Autonomous Taxation Deductions in IRC: CAAD Ruling on PEC and SIFIDE Credits for Corporate Groups

ARBITRAL DECISION

1. REPORT

1.1 A…, SGPS S.A. (hereinafter referred to as "A…" or the Claimant), a public company, with single collective person number and registration…, with registered office at Place…, …-…, municipality of …, hereby, pursuant to articles 2, no. 1, paragraph a) and 10, nos. 1 and 2, of Decree-Law no. 10/2011, of 20 January (RJAT), requested the constitution of an Arbitral Tribunal.

1.2 The Respondent in the present proceedings is the TAX AND CUSTOMS AUTHORITY (AT)

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 16 December 2015 and notified to the AT on 22 December 2015.

Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Ethics Council designated as arbitrators of the collective arbitral tribunal the signatories hereof, who communicated acceptance of the appointment within the applicable period.

On 5 February 2016 the parties were duly notified of such designation and did not manifest any intention to refuse the designation of the arbitrators, in accordance with article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics, and the Tribunal was constituted on 22 February 2016.

1.3 The request for arbitral decision was submitted by the Claimant in its capacity as the dominant company of Group B… and, as such, responsible for the self-assessment of Corporate Income Tax (IRC), to which, in the taxation periods of 2012 and 2013, the Special Tax Regime for Groups of Companies (RETGS) was applicable, and is based on the dismissal of the administrative review filed by the Claimant and aims at the partial annulment of the self-assessment acts of IRC relating to the fiscal years 2012 and 2013, to the extent corresponding to the non-deduction from autonomous taxation of special installment payments (PEC) and the tax credit of the Fiscal Incentives System for Business Research and Development (SIFIDE) at the level of Fiscal Group B… with the consequent illegality regarding the amounts of €70,911.70 and €64,801.79, respectively, for the years 2012 and 2013, in a total of €135,713.49.

The Claimant comes forward to contest such dismissal, continuing to maintain the illegality of the self-assessments of IRC of the fiscal group B…, of which it is the dominant company, by improper exclusion of deductions from the tax.

Subsidiarily, in the event that it is not understood that article 90 of the CIRC does not apply to autonomous taxation, the Claimant petitions that the illegality of the assessment of autonomous taxation (and consequently the annulment thereof) be declared on account of absence of legal basis for its assessment.

The Claimant requests that, as a consequence of the intended annulment of the assessments in dispute, the Respondent be ordered to refund to it the amounts relating to the assessments in dispute, increased by compensatory interest at the legal rate counted from 1 September 2013 as to €70,911.70, from 30 May 2014 as to €41,236.19, from 23 December 2014 as to €75.64, and from 1 September 2014 as to the remaining €23,489.96, until full and complete payment.

With regard to the error of the AT, which, in the Claimant's understanding, supports its right to interest, it alleges that the AT's computer system, through which IRC is self-assessed, does not allow taxpayers to deduct, for purposes of determining the IRC due by them, from the IRC resulting from autonomous taxation assessed, the PEC and the SIFIDE tax credit. That is, that system does not allow, therefore, to deduct a portion of anticipated payments made on account of the IRC that will be due finally – the PEC – nor the SIFIDE tax credit to a part of the final IRC actually assessed – the autonomous taxation.

That is, that, intentionally or inadvertently, the Form 22 IRC declaration and its articulation with the programming of the AT's computer system prevents the deduction from the tax collection relating to autonomous taxation rates in IRC, entered in field 365 of table 10 of Form 22 declaration, the PEC still to be deducted from IRC collection, starting with the oldest, as well as the tax credit corresponding to SIFIDE and that, in the case at hand, the AT's computer system prevented the claimant from entering the amount relating to the aforementioned autonomous taxation rates in IRC, purged, i.e., deducted, within the limits of the IRC collection resulting from the application of these rates, of the PEC still available (starting with the oldest) for offset against IRC collection and the SIFIDE tax credit, which resulted in an overpayment of tax by reference to the fiscal years 2012 and 2013 at issue, to the extent that the accumulated PEC and the SIFIDE tax credit are more than sufficient to compensate, through their use, the collection of autonomous taxation in IRC for the fiscal years 2012 and 2013 at issue.

1.4 The AT replied, defending itself by impugnation, maintaining the decision and dismissal in dispute.

With regard to the legal nature of autonomous taxation in IRC, it maintains that this figure pursues several objectives, ranging from the original purpose of preventing practices of evasion and fraud – through confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the replacement of the taxation of accessory benefits in the form of representation expenses or the allocation of vehicles to employees and members of corporate bodies, in the sphere of the respective beneficiaries – to the purpose of preventing the phenomenon designated as "dividend washing" or of burdening, through taxation, the payment of income considered excessive.

Therefore, it maintains that it has autonomous character resulting from the special configuration given to the material and temporal aspects of the taxable events, which requires, in certain areas, the exclusion or an adaptation of the general rules of application of IRC.

Therefore, it concludes that for the calculation basis of installment payments only the IRC assessed on the basis of taxable matter determined according to the rules of Chapter III and the rates of article 87 of the respective Code is considered, so that the calculation basis corresponds to the amount of the IRC collection resulting from the taxable matter that is identified with the profit/income of the fiscal year of the taxpayer, which is equivalent to saying that it corresponds to the amount of the IRC calculated by applying the rates of article 87 of the IRC Code to the taxable matter determined on the basis of profit.

From which it follows that the credit for the amounts paid as PEC and the credit relating to SIFIDE do not constitute enforceable credits of which IRC taxpayers may dispose, and therefore the Claimant's current claim for deduction of the amount borne in PEC and the SIFIDE tax credit from the collection produced by autonomous taxation in the years 2012 and 2013 is devoid of any basis.

1.5 Notified of the Tribunal's intention to dispense with the meeting of the arbitral tribunal provided for in article 18 of the RJAT, the parties did not object and presented their submissions, in which they maintained the positions previously held.

1. PRELIMINARY EXAMINATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal standing and capacity, are duly interested, and are properly represented.

The proceedings do not suffer from any defects that would render it void.

1. FINDINGS OF FACT

3.1 Proven Facts

With relevance to the decision on the merits, the Tribunal considers the following facts as proven:

a) A…, SGPS, S.A., the present Claimant, is a company managing shareholdings covered by the general regime of Corporate Income Tax (IRC);

b) The Claimant was, at the time of the facts, the dominant company of a group of companies taxed under the Special Tax Regime for Groups of Companies (RETGS) provided for in article 69 of the IRC Code, which had as subordinate companies: C…, S.A., D…S.A., E… Lda., F…S.A., G…SA, to which is added H…, S.A., with effect from 1 January 2013, as per Document no. 1 attached to the request for arbitral decision;

c) The Claimant filed on 31 May 2013 and on 29 May 2014 the IRC Form 22 declarations of its Fiscal Group, relating to the fiscal years 2012 and 2013, respectively, and, on 6 October 2014 and 5 February 2015, presented replacement declarations of the aforementioned IRC Form 22 declarations, as per documents nos. 2, 3, 4 and 5 attached to the request for arbitral decision;

d) In those declarations relating to the years 2012 and 2013, the Claimant self-assessed autonomous taxation in the amounts of €70,911.70 and €64,801.79, respectively, as per Documents nos. 2, 3, 4 and 5 attached with the request for arbitral decision;

e) In the replacement Form 22 income declaration relating to the fiscal year 2012, the Claimant's fiscal group calculated IRC collection in the amount of €10,259.88, from which PEC were deducted in the same amount (notwithstanding that the total amount of PEC capable of deduction amounted to €373,000.00), so that the IRC assessed was nil.

f) Thus, in that IRC Form 22 income declaration an amount of tax to be recovered of €23,125.12 was calculated – corresponding to the excess of withholdings at source of €101,092.61 over the municipal surtax of €7,055.79 plus autonomous taxation in the amount of €70,911.70 – and the difference between this amount and the amount of tax to be recovered calculated in the first IRC Form 22 declaration for fiscal year 2012 was paid by the Claimant, as per document no. 8 attached to the request for arbitral decision;

g) In the replacement Form 22 income declaration relating to fiscal year 2013, the Claimant's fiscal group calculated IRC collection in the amount of €10,811.15, from which the SIFIDE tax benefit in the same amount was deducted (notwithstanding that the total amount of the SIFIDE tax credit amounted to €127,033.54 and the amount of PEC amounted to €367,964.61), so that the IRC assessed was nil;

h) Thus, in that Form 22 IRC income declaration an amount of tax to be paid of €41,311.83 was calculated – corresponding to the difference between withholdings at source in the amount of €32,497.51, on one hand, and the amount of €9,007.55 of municipal surtax and the amount of €64,801.70 of autonomous taxation, on the other – which was paid on 30 May 2014 (in the amount of €42,236.99) and 23 December 2014 (in the amount of €75.64), as per document no. 9;

i) At the end of fiscal year 2013, the fiscal group of which the Claimant is the dominant company presented SIFIDE credits to be utilized in the amount of €116,222.39, as per document no. 10 attached to the request for arbitral decision;

j) In 2012, there subsisted an accumulated amount of PEC to be deducted from IRC collection amounting to €362,740.12 and in 2013 to €372,500.00, as per document no. 12 attached to the request for arbitral decision.

k) The Form 22 IRC declaration model that was in the AT's computer system did not allow the Claimant to deduct PEC and SIFIDE from the IRC collection resulting from autonomous taxation rates relating to fiscal years 2012 and 2013;

l) On 22 October 2015, the present Claimant filed an administrative review of the self-assessments of IRC made in the IRC Form 22 income declarations of the fiscal group for taxation periods 2012 and 2013, to the effect that PEC should be deducted from the 2012 IRC collection resulting from the application of autonomous taxation rates and the SIFIDE tax credit should be deducted from the 2013 IRC collection resulting from the application of autonomous taxation rates, as per document no. 6 attached to the request for arbitral decision.

m) Said administrative review was entirely dismissed by decision dated 07-10-2015, of which the Claimant was notified on 14 October 2015, as per document no. 7 attached to the request for arbitral decision.

n) On 16 December 2015, the Claimant presented the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

3.2 Unproven Facts

No facts with relevance to the appreciation of the merits of the case were found that were not proven.

3.3 Justification of the Decision on Findings of Fact

The conviction regarding the facts given as proven was based on the documentary evidence presented by the Claimant, whose authenticity and correspondence to reality were not contested by the Respondent.

With regard to the computer system, the AT does not dispute that it does not allow the deduction of PEC and SIFIDE credits from IRC collection, but rather maintains that this is the appropriate functioning.

1. ISSUES TO BE DECIDED

The principal issue submitted to the appreciation of the Arbitral Tribunal is whether the Claimant, as the dominant company of the so-called Fiscal Group B…, composed of the companies identified in the findings of fact, has the right to proceed with the deduction, also from the IRC collection produced by the application of autonomous taxation rates, of the aforementioned PEC and the SIFIDE tax credit, and, if so, whether the (self-)assessments of IRC for fiscal years 2012 and 2013 are illegal.

Further submitted to the Tribunal is, subsidiarily, should the Tribunal answer negatively to the first issue, the question of the possible illegality and consequent annulment of the assessment of autonomous taxation, on account of absence of legal basis for its assessment.

The Tribunal is also called upon to pronounce itself on the right to compensatory interest on the amounts paid as a consequence of the (self-)assessments in dispute.

It is therefore necessary to decide on the merits of the request for arbitral decision of the IRC assessments sub judice and on the possible right of the Respondent to compensatory interest.

Let us examine:

The regime of autonomous taxation in effect in fiscal years 2012 and 2013 is the result of numerous legislative amendments.

The subjection of certain expenses to autonomous taxation arose with Decree-Law no. 192/90, of 2 June, in a context of penalization of the taxation of confidential or undocumented expenses incurred by companies.

Subsequently, autonomous taxation was included in the IRC Code through Law no. 30-G/2000, of 29 December, which incorporated the provision for autonomous taxation into the statute that regulates IRC.

Since then, the regime of autonomous taxation has undergone a process of progressive expansion, in part dictated by the apparent continuous intention to increase tax revenue through this mechanism.

Taking into account article 88 of the IRC Code, autonomous taxation concerns, broadly speaking, the following realities: undocumented expenses; charges with vehicles; representation expenses; allowances; amounts paid to non-residents; profits distributed by entities subject to IRC to taxpayers who benefit from exemption; expenses or charges relating to indemnities or any other compensation due not related to the contractual relationship; and also expenses or charges relating to bonuses and other variable remuneration paid to managers, administrators or partners.

The State Budget Law for 2014 introduced some amendments to the provision of autonomous taxation[1], which, however, were not only not especially relevant but offer no contribution to the present discussion.

Article 23-A, no. 1, paragraph a), of the IRC Code, as amended by Law no. 2/2014, of 16 January, leaves no room for any reasonable doubt.

In fact, the wording of said provision introduced by Law no. 2/2014, of 16 January, provides that "IRC, including autonomous taxation, and any other taxes that directly or indirectly fall on profits" are not fiscally deductible.

The positioning of the two commas in the letter of the law, one before and the other after the expression "including autonomous taxation," contained in the current wording of the cited article 23-A, no. 1, paragraph a), of the CIRC, rules out the possibility of defending that autonomous taxation is not (part of) IRC.

That is, in the current wording of article 23-A, no. 1, paragraph a) of the IRC Code, the legislator not only clarifies that autonomous taxation is part of IRC, whether as a tax stricto sensu, at least in terms of being part of the same unitary tax regime, but also that it should have the same treatment for purposes of calculating taxable profit.

Indeed, this understanding is corroborated by what, at the time of the facts, resulted from the literal wording of article 12 of the IRC Code, according to which "companies and other entities to which, pursuant to article 6, the tax transparency regime is applicable, are not taxed in IRC, except for autonomous taxation," from which it also follows that autonomous taxation is IRC (is part of IRC).

That is, and in summary, the legislator understood, and continues to understand, that autonomous taxation is part of IRC, whether as a tax stricto sensu, at least in terms of being part of the same unitary tax regime.

Furthermore, it must be taken into account that the provision of article 45 of the CIRC is situated in a context of broad legislative discretion. That is, in defining what are deductible or non-deductible expenses for tax purposes, the tax legislator enjoys broad discretionary power. Hence, it cannot be said that it is forbidden to the legislator, by virtue of the "nature" of autonomous taxation, to exclude it from deductible expenses for tax purposes.

It is understood, in this manner, that it will be legitimate for the legislator to include or exclude autonomous taxation from that category of deductible expenses for tax purposes, regardless of the "nature" that doctrine or jurisprudence may assign to it.

The question, properly situated, will then be to determine what the legislator's intention is, as expressed in the legislative text, understood as a whole.

And from this perspective, the combination of the wording of article 12 of the CIRC with article 45, no. 1, paragraph a) of the same, will leave no great doubt as to the legislative understanding that autonomous taxation, if it does not constitute IRC stricto sensu, will certainly be part of the regime of that tax, and will be due on that basis.

Moreover, there is no principle obstacle to the legislator isolating certain types of income and applying specific or differentiated rates to them, as occurs, for example, in the cases provided for in article 4 of the current CIRC.

Furthermore, neither is the result, apparently so counterintuitive and striking, of being able to be due the payment of tax through autonomous taxation in question, even in the case of non-existence of a (positive) income at the end of the taxation period, a rare thing in the IRC regime.

In fact, in some cases of withholding at source as a final tax, it may occur that the holder of income subject to such withholding had expenses exceeding the income.

Also in the case of the operationalization of some of the specific anti-abuse clauses (articles 63 to 67 of the CIRC), by virtue of the consideration of costs, it may occur that taxpayers are taxed on a fictitious taxable profit, to the extent that there may be a matter of disregard of costs, actually incurred, but disregarded as abusive. It may thus be the case that a taxpayer has to pay IRC, notwithstanding actually having had losses.

All of what has been said evidences that the evolution of the legal regime of IRC transformed it, changing it into a complex and multifaceted reality, at the most diverse levels, which is reflected, in the matter at hand in these proceedings, in that duality of nature, which does not, however, prevent it from being considered that the system, despite being dual, is the same.

In other words, it only makes sense to speak of a dual system if the system in question is still the same. Otherwise one would not speak of a system of dual nature, but of two distinct systems, which, by all that is being said, will not be what occurs.

And, in casu, the system will be the IRC regime, which, operating sometimes through revenue, sometimes through expense, aims at and pursues the specific purposes of that tax, including, obviously, the collection of revenue.

Those characteristics are recognized here that doctrine has been pointing out for some years as belonging to the autonomous taxation in question, such as:

a) autonomous taxation only makes sense because costs/expenses are, in the majority of situations, relevant as negative components of the taxable profit of IRC and it is this that motivates IRC taxpayers to claim as high a value as possible of those expenses to decrease the taxable matter of IRC, the collection and, consequently, the tax to be paid;

b) if it is a matter of treating these expenses unfavorably which, by their nature, are easily diverted from private consumption to business consumption;

c) it is intended to discourage this type of expense in taxpayers who present negative results, but who continue to show consumption structures difficult to reconcile with the financial health of their companies;

d) to model the tax system so that it reveals a certain balance, with a view to a better distribution of the effective tax burden among taxpayers and types of income;

e) to materialize the recognition that it is not easy to determine the exact measure of the component of some of these expenses that corresponds to private consumption.

Contrary to what is sometimes maintained, autonomous taxation does not constitute, in its genesis, special taxes on consumption, with each expense corresponding to a taxable event of instantaneous formation.

First of all, because such a conception would force, in IRC, that its constitutionality be appreciated in light of the principle of taxation by the real income of companies and, on the other hand, because there is not here truly a manifestation of wealth that should be taxed, in addition to which many of the expenses subjected are also deductible, recognizing that they are related to the activity of the company and not to expenses that manifest taxable capacity.

Autonomous taxation is based on the presumption of the existence of income that ceased to be taxed, not only under IRC but also under Personal Income Tax. As explained in the decision of the Arbitral Tribunal issued in the context of Case no. 209/2013-T, which decided negatively on the question of the deductibility of autonomous taxation as a cost for tax purposes under IRC, "it is a form of, indirectly and through the expense, taxing income."

The part of the IRC collection that comes from autonomous taxation is calculated from the elements of the tax defined in article 88 of the CIRC inserted in 'Chapter IV – Rates.'

This article delimits the taxable matter of autonomous taxation, on one hand, and, on the other hand, enumerates the rates of autonomous taxation, which are several, depending on the nature of the taxable matter to which they apply; because they depend on the type of taxpayer (e.g., non-profit entity, exempt entities, entity that carries on as its principal activity a commercial, industrial or agricultural activity), and are also dependent on the economic performance itself of the IRC taxpayer, assuming different percentages when a tax loss or profit is calculated. The collection that comes from autonomous taxation is a function of the taxable result, being calculated from two expressions that are the product of the taxable matter by a rate dependent on the taxable result: a higher rate when a tax loss is calculated and another, lower, when the taxable result is positive.

Thus, the collection coming from autonomous taxation cannot be determined instantaneously and immediately following the incurrence of the expense, as it depends on the result itself which is – contrary to what the AT claims and with support in the decision issued in Arbitral Case no. 113/2015-T – of successive formation.

Also some expenses that do not coincide with the expenses that eliminate and which are subject to autonomous taxation, namely depreciations, are of continuous formation.

Given this, the essential question that needs to be resolved is whether the assessment of autonomous taxation is "determined pursuant to article 90 of the CIRC," because, if it is, it must be concluded that the deductions provided for in no. 2 of article 90 of the IRC Code may also be effected from the collection coming from autonomous taxation.

The provision in issue is that of article 90 of the CIRC, with paragraph a) being the one that applies to assessment made by the taxpayer (self-assessment).

This was the wording of the article resulting from Law no. 3-B/2010 and in effect until 31.12.2013:

"1 — The assessment of IRC is carried out in the following manner:

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

(...)

2 — To the amount determined pursuant to the previous number the following deductions are effected, in the order indicated:

a) The corresponding to double international taxation;

b) That relating to tax benefits;

c) That relating to special installment payment referred to in article 106;

d) That relating to withholdings at source not capable of compensation or refund pursuant to applicable legislation.

3 — (Repealed by Law no. 3-B/2010-28/04, taking effect from January 2011, with regard to the simplified regime - no. 2 of article 92 of said law).

4 — To the amount determined pursuant to no. 1, relating to the entities mentioned in no. 4 of article 120, only is the deduction relating to withholdings at source when these have the nature of tax on account of IRC to be effected.

5 — The deductions referred to in no. 2 relating to entities to which the tax transparency regime established in article 6 applies are imputed to the respective partners or members pursuant to the terms established in no. 3 of that article and deducted from the amount determined on the basis of the taxable matter that took into account the imputation provided for in the same article.

6 — When the special regime for taxation of groups of companies is applicable, the deductions referred to in no. 2 relating to each of the companies are effected in the amount determined relating to the group, pursuant to no. 1.

7 — From the deductions effected pursuant to paragraphs a), b) and c) of no. 2 no negative value can result.

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

9 — In cases in which the provision of paragraph b) of no. 2 of article 79 is applicable, assessments are made annually on the basis of taxable matter determined with a provisional character, and, in view of the assessment corresponding to the taxable matter relating to the entire period of assessment, the difference calculated is to be charged or cancelled.

10 — The assessment provided for in no. 1 may be corrected, if applicable, within the period referred to in article 101, the differences calculated being then charged or cancelled."

Thus, article 90 of the CIRC refers to the forms of assessment of IRC, by the taxpayer or by the Tax Authority, and aims at determining the tax due in all situations provided for in the Code, including additional assessment.

The IRC Code refers, in its current version, expressly to autonomous taxation only in five articles, namely in article 12 (by excluding autonomous taxation from the IRC exemption applicable to companies covered by the tax transparency regime), in article 23-A, no. 1 (by making explicit that autonomous taxation is not deductible for purposes of determining taxable profit), in article 88 (by establishing the rates and delimiting the taxable matter of autonomous taxation), in article 117, no. 6 (concerning the declarative obligation of entities exempt from IRC pursuant to article 9, when autonomous taxation arises) and in article 120, no. 9 (regarding the periodic income declaration). There is no other explicit reference to autonomous taxation in the CIRC.

Indeed, the current wording differs from that in effect until 31.12.2013 only in the novelty of article 23-A, which establishes that the expenses associated with autonomous taxation are not deductible for purposes of determining taxable profit, even when accounted for as expenses of the taxation period, certain expenses, with paragraph a) being clarifying: "IRC, including autonomous taxation, and any other taxes that directly or indirectly fall on profits."

That is, not only does the legislator express that IRC includes autonomous taxation, but there are no other references in the CIRC, particularly in the chapters that deal with incidence (Chapter I), assessment (Chapter V) and payment (Chapter VI) to autonomous taxation expressly, from which it is necessary to conclude that they are subject, in a general manner, to the other articles provided for in the CIRC.

There is no other article in the CIRC besides article 90 that distinguishes the process of assessment of autonomous taxation from the rest of IRC. And in these terms, the assessment of both – autonomous taxation and the rest of IRC – is single and has the same legal support.

Autonomous taxation does not result from a distinct process of tax assessment.

Understanding that autonomous taxation is (part of) IRC, it is understood that IRC assessment is single, including the part that comes from autonomous taxation.

There is a single IRC assessment that comprises two parts: the assessment of autonomous taxation and that of the rest of IRC, each with taxable matter determined in its own way and with its own taxation rates, but both assessed pursuant to article 90 of the CIRC. Being a single assessment, it is concluded that the part of the collection that comes from autonomous taxation is an integral part of the IRC collection.

On the contrary, there is found in no other article of the CIRC the reference to the assessment of autonomous taxation as a distinct process. To accept that the assessment of autonomous taxation is outside article 90, no. 1 of the CIRC would be to accept that there is a lacuna in the law and, this being a tax law, does not allow integration.

In this sense, goes Decision no. 775/2015-T in referring that "To accept that the assessment of autonomous taxation is outside article 90, no. 1 of the CIRC and, therefore, to exclude from its collection the deductibility of PEC provided for in paragraph c) of no. 2 and SIFIDE provided for in paragraph b) of no. 2, would require the taxpayer to pay a tax whose assessment is not made pursuant to law, contrary to no. 3 of article 103 of the Constitution of the Portuguese Republic and the principle of tax legality that the General Tax Law, in its article 8, no. 2, paragraph a), establishes. If the Tax and Customs Authority assumed that the collection of autonomous taxation was calculated outside article 90 of the CIRC, it should indicate on what basis of assessment provision it did so. There being no provision on assessment of autonomous taxation separate, it seems it must be accepted that the IRC collection encompasses it, being included in article 90, no. 1 of the CIRC, and therefore the special installment payment referred to in paragraph c) of no. 2 being deductible and SIFIDE referred to in paragraph b) of no. 2."

Note, moreover, that in the following numbers of that article 90 of the IRC Code the legislator was concerned with enumerating various exceptions and limits to the rules of deductibility in no. 2. In no. 4, when it provides that "only is the deduction of withholdings at source to be effected when these have the nature of tax on account of IRC," which is revealing: it is understood that this is so because it is in the IRC collection that it is intended to deduct them, or in no. 7, when it prescribes that from deductions from the collection a), b) and c) of no. 2 no negative value can result, in a general manner and without distinguishing the collection resulting from the application of autonomous taxation rates.

In none of them – and this would, undoubtedly, be the right place – and in no other provision is there reference to any limitation on the deductibility of PEC and SIFIDE from the part of the IRC collection that results from autonomous taxation, and therefore it is necessary to conclude that it did not intend to do so.

Note, moreover, that although article 90 was amended with Law no. 2/2014, of 16 January, which republished the CIRC, what is said here not only persists but, from an interpretative standpoint, is even reinforced, inasmuch as the legislator added some limitations and exceptions to the deductions from the collection provided for in no. 2 and again failed to refer to the part of the collection that results from the application of autonomous taxation rates.

Therefore, article 90 of the IRC Code also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Authority, with no other provision providing for different terms for its assessment. The autonomy of autonomous taxation is restricted to the applicable rates and the respective taxable matter, but the determination of its amount is carried out pursuant to article 90 of the IRC Code.

Indeed, in the reply, the AT shares this understanding, confirming that "it is fitting to clarify that the assessment of autonomous taxation is effected based on articles 89 and 90, no. 1 of the IRC Code but, applying different rules for the calculation of the tax."

The differences between the determination of the amount resulting from autonomous taxation and the collection resulting from taxable profit rests on the determination of the taxable matter and the rates, provided for in Chapters III and IV of the CIRC, but not on the forms of assessment, which are provided for in Chapter V of the same Code and are of common application to autonomous taxation and to the rest of the IRC collection.

Therefore, finding article 90 inserted in this Chapter V, there is seen no legal support for making a distinction between the collection coming from autonomous taxation and the rest of the IRC collection, by virtue of the fact that they have distinct rates and forms of determining the taxable matter.

Considering that, as the AT maintains in the reply, both collections are determined pursuant to paragraph a) of no. 1 of article 90, it does not take on relevance for the case the fact that they are determined according to different rules.

And, as has been said, there is no legal support for affirming that, in the eventuality of there having to be effected several calculations in a declaration to determine the IRC, more than one self-assessment would be effected.

Therefore, the expression "when the assessment is to be made by the taxpayer in the declarations referred to in articles 120 and 122, it is based on the taxable matter contained therein," which is contained in paragraph a) of no. 1 of article 90 of the CIRC, encompasses in its literal wording the assessment of autonomous taxation, whose taxable matter has to be indicated in the said declarations, as results, inclusively, from the Form 22 declaration itself.

The collection is obtained by applying the rate to the respective taxable matter, so that, in the case of IRC, being several rates applicable to diverse taxable matters, the global IRC collection will be constituted by the sum of all the results of these applications.

Moreover, irrespective of the calculations to be effected, the self-assessment that the taxpayer or the AT must effect pursuant to articles 89, paragraph a), 90, no. 1, paragraphs a), b) and c) and 120 or 122 is unitary, and based on it the global IRC is calculated, whatever the taxable matters relating to each of the types of taxation that underlie it.

Furthermore, it cannot be seen, in the possible anti-abuse nature that some autonomous taxation assumes, an explanation for its exclusion from the respective collection, as there is no legal support for excluding the deductibility from the collection derived from corrections based on provisions of an unquestionably anti-abuse nature.

The purpose of autonomous taxation is dual. It aims at taxing real income, thereby correcting the taxable income to bring it closer to that real income and, at the same time, seeks to penalize taxpayers who through the realization of certain expenses end up reducing taxable income.

As can be read in Decision 617/12 of the Constitutional Court, it shows its dual nature, with a heightened rate of autonomous taxation for certain special situations sought to be discouraged, creates a sort of presumption that these costs do not have a business purpose and, therefore, are subject to autonomous taxation. "In summary," says the Constitutional Court, "the cost is deductible, but autonomous taxation reduces its tax advantage, since here, the basis of incidence is not a net income, but rather a cost transformed – exceptionally – into an object of taxation."

The legal regime of autonomous taxation in question only makes sense in the context of taxation under IRC. That is, disconnected from the legal regime of this tax, they would, completely, lack meaning. Their existence, their purpose, their explanation, ultimately, their lawfulness, is only comprehensible and acceptable within the framework of the legal regime of IRC. For even if it were accepted that the impositive taxable event is each of the singular individually typified expenses, the fact remains that these, as such, are not the final object of taxation, the reality that it is intended to burden with the tax.

If this were so, all provided expenses would have to be taxed, realized by all subjects and not only by some of them.

That is, autonomous taxation is inseparable from the subjects of the respective income tax, and, more specifically, from the economic activity carried out by them, which is even more evident when one thinks of the connection that, although it has varied in successive legislative amendments, autonomous taxation had and still has some connection with deductibility – and the actual deduction – of the expenses taxed.

This circumstance, it is believed, is enlightening of the interconnection existing between those and IRC (in the case), and justificatory not only of their inclusion in the CIRC, but equally of their integration, as of right, as part of the legal regime of IRC.

In fact, not only are only the expenses realized by IRC taxpayers that are subject to the imposition of autonomous taxation in such a framework, but such expenses will only be so, as a rule (without prejudice, it is reiterated, to the legislative advances and retreats in this matter) if such taxpayers choose them as deductible expenses in the determination of the taxable matter of such tax[2].

The autonomous taxation in question are, as such, undoubtedly understood by the legislator as a form of preventing certain abusive actions, which the normal functioning of the taxation system was unable to prevent or which would be more burdensome or laborious for the tax administration or, even, possibly, for the taxpayer.

This anti-abuse character of autonomous taxation will be not only coherent with its "anti-systemic" nature (as happens with all provisions of the kind), but with a presumptive nature.

In this perspective, as well noted by the decision issued by the Arbitral Tribunal in case no. 187/2013-T, autonomous taxation in analysis will then have underlying a presumption of partial business character of the expenses on which it falls, in function of the above-noted circumstance that such expenses are situated on a gray line separating what is business expense, productive, from what is private expense, consumption, it being notorious that in many cases the expense will have in reality even a dual nature (part business, part private).

Confronted with this difficulty, the legislator, instead of simply excluding its deductibility, or reversing the burden of proof of the relationship of the expenses in question with business activity, chose to establish the regime currently in force.

This presumption of partial business character should, consistently, be considered as covered by the possibility of elision resulting from article 73 of the LGT, whether by the taxpayer or by the Tax Authority, which appears to be in accordance with an appropriate distribution of the burden of proof, to the extent that, falling autonomous taxation in question on expenses whose relationship with the pursued activity may not be, at first, evident, it will be the taxpayer who will be better positioned to demonstrate that such requirement is verified in concreto.

For its part, the Tax Authority itself, if it so understands and considers that the case warrants the inherent expenditure of resources, may always demonstrate that, with regard to the expenses in question, and even though autonomous taxation has fallen on them, the general requirement of article 23, no. 1 of the CIRC is not verified, namely their indispensability for the realization of income subject to tax or for the maintenance of the source of production.

In light of all that has been set forth, we consider that autonomous taxation in dispute is part of the IRC regime and that its respective assessment is effected pursuant to article 90 of the IRC Code.

4.1 Regarding the Deductibility of PEC from the Amounts Due for Autonomous Taxation

Prior to Law no. 7-A/2016, the deductions provided for in no. 2 of article 90 of the IRC Code, which target the "amount determined pursuant to the previous number" were applied in light of one of the situations specially provided for in nos. 4 and following of the same article, which do not have application in the case at hand.

The deduction of PEC from the entire value determined pursuant to that article 90, no. 1, paragraph a) also resulted from the express wording of article 93, no. 1, of the CIRC, in the wording prior to Law no. 2/2014, of 16 January, in establishing that "the deduction referred to in paragraph c) of no. 2 of article 90 is effected from the amount determined in the declaration referred to in article 120 of the same taxation period to which it relates or, if insufficient, up to the fourth following taxation period, after effecting the deductions referred to in paragraphs a) and b) of no. 2 and with observance of no. 7, both of article 90."

The amount determined in the declaration referred to in article 120 includes the amounts relating to autonomous taxation, with no other specific declaration being provided for such purpose.

In fact, the declarations provided for in article 120 of the CIRC are drawn up in a single official model approved by ministerial decision of the Minister of Finance, pursuant to article 117, no. 1, paragraph b), and no. 2 of the CIRC.

Thus, in light of what is prescribed in paragraph c) of no. 2 of article 90 and in no. 1 of article 93 of the CIRC, until Law no. 7-A/2016, nothing in the literal wording of the CIRC prevented the deduction of amounts of PEC from the entire IRC collection that was determined pursuant to that no. 1 of article 90, including that derived from autonomous taxation, within the conditionality provided for therein.

On the other hand, given that PEC has the nature of a forced loan[3] which creates in the legal sphere of the taxpayer a credit against the Tax Authority, it does not seem unreasonable that it be taken into account in situations in which a credit is generated on the latter in relation to the taxpayer.

Furthermore, autonomous taxation under IRC, in light of the growing scope that the legislator has been according it, to be compatible with the constitutional principle of taxation of companies, falling fundamentally on their real income (article 104, no. 2, of the CRP), should be understood as indirect forms of taxing business income, through the taxation of certain expenses, as is implicit in paragraph a) of no. 1 of article 23-A of the CIRC in the wording of Law no. 2/2014, of 16 January, in referring to "IRC, including autonomous taxation (...)."

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

Indeed, it is a fact that the imposition of any expense without consideration to a legal entity has as a corollary a potential decrease in its income, so that

the imposition of a unilateral tax obligation, even if calculated on the basis of expenses realized, constitutes a form of indirectly taxing its income.

The new article 23-A of the CIRC, introduced by Law no. 2/2014, of 16 January, in saying that "not deductible for purposes of determining taxable profit are the following expenses, even when accounted for as expenses of the taxation period: a) IRC, including autonomous taxation, and any other taxes that directly or indirectly fall on profits," allows to be seen that, from the legislative perspective, IRC and autonomous taxation are taxes that fall directly or indirectly on profits, as this understanding can justify that the expression "any other taxes" is included, which presupposes that IRC and autonomous taxation are also taxes of these types.

Therefore, as autonomous taxation provided for in the CIRC, ultimately, are forms of taxing business income, it is not seen that there is necessarily incompatibility between them and the general rules that provide for the form of effecting the payment of IRC.

On the other hand, if it is true that, in light of the regime in force prior to Law no. 2/2014, of 16 January, amending no. 3 of article 93 of the CIRC, the amounts paid as PEC could not always be deducted, it is also true that that regime was amended by that Law, with the refund being admitted without conditions other than the taxpayer requesting it within the provided period.

Therefore, the interpretation that flows most linearly from the wording of articles 93, no. 3, and 90, no. 1, of the CIRC, prior to Law no. 2/2014, is that of the deductibility of PEC from the IRC collection derived from autonomous taxation.

4.2 Regarding the Deductibility of the SIFIDE Tax Credit from the Amount Due for Autonomous Taxation

Another question that arises in this context is whether the tax credits recognized to the Claimant in the year 2013, under SIFIDE, can also be deducted from the collection produced by autonomous taxation that burdens it in that fiscal year, in the part in which they cannot be deducted from the rest of the collection.

To answer this question it is important to refer to article 36 of the Tax Investment Code, in the wording at the time of the facts, which referred that:

"1. IRC taxpayers residing in Portuguese territory who carry on, as their principal activity, an activity of an agricultural, industrial, commercial and services nature and non-residents with a permanent establishment in that territory may deduct from the amount determined pursuant to article 90 of the IRC Code, and up to its amount, the value corresponding to research and development expenses, in the part that has not been the subject of financial contribution from the State on a free grant basis, realized in the taxation periods from 1 January 2013 to 31 December 2015, at a dual percentage (...)

2 - For IRC taxpayers that are SMEs according to the definition contained in article 2 of Decree-Law no. 372/2007, of 6 November, that have not yet completed two fiscal years and that have not benefited from the incremental rate set in paragraph b) of the previous number, a 15% increase is applied to the base rate set in paragraph a) of the previous number.

3 - The deduction is made, pursuant to article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the previous number. (...)"

Article 37 added:

"Only can benefit from the deduction referred to in the previous article IRC taxpayers that cumulatively fulfill the following conditions:

a) Their taxable profit is not determined by indirect methods;

b) They are not debtors to the State and to social security of any taxes or contributions, or have their payment duly assured."

In truth, that statute does not refer that the credits arising from it are deductible from every and any IRC collection, but rather defines the scope of the deduction by referring, in its no. 1 of article 36, to "the amount determined pursuant to article 90 of the IRC Code, and up to its amount."

No. 3 of the same article confirms that it is from the amount that is determined pursuant to article 90 of the IRC Code that is relevant for carrying out the deduction in saying that "the deduction is made, pursuant to article 90 of the IRC Code, in the assessment relating to the taxation period mentioned in the previous number."

Thus, by mere declarative interpretation, it is concluded that the reference that in article 36, nos. 1 and 3 is made to "deduction (...) pursuant to article 90 of the IRC Code (...)" as a form of materializing the tax benefit, encompasses, literally, also the IRC collection resulting from autonomous taxation, which is part of the single IRC collection.

The fact that article 37 of the Tax Investment Code excludes the benefit when taxable profit is determined by indirect methods and that autonomous taxation includes situations in which it is intended indirectly to tax profits (namely, not giving relevance or demotivating facts capable of reducing them), has no relevance for this purpose, as the concept of "indirect methods" has a precise scope in tax law, which is concretized in article 90 of the LGT (in addition to special provisions), relating to means of determining taxable profit, whose use is not provided for in calculating the taxable matter of autonomous taxation provided for in article 88 of the CIRC.

On the other hand, if it is the need to make use of indirect methods that excludes the possibility of enjoying the benefit, one cannot justify that exclusion in relation to the collection of autonomous taxation, which is determined by direct methods.

Moreover, it cannot be seen, in the possible anti-abuse nature that some autonomous taxation assumes, an explanation for its exclusion from the respective collection from the scope of deductibility of the SIFIDE benefit, as there is no legal support for excluding the deductibility from the collection derived from corrections based on provisions of an undoubtedly anti-abuse nature, such as those relating to transfer pricing or undercapitalization.

On the other hand, the fact that the deductibility of the SIFIDE tax benefit is limited to the collection of article 90 of the CIRC, up to its amount, does not allow concluding that the tax credit is only deductible if there is taxable profit, as what that fact requires is that there be IRC collection, which can exist even without taxable profit, particularly by virtue of autonomous taxation.

Thus, pointing the literal wording of article 36 of SIFIDE in the direction that the deduction applies also to the IRC collection derived from autonomous taxation assessed pursuant to article 90 of the CIRC, only by way of a restrictive interpretation could one exclude the application of that tax benefit to the IRC collection provided by autonomous taxation.

The viability of a restrictive interpretation encounters, from the outset, an obstacle of a general nature, which is that provisions creating tax benefits have the nature of exceptional provisions, as results from the express wording of article 2, no. 1, of the Tax Benefits Statute (EBF), so that, lacking a special rule, they should be interpreted in their precise terms, as is settled jurisprudence. In the case of tax benefits, the possibility of extensive interpretation is explicitly provided for (article 10 of the EBF), but not of restrictive interpretation, so that, as a rule, the tax benefit should not be interpreted with less scope than that which, in a declarative interpretation, results from the wording of the provision that provides for it.

In any case, a restrictive interpretation is only justified when "the interpreter reaches the conclusion that the legislator adopted a text that betrays his thinking, to the extent that it says more than what he intended to say. Also here the ratio legis will have a decisive word. The interpreter should not allow himself to be carried away by the apparent scope of the text, but should restrict it so as to make it compatible with the legislative thinking, that is, with that ratio. The argument on which this type of interpretation is based is usually expressed as follows: cessante ratione legis cessat eius dispositio (where the reason for the law ends its scope ends)."

As a basis for a restrictive interpretation could be ventured the fact that some autonomous taxation aims at discouraging certain taxpayer behaviors capable of affecting taxable profit, and consequently reducing tax revenue, and its deterrent force will be attenuated with the possibility of the respective collection being able to be the subject of deductions.

Therefore, it is necessary to assess whether there are reasons that justify a conclusion on the incompatibility of the sense of the text of article 36 with the ratio legis of that tax benefit.

But the discouragement of those behaviors is justified solely by concerns of protection of tax revenue and the tax benefits granted, by definition, are "measures of exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to those of taxation itself that prevent them" (article 2, no. 1, of the EBF).

And in the case of the SIFIDE tax benefits, the reasons of an extrafiscal nature that justify their supersession of tax revenues are, from the legislative perspective, of enormous importance, as inferred from the justification in the Report of the State Budget for 2011:

"II.2.2.4.4. Fiscal Incentives System for Business Research and Development II (SIFIDE)

Taking into account that one of the assets of competitiveness in Portugal passes through the emphasis on technological capacity, scientific employment and conditions for affirmation in the European space, the Draft State Budget for 2011 proposes to renew SIFIDE (Fiscal Incentives System for Business Research and Development), now in the SIFIDE version, to be in force in the periods 2011 to 2015, enabling deduction from IRC collection for companies that invest in R&D (research and development capacity).

Given the positive balance of tax incentives for business R&D, and also considering the evolution of the support system of other countries, it was decided to review and reintroduce for five more taxation periods this support system. Business R&D is a decisive fact not only of its own affirmation as competitive structures, but of productivity and long-term economic growth, a fact, moreover, expressly recognized in the Program of the XVIII Government, as well as in various recent international reports.

It is in this context that, in the international panorama, the OECD has considered since 2001 Portugal as one of three countries with the most significant progress in business R&D. The national system currently in force, compared to other systems using deduction from collection and the distinction between base rate and incremental rate, is one of the most attractive and competitive."

Given that business research and development is "a decisive fact not only of its own affirmation as competitive structures, but of productivity and long-term economic growth," it is understood that preference was given to the incentive of investment in technological capacity, scientific employment and conditions for affirmation in the European space, which, in the long term lead to the obtaining of greater tax revenues.

The importance that, from the legislative perspective, was recognized to this tax benefit provided for in SIFIDE is also decisively confirmed by the fact that it is indicated as being specially excluded from the general limit on the relevance of tax benefits in IRC, which is indicated in article 92 of the CIRC, in the wording at the time of the facts.

Therefore, it is also by this route, certain that one is dealing with tax benefits whose justification is legislatively considered more relevant than the obtaining of tax revenues, being inferred from that article 92 that the legislative intention to incentivize investments in research and development provided for in SIFIDE is so firm that it goes to the point of not even establishing any limit on the deductibility from the IRC collection, despite this tax regime having been created and applied in a period of notorious difficulties of public finances.

Thus, no legal basis is seen, particularly in light of the legislative intention that is possible to detect, for, on the basis of a restrictive interpretation, excluding the deductibility of the SIFIDE tax benefit from the collection of autonomous taxation that results directly from the letter of article 36, no. 1, of the respective statute, combined with article 90 of the CIRC.

As has been said, in establishing a tax benefit through deduction from IRC collection, the legislator chose to forego the tax revenue that this tax could provide, to the extent of the granting of the tax benefit. For this consideration relative to the interests at stake (tax revenue versus strong stimulus to investment) it is indifferent that that revenue comes from calculations made on the basis of article 87 or article 88 of the CIRC. In fact, whatever form of calculation of that tax revenue, one is dealing with money whose collection the legislator considered to be less important than the pursuit of the referred economic purpose. Of the two alternatives that faced the legislator regarding the incentive for investments provided for in SIFIDE, which were, on one hand, to maintain intact the revenues from IRC (including those from autonomous taxation) and not see incentivized the investment in research and development and, on the other hand, to carry out that incentive with loss of IRC revenues, the consideration that necessarily underlies SIFIDE is that of the option for the creation of the incentive with prejudice to revenues. And, naturally, the creation of the incentive to investment being better, from the legislative perspective, than the collection of revenues, it is not seen how it can be relevant that the IRC revenues that are foregone to carry out the incentive come from the general taxation of IRC provided for in no. 1 of article 87 or from taxation at special rates provided for in nos. 4 to 6 of the same article, or from autonomous taxation provided for in article 88: in all cases, the alternative is the same between creation of the incentive and collection of IRC revenues and the relative consideration that can be made of conflicting interests is identical, whatever the forms of determining the amount of IRC of which one forgoes to create the incentive.

And in the case of the SIFIDE tax benefit, the reasons of an extrafiscal nature that justify the incentive with loss of revenue are very strong, as it is considered that the incentivized investments are a decisive fact in the future competitiveness of the country.

Therefore, it is certain that one is dealing with a tax benefit whose justification is legislatively considered more relevant than the obtaining of tax revenues from IRC, whatever the basis of its calculation, as what is at stake is always foregoing or not a certain amount of money to create an incentive to investment.

In this context, the nature of autonomous taxation and the solutions legislatively adopted, in general, regarding them, have no relevance to the appreciation of this question, as this has to be appreciated in light of the specific interests that clash in its consideration.

In truth, what is at stake is, exclusively, determining the scope of SIFIDE, which establishes an exceptional regime, which aimed at pursuing certain public interests, and not contributing to the decision of any conceptual question about the nature of autonomous taxation, a matter on which neither in the text of the law nor in the Report of the State Budget for 2011 is seen the least legislative concern.

For the foregoing, converging the literal and rational elements of the interpretation of article 4 of SIFIDE in the sense that the investment expenses provided for therein are deductible from "the amount determined pursuant to article 90 of the IRC Code, and up to its amount," it is to be concluded that they are deductible from the totality of that collection, which encompasses, in addition to that derived from taxation of profits in each fiscal period, that which results from other positive components of the tax, particularly from autonomous taxation, state surtax and IRC from prior taxation periods.

Thus, the deduction of PEC and SIFIDE from the IRC collection must be accepted, necessarily including therein the portion coming from autonomous taxation.

It is verified, however, that the computer system does not allow the deduction of PEC and SIFIDE from the part of the IRC collection coming from autonomous taxation. The fact that the forms of determining the taxable matter and of the rates of autonomous taxation of IRC are established separately and are different from those of the rest of IRC does not seem to be a sufficient reason, nor to have legal support, for the existing computer solution.

Here arrived, it is necessary to analyze the question of no. 21 of article 88 of the CIRC, introduced by the Law approving the State Budget for 2016 (Law 7-A/2016, of 30 March).

In fact, several numbers were added to article 88 of the CIRC, which refers to autonomous taxation, by this Law, among them no. 21, according to which "The assessment of autonomous taxation in IRC is effected pursuant to the provisions of article 89 and is based on the values and rates that result from the provisions of the previous numbers, with no deductions being effected from the global amount calculated."

And in article 135 of Law 7-A/2016, of 30 March, the legislator provides that "the wording given by this law to no. 6 of article 51, to no. 15 of article 83, to no. 1 of article 84, to nos. 20 and 21 of article 88 and to no. 8 of article 117 of the IRC Code has an interpretative nature."

The Tax Authority understands that the new wording of article 88 prevents the deduction, pursuant to article 90, of PEC and SIFIDE from the collection resulting from autonomous taxation.

Considering that what are at issue are IRC assessments for fiscal years 2012 and 2013, it is important to analyze what effect that number and the interpretative character attributed by the legislator to its introduction in 2016 have on the facts at hand.

The principle of non-retroactivity is in force in national substantive codification, which is constitutionally established regarding tax law.

It happens that an interpretative law is not, says article 13, no. 1, of the Civil Code, retroactive.

Pursuant to what is prescribed there, for a new law – as in the case at hand, no. 21 of article 88 of the CIRC – to be truly interpretative two requirements are necessary: that the solution of prior law be controversial or at least uncertain: and it is a fact that the decision that must be imposed on this Tribunal is of a controversial character.

Necessary, however, is also 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 have arrived at it without exceeding the limits normally imposed on interpretation and application of law.

So if the judge or interpreter, in face of old texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative.

It is not sufficient, however, that the legislator expressly confers on the new law an interpretative character for it to apply to the controversial question that had arisen before the entry into force of the new law, putatively interpretative, for the judge to be obliged to apply it to the concrete case.

It is necessary that the judge feel entitled, in face of the old text, to adopt the solution that the law now advocates.

An interpretative provision, therefore, is a provision that alters no content or element of the provision interpreted, merely translates its meaning.

A provision that alters the sense, content or scope of the provision interpreted will not be interpreting, but rather modifying the rule, creating a new provision, instituting new rights, duties and obligations.

It being true that even an interpretative provision must respect rights acquired under the force of the provision interpreted, particularly in questions for which the prohibition of retroactivity is especially established in the Constitution, as is the case in tax law, whose retroactivity is prohibited by no. 3 of article 103 of the CRP.

In this context, the issuance by the legislator of an interpretative law with retroactive effects is only conceivable when, without any doubt, it confines itself to simply reproducing (= producing again), although with another wording, the normative content interpreted, without modifying or limiting its sense or scope.

This, well it is understood, is a hypothesis of difficult conception, almost inconceivable, except on the theoretical plane, even more so when it is considered that the content of a normative statement requires, in general, systematic interpretation, not being able to be defined in isolation[4].

In the case sub judice, by all that has been already explicitly set forth above, it is understood that the text of the law in force at the time of the facts in dispute did not allow one to conclude that it was forbidden to deduct PEC and SIFIDE from the part of the IRC collection that resulted from autonomous taxation.

This because, as we have said above, the legislator in no place pointed to that solution and, in article 90 of the CIRC, did not distinguish, with respect to possible deductions from the IRC collection, that which resulted from autonomous taxation from the rest. And where the law does not distinguish, it is not within the interpreter's province to distinguish.

We understand, therefore, that no. 21 of article 88 of the CIRC does not have an interpretative character with regard to the question in discussion, not applying to facts occurring before its entry into force, particularly to the facts and assessments sub judice.

Terms in which it is concluded that the self-assessment acts of IRC relating to fiscal years 2012 and 2013, to the extent corresponding to the non-deduction from part of the IRC collection of Fiscal Group B… is affected by a defect of violation of law, which justifies its annulment, the same occurring with the decision on the administrative review, to the extent it did not recognize that illegality.

It is therefore moot the analysis of the question raised by the Claimant regarding the possible illegality and consequent annulment of the assessment of autonomous taxation, on account of absence of legal basis for its assessment.

4.3 Compensatory Interest

Finally, let us address the request formulated by the Claimant for refund of the amounts here judged to have been improperly (self-)assessed and paid as a consequence of the (self-)assessments in dispute.

The Claimant further requests compensatory interest for improper payment of IRC for 2013, from 30 May 2014, as to €41,236.19, and from 23 December 2014, as to €75.64, dates when it proceeded to payment of those amounts.

The Claimant also requests compensatory interest for the refund of IRC for 2012 and 2013 in an amount less than due in the amount of €70,911.70, relating to 2012 IRC, counted from 1 September 2013, and in the amount of €23,489.96, relating to 2013 IRC, counted from 1 September 2014, corresponding these dates to the end of the period for automatic refund of the tax pursuant to no. 3 of article 104 of the IRC Code in the wording then in force.

In accordance with the provision of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim, of which no appeal or impugnation lies, binds the Tax Authority from the end of the period provided for appeal or impugnation, this Authority having to, in the exact terms of the success of the arbitral decision in favor of the taxpayer and up to the end of the period provided for spontaneous execution of decisions of tax judicial tribunals, "reestablish the situation that would exist if the tax act that is the subject of the arbitral decision had not been effected, adopting the necessary acts and operations to such effect in harmony with the provision of article 100 of the LGT [applicable by virtue of the provision of paragraph a) of no. 1 of article 29 of the RJAT] which establishes that 'the tax administration is obliged, in case of total or partial success of an administrative review, judicial impugnation or appeal in favor of the taxpayer, to immediate and complete reestablishment of the legality of the act or situation that is the subject of the dispute, comprehending the payment of compensatory interest, if applicable, from the end of the period of execution of the decision'."

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning in CAAD, making no reference to condemnatory decisions, it should be understood that comprehended in its competences are the powers that, in judicial impugnation proceedings, are attributed to tax tribunals, this being the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first guideline, that "tax arbitral proceedings should constitute an alternative procedural means to judicial impugnation proceedings and to actions for the recognition of a right or legitimate interest in tax matters."

Now, it is settled that judicial impugnation proceedings, although essentially being a proceeding for annulment of tax acts, admit the condemnation of the Tax Authority to payment of compensatory interest, as results from the provision of article 43, no. 1, of the LGT and article 61, no. 4 of the CPPT.

Thus, no. 5 of article 24 of the RJAT, in saying that "it is due the payment of interest, irrespective of its nature, pursuant to the provisions of the general tax law and the Code of Tax Procedure and Process," should be understood as allowing the recognition of the right to compensatory interest in arbitral proceedings.

It is therefore necessary to appreciate the request for refund of the improperly paid amount, increased by compensatory interest.

In the case at hand, it is manifest that, following the illegality of the assessment acts, there is place for refund of the tax paid, by force of the referred articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as such is essential to "reestablish the situation that would exist if the tax act that is the subject of the arbitral decision had not been effected."

As to the interest, the substantive regime of the right to compensatory interest is regulated in article 43 of the LGT, which establishes, in what here pertains, that "1 - Compensatory interest is due when it is determined, in administrative review or judicial impugnation, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due. 2 - Error attributable to the services is also considered to exist in cases in which, despite the assessment being made on the basis of the taxpayer's declaration, the taxpayer followed, in its completion, the generic orientations of the tax administration, duly published."

Now, in the case at hand, the illegality of the self-assessments is entirely attributable to the AT, Respondent, in light of what was above given as proven regarding the structure of the Form 22 IRC declaration in the AT's computer system, organization of which is, naturally, of the total responsibility of this Authority, which did not allow the Claimant to effect the self-assessment in the terms that are here judged to be the legal ones.

On the other hand, the maintenance of the illegal situation, i.e., the decision dismissing the administrative review is also attributable to the Tax Authority, which dismissed it by its own initiative.

From the self-assessments in dispute, if the deduction of PEC and SIFIDE from the IRC collection associated with autonomous taxation were to be considered, would result in additional tax to be recovered of €70,911.70 relating to 2012 IRC and €23,489.96 relating to 2013 IRC, which should have been refunded by 31 August 2013 and 31 August 2014, respectively, pursuant to no. 3 of article 104 of the IRC Code, in the wording then in force.

Moreover, if the deduction of SIFIDE from the 2013 IRC collection associated with autonomous taxation were to be considered, the Claimant would not have had to proceed to payment of tax in the amount of €41,236.19, on 30 May 2014, nor in the amount of €75.64 on 23 December 2014.

Consequently, the Claimant is entitled to compensatory interest, pursuant to article 43, no. 1, of the LGT and article 61 of the CPPT, counted from 1 September 2013 as to €70,911.70, from 30 May 2014 as to €41,236.19, from 23 December 2014 as to €75.64, and from 1 September 2014 as to the remaining €23,489.96, at the legal suppletive rate, pursuant to articles 43, nos. 1 and 35, no. 10 of the LGT, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or another or others that amend the legal rate), from those dates until full payment.

1. DECISION

In light of the foregoing, it is decided to declare totally well-founded the principal claims of the Claimant and, in consequence:

• declare the illegality of the decision of 7 October 2015 of the Head of the Division of Tax Justice – Litigation of the Finance Directorate of … and annul it for having dismissed the Claimant's claim to deduct PEC and the SIFIDE tax credit in the amount of €70,911.70 and €64,801.79 relating to the collection of IRC autonomous taxation for fiscal years 2012 and 2013, respectively;

• annul, as illegal, the self-assessments in dispute insofar as PEC and the SIFIDE tax credit were not deducted in the amount of €70,911.70 and €64,801.79 relating to the collection of IRC autonomous taxation for fiscal years 2012 and 2013, respectively;

• condemn the Respondent to refund the Claimant in the amount of €135,713.49 and further to pay compensatory interest at the legal suppletive rate, counted from 1 September 2013 as to €70,911.70, from 30 May 2014 as to €41,236.19, from 23 December 2014 as to €75.64, and from 1 September 2014 as to the remaining €23,489.96, until full and complete payment.

The value of the proceedings is fixed at €135,713.49 (one hundred thirty-five thousand seven hundred thirteen euros and forty-nine cents) in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at €3,060 (three thousand sixty euros), pursuant to article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to the charge of the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notify accordingly.

Lisbon, 15 July 2016,

The Arbitrators,

José Baeta de Queiroz

Jorge Carita
(dissenting, as per the dissenting opinion that follows and is part of this decision)

João Gonçalves da Silva

Dissenting Opinion

In the case at hand it is important to know whether the amounts paid as special installment payments are deductible from the collection produced by Autonomous Taxation.

Indeed, it seems to be the prevailing current of CAAD jurisprudence that admits that Autonomous Taxation is IRC, with the consequences already being fixed for this by CAAD regarding the application of article 45, no. 1 c) of the CIRC – Not a tax cost.

Consequently, it might not seem logical that Autonomous Taxation would cease to be IRC for purposes of the application of the provision of article 90 of the CIRC and consequently could not see PEC deducted from its collection, because it is also IRC. However, we must take into account all that has been written (See particularly the initial complaint and submissions of the AT in the present proceedings) on the difference of the regime between IRC and Autonomous Taxation, which should not be overlooked.

Therefore I do not incline to decide in the sense of the position sustained by the Claimant, emphasizing that the argumentation used in the proceedings goes somewhat further than what the invoked CAAD jurisprudence would allow, and one should also take into account the content of the CAAD decision issued in Case 113/2015-T CAAD.

It is important to emphasize that I do not find a clear answer to the objection raised by the AT in its submissions regarding the fact that the formula for calculating PEC does not include Autonomous Taxation, and this seems quite relevant to me.

In the same sense the fact that there are own rules for determining the respective collections (There is not a single IRC assessment, but rather two determinations). That is, different rates for different taxable matters.

Now, the present Decision is based on recent CAAD Decisions, namely those issued in Cases no. 673/2015-T, but mainly in Case 775/2015-T.

Despite the good basis of the argumentation that serves as the foundation for the decision to recognize the deduction from the collection of Autonomous Taxation of the amounts borne with PEC, I cannot follow such decision.

This was not what the legislator intended, such a result was never desired by it, and if perchance in the context of the systematic elaboration of the rules inserted in the CIRC the situation is not so correctly expressed as it should be, this is not such as to allow extracting the conclusion that was reached.

It should be noted that it is the Decision itself issued in Case no. 775/2015-T, page 19, that refers that such a solution would call into question the various purposes with which the varied Autonomous Taxation was created, aiming at, particularly "... discouraging certain taxpayer behaviors capable of affecting taxable profit..." which would be called into question since their "deterrent force" would be attenuated "... with the possibility of the respective collection being able to be the subject of deductions."

It happens that if the Constitutional Court itself recognizes (Decision 617/12) that the basis of incidence of autonomous taxation is not a net income, but rather a cost transformed into an object of taxation, the deduction of general tax credits from such collection appears to me to be contradictory with the very nature and purposes of autonomous taxation.