Summary
Full Decision
ARBITRAL DECISION
REPORT
1.1 A… – SOCIEDADE GESTORA DE PARTICIPAÇÕES SOCIAIS, S.A. (hereinafter referred to as "A… SGPS" or the Claimant), a public limited company, with single taxpayer identification number and registration …, with registered office at Rua …, n.º …, …-…, municipality of Espinho, has, pursuant to the provisions of Article 10 of Decree-Law No. 10/2011 of 20 January (RJAT), Articles 102 and 99 et seq. of the Code of Tax Procedure and Process (CPPT), Articles 1 and 2, letter d) of Article 95 of the General Tax Law (LGT), requested the constitution of an Arbitral Tribunal.
1.2 The respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.
1.3 The Deontological Council of the Centre for Administrative Arbitration (CAAD) designated the undersigned signatories to form the Collective Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 2 March 2016.
1.4 The request for arbitral decision was filed by the Claimant in its capacity as parent company of the A… Group and, as such, responsible for the self-assessment of Corporate Income Tax (IRC), to which, in the taxable periods 2012 and 2013, the Special Regime for Group Taxation (RETGS) was applicable, is based on the rejection of the administrative claim filed by the Claimant and has as its object the partial annulment of the acts of self-assessment of IRC for the financial years 2012 and 2013, to the extent corresponding to the non-deduction of part of the IRC collection of the A… Tax Group with the consequent illegality with regard to the amounts of €53,911.36 and €70,815.83, respectively for the years 2012 and 2013, in a total of €124,727.19.
The Claimant hereby reacts against such rejection, continuing to sustain the illegality of the IRC self-assessments, including autonomous taxation rates, of the A… tax group, of which it is the parent company, due to the undue exclusion of deductions from the collection.
As a subsidiary matter, in the event that it is not understood that Article 90 of the CIRC does not apply to autonomous taxation, the Claimant petitions that the illegality of the assessment of autonomous taxation (and its consequent annulment) be declared due to the absence of legal basis for its assessment.
The Claimant requests that, as a consequence of the intended annulment of the assessments in question, the Respondent be ordered to reimburse it the amounts relating to the assessments in question, plus compensatory interest at the legal rate counted from 1 September 2013 as to €53,911.36, and from 1 September 2014 as to €70,815.83 and until full and complete payment.
With respect to the error of the AT (Tax Authority), which, in the Claimant's understanding, sustains its right to interest, it alleges that the AT's computer system, through which IRC is self-assessed, does not permit taxpayers to deduct, for the purposes of calculating the IRC owed by them, from the IRC resulting from autonomous taxation assessed, the PEC, i.e., that system does not permit, therefore, deducting a portion of the advance payments made on account of IRC that will be due at the end – the PEC – from a portion of the IRC finally assessed – the autonomous taxation.
That is, that, either intentionally or inadvertently, the IRC Model 22 declaration and its articulation with the programming of the AT's computer system prevents deduction from the collection relating to the autonomous taxation rates in IRC, recorded in field 365 of table 10 of the Model 22 declaration, the PEC still to be deducted from the IRC collection, starting with the oldest ones, and that, in the present case, the AT's computer system prevented the claimant from entering the amount relating to the said autonomous taxation rates in IRC, expunged, i.e., deducted, to the extent of the IRC collection resulting from the application of these rates, from the PEC still available (starting with the oldest ones) for set-off against the IRC collection, which resulted in an overpayment of tax by reference to the taxable years 2012 and 2013 in question here, in that accumulated PEC are more than sufficient to compensate, through their use, the collection of autonomous taxation in IRC for the years 2012 and 2013 in question here.
1.5 THE TAX AND CUSTOMS AUTHORITY responded, defending itself by means of a challenge, maintaining the decision and rejection in question.
With regard to the legal nature of autonomous taxation in IRC, it defends that this figure pursues various objectives, which range from the original purpose of preventing tax evasion and fraud – through undisclosed or undocumented expenses, or payments to entities located in jurisdictions with privileged tax regimes, to the substitution of taxation of accessory benefits in the form of representation expenses or allocation of vehicles to employees and members of corporate bodies, in the sphere of their respective beneficiaries – to the purpose of preventing the phenomenon referred to as "dividend washing" or burdening, by means of taxation, the payment of income considered excessive (which is supported in Articles 11 and 13 of Article 88 of the Code of Corporate Income Tax).
For which reason, it understands, it has an autonomous character resulting from the special configuration given to the material and temporal aspects of the taxable events, which imposes, in certain areas, the departure from or an adaptation of the general rules of application of IRC.
Therefore, it concludes, for the calculation base of advance payments only the IRC 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, whereby the calculation base corresponds to the amount of the IRC collection resulting from the taxable matter which is identified with the profit/income of the taxable person's financial year, which is equivalent to saying that it corresponds to the amount of IRC 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 Code.
From which it follows that the credit for the amounts paid as special advance payments does not constitute an enforceable credit which IRC taxpayers may dispose of, and therefore the Claimant's pretension to deduct the amount paid as special advance payment from the collection produced by autonomous taxation in the years 2012 and 2013 is entirely without basis.
1.6. Having been notified of the Tribunal's intention to dispense with the arbitral tribunal meeting provided for in Article 18 of the RJAT, the parties raised no objection and submitted their pleadings, in which they maintained the positions already previously sustained.
PRELIMINARY MATTERS
The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2.9 of the RJAT.
The parties have legal personality and capacity, are shown to be legitimate, and are regularly represented.
The proceedings do not suffer from any defects that would invalidate it.
- FINDINGS OF FACT
With relevance to the decision on the merits, the Tribunal considers the following facts to be proven:
- The Claimant, A… – SOCIEDADE GESTORA DE PARTICIPAÇÕES SOCIAIS, S.A. is a management company for shareholdings included in the general regime of taxation under Corporate Income Tax (IRC), and is subject to taxation under the Special Regime for Group Taxation (RETGS) provided for in Article 69 of the Code of Corporate Income Tax (CIRC), being itself the parent company of the group constituted by the following companies:
C… – …, Lda.;
D… – …, S.A.;
E… – …, S.A.;
F… – …, S.A.;
G… – …, S.A.;
H…, S.A.; and
I… – …, S.A.,
-
On 31 May 2013 the Claimant submitted the IRC Model 22 declaration of its tax group subject to the Special Regime for Group Taxation for the financial year 2012, and at that time proceeded to self-assess autonomous taxation in IRC for that same year 2012, in the amount of €53,911.36;
-
In the declaration filed for the financial year 2012, the A… Group determined an amount of tax to be recovered of €18,267.61, in the following manner:
| 1. Withholdings at source borne | €78,850.37 |
| 2. Autonomous taxation in IRC | €53,911.36 |
| 3. Municipal surcharge | €6,671.40 |
| 4. Amount to be reimbursed (4=1-2-3) | €18,267.61 |
-
On 18 September 2014, the Claimant filed the IRC Model 22 income return declaration of the tax group, with reference to the taxable period 2013, and also proceeded to self-assess autonomous taxation in IRC for that period 2013, in the amount of €70,815.83;
-
For the financial year 2013, the tax group determined an amount of tax to be recovered of €21,009.43, based on the following amounts:
| 1. Withholdings at source borne | €96,006.77 |
| 2. Autonomous taxation in IRC | €70,815.83 |
| 3. Municipal surcharge | €4,181.51 |
| 4. Amount to be reimbursed (4=1-2-3) | €21,009.43 |
-
The value of special advance payments made by the Group companies was, in 2012, €409,558.89 and, in 2013, €405,691.09;
-
The IRC Model 22 declaration and its articulation with the programming of the AT's computer system prevents deduction from the collection relating to autonomous taxation rates in IRC, recorded in field 365 of table 10 of the Model 22 declaration, of the PEC still to be deducted from the IRC collection.
-
On 28 May 2015 the Claimant filed an administrative claim against the aforementioned self-assessments relating to the years 2012 and 2013;
-
On 13 October 2015 the claimant was notified of the rejection of the aforementioned administrative claim;
Unproven Facts
No facts with relevance to the assessment of the merits of the case were found to be unproven.
Reasoning of the Decision on Findings of Fact
The conviction regarding the facts deemed to be proven was based on documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.
- ISSUES FOR DECISION
The main issue submitted for the Tribunal's consideration is whether the Claimant, as manager of the so-called A… Group, composed of the companies identified in the findings of fact, has the right to proceed with the deduction, also from the IRC collection produced by the application of autonomous taxation rates, of the said PEC, and, if so, whether the IRC (self-)assessments for the financial years 2012 and 2013 are illegal.
Also submitted to the Tribunal is, as a subsidiary matter, in the event that it gives a negative answer to the first question, the question of the possible illegality and consequent annulment of the assessment of autonomous taxation, due to the absence of legal basis for its assessment.
The Tribunal, should it give an affirmative answer to this question, is also called upon to pronounce on the right to compensatory interest on the amounts paid as a result of the (self-)assessments in question.
It is thus necessary to decide on the merits of the request for arbitral decision on the IRC assessments sub judice and the possible right of the Respondent to compensatory interest.
Let us proceed:
In recent decades, profound reforms of business taxation have been carried out, both at the European and Portuguese levels. It is commonly recognized the weight that businesses have in the economy of each country and, therefore, the trend has been to reduce the taxation of corporate income.
In Portugal, businesses are taxed fundamentally on their actual income, calculated in accordance with the provisions of the CIRC.
Taxation regimes have significant impact on business decisions, both present and future.
This consideration will be made taking into account income tax proper, as well as autonomous taxation, which applies to certain expenses in the form and to the extent that the legislator understood to be apt to pursue objectives of combating tax evasion.
The system of autonomous taxation is the result of numerous legislative amendments. The subjection of certain expenses to autonomous taxation arose with Decree-Law No. 192/90 of 2 June, in a context of penalizing taxation of undisclosed or undocumented expenses incurred by businesses.
It was only with the 2001 tax reform that autonomous taxation was extended to representation expenses and vehicle expenses and, later, to a very diverse set of circumstances in the terms now provided for in the CIRC in Chapter IV relating to rates, together with the State Surcharge.
Taking into account Article 88 of the CIRC, autonomous taxation applies, roughly, to the following circumstances: undocumented expenses; vehicle charges; representation expenses; allowances; amounts paid to non-residents; profits distributed by entities subject to IRC to taxable persons who benefit from an exemption; costs or charges relating to indemnifications or any compensation owed not related to the contractual relationship; and also costs or charges relating to bonuses and other variable remuneration paid to managers, administrators or managing partners.
At first sight, there appears to be no relationship whatsoever between these expenses, neither as to their object nor as to their beneficiary, of what we shall refer to generically as expenses (the only exception being, in fact, distributed profits).
The State Budget Law for 2014 introduced some amendments to the provision of autonomous taxation, which, however, were not only not particularly relevant but do not contribute to the present discussion.
There is autonomous taxation provided for in the CIRC and autonomous taxation provided for in the CIRS. As regards IRC, which is the subject matter here, Article 23-A, No. 1, letter a), of the CIRC, in the wording of Law No. 2/2014 of 16 January, leaves no room for any reasonable doubt, corroborating what already previously resulted from the literal meaning of Article 12 of the same Code.
The collection provided by them constitutes collection of the respective tax, being subject to the generality of norms provided for in the codes referred to, potentially applicable.
Contrary to what is sometimes argued, autonomous taxation does not constitute, in its genesis, special taxes on consumption, with each expense corresponding to a taxable event of instantaneous formation.
First, because such a conception would force, in IRC, that its respective constitutionality be assessed in light of the principle of taxation on the actual income of businesses and, on the other hand, because there is not truly here a manifestation of wealth that should be taxed, besides which many of the expenses subject are also deductible, thus recognizing that they are related to the business activity and not to expenses that manifest taxable capacity.
Autonomous taxation is based on the presumption of the existence of income that ceased to be taxed, not only under IRC but also under IRS (Personal Income Tax). As explained in the decision of the Arbitral Tribunal issued No. 209/2013-T, which decided negatively on the question of the deductibility of autonomous taxation as a fiscal cost under IRC, "it is a form of, indirectly and through the expense, taxing the income".
The question that is of interest to resolve is, regardless of the nature of the tax to which autonomous taxation refers, whether the amount of autonomous taxation is "determined in accordance with Article 90 of the CIRC", for if it is, it must be concluded that, to determine the deduction limit, regard is had to the collection arising from autonomous taxation.
Article 90 of the CIRC refers to the forms of assessment of IRC, by the taxable person or by the Tax Administration, applying to the determination of the tax owed in all situations provided for in the Code, including additional assessment (No. 10).
Therefore, it also applies to the assessment of the amount of autonomous taxation, which is determined by the taxable person or by the Tax Administration in accordance with Article 90 of the CIRC, there being no other provision that provides for different terms for its assessment. Its autonomy is restricted to the applicable rates and the respective taxable matter, but the determination of its amount is effected in accordance with Article 90.
The differences between the determination of the amount resulting from autonomous taxation and that resulting from taxable profit, rests on the determination of taxable matter and rates, provided for in Chapters III and IV of the CIRC, but not on the forms of assessment, which are provided for in Chapter V of the same Code and are common to autonomous taxation and the remainder of the taxable matter of IRC.
Therefore, since Article 90 is inserted in this Chapter V, there is no legal support for making a distinction between the collection arising from autonomous taxation and the remainder of the IRC collection, because the rates and the forms of determining the taxable matter are distinct.
Furthermore, in the possible anti-abuse nature that some autonomous taxation provisions assume, an explanation cannot be seen for their exclusion from the respective collection, as there is no legal support for excluding the deductibility from the collection arising from corrections based on provisions of an undisputedly anti-abuse nature.
It is true that, as the Tax and Customs Authority notes, autonomous taxation aims to discourage certain taxpayer behaviors capable of affecting taxable profit and its deterrent force will be attenuated with the possibility of the respective collection being subject to deductions.
The CIRC refers, in its current version, expressly to autonomous taxation only in five articles, namely in Article 12 (by excluding autonomous taxation from the IRC exemption applicable to companies covered by the transparent taxation regime), in Article 23-A, No. 1 (by clarifying that autonomous taxation is not deductible for the purpose of determining taxable profit), in Article 88 (by establishing the rates and delimiting the taxable matter of autonomous taxation), in Article 117, No. 6 (with regard to the obligation to file returns of entities exempt from IRC under Article 9, where autonomous taxation is involved) and in Article 120, No. 9 (regarding the periodic income return). There is no other express reference to autonomous taxation in the CIRC.
Moreover, the current wording differs from that which was in force until 31.12.2013 only in the novelty of Article 23-A, which establishes that the following charges are not deductible for the purpose of determining taxable profit, even when accounted for as expenses of the taxable period, certain charges, the wording of letter a) being clarifying: "IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits".
That is, not only does the legislator express that IRC includes autonomous taxation, but there are no express references to autonomous taxation in the CIRC, in particular in the chapters dealing with scope (Chapter I), assessment (Chapter V) and payment (Chapter VI), from which it must be concluded that they are subject, generically, to the other articles provided for in the CIRC.
The part of the IRC collection that arises from autonomous taxation is calculated from the elements of the tax defined in Article 88 of the CIRC inserted in 'Chapter IV – Rates'.
This article delimits the taxable matter of autonomous taxation, on the one hand, and, on the other hand, enumerates the rates of autonomous taxation, which are various, depending on the nature of the taxable matter to which they apply; because they depend on the type of taxable person (e.g., entity without profit-making purposes, exempt entities, entity that carries on a commercial, industrial or agricultural activity as its principal activity), and they also depend on the economic performance of the IRC taxable person, assuming different percentages when a fiscal loss or profit is determined. The collection arising from autonomous taxation is a function of the taxable result, being calculated from two expressions which are the product of the taxable matter by a rate dependent on the taxable result: a higher rate when a fiscal loss is determined and another, lower, when the taxable result is positive.
Thus, the collection arising from autonomous taxation cannot be determined instantaneously and immediately following the incurrence of the expense, as it depends on the result itself which is – contrary to what the AT claims and with support in the decision issued in Arbitral Proceedings 113/2015-T – of successive formation.
Also some expenses that do not coincide with the expenses that they extinguish and that are subject to autonomous taxation, namely depreciation, are of continuous formation.
From the current wording of Article 23-A, No. 1, letter a), of the CIRC, which was given by Law No. 2/2014 of 16 January, it is concluded, by literal interpretation, that autonomous taxation is IRC (is a part of IRC).
Indeed, the positioning of the two commas in the wording of the law, one before and another after the expression "including autonomous taxation" contained in the current wording of the cited Article 23-A, No. 1, letter a), of the CIRC, excludes the possibility of defending that autonomous taxation is not (part of) IRC.
The same conclusion follows from the wording of Article 12, when it provides that "companies and other entities to which, in accordance with Article 6, the transparent taxation regime is applicable, are not taxed under IRC, except as to autonomous taxation", by presenting autonomous taxation as a subset of IRC.
The purpose of autonomous taxation is dual. It aims to tax actual income, thereby correcting taxable income to bring it closer to that income and, at the same time, seeks to penalize taxable persons who through the realization of certain expenses end up reducing taxable income.
But it is not, however, the purpose, nature or scope of the tax that is the essential question here. What matters in this case to know, in our opinion, refers exclusively to the manner in which the assessment (of the part of the tax that arises) from autonomous taxation is made and whether they are included in No. 1 of Article 90 of the CIRC, or whether they are outside it.
Recognizing the matter in question as undisputedly complex, the result of a succession of legislative amendments in a context of economic degradation, through which the system, as can be read in Judgment 617/12 of the Constitutional Court, shows its dual nature, with an aggravated rate of autonomous taxation for certain special situations that are sought to be discouraged, creating a kind of presumption that these costs do not have a business cause and, therefore, are subject to autonomous taxation. "In summary", says the CC, "the cost is deductible, but autonomous taxation reduces its tax benefit, since here the tax base is not a net income, but rather a cost transformed – exceptionally – into an object of taxation.".
The taxable event is the very realization of the expense, emphasizes that decision, but taxation still occurs within the scope of IRC. It is not only in the case of autonomous taxation, moreover, that income taxes contemplate single-obligation elements, as happens with final withholding rates of IRS, but we are not strictly here facing a single-obligation tax, rather facing taxable events that, affecting deductible expenses, are indissolubly linked to the determination and assessment of the tax.
The truth, therefore, is that, regardless of what one considers to be the understanding underlying the nature of autonomous taxation of expenses in IRC, it is always the case that the amount collected by way of such autonomous taxation is collected under the heading of IRC.
More: the legal regime of autonomous taxation in question only makes sense in the context of taxation under IRC. That is, divorced from the legal regime of this tax, they would, completely, lack sense. Their existence, their purpose, their explanation, ultimately, their juridical nature, is only comprehensible and acceptable within the framework of the legal regime of IRC. For even if one accepted that the taxable event is each of the singular expenses legally classified, the fact remains that these are not, qua tale, the final object of taxation, the reality that it is intended to burden with the tax.
If that were the case, all the expenses provided for would have to be taxed, carried out by all subjects and not only by some of them.
That is, autonomous taxation is indissoluble from the subjects of the respective income tax, and, more specifically, from the economic activity carried out by them, which is even more evident when one thinks of the link that, although it has varied in successive legislative amendments, autonomous taxation had and still has some link with the deductibility – and the actual deduction – of the taxed expenses.
This circumstance, it is believed, is elucidative of the interweaving existing between those and IRC (in this case), and justificatory not only of their inclusion in the CIRC, but equally of their integration, of full right, as part of the legal regime of IRC.
In fact, not only are the expenses realized by IRC taxable persons that are subject to the imposition of autonomous taxation in such a framework, but such expenses will only be so, as a rule (without prejudice, it is reiterated, to legislative advances and retreats in this matter) if those persons elect them as deductible expenses in the determination of the taxable matter of such tax.
Another argument that, for the legislator, autonomous taxation will integrate, effectively and undisputedly, the regime of IRC, being owed under the heading of this tax is that which results from Article 12 of the CIRC, already in force at the date of the facts, which provides that: "Companies and other entities to which, in accordance with Article 6, the transparent taxation regime is applicable, are not taxed under IRC, except as to autonomous taxation.".
On the other hand, and reinforcing what has been stated, Article 3 of the recent Law 2/2014 of 16 January, came to add Article 23-A of the CIRC, which succeeds the former Article 45 and to which, for what has been said, interpretative character should be conferred, in the matter that concerns us, came to provide that:
"1 — The following charges are not deductible for the purpose of determining taxable profit, even when accounted for as expenses of the taxable period: a) IRC, including autonomous taxation, and any other taxes that directly or indirectly affect profits".
That is, and in sum, the legislator understood, and continues to understand, that autonomous taxation integrates IRC, if not as a tax stricto sensu, at least in terms of being part of the same unitary fiscal regime.
It should, moreover, be borne in mind that the norm of Article 45 of the CIRC is situated in a context of broad legislative discretion. That is, in the definition of what are deductible or non-deductible charges for tax purposes, the fiscal legislator enjoys broad discretionary power. Hence, it cannot be said that it is prohibited to the legislator, by the "nature" of autonomous taxation, to exclude it from deductible charges for tax purposes.
It is understood, in this way, that it will be legitimate for the legislator to include or exclude the autonomous taxation in question from that category of deductible charges for tax purposes, independently of the "nature" that doctrine or jurisprudence might discover in them.
The question, duly situated, will then be to determine what the legislator's intention is, as expressed in the legislative text, understood as a whole.
And from this perspective, the conjunction of the wording of Article 12 of the CIRC with Article 45/1/a) of the same, will leave little doubt as to the legislative understanding that autonomous taxation, if it does not constitute IRC stricto sensu, will certainly integrate the regime of that tax, and will be owed under that heading.
It should also be added that there is no principle obstacle to the legislator isolating certain types of income and applying specific or differentiated rates to them, as occurs, for example, in the cases provided for in No. 4 of the current CIRC.
Similarly, there is no principle obstacle to the tax in question being owed, assessed and paid, not as a function of a period (more or less long) of taxation, but by force of the occurrence of instantaneous events, as already occurs, for example, in cases of withholding at source with a definitive character (cf. Article 94/3 of the CIRC).
Besides, neither the result, apparently so counterintuitive and striking, of being able to be owed payment of tax by way of autonomous taxation that now concerns us, even in the case of non-existence of a (positive) income at the end of the taxable period, is a rare thing in the IRC regime.
In fact, in some of the already pointed cases of withholding at source as final, it may occur that the holder of income subject to that withholding has had expenses that exceed the income.
Also in the case of the operationality of some of the specific anti-abuse clauses (Articles 63 to 67 of the CIRC), by force of the consideration of costs, it may occur that taxable persons are taxed on a fictitious taxable profit, in that it may be a matter of the disregard of costs, actually borne, but disregarded as abusive. It may thus occur that a taxable person has to pay IRC, notwithstanding having actually had losses.
All that has been said evidences that the evolution of the legal regime of IRC has transmuted it, transforming it into a complex and multifaceted reality, at the most various levels, which is reflected, in the matter that concerns us in these proceedings, in such duality of nature, which does not, however, prejudice that it be considered that the system, despite being dual, is the same.
Put another way, it only makes sense to speak of a dual system if the system in question is still the same one. Otherwise one would speak not of a system of dual nature, but of two distinct systems, which, for all that has been said, will not be what occurs.
And, in the case at hand, the system will be the IRC regime, which, operating now by receipt, now by expense, aims at and pursues the proper purposes of that tax, including, evidently, the collection of revenue.
Recognized here are, evidently, those characteristics that doctrine has been pointing out for some years now to autonomous taxation in question, such as:
a) autonomous taxation only makes sense because costs/expenses, in most situations, rank as negative components of the IRC taxable profit and this is what motivates IRC taxable persons to rank as high a value as possible of such expenses to diminish the taxable matter of IRC, the collection and, consequently, the tax to be paid;
b) it is a matter of treating unfavorably those expenses that, by their nature, are easily diverted from private consumption to business;
c) it is intended to discourage this type of expense in taxable persons that present negative results, but that continue to evidence consumption structures difficult to reconcile with the financial health of their companies;
d) to shape the tax system so that it reveals a certain balance with a view to better distribution of the actual tax burden among taxpayers and types of income;
e) to materialize the recognition that it is not easy to determine the exact measure of the component of some of these expenses that corresponds to private consumption.
The autonomous taxation now in question is, as such, undoubtedly understood by the legislator as a form of obstructing certain abusive behaviors, which the normal functioning of the taxation system was incapable of preventing or which would be more onerous or laborious for the tax administration or, even, possibly, for the taxpayer.
This anti-abuse character of autonomous taxation will be not only consistent with its "anti-systemic" nature (as happens with all norms of the kind), but also with a presumptive nature.
In this light, as is well noted in the decision issued by the Arbitral Tribunal in proceedings 187/2013-T, autonomous taxation in analysis will then have underlying a presumption of partial business nature of the expenses on which it impacts, based on the aforementioned circumstance that such expenses lie in a gray area that separates what is business expense, productive, from what is private expense, consumption, and notably, in many cases, the expense will even have in reality a dual nature (part business, part personal).
Confronted with this difficulty, the legislator, instead of simply excluding its deductibility, or reversing the burden of proof of the relation of the expenses in question with business activity, chose to establish the regime currently in force.
This presumption of partial business nature should, in coherence, be considered as encompassed by the possibility of waiver arising from Article 73 of the LGT, either by the taxpayer or by the Tax Administration, which appears to be in accordance with adequate distribution of the burden of proof, in that as autonomous taxation in question impacts on expenses whose relation with the activity pursued may not, from the outset, be evident, it will be the taxpayer who will be better positioned to demonstrate that this requirement is verified in concreto.
For its part, the Tax Administration itself, should it see fit and consider that the case justifies the inherent expenditure of resources, may always demonstrate that, with regard to the expenses in question, and notwithstanding that autonomous taxation has impacted on them, the general requirement of Article 23/1 of the CIRC is not met, namely its indispensability for the realization of income subject to tax or for the maintenance of the source of income.
In light of all that has been stated, we consider that autonomous taxation in question integrates the regime of IRC.
Having arrived here, let us turn to the question of knowing what is deductible from the collection resulting from autonomous taxation in IRC. The norm in question is that of Article 90 of the CIRS, it being letter a) that applies to assessment made by the taxable person (self-assessment).
This was the wording of the article resulting from Law No. 3-B/2010 and in force until 31.12.2013:
1 — The assessment of IRC proceeds on the following terms:
a) When the assessment is to be made by the taxable person in the declarations referred to in Articles 120 and 122, it is based on the taxable matter therein contained;
(...)
2 — To the amount determined in accordance with the preceding number the following deductions are made, in the order indicated:
a) That corresponding to double international taxation;
b) That relating to tax benefits;
c) That relating to special advance payment referred to in Article 106;
d) That relating to withholdings at source not capable of compensation or reimbursement in accordance with applicable legislation.
3 — (Repealed by Law No. 3-B/2010-28/04, producing effects from January 2011, as regards the simplified regime - No. 2 of Article 92 of the law referred to).
4 — To the amount determined in accordance with No. 1, for the entities mentioned in No. 4 of Article 120, only the deduction relating to withholdings at source is to be made when these have the nature of tax withheld on account of IRC.
5 — The deductions referred to in No. 2 relating to entities to which the transparent taxation regime established in Article 6 is applicable are imputed to the respective shareholders or members in the terms established in No. 3 of that article and deducted from the amount determined on the basis of the taxable matter that has taken into account the imputation provided for in the same article.
6 — When the special regime for group taxation is applicable, the deductions referred to in No. 2 relating to each of the companies are made on the amount determined for the group, in the terms of No. 1.
7 — From the deductions made in accordance with letters a), b) and c) of No. 2 no negative value can result.
8 — To the amount determined in accordance with letters b) and c) of No. 1 only the deductions of which the tax administration has knowledge and which can be made in accordance with Nos 2 to 4 are made.
9 — In cases where the provision of letter b) of No. 2 of Article 79 is applicable, assessments are made annually on the basis of the taxable matter provisionally determined, and with regard to the assessment corresponding to the taxable matter for the entire assessment period, the difference ascertained is to be charged or cancelled.
10 — The assessment provided for in No. 1 can be corrected, if necessary, within the period referred to in Article 101, the differences ascertained being then charged or cancelled.
There is no other article in the CIRC besides Article 90 that distinguishes the process of assessment of autonomous taxation from the remainder of IRC. And, in these terms, the assessment of both – autonomous taxation and the remainder of IRC – is single and has the same legal support.
Autonomous taxation does not result from a distinct process of assessment of the tax.
It being understood that autonomous taxation is (part of) IRC, it follows that there is a single IRC assessment, including the part arising from autonomous taxation.
There is a single IRC assessment that comprises two parts: the assessment of autonomous taxation and that of the remainder of IRC, each with taxable matter determined in its own way and with its own taxation rates, but both assessed in accordance with Article 90 of the CIRC. There being a single assessment, it is concluded that the part of collection arising from autonomous taxation is an integral part of the IRC collection.
On the contrary, no other article of the CIRC contains a reference to the assessment of autonomous taxation as a distinct process. To accept that the collection of autonomous taxation is not included in Article 90 of the CIRC would be to accept that there is a gap in the law and, being this a fiscal law, it does not permit supplementation. And thus, the Tax and Customs Authority may have erred, by not permitting the deduction of the amounts relating to the PEC which the Claimant had the right to deduct from the collection.
To accept that the assessment of autonomous taxation is outside Article 90, No. 1 of the CIRC and, therefore, to exclude from its collection the deductibility of the PEC provided for in letter c) of No. 2, would oblige the taxpayer to pay a tax whose assessment is not made in accordance with the law, contrary to No. 3 of Article 103 of the Constitution of the Portuguese Republic and the principle of tax legality which the General Tax Law, in its Article 8, No. 2, letter a), establishes.
If the Tax and Customs Authority assumed that the collection of autonomous taxation was calculated outside Article 90 of the CIRC, it should indicate on the basis of which assessment norm it did so.
There being no norm on assessment of autonomous taxation separated, it seems it must be accepted that the IRC collection encompasses it, being included in Article 90, No. 1 of the CIRC, and therefore the special advance payment referred to in letter c) of No. 2 is deductible.
Note that, indeed, in the following numbers of that Article 90 the legislator was concerned with enumerating various exceptions and limits to the rules of deductibility of number 2. In number 4, when it provides that "only the deduction relating to withholdings at source is to be made when these have the nature of tax withheld on account of IRC", it is revealing: it is understood that thus, it is so, because it is in the IRC collection that it is sought to deduct them, or, in number 7, when it prescribes that from the deductions from collection a), b) and c) of No. 2 no negative value can result, generally and without distinguishing the collection resulting from the application of autonomous taxation rates.
In none of them – and this would undoubtedly be the right place – and in no other norm is there any reference to any limitation on the deductibility of special advance payments from the part of the IRC collection that results from autonomous taxation, and it is therefore necessary to conclude that the legislator did not wish to do so.
Note that, although Article 90 was amended with Law No. 2/2014 of 16 January, which republished the CIRC, what has been said here not only persists but, from an interpretative point of view, is even reinforced, as the legislator added some limitations and exceptions to the deductions from collection provided for in number 2 and again did not refer to the part of collection that results from the application of autonomous taxation rates.
It is, however, verified that the computer system does not permit the deduction of the PEC from the part of the IRC collection arising from autonomous taxation. The fact that the forms of determining the taxable matter and the rates of autonomous taxation in IRC are established separately and are different from those of the remainder of IRC does not seem to be sufficient reason, nor to have legal support, for the existing computer solution.
References to the provision of Article 16 of the CIRC seem to add nothing to the resolution of the question at hand.
This article does not contain the elements that permit drawing up the model 22 declaration, choosing which lines appear in that declaration, nor the order in which they should be presented, nor how the various lines are related, that is, it does not permit fixing the formulas underlying the taxpayer's completion of the cells of the declaration that the Tax and Customs Authority through its services, created therein.
We would have to search in other articles of the CIRC for such elements that would permit drawing up the form and establishing the calculations that would lead to knowledge of the tax collection.
To consider that the assessment of autonomous taxation is outside the collection that is calculated by Article 90, No. 1 of the CIRC, is to accept that such an understanding would be provided for in another legal provision and, as this does not exist, the assessment cannot but be effected within the scope of Article 90 of the CIRC.
Thus, it must be accepted that the deduction of PEC from the IRC collection, necessarily including the portion arising from autonomous taxation, is permitted.
We rely, in this respect, on what was decided by the Arbitral Tribunal constituted as well as on the dissenting opinion issued in Proceedings 697/2014-T.
Having arrived here, it is necessary to analyze the question of No. 21 of Article 88 of the CIRC, introduced by the Law that approved the State Budget for 2016 (Law 7-A/2016 of 30 March).
In fact, several numbers were added by this Law to Article 88 of the CIRC, which refers to autonomous taxation, among them number 21, according to which "The assessment of autonomous taxation in IRC is effected in accordance with the provisions of Article 89 and is based on the values and rates that result from the provisions of the preceding numbers, no deductions being made to the overall amount determined."
And, in Article 135, the legislator provides that "the wording given by this law to No. 6 of Article 51, to No. 15 of Article 83, to No. 1 of Article 84, to numbers 20 and 21 of Article 88 and to No. 8 of Article 117 of the IRC Code is of an interpretative nature."
The Tax Administration understands that the new wording of Article 88 prevents the deduction, in accordance with Article 90, of special advance payments from the collection that results from autonomous taxation.
Which, in our understanding, is not evident. Article 90 was not amended, it continues to refer to the IRC collection and, for all that has been stated above, the collection that results from the application of the norms of Article 88 is IRC collection.
What number 21 of Article 88 prohibits is that, to this collection, any deductions be made until such moment as, with the overall IRC collection determined, the deductions of Article 90 are made.
It is accepted that the legislator did wish, in fact, to prohibit that the deductions of Article 90 be made from the part of the IRC collection that results from autonomous taxation, but if that was so, it should have said so clearly, and would have done well to amend Article 90 and not Article 88.
Which leads us to conclude that, if the regime was not clear before the publication of Law 7-A/2016 of 30 March, it continues not to be so.
It is not for us, however, to analyze here in greater detail the regime that currently results from the provision of number 21 of Article 88 of the CIRC.
It is for us, however, because IRC assessments of the financial years 2012 and 2013 are at issue, to analyze what effect that number and the interpretative character attributed by the legislator to its introduction in 2016 have on the facts at issue.
There is in force in national substantive codification a principle of non-retroactivity, which is constitutionally established as to tax law.
It happens that an interpretative law is not said to be, by Article 13, No. 1 of the Civil Code, retroactive.
In accordance with the terms prescribed therein, in order that a new law – such as, in the case at hand, number 21 of Article 88 of the CIRC – can truly be interpretative, two requirements are necessary: that the solution of the prior law be controversial or at least uncertain. And it is a fact that the decision that is incumbent on this Tribunal is controversial in character.
It is, however, also necessary that the solution defined by the new law be situated within the scope of the controversy and be such that the judge or interpreter could have arrived at it without exceeding the limits normally imposed on the interpretation and application of the law.
Therefore, if the judge or interpreter, in the face of older texts, could not feel authorized to adopt the solution that the new law comes to establish, then this is decidedly innovative.
It is not, however, sufficient that the legislator expressly confer interpretative character on the new law for it to apply to the controversial question that had arisen before the entry into force of the new allegedly interpretative law for the judge to be obliged to apply it to the concrete case.
It is necessary that the judge feel authorized, in the face of the old text, to adopt the solution that the law now advocates.
An interpretative norm, therefore, is a norm that does not alter any content or element of the interpreted norm, comes only to translate its meaning.
A norm that alters the meaning, content or scope of the interpreted norm will not be interpreting, but rather modifying the rule, creating a new norm, instituting new rights, duties and obligations.
Being certain that even the interpretative norm must respect the rights acquired under the vigency of the interpreted norm, particularly in matters as to which the prohibition of retroactivity is especially enshrined in the Constitution, as is the case with tax law, whose retroactivity is prohibited by No. 3 of Article 103 of the CRP.
In this context, the issuance by the legislator of an interpretative law, with retroactive effects, is only conceivable when it undoubtedly limits itself to simply reproducing (= producing anew), albeit with another enunciation, the interpreted normative content, without modifying or limiting its meaning or scope.
This, it is well perceived, is a hypothesis of difficult conception, almost inconceivable, except on the theoretical plane, still more when it is considered that the content of a normative enunciation demands, in general, systematic interpretation, and cannot be defined in isolation. To interpret a norm is to interpret an entire system: any exegesis commits, directly or obliquely, an application of the totality of Law.
In the case sub judice, for all that has been already made explicit above, it is understood that the text of the law in force at the date of the facts in question did not permit the conclusion that the deduction of special advance payments from the part of the IRC collection that resulted from autonomous taxation was prohibited.
This is because, as we have said above, the legislator in no place pointed to this solution and, in Article 90 of the CIRC, did not distinguish, as to the deductions possible from the IRC collection, that which resulted from autonomous taxation from the remainder. And where the law does not distinguish it is not for the interpreter to distinguish.
Moreover, as stated above, it is understood that this solution is still not, with sufficient clarity, that which results from number 21 of Article 88 of the CIRC and therefore doubt still persists.
The legislator, in fact, in Article 90, as to the possibility of the deductions provided therein, continues not to distinguish, as to the deductions possible from the IRC collection, that which resulted from autonomous taxation from the remainder. If it is what it intends to do with the new number 21 of Article 88, the wording is not clear and the article is systematically poorly positioned. The legislator could and should have been clearer as to the deductions it prohibits and the dispute to which it intended to put an end when it declares that it attributes interpretative character to this – among other – new norm.
We understand, therefore, that number 21 of Article 88 of the CIRC does not have interpretative character as to the question under discussion, not applying to facts occurring before its entry into force, namely, to the facts and assessments sub judice.
In such terms it is concluded that the acts of self-assessment of IRC for the financial years 2012 and 2013, to the extent corresponding to the non-deduction of part of the IRC collection of the A… Tax Group suffer from the defect of violation of law, which justifies their annulment, the same occurring with the decision on the administrative claim, insofar as it did not acknowledge this illegality.
Therefore, the analysis of the question raised by the Claimant regarding the alleged possible illegality and consequent annulment of the assessment of autonomous taxation, due to the absence of legal basis for its assessment, is prejudiced.
Compensatory Interest
Finally, let us deal with what concerns the request formulated by the Claimant for reimbursement of the amounts which here have already been judged to have been wrongfully (self-)assessed and paid and the claimed right of the Claimant to compensatory interest on the amounts paid as a result of the (self-)assessments in question.
In accordance with the provision of letter b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim, which is not subject to appeal or challenge, binds the Tax Administration from the end of the period provided for appeal or challenge, the latter being obliged, in the exact terms of the proceeding of the arbitral decision in favor of the taxable person and until the end of the period provided for the voluntary execution of the sentences of the tax courts, to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the effect in harmony with the provision of Article 100 of the LGT [applicable by force of the provision of letter a) of No. 1 of Article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of an administrative claim, judicial challenge or appeal in favor of the taxable person, to the immediate and full restoration of the legality of the act or situation that is the object of the dispute, comprehending the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".
Although Article 2, No. 1, letters a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in the CAAD, making no reference to condemnatory decisions, it should be understood that the competencies thereof comprise the powers which, in judicial challenge proceedings, are attributed to tax courts, this being the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first guideline, that "the tax arbitration process should constitute an alternative procedural means to judicial challenge proceedings and to actions for the recognition of a right or legitimate interest in tax matters".
Now, it is settled that the judicial challenge proceeding, although essentially a proceeding for the annulment of tax acts, admits the conviction of the Tax Administration in the payment of compensatory interest, as results from the provision of Article 43, No. 1 of the LGT and Article 61, No. 4 of the CPPT.
Thus, No. 5 of Article 24 of the RJAT, when it states that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitration process.
It is therefore necessary to assess the request for reimbursement of the amount wrongfully paid, plus compensatory interest.
In the case at hand, it is manifest that, as a result of the illegality of the assessment acts, there is a need for reimbursement of the tax paid, by force of the aforementioned Articles 24, No. 1, letter b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out".
As to interest, the substantive regime of the right to compensatory interest is regulated in Article 43 of the LGT, which establishes, as far as is of concern here, that "Compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there has been an error attributable to the services from which results payment of the tax debt in an amount greater than that legally due. 2 – It is also considered that there is an error attributable to the services in those cases in which, despite the assessment being carried out on the basis of the taxpayer's declaration, the latter has followed, in its completion, the general guidance of the tax administration, duly published."
Now, in the case at hand, the illegality of the self-assessments is entirely attributable to the AT, the Respondent, in light of what was above determined as proven concerning the structure of the IRC Model 22 declaration in the AT's computer system, an organization that is, naturally, entirely the responsibility of this body, which did not permit the Claimant to carry out the self-assessment in the terms which here have been judged to be the legal ones.
On the other hand, also the maintenance of the illegal situation, i.e., the decision on the administrative claim is attributable to the Tax Administration, which rejected it of its own motion.
Having resulted from the self-assessments in question tax to be recovered, it should be understood that payment is made from the date of submission of each of those declarations.
Consequently, the Claimant is entitled to compensatory interest, in accordance with Article 43, No. 1 of the LGT and 61 of the CPPT, from 1 September 2013 as to €53,911.36, and from 1 September 2014 as to €70,815.83, at the legal supplementary rate, in accordance with Articles 43, Nos 1 and 35, No. 10 of the LGT, Article 24, No. 1 of the RJAT, Article 61, Nos 3 and 4 of the CPPT, Article 559 of the Civil Code and Ordinance No. 291/2003 of 8 April (or such other ordinance as may alter the legal rate), from those dates until full payment.
- DECISION
In light of the foregoing, it is decided to judge the Claimant's main claims in their entirety to be well-founded and, in consequence:
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to annul, as illegal, the self-assessments in question;
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to condemn the Respondent to reimburse the Claimant in the amount of €124,727.19 and, moreover, to pay it compensatory interest at the legal supplementary rate, counted from 1 September 2013 as to €53,911.36, and from 1 September 2014 as to €70,815.83, until full and complete payment.
The value of the proceedings is fixed at €124,727.19 (one hundred and twenty-four thousand, seven hundred and twenty-seven euros and nineteen cents) in accordance with the provisions of Articles 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, No. 1, letter a) of the CPPT and 306 of the CPC.
The amount of costs is fixed at €3,060.00 (three thousand and sixty euros), under Article 22, No. 4 of the RJAT and Table I attached to the RCPAT, at the charge of the Respondent, in accordance with the provisions of Articles 12, No. 2 of the RJAT and 4, No. 4 of the RCPAT.
Let notification be made.
Lisbon, 28 June 2016,
The Arbitrators,
José Baeta de Queiroz
Eva Dias Costa
Filomena Oliveira
Text drawn up by computer, in accordance with Article 131, No. 5 of the Code of Civil Procedure, applicable by reference of Article 29, No. 1, letter e) of the RJAT.
[1] As to the legal provisions, we shall refer, whenever there is no express caveat, to the wording of the CIRS that was in force until 31.12.2013, taking into account the transitional provisions of Article 12 of Law No. 2/2014 of 16 January.
[2] We say as a rule because there are today, it is known, exceptions. Such is the case of vehicle expenses, which are subject to autonomous taxation even though they are not deductible (ex. depreciation of vehicles whose acquisition cost exceeds the deductibility limit – the accounting depreciation of the part of cost above the limit is also subject to autonomous taxation).
[3] See, in this respect, the teachings of Baptista Machado, in Introduction to Law and to the Discourse of Legitimacy, pp. 246 et seq.
[4] Cf. Juarez Freitas, Systematic Interpretation of Law, SP, Malheiros, 1995, p. 47.
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