PEC Deduction Against Autonomous Taxation in IRC: CAAD Ruling 749/2016-T on Interpretive Law

ARBITRAL DECISION [1] [2]

I – REPORT

1. A…, SA. (hereinafter referred to as "Claimant"), with registered office at…, Lot …, …, …- … Lisbon, with the tax identification number…, registered with the Lisbon Commercial Registry under the same number, with share capital of Euro 4,680,000.00 (four million, six hundred and eighty thousand Euros), has requested the constitution of an Arbitral Tribunal, pursuant to the terms and effects of Articles 2° and 10° of the Legal Framework for Arbitration in Tax Matters (hereinafter referred to as RJAT, approved by Decree-Law No. 10/2011, of January 20).

2. The petition concerns the decisions of the Tax and Customs Authority – Lisbon Finance Directorate – which rejected the official review requests No. …/2016, relating to the self-assessment of Corporate Income Tax (IRC) for the year 2011, and No. …/2016 concerning the period 2012, submitted by the Claimant on March 15, 2016, and the Claimant was notified of their rejection on October 4, 2016.

3. The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and automatically notified to the Tax and Customs Authority on December 29, 2016.

4. The Claimant did not proceed to appoint an arbitrator; therefore, pursuant to subparagraph a) of Article 6°, paragraph 2 and subparagraph b) of Article 11°, paragraph 1 of the RJAT, the President of the Ethics Council appointed the signatories as arbitrators of the collective Arbitral Tribunal, who communicated their acceptance of the appointment within the deadline.

5. On February 10, 2017, the Parties were notified of the appointment of the arbitrators, with no impediment having been raised.

6. In conformity with the provision of subparagraph c) of Article 11° of the RJAT, the collective Arbitral Tribunal was constituted on February 27, 2017.

7. To support the Petition for Arbitral Pronouncement, the Claimant alleges, in summary, the following:

a) According to the Claimant, "the amount paid as PEC and eligible for deduction in the 2011 period can and should be deducted from the total collection of IRC formed by autonomous taxation pertaining to the same period […], whereby the Claimant considers itself owed by the AT a total of 245,413.58 € (two hundred and forty-five thousand, four hundred and thirteen euros and fifty-eight cents), equivalent to the deduction of the amount of PEC paid up to the absolute limit of the collection (constituted entirely, in this period, by autonomous taxation)";

b) "In accordance with the information provided in the IRC Model 22 declaration referring to the taxation period of 2012, it is further possible to confirm that no amount was deducted as PEC and that the amount levied for autonomous taxation amounted to Euro 203,376.71 (two hundred and three thousand, three hundred and seventy-six euros and seventy-one cents)";

c) "In this manner, and similarly to the Claimant's understanding with reference to the taxation period of 2011, there should be deducted up to the limit of the total IRC collection for 2012 (constituted entirely, in this period, by autonomous taxation), which amounted to 203,376.71 € (two hundred and three thousand, three hundred and seventy-six euros and seventy-one cents), the amount of 209,586.42 € (two hundred and nine thousand, five hundred and eighty-six euros and forty-two cents), relating to the PEC that was available for deduction";

d) Autonomous taxation in IRC integrates the concept of total IRC collection, calculated in accordance with Article 90°, and therefore should enjoy equal treatment, namely, regarding the deductions provided for in paragraph 2 of that article;

e) In accordance with the deduction sequence provided for in paragraph 2 of Article 90° of the IRC Code, the Claimant understands it to be justified that the deduction and/or compensation of amounts paid to the AT as Special Payment on Account (PEC) against the total IRC collection, which includes autonomous taxation, is justified, this latter being, moreover, specifically set forth in the Model 22 income declaration form itself;

f) It appears clear to the Claimant that the trajectory of the PEC institute represents, since its creation, a moment of divergence from Law No. 30-G/2000, of December 29, to which has followed a movement of gradual convergence to the original framework of effective PEC, initiated by Law No. 32-B/2002, of December 30, and reinforced by the amendments that followed and which culminate in Law No. 2/2014, of January 16;

g) The Claimant recognizes, in line with the position of Dr. André Salgado de Matos, that "payments on account of tax […] constitute deductions from collection by nature: since these are amounts of tax anticipated in advance, it is evident that, under pain of double taxation, they must be subtracted from collection" (cited);

h) The Claimant advocates for the integration of autonomous taxation into the concept of total IRC collection and requests that the credits arising from advances of the final tax that were made as PEC, and which are eligible for deduction in the periods of 2011 and 2012, be deducted from autonomous taxation, as these constitute a portion of the tax collection;

i) The Claimant understands that the PEC available for use in the aforementioned taxation periods should be deducted from IRC collection, which includes, among other realities, autonomous taxation;

j) Pursuant to paragraph 21 of Article 88° of the CIRC [introduced with the State Budget Law (LOE) of 2016]: "the liquidation of autonomous taxation in IRC is carried out in accordance with the terms provided for in Article 89° and is based on the values and rates that result from the provisions of the previous paragraphs, with no deductions being made to the total amount determined" (cited);

k) As can be easily verified, Article 90° of the CIRC was not amended and continues to refer to IRC collection;

l) Considering the literal element of subparagraph d) of paragraph 2 of Article 90°, paragraph 2 of the CIRC, it is understood that, from the amount of IRC collection determined, the PEC referred to in Article 106° of the same Code is deductible;

m) Therefore, paragraph 21 of Article 88° of the CIRC came to prohibit that from this collection any deductions be made until the moment when, determined the total IRC collection, the deductions of Article 90° of the CIRC are effectuated;

n) We are not faced with any interpretative rule, since this rule alters the meaning, content or scope of the rule interpreted – we are in the domain of a new rule, instituting new rights, duties and obligations;

o) Paragraph 21 of Article 88° of the CIRC is, in its entirety, a new provision, which did not exist prior to the LOE of 2016 and whose application must be limited to new cases;

p) One cannot admit an application of paragraph 21 of Article 88° of the CIRC, in the interpretation that this is an interpretative rule, because such interpretation would imply the possibility of retroactive application of paragraph 21 of Article 88° of the CIRC, which would mean a material unconstitutionality of Article 135° of the LOE of 2016, by violation of paragraph 3 of Article 103° of the CRP, which for due purposes is hereby expressly invoked;

q) Accepting the interpretative character of paragraph 21 of Article 88° of the CIRC implies the non-application of paragraph 1 of Article 90° of the CIRC, which is the rule that determines how IRC liquidation is made, that is, instead of making IRC liquidation in accordance with the rule in force in the exercise in question, a new law is being applied and, therefore, the principle of tax legality is being violated;

r) In these terms, the Claimant requests that the Tribunal render this arbitral action as upheld and consequently annul the decision of the Tax Authority, rejecting the gracious complaint identified above, and, as a consequence, order the annulment of the self-assessments relating to the exercises of 2011 and 2012, with the consequent restitution of the amounts in question, increased by the respective indemnity interest, provided for in Article 43° of the General Tax Law (LGT) and in Article 61° of the Code of Tax Procedure and Process (CPPT).

1. The Respondent presented a Reply, which presented defense by exception and by contestation.

8.1. In the defense by exception, it invoked, among others, the following:

a) Pursuant to Article 2° of Decree-Law No. 10/2011, of January 20, which instituted the Legal Framework for Arbitration in Tax Matters (hereinafter RJAT), under the heading 'Competence of arbitral tribunals and applicable law', it is determined that the competence of arbitral tribunals comprises, in particular [see subparagraph a)] the examination and declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account;

b) However, by virtue of the provision of paragraph 1 of Article 4° of the RJAT: "The binding of the tax administration to the jurisdiction of the tribunals constituted pursuant to this law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered" (cited);

c) The aforementioned Ordinance (No. 112-A/2011, of March 22) defines, in its Article 2°, subparagraph a), that the AT is bound by arbitral claims that 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 acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with Articles 131° to 133° of the Code of Tax Procedure and Process" (cited);

d) The petition for arbitral pronouncement sub judice is directed, albeit indirectly, to the declaration of illegality of an act of self-assessment of tax, in this case IRC, without such act of self-assessment having been preceded by administrative challenge "in accordance with Articles 131° to 133° of the Code of Tax Procedure and Process" (cited), which necessarily determines that its examination in arbitral proceedings is excluded;

e) Or in other words, the review of acts of tax self-assessment is only admissible in arbitral proceedings if, at a prior moment, they have been administratively contested, in accordance with Article 131° of the CPPT;

f) In fact, Article 2°, subparagraph a), of the aforementioned Ordinance literally excludes from the scope of the AT's binding to arbitral jurisdiction "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with Articles 131° to 133° of the Code of Tax Procedure and Process" (cited), without mentioning the official review mechanism provided for in Article 78° of the General Tax Law (LGT);

g) Without conceding, the understanding argued above, that disputes which have as their object the declaration of illegality of acts of withholding at source, as occurs in the situation sub judice, are excluded from the material competence of arbitral tribunals, if not preceded by a gracious complaint in accordance with Article 132° of the CPPT, it is also imperative by virtue of the constitutional principles of the rule of law and separation of powers (see Articles 2° and 111°, both of the CRP), as well as legality (see Articles 3°, paragraph 2, and 266°, paragraph 2, both of the CRP), as a corollary of the principle of indisposability of tax credits inherent in Article 30°, paragraph 2 of the LGT, which bind the legislator and all activity of the AT;

h) In fact, the terms in which paragraph 1 of Article 4° of the RJAT is drafted impose the conclusion that the AT's binding is dependent on and delimited by the express will manifested in Ordinance No. 112-A/2011;

i) It is constitutionally forbidden, by virtue of the constitutional principles of the rule of law and separation of powers (see Articles 2° and 111°, both of the CRP), as well as legality (see Articles 3°, paragraph 2, and 266°, paragraph 2, both of the CRP), as a corollary of the principle of indisposability of tax credits inherent in Article 30°, paragraph 2 of the LGT, the interpretation, even if extensive, that broadens the AT's binding to arbitral protection fixed by law, as such necessarily presupposes the consequent expansion of the situations in which it is necessarily subjected to such regime, renouncing in that same measure recourse to full judicial review [see Article 124°, paragraph 4, subparagraph h) of Law No. 3-B/2010 and Articles 25° and 27° of the RJAT, which impose a restriction on appeals from arbitral decisions].

8.2. In the defense by contestation, it argued, among others, the following:

a) Autonomous taxation, although it constitutes a collection in IRC, is distinguished by the fact that it does not incur upon profits but, rather, upon expenses incurred by the taxpayer or by third parties who have relations with it;

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

c) The interpretation defended by the Claimant would permit an inadmissible limitation of the freedom of the legislator's constitutional discretion, which, in creating autonomous taxation, did so with the purpose of i) combating tax evasion, ii) taxation of income of third parties whose increase in income would otherwise be exempt from taxation, and iii) the penalization, through fiscal means, of the payment of income considered excessive in light of the economic crisis from which, even today, remnants exist;

d) The Claimant's claims rest upon a fanciful and fallacious construction without any legal basis, relying on a forced attempt at ab-rogating interpretation of the existing normative framework, terms in which the arguments employed by it fail entirely;

e) The position defended by the Claimant constitutes an ab-rogating interpretation, and may constitute a violation of the principle of separation of powers;

f) In light of this, the tax acts challenged by the Claimant merit no censure and should remain valid in the legal order;

g) In these terms, the Petition for Arbitral Pronouncement should be judged as not upheld for lack of proof, and, consequently, the Respondent should be absolved of the claim, all with the due and legal consequences.

1. The Claimant responded to the matters of exception by arguing, in essence, that the jurisprudence of the STA goes in the direction of considering that the petition for review of the tax act is a mechanism for opening contentious proceedings, perfectly comparable to the necessary gracious complaint. In fact, "the petition for official review serves the purpose of administrative filtering, because the AT will pronounce itself on acts of self-assessment, withholding at source or payment on account" (cited).

2. The Claimant sustains its thesis in jurisprudence, whether arbitral or from the STA, concluding "that excluding arbitral jurisdiction merely because the means used was not effectively a prior gracious complaint would violate the principle of effective judicial protection, as enshrined in Article 20° of the CRP" (cited).

3. By order of April 28, 2017, the Tribunal rejected the petition for the production of witness evidence presented by the Claimant, waived the holding of the meeting referred to in Article 18° of the RJAT and fixed August 26, 2017 as the deadline for rendering the arbitral decision.

4. In the pleadings produced, the Parties reaffirmed, in essence, the arguments contained in the Petition for Arbitral Pronouncement and the Reply.

II. PRELIMINARY MATTERS

1. The Parties have judicial personality and capacity, are shown to be legitimate and are regularly represented (Articles 4° and 10°, paragraph 2, of the RJAT and Article 1° of Ordinance No. 112-A/2011, of March 22).

2. The tribunal is competent and is regularly constituted.

3. The joinder of claims effected here by the Claimant is legal and valid, in accordance with the provision of Article 3°, paragraph 1, of the RJAT, given that the success of the claims depends, essentially, on the examination of the same circumstances of fact and the interpretation and application of the same principles or rules of law.

4. The proceedings do not suffer from nullities.

5. As we have seen, the Respondent raised the exception of material incompetence resulting from the fact that the arbitral petition was formulated following the rejection of the official review petitions, without prior necessary gracious complaint, which it falls to examine.

The AT sustains, in summary, that Article 2°, subparagraph a), of Ordinance 112-A/2011, of 3/22, by which it was bound to arbitral jurisdiction, excludes claims relating to the declaration of illegality of acts of self-assessment that have not been preceded by recourse to the administrative procedure, as provided for in Articles 131° to 133° of the CPPT. An understanding which, for the AT, beyond the literal element, is imposed "by virtue of the constitutional principles of the rule of law and separation of powers (see Articles 2° and 111°, both of the CRP), as well as legality (see Articles 3°, paragraph 2, and 266°, paragraph 2, both of the CRP), as a corollary of the principle of indisposability of tax credits inherent in Article 30°, paragraph 2 of the LGT, which bind the legislator and all activity of the AT" (point 56 of the Reply). "In fact, the AT's binding to the necessary arbitral protection, in which the principle of irrevocability of decisions prevails, presupposes a limitation of the situations in which it can fully decide whether or not to appeal an unfavorable judicial decision, that is, the power to choose between definitively abandoning the collection of the tax credit or adopting conduct potentially adequate to seek to effectuate it" (point 60 of the Reply).

The Claimant, in exercise of the right to be heard granted to it regarding the exception, defended its lack of merit by invoking CAAD jurisprudence in a sense divergent to that sustained by the AT.

Let us see:

The competence of arbitral tribunals functioning in CAAD is, in the first place, circumscribed by the matters indicated in Article 2°, paragraph 1, of Decree-Law No. 10/2011, of January 20 (RJAT). In a second place, the competence of arbitral tribunals functioning in CAAD is also limited by the terms in which the AT was bound to such jurisdiction by Ordinance No. 112-A/2011, of March 22, since Article 4° of the RJAT establishes that "the binding of the tax administration to the jurisdiction of tribunals constituted in accordance with this law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered" (cited).

In light of this second limitation of the competence of arbitral tribunals functioning in CAAD, the resolution of the question of competence depends essentially on the terms and nature of this binding, for, even if one is faced with a situation encompassable within 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 excluded. In other words: "the scope (…) of arbitral proceedings is restricted to questions of the legality of acts of the types referred to in Article 2° [of the RJAT] that are covered by the binding made in Ordinance No. 112-A/2011 (…)" – cited Decision of TCAS of 4/28/2016 (case 09286/16, rapporteur: Anabela Russo).

It happens that in subparagraph a) of Article 2° of Ordinance No. 112-A/2011 are expressly excluded from the scope of the AT's binding to the jurisdiction of arbitral tribunals functioning in CAAD the "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure in accordance with Articles 131° to 133° of the Code of Tax Procedure and Process". That is, comparing the binding ordinance with the RJAT, the former is more demanding than the latter, by adding a requirement to abstractly delimit the object of the AT's binding to arbitral jurisdiction.

As was recorded in the Arbitral Decision rendered in case No. 143/2016-T, "Regarding the nature of the ordinance, there are those who understand that there resides therein fundamentally a decision-making act of the Administration, of voluntary manifestation of consent to the binding to the RJAT, and in the restrictions to the object a concrete limitation, albeit manifested in terms of generic disposition" (see was the majority understanding in Decision 236/2013 of 4/22/2014, or 364/2014 of 12/19/2014, both of CAAD). There are, on the other hand, those who let transpire a more regulatory (normative) understanding of the Ordinance (majority jurisprudence). "Not withstanding there being suggestive elements for both positions, we consider that the regulatory character of the ordinance stands out, particularly regarding the object of the binding, which extends to all disputes to be resolved through tax arbitration. And to that extent, that part of the ordinance is configured as an administrative regulation, which integrates into the RJAT" (cited).

"What was said before serves to parameterize the selection of interpretative criteria. Given the nature of the ordinance, a subjectivist orientation should be adopted, with the meaning of the normative text prevailing that best corresponds to the real thinking of the 'legislator', in which the teleological element, the purpose of the stated disposition, is privileged. Now what requires special interpretative labor is the requirement of 'administrative procedure' necessary (prior), 'in accordance with Articles 131° to 133° of the Code of Tax Procedure and Process.

"First of all, in obedience to those same terms provided for in Article 131° CPPT, the requirement of prior administrative procedure will be applicable only to cases in which such recourse is mandatory, through the gracious complaint. In fact, in the case of self-assessments, the gracious complaint is required, but only in cases of errors that are not based exclusively on matters of law, and in which the self-assessments have been effected in accordance with generic orientations issued by the tax administration (see paragraph 1 and paragraph 3 of Article 131° CPPT)[3]".

"The useful meaning of the ordinance, in light of what was established in the RJAT, the will of the legislator, was to ensure that the taxpayer does not appeal to the Tribunal 'before any manifestation of position by the administration regarding the situation generated by the taxpayer's act (…) because there is not yet detectable any dispute'[4] [5]. Thus it is understood that the cases provided for in Article 131°, paragraph 3 CPPT are excluded from the requirement of complaint, since in these the AT has already pronounced itself, a priori, through generic orientations".

Returning to the petitions for arbitral pronouncement, recall that they emerge as the culmination of proceedings initiated with official review petitions, expressly rejected. The Claimant did not previously resort to a gracious complaint; rather, it directly resorted to the petition for review, and did so more than two years after the declaration of self-assessment.

However, what truly matters is that, in cases where a petition for official review of an assessment act is formulated, it is equally afforded to the AT, with that petition, an opportunity to pronounce itself on the merits of the taxpayer's claim, before the latter resorts to judicial proceedings. Therefore, by "coherence with the solutions adopted in paragraphs 1 and 3 of Article 131° of the CPPT, it cannot be required that, cumulatively with the possibility of administrative examination within the scope of that official review procedure, a new administrative examination be required through a gracious complaint. On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from formulating petitions for official review in cases of acts of self-assessment, for these are expressly referred to in paragraph 2 of Article 78° of the LGT. In this context, allowing the law expressly that taxpayers may opt for a gracious complaint or for official review of acts of self-assessment and the petition for official review formulated within the deadline for gracious complaint being perfectly comparable to a gracious complaint[6] (…) there can be no reason that can explain that there may not be access to arbitral proceedings by a taxpayer who has opted for review of the tax act instead of a gracious complaint" (cited) [7].

In light of the foregoing, it is concluded[8] that Ordinance No. 112-A/2011, in expressly referring to Article 131° of the CPPT regarding petitions for declaration of illegality of acts of self-assessment, imperfectly stated what it intended. Wanting to impose the necessary administrative examination of contentious challenge of acts of self-assessment, it ended up making express reference to Article 131°, forgetting that this procedure does not exhaust the possibilities of administrative examination of these acts. The interpretation upheld is the one that best expresses the will of the legislator and which does not conflict with any constitutional principles, nor compromises the indisposability of tax credits.

Moreover, the invocation of the principle of indisposability of tax credits will possibly be an oversight, since in deciding on its competence, relevant only as a procedural presupposition, the Arbitral Tribunal is surely not engaging in any act of disposition of a tax credit, in the sense of the invoked Article 30°, paragraph 2, of the LGT.

On the other hand, to exclude arbitral jurisdiction merely because the means used should have been a prior gracious complaint would violate the principles of access to law and effective judicial protection.

In fact, the rule, whether for judicial challenge or for arbitration, is that all those acts relative to which this entity has not yet pronounced itself or has yet had no involvement be submitted to the scrutiny of the AT, the reason for which it must be given the opportunity to pronounce itself before the judicial or arbitral tribunal pronounces itself regarding its legality.

It is, therefore, manifest the equivalence between the petition for review of the tax act and the gracious complaint regarding acts of self-assessment, withholding at source and payment on account. In fact, as was recorded in the Decision of the Supreme Administrative Court (Plenary of the Tax section, case No. 0793/2014), of June 3, 2015: "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 of administrative and contentious challenge (when used at a moment in which these may still be utilized) or complementary to them (when the deadlines for utilizing challenge means to the assessment act have already been exhausted)" (cited). Following the aforementioned Decision, the Supreme Administrative Court decided that "the Rejection, tacit or express, of the review petition is susceptible to judicial review [see Article 95°, paragraphs 1 and 2, subparagraph d), of the LGT]" (cited).

It is today consolidated jurisprudence that, being able the AT, on its own initiative, to proceed with official review of the tax act, within the period of four years following the assessment or at any time if the tax has not yet been paid, on the basis of error attributable to the services (Article 78°, paragraph 1, of the General Tax Law), the taxpayer may also, within that period for official review, request this same review on that basis.

In summary, the petition for official review of the tax act is a mechanism for opening contentious proceedings perfectly comparable to the necessary gracious complaint, inasmuch as it serves the purpose of allowing the AT to pronounce itself regarding acts of self-assessment.

For the reasons expounded, the argument of the AT to the effect of the unconstitutionality of Article 2°, subparagraph a), of Ordinance No. 112-A/2011 in the interpretation upheld by this tribunal is without merit.

Terms in which this exception of incompetence is, therefore, without merit.

III.1. FACTUAL MATTERS

§1. Facts Deemed as Established

a) The Claimant assumes the legal form of a Portuguese limited company, with registered office and effective management in Portugal and qualified, under IRC, as a resident taxable person in accordance with Article 2°, paragraph 1, subparagraph a) of the Code of that tax;

b) The Claimant conducts its activity in the telecommunications market, operating in the field of telecommunications solutions, as well as in information technologies;

c) In fulfillment of the legal declarative obligations imposed (see paragraphs 1 and 2 of Article 120° of the IRC Code at the time of the facts), the Claimant submitted, […], the Model 22 declaration of IRC, relating to the taxation period of 2011, on November 30, 2012 – see copy of the declaration attached as Doc. No. 5 and deemed reproduced for all legal purposes;

d) In accordance with the information made available in the Claimant's area on the AT website (https://www.portaldasfinancas.gov.pt > Your Services > Pay > Payment Documents > IRC > Anticipated Payments), the total amount of Special Payments on Account (PEC) still eligible for deduction in the taxation period of 2011 amounted to Euro 385,000 (three hundred and eighty-five thousand euros), in accordance with the table below and a copy of the Finance Portal document (of which a copy is attached as Doc. No. 6 and deemed reproduced for all legal purposes):

e) From the table above and the documentation presented, it is established that the total PEC eligible for deduction in the taxation period of 2011 was composed of the amounts paid and not deducted since 2007;

f) The Claimant did not determine IRC collection stricto sensu in any of those periods against which it would be possible to deduct the PEC paid (Docs. Nos. 7 to 11);

g) In accordance with the information provided in the Model 22 declaration of IRC relating to the taxation period of 2011, the amount levied by the Claimant as autonomous taxation amounted to Euro 245,413.58 (two hundred and forty-five thousand, four hundred and thirteen euros and fifty-eight cents);

h) This amount was actually paid by the Claimant, as evidenced by Doc. No. 6 (see, for this purpose, the amount paid under the designation of 'AL' (self-assessment) in the information concerning the 2011 period and the correspondence thereof with the amount of autonomous taxation declared in the income statement);

i) In fulfillment of the legal declarative obligations imposed (see paragraphs 1 and 2 of Article 120° of the IRC Code at the time of the facts), the Claimant submitted […] the Model 22 declaration of IRC, relating to the taxation period of 2012, on November 29, 2013 – see copy of the declaration attached as Doc. No. 12 and deemed reproduced for all legal purposes;

j) In accordance with the information made available in the Claimant's area on the AT website (https://www.portaldasfinancas.gov.pt > Your Services > Pay > Payment Documents > IRC > Anticipated Payments), the total amount of Special Payments on Account (PEC) still eligible for deduction in the taxation period of 2011 amounted to Euro 385,000 (three hundred and eighty-five thousand euros), in accordance with the table below and a copy of the Finance Portal document (of which a copy is attached as Doc. No. 13 and deemed reproduced for all legal purposes):

k) From the table above and the documentation presented, it is established that the total PEC eligible for deduction in the taxation period of 2011 was composed of the amounts paid and not deducted since 2007;

l) The Claimant did not determine IRC collection stricto sensu in any of those periods against which it would be possible to deduct the PEC paid (see Docs. Nos. 7 to 11 reproduced);

m) In accordance with the information provided in the Model 22 declaration of IRC relating to the taxation period of 2011, the amount levied by the Claimant as autonomous taxation amounted to Euro 245,413.58 (two hundred and forty-five thousand, four hundred and thirteen euros and fifty-eight cents);

n) This amount was actually paid by the Claimant, as evidenced by Doc. No. 13 reproduced (see, for this purpose, the amount paid under the designation of 'AL' (self-assessment) in the information concerning the 2011 period and the correspondence thereof with the amount of autonomous taxation declared in the income statement);

o) The PEC paid in 2012 totaled Euro 70,000 (seventy thousand euros), as confirmed by the information provided on the AT website (https://www.portaldasfinancas.gov.pt > Your Services > Pay > Payment Documents > IRC > Anticipated Payments), in the Claimant's area (see Doc. No. 13 reproduced);

p) In accordance with the information provided in the Model 22 IRC declaration relating to the taxation period of 2012, it is further possible to confirm that no amount was deducted as PEC and that the amount levied for autonomous taxation amounted to Euro 203,376.71 (two hundred and three thousand, three hundred and seventy-six euros and seventy-one cents).

q) On March 15, 2016, the Claimant submitted two petitions for official review, by reference to the exercises of 2011 and 2012, which were filed, respectively, with the numbers …2016… (RO…/16) and …201… (RO…/16), which culminated in rejection orders, dated 09/16/2016, and notice was given to the herein Claimant through Official Letter No. … and … of 10/03/2016 – see Administrative File (AF);

r) Notified to exercise the right to be heard (pursuant to Official Letter No. …, of 2016-08-19) regarding the draft rejection of the official review petition, the Claimant did not exercise such right, converting into final the draft decision of rejection (Doc. No. 3, attached by the Claimant and in the AF);

s) In the rejection decision, one may read, among others, that:

"Given that autonomous taxation corresponds to a way of preventing certain abusive situations, it appears that it would be contrary to the spirit of the system to allow that, by force of the deductions referred to in paragraph 2 of Article 90° of the IRC Code, the anti-abusive character be withdrawn from autonomous taxation that presided over its implementation in the IRC system. (…) it is understood that autonomous taxation is not to be considered for purposes of the deductions provided for in paragraph 2 of Article 90° of the IRC. It should be noted, moreover, that this question lost relevance in light of the introduction of paragraph 21 of Article 88° of the IRC Code, added by Law No. 7-A/2018, of March 30, whose wording has an interpretative nature" (see the cited Doc. No. 3 and the AF).

§2. Facts Not Established

For purposes relevant to the decision, there are no other facts that should be considered established.

§3. Substantiation of Factual Matters

Regarding factual matters, the Tribunal does not have to pronounce upon everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and discriminate the established facts from those not established (see Article 123°, paragraph 2, of the CPPT and Article 607°, paragraph 3 of the CPC, applicable ex vi Article 29°, paragraph 1, subparagraphs a) and e) of the RJAT).

Thus, the facts pertinent to the judgment of the cause are chosen and delineated in function of their legal relevance, which is established in attention to the various plausible solutions of the matter(s) of Law (see former Article 511°, paragraph 1, of the CPC, corresponding to current Article 596°, applicable ex vi Article 29°, paragraph 1, subparagraph e), of the RJAT).

Thus, having in consideration the positions assumed by the parties, the documentary evidence and the AF attached to the case file, the facts listed above were considered established, with relevance for the decision.

III.2. LEGAL MATTERS

With the Petition for Arbitral Pronouncement presented by the Claimant, it is requested that the Arbitral Tribunal proceed with the "annulment of the decision of the Tax Authority, rejection of the Official Reviews previously identified and, consequently, order the 'annulment of the self-assessments relating to the exercises of 2011 and 2012, and evidenced in the document (Attached Doc. No. 13) obtained in the Finance Portal where are evidenced the respective Self-Assessments and payments and the consequent restitution of the amount of € 448,790.29, corresponding to the sum of the amounts of € 245,416.58 (relating to the exercise of 2011) and € 203,376.71 (referring to the exercise of 2012), increased by the respective indemnity interest" (cited).

To support the petition, the Claimant alleges, in essence, that the PEC available for use in the taxation periods of 2011 and 2012 should be deducted from IRC collection, which includes autonomous taxation.

The Claimant defends that IRC collection, provided for in Article 90°, paragraphs 1 and 2, subparagraphs b) and c), as worded in force in each of those exercises, also encompasses the collection of autonomous taxation in IRC, that is, the Claimant understands that "once it is considered that autonomous taxation in IRC integrates the concept of total IRC collection, calculated in accordance with Article 90°, then they should enjoy equal treatment, namely as regards the deductions provided for in paragraph 2 of that article" (cited).

Accordingly, "the Claimant understands that the deduction and/or compensation of amounts paid to the AT as PEC against the total IRC collection, which includes autonomous taxation, is justified" (cited).

Additionally, the Claimant further understands, regarding the scope and nature of Article 135° of Law No. 7-A/2016, of March 30, that paragraph 21 of Article 88° of the IRC Code, introduced by that Law, is not an "any interpretative rule, since this rule alters the meaning, content or scope of the rule interpreted, and therefore should be interpreted as a new rule, instituting new rights, duties and obligations, and therefore its application must be limited to new cases and any other understanding would violate the principle of non-retroactivity provided for in Article 103° of the CRP. Pursuant to the fact that no one can be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose liquidation and collection are not made in accordance with law" (cited).

In particular, regarding the alleged interpretative effect conferred by Article 135° contained in the State Budget Law for 2016, the Claimant understands that "any interpretation that does not apply the rule that permits deduction to the part of IRC collection produced by the autonomous taxation rates of the special payment on account made in the context of IRC is materially unconstitutional, by violation of the principle of legality" (cited).

Given the foregoing, the central question to be decided (considering the petition and the cause of action) is whether the self-assessments of IRC (in the part concerning autonomous taxation) relating to the exercises of 2011 and 2012 suffer the material vice of violation of law, because, according to the understanding of the Claimant, the deduction of PEC from the part of IRC collection corresponding to the said autonomous taxation should not be prohibited.

In this context, the answer to the central question to be decided (and stated above) presupposes, from the outset, that an analysis be made of the evolution of the figure of autonomous taxation in order to ascertain whether its legal regime (comprising the analysis of its nature and its reason for being) is compatible with the Claimant's claim or, if on the contrary, the position defended by the Respondent is correct.

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

As adopted in the Arbitral Decisions Nos. 722/2015-T, of June 28, 2016, No. 443/2016 of February 23, 2017 and dissenting opinion attached to Arbitral Decision No. 5/2016-T, whose panels were presided over by the herein also Arbitrator President (and to which we hereby refer), this Arbitral Tribunal agrees with the jurisprudence defending that with autonomous taxation, expense is taxed and not income, a position that is assumed by the Honorable Counselor Vítor Gomes (dissenting opinion appended to Decision No. 204/2010 of the Constitutional Court), in terms of which he states, referring to autonomous taxation, that "although formally inserted in the CIRC and the amount that it permits to collect is levied within its scope and under the heading of IRC, the rule in question concerns a tax imposition that is materially distinct from the taxation under this schedule" (cited).

"Indeed, we are faced with autonomous taxation […] and that makes all the difference. It is not a matter of taxing income at the end of the tax period, but certain types of expenses in themselves, for understandable reasons of fiscal policy that the decision points out".[9]

And it adds that:

"Thus, the fact that reveals tax capacity that one seeks to achieve is the simple realization of that expense, at a particular moment. Each expense is, for this purpose, an autonomous tax fact, to which the taxpayer is subject, whether or not it will have taxable income in IRC at the end of the period, and it is irrelevant that this portion of tax is only to be levied at a later moment and together with the IRC" (cited, emphasis ours).

In the same sense, it was equally recognized by the jurisprudence of the STA:

"That under the designation of autonomous taxation lie very diverse realities, including, in accordance with paragraph 1 of the (then) Article 81° of the CIRC, confidential or undocumented expenses, which are taxed autonomously, at the rate of 50%, which will be raised to 70%, in cases of expenses incurred by taxpayers that are totally or partially exempt, or that do not exercise, as their principal activity, commercial, industrial or agricultural activities (paragraph 2 of [then] Article 81°) and which are not considered as a cost in the calculation of taxable income in IRC. However, it should be noted that representation expenses and those related to light passenger vehicles, in accordance with the provision of (then) Article 81°, paragraph 3 of the CIRC and subsistence allowances are affected by the business activity and indispensable, and are therefore fiscally accepted in some cases even though within certain limits[10]" (cited).

Regarding the position assumed by the Constitutional Court, cite the Decision No. 18/11, in terms of which it is stated that:

"There are facts subject to autonomous taxation, which correspond to charges demonstrably indispensable for the achievement of income and […] this means that autonomous taxation also falls upon charges that correspond to the core of the concept of real income, net income and compliance with accounting obligations" (cited, emphasis ours).

"This argument of the Constitutional Court […] interests us only to point out that the Court recognizes that this regime constitutes a limitation on the taxation of real income (which is guaranteed by Article 104°, paragraph 2 of the CRP)" (cited).

More recently, the Constitutional Court reformulates the doctrine of Decision No. 18/11 (referred to above), drawing closer to the then dissenting opinion of Counselor Vítor Gomes and the Decision of the STA No. 830/11 (also cited above), in the sense of understanding that:

"In contrast to what happens in the taxation of income under IRS and IRC, in which the set of income obtained in a given year is taxed (which implies that only at the end of the same can the tax rate be determined, as well as the bracket in which the taxpayer is placed), in this case each expense incurred is taxed, considered in itself, and subject to a given rate, autonomous taxation being determined independently of the IRC that is owed in each exercise, by not being directly related to obtaining a positive result, and therefore, subject to taxation. Thus, and in the case of IRC, we are faced with an annual tax, in which each income perceived is not taxed per se, but rather the accumulation of all income obtained in a given year, the law considering that the tax-generating fact is deemed to occur on the last day of the taxation period (see Article 8°, paragraph 9, of the CIRC). However, as regards autonomous taxation in IRC, the tax-generating fact is the actual realization of the expense, and we are not faced with a complex fact, of successive formation over a year, but rather with an instantaneous tax fact" (cited, emphasis ours).

Now, still according to this Decision of the Constitutional Court:

"This characteristic of autonomous taxation thus refers us to the distinction between periodic taxes (whose tax-generating fact is produced successively, by the passage of a certain period of time, as a rule annual, and tends to repeat over time, generating for the taxpayer the obligation to pay tax with a regular character) and single-obligation taxes (whose tax-generating fact is produced instantaneously, arises isolated in time, generating upon the taxpayer an obligation of payment with an occasional character). In autonomous taxation, the tax fact that gives rise to the tax is instantaneous: it is exhausted in the act of realization of a certain expense subject to taxation (although the determination of the amount of tax resulting from the application of the various rates of autonomous taxation to the various acts of realization of expense considered will be carried out at the end of a given taxation period). But the fact that the levying of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of a lasting character. That levying operation translates itself only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, to which the rate is applied to each expense, with no influence of the volume of expenses incurred in the determination of the rate" (cited, emphasis ours). [11]

Regarding doctrine, we note that, in essence, the concept and nature of autonomous taxation does not substantially diverge from the understanding of jurisprudence produced by the Constitutional Court (above summarily stated).

In fact, as noted by Prof. RUI MORAIS:

"What is at stake is a taxation that falls upon certain expenses of taxpayers, which are considered as constituting tax facts. It is difficult to discern the nature of this form of taxation and, even more so, the reason why it appears provided for in the codes of taxes on income" (cited).[12]

In the same sense, JOSÉ ALBERTO PINHEIRO PINTO states that:

"It is not properly IRC – which seeks to tax the income of legal persons and not expenses incurred by them – but rather the substitution of a taxation of 'implicit' income of individuals, which is considered not directly feasible" (cited).[13]

In summary, some doctrine and the jurisprudence of national higher courts and the Constitutional Court consider that autonomous taxation consists of autonomous tax facts, which fall upon expense, and therefore, despite being formally inserted in the IRC Code, concern a taxation distinct from the tax on income.

Additionally, it should be noted that it is also accepted by the generality of doctrine and jurisprudence that autonomous taxation aims to prevent abusive practices in the remuneration of workers, managers and partners/shareholders of the company.

In fact, as the late Prof. J. L. SALDANHA SANCHES stated:

"In this type of taxation, the legislator seeks to answer the acknowledged difficult question of the tax regime for expenses that lie in the zone of intersection of the personal sphere and the business sphere, so as to prevent remuneration in kind more attractive for purely fiscal reasons or the hidden distribution of profits. The rule presents a characteristic similar to that which we will encounter in the legal sanction against undocumented costs, with a rise in rate when the situation of the taxpayer does not correspond to a situation of normal taxation (cited).[14]

In these terms, "it is a taxation that is explained by the need to prevent and avoid that, through these expenses, companies proceed with the concealed distribution of profits, particularly dividends that would thus be subject to IRC as profits of the company, as well as to combat fraud and tax evasion that such expenses occasion" (cited).[15]

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

In this matter, it should be noted that, in the initial wording of the IRC Code (approved by Decree-Law No. 442-B/88, of November 30), no express or implicit reference was made to autonomous taxation, and only with Law No. 101/89, of December 29 (diploma which approved the State Budget for 1990), was a first reference made to autonomous taxation within the scope of IRC, through the legislative authorization contained in paragraph 3 of its Article 15° [pursuant to which the Government was authorized to autonomously tax at an aggravated rate of 10% in IRS or IRC, as applicable, and without prejudice to the provision of subparagraph h) of paragraph 1 of Article 41° of the CIRC, confidential or undocumented expenses incurred in the course of the exercise of commercial, industrial or agricultural activities by IRS taxpayers possessing or who must possess organized accounting or by IRC taxpayers not encompassed in Articles 8° and 9° of the respective Code].

As is well known, the origin in the Portuguese tax legal order of autonomous taxation dates back to 1990, with the publication of Decree-Law No. 192/90, of June 9, pursuant to which (in its Article 4°) an autonomous taxation was established:

a) At the rate of 10% relating to confidential or undocumented expenses; and

b) At the rate of 6.4%, with respect to representation expenses and charges related to light passenger vehicles.

In fact, it was with the approval of Decree-Law No. 192/90 (and implementing that legislative authorization) that a rule on autonomous taxation was included on the margins of the IRS and IRC codes, pursuant to which "confidential or undocumented expenses incurred in the course of the exercise of commercial, industrial or agricultural activities by IRS taxpayers possessing or who must possess organized accounting or by IRC taxpayers not encompassed in Articles 8° and 9° of the respective Code are taxed autonomously in IRS or IRC, as applicable, at the rate of 10% without prejudice to the provision of subparagraph h) of paragraph 1 of Article 41° of the CIRC" (cited).

This rule (and, generally speaking, the regime of autonomous taxation) was subject to various amendments (e.g. Law No. 52-C/96, of December 27, Law No. 87-B/97, of December 31, Law No. 3-B/2000, of April 4 and Law No. 30-G/2000, of December 29), namely, through successive modifications, both of the rates and of the systematization and wording given to them in the respective codes on taxes on income (that is, both in the IRC Code and in the IRS Code).

With the approval of Law No. 30-G/2000, of December 29, the decree that established autonomous taxation was repealed, adding to the IRC Code Article 69°-A [corresponding at the time of the facts underlying these proceedings (2011 and 2012) to Article 88°] in which, beyond the maintenance of its incidence upon undocumented expenses, representation expenses and vehicle expenses, it was extended to other situations of a diverse nature.

As a consequence of this analysis of the evolution of the figure of autonomous taxation, it is possible to draw, from the outset, two conclusions:

(i) The first is that autonomous taxation falls upon both deductible and non-deductible charges in the context of IRC;

(ii) The second is that autonomous taxation aims to prevent erosion of the taxable base under IRC, by imposing taxation upon charges that may be deducted by IRC taxpayers but that, being so, transform into an aggravation of taxation, intending therefore to serve as a disincentive to expense on such charges.

With regard to autonomous taxation on non-deductible expenses, if one were to admit their deductibility, one would be admitting the deductibility of a charge not indispensable for the realization of income subject to tax or for the maintenance of the income-producing source.

Thus, the following may be taken as established, and which will be relevant to the decision to be rendered in the context of these proceedings:

(i) Autonomous taxation in IRC, anchored in the various paragraphs and subparagraphs of Article 88° of the IRC Code, translate diverse situations, to each of which different taxation rates also apply;

(ii) Autonomous taxation in IRC, falling upon certain charges of IRC taxpayers, should be understood as payments independent of the existence or non-existence of taxable matter;

(iii) Interpreted as payments, associated with IRC, or related to it at least, which may be understood as an exception with respect to the principle of taxation of legal persons in accordance with real and actual profit determined (Article 3° of the IRC Code);

(iv) In autonomous taxation, the tax fact that gives rise to the taxation is instantaneous, that is, it is exhausted in the act of realization of certain expenses that are subject to taxation (although the determination of the amount of tax resulting from the various rates of taxation applied to the various acts of realization of expenses considered will be carried out at the end of a given taxation period);

(v) The fact that the levying of the tax is carried out at the end of a given period does not transform it into a periodic tax, of successive formation or of a lasting character, inasmuch as that levying operation translates itself only into the aggregation, for purposes of collection, of the set of operations subject to that taxation, to which the rate is applied to each expense, with no influence of the volume of expenses incurred in the determination of the rate;

(vi) Autonomous taxation is not equivalent to the non-deductibility of expenses incurred by the IRC taxpayer.

On the other hand, and as regards the characteristics of autonomous taxation, we recognize here those which, for some years now, doctrine has been pointing to this type of taxation, that is:

a) Autonomous taxation makes sense only because costs/expenses appear as negative components of the taxable profit of IRC, which is what motivates IRC taxpayers to show as high a value as possible of those expenses to reduce the taxable matter of IRC, the collection and, consequently, the tax to be paid;

b) With the associated tax regime, it is intended to discourage this type of expenses in taxpayers that present negative results but that, regardless, continue to evidence consumption structures little or not at all compatible with the financial health of their enterprises;

c) It is, in a more general thesis, to model the tax system so that it shows a certain balance with a view to a better distribution of the effective tax burden among taxpayers and types of income;

d) Certain expenses are considered unfavorably in which, admittedly, it is not easy to determine the exact measure of the component corresponding to private consumption and regarding which the general practice of abuse in its reporting is known.

III.2.1.3. The Cause and Function of Autonomous Taxation Under IRC

It is settled that autonomous taxation is rooted, as has been touched upon, in the need to avoid abuses regarding the reporting of certain charges or expenses and which may readily be subject to diversion to private consumption or which, in some way, are susceptible of formally configuring an expense of a legal person but which, substantively, represent or may configure abuses in order to minimize the real measure of tax.

Aware of this difficulty of, often, effectuating a strict separation of these two realities, it was successively grafted, as described above, into the regime of taxation of real and actual profit established in the IRC Code, as the general standard, an autonomous regime of taxation of certain expenses, in whole or in part unwanted and undesirable, which contaminate the terms of the tax duty that, thus, appears configured below the real tax capacity of the entity that reports it as such.

In these terms, it may be stated that autonomous taxation emerges integrated into the IRC regime, is determined and owed within the scope of the legal relationship of tax on the income of legal persons, and it is in this framework that its determination is made.

But they are not IRC, tout court, as the Claimant lapidly and definitely states.

In fact, for them to be so considered, they would, from the outset, have to tax income, and that, as we have seen, is not what occurs, in any moment.

In truth, although there is an evident instrumentality between IRC and the model of income taxation in Portugal and autonomous taxation (a fact moreover well evidenced in the jurisprudence of the Higher Courts and, in particular, of the Constitutional Court), the understanding prevails that autonomous taxation taxes expenses.

In fact, autonomous taxation is an instrument that (departing from and introducing some measure of distortion in a system that declares to tax real and actual income), after all also taxes expenses, deductible or not under IRC, without this violating the constitutional provisions already mentioned, since the applicable rule (Article 104°, paragraph 2 of the CRP) declares it imperative that the taxation of enterprises be fundamentally based on their real income, without prejudice to either situations of taxation according to profits or real income (when determined by indirect methods), or situations of taxation of expenses subject to autonomous taxation (by express choice of law), the establishment of technical solutions (as is the case with PEC) and rules specific to their return.

In this context, it is worth recalling that neither tax systems nor concrete imposition models correspond to pure models, free of elements of strangeness to the foundational system itself, of values, or to the general regime of any tax abstractly considered. In fact, all taxes possess characteristics or solutions which, when viewed in isolation, may objectively represent a decharacterization of the model as conceived in the purity of the concepts, but which, when articulated with the model, it is verified that they contribute to its effectiveness and confer or reinforce its coherence.

These solutions, more pragmatic or specific, do not affect such essential value dictates, whether they be of protection of revenue or densification of general value ideals (of the tax order) or specific to the tax (as is the case with the need to prevent abuses), provided that they themselves are not so relevant that they abjure the model of taxation-rule or structurally falsify the values in which it is rooted.

In the case under analysis, although the fundamental law's choice and, as a consequence, ordinary law's choice, has been clearly in the direction of taxing the income of legal persons and, in the possible forms of determining this, the taxation of real and actual income was chosen as a manifestation of the highest standard of tax justice, the truth is that the system has always known more or less relevant departures, whether because certain expenses are not considered as such by tax law (although objectively may be imputable to a commercial activity), whether because tax law, recognizing that essentiality, fears the occurrence of abuses (as is the case with autonomous taxation, generically speaking).

In part, this departure from the purity of concepts is an inevitable consequence of the complexity of the relationships of life, whether because pure models of tax imposition are more costly to implement and manage as they require much more refined relevant information, whether because in the field of taxes, as in other fields of life, one must temper the ideal of justice enshrined with solutions of normative reasonableness in the qualification of relevant facts and technique in the solutions and requirements to be established, with the objective of preventing tax models from being excessively complex and costly, ceasing to reach realities and practices that mitigate the tax burden or contribute to a poor distribution thereof.

Now, from this balancing of the values that support the duty to establish/support tax with the realities of life may result the need to establish limits (tax or otherwise) on the behavior of taxpayers, with the objective of maintaining within general standards of equilibrium, the legal solutions of the system.

On the other hand, it is important to bear in mind (because this is relevant for purposes of the decision to be taken) that autonomous taxation configures anti-abuse rules directed at rationalizing specific behaviors of taxpayers (regarding the tax duty) through which, traditionally, they managed to achieve a measure of tax lower than that evidenced by their actually revealed tax capacity, but which, thanks to these abusive behaviors, was susceptible to being mitigated or eliminated, with evident violation or subordination of the principle of justice, of fair distribution of the tax burden by those who reveal actual tax capacity.

Consequently, it makes sense to admit that general deductions be made from tax collection, which are permitted by law to give actual meaning to the principle of taxation of real and actual income.

However, as regards the collection owed for autonomous taxation, that general deduction ceases to make sense because, not taxing profits but expenses, the question of justice in the distribution of the general tax burden does not arise with respect to them, and it would therefore be illogical to permit the deduction of charges when such deduction, in practice, would destroy the anti-abusive meaning that pervades them, that is, the discouragement of deviant behaviors that its institution represses or resolves.

Now, autonomous taxation, as seems clear, does not have a markedly revenue-generating purpose, that is, it does not, primarily, aim at obtaining (more) tax revenue, although this may not be a negligible aspect, verifiable.

In fact, they aim to dissuade behaviors, practices or options of enterprises rooted in reasons of an essentially fiscal, revenue nature, and on the other hand, they preserve the equilibriums proper to the regime of taxation of legal persons, preventing distortions not only at the level of taxable results, as waves of deviant behaviors, affecting the legal expectation of revenue, in each economic year.

And, through these general anti-abuse clauses, they force the maintenance of a healthy correlation between the volumes of business, taxable profits and the tax ultimately owed by entities subject to IRC, in line with the average levels of effective tax burden falling upon the different groups of taxpayers within the Portuguese tax system and, even, comparatively with that of OECD member states or otherwise.

Thus, autonomous taxation, including those provided for in subparagraph b), of paragraph 13, of Article 88° of the IRC Code, has, therefore, a general disciplinary function that is not alien to the systemic purposes of the tax, especially because, as an anti-abuse mechanism, autonomous taxation is not alien to the general purposes of the tax system.[16]

In these terms, the adoption of legal regimes that limit the detrimental effects resulting from behaviors affecting the balanced distribution of the tax burden upon the different groups of taxpayers does not constitute only an option of the legislator but is rather a strict obligation, as a result of the obligation to design and operate the system as a whole in a balanced manner.

In fact, autonomous taxation introduces taxation mechanisms that, naturally, will displease its recipients, but prevent or limit the detrimental effects of abusive practices that would harm others and are, therefore, necessary for the preservation of the system's equilibriums.

Now, enterprises, just like individuals, are equally subject with the same intensity to the general duty to pay taxes and, in this measure, tax law cannot fail to establish mechanisms that limit deviant procedures, inasmuch as everyone must support tax according to their ability, that is, according to their revealed tax capacity.

It is also important to note that, in our times, it was adopted, as a general rule, the regime of taxation according to real and actual income for legal persons, this not constituting a mere option of operation of the tax system among several other possible ones.

In truth, it is rather a concrete manifestation of the modernity and maturity of a tax system that demands of its recipients/beneficiaries a maturity of the same stature, as it also represents a new form of ethical and social responsibility before the phenomenon of tax. [17]

As was aptly stated by SALDANHA SANCHES (cited in Arbitral Decision 187/2013-T, pp. 28), autonomous taxation constitutes a way of preventing abusive actions "that the normal functioning of the tax system was incapable of preventing, and others, including forms more onerous for the taxpayer, were possible. This anti-abusive character of autonomous taxation will be not only coherent with its 'anti-systemic' nature (as is the case with all rules of the kind), but with a presumptive nature, pointed out both by Prof. Saldanha Sanches and by the jurisprudence citing him. They will therefore materially underlie a presumption of partial business nature of the expenses on which they fall, due to the circumstance pointed out above that such expenses lie on a gray line separating what is business expense, productive, from what is private expense, consumption, and which, notoriously, in many cases, the expense will even in reality have a dual nature (part business, part private)". [18]

All these considerations invoke what seems to us to be the true sententia legis, inasmuch as the discovery of the true meaning of law constitutes an imperative, as it matters to ensure that the activity of the interpreter achieves an interpretative meaning by which the law exteriorizes its most beneficial, most useful and most salutary meaning, in the words of FRANCESCO FERRARA.[19]

On the other hand, the logical sense of interpretation does not lead us but in the direction that autonomous taxation is based on a logic in which the law intends to prevent or discourage such legal persons from reporting (abusively) as expenses values relating to bonuses or variable compensation. Thus, it is the reporting as an expense for purposes of IRC, in its entirety, that the legislature intends to discourage.

Appealing to the ratio legis, it is clear that autonomous taxation is levied, within the process of IRC liquidation, according to a root and own dogmatic that lead to the total collection of tax not being a unitary reality but a composite one.[20]

In fact, in it it is possible to discern the actual tax collection, resulting from the general mechanics of IRC determination, which is owed on a constitutional basis rooted in the general duty of each one (in which are encompassed legal persons) to contribute to public expenditures according to their assets (Article 103°, paragraph 1 of the CRP).

All in respect for and compliance with the principles of justice, equality and the duty to pay tax according to revealed tax capacity. And from which are deducted the amounts referred to in Article 90° of the IRC Code and in the terms and ways referenced therein.

To this general collection, rooted in this foundational basis, is added the specific collection, owed for autonomous taxation, which has, as was made clear, a root, meaning and basis of its own, which is to discourage the adoption of the behaviors taxed by it, enumerated in Article 88° of the Code, which configures an anti-abuse rule, which permits us to invoke here all the own dogmatic in which it is founded.

In this case, in order to fulfill purposes that extend beyond the purely revenue purposes of the tax, to situate itself in the field of behaviors which the law considers abusive and/or undesired, it seems clear that it does not make sense for deductions to be made from it, under pain of, in practice, emptying the anti-abusive regime created of any meaning.

Thus, in view of what has been set forth, we are now in a position to analyze the petition of the Claimant, as to the legality of the deduction of PEC from the part of IRC collection corresponding to the rates of autonomous taxation, in each of the exercises (of 2011 and 2012).

III.2.2. The Evolution of PEC – Special Payment on Account of Final IRC Due and its Regime

The genesis and evolution of PEC develops through three stages, namely (i) the regime that runs from its inception to the year 2000; (ii) the regime applicable to the exercises of 2001 and 2002; and the regime thereafter that has been in effect until today.

In its initial version, PEC was presented as a tool for improvement of the system, which was and is largely based on the declaration of income by taxpayers. Its introduction into the tax system was simultaneous with the reduction of the general rate of IRC by two percentage points.

The occurrence of the two facts is not coincidence because, on the one hand, the rate applicable to taxpayers paying tax was reduced, and on the other hand, through PEC, special payment of an amount was promoted, as a tax provision, albeit provisionally, by taxpayers who, despite continuing to conduct their activity year after year, persisted in declaring negative or nil income, escaping effective taxation.

In these terms, it was, therefore, as a measure to combat "evasive practices of concealment of income or over-reporting of costs" that PEC was justified in the preamble of Decree-Law No. 44/98, of March 3 (diploma which instituted it).

The provisional nature of the tax payment lay in the possibility of deducting the amounts paid as PEC from IRC determined according to the general terms, set forth in Article 71° of the CIRC then in force (of which autonomous taxation did not yet form a part), although that deduction was only possible if, despite this operation, the value of the tax to be paid was positive (in accordance with Article 71°, paragraph 6 of the CIRC/1998).

Absent IRC to be paid according to the general terms, the value of PEC satisfied could be carried forward to the following exercise (in accordance with Article 74°-A, paragraph 1) or reimbursed later (in accordance with Article 74°-A, paragraph 2).

Thus, an attempt was made to ensure that the generality of taxpayers satisfied an amount on account of IRC, calculated provisionally on the volume of business of the previous exercise (in accordance with Article 83°-A).

In essence, it was fictioned that all enterprises would have a tendency toward a taxable profit, calculated in accordance with general parameters, equivalent to 1% of its volume of business of the previous year, adjusting the account later if this were not the case.

The IRC reform carried out in 2000-2001, through Law No. 30-G/2000, of December 29, reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained in activity and imposed that the carrying forward of amounts satisfied be made only until the fourth subsequent exercise (in accordance with Article 74°-A, paragraph 1, of the IRC Code/2001).

From this restrictive rule results, for the first time, the possibility of PEC transforming into minimum collection when it was not possible to deduct the amounts satisfied, due to the exhaustion of the carrying-forward period.[21]

In summary, it is possible to state that the changes introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had animated the introduction of PEC. However, despite autonomous taxation having been introduced in the CIRC on this occasion, no mechanism for articulation between the two instruments was provided.

The third configuration of PEC was introduced by Law No. 32-B/2002, of December 30, which in its Article 27° introduced a new regime of the deductibility of PEC in Article 87°, paragraph 3, of the CIRC, restoring the possibility of reimbursement of amounts paid as PEC and not offset in the annual liquidation of IRC.

The character of a measure of pursuit of tax evasion was also maintained here, although it had lightened, without completely abolishing, the taint of minimum collection, given the tight conditions imposed for reimbursement.

Article 104° of the CIRC provides that "entities that exercise, as their principal activity, activity of a commercial, industrial or agricultural nature, as well as non-resident entities with a permanent establishment in Portuguese territory, must proceed to payment of the tax […] in three payments on account, with due dates in July, September and December 15 of the same year to which the taxable profit corresponds or, in the cases of paragraphs 2 and 3 of Article 8°, in the 7th month, in the 9th month and on the 15th day of the 12th month of the respective taxation period".

And Article 106° of the CIRC provides that "without prejudice to the provision of subparagraph a) of paragraph 1 of Article 104°, the taxpayers mentioned therein are subject to a special payment on account, to be made during the month of March or in two installments, during the months of March and October of the year to which it relates or, in the case of adopting a taxation period not coinciding with the calendar year, in the 3rd and 10th months of the respective taxation period".

From the foregoing results the obligation for IRC taxpayers to make payments on account of the IRC that will be owed finally.

As is known, the technique of payments on account, in general, consists in a mere mechanism of anticipation of the tax that will be owed finally.

In fact, it is, as is peacefully accepted, a means that has advantages for the State as it permits it to anticipate the receipt of the tax, while also ensuring its collection at the moment or as the income is produced, without prejudice to the final determination and in compliance with the determination of what is owed, according to the general method of taxation by real profit.

It is true that the reason for being of payments on account and of PEC, starting from this common trunk (since, undoubtedly, both are the product of a tax technique by which the final collection of tax owed is anticipated). However, they nevertheless present (in the second case), somewhat differentiated justifications.

First, as regards the reason for being of payments, in the case of payments on account, inasmuch as these are exhausted, in our opinion, in the bases evidenced above, but already PEC, not losing that purpose from view, has yet another which was added to it.

In fact, as is well noted in the Arbitral Decision rendered within case No. 113/2015-T, "in doctrine and jurisprudence, the PEC regime has always been considered as a system to prevent tax evasion and to ensure payment of tax by all active enterprises" (cited).

It is also this that results from the doctrinal work developed by the Constitutional Court, inasmuch as, from its Decision No. 494/2009, it results that PEC, in the form it was given in the CIRC, is also "inextricably linked to the fight against tax evasion and fraud", seeking to ensure that the income manifested by taxpayers "correspond[s] to the actually obtained taxable income" (cited). [22]

In truth, the cited Constitutional Court Decision identifies multiple scientific works that pronounced themselves in the same direction, as is the case of Teresa Gil, (ob. and loc. cit.), which gave account of the circumstances surrounding the introduction of PEC, namely the difficulties in application of the principle of taxation by real profit, observed in light of the "divergence that exists between the profits actually obtained and those declared by enterprises and, therefore, subject to taxation" (cited).

As has been said, and in this step, we make our own the synthesis invoked in the aforementioned Arbitral Decision, in which the current regime of PEC is thus characterized by "(i) having an inextricable link to the fight against tax evasion and fraud; (ii) having been introduced in the CIRC in March 1998, before the rates of autonomous taxation which only came to be part of its system in the 2000-2001 reform; (iii) in the conception of PEC, its deduction from the collection in the liquidation of IRC calculated on real income was foreseen; (iv) the recovery of the credit resulting from PEC is subordinated to conditions of obtaining profitability ratios proper to enterprises in the sector of activity in which they are inserted or to justification of the credit situation by action of inspection made at the request of the taxpayer (87°-3 of the CIRC)" (cited).

The subsequent question is whether these special reasons are such as to permit that from the collection of autonomous taxation, the PEC itself be deducted, inasmuch as it is nothing more than a payment on account of the IRC that will (presumably) be owed finally by the taxpayer, albeit with some special characteristics. And, therefore, it is IRC for all legal purposes, there being, however, special rules for its return.

Unlike autonomous taxation, which is collection owed by reason of behaviors that the law wishes to discourage and therefore penalize the reporting of certain expenses, for the reasons indicated, in the case of PEC, what is at stake is ensuring that it be advanced as IRC, and without prejudice to its deduction from the general collection of the

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