Process: 774/2015-T

Date: November 2, 2016

Tax Type: IRC

Source: Original CAAD Decision

Summary

In Process 774/2015-T, the taxpayer challenged the tacit dismissal of a gracious complaint regarding the IRC self-assessment for fiscal year 2012, seeking to deduct the special payment on account (pagamento especial por conta - PEC) from autonomous taxation collection. The dispute centered on whether accumulated PEC amounts totaling €7,671.14 could be offset against IRC autonomous taxation of €15,274.93. The claimant argued that the Tax Authority's computer system erroneously prevented this deduction when filing Model 22, creating an excess tax payment. The legal controversy revolved around interpreting Articles 45 and 90 of the IRC Code: if autonomous taxation constitutes IRC for collection purposes under Article 45, the claimant contended it should equally qualify as IRC collection under Article 90's PEC offset provisions. The case highlights a systemic issue where administrative technology limitations conflicted with taxpayers' substantive rights. Arbitral jurisprudence had consistently recognized autonomous taxation as genuine IRC, supporting the claimant's position that no legal provision explicitly excludes PEC deduction from autonomous taxation collection. The arbitration process followed RJAT procedures (Decree-Law 10/2011), with the tribunal constituted on March 2, 2016. The case exemplifies how corporate taxpayers can challenge self-assessment irregularities through CAAD arbitration when gracious complaints fail, addressing fundamental questions about the interaction between advance payment mechanisms and autonomous taxation within Portuguese corporate tax law.

Full Decision

ARBITRAL DECISION

REPORT

  1. On 22 December 2015, A…, Lda, with registered office at Rua do…, no. …, …, …-… …, Tax ID Number…, hereinafter referred to as the Claimant, requested the constitution of an arbitral tribunal and submitted an application for arbitral ruling, in accordance with subparagraph a) of paragraph 1 of Article 2 and subparagraph a) of paragraph 1 of Article 10 of Decree-Law No. 10/2011 of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to simply as LRAT), in which the Tax and Customs Authority (hereinafter referred to as TCA) is the Respondent.

  2. The Claimant is represented in these proceedings by her representative, Dr. B…, and the Respondent is represented by the legal counsels, Dr. C… and Dr. D….

  3. The application for the constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Respondent on 4 January 2016.

  4. Through the application for the constitution of the arbitral tribunal and arbitral ruling, the Claimant seeks to submit for the Tribunal's consideration, on the one hand, the legality of the (tacit) dismissal of the gracious complaint presented, and consequently, the self-assessed corporate income tax (CIT) deed relative to the fiscal year 2012, corresponding to the non-deduction from the CIT collection produced by autonomous taxation rates of the special payment on account made under CIT, in the amount of € 7,671.14 (seven thousand six hundred and seventy-one euros and fourteen cents), or, in the alternative, in the amount of € 15,274.93 (fifteen thousand, two hundred and seventy-four euros and ninety-three cents), to the extent that this amount reflects undue autonomous taxation.

  5. Once the formal regularity of the application presented was verified, in accordance with subparagraph a) of paragraph 2 of Article 6 of the LRAT, and given that the Claimant did not proceed with the appointment of an arbitrator, the undersigned was designated by the President of the Deontological Board of CAAD.

  6. The undersigned accepted the designation made, and the arbitral tribunal was constituted on 2 March 2016, at the headquarters of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as certified in the minutes of the constitution of the arbitral tribunal which was drawn up and is attached to these proceedings.

  7. The Respondent, once notified to that effect, submitted its reply on 11 April 2016.

  8. As no exceptions were raised, there being no need for the production of additional evidence beyond that which is already incorporated in the case file, and given that there was no need for the parties to correct their respective pleadings, with the process containing all the necessary elements for the rendering of the decision, and for reasons of procedural economy and expedition, the prohibition on the performance of futile acts, and in light of the (tacit) position manifested by the parties, notified to that effect, the Tribunal, through the order it issued on 31 August 2016, deemed it appropriate to dispense with the holding of the meeting referred to in Article 18 of the LRAT, the examination of witnesses, as well as the presentation of arguments.

  9. In that same order, the Tribunal, in compliance with paragraph 2 of Article 21 of the LRAT, extended the deadline for decision by a period of two months, and in accordance with paragraph 2 of Article 18 of the same statute, set 2 November 2016 as the date for rendering the arbitral decision, and further warned the Claimant that it should proceed with the payment of the subsequent arbitration fee, in accordance with paragraph 3 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, and communicate the same payment to CAAD.

  10. Notwithstanding what was decided regarding the waiver of the presentation of final arguments, the latter were nonetheless presented by the parties, with the Claimant presenting hers on 28 September 2016, and the Respondent on 17 October 2016.

The Claimant supports its claim in summary as follows:

The Claimant supports the request for a declaration of the illegality of the dismissal of the gracious complaint, and consequently, a declaration of the illegality of the self-assessed CIT relative to fiscal year 2012, in the amount of € 7,671.14 (seven thousand, six hundred and seventy-one euros and fourteen cents), or, in the alternative, in the amount of € 15,274.93 (fifteen thousand, two hundred and seventy-four euros and ninety-three cents), on the following grounds:

a) The Claimant begins its exposition by mentioning that, on 29.05.2013, it filed "the Model 22 CIT declaration relative to fiscal year 2012, having calculated an amount of autonomous taxation in CIT of € 15,274.93." Further asserting that "in the declaration relative to fiscal year 2012 an amount to be paid was calculated (…)" which is "reduced by withholdings suffered, to which reimbursement [the Claimant] was entitled. However, what is at issue here is that to the tax resulting from the application of autonomous taxation rates in CIT, the TCA's computer system reveals anomalies embodied in marking divergences ("errors") that prevent the claimant from entering the amount relating to said autonomous taxation rates in CIT, purged, i.e., deducted, within the limits of the CIT collection resulting from the application of these rates, of the amounts of accumulated special payments on account, which resulted in an excess of tax paid by reference to the fiscal year 2012."

b) Furthermore, the Claimant states that "in the context of special payments on account (SPA) there remains an accumulated amount to be deducted from the CIT collection that amounts in 2012 to € 7,671.14", understanding that "it has SPAs capable of being deducted from the collection of autonomous taxation in CIT for fiscal year 2012, this collection which (…) amounted to € 15,274.93."

c) The Claimant reinforces its thesis by stating that "the TCA's computer system, through which CIT is self-assessed, does not permit taxpayers to deduct, for the purposes of determining the CIT owed by them, the special payment on account from the CIT resulting from autonomous taxation rates calculated. That system does not therefore permit deducting a portion of advanced payments made on account of CIT that should be owed finally – the SPAs – from a portion of the CIT finally actually calculated – the autonomous taxation."

d) Continuing its position, asserting that "the question that is sought to be clarified is: does or does not [the Claimant] have the right to proceed with the deduction, also from the CIT collection produced by the application of autonomous taxation rates of the said special payments on account?" Especially because and "in view of the overwhelming arbitral jurisprudence that today qualifies autonomous taxation as CIT, the claimant sees nothing whatsoever in the law that excludes the offset of special payments on account, also from the CIT collection produced by autonomous taxation." Indeed, "in the year of presentation of the Model 22 declaration at issue here the TCA's computer system did not think that way yet. And in the context of the gracious complaint, the TCA chose to cause the tacit dismissal of what was requested, thus sanctioning what results from its computer system, and thereby contradicting its own prior opinion on this matter."

e) The Claimant also considers that "just as jurisprudence has understood, in an almost unanimous manner, that the CIT collection provided for in (in force until 2013) Article 45, paragraph 1 subparagraph a) of the CIT Code comprises, without need for any additional specification, the collection of autonomous taxation in CIT, so too must it be understood that the CIT collection provided for in the same code a few meters further on (Article 90, paragraph 1 and paragraph 2 subparagraph c) of the CIT Code, in the version in force in 2013 also encompasses the collection of autonomous taxation in CIT."

f) The Claimant continues its thesis in the sense that "hence the denial of the deduction of the SPA from the CIT collection of autonomous taxation violates subparagraph c) of paragraph 2 of Article 90 of the CIT Code (prior to 2010, Article 83, and since 2014, became subparagraph d) of the said paragraph 2 of Article 90 of the CIT Code)."

g) The Claimant concludes its exposition, making several considerations and conclusions supporting its thesis, and citing, additionally, arbitral decisions that it considers capable of supporting its position regarding the fact that both the tacit dismissal of the gracious complaint and the self-assessed CIT (including its autonomous taxation rates) at issue here relative to fiscal year 2012, suffer from the defect of violation of law, considering that the deduction of the special payment on account should not be barred from the portion of CIT collection corresponding to the rate of autonomous taxation.

III. In its Reply the Respondent invoked, in summary, the following:

Against the Claimant's claim, the Respondent analyzes and characterizes, on the one hand, "the legal nature of autonomous taxation," articulating it with the general rules in CIT (and in PIT), and on the other, the legal nature of the special payment on account, to conclude that "the tax deeds challenged by the Claimant herein merit no censure and should remain valid in the legal order", arguing that the request filed by the Claimant should be "judged as not proven, and consequently, the Respondent absolved from all claims, with all due and legal consequences".

IV. Sanitation

The Tribunal is competent and is regularly constituted, in accordance with subparagraph a) of paragraph 1 of Article 2 and Articles 5 and 6, all of the LRAT.

The parties have legal personality and capacity, appear to be legitimate, are regularly represented, and the process does not suffer from any defects or nullities.

V. Factual Matters

For the conviction of the Arbitral Tribunal regarding the facts found to be proven, the positions presented by the parties, the documents, and the administrative proceedings attached to the case file were relevant.

a. Facts found to be proven

With interest for the decision, the following facts are found to be proven:

A. On 29 May 2013, the Claimant herein proceeded to present the Corporate Income Tax ("CIT") Model 22 declaration relative to fiscal year 2012, and at that time proceeded to self-assess autonomous taxation in CIT for that same year, in the amount of € 15,274.93 (fifteen thousand, two hundred and seventy-four euros and ninety-three cents). – See Document No. 1 attached with the initial petition and pages 21 et seq. of the administrative proceedings attached to the case file -;

B. With the CIT Model 22 declaration, relating to fiscal year 2012, a tax loss for tax purposes of € 148,800.49 was calculated and an amount to be paid of € 15,082.84, which has been paid, and which resulted in a collection of autonomous taxation in the amount of € 15,274.93, reduced by withholdings on amounts € 192.09. - See Agreement between the parties, Document No. 1 attached with the initial petition and pages 21 et seq. of the administrative proceedings attached to the case file -;

C. In the context of special payments on account, for fiscal year 2012, there is an accumulated amount that amounts to € 7,671.14. - See Document No. 1 attached with the initial petition -;

D. The Model 22 CIT declaration and its respective articulation with the TCA's computer system programming prevents deduction from the collection related to autonomous taxation rates in CIT, entered in field 365 of section 10 of the Model 22 declaration, of payments on account still to be deducted from the PIT collection. – See Agreement between the parties, Document No. 1 attached with the initial petition -;

E. On 27 May 2015, the Claimant herein presented a gracious complaint against said self-assessment relating to the year 2012, to which case No. …2015… – CIT - 2012 (…/2015) was assigned – See Document No. 2 attached with the initial petition pages 7 et seq., 114 of the administrative proceedings attached to the case file -;

F. On 29 September 2015, due to the lack of decision on the gracious complaint, its tacit dismissal was presumed, in accordance with paragraphs 1 and 5 of Article 57 of the General Tax Law – See Agreement between the parties -;

G. On 22 December 2015, the Claimant presented the application for the constitution of the arbitral tribunal that gave rise to the present proceedings, in light of the tacit dismissal of the gracious complaint indicated in E. above.

VI. Facts found to be not proven

There are no facts found to be not proven, because all facts relevant to the consideration of the claim were found to be proven.

VII. Legal Grounds

In the present proceedings, the fundamental question that arises is whether the Claimant has the right to proceed with the deduction, also from the CIT collection produced by the application of autonomous taxation rates, of the special payments on account borne by it in fiscal year 2012.

Now, as an introduction, this Tribunal understands that it should, from the outset, state that it reserves, in accordance with the jurisprudence of the Supreme Administrative Court (SAC) (See Decision of the Plenary of the 2nd Section of the SAC, of 07.06.1995, Appeal No. 5239) and Articles 607, paragraphs 2 and 3 of the Code of Civil Procedure (CCP) and Article 123, first part, of the Code of Tax Procedure and Process (CTPP), applicable to the tax arbitral process by virtue of Article 29 of the Legal Regime for Arbitration in Tax Matters (LRAT), the right to consider only the arguments formulated by the parties that it deems relevant for the consideration of the question at issue here, which it will do after having identified the parties and the object of the dispute, stated the questions to be decided, and after founding the decision by discriminating between the facts found to be proven and those not proven, furthermore, indicating, interpreting and applying the corresponding legal norms and, finally, presenting its final conclusion (decision).

Let us see,

Now, in a pragmatic manner, we can ascertain that the question that occupies us in the present proceedings is whether, as the Claimant claims, special payments on account can be deducted from the collection produced by autonomous taxation that burdens it in fiscal year 2012, or not.

However, for the correct resolution of the question at issue, this arbitral tribunal understands that it should begin its consideration by defining the concepts of autonomous taxation and special payments on account, both in the context of Corporate Income Tax, and then consider the affinity and relationship existing between these two figures.

Thus,

A. Autonomous Taxation

  1. The figure of autonomous taxation appeared, for the first time, in the Portuguese tax system, in Law No. 2/88 of 26 January (State Budget Law for 1988), providing a new version of Article 27 of Decree-Law No. 375/74, aiming at the application of a rate on confidential expenses.

  2. With the entry into force of the CIT Code, approved by Decree-Law No. 442/88 of 30 November, that legal provision was repealed, emerging, as if reborn, in Article 4 of Decree-Law No. 192/90 of 2 June, now providing, in a more specific manner, that "Confidential or undocumented expenses incurred in the course of commercial, industrial or agricultural activities by PIT taxpayers who possess or should possess organized accounts or by CIT taxpayers not covered by Articles 8 and 9 of the respective Code are taxed autonomously in PIT or CIT, as the case may be, at a rate of 10% without prejudice to the provisions of subparagraph h) of paragraph 1 of Article 41 of the CIT Code."

  3. In fact, this rebirth resulted from the legislative purpose of sanctioning the taxation of confidential or undocumented expenses incurred by companies, extending its scope of application to representation expenses and charges related to light passenger vehicles, through Law No. 3-B/2000 of 4 April.

  4. Now, the evolution of the regime for autonomous taxation has been felt over the years, not only as to the rates applied but also to its scope.

  5. However, and because that is what matters in the subject at issue in the present proceedings, it will always be relevant to note that the figure of autonomous taxation has as its primary objective the avoidance of practices of tax evasion and fraud, – through the aforementioned confidential or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of taxation of fringe benefits in the form of representation expenses or attribution of vehicles to employees and members of corporate bodies, in the sphere of the respective beneficiaries – , preventing the so-called "dividend washing" (paragraph 11 of Article 88 of the CIT Code) or to burden, by means of taxation, the payment of income considered excessive (paragraph 13 of the same legal norm). In other words, it has as its essential objective: to tax under CIT what cannot be taxed under PIT and to discourage the performance of certain expenses, which according to the legislator's understanding were aimed at reducing taxable income, consolidating a form of tax evasion.

  6. In fact, and in this framework, as Professor Saldanha Sanches well noted, the legislative intent of autonomous taxation was "that (as to undocumented expenses) to strongly penalize these expenses in order to avoid a range of behaviors that can range from the hidden distribution of profits to other undocumentable expenses such as bribes. And secondly, if they still take place nonetheless, to tax them at a rate higher than the combined rates of CIT plus PIT"; (cf. SALDANHA SANCHES, Manual de Direito Fiscal, 2nd Edition, Coimbra, p. 289).

  7. For his part, Professor Casalta Nabais, in his learned words, qualifies autonomous taxation as "true taxes on (certain) expenses carried out by companies. Having started by focusing on undocumented and confidential expenses and then on representation expenses with vehicles, they have meanwhile been extended to various expenses and, in CIT, to some income such as distributed profits and certain indemnities or compensations. Which leads to the recognition that in CIT we have autonomous taxation on certain income, on expenses that are not tax deductible costs and on expenses that are considered tax deductible costs." [cf. Manual de Direito Fiscal]

  8. In fact, it is noted that the legal qualification of autonomous taxation has divided doctrine and jurisprudence. In doctrine, there are, on the one hand, voices [Sérgio Vasques] that argue that, since autonomous taxation is inserted in the CIT Code, it is a component of this tax, notwithstanding its fundamental characteristic: not presenting any impact on profit, contrary to the CIT itself, and, on the other, there are those who argue that autonomous taxation is a tax in the same manner as the Value Added Tax (VAT), since by taxing expenses, it presents a greater relationship with consumption taxation.

  9. The truth is that autonomous taxation finds its provision in Article 88 of the CIT Code, under the heading "Rates," and has such designation because it is an unparalleled reality, and as the name itself indicates, "autonomous," inserted within the scope of the CIT Code (and PIT), which focuses on expenses, contrary to CIT which focuses on the company's profit.

  10. In the understanding of Sérgio Vasques [in Manual de Direito Fiscal, 2013, Almedina] autonomous taxation is an element of CIT with the particularity of being a single obligation, without progressive character, there being no legal constraint in an income tax – CIT – containing within its scope elements that tax expense.

  11. Furthermore, the CAAD Decision of 24.02.2014, issued in case 209/2013-T, states that:

"(…) the legal regime of autonomous taxation (…) only makes sense in the context of taxation under CIT. In other words, disconnected from the legal regime of this tax, they would, completely lack sense. Their existence, their purpose, their explanation, in the end, their legality, is only comprehensible and acceptable within the legal framework of CIT."

  1. In fact, and further, in the matter of characterizing autonomous taxation it becomes useful to make reference to what was noted in Case No. 80/2014-T of CAAD, of 30.06.2014, for the clarity of its exposition, that "autonomous taxation is nothing more than mechanisms auxiliary to the central axis of CIT, which is to tax profits" – from which is noted the recognition of the existence, on the one hand, of a regime (special) of autonomous taxation, and on the other hand, the regime (rule) of CIT. Further gleaned from that decision is the recognition of the autonomous character of this autonomous taxation resulting from the special configuration that they have in Law, taking into account the material and temporal aspects of the facts in which they occur, requiring, in certain situations, the exclusion or adaptation of the general rules of application of CIT, when it argues that "the inclusion of autonomous taxation in the respective Code (…) has as a logical corollary the application of the general norms of this tax that do not conflict with its special form of incidence."

  2. Now, continuing this line of reasoning, we shall rescue what was expendended in Case No. 639/2015-T of 7 September 2016, of which the undersigned was part of the body of arbitrators that decided that case, in which the following was mentioned:

"In reality, the integration of autonomous taxation in the CIT Code (and PIT), conferred a dualistic nature [1], in certain respects, to the regulatory system of this tax, which was embodied, in particular, in the framework of subparagraph a) of paragraph 1 of Article 90 of the CIT Code, in separate determinations of the respective collections, by force of obedience to different rules: in one case, it is 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 that Code and, in another case, it is the application of the rates to the values of the taxable matters relating to the different realities contemplated in Article 88 of the CIT Code.

In other words: contrary to what is stated in point 9 of the dissenting vote statement of Professor Leonor Ferreira attached to the Arbitral Decision issued in case No. 697/2014 T, there is not properly a single CIT assessment, but rather two determinations, that is, two distinct calculations which, although processed, in accordance with subparagraph a) of paragraph 1 of Article 90 of the CIT Code, in the declarations referred to in Articles 120 and 122 of the same Code, are made on the basis of different parameters, since each one materializes in the application of its own rates, provided for in Articles 87 or 88 of the CIT Code, to the respective taxable matters determined equally according to its own rules.

And with regard to the admission of autonomous taxation as a tax-deductible cost, it would be said that accepting them would ultimately undo the dissuasive effect that the legislator sought to achieve with those (autonomous taxation) and annul that same autonomous taxation, since the amount paid would be offset by the reduction of the same against taxable profit, thus, against the CIT to be paid or against losses to be carried forward."

  1. Now, with regard to the question of the integration of autonomous taxation in the CIT Code, Law No. 30-G/2000 of 29 December, statute which provided for the Reform of income taxation, adopted, as already mentioned above, measures designed to combat tax evasion and fraud, altering, for that reason, that Code, among others. In fact, from that legislative amendment it appears that the legislator did not feel the need to explicitly state, in general terms, the consequences of the coexistence of two forms of taxation within the CIT system, limiting itself only to safeguard situations in which the CIT exemption did not extend to autonomous taxation, e.g., Article 12, scope of companies covered by the fiscal transparency regime, which, not being taxed in CIT, are, however, when it comes to autonomous taxation.

  2. In parallel, with regard to declarative obligations, the then paragraph 6 of Article 109 of the CIT Code provided that entities exempt from CIT were obliged to present the periodic income declaration when subject to autonomous taxation.

  3. Now, from this summary of these legal provisions, it is found that, as far as the questions of deductions provided for in paragraph 2 of Article 90 of the CIT Code, or the calculation of payments on account, the legislator entrusted the interpreter and the applier of the law with the task of identifying the relevant part of the CIT collection, extracting from the applicable norms a meaningful sense, literally possible, which would allow for a coherent solution consonant with the nature and functions attributed to each component of the tax.

  4. In fact, as to the matter of the deductions provided for in paragraph 2 of Article 90 of the CIT Code, it seems the Claimant defends (See Articles 38 and following, 72 and following of the learned initial petition) that the expression "amount determined in accordance with the preceding number" should be understood as encompassing the sum of the amount of CIT determined on the taxable matter determined according to the rules provided for in Articles 15 and following of the CIT Code and the respective rates provided for in Article 87 of the same Code, and the amount of autonomous taxation, calculated on the basis of the rules provided for in Article 88 of that statute. In fact, an interpretation resulting from such reasoning would imply that, in the basis of calculation of payments on account defined in paragraph 1 of Article 105 of the CIT Code, stating that "Payments on account are calculated on the basis of the tax assessed in accordance with paragraph 1 of Article 90 (…)", and similarly to what is provided for in paragraph 2 of Article 90 of the same statute, autonomous taxation would be included.

  5. Now, as is explained in the arbitral decision already referred to (Case No. 639/2015-T), and in this sequence:

"(…) for the basis of calculation of payments on account only the CIT determined on the basis of the taxable matter determined according to the rules of Chapter III and the rates of Article 87 of the respective Code is considered.

Now, it is to be emphasized that the coherence and adequacy of this understanding is rooted in the very nature of payments on account of the tax due finally, which, in accordance with the definition in Article 33 of the General Tax Law are 'pecuniary advances that are made by taxpayers in the period of formation of the taxable fact.' constituting a '(…) form of approximating the moment of collection to that of income realization so as to fill situations in which this approximation cannot be effected through withholdings at source.'

Therefore, in good logic, it only makes sense to conclude that the respective basis of calculation corresponds to the amount of the CIT collection resulting from the taxable matter that is identified as profit/income from the taxpayer's fiscal year.

Thus, 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 number' and in paragraph 1 of Article 105 of the CIT Code, 'tax assessed in accordance with paragraph 1 of Article 90,' must be made in a coherent manner, and consequently assigned (in both provisions) a univocal sense.

Which is equivalent to saying that it corresponds to the amount of CIT calculated by applying the rates of Article 87 to the taxable matter determined on the basis of profit and the rates of Article 87 of the CIT Code.

It is noted that this interpretation of the expression 'amount determined in accordance with the preceding number' is also the only one consistent with the nature of the deductions referred to in the subparagraphs of paragraph 2 of Article 90 of the CIT Code, relating to:

  • credits for tax on international legal and economic double taxation [current subparagraphs a) and b)];

  • tax benefits [current subparagraph c)];

  • special payment on account [current subparagraph d)];

  • withholdings at source [current subparagraph e)].

And this in light of the interconnection that on the material plane should be established between the realities reflected by these deductions and the origin of the amount from which they are subtracted."

  1. In fact, the realities provided for in paragraph 2 of Article 90 of the CIT Code relate to income or expenses incorporated in the taxable matter, which is determined on the basis of the taxpayer's profit or advanced payments of the tax, for which reason we understand that they are unrelated to the realities that form the constituent facts of autonomous taxation.

  2. Now, given all this, what is sought in the present proceedings is not to know whether autonomous taxation is or is not CIT. It is well settled that the assessment of this autonomous taxation is carried out on the basis of Articles 89 and 90, paragraph 1 of the CIT Code, however, different rules are applied for the calculation of the tax. Let us see,

  3. Whereas, in one case of assessment, the calculation of tax operates by applying the rates provided for in Article 87 to the taxable matter determined in accordance with the rules of Articles 15 and following of the CIT Code, in the other case, as provided for in Article 88 of the CIT Code, differentiated rates are determined depending on the cases that give rise to the autonomous taxation at issue.

  4. This means that, in accordance with subparagraph a) of paragraph 1 of Article 90 of the CIT Code, according to which: "the assessment of CIT proceeds as follows: a) when the assessment is to be made by the taxpayer in the declarations referred to in Articles 120 and 122, it is based on the taxable matter contained therein," the amount determined does not have a unitary character, given that it is supported on values calculated according to different rules, associated with different purposes. Thus, we have that the deductions provided for in the various subparagraphs of paragraph 2 of Article 90 of the CIT Code can only be made to the portion of the CIT collection with which it has a direct correspondence, so that the coherence of the structure of the regime rule of the tax is maintained.

  5. Now, the discussion at issue, according to the reading that was made of the pleadings in the present proceedings, is limited to the manner in which the assessment is made. On the one hand, we have the Respondent which considers that various collections are determined according to the diversity of facts that give rise to autonomous taxation and the deductions provided for in the subparagraphs of paragraph 2 can only be made to the portion of the CIT collection with which there exists a direct correspondence, understanding that it is not verified in relation to the CIT collection that results from autonomous taxation, on the other hand, the Claimant, with contrary understanding.

  6. In any event, the aforementioned Articles 89 and 90 of the CIT Code, as well as other provisions of this Code, such as those relating to declarations provided for in Articles 120 and 122 of that statute, are applicable to autonomous taxation.

  7. As stated in the CAAD Decision already cited (case No. 639/2015-T), and which we retake here:

"(…) it is now settled, in the wake of numerous arbitral jurisprudence and positions assumed by the Tax and Customs Authority, that the tax collected on the basis of autonomous taxation provided for in the CIT Code has the nature of CIT.

Furthermore, beyond the unanimity of jurisprudence, Article 23-A, paragraph 1, subparagraph a), of the CIT Code, in the wording given by Law No. 2/2014 of 16 January, leaves no room today for any reasonable doubt, corroborating what previously resulted from the literal tenor 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 determination of the tax due in all situations provided for in the Code, including additional assessment (paragraph 10).

For this reason, that Article 90 also applies to the assessment of the amount of autonomous taxation, which is determined by the taxpayer or by the Tax Administration, in the sequence of the presentation or non-presentation of declarations. There being no other provision that provides for different terms for its assessment."

  1. Thus, we can conclude that there are disparities between the determination of the amount resulting from autonomous taxation and the result of taxable profit, which are limited to the determination of the taxable matter and the applicable rates, as to CIT, provided for in Articles 15 to 88 of the CIT Code. Being that, for this tax, the basis is provided as taxable profit, and in Article 88 of the CIT Code, the basis is the taxable matter of autonomous taxation and the respective rates.

  2. However, the forms of assessment provided for in Articles 89 and following of the same Code are applicable to both autonomous taxation and taxable matter under CIT.

  3. Nevertheless, and considering the situation of the self-assessment of CIT, effected under the provisions of paragraph 1 of Article 90, which may contain different partial calculations based on different rates applicable to certain taxable matters, it is to be noted that such situation does not imply that there is more than one assessment. This understanding is supported by the expression provided for in that norm - "assessment" - present in all cases in which it is "made by the taxpayer in the declarations referred to in Articles 120 and 122," having "as its basis the taxable matter contained therein." – as is argued in the CAAD Decision, case 639/2015-T -. From this it is drawn, then, that it is the taxable matter determined, on the one hand, according to the rules of Articles 15 and following of the CIT Code, on the other, that determined according to the various situations provided for in Article 88 of that legal statute.

  4. Let us agree that the various calculations of application of rates to certain taxable matters is not limited solely and exclusively to the assessments provided for in Article 88 of the CIT Code, such situation may also occur equally in the situations provided for in paragraphs 4 to 6 of Article 87 of the same Code, relating to autonomous taxation.

  5. In any event, regardless of the calculations carried out, there is only one self-assessment that the taxpayer or the Tax Administration should make in accordance with the provisions of subparagraph a) of Article 89, subparagraphs a) to c) of paragraph 1 of Article 90 and Articles 120 or 122, and it is on the basis of the product resulting therefrom that the global tax (CIT) is calculated, regardless of the taxable matters relating to each of the types of taxation underlying it.

  6. In this context, the aforementioned Decision states: "In fact, if that 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 whatsoever that provided for its assessment, which would amount to illegality, by violation of Article 103, paragraph 3 of the Constitution, which requires that the assessment of taxes be made 'in accordance with law.'

  7. Given the foregoing, no violation is identified or accepted on the part of the Respondent of the procedural rules and/or form of assessment provided for in Article 90 of the CIT Code with the disregard, for that purpose, of the autonomous taxation assessed and paid by the Claimant, and the claim formulated as to this situation is therefore not substantiated.

B. Special Payment on Account (Article 106 of the CIT Code)

  1. The Claimant in its learned initial petition raises the question of deduction from the "amount determined in accordance with Article 90 of the CIT Code" (paragraph 1) of the special payment on account referred to in Article 106 of the CIT Code, as provided for in subparagraph c) of paragraph 2 of Article 90, in the wording in force on the date of the facts. – See Article 38 of the learned initial petition.

  2. Now, similarly to what was done for autonomous taxation, also as to special payments on account (SPAs), we will address its origin, evolution, characteristics, provision, among others. And this approach will proceed by calling here into consideration what has already been supported regarding this topic in the Constitutional Court Decision No. 494/2009, case No. 595/06, of 29.09, according to which, characterizes the SPAs as follows:

"(…) the legal regime of SPA is regulated, in its essential aspects, in Article 98 of the CIT Code, which is inserted in Chapter VI, relating to Payment, and more specifically, in Section I, under the heading 'Entities that exercise, as principal activity, commercial, industrial or agricultural activity'. In addition to this provision, the regime of the SPA also includes Articles 83, paragraphs 2 and 7 (relating to procedure and form of assessment – the former refers to the various deductions provided and the latter establishes that from deductions made in accordance with paragraph 2 no negative value can result) and 87 (Special payment on account), both of the CIT Code."

  1. In fact, and according to that Decision of the Constitutional Court, "The SPA is a tax instrument that configures a tax obligation of the taxpayer, to which it is required to pay in advance an amount legally determined relating to a tax before its final determination. In the case in analysis, it is a periodic tax on income, the Corporate Income Tax (CIT)."

  2. Further stating as to the purpose of this figure:

"(…) (likewise, of the normal payment on account – NPA) is that of, implementing the maxim 'pay as you earn', approximating the date of payment, in this case, of CIT, to that of production or obtaining of income, being certain that the tax obligation will only be effectively defined and quantified at the end of the respective taxation period, by reference to the taxable facts that ground the emergence of the tax obligation. Impositions of this kind correspond legally, in a structural perspective, to provisional tax acts and, functionally, to precautionary or cautionary acts.

Notwithstanding the recognition of a certain autonomy of the advance payment of the tax debt, there must be a relationship of instrumentality between the special payment on account (its creation and quantification) and the taxable fact generating the tax obligation. This relationship of instrumentality is sustained, among others, by Avillez Ogando ('The constitutionality of the regime of the special payment on account', in Revista da Ordem dos Advogados, vol. 62, Book III, 2002, p. 811), who states that, 'given the instrumental function of the special payment on account of payment on account of the collection that will be determined relative to the same fiscal year, it would make no sense that for the purposes of determining the quantitative of the special payment on account relevance be given to profits expressly disregarded by the Legislator for that purpose'. Similarly, foreign doctrine calls attention to this requirement of instrumentality, to this necessary relationship between the principal tax obligation and the payment on account and to the requirement that the advance payment not be arbitrary, being justified by a relationship of probability with the presupposition indicative of capacity to pay on which the tax is based (cf. García Caracuel, Las prestaciones tributarias a cuenta. Perspectivas de reforma, Granada, 2004, p. 169 et seq. esp. 223 and 257 et seq., and Francesco Tesauro, Istituzioni di Diritto Tributario, I, Turin, 2003, p. 244)"."

  1. However, the origin and genesis of this figure (SPAs) was addressed by the CAAD Decision of 30.12.2015, issued in case No. 113/2015-T, which we shall partially transcribe here for clarity of exposition:

"The genesis and evolution of the SPA develops in three stages, namely (i) the regime that runs from its birth to the year 2000; (ii) the regime applicable to fiscal years 2001 and 2002; and the subsequent regime that is in force until today.

In its initial version the SPA was presented as a tool for improving the system, which was and is heavily based on income declaration by taxpayers. Its introduction into the tax system was simultaneous with the reduction of the general CIT rate by two percentage points. The occurrence of the two facts is obviously not coincidence; on one hand the rate applicable to taxpayers paying tax was reduced; through the SPA the special payment of a sum as tax was promoted, albeit on a provisional basis, by taxpayers who despite continuing to conduct their activity year after year, persisted in declaring negative or null income, escaping effective taxation. It is, then, as a measure to combat 'evasive practices of concealment of income or overstatement of costs' that the SPA was justified in the preamble to Decree-Law No. 44/98 of 3 March that instituted it.

The provisional nature of the payment of the tax resided in fact in the possibility of deducting the amounts paid as SPA from the CIT determined in general terms, fixed in Article 71 of the then current CIT Code (of which autonomous taxation did not yet form a part), although that deduction was only possible if despite this operation the value of the tax to be paid was positive (71-6 CIT Code.1998). There being no CIT to be paid under the general terms, the value of the SPA satisfied could be carried forward to the following fiscal year (74-A-1) or reimbursed later (74-A-2). It was sought thus to ensure that the generality of taxpayers satisfied value on account of the CIT, calculated provisionally on the volume of business of the preceding fiscal year (83-A). In sum, it was fictioned that all companies would tend to a taxable profit, calculated according to the general parameters, equivalent to 1% of their business volume of the preceding year, settling accounts later if such was not the case.

The reform of CIT made in 2000-2001 through Law No. 30-G/2000 of 29 December reduced the character of payment on account that the tax had, preventing its reimbursement while the taxpayer remained in business and required that the carrying forward of amounts satisfied was done only until the fourth subsequent fiscal year (74-A-1 CIT Code.2001). From this restrictive norm for the first time results the possibility of the SPA transforming itself into minimum collection (…), when it was not possible to deduce the amounts satisfied, by exhaustion of the carry-forward period. In summary, it is possible to state that the alterations introduced in this reform not only maintained but accentuated the emphasis on combating tax evasion that had animated the introduction of the SPA. Although on this occasion the "autonomous taxation" were introduced in the CIT Code, no mechanism was provided for articulation between the two instruments.

The third configuration of the SPA is introduced by Law No. 32-B/2002 of 30 December (…) which in its Article 27 introduced a new regime of the deductibility of the SPA in Article 87-3 of the CIT Code (…), restoring the possibility of reimbursement of amounts delivered as special payment on account and not offset in the annual CIT assessment. It was maintained still here the character of measure of pursuit of tax evasion, although the weight of minimum collection has been eased, without completely abolishing it, in light of the tight conditions imposed for reimbursement."

  1. This decision continues, with interest to the present proceedings, mentioning that:

"In doctrine and jurisprudence the SPA regime has always been held as a system to prevent tax evasion and to ensure the payment of tax by all companies in operation. This line of orientation appears in the most inducing texts of the application of the regime in courts, in particular by the doctrinal work developed by the Constitutional Court. In this sense can be seen in the motivation of its Decision No. 494/2009 (…), that the SPA in the form given to it in the CIT Code, is 'indissociably linked to the fight against tax evasion and fraud', seeking to ensure that the income declared by taxpayers 'correspond[s] to the taxable income actually earned'."

  1. This means that the figure of SPA was created with the purpose of ensuring a minimum collection of tax, being even this its first designation in the discussion of the Budget for 1998 – Law No. 127-B/97 of 20.12. In fact, this requirement of minimum collection arose – as is stated in the CAAD Decision of 30.05.2015, issued in case No. 639/2015-T - "by the finding that the great majority of companies did not present taxable profit and/or that this was in most cases insignificant."

  2. According to this CAAD Decision (Proc. 639/2015-T):

"Just as autonomous taxation, SPA functions as a presumption of income and as a means of combating tax evasion, requiring some companies to pay at least some tax. The SPA is also used as a 'fiscal anesthesia mechanism', making the period of time between the taxable fact and payment of the tax shorter. Although the regime of autonomous taxation has as its foundation the taxation of presumed income, this differs from the SPA regime, in that the payment thereof is made as final and is not subject to subsequent adjustments.

The SPA regime presents many specificities that it will not be relevant to point out for the purpose of the present proceedings. We only emphasize that the possibility of the amount borne being able to be deducted from the collection makes it much less burdensome for companies than autonomous taxation.

Moreover, companies may, in certain circumstances, obtain reimbursement of the SPA borne, if they are unable to deduce the entire value, thus functioning as a means of precluding the presumption of income that results from this institution."

  1. In fact, the SPA focuses, in accordance with the provisions of paragraph 2 of Article 106 of the CIT Code, on the volume of business relating to the preceding taxation period, in accordance with Article 106. Its calculation being based precisely on the volume of business and payments on account of the preceding year, corresponding to 1% of the business volume of the preceding fiscal year.

  2. Now, notwithstanding that, at first glance, the relationship between this figure and capacity to pay does not appear – for which reason it has already been subject to constitutional review – the truth is that not only does the institute of SPAs endure, but the criterion of business volume finds greater proximity to profit or income of companies than the expenses subject to autonomous taxation.

  3. As to the question of deductions provided for in Article 90 of the CIT Code, the CAAD Decision already cited, issued in case 639/2015-T, properly explained, and which we shall retake here:

"(…) by simple consequence of the preceding considerations that led to the conclusion that the deductions referred to in subparagraphs a) and b) of paragraph 2 of Article 90 of the CIT Code are made to the 'amount determined in accordance with the preceding number', understood as the amount of CIT determined on the basis of taxable matter determined according to the rules contained in Chapter III and the rates of Article 87, of the same Code, it is possible to extend such conclusion to the deduction relating to special payments on account.

It suffices for that to invoke the provision of paragraph 7 of the same provision, according to which 'from deductions made in accordance with subparagraphs a), b) and c) of paragraph 2 no negative value can result'.

In any event, it is also possible to reach the same conclusion if one attends to the nature of the special payment on account (SPA), defined as being an advance delivered to the State on account of the tax due finally, which may be made in two installments (Article 106, paragraph 1 of the CIT Code) and whose calculation takes as its starting point the volume of business of the taxpayer relating to the preceding taxation period (paragraph 2).

It should be stressed that, although the SPA differs, in matters of calculation rules, from payments on account – for these have as basis of calculation the tax assessed in accordance with paragraph 1 of Article 90 of the CIT Code, relating to the immediately preceding taxation period (paragraph 5 of Article 105 of the CIT Code) – it is to be noted that these regimes have in common the nature of payments on account made in the preceding taxation period.

Furthermore, it should be emphasized that the institution of the SPA by Decree-Law No. 44/98 of 03.03 which amended Article 83-A to the CIT Code, was inscribed in a set of fiscal policy measures directed against tax evasion and fraud, whose motivation is explained in the preamble to this statute, as follows:

'Statistics show that the income of corporate persons subject to taxation in CIT are frequently, and without any plausible reason, subject to a collection much lower than the actual. Evasive practices of concealment of income or overstatement of costs are manifestly generative of grave distortions of the principles of equity and tax justice and of economic efficiency itself and damaging to the stability of tax revenues. They result in an unfair distribution of the tax burden, all the more felt as many CIT taxpayers, for successive years, have contributed little or nothing to the State Budget, continuing, however, sometimes in a privileged manner, to enjoy the economic and social rights provided for in the Constitution. In this context, the present statute establishes a special payment on account, through a new mechanism, on the income of the years 1998 and following, for corporate persons subject to CIT. The calculation formula used for its determination and the mechanism used allow approximating the moment of production of income with the moment of its taxation."

  1. Nevertheless, the successive alterations that were being introduced to it, the Constitutional Court ruled in Decision No. 494/2009, proc. No. 595/06, of 29.09 in the sense that:

"(…) a reading of the legal regime of the SPA that is attentive to its genesis and evolution leads to the conclusion that it does not obey primarily the logic typical of a payment on account – that is, primarily, to ensure regular cash inflows to the public treasury and, secondarily, to safeguard the Tax Administration against variations of fortune of the debtor and produce a certain 'fiscal anesthesia' – rather being indissociably linked to the fight against tax evasion and fraud. For a long time there have been suspicions, from the outset by the Tax Administration itself, regarding the income declared by CIT taxpayers; namely, the question was raised as to how far they corresponded to the taxable income actually earned. This was itself evidenced by Law No. 52-C/96 of 27 December (State Budget Law for 1997), in its Article 32 (Common Provisions), which contained the legislative authorization to the Government to 'define a minimum taxation' and which would mark the introduction into our tax system of the figure of the SPA. In said provision, the tax instrument that was then established was presented as 'a new type of payment on account' that aimed to achieve 'greater tax justice and [a] greater efficiency of the system', allowing to resort, 'when the case is such, to indicative methods'. It is said that national doctrine is unanimous in stating the nature of an instrument of combat against tax evasion attributed to the SPA."

  1. Given the foregoing considerations, we find that the legal nature of the SPA, as an 'instrument or guarantee of payment of the tax on account of which it is required, and not as imposition itself' (cf. Decision of the Constitutional Court above cited), and the function associated with it in the fight against tax evasion and fraud, indissociably links this payment to the amount of CIT determined on the taxable matter determined on the basis of profit (Chapter III of the Code), a conclusion that was also reached by the CAAD Decision, issued in case No. 639/2015-T.

  2. With interest for the proper decision of the case, given its transparency, clarity and easy comprehension, we shall bring to consideration what was expendend in the CAAD Decision issued in case No. 113/2015-T regarding the matter that occupies us in the present proceedings, as to the deduction of the Special Payment on Account produced by autonomous taxation.

  3. Now, the question at issue in that decision as well as in this one, was to know "whether the amounts satisfied as special payment on account can be deducted from the tax on the income of corporate persons resulting from the application of autonomous taxation rates."

  4. In the consideration and foundation of the question at issue, that decision took into account:

"Comparing the abundant jurisprudence referenced by the Claimant there is indeed a guiding line that must be emphasized and which coincides with what this arbitral tribunal advocates: the tax calculated by application of autonomous taxation rates regulated in Article 88 of the CIT Code is also it tax on the income of corporate persons, i.e., the tax on the income of corporate persons includes autonomous taxation. If there were any doubts the current wording of Article 23-A CIT Code would dispel them.

(…)

… the solution of the case sub judicio requires that one go a bit deeper and determine what is the regime applicable to CIT calculated through autonomous taxation rates. (…) the tax on income of corporate persons was born by focusing objectively on taxable profit, this corresponding to the difference between net wealth at the end and at the beginning of the taxation period. (…) Thus in the original conceptual structure of CIT the determination of taxable profit takes as its starting point the result of the fiscal year obtained through the technical rules of accounting, introducing then some corrections of positive or negative sense, so that this final result would correspond to taxable profit, i.e. to the real income that was intended to be taxed (…).

Of course, it neither regulated nor could regulate the treatment to be given to 'autonomous taxation' which did not form part of the system, which was conceived in this simple structure: to take as its starting point the accounting result (Article 17-1 of the CIT Code.1989), correct it in such a way as to reflect the income that is intended to be taxed through rules qualitatively similar to those that were in force in the official accounting plan then in force (Article 18 and following CIT Code.1989), apply the general rate to it (69-1 CIT Code.1989) and to the product thus obtained make the deductions of the taxation that in some way had already been borne or would have to be borne through another tax system (71-2 CIT Code.1989).(…)

(…)

Now we must see how the 'autonomous taxation' were inserted into this system.

The introduction into the complex of income taxes of the application of autonomous taxation rates was made through Decree-Law No. 192/90 of 9 June, which stipulated that undocumented or confidential expenses would henceforth be taxed autonomously in PIT and CIT, (…)

All elements indicate that the introduction of the method of taxing expenses in CIT constituted initially an extravagant measure, outside the conceptual structure of CIT, created to honor the principle of taxation on real income balanced through coded corrections. Said autonomy of this rate thus appears with great intensity; although it is undeniably considered that its product is tax on the income of corporate persons, it is no longer the income that is directly taxed (as CIT regulated) but rather expenses.

In these cases of dissonance there will be such conflicts that it matters to resolve.

These conflicts result and are resolved through regulatory interpretation. Fundamentally, one will have to resolve the apparent conflict when the legislative thinking underlying the norm of the regime general to the tax on the one hand and the norm special that regulates autonomous taxation on the other hand, are not reconcilable, i.e. from its application a purpose will be achieved that is not pursued by the norm in question.

This conflict in the purposes to be achieved by each of the norms is patent at the moment autonomous taxation was introduced into the Portuguese tax system.

(…)

It seems clear in light of these commands that in the period 1990-2000 it was not conceivable to use potential tax credits to satisfy the tax obligation determined for this title, under pain of perverting the intent of the law.

In its general line of orientation the post-reform CIT maintained the principles that are at its genesis; start from the accounting result and correct it according to the rules established, now improved by 12 years of experience, to achieve taxable profit.

As far as what is being investigated the CIT resulting from the reform came to contain in its Article 69-A, with the heading 'Autonomous taxation rate', where it was regulated that undocumented or confidential expenses (paragraph 1) and representation expenses and charges related to light passenger vehicles, recreational boats, tourist aircraft, motorcycles and motorcycles (paragraph 2), would henceforth be taxed autonomously.

One does not see that the reform of the CIT made in 2000-2001 introduced any significant alteration in the code. Only the mechanism of combating expenses considered undesirable that already consisted in extrastatutory legislation was introduced, slightly expanded the spectrum of application but did not adapt in any way the assessment procedure. For this reason it is believed that the characterization of the regime that had previously been in force was maintained, continuing to have that the interpretation of the norms be made in such a way as to prevent effects contrary to the legislative purpose.

The successive alterations to this Article did not affect in any way the (im)balance of the system, which remained until the date of the facts.

(…) more than asserting the purpose of the imposition of autonomous taxation rates, the foundation of the cited decision well expresses the manner in which its calculation is understood, by comparison with the assessment of the tax on income in accordance with the general rate:

Contrary to what happens in the taxation of income under PIT and CIT, in which the ensemble of income earned in a determined year is taxed (which implies that only at the end of the same the tax rate can be determined, as well as the bracket in which the taxpayer is inserted), in the case each expense performed is taxed, considered in itself, and subject to a determined rate, autonomous taxation being determined independently of the CIT that is due in each fiscal year, for not being directly related to the achievement of a positive result, and for that reason, capable of taxation.

The aforementioned decision further expresses in clear fashion the instantaneous manner in which the taxable fact occurs and the absence of periodic, lasting or successive character in its formation. For that reason it thus characterizes the assessment operation:

That assessment operation translates itself only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation, whose rate is applied to each expense, there being no influence of the volume of expenses performed in the determination of the rate.

It is believed that with the historical analysis, systematic framing and doctrinal and jurisprudential positions, the legislative purpose of the norms that impose tax taxed autonomously and their perfect distinction from the objectives that animate the general structure of the CIT has been demonstrated. Thus the line on which the conflict begins is traced; as soon as the interpretation of the norm in question leads to a result that deviates from the objectives that presided over its inclusion in the tax system. It has been seen already which were one and the other.

It is recognized by all the actors who have to work with tax law in general and with the CIT in particular, the lesser coherence of the coexistence of 'autonomous taxation' with the general regime of tax on income. The Claimant gives abundant notice of that very thing. But recognized as that difficulty is there will always have to apply the law, determining its sense through interpretation.

  1. And, in concrete, as to the SPA, that decision mentioned that:

"In doctrine (…) Teresa Gil (…) gave documented account of the circumstances that surrounded the introduction of the SPA, namely the difficulties in the application of the principle of taxation on real profit, noted against the 'divergence that exists between profits actually obtained and those that are declared by companies and, therefore, subject to taxation'. Although this author considers that the SPA is an insufficient measure to resolve the problem of tax evasion of this type, preferring the establishment of minimum collection, she mentions that the SPA was in the end the regime possible in light of constitutional limits.

The current regime of the SPA is thus characterized by (i) having an indissociable link to the fight against tax evasion and fraud; (ii) was introduced into the CIT Code in March 1998, before autonomous taxation rates which only came to form part of its systematics in the 2000-2001 reform; (iii) in the design of the SPA its deduction from the collection in the assessment of CIT calculated on real income was provided for; (iv) the recovery of the credit resulting from the SPA is subordinate to conditions of obtaining profitability ratios proper to companies in the sector of activity in which they are inserted or to the justification of the credit situation by inspection action made at the request of the taxpayer (Article 87-3 CIT Code). In summary, the credit for amounts delivered as special payment on account does not constitute an enforceable credit that CIT taxpayers may have at their disposal. For them to be able to do so there must be met certain conditions."

  1. Concluding, as to this theme, in the sense that:

"It now falls to consider finally the basilar argument which is that which results from the letter of the norm of Article 83-2-e CIT Code, which permits that to the amount of tax on the income of corporate persons determined the deduction relating to the special payment on account made be effected.

A conflict indeed results between the regime that regulates autonomous taxation and the deduction from the respective collection of the SPA. See the purpose of the norms in question.

The method of determination of the tax contained in the CIT Code is based on the principle of incidence on taxable profit; autonomous taxation focuses on expenses individually considered, whose rate is applicable to each expense, and 'that assessment operation translates itself only in the aggregation, for purposes of collection, of the set of operations subject to that autonomous taxation [20]'. It is unequivocal that the system of assessment is not the one suited to the determination of autonomous taxation. But will deducting the SPA from said 'aggregation of the set of operations subject to autonomous taxation' lead to a result irreconcilable with the system in question? This line must be investigated.

As has been seen the SPA came to form part of the system of CIT whose assessment enshrined in Article 83 was conceived to determine the tax directly focusing on declared income. When there is place for a tax loss the taxpayer nonetheless has still to bear the SPA; that was indeed the reason for its introduction. If a determined company has successive tax losses, it will systematically bear tax, for the system doubts its possibility of functioning in a situation of permanent deficit, requiring it to satisfy provisionally (on account) a determined value. It may be reimbursed if it proves that that situation is common in its sector of activity or if the Tax Administration verifies the regularity of its declarations. This was the equilibrium that the CIT required to maintain a system based on declarations made by taxpayers."

  1. Further stating, in turn:

"(…) the tax resulting from autonomous taxation is founded solely on the pursuit of tax evasion through income transfer and has a dissuasive and compensatory effect.

(…)

There is indeed an irreconcilable conflict between the purpose of the SPA – the fight against evasion or pressure for correction of declarations – and the application of its credits to the satisfaction of other obligations that are not those resulting from the determination of CIT calculated on the taxable result.

In practical terms the possibility of deduction of the SPA from autonomous taxation would imply that even if a determined company were eternally in a situation of loss, no tax on its real income would have to be borne, whilst applying the SPA to the satisfaction of autonomous taxation. Furthermore, the very autonomous taxation would lose its anti-abuse character, coming instead to confuse itself ultimately with the tax calculated on taxable profit. Now those are not the objectives of the system of taxation of income of corporate persons and the better interpretation of the norm contained in Article 83-2-e CIT Code is not that one decidedly which permits deducting special payments on account from the collection resulting from the application of autonomous taxation rates."

  1. Given all of the foregoing, it is the understanding of this Tribunal that the claim of the now Claimant for the deduction of the amount borne under special payment on account from the collection produced by autonomous taxation in fiscal year 2012 is entirely without foundation, judging the request for a declaration of illegality of the acts of self-assessed CIT in the terms in which it was formulated to be completely unsubstantiated, as well as the alternative request, such acts having to be maintained in the legal order.

VIII. DECISION

For the factual and legal grounds set forth above, it is decided, thus, by the lack of merit of the claims (principal and alternative) for a declaration of illegality of the acts of self-assessed CIT (principal) and for a declaration of illegality of the assessment of autonomous taxation (alternative), such acts having to be maintained in the legal order.

Value of the Case

The value of the case is fixed at € 7,671.14 (seven thousand, six hundred and seventy-one euros and fourteen cents), in accordance with Article 97-A, paragraph 1, a), of the CTPP, applicable by force of subparagraphs a) and b) of paragraph 1 of Article 29 of the LRAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

Costs to be borne by the Claimant, in accordance with Article 12, paragraph 2 of the LRAT, Article 4 of RCPAT, and Table I attached thereto, which are fixed in the amount of € 612.00.

Let notification be made.

Lisbon, 2 November 2016

The Arbitrator

(Jorge Carita)

[1] Expression used by Professor Saldanha Sanches, in Manual de Direito Fiscal, p. 407. "With this provision [autonomous taxation] the system shows a dualistic nature."

Frequently Asked Questions

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Can the special advance payment (pagamento especial por conta) be deducted from IRC autonomous taxation?
The central legal question is whether the special advance payment (pagamento especial por conta - PEC) can be deducted from IRC autonomous taxation collection. The claimant argued that since arbitral jurisprudence consistently qualifies autonomous taxation as IRC, and Article 90 of the IRC Code permits PEC deduction from IRC collection without explicit exclusions, the offset should apply to autonomous taxation. The Tax Authority's computer system prevented this deduction, but technological limitations do not override substantive legal rights. The claimant contended that if Article 45 includes autonomous taxation within IRC collection, Article 90 should be interpreted consistently.
What is the legal basis for challenging IRC autonomous taxation assessments at CAAD?
Taxpayers can challenge IRC autonomous taxation assessments at CAAD through the arbitration process established by RJAT (Decree-Law 10/2011). The legal basis includes Article 2(1)(a) and Article 10(1)(a) of RJAT, which permit arbitration of disputes concerning the legality of tax acts, including self-assessments and decisions on gracious complaints. In this case, the taxpayer challenged both the tacit dismissal of the gracious complaint and the underlying IRC self-assessment. The arbitration provides an alternative to judicial courts for resolving corporate tax disputes efficiently.
How does the RJAT arbitration process work for corporate tax (IRC) disputes in Portugal?
The RJAT arbitration process for IRC disputes involves several stages: (1) filing a request for arbitral tribunal constitution with CAAD; (2) notification to the Tax Authority; (3) appointment of arbitrator(s); (4) tribunal constitution; (5) submission of the Tax Authority's reply; (6) evidence production if necessary; (7) optional hearing under Article 18 RJAT; (8) final arguments; and (9) decision within the statutory deadline, which can be extended under Article 21(2) RJAT. In Process 774/2015-T, the tribunal was constituted on March 2, 2016, the hearing was waived for procedural economy, and the decision deadline was extended to November 2, 2016. Parties must pay arbitration fees per the Regulation of Costs.
What are the consequences of tacit rejection of a tax grievance (reclamação graciosa) on IRC self-assessments?
When a gracious complaint (reclamação graciosa) regarding IRC self-assessments is tacitly rejected, the taxpayer can challenge this dismissal through CAAD arbitration. Tacit dismissal occurs when the Tax Authority fails to decide within the legal deadline. In this case, the claimant challenged both the tacit dismissal and the underlying self-assessment irregularity. The tacit rejection preserves the taxpayer's right to seek judicial or arbitral review of both the procedural dismissal and the substantive tax issue. This ensures taxpayers aren't prejudiced by administrative inaction and can vindicate their rights through alternative dispute resolution mechanisms.
How are autonomous taxation rates applied to the IRC tax collection under Portuguese corporate tax law?
Under Portuguese corporate tax law, autonomous taxation rates apply to specific expenses as a distinct IRC charge, calculated separately from general IRC. The IRC Code subjects certain costs (vehicles, representation expenses, etc.) to autonomous taxation rates regardless of the company's taxable profit. The collection from autonomous taxation is added to regular IRC collection in the final tax calculation. The controversy in Process 774/2015-T concerned whether this autonomous taxation collection should be treated identically to regular IRC collection for purposes of offsetting advance payments, particularly whether Article 90's PEC deduction mechanism applies to autonomous taxation as it does to standard IRC collection.