CAAD 745/2015-T: Deduction of Special Advance Payments (PEC) from Autonomous Taxation in IRC

ARBITRAL DECISION

Parties

Claimant: A… SA, NIPC PT…, with registered office at Rua…– Building…, …, … –…Lisbon.

Respondent: Tax and Customs Authority (AT).

I. REPORT

a) On 11-12-2015, the Claimant filed with CAAD a request seeking, under the Legal Framework for Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant seeks the annulment of the decision of the Finance Directorate of Lisbon of 31.07.2015 which rejected its request for official review concerning the fiscal year 2010, which was notified to it by letter … of 11.09.2015, whereby it argued for the deduction, from the sum of corporate income tax (IRC) levies resulting from the application of autonomous taxation rates, of special payments on account (PEC).

c) It consequently petitions for the declaration of illegality and partial annulment of the IRC self-assessment act no. 2011 … relating to the fiscal year 2010, in the part corresponding to autonomous taxation, in the amount of € 20,693.29, the reimbursement of the amount of € 20,693.29 paid unduly, in addition to the payment of compensatory interest.

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

d) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 22-12-2015.

e) By the CAAD Deontological Council, the signatory of this decision was appointed as arbitrator, and the parties were notified thereof on 10-02-2016. The parties manifested no intention to refuse the appointment, pursuant to article 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

f) The Singular Arbitral Tribunal (TAS) has been regularly constituted since 25-02-2016 to examine and decide on the subject matter of this dispute (articles 2, paragraph 1, subparagraph a) and 30, paragraph 1, of the RJAT).

g) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 25-02-2016, which is hereby reproduced.

h) On 25-02-2016 the AT was notified pursuant to and for the purposes of article 17-1 of the RJAT. It replied on 04.04.2016. It also attached the case file (PA), composed of 2 computerized files, with 38 and 56 pages, respectively, the 1st and 2nd parts.

i) On 09.04.2016, following the AT's response in which an exception was raised, the TAS issued the following order: "the holding of the meeting of parties referred to in article 18 of the RJAT, with oral submissions, is dispensed with, unless either party requests its holding within 5 days. The proceedings will continue with written submissions, optional and successive, with the Claimant arguing first and, following notification of its submissions, the Respondent. The Claimant is further invited, concurrently with the submission of arguments, to pronounce itself, by petition, on the alleged exception of material incompetence of the TAS".

j) The Claimant submitted its arguments on 28.04.2016. On 09.05.2016 the Respondent submitted its counter-arguments. Both parties essentially maintained what they had stated in their request and response submissions. However, the Respondent came to state that during the pendency of the proceedings, by the State Budget Law for 2016, a new paragraph 21 was introduced to article 88 of the IRC Code and according to its article 135, this amendment has interpretative nature. It also indicated the existence of a decision of a Collective Arbitral Tribunal of CAAD issued in case no. 673/2015-T which examined a situation identical to that which arises in this proceeding.

k) By petition of 10.05.2016 the Claimant raised that the alleged decision of CAC of CAAD should be attached to the case file, which was granted by order of 13.05.2016. On 16.05.2016 the Respondent attached the decision to the case file.

PROCEDURAL REQUIREMENTS

l) Legitimacy, capacity and representation – The parties enjoy legal personality, judicial capacity, are legitimate parties and are properly represented (articles 4 and 10, paragraph 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

m) Principle of contradiction – The Respondent was notified as stated in item h) of this Report. All procedural documents and all documents attached to the case file were made available to the respective counterparty in the CAAD Procedural Management System. Notification of their attachment was always given to both parties. Compliance was specifically ensured with the provisions of article 3, paragraph 3 of the CPC pursuant to article 29-1-e) of the RJAT regarding new factual matters brought to the proceedings in the Respondent's counter-arguments.

n) Dilatory exceptions – The arbitral procedure does not suffer from nullities and the petition for arbitral pronouncement is timely since it was submitted within the prescribed period in subparagraph a) of paragraph 1 of article 10 of the RJAT. Indeed, the Respondent did not question the timeliness of the submission of the petition, since notification of the decision on the request for official review occurred by letter no. …, dated 11.09.2015 and the petition for pronouncement was filed with CAAD on 12.12.2015.

SUMMARY OF THE CLAIMANT'S POSITION

o) The Claimant grounds its request on the fact that article 90 of the IRC Code is applicable to the process of levying the various IRC levies resulting from the application of various autonomous taxation rates, whereby pursuant to subparagraph c) of paragraph 2 of that article, special payments on account are deductible from that IRC levy.

p) In its arguments, because by Law no. 7-A/2016, of 30 March (State Budget Law 2016) paragraph 21 was added to article 88 of the IRC Code (which states that the assessed amount of autonomous taxation is subject to no deductions) and because, according to article 135 of the State Budget Law 2016 such regulation has interpretative nature, it argues that this norm is "innovative" and contrary to the interpretation that was predominantly attributed by case law (in the case of CAAD: 9 arbitrators/4 decisions in a sense that the Claimant here argues for versus 2 arbitrators/two decisions in the opposite sense),

q) Whereby it violates the constitutional principle prohibiting retroactivity of tax norms (article 12 of the General Tax Law and paragraph 3 of article 103 of the Constitution).

r) It concludes its arguments by stating: "it would be unacceptable, in tax matters, that the present action obtain a decision different from that which has been the unanimous case law for (i) identical situations and (ii) in the face of the same and exact legislation in force at the time of the facts and their respective taxation".

SUMMARY OF THE RESPONDENT'S POSITION

By exception

s) The Respondent invokes that the TAS is materially incompetent because the Claimant is challenging an IRC self-assessment without it having been preceded by an administrative complaint. It defends, in essence, a literal interpretation of the RJAT and of the Ordinance binding the AT (article 62 of the Response).

t) It states that "the … Ordinance (no. 112-A/2011, of 22 March) defines, in its article 2, subparagraph a), that the AT is bound by arbitral claims which have as their object the examination of claims relating to taxes whose administration is entrusted to it, referred to in paragraph 1 of article 2 of the RJAT, «with the exception of claims relating to the declaration of illegality of self-assessment acts, withholding tax acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process».

u) And that, therefore, "the examination of self-assessment tax acts is only admissible in arbitral proceedings if, at a prior moment, they have been challenged administratively, pursuant to article 131 of the CPPT", since "article 2, subparagraph a), of the aforementioned Ordinance excludes, literally, from the scope of the AT's binding to arbitral jurisdiction, «(…) claims relating to the declaration of illegality of self-assessment acts, withholding tax acts and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process»., without mentioning therein the mechanism of official review provided for in article 78 of the General Tax Law (LGT)"

v) Moreover, if this were not so, it would suffice that the legislator had reduced the exclusion provided for in article (2, subparagraph a) of Ordinance no. 112-A/2011) to the expression «that have not been preceded by recourse to the administrative remedy», distinguishing nothing further.

w) With the express reference to prior recourse to the administrative remedy in accordance with, in this case, article 131 of the CPPT, that is, by means of filing a necessary administrative complaint, regardless of its grounds.

x) It further adds that "… the aforementioned understanding, that disputes which have as their object the declaration of illegality of self-assessment acts, as occurs in the situation sub judice, are excluded from the material jurisdiction of arbitral tribunals, if not preceded by an administrative complaint pursuant to article 132 of the CPPT, is equally imposed by force of the constitutional principles of the rule of law and separation of powers (cf. articles 2 and 111, both of the Constitution), as well as of legality (cf. articles 3, paragraph 2, and 266, paragraph 2, both of the Constitution), as a corollary of the principle of indisponibility of tax credits inherent in article 30, paragraph 2 of the LGT, which bind the legislator and all activity of the AT".

By challenge on the merits

y) Disagreeing with the Claimant's point of view, it argues that "the amount determined pursuant to subparagraph a) of paragraph 1 of article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which are associated also differentiated objectives, whereby the deductions provided for in the subparagraphs of paragraph 2 can only be made to the part of the IRC levy with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the general regime of the tax".

z) It believes that the "tax" (vulgo levy) to which the deductions referred to in paragraph 2 of article 90 of the IRC Code are made is only that which results from taxable income resulting from profit/income of the fiscal year, not encompassing the IRC levy resulting from the application of autonomous taxation rates.

aa) It argues that the expression "amount determined pursuant to the previous article" (paragraph 4 of article 90 of the CIRC) encompasses only the levy resulting from the application of the general rate of IRC (article 87 of the CIRC) to the taxable income determined in accordance with chapter III of the CIRC, whereby it cannot accept the deduction of PEC from the IRC levies obtained by the application of autonomous taxation rates on the various taxable income bases provided for in article 88 of the IRC Code,

bb) It considers that the arbitral case law in disagreement with that which it cites in defense of its point of view (regarding the autonomy of the IRC levies resulting from the application of the rates of article 88 of the CIRC vis-à-vis the IRC levy resulting from the application of the rates of article 87 of the CIRC) constitutes an "abrogating interpretation dressed up as legislative impulse", running the risk of constituting a violation of the principle of separation of powers.

cc) It concludes by stating that "… finally settling the controversial question, the content of article 133, which added paragraph 21 to article 88 of the CIRC, with the effects provided for in article 135, both contained in the State Budget Law for 2016, published on 30.03.2016, entering into force on the following day, in which it is provided, with interpretative character, that «The levying of autonomous taxation in IRC is carried out in accordance with the provisions of article 89 and is based on the values and rates that result from the provisions of the preceding paragraphs, with no deductions being made to the total assessed amount.»

dd) In its arguments the Respondent argued in accordance with the preceding item and attached a decision of a Collective Tribunal of CAAD on the matter of the application of paragraph 21 of article 88 of the IRC Code.

ee) It concludes arguing for the upholding of the exception raised (absolute incompetence of the TAS due to violation of material jurisdiction rules) with dismissal of the instance, or if the exception does not prevail, it argues for the rejection of the petition for pronouncement, also with dismissal of the petition.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

First, it is necessary to examine the alleged exception of incompetence of the TAS bearing in mind that the act immediately challenged (the decision which rejected the request for official review) does not result from an administrative complaint procedure but rather from an official review procedure, by initiative of the taxpayer and outside the period for administrative complaints.

Then it will be necessary to verify whether the new paragraph 21 of article 88 of the CIRC, (even if the TAS understands that the PEC would always be deductible from the sum of the IRC levies assessed by application of autonomous taxation rates, as argued by the Claimant and according to the arbitral case law it cites), is truly an interpretative law.

As regards the subject matter under examination, brevitatis causae, this TAS adopts the understanding that before the introduction of the new paragraph 21 of article 88 of the IRC Code, the PEC would be deductible from the IRC levy (sum of the various IRC levies), whether such levies resulted from the application of autonomous taxation rates provided for in article 88 of the CIRC or whether such levy resulted from the application of general IRC rates to the taxable income resulting from the determination of taxable profit. This is by force of subparagraph d) of paragraph 2 of article 90 of the IRC Code.

For this, a mere declarative interpretation of the law will suffice. The letter of the law is the basis of all interpretation. Article 88 of the IRC Code refers to "rates" of autonomous taxation (paragraphs 14 and 15 of the article leave no doubt that the heading of the norm is assertive), although it expresses therein what ad valorem rates are incurred in the abstract, but without quantification. The quantification (determination of the taxable income) and the levying, that is, the operation of applying a rate to a taxable income base, from which results an income tax levy, whether for determining the IRC levy resulting from business profit or for determining the various IRC levies resulting from the application of the various autonomous taxation rates, is done through the procedure of article 90, paragraph 1 of the IRC Code. And to the amount so determined, that is, to the sum of these various IRC levies, paragraph 2 of article 90 of the IRC Code was (or could be) then applied.

III. PROVEN AND UNPROVEN FACTUAL MATTERS AND GROUNDS

The following facts are considered proven with relevance to the decision, with indication of the respective documents (proof by documents), as grounds.

Proven facts

1) On 16 May 2011, the Claimant filed the income tax return Form 22 for the fiscal year 2010, with identification code …, of the group of companies subject to RETGS of which it is the dominant company – article 5 of the petition for pronouncement, document no. 1 attached to the petition for pronouncement and articles 1 and 3 of the response.

2) According to that income tax return, the group determined a tax loss in the amount of € 1,240,614.51 and a total amount of tax to be paid of € 21,836.46, which results from the determination of municipal surcharge, in the amount of € 1,143.17, and from autonomous taxation in the amount of € 20,693.29 - Article 6 of the petition for pronouncement, document no. 1 attached to the petition for pronouncement and article 2 of the response.

3) Nevertheless, there remained to be deducted, due to alleged insufficiency of the levy, the amount of € 70,806.40 as special payments on account made, as indicated in the following table:

As per Article 7 of the petition for pronouncement and document no. 1 attached to the petition for pronouncement.

4) On 4 March 2015 the Claimant filed, pursuant to article 78 of the LGT, a request for official review concerning the fiscal year 2010, with a view to reviewing the IRC self-assessment act of that fiscal year, having requested the reimbursement of tax paid in excess, in the amount of € 20,693.29, regarding the deduction from the amount of autonomous taxation of the amount of special payments on account available as of the date – in accordance with article 8 of the petition for pronouncement, Document no. 2 attached to the petition for pronouncement and article 4 of the response.

5) By letter … of 11.09.2015 (received on 15 September 2015), the Respondent notified the Claimant of the final decision rejecting the said request – in accordance with article 9 of the petition for pronouncement and Document no. 3 attached to the petition for pronouncement.

6) On 11-12-2015, the Claimant filed the present petition for pronouncement with CAAD – registration of entry in the SGP of the petition for pronouncement.

Unproven facts

There is no other factuality alleged that has not been considered proven and that is relevant for the composition of the procedural dispute.

Further regarding the grounds of the factual matters considered proven

With regard to the factual matters, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather it is its duty to select the facts that matter to the decision and discriminate between proven and unproven matters (cf. article 123, paragraph 2, of the CPPT and article 607, paragraph 3 of the CPC, applicable pursuant to article 29, paragraph 1, subparagraphs a) and e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. previous article 511, paragraph 1, of the CPC, corresponding to the current article 596, applicable pursuant to article 29, paragraph 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence and the case file attached to the records, the facts listed above were considered proven, with relevance to the decision, moreover not contested by the parties.

IV. EXAMINATION OF THE QUESTIONS FOR THE TAS TO RESOLVE

The questions to be addressed are those referred to in point II above and are already part of CAAD case law.

On the alleged material incompetence of the TAS

The literal element of the norm is always the most relevant, as it delimits the interpretive activity.

However, the interpreter cannot consider legislative intent that does not have at least minimal verbal correspondence in the letter of the law, even if imperfectly expressed. The letter is an irremovable element of interpretation, or a "limit of the search for the spirit".

"An interpretation that does not already fall within the scope of possible literal meaning is no longer interpretation, but modification of meaning" (Larenz).

"(...) there must be a meaning (a motivation, a set of objectives) that can reasonably fit within the literal meaning of the legislator's declaration. Under penalty of, if this does not happen, creating a new norm, instead of interpreting an already existing norm" (Hespanha).

The Respondent places the emphasis on the literal element of the norm – subparagraph a) of article 2 of Ordinance 112-A/2011, of 22.03) –.

In this line of thinking, there is an element that the Respondent alleges can be seen as contrary to the logic of its discourse. It states in article 41 of the Response: "… the Ordinance no. 112-A/2011 was approved and published already after extensive and profuse case law that reaffirmed that, given the administrative nature of the official review procedure, it is permissible to equate it with the provisions of articles 131 to 133 of the CPPT for the purpose of subsequent challenge of the respective rejection decision".

And concludes in article 42 of the Response: "Indeed, case law has sustained the understanding, which is not questioned, that, given the administrative nature of the official review procedure, it is permissible to equate it with the provisions of articles 131 to 133 of the CPPT for the purpose of subsequent challenge of the respective rejection decision".

What the Respondent essentially seems to mean is that the expression "administrative complaint" referred to in articles 131 to 133 of the CPPT (stipulating the necessity for the taxpayer to necessarily resort to prior administrative complaint of the self-assessment, withholding or payment on account act), was already understood, before the publication of Ordinance 112-A/2011, of 22 March (binding of AT to CAAD), by case law, which encompassed the expression "official review" by way of analogy, for the purpose of subsequent challenge of the respective rejection decision.

Now, the interpreter cannot presume that the legislator (the Minister of Finance and the Minister of Justice), in the case of the Ordinance in question, which is a norm in the area of Tax Administration and the area of Justice Administration, was not aware of the "extensive and profuse" case law (according to the Respondent) on this matter.

Whereby the choice of that text of the law, with the reading that known case law conferred upon it, must be accepted in its exact terms, even after the publication of the Ordinance in question and as to the text contained in the Ordinance.

Being necessary to take into account paragraph 3 of article 9 of the Civil Code: "in fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express his thinking in adequate terms".

That is to say, it is necessary to take into account that this specific legislator (at least the Minister of Justice) knew (or, at least, the interpreter shall presume that he knew) the exact scope of the expression he used, a scope that was conferred upon it – to a certain literality of the law he used - by "extensive and profuse" case law as the AT well notes, in the sense that official review is permissible … to equate with the provisions of articles 131 to 133 of the CPPT for the purpose of subsequent challenge of the respective rejection decision.

It is true that this equation of official review with mandatory administrative complaint is only for those cases in which it is deducted within the period of administrative complaints. But it is also true that official review is a complementary gracious remedy, whenever the taxpayer has recourse to it, beyond the period of administrative complaints, within the period of article 78 of the LGT.

It is equally true that the legislator of Ordinance 112-A/2011, of 22.03, did not add to the expression "in accordance with articles 131 to 133 of the Code of Tax Procedure and Process", the expression "and article 78 of the General Tax Law".

That is to say, for the interpreter to consider that the law has a reading as if this expression were expressly contained in the law, is also debatable in light of paragraph 2 of article 9 of the Civil Code.

Either of these readings of the law appears to us to be plausible and acceptable.

Whichever position is adopted, what can be at issue here is merely the possible incompetence of the TAS as to the examination of the challenge of the primary act (self-assessment), but not the incompetence to examine the decision which resulted from official review, which, in practical terms, leads to the indirect competence of the TAS to declare the illegality of the self-assessment act.

***

For purposes of simplification (and harmonization within the current which we deem more assertive), we shall reproduce, adhering to, decisions already adopted in CAAD regarding the matter here in discussion, in identical cases.

In accordance with that stated in the Judgment of the Arbitral Tribunal, rendered in Case no. 48/2012-T CAAD, of 6 July 2012, reproduced in the Judgment of the Arbitral Tribunal no. 73/2012-T CAAD which refers to a situation of "tax withheld at source" but which here has identical application, since it is a matter of challenging a self-assessment act of IRC (note that the expression "withholding at source" or similar was replaced by self-assessment):

"… it was distinguished in the aforementioned Judgment of the Arbitral Tribunal, rendered in Case no. 48/2012-T CAAD, of 6 July 2012, as follows:

"4 – The jurisdiction of arbitral tribunals functioning in CAAD is, first and foremost, limited to the matters indicated in article 2, paragraph 1, of Decree-Law no. 10/2011, of 20 January (RJAT).

In a second instance, the jurisdiction of arbitral tribunals functioning in CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction, concretized in Ordinance no. 112-A/2011, of 22 March, as article 4 of the RJAT provides that «the binding of the tax administration to the jurisdiction of tribunals constituted pursuant to the present law depends on an ordinance of the Government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum amount of disputes covered».

In light of this second limitation of the jurisdiction of arbitral tribunals functioning in CAAD, the resolution of the question of jurisdiction depends essentially on the terms of this binding, for, even if one is faced with a situation that can be framed in that article 2 of the RJAT, if it is not covered by the binding, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be ruled out.

In subparagraph a) of article 2 of this Ordinance no. 112-A/2011, there are expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of arbitral tribunals functioning in CAAD the «claims relating to the declaration of illegality of self-assessment acts, of withholding at source and payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process».

The express reference to the precedent «recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process», should be interpreted as referring to those cases in which such recourse is mandatory, through the administrative complaint, which is the administrative remedy indicated in those articles 131 to 133 of the CPPT, to whose terms it refers.

In truth, first of all, it would not be understood why, when administrative challenge is not necessary «when its ground is exclusively a matter of law and the self-assessment has been made in accordance with generic guidelines issued by the tax administration» (article 131, paragraph 3, of the CPPT) …, arbitral jurisdiction would be excluded because such administrative challenge, which is understood to be unnecessary, was not made.

But, direct challenge of the self-assessment act can only be made without prior administrative complaint in those cases where it has been made «in accordance with generic guidelines issued by the tax administration, as results from the provision … in article 131, paragraph 3, of the CPPT. In the case at hand, one is not faced with a situation of this type (rather the opposite, since the Claimant alleges that such existed – article 32 of the petition for pronouncement – but nonetheless self-assessed the tax), nor is it alleged that the Tax Administration had issued guidelines in the sense that the self-assessment was made in the manner it was, whereby one must conclude that the challenge of the self-assessment act was dependent on prior administrative complaint.

Thus, in the absence of prior administrative complaint, the claim for direct declaration of illegality of the self-assessment act (not being a corollary of the illegality of the act rejecting official review) is excluded from the jurisdiction of this Arbitral Tribunal, by the Tax Administration having expressly excluded such claims from the scope of its binding to the jurisdiction of arbitral tribunals functioning in CAAD.

Thus, in the absence of prior administrative complaint, the claim for direct declaration of illegality of the self-assessment act (not being a corollary of the illegality of the act rejecting official review) is excluded from the jurisdiction of this Arbitral Tribunal, by the Tax Administration having expressly excluded such claims from the scope of its binding to the jurisdiction of arbitral tribunals functioning in CAAD.

Therefore, the exception of incompetence prevails as concerns the Claimant's claim, interpreted as direct challenge of the self-assessment act.

5 – However, as stated, the question of the jurisdiction of this Arbitral Tribunal to examine the legality of the act rejecting the request for official review must also be examined.

As referred to in the judgment of the Supreme Administrative Court of 12-6-2006, rendered in case no. 402/06, the duty to proceed with official review of taxation acts constitutes a recognition, within the scope of tax law, of the power to revoke illegal acts, which is a corollary of the principles of justice, equality and legality, which the tax administration must observe in the totality of its activity (article 266, paragraph 2, of the Constitution and 55 of the LGT), which require, as a rule, that all errors in assessments that have led to the collection of tax in an amount greater than what would be due under the law be officially corrected (judgment of the Supreme Administrative Court of 11-5-2005, rendered in appeal no. 319/05).

However, as stated in that same judgment, this duty «is subject to limitations, justified by needs of legal certainty, in particular when the revenues assessed have been collected, which justifies that temporal limitations be established».

Review of the tax act «constitutes an administrative means of correction of errors in tax assessment acts, which is admitted as a complement to the means of administrative and contentious challenge of these acts, to be filed within their normal periods, which aims to make it possible to remedy injustices of taxation both in favor of the taxpayer and in favor of the administration». «However, it is not a matter of indifference to the taxpayer whether or not to challenge assessment acts within their respective periods, for in case of annulment in an impugning process, judicial or administrative, any illegality can be invoked and there is entitlement to compensatory interest from the date of improper payment until the issuance of the tax credit note (articles 43, paragraph 1, of the LGT and 61, paragraph 3, of the CPPT), while in cases of official review of the assessment (when not done at the request of the taxpayer, within the period of administrative complaints, a situation which is equivalent to an administrative complaint) only is there entitlement to compensatory interest in accordance with article 43, paragraph 3, of the LGT and annulment can only be based on an error attributable to the services and duplication of levy (article 78, paragraphs 1 and 6, of the LGT)». «Essentially, the regime of article 78, when the request for review is made beyond the periods for administrative and contentious challenge, comes down to a means of restitution of what was improperly paid, with revocation and cessation for the future of the effects of the assessment act, and not to an annulment means, with retroactive destruction of the effects of the act». «In this light, the procedural means of review of the tax act cannot be considered as an exceptional means to react against the consequences of an assessment act, but rather as an alternative means to administrative and contentious challenge means (when used at a time when the latter can still be used) or complementary to them (when the periods for use of the means of challenging the assessment act have already been exhausted).

This restriction of the powers to revoke acts within the procedure of review of the tax act, when the request is not submitted within the periods for judicial challenge and administrative complaint of tax assessment acts, is not materially unconstitutional, in particular in light of article 266, paragraph 2, of the Portuguese Constitution, as the preclusion of impugnation rights by their non-timely exercise is justified by reasons of legal certainty, which is also a constitutional value, of paramount importance, being a corollary of the principle of the democratic rule of law (article 2 of the Portuguese Constitution).

On the other hand, the limitation of the powers of review to cases of error attributable to the services constitutes a balanced solution, presenting itself as the result of a fair and adequate weighing of the activities of the Tax Administration, which are censurable only in cases in which it made an error attributable to itself, and of the taxpayer, whose situation ceases to merit legal protection or merits lesser protection when, through negligence on his part, he allowed the periods for challenging acts to pass.

Therefore, the regime of review of the tax act provided for in article 78, paragraph 1, of the General Tax Law is not unconstitutional, in limiting the ground of review to an error attributable to the services, in cases in which the request is not submitted within the period of administrative complaints, in particular that of administrative complaint of self-assessment acts, provided for in article 132 of the Code of Tax Procedure and Process.

"In the examination of questions relating to the request for official review of the self-assessment act, it is important, first and foremost, to clarify whether the examination of acts rejecting requests for review of the tax act, provided for in article 78 of the LGT, is included in the competencies attributed to arbitral tribunals functioning in CAAD by article 2 of the RJAT.

In this article 2 there is no express reference to these acts, unlike what occurs with the legislative authorization on which the Government based itself to approve the RJAT, which refers to «requests for review of tax acts» and «administrative acts that involve the examination of the legality of tax assessment acts».

However, the formula «declaration of illegality of tax assessment acts, of self-assessment, of withholding at source and of payment on account acts», used in subparagraph a) of paragraph 1 of article 2 of the RJAT, in a mere declarative interpretation, does not restrict the scope of arbitral jurisdiction to those cases in which an act of one of those types is directly challenged.

In truth, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-level act, which confirms an assessment act, incorporating its illegality.

The inclusion in the competencies of arbitral tribunals functioning in CAAD of those cases in which the declaration of illegality of acts indicated therein is made through the declaration of illegality of second-level acts, which are the immediate object of the impugning claim, results with certainty from the reference made in that norm to self-assessment, withholding at source and payment on account acts, which expressly refer to themselves as included among the competencies of arbitral tribunals.

In fact, regarding these acts the mandatory administrative complaint is imposed as a rule, in articles 131 to 133 of the CPPT, whereby in these cases the immediate object of the impugning process is, as a rule, the second-level act that examines the legality of the assessment act, an act which, if it confirms it, must be annulled to obtain the declaration of illegality of the assessment act.

The reference made in subparagraph a) of paragraph 1 of article 10 of the RJAT to paragraph 2 of article 102 of the Code of Tax Procedure and Process, (where a different period for challenge of acts rejecting administrative complaints is provided), dispels any doubt that the competencies of arbitral tribunals functioning in CAAD encompass those cases in which the declaration of illegality of the acts referred to in subparagraph a) of that article 2 of the RJAT must be obtained following the declaration of illegality of second-level acts.

In fact, it was precisely in this sense that the Tax Administration, through Ordinance no. 112-A/2011, of 22 March, interpreted these competencies of arbitral tribunals functioning in CAAD, by excluding from the scope of these competencies the «claims relating to the declaration of illegality of self-assessment acts, of withholding at source and of payment on account acts that have not been preceded by recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process», which has the effect of restricting its binding to those cases in which this recourse to the administrative remedy was utilized.

Having reached the conclusion that the formula used in subparagraph a) of paragraph 1 of article 2 of the RJAT does not exclude those cases in which the declaration of illegality results from the illegality of a second-level act, it will also encompass those cases in which the second-level act is that rejecting the request for review of the tax act, as there is no reason seen to restrict, all the more so since, in cases in which the request for review is made within the period of administrative complaints, it should be equated with an administrative complaint (Essentially in this sense, reference can be made to the judgments of the Supreme Administrative Court in the judgment of 12-7 2006, rendered in case no. 402/06, and of 14-11-2007, case no. 565/07).

It is concluded, thus, that there is no obstacle to the declaration of illegality of self-assessment acts being obtained, in arbitral proceedings, through the declaration of illegality of acts rejecting requests for official review".

As the Respondent also invokes that arbitral protection is barred here as to the examination of the decision that resulted from official review, because it was not preceded by a prior mandatory administrative complaint, part of the Judgment of the Arbitral Tribunal no. 73/2012-T CAAD is reproduced, to which we adhere (substituting the expression "withholding" or equivalent with "self-assessment"):

"7 – One will proceed to analyze the question of whether, regarding claims for declaration of illegality of self-assessment acts through the declaration of illegality of acts rejecting requests for official review, prior administrative complaint is required, by subparagraph a) of article 2 of Ordinance no. 112-A/2011, of 22 March. As already referred, the reference made in this norm to «recourse to the administrative remedy in accordance with articles 131 to 133 of the Code of Tax Procedure and Process» should be interpreted as referring only to those cases in which such recourse, through the administrative complaint, (to which, as stated, the request for review of the tax act filed within the period of administrative complaints is equivalent) is imposed by those norms of the CPPT.

In those cases in which a request for official review of a taxation act is filed, the Tax Administration is provided, with this request, an opportunity to pronounce on the merits of the taxpayer's claim before the latter resorts to judicial remedy, it not being required that, cumulatively with the possibility of administrative examination within that official review procedure, a new administrative examination through administrative complaint be required (As was understood in the cited judgment of the Supreme Administrative Court of 12-6-2006, rendered in case no. 402/2006).

Furthermore, if hypothetically it were intended in that Ordinance, without plausible justification, to exclude the jurisdiction of arbitral tribunals functioning in CAAD in those cases in which a request for official review is filed without prior administrative complaint (thus creating a new situation of mandatory administrative complaint unique to this arbitral jurisdiction), it would not be understood why there is an express reference in subparagraph a) of article 2 of Ordinance no. 112-A/2011 to the «terms of articles 131 to 133 of the Code of Tax Procedure and Process», for that hypothetical new situation of mandatory administrative complaint would not be required «in accordance with articles 131 to 133 of the Code of Tax Procedure and Process».

It is concluded thus, that the absence of administrative complaint is not an obstacle to the examination by arbitral tribunals functioning in CAAD of claims for declaration of illegality of withholding tax acts that are a corollary of the illegality of acts rejecting requests for official review".

The exception of incompetence of the TAS thus prevails as concerns the Claimant's claim, interpreted as direct challenge of the self-assessment act, but the exception fails as to the part which refers to the competence of the TAS to examine the decision that resulted from the request for official review.

Deduction of special payments on account (PEC) from the IRC levy resulting from the application of autonomous taxation rates – after the introduction of paragraph 21 of article 88 of the IRC Code

The act rejecting official review has grounds which are those which can be considered here. In such a way that everything which constitutes an alteration of the grounds of the appealed act cannot be accepted here.

For this reason, ex post facto reasoning is irrelevant, and the acts whose legality is questioned must be examined as they were taken, the tribunal not being able, faced with the verification of the invocation of an illegal ground as support for the administrative decision, to examine whether its action could be based on other grounds (see judgments of the STA of 10-11-98, of the Plenary Session, rendered in appeal no. 32702, published in Appendix to the Official Journal of 12-4-2001, page 1207, of 19/06/2002, case no. 47787, published in Appendix to the Official Journal of 10-2-2004, page 4289, of 09/10/2002, case no. 600/02, of 12/03/2003, case no. 1661/02).

In the grounds of the appealed act the Respondent states: "It is the understanding of these services that autonomous taxation is part of the IRC regime and is owed under this tax". And further: "… we verify that the legislator integrated autonomous taxation, effectively and unequivocally in the IRC regime as results from the content of article 12 of the CIRC and, currently, from subparagraph a) of paragraph 1 of article 23A of the same code. This is not the case with paragraphs 1 and 2 of article 90 of the CIRC in which there is no reference to autonomous taxation, immediately raising doubts as to the consideration of the value of autonomous taxation for purposes of the deductions provided for in paragraph 2 of the cited article 90".

Contrary to the above, the AT states in article 98 of the response: "It is appropriate to clarify that the levying of autonomous taxation is carried out on the basis of articles 89 and 90, paragraph 1 of the IRC Code but, applying different rules for the calculation of tax:

(1) in one case the levying operates, by means of the application of the rates of article 87 to the taxable income determined in accordance with the rules of chapter III of the Code and

(2) in the other case, various levies are determined depending on the diversity of the facts that give rise to autonomous taxation".

And in article 90 of the response: "From which it results that the amount determined in accordance with subparagraph a) of paragraph 1 of article 90 does not have a unitary character, since it comprises values calculated according to different rules, to which are associated also differentiated objectives, whereby the deductions provided for in the subparagraphs of paragraph 2 can only be made to the part of the levy with which there exists a direct correspondence, so as to maintain the coherence of the conceptual structure of the general regime of the tax".

In truth, in the appealed act, the rejection was not based on the fact that the IRC determined in accordance with article 90 of the CIRC "did not have unitary character" but only because it was understood that in article 90, paragraphs 1 and 2 of the CIRC "there is no reference to autonomous taxation".

However, we will examine this matter.

Does the IRC levy determined in accordance with subparagraph a) of paragraph 1 of article 90 have a unitary character?

We shall follow, as to this aspect, what was decided in the recent collective arbitral decision adopted in case CAAD no. 673/2015-T, concerning an identical case, to which we adhere.

As to what was alleged in article 90 of the Response by the AT: "This position has no consistent basis, nor does the Tax and Customs Authority indicate any legal provision that would provide it with the minimum verbal correspondence necessary for the admissibility of an interpretation.

In particular, article 105, paragraph 1, of the CIRC, in stating that «payments on account are calculated on the basis of the tax assessed in accordance with paragraph 1 of article 90 regarding the period of taxation immediately preceding that in which these payments are to be made, net of the deduction referred to in subparagraph d) of paragraph 2 of that article», refers to the totality of the tax assessed in accordance with that paragraph 1 of article 90, which, as the Tax and Customs Authority recognized in the cited article 98 of its Response, also applies to the levying of autonomous taxation.

On the other hand, …, before the new paragraph 21 of article 88 of the CIRC, there existed no legal provision establishing the manner of levying autonomous taxation, whereby, under penalty of unconstitutionality due to violation of article 103, paragraph 3, of the Constitution, derived from lack of legal provision of procedure for levying, it would have to be understood that they were levied in accordance with the provisions of paragraph 1 of article 90.

Thus, before Law no. 7-A/2016, the deductions provided for in paragraph 2 of article 90 of the CIRC, which target the «amount determined in accordance with the preceding paragraph», applied to that sole amount that resulted from such determination, whenever one was not faced with one of the situations specially provided for in paragraphs 4 and following of that article, which do not apply to the case at bar.

The deduction of special payments on account from the entire value determined in accordance with that article 90, paragraph 1, subparagraph a), also resulted from the explicit content of article 93, paragraph 1, of the CIRC, in the version prior to Law no. 2/2014, of 16 January, in establishing that «the deduction referred to in subparagraph c) of paragraph 2 of article 90 is made to the amount determined in the return referred to in article 120 of that own period of taxation or, if insufficient, up to the fourth following period of taxation, after the deductions referred to in subparagraphs a) and b) of paragraph 2 and in compliance with paragraph 7, both of article 90, have been made». (with Law no. 2/2014, of 16 January, the deduction of amounts paid as special payment on account can be deducted up to the 6th following period of taxation).

The amount determined in the return referred to in article 120 includes the amounts relating to autonomous taxation, there being no other specific return for this purpose, neither before nor after Law no. 7-A/2016.

In truth, the returns provided for in article 120 of the CIRC are prepared in a single official form approved by order of the Minister of Finance, pursuant to articles 117, paragraph 1, subparagraph b), and paragraph 2, of the CIRC.

Thus, in light of the provisions of subparagraph c) of paragraph 2 of article 90 and of paragraph 1 of article 93 of the CIRC, until Law no. 7-A/2016, nothing in the literal content of the CIRC prevented the deduction of amounts of special payments on account from the totality of the IRC levy that was determined in accordance with that paragraph 1 of article 90, including that derived from autonomous taxation, within the conditionality provided therein.

On the other hand, as the special payment on account has the nature of a forced loan (in this sense, reference can be made to CASALTA NABAIS, Tax Law, 7th edition, page 541, accompanied by the Supreme Administrative Court in the judgments of 18-2-2009, case no. 0926/08, and of 13-5-2009, case no. 0927/08), which creates in the legal sphere of the taxpayer a credit against the Tax Administration, it does not appear unreasonable that it be taken into account in situations in which a credit of the latter is generated in relation to the taxpayer.

Further, autonomous taxation in the context of IRC, in light of the increasing breadth that the legislator has been attributing to them, in order to be compatible with the constitutional principle of taxation of enterprises inciding fundamentally on their actual income (article 104, paragraph 2, of the Constitution), should be understood as indirect forms of taxing business income, through the taxation of certain expenses, as is inherent in subparagraph a) of paragraph 1 of article 23-A of the CIRC in the version of Law no. 2/2014, of 16 January, in referring to «IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits». The statistics of the Tax and Customs Authority referred to above, as well as the case at hand, in which the Claimant had tax losses in 2012 and 2013 and in both presents only autonomous taxation of substantial value, are illustrative of the constitutionality problem that arises.

In any case, as referred to in the CAAD judgment rendered in case no. 59/2014-T, autonomous taxation in IRC should be considered a form of taxation of business income:

«The Explanatory Memorandum contained in Bill no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no room for doubt that this is a conscious and intended amplification of the previously existing distortions, as it was understood that they were necessary, in short, to compensate for other distortions resulting from significant tax fraud and evasion and thus to increase the equity of the distribution of the tax burden between citizens and enterprises».

(...)

«autonomous taxation directly affecting certain expenses, within the scope of taxes that originally affected only income, are considered distortions of the direct taxation system of income intended with IRC, but a value which legislatively was considered to be more relevant than the theoretical coherence of taxes, such as the implementation of tax justice, imposed a choice for these forms of taxation, as they are in line with the principles of equity, efficiency and simplicity.

(...)

But this indirect taxation is no less carried out within the scope of IRC, as results from the inclusion of autonomous taxation in its Code, which has as a corollary the application of the general norms specific to this tax, which do not conflict with its special form of incidence.

Thus, if it is true that autonomous taxation constitutes a different form of imposing taxes on enterprises, which could be contained in autonomous regulation or be arranged in the Stamp Duty Code, it is also true that the legislative choice to include such taxation in the CIRC reveals an intention to consider such taxation as inserted in the IRC, which can be justified as being an indirect form, but, in the legislative perspective, equitable, simple and efficient, of taxing business income that escapes the regime of taxation with direct incidence on income».

In fact, it is a fact that the imposition of any expense without counterpart on a legal person has as a corollary a potential decrease in its income, whereby the imposition of a unilateral tax obligation, even if calculated on the basis of expenses incurred, constitutes an indirect form of taxing its income. (It cannot be forgotten, in this context of identifying the nature of a tax, that, taking the analysis to the limit, as taught by the late Prof. Doctor SALDANHA SANCHES, «the recipient of the tax is always the individual person - taxation of the commercial company is instrumental and its taxation is always a payment on account of the tax that will later be borne by the holder of the capital of the company»)

The new article 23-A of the CIRC, introduced by Law no. 2/2014, of 16 January, in stating that «the following expenses are not deductible for purposes of determining taxable profit, even when recorded as period expenses: a) The IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits», suggests that, in the legislative perspective, the IRC and autonomous taxation are taxes that directly or indirectly affect profits, as this understanding can justify the inclusion of the expression «any other taxes», which presupposes that IRC and autonomous taxation are also taxes of these types.

Therefore, as autonomous taxation provided for in the CIRC are, in the final analysis, forms of taxing business income, there is no apparent necessary incompatibility between them and the general rules that provide for the manner of paying IRC.

What is the regime of deduction of PEC from the IRC levy resulting from the application of autonomous taxation rates, in the force of paragraph 21 of article 88 of the IRC Code?

As to the regime resulting from the introduction of the new paragraph 21 of article 88 of the IRC Code and adhering to the content of the CAAD decision referred to above: "On the other hand, if it is true that, in light of the regime in force before Law no. 2/2014, of 16 January, altered paragraph 3 of article 93 of the CIRC, the amounts paid as special payment on account could not always be deducted (in light of paragraph 3 of article 93 of the CIRC, in the version resulting from the republication effected by Decree-Law no. 159/2009, of 13 July, if there was not sufficient IRC levy to deduct the special payments on account up to the fourth following period of taxation, reimbursement could only occur if the conditions provided for in that paragraph 3 of article 93 of the CIRC were met: there being no divergence, in relation to the period of taxation to which the special payment on account to be reimbursed refers, of more than 10%, for less, of the average of the profitability ratios of enterprises of the business sector in which they operate, to be published in a ministerial ordinance and the situation that gave rise to reimbursement is considered justified by inspection action made at the request of the taxpayer filed within 90 days following the end of the period for filing the periodic return concerning that same period of taxation), it is also true that this regime was altered by that Law, reimbursement being admitted without conditions other than that the taxpayer request it, within the prescribed period.

Therefore, the interpretation that flows most linearly from the text of articles 93, paragraph 3, and 90, paragraph 1, of the CIRC, prior to Law no. 2/2014, is that of the deductibility of special payments on account from the IRC levy derived from autonomous taxation.

But it is also true that, in light of the prior reimbursement regime of special payments on account, which revealed that the special payment on account had inherent a presumption of undeclared income, one could venture a restrictive interpretation, regarding the special payment on account, in the sense that it would not be deductible from the levy of autonomous taxation, as was understood in the arbitral decision of 30-12-2015, rendered in case CAAD no. 113/2015-T, which invokes considerable reasons, derived from the objectives which legislatively was intended to be achieved with the creation of the special payment on account, which could justify a restriction of the reference made in article 93, paragraph 1, of the CIRC to the «amount determined in the return referred to in article 120»:

"As was seen the PEC came to be part of the IRC system whose levying … was designed to determine the tax directly inciding on declared income. When there is a tax loss the taxpayer still must bear the PEC; that was in fact the reason for its introduction. If a given enterprise has successive tax losses, it will systematically bear tax, as the system doubts its ability to function in a situation of permanent deficit, requiring it to satisfy provisionally (on account), a certain amount. It may obtain reimbursement if it proves that this situation is common in its business sector or if the AT verifies the regularity of its returns. This was the balance which the CIRC required to maintain a system based on returns filed by taxpayers.

The tax resulting from autonomous taxation is based solely on the pursuit of tax evasion through income transfer and has a dissuasive and compensatory effect.

If deduction of the PEC from the levy resulting from autonomous taxation is permitted, the purposes of the system in which the norm of article 83-2-e CIRC is inserted will be frustrated, as the product of the special payment on account which should remain "stationary" in the ownership of the Public Treasury will be affected by the extinction of the taxpayer's debt resulting from autonomous taxation, thus lightening the intended pressure to avoid declarative tax evasion. There is indeed an irreconcilable conflict between the ratio of the PEC – the fight against evasion or pressure for correction of returns – and the allocation of its credits to the satisfaction of other obligations that are not those resulting from the determination of IRC calculated on the taxable result".

The new paragraph 21 of article 88 of the CIRC added by Law no. 7-A/2016, of 30 March, is in tune with this arbitral understanding, as it comes to expressly establish that the assessed amount of autonomous taxation is subject to «no deductions».

On the other hand, article 135 of Law no. 7-A/2016, of 30 March, in attributing an «interpretative» nature to that new paragraph 21 of article 88, combined with article 13 of the Civil Code (which is the sole norm that defines the concept of interpretative law), has inherent a legislative intention to apply the new regime to prior situations in which there are no «effects already produced by compliance with the obligation, by final judgment, by settlement, even if not homologated, or by acts of analogous nature».

BAPTISTA MACHADO teaches about interpretative laws:

The reason why the interpretative law applies to prior facts and situations lies fundamentally in that it, in consecrating and fixing one of the possible interpretations of the old law which those interested could and should have expected, is not susceptible to violating secure and legitimately founded expectations. We can consequently say that those laws are of interpretative nature which, on points or questions in which the applicable legal rules are uncertain or their meaning is controversial, come to consecrate a solution that courts could have adopted. It is not necessary that the law come to consecrate one of the prior judicial currents or a strong prior judicial current. All the more so as the interpretative law often arises before such judicial currents have formed. But, if this is the case, and if in the meantime a uniform judicial current has formed that made practically certain the meaning of the old norm, then the new law that comes to consecrate a different interpretation of the same norm can no longer be considered truly interpretative (although it may be by determination of the legislator), but innovative.

In order for a new law to be truly interpretative two requirements are necessary, therefore: that the solution of the prior law be controversial or at least uncertain; and that the solution defined by the new law is within the framework of the controversy and is such that the judge or interpreter could have reached it without exceeding the limits normally imposed on the interpretation and application of the law. If the judge or interpreter, faced with old texts, could not have felt authorized to adopt the solution that the new law comes to consecrate, then this is decidedly innovative.

In light of this position, whose grounds are considerable, in light of the legislation in force in 2012 and 2013, the attribution of an interpretative nature to paragraph 21 of article 88 of the CIRC made in article 135 of Law no. 7-A/2016, of 30 March, can be accepted, in light of the teachings of BAPTISTA MACHADO, as the solution provided therein of the impossibility of deduction of the special payment on account from the total amount of autonomous taxation passes the test set out by this Author:

– the solution that resulted from the literal content of article 93, paragraph 1, of the CIRC was controversial, as evidenced by that arbitral decision and the solution defined by the new law is within the framework of the controversy;

– the judge or interpreter could have reached that solution without exceeding the limits normally imposed on the interpretation and application of the law, since the restrictive interpretation is admissible when there are reasons to conclude that the scope of the legal text betrays the legislative intent or it is necessary to optimize the harmonization of conflicting interests that two norms intend to protect.

… There is, as concerns the deductibility of special payments on account, no concern for protection of confidence, as special payments are connected with the volume of business, not depending on any specific behavior which the taxpayer would be led to adopt because he was created the expectation of obtaining a tax advantage as a counterpart.

It is not seen that the regime that results from article 88, paragraph 21, of the CIRC contains any contradiction, … According to this new norm, the norms of the CIRC relating to the manner of levying autonomous taxation must be interpreted as provided therein and regarding that part of the IRC levying no deductions are made.

In fact, it was precisely in this sense that the Form 22 of IRC return was prepared and it was applying the regime now explicit in paragraph 21 of article 88 that the Claimant completed the returns referred to in the records, without any apparent contradiction.

But, being thus, as the Claimant argues, the obstacle to the application of the regime that results from this paragraph 21 of article 88 will only be its eventual unconstitutionality, in particular in light of the rule prohibiting taxes of a retroactive nature contained in paragraph 3 of article 103 of the Constitution, which establishes that «no one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose levying and collection are not made in accordance with the law».

The Constitutional Court has adopted a restrictive interpretation of the scope of this prohibition of taxes having a retroactive nature, understanding that «the legislator of the constitutional revision of 1997, which introduced the current version of article 103, paragraph 3, only intended to consecrate the prohibition of authentic retroactivity, or proper, of the tax law, encompassing only those cases in which the taxable fact that the new law intends to regulate has already produced all its effects under the old law, excluding from its scope of application those situations of retrospectivity or of improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects still persist in the present» (decisions no. 18/2011, of 12-01-2011, which follows case law adopted in decision no. 399/2010).

The norms providing for special payments on account were not, in principle, norms of IRC incidence, but rather on its levying and payment, whereby, to that extent, they will not be encompassed by the constitutional prohibition of retroactivity. But, before the version given by Law no. 2/2014, of 16 January, to paragraph 3 of article 93 (the prior version is that of Decree-Law no. 159/2009, of 13 July, which renumbered and republished the CIRC and in which article 93 corresponds to the prior article 87), in the impossibility of deduction of special payments on account in the period to which they relate and in subsequent periods, these norms could end up by conducting to create a situation of IRC incidence, autonomous in relation to any other taxable fact, if reimbursement was not to be permitted in accordance with paragraph 3 of article 93 of the CIRC, which depended on the meeting of conditions.

However, with the version given to said paragraph 3 of article 93 by Law no. 2/2014, conditions ceased to be required, whereby special payments on account only imply, by themselves, the payment of definitive tax when the taxpayer does not diligently seek to obtain reimbursement, within the prescribed period.

And, even in this hypothesis, one will be faced with a complex taxable fact of successive formation, which is constituted by the volume of business in the year to which the special payments on account relate combined with the impossibility of deduction in the periods provided for in the law and the non-reimbursement in accordance with the provisions of article 93, paragraph 3, of the CIRC.

In light of this regime, the legal situation created with the special payments on account made in the year 2010 (IRC return filed in 2011) is not yet stabilized, which, from the outset, excludes the violation of the prohibition of retroactivity of tax laws, in the view of the Constitutional Court, as the taxable fact that the new law intends to regulate did not occur integrally nor produced all its effects under the old law: «a case in which the taxable fact that the new law intends to regulate has already produced all its effects under the old law and another case in which the taxable fact occurred under the old law, but its effects, in particular those relating to levying and payment, are not yet totally exhausted will not necessarily have the same constitutional disvalue, since the first situation is from the point of view of the eventual affecting of the taxpayer's legal situation more serious than the second» (decision of the Constitutional Court no. 399/10, of 27-10-2010).

Thus, one must conclude that the authentic interpretation made in article 88, paragraph 21, of the CIRC, insofar as it comes down to the non-deductibility of special payments on account in autonomous taxation, does not offend the principle of non-retroactivity in the creation of taxes, understood as referring only to authentic retroactivity, relating to taxable facts that are completed and produced all their effects in the past.

However, this rule of non-retroactivity of norms creating taxes does not exhaust the constitutional concerns of legal certainty, imposed by the principle of the democratic rule of law, as taught by CASALTA NABAIS:

«The principle of legal certainty, inherent in the idea of the democratic rule of law, is far from having been totally absorbed by this new constitutional provision. It is true that it ceased to serve as the balancing of legal interests present when we are faced with a tax affected by true or proper retroactivity. When this occurs, the solution is now dictated, urbi et orbi, in the Constitution, and its applying bodies, without violating it, cannot proceed with a case-by-case weighing.

But the principle in question undoubtedly has a much broader basis. This is because it also serves as a criterion for weighing in situations of improper, inauthentic or false retroactivity, as well as in situations in which, with no retroactivity, proper or improper, occurring, the confidence of taxpayers placed in the conduct of State bodies must be protected». (Tax Law, 7th edition, page 151.)

However, in the specific case of special payments on account, it cannot be concluded that one is not faced with a truly interpretative law, as there was no consolidated case law in the sense of their deductibility from the levy resulting from autonomous taxation and, on the contrary, the solution adopted in paragraph 21 of article 88 could already previously be adopted by courts, as it was by the Arbitral Tribunal that rendered the decision in case CAAD no. 113/2015-T.

Thus, one cannot conclude that the authentic interpretation made in that article 88, paragraph 21, by force of article 135 of Law no. 7-A/2016, of 30 March, is violative of the constitutional principle of legal certainty, regarding the part of that norm that relates to the non-deductibility of special payments on account from the levy of autonomous taxation".

In light of the above, faced with the new law in force with the publication of the State Budget Law for 2016, the petition for pronouncement is rejected as to the annulment of the decision of the Finance Directorate of Lisbon of 31.07.2015 which rejected the request for official review concerning the fiscal year 2010 and which was notified to the Claimant by letter … of 11.09.2015.

As to the allegation by the Respondent, as stated in subparagraph x) of the Report, it is noted that it is considered that what is at issue is the mere reading of ordinary law as stated above. On the other hand, the Respondent does not formulate any concrete constitutional question that generates an obligation to pronounce for this Tribunal, insofar as it is merely a generic formulation of a supposed understanding not concretized, where no specific norm or segment of norms is indicated, in addition, to whose interpretation it refers, nor how, to what extent and why the supposed interpretation presented by the Claimant violates each of the constitutional norms it lists.

V. DECISION

In accordance with and on the grounds set out above, the following is decided:

The exception of incompetence of the TAS is upheld as concerns the Claimant's claim (the declaration of illegality and partial annulment of the IRC assessment act no. 2011… relating to the fiscal year 2010, in the part corresponding to autonomous taxation, in the amount of € 20,693.29), interpreted as direct challenge of the self-assessment act;

The exception of incompetence of the TAS is rejected to the extent that it argues for the lack of material competence to examine the decision that resulted from the request for official review;

The petition for pronouncement is rejected as to the annulment of the decision of the Finance Directorate of Lisbon of 31.07.2015 which rejected the request for official review concerning the fiscal year 2010, and which was notified to the Claimant by letter … of 11.09.2015, absolvering the Respondent of the petition, as paragraph 21 of article 88 of the CIRC does not permit the deduction of PEC from the IRC levy resulting from the application of autonomous taxation rates, being a truly interpretative law, in light of the constitutional text reading expressed above.

***

Amount of the case: in accordance with the provisions of article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subparagraph a) of paragraph 1 of article 97A of the CPPT), the amount of 20,693.29 euros is fixed as the amount in dispute.

Costs: in accordance with the provisions of article 22, paragraph 4, of the RJAT, the amount of costs is fixed at 1,224.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, in the proportion of 1/4 at the charge of the Respondent and 3/4 at the charge of the Claimant, in view of their respective adverse determinations.

Notify.

Lisbon, 14 June 2016

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared on computer in accordance with the provisions of article 131, paragraph 5, of the CPC, applicable by reference in article 29 of the RJAT.

The drafting of this decision is governed by the spelling prior to the Portuguese Language Orthographic Agreement of 1990.