CAAD 751/2015-T: Deduction of Special Advance Payment from Autonomous Taxation in IRC

ARBITRAL DECISION (consult full version in PDF)

I – REPORT

1. On 16.12.2015, the Applicant, A… – Sociedade Gestora de Participações Sociais, S.A., collective person no. …, with registered office at …, n.º…, …, …-… Lisbon, requested CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter only designated as "LRAT"), in which the Tax and Customs Authority is the Respondent, with a view to the declaration of illegality of the implied rejection of the administrative review which it filed against the self-assessment of corporate income tax (hereinafter "CIT") relating to the tax year 2012, to the extent corresponding to the non-deduction from the CIT collection produced by autonomous taxation rates, of the special instalment payment made in the context of CIT, and, equally, the partial illegality of the said self-assessment act regarding the amount of € 15,301.78 or, subsidiarily, should it be understood that article 90 of the CIT Code does not apply to autonomous taxation, that the illegality of the assessment of the autonomous taxation be declared and consequently annulled due to absence of legal basis for its effectuation.

The Applicant, alleging to have paid the value of the self-assessment in question, further petitions for the reimbursement of the sum of € 15,301.78 corresponding to the removal of collection deductions plus compensatory interest, at the legal rate, calculated on that amount from 31 May 2013.

1. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority.

Pursuant to the terms and for the purposes of the provision in paragraph 1 of article 6 of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre the acceptance of the appointment within the regularly applicable period.

The Arbitral Tribunal was constituted on 22.02.2016.

1. Verifying the non-existence of any situation provided for in article 18, paragraph 1, of the LRAT, which would necessitate the arbitral meeting there provided, the holding thereof was dispensed with, on the grounds of the prohibition of performing useless acts.

2. The grounds presented by the Applicant, in support of its claim, were, synthetically, as follows:

• The arbitral decisions are innumerable that have affirmed and reaffirmed that autonomous taxation is CIT and, more still, that for this reason not only article 45, paragraph 1, subsection a), of the CIT Code (in the version in force in 2012/13) applies to them, but also article 89 and following, among other norms directed at the assessment and payment of CIT.

• It applies, therefore, equally, to the collection of the autonomous taxation here in question, the norm directed at the collection of CIT contained in subsection c) (current d)) of paragraph 2 of article 90 of the CIT Code, insofar as no obstacle to this is apparent in its "special form of incidence and applicable rates".

• As regards specifically the PEC, if it is CIT, if the PEC is an advance on account of CIT, if its deduction from the CIT collection is provided for, and if autonomous taxation is CIT, as it is, the result of the declarative interpretation of the law, solidly anchored in abundant and unanimous case law, is that the PEC is deductible from the CIT collection generated by autonomous taxation.

1. The ATA – Tax and Customs Administration, called upon to express itself, contested the Applicant's claim, defending itself through objection, in summary with the following grounds:

• The integration of autonomous taxation in the CIT Code (and IRS Code) conferred a dualistic nature, in certain aspects, to the normative system of this tax, which was embodied, namely, in the context of subsection a) of paragraph 1 of article 90 of the CIT Code, in separate calculations of the respective collections, by force of obeying different rules.

• In one case, it concerns the application of the rate(s) of article 87 of the CIT Code to the taxable matter determined according to the rules contained in chapter III of the Code and, in another case, it concerns the application of the rates to the values of taxable matters relating to the different realities contemplated in article 88 of the CIT Code.

• The assessment of autonomous taxation is effected on the basis of articles 89 and 90, paragraph 1 of the CIT Code but applying different rules for the calculation of the tax; in one case the assessment operates through the application of the rates of article 87 to the taxable matter determined in accordance with the rules of chapter III of the Code and in the other case various collections are determined according to the diversity of facts originating the autonomous taxation.

• The delimitation of the content of the expression used by the legislator in paragraph 2 of article 90 of the CIT Code, "amount determined in accordance with the preceding paragraph", and in paragraph 1 of article 105 of the CIT Code, "tax assessed in accordance with paragraph 1 of article 90", must be done in a coherent manner and consequently assigned to it, in both provisions, a univocal meaning which is equivalent to saying that it corresponds to the amount of CIT calculated through the application of the rates of article 87 to the taxable matter determined on the basis of profit and the rates of article 87 of the Code.

• The interpretation of paragraph 2 of article 90 in coherence with the nature and content of the deductions provided for in its subsections, among which the PEC figures, must be done in light of the general objectives of CIT which are reconducted, in their essence, to the taxation of the income of collective persons, determined in conformity with the rules of chapter III of its respective code; it is therefore manifestly devoid of any basis the claim of the now Applicant for deduction of the amount borne in the context of special instalment payment to the collection produced by autonomous taxation.

1. The Applicant presented written submissions reiterating what was already sustained in the context of the request for arbitral pronouncement, and further alleging, in light of the provision in article 135 of Law no. 7-A/2016, of 30 March, in summary:

• As regards specifically the intervention effected by the 2016 State Budget Law in the context of autonomous taxation in CIT, that Law, on the one hand reaffirmed that article 89 of the CIT Code applies to autonomous taxation (part 1 of the new paragraph 21 of article 88 of the CIT Code), on the other hand excluded autonomous taxation from paragraph 2 of the following article 90 (part 2 of the new paragraph 21 of article 88 of the CIT Code). And to both these prescriptions, of opposite meaning, it attributed, at first sight and contradictorily, an interpretative character. This appearance does not, however, withstand analysis, for the reasons that will be summarized below, and it must be concluded that article 135 of the 2016 State Budget Law refers only to part 1 of the new paragraph 21 of article 88 of the CIT Code.

• Furthermore, the attribution of an interpretative nature to a tax norm does not by itself trigger the application of the regime for the application of laws over time provided in the Civil Code. Specifically, and in summary, the regime for the application of laws over time provided in the Civil Code (which includes by right article 13), does not apply with respect to matters that have a specific regime for that purpose, in obedience to distinct principles, as is the case with taxes: see article 12 of the General Tax Law and article 103, paragraph 3, of the Constitution.

• In any case article 13 of the Civil Code and the retroactivity prescription contained therein only applies to interpretative norms, as opposed to false interpretative norms. And part 2 of the new paragraph 21 of article 88 of the CIT Code is, assuming that it was truly the legislator's intention to attribute to it an interpretative character, a false interpretative norm.

• Admitting, for the sake of argument, that the norm subject to interpretation is paragraph 2 of article 90 of the CIT Code, the relevant question then becomes this: what ambiguity is detected in the reference there to CIT that was not also equally shared then by the preceding paragraph 1 of the same article 90, or by the preceding article 89?

• That one can see, no ambiguity or opacity: all these norms are directed at the assessment of CIT, without any ambiguity, in the post-regulation phase of primary collection (which is obtained through the application of CIT rates to CIT taxable matters, in accordance with the preceding articles 1 to 88 of the CIT Code), which leads us to yet another strong reason for considering that part 2 of the new paragraph 21 of article 88 of the CIT Code is not interpretative for purposes of the application of law over time, that is, for purposes of activating the provision in article 13 of the Civil Code.

• If, notwithstanding all the reasons that are listed above, it is nevertheless understood that article 135 of the 2016 State Budget Law (Law no. 7-A/2016, of 30 March) attributed an interpretative nature also to part 2 of the new paragraph 21 of article 88 of the CIT Code, that is, also to the normative segment "provided that no deductions are made from the global amount [of autonomous taxation in CIT] determined", introduced by the same 2016 State Budget Law (by its article 133), and that as a result the application of article 13 of the Civil Code would result, which prescribes the retroactive application of interpretative laws, it is believed that one would then be faced with a material unconstitutionality of the said article 135 of the 2016 State Budget Law, by violation of the prohibition of retroactivity in tax matters provided in article 103, paragraph 3 of the Constitution, whether or not one has concluded (and it is understood that one should not), to be faced with a materially interpretative law.

1. The Respondent also presented written submissions, in which it reiterated what was already sustained in the context of the response and further alleged, in light of article 135 of the 2016 State Budget Law (Law no. 7-A/2016, of 30 March), in summary:

• The norm contained in the 2016 State Budget which attributed an interpretative character to paragraph 21 of article 88 of the CIT Code, limits itself to evidencing what has always been the spirit of the norm.

• This norm, having an interpretative character, is integrated in the interpreted law (see article 13 of the Civil Code), forming both an indivisible set, since it is considered to have an interpretative character "the law which on a point where the rule of law is uncertain or controversial comes to enshrine a solution which the case law, by itself, could have adopted" (Baptista Machado, in Application of Laws over Time in the New Civil Code, pages 286 et seq.).

• If we analyze the aforesaid legal provision correctly, it does nothing more than clarify, in an interpretative reasoning, of systematic integration and coherence with the spirit of the matter in question (autonomous taxation), wherefore to attribute to this law any retroactive character has no legal basis whatsoever.

1. The tribunal is materially competent and is regularly constituted pursuant to the LRAT.

The parties have judicial personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from defects that would invalidate them.

II – THE RELEVANT FACTUAL MATTER

1. The following facts are considered proven:

2. On 23 May 2013, the now Applicant proceeded to the filing of the CIT return Form 22 for the tax year 2012, having proceeded to the self-assessment of autonomous taxation in CIT of that same year 2012, in the amount of € 40,765.03, which amount is paid in part by compensation with CIT amount to be recovered in the amount of € 4,092.16 and, in part, by payment, on 31.05.2013, of the remaining amount of € 36,672.87.

3. On 21 May 2015, the Applicant filed an administrative review against the said self-assessment.

4. At the date of the filing of the request for arbitral pronouncement, the four-month period provided in the law for the presumption of implied rejection had elapsed, without a decision on the administrative review having been issued up to that date.

5. The information system of the Respondent, through which CIT is self-assessed, does not allow taxpayers to deduct from the CIT resulting from the autonomous taxation determined the special instalment payment, for purposes of determining the tax payable.

6. In the context of special instalment payments made by the Applicant, there subsisted, at the date of the self-assessment in question, an accumulated amount available for deduction from the CIT collection of € 15,301.78 and which corresponds to payments made in the years 2008 to 2012, as per the following table:

[Table showing payments by year]

With interest for the decision of the case, there are no unproven facts.

1. The Tribunal's conviction regarding the decision of the factual matter was based on the documents contained in the proceedings, as well as on the submissions presented, it being noted that the parties are in agreement regarding the factual matter, with the disagreement being confined to the legal matter.

III – THE APPLICABLE LAW

1. The essential question that is sought to be clarified is whether or not the Applicant has the right to deduct from the CIT collection produced by the application of autonomous taxation rates, the special instalment payments.

The Applicant further formulates a subsidiary claim for the hypothesis that it be understood that article 90 of the CIT Code does not apply to autonomous taxation, requesting that the self-assessment of the tax periods 2012, in the portion corresponding to autonomous taxation, be annulled due to the fact that they were assessed and collected without legal basis for that purpose.

Let us see.

1. Articles 89 and 90 of the CIT Code, in the wording given by Law no. 3-B/2010, of 28 April, established the following:

Article 89
Competence for assessment

The assessment of CIT is effected:

a) By the taxpayer itself, in the returns to which articles 120 and 122 refer;

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

Article 90
Procedure and form of assessment

1 – The assessment of CIT proceeds as follows:

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

b) In the absence of filing of the return referred to in article 120, the assessment is effected by 30 November of the year following that to which it relates or, in the case provided for in paragraph 2 of that article, by the end of the 6th month following the end of the period for filing the return mentioned there and is based on the annual value of the minimum monthly remuneration or, when greater, the totality of the taxable matter of the nearest tax year which is found to be determined;

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

2 – The following deductions are made from the amount determined in accordance with the preceding paragraph, in the order indicated:

a) That corresponding to double international taxation;

b) That relating to tax benefits;

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

d) That relating to withholding tax not capable of compensation or reimbursement in accordance with the applicable legislation.

3 – (Repealed by Law no. 3-B/10)

4 – From the amount determined in accordance with paragraph 1, relating to the entities mentioned in paragraph 4 of article 120, only the deduction relating to withholding tax is to be made when it has the nature of tax on account of CIT.

5 – The deductions referred to in paragraph 2 relating to entities to which the transparent taxation regime established in article 6 applies are imputed to the respective partners or members in accordance with the terms established in paragraph 3 of that article and deducted from the amount determined on the basis of the taxable matter that took into account the imputation provided for in the same article.

6 – When the special taxation regime for groups of companies applies, the deductions referred to in paragraph 2 relating to each of the companies are made from the amount determined relating to the group, in accordance with paragraph 1.

7 – From the deductions made in accordance with subsections a), b) and c) of paragraph 2, no negative value can result.

8 – From the amount determined in accordance with subsections b) and c) of paragraph 1, only the deductions known to the tax administration and which can be made in accordance with paragraphs 2 to 4 are made.

9 – In cases where the provision in subsection b) of paragraph 2 of article 79 applies, annual assessments are made on the basis of the taxable matter determined with a provisional character, and, in light of the assessment corresponding to the taxable matter relating to the entire assessment period, the difference found is to be collected or annulled.

10 – The assessment provided for in paragraph 1 may be corrected, if appropriate, within the period referred to in article 101, the differences found then being collected or annulled.

As can be read in the arbitral decision rendered in case 673/2015-T:

"(...) the said articles 89 and 90 of the CIT Code, as well as other norms of this Code, such as those relating to the returns provided for in articles 120 and 122, are applicable to autonomous taxation.

From the outset, it is now settled, following numerous arbitral decisions and the positions taken by the Tax and Customs Authority, that the tax levied on the basis of autonomous taxation provided for in the CIT Code has the nature of CIT. Moreover, apart from the unanimity of the case law, article 23-A, paragraph 1, subsection a), of the CIT Code, in the wording of Law no. 2/2014, of 16 January, leaves no room today for any reasonable doubt, corroborating what previously resulted from the literal wording of article 12 of the same Code.

Now, article 90 of the CIT Code refers to the forms of assessment of CIT, by the taxpayer or by the Tax Administration, applying to the calculation of the tax due in all situations provided for in the Code, including additional assessment (paragraph 10).

Therefore, that article 90 also applies to the assessment of the amount of autonomous taxation, which is calculated by the taxpayer or by the Tax Administration, following the filing or non-filing of returns, and there is no other provision that provides for different terms for its assessment.

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

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

However, the fact that a self-assessment of CIT, effected in accordance with paragraph 1 of article 90, may contain several partial calculations based on several applicable rates to certain taxable matters, does not imply that there is more than one assessment, as results from the very wording of that norm when referring to "assessment", in the singular, in all cases in which it is "made by the taxpayer in the returns to which articles 120 and 122 refer", having "as its basis the taxable matter contained therein" (whether that determined based on the rules of articles 17 and following or that determined based on the various situations provided for in article 88).

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

In any case, whatever calculations are to be made, it is the unitary self-assessment that the taxpayer or the Tax and Customs Authority must effect in accordance with articles 89, subsection a), 90, paragraph 1, subsections a), b) and c), and 120 or 122, and on its basis that the global CIT is calculated, whatever the taxable matters relating to each of the types of taxation underlying it.

Moreover, as the Applicant rightly points out in formulating its subsidiary claim, if this article 90 were not applicable to the assessment of autonomous taxation provided for in the CIT Code, we would have to conclude that there would be no provision that provided for its assessment, which would constitute illegality, by violation of article 103, paragraph 3, of the CRP, which requires that the assessment of taxes be done "in accordance with the law".

It should also be noted that the new norm of paragraph 21 added to article 88 of the CIT Code by Law no. 7-A/2016, of 30 March, regardless of whether or not it is truly interpretative, in no way alters this conclusion, for therein it is established, regarding the form of assessment of autonomous taxation, that it "is effected in accordance with the terms provided in article 89 and is based on the values and rates resulting from the provision in the preceding paragraphs".

Indeed, if it is true that this new norm comes to make explicit how the amounts of autonomous taxation are calculated (which already resulted from the very text of the various provisions of article 88) and that competence lies with the taxpayer or the Tax Administration, in accordance with article 89, it is equally clear that the need is not removed to use the procedure provided for in paragraph 1 of article 90, namely in cases provided for in its subsection c) in which assessment falls to the Tax and Customs Authority and is based "on the elements available to the tax administration", which appears to be beyond question that will include the possibility of assessing on the basis of autonomous taxation, if the Tax and Customs Authority has elements that prove its assumptions.

Therefore, both before and after Law no. 7-A/2016, of 30 March, article 90, paragraph 1, of the CIT Code is applicable to the assessment of autonomous taxation.

(...)

Thus, prior to Law no. 7-A/2016, the deductions provided for in paragraph 2 of article 90 of the CIT Code, which target the "amount determined in accordance with the preceding paragraph", were applied to that sole amount resulting from such determination, whenever one was not faced with one of the situations specifically provided for in paragraphs 4 and following of the same article, which do not apply in the case at issue.

The deduction of special instalment payments to the entire value determined in accordance with that article 90, paragraph 1, subsection a), also resulted from the explicit wording of article 93, paragraph 1, of the CIT Code, in the wording prior to Law no. 2/2014, of 16 January, in establishing that "the deduction referred to in subsection c) of paragraph 2 of article 90 is made from the amount determined in the return referred to in article 120 of the same assessment period to which it relates or, if insufficient, up to the fourth following assessment period, after the deductions referred to in subsections a) and b) of paragraph 2 and in compliance with paragraph 7, both of article 90, are made".

With Law no. 2/2014, of 16 January, the deduction of amounts paid as special instalment payment may be deducted up to the 6th following assessment period.

The amount determined in the return referred to in article 120 includes the amounts relating to autonomous taxation, with no other specific return provided for this purpose, either before or after Law no. 7-A/2016.

In fact, the returns provided for in article 120 of the CIT Code are drawn up in a single official form approved by ministerial decree of the Minister of Finance, in accordance with articles 117, paragraph 1, subsection b), and paragraph 2, of the CIT Code.

Thus, in light of the provision in subsection c) of paragraph 2 of article 90 and in paragraph 1 of article 93 of the CIT Code, prior to Law no. 7-A/2016, nothing in the literal wording of the CIT Code opposed the deduction of amounts of special instalment payments to the total CIT collection that was determined in accordance with that paragraph 1 of article 90, including that derived from autonomous taxation, within the conditionality provided there.

(...)

On the other hand, if it is true that, in light of the regime in force before Law no. 2/2014, of 16 January, altered paragraph 3 of article 93 of the CIT Code, the amounts paid as special instalment payment could not always be deducted, it is also true that that regime was altered by that Law, with reimbursement being admitted without conditions other than the taxpayer requesting it, within the prescribed period.

Therefore, the interpretation that follows most linearly from the text of articles 93, paragraph 3, and 90, paragraph 1, of the CIT Code, prior to Law no. 2/2014, is that of the deductibility of special instalment payments to the CIT collection derived from autonomous taxation.

But it is equally certain that, in light of the prior reimbursement regime for special instalment payments, which revealed that the special instalment payment had inherent a presumption of undeclared income, one could venture a restrictive interpretation, with regard to the special instalment payment, in the sense that it is not deductible from the collection of autonomous taxation, as was understood in the arbitral decision of 30-12-2015, rendered in CAAD case no. 113/2015-T, which invokes considerable reasons, derived from the objectives that was legislatively intended to reach with the creation of the special instalment payment, which could justify a restriction of the reference made in article 93, paragraph 1, of the CIT Code to the 'amount determined in the return referred to in article 120':

(...)

In light of the legislation in force in 2012 and 2013, the attribution of interpretative nature to paragraph 21 of article 88 of the CIT Code which is made in article 135 of Law no. 7-A/2016, of 30 March, can be accepted, in light of the teachings of BAPTISTA MACHADO, for the solution provided therein of the impossibility of deducting the special instalment payment to the global amount of autonomous taxation passes the test set out by this Author:

– the solution resulting from the literal wording of article 93, paragraph 1, of the CIT Code was controversial, as evidenced by that arbitral decision and the solution defined by the new law is situated within the framework of the controversy;

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

On the other hand, unlike what occurs with the CFEI, there is, with regard to the deductibility of special instalment payments, no concern for protection of trust, for the special payments are connected to the volume of business, not depending on any specific behavior that the taxpayer would be led to adopt by being given the expectation of obtaining as a quid pro quo a tax advantage.

Furthermore, it is not apparent that the regime resulting from article 88, paragraph 21, of the CIT Code contains any contradiction, contrary to what the Applicant argues: according to this new norm, the norms of the CIT Code relating to the form of assessment of autonomous taxation must be interpreted as provided therein and with regard to that part of the assessment of CIT no deductions are made.

Moreover, it was precisely with this meaning that the Form 22 model of the CIT return was drafted and it was applying the regime now explicit in paragraph 21 of article 88 that the Applicant completed the returns referred to in the case, without any perceptible contradiction. But, being so, as the Applicant argues, the obstacle to the application of the regime resulting from this paragraph 21 of article 88 will be only its possible unconstitutionality, namely in light of the rule of the prohibition of retroactive taxes contained in paragraph 3 of article 103 of the CRP, which establishes 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 assessment and collection are not done in accordance with the law".

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

The norms that provide for special instalment payments were not, in principle, norms of incidence of CIT, but rather about its assessment and payment, and therefore, in that measure, will not be covered by the constitutional prohibition of retroactivity. But, prior to the wording given by Law no. 2/2014, of 16 January, to paragraph 3 of article 93, in the impossibility of deducting special instalment payments in the period to which they relate and in subsequent periods, those norms could end up creating a situation of incidence of CIT, autonomous in relation to any other taxable fact, if reimbursement was not to be permitted in accordance with paragraph 3 of article 93 of the CIT Code, which depended on the fulfillment of conditions.

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

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

In light of this regime, the legal situation created with the special instalment payments made in the years 2012 and 2013 is not yet stabilized, which, from the outset, rules out the violation of the prohibition of retroactivity of tax laws, in the view of the Constitutional Court, for the taxable fact that the new law intends to regulate has not fully occurred nor produced all its effects under the old law: "one case in which the taxable fact that the new law intends to regulate has already produced all its effects under the old law and another case in which the taxable fact occurred under the old law, but its effects, namely those relating to assessment and payment, are not yet totally exhausted will not necessarily have the same constitutional disvalue, since the first situation is from the point of view of the possible affecting of the taxpayer's legal situation more serious than the second" (decision of the Constitutional Court no. 399/10, of 27-10-2010).

Thus, it must be concluded that the authentic interpretation made in article 88, paragraph 21, of the CIT Code, insofar as it concerns the non-deductibility of special instalment payments in autonomous taxation, does not offend the principle of non-retroactivity in the creation of taxes, understood as referring only to authentic retroactivity, reported to taxable facts that were completed and produced all their effects in the past.

However, that rule of the irretroactivity of norms that create taxes does not exhaust the constitutional concerns for legal security, imposed by the principle of the democratic rule of law, as CASALTA NABAIS teaches:

"The principle of legal security, inherent in the idea of the democratic rule of law, is far from having been totally absorbed by this new constitutional provision. It is true that it ceased to serve as a balance in weighing the legal interests at stake when we are faced with a tax affected by authentic or proper retroactivity. When that happens, the solution is now dictated, to all and sundry, in the Constitution, and its enforcement bodies cannot, without violating it, proceed to a case-by-case weighing.

But the principle in question undeniably has a much greater foundation. It is that it also serves as a criterion for weighing in situations of improper, inauthentic or false retroactivity, as well as in situations where, without any retroactivity, proper or improper, occurring, there is a need to protect the trust of taxpayers placed in the actions of the bodies of the State."

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

1. In the case at issue, at the date of the taxable fact in question, in light of article 93 of the CIT Code, with regard to special instalment payments made in the years 2009 to 2012, the legal-tax situation created by such payments was not yet stabilized.

Differently, with regard to special instalment payments referring to the year 2008, in light of that article, in the wording prior to that given by Law no. 2/2014, of 16 January, the situation was already stabilized, since the deduction could only be made up to the fourth following assessment period (2012), whereby an interpretation of article 135 of Law no. 7-A/2016, of 30 March, in the sense of the application of the regime provided in article 88, paragraph 21, of CIT Code, in the wording given by that Law, to these payments, would violate the constitutional prohibition of retroactivity of taxes enshrined in article 103, paragraph 3, of the Constitution of the Portuguese Republic, whereby it cannot fail to be disapplied, as imposed by article 204 of that instrument.

Thus, the self-assessment in question cannot fail to be annulled insofar as the deduction of special instalment payments made in the year 2008, in the amount of € 3,145.84, was not considered, the same being maintained in the legal order in the remaining part.

Taking into account what is stated above, knowledge of the subsidiary claim formulated by the Respondent is prejudiced.

1. The Applicant further requests reimbursement of the sum of € 15,301.78 corresponding to the removal of collection deductions plus compensatory interest, at the legal rate, calculated on that amount from 31 May 2013.

As can be read in the already cited arbitral decision rendered in case 673/2015-T:

"With regard to compensatory interest, in harmony with the provision in subsection b) of article 24 of the LRAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of the judgments of tax courts, "restore the situation that would exist if the tax act subject to the arbitral decision had not been taken, adopting the acts and operations necessary for that purpose", which is in harmony with the provision in article 100 of the General Tax Law [applicable by force of the provision in subsection a) of paragraph 1 of article 29 of the LRAT] which establishes that "the tax administration is obliged, in case of full or partial success of an administrative review, judicial challenge or appeal in favor of the taxpayer, to the immediate and complete restoration of the legality of the act or situation subject to the litigation, including the payment of compensatory interest, if appropriate, from the end of the period of execution of the decision".

Although article 2, paragraph 1, subsections a) and b), of the LRAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating in CAAD, making no reference to condemnatory decisions, it should be understood that the competence includes the powers which, in judicial challenge proceedings, are attributed to tax courts, and that is the interpretation which is in harmony with the sense of the legislative authorization upon which the Government based itself to approve the LRAT, in which it proclaims, as the first directive, that "the arbitral tax process must constitute a procedural means alternative to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge process, although essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as is inferred from article 43, paragraph 1, of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in an administrative review or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount superior to the legally due" and from article 61, paragraph 4 of the Tax Code of Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds paragraph 2 in the initial wording), that "if the decision that recognized the right to compensatory interest is judicial, the payment period is counted from the start of the period of its spontaneous execution".

Thus, paragraph 5 of article 24 of the LRAT, in stating that "payment of interest is due, regardless of its nature, in the terms provided in the general tax law and in the Tax Code of Procedure and Process", must be understood as permitting the recognition of the right to compensatory interest in the arbitral process."

In the case at issue, following the annulment of the self-assessment act in the part relating to the non-deduction of the amount of € 3,145.84, there is a right to reimbursement of this value which should have been deducted, by force of the said articles 24, paragraph 1, subsection b), of the LRAT and 100 of the General Tax Law, for this is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been taken".

Returning to the question of compensatory interest, the substantive regime of the right to compensatory interest is regulated in article 43 of the General Tax Law, which establishes that:

Article 43
Payment of Undue Tax Obligation

1 – Compensatory interest is due when it is determined, in an administrative review or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount superior to the legally due.

2 – It is also considered that there is error imputable to the services in cases in which, despite the assessment being made on the basis of the taxpayer's return, the latter has followed, in its completion, generic guidelines of the tax administration, duly published.

The illegality of the presumed decision of the administrative review is imputable to the Tax Administration, which omitted the express decision within the period established in the law.

With regard to the self-assessment "sub judice", it is to be understood that the error that affects it, in the part relating to the non-deduction of special instalment payments made in the year 2008, in the amount of € 3,145.84, is imputable to the Tax Administration, for the reason that it was proven that the information system of the Respondent, through which CIT is self-assessed, does not allow taxpayers to deduct, for purposes of the calculation of the CIT owed by them, to the CIT resulting from the autonomous taxation determined, the special instalment payment.

As is sustained in the cited arbitral decision rendered in case 673/2015-T: "this is a situation which, for purposes of paragraph 2 of article 43 of the General Tax Law, is equivalent to filling in the return according to 'generic guidelines of the tax administration', for these are underlying the information system for filing Form 22 of the CIT return (...)"

Consequently, the Applicant is entitled to compensatory interest on the amount of € 3,145.84, in accordance with article 43, paragraph 1, of the General Tax Law and article 61 of the Tax Code of Procedure and Process from 31.05.2013, until reimbursement.

Therefore, the Arbitral Tribunal decides:

• to hold partially well-founded the request for arbitral pronouncement regarding the request for declaration of illegality of the implied rejection of the administrative review decision and equally of the self-assessment sub judice and to annul them in the part in which the deduction of special instalment payments made in the year 2008, in the amount of € 3,145.84, was not considered, holding the claim unfounded regarding the remaining parts.

• to condemn the Tax and Customs Authority to reimburse the Applicant in the amount of € 3,145.84 and to pay it compensatory interest, on this amount, from 31.05.2013 until its reimbursement.

Value of the action: € 15,301.78 (fifteen thousand three hundred and one euros and seventy-eight cents) in accordance with the provision in article 306, paragraph 2, of the Code of Civil Procedure and article 97-A, paragraph 1, subsection a), of the Tax Code of Procedure and Process and article 3, paragraph 2, of the Rules of Costs in Arbitration Proceedings.

Costs borne by the Applicant and Respondent, in the proportion of 79.441% and 20.559%, respectively, in accordance with paragraph 4 of article 22 of the LRAT.

Let notification be made.

Lisbon, CAAD, 11.07.2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=673%2F2015-T&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=1796

[2] As SALDANHA SANCHES writes "(…) Even when we are faced with a law that is truly interpretative, and not one of those which the legislator designates as interpretative 'to make the retroactivity of the law less perceptible' (…) we are, in all these situations, faced with cases covered by the constitutional prohibition of retroactivity." (MANUAL OF TAX LAW, Coimbra Editor, 3rd Ed., page 195. In the same sense, JÓNATAS E. M. MACHADO and PAULO NOGUEIRA DA COSTA write: "(…) also in the case of laws interpreting tax laws does the prohibition of retroactivity have full application. With respect to those, it is understood that, insofar as they bind the courts to a particular interpretation, among various abstractly possible and already adopted by other courts, they necessarily imply a retroactive application of the interpreted law" (COURSE IN TAX LAW, Coimbra Editor, 2009, page 61)