if the AT understands that in that article 90 of the IRC Code the collection of IRC resulting from autonomous taxation (calculated in accordance with article 88) is not included, but only the collection of IRC resulting from taxable profit (calculated in accordance with article 87), it would always have to be concluded nonetheless that, after all, the assessment of autonomous taxation itself is, in itself, illegal, by force of either article 8, paragraph 2, letter a), of the General Tax Law, or article 103, paragraph 3, of the Constitution of the Portuguese Republic: "No one can be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature in accordance with the law or whose assessment and collection are not made in accordance with the law."

3. In a scenario where, despite all the arguments set out above, it is understood that it is not possible to make the deduction of available tax benefits and special payments on account from the amounts owed in the form of autonomous taxation, arguing that, although in essence autonomous taxation is IRC, its assessment does not fit within the IRC assessment rule enshrined in article 90 of the IRC Code (which is conceived only as a mere theoretical hypothesis), then the claimant requests, in the alternative, that the self-assessment of the taxation period of 2012 be annulled, in the portion corresponding to autonomous taxation, on the ground that the same have been assessed and collected without legal basis for this.

4. The reasons that led the IRC Services Directorate to rule out the possibility of deducting the tax credit from DTI against the collection of autonomous taxation are not extensible to other matters, in particular to credits arising from SIFIDE or CFEI, which, moreover, curiously, and similarly to autonomous taxation, result from the application of a percentage to certain expenses (of investment), or to PEC.

5. The Claimant paid tax in an amount greater than that legally due (see Docs. no. 1 and 3), therefore, with the illegality of the (self-)assessments declared in the part petitioned here, the Claimant is entitled not only to the respective reimbursement, but also, under article 43 of the General Tax Law ("LGT"), to compensatory interest.

6. With the State Budget Law for 2016 (Law no. 7-A/2016, of 30th March, hereinafter OE 2016), Parliament intervened in this matter at the request of the AT, and reiterated that article 89 of the IRC Code was also applicable to the assessment of autonomous taxation (part 1 of the new paragraph 21 of article 88 of the IRC Code). Inexplicably, it did not expressly reiterate that article 90 of the IRC Code also applies to the assessment of autonomous taxation, which, given already the content of its paragraph 1, which concretizes what had been announced in the preceding article 89, is not understood.

7. The legislator in the OE 2016 chose to exclude the application of part of the provision of article 90 of the IRC Code to the collection of IRC, to the collection of autonomous taxation in IRC (part 2 of the new paragraph 21 of article 88 of the IRC Code), having attributed interpretative character to that rule;

8. As expressed in the Plenary Opinion of the Supreme Court of Justice no. 2/82, of 18th June, "[i]f the rule, in addition to being uncertain, is already controversial, then the new law can only be qualified as interpretative if it resolves the problem within the parameters of the controversy generated in this regard, following a strong prior line of case law.";

9. It is recalled that with respect specifically to the subject of deductions from collection we have 4 arbitral rulings, involving 8 distinct arbitrators, which unanimously (and in two of the cases there was selection of arbitrators by the parties: 369/2015-T and 370/2015-T) confirmed, consistently with prior jurisprudence, the applicability (as not excluded by law, but rather provided without exceptions for IRC) of deductions from collection in IRC to the collection in IRC of autonomous taxation: rulings issued in cases no. 769/2014-T, 219/2015-T, 369/2015-T and 370/2015-T;

10. As stated in the ruling of the Supreme Court of Justice standardizing jurisprudence, issued in case no. 075143, of 2nd March 1994, citing Baptista Machado, "[f]or this purpose, the notion given to us by Baptista Machado of interpretative law must be borne in mind, Introdução ao Direito e ao Discurso Legitimador, p. 247: For a new law to be truly interpretative, therefore, two requirements are necessary: that the solution of prior law be controversial or, at least, uncertain; and that the solution defined by the new law be situated within the framework of the controversy and be such that the judge or interpreter could reach it without exceeding the limits normally imposed on the interpretation or application of the law."

11. Paragraph 21 is entirely a new provision, which did not exist prior to OE 2016.

12. Therefore, taking into account this context of imprecision of the rule (article 135 of OE 2016), to which is added both the legal directive that one should presume that the legislator adopted the most correct solutions, and the directive of interpretation most in accordance with the constitution, it should be understood that when it attributed interpretative character "to the wording given by this law to paragraph 21 of article 88 of the IRC Code" article 135 of OE 2016 wishes to refer to part 1, and not part 2, of the said paragraph 21.

13. As J. Baptista Machado notes (Introdução ao Direito e ao Discurso Legitimador, Almedina, reprint, October 2012 on p 245, in footnote no. 1, this Author cites the ruling of the Plenary of the Supreme Administrative Court of 21.01.1981, where the following is stated: ""The qualification, as interpretative law, made by the legislator, of a provision that cannot be considered as an interpretative rule by nature, because it represents a solution that does not correspond to one of the possible meanings of the prior rule, is equivalent to a mere clause of retroactivity".—"The application, as an interpretative rule, of a provision which, notwithstanding being qualified as such by the legislator, turns out to be an innovative rule, in the terms referred to in the preceding number, is inadmissible, in cases where the constitutional legal system would not allow simple and direct retroactive application of the provision of an innovative character".

14. The regime for the application of laws over time provided for in the Civil Code (which includes by right its article 13), does not apply with respect to matters that have their own special regime for this purpose, in obedience to distinct principles, as is the case (currently) with taxes: see article 12 of LGT and article 103, paragraph 3, of the Constitution.

15. In the concrete case under examination, it is judged that there is more than reasonable doubt that part 2 of the new paragraph 21 of article 88 of the IRC Code could be regarded as a rule that interprets (or reiterates) another rule, and that does so within the possible limits of interpretation (including the textual limit of the pre-existing rule), for more than one reason, duly set out above.

16. But even if there were no certainty on this point, given the guaranteeing role, with constitutional dignity, of the prohibition of retroactivity of tax law, reasonable doubt is sufficient: at minimum, it transfers the burden (if it was not always there, given the general rules of burden of proof) to whoever calls for the interpretative nature of a law and thereby intends to apply it retroactively, of demonstrating (removing the reasonable doubt) that it really is its nature.

17. And further: even if that demonstration succeeded in showing that there was an (authentic) interpretative law (part 2 of the new paragraph 21 of article 88 of the IRC Code) (as opposed to law interpretative in name only), nonetheless any pretention of attribution of retroactive character to this rule would not be consistent with the constitutional prohibition of retroactivity of tax law.

18. As expressed in the ruling of the Constitutional Court no. 172/00, in the first case (it is judged) of application of the new constitutional parameter arising from the 1997 revision (the parameter of the prohibition of retroactivity of tax law, contained in paragraph 3 of article 103 of the Constitution), the constitutional principle of prohibition of retroactivity of taxes also deduces the prohibition of interpretative laws, whether or not they are "authentic" "interpretative" laws.

19. Let us see, because it is judged worthwhile, the legitimating discourse of the understanding set out in this ruling:

(...) if it is true that authentically interpretative laws do not truly shake the concrete prior expectations of their recipients, in the case where the interpretation made binding is already known and has even been applied (...), nonetheless, even in those cases, the interpretative binding that such laws entail, by becoming the exclusive legal criterion for the application of the prior text of the law, modifies the relationship of the State, as emitter of rules, with its recipients. The exclusion by the interpretative law of other interpretations advocated and already applied in other cases (...) means that the State can subsequently prevent the Law it created from functioning through its intrinsic logic communicable to the recipients of the rules, allowing an imperative and immediate power to interfere in legal interpretation that alters the framework of the relevant elements of legal interpretation.

In this measure, it could be understood that the interpretative law, even if authentic, when it intends to apply to the period before its issuance, in accordance with article 13 of the Civil Code, alters the context of self-binding of the organs of application of Law to Law and, consequently, affects the security of the recipients of the rules protected by a (constitutional) prohibition of retroactivity. There will, consequently, in this latter situation, be a stronger security guarantee inherent to the prohibition of retroactivity.

Now, the explicit constitutional prohibition of retroactivity in tax matters cannot be interpreted in a way that excludes the strong sense previously referred to of protection of security, or is restrictively interpreted in terms similar to the prior case law of the Court, as if the constitutional text had not been altered and only resulted from general principles. The express prohibition of retroactivity cannot fail to be the home of a strong guarantee of objectivity and self-binding of the State by Law." (see pp 9 and 10 of the PDF version, published on the Constitutional Court website).

1. Later, in his Manual de Direito Fiscal, the same Author reiterated this same conclusion in the following terms: Saldanha Sanches, Manual de Direito Fiscal, 3rd Edition, Coimbra Editora 2007, p 193 et seq., in particular 196: "(...) it seems indisputable that henceforth, after the last constitutional revision [of 1997], the so-called interpretative or materially interpretative rules published in tax matters will not be accepted for the principle of prohibition of retroactive tax law to apply.".

2. In conclusion, should it be understood (i) that article 135 of OE 2016 (Law no. 7-A/2016, of 30th March) also attributed an interpretative nature to part 2 of the new paragraph 21 of article 88 of the IRC Code, that is, also to the normative segment "no deductions being made to the global amount [of autonomous taxation in IRC] calculated", introduced by the same OE 2016 (by its article 133), (ii) and that from this would result the application of article 13 of the Civil Code as it prescribes the retroactive application of interpretative laws, then one is faced with a material unconstitutionality of the said article 135 of OE 2016, for violation of the prohibition of retroactivity in tax matters provided for in article 103, paragraph 3 of the Constitution, whether it has been concluded or not (and it is understood that it has not), that one was faced with a materially interpretative law.

For its part, the AT alleges, in summary, the following:

1. Both jurisprudence and doctrine have abundantly addressed the characterization of the "autonomous taxation" figure in IRC (and in IRS) and the legislative evolution that has occurred since its creation, by article 4 of Decree-Law no. 192/90, of 09.06, to the present;

2. The considerations made in this regard reveal that the figure of autonomous taxation has been instrumentalized for the pursuit of diverse objectives, which range from the original purpose of preventing practices of evasion and fraud –, through undisclosed or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of taxation of accessory benefits in the form of representation expenses or allocation of vehicles to workers and members of the social bodies, in their respective sphere of recipients –, to the purpose of preventing the phenomenon referred to as "dividend washing" (see paragraph 11 of article 88 of the IRC Code) or of burdening, through taxation, the payment of income considered excessive (see paragraph 13 of the same provision).

3. In line with the characterization of autonomous taxation made in the Arbitral Decision issued in case no. 80/2014-T – and in the apt expression used there that "autonomous taxation are nothing more than ancillary mechanisms of the central axis of IRC, which is to tax profits (...)".

4. And as is further explained in the same Arbitral Decision, "the inclusion of autonomous taxation in the respective code (...) has as logical corollary the application of the general rules peculiar to this tax that do not conflict with its special form of incidence".

5. It is recognized, thus, that the autonomous character of this taxation, resulting from the special configuration given to the material and temporal aspects of the taxable events, requires, in certain areas, the exclusion or an adaptation of the general rules of application of IRC;

6. In fact, the integration of autonomous taxation into the IRC Code (and IRS), conferred a dualistic nature, in certain respects, on the normative system of this tax, which was embodied, in particular, in the framework of paragraph a) of article 90 of the IRC Code, in separate calculations of the respective collections, by force of obedience to different rules.

7. And this, because, in one case, it is the application of the rate(s) of article 87 of the IRC Code to the taxable income determined in accordance with the rules contained in Chapter III of the Code and, in another case, it is the application of the rates to the values of the taxable income relating to the different realities contemplated in article 88 of the IRC Code.

8. That is, contrary to what is affirmed in point 9 of the dissenting opinion statement attached to the Arbitral Decision issued in case no. 697/2014-T, there is not a single IRC assessment, but rather two calculations;

9. That is, two distinct calculations which, although processed, in accordance with paragraph a) of article 90 of the IRC Code, in the declarations referred to in articles 120 and 122 of the same code, are made on the basis of different parameters, as each is materialized in the application of its own rates, provided for in articles 87 or 88 of the IRC Code, to the respective taxable income also determined in accordance with its own rules.

10. It is necessary to carry out an interpretative exercise in order to determine whether the regime of deductions from the IRC collection, as an integral part of the general system of this tax and pre-existing the incorporation into the respective of autonomous taxation, also extends to the (multiple) collections of this taxation;

11. That is, it is necessary to determine whether the deductions provided for in paragraph 2 of article 90 of the IRC Code are comprised in the areas of conflict that result from the application of the general IRC regime to the discipline of "autonomous taxation;

12. It is stated, thus, in the arbitral decision issued in case no. 113/2015-T that being "autonomous taxation" [are] entirely foreign to the pursuit of the conceptual objective of the IRC Code, it is necessary to conclude that there will be situations in which the general rules will not be suitable to regulate the situation, as they pursue a different purpose. It is precisely in these situations in which the pre-existing rules of the IRC Code contribute to the determination of real income, that their inadequacy to govern "autonomous taxation" will be verified. In these cases of dissonance there will be such conflicts that it is important to resolve.

13. According to this interpretative thesis, whenever incompatibility is detected between the objectives inherent in the general structure of IRC and the objectives governing autonomous taxation, in principle, the general rules that make up the discipline of this tax are not applicable to it;

14. Therefore, it is evident that the integration of autonomous taxation into the IRC Code (and IRS) conferred a dualistic nature, in certain respects, on the normative system of this tax, which was embodied, in particular, in the framework of paragraph a) of article 90 of the IRC Code, in separate calculations of the respective collections, by force of obedience to different rules, because, in one case, it is the application of the rate(s) of article 87 of the IRC Code to the taxable income determined in accordance with the rules contained in Chapter III of the Code, i.e., on the basis of profit and, in another case, it is the application of the rates to the values of the taxable income relating to the different realities contemplated in article 88 of the IRC Code;

15. It should be clarified that the assessment of autonomous taxation is made on the basis of articles 89 and 90, paragraph 1 of the IRC Code but, applying different rules for the calculation of the tax: (1) in one case the assessment operates, through the application of the rates of article 87 to the taxable income calculated in accordance with the rules of Chapter III of the Code and (2) in the other case, various collections are calculated according to the diversity of the facts that originate autonomous taxation.

16. Therefore, the amount calculated in accordance with paragraph a) of article 90, paragraph 1 does not have a unitary character, as it comprises values calculated according to different rules, to which are associated different purposes, so that the deductions provided for in the paragraphs of paragraph 2 can only be made to the part of the IRC collection with which there is a direct correspondence, in order to maintain the coherence of the conceptual structure of the general regime of the tax.

17. For the basis of calculation of payments on account only the IRC calculated on the basis of taxable income determined in accordance with the rules of Chapter III and the rates of article 87 of the respective Code is considered.

18. It should be noted that the coherence and adequacy of this understanding is based on the very nature of the payments on account of the tax due finally, which, in accordance with the definition of article 33 of LGT are "the anticipated monetary payments that are made by taxable persons in the period of formation of the taxable event", constituting a "(...) form of approximation of the moment of collection to that of the perception of income so as to fill situations where this approximation cannot be effected through withholdings at source.".

19. Therefore, in good logic, it only makes sense to conclude that the respective basis of calculation corresponds to the amount of the IRC collection resulting from the taxable income that is identified with the profit/income of the taxable person's financial year.

20. With respect to tax credits intended to eliminate international double taxation (legal and economic), the very normative provisions themselves (articles 91 and 91-A of the IRC Code), which regulate their mode of calculation, specify that the income in question must have been included in the taxable income, a magnitude which, for obvious reasons, can only be that determined on the basis of profit (Chapter III of the Code) which constitutes the central core of IRC.

21. Also, for deductions from the collection as tax benefits, the amount to which they are made can only relate to the tax assessed on the basis of the taxable income, determined on the basis of the rules of Chapter III and the rates provided for in article 87 of the IRC Code.

22. The legal nature of PEC, revealed by its configuration as "an instrument or guarantee of payment of the tax on account of which it is required, and not as an imposition in itself" (see the Constitutional Court Ruling cited above), as well as by the function associated with it in combating tax evasion and fraud, links indissolubly this payment to the amount of IRC calculated on taxable income determined on the basis of profit (Chapter III of the Code).

23. In sum, the interpretation of paragraph 2 of article 90 in coherence with the nature and content of the deductions provided for in its paragraphs, among which PEC is included, must be done in light of the general objectives of IRC which are, in essence, reduced to the taxation of the income of legal entities, determined in accordance with the rules of Chapter III of the respective code;

24. Therefore, it is manifestly devoid of any basis the pretension of the now Claimant for deduction of the amount supported in the form of special payment on account from the collection produced by autonomous taxation in the years 2012 and 2013;

25. The State Budget for 2016 added paragraph 21 to article 88 of the IRC Code, attributing interpretative character thereto, where: "The assessment of autonomous taxation in IRC is effected in accordance with the provisions of article 89 and is based on the values and rates resulting from the aforementioned paragraphs, no deductions being made to the global amount calculated."

26. Following the entire itinerary travelled by the Respondent and the conclusions drawn therefrom (contrary to what the Claimant intends to demonstrate) it is evident that the reasoning shown and pre-existing the approval of the rule, entirely refutes the Claimant's arguments regarding the substantive issue of the case.

27. Indeed, the law, in attributing interpretative character, does not depart from the solutions that were already established either by Law or by legal-tax practice, rather, it interprets and clarifies the practical application of the now controversial provisions, revealing a non-innovative solution, so that the judge or interpreter could reach it without exceeding the limits normally imposed on the interpretation and application of law.

Given the foregoing, with respect to the position of the Parties and the arguments presented, to determine whether the tax act sub judice is or is not illegal, it will be necessary to verify what interpretation should be made of the rule contained in article 90, paragraph 2 d) of the IRC Code.

Let us see what should be understood.

A – INTERPRETATION OF ARTICLE 90, PARAGRAPHS 1 AND 2 D) OF THE IRC CODE

It follows from article 11 of the General Tax Law (LGT) that the interpretation of tax law must be carried out taking into account the general principles of interpretation.

The main general principles of interpretation are established in article 9 of the Civil Code (CC), as follows:

1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the conditions specific to the time in which it is applied.

2. The interpreter cannot, however, consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express its intent in adequate terms.

Thus, taking into account the aforementioned principles, it is important to note the provisions of article 90 of the IRC Code, which establishes the following:

Article 90

Procedure and form of assessment

1 — The assessment of IRC proceeds in the following terms:

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

b) In the absence of submission of the declaration referred to in article 120, the assessment is effected by 30th November of the following year to which it relates or, in the case provided for in paragraph 2 of the said article, by the end of the 6th month following the end of the time limit for submission of the declaration mentioned therein and is based on the value of the annual minimum monthly remuneration or, when higher, the entire taxable income of the closest financial year which is found to be determined;

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

2 — To the amount calculated in accordance with the preceding paragraph, the following deductions are made, in the order indicated:

a) That corresponding to international legal double taxation;

b) That corresponding to international economic double taxation;

c) That relating to tax benefits;

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

e) That relating to withholdings at source not susceptible to compensation or reimbursement in accordance with applicable legislation.

3 — (Repealed).

4 — To the amount calculated in accordance with paragraph 1, with respect to the entities mentioned in paragraph 4 of article 120, only the deduction relating to withholdings at source where these have the nature of a tax withheld on account of IRC is to be made.

5 — The deductions referred to in paragraph 2 relating to entities to which the transparent tax regime established in article 6 is applicable are imputed to the respective partners or members in accordance with the terms established in paragraph 3 of that article and deducted from the amount calculated on the basis of the taxable income which 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 paragraph 2 relating to each of the companies are made in the amount calculated with respect to the group, in accordance with paragraph 1.

7 — (Repealed by Law no. 82-C/2014, of 31st December)

8 — With respect to taxable persons covered by the simplified regime for determining taxable income, to the amount calculated in accordance with paragraph 1 only the deductions provided for in paragraphs a) and e) of paragraph 2 are to be made.

9 — From the deductions made in accordance with paragraphs a) to d) of paragraph 2 no negative value can result.

10 — To the amount calculated in accordance with paragraphs b) and c) of paragraph 1 only the deductions are made of which the tax administration has knowledge and which can be made in accordance with paragraphs 2 to 4.

11 — In cases where the provision of paragraph b) of paragraph 2 of article 79 is applicable, assessments are made annually on the basis of the taxable income determined on a provisional basis, and, in relation to the assessment corresponding to the taxable income relating to the entire taxation period, the difference calculated must be collected or cancelled.

12 — The assessment provided for in paragraph 1 may be corrected, if necessary, within the time limit referred to in article 101, the differences calculated being then collected or cancelled.

Thus, taking into account the literal element of the rule contained in article 90, paragraph 2 d) of the IRC Code, it is understood that to the amount of IRC collection calculated, the special payment on account referred to in article 106 of that Code is deductible.

In accordance with the provision of paragraph 1 of article 15 of the IRC Code, the taxable income is obtained by deducting from the profit the amounts corresponding to fiscal losses and any tax benefits.

The taxable profit of entities exercising as their principal activity a commercial, industrial or agricultural activity is, in turn, in accordance with article 17 of the IRC Code, quantified starting from the net result of the financial year calculated in accordance with accounting standards, added with positive variations in equity and deducted with negative variations in equity, not reflected in that result, with the additions and deductions provided for in the Code being added and deducted.

The taxable income is calculated, starting from the taxable profit, from which certain tax benefits are deducted, as well as fiscal losses that may be deducted.

The IRC due is generally calculated on the taxable income calculated, by application thereto of the IRC rate (Collection).

In determining the taxable profit are included the expenses, costs and charges provided for in article 88 of the IRC Code.

Nevertheless, the expenses, costs and charges provided for in article 88 of the IRC Code are subject to autonomous taxation.

These autonomous taxation rates constitute IRC, just as the general rates, liberatory rates or special IRS rates constitute IRS.[1]

Having in mind that the collection of IRC includes the expenses, costs and charges subject to autonomous taxation[2], then, in light of the provision of paragraph 2 d) of article 90 of the IRC Code, PEC should be deducted from the IRC collection calculated, which encompasses the autonomous taxation rates owed.

In fact, the assessment of IRC (and autonomous taxation rates) is regulated by the provision of article 90, paragraph 1 a) of the IRC Code, according to which When the assessment should be made by the taxable person in the declarations referred to in articles 120 and 122, (...) the assessment of IRC is based on the taxable income contained therein.

In the absence of any rule providing for a different form of assessment applicable to autonomous taxation rates, their assessment can only be carried out in accordance with the aforementioned terms.

In fact, we cannot identify in the IRC Code any special rule applicable to the assessment of autonomous taxation, which would allow us to conclude that the general rule established in article 90 of the IRC Code is inapplicable.[3]

Just as the AT itself states in article 38 of its learned response, "the assessment of autonomous taxation is effected on the basis of articles 89 and 90, paragraph 1 of the IRC Code but, applying different rules for the calculation of the tax."

In fact, the assessment of autonomous taxation has the same legal basis as the assessment of IRC, being, however, the taxable income and the applicable taxation rates different.

Consequently, and taking into account a literal interpretation of the rules involved, it is only possible to conclude that, providing in paragraph d) of paragraph 2 of article 90 of the IRC Code that To the amount calculated in accordance with the preceding paragraph the following deductions are made, in the order indicated: (...) That relating to the special payment on account referred to in article 106; from the literal perspective, PEC should be deducted from the collection (of IRC, including autonomous taxation).[4]

Let us see whether the teleological and systematic interpretation of the rule sub judice alters the conclusion found.

Article 90 of the IRC Code refers to the forms of assessment of IRC, by the taxable person or by the Tax Administration, applying to the calculation of the tax due in all situations provided for in the Code, including additional assessment (paragraph 10).[5]

Therefore, it also applies to the assessment of the amount of autonomous taxation, which is calculated by the taxable person or by the Tax Administration in accordance with article 90 of the IRC Code, there being no other provision that provides for different terms for its assessment. Its autonomy is restricted to the applicable rates and the respective taxable matter, but the calculation of its amount is effected in accordance with article 90.

As has already been extensively explained by Case Law[6], the purpose underlying the creation of autonomous taxation rates is the combat of tax evasion, aiming at their creation to avoid the transfer to the sphere of companies of expenses that have an underlying remunerative intent, in order to improve the tax treatment of the income from the personal sphere, or to avoid that costs be recorded that do not have a business cause.[7]

This objective is pursued through autonomous taxation, not being distorted by the fact that this tax can be satisfied by the tax collected through PEC.

Moreover, even if it were not understood this way, in the absence of a special rule with respect to the form of assessment of autonomous taxation rates, it is not seen how one could understand that there is a conflict of rules and therefore draw the conclusion that the deduction of PEC from the collection is impossible, there including autonomous taxation.[8]

In fact, in the absence of a special rule with respect to the form of assessment of autonomous taxation rates, this should be carried out in accordance with the general terms provided for in the IRC Code, by force of the principle of tax legality, which results from the provision of paragraph 3 of article 103 of the Constitution of the Portuguese Republic and article 8 of the General Tax Law, which prevent tax assessment from being made without legal basis.

It is therefore concluded that, contrary to what has been defended in this situation by the AT, the rule provided for in article 90, paragraphs 1 and 2 d) of the IRC Code, should be interpreted in the sense that the IRC collection encompasses autonomous taxation rates, which are also IRC.

B – THE NEW ARTICLE 88, PARAGRAPH 21 OF THE IRC CODE

The State Budget Law for 2016 (Law no. 7-A/2016, of 30th March, hereinafter Budget Law), introduced to article 88 of the IRC Code paragraph 21, according to which:

"21 - The assessment of autonomous taxation in IRC is effected in accordance with the provisions of article 89 and is based on the values and rates resulting from the aforementioned paragraphs, no deductions being made to the global amount calculated."

In view of the new wording given to article 88, paragraph 21 of the IRC Code, it is verified that the legislator has come to consider that the assessment of autonomous taxation in IRC should be effected in accordance with the general terms, but that no deductions can be made to the global amount calculated.

In this way, it seems possible to conclude that, in light of the new wording of article 88 of the IRC Code, the PEC provided for in article 90, paragraph 2 d) of the IRC Code cannot be deducted from the collection of autonomous taxation.

In accordance with the provision of article 135 of the Budget Law:

"The wording given by this law to paragraph 6 of article 51, paragraph 15 of article 83, paragraph 1 of article 84, paragraphs 20 and 21 of article 88 and paragraph 8 of article 117 of the IRC Code has an interpretative nature."

However, the Claimant alleges that only the 1st part of the rule - The assessment of autonomous taxation in IRC is effected in accordance with the provisions of article 89 and is based on the values and rates resulting from the aforementioned paragraphs has an interpretative nature, while the 2nd part of the rule - no deductions being made to the global amount calculated – cannot be understood as interpretative.

On what should be understood as interpretative rules, article 13 of the Civil Code (CC) provides the following:

"1- The interpretative law is integrated into the law interpreted, provided, however, that the effects already produced by the performance of the obligation, by a sentence that has become final, by a settlement, even if not homologated, or by acts of analogous nature are safeguarded.

2 – The withdrawal and the admission not homologated by the court may be revoked by the withdrawer or admitter to whom the interpretative law is favorable."

In annotation to the article transcribed above, Pires de Lima and Antunes Varela[9] clarify that "An interpretative law should be considered to be one that intervenes to resolve a question of law whose solution is controversial or uncertain, establishing an understanding to which case law, by its own means, could have reached (see Batista Machado, op. cit., pages 286 and following).

As decided in the Plenary Opinion of the Supreme Court of Justice no. 2/82, of 18th June, "[i]f the rule, in addition to being uncertain, is already controversial, then the new law can only be qualified as interpretative if it resolves the problem within the parameters of the controversy generated in this regard, following a strong prior line of case law.

Now, in the case sub judice, the matter interpreted by paragraph 21 of article 88 of the Code which clarifies that The assessment of autonomous taxation in IRC is effected in accordance with the provisions of article 89 and is based on the values and rates resulting from the aforementioned paragraphs seems to have genuine interpretative nature, although such understanding, in addition to resulting from Law, as is defended in this decision, has a generally consensual character among its applicators.

However, the matter interpreted by paragraph 21 of article 88 of the Code which intends to clarify that no deductions being made to the global amount calculated, does not seem to be a genuine interpretative rule, since there is no constant and peaceful understanding on this discussion.[10]

Furthermore, if there were a certain understanding on the matter "interpreted" it could be said that this would be in the contrary sense.[11]

For which reason it is considered that it is not possible to conclude that "a uniform line of case law was formed that made the meaning of the old rule practically certain"[12].

Now, as Oliveira Ascensão argues,[13] laws said to be interpretative that are materially innovative are particularly censurable laws because "in them the inconveniences that never fail to accompany interpretative laws of any kind are exacerbated", in that they will give rise to a serious breach of legal security.

Furthermore, in the absence of prior legal basis applicable specifically to the assessment of autonomous taxation, there is also, in fact, no rule specifically interpreted, in which the so-called interpretative rule can be integrated, or at least, the perception about the interpreted rule is rather hampered.

Also for this reason, it is understood that the taxpayers could not count on the rule created by the provision in the 2nd part of paragraph 21 of article 88 of the IRC Code, for which reason the rule in question may violate safe and legitimately based expectations.

Therefore, the 2nd part of the rule in question cannot be considered as a genuine interpretative rule, and therefore the prohibition of its retroactivity applies.[14]

Given the foregoing, it is concluded that the 2nd part of the rule under analysis cannot be applied to the case sub judice, whose impugned act relates to the year 2012, under penalty of violation of the provision of article 103, paragraphs 1 and 3 of the Constitution of the Portuguese Republic and article 12 of LGT.

IV. DECISION

Therefore, this Arbitral Tribunal decides:

A) To fully uphold the petition for annulment of the rejection of the administrative complaint presented with respect to the self-assessment act of IRC for the year 2012, in the portion corresponding to the deduction from the collection of autonomous taxation rates, in the amount of €13,901.43;

B) To condemn the Tax and Customs Authority to refund the Claimant the amount of tax paid, plus compensatory interest;

C) To condemn the Respondent in the costs of this proceeding, as the losing party.

V. VALUE OF THE CASE

In accordance with the provision of article 306, paragraph 2 of the Code of Civil Procedure, article 97-A, paragraph 1 a) of CPPT and article 3, paragraph 2 of the Regulations for Costs in Tax Arbitration Proceedings, the value of the petition is fixed at €13,901.43.

VI. COSTS

In accordance with the provisions of articles 12, paragraph 2 and 22, paragraph 4, both of RJAT, and article 4, paragraph 4 of the Regulations for Costs in Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €918.00, in accordance with Table I of the mentioned Regulations, to be borne by the Respondent.

Let notice be given.

Lisbon, 3rd May 2016

The Arbitrator

Magda Feliciano

(The text of this decision was prepared by computer, in accordance with article 131, paragraph 5, of the Code of Civil Procedure, applicable by reference to article 29, paragraph 1, letter e) of Decree-Law no. 10/2011, of 20th January (RJAT), and its redaction is governed by the spelling prior to the Orthographic Agreement of 1990.)

[1] See article 23-A of the IRC Code, Decision of CAAD, issued in case no. 59/2014-T, case no. 113/2015-T and Information no. 1221/2012, issued in the context of the consultation procedure with the AT, endorsed on 16th July 2012.

[2] Although autonomous taxation rates are not deductible for purposes of determining the taxable profit, in accordance with the provision of article 23-A, paragraph 1 a) of the IRC Code.

[3] For which reason paragraph 21 was added to article 88 of the IRC Code, which will be analyzed in B.

[4] Using the term used in article 23-A of the IRC Code.

[5] Decision of CAAD, issued in case no. 769/2014-T.

[6] Decision of CAAD, issued in case no. 163/2014-T, of 21.07.2014.

[7] José Luis Saldanha Sanches, in Manual de Direito Fiscal, 3rd ed., Coimbra Editora: 2007, p. 407.

[8] In accordance with paragraph 4 of article 11 of LGT, "Gaps resulting from tax rules covered by the reserve of law of the Assembly of the Republic are not susceptible to analogical integration."

[9] Civil Code Annotated, Vol. I, 4th Edition, Coimbra Editora, pp. 62.

[10] See Ruling of the Supreme Court of Justice, issued in case no. 10/12.5SFPRT.P1.S1.

[11] Decisions of CAAD issued in cases no. 769/2014-T, no. 163/2014-T, no. 219/2015-T and no. 370-2015.

[12] J. Baptista Machado, in Introdução ao Direito e ao Discurso Legitimador, Almedina, Coimbra, 1991, p. 245.

[13] In O Direito: Introdução e Teoria Geral, Coimbra, 1997 p. 561.

[14] In Fiscalidade 1, January 2000, p. 88, Saldanha Sanches even argues that interpretative law cannot take place in tax matters.