CAAD Arbitration on IRC Autonomous Taxation and Collection Deductions: Process 767/2015-T

Arbitral Decision [1]

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 7 March 2016, with respect to the above-identified proceedings, decided as follows:

1. REPORT

1.1. A…, S.A., legal entity no.…, with registered office at Rua …, no.…, in Porto (hereinafter referred to as "Claimant"), filed a request for arbitral pronouncement and constitution of a single Arbitral Tribunal, on 21 December 2015, pursuant to the provisions of Article 4 and subsection 2 of Article 10 of Decree-Law no. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the respondent (hereinafter referred to as "Respondent").

1.2. The Claimant intends that:

1.2.1. "(…) the illegality of the rejection of the administrative complaint (…) and, likewise, the illegality of the self-assessed IRC [Corporate Income Tax] (…) relating to the tax years 2012 and 2013, with respect to the amounts of autonomous taxation rates in IRC of € 14,213.22 (2012) and € 7,014.53 (2013), respectively, with their consequent annulment (…) due to improper disallowance of deductions from the tax payable, given the manifest illegality of the assessments (…), with all legal consequences, in particular the reimbursement (…) of these amounts, plus statutory interest, counted until full reimbursement (…)" and, subsidiarily,

1.2.2. "(…) should it be understood that Article 90 of the IRC Code does not apply to autonomous taxation, the illegality of the assessments of autonomous taxation (…) shall be declared due to absence of legal basis for their implementation (…), with the consequent reimbursement of the same amount and the payment of statutory interest (…)".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD on 12 January 2016 and notified to the Respondent on the same date.

1.4. The Claimant did not appoint an arbitrator, so, pursuant to the provisions of Article 6, subsection 2, paragraph a) of RJAT, the undersigned was designated as arbitrator by the President of the Deontological Council of CAAD, on 16 February 2016, the appointment having been accepted within the legally provided deadline and terms.

1.5. On the same date, both parties were duly notified of this designation, and neither expressed an intention to refuse the appointment of the arbitrator, in accordance with the provisions of Article 11, subsection 1, paragraphs a) and b) of RJAT, combined with Articles 6 and 7 of the Deontological Code.

1.6. Thus, in accordance with the provision in paragraph c), subsection 1, Article 11 of RJAT, the Arbitral Tribunal was constituted on 7 March 2016, an arbitral order having been issued on the same date, instructing the Respondent to, pursuant to the provisions of Article 17, subsection 1 of RJAT, submit a response within a maximum period of 30 days and, if it so wished, request the production of additional evidence.

1.7. On 14 April 2016, the Respondent submitted its Response, defending itself through opposition and concluded that "(…) the request for arbitral pronouncement should be judged as unfounded and not proven, and, consequently, the Respondent is absolved of all requests, all with the proper legal consequences".

1.8. Thus, by order of this Arbitral Tribunal, dated 20 April 2016, with the objective of ensuring the principle of contradiction and equality of the parties (in accordance with the provisions of Article 16, paragraphs a) and b) of RJAT), both Parties were notified to pronounce themselves, within a period of 5 days, on the possibility of dispensing with:

1.8.1. The holding of the aforementioned meeting;

1.8.2. The examination of the witnesses enrolled by the Claimant, as well as,

1.8.3. The submission of arguments.

1.9. The Claimant submitted a request on 26 April 2016, to the effect that "(…) it no longer has an interest in the examination of the witnesses it had enrolled, and therefore waives this, (…) does not see (…) interest in holding the arbitral meeting, but (…) has an interest in the production of arguments (…) in written form".

1.10. The Respondent submitted no request regarding the content of the arbitral order identified in 1.8., above.

1.11. Thus, by arbitral order dated 5 May 2016, in accordance with the procedural principles established in Article 16 RJAT, of contradiction [paragraph a)] of equality of the parties [paragraph b)], of autonomy of the Arbitral Tribunal in conducting the proceedings and in determining the rules to be observed [paragraph c)], of cooperation and procedural good faith [paragraph f)] and of free conduct of the proceedings established in Articles 19 and 29, subsection 2 of RJAT, as well as taking into account the principle of limitation of unnecessary acts, provided for in Article 130 of the Code of Civil Procedure (CPC), applicable by virtue of the provisions of Article 29, subsection 1, paragraph e) of RJAT, this Arbitral Tribunal decided as follows:

1.11.1. To dispense with the holding of the meeting referred to in Article 18 of RJAT;

1.11.2. To dispense with the examination of the witnesses enrolled by the Claimant;

1.11.3. Not to dispense with the submission of arguments and, consequently, to notify the Claimant and the Respondent to, in this order and successively, submit written arguments within a period of 15 days, with the Respondent's deadline starting from the date of notification of the joining of the Claimant's arguments or the end of the period granted for this purpose (in case the Claimant does not submit arguments).

1.11.4. To designate 28 June 2016 for the purposes of issuing the arbitral decision;

1.11.5. To further notify the Respondent to, within 5 days, attach to the file the administrative proceedings that it had stated it would attach when sending the Response.

1.12. The Claimant was further warned that "until the date of issuance of the arbitral decision, it should proceed with the payment of the subsequent arbitral fee, pursuant to the provisions of subsection 3 of Article 4 of the Regulation of Fees in Tax Arbitration Proceedings and communicate this payment to CAAD" (having done so on 27 June 2016).

1.13. The Respondent, on 4 May 2016, attached to the file the administrative proceedings.

1.14. On 12 May 2016, the Claimant submitted its written arguments, in the same sense as the arbitral request, having directed them to the following points:

1.14.1. "Autonomous taxation is IRC, therefore Article 90 of the IRC Code applies to them (…) except for a norm of exclusion";

1.14.2. "In particular, the function of both the PEC [special payment on account], and autonomous taxation, does not oppose this result of declarative interpretation".

1.14.3. "Some reasonings of the erudite response of the AT [Tax Authority]";

1.14.4. "The provision allegedly interpretative contained in the State Budget Law for 2016",[2]

And concluding "(…) as in the request for constitution of arbitral tribunal".

1.15. Further regarding "the interpretative effect conferred by Article 135 contained in the State Budget Law for 2016 (…)", the Claimant cites the (…) jurisprudence issued in arbitral proceedings no. 673/2015-T (…)", to the effect that "one cannot conclude that the authentic interpretation made in that Article 88, subsection 21, by virtue of Article 135 of Law no. 7-A/2016 of 30 March, violates the constitutional principle of legal certainty, concerning the part of that norm that relates to the non-deductibility of special payments on account from the tax base of autonomous taxation".[3]

1.16. On 24 May 2016, the Respondent submitted its written arguments to the effect of reiterating "(…) the soundness of the argumentation developed (…) in its Response", whereby it understands that "(…) the tax acts impugned do not merit censure (…) and should remain valid in the legal order".

1. CAUSE OF ACTION

The Claimant supports its request, in summary, as follows:

Legitimacy and Timeliness of the Request for Constitution of Arbitral Tribunal

2.1. The Claimant begins by stating that "(…) the arbitral tribunal in tax matters has jurisdiction to examine claims relating to the declaration of illegality of tax assessment acts, including self-assessment".

2.2. Next, the Claimant states that:

2.2.1. "On 30 May 2013 and 28 May 2014 (…) it proceeded to file IRC returns Model 22 concerning the tax years 2012 and 2013, and at those times proceeded to self-assess autonomous taxation in IRC for those same years (…), in the amounts of € 14,213.22 (2012) and € 7,014.53 (2013), respectively (…)";

2.2.2. "These returns were subsequently amended (…)" but "however, no changes resulted in the amounts determined for autonomous taxation (…) nor in the amounts to be paid (…) for the tax years 2012 and 2013";

2.2.3. "On 22 May 2015 the claimant filed an administrative complaint against the aforementioned self-assessments relating to the tax years 2012 and 2013 (…), having obtained no decision thereon within the "(…) four-month period provided by law for this purpose (…) whereby its tacit rejection is presumed on 22 September 2015 (…)".

2.3. Thus, the Claimant understands that "(…) the deadline for filing the request for constitution of an arbitral tribunal is, in the circumstances of the case, ninety days counted (…) from the presumption of tacit rejection of the administrative complaint", "a deadline that expires on 21 December 2015", whereby "given the date of filing of this request for constitution of an arbitral tribunal, it must be concluded that it is timely, and the claimant undoubtedly has the standing to file it".

Identification of the Tax Act Subject to Arbitral Pronouncement

2.4. In this connection, the Claimant states that "the acts subject to the request for pronouncement by the Arbitral Tribunal are the rejection (…) of the administrative complaint (…) identified and, consequently (…), the acts of self-assessment of IRC (…) relating to the tax years 2012 and 2013, to the extent corresponding to the failure to deduct from the IRC tax payable produced by autonomous taxation rates of the special payment on account (PEC) made (…) or, subsidiarily, to the extent that autonomous taxation assessment is improper (…)".

2.5. Indeed, "the now claimant intends to submit to the examination of the Arbitral Tribunal (i) the legality of this rejection of the administrative complaint (…) and, likewise, (ii) the legality (…) of the self-assessments of IRC relating to these tax years 2012 and 2013 (…), in a total of € 21,227.75".

Identification of the Arbitral Request

2.6. In this matter, "the now claimant intends that both the illegality of the rejection of the administrative complaint and the illegality of the partial acts of self-assessment (…) identified (…) be declared and that they be consequently annulled (…) to the extent that the said acts of self-assessment reflect the failure to deduct from the IRC tax payable produced by autonomous taxation rates of the special payment on account made in the context of IRC (…) or, subsidiarily, to the extent that it reflects improper autonomous taxation".

Facts

2.7. "The claimant filed on 30 May 2013 the IRC return Model 22 for the tax year 2012, and on 28 May 2014 the IRC return Model 22 for the tax year 2013, having determined an amount of autonomous taxation in IRC of € 14,213.22 (2012) and € 7,014.53 (2013), respectively (…)".

2.8. The Claimant further states that "both in the return for the tax year 2012 and in the return for the tax year 2013, an amount was determined to be paid, which has been paid (…)" and that "(…) to the tax resulting from the application of autonomous taxation rates in IRC the AT's computer system reveals anomalies embodied in the marking of discrepancies ("errors") that prevent the claimant from recording the value relating to the aforementioned autonomous taxation rates in IRC (…) deducted (…) from the amounts of accumulated special payments on account, which resulted in an excess tax paid by reference to the tax years 2012 and 2013 in question here".

2.9. However, the Claimant continues, "in the context of special payments on account (PEC) there remains an accumulated amount to be deducted from the IRC tax base that amounts to in 2012 and 2013 € 117,322,721 and € 107,785,642, respectively (…)".

2.10. Thus, the Claimant understands that "(…) it has PECs in an amount greater than the autonomous taxation in IRC for the tax years 2012 and 2013 (…)" since "the AT's computer system, through which IRC is self-assessed, does not allow taxpayers to deduct, for the purpose of determining the IRC owed by them, from the IRC resulting from autonomous taxation assessed the special payment on account (…)".

2.11. According to the Claimant, it is astonished at "the AT's refusal (…) of these PEC deductions from the autonomous taxation in IRC (…) since recently the AT has taken a position on this matter having excluded only the deduction from the autonomous taxation in IRC tax base of tax credits for international double taxation, which is now contradicted by this decision of the administrative complaint (even if tacit) filed (…)".

2.12. In fact, for the Claimant "(…) the issue concerns the impossibility of reflecting in the Model 22 returns the deduction of special payments on account by reference (…) to the tax base resulting from autonomous taxation rates in IRC (…) with respect to the tax years 2012 and 2013 (…)", that is, "intentionally or inadvertently, the Model 22 IRC return and its articulation with the programming of the AT's computer system prevents deduction from the tax base related to autonomous taxation rates in IRC (…), the special payments on account still to be deducted from the IRC tax base (…)".

2.13. "Thus, the question one seeks to have clarified is (…)" whether the Claimant "has or does not have (…) the right to proceed with the deduction, (…) from the IRC tax base produced by the application of autonomous taxation rates, of the aforementioned special payments on account?"

2.14. According to the Claimant, "taking into account the overwhelming arbitral jurisprudence that today qualifies autonomous taxation as IRC, the claimant absolutely sees nothing in the law that would exclude the deduction of special payments on account, also from the IRC tax base produced by autonomous taxation".

On the Law

2.15. In this connection, the Claimant argues that "just as jurisprudence has understood, in a practically unanimous manner, that the IRC tax base provided for in (in force until 2013) Article 45, subsection 1, paragraph a), of the IRC Code, comprises, without need for any additional specification, the autonomous taxation in IRC tax base, one must also understand that the IRC tax base provided for in the same code (…) (Article 90, subsection 1, and subsection 2, paragraph c), of the IRC Code, in the wording in force in 2013) also encompasses the autonomous taxation in IRC tax base", whereby the Claimant reiterates that "(…) the denial of PEC deduction from the IRC tax base of autonomous taxation violates paragraph c) of subsection 2 of Article 90 of the IRC Code (prior to 2010, Article 83; and since 2014 has been paragraph d) of the aforementioned subsection 2 of Article 90 of the IRC Code)".[4]

2.16. "Whence, if autonomous taxation is understood (…) to be IRC (…), it should be irrelevant whether the norm (…) refers to what is determined through the application of Article 90 of the IRC Code (…), as is the case with SIFIDE, or directly to IRC, as is the case with PEC".[5]

What the AT Thinks Outside Cases Like This

2.17. In this matter, the Claimant begins by stating that "(…) in the context of qualification of autonomous taxation as IRC, it is public and notorious the position and understanding of the AT (…) that autonomous taxation is IRC, in order thus to apply to the autonomous taxation tax base the rule applicable to the IRC tax base (…)".

2.18. "And regarding the possibility of deducting special payments on account, or tax credit for tax benefit (SIFIDE), from the autonomous taxation tax base, the IRC Services Department (…) has recently pronounced itself, having then excluded deductions from the autonomous taxation tax base only with respect to tax credits for international double taxation (…)", whereby the Claimant understands that it is entitled to "(…) deduction of special payments on account here in question from the autonomous taxation tax base (…)".

Our Arbitral Jurisprudence and Its Conclusion Regarding the Nature of IRC of Autonomous Taxation

2.19. The Claimant proceeds by stating that "(…) it has been systematically decided by tax courts, in the case in the form of arbitral tribunals, that autonomous taxation is IRC, hence it follows as a consequence that rules directed to IRC are applied to them such as the one relating to non-consideration of the IRC tax base for the calculation of taxable profit in IRC (…)".[6]

2.20. "Whence the perplexity of the claimant when it witnesses the AT's denial of PEC deduction from the IRC tax base produced by autonomous taxation rates (IRC, in accordance, in harmony, with the AT's and the courts' understanding) (…)".

2.21. In fact, the Claimant continues, "arbitral jurisprudence has founded its conclusion on the idea (…)" that "autonomous taxation relating (…) is a substitute (or complement) for the non-deductibility of costs in IRC, hence the nature of IRC of the tax base produced by this autonomous taxation".

2.22. "And it is on the basis of this conclusion, so founded, that jurisprudence concluded that because the tax base produced by this autonomous taxation is IRC tax base, it was, therefore, subject to the regime provided for the IRC tax base (…)".

2.23. Thus, the Claimant reiterates that "for the very same reason, it requests (…) that, consistently, it be concluded that the IRC tax base constituted by this autonomous taxation is available, alongside the rest of the IRC tax base, in the operation of deductions from the tax base provided for in Article 90 of the IRC Code, among which is the PEC deduction".[7]

1. RESPONSE OF THE RESPONDENT

3.1. The Respondent responded arguing the unfoundedness of the request for arbitral pronouncement, having invoked the following arguments:

3.2. For the Respondent, "to resolve the controversial question in the present case, it is important to begin by analyzing the legal nature of autonomous taxation and its articulation with the general rules of the tax in which it is integrated".[8]

Autonomous Taxation in IRC and Its Legal Nature

3.3. According to the Respondent, "(…) the figure of autonomous taxation has been used as an instrument for the pursuit of diverse objectives, ranging from the original purpose of preventing tax evasion and fraud practices (…) to the purpose of preventing the phenomenon called dividend washing (…) or to burden, through taxation, the payment of income considered excessive (…)".[9]

3.4. Indeed, for the Respondent, "it is recognized that the autonomous character of this taxation, resulting from the special configuration given to the material and temporal aspects of the taxable events, requires (…) the exclusion or an adaptation of the general rules for the application of IRC", citing arbitral decisions no. 769/2014-T and 219/2015-T

3.5. Thus, the Respondent argues that "it is appropriate to clarify that the assessment of autonomous taxation is made (…) applying different rules for the calculation of tax (…)", that is, "in one case the assessment operates through the application of the rates of Article 87 to the taxable income determined in accordance with the rules of Chapter III of the Code and (…) in the other case, various tax bases are determined according to the diversity of facts that originate autonomous taxation", "whence it results that the amount determined under paragraph a) of subsection 1 of Article 90 does not have a unitary character, as it includes values calculated according to different rules, to which are associated also differentiated purposes, whereby the deductions provided for in the paragraphs of subsection 2 can only be made to the part of the IRC tax base with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the general rule-regime of the tax".

Delimitation of the Tax to Which the Deductions Referred to in Article 2, of Article 90 of the IRC Code Are Made

3.6. In fact, according to the Respondent, "following the integration of autonomous taxation in the IRC Code (…) the legislator does not seem to have felt the need to explicitly explain, comprehensively – i.e. in all the norms where they manifest themselves – the consequences of the coexistence of two forms of taxation within the IRC system, limiting itself to providing for the situations in which the IRC exemption did not extend to autonomous taxation", leaving "it to the care of the interpreter and the applier of the law the task of (…) for certain purposes – namely of the deductions provided for in subsection 2 of Article 90 of the IRC Code or of the calculation of payments on account –, to identify the relevant part of IRC tax base, extracting from the applicable norms a useful meaning, literally possible, which permits a coherent solution in accordance with the nature and functions attributed to each component of the tax".

3.7. In these terms, for the Respondent, "when it comes to the deductions provided for in subsection 2 of Article 90 of the IRC Code (…)" it understands that the Claimant has come "(…) to argue in the Request (…)" that the expression "amount determined under the previous subsection" "must be understood as encompassing the sum of the IRC amount, determined on the taxable income determined according to the rules (…) and the rates provided (…) in (…) the Code, and the amount of autonomous taxation, calculated on the basis of the rules provided in Article 88".

3.8. Thus, the Respondent reiterates that "(…) the result of this interpretation would imply that, on the basis of calculating payments on account defined in subsection 1 of Article 105 of the IRC Code – and in terms identical to those used in subsection 2 of Article 90 (…) autonomous taxation would be included".

3.9. But as "it is the understanding held by the AT and peacefully accepted by doctrine and taxpayers in general", "for the basis of calculating payments on account only the IRC determined on the basis of taxable income determined according to the rules of Chapter III and the rates of Article 87 of the respective Code is considered".

3.10. According to the Respondent, "(…) it only makes sense to conclude that its calculation basis corresponds to the amount of the IRC tax base resulting from the taxable income that is identified with the profit/income (…) of the taxpayer" (underlined by the Respondent).

3.11. Thus, the Respondent understands that "the delimitation of the content of the expression used by the legislator in subsection 2 of Article 90 of the IRC Code, amount determined under the previous subsection, and in subsection 1 of Article 105 of the IRC Code, tax assessed under subsection 1 of Article 90, should be made coherently", that is, "by consequently assigning to it, in both provisions, a univocal meaning", "which is equivalent to saying that it corresponds to the IRC amount calculated through the application of the rates of Article 87 to taxable income determined on the basis of profit and the rates of Article 87 of the Code".

3.12. And the Respondent concluded that, "being the only (and consistent) interpretation of the expression amount determined under the previous subsection with the nature of the deductions referred to in the paragraphs of subsection 2 of Article 90 of the IRC Code, relating to tax credits for international double taxation legal and economic (…), tax benefits (…), special payment on account (…) and withholdings at source (…)", "(…) in light of the interconnection that, at the material level, must be established between the realities reflected by these deductions and the origin of the amount from which they are subtracted".[10]

Special Payment on Account

3.13. In this connection, for the Respondent, due to "(…) the simple consequence of the foregoing considerations that led to the conclusion that the deductions referred to in paragraphs a) and b) of subsection 2 of Article 90 of the IRC Code are made to the amount (…) understood as the IRC amount determined on the basis of taxable income determined in accordance with the rules contained in Chapter III and the rates of Article 87 of the same Code (…)", it understands that "(…) descending to the specific case, it is possible to extend this conclusion to the deduction relating to special payments on account", sufficing for this:

3.13.1. "(…) to invoke the provisions of subsection 7 (in the 2012 version) of the same provision, according to which from the deductions made under paragraphs a), b) and c) of subsection 2 no negative value can result", and that

3.13.2. "(…) in the absence or insufficiency of tax base, assessed in these terms, the special payment on account that cannot be deducted in that tax period may be deducted up to the 4th following tax period (…)".

3.14. And, according to the Respondent, "(…) it is also possible to reach the same conclusion if one examines the nature of the special payment on account (…)", since, given the "(…) legal nature of PEC, revealed by its configuration as an instrument or guarantee of payment of the tax on account of which it is required, and not as a tax (…), as well as by the function associated with it in combating tax evasion and fraud, indissolubly connects this payment to the IRC amount assessed on taxable income determined on the basis of profit".

3.15. In these terms, the Respondent understands that it is "(…) manifestly devoid of any basis the claim of the now Claimant for deduction of the amount borne in the context of special payment on account from the tax base produced by autonomous taxation in the years 2012 and 2013".

3.16. On the other hand, the Respondent also understands that the Claimant cannot "(…) attribute to the AT a position in a certain sense (…) when, on the matter in question, there was no pronouncement that leads to the conclusion that the understanding expressed in filling the periodic income return, model 22, was altered, which (…) completely excludes the possibility of deduction of special payments on account from the amount of autonomous taxation".[11]

Anomalies in the AT's Computer System

3.17. In this matter, the Respondent understands that "(…) the Claimant is in error (…)" since "the computer system cannot permit or establish what the law does not provide for (…)", whereby, not existing "any legal support, administrative understanding or even (…) any reason for the Claimant's claim (…) it lacks (…) sense the understanding advocated by the same in this respect".[12] [13]

The Arbitral Decision Issued in the Context of Proceedings no. 113/2015-T

3.18. According to the Respondent, "in the continuation of what the AT has argued on this topic (…)", having regard to the arbitral decision issued "(…) in the context of Proceedings no. 113/2015-T, which concerned the (….) deduction of PEC from the tax base produced by Autonomous Taxation (…)" the Claimant's claim should be rejected.

On the Alleged Right to Statutory Interest

3.19. In this matter, according to the Respondent, "even if the procedural nature of the claim for payment of interest (…) were to be established, the claim for interest (…) must necessarily be rejected" since it understands that "(…) its calculation would necessarily have as starting date the date on which the decision rejecting the administrative complaint occurred and never, the date indicated by the Claimant in its request".

On the Dispensing of Witness Testimony

3.20. The Respondent argues that "taking into account the principles of autonomy of the arbitral tribunal in conducting the proceedings, as well as free determination of the evidence-taking measures necessary, established in (…) RJAT, the witness testimony requested should be considered as unnecessary".

Conclusions

3.21. The Respondent concludes its Response, arguing that "(…) the present request for arbitral pronouncement should be judged as unfounded and not proven, and, consequently, the Respondent is absolved of all requests, all with the proper legal consequences".

1. PRELIMINARY MATTERS

4.1. The request for arbitral pronouncement is timely since it was filed within the deadline provided for in paragraph a) of subsection 1 of Article 10 of RJAT.[14]

4.2. The parties have legal personality and capacity, are entitled to the request for arbitral pronouncement and are duly represented, pursuant to the provisions of Articles 4 and 10 of RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

4.3. The cumulation of requests made here by the Claimant is legal and valid, pursuant to the provisions of Article 3, subsection 1 of RJAT, given that the procedural success of the requests depends, essentially, on the examination of the same circumstances of fact and the interpretation and application of the same principles or rules of law.

4.4. The Tribunal is competent to examine the request for arbitral pronouncement formulated by the Claimant.

4.5. No exceptions worthy of examination were raised.

4.6. No nullities are evident, whereby it now becomes necessary to examine the merits of the request.

1. FACTUAL MATTERS

5.1. Facts Established

5.2. The following facts are considered established:

5.2.1. The Claimant is a legal entity that, in the context of fulfilling its tax obligations, relating to Corporate Income Tax (IRC), filed:

5.2.1.1. On 30 May 2013, the IRC return Model 22 for the tax year 2012 (no. …-… -…), as per document no. 1 attached with the request and administrative proceedings;

5.2.1.2. On 28 May 2014, the IRC return Model 22 for the tax year 2013 (no. …-… -…), as per document no. 2 attached with the request and administrative proceedings.

5.2.2. In the income returns identified in the previous point, the Claimant disclosed the following information (amounts expressed in Euros – EUR), as per documents no. 1 and 2 attached with the request:

5.2.3. In both income returns the Claimant proceeded with the assessment of Autonomous Taxation, in the amount of EUR 14,213.22 (tax year 2012) and EUR 7,014.53 (tax year 2013), as per documents no. 1 and 2 attached with the request.

5.2.4. The IRC assessed in each of the tax years (2012 and 2013) was timely paid, as per document no. 9 and administrative proceedings.

5.2.5. On 31 December 2012 and 31 December 2013, the available special payment on account totaled, respectively EUR 117,322.72 and EUR 107,785.64, as per the sum of the schedule contained in document no. 8 attached with the request and document no. 9.[15]

5.2.6. The Claimant filed substitute IRC returns Model 22, for the tax years 2012 and 2013, respectively, on 25 November 2014 (no. …-… -…) and on 20 March 2015 (no. …-… -…), as per documents no. 3 and 4 attached with the request and administrative proceedings.

5.2.7. In the income returns identified in the previous point, the Claimant disclosed the following information (amounts expressed in Euros – EUR), as per documents no. 3 and 4 attached with the request:

5.2.8. On 22 May 2015, the Claimant filed an administrative complaint [no. …2015… (1521/2015)] against the self-assessments of IRC relating to the tax years 2012 and 2013 (as per document no. 5 attached with the request and administrative proceedings).

5.2.9. Until 21 December 2015 there was no express decision on the administrative complaint identified in the previous point [its tacit rejection having been presumed, after the four-month period provided for in Articles 57, subsection 1 of the General Tax Law (LGT) and Article 106 of the Code of Procedure and Tax Proceedings (CPPT) had elapsed], as per Official Notice no.…, of 19 January 2016, attached with the administrative proceedings.

5.2.10. According to the same Official Notice, at the date of filing of the present arbitral request, the administrative complaint was in the phase of the right to prior hearing, this right not having been exercised until that date, regarding the content of the draft decision rejecting the complaint issued on 10 December 2015 (as per administrative proceedings).

5.2.11. In light of the content of the motivation of the request for constitution of an arbitral tribunal, the Respondent understood that the grounds set forth in the draft decision rejecting the administrative complaint were valid (as per order of 15 January 2016, part of the administrative proceedings).

5.3. No other facts capable of affecting the decision on the merits of the request were established.

5.4. Facts Not Established

5.5. No facts were established as unproven having relevance to the arbitral decision.

1. GROUNDS FOR DECISION

6.1. In the proceedings, the essential questions to be decided are the following:

6.1.1. Whether amounts paid by the Claimant as special payments on account are deductible in the tax years 2012 and 2013 from the amounts owed by way of autonomous taxation, and

6.1.2. Taking into account the subsidiary request formulated by the Claimant [for annulment of the self-assessments relating to the tax years 2012 and 2013, in the portion corresponding to autonomous taxation, due to absence of legal basis for their implementation (in the event that it is accepted that Article 90 of the IRC Code does not apply to autonomous taxation)], to ascertain the applicability of the same to the reality under analysis (autonomous taxation).

6.2. In this matter, according to the Claimant, "(…) the IRC tax base provided for in (in force until 2013) Article 45, subsection 1, paragraph a), of the IRC Code, comprises (…) the autonomous taxation in IRC tax base (…)", whereby the denial of PEC deduction from the IRC tax base of autonomous taxation violates paragraph c) of subsection 2 of Article 90 of the IRC Code (…)" (underlined by us).

6.3. On the other hand, the Respondent assumes the position that it is "(…) manifestly devoid of any basis the claim of the now Claimant for deduction of the amount borne in the context of special payment on account from the tax base produced by autonomous taxation in the years 2012 and 2013", since, given the "(…) legal nature of PEC, revealed by its configuration as an instrument or guarantee of payment of the tax on account of which it is required, and not as a tax (…), as well as by the function associated with it in combating tax evasion and fraud, indissolubly connects this payment to the IRC amount assessed on taxable income determined on the basis of profit" (underlined by us).

6.4. In these terms, it must, preliminarily, analyze the nature of autonomous taxation, as well as the nature of the special payment on account.

The Question of the Nature of Autonomous Taxation

6.5. Beginning to analyze the nature of autonomous taxation, cite for these purposes the arbitral decision no. 535/2015-T, of 7 April 2016 (which also examined the same topic), according to which it is stated that "the autonomous taxation rates apply to certain expenses borne by IRC taxpayers, which by their nature may present a more ambiguous connection to the realization of income subject to taxation or the maintenance of the income-producing source", seeking to "(…) through the mechanism of autonomous taxation, to dissuade some excesses in the occurrence of this type of expenses" (underlined by us).

6.6. Thus, according to the content of the same arbitral decision, "contrary to what occurs with the philosophy inherent in the remaining provisions of the IRC Code, income is not taxed but rather expenses or costs", seeking to "(…) in some way penalize taxpayers for the realization of some types of expenses or costs, in certain conditions, even though such taxpayers may have obtained a tax loss and, therefore, in that tax year would not pay IRC".[16]

6.7. In fact, with this type of taxation it was intended, from its origin in 1990 [year in which we find, with the publication of Decree-Law no. 192/90, of 9 June, "(…) the first intervention by the legislator in order to subject certain expenses to autonomous taxation (…)", since in that statute autonomous taxation, at the rate of 10%, of confidential or undocumented expenses was provided for, carried out in the context of the exercise of commercial, industrial or agricultural activities by IRS [Personal Income Tax] taxpayers who own or should own organized accounting or by IRC taxpayers not covered by Articles 8 and 9 of the respective Code], on the one hand, to encourage taxpayers subject to it to reduce as much as possible the expenses that negatively affect tax revenue and, on the other hand, to prevent that, through these expenses, companies proceed with the concealed distribution of profits (especially dividends which, thus, would only be subject to IRC as company profits), as well as to combat tax fraud and evasion that such expenses cause not only in relation to IRS or IRC, but also in relation to the corresponding Social Security contributions (both of the employer entities and the workers).[17][18]

6.8. Thus, "contrary to what happens in the taxation of income under IRS and IRC, in which the set of income earned in a given year is taxed (which implies that only at the end thereof can the tax rate be assessed, as well as the bracket in which the taxpayer falls), in the case (autonomous taxation) each expense carried out is taxed, considered in itself, and subject to a certain rate, autonomous taxation being assessed independently of the IRC owed in each tax year, because it is not directly related to obtaining a positive result, and therefore, capable of being taxed" (underlined by us).[19]

6.9. On the other hand, not only has arbitral jurisprudence decided that autonomous taxation belongs, as a rule, systematically, to IRC (and not to VAT, to IRS, or to any other tax in the Portuguese tax system), but also the superior Courts have understood that "autonomous taxation, although formally incorporated in the IRC Code, has always had its own treatment, since it does not apply to income, whose formation is taking place throughout the year, but rather to certain miscellaneous expenses that represent autonomous taxable facts subject to different rates from those of IRC (…)".[20] [21]

6.10. In these terms, "although it is a form of taxation provided for in the IRC Code, it has nothing to do with the taxation of income, but rather with the taxation of certain expenses, which the legislator understood, for the reasons pointed out above, to do so autonomously" (underlined by us).[22]

6.11. And, in this sense, the vast majority of Doctrine does not deviate from the understanding of the superior courts.[23]

6.12. Thus, "it does not appear (…) questionable that the mechanism of autonomous taxation of the set of realities provided for in Article 88 of the IRC Code aims, primarily, to safeguard the general equilibria of the tax system itself, the specific equilibria of IRC and the revenue of the tax itself", that is "aims to prevent that through the significant assertion of expenses such as those provided for in Article 88, distortions affecting the system and expectations about what should be the normal revenue of the tax are not introduced" (underlined by us).[24]

6.13. In these terms, it is a question of "(…) discouraging the realization/assertion of these expenses, particularly because, by their nature and purposes, they can be more easily subject to diversion toward consumption that, in essence, is private or correspond to expenses that do not cease to have, also, a specific and ultimate purpose (…)", avoiding taxation, "realities that (…) present some degree of censurability as they, without directly violating the law, generate sensible and important imbalances on the general idea of justice, on the fundamental duty to contribute in proportion to one's assets, on equality, on sacrifice, on the proportionality of the tax measure in light of possible manifestations of wealth, on the taxation of real income and on justice".

6.14. Thus, "functioning differently from what constitutes the essential scope of IRC (…), autonomous taxation (…) constitutes an instrumental, accessory reality of that tax, to the extent that it is in function of it that they were instituted and are, therefore, capable of being recognized an instrumentality or accessoriality of purposes, rooted in the safeguarding of the purposes of the tax itself in which they manifest", whereby it should be concluded that "autonomous taxation, which applies to deductible expenses in IRC, is part of the regime and is owed by way of this tax, the payment of these taxes not constituting charges deductible for the purpose of determining taxable profit" (underlined by us).[24][25]

6.15. In this connection, the vast majority of jurisprudence (namely that cited by the Claimant) admits that the tax calculated through the application of autonomous taxation rates provided for in the IRC Code is also a tax on the income of legal entities, i.e., the tax on the income of legal entities includes autonomous taxation and, if there were doubts, the current wording of Article 23-A of the IRC Code would dispel them.

6.16. Indeed, according to arbitral decision no. 673/2015-T, of 28 April 2016, "(…) it is today well-established, following numerous arbitral jurisprudence and the positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in the IRC Code has the nature of IRC", and that "(…) beyond the unanimity of jurisprudence, Article 23-A, subsection 1, paragraph a), of the IRC Code, in the wording of Law no. 2/2014, of 16 January, leaves today no room for any reasonable doubt, corroborating what previously already resulted from the literal content of Article 12 of the same Code".

6.17. Proceeding with the content of that decision, it is stated that "(…) the fact that an IRC self-assessment, made under subsection 1 of Article 90, may contain several partial calculations based on various rates applicable to certain taxable incomes, does not mean that there is more than one assessment, as results from the very terms of that norm by referring to assessment, in the singular, in all cases in which it is made by the taxpayer in the returns referred to in Articles 120 and 122, based on the taxable income contained therein (whether that determined on the basis of the rules of Articles 17 and following, or that determined on the basis of the various situations provided for in Article 88)" (underlined by us).[26]

On the Nature of Special Payment on Account

6.18. The special payment on account (PEC) was introduced into the IRC Code by Decree-Law no. 198/2001, of 3 July, pursuant to which Article 98 of that Code came to provide that "without prejudice to the provision in paragraph a) of subsection 1 of Article 96, the taxpayers mentioned therein, except those covered by the simplified regime provided for in Article 53, 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 tax period not coincident with the calendar year, in the 3rd and 10th month of the respective tax period".

6.19. Further according to the article referred to in the previous point, in its original wording, "the amount of the special payment on account [was] equal to the difference between the value corresponding to 1% of the respective business volume, with a minimum limit of 100,000$00 (€ 498.80) and a maximum of 300,000$00 (€ 1,496.39), and the amount of payments on account made in the previous year", and for this purpose, "(…) the business volume is determined on the basis of the value of sales and or services rendered, realized until the end of the previous tax year, and may be corrected in the following year if it is found that it was different from what served as the basis for its calculation".[27]

6.20. Combining the above with the provisions of Article 96, subsection 1 and 2 of the IRC Code, it appears that "(…) the special payment on account constitutes no new form of assessing the taxation of companies, alongside those already existing, but only a form of advance collection of revenues on account of a taxation, to operate in the future, on the basis of the rules applicable to each case of taxation provided for in the same Code, with the exception of taxpayers covered by the simplified regime (…), constituting such form of collection of taxes merely an advance of its payment, alongside the also existing payment on account, provided for in Article 96 of the same Code, all of them being forms of payment on account of the tax that at the end of the tax period is finally owed (…)".[28]

6.21. Thus, the PEC is assumed as an advance delivery on account of a fact that is in formation, that is, it presupposes a unique obligation taxable fact as opposed to periodic taxable facts, having been created with the purpose of ensuring a minimum tax collection.

6.22. The incidence of PEC is based on the business volume relating to the previous tax period and the payments that are shown to be owed should be made during the period of formation of the taxable fact.[29][30]

6.23. However, the PEC could and can function as a minimum tax base in those cases where a given company had no activity in the previous tax year (or its respective business volume was less than 1% of the value fixed as minimum), taking into account that the taxpayer is always obliged to make this first delivery, by the minimum amount, and this should be one of the cases in which such norms should merit an interpretation in accordance with the Constitution.[31] [32]

6.24. Like autonomous taxation, PEC functions as a presumption of income and as a form of combating tax evasion, obliging some companies to pay at least some tax, being also used as a "mechanism of fiscal anesthesia", reducing the period of time between the taxable fact and the payment of tax.[33]

6.25. Comparing the PEC regime with the autonomous taxation regime, although the latter has as its basis the taxation of presumed income, it differs from the PEC regime, in that the payment of autonomous taxation is final and is not subject to subsequent adjustments.

6.26. On the other hand, notwithstanding the PEC regime presenting many specificities, we consider it important to point out, in the context of the case under analysis, that the amount borne can be deducted from the tax base, making it much less burdensome for companies than autonomous taxation.

6.27. Finally, it should be further noted that companies can, in certain circumstances, obtain a refund of the PEC borne, if they are unable to deduct the full amount from the IRC tax base of each of the tax years in which this is legally permitted, thus functioning as a way to defeat the presumption of income resulting from this institution.

6.28. Thus, having carried out the preliminary analysis of the nature of autonomous taxation and PEC, it now becomes necessary to ascertain whether it is legally admissible the deductibility, in the tax years 2012 and 2013, from the amounts owed by way of autonomous taxation, of the amounts delivered by way of special payments on account, as stated in point 6.1.1., above.

6.29. In these terms, to solve the case sub judice it will be necessary to ascertain which regime applies to IRC calculated through autonomous taxation rates.

6.30. In fact, this matter has already been analyzed and stated in courts clearly taking into account that the discipline of the tax calculated through autonomous taxation rates is that which governs IRC in general, except in situations where its application conflicts with the discipline that is specified for "autonomous taxation".

6.31. In this decision, the structure of argumentation of arbitral decision no. 673/2015, of 28 April 2016, will be followed very closely, with which we agree, whereby we will begin by analyzing the question of the application of Article 90 of the IRC Code to autonomous taxation.

Question of the Application of Article 90 of the IRC Code to Autonomous Taxation

6.32. Article 89 of the IRC Code, in the wording given by Law no. 3-B/2010, of 28 April, provides regarding assessment authority that it is made:

"a) By the taxpayer himself, in the returns referred to in Articles 120 and 122" (that is, self-assessment);

"b) By the Directorate-General of Taxes, in the remaining cases".

6.33. On the other hand, Article 90, subsection 1, paragraph a) of the IRC Code (in the wording given by the same Law no. 3-B/2010), provides that "when the assessment is to be made by the taxpayer in the returns referred to in Articles 120 and 122, it is based on the taxable income contained therein" (underlined by us).

6.34. According to subsection 2 of Article 90 mentioned in the previous point, "the following deductions are made to the amount determined under the previous subsection, in the order indicated:

a) That corresponding to international double taxation;

b) That relating to tax benefits;

c) That relating to the special payment on account referred to in Article 106;

d) That relating to withholdings at source not capable of compensation or refund in accordance with applicable legislation" (underlined by us).

6.35. Further according to the same article, according to its subsection 4, "the deduction relating to withholdings at source is to be made only when these have the nature of a tax on account of IRC to the amount determined under subsection 1, with respect to the entities mentioned in subsection 4 of Article 120", and pursuant to subsection 7, "from the deductions made under paragraphs a), b) and c) of subsection 2 no negative value can result" (underlined by us).

6.36. Finally, it should be noted that according to subsection 10 of Article 90 already identified, "the assessment provided for in subsection 1 may be corrected, if appropriate, within the deadline referred to in Article 101, then covering or canceling the differences determined" [here the additional assessment is identified (underlined by us)].

6.37. Now, if Article 90 of the IRC Code refers to the forms of IRC assessment, by the taxpayer or by the Tax Administration, applying to the determination of tax owed in all situations provided for in the Code, including additional assessment (subsection 10 of that article), the said Article 90 shall also apply to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, following the filing or not of returns, there being no other provision that provides for different terms for its assessment.

6.38. 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 IRC Code for IRC based on taxable profit and in Article 88 of the IRC Code for tax based on the taxable matter of autonomous taxation and the respective rates.

6.39. Thus, it is clear that Articles 89 and 90 of the IRC Code, as well as other provisions of this Code, such as those relating to the returns provided for in Articles 120 and 122, are applicable to autonomous taxation, since it is the unity of the self-assessment that the taxpayer or the Tax and Customs Authority must make, pursuant to Articles 89, paragraph a), 90, subsection 1, paragraphs a), b) and c), and 120 or 122, and it is on its basis that global IRC is calculated, whatever the taxable matters relating to each of the types of taxation underlying it.

6.40. In this matter, it should be noted that the Respondent also argues that "(…) the assessment of autonomous taxation is made (…) applying different rules for the calculation of tax (…)", but understands that from the procedure adopted "in one case the assessment operates through the application of the rates of Article 87 to the taxable income (…) and (…) in the other case, various tax bases are determined according to the diversity of facts that originate autonomous taxation", "whence it results that the amount determined under paragraph a) of subsection 1 of Article 90 does not have a unitary character (…)", a position contrary to what was understood above.

6.41. On the other hand, still in this connection, the recent addition of subsection 21 to Article 88 of the IRC Code (added as already mentioned by Law no. 7-A/2016, of 30 March) which, regardless of whether it is or is not a truly interpretative norm, in no way alters the conclusion reached in point 6.39., above, since it is established therein, with respect to the form of assessment of autonomous taxation, that this "is made in accordance with the terms provided for in Article 89 and is based on the values and rates resulting from the provisions of the previous subsections".

6.42. Now, 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 of the IRC Code) and that the authority lies with the taxpayer or the Tax Administration (pursuant to Article 89 of the same Code), it is also clear that it does not eliminate the need to use the procedure provided for in subsection 1 of Article 90 of the IRC Code, which seems to be unquestionable that it will encompass the possibility of assessing based on autonomous taxation, if the Tax and Customs Authority has elements that prove its assumptions.

6.43. Therefore, both before and after the entry into force of the addition resulting from Law no. 7-A/2016, of 30 March, Article 90, subsection 1, of the IRC Code was, and continues to be, applicable to the assessment of autonomous taxation.

Question of the Deductibility of Amounts Owed by Way of Autonomous Taxation of Amounts Paid by Way of Special Payments on Account

6.44. The Respondent understands that special payments on account are not deductible from the autonomous taxation tax base since these do not form part of the total IRC tax base.[34]

6.45. In this connection, the Respondent further states, in Article 39 of the Response that "(…) the amount determined under paragraph a) of subsection 1 of Article 90 does not have a unitary character, as it includes values calculated according to different rules, to which are associated also differentiated purposes, whereby the deductions provided for in the paragraphs of subsection 2 can only be made to the part of the IRC tax base with which there exists a direct correspondence, in order to maintain the coherence of the conceptual structure of the general rule-regime of the tax".

6.46. However, this position has no consistent basis, nor does the Respondent indicate any legal provision that would furnish it with the minimum verbal correspondence necessary for the admissibility of an interpretation.

6.47. On the other hand, before the addition of the new subsection 21 of Article 88 of the IRC Code, there was no legal provision that established the form of assessment of autonomous taxation, whereby, under penalty of unconstitutionality due to violation of Article 103, subsection 3, of the Constitution of the Portuguese Republic - CRP (resulting from lack of legal provision for assessment procedure), autonomous taxation would have to be understood to be assessed in accordance with the provision of subsection 1 of Article 90.

6.48. In these terms, before that addition, the deductions provided for in subsection 2 of Article 90 of the IRC Code (which target the amount resulting from such determination), applied to that single amount resulting from such determination, whenever one was not facing one of the situations specially provided for in subsections 4 and following of the same article (which have no application in the case under analysis in the proceedings).

6.49. Indeed, the deduction of special payments on account from the full amount determined under Article 90, subsection 1, paragraph a), also resulted from the explicit content of Article 93, subsection 1, of the IRC Code (in the wording prior to Law no. 2/2014, of 16 January), by establishing that "the deduction referred to in paragraph c) of subsection 2 of Article 90 is made to the amount determined in the return referred to in Article 120 of the respective tax period or, if insufficient, up to the fourth following tax period, after the deductions referred to in paragraphs a) and b) of subsection 2 have been made and in accordance with subsection 7, both of Article 90"[35]

6.50. Thus, the amount determined in the return referred to in Article 120 of the IRC Code includes the amounts relating to autonomous taxation, there being no other specific return for this purpose (neither before nor after Law no. 7-A/2016).[36]

6.51. Thus, in light of the provision in paragraph c) of subsection 2 of Article 90 and subsection 1 of Article 93 of the IRC Code (until the entry into force of Law no. 7-A/2016), nothing in the literal content of that code opposed the deduction of the amounts of special payments on account from the total IRC tax base (determined under that subsection 1 of Article 90), including that derived from autonomous taxation, within the conditionality provided for therein.

6.52. On the other hand, given that the special payment on account has the nature of forced loan, which creates in the legal sphere of the taxpayer a credit against the Tax Administration, it does not appear unreasonable that it be taken into account in situations in which a credit of the latter is generated in relation to the taxpayer.[37]

6.53. Additionally, autonomous taxation in the context of IRC, given the growing scope that the legislator has been giving to them, to be compatible with the constitutional principle of taxation of companies fundamentally affecting their real income (Article 104, subsection 2, of the CRP), must be understood as indirect forms of taxing business income, through the taxation of certain expenses [as inherent in paragraph a), subsection 1, of Article 23-A of the IRC Code, in the wording of Law no. 2/2014, of 16 January], by referring to "IRC, including autonomous taxation, and any other taxes that directly or indirectly apply to profits".

6.54. In any event, as stated in the arbitral decision issued in the context of proceedings no. 59/2014-T, autonomous taxation in IRC should be considered a form of taxation of business income, since "the Explanatory Memorandum attached to Bill no. 46/VIII, which gave rise to Law no. 30-G/2000, of 29 December, which greatly expanded the situations of autonomous taxation, leaves no doubt that this is a conscious and intended amplification (…), as it was understood that they were necessary, in short, to compensate for other distortions resulting from significant tax fraud and evasion and, thus, to increase the equity of the distribution of the tax burden among citizens and companies".

6.55. And it proceeds in the aforementioned arbitral decision by noting that "(...) autonomous taxation directly applying to certain expenses, within the scope of taxes that originally applied only to income, are considered distortions of the direct taxation of income system that was intended with IRC, but a value that the legislator considered to be more relevant than the theoretical coherence of taxes, such as the implementation of fiscal justice, imposed a choice for these forms of taxation, as they are in accordance with the principles of equity, efficiency and simplicity". "(...) but this indirect taxation is not ceased to be carried out within the scope of IRC, as results from the inclusion of autonomous taxation in the respective Code, which has as a corollary the application of the general norms proper to this tax, which do not conflict with its special form of incidence" (underlined by us).[38]

6.56. In fact, the imposition of any expense without consideration to a legal entity has as a corollary a potential decrease in its income, whereby the imposition of a unilateral tax obligation, even if calculated on the basis of expenses incurred, constitutes a form of indirectly taxing its income.[39]

6.57. In this connection, Article 23-A of the IRC Code (introduced by Law no. 2/2014, of 16 January, by saying that, in particular, "the following expenses are not deductible for the purpose of determining taxable profit, even when recorded as expenses of the tax period, IRC, including autonomous taxation, and any other taxes that directly or indirectly apply to profits", allows one to equate that, from the legislative perspective, IRC and autonomous taxation are taxes that directly or indirectly apply to profits, since it is this understanding that can justify the inclusion of the expression any other taxes, which presupposes that IRC and autonomous taxation are also taxes of these types.

6.58. Therefore, since autonomous taxation provided for in the IRC Code are, ultimately, forms of taxing business income, it is not clear that there is necessarily an incompatibility between them and the general rules that provide for the form of making IRC payments.

6.59. On the other hand, if it is true that, in light of the regime in force before Law no. 2/2014, of 16 January, amended subsection 3 of Article 93 of the IRC Code, the amounts paid as special payment on account could not always be deducted, it is also true that this regime was altered by the Law above identified, the refund being admitted without conditions other than that the taxpayer request it, within the prescribed deadline.[40]

6.60. Therefore, if on the one hand we understand that the interpretation that flows more linearly from the text of Articles 93, subsection 3, and 90, subsection 1, of the IRC Code (in the wording prior to that given by Law no. 2/2014) is that of deductibility of special payments on account from the IRC tax base derived from autonomous taxation, on the other hand, and in a more restrictive interpretation, it is no less true that, in light of the previous refund regime for special payments on account (which revealed that the special payment on account had inherent a presumption of unreported income), one could venture in the sense that PEC would not be deductible from the autonomous taxation tax base.[41]

6.61. To resolve this duality of interpretation, the new subsection 21 of Article 88 of the IRC Code (added as already mentioned by Law no. 7-A/2016, of 30 March), aligns with the arbitral understanding of the decision issued in the context of proceedings no. 113/2015 (already cited in the footnote referred to in the previous point), as it expressly provides that to the amount determined for autonomous taxation no deductions are made.

6.62. On the other hand, Article 135 of the same Law no. 7-A/2016, by attributing an interpretative nature to that new subsection 21 of Article 88 of the IRC Code, combined with the provision of Article 13 of the Civil Code (which is the only norm that defines the concept of interpretative law), has inherent a legislative intention to apply the new regime to previous situations in which there are no effects already produced by compliance with the obligation, by judgment having become res judicata, by settlement, even if not homologated, or by acts of analogous nature.[42]

6.63. Thus, in light of this position, whose reasoning is considerable, in light of the legislation in force in 2012 and 2013, one can accept the attribution of interpretative nature to subsection 21 of Article 88 of the IRC Code made in Article 135 of Law no. 7-A/2016, of 30 March, in light of the teachings of Baptista Machado (set forth in the footnote to the previous point), since the solution provided therein of the lack of viability of deduction of special payment on account from the global amount of autonomous taxation passes in the two premises stated by said author, that is:

6.63.1. The solution that resulted from the literal content of Article 93, subsection 1, of the IRC Code was controversial (as evidenced by arbitral decision no. 113/2015, already mentioned) and the solution defined by the new law is situated within the frameworks of the controversy;

6.63.2. The judge or the interpreter could reach that solution without exceeding the limits normally imposed on the interpretation and application of law, since restrictive interpretation is admissible, when there are reasons to conclude that the scope of the legal text betrays the legislator's thought, or it is necessary to optimize the harmonization of conflicting interests that two norms seek to protect.

6.64. On the other hand, and still with respect to the deductibility of special payments on account, there is no concern in this regard for the protection of legitimate expectations, since special payments, being connected with business volume, do not depend on any specific behavior that the taxpayer would be led to adopt by being created the expectation of obtaining as consideration a tax advantage.

6.65. Beyond the above, it is not understood that the regime resulting from Article 88, subsection 21, of the IRC Code encompasses any contradiction (contrary to what the Claimant argues) since, according to this new norm, the provisions of the IRC Code relating to the form of assessment of autonomous taxation should be interpreted as provided therein and, as regards that part of the IRC assessment, no deductions are made.

6.66. Indeed, it was precisely with this meaning that the Model 22 form of IRC return was elaborated and it was by applying the regime now explicit in subsection 21 of Article 88 of the IRC Code that the Claimant filled out the returns mentioned in the proceedings, without any perceptible contradiction.[43]

6.67. But, in this case, and as the Claimant argues in its arguments, an obstacle to the application of the regime resulting from subsection 21 of Article 88 of the IRC Code (as a result of the interpretative nature attributed by Article 135 of the State Budget Law for 2016), would only be its eventual unconstitutionality, in particular, taking into account the rule of prohibition of retroactive taxes, as provided for in subsection 3 of Article 103 of the CRP, according to which it is established 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 made in accordance with the law" (underlined by us).

6.68. Now, it should be noted that, in this connection, the Constitutional Court has adopted a restrictive interpretation of the scope of this prohibition of retroactive taxes, understanding that "the legislator (…) which introduced the current wording of Article 103, subsection 3, only intended to establish the prohibition of authentic retroactivity (…) of tax law, encompassing 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 of 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".[44]

6.69. Indeed, the norms providing for special payments on account were not, in principle, norms of IRC incidence, but rather norms on its assessment and payment, whereby, to that extent, they will not be covered by the constitutional prohibition of retroactivity.

6.70. However, before the wording given to subsection 3 of Article 93 of the IRC Code, by Law no. 2/2014, of 16 January, in the lack of viability of deduction of special payments on account in the period to which it relates and in subsequent periods, those norms could end up conducting to create a situation of IRC incidence, autonomous in relation to any other taxable fact, if the refund were not to be allowed in accordance with that article (depending on the fulfillment of conditions).[45]

6.71. However, with the wording given to said subsection 3 of Article 93 by the above Law, conditions ceased to be required, whereby special payments on account only imply, by themselves, the final payment of tax when the taxpayer does not take steps to obtain refund, within the prescribed deadline and, even in this case, one is facing a complex taxable fact of successive formation (which is constituted by the business volume in the year to which the special payments on account relate combined with the lack of viability of deduction in the periods provided by law and the non-refund in accordance with the provisions of Article 93, subsection 3, of the IRC Code).

6.72. Thus, given this regime, the legal situation created with the special payments on account made in the years 2012 and 2013 has not yet stabilized, which, in the first place, rules out the violation of the prohibition of retroactivity of tax laws (from the perspective above stated by the Constitutional Court), since the taxable fact that the new law intends to regulate has not occurred in full nor produced all its effects under the old law.

6.73. In fact, and as understood in arbitral decision no. 673/2015 (whose understanding has been adopted throughout this decision), "a case in which the taxable fact that the new law intends to regulate has already produced all its effects under the old law and another case in which the taxable fact occurred under the old law, but its effects, in particular those relating to assessment and payment, have not yet been fully exhausted will not necessarily have the same constitutional significance, as the first situation is, from the point of view of any possible impairment of the taxpayer's legal situation, more serious than the second" (underlined by us).[46]

6.74. In these terms, it must be concluded that the interpretation made in Article 88, subsection 21, of the IRC Code (in the part in which it conduces to the non-deductibility of special payments on account in autonomous taxation), does not offend the principle of non-retroactivity in the creation of taxes (understood as reporting only to authentic retroactivity, which relates to taxable facts that were completed and produced all their effects in the past).

6.75. However, that rule of irretroactivity of norms creating taxes does not exhaust the constitutional concerns of legal certainty, imposed by the principle of the democratic rule of law, as taught by Casalta Nabais (in "Direito Fiscal", 7th edition, page 151), arguing that "the principle of legal certainty, inherent in the idea of the democratic rule of law, is far from having been totally absorbed by this new constitutional provision", and it is certain that "(…) it ceased to serve as a balance in the weighing of legal assets in question when we are facing a tax affected by authentic or proper retroactivity (…)".

6.76. But, according to the author, "the principle in question (…) also serves as a criterion for weighing in situations of improper, inauthentic or false retroactivity, as well as in situations in which, with no proper or improper retroactivity occurring, it is necessary to protect the confidence of taxpayers placed in the action of State bodies".

6.77. Now, in the specific case of special payments on account, it cannot be concluded that one is not facing a truly interpretative law (since there was no consolidated jurisprudence in the sense of their deductibility from the tax base resulting from autonomous taxation) and, on the contrary, the solution adopted in subsection 21 of Article 88 could have been already previously adopted by the courts, as it was by the Arbitral Tribunal that issued the decision in proceedings no. 113/2015-T, of 31 December 2015.

6.78. Thus, it cannot be concluded that the authentic interpretation made in that Article 88, subsection 21 (by virtue of the provision of Article 135 of Law no. 7-A/2016, of 30 March), is violative of the constitutional principle of legal certainty, with respect to the part of that norm that relates to the non-deductibility of special payments on account from the autonomous taxation tax base.

6.79. In conclusion, in light of all the above, we understand that:

6.79.1. Article 90 of the IRC Code refers to the forms of IRC assessment, applying to the determination of tax owed in all situations provided for in that Code, including the assessment of the amount of autonomous taxation, whereby the subsidiary request formulated by the Claimant is unfounded [for annulment of self-assessments relating to the tax years 2012 and 2013, in the portion corresponding to autonomous taxation, due to absence of legal basis for their implementation] (point 6.1.2., above).

6.79.2. The request for arbitral pronouncement regarding the illegality of self-assessments for the tax years 2012 and 2013, as well as regarding the illegality of the tacit rejection of the administrative complaint identified, is unfounded, with the answer to be given to the question stated in point 6.1.1, above, being negative.

On the Refund of Tax Paid with Statutory Interest

6.80. In these terms, having regard to the conclusion presented in the previous point (6.79.), as the request for arbitral pronouncement is considered unfounded, there will be no place for refund of tax paid nor will there, in consequence, be place for the payment of statutory interest on that amount.

On Responsibility for Payment of Arbitral Fees

6.81. In accordance with the provision of Article 22, subsection 4, of RJAT, "in the arbitral decision issued by the arbitral tribunal appears the setting of the amount and the apportionment among the parties of the fees directly resulting from the arbitral proceedings".

6.82. Thus, pursuant to the provision of Article 527, subsection 1 of CPC (ex vi 29, subsection 1, paragraph e) of RJAT), it should be established that the Party that has caused them will be condemned to pay fees or, if there is no judgment of the action, whoever obtained an advantage from the proceedings.

6.83. In this connection, subsection 2 of the said article specifies the expression "caused them", according to the principle of failure in the action, understanding that the party that loses the case causes fees to the extent that it loses.

6.84. In the case under analysis, having regard to the above, the principle of proportionality imposes that exclusive responsibility for fees be attributed to the Claimant, in accordance with the provision of Article 12, subsection 2 of RJAT and Article 4, subsection 4 of the Regulation of Fees in Tax Arbitration Proceedings.

1. DECISION

7.1. Having regard to the analysis conducted in the previous Chapter, this Arbitral Tribunal decided:

7.1.1. To judge the request for arbitral pronouncement as unfounded, both with respect to the request for declaration of illegality of IRC assessments, relating to the tax years 2012 and 2013, due to non-deduction of special payments on account from the amounts of autonomous taxation, and regarding the request for annulment of the act of tacit rejection that fell on the administrative complaint timely filed, relating to those IRC assessments, and regarding the subsidiary request and, consequently, to absolve the Respondent of all those requests;

7.1.2. To judge as unfounded the request for refund of IRC paid with respect to the tax assessments that are maintained in the legal order, as well as to judge as unfounded the request for payment of statutory interest, absolving the Respondent of those requests;

7.1.3. To condemn the Claimant to payment of the fees of the present proceedings.

Value of the Proceedings: Having regard to the provision of Articles 306, subsection 2 of CPC, Article 97-A, subsection 1 of CPPT and Article 3, subsection 2 of the Regulation of Fees in Tax Arbitration Proceedings, the value of the proceedings is set at EUR 21,227.75.

Fees of the Proceedings: Pursuant to the provision of Schedule I of the Regulation of Fees of Tax Arbitration Proceedings, the value of the Fees of the Arbitral Proceedings is set at EUR 1,224.00, to be borne by the Claimant, in accordance with Article 22, subsection 4 of RJAT.

Notification to be made.

Lisbon, 28 June 2016

The Arbitrator,

Sílvia Oliveira